Automotive Elec. Serv. v. ASS'N OF AUTO. DISTRIB.

• Decision Date: 28 September 1990
• Docket Number: No. CV 89-4296 (ADS).,CV 89-4296 (ADS).
• Citation: 747 F. Supp. 1483
• Parties: AUTOMOTIVE ELECTRIC SERVICE CORP., Plaintiff, v. ASSOCIATION OF AUTOMOTIVE AFTERMARKET DISTRIBUTORS, Motor Age, Inc. and Motor Age East, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

747 F. Supp. 1483

AUTOMOTIVE ELECTRIC SERVICE CORP., Plaintiff, v. ASSOCIATION OF AUTOMOTIVE AFTERMARKET DISTRIBUTORS, Motor Age, Inc. and Motor Age East, Inc., Defendants.

No. CV 89-4296 (ADS).

United States District Court, E.D. New York.

September 28, 1990.

Lance R. Frank, Cedarhurst, N.Y., for plaintiff.

Bell, Boyd & Lloyd (Victor E. Grimm, Scott M. Mendel, of counsel), Chicago, Ill., for defendant Ass'n of Automotive Aftermarket Distributors.

Hoffinger Friedland Dobrish Bernfeld & Hasen (David B. Bernfeld, Howard A. Gardner, of counsel), New York City, for defendant Motor Age, Inc.

MEMORANDUM DECISION AND ORDER

SPATT, District Judge.

In this case the plaintiff corporation, a member of a national trade organization, alleges that the organization terminated its membership as a result of "bad faith" on the part of the organization and a competitor-member. The plaintiff seeks to be reinstated as a member, among other remedies. There is one crucial issue before the Court: Has the plaintiff established that the trade organization acted in "bad faith" in terminating the plaintiff's membership so that judicial intervention is appropriate?

BACKGROUND

The plaintiff Automotive Electric Service, Corp. ("the plaintiff") is a warehouse distributor of automotive parts. This type of business purchases automotive parts from manufacturers and other suppliers, stores the parts in a warehouse and sells the parts to jobbers—mostly retail automotive parts stores and installers. This business is also referred to as an "automotive after market parts business".

The plaintiff is a close corporation owned by the Judelson family for over seventy years, which employs more than fifty persons and has its main office and warehouse in Woodside, Queens, New York. The plaintiff has approximately 400 accounts and its sales volume in 1989 was approximately $7,000,000. Its geographic territories are Queens, Brooklyn, Bronx, Manhattan, Westchester, Nassau and Suffolk Counties.

In November 1984, the plaintiff became a member of the defendant Association of Automotive Aftermarket Distributors ("AAAD" or "the Association"), a national trade organization of warehouse distributors. AAAD is an Illinois not-for-profit organization with its primary place of business in Memphis, Tennessee. There are a number of similar trade associations in the warehouse distributor industry. AAAD offers to its members volume discount purchasing and a national account merchandising program involving the supply of Goodyear Tire and Rubber Company ("Goodyear") company-owned retail automotive parts stores ("GASC stores" or "company-owed stores"). Although AAAD has been trying to develop several other national account programs, at the time of the relevant occurrences in this case, it had only one such viable national account, the Goodyear account. Under a contract with Goodyear, members of AAAD are principal providers of the Goodyear company-owned (GASC) stores.

AAAD is governed by a set of by-laws, an Executive Committee and a President. A principal feature of AAAD is their "Parts Plus" program. In the program, the members of AAAD attempt to persuade their jobbers to be Parts Plus jobbers, and operate their stores under the "Parts Plus" logo. AAAD employs the services of Marketing Resources, Inc. ("MRI"), an advertising and marketing agency. The members of AAAD are expected to use their best efforts to implement the Parts Plus program by advertising and active solicitation of Parts Plus jobbers with the object of developing a strong network of Parts Plus members. In August 1986, the membership unanimously adopted certain "Standards of Performance" including a requirement that each member had to vigorously promote and implement the Parts Plus program.

AAAD has thirty-five members of whom twenty-two do less than ten million dollars in sales and nineteen are smaller than the plaintiff. Each member has one vote irrespective of size. The largest member in AAAD is a firm called Parts, Inc., whose business comprises approximately 35% of the total sales of all AAAD members. The Executive Committee is made up of its officers and three members. Despite their membership in this trade organization, the AAAD by-laws do not grant any members exclusive territories or preclude any member from competing with other members in any territory.

Among the provisions in the AAAD by-laws and crucial to the determination to terminate the plaintiff, is the following provision set forth in paragraph 11 of the AAAD by-laws (Plaintiff's Exhibit 5), which permits termination of a member:

"... if, in the opinion of the Executive Committee, a Member demonstrates a lack of sincere intent to be a bona fide, active and participating Member of the Association, or to commit to duly adopted Association programs or objectives...."

