Ford Motor v. Arkansas Motor Vehicle Com'n
| Decision Date | 29 April 2004 |
| Docket Number | No. 03-496.,03-496. |
| Citation | 161 S.W.3d 788,357 Ark. 125 |
| Parties | FORD MOTOR COMPANY v. ARKANSAS MOTOR VEHICLE COMMISSION and Crain Automotive Holdings, LLC. |
| Court | Arkansas Supreme Court |
Rose Law Firm, by: David L. Williams and John D. Coulter, Little Rock; and Sutherland, Asbill & Brennan LLP, by: Thomas W. Curvin and Kelly J. Baker, Atlanta, GA, for appellant.
Mike Beebe, Att'y Gen., by: Arnold M. Jochums, Ass't Att'y Gen., Little Rock, for appellee AMVC.
Mitchell, Blackstock, Barnes, Wagoner, Ives & Sneddon, by: Michael W. Mitchell, Little Rock; and Myers & Fuller, P.A., by: Loula M. Fuller and Daniel E. Myers, Tallahassee, FL, for intervenors.
Appellant Ford Motor Company appeals the order of the Arkansas Motor Vehicle Commission (AMVC) fining it $10,000 for refusing to approve the sale of a Ford dealership to Appellee Crain Automotive Holdings, LLC. On appeal, Ford argues that the Commission erred in (1) excluding certain evidence; (2) ignoring Ford's generally applicable criteria for dealer candidates; (3) denying Ford's motion that pro-dealer commissioners recuse from the case; and (4) failing to follow its own rules. This case was certified to us from the Arkansas Court of Appeals, as raising an issue of first impression; hence, our jurisdiction is pursuant to Ark. Sup.Ct. R. 1-2(b)(1). We reverse the decision of the Commission.
This case stems from Ford's refusal to allow Crain to purchase the assets and inventory of Fletcher-Tate Ford. On August 14, 2001, Fletcher-Tate and Crain entered into an Asset Purchase Agreement, which in turn was submitted to Ford for approval. Pursuant to its franchise agreement, Ford retained the right to grant or withhold consent of the sale of an existing Ford dealership to any third party. In evaluating dealer candidates, Ford uses four generally applicable criteria: capital, capacity, customer satisfaction, and character. On August 31, 2001, Mr. Leo Cumberlich, Ford's Regional Sales Manager, notified Fletcher-Tate that it would not approve Crain as a replacement dealer. In this letter, Cumberlich stated that Crain failed to meet three of the four criteria used by Ford in evaluating new dealers. The letter specifically stated that Crain failed to satisfy the following criteria:
Character and Capacity—Two individuals proposed in the ownership structure of Crain Ford, LLC, Larry Crain, Jr., proposed President, and Larry Crain, Sr., were principal owners at Midway Ford, Inc. when Ford issued a notice of termination. In addition to ownership, Larry Crain, Sr. had Managerial Authority at Midway Ford, Inc. when Ford issued a notice of termination.
Capacity—Market share performance at Crain Ford Lincoln Mercury, where Larry Crain, Sr. and Larry Crain, Jr. are both owners with Managerial Authority, is deficient. Retail car share is below Regional average while retail truck share is far below (only 79% of) Regional average and (only 76% of) National average.
Customer Satisfaction—Crain Ford Lincoln Mercury is significantly below group average on one of the key questions on the Customer Viewpoint Ownership Survey:
Ownership Survey Dealer Group Top 10%
(Q3f) Satisfaction with
the way this Dealership
has treated you as a
customer: 42 61 72
At the time that Ford turned down Crain's request to buy the Fletcher-Tate dealership, Crain owned a Ford dealership in Benton, Arkansas. Crain previously owned a Ford dealership, Midway Ford, in Memphis, Tennessee. On March 3, 1998, Ford notified Crain that it was seeking to terminate its ownership of Midway Ford as the result of three separate audits indicating that Midway Ford had committed repeated instances of warranty fraud against Ford.
After Ford refused to approve Crain's purchase of Fletcher-Tate, Crain filed a complaint before the Commission, alleging that Ford's refusal to approve the sale violated Ark.Code Ann. § 23-112-403(a)(2)(I) (Repl.2004), which sets forth the requirements a manufacturer must follow when disallowing the sale or transfer of a dealership. In its complaint, Crain averred that Ford had intentionally misrepresented Crain's performance in order to refuse approval of the sale. Ford answered by stating that Crain lacked standing to pursue some or all of the claims, because a prospective transferee may not challenge a manufacturer's decision to turn down an application for a replacement dealer. Ford also stated that its reasons for rejecting Crain's proposed purchase of Fletcher-Tate were valid and based on established criteria.
