General Motors Corp. v. Harry Brown's, LLC

• Decision Date: 16 April 2009
• Docket Number: No. 08-3924.,08-3924.
• Citation: 563 F.3d 312
• Parties: GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. HARRY BROWN'S, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

563 F.3d 312

GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. HARRY BROWN'S, LLC, Defendant-Appellee.

No. 08-3924.

United States Court of Appeals, Eighth Circuit.

Submitted: March 12, 2009.

Filed: April 16, 2009.

Jeffrey Jay Jones, argued, Columbus, OH, William L. Killion and Kerry L. Bundy, on the brief, Minneapolis, MN, for appellant.

Robert L. DeMay, argued, Curtis D. Ripley and Jacob B. Sellers, on the brief, Minneapolis, MN, for appellee.

Before WOLLMAN, MURPHY, and SHEPHERD, Circuit Judges.

MURPHY, Circuit Judge.

General Motors (GM) filed this declaratory judgment action and sought injunctive relief against Harry Brown's, LLC, one of its Minnesota dealerships, after Harry Brown's indicated it wanted to move a related Chrysler dealership onto its property. The district court¹ denied GM's motion for a preliminary injunction. GM appeals, arguing that the district court abused its discretion and erred in finding that it had not established a likelihood of irreparable harm. We affirm.

I.

Harry Brown's, LLC is a GM dealership in Faribault, Minnesota that is owned and managed by Michael Brown. Harry Brown's sells Chevrolet, Cadillac, Buick, Pontiac, and GMC linemakes and until 2001 it also sold Dodge, a Chrysler product. In that year Michael's brother Steven opened Faribault Chrysler, LLC on an adjacent lot 600 feet away, took over the Dodge line from Harry Brown's, and added Chrysler and Jeep lines. Harry Brown's and Faribault Chrysler are wholly owned by Harry Brown's Inc., a family holding company, and the brothers consult each other on major business decisions. The accounting personnel and detailing services for both dealerships are housed in the "ABRA" building, which is located between the two showrooms. Faribault Chrysler began suffering financial losses in 2005, and in late 2007 the brothers determined that the only way to maintain the strength of the holding company was to operate both businesses at the original Harry Brown's location. This would reduce operating costs for both dealerships and allow the holding company to rent out the property previously used by Faribault Chrysler.

Under GM's standard Dealer Sales and Service Agreement,² Harry Brown's must obtain GM's approval before making changes to the dealership premises, such as adding new vehicle lines. Adding non GM linemakes is known as "dualing," something GM has expressed disapproval of in published dealer bulletins and which it discourages by denying certain privileges to dealers that dual without prior written approval. The dealership agreement states that GM will evaluate a proposed change based on dealer network planning considerations and will approve or deny the request "pursuant to its business judgment."

Harry Brown's submitted a Change Request to GM in May 2008, proposing to relocate Faribault Chrysler's sales, service, and parts to the Harry Brown's lot. Under the proposal Chrysler and GM automobiles would be sold out of the same showroom until Harry Brown's could build a partition between the line areas. Harry Brown's submitted architectural plans it had produced for the separate showrooms. GM and Chrysler would still retain separate sales and service staff, and compensation for GM sales staff would continue to be based solely on sales of GM vehicles.

GM denied the dualing request, citing its policies against dualing, concerns that the combined operation would not satisfy GM facility requirements, and Harry Brown's below average customer satisfaction scores. GM also objected that there would no longer be customer contact areas dedicated only to its products, such as customer service and the customer lounge. Harry Brown's contested the accuracy of GM's assertions about the amount of space that would be available for GM sales, parts, and service after the Chrysler operations were moved. Harry Brown's also cited its own excellent sales record and high percentage of repeat customers.

While GM and Harry Brown's discussed details of the proposal and possible revisions to it, Faribault Chrysler received approval from Chrysler for the relocation of its operations. On August 27, 2008 Harry Brown's notified GM that due to Faribault Chrysler's dire financial condition, it would relocate the Chrysler dealership notwithstanding GM's disapproval.

On September 10, GM filed this action, seeking a declaratory judgment that it had properly denied Harry Brown's proposal, specific performance of the dealership contract provision that Harry Brown's not alter the dealership without GM's approval, and preliminary and permanent injunctions. It simultaneously filed a motion for temporary restraining order, preliminary injunction, and expedited hearing.

