Clair Intern., Inc. v. Mercendes-Benz of North America, Inc.
| Decision Date | 07 February 1997 |
| Docket Number | No. 96-1398,MERCEDES-BENZ,96-1398 |
| Citation | 124 F.3d 314 |
| Parties | CLAIR INTERNATIONAL, INC. and Foreign Motors West, Inc., Plaintiffs, Appellants, v.OF NORTH AMERICA, INC., Defendant, Appellee. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Richard B. McNamara, Bedford, NH, with whom Gregory A. Holmes and Stephanie A. Bray, Manchester, NH, were on brief for appellants.
Mark P. Szpak, Boston, MA, with whom Peter K. Levitt, Washington, DC, and Ropes & Gray were on brief for appellee.
Before SELYA, Circuit Judge, ALDRICH and CYR, Senior Circuit Judges.
Plaintiffs Clair International, Inc. and Foreign Motors West, Inc. appeal from a district court judgment dismissing their respective claims for breach of contract and violation of Mass. Gen. Laws ch. 93B against Mercedes-Benz of North America ("MBNA"), the North American distribution organization for Mercedes-Benz automobiles. The central controversy concerns whether the restructuring effected by MBNA among its franchisees in the Greater Boston area during the mid-1990s breached its dealership agreement with plaintiffs-appellants. We affirm the district court judgment.
During the early 1990s, MBNA was represented by two dealerships in the North Shore area of Greater Boston: Auto Engineering, Inc. ("Auto Engineering"), located in Burlington, and Gauthier Motors, Inc. ("Gauthier"), located in Salem. Auto Engineering closed in April 1993, 1 leaving Gauthier as the Unable to secure a suitable investor, in October 1994 Gauthier decided to sell its dealership outright to Michael Cantanucci, an experienced automobile dealer who already owned more than twenty non-MBNA franchises. In due course, Cantanucci obtained a purchase and sale agreement on a parcel of land along Route 128, as the site of the proposed new, exclusive MBNA dealership. After completing a routine "due diligence" check, which took approximately one month, MBNA approved the franchise transfer to Cantanucci.
only MBNA presence on the North Shore. Gauthier, among the older Mercedes-Benz dealerships in the United States, operated from what MBNA considered an inadequate facility, a small, outmoded dealership located in downtown Salem. In early 1993, MBNA approved a plan for relocating the Gauthier dealership to Route 128, which would enable it to service the entire North Shore area. Whereupon, Gauthier began its search for an outside investor to finance its relocation plan.
The exclusivity provision was important to MBNA, which faced increased competition from new luxury automobile lines and planned to shift to larger, exclusive dealerships in order to meet the challenge. At the time, moreover, MBNA had no exclusive dealership in the Greater Boston area, and Mercedes-Benz was developing several new products, at least one of which, a sports utility vehicle, was to be sold only at exclusive dealerships.
Upon learning of the proposed location for the Cantanucci dealership, Herb Chambers, a Mercedes-Benz dealer in Somerville, Massachusetts, protested to MBNA, claiming that the proposed Route 128 site was too close to his Somerville dealership. In December 1994, Chambers brought an action against MBNA to enjoin construction of its proposed Route 128 dealership. Although the suit was dismissed in April 1995, six months had elapsed during which Cantanucci had not proceeded with construction of the new dealership facility due to the Chambers litigation.
Meanwhile, differences were developing between MBNA and Cantanucci concerning the proposed new dealership, particularly the timetable for construction, since MBNA had been without adequate North Shore representation for approximately two years. Moreover, during the summer of 1995 Cantanucci had agreed to acquire a Mercedes dealership in Connecticut, which concerned MBNA for two reasons. First, MBNA had never dealt with Cantanucci before, yet suddenly was faced with the prospect that he could control two MBNA dealerships in New England. Second, the $10,000,000 investment required for the Connecticut dealership could leave Cantanucci without adequate financing to proceed with the North Shore dealership, where MBNA considered an adequate Mercedes-Benz presence vital.
These concerns were borne out when Cantanucci approached MBNA for permission to construct a smaller facility on Route 128, then attempted to renege on the exclusivity provision. Although Cantanucci later agreed to meet the original terms after MBNA declined his request, the new permanent facility on Route 128 could not be completed for approximately ten more months, and Cantanucci declined to open a temporary service facility during the interim as MBNA had requested.
