ATV Dealer Failed to Prove that Distributor’s Appointment of Competitor Will Lead to ‘Ruinous Competition’

A dealer of all-terrain vehicles (ATVs) failed to prove that competition would be suppressed, not advanced, if a competitor was appointed to sell the same product line, the Commonwealth Court held in Arctic Cat Sales, Inc. v. State Board of Vehicle Manufacturers, Dealers and Salespersons, __ A.3d __ (No. 1151 C.D. 2014, filed February 23, 2015). Arctic Cat Sales, a distributor of ATVs, notified two recreational vehicle dealers in York County, Neiman’s Garage & Equipment and Kennedy RV & Powersports, that it intended to offer its full ATV product line through both dealers. Neiman, which already sold Arctic Cat ATVs, filed a protest with the Board, arguing that the relevant market area could not support the appointment of Kennedy as a new dealer. The Board sustained Neiman’s protest, finding that “while there is likely to be a short-term price competition

[with Kennedy’s appointment], in the long-term there is likely to be a financial failure or withdrawal from the ATV market of either [Neiman] or [Kennedy], or both,” resulting in less competition for Bass Pro Shops, a large retailer in close proximity to both dealers.

Arctic Cat Sales petitioned for review by the Commonwealth Court, which reversed the Board’s decision. Judge Leavitt, joined by Judge Leadbetter, reiterated that, under the Board of Vehicles Act, there is a presumption that the appointment of a new dealer is valid, and the burden is on the protestant to establish good cause for not permitting the appointment. The majority concluded that the record evidence cited by the Board did not support its prediction that Kennedy’s appointment would lead to “ruinous competition” with Neiman. The majority also found no foundation in the record for the Board’s theory that Arctic Cat Sales’ ulterior motive was to force Neiman and Kennedy out of business and leave Bass Pro Shops as its exclusive dealer in the region.

In a dissenting opinion, Judge Simpson noted that it was undisputed that Kennedy’s predecessor dropped its Arctic Cat franchise when Bass Pro Shops entered the market. Based on this historical record, Judge Simpson would defer to the Board’s reasonable inference that appointing an additional dealer now would cause at least one dealer to leave the market. Judge Simpson also shared the Board’s concern that Arctic Cat Sales “was using the addition of a new competing ATV franchise as a stealth squeeze on a small, underperforming existing dealer [Neiman] under more favorable administrative rules than would attach to a straightforward refusal to renew a franchise agreement.”

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By | 2017-05-19T22:51:30+00:00 March 20th, 2015|Categories: Administrative Law|Tags: , , |Comments Off on ATV Dealer Failed to Prove that Distributor’s Appointment of Competitor Will Lead to ‘Ruinous Competition’

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