Peterbilt Motors Company (“Peterbilt”), a truck manufacturer, distributes its products through a network of dealership groups, including Sioux City Truck Sales (“SCTS”). Under Peterbilt and SCTS’s dealer agreement, Peterbilt is the franchiser and SCTS is the franchisee. In 2010, Peterbilt developed a new engine that it believed would require additional service locations. Peterbilt recommended SCTS develop a dealership in Clear Lake, Iowa for the service of those engines, but SCTS refused. Instead, in 2016, SCTS opened a parts-only store in Clear Lake which did not include services on Peterbilt equipment. In response, in August of 2017, Peterbilt sought approval from the DOT under the Motor Vehicle Franchisers Act to appoint Allstate as a dealer in the Clear Lake area.
The Motor Vehicle Franchiser’s Act, codified in Iowa Code chapter 322A provides for the fair trade practice by motor vehicle franchisers. Iowa Code section 322A.4 provides that a franchiser seeking to add an additional franchisee in a geographic area where there is already an existing franchisee must establish that the action is supported by “good cause” and is in “the public interest.” Specifically, section 322A.4 provides:
No franchiser shall enter into any franchise for the purpose of establishing an additional motor vehicle dealership in any community in which the same line-make is then represented, unless the franchiser has first established in a hearing held under the provisions of this chapter that there is good cause for such additional motor vehicle dealership under such franchise, and that it is in the public interest.
In considering whether good cause exists for entering into an additional franchise for the same line-make, Iowa Code section 322A.16 requires the department of inspections and appeals to take into account several factors, including but not limited to:
- Amount of business transacted by other franchisees of the same line-make in that community.
- Investment necessarily made and obligations incurred by other franchisees of the same line-make, in that community, in the performance of their part of their franchises.
- Permanency of the investment.
- Effect on the retail motor vehicle business as a whole in that community.
- Whether it is injurious to the public welfare for an additional franchise to be established.
- Whether the franchisees of the same line-make in that community are providing adequate consumer care for the motor vehicles of the line-make which shall include the adequacy of motor vehicle service facilities, equipment, supply of parts and qualified service personnel.
Finally, the legislature provided a series of definitions in Iowa Code chapter 322A. Specifically, under 322A.1(2), “community” means the franchisee’s area of responsibility as stipulated in the franchise. However, the legislature declared that the definitions in the chapter should be used “unless the context otherwise requires.”
The question before the Iowa Supreme Court was whether “that community,” for the purpose of the DOT’s consideration of whether the establishment of additional franchisee in a geographical area is in the public interest, means solely the area where the existing franchisee would compete, or rather the entire geographic area where the existing franchisee does business. In this case, Peterbilt argued the phrase “that community” means only the twenty-three-county-area in which SCTS and Allstate would compete. SCTS, on the other hand, argued “that community” means the entire seventy-one-county-area in which SCTS does business.
On appeal, the Iowa Supreme Court ruled in favor of Peterbilt’s interpretation, concluding that the twenty-three-county area where SCBS and Allstate would compete was the relevant geographical area to consider under Iowa Code section 322A.4. The Court found that when a franchiser seeks to add a new dealership to an area with an existing franchisee, the impact on the consumer is limited to the area where the two franchisees would compete. Therefore, the proper focus in determining whether the action is supported by good cause and is in the public interest is to look at that area of competition, rather than the entire area in which the existing franchisee serves.
Sioux City Truck Sales, Inc. v. Iowa Department of Transportation, et al., No. 20-0837 (Iowa June 3, 2022).