Scala/O'Brien Porsche Audi, Inc. v. Volkswagen of America, Inc.

• Decision Date: 19 August 1980
• Docket Number: No. 79-2214,79-2214
• Parties: , 43 Ill.Dec. 205 SCALA/O'BRIEN PORSCHE AUDI, INC., a corporation, Plaintiff-Appellant, v. VOLKSWAGEN OF AMERICA, INC., a corporation, Defendant-Appellee, and Richard J. Mancuso, Individually and as agent of and for an Illinois Corporation in formation, Intervenor-Appellee.
• Court: United States Appellate Court of Illinois

Page 205

410 N.E.2d 205

87 Ill.App.3d 757, 43 Ill.Dec. 205

SCALA/O'BRIEN PORSCHE AUDI, INC., a corporation, Plaintiff-Appellant, v. VOLKSWAGEN OF AMERICA, INC., a corporation, Defendant-Appellee and Richard J. Mancuso, Individually and as agent of and for an Illinois Corporation in formation, Intervenor-Appellee.

No. 79-2214.

Appellate Court of Illinois, First District, Second Division.

Aug. 19, 1980.

