Mt. Lebanon Motors, Inc. v. Chrysler Corporation, Civ. A. No. 64-1137.

• Decision Date: 01 May 1968
• Docket Number: Civ. A. No. 64-1137.
• Citation: 283 F. Supp. 453
• Parties: MT. LEBANON MOTORS, INC., Plaintiff, v. CHRYSLER CORPORATION and Chrysler Motors Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

283 F. Supp. 453

MT. LEBANON MOTORS, INC., Plaintiff, v. CHRYSLER CORPORATION and Chrysler Motors Corporation, Defendants.

Civ. A. No. 64-1137.

United States District Court W. D. Pennsylvania.

May 1, 1968.

COPYRIGHT MATERIAL OMITTED

Louis C. Glasso and Gerald Ziskind, Pittsburgh, Pa., for plaintiff.

Edmund K. Trent, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for defendants.

OPINION

DUMBAULD, District Judge.

In the case at bar plaintiff, a Dodge dealer, whose franchise was terminated by Chrysler¹ on January 31, 1964, effective ninety (90) days thereafter, sues for damages under 15 U.S.C. § 1222 which provides:

"An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found, or has an agent, without respect to the amount in controversy, and shall recover the damages by him sustained and the cost of suit by reason of the failure of said automobile manufacturer from and after August 8, 1956 to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer: Provided, That in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith."

The term "good faith" is defined in 15 U.S.C. § 1221 as follows:

"(e) The term `good faith' shall mean the duty of each party to any franchise, and all officers, employees, or agents thereof to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided, That recommendation, endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith."

It has been judicially determined that the words "fair and equitable" do not here have the meaning that they might have in Price Control legislation during the Second World War or in a railroad reorganization. See 11 U.S.C. § 621; Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 115, 60 S.Ct. 1, 84 L.Ed. 110 (1939); Yakus v. United States, 321 U.S. 414, 420, 64 S. Ct. 660, 88 L.Ed. 834 (1944). The legislative history indicates that they are to be interpreted in the context of coercion, arising from the inequality of bargaining power between the oligopolistic automobile industry and the local dealer with less formidable economic power. Milos v. Ford Motor Co., 317 F. 2d 712, 715, 7 A.L.R.3d 1162 (C.A.3, 1963). Violation of the Act as thus construed requires a wrongful demand which will result in sanctions if not complied with. Termination of a franchise is a severe sanction; and if inflicted for wrongful reasons would subject the manufacturer to liability under the statute. Berry Brothers Buick, Inc. v. General Motors Corp., 257 F.Supp. 542, 546 (E.D.Pa., 1966), aff'd 377 F.2d 552 (C.A.3).

Plaintiff's cancellation was purportedly for inadequate sales performance. The termination notice was limited to asserted breach of contract for failure to meet his fair share of minimum sales responsibility (MSR) in the local automobile market. Testimony indicated that in fact other factors were considered by the company. Mere breach of contract by the dealer does not necessarily relieve the manufacturer of liability under the statute, whose very purpose was to afford protection against undue bargaining power on the part of the automobile makers. Furthermore, failure to meet MSR does not per se prove inadequate or unsatisfactory sales performance, in view of the criteria for determining MSR and a dealer's fair share thereof. Testimony indicates that sometimes more and sometimes less than 50% of dealers fall below the prescribed figure. See Madsen v. Chrysler Corp., 261 F.Supp. 488, 492, 506 (N.D.Ill.E.D.1967).

It is a jury question whether Chrysler's action was motivated by honest business judgment or by personal animosity against plaintiff's president Samuel A. Liberto because of his prominent part in promoting opposition by privately-financed dealers to the operation of "factory stores" or for other insufficient reasons.

In addition to alleged violation of the so-called Automobile Dealers' Day in Court Act, the complaint also alleged, pursuant to Section 4 of the Clayton Act (15 U.S.C. § 15), violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2), as well as discrimination between purchasers in violation of the Robinson-Patman Act (15 U.S.C. § 13), besides violation of Section 7 of the Clayton Act (15 U.S.C. § 18).² In advance of the trial defendant moved to limit the issues at trial by striking out plaintiff's claims other than under the Automobile Dealers' Day in Court Act. The Court granted the motion to strike the claim under 15 U.S.C. § 18 for the reason that that claim simply was based upon the formation of separate corporations for each dealership in which Chrysler held some or all of the stock; and this technique appeared to be a normal practice of causing the formation of subsidiary corporations as expressly permitted by Section 7 of the Clayton Act (15 U.S.C. § 18) rather than a forbidden merger or acquisition affecting competition in the usual antitrust sense.

