Frank Chevrolet Co. v. General Motors Corp.

• Decision Date: 27 November 1968
• Docket Number: Civ. A. No. C 66-298.
• Parties: FRANK CHEVROLET COMPANY, Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Ohio

304 F. Supp. 307

FRANK CHEVROLET COMPANY, Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.

Civ. A. No. C 66-298.

United States District Court N. D. Ohio, E. D.

November 27, 1968.

COPYRIGHT MATERIAL OMITTED

Martin A. Rini, Donald L. Goldman, Emanuel H. Hecht, of Rini & Hecht, Cleveland, Ohio, for plaintiff.

Victor DeMarco, Cleveland, Ohio, Edmond Dilworth, Jr., Detroit, Mich., George H. Rudolph, of Jones, Day, Cockley & Reavis, Cleveland, Ohio, for defendant.

MEMORANDUM

WILLIAM K. THOMAS, District Judge.

Plaintiff Frank Chevrolet Company, a Chevrolet dealer in Chardon, Ohio, from 1958 to 1965, brings suit against defendant General Motors Corporation for damages pursuant to the so-called Automobile Dealers' Day in Court Act, 15 U.S.C. § 1222 (1964). Defendant General Motors moves for summary judgment.

Unless otherwise indicated, the facts stated in this memorandum are undisputed. The record consists of the deposition of Frank Finesilver, plaintiff's president, interrogatory answers, affidavits submitted by the parties, and the pleadings in the case.

The Chardon, Ohio Chevrolet "point," as an automobile dealership is identified by automobile manufacturers and retail dealers, was purchased by Frank Chevrolet Company in 1958 from McCahan, the previous dealer. Chardon, the county seat of Geauga County, lies generally east of Cleveland and south of Painesville. At its center U. S. Route 6, running east and west, crosses Route 44, a north-south state highway.

The first selling agreement, dated August 21, 1958, was between Chevrolet and Frank Chevrolet Company, a co-partnership whose partners were represented to be Frank Finesilver and his brother-in-law, Dr. Allan Chester. The expiration date of the selling agreement was August 20, 1963. This was replaced with a second selling agreement, effective November 1, 1960, also between Chevrolet and the partnership. It extended the term of the franchise to October 31, 1965.

Effective July 12, 1963, Chevrolet and Frank Finesilver, as individual owner of Frank Chevrolet Company, executed a new agreement. Its expiration date also was October 31, 1965. This latter agreement was superseded by a new agreement, effective March 31, 1965, between Chevrolet and Frank Chevrolet Company, a corporation.

By letter of June 11, 1965, Chevrolet notified Frank Chevrolet Company that

because of the sustained and apparently hopelessly deficient sales performance of Frank Chevrolet Company * * * Chevrolet Motor Division will not offer your company a new Selling Agreement following the expriation of your current Selling Agreement on October 31, 1965, due to your failure to comply with Section 9 thereof.

It is Chevrolet's non-renewal of the last selling agreement which gives rise to plaintiff's action.

Each signed agreement provided that the dealer had the obligation

to develop properly the sale thereof at retail particularly in the following area: In the state of Ohio: Geauga County, Chardon, Chesterland, East Claridon, Huntsburg, Montville, Newbury, Novelty, Thompson, including non post office areas served by post office stations located in the above named communities.

Each of the signed agreements between Chevrolet and Frank Chevrolet Company incorporated and made applicable a document entitled "Terms and Conditions — Dealer" which consists of standard provisions affecting all dealers. Each signed agreement also stated that it was a personal service contract entered into by Chevrolet with Frank D. Finesilver.

In its complaint plaintiff alleges that: Defendant failed to act in good faith in performing and complying with the terms and provisions of the franchise and in terminating and not renewing the franchise with plaintiff.

Under 15 U.S.C. § 1222 (1964), an automobile dealer may bring a suit against an automobile manufacturer "by reason of the failure of said automobile manufacturer * * * to act in good faith * * * in terminating, canceling, or not renewing the franchise with said dealer * * *." By Section 1221(e) "good faith" is defined to mean:

The duty of each party to any franchise * * * to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party * * *.

Under Section 1222 the absence of good faith as defined in Section 1221 (e) is literally construed. Thus, Southern Rambler Sales, Inc. v. American Motors Corp., 375 F.2d 932, 935 (5th Cir. 1967) typically rules that

good faith or the lack of it must be determined in the context of "coercion, intimidation, or threats or coercion or intimidation from the other party."