Harry Brown's agreed to postpone the dualing plan until September 30 to allow for settlement talks. It also submitted an amended proposal that would convert the ABRA building into a separate Chrysler showroom, rather than simply partitioning the existing Harry Brown's showroom. GM rejected the amended proposal because it did not provide for certain features, such as a separate area for GM service orders. In late September the parties negotiated a "standstill agreement" which either could terminate unilaterally.

Citing Faribault Chrysler's deteriorating financial condition, Harry Brown's terminated the agreement on November 20, but agreed to maintain the status quo until the preliminary injunction hearing scheduled for December 8. At that hearing the district court denied GM's motion for a temporary restraining order. It then denied the motion for a preliminary injunction on December 16, and on the next day GM filed its notice of appeal and an unsuccessful motion for an injunction pending appeal. Faribault Chrysler began its relocation to the Harry Brown's facility as originally proposed to GM. The move was completed on December 20, 2008.

In denying the preliminary injunction, the district court found that although GM was likely to prevail on its contract claim, it had not demonstrated that it would be irreparably harmed by the dualing arrangement during the time leading up to trial and that the countervailing harms weighed against a preliminary injunction. On its appeal from that order GM emphasizes its problems in the current economic downturn and contends that it cannot compete against other automakers unless it can offer consumers exclusive retail environments. It argues that the district court erred by not finding that dualing would cause it irreparable harm and by considering the harm that an injunction would cause Faribault Chrysler. In addition, GM argues that the district court abused its discretion in balancing these harms.

Harry Brown's contends that the financial difficulties it confronts are more urgent than those of GM and argues that the district court did not abuse its discretion by finding that Harry Brown's potential injuries outweighed those of GM, which were not established with sufficient evidence.

II.

The party seeking a preliminary injunction bears the burden of establishing the necessity of this equitable remedy. See Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir.2003). The district court should consider: (1) the threat of irreparable harm to the moving party; (2) the weight of this harm as compared to any injury an injunction would inflict on other interested parties; (3) the probability that the moving party will succeed on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir.1981) (en banc). We review the district court's factual findings for clear error, its legal conclusions de novo, and its exercise of equitable judgment for abuse of discretion. Heartland Acad. Cmty. Church v. Waddle, 335 F.3d 684, 689-90 (8th Cir.2003). An abuse of discretion occurs where the district court fails to consider an important factor, gives significant weight to an irrelevant or improper factor, or commits a clear error of judgment in weighing those factors. See Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir.1994).

Under Dataphase, the district court is to consider the likelihood that the party seeking a preliminary injunction will ultimately prevail on the merits. GM's primary claim in this action is a request for a declaratory judgment that it reasonably denied Harry Brown's request to dual with Faribault Chrysler. GM also seeks a declaratory judgment that a Minnesota law protecting the right of dealers in new motor vehicles to acquire or invest in diverse lines of motor vehicles, Minn.Stat. § 80E.12(h) (2008), does not prevent it from enforcing its exclusive dealing policy against Harry Brown's. Finally, GM seeks a declaratory judgment that it may terminate Harry Brown's dealership agreement for material breach. GM claims that its exclusive dealing policy is justified for business reasons, not prohibited by state law, and was properly invoked in the case of Harry Brown's.

Harry Brown's argued that GM was not likely to prevail on the merits because the dealership agreement permits GM to deny approval for changes at a dealership based only on dealership network planning considerations. Harry Brown's claimed that dualing has no impact on network planning and argued that GM's denial of its proposal violated the contract's implied covenant of good faith and fair dealing. It also disputed the reasons given by GM for denying approval, such as its assertion that Harry Brown's facilities would no longer satisfy GM guidelines. It contended that GM could not obtain specific performance because such relief is disfavored by Minnesota state policy which supports dealers' rights to carry more than one vehicle line. See Minn.Stat. § 80E.07(1)(c) (prohibiting termination of a dealership agreement solely for a dealer's carrying additional lines); id. § 80E.12(h) (prohibiting manufacturers from requiring dealers to refrain from acquisition of additional vehicle lines).

Both parties submitted affidavits from...