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KNAUZ CONTINENTAL AUTOS, INC. v. LAND ROVER NORTH

November 9, 1993

KNAUZ CONTINENTAL AUTOS, INC., Plaintiff,
v.
LAND ROVER NORTH AMERICA, INC., as successor in interest to Range Rover of North America, Inc., Defendant.


MORAN


The opinion of the court was delivered by: JAMES B. MORAN

Plaintiff Knauz Continental Autos, Inc. ("Knauz"), a motor vehicle dealer, brought suit against defendant Land Rover North America, Inc. ("Land Rover"), a motor vehicle distributor, contending that Land Rover's dealer incentive program violates sections 4(b) and 4(e) of the Illinois Motor Vehicle Franchise Act, 815 Ill. Cons. Stat. 710/1 et seq. Land Rover filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that its dealer incentive program does not violate the Illinois statute. In the alternative, Land Rover contends that if this court interprets the incentive program to violate section 4(e), then that section violates the Commerce Clause of the United States Constitution. This court has jurisdiction due to diversity of citizenship. *fn1" For the reasons hereinafter stated, we grant Land Rover's motion in part and deny it in part.

 FACTS

 Defendant distributes automobiles to franchise dealers throughout the country. Plaintiff is a franchisee of Land Rover, authorized to sell and service Land Rover and Range Rover vehicles. In October 1990, defendant notified plaintiff of a new Customer Satisfaction Enhancement Program (the program). This three-part program provided dealerships with the opportunity to receive payments of between $ 800 and $ 1,700 per vehicle. At the same time that Land Rover began this program it raised the prices of each vehicle by $ 890.

 Part 1 of this program provided dealers with reimbursements of between $ 150 and $ 600 per vehicle sold, based on dealers reporting certain information to Land Rover and participating in vehicle preparation and sales training. *fn2" Part 2 is service satisfaction, which Land Rover evaluates based on quarterly samples of 12 customers. Payments in this category also range between $ 150 and $ 600 per vehicle. Part 3 provides for a $ 500 per vehicle payment, regardless of performance, for service satisfaction. To qualify for this payment dealers must appoint a customer relations manager, provide customers with a free loaner car for their first warranty visit, and provide free pick-up and delivery for those customers whose vehicles require repeated warranty repairs. The program includes certain threshold qualifications for dealers to qualify for even the lowest award level. The Land Rover zone manager provides each dealer with a quarterly summary and review of performance.

 DISCUSSION

 In count I, Knauz alleges that Land Rover's program is a "device" or "sales program" which results in some dealers paying a lower price for Land Rover's vehicles in violation of section 4(e)(2) of the Motor Vehicle Franchise Act. This portion of the statute states, in pertinent part, that it is a violation of the statute for a distributor

 
to offer to sell or lease, or to sell or lease, any new motor vehicle to any motor vehicle dealer at a lower actual price there for than the actual price offered to any other motor vehicle dealer for the same model vehicle similarly equipped or to utilize any device including, but not limited to, sales promotion plans or programs which result in such lesser actual price or fail to make available to any motor vehicle dealer any preferential pricing, incentive, rebate, finance rate, or low interest loan program offered to competing motor vehicle dealers in other contiguous states.

 Knauz argues that the term "actual price" in the statute means the effective price, after rebate, while Land Rover contends that "actual price" is the price Land Rover charges dealers for the vehicle and does not include the rebate.

 Our starting point in deciding this issue is interpretation of the statute. The doctrine of Erie Railroad v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), requires us to look to the Illinois courts' interpretation of the statute. Unfortunately, neither the Illinois Supreme Court nor the Illinois Appellate Court have faced the issues raised by this case. Consequently, we must ascertain how the Illinois Supreme Court would interpret the provisions at issue here. See Green v. J.C. Penney Auto Ins. Co., 806 F.2d 759, 761 (7th Cir. 1986).

 Under Illinois law we must give effect to the legislature's intent. Collins v. Board of Trustees, 155 Ill. 2d 103, 610 N.E.2d 1250, 1253, 183 Ill. Dec. 6 (Ill. 1993); Antunes v. Sookhakitch, 146 Ill. 2d 477, 588 N.E.2d 1111, 1114, 167 Ill. Dec. 981 (Ill. 1992); Harvel v. City of Johnston City, 146 Ill. 2d 277, 586 N.E.2d 1217, 1220, 166 Ill. Dec. 888 (Ill. 1992). We first look at the words of the statute, viewing the entire statute. Collins, 610 N.E.2d at 1253; Antunes, 588 N.E.2d at 1114. Where the statutory language is unclear, a court may consider the legislature's purpose in enacting the statute, including the "evils to be remedied." Antunes, 588 N.E.2d at 1114; see Harvel, 586 N.E.2d at 1220. A court also may look to the legislative history in interpreting a statute where its language is not clear. Antunes, 588 N.E.2d at 1114. Where a statute does not provide specific definition of terms, we must give words their ordinary meaning.

 Unfortunately, the Illinois legislature did not define the term "actual price" in the statute. Therefore, we look first to the wording of the statute. Taking section 4(e) in its entirety, we see that the term "actual price" appears in two clauses. Distributors may not charge one dealer a different "actual price" from another dealer. Further, distributors may not use any device such as sales promotion plans that result in different "actual prices" to different dealers. Surely, the term "actual price" must mean the same in both clauses. The only logical way to harmonize these two clauses is to interpret them together, which results in one conclusion: that sales promotion plans can affect the "actual price."

 This reading of the statute raises the next question: whether Land Rover's program is a "sales promotion plan." To answer this question we read the third clause, prohibiting manufacturers from offering certain discount or rebate plans to dealers in other states without offering them in Illinois, together with the second clause. This shows the flaw in Knauz's argument because looking at the clear language of the third clause it appears that the General Assembly did not intend to prohibit incentive, and other such plans, so long as manufacturers also offered them in Illinois.

 A more reasonable interpretation of the statute, reading all three clauses together, is that the General Assembly intended to prohibit those "sales promotion plans" where manufacturers discounted motor vehicles to some dealers but not others, to help specific, possibly favored, dealers. Thus, such plans which affect the price the dealer pays would be ...


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