Glaesner v. Beck/Arnley Corp.

• Citation: 790 F.2d 384
• Decision Date: 08 May 1986
• Docket Number: Nos. 85-1852,s. 85-1852
• Parties: Frederick R. GLAESNER, d/b/a European Imported Auto Parts, Appellee, v. BECK/ARNLEY CORPORATION, Appellant. Frederick R. GLAESNER, d/b/a European Imported Auto Parts, Appellant, v. BECK/ARNLEY CORPORATION, Appellee. (L), 85-1853.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 384

790 F.2d 384

Frederick R. GLAESNER, d/b/a European Imported Auto Parts, Appellee, v. BECK/ARNLEY CORPORATION, Appellant.

Frederick R. GLAESNER, d/b/a European Imported Auto Parts, Appellant, v. BECK/ARNLEY CORPORATION, Appellee.

Nos. 85-1852(L), 85-1853.

United States Court of Appeals Fourth Circuit.

Argued Feb. 5, 1986.

Decided May 8, 1986.

W. Bruce Johnson (Battle, Fowler, Jaffin & Kheel, New York City, G. Dana Sinkler, Sinkler, Gibbs & Simon, Charleston, S.C., on brief), for appellant/cross-appellee.

David B. McCormack and Anthony M. Merck (Buist, Moore, Smythe & McGee, Charleston, S.C., on brief), for appellee/cross-appellant.

Before WIDENER, MURNAGHAN, and WILKINSON, Circuit Judges.

WILKINSON, Circuit Judge:

This case arises from the tensions inherent in the relationship between a national supplier and its local distributor. In 1981, Beck/Arnley Corporation, a supplier of foreign car parts, terminated its distributorship agreement with Frederick R. Glaesner. Glaesner sued Beck/Arnley, alleging wrongful termination of the contract in violation of South Carolina tort law and the South Carolina Unfair Trade Practices Act (SCUTPA). The jury found for Glaesner on both counts, and the trial judge entered judgment in the amount of $33,736 plus $30,166 in attorneys' fees and costs. That court set aside a $10,000 award of punitive damages and declined a discretionary award of treble damages under the Unfair Trade Practices Act.

We reverse and direct entry of judgment in favor of Beck/Arnley. A termination is not wrongful if it is in accord with the terms of the contract and not contrary to equity and good conscience. Here Beck/Arnley terminated Glaesner for the most basic of business reasons. Plaintiff has also failed to allege wrongful behavior on the part of Beck/Arnley in anything but speculative terms. Thus Beck/Arnley's conduct violated neither the common law of South Carolina nor its Unfair Trade Practices Act. ¹

I.

Beck/Arnley supplies parts for imported automobiles to approximately 400 independent distributors. In March, 1980, Beck/Arnley and Glaesner agreed that Glaesner would become a Charleston-area distributor for Beck/Arnley. At the time of the agreement, Glaesner was operating an auto repair shop, and he continued to run that business while acting as a Beck/Arnley distributor.

Glaesner sold $5,000 worth of parts during the first month, but subsequently his sales and orders dropped to a low level and remained there. The distributorship agreement provided that "Either party may cancel or terminate this Agreement at any time, without cause, upon one (1) month advance written notice." In October, 1981, Beck/Arnley notified Glaesner that it was terminating the agreement, effective in thirty days, but that it would continue to sell to him for an additional ninety days.

Although the parties agree on the bare outline of facts recited here, they have quite different perceptions of the reasons for Glaesner's meager sales, and of the motivations underlying the termination. Glaesner's view is that Beck/Arnley sold him unsalable parts. The initial inventory for the parts shop was selected by Beck/Arnley. Glaesner contends that some parts were obsolete while others were for cars that no one in the Charleston area owned. Glaesner advertised on radio and in the newspaper during the first months of his distributorship; he also telephoned repair shops in the area that were potential buyers. At trial Glaesner testified that although Beck/Arnley had told him he could expect to turn over his inventory four times a year, he still had over half of his original inventory. The contract gave Beck/Arnley the option to repurchase its inventory after a termination. Glaesner asked Beck/Arnley to exercise its option to repurchase, but Beck/Arnley refused to do so. Glaesner interprets this refusal as a corroboration of his belief that Beck/Arnley used the distributorship to unload obsolete and otherwise unsalable parts.

As one might expect, Beck/Arnley's version of what transpired is somewhat different. It contends that Glaesner's failure to promote the product and his severely limited investment in the parts business resulted in low sales. Beck/Arnley estimated expenses for the first year would be $41,100, in addition to the cost of the inventory. By Glaesner's calculation, he spent only $15,650, aside from purchases of inventory, during the nineteen months that he was a distributor. Beck/Arnley maintains that it sold Glaesner parts it considered to be "good moving items," selected on the basis of automobile registrations of foreign cars in the area and its own sales records. Glaesner, it contends, offered no suggestions on the initial selection of inventory.

