Madsen v. Chrysler Corporation
| Citation | 261 F. Supp. 488 |
| Decision Date | 16 March 1967 |
| Docket Number | No. 65 C 1783.,65 C 1783. |
| Parties | Clarence MADSEN, Joseph Anthony Zwierzycki, Joseph D'Ziak, Guy Glenn Ashmore and J. A. Madsen Motor Sales, Inc., Plaintiffs, v. CHRYSLER CORPORATION and Chrysler Motors Corporation, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
Theodore A. Groenke, Myron M. Cherry, McDermott, Will & Emery, Chicago, Ill., for plaintiffs.
Douglas C. Moir, Edward J. Wendrow, Winston, Strawn, Smith & Patterson, Chicago, Ill., for defendants.
Plaintiffs, J. A. Madsen Motor Sales, Inc. and its stockholders, Madsen, Zwierzycki, D'Ziak and Ashmore, bring this action, complaining of defendants' decision to terminate the Chrysler, Plymouth and Imperial automobile franchises of Madsen Motor Sales in Wheaton, Illinois. A ninety-day notice of termination for cause was served on the plaintiff corporation on August 31, 1965. Prior to the termination of the ninety-day period, plaintiffs instituted this suit. While the franchises have been theoretically terminated as of November 29, 1965, plaintiffs have continued in the business of selling Chrysler, Plymouth and Imperial automobiles during the pendency of this action, under a separate agreement.
Plaintiffs seek damages and an injunction requiring Chrysler Corporation to maintain the original franchise relationship, basing their claim on several alternative theories. Initially, plaintiffs allege that Chrysler Corporation and Chrysler Motors Corporation have conspired to restrain trade and, individually or in concert, have attempted to monopolize trade and commerce in the sale, service and financing of Chrysler and Plymouth automobiles in the Wheaton and Glen Ellyn, Illinois markets, by determining to open a factory-owned or controlled sales unit in that area, replacing Madsen Motor Sales' Chrysler-Plymouth-Imperial (CPI) dealership in Wheaton and Glen Ellyn Motor Sales, an existing Plymouth dealership in Glen Ellyn operated by one William McKie. Plaintiffs contend that such action will restrain trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, by eliminating the competition now existing between Madsen and McKie and constitutes an attempt to monopolize the business of both Madsen and McKie in violation of § 2 of the Sherman Act, 15 U.S.C. § 2.
As an additional ground for the claimed § 1 violation, plaintiffs submit that the termination by Chrysler Corporation is in fact a concerted refusal to deal brought about by an agreement between Chrysler and McKie providing that upon termination of Madsen Motors' franchise, McKie will be the operator of the new Chrysler-constructed CPI dealership planned to replace Madsen and Glen Ellyn, McKie's present dealership. Plaintiffs also contend that the conduct outlined above constitutes a violation of the Illinois Antitrust Act, ch. 38 Ill.Rev.Stat. § 60-1 et seq.
Alternatively, plaintiffs allege that the termination of the Madsen Motors franchise gives rise to a cause of action under the Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-1225, on account of defendants' failure to act "in good faith" with respect to the decision to terminate. Finally, plaintiffs submit that, in any case, defendants had no grounds for termination for cause and, accordingly, the termination constitutes a breach of their obligations under the contract.
As will appear more fully hereafter, defendants contend that the Madsen Motors franchise was terminated solely on account of the latter's failure to perform its selling obligations under the franchise agreement. While there is no dispute as to Chrysler's planned corporate-owned or controlled new dealership for the Wheaton-Glen Ellyn market, defendants take the position that this issue, and the selection of McKie as the proposed operator of the facility, is unrelated to the legality of the Madsen termination. The issues of injunctive relief and liability (on all counts of the complaint) have been tried to the court and the case is now ready for decision as to these issues.
J. A. Madsen Motor Sales initially acquired the Wheaton CPI franchise in 1953. The business was then operated as a partnership between plaintiffs Madsen and Zwierzycki. Thereafter, in 1958, the business was incorporated and two key employees, D'Ziak and Ashmore, acquired stock in the corporation. In 1957, after the enactment of the Dealers' Day in Court Act, new franchise agreements —one covering Chrysler-Plymouth and one for Imperial—were entered into and, upon incorporation of the business in 1958, the latter agreements were replaced with new franchises, designating the corporation as franchisee.