A hearing before the Commission was scheduled for April 26, 2002. Prior to that hearing, Crain filed a motion in limine seeking to exclude evidence related to Ford's claims that it had terminated Crain's ownership of the Midway dealership in Memphis because of instances of warranty fraud. The hearing officer ruled that Ford could introduce limited evidence to establish the fact that it claimed Crain had engaged in warranty fraud at the Midway dealership. Also considered at this pretrial hearing was Ford's motion that Commission members with a pro-dealer bias recuse from hearing the case. This motion was denied.
During the hearing before the Commission, Larry Crain Jr. testified that he owns an equity interest in Crain Automotive. He also admitted that he had been a minority-percentage owner of Midway Ford in Memphis before the dealership was sold to United Auto Group in 1999. Crain Jr. admitted that while he was an owner at Midway, the dealership was notified that Ford was going to attempt to terminate its franchise agreement. According to Crain Jr., however, no one in Arkansas had ever questioned his character or financial reputation as a result of Ford's attempt to terminate the Memphis franchise. Crain Jr. further testified that he disagreed with the reasons that Ford gave for turning down its purchase of the Fletcher-Tate dealership. He stated that he computed the capacity figures based on the most recent data available to him at the time and came up with different figures. Crain Jr. also stated that the company's Benton dealership has several "special marketing conditions," namely that it is right next to the "Little Rock multi-point zone." Crain Jr. then testified about the performance of its Chevrolet dealership, and blamed the Benton dealership's lower truck sales on the fact that they have a smaller inventory available to customers.
On cross-examination, Crain Jr. admitted that under its dealership contract with Ford, the Benton dealership was required to "promote vigorously and aggressively the sale and retail ... of cars and trucks... within the dealer's locality[.]" Crain Jr. also admitted that when the company signed up to be a Ford dealer, it was assigned a market area, known as its dealer locality, and that they are required to obtain a reasonable share of the sales in that dealer locality. According to Crain Jr., the Benton dealership is the only Ford dealership in its dealer locality. Finally, Crain Jr. admitted that he was unsure whether the Benton dealership had ever been up to regional average.
Larry Crain Sr. also testified at the hearing before the Commission. Like his son, Crain Sr. testified that no one in the Arkansas community had ever questioned his character as a result of Ford's issuance of the termination letter regarding the Midway dealership. Crain Sr. stated that initially he was an absentee owner of the Midway dealership, but then admitted that in late 1994 or early 1995, he spent about fifty percent of his working time at that dealership. He stated that he was present for the audits conducted by Ford in 1996 and 1997. He then discussed the termination letter sent by Ford in 1998 and stated that he disagreed with Ford's audit findings. He also stated that he fired Midway's general manager, because he committed fraud against the dealership, not Ford.
Testifying for Ford was Ross Peterson, Dealer Contracts Manager for Ford. Prior to becoming the Dealer Contacts Manager, Peterson served as the Regional Market Representation Manager for the Memphis region. Peterson testified that Ford decided to terminate its dealer agreement with Crain's Midway dealership after three separate audits revealed that the dealer had submitted fifty-three false or fraudulent claims for work not performed as claimed, mileage and date misrepresentations, inflated sublet towing, and unsupported repairs. According to Peterson, Crain appealed Midway's termination notice to Ford's Dealer Policy Board, which affirmed the termination. Peterson also testified that Ford applies four criteria: character, capacity, commitment to customer satisfaction, and capital, when presented with a buy-sell agreement. According to Peterson, these criteria apply to a brand new dealer or someone attempting to acquire another Ford franchise. Peterson stated that if a candidate does not meet all four criteria, Ford will not approve that candidate. He stated that if a prospective buyer owns another dealership, Ford would consider what occurred at the other dealership in evaluating a candidate's character and capacity to operate a dealership. Peterson also explained that just because a candidate has a dealership that is Blue Oval certified does not mean that the dealer will qualify for another dealership. According to Peterson, there were only 246 dealers out of a total of 3,890 who had not achieved Blue Oval certification. Finally, Peterson testified that Ford had conducted market studies relating to single- and multiple-point markets and determined that Crain's Benton dealership did not belong within the Little Rock multi-point market.
Scott Ezell, Regional Market Representation Manager for Ford, also testified before the Commission. He explained that part of his job duties involved reviewing buy-sell agreements and reviewing dealer candidate applications and that he was responsible for...
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