A federal appeals court will not reconsider its ruling in a Minnesota case involving franchise agreement exclusivity provisions.
The ruling upheld the legality of the provisions but blocked Nissan Motor Co. from terminating a suburban Minneapolis dealership for violating its franchise agreement by selling Kias.
The state motor vehicle sales law does not prohibit manufacturers from including exclusivity requirements in their agreements, the Eighth U.S. Circuit Court of Appeals in St. Louis ruled. At the same time, the panel voted 2-to-1 not to allow Nissan to terminate Metro Motors, which does business as Luther Nissan in Inver Grove Heights, Minn.
Nissan spokesman Kyle Bazemore called the court's action disappointing but said, "We respect the court's decision."
He said: "We believe we should have the right to determine how the Nissan brand is presented to the public and to be able to protect our brand image, especially at our dealerships."
Metro's 1996 agreement prohibited it from carrying new non-Nissan vehicles, but it began selling new Kias in 1998, the court said. Metro rejected Nissan's request to accept termination.
Metro sued, contending that the exclusivity provision violates state law.
In a decision by Judge Kermit Bye, the appeals court said Minnesota law does not ban exclusivity requirements.
"Requiring a dealer to agree to an exclusivity provision is not proscribed either as an unlawful act or an unfair practice," the court said.
Although Metro deliberately violated the agreement, the majority said Nissan isn't entitled to a court order requiring the dealership to comply.
"It is apparent the Minnesota legislature purposely adopted a middle-ground approach," the court said. "Manufacturers may use exclusivity provisions but cannot terminate a dealer for breaching such a provision, and therefore must resort to other remedies if they wish to enforce such a provision."
Metro's agreement did not specify any potential sanctions, and the court did not identify any appropriate alternatives.
Metro's lawyer, Gregory Merz of Minneapolis, said he doesn't know whether manufacturers will rewrite their agreements "to put in incentives to comply or disincentives not to comply" with exclusivity provisions.
James Schutjer, a lawyer representing the Minnesota Automobile Dealers Association, said his organization filed a brief supporting Metro, arguing that the state law makes exclusivity provisions illegal. He said the association may take a look at the issue in the next legislative session.
In a partial dissent, appeals Judge David Hansen said Nissan should have the right to terminate, adding: "A deal is a deal, and Metro should be held to its deal with Nissan."
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