The Chrysler-Plymouth and Imperial agreements are generally identical. Each provide for a continuing, indefinite term relationship, the dealer maintaining the right to terminate for any reason on 30 days' notice and Chrysler reserving the right to terminate on 90 days' notice in five specific instances. Aside from these specified causes, no general right of termination at will is reserved to the manufacturer. This distinguishes Chrysler Corporation franchise agreements from those of the other major automobile manufacturers. See Macaulay, Changing A Continuing Relationship Between A Large Corporation and Those Who Deal With It: Automobile Manufacturers, Their Dealers, and The Legal System, 1965 Wis.Law Rev. 483, 564-65 (No. 3, Summer 1965). While § 2-309 (2) of the Uniform Commercial Code, in force both in Illinois and Michigan, Ill.Rev.Stat.1965, c. 26, § 2-309(2); C.L. 1948, § 440.2309(2) P.A.1962, No. 174, provides that contracts for indefinite terms are terminable at will, that section—if applicable to franchise agreements—is qualified by the words "unless otherwise agreed." The introductory portion of the dealer agreement refers to the recitation of Chrysler's right to terminate for specific causes in opposition to the dealer's right to terminate at will and specifically points out that the franchise agreement may be terminated by Chrysler only in reliance on one of the specific enumerated causes.
On October 26, 1959, an additional dealer agreement relating to Valiant automobiles was executed by Chrysler and Madsen. Its terms are substantially identical to the Chrysler-Plymouth and Imperial agreements mentioned above. The primary ground for termination for cause stated in the agreements is the dealer's failure to perform any of the undertakings and obligations stated in the operative sections of the agreement concerning sales of automobiles and parts, advertising, record keeping and the like.
The franchised dealer agrees that he will sell energetically in the non-exclusive sales area assigned him in the agreement and, since passage of the Dealers' Day in Court Act, specifically will sell whatever number of new Plymouth (or Chrysler or Imperial) automobiles is needed to fulfill his "Minimum Sales Responsibility" or "MSR". The basis for calculating MSR is then set out in the agreement.
The starting point for the calculation of MSR is the "region" designated by Chrysler in which the dealer operates. In the case of Madsen Motors, this region, while referred to as "Chicago", consists of a 108 county, 3 state area, including northwestern Indiana from Elkhart to the Illinois state line, the northern half of Illinois (north of Peoria) and the eastern half of Iowa (up to Des Moines). There are 227 dealer locations in the region, although not all dealers are CPI franchisees, some handling Plymouth only, others selling Chrysler and Imperial but not Plymouth or lacking the Imperial line. Each dealer is assigned a sales locality generally made up of one or more post office listings. The extent of the sales locality is determined by Chrysler and may vary for each line of automobiles. Certain post office areas are not included in any dealer assignment and are considered "open points".
Periodically, and generally once each quarter, Chrysler calculates its overall regional market penetration attained in each of the past three months for each line of cars, determining, for example, the percentage of Plymouths bought by all purchasers in the region from the total number of automobiles purchased. The number of new car registrations in each dealer's sales locality is then determined and the regional percentage applied. The resulting figure is the dealer's Plymouth MSR. In other words, the dealer agrees that he will sell a sufficient number of automobiles to achieve the same percentage of Plymouth sales versus total new car sales as exists in the region—a percentage which is determined and furnished to the dealer approximately three months after the time for performance has passed. The percentage, of course, represents an averaging of the sales of all Plymouth dealers in the region. All sales, including those outside of the assigned sales locality are included, without regard to whether the purchaser resides in an "open point" or in another dealer's locality.
Since the regional percentage is an average, some dealers will necessarily be above the figure and some below—absent the unlikely situation where all dealers have sold a number of cars which yield identical percentages in each sales locality. The evidence adduced at trial shows that, in actual operation, some 40% of all Chrysler dealers fail to achieve the sales figure imposed by the MSR formula and thus, are theoretically subject to immediate termination. The implications of the MSR formula, its application by Chrysler and its availability as a ground for termination will be considered in some detail hereafter, first in connection with the background of the Madsen-Chrysler's relationship and thereafter with respect to plaintiffs' contention that Chrysler's application of the MSR formula constitutes a breach of contract and a violation of the duty of good faith imposed by the Dealers'...
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