The Franchise Memorandum

In General Motors Corp. v. Tennessee Motor Vehicle Commission, 2007 WL 4756809 (Tenn. Ct. App. Oct. 30, 2008), the Tennessee Court of Appeals late last month upheld the Tennessee Motor Vehicle Commission’s administrative decision prohibiting GM from allowing a current franchisee to relocate its dealership into another franchisee’s market area. GM claimed that a Tennessee dealership statute—which allows the Commission to deny the proposed granting of an “additional franchise” in a dealer’s market area—applies only where new franchises are granted and not where an existing franchise relocates into that area. 

In affirming the trial court and approving the decision of the Commission, the appellate court noted that dealer relocations are unquestionably regulated by Tennessee law. Given the overall context of the dealership statute and its legislative intent, the court of appeals declined to interpret the phrase “additional franchise” narrowly to mean adding another franchise to GM’s overall list of franchised locations. The court instead broadly construed the phrase “additional franchise” to mean the opening of any competing dealership in the relevant market area, including an existing franchise that moves its dealership into that area. In this case, the court determined that the relocated dealership would not technically be a “new franchise,” but that it would be a “newly competitive” franchise within the market area previously franchised to the other dealer. The court concluded that adopting GM’s “hypertechnical” and “non-contextual” interpretation of the statute would circumvent the basic purpose of the statute and yield an “absurd result.”