The state of Virginia wanted to protect its automobile dealers from exploitation. Saturn Corp., the new General Motors subsidiary dedicated to changing the way the business is run, also wanted to protect its dealers from exploitation.
The two forces, however, directly butted heads over what was protection and what was exploitation. And it now looks as though GM has won.
In its "Mission and Philosophy" statement, Saturn says it means "to further the spirit of trust and respect" between manufacturer and dealer. To do that, Saturn developed a detailed system to settle disputes between the two parties, a system under which conflicts ultimately would be submitted to binding arbitration. All dealers must agree to accept the dispute-settlement mechanism.
But Virginia, in its Motor Vehicle Dealer Licensing Act, mandated that all car dealers must be left free access to "procedures, forums and remedies" provided by state law. In other words, they can go to court if they want to -- something not allowed by the Saturn dealer contract.
The state motor vehicle commissioner told Saturn he would approve a contract with an arbitration clause that both Saturn and the dealer wanted, but would not accept the master agreement if the alternative dispute mechanism was nonnegotiable.
Saturn sued, but in August lost the first round when Judge Richard L. Williams of the U.S. District Court in Richmond said that GM had to bow to the Virginia ruling. Now the U.S. Court of Appeals in Richmond, by a 2 to 1 vote, overturned Williams and in Saturn v. Williams told the carmaker it can insist on the arbitration provision.
The key question is whether Congress, in passing the Federal Arbitration Act, preempted the regulatory field so completely that it left Virginia no room to enact its own rules.
Last year, the U.S. Court of Appeals in Boston threw out a Massachusetts regulation that forbade securities dealers from insisting that in order to open an account customers had to agree that all disputes would be settled by arbitration. The federal act leaves the states no room for such a requirement, the Boston judges found.
Virginia insisted that precedent was not applicable to the auto dealer situation, because the Virginia law does not single out arbitration at all. For instance, if Saturn insisted that all litigation under the dealer contract be filed in one particular court, that might well violate the Motor Vehicle Dealer Licensing Act. But the appellate judges on June 6 ruled that is beside the point: The federal arbitration law is meant to encourage arbitration, and any state law, no matter what else it covers, that puts burdens in the way of setting up arbitration arrangements is in conflict with the congressional mandate and therefore invalid.
In other cases, courts ruled that:
It's up to the jury, not the judge, to decide if the testimony of an expert witness is worth anything.
The U.S. Court of Appeals said the trial judge made a mistake in not allowing heirs claiming that a worker died from colon cancer caused by on-the-job exposure to cadmium and nickel to put on the stand a doctor who agreed with them. The judge had noted that there was no epidemiological nor biological proof of the linkage, but the appellate ruling said it was the jury's job to weigh that fact against the expert's theory of causation.
Last year the same appellate court held that a woman who took Bendectin could not collect damages for her child's birth defect because there is no epidemiological proof that the drug is harmful. In the newest case, the judges refused to extend that ruling to cases involving other suspected hazards.
Christophersen v. Allied-Signal, June 4 It doesn't matter if an auditor misses major financial problems if a firm's management wouldn't have done anything about them anyway.
The U.S. Court of Appeals in Washington threw out a jury verdict telling an accounting firm to pay $11 million in damages because it painted too rosy a picture of Auto-Train's financial conditions. The accountants overstated the value of rolling stock and didn't realize that the company had not sent the Internal Revenue Service payroll taxes withheld from employees. The appellate judges found that there was enough other evidence that the company was faltering, and that a much more strongly worded statement from the auditors would not have led the directors to take drastic action or to cut losses by filing for bankruptcy sooner than they did. Drabkin v. Alexander Grant, June 15 The Internal Revenue Service has to consider how knowledgeable an individual taxpayer is. Overturning the U.S. Tax Court, the U.S. Court of Appeals in New Orleans said a couple taken in by a plan to lease energy-saving devices and then rent them to others should not have been assessed penalties on their tax deficiencies.
The tax collectors said the couple had been negligent in overvaluing the equipment they leased, but the appellate court pointed to their limited education and financial unsophistication and said the IRS was applying "a far too stringent standard" of how carefully they should have probed the claims of the promoters of the scheme.
Heasley v. Commissioner, June 5 A parent company isn't responsible for the safety conditions at a subsidiary. Even though the parent corporation had inspected the work site, it had done so for insurance purposes and that cannot be interpreted as taking on the duty of seeing that regulations are obeyed, the Idaho Supreme Court ruled. The justices said the family of a worker killed by a truck that did not have the reverse alarm required by Occupational Safety and Health Act have no legal grounds for suing the parent corporation.
Bowling v. Parsons Cos., June 1 Daniel B. Moskowitz is a Washington editor for Business Week newsletters.