Chem-Tek, Inc. v. General Motors Corp.

• Decision Date: 08 March 1993
• Docket Number: No. 3:92CV320 (PCD).,3:92CV320 (PCD).
• Citation: 816 F. Supp. 123
• Parties: CHEM-TEK, INC., Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.
• Court: U.S. District Court — District of Connecticut

816 F. Supp. 123

CHEM-TEK, INC., Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.

No. 3:92CV320 (PCD).

United States District Court, D. Connecticut.

March 8, 1993.

COPYRIGHT MATERIAL OMITTED

Robert J. Sweeney, Sklarz, Early & Avallone, P.C., New Haven, CT, for plaintiff.

Lawrence S. Buonomo, Bingham, Dana & Gould, Street, Boston, MA and Ben M. Krowicki, Bingham, Dana & Gould, Hartford, CT, for defendant.

RULING ON MOTION TO DISMISS

DORSEY, District Judge.

Plaintiff ("Chem-Tek") brings this action against General Motors ("GM") alleging violations of the Connecticut Franchise Act and the Connecticut Unfair Trade Practices Act, as well as tortious interference with a business expectancy, breach of contract, and promissory estoppel.

Facts

Chem-Tek manufactures vehicle protection products such as paint sealant, fabric protector, rust proofing, paint sealant cleaner, glass etchant, undercoating, and joint and seam sealant. GM is a multi-faceted corporation with a world-wide network of car dealers and distributors. Chem-Tek alleges that between 1985 and 1991, an agreement between Chem-Tek and GM arose from oral and written representations and a long-established course of dealing.

Pursuant to this alleged agreement:

1) GM granted Chem-Tek the right to engage in the business of offering, selling or distributing vehicle protection products under the "GM Goodwrench" and "AC Delco" trademarks. Complaint at 2.

2) At GM's encouragement and direction, Chem-Tek engaged representatives to solicit orders for these products from the GM network. Complaint at 3.

3) GM was authorized to interview and approve all sales and marketing personnel, and to require Chem-Tek to terminate any such personnel. Complaint at 9.

4) GM reimbursed the salaries and some sales and marketing personnel expenses. Complaint at 6.

5) GM established application instructions and performance standards, tested and approved the products to be offered, sold or distributed. Complaint at 7.

6) GM endorsed the products as safe and effective and encouraged its network to purchase them. Complaint at 4.

7) At GM's encouragement and direction, Chem-Tek's representatives identified themselves to the network as authorized representatives, sellers, manufacturers and distributors of GM Goodwrench and AC Delco products. Complaint at 4.

8) GM produced, organized and paid for meetings and conferences to promote Chem-Tek's products. Chem-Tek's representatives were identified at these meetings as authorized representatives, sellers, manufacturers and distributors of GM Goodwrench and AC Delco products. Complaint at 4.

9) GM approved, produced and paid for advertising and promotional materials identifying Chem-Tek products as GM Goodwrench and AC Delco products. Complaint at 5.

10) At GM's encouragement and direction, Chem-Tek's employees and representatives used letterhead and business cards with GM trademarks and logotypes. Complaint at 5.

11) Chem-Tek had access to GM's computer system to aid in offering, selling or distributing GM Goodwrench and AC Delco products. Complaint at 7.

12) GM set prices for GM Goodwrench and AC Delco products. Complaint at 8.

13) Chem-Tek shipped orders directly to GM's network, collected payment, and remitted a portion to GM. Complaint at 8.

14) GM prohibited Chem-Tek from offering, selling or distributing any competing products to the GM network. Complaint at 9.

15) During 1991-1993, Chem-Tek participated in GM's cost reduction program. Complaint at 8.

On December 23, 1991, without notice or good cause, GM terminated the Chem-Tek agreement and informed its network that it had elected to discontinue the sale of GM Goodwrench and AC Delco vehicle protection products. Complaint at 11, 15.

Discussion

A motion to dismiss under Rule 12(b)(6) must be decided solely on the facts alleged. Goldman v. Belden, 754 F.2d 1059, 1065-66 (2d Cir.1985). Such motion should be granted only where no set of facts consistent with the allegations could be proven which entitle plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The issue is not whether the plaintiff will prevail, but whether the plaintiff should be afforded the opportunity to offer evidence to prove the claims. Id.

I. The Scope of Review on a Motion to Dismiss

GM argues that the Chem-Tek agreement was not a franchise, but a terminable-at-will agreement for the sale of goods. GM attached a purchase order and two "parts and accessories information bulletins" to its motion. When "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Fed.R.Civ.P. 12(b)(6). The parties must be given an opportunity to present all pertinent materials. Id.