AAAD contends that the plaintiff failed to meet the requirements of its Parts Plus program and, during the period 1987 through 1989, despite warnings and meetings, failed to improve its Parts Plus program. On November 16, 1989, the Executive Committee of AAAD voted to terminate the plaintiff's membership, which, of necessity, would mean that the plaintiff would no longer be permitted to sell to the Goodyear GASC stores under its contract with AAAD. As a result of the involuntary termination of its membership in AAAD, the plaintiff commenced this lawsuit.

In essence, the plaintiff contends in this action that it is the victim of a conspiracy to improperly terminate its membership in AAAD so that a larger and newer member, Motor Age, Inc. ("Motor Age") could take over the plaintiff's valuable Goodyear company-owned stores. This was accomplished, according to the plaintiff, by secret agreements, misrepresentations and a breach of the fiduciary duties and contractual obligations set forth in the by-laws.

The plaintiff further contends that its termination was part of an overall plan by which the larger members would advance their own interests at the expense of the smaller members, so that AAAD will have a cadre of larger, more financially powerful member companies. The plaintiff contends that it was terminated as a result of a conspiracy between the larger members, who control the Executive Committee and Motor Age, to take over the plaintiff's Goodyear accounts.

The plaintiff further contends that it relies upon the Goodyear accounts and will go out of business if it is forced to give up the Goodyear business as a result of its termination as a member of AAAD. It therefore asserts that it will be irreparably damaged unless the Court prevents AAAD from terminating its membership. To that end the plaintiff, among other requests for relief, seeks injunctive relief, reinstatement as a member of AAAD and damages. The complaint contains six causes of action, as follows:

1) Breach of fiduciary relationship;

2) Breach of the membership by-laws;

3) Breach of the agreement between the plaintiff and AAAD specifically as to the Goodyear account;

4) Wrongful interference with the plaintiff's contractual rights;

5) Wrongful interference with the plaintiff's business opportunities; and

6) Violations of the Sherman Act and New York's Donnelly Act.

PROCEDURAL SETTING

Following termination from AAAD, the plaintiff commenced this action in the Supreme Court of the State of New York, Queens County. At the time that the plaintiff filed in state court, a sweeping ex parte temporary restraining order ("TRO") was obtained requiring, inter alia, AAAD not to interfere with the plaintiff's membership. On December 22, 1989, the defendants removed this case to this Court pursuant to 28 U.S.C. § 1441 on the grounds of diversity (see 28 U.S.C. § 1332). The plaintiff not having requested an extension, the ex parte TRO expired on January 1, 1990 (see Fed.R.Civ.P. 65(b); see also Granny Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439-40, 94 S.Ct. 1113, 1124-25, 39 L.Ed.2d 435 1974).

On January 25, 1990, after oral argument by all sides, this Court granted a second TRO preventing AAAD from terminating the plaintiff's membership. The parties later stipulated to an extension of this last TRO, waived discovery and proceeded to a hearing on the plaintiff's application for a preliminary injunction. After commencement of the hearing, the parties agreed, and the Court ordered that the motion be converted to a full trial on the merits of the entire case pursuant to Fed. R.Civ.P. 65(a)(2). In the interim, the defendants moved to vacate the TRO on the grounds that it had expired by its own terms, or, in any event, by operation of law. On February 23, 1990, the Court denied that application and instead granted a temporary or interim injunction preventing AAAD from terminating the plaintiff's membership for the pendency of the trial. Thus, the plaintiff has at all times until the present continued as a member of AAAD and, as such, continued to service its Goodyear company-owned stores.

THE TRIAL AND FINDINGS

Since the determinations in this case are, of necessity, factually oriented, the Court is compelled to detail much of the evidence in connection with its findings of fact.

The Plaintiff's Case:

GARY W. DAVIS ("Davis") was the President and a shareholder and director of Matthews Auto Electric, Inc. ("Matthews"), a warehouse distributor operating in Oklahoma, Arkansas and Kansas, which was admitted as a member of AAAD in January 1987. The representative of AAAD with regard to recruitment of Matthews was one Joe Matlock, the Executive Vice President of AAAD. Matthews conducted an aggressive "Parts Plus" promotion and succeeded in converting all of their customers to Parts Plus jobbers. The Matthews promotional costs to convert its jobbers into Parts Plus jobbers was approximately $500,000. Six days after the "kick-off" promotional meeting by Matthews to convert jobbers to the Parts Plus program in 1987, Parts, Inc., the largest member of AAAD, purchased the...