Shamrock Motors, Inc. v. Ford Motor Co.

No
No. 98-402
IN THE SUPREME COURT OF THE STATE OF MONTANA
1999 MT 21SHAMROCK MOTORS, INC.,
Petitioner and Respondent,
v.
FORD MOTOR COMPANY,
Respondent and Appellant.
APPEAL FROM: District Court of the Second Judicial District,
In and for the County of Silver Bow,
The Honorable John W. Whelan, Judge presiding.
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COUNSEL OF RECORD:
For Appellant:
Robert M. Carlson; Corette, Pohlman & Kebe, Butte, Montana
George E. Feldmiller; Berkowitz, Feldmiller, Stanton, Brandt,
Williams & Stueve, Kansas City, Missouri
For Respondent:
James T. Harrison, Jr.; Harrison, Loendorf, Poston & Duncan,
Helena, Montana
Submitted on Briefs: December 30, 1998
Decided: February 11, 1999
Filed:
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__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1. This is an appeal from the District Court's reversal of a decision by the Motor
Vehicle Division of the Montana Department of Justice (Motor Vehicle Division)
ruling that Appellant Ford Motor Company (Ford) had good cause to terminate the
automobile dealer franchise of Shamrock Motors, Inc. (Shamrock). Ford's notice of
intent to terminate the dealership was based upon Shamrock's unauthorized sale of
80% of its stock without Ford's knowledge or consent, which was in violation of the
Ford Sales and Service Agreement (FSSA). The Motor Vehicle Division issued a
decision holding that "Ford Motor Company has carried its burden of proof under
Montana law to establish that good cause exists to terminate its franchise with
Shamrock Motors, Inc., under the standards established in Mont. Code Ann. § 61-4-
205 to 61-4-207."
¶2. Shamrock appealed the Motor Vehicle Division's decision by filing a petition for
judicial review with the Montana Second Judicial District Court, Silver Bow County.
Based on diversity of citizenship, Ford removed the case to the United States District
Court. The United States District Court reversed the Motor Vehicle Division's
decision, and Ford appealed to the Ninth Circuit Court of Appeals.
¶3. While the matter was pending before the Ninth Circuit, Shamrock, in January of
1997, sold the dealership to Brooks Hanna Ford, Inc. (Brooks Hanna), and resigned
as a Ford dealer. Ford executed a new FSSA with Brooks Hanna, the new Ford
dealer. The Ninth Circuit then vacated the United States District Court's decision on
the ground that the court lacked jurisdiction, and remanded the case back to state
court. In February, 1998, Shamrock filed a second petition for judicial review. In
response, Ford filed a motion to dismiss based on mootness and lack of standing,
relying on Shamrock's sale of the dealership and the fact that Shamrock was no
longer a Ford dealer.
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¶4. The District Court found in favor of Shamrock and, without discussion, denied
Ford's motion to dismiss. Relying on § 61-4-207(2)(a), MCA, the District Court
concluded the franchise could not be terminated as the result of a sale of 80% of the
franchisee's stock. It is from that decision that Ford appeals.
Issues Presented for Review
¶5. 1. Whether the District Court erred by failing to grant Ford's motion to dismiss
Shamrock's petition for judicial review on the grounds of mootness or lack of
standing once Shamrock had sold its franchise.
¶6. 2. Whether the District Court erred in holding that Shamrock's change in
ownership, undertaken without knowledge or consent of Ford, could not, as a matter
of law, be good cause for termination of the franchise.
Factual Background
¶7. In November, 1985, Ford and Shamrock entered into an FSSA which established
Shamrock as an authorized Ford dealer in Butte, Montana. The FSSA stated that
Shamrock was owned by Patrick Lyons (Lyons) and Charles Canty (Canty), and
provided that Lyons would "have full managerial authority" on behalf the Shamrock
dealership.
¶8. The FSSA provided that Shamrock had to obtain Ford's approval of any change
in ownership or managerial authority. The FSSA required that Shamrock "give
[Ford] prior notice of any proposed change in the said ownership or managerial
authority." Further, it stated that Ford "has the right to approve or decline to
approve any prospective purchaser as to his character, automotive experience,
management, capital and other qualifications . . . as an authorized dealer." The
FSSA went on to provide that if Shamrock failed to obtain Ford's "prior written
consent" to a "direct or indirect [change in] ownership or operating management," it
would be "so contrary to the intent and purpose of this agreement as to warrant its
termination or nonrenewal."
