In the fiercely competitive world of auto dealerships, the scales of power have traditionally tipped heavily in favor of manufacturers. Recognizing the need to address this power imbalance and protect the rights of auto franchisees, the New Jersey Legislature enacted significant amendments to the New Jersey Franchise Practices Act (N.J.S. 56:10-1, et. seq.) ( the “Act” or “NJFPA”) in 2011.
The amended Act aimed to redefine the dynamics of the industry, ensuring fair treatment for dealers and safeguarding consumer interests. By expanding the radius for filing protests, shifting the burden of proof onto manufacturers, and introducing new provisions for dealer protection, the amended Act reshaped the landscape of the New Jersey auto industry.
The Challenges Faced by Dealer Counsel
Since its adoption in 1982, the protest provisions (see N.J.S. 56:10-19) in the NJFPA had posed significant challenges for dealerships and their counsel in protest cases. The Motor Vehicle Franchise Committee oversees such matters. Dealers often found themselves on the losing end of protest actions because of the unequal bargaining positions and the burden of proof placed upon them.
Recognizing the need to rectify these issues, the New Jersey Legislature took decisive action to empower dealers and create a fairer environment for all parties involved.
Leveling the Playing Field
The most significant alteration through the amended Act was the expansion of the radius within which dealers could file protests. Under the previous statute, only dealers within an eight-mile radius had the right to protest a manufacturer’s proposed new point or reopening of a point. The amended Act extended this radius to fourteen miles, ensuring that more dealers had a say in critical business decisions that could directly affect their livelihoods.
Additionally, the amended Act required manufacturers to provide a minimum of ninety days’ advance notice to all dealers within a twenty-mile radius of a proposed point. This provision aimed to enhance transparency and give dealers enough time to evaluate the potential implications for their businesses and make informed decisions about their future in the industry.
Shifting the Burden of Proof
Another significant and empowering change introduced by the amended Act was the shift in the burden of proof from dealers to manufacturers. Under the previous statute, a dealer’s counsel had the arduous task of demonstrating that the proposed point was injurious to existing dealers or the public interest. This burden, at times, proved insurmountable, resulting in favorable decisions for the manufacturers.
The amended Act, however, established a rebuttable presumption that the proposed point is deemed injurious unless the manufacturer can present evidence to the contrary. This pivotal change placed the burden of proof on the manufacturer’s shoulders. It allowed dealers to present a stronger case and have their voices heard.
Under Section 56:10-23, manufacturers must establish four key factors by a preponderance of the evidence to rebut the presumption:
a. The grant, reopening or reactivation of a franchise or establishment, or the reopening or reactivation of a business shall be deemed injurious to existing franchisees or to the public interest unless the franchisor proves, by a preponderance of the evidence, that:
(1) The proposed franchise or business would materially enhance the availability of stable, adequate and reliable sales and service to purchasers of vehicles in the same line make in the market area served by the franchisees entitled to notice;(
2) The proposed franchise or business would not affect the stability of existing franchisees in the same line make;
(3) The existing franchisees in the same line make have not provided adequate representation of the line make in their market areas for a period of at least two years based on the availability of motor vehicle sales and service facilities, equipment, supply of motor vehicle parts and qualified service personnel;(
4) The franchisor’s action is in good faith.
Furthermore, the amended Act gave dealers the right to sue in Superior Court, seeking to enjoin the grant of a point if the manufacturer fails to provide the required notice to dealers within the twenty-mile radius. Successful dealers in such cases are entitled to an award of reasonable attorneys’ fees, court costs, and expenses, providing an added layer of protection and support.
Choice of Law Provisions
Recognizing the inherent unequal footing between dealers and manufacturers, the amended Act prohibits manufacturers from inserting choice of law provisions in franchise agreements. The NJFPA expressly prohibits requiring a franchisee to agree to a release or waiver of the protections afforded to franchisees by the NJFPA. See Sec. 56:10-7(a):
It shall be a violation of this act for any franchisor, directly or indirectly, through any officer, agent or employee, to engage in any of the following practices:
Likewise, the New Jersey Supreme Court has ruled that forum selection clauses requiring that any legal action be filed in a forum that could be distant and inconvenient for the dealership are presumptively invalid.
In Kubis v. Perszyk Assoc., v. Sun Micro Systems, Inc. 146 NJ 176 (1996), the Court held that “…we hold that forum selection clauses in franchise agreements are presumptively invalid, and should not be enforced unless the franchisor can satisfy the burden of proving that such a clause was not imposed on the franchisee unfairly because of its superior bargaining position.”
Kubis at 194-95.
Challenges and Implications
The amended Act raised questions regarding the interpretation of undefined terms, such as “market area” and “area of primary responsibility or territory.” The ambiguity surrounding these terms has led to complexity in legal proceedings, as different manufacturers employ varied vocabulary and procedures for different locations.
The Amended Protest Statute has undoubtedly transformed the auto industry landscape in New Jersey. By expanding the radius for filing protests, shifting the burden of proof, and providing additional protections for dealers, the Legislature has taken significant steps to empower dealerships and level the playing field. While challenges and interpretations of certain provisions may arise, the fundamental aim of the amended Act remains clear: to protect the interests of auto franchisees, ensure fair competition, and safeguard consumer interests. With these groundbreaking amendments, New Jersey has set an example for other states seeking to address the power imbalances between manufacturers and dealers in the auto industry.
New Jersey Auto Dealer Protest Actions Attorneys
Schiller, Pittenger & Galvin, P.C. advises and assists New Jersey motor vehicle dealers in all aspects of their business. This includes representing dealers in protest actions.
The firm’s auto dealer lawyers have represented New Jersey auto dealers in consumer fraud actions, advertising violations and manufacturer disputes.
Lastly, the firm’s lawyers have represented clients in the purchase and sale of auto franchises for over 30 years.
If you are an auto dealer and have a legal question or issue, contact the New Jersey auto dealer attorneys at Schiller, Pittenger & Gaffney, P.C. You can call them in their Scotch Plains office at 908-490-0444 or email them here.