Imperial Motors, Inc. v. Chrysler Corp., Civ. A. No. 79-1447-Z.

• Decision Date: 25 March 1983
• Docket Number: Civ. A. No. 79-1447-Z.
• Citation: 559 F. Supp. 1312
• Parties: IMPERIAL MOTORS, INC. and Milton A. Flynn v. CHRYSLER CORPORATION.
• Court: U.S. District Court — District of Massachusetts

559 F. Supp. 1312

IMPERIAL MOTORS, INC. and Milton A. Flynn v. CHRYSLER CORPORATION.

Civ. A. No. 79-1447-Z.

United States District Court, D. Massachusetts.

March 25, 1983.

Michael J. Flynn, Boston, Mass., for plaintiffs.

Samuel Adams, Samuel J. Armstrong, Karen J. Bloom, Warner & Stackpole, Boston, Mass., for defendant.

MEMORANDUM OF DECISION

ZOBEL, District Judge.

Plaintiffs, formerly the operators of a Chrysler-Plymouth franchise in Myrtle Beach, South Carolina, filed this action on July 24, 1979, alleging that defendant, an automobile manufacturer, had violated the Dealers' Day in Court Act (the "Act"), 15 U.S.C. §§ 1221-5 by breaching the terms of the franchise agreement between the parties and by later constructively terminating that agreement. On December 21, 1982, defendant moved for summary judgment, principally on the ground that plaintiffs had failed to state a cause of action. Plaintiffs thereupon moved to amend their complaint so as to allege additional facts supporting their claim of illegal termination. For the reasons stated below, defendant's motion is allowed in part and plaintiffs' motion is denied.

The facts, when viewed in the light most favorable to the plaintiffs, are as follows. In November 1974, plaintiff Milton A. Flynn ("Flynn") and one other person purchased all the stock in plaintiff Imperial Motors, Inc. ("Imperial") from Ray Evans ("Evans"). The purchasers conveyed a promissory note to Evans which was secured by Imperial's stock. In 1976, Flynn, who at that time owned 70% of Imperial's stock¹ and was its president, entered on Imperial's behalf into Direct Dealer Agreements for Chrysler and Plymouth dealerships with the defendant. Although the Direct Dealer Agreements explicitly provided that Imperial would have "the non-exclusive right" to purchase for resale defendant's cars in Myrtle Beach, Little River, North Myrtle Beach, and Murrells Inlet, defendant's Area District Manager John Molinari ("Molinari") told Flynn that Imperial's Chrysler-Plymouth dealership would be the only one in these four towns.

In August 1976, defendant allowed Carroll Motors ("Carroll"), another Chrysler-Plymouth dealer, to move its dealership from Conway, South Carolina, to a new showroom seven miles away from Imperial's location. When Flynn complained that this relocation would damage his business, he was told by Molinari that "they had plans for me that would make it much, much more desirable to continue to do business with them than to fight them."

In early 1977, Chrysler Credit Corporation, defendant's wholly-owned subsidiary, reduced plaintiffs' line of credit for floor plan models from approximately $250,000 to approximately $170,000. This credit reduction prevented plaintiffs from ordering new and potentially popular models for their showroom. Defendant's representatives met with Flynn and told him that if he would invest more capital in his business, they would increase his line of credit. When Flynn was unable to secure a loan, he offered the dealership for sale. Because he received no satisfactory offers, Flynn conveyed Imperial's stock and property back to Evans, whereupon Imperial ceased its operations.

Defendant's motion for summary judgment is predicated on two grounds. First, defendant argues that Flynn² does not have standing to file suit under the Act. Second, it contends that neither plaintiff has made out a cause of action.

15 U.S.C. § 1222 in relevant part provides: "An automobile dealer may bring suit against any automobile manufacturer ... and shall recover the damages by him sustained and the cost of the suit by reason of the failure of said automobile manufacturer ... to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, cancelling, or not renewing the franchise with said dealer." 15 U.S.C. § 1221 defines an "automobile dealer" as "any person, partnership, corporation, association, or other form of business enterprise ... operating under the terms of a franchise and engaged in the sale or distribution of passenger cars, trucks or station wagons." Defendant argues that because Imperial, not Flynn, entered into the Direct Dealer Agreements with it, Flynn has no standing to sue under § 1222.

In general, when a corporation is injured, only the corporation, a receiver, or a stockholder suing derivatively in the corporation's name may sue to redress the injury. Vincel v. White Motor Corporation, 521 F.2d 1113, 1118 (2d Cir.1975). The theory behind this rule is that if the corporation recovers its losses, all its stockholders will benefit through an increase in the value of their stock. Id. In certain cases, however, an individual, not a party to a franchise agreement, has been held to have standing to sue under the Act where his participation in a dealership's operation was mentioned in and explicitly deemed essential by the franchise agreement and/or where he was the corporate dealership's principal shareholder. Rea v. Ford Motor Company, 497 F.2d 577 (3d Cir.1974), cert. denied, 419 U.S. 868, 95 S.Ct. 126, 42 L.Ed.2d 106 (1974); York Chrysler-Plymouth, Inc. v. Chrysler Credit Corp., 447 F.2d 786 (5th Cir.1971). In addition, allowing an individual operating a corporate dealership to proceed on his own behalf is appropriate where denying him standing "would have ... the effect of negating the protective features of the Act altogether." Vincel v. White Motor Corporation, 521 F.2d at 1120, discussing Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir.1965).

Flynn was Imperial's principal if not sole shareholder, and defendant relied on his "active, substantial and continuing personal participation" in the corporation's management as noted in the Direct Dealer Agreements. His chief contention is that defendant's actions forced him to default on obligations under which his stock in the corporate dealership was secured. Under such circumstances, it is unlikely that the corporation, now inoperative and in a third party's possession, would ever on its own pursue claims against defendant. Assuming that a violation of the Act has occurred, acceptance of defendant's argument would, therefore, remove the protections of the Act from the type of dealer who needs them most — one upon whom the impact of coercive action has been so great as to force him completely out of business. I hold, therefore, that Flynn has standing to maintain this action.

Defendant's motion for summary judgment is proper as to that part of plaintiffs' claim which alleges that defendant's approval of Carroll's relocation was a violation of the Act. The Act covers only those actions of a franchisor which amount to a "failure ... to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, cancelling, or not renewing the franchise with a dealer." 15 U.S.C. § 1222. Good faith is narrowly defined as "the duty of each party ... to act in a fair and equitable manner toward each other so as to guaranty the one party freedom from coercion, intimidation or threats of coercion or intimidation by the other party. 15 U.S.C. § 1221. The failure to abide by the terms of a franchise agreement cannot by itself constitute a violation of the act. Globe Motors, Inc. v. Studebaker-Packard Corporation, 328 F.2d 645 (3d Cir.1964). Moreover, the Act explicitly defines a franchise as a "written...