Arctic Cat Sales Inc. v. State Bd. of Vehicle Mfrs., Dealers & Salespersons

110 A.3d 242

ARCTIC CAT SALES INC., Petitioner

v.STATE BOARD OF VEHICLE MANUFACTURERS, DEALERS AND SALESPERSONS, Respondent.

No. 1151 C.D. 2014

Commonwealth Court of Pennsylvania.

Argued Dec. 8, 2014.

Decided Feb. 23, 2015.

Robert B. Hoffman, Harrisburg, and Annamarie A. Daley, Minneapolis, MN, for petitioner.

Christopher K. McNally, Harrisburg, for respondent.

John G. Bergdoll, IV, York, for intervenor Neiman's Garage and Equipment, Inc.

BEFORE: BONNIE BRIGANCE LEADBETTER, Judge, ROBERT SIMPSON, Judge, and MARY HANNAH LEAVITT, Judge.

Opinion

OPINION BY Judge LEAVITT.

Arctic Cat Sales, Inc., a licensed vehicle distributor, petitions for review of an adjudication of the State Board of Vehicle Manufacturers, Dealers & Salespersons that disallowed Arctic Cat Sales' appointment of a new dealer to sell a variety of all terrain vehicles. In doing so, the Board upheld the protest of an existing dealer, Neiman's Garage & Equipment, Inc., to the appointment of Kennedy RV & Powersports, Inc., which is located approximately nine miles from Neiman. Arctic Cat Sales contends that Neiman did not meet its heavy burden of proving good cause not to allow its appointment of Kennedy as a dealer. Arctic Cat Sales also contends that Neiman lacked standing to protest Kennedy's appointment because Kennedy would sell products Neiman had never requested to sell in the past. Concluding that the Board erred, we reverse.

Background

Arctic Cat Sales is a licensed vehicle distributor that distributes a variety of products, including snowmobiles and all terrain vehicles (ATVs) manufactured by Arctic Cat, Inc. Central to this case are two Arctic Cat brands of ATVs with the product names “Prowler” and “Wildcat,” which are known as “side-by-sides.” Arctic Cat Sales' Brief at 3. Arctic Cat Sales describes a Prowler as a utility vehicle and the Wildcat as a sports vehicle, similar to a dune buggy. Neither ATV is presently available from a dealer in York County.

Neiman, which is located in Dover, Pennsylvania, has been an authorized dealer of Arctic Cat products, including snowmobiles and ATVs, since 1983. It also services Arctic Cat ATVs. In March 2012, Neiman and Arctic Cat Sales executed the current franchise agreement that will expire in March 2015. In addition to ATVs, Neiman sells tractors and mowers for other manufacturers. Neiman also runs a repair business for automobiles, ATVs, tractors and mowers.

Kennedy, which is located in Dillsburg, Pennsylvania, is an authorized dealer of recreational vehicles, Arctic Cat snowmobiles and Kymco ATVs.¹ It does not sell Arctic Cat ATVs of any type. Under prior ownership, Kennedy did sell Arctic Cat ATVs, but in 2006 it surrendered its dealer franchise after Arctic Cat Sales appointed Bass Pro Shops, in Harrisburg, as a dealer of Arctic Cat ATVs.

In January 2014, Arctic Cat Sales notified Kennedy and Neiman that it intended to offer a full line of Arctic Cat products through both dealers. This meant that Neiman, which had previously refused to carry the Prowler and had not requested to sell the Wildcat, would be able to sell those ATV products. Likewise, Kennedy, which sold ATVs manufactured by Kymco, would also be able to sell the Prowler and Wildcat along with all other Arctic Cat ATVs. Neiman objected and requested Arctic Cat reconsider its decision, contending that the relevant market area could not support two dealers. Arctic Cat Sales refused, and Neiman filed a protest with the Board, which scheduled a hearing.

At the hearing, Neiman offered the testimony of its president, Ray E. Neiman, Jr., and John Bergdoll, Sr., who testified about Neiman's business reputation. Arctic Cat Sales presented the testimony of two of its employees, Adam August and Michael DiFonzo, and of Richard Ritter, one of the two owners of Kennedy.

The Board granted Neiman's protest. At the outset, the Board held that the Wildcat and Prowler products were ATVs and, thus, the Board had subject matter jurisdiction over Neiman's protest.² The Board rejected many of the claims in Neiman's protest. In Counts 1, 2, 4 and 5 of its protest, Neiman argued that Arctic Cat Sales' appointment of a new dealer would unreasonably change Neiman's responsibility. The Board rejected this contention because the franchise agreement did not grant Neiman an exclusive sales right. In Count 3, Neiman argued that Arctic Cat Sales had tried to coerce Neiman not to protest by threatening not to renew its franchise agreement in 2015, but the Board found no evidence of coercion. In Count 7, Neiman argued that Arctic Cat Sales did not give it sufficient notice of its intention to appoint a new dealer. The Board rejected this claim because Neiman did not demonstrate prejudice from the alleged defective notice.