In considering defendant's motion for summary judgment it therefore must be determined whether the record presents a genuine issue of material fact on plaintiff's claim that defendant failed to act in good faith. To preserve this issue for a trial on the merits the present record must contain evidence sufficient to permit a finding of "coercion, intimidation, or threats of coercion or intimidation" on the part of defendant General Motors "in terminating and not renewing the franchise with plaintiff."

Defendant urges that all of the facts relied upon by plaintiff to demonstrate defendant's lack of good faith, even if accepted, do not establish a claim under the Act. It is asserted that:

Finesilver, in his deposition, has made two, and only two, claims of lack of good faith on the part of defendant General Motors.

Before examining these two claims, as presented in the testimony of Frank Finesilver, other claims of lack of good faith made in plaintiff's brief will be studied. In considering the defendant's motion for summary judgment, a construction most favorable to the plaintiff must be given the evidence in the record. Plaintiff first contends that:

Defendant's refusal to renew plaintiff's franchise on the basis of Section 9 of the Dealer Selling Agreement was a violation per se of the Day in Court Act.

In advancing this claim plaintiff relies on Madsen v. Chrysler Corp., 261 F.Supp. 488 (N.D.Ill.1966). Incorporating a quotation from Judge Will's opinion plaintiff urges that

Section 9 is "an arbitrary, coercive and unfair provision" and defendant's non-renewal of plaintiff's franchise pursuant thereto was a violation of the Day in Court Act.

In Madsen Judge Will enjoined Chrysler Corporation from canceling Chrysler, Plymouth, and Imperial franchises. Chrysler terminated the franchises because of the failure of the dealer to fulfill his "minimum sales responsibility" or "MSR." On appeal the judgment was vacated, 375 F.2d 773 (7th Cir. 1967), prompting one court to declare that Madsen, therefore, "is not valid authority." Thayer Plymouth Center, Inc. v. Chrysler Motors Corp., 255 Cal.App. 2d 300, 63 Cal.Rptr. 148 (Ct.App.1967). Chrysler franchise agreements use a formula for computing "minimum sales responsibility" of a dealer, similar to the formula in Section 9 of the Chevrolet selling agreement, to evaluate a dealer's "satisfactory sales performance." Like similar provisions in dealer agreements of other automobile manufacturers, Chryler and Chevrolet compare a dealer's sales with total sales of competitive makes in his area of sales responsibility to the percentage which sales of the franchised car bear to total sales of competitive makes in the larger metropolitan sales territory.

Judge Will's opinion indicates that he believes that "without adjustment for the various factors herein discussed" use of the formula for determining "minimum sales responsibility" is a coercive standard of dealer performance because it would enable the manufacturer "to terminate roughly one-third to one-half of its dealerships at any time." Among these "various factors" he had previously noted in 261 F.Supp. at page 505 that:

Chrysler's conduct between March 1964, and even after notice of termination was served, is hardly consistent with the contention it now advances, i. e., that Madsen had clearly defaulted on its contractual obligations and that therefore Chrysler had the unqualified right to terminate the dealership agreement at any time.

He also observed that the manufacturer treated "minimum sales responsibility" "more as a goal than a performance standard * * *." Id. at 508.

Judge Will's opinion forcefully focuses attention on the potential capacity for coercion in the franchise provision which "would enable" an automobile manufacturer "to terminate roughly one-third to one-half of its dealerships at any time." Nevertheless, Madsen, supra, is not construed as a general holding (without reference to the "hard" facts of that case), that termination of a dealer's franchise based on a dealer's failure to achieve the prescribed market potential, as a matter of law, constitutes a violation of the Day in Court Act. Instead, Madsen holds that it was coercive "in this instance" to employ the minimum sales responsibility formula as the ground for terminating this dealer's franchise. Id. at 507.

Moreover, Madsen deals with a forced termination of a dealer's franchise rather, as here, with a non-renewal of a franchise. Apparently regarding this distinction as significant, Judge Will's opinion states, at p. 505:

The fact that Chrysler thought that another type of operation would produce better results obviously does not create the right to terminate an existing dealership on a forced basis. While it might give Chrysler a good faith reason to fail to renew an agreement, Chrysler has chosen to give its dealers continuing agreements terminable only for the causes stated.

Termination of a dealership franchise for failure to meet a sales criterion such as Chrysler's MSR, has been held not to constitute prima facie evidence of a violation of the Day in Court Act. See Milos v. Ford Motor Co., 317 F.2d 712, 716-17, 7 A.L.R.2d 1162 (3rd Cir. 1963); Victory Motors of Savannah, Inc. v. Chrysler Motors Corp., 357 F.2d 429 (5th Cir. 1966).

Accordingly, it...