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Federal Court Concludes That Removal Of Administrative Hearing To Federal Court Not Permitted In Wisconsin Dealer Dispute

A federal court in the Western District of Wisconsin has concluded that an automobile manufacturer is not permitted to remove a dealer dispute from the Wisconsin Division of Hearings and Appeals (“DHA”) to federal court. Don Johnson’s Haywood Motors, Inc. v. General Motors LLC, 2019 WL 2141818 (W.D. Wis. May 16, 2019). Twelve Wisconsin-based licensed motor vehicle dealers filed an administrative complaint against GM with the DHA, alleging that a per-vehicle surcharge imposed by GM to offset increased statutory warranty reimbursements owed to dealers violated GM’s obligations to reasonably compensate dealers for warranty work under the requirements of Wis. Stat. § 218.0116(8). In response, GM removed the matter to federal court on the basis of diversity jurisdiction. The plaintiff dealers then moved to remand the case to the DHA.

In keeping with the approach adopted in Floeter v. C.W. Transp., Inc., 597 F.2d 1100, 1102 (7th Cir. 1979), the court analyzed the following considerations to determine whether removal was proper: (1) whether the DHA’s procedures are substantially similar to those traditionally associated with the judicial process, and (2) whether the state’s interest in providing a convenient and expeditious tribunal outweigh the defendant’s right to remove the action to federal court. Based on its analysis of the second Floeter factor, the court found in favor of the plaintiffs. Specifically, the court noted that the plaintiffs’ case hinged on whether the surcharge imposed by GM complies with state administrative law, which requires application of specific public policy considerations enumerated by the state legislature. The court also noted that the only way for a dealer to seek damages in court for violations of the specific section at issue is to prevail with the DHA first, which suggests that the state legislature regarded agency adjudication of claims under Wis. Stat. § 218.0116(8) as particularly significant to its regulatory scheme. GM argued that because plaintiffs had previously filed a different action under the same Wisconsin statute in federal court, the relationship at issue was not primarily a state law concern. The court disagreed, noting that the present action was filed under a statutory mechanism that could not have been initiated in federal court. Because removal of this matter would achieve no overall judicial economy, the court concluded that Wisconsin’s interest in regulating dealer relationships outweighed any countervailing federal interest and remanded the matter to the DHA.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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