United States Court of Appeals
For the First Circuit
No. 00-2506
FORD MOTOR COMPANY,
Plaintiff, Appellant,
v.
MEREDITH MOTOR COMPANY, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
Before
Torruella, Circuit Judge,
Campbell, Senior Circuit Judge,
and Schwarzer,* Senior District Judge.
Nicholas T. Christakos, with whom Sutherland Asbill & Brennan LLP
and Bryan M. Haynes, were on brief, for appellant.
Stephanie A. Bray, with whom Wiggin & Nourie, P.A. and Gregory A.
Holmes, were on brief, for appellee.
* Of the Northern District of California, sitting by designation.
August 6, 2001
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TORRUELLA, Circuit Judge. Appellee Meredith Motor Company
("Meredith") filed a protest with the New Hampshire Motor Vehicle
Industry Board (the "Board") pursuant to that state's Motor Vehicle
Franchise Act (the "Act"), N.H. Rev. Stat. Ann. § 357-C, following
appellant Ford Motor Company's ("Ford") decision to relocate a
competing dealer into Meredith's market area. While that proceeding
was pending, Ford filed this action in federal district court, seeking
a declaration that the Act is not retroactive and, in the alternative,
that retroactive application of the Act would violate the Contract and
Due Process Clauses of the Constitution. The Board found Ford in
violation of the Act and, shortly thereafter, the federal district
court issued an order declaring that the Act was intended to be applied
retroactively and that such application was constitutional. Ford
appealed the Board's decision to the New Hampshire Superior Court and
brings this appeal from the decision of the district court. Because
the constitutional questions raised in this appeal rest on questions of
state law that may be resolved by the New Hampshire state courts, we
hold that Pullman abstention is proper in this proceeding. See R.R.
Comm'n v. Pullman Co., 312 U.S. 496 (1941).
I.
Ford is a Delaware Corporation with its principal place of
business in Dearborn, Michigan. Meredith is a New Hampshire
Corporation that has been doing business as an authorized Ford full
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sales and service dealership in Meredith, New Hampshire since 1957. On
June 1, 1972, Ford and Meredith executed a Sales and Service Agreement
(the "Agreement") that was to last an indefinite period. The parties
made several changes to the Agreement over the years, the earliest
dated May 20, 1974 and the latest dated January 15, 1998. Under the
Agreement, Meredith's "dealer locality" consists of seventeen post
office communities in New Hampshire, including the town of Plymouth.
A. The Motor Vehicle Franchise Act
The New Hampshire legislature first adopted a Motor Vehicle
Franchise Act in 1973 which was codified as chapter 357-B. See 1973
N.H. Laws 330:1 (repealed 1981). Chapter 357-B did not expressly give
a dealer the right to challenge a manufacturer's redefinition of its
relevant market area. It did, however, prohibit a manufacturer from
engaging in "any action which is arbitrary, in bad faith, or
unconscionable and which causes damages to any of said parties or to
the public." Id. In addition, it imposed restrictions on a
manufacturer's ability to grant "a competitive franchise in the
relevant market area previously granted to another franchise." Id.
In 1981, the New Hampshire legislature repealed chapter 357-B
and replaced it with § 357-C. By an amendment effective January 1,
1997, the current statute provides for a Motor Vehicle Industry Board
to enforce the chapter's provisions. Under § 357-C, moreover, a
manufacturer must have "good cause" to alter a dealer's relevant market
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area. N.H. Rev. Stat. Ann. § 357:C-3 III(o). The statute also
requires a manufacturer to notify a dealer of any proposal to add or
relocate a competing dealership within the dealer's relevant market
area. Id. at § 357-C:9 III. With respect to the agreements covered by
§ 357-C, the law states the following:
I. All written or oral agreements of any type
between a manufacturer, or distributor or motor
vehicle dealer shall be subject to the provisions
of this chapter, and provisions of such
agreements which are inconsistent with this
chapter shall be void as against public policy
and unenforceable in the courts of this state.
II. Before any new selling agreement or
amendment thereto involving a motor vehicle
dealer and such party become effective, the
manufacturer, distributor, distributor branch or
division, factory branch or division, or agent
thereof shall, 90 days prior to the effective
date thereof, forward a copy of such agreement or
amendment to the attorney general and to the
dealer.
