263 F.3d 296 (3rd Cir. 2001), 00-5251, Gen. Motors Corp. v New A.C. Chevrolet Inc.

Docket Nº:00-5251
Citation:263 F.3d 296
Case Date:August 27, 2001
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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263 F.3d 296 (3rd Cir. 2001)




No. 00-5251

United States Court of Appeals, Third Circuit

August 27, 2001

Argued: November 30, 2000

On Appeal from the United States District Court For the District of New Jersey District Judge: Honorable Faith S. Hochberg (D.C. Civil No. 98-CV-00112)

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William F. Lang, III (argued) Martin G. Margolis, Esq. Thomas G. Russomano, Esq. The Margolis Law Firm, P.A. 60 Pompton Avenue (Route #23) Verona, New Jersey 07044, Counsel for Appellant

Lawrence S. Buonomo, Esq. GM Legal Staff General Motors Corporation 3031 West Grand Boulevard Detroit, MI 48232, Daniel L. Goldberg, Esq. (argued) Alicia L. Downey Bingham Dana LLP 150 Federal Street Boston, MA 02110, Lois H. Goodman, Esq. Carpenter, Bennett & Morrissey 100 Mulberry Street Three Gateway Center Newark, NJ 07102, Counsel for Appellee

Before: Becker, Chief Judge, Rendell and MAGILL,[*] Circuit Judges.


Becker, Chief Judge

This is an extremely complicated motor vehicle dealer franchise termination case marked by disputes over what is known in the industry as "dualing," i.e., the acquisition by an automobile franchisee of a franchise of a different manufacturer. This case comes before us on appeal from a series of orders entered by the District Court for the District of New Jersey in a declaratory judgment action arising out of a franchise termination. The plaintiff is General Motors Corporation, Chevrolet Motor Division (GM), the franchisor. In 1998, GM notified the defendant, New AC Chevrolet, Inc. (New AC), a dealer in Jersey City, New Jersey, that its franchise agreement would be terminated. As the basis for its termination decision, GM pointed to New AC's insistence on adding a "dualed" Volkswagen franchise to its dealership business despite GM's repeated objections to such an addition.

In its suit, GM sought a declaration that the proposed termination was in compliance

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with the parties' dealer agreement, which forbade the addition of other vehicle lines without GM's prior written authorization; the federal Automobile Dealers Day in Court Act (ADDCA), 15 U.S.C. SS 1221-25; and New Jersey's Franchise Practices Act (NJFPA), N.J. Stat. Ann. SS 56:10-1 to 56:10-15. In its response, New AC asserted that the planned termination was actually part of GM's predetermined design to remove New AC as a Chevrolet franchisee, and to have another dealer serve as its exclusive Chevrolet distributor in Jersey City. Consequently, New AC filed a counterclaim, alleging essentially that GM's decision to terminate New AC's franchise, as well certain other of its actions toward New AC, ran afoul of the expressed and implied terms of the franchise agreement, the ADDCA, and the NJFPA.

Although New AC's appeal takes issue with the entire series of orders entered by the District Court during the two-year course of this litigation, New AC's most significant challenges are made in connection with two orders--the January 13, 1999 order dismissing inter alia Counts One and Four of New AC's counterclaim on Fed. R. Civ. Pro. 12(b)(6) grounds, and the March 8, 2000 order granting summary judgment in GM's favor on the ADDCA, NJFPA, and state contract law claims, see General Motors Corp. v. New A.C. Chevrolet, Inc., 91 F.Supp.2d 733 (D.N.J. 2000). We first take up New AC's challenge to the March 8, 2000 summary judgment order, for the issues raised in connection with this challenge bear directly on the core of the dispute between GM and New AC, and require us to examine the nature of the relationship between an automobile franchisor and franchisee. In pertinent part, the March 8, 2000 order determined: (1) that there was no genuine issue that New AC committed a material breach of the franchise agreement by insisting on the operation of a Volkswagen vehicle line on its dealership premises; and (2) that GM possessed the "good cause" necessary for a lawful franchise termination under S 56:10-5 of the NJFPA. See id. at 738-39, 740-41.