However, the Board sustained Count 6 of Neiman's protest, holding that it proved good cause for not allowing the entry of a new vehicle dealer. Board Adjudication at 36; Reproduced Record at 256A (R.R. ––––). Section 27(a), (c) of the Board of Vehicles Act³ (hereinafter referred to as the Dealer Act) states as follows:

(a) Additional or relocation of new vehicle dealers.—

(1) In the event that a manufacturer seeks to enter into a franchise establishing an additional new vehicle dealer or relocating an existing new vehicle dealer within or into a relevant market area where the same line-make is then represented, the manufacturer shall in writing first notify the board and each new vehicle dealer in such line-make in the relevant market area of the intention to establish an additional dealer or to relocate an existing dealer within or into that market area. Within 20 days after the end of any appeal procedure provided by the manufacturer, any such new vehicle dealer may file with the board a protest to the establishing or relocating of the new vehicle dealer. When such a protest is filed, the board shall inform the manufacturer that a timely protest has been filed, and that the manufacturer shall not establish the proposed new vehicle dealer or relocate the new vehicle dealer until the board has held a hearing, nor thereafter, if the board has determined that there is good cause for not permitting the addition or relocation of such new vehicle dealer.

* * *

(c) Board to consider existing circumstances.—In determining whether good cause has been established for not entering into or relocating an additional new vehicle dealer for the same line-make, the board shall take into consideration the existing circumstances, including, but not limited to:

(1) Permanency of the investment of both the existing and proposed new vehicle dealers.

(2) Growth or decline in population and new vehicle registrations in the relevant market area.

(3) Effect on the consuming public in the relevant market area.

(4) Whether it is injurious or beneficial to the public welfare for an additional new vehicle dealer to be established.

(5) Whether the new vehicle dealers of the same line-make in that relevant market area are providing adequate competition and convenient customer care for the vehicles of the line-make in the market area which shall include the adequacy of vehicle sales and service facilities, equipment, supply of vehicle parts and qualified service personnel.

(6) Whether the establishment of an additional new vehicle dealer would increase competition and whether such increased competition would be in the public interest.

(7) The effect the denial of relocation will have on a relocating dealer.

63 P.S. § 818.27(a), (c) (emphasis added). The Board found that Arctic Cat Sales' appointment of Kennedy did not satisfy the above-listed factors, particularly that which related to competition as set forth in subsection (c)(6) of Section 27.

Relevant to its holding, the Board made a number of factual findings. It found that Neiman had been an authorized dealer of Arctic Cat products, including both snowmobiles and ATVs, since 1983. During this time, it has also served as a service facility for Arctic Cat ATVs. Kennedy had been an authorized dealer of Arctic Cat ATVs, but it surrendered its franchise after Arctic Cat Sales appointed Bass Pro Shops in Harrisburg a dealer. Neiman and Kennedy are 9.2 miles apart, which places them in the same relevant market area. Bass Pro Shops is approximately 20 miles from Neiman and 17 miles from Kennedy. The Board found that in South Central Pennsylvania, which is rural and less densely populated, it is common for there to be more than one dealer within the statutory relevant market area of a ten mile radius. Nevertheless, the Board also found that given the proximity of Bass Pro Shops to both dealers, the relevant market area could not sustain both Neiman and Kennedy. Its critical finding on this point follows:

45. While there is likely to be a short-term price competition with the establishment of an additional dealer, in the long-term there is likely to be a financial failure or withdrawal from the ATV market of either [Neiman] or [Kennedy], or both, and thus resulting in less competition for Bass Pro in selling Arctic Cat products, as well as less competition between different line-makes of ATVs. (Hearing Transcript, page 18, line 16 to page 19, line 24; page 129 to page 130, line 15; page 131, lines 2–10).

Board Adjudication, Finding of Fact No. 45; R.R. 230A (citing Notes of Testimony, March 31, 2014, at 18–19, 129–30, 131 (N.T. ––––); R.R. 33A–34A, 71A–72A, 73A).

The Board recognized that increased competition is good for consumers and that, generally, the appointment of an additional dealer to a relevant market area will increase competition. However, the Board concluded that the Dover–Dillsburg market area could not support two dealers of Arctic Cat products. One would fail, and Bass Pro Shops would be the beneficiary of the price war between Neiman and Kennedy, not the consuming public.⁴ The Board reasoned as follows:

In the short-term [Arctic Cat's] addition of [Kennedy] as an additional dealer is likely to yield short-term benefits to consumers in the form of

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