L. Michael Hankes  |  ATTORNEY AT LAW
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The Impact of Contract Interpretation on Encroachment Issues

As the Meineke chain has set­tled into the post-Broussard era,1 it has faced issues deal­ing with expan­sion, which may be exac­er­bated by the chang­ing nature of the auto­mo­bile after­mar­ket. The Meineke Dis­count Muf­fler Shop has now become the Meineke Car Care Cen­ter, com­plete with the neces­sity for new shops to invest in equip­ment not pre­vi­ously required to open a Meineke shop.

Over the course of the past eigh­teen (18) months or so, exist­ing Meineke deal­ers have con­fronted encroach­ment issues as Meineke has sought to locate shops open­ing under new fran­chise licenses. This one issue has been raised by a num­ber of deal­ers who have been impacted by Meineke’s shop place­ment deci­sions and it is there­fore the sub­ject of this article.

There are those who may be under mis­taken impres­sion that the ter­ri­to­r­ial pro­tec­tion found in para­graph 2.3 of the cur­rent Meineke fran­chise period was nego­ti­ated in the 1999–2000 time period. It was not. The ter­ri­to­r­ial pro­tec­tion which existed in the Meineke fran­chise agree­ment prior to 1999–2000 time period remains unchanged. Each dealer received a two (2) mile pro­tected radius and a 50,000 car lim­i­ta­tion on Meineke’s abil­ity to expand near the exist­ing shop, regard­less of the two (2) mile radius. Thus, the 50,000 car lim­i­ta­tion had the poten­tial to increase the dealer’s effec­tive ter­ri­to­r­ial pro­tec­tion well beyond the two (2) mile radius, espe­cially in rural areas.

What is curi­ous, is that Meineke has taken the posi­tion that the 50,000 car pro­tec­tion does not travel with each shop, but rather that a mar­ket can sup­port as many shops as the 50,000 car limit can jus­tify. For exam­ple, Meineke’s posi­tion in recent months has been that if there are 350,000 cars in a mar­ket it can place seven (7) shops in that mar­ket with the only lim­i­ta­tion being the two (2) mile pro­tected radius and the three (3) mile radius trig­ger­ing the right of first refusal.2

This new inter­pre­ta­tion of the 50,000 car lim­i­ta­tion runs con­trary to the lan­guage of para­graph 2.3 and Meineke’s own pub­licly declared inter­pre­ta­tion of it. Many deal­ers will recall that fol­low­ing the rever­sal of Brous­sard trial court ver­dict in 1998, Meineke issued a fran­chise agree­ment which encour­aged the exist­ing deal­ers to sign in a num­ber of ways. For the pur­poses of this arti­cle, we will focus on the Q & A issued by Meineke dur­ing the “res­o­lu­tion period”, which was defined as the early part of Decem­ber, 1998.

In respond­ing to ques­tions raised by exist­ing deal­ers at the time, Meineke pro­vid­ing the fol­low­ing exchange about the deal­ers’ ter­ri­to­r­ial pro­tec­tion to the deal­ers on page 7 of a doc­u­ment enti­tled “Ques­tions and Answers Meineke Res­o­lu­tion Package”

Q. What ter­ri­to­r­ial pro­tec­tion is included in the new agreement?

A. The new Agree­ment con­tains the best of all the pre­vi­ous con­tracts i.e. a limit of 50,000 vehi­cles per license in an MSA, an exclu­sive ter­ri­tory within a 2 mile radius and a right of first refusal on any loca­tion between 2 and 3 miles of your shop. In addi­tion, Meineke will imple­ment a new Encroach­ment Policy.

A plain read­ing of Meineke’s Q & A response quoted above, clearly indi­cates that each Meineke shop has a 50,000 car pro­tec­tion (i.e. “per license”) and that the two (2) mile pro­tected radius is in addi­tion to that 50,000 car lim­i­ta­tion on Meineke’s expan­sion capa­bil­i­ties. The lan­guage in the first para­graph of Sec­tion 2.3 of the Novem­ber 1998 Meineke con­tract which Meineke described above, did not change in the cur­rent agree­ment, when it was nego­ti­ated in the 1999–2000 time period. Clearly Meineke’s own inter­pre­ta­tion of the deal­ers’ ter­ri­to­r­ial pro­tec­tion was that the 50,000 car lim­i­ta­tion attached to each license in the mar­ket and fol­lowed the his­tor­i­cal inter­pre­ta­tion of the lan­guage in ear­lier agreements.

What was nego­ti­ated and what did change dur­ing the 1999–2000 time period was the encroach­ment pol­icy issued by Meineke in late 1998. That doc­u­ment was replaced by a mod­i­fied ver­sion of an ear­lier encroach­ment pol­icy that had been under dis­cus­sion prior to the August, 1998 rever­sal of the Brous­sard trial court ver­dict by the United States Court of Appeals for the Fourth Cir­cuit. Unfor­tu­nately, the present encroach­ment pol­icy remains an area where our nego­ti­at­ing team was least effec­tive. That encroach­ment pol­icy offers lit­tle in the way of pro­tec­tion or com­pen­sa­tion for a dealer impacted by the place­ment of a new shop. Deal­ers should also beware, because invo­ca­tion of that encroach­ment pol­icy by a dealer will waive the dealer’s rights to pur­sue tra­di­tional legal remedies.

It is against this back­drop of con­tract inter­pre­ta­tion that our next arti­cle will dis­cuss real issues faced by real deal­ers con­fronted with Meineke’s place­ment of new shops uti­liz­ing its expanded view of the 50,000 car lim­i­ta­tion appear­ing in para­graph 2.3 of the cur­rent fran­chise agreement.

  1. Brous­sard et al. v. Meineke Dis­count Muf­fler Shops, Inc. et al., was the class action suit which was pend­ing from 1993 until 1998, when the United States Court of Appeals for the Fourth Cir­cuit over­turned the March, 1997 trial court ver­dict against Meineke for mis­use of adver­tis­ing funds.
  2. As many deal­ers know, para­graph 2.3 of the cur­rent con­tract requires that Meineke offer the exist­ing dealer a right of first refusal in Meineke locates a new shop out­side the dealer’s two (2) mile pro­tected radius, but within a three (3) mile radius of the dealer’s exist­ing shop.

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.