Gallo Motor Center v. Mazda Motor of America
| Decision Date | 15 May 2002 |
| Docket Number | No. CIV.A.01-40157-NMG.,CIV.A.01-40157-NMG. |
| Citation | 204 F.Supp.2d 144 |
| Parties | GALLO MOTOR CENTER CORP., Plaintiff v. MAZDA MOTOR OF AMERICA, INC., Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Richard B. McNamara, Gregory A.O.OO Holmes, Wiggin & Nourie, P.A., Manchester, NH, for Plaintiff.
John R. Skelton, William F. Benson, Bingham Dana, Boston, MA, Elizabeth M. Leonard, Wiggin & Nourie, Manchester, NH, for Defendant.
This case concerns the balancing of automobile dealers' rights with the prerogatives of the free market. The Great and General Court of the Commonwealth of Massachusetts tried to strike such a balance when it enacted M.G.L. c. 93B, which regulates the relationship between manufacturers and dealers. Chapter 93B, the so-called "Dealer's Bill of Rights", specifically purports to have the dual but sometimes discordant aims of protecting dealers from arbitrary practices of a manufacturer and promoting consumer welfare.
Pursuant to M.G.L. c 93B § 4(3)(l), the plaintiff, Gallo Motor Center Corporation ("Gallo"), owner of a Mazda dealership located in Worcester, Massachusetts, contests the establishment of a new Mazda dealership on Route 9 at Walnut Street in Shrewsbury, Massachusetts. The gravamen of the plaintiff's complaint is that the decision of the defendant, Mazda Motor of America, Inc. ("Mazda"), to establish the new dealership was arbitrary and, as a consequence, in violation of Chapter 93B. Gallo seeks, inter alia, damages to compensate it for lost profits and diminution in franchise value.
On November 5, 2001, this Court allowed, in part, and denied, in part, Mazda's motion for a speedy trial pursuant to M.G.L. c 93B § 4(3)(l)(3), and set an expedited trial schedule. On March 7, 2002, the Court denied Mazda's motion for summary judgment and three weeks later conducted a five-day bench trial and heard oral arguments. After taking the matter under advisement, this Court finds for the defendant.
In 1994, Gallo acquired an existing Mazda dealership located at 235 Shrewsbury Street in Worcester. In connection with Mazda's approval of Gallo as a Mazda dealer, Gallo agreed to relocate the combined Mazda/Volvo dealership to Goldstar Boulevard in Worcester. When it commenced business in the new facility on Shrewsbury Street, Gallo also owned and operated separate Saturn, Mitsubishi and Oldsmobile dealerships in Worcester.
At the time Gallo purchased the Mazda dealership, the Worcester area was a highly competitive market for automobile sales and Gallo was aware that there were other Mazda dealerships in close proximity, including the Roy Rioux dealership in West-borough, 7.6 miles from Gallo's Shrewsbury Street site. After reviewing the market opportunity, Gallo's management determined that it was a sound business decision to purchase the Mazda franchise notwithstanding the vigorous competitive environment.
When a dealer acquires a Mazda franchise, Mazda assigns to it a non-exclusive geographic area called a Statistical Observation Area ("SOA") corresponding to specific zip codes or census tracts. Mazda measures a dealer's performance by comparing new vehicle registrations in its SOA with industry-wide benchmarks, such as Mazda's national market share. Gallo's SOA consisted of all of Worcester and Shrewsbury.
Pursuant to the express terms of its dealer agreement, Gallo represented Mazda with respect to sales, service and marketing in its assigned SOA. Gallo, however, did not have a proprietary right to its SOA which Mazda stipulated could be adjusted. At the time Gallo purchased the Mazda franchise, the sales record for Mazda cars in the Worcester-Shrewsbury SOA was well below the national and regional average. Mazda attributed that sluggish record, at least in part, to the poor location of the Shrewsbury Street dealership. Mazda also believed that it had a deficient market share in the neighboring Westborough SOA.
In 1997, Mazda retained Urban Science Application, Inc. ("USAI") to conduct major market studies of 84 metro market areas across the country, including the greater Worcester region. The USAI study was part of Mazda's program for national dealer revitalization, a project in which Mazda sought to eliminate poor performing dealerships while maximizing the efficiency of its remaining dealerships.