Beck/Arnley had also requested that Glaesner find another location for his parts business because it feared that Glaesner's repair shop competitors would not come into his repair shop to buy parts. Glaesner did not do so. By the end of 1980, Glaesner had stopped advertising, was no longer calling on customers, and had closed the parts department's ledger. For a year before Beck/Arnley terminated the distributorship, Glaesner had had no full-time manager for the parts business. In 1981, Glaesner bought less than $3000 worth of parts from Beck/Arnley. During the year preceding termination, Glaesner was his own best customer; most of the Beck/Arnley products were acquired by the repair shop. Beck/Arnley thus contends that Glaesner was using the distributorship to gain a price advantage over competitors, purchasing directly from the supplier instead of going through a distributor. In the meantime, it became unprofitable for Beck/Arnley to service a distributor with such a minimal sales volume.

In short, Glaesner contends that he was terminated as a part of Beck/Arnley's scheme to rid itself of useless and unsalable parts, while Beck/Arnley argues that Glaesner's poor business practices resulted in such negligible sales that it could not afford to keep him as a distributor. Such divergent versions of the facts and reciprocal casting of blame are common when expectations engendered by business dealings fail to materialize. Mutual recrimination and suspicion may typify times when profits are low and dealings turn sour. Such differing views do not, however, ordinarily give rise to an action in tort or create a jury question as to which party's version of business reality is the right one. Rather, recourse is normally had to the terms of the contract which the parties themselves negotiated and to the business setting in which that contract took form.

II.

The supplier-distributor relationship is a risky one. J. Hlavacek and T. McCuistion, "Industrial Distributors" in The Marketing Renaissance 503 (ed. D. Gumpert 1985). Two parties make a distributorship agreement in the expectation that it will be profitable for both sides. In some cases, however, it will be profitable for neither. The causes of distributor failure are legion: changing economic conditions or market trends; poor product quality or supplier support; inadequate investment or experience on the part of the distributor himself. There has been a tremendous growth in the number of distributorships and franchises in recent years, but "failures and terminations of franchises have grown in equal proportion giving rise to large numbers of disappointed investors." Briley, Franchise Termination Litigation: A Comparative Analysis, 16 U.Tol.L.Rev. 891, 891 (1985). In 1983, 2700 independent franchisees were either terminated or failed on their own. Id. Beck/Arnley had terminated 44 distributors in the five years preceding Glaesner's suit; at the time of trial, it was supplying approximately 400 more.

The supplier sets up a distributorship because it thinks there are profits to be made. "[O]ne does not take on a distributor in the expectation of having a war, but rather because there is profit in the connection for both parties." T. Bonoma, The Marketing Edge 49 (1985). Where there is no profit in the relationship, business analysts suggest that the distributor should be terminated. See, e.g., Hlavacek and McCuistion, supra, at 508. A supplier cannot remain in business if it is forbidden to terminate unprofitable distributors. The more successful distributors may also be penalized if the supplier continues to incur servicing and shipping costs to unprofitable ones. To the extent the chain of distribution incurs such expenses, the cost of products to consumers may also rise.

We recognize, however, that restrictions on terminations have been legislated in order to protect those distributors with comparatively little bargaining power. A national supplier or franchisor is likely to possess greater resources than an individual dealer, distributor, or franchisee. The franchisor can also "force unwanted modifications of the agreements on dealers by threatening to terminate the franchise relationship or by threatening to fail to renew the relationship when the existing contract expired." Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1118 (D.Conn.1980). Congress has enacted a number of statutes to redress the inequality of bargaining power between manufacturers and dealers. See, e.g., the Automobile Dealer's Day in Court Act, 15 U.S.C. Secs. 1221-1225 and the Petroleum Marketing Practices Act, 15 U.S.C. Secs. 2801-2841. South Carolina also has statutes regulating dealer terminations in certain industries. See, e.g., S.C.Code Ann. Secs. 61-9-1010 to 61-9-1050 (1976) (protecting beer distributors), and S.C.Code Ann. Secs. 56-15-10 to 56-15-130 (regulating motor vehicle dealerships).

Even in those industries protected by special statutes, however, not every termination is wrongful. See, e.g., Crown Central Petroleum Corp. v. Waldman, 515 F.Supp. 477 (M.D.Pa.1981), aff'd, 676 F.2d 684 (3d Cir.1982); Frank Chevrolet Co. v. General Motors Corp., 419 F.2d 1054 (6th Cir.1969). To the contrary, a termination of a...