American Honda Motor v. Richard Lundgren Inc

• Court: Court of Appeals for the First Circuit
• Decided: December 14, 1999
• Docket: 99-1921
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-1921



                 AMERICAN HONDA MOTOR CO., INC.,



                       Plaintiff, Appellee,



                                v.



              BERNARDI'S, INC. D/B/A BERNARDI HONDA,



                      Defendant, Appellant.


No. 99-1922



                 AMERICAN HONDA MOTOR CO., INC.,



                       Plaintiff, Appellee,



                                v.



       RICHARD LUNDGREN, INCORPORATED D/B/A LUNDGREN HONDA,



                      Defendant, Appellant.


APPEALS FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS


[Hon. Mark L. Wolf, U.S. District Judge]


Before



                     Lipez, Circuit Judge,

                                

                 Bownes, Senior Circuit Judge,

                                

                  and Saris*, District Judge.


Richard B. McNamara, with whom Gregory A. Holmes, Stephanie A.

Bray, Elizabeth M. Leonard, and Wiggin & Nourie, P.A. were on brief

for appellants.



     Richard J. Inglis, with whom Richard A. Gargiulo, Marielise

Kelly, and Gargiulo, Rudnick & Gargiulo were on brief for appellee.


December 14, 1999


_________________



     *Of the District of Massachusetts, sitting by designation.



  BOWNES, Senior Circuit Judge.  This appeal arises from

two interpretations of the Massachusetts Automobile Dealers' Act by

the district court.  Mass. Gen. Laws Ann. ch. 93B,  4 (West 1997)

(the Act).  

  The district court ruled that under  4(3)(l) of the Act

the relevant market area of an automobile dealer is "a circle, with

the dealer at the center, circumscribing the geographical area

comprising either two-thirds of the dealer's new vehicle sales or

two-thirds of its service sales, whichever is smaller."  The

district court also ruled that  4(3)(l) is the sole provision

within the Act under which an aggrieved dealer may seek relief from

an alleged arbitrary prospective dealership placement.  The

appellants, Bernardi Honda and Lundgren Honda, are dealers within

the definition of the Act.

  We have decided to certify both issues to the Supreme

Judicial Court of Massachusetts.

                                I.

  On March 3, 1998, the appellee, American Honda Motor Co.,

Inc., notified both dealers that it intended to award a new Honda

dealership in Westborough, Massachusetts, to three named

individuals.  The dealers were also notified that Honda intended to

enter into a dealer agreement with the named individuals on or

after May 15, 1999.  The dealers timely notified Honda as required

by  4(3)(l) of the Act, that they were going to protest the

establishment of the new dealership.

  Honda then filed separate but identical declaratory

judgment actions under 28 U.S.C.  2201(a) seeking a declaratory

judgment that neither dealer had standing to protest the proposed

new dealership in Westborough or alternatively that the proposed

new dealership was not arbitrary, improper, or otherwise in

violation of  4(3)(l) of the Act.  

  The dealers asserted identical counterclaims against

Honda.  Count I alleged that the new proposed dealership would be

an arbitrary, unfair, and/or deceptive act in violation of

 4(3)(1) of the Act.

  Count II alleged that Honda was impermissibly retaliating

against the dealers in violation of the general provisions of  4

of the Act.  The dealers claimed that Honda sought to punish them

because of their participation in multi-district litigation against

Honda for conducting its business through a pattern of racketeering

in violation of the civil RICO Act, 18 U.S.C.  1962 et seq.   The

multi-district litigation was settled in the U.S. District Court

for Maryland for a $330 million payment by Honda.  


II.

  The statutory definition of an automobile dealer's

relevant market area is found in paragraph five of  4(3)(1) of the

Act:

    As used in this subsection, the relevant

  market area of a motor vehicle dealer with

  respect to any given line make is the more

  narrowly defined and circumscribed

  geographical area immediately surrounding its

  existing dealer location within which it

  obtained, during the period of time the

  dealership business has been operated from

  said location or the three-year period

  immediately preceding the date of said notice

  of intent to grant or enter into an additional

  franchise or selling agreement, whichever is

  the lesser, at least two-thirds of (i) its

  retail sales of new motor vehicles of said

  line make or (ii) its retail service sales,

  . . . .



  The district court ruled:

    [T]his language defines a dealer's RMA as a

  circle, with the dealer at the center,

  circumscribing the geographical area

  comprising either two-thirds of the dealer's

  new vehicle sales or two-thirds of its service

  sales, whichever is smaller.



