Maintaining a proper balance
July 21, 2008
Filed under Uncategorized
How much power should a state have to pass laws protecting its private business sector from unfair practices, yet at the same time avoid potentially harming an outside company’s ability to conduct business in other states? That question, which focuses around the Constitution’s Interstate Commerce Clause, is at the center of a civil complaint that could have huge ramifications for the powersports industry.
The civil complaint, which is currently pending, is between Yamaha Motor Corp. USA and Team Bozeman Motorsports and Tingley’s LLC in Montana. As previously reported in Powersports Business, Yamaha Motor Corp. USA filed a civil complaint asking a federal court to interpret Montana’s Motorsports Vehicle Manufacturer Unfair Trade Practices law. In short, the law requires powersports manufacturers to offer the same price on every unit sold to every Montana motorsports dealer, along with prohibiting a manufacturer or distributor from offering a sales program that would result in one dealer paying less for a unit than another dealer and maintain equal procedures for delivering new products to dealers.
Yamaha stated in its civil complaint that it has undertaken steps to modify its wholesale sales programs to authorized Yamaha motorsports dealers, and has ceased offering wholesale sales programs and incentives that would reduce the price of units or accessories to certain Montana dealers. Yamaha continues to offer wholesale sales programs to authorized Yamaha dealers in other states, which in some cases are priced lower than what is offered to Montana dealers.
Team Bozeman and Tingley’s filed a complaint stating that Yamaha’s actions resulted in discrimination against Montana dealers, and subsequently filed a countersuit against Yamaha for monetary damages to make up for discounts they believe should have been offered to Montana dealers as well.
At the heart of both complaints is one very complicated question: Does Montana’s law provide illegal economic protection to its dealers and place an undue burden on Yamaha’s ability to conduct interstate commerce in the United States?
The answer varies widely depending on who you ask.
“Based on what I’ve read it seems to be a clear violation of the Interstate Commerce Clause,” said Roger Karles, a California-based lawyer who has been involved with commerce law for more than 20 years. “I’m not directly involved in this case so my knowledge of the case is limited, but it’s been clearly established in previous cases that states are on a short leash when it comes to passing laws that force any company to ‘jump through hoops’ to satisfy one state’s economic demands.”
Karles says one of the primary purposes of the Commerce Clause is intended to allow companies the freedom to conduct business in a matter that doesn’t hinder their ability to independent capitalism.
“This is not a schoolyard playground, where everyone gets an equal chance to go down the slide,” Karles said. “If a company wants to offer different discount programs to partners in other states, legal precedent is very clear that they have that right.”
Karles says to look outside the powersports industry for obvious examples of interstate commerce at work. “Why can you buy Coca-Cola for $1 cheaper in one store than another, or why can you find an item of clothing cheaper in different department stores?” he asked. “The reason is because companies are allowed that freedom to perhaps reward a better-selling store with bigger discounts, or raise prices in areas of higher demand. That’s capitalism at its best.”
Gray areas galore
Curtis Mayfield, a lawyer and professor at the University of Minnesota school of law, says although legal precedent generally favors a business’ right to free enterprise, there are legal standards that have been set in the past to prevent one-sided business practices.
“Probably one of the best examples are the oil companies and gasoline prices,” he said. “You have variations between states, but the majority of the differences in price lie in state taxes, etc. Products or services where demand is particularly high are controlled at a much higher level by the federal government, and the Commerce Clause can take a back seat in some of these cases.”
As for the issues surrounding the Yamaha/Bozeman case, Mayfield says a big factor in the case will depend on the amount of information lawyers for Team Bozeman can uncover during the discovery phase of the case. The trial date for the case has been set for Nov. 9, 2009.
“Maybe they’ll find wide variations in wholesale program pricing, or steep discounts for dealerships that didn’t meet certain performance expectations,” he said. “If that happens then they’ll have a strong case. If the variations are minimal between dealers in other states, then they’re going to have a harder time proving economic hardship.”
Heavy ramifications loom
Both Karles and Mayfield say the final outcome of the case will have wide-reaching ramifications for the powersports industry, although it might be years before the issue is settled.
“There are other states watching this like a hawk, California included, that would jump on the opportunity to pass similar legislation to Montana’s if Bozeman wins this suit,” Karles said. “It would be a complete domino effect, and with each new set of legislation passed, you’ll most likely have another civil lawsuit filed by a manufacturer. I know California is certainly watching this closely, and has legislation already penned and ready for passage. I think Yamaha has no choice but to fight this one hard, because the consequences of losing will be severe.”
Mayfield believes in the end, precedent will likely win out in this case.
“Yamaha is a large company and I’m sure the volume of business it does in this country is extraordinary,” he said. “The Commerce Clause is solid protection for them, as it is for most companies, and based on what I’ve seen in similar cases in the past decade or so, I don’t think the courts will want to give so much power to a particular state. But I could be wrong, again it’s early in this suit and who knows what information will come forward.” ?