Quarles v. General Motors Corp., CIV-84-629T.

• Decision Date: 31 October 1984
• Docket Number: No. CIV-84-629T.,CIV-84-629T.
• Citation: 597 F. Supp. 1037
• Parties: James O. QUARLES, Plaintiff, v. GENERAL MOTORS CORPORATION (MOTORS HOLDING DIVISION), Defendant.
• Court: U.S. District Court — Western District of New York

597 F. Supp. 1037

James O. QUARLES, Plaintiff, v. GENERAL MOTORS CORPORATION (MOTORS HOLDING DIVISION), Defendant.

No. CIV-84-629T.

United States District Court, W.D. New York.

October 31, 1984.

Geiger & Rothenberg, Rochester, N.Y. (Alexander Geiger, Rochester, N.Y., of counsel), for plaintiff.

Harter, Secrest & Emery, Rochester, N.Y. (Anthony R. Palermo, Rochester, N.Y., of counsel), for defendant.

TELESCA, District Judge.

On May 22, 1984, defendant, acting through its agents on the Board of Directors of Jim-Sandy Chevrolet, Inc., removed plaintiff from his position as President and Director of that corporation. On the basis of that termination, plaintiff commenced the instant action, alleging two causes of action against defendant. The first asserts a claim under 42 U.S.C. Section 1981, alleging a denial of freedom of contract on grounds of race. The second cause of action alleges that defendant failed to act in good faith in terminating plaintiff's franchise agreement, in violation of 15 U.S.C. Section 1222. Defendant now moves for an order of dismissal of the complaint, or in the alternative, for summary judgment, on the grounds, inter alia, that there is no genuine issue as to any material fact.

FACTS

Although the affidavits submitted by the parties raise a host of factual disagreements, the following material facts are more or less undisputed. Jim-Sandy Chevrolet, Inc. ("Jim-Sandy") was organized in January, 1981. The corporation's shareholders included plaintiff, James Quarles, his partner, Sandor Byers, and defendant, General Motors Corporation, Motors Holding Division ("GMC"). Plaintiff was President of the Corporation, and Byers was Vice-President. GMC, as chief investor in Jim-Sandy,¹ owned all of the corporation's voting stock and controlled three of the five members of the Board of Directors.

The advertising agent for Jim-Sandy Chevrolet was Bob Mills. As early as January of 1983, it began to appear that Jim-Sandy's advertising expenses were excessive. The problem came to the formal attention of all parties at least as early as September 16, 1983, at a special meeting of Jim-Sandy's Board of Directors attended by plaintiff, Byers, and John J.L. Johnson, II, defendant's Branch Manager in Buffalo, New York. The meeting was convened to review a special accounting report completed that same day by one of defendant's accounting supervisors. The minutes of the meeting report that:

The advertising account was analyzed and found that there was a discrepancy between the billing to the Bill sic Mills Advertising Group and the invoices. It was agreed that the President and Vice-President would personally look into this matter and that they would furnish the Board all the supporting documentation by September 23, 1983.

The minutes of that meeting were signed by plaintiff, who also served as Chairman of the meeting.

On September 23, 1983, another meeting of the Board of Directors was chaired by plaintiff at the offices of Jim-Sandy Chevrolet. Mr. Johnson was informed that the promised documentation was not yet available, because Bob Mills was out of town. According to the minutes of the meeting,

Mr. Johnson expressed his disappointment over this matter and stated that this is a very serious matter involving a large amount of money and that he wanted to have this cleared up. The President and Vice-President agreed to furnish all the necessary documentation by the first week in October of 1983.

Quarles and Byers never produced documentation to support the billings from the Bob Mills Advertising Agency.

In November, 1983, it was discovered that Jim-Sandy had been billed and had paid Forty-nine Thousand Eight Hundred Eighty-six Dollars, ($49,886) to Bob Mills for television advertising which was never actually purchased. By plaintiff's admission, it became clear that Bob Mills had submitted fraudulent advertising bills and forged invoices. In February, 1984, Johnson retained an attorney, Stephen Cavanaugh, to bring an action by Jim-Sandy against Bob Mills to recover the advertising overpayments and other damages suffered by the company as a result of the fraud.

The following month, Mills offered $49,886 to settle the lawsuit. Cavanaugh recommended to the Board of Directors that the offer be rejected so the company could determine whether employees of Jim-Sandy had participated in the fraud. At a March 23, 1984 Board of Directors meeting, Quarles and Byers voted, against the other three directors, to accept the offer of settlement, allegedly because litigation would take too long. Nevertheless, the resolution to reject the offer of settlement and pursue legal action was carried.