Ruling on the other claims was deferred until renewal at the close of plaintiff's evidence by defendants' motion for directed verdict. At this time the Court denied the motion with respect to the Sherman Act counts, but granted the motion with respect to the Robinson-Patman Act count.

The gist of plaintiff's case is that Chrysler, beginning in 1962, established a number of dealerships which were either wholly owned and financed by Chrysler (denominated "contractual dealers") or substantially owned and controlled by Chrysler, the manufacturer holding 75% of the stock in the dealership corporation, and the so-called "dealer enterprise" (DE) dealer, who managed the dealership and was also paid a salary by the dealership corporation, 25% of the stock of the dealership corporation. In a later refinement of this method, Chrysler would loan to the DE dealer half of the 25% investment.

Plaintiff offered evidence tending to show that the Chrysler-financed dealerships, commonly called "factory stores", engaged in price-cutting and massive advertising, to the detriment of privately-financed dealerships in the Pittsburgh area, which were not able to afford advertising on such a large scale or to accept profits as small as those obtained by the factory stores in their deals with customers.

Plaintiff's proof tended to show that the factory stores consistently lost money and were unprofitable; but that from time to time, when circumstances required, Chrysler would make gifts or additional investments in the form of "capital contributions" to the factory-financed dealerships, thus enabling them to continue in business, notwithstanding their losses resulting from their normal operations.

There was also evidence that the "dealer enterprise" division of Chrysler would from time to time furnish temporary employees to the factory stores when they experienced a shortage of adequate personnel and would furnish assistance to the factory stores in establishing their accounting systems and would also furnish substantial advertising allowances in launching the new dealerships.

However, the testimony showed that the automobiles sold to factory stores by the manufacturer were sold at the same price and upon the same terms as those sold to the privately-financed dealerships. Thus the Court was convinced that there was no discrimination violative of the Robinson-Patman Act; but that the grievance complained of by the private dealers was simply the existence and predatory practices of the factory stores. In other words there were arguable antitrust questions with respect to whether the degree of forward integration being practiced by the manufacturer in competing with its own customers was permissible or impermissible, and whether the manner in which such competition was carried on constituted a classical case of predatory competition by price-cutting to eliminate competition, with losses being subsidized by adventitious advantages unrelated to the competitive merits of the respective contestants in the particular market.

Thus whatever evils may be shown to exist arise simply from the fact that the factory is engaging in direct competition with its customers and do not arise from any forbidden price-discrimination between any of the dealerships. With respect to price-discrimination, all dealerships are treated equally; plaintiff's disadvantage arises from the fact that some of the competing dealerships are owned by the manufacturer and subsidized from adventitious sources, allegedly the profits made at the manufacturing level. Plaintiff contends that it would be profitable to Chrysler to sell cars even at a loss at the retail level, because the manufacturing profits would be greater than the retail losses. Cf. Southern Blowpipe & Roofing Co. v. Chattanooga Gas Co., 360 F.2d 79, 81 (C.A.6, 1966).

As the Court said in United States v. Aluminum Co. of America, 233 F.Supp. 718, 727-728 (E.D.Mo.1964): "Nothing would prevent Alcoa from permitting Cupples to operate on a break-even basis or even a loss basis for an extended period of time and at the same time make a profit on the aluminum sold by Alcoa to Cupples so that the overall operation would be at a profit." See also Reynolds Metals Co. v. FTC, 114 U.S.App.D.C. 2, 309 F.2d 223, 229 (1962).

We therefore ruled out the Robinson-Patman count.

Upon renewal of defendants' motions at the close of all the evidence, we adhere to the view that a jury question is presented with respect to whether or not Chrysler has violated Section 1 of the Sherman Act, which provides that: "Every contract, combination in the form of trust or...