General Aviation, Inc. v. Cessna Aircraft Co.

• Decision Date: 21 December 1993
• Docket Number: No. 92-2355,92-2355
• Citation: 13 F.3d 178
• Parties: GENERAL AVIATION, INC., Plaintiff-Appellant, v. The CESSNA AIRCRAFT COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 178

13 F.3d 178

GENERAL AVIATION, INC., Plaintiff-Appellant, v. The CESSNA AIRCRAFT COMPANY, Defendant-Appellee.

No. 92-2355.

United States Court of Appeals, Sixth Circuit.

Argued Aug. 12, 1993.

Decided Dec. 21, 1993.

Michael E. Cavanaugh (argued and briefed), Mark R. Fox (briefed), Fraser, Trebilcock, Davis & Foster, Lansing, MI, for plaintiff-appellant.

Roger M. Clark (argued and briefed), Douglas A. Dozeman, Warner, Norcross & Judd, Grand Rapids, MI, Raymond M. Tierney, Jr., Shanley & Fisher, Morristown, NJ, for defendant-appellee.

Before: MERRITT, Chief Judge, JONES, Circuit Judge, and ENGEL, Senior Circuit Judge.

MERRITT, Chief Judge.

This diversity action has been before this Court in the past. Plaintiff General Aviation ("GA") brought suit against defendant Cessna Aircraft Company for breach of contract and related claims, as well as for violations of the Michigan Franchise Act. Mich.Comp.Laws Sec. 445.1527, Mich.Stat.Ann. Sec. 19.854(27). The district court originally granted summary judgment for Cessna on all claims. General Aviation, Inc. v. Cessna Aircraft Co., 703 F.Supp. 637 (W.D.Mich.1988). We affirmed that judgment as to the contract claims and remanded the other issues to the district court for further proceedings in an opinion describing in detail the previous relationship of the parties. General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038 (6th Cir.1990). The parties settled one of the remanded claims and the district court dismissed the others. GA again appeals these dismissals. The primary issue on this appeal is whether Sec. 27(e), the Act's nondiscrimination provision, requires Cessna to have a legitimate reason for refusing to renew GA's franchise agreement while renewing contracts with other, similarly situated franchisees, or whether Cessna may lawfully refuse to renew its franchise agreements at will as long as it offers the same terms to those franchisees it does renew. We hold that the language of the Act requires a legitimate, nondiscriminatory reason for nonrenewal.

I. Background Information

Beginning in 1977, General Aviation and Cessna entered into a series of one-year franchise agreements, under which GA acted as a dealer to sell and service Cessna aircraft. Each of these agreements was renewable at the parties' option. At the end of the 1984 agreement Cessna decided not to renew the contract, terminating the agreement.

It is no longer a disputed matter that the franchise agreements at issue are covered by the Michigan Franchise Act of 1974 and its 1984 amendments. The panel which heard the original appeal decided that the 1984 amendments could apply retroactively to the contracts at issue here, so long as there had been a "material change" in the last contract. On remand, the district court found that Cessna had materially changed the last contract by eliminating a provision which guaranteed repurchase of GA's inventory by Cessna in the event of contract termination. The retroactive application of the amendments is not at issue in this appeal.

GA makes three claims on this appeal, all of which arise from Cessna's purported violations of the Michigan Franchise Act. First, GA contends that it is entitled to damages for Cessna's failure to comply with the 1974 statute's registration and prospectus disclosure requirements, Secs. 6 and 16. Second, GA seeks relief on the basis of Cessna's violation of Sec. 27(e), which restricts a franchisor's ability to refuse to renew franchise contracts. At oral argument we requested supplemental briefs on analogous provisions in the franchise statutes of other states to assist us in our interpretation of this section. Finally, GA argues that it is entitled to damages because Cessna violated Sec. 5, the anti-fraud provision, by misleading GA with respect to the long-term nature of their business relationship as well as the inventory repurchase provision noted above. We address each claim in turn.

II. Claims Under Secs. 6 and 16

In our earlier opinion, we observed that Cessna "did not register or attempt to comply with the 1974 Act." 915 F.2d at 1045. That act provides that:

A person who offers or sells a franchise in violation of sections 5(1), 6, or 16 is liable to the person purchasing the franchise for damages or recision, with interest at 6% per year from the date of purchase and reasonable attorney fees and court costs.