III. Every new selling agreement or amendment
made to such agreement between a motor vehicle
dealer and a manufacturer or distributor shall
include, and if omitted, shall be presumed to
include, the following language: "If any
provision herein contravenes the valid laws or
regulations of the state of New Hampshire, such
provision shall be deemed to be modified to
conform to such laws or regulations; or if any
provision herein, including arbitration
provisions, denied or purports to deny access to
the procedures, forums, or remedies provided for
by such laws or regulations, such provisions
shall be void and unenforceable; and all other
terms and provisions of this agreement shall
remain in full force and effect."
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Id. § 357-C:6.
B. The Dispute
Fuller Ford, Inc. ("Fuller") became a Ford dealer in Bristol,
New Hampshire in December 1993. In 1997, Ford attempted to relocate
Fuller to a facility in Plymouth. To accomplish this relocation, Ford
removed Plymouth from Meredith's market area and assigned it to Fuller.
Meredith challenged the proposed relocation to the Board in February
1998. Meredith subsequently amended its protest to include a challenge
to Ford's decision to realign Meredith's market area under § 357-C:3
III(o). In its response to the Board, Ford noted an "additional
threshold issue arising under the New Hampshire and United States
Constitutions regarding whether the statute, and in particular the 1996
amendments thereto, can be applied retroactively to materially alter
the pre-existing contractual rights of private parties such as Ford and
Meredith." To this end, Ford presented as an issue for the Board
"[w]hether application of the statute in the circumstances of this
cases constitutes an unconstitutional retroactive impairment of the
contracting parties' rights."
In its decision and order dated August 16, 2000, the Board
noted Ford's position that "the application of RSA 357-C:3, III(o) to
its franchise agreement with [Meredith] . . . would be an
unconstitutional retrospective application of law because the contract
predates the adoption of Sections 9, I and 3, III(o)." The Board then
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examined the legislative purpose behind § 357-C:3 III(o) and found that
it "merely made express the result that logic and fairness naturally
implied" from the bad faith language included in the statute's
predecessor. The Board concluded that "[i]t would be illogical to
conclude that RSA 357-C, III(o) should be inapplicable because it was
enacted after 1980 . . . ."1 Though it did not elaborate on its
rationale, the Board also stated that subjecting Ford to the
requirements of § 357-C "impair[ed] no vested private contract right of
Ford's." Finally, the Board concluded that, on the merits, "Ford
failed to act in good faith when it decided to realign [Meredith's]
dealer locality for reasons other than the criteria specified in the
Franchise Agreement, and by not disclosing its true intentions
regarding Plymouth [to Meredith] before December 15, 1997." Ford
appealed the Board's decision to the New Hampshire Superior Court,
where it is currently pending.
C. The Federal Action
The action that is the subject of this appeal was filed in
the federal district court for the District of New Hampshire on
September 28, 1999, while the Board decision was pending.2 Eight days
1 The Board found that the Agreement was effectively amended in 1980
and thus used this year as the reference point for applying the
statute.
2 In addition to Ford's request for declaratory relief, Meredith filed
counterclaims alleging that Ford's actions violated § 357-C and the
Agreement. Ford moved to dismiss the counterclaims, but the district
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after the Board issued its decision, the district court entered
judgment in favor of Meredith. The district court decision did not
rely upon the Board's order, although a copy had been forwarded to the
court. Instead, the court concluded that the language of § 357-C:6 was
"a clear and unqualified statement of legislative intention to subject
both new and existing dealer agreements to the Act's general regulatory
requirements." Ford Motor Co. v. Meredith Motor Co., No. 99-456-B at
14 (D.N.H. Aug. 24, 2000). The court also found that the parties'
indemnification agreement in 1978 constituted a new contract; since the
law in effect at that time was sufficient to make the subsequent "good
cause" requirement foreseeable, any contractual impairment was not
constitutionally "significant." Id. at 25-26. Finally, the court held
that the retroactive application of the statute was justified by a
legitimate state interest in protecting dealers from manufacturers, and
thus did not violate due process. Id. at 28.
II.
It is well established that "[a]bstention from the exercise
of federal jurisdiction is the exception, not the rule." Colo. River
Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976);
court denied the motion. In order to expedite review of the
constitutional issues, however, the parties jointly moved the court to
enter judgment only as to Ford's principal claims, which the court also
declined to do. Meredith then stipulated to a dismissal without
prejudice of its counterclaims and the court entered a final judgment
on Ford's claims on November 21, 2000.