  The court considered the dealers' argument that the

relevant market area "may consist of an irregular shape as long as

that shape accurately reflects two-thirds of new vehicles or

service sales."  It rejected this contention based upon

Massachusetts case law.

    In support of their argument, the dealer's 

  [sic] rely heavily on Ricky Smith Pontiac,

  Inc. v. Subaru of New England, Inc., 14 Mass.

  App. Ct. 396 (1982), and Subaru of New

  England, Inc. v. Subaru of Wakefield, Inc.,

  No. Civ. A. 96-01475, 1997 WL 572934 (Mass.

  Super. Sept. 15, 1997).



       Ricky Smith, is not directly analogous to

  this case because an earlier version of c. 93B

  (the "previous statute") enacted in 1970, with

  a substantively different definition of RMA,

  applied to that case.  14 Mass. App. Ct. at

  405-406 ("[w]e are also satisfied . . . that

  [the judge] sought to decide the case upon the

  governing "equitable principles" standard

  enunciated in the 1970 statute despite his

  reference to the existence of an independent

  violation of the 1977 statute").  The previous

  statute permitted the court to consider

  equitable factors in defining a dealer's RMA. 

  In 1977, however, c. 93B was amended, and the

  definition of RMA was changed to the existing

  "bright line test," which excludes the

  consideration of equitable factors.  See Tober

  Foreign Motors, Inc. v. Reiter Oldsmobile,

  Inc., 376 Mass. 313, 331-332 (1978); Ricky

  Smith, 14 Mass. App. Ct. at 414-415.



       The dealers' argument also relies in part

  on dicta from Ricky Smith that is taken out of

  context.  In Ricky Smith, 14 Mass. App. Ct. at

  421 n.28, after referring to a trial exhibit

  depicting an oversimplified version of the

  plaintiff-dealers' RMA's, the court noted in

  dicta that "[i]n fact, of course, each

  dealer's area would probably be irregular in

  shape."  This was not, as the dealers in this

  case argue, a general statement regarding the

  manner in which RMA's should be drawn under

  the amended statute.  Rather, when read in

  context, this language pertained specifically

  to the plaintiff-dealers' RMA's, in that case,

  which were calculated by the superior court

  judge after considering equitable factors

  under the previous statute.  The above-quoted

  dicta in Ricky Smith, therefore, does not

  apply to this case, in which, the dealers'

  RMA's must be defined without consideration of

  equitable factors and in accordance with the

  amended statute.



       Similarly, the dealers' reliance on the

  Subaru case is misplaced.  In Subaru, 1997 WL

  572934 at *10 n.4, in dicta in a footnote, the

  superior court cited to the dicta in Ricky

  Smith, 14 Mass. App. Ct. at 421 n. 28, as the

  sole support for its statement that a RMA

  under the amended statute need not be a circle

  with the dealer at the center.  For the

  reasons previously stated, this court

  respectfully finds that Subaru represents a

  misunderstanding of Ricky Smith.



  The district court rebuffed the dealers' contention that,

in addition to a circle, the relevant market area may be depicted

as an oval around a polygon.  It stated:

    The dealers do not, however, deal with the

  term "immediately" as it is used in the

  statute to modify the word "surrounding." 

  When the words "circumscribed" and

  "immediately surrounding" are read in context,

  a circle is the only geometric shape that

  satisfies the terms of the amended statute.



       Moreover, defining RMA as a circle is in

  harmony with the Massachusetts opinions that

  have held that the amended definition of RMA

  was intended to create a bright line test. 

  See Tober Foreign Motors, Inc. v. Reiter

  Oldsmobile, Inc., 376 Mass. 313, 331-332

  (1978) ("The 1977 revision sets out a quite

  sharp definition which may somewhat sacrifice

  theoretical correctness to ease of practical

  application"); Ricky Smith, 14 Mass. App. Ct.

  at 414-415 ("the formula definition [under the

  amended statute] creates a bright line test

  which substantively changes the equitable

  principles standard in the 1970 statute").



  Citing to Beard Motors, Inc. v. Toyota Motor Distrib.,

Inc., 395 Mass. 428, 433 (1985), the court acknowledged that the

purpose of the Act was "to protect motor vehicle franchises from

injury by their affiliated manufacturers which hold greater power

than the franchisees."  It then stated:

    The 1977 amendment to c. 93B, however, was

  intended to make the statute easier to apply,

  even if "theoretical correctness" was

  sacrificed for "ease of practical

  application."  See Tober, 376 Mass. At 331-32. 

