Court Rejects Virginia Dealer Law

A three-judge panel of the 4th U.S. Circuit Court of Appeals has ruled that a provision in the Virginia motorcycle dealer franchise law offers an unconstitutional amount of protection for existing powersports dealers and unduly burdens interstate commerce.
The appeals ruled in favor of Yamaha Motor Corp. USA in a lawsuit it filed against the commissioner of the Virginia Department of Motor Vehicles (DMV) and Jim’s Motorcycle Inc., of Bristol, Va.
The provision in question was a second paragraph in the Virginia dealer franchise law that requires a manufacturer or distributor to give dealers notice prior to the creation of an additional franchise in the state. Then, any dealer retailing the same brand in the state is entitled to file an objection with the Virginia DMV and allowed a hearing if it can be proven the proposed dealership would severely affect the existing dealership’s business.
The case began in October 2000, when Yamaha Motor Corp., Cypress, Calif., said it planned to add Mountain Suzuki in Rosedale, Va. as a retailer.
A paragraph preceding the argued paragraph in the dealer franchise law allows retailers to protest the granting of a franchise within 20 miles of their existing dealership. Since Jim’s Motorcycle, Inc. (doing business as Atlas Honda/Yamaha/Suzuki/Kawasaki) was 26 miles away from the proposed franchise, the retailer filed a protest with the DMV under the second paragraph, and the commissioner ruled Jim’s was entitled to a formal evidentiary hearing.
On July 25, 2001, Yamaha sued Virginia’s DMV commissioner and Jim’s in district court seeking an injunction prohibiting the paragraph’s enforcement. Yamaha charged that the second paragraph within the law discriminates against interstate commerce.
The district court’s July 2003 judgment upheld the provision within the law, but the federal appellate court’s recent decision reversed it and ruled in favor of Yamaha.
“The unnecessary and excessive breadth of the second paragraph persuades us that the statute’s burdens clearly exceed its benefits,” Judge M. Blane Michael wrote in the court’s 18-page opinion. “To begin with, the second paragraph is uniquely anti-competitive even as dealer protection laws go.”
Michael said the second paragraph “creates a barrier to market entry because of the virtual certainty of a protest whenever a manufacturer attempts to authorize a new dealership.”
“Thus, manufacturers cannot plan franchise expansion in Virginia as they can in other states; instead, they are forced to play a waiting game that could take years,” he said.
The second paragraph of the Virginia motorcycle dealer franchise law was enacted in 1997. The appeals court found no historical purpose for the paragraph’s creation, but the defense argued that the added protection was needed because, in contrast to automobile dealerships, which make roughly 95% of their sales within a 20-mile radius, motorcycle dealerships typically sell within a 40-mile radius. Moreover, the defense said dealerships were at the time complaining that they were not sufficiently supplied the top-selling models, and said it believes the paragraph’s addition aimed to avert any reduction in product allocation.
—Guido Ebert

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