When a complaint attaches an exhibit, or incorporates a document by reference, however, the complaint is deemed to include such documents. Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, ___ U.S. ___, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992), citing Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir.1989); Goldman v. Belden, 754 F.2d at 1065-66. Additionally, "when a plaintiff chooses not to attach to the complaint or incorporate by reference a document upon which it solely relies and which is integral to the complaint, the defendant may produce the document when attacking the complaint for its failure to state a claim." Id. at 47, citing I. Meyer Pincus & Assoc. v. Oppenheimer & Co., Inc., 936 F.2d 759, 762 (2d Cir.1991). A plaintiff's reliance on a document eliminates the need to consider a Rule 12(b)(6) motion under Rule 56. Id at 48.

The complaint references the parts and accessories information bulletins. Complaint at 15. Further, Chem-Tek relied upon these bulletins as an integral element of its claim for tortious interference with a business expectancy.¹ The bulletins, therefore, are properly considered on the motion to dismiss. The purchase order is not referenced in the complaint. Although Chem-Tek does not dispute having notice of the purchase order, plaintiff's claims are not based solely on the written document, but also on words, conduct and other documentation. Cf. I. Meyer Pincus & Assoc., 936 F.2d at 762 (where claims were based only on an alleged written misrepresentation appearing within the prospectus and not in any other source).

Chem-Tek emphasizes that its agreement arose from a series of documents, oral representations and a long-established course of conduct.² Chem-Tek did not rely on the purchase order in the sense required by I. Meyer Pincus & Assoc., supra and Cortec Industries, supra. Thus, the purchase order is outside the scope of review on a motion to dismiss.

II. Connecticut Franchise Act

Chem-Tek alleges that GM's termination violates the Connecticut Franchise Act ("the Act") because a franchise may not be terminated except for good cause shown and upon sixty days notice. Conn.Gen.Stat. § 42-133f(a). GM argues that the Act is inapplicable because: 1) the agreement is not a franchise as defined by the Act; and, 2) a fortuitous presence in Connecticut does not satisfy the Act's requirement that the franchisee establish a business in Connecticut.

A. A Franchise as Defined by the Act

A franchise is an oral or written agreement under which: 1) the franchisee³ is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan prescribed in substantial part by the franchisor;⁴ and 2) the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark or other commercial symbol designating the franchisor or its affiliate. Conn.Gen. Stat. § 42-133e. The first element requires a two-step inquiry. First, the franchisee must have the right to offer, sell or distribute goods or services. Second, the franchisor must substantially prescribe a marketing plan for the offering, selling or distributing of goods or services.

1. The Right to Engage in the Business of Offering, Selling or Distributing Goods or Services

The Connecticut courts have not addressed the contours of a right to engage in the business of offering, selling or distributing goods or services. In addressing this question, a federal court sitting in diversity must best assess how a Connecticut court would interpret and apply the language of the statute. Bailey Employment System, Inc. v. Hahn v. Leighton, 655 F.2d 473, 477 (2d Cir.1981). The statute is remedial and must be liberally construed in favor of the protected class. Hartford Fire Ins. Co. v. Brown, 164 Conn. 497, 503, 325 A.2d 228 (1973).

Two district courts in diversity have addressed the meaning of a right to offer, sell or distribute products or services under the Connecticut Franchise Act. An independent contractor has been held not to have the right to offer, sell or distribute when it only had authority to solicit orders for acceptance or rejection by the manufacturer, but not to create a binding contract of sale. George R. Darche Assoc. v. Beatrice Foods, Co., 538 F.Supp. 429, 434 (D.N.J.1981), aff'd, 676 F.2d 685 (3d Cir.1982). The Act was held not to apply to a parent-subsidiary relationship as "the Act does seem to contemplate that a franchisee take title to goods, since one provision of the Act refers to inventories, supplies and equipment purchased from the franchisor." Jenkins v. Haworth, 572 F.Supp. 591, 600 (W.D.Mich.1983) (citing Conn.Gen.Stat. § 42-133f).⁵ The defendant in that case has actually argued that "in order to come within the protections of the Act, the alleged franchisee must pass title to goods rather than just solicit sales." Id.

These interpretations are substantially different. The Michigan district court would require that a franchisee purchase goods from the franchisor for resale under the franchisor's trademark. The New Jersey District Court would...