At this point, with Gauthier running out of operating capital and MBNA confronting the prospect that there might soon be no Mercedes-Benz presence on the North Shore, MBNA decided to offer its North Shore dealership to Chambers.
The MBNA decision was based in part on its perceived need to move quickly, due to the extended period during which the North Shore had been without a suitable Mercedes-Benz presence, especially in light of the competition from new luxury automobile lines being marketed at large, exclusive dealerships. Further, MBNA considered Chambers the Mercedes-Benz dealer best able to In the meantime, Chambers had agreed to operate a temporary MBNA dealership facility at a site in Lynnfield, Massachusetts, pending construction of the permanent facility. Finally, he not only agreed to operate an exclusive Mercedes-Benz dealership on the North Shore, but to convert his existing Somerville dealership to an exclusive dealership as well, giving MBNA two exclusive dealerships in an important market area where it had none.
become an immediate force in the North Shore market area. As an established Massachusetts automobile dealer, Chambers had access to advertising opportunities on a scale no new dealer could match. Indeed, MBNA regarded Chambers as its top dealer in the Greater Boston area, especially since he had the highest profit margin and was rated its best dealer "at point of sale." 2 Moreover, Chambers was well capitalized and planned to proceed immediately with construction of an exclusive dealership facility meeting all MBNA specifications, on a very desirable site he already owned in Danvers, Massachusetts
At this point, MBNA approached Cantanucci, explaining that it intended to honor its commitment to him but would prefer that the North Shore dealership go to Chambers. MBNA offered to make Cantanucci whole, however, by reimbursing him for the amount paid to Gauthier for the North Shore franchise, as well as any out-of-pocket costs incurred. 3 In August 1995, Cantanucci readily agreed to withdraw.
On September 27, 1995, Gauthier ceased to operate, leaving MBNA with no permanent Mercedes-Benz dealership on the North Shore, though Chambers was operating the temporary dealership in Lynnfield, Massachusetts. See supra p. 317. Thereafter, MBNA never sought another candidate for the North Shore area, having already concluded, even before Gauthier proposed Cantanucci, that Chambers was the preferred candidate, except for the fact that Chambers already owned a Mercedes-Benz dealership in Somerville, a contiguous MBNA market area.
MBNA had a longstanding policy against granting the same dealer more than one dealership in contiguous market areas. Its dealership agreements in 1992 stated the policy as follows:
[T]o foster competition among Mercedes-Benz dealers, it is Mercedes-Benz's policy not to permit, except in extraordinary circumstances, an existing dealer, owner, or operator to have interest in the ownership or management of another competitive Mercedes-Benz sales and service dealership in the same area of responsibility or in a contiguous market area.
(Emphasis added.) Nonetheless, a standard dealership agreement provision states:
Notwithstanding any provision of this Agreement, the final decision whether to establish additional dealers, or relocation of [sic] an existing dealer, shall be made by MBNA solely pursuant to its own business judgment, and nothing in this Agreement shall be construed to require Dealer's consent to the establishment of an additional dealer or relocation of an existing dealer.
(Emphasis added.) This "business judgment" provision and all other standard dealership agreement provisions are incorporated by reference into each dealership agreement.
By the time MBNA awarded the North Shore dealership to Chambers, however, it was operating under a policy adopted in April 1993:
[A ] policy that existed in the past which prohibited a proven successful Mercedes-Benz operator from operating more than one Point, does not lend itself to the most effective and efficient way to meet today's competitive challenges. Today it is the strength of the overall dealership operation that insures customer satisfaction in terms of products and services.
Therefore, it is in our best interests to permit, in appropriate circumstances, the common ownership of more than one dealer point for the express purpose of meeting the challenges of a competitive marketplace.
(Emphasis added.) 4
On December 4, 1995, three dealers brought suit against MBNA: Clair International, Inc., located in Dedham; Foreign Motors West, Inc., located in Natick; and Smith Motor Sales of Haverhill, Inc., in Haverhill. Their complaint alleged that awarding Chambers a second dealership, to be based in Danvers--a market area contiguous to the Somerville market area where Chambers already had a dealership--breached their dealership contracts and violated Mass. Gen. Laws ch. 93B. The complaint sought only to enjoin Chambers from opening and operating a new dealership in Danvers, Lynnfield, or any other area contiguous to the Somerville dealership.
Following a three-day bench trial, the district court found that MBNA had breached its contract with...
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