Cavanaugh served a notice to examine Mills before trial. He received a cross-notice from Mills' attorney requesting that Quarles and Byers be made available for deposition. Cavanaugh informed Quarles and Byers that they were required to give testimony on behalf of Jim-Sandy on May 3, 1984. Without offering any reason, Quarles failed to appear at the scheduled Examination before Trial. Both Byers and Mills appeared and testified at the scheduled Examination. Cavanaugh then informed Quarles that his deposition had been rescheduled to May 14, 1984, and urged him to testify on behalf of Jim-Sandy, since Mills' attorney had indicated that he would move to dismiss the action if Quarles again failed to appear. Without offering an explanation, plaintiff refused to attend the scheduled deposition.

At their depositions on May 3, 1984, Mills and Byers testified that Mills had agreed with Quarles and Byers to overbill Jim-Sandy for advertising services and to return the overpayment in cash to Quarles and Byers. Under this scheme, Jim-Sandy was allegedly overcharged $49,886 which amount was divided equally between Quarles and Byers, and in return Mills received free use of a company car.

Quarles was afforded one final opportunity to explain his failure to cooperate in the lawsuit against Mills, or to deny the sworn accusations made against him by Mills and Byers. On May 16, 1984, Quarles received notice that a special meeting of the Board of Directors would be held at the offices of Jim-Sandy Chevrolet to review the status of the litigation, and to consider the resignation or removal of Byers and Quarles. Quarles refused to attend the meeting, allegedly on advice of counsel, once again without explanation.

At the May 22, 1984 meeting, the Board of Directors accepted the resignation of Byers, which had been tendered earlier that day, and voted unanimously to remove Quarles. According to sworn statements by two of the Directors participating at the meeting, plaintiff's removal was based upon his numerous actions and inaction in refusing to cooperate with Jim-Sandy in its lawsuit against Mills, upon his urgent desire to settle the lawsuit without uncovering the corporate employees involved in the fraud, and upon the sworn testimony of Mills and Byers that Quarles had actively participated in the fraud. Although plaintiff now alleges that he was innocent of any wrongdoing, he does not deny that his continued silence gave defendant and its officers no reason to doubt the suspicious circumstances pointing toward his guilt.

DISCUSSION

I.

Plaintiff contends that his removal was in violation of the so-called "Automobile Dealers' Day in Court Act" ("DDCA"), 15 U.S.C. Sections 1221, et seq, which permits a dealer to sue an automobile manufacturer in federal court for failing to act "in good faith" in cancelling the dealer's franchise. Defendant argues that this cause of action should be dismissed because (1) Plaintiff does not possess standing under the Act; (2) no franchise has been terminated; and (3) there is no issue of material fact in regard to the "good faith" of defendant in removing Quarles as an officer and director of Jim-Sandy. Because I agree with the last of defendant's three arguments, I need not discuss the others.²

At the outset, it must be remembered that the DDCA did not create a federal remedy for breach of contract, but rather created an entirely new cause of action. RAC Motors, Inc. v. World-Wide Volkswagen Corp., 314 F.Supp. 681 (D.C. N.J.1970). The Act was designed to supplement the anti-trust laws of the United States, and to help correct the imbalance of bargaining power between auto manufacturers and dealers. Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901, 910 and n. 6 (9th Cir.), cert. denied, 436 U.S. 946, 98 S.Ct. 2848, 56 L.Ed.2d 787 (1978); Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 561 (2nd Cir.1970). As "Congress' initial effort at regulation of the relationships between automobile manufacturers and their dealers", the DDCA admittedly falls far short of providing a basis for relief in every case of unfair conduct, including many cases which "might well call for remedial action". McDaniel v. General Motors Corp., 480 F.Supp. 666, 677 (E.D.N. Y.), affd. 628 F.2d 1345 (2nd Cir.1980).

It is well settled that an indispensable element of this statutory cause of action is a showing that defendant failed to act "in good faith", although not in the ordinary sense of that phrase. Section 1221(e) of the Act defines "good faith" to mean the duty of each party to an automobile franchise agreement:

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.

To demonstrate an absence of "good faith" within the meaning of the DDCA, therefore, it will not suffice to show that a dealership's termination was arbitrary, or even unfair. It must be shown that defendant coerced or intimidated plaintiff, and that the coercion was designed to achieve some objective which was improper or wrongful. Howard v. Chrysler Corporation, 705 F.2d 1285 (...