With respect to New AC's challenges to the March 8, 2000 order, we first reject New AC's contention, stressed at oral argument, that its addition of a Volkswagen line did not constitute a breach of its franchise agreement with GM because Volkswagen sales and service were offered at a separate dealership location and facility. We do not think the facts of this case support such a contention. We further conclude that there is no genuine issue as to the materiality of this breach. A breach is material if it will deprive the injured party of the benefit that is justifiably expected under the contract, and, in this case, GM's justifiable expectation is best evidenced by the mutually agreed upon provisions of the dealer agreement that proscribe New AC from offering a "dualed" vehicle line without GM's prior written authorization.

The most significant challenge that New AC raises in connection with its appeal of the March 8, 2000 summary judgment order, a contention also heavily emphasized at oral argument, concerns S 56:10-5 of the NJFPA. As noted above, this statutory provision supplements all private franchise agreements in New Jersey by directing that termination occur only if the franchisor possesses "good cause." N.J. Stat. Ann. S 56:10-5. It defines "good cause" as "failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise." Id. Although S 56:10-5, by its terms, appears to define "good cause" only by reference to the actions of the franchisee, New AC argues that the franchisor must also act in good faith in order to possess the "good cause" necessary for

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termination under S 56:10-5. Because the District Court, in its March 8, 2000 opinion, took the (contrary) position that a franchisor's good faith was irrelevant to the "good cause" inquiry, see General Motors Corp., 91 F.Supp.2d at 740 n.10, New AC submits that the Court's decision should be reversed.

We assume arguendo, as New AC would like us to do, that under New Jersey franchise law, a franchisor's motivation in effecting a franchisee's termination is relevant to the "good cause" inquiry. Put another way, we assume that a franchisor will not possess the "good cause" required for termination by S 56:10-5 unless it also makes that decision in good faith. Nonetheless, we conclude that New AC has failed to furnish the record evidence necessary to create a genuine issue that GM acted in bad faith (or with an improper motive) in terminating New AC's Chevrolet franchise.

New AC's argument for GM's bad faith centers primarily on what we will call the "Project 2000" or "Plan 2000" theory; the central aspect of this theory is the contention that GM's decision to terminate New AC, ostensibly for its "dualing" of a Volkswagen line, was part of its predetermined decision to strip New AC of its Chevrolet franchise, and to have another dealer serve as GM's exclusive Chevrolet franchisee in Jersey City. Examining the record evidence put forth by New AC in support of the "Project 2000" theory, we do not think it suffices to create a genuine issue as to GM's bad-faith motivation. Because we conclude that New AC's "dualing" of a Volkswagen franchise constituted a material breach of its dealer agreement (and represented substantial noncompliance with its franchise obligations), and because we find that New AC failed to create a genuine issue as to GM's bad faith, we will affirm the District Court's March 8, 2000 order in all respects.

We then turn to New AC's challenges to the January 13, 1999 dismissal order, which primarily require us to construe the allegations that New AC set forth in its counterclaim. Here, New AC's first objection is to the District Court's dismissal of Count One of its counterclaim, which alleges that GM violated the provisions of the ADDCA. The ADDCA is a federal remedial statute, enacted to redress the bargaining disparity between large automobile manufacturers and local dealerships. The ADDCA generally requires a manufacturer to act in "good faith" in its relations with its dealers, see 15 U.S.C. S 1222, and defines "good faith" narrowly as precluding "coercion, intimidation, or threats of coercion or intimidation," id. at S 1221(e).

In reviewing the District Court's Fed. R. Civ. Pro. 12(b)(6) dismissal of New AC's ADDCA counterclaim, we begin by clarifying the type of automobile manufacturer conduct that constitutes coercion or intimidation. We have previously stated that the type of coercion or intimidation rendered actionable by the ADDCA occurs only when the manufacturer makes a "wrongful demand which will result in sanction if not complied with." Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715, 724 (3d Cir. 1971) (internal quotations and citations omitted). We now explain that while a manufacturer does not make a wrongful demand if it merely insists that the dealer comply with a reasonable obligation imposed by the franchise agreement, a dealer can state a claim for relief under the ADDCA by alleging that the manufacturer's reliance on those objectively reasonable provisions is, in fact, motivated by a pretextual, bad-faith reason.

Applying this standard to the facts as alleged in New AC's counterclaim, we conclude that New AC adequately stated a claim for relief under the ADDCA based on GM's approval of the relocation of a

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competing Chevrolet franchisee, and its decision to terminate New AC due to the latter's "dualing" of a Volkswagen...

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