  Defining RMA as a circle is certainly easier

  to apply than choosing among any number of

  possible "polygons" that may represent two-

  thirds of a dealers new car or service sales,

  and, therefore, is consistent with the intent

  of the 1977 amendment. 



  The court then considered alternative arguments made by

the dealers.

       Rather than defining RMA as a circle, the

  dealers argue that "the proper method to

  determine the RMA is to list, in descending

  order of frequency, the towns or zip codes in

  which the dealer sells or services the most

  new cars until two-thirds of those sales or

  service transactions are reached."  Moreover,

  in their supplemental expert report, the

  dealers suggest for the first time that the

  number of customers may be an appropriate

  method for determining sales for the purpose

  of calculating a dealer's RMA.  The language

  of  4(3)(l), however, precludes the dealers'

  argument.



       Nowhere in  4(3)(l) is there any mention

  of an analysis of zip codes.  In addition, the

  dealers' methodology for calculating a RMA

  results in highly irregular shapes, which

  cannot be reconciled with  4(3)(l)'s language

  requiring a RMA to immediately surround and

  circumscribe a dealer.  Furthermore,

  consideration of the number of customers as a

  basis for computing sales is inconsistent with

  the language of the statute.  Section 4(3)(l), 

  expressly requires that a RMA be based upon a

  dealer's "sales of new motor vehicles" or its

  "service sales," and makes no reference to the

  number of customers of a dealer.  M.G.L. c.

  93B,  4(3)(l), par. 5.



     . . . .



      Although not at issue here, the dealers

  argue that a RMA should not be defined as a

  circle because, for a dealer located on the

  east coast of Massachusetts, the RMA would

  encompass the Atlantic Ocean.  This argument,

  however, is unconvincing.  For a coastal

  dealer, the RMA will still be a circle with

  the dealer at the center.  The radius of the

  circle, however, will extend as far as

  necessary over land until the portion of the

  circle over land circumscribes two-thirds of

  the relevant sales for that dealer.



  After the district court's decision defining the relevant

market area of a dealer under the Act, the parties entered into a

consent judgment providing that under the court's definition the

dealers lacked standing to contest the declaratory judgment action

brought by Honda.  This, of course, was subject to the dealer's

right to appeal.

                               III.

  In a subsequent opinion, the district court ruled:

    [T]he court concludes that  4(3)(l) is the

  sole provision within c. 93B under which an

  aggrieved dealer may seek relief from an

  alleged arbitrary prospective dealership

  placement.



In making this ruling the district court relied on two

Massachusetts cases:  Reiter Oldsmobile, Inc. v. General Motors

Corp., 378 Mass. 707 (1979); Richard Lundgren, Inc. v. American

Honda Motor Co., 45 Mass. App. Ct. 410 (1998).  Neither of these

cases explicitly hold as the district court did.  Compare  Subaru

of New England, Inc. v. Subaru of Wakefield, Inc., at 9, No. 96-

01475 (Mass. Super. Ct. Sep. 24, 1999) (establishing an irregularly

shaped relevant market area) with Heritage Jeep-Eagle, Inc. v.

Chrysler Corp., at 7, NO. 93-3037-E (Mass. Super. Ct. Aug. 26,

1999) (defining relevant market area as a circle around the

dealership).


IV.

  We are impelled to certify the two issues in this case

for the following reasons.  We have canvassed all of the relevant

Massachusetts case law pertinent to the interpretation of Mass.

Gen. Laws Ann. ch. 94B,  4 and have not found any that decide the

two issues before us.  There are no decisions of the Supreme

Judicial Court of Massachusetts that are clear controlling

precedent.  Accordingly, in the interest of comity we certify the

following two questions to the Supreme Judicial Court of

Massachusetts:

  1.  How should the relevant market area of a motor

vehicle dealer be defined under Mass. Gen. Laws Ann. ch. 93B,

 4(3)(l)?

  2.  Is Mass. Gen. Laws Ann. ch. 93B,  4(3)(l) the sole

provision within chapter 93B under which a motor vehicle dealer may

seek relief from a prospective additional dealership which will

sell the same motor vehicles as sold by the established motor

vehicle dealer?

  We, of course, will welcome the advice or comment of the

Supreme Judicial Court on any other question of Massachusetts law

it deems material to this case.

  The clerk will transmit this question and our opinion on

this case, along with copies of the briefs, exhibits, and appendix

to the Supreme Judicial Court of Massachusetts.  

  Jurisdiction is retained.