Mich.Comp.Laws Sec. 445.1531, Mich.Stat.Ann. Sec. 19.854(31). We considered the violations only insofar as they affected retroactive application of the 1984 statute. Under Michigan law, a statute applies retroactively when doing so does not violate a "vested right." We found that, because of the registration violations, Cessna's contractual rights had not vested. 915 F.2d at 1044-45.

The district court correctly noted that when we partially reversed its grant of summary judgment we did not ask it to revisit the Sec. 6 and Sec. 16 claims. J.A. at 141-43. We agree with the district court's analysis of this issue. Although failure to register and issue a prospectus in violation of Secs. 6 and 16 may give rise to claims for damages, damages would not be appropriate in this case. That Cessna violated these provisions has been established. 915 F.2d at 1044-45. However, after a six-year business relationship, GA surely possessed all the information it would have received if Cessna initially had issued a prospectus. If Cessna had registered and Michigan had denied the franchise, GA would not have enjoyed several years as one of the leading sellers of Cessna's airplanes. GA does not seek to rescind a contract illegally formed in 1977. Rather, it seeks damages for the profits it would have received had a healthy franchise contract continued after 1984. The injuries caused by non-renewal simply did not flow from these statutory violations.

III. Claims Under Sec. 27(e)

The central controversy in this case surrounds the interpretation of Sec. 27(e) of the Michigan statute, the non-discrimination provision:

Sec. 27. Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise:

* * * * * *

(c) A provision that permits a franchisor to terminate a franchise prior to the expiration of its terms except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such a failure.

(d) a provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee's inventory, supplies, equipment, fixtures, and furnishings....

(e) a provision that permits the franchisor to refuse to renew a franchise on terms generally available to other franchisees of the same class or type under similar circumstances. This section does not require a renewal provision.

Whether or not Cessna violated this section when it refused to renew its franchise contract with GA turns on our interpretation of the statute. Cessna argues that since Sec. 27(e) "does not require a renewal provision," renewals themselves are not required at all. The district court agreed. According to this interpretation, the statute places no limits on the company's decision to renew, but merely bars discrimination among franchisees after they are renewed. Unlike part (c), part (e) of this section does not expressly require good cause. Taken as a whole, Cessna argues, the only constraint the statute places upon the franchisor's decision of whether or not to offer a renewal is the compensation requirement, Sec. 27(d). Cessna also advances the policy argument that only the demands of the market place should control renewals. Section 27(e) should not be construed as an anti-discrimination requirement with respect to franchise renewals because such a reading would prevent companies from downsizing in response to economic pressures. If the statute were read to require evenhanded renewals, then companies like Cessna would have to abandon all their franchisees at once or none at all.

GA counters that since the statute only protects franchisees that are similarly situated, it permits non-renewal of "bad" franchises. GA Br. at 23. Discrimination among franchisees would not be "unfair" if based on a legitimate reason, which could include the economic hardships of the franchisor. GA Supp.Br. at 12, 19. GA construes Sec. 27(e) as a general antidiscrimination provision regarding renewals. GA argues that since the purpose of the statute is to protect franchisees, it makes no sense to construe this anti-discrimination provision as allowing the ultimate act of discrimination--refusing to renew one franchisee while renewing all other similarly situated franchisees. GA also relies on the section analysis compiled by Michigan's House Committee on Corporations and Finance to support its interpretation. Although the district court noted that the section analysis supports GA's interpretation of Sec. 27(e) and conflicts with Cessna's interpretation, the court refused to consider the document because it determined that the section was unambiguous. The court also found the section analysis somewhat suspect since it was of "unknown date and authorship." We do not find it necessary to base our decision on the House Committee report.

The district court adopted Cessna's interpretation of the statute. The court found that Sec. 27(e) provided "that a franchisor cannot condition its decision to renew on conditions different from those required by other similarly situated franchisees" but held that the section did not require Cessna to continue to do business with GA. Thus it appears that under the district court's interpretation, franchisors may arbitrarily decide to which franchisees they...