Overview
In July 2024, the United States District Court for the Western District of Oklahoma stayed the lawsuit filed by American Honda Motor, Co., Inc. (“American Honda”) against Honda dealer M&N Dealerships, VI, LLC (“M&N”) to assert a contractual and statutory right of first refusal, after M&N filed its own separate litigation against American Honda with the state motor vehicle commission.[1]
In June 2023, a third party offered to purchase all three of M&N’s dealerships (one of which was a Honda dealership) and their associated real estate. M&N accepted the offer and executed purchase agreements with the buyer.
The dealer agreement between American Honda and M&N gave American Honda a right of first refusal (“ROFR”) over any potential sale of the Honda dealership. Oklahoma law further allows manufacturers to exercise a statutory ROFR if they pay the selling dealer the same or greater consideration it would have received from the third-party buyer (among other requirements).[2] In other words, American Honda has a contractual and statutory right under Oklahoma law to “buy back” a Honda dealership that the dealer would otherwise seek to sell to a third-party buyer.
To determine if it wanted to exercise its ROFR, American Honda required M&N to separate its Honda dealership into its own standalone purchase agreement. M&N agreed to do so, but included a provision in the revised purchase agreements that made the sale of the Honda dealership contingent on the sale of the other two dealerships.
After receiving the revised agreements, American Honda gave notice that it was exercising its ROFR with respect to M&N’s Honda dealership. Relying on the provision it included in the revised agreements, M&N walked away from the entire transaction, declined to sell the other two non-Honda dealerships, and refused to separately sell the Honda dealership back to American Honda.
On February 13, 2024, American Honda filed a declaratory and breach of contract action in the Western District of Oklahoma to determine the parties’ rights and duties under both the Dealer Agreement and Oklahoma law (including whether American Honda could exercise its ROFR).
Three weeks after American Honda filed its federal lawsuit, M&N filed a complaint with the Oklahoma Motor Vehicle Commission (“OMVC”), asking the OMVC to enjoin American Honda from exercising its ROFR. M&N then asked the federal court to stay American Honda’s lawsuit, on the ground that the federal court should abstain from hearing the case because it was “duplicative of a pending state proceeding.”
The federal court agreed with the dealer and ruled that the federal lawsuit should be stayed pending resolution of the OMVC proceeding.[3] The Court applied a two-step test to determine that it should abstain from hearing American Honda’s federal lawsuit. The Court asked: (1) whether the state and federal proceedings were parallel; and (2) if the proceedings were parallel, whether exceptional circumstances warranted abstention.
- As to the first step, American Honda argued that the proceedings were not parallel because the state proceeding was before a state administrative agency, not a court. The Court rejected that argument because the OMVC functioned in a judicial capacity and based upon a recent decision in another federal district court that reached the same conclusion.[4]
- As to the second step, the Court found that exceptional circumstances warranted abstention because there was a chance the two proceedings would lead to differing results and because state law governed the interpretation of the Dealer Agreement and statutory ROFR. The Court also noted that the proceedings were filed at virtually the same time, despite American Honda filing suit three weeks before the dealer, and that the parties and claims were substantially identical in the two proceedings.
The Western District of Oklahoma’s decision has two implications. First, it is another example of how dealers may seek to frustrate a manufacturer’s effort to exercise a ROFR. In this case, American Honda possessed both a contractual and a statutory ROFR for the at-issue Honda dealership. But the dealer, by walking away from the entire transaction for all three dealerships after American Honda declared that it intended to exercise the ROFR, prevented American Honda from buying the Honda dealership unless it also found a buyer for the other two non-Honda dealerships.
Second, manufacturers are not often the plaintiff in a dispute. In the few cases where they are the plaintiff, manufacturers may prefer the consistency, reliability, and uniformity of the federal courts. This case illustrates, however, how a dealer can potentially frustrate a manufacturer’s choice of forum and litigate the matter in a state administrative forum that it may believe is more favorable.
BFKN will continue to monitor this case and similar cases affecting automobile manufacturers.
1 Am. Honda Motor Co., Inc. v. M&N Dealerships VI, LLC, No. 5:24-cv-00165, 2024 WL 3543465 (W.D. Okla. July 25, 2024).
2 Okla. Stat. tit. 47, § 565(B).
3 Alternatively, the Court held that even if a stay had been inappropriate under the abstention doctrine suggested by the dealer, it would have entered a stay pursuant to its inherent discretion.
4 Sour Grapes, LLC v. Vinum USA, LLC, No. 1:22-cv-203-MOC-WCM, 2024 WL 561118 (W.D.N.C. Feb. 12, 2024).