Nissan North America v. Jim M'Lady Olds

Citation: Not availableDocket: 01-2993

Court: Court of Appeals for the Seventh Circuit; October 3, 2002; Federal Appellate Court

Original Court Document: View Document

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Jim M’Lady Nissan appeals a district court order mandating arbitration regarding Nissan North America’s decision to terminate M’Lady as a dealer. The court expressed doubts about Nissan’s evidence supporting arbitrability and highlighted M’Lady’s insufficient opportunity to contest this evidence due to the procedural posture of the case, leading to a remand for further proceedings.

In 1992, Nissan and M’Lady established a dealer agreement, initially set to expire on April 1, 1995, but extended to May 1, 1999, through "Amendment No. 4," which stipulated binding arbitration as the exclusive dispute resolution method. Despite the agreement’s expiration, M’Lady continued operations as a Nissan dealer. Tensions arose when Nissan claimed M’Lady failed to meet showroom construction deadlines, culminating in a termination notice on October 3, 2000.

M’Lady contested the termination with the Illinois Motor Vehicle Review Board, while Nissan sought arbitration and moved to stay the Board proceedings. The Board initially denied the stay and ordered discovery. M’Lady abstained from arbitration, leading the arbitrator to proceed without its participation. Subsequently, Nissan filed a petition in federal court under the Federal Arbitration Act to compel arbitration and halt Board actions. M’Lady responded with a motion to dismiss based on the Colorado River abstention doctrine due to parallel proceedings before the Board. The district court permitted M’Lady to respond to Nissan's petition after addressing its motion to dismiss, agreeing that a ruling on abstention would precede further consideration of Nissan's arbitration request.

The court decided to isolate the issues in the case by striking previous motions and setting a deadline for Nissan to respond to M’Lady’s motion to dismiss. Instead of addressing the motion and the petition separately, the district court issued an order on June 21 that denied M’Lady’s motion to dismiss, stayed the Board proceedings, and granted Nissan’s petition to compel arbitration. The court found that the "termination dispute" was connected to the dealer agreement that the parties had agreed to arbitrate under Amendment No. 4. M’Lady later moved to alter or amend the judgment under Federal Rule of Civil Procedure 59(e), which the district court denied, prompting M’Lady to appeal.

The appellate court noted agreement with the district court's refusal to stay Nissan's petition to compel arbitration, which is reserved for exceptional circumstances, and found no issue with the temporary stay of Board proceedings. The disagreement arose from the handling of the arbitration petition. M’Lady argued that the district court erred in compelling arbitration based on an expired dealer agreement that contained the only arbitration clause, asserting that the current "termination dispute" arose under a subsequent oral contract without an arbitration clause. M’Lady contended that it should have been allowed to present evidence of this oral contract.

The court acknowledged M’Lady's argument and criticized Nissan’s position, which suggested that any dispute would be presumed arbitrable under the expired contract. This interpretation could lead to an overbroad application of arbitration, forcing parties to arbitrate issues they did not intend to include. Citing the Supreme Court’s ruling in Litton Financial Printing Division v. NLRB, the court clarified that the presumption of arbitrability does not apply to expired fixed-term contracts. Therefore, the court must examine whether the specific dispute falls within the scope of the arbitration agreement, even if that requires contract interpretation. The court emphasized that a contract that expired in 1999 could not serve as the basis for the current dealership arrangement, and thus the termination of that relationship could not be related to the expired contract without additional evidence.

Nissan claims the original contract with M’Lady has not expired due to repeated waivers of the expiration date; however, Nissan only submitted letters proposing extensions without clarifying M’Lady's acceptance. Some letters merely indicate Nissan's willingness to refrain from terminating the contract due to alleged breaches by M’Lady. Additionally, Nissan inconsistently argues that the original contract expired but that the parties continued operating under an identical agreement, indicating a lack of clarity in any existing arrangement. Nissan fails to provide any written agreements beyond the expired contract, while M’Lady aims to introduce evidence of an oral contract governing their current relationship. Nissan's counterargument that M’Lady is "estopped" from presenting this evidence is deemed undeveloped and unsupported, leading to its waiver. M’Lady is allowed to present this evidence upon remand. The district court's order to compel arbitration is vacated, and the case is remanded for further proceedings, with the district court to decide on the continuation of a temporary stay of Board proceedings. Circuit Rule 36 applies on remand.