¶9. On May 11, 1993, Ford was informed for the first time that Lyons and Canty had
sold 80% of Shamrock's stock to Merle Rhoades (Rhoades). This sale had been
undertaken without prior notice to Ford and without Ford's prior written consent.
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Ford learned of the sale at a meeting to discuss Shamrock's participation in a Ford
dealer development program. Upon learning of the sale, Ford's representative told
Lyons that the sale was a breach of the FSSA. Rhoades, the new owner of Shamrock,
took the position that Montana law made the provisions of the FSSA relating to a
change in ownership unenforceable. On September 29, 1993, Ford sent a notice of its
intention to terminate Shamrock's franchise to the Montana Department of Justice
Title and Registration Bureau.
¶10. Shamrock exercised its right to both an internal and administrative review of
Ford's decision to terminate the franchise. Shamrock's initial challenge of the
termination decision was reviewed and dismissed by Ford's internal Dealer Policy
Board in February, 1994. Shamrock's administrative appeal to the Motor Vehicle
Division was concluded in June, 1994, when the Division issued an order upholding
Ford's termination decision and finding that Ford had established good cause for
termination.
¶11. Shamrock appealed the administrative decision by filing a petition for judicial
review with the Montana Second Judicial District Court. After removal to federal
court, the Ninth Circuit held that the Federal District Court lacked jurisdiction to
reverse the administrative decision by the Motor Vehicle Division and the matter was
remanded back to the Montana state court for appellate review. Shamrock Motors,
Inc. v. Ford Motor Co. (9th Cir. 1997), 120 F.3d 196, 200.
¶12. Because of the pendency of this litigation, Shamrock's franchise was never
terminated by Ford. Rather, Shamrock continued to operate as an authorized Ford
representative for nearly four years. In January, 1997, while the appeal was pending
before the Ninth Circuit, Shamrock sold the dealership to Brooks Hanna. That sale
was approved by both Lyons as President of Shamrock and Rhoades as a
stockholder. Ford approved of the sale and executed an FSSA with Brooks Hanna.
As part of the sales transaction, Shamrock resigned as a Ford dealer.
¶13. Following its voluntary resignation as a Ford dealer and its sale of the
dealership to Brooks Hanna, Shamrock filed a second petition for judicial review
with the Montana Second Judicial District Court. In its petition for review,
Shamrock asked that the District Court enter an order that there is "no legitimate
cause for termination of the franchise." Ford filed a reply and motion to dismiss
contending that, since Shamrock had sold the Ford franchise, Shamrock no longer
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had a franchise or contract interest at issue and, thus, it lacked standing and its
petition for review was moot.
¶14. The District Court denied Ford's motion to dismiss and held that Shamrock's
sale of 80% of its stock without Ford's prior knowledge or approval was not good
cause for termination under § 61-4-207(2)(a), MCA. Some three months later,
Shamrock filed a separate suit against Ford seeking recovery for damages allegedly
caused by Ford's termination of the franchise. Cause No. DV-98-161, Second Judicial
District, Silver Bow County.
Discussion
¶15. 1. Whether the District Court erred by failing to grant Ford's motion to dismiss
Shamrock's petition for judicial review on the grounds of mootness or lack of
standing once Shamrock had sold its franchise.
¶16. Although Ford filed a motion to dismiss the petition for judicial review for
mootness or lack of standing, the District Court did not directly rule on the motion.
Rather, the court addressed the merits of Shamrock's petition for review and
concluded:
The final decision of the Motor Vehicle Division of the Department of Justice is,
accordingly, REVERSED. Because this finding is dispositive of the Petition for Judicial
Review, it does not become necessary to address the particulars of the Motion to Dismiss
raised by the Appellee. Having reviewed the record, this Court concludes that the
Appellee has failed to advance a persuasive argument justifying the relief requested.
Accordingly, the Appellee's Motion to Dismiss is DENIED.
¶17. The District Court erred in not resolving the issue of mootness before
addressing the merits of the claim. Mootness is a threshold issue which must be dealt
with before addressing the underlying dispute.
Defendants have filed a motion to dismiss this appeal on the ground that no actual
controversy now exists between the parties as to the matters involved in said appeal and
that all such questions are abstract, hypothetical and moot. This motion must be passed
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upon before any consideration of plaintiffs' contentions on the merits can be had.
Adkins v. City of Livingston (1948), 121 Mont. 528, 532, 194 P.2d 238, 240.
