The Franchise Memorandum

In Volvo Trucks North America, Inc. v. Crescent Ford Truck Sales, Inc., 2008 WL 506099 (E.D. La. Feb. 21, 2008), the court considered questions regarding the arbitrability of a suit between an automobile manufacturer and one of its dealers. After Volvo issued Crescent Ford a notice of non-renewal of the parties’ dealer agreement, Crescent filed a petition with the Louisiana Motor Vehicle Commission (“LMVC”) to preclude the termination, arguing that Volvo failed to properly allege just cause for the termination as required under Louisiana law. As part of the proceedings before the LMVC, Volvo then filed a motion to compel arbitration pursuant to the terms of the dealer agreement. When that motion was denied, Volvo filed a petition for review in state court. The state-court action was pending when Volvo also filed a complaint in federal district court seeking an order directing the parties to proceed to arbitration, enjoining Crescent and the LMVC from setting the case for trial on the merits prior to a final decision regarding the right to arbitration, and for a declaratory judgment that various provisions of the federal Automobile Dealer’s Day in Court Act were applicable to the rights of the parties.

Crescent responded with a motion to dismiss the federal action. It contended that the court lacked subject matter jurisdiction and also should decline to hear the matter pursuant to applicable abstention doctrines. Volvo argued that the court had subject matter jurisdiction because its claims implicated both the Federal Arbitration Act (“FAA”) and the Automobile Dealer’s Day in Court Act (“ADDCA”). The court held that the FAA did not provide an independent basis for jurisdiction, nor did three of the cited sections of the ADDCA. Section 1226 of the ADDCA, however, did provide subject matter jurisdiction; that provision states that arbitration may be used to settle a controversy involving a motor vehicle franchise “only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.” The parties disputed whether that provision was applicable during the period in question. That question was one of arbitrability, which was the key issue before the court, so it did create a basis for subject matter jurisdiction.

Crescent also argued that the court should abstain from exercising jurisdiction under the Burford and Younger abstention doctrines. The court disagreed. It held that abstention under either doctrine was not required. The court noted that its limited inquiry into the validity and enforceability of the arbitration clause would not unduly intrude into Louisiana’s processes of governing automobile sales, and that abstention generally is not proper in a suit to determine whether parties are entitled to arbitration under the FAA.