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see also Pustell v. Lynn Pub. Sch., 18 F.3d 50, 53 (1st Cir. 1994);
Guiney v. Roache, 833 F.2d 1079, 1081 (1st Cir. 1987); Santasucci v.
Gallen, 607 F.2d 527, 528 (1st Cir. 1979). However, "[a]mong those
cases that call most insistently for abstention are those in which the
federal constitutional challenge turns on a state statute, the meaning
of which is unclear under state law." Harris County Comm'rs Court v.
Moore, 420 U.S. 77, 84 (1974). Under the principle set forth in
Railroad Commission v. Pullman Co., 312 U.S. 496 (1941), a federal
court confronted with such circumstances "should stay its hand in order
to provide the state court an opportunity to settle the underlying
state-law question and thus avoid the possibility of unnecessarily
deciding a constitutional question." Harris County, 420 U.S. at 84.
Pullman abstention thus "serves a dual purpose: it 'avoid[s] the waste
of a tentative decision as well as the friction of a premature
constitutional adjudication.'" Guiney, 833 F.2d at 1081 (quoting
Pullman, 312 U.S. at 500); see also Pustell, 18 F.3d at 53 (noting that
abstention also "promot[es] the principles of comity and federalism by
avoiding needless federal intervention into local affairs").
We believe that Pullman abstention is appropriate in this
case.3 To determine this, we consider two factors: (1) whether there
3 Although the district court did not address the issue of abstention,
we note that it was raised in the pleadings below and at oral
argument. In any event, a court may raise the issue of abstention sua
sponte. Pustell, 18 F.3d at 51 n.1 (citing Bellotti v. Baird, 428 U.S.
132, 143 n.10 (1976)).
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is substantial uncertainty over the meaning of the state law at issue;
and (2) whether a state court's clarification of the law would obviate
the need for a federal constitutional ruling. Rivera-Puig v. García-
Rosario, 983 F.2d 311, 322 (1st Cir. 1992). Here, the applicability of
the state statute to contracts formed before its passage is unclear:
this issue forms the crux of the dispute between Ford and Meredith and
neither party has pointed to an authoritative New Hampshire decision
that resolves this ambiguity.4 Ford's federal claims, moreover, turn
entirely on its statutory claim; the Contracts and Due Process Clauses
are implicated only if § 357-C is found to be retroactive.
Consequently, "[a] dispositive state court interpretation of this issue
4 At least one federal court has been faced with the question of
whether § 357-C is retroactive. In dismissing the case for resolution
of this unsettled point in the state courts, the court noted that:
New Hampshire forums are better suited for resolution
of these state-law issues than this court is. The New
Hampshire Motor Vehicle Board has substantial expertise in
this area, having been created by the New Hampshire
legislature for the purpose of adjudicating, among other
disputes within its jurisdiction, those over motor vehicle
franchises. A decision by the Board may be reviewed by New
Hampshire state courts, which have significantly more
experience with New Hampshire law than does this court.
Subaru of New England, Inc. v. Lakes Subaru, Ltd., No. 99-10175, slip
op. at 7 (D. Mass. Apr. 26, 1999) (granting motion to dismiss based on
Colorado River). The court also emphasized that "New Hampshire has
manifested in RSA § 357-C a particular interest in the uniform,
consistent application of that statute to those involved in motor
vehicle sales in New Hampshire," id. at 5, which provides additional
support for abstention in this case as well. See Pustell, 18 F.3d at
54 (considering whether state law at issue is "a matter of particularly
local concern"); accord Santasucci, 697 F.2d at 529.
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could eliminate entirely the need to address the constitutional
issues." Pustell, 18 F.3d at 53.
A third factor counsels in favor of abstention. "Where there
is an action pending in state court that will likely resolve the state-
law questions underlying the federal claim, [the Supreme Court has]
regularly ordered abstention." Harris County, 420 U.S. at 83 (emphasis
added); see also Romany v. Colegio de Abogados de P.R., 742 F.2d 32, 42
(1st Cir. 1984); Santasucci, 607 F.2d at 529. Since the filing of its
federal court action, Ford has appealed the decision of the Board to
the New Hampshire Superior Court. According to Ford, the state court
proceedings are irrelevant to the instant appeal.5 We disagree.