¶18. In Adkins, the plaintiff had sought to enjoin the City of Livingston from
proceeding with the creation of a special improvement district and the levying of
assessments against the lands therein. On appeal, this Court noted that, since all the
work related to the creation of the special improvement district had been completed,
there remained nothing that the courts of Montana could "do by way of forbidding
acts already accomplished." Adkins, 121 Mont. at 532, 194 P.2d at 240. The issues
were thus moot.
¶19. A matter is moot when, due to an event or happening, the issue has ceased to
exist and no longer presents an actual controversy. Ruckdaschel v. State Farm
(1997), 285 Mont. 395, 396, 948 P.2d 700, 701. A question is moot when the court
cannot grant effective relief. Turner v. Mountain Engineering and Const., Inc.
(1996), 276 Mont. 55, 59, 915 P.2d 799, 803. If the parties cannot be restored to their
original position, the appeal becomes moot. Martin Development Co. v. Keeney
Const. Co. (1985), 216 Mont. 212, 219, 703 P.2d 143, 148.
¶20. Shamrock contends that this matter is not moot because it has a separate
damage claim pending against Ford and unless this Court upholds the District
Court's decision in favor of Shamrock, Ford will be in a position to seek dismissal of
the damage claim on the basis that the Motor Vehicle Division's decision is the law of
the case. Without expressing any views on the merits of a possible "law of the case"
argument in the pending damage suit, we determine that the issue before us must be
resolved in light of the fact that the present proceeding originated when Shamrock
invoked the protections of Title 61, Chapter 4, Part 2, MCA. In determining whether
or not that matter is now moot, we must determine whether, within the confines of
that statutory scheme, effective relief can still be granted. Whether effective relief
can be granted in the separate damage claim or whether the Motor Vehicle Division's
decision becomes "law of the case" are questions not before us and which we do not
address.
¶21. This litigation started with Shamrock's petition for relief under § 61-4-205,
MCA, which allowed the Motor Vehicle Division to make an initial determination as
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to whether there was good cause for Ford to terminate its franchise with Shamrock.
The Division determined that there was good cause. Then, during the pendency of
the federal court litigation, Shamrock resigned its franchise and sold the dealership
to Brooks Hanna approximately one year before it filed its second petition for
judicial review in the District Court. Given this turn of events (i.e., Shamrock and
Ford no longer had a franchisee/franchisor relationship), Ford rightly questioned
whether the District Court could fashion any effective relief under Title 61, Chapter
4, Part 2, MCA. Section 61-4-205(3), MCA, requires that the franchisor give prior
notice of intention to terminate a franchise. Section 61-4-206(1), (2), MCA, allows the
franchisee to file an objection to the proposed termination, which then triggers a
hearing before the Department to determine whether or not good cause exists to
terminate. Section 61-4-206(8), MCA, allows any party to the hearing to appeal
under the Montana Administrative Procedure Act. However, "[t]he franchise
agreement must continue in effect until the adjudication by the department on the
verified complaint and the exhaustion of all appellate remedies available to the
franchisee." Section 61-4-206(9), MCA. The purpose of the statutory scheme in Title
61, Chapter 4, Part 2, MCA, is to maintain the status quo (i.e., to continue the
existence of the franchise agreement) until such time as the franchisee has had prior
notice and an opportunity to be heard on the question of good cause. Obviously,
when Shamrock chose to sell or assign the franchise during the appellate process, the
question of whether Ford had good cause to terminate the franchise in the first
instance became academic and thus moot. Given the circumstances of the parties at
the time of the appeal to District Court, the District Court was not in a position to
restore or maintain the status quo. That is, the court could not maintain or protect
Shamrock's status as a franchisee because Shamrock, having sold its franchise to
Brooks Hanna, was no longer a franchisee.
¶22. We hold that the District Court erred in not recognizing that, once Shamrock
was no longer a franchisee, there was no effective relief under Title 61, Chapter 4,
Part 2, MCA, that the court could fashion and, thus, Shamrock's appeal from the
Motor Vehicle Division's holding should have been dismissed as moot. Since the
question of mootness is dispositive, we need not address the second issue.
¶23. Reversed.
/S/ W. WILLIAM LEAPHART
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We concur:
/S/ JIM REGNIER
/S/ KARLA M. GRAY
/S/ TERRY N. TRIEWEILER
/S/ JAMES C. NELSON
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