USAI issued a report, the "1997 Worcester Area Market Study", based upon market data from 1994 through 1997. The report recommended, inter alia, that 1) the greater Worcestser area should have three dealerships, 2) the overall Worcester market area was not performing at an optimal level and 3) for Mazda to achieve its expected market share, the three existing dealerships had to attain superior sales and service records.
In the years preceding 1998, the performance of the Roy Rioux Mazda dealership was steadily declining. In 1998, that dealership officially ceased operations after being unable to find a buyer acceptable to Mazda and shortly thereafter, Mazda began to search for a replacement dealer. Mazda did not commission a new study to determine whether it should fill the "open point" (i.e., an area where there is a potential market opportunity for a new dealership). However, the 1997 Worcester Area Market Study, R.L. Polk vehicle registration penetration information and Mazda's own sales and demographic data, among other things, convinced Mazda that a new Route 9 dealership would enable it to achieve greater market penetration in the Westborough area.
During that same period, Gallo, pursuant to its initial agreement with Mazda, was in the process of moving its Mazda/Volvo dealership facility from its Shrewsbury Street location to its present site at 70 Gold Star Boulevard in Worcester. Although the combined cost of the move of the dual franchise was substantial and the relocation not without problems the new dealership site, as both Gallo and Mazda recognized, improved Gallo's position in the market. During the first few months following the relocation in May, 1999, however, Gallo experienced a major disruption in its business operation and its sales and customer satisfaction rating ("CARE scores") declined.
With the dissolution of the Rioux Mazda dealership and Gallo's initial relocation problems, Mazda's market performance in the Westborough SOA continued to be unsatisfactory. Although a new Westborough franchise was not immediately arranged, Mazda openly searched for potential dealers. During its regular regional advertising group meetings, Mazda's representatives expressed their intention to fill "open points", including the Westborough site.
In late 1998, Mazda agreed to a proposal from Lincoln-Mercury to establish a joint Lincoln-Mercury/Mazda dealership (hereinafter "MetroWest") on Route 9 under the auspices of the Ford Dealer Development Program. When Mazda began to consider that proposal seriously, Lincoln-Mercury was well into the planning phases for closing a Worcester site and opening "MetroWest" in Shrewsbury.
By 1999, after canvassing the Westborough and Shrewsbury area, Lincoln-Mercury, with minimal assistance from Mazda, identified the intersection of Route 9 and Walnut Street (in Shrewsbury) as the site of a potential dual dealership. At that time, a Mazda representative notified Nicholas Gallo, an owner of Gallo Mazda, that he would soon receive written notification that Mazda intended to establish a new dealership on Route 9 adjacent to a well-known store. Mazda did not, however, inform Mr. Gallo that the site of the new dealership was in Shrewsbury and Mr. Gallo, on his part, made no inquiries with respect to its precise location.
On August 16, 1999, Mazda notified Gallo by certified mail of its intention to establish a new Mazda dealership "at the Southwest corner of Route 9 and Walnut Street in Westboro, Massachusetts." Mazda further advised Gallo that it anticipated that the new dealership would begin operation in January, 2000 or shortly thereafter. Although that notice provided Gallo with the correct street address of the proposed Route 9 dealership, it inaccurately identified the site as being in Westborough rather than Shrewsbury.
At the time he received Mazda's written notice, Nicholas Gallo understood that, pursuant to the protest procedures of Chapter 93B, his dealership was required to notify Mazda of its intent to sue within 30 days of receipt of the letter. Based upon the notice letter, Gallo assumed that the new dealership would, in effect, replace the Rioux franchise in Westborough, although, because of its distance from the former dealership and the time interval between the Rioux closing and the notice, it was not a "replacement dealership" as that term is defined in the statute.
The day after receiving the notice letter, Nicholas Gallo conferred with his business associate, Alfred Gallo, and they agreed that they would not protest the establishment of the new dealership because West-borough was sufficiently distant from their dealership to give Gallo "enough space to compete equally." Gallo did not then find the prospect of three dealerships in the greater Worcester area to be per se objectionable.
With no pending protests against the MetroWest dealership, Mazda began construction on the site in 1999 and, in late 2001, it opened for business. The new dealership, a $3.8 million facility, is located 6.5 miles from Gallo's Goldstar Boulevard location.
In March, 2001, Gallo first learned that the MetroWest dealership is in Shrewsbury. That same month, Nicholas Gallo informed Ronald...
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