The Franchise Memorandum

In Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc., 2012 U.S. Dist. LEXIS 7346 (E.D. Mich. Jan. 23, 2012), a federal district court held that Kia’s decision to add a new dealership to the defendant’s assigned geographic area did not implicate the “anti-encroachment” provision of the Michigan Motor Vehicle Dealers Act. Under the statute, a distributor that seeks to place a new dealer within the “relevant market area” of an existing dealer must satisfy certain procedures. In 1998, at the time the parties executed their agreement, the statute defined the “relevant market area” as being within six miles of an existing dealer. The legislature amended the statute in 2010 to enlarge this radius to nine miles. Later that year, when Kia sought to establish a new dealership seven miles away from the defendant’s business, it objected on the grounds that the proposed location fell within its relevant market area as defined by the current version of the statute. The dealer maintained that Kia had failed to comply with the statute’s requirements before moving ahead with its decision. Kia sought a declaratory judgment to determine the applicability of the statute in light of the 2010 amendment, and the parties both ultimately filed motions to dismiss each other’s claims.

In opposing Kia’s motion, the defendant argued that the parties’ agreement limited Kia’s right to add new locations to an existing dealer’s designated area to the extent that such action was “prohibited by applicable law.” According to the defendant, this language showed an intent that the contract incorporate future changes in the law, such as the 2010 amendment. The dealer further asserted that the court could not apply the pre-2010 version of the statute because it “ceased to exist” upon passage of the amendment. The court rejected these arguments, citing Sixth Circuit case law for the proposition that subsequent changes in the law cannot amend the terms of a contract unless its language expresses a clear intention to the contrary. The court found that in bargaining over the contract’s terms, the parties in this case only meant to incorporate the law in existence at the time of their negotiations. The court also noted that amendments retroactively nullify past versions of a statute only when they are remedial in nature. Here, the 2010 amendment qualified as a substantive change because it imposed a new duty on distributors. For those reasons, the court held that the six-mile radius prescribed by the 1998 version applied and granted Kia’s motion to dismiss.