The outcome of the state proceedings could moot the federal
issues in two ways. First, the Board's decision was based in part on
an initial determination that the Act is retroactive. Indeed, a good
portion of the Board's decision is devoted to examining the history and
purpose of § 357-C and concluding that Ford is subject to its
provisions. It is almost certain that, in reviewing the merits of the
Board's decision, the New Hampshire courts will address the threshold
issue of whether the Act is even applicable at all. If the courts
5 Ford highlights that one of the issues on appeal is whether the Board
had authority to address its constitutional claims. However, Ford has
also appealed the decision itself, and the question of retroactivity
was squarely presented to and resolved by the Board (albeit not based
on the statutory interpretation espoused by Ford). Thus, a conclusion
that the Board lacked authority to address the constitutional claims
would not preclude review of the retroactivity issue.
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accept Ford's interpretation of the statute on this point, there is no
need to reach the constitutional issues. Alternatively, Ford has
conceded at oral argument that a favorable ruling on the merits would
render its federal case moot. That is, should the state courts find
that Ford did have good cause to realign Meredith's relevant market
area and relocate another dealer to Plymouth, the controversy
underlying its federal constitutional claims would cease to exist. In
either case, a federal ruling on the state law claims would, at this
juncture, be "a forecast rather than a determination," Pullman, 312
U.S. at 499, "a tentative answer which may be displaced tomorrow by a
state adjudication." Id. at 500.
In addition, there remain important disputes of fact relevant
to the statutory claim. See, e.g., Santasucci, 607 F.2d at 529
(stating that the presence of disputed factual issues underlying a
state-law claim reinforces the desirability for the case to proceed
through the normal state court system). For example, the parties do
not agree on when their current contract came into effect. Ford
asserts that the Agreement has not been significantly modified since
1972, while Meredith claims that amendments made as late as 1990
created a new contract between the parties. In its order, the Board
found that Ford's acknowledgment of a change in management in 1980
"effectively amended" the Agreement and made that year the reference
point for the application of the Act. For its part, the district court
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concluded that the Agreement was significantly modified by an
indemnification amendment in 1978, a determination that was significant
to its constitutional contract impairment analysis. In the event that
the New Hampshire courts uphold the Board's decision, the factual
grounds for doing so could "materially alter the nature of the problem"
and affect our resolution of the constitutional issues.6 Romany, 742
F.2d at 40 (quoting Harrison v. NAACP, 360 U.S. 167, 177 (1959)).
Finally, we take into consideration the federalism concerns
supporting abstention. In particular, the implications of granting
Ford its requested relief would be to declare that the Board lacked
jurisdiction to hear the protest in the first instance (and to vacate
its rulings), an outcome that would "disrupt substantially the review
proceedings now pending before the [Superior Court]." Bettencourt,
M.D. v. Bd. of Registration in Med., 904 F.2d 772, 777 (1st Cir. 1990).
Normally, a federal proceeding that would interfere with an ongoing
state judicial proceeding calls for Younger abstention. See Younger v.
Harris, 401 U.S. 37, 43-54 (1971); see also Pennzoil Co. v. Texaco
Inc., 481 U.S. 1, 10-14 (1987) (applying Younger to private litigation
that involves important state interests). Here, the avoidance of
"needless friction" between the federal and state proceedings carries
6 Indeed, should the state courts conclude that the Agreement was
significantly amended after 1981, even the retroactivity question could
be moot.
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some weight in our decision to abstain from deciding this case. See
Pullman, 312 U.S. at 499-500.
The possibility that the New Hampshire courts may not address
the constitutional issues is inconsequential under Pullman. This is so
because a "stay pursuant to Pullman abstention is entered with the
expectation that the federal litigation will resume in the event that
the plaintiff does not obtain relief in state court on state-law
grounds." Rivera-Puig, 983 F.2d at 322 (quoting Moses H. Cone Mem'l
Hosp. v. Mercury Const. Corp., 460 U.S. 1, 10 n.9 (1983)); see also
Pub. Serv. Co. of N.H. v. Patch, 167 F.3d 15, 24 (1st Cir. 1998)
(observing that " Pullman abstention calls for deferral of a case rather
than dismissal"); Pustell, 18 F.3d at 54-55 (abstaining on Pullman
grounds but retaining jurisdiction pending a decision by the
Massachusetts state court on proper interpretation of statute).
Accordingly, we hold that the district court should abstain in the
current proceedings, retaining jurisdiction pending final review of the
Board's decision in the New Hampshire state courts. See Pustell, 18
F.3d at 54-55.
The decision of the district court is vacated and the case
remanded for proceedings consistent with this opinion.
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