Freedman Truck Center v. GMC

• Decision Date: 14 February 1992
• Docket Number: Civ. No. 91-4991 (HLS).
• Citation: 784 F. Supp. 167
• Parties: FREEDMAN TRUCK CENTER, INC., Plaintiff, v. GENERAL MOTORS CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

784 F. Supp. 167

FREEDMAN TRUCK CENTER, INC., Plaintiff, v. GENERAL MOTORS CORPORATION, et al., Defendants.

Civ. No. 91-4991 (HLS).

United States District Court, D. New Jersey.

February 14, 1992.

Marvin J. Brauth, Wilentz, Goldman & Spitzer, Woodbridge, N.J., for plaintiff.

Michael S. Waters, Carpenter, Bennett & Morrissey, Newark, N.J., for defendants.

Daniel L. Goldberg, Bingham, Dana & Gould, Boston, Mass.

OPINION

SAROKIN, District Judge.

Before the court is defendant's motion to dismiss Counts I, II, III, IV, V, VI & IX of the Complaint.

Background

This case concerns the relationship between defendant General Motors Corporation ("GM") and its franchisee, plaintiff Freedman Truck Center, Inc. ("Freedman"). Since 1936, Freedman, a truck dealership, has sold and serviced trucks manufactured by GM pursuant to franchise agreements called Dealer Sales and Service Agreements ("the Dealer Agreement"). An addendum, modified from time to time ("the Motor Vehicle Addendum") identified the truck models marketed by GM available to its truck dealers.

At least until January 1, 1988, GMC manufactured light, medium and heavy duty truck lines. The scope of the franchise held by Freedman is at issue in this case. However, it is not disputed that Freedman was permitted to and did sell GM's heavy duty trucks, pursuant to a Motor Vehicle Addendum ("the Heavy Duty Addendum"). On November 1, 1985, Freedman entered into a new Dealer Agreement with GM, under which Freedman continued to sell heavy duty trucks, among other GM products.

In the fall of 1986, GM entered into a joint venture with various affiliates of AB Volvo, the Swedish manufacturer ("Volvo"), which was named the Volvo GM Heavy Truck Corporation ("Volvo GM"). According to defendants, pursuant to GM's agreement with Volvo, Volvo GM began marketing heavy duty vehicles effective January 1, 1988. Def. Mem. at 4. However, GM continued to produce its "Brigadier" model for one year — 1988 — as a subcontractor to Volvo GM; these trucks were sold by Volvo GM under its own name and warranty to its own dealers. Defendant represents in its moving papers that all production of the Brigadier had ceased by December 16, 1988. Def. Mem. at 4, n. 5.

According to Freedman, as a result of the joint venture, which assumed all the truck marketing functions of GM and Volvo, GM canceled Freedman's Heavy Duty Addendum "and thereby terminated Freedman's heavy duty truck franchise effective December 31, 1987." Plaintiff Mem. at 3. This "termination" is the basis for the present suit. On October 4, 1991, Freedman instituted this action, seeking damages for wrongful termination of its franchise, breach of the Dealer Agreement, breach of implied covenants of good faith and fair dealing, and fraud. Freedman claims that GM was only permitted, under New Jersey's Franchise Practices Act, to terminate its franchise for "good cause," and that GM failed to honor this standard.

According to GM's moving papers, GM decided to enter into the joint venture because of "persistent losses" in all of its truck lines:

In 1986 GM made the business decision to discontinue on a nationwide basis four truck models, commonly referred to as "heavy duty" trucks, ... rather than liquidate its heavy duty truck assets GM contributed some of those assets and cash to a joint venture with Volvo ... in return for a minority (24%) stock interest. GM dealers, along with former dealers for Volvo products, received preference in the selection of dealers by the new entity. Thus, by contributing some assets to Volvo GM, GM salvaged a part of its own investment in the heavy duty business as well as an opportunity for many of its dealers. However, not all GM dealers could receive a Volvo GM agreement. Freedman was one which did not.

Def. Mem. at 2, 4. As a result of its decision to discontinue the four heavy duty models, GM purportedly canceled the Motor Vehicles Addendum listing those models effective January 1, 1988. Def. Mem. at 5. GM claims that Freedman had been notified of this impending action by December of 1986. GM contends that pursuant to the Dealer Agreement, Freedman retains the ability to purchase those products which continue to be marketed by GM. GM further argues that it merely discontinued models, as it was expressly permitted to do under the Dealer Agreement, and that Freedman continues to be a fully authorized GM dealer.

Discussion

For the purposes of a motion to dismiss pursuant to Rule 12(b)(6), the court must take all facts alleged in the Complaint as true, and must only dismiss if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); see also Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

In its complaint, plaintiff alleges that GM's "termination" of Freedman's "heavy duty truck franchise" without "good cause" violated the New Jersey Franchise Practices Act (Count I); that, in the alternative, the cancellation of the Motor Vehicle Addendum for heavy trucks constituted the "partial termination" of plaintiff's franchise (Count II); that cancellation of the Motor Vehicle Addendum is contrary to the common law and public policy of New Jersey (Count III); that by canceling the Heavy Duty Addendum, GM breached its Dealer Agreement (Count IV); that the course of conduct between the parties prevented GM from discontinuing its heavy duty models (Count V); that GM has breached implied covenants of good faith and fair dealing (Count VI); and that GM failed to comply with the requirements for termination assistance under the Dealer Agreement (Count IX). The court will consider defendant's arguments for dismissing each of these counts in turn.

New Jersey Franchise Practices Act

The New Jersey Franchise Practices Act ("NJFPA") states that:

It shall be a violation of this act for a franchisor ... to terminate, cancel or fail to renew a franchise without good cause. For the purposes of this act, good cause for terminating, or failing to renew a franchise shall be limited to failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise.

N.J.S.A. § 56:10-5. Plaintiff contends in its first count that GM's alleged termination of Freedman's "heavy duty truck franchise" without good cause violated this provision.

Defendant argues that plaintiff's claim must fail because its franchise has not been terminated: only the Heavy Duty Addendum was terminated and this, defendant urges, is not a "franchise" within the meaning of N.J.S.A. § 56:10-5. Defendant also states that public policy and the statute's legislative purpose support a franchisor's ability to discontinue products without violating the terms of the statute.

The court observes that it does not write on a blank slate in addressing this issue: GM's "decision to withdraw from the heavy duty truck market has given rise to numerous actions nationwide" and contradictory interpretations of essentially similar factual and legal questions. General Motors Corp. v. Gallo GMC Truck Sales, 711 F.Supp. 810, 817 (D.N.J.1989). The results are mixed: one court has held that heavy duty addenda similar to the one at issue in this case may constitute an independent franchise. Arthur Glick Truck Sales, Inc. v. General Motors Corp., 865 F.2d 494 (2d Cir.1989) (New York statute). Other courts have come to precisely the opposite conclusion, holding that Dealer Agreements constituted only one franchise, regardless of the number of addenda, Central GMC, Inc. v. General Motors Corp., 946 F.2d 327 (4th Cir.1991) (Maryland statute), petition for cert. filed, No. 91-1103 (Jan. 6, 1992); Mid-State Truck Service v. Volvo Heavy Truck Corp. & General Motors Corp., 894 F.2d 1339 (7th Cir.1990) (Wisconsin statute), and that termination of a product line pursuant to general market withdrawal does not violate statutes protecting the rights of franchisees. Capital GMC Trucks, Inc. v. Commissioner of Department of Motor Vehicles, No. 1417-88-2 (Va.App.Ct. Dec. 5, 1989) (Virginia statute); Carolina Truck & Body Co. v. General Motors Corp., 102 N.C.App. 262, 402 S.E.2d 135 (1991), cert. denied, 329 N.C. 266, 407 S.E.2d 831 (1991) (North Carolina statute). In the only published opinion within this circuit interpreting the NJFPA in this context, the district court fell into the former camp, finding that the Heavy Duty Addenda was a separate franchise which GM had terminated by the actions culminating in its entry into the Volvo joint venture, and that market withdrawal does not constitute "good cause" for termination of such a franchisee. General Motors Corp. v. Gallo GMC Truck Sales, 711 F.Supp. 810 (D.N.J.1989) (citing Frank's GMC Truck Center, Inc. v. General Motors Corp., No. 87-4839 (D.N.J. Jan. 7, 1988), rev'd on other grounds, 847 F.2d 100 (3d Cir.1988)). Since none of these decisions represents controlling authority on point, the court will proceed to consider the merits, guided by the analysis of case law, statutory provisions, and legislative intent appearing in these many well-reasoned opinions.

This court begins with the question of whether termination of a franchise, where one indisputably exists, violates the NJFPA if termination occurs in the context of a general market withdrawal by the franchisor. The court finds no authority that directly resolves this problem of New Jersey statutory interpretation. Considering the same issue, of the applicability of the NJFPA to a case of market withdrawal, the Third Circuit concluded:

We have examined the legislative history of the Act and do not find it decisive on this question of interpretation. Witnesses who testified in support of the bill expressed concern about capricious action by franchisors, coercive uses of the threat of termination to impose onerous burdens on franchisees and refusal to renew one

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