A federal judge for the District of Minnesota recently dismissed General Motors’ (“GM”) motion to dismiss for failure to state a claim regarding an alleged unlawful modification to a dealer’s agreement. The dispute involves the major car manufacturer and an auto dealer, Shakopee Chevrolet (“Shakopee”), located to the west of the Twin Cities area.Shakopee Chevrolet Inc. v. Gen. Motors LLC, 2021 WL 1785229 (D. Minn. May 5, 2021). Shakopee served as a GM dealer pursuant to a sales and service agreement, which must be renewed every five years, per GM’s customary practice. The agreement included a satisfactory performance provision that required the dealer to maintain a baseline of sales, determined using an index known as the Retail Sales Index (“RSI”). A dealer’s RSI was calculated based on the dealership’s area of primary responsibility (“APR”), a geographic area listed in the agreement.
Per the 2010 agreement, Shakopee had an APR of seven census tracts. The 2015 agreement retained the same APR and allowed GM sole discretion to make modifications “consistent with dealer network planning objectives.” In 2016, GM proposed a change via a notice, which would expand Shakopee’s APR to a thirteen-census tract area. Shakopee objected, arguing that the change violated Minnesota Statutes, and requested to resolve the dispute through the mechanism provided in the agreement. GM allegedly refused to participate in the process. In September 2020, when the 2015 agreement was set to expire, GM provided Shakopee with a contract for execution, which included the additional six tracts proposed in the 2016 notice. Subsequently, in October 2020, GM notified Shakopee that the franchise relationship would be terminated if Shakopee failed to execute the 2020 agreement and APR notice.
Shakopee filed a complaint in state court alleging three counts: (1) GM violated Minnesota Statutes §§ 80E.13(k), 80E.135, subd. 1, and 80E.12(j) due to its attempt to expand the APR; (2) GM violated Minnesota Statutes §§ 80E.135, subd. 1 and 80E.12(j) because it conditioned the renewal of the 2020 agreement on Shakopee’s acceptance of the larger APR; (3) GM violated Minnesota Statutes § 80E.13(p) based on its disregard for “present patterns of motor vehicle sales and registrations.” GM removed the action to federal court and moved to dismiss for failure to state a claim under Rule 12(b)(6).
The court denied GM’s motion to dismiss, ruling that Shakopee had met its burden on all three counts. On the first count, Shakopee contended that because § 80E.13(k) prohibited manufacturers from threatening to alter a franchise in a way that would substantially impair the dealer’s sales or service obligations, GM had violated the statute by threatening contract termination when Shakopee did not agree to the expanded APR, which would have significantly impacted Shakopee’s operations and performance expectations. Shakopee also alleged that the 2016 notice was void as it was an attempt to nullify a provision of Chapter 80E in violation of § 80E.135. Shakopee further cited § 80E.12(j), which barred manufacturers from “prospectively assent[ing] to a release, assignment, novation, waiver, or estoppel whereby a dealer relinquishes any rights under sections 80E.01 to 80E.17.”
Although GM contended that in 2016, § 80E.13(p) exclusively governed changes to areas of sales and only prohibited arbitrary reductions to a dealer’s area, the court read the precedents to conclude that expansions could also violate § 80E.13(k) and that § 80E.13(p) did not bar § 80E.13(k) claims when the APR modification threatened a franchise’s existing rights and liabilities. Here, the court determined that GM had the discretion to modify Shakopee’s APR under the 2015 agreement, but up to a modest or proportionate increase, beyond which could trigger § 80E.13(k).
On the second count, the court found that, because of the finding that the 2016 APR modification may be unlawful, GM’s attempts to compel acceptance of the expanded APR by conditioning the renewal of Shakopee’s contract on such acceptance would similarly raise a plausible claim under §§ 80E.135 and 80E.12(j). The court therefore held that Shakopee had met its burden on this count.
Finally, on the third count, the court found that Shakopee had also met its burden. GM argued that § 80E.13(p), which forbade APRs assigned “arbitrarily or without due regard to the present pattern of motor vehicle sales and registrations within the dealer’s market,” was only relevant within 90 days of initial modification, which GM alleged occurred in 2016. Shakopee maintained that the 2016 change was not effective, and that even if it was, the language of the 2020 notice made clear that it superseded and replaced prior APRs, thus nullifying the 2016 APR’s legal effect. The court declined to rule on the application of § 80E.13(p) but instead concluded that Shakopee had made a plausible claim that the 2020 APR modification constituted a change and that GM attempted to impose this change even though Shakopee commenced a civil action within 90 days of receiving the notice.
In conclusion, the court rejected GM’s motion to dismiss because Shakopee pleaded facts sufficient to state a plausible claim that the 2016 APR modification violated Minnesota Statutes and that the 2020 modification should have been considered a change to a prior agreement. Still, the court noted that Shakopee would have a hurdle at the summary judgment stage as it must demonstrate injury sustained related to the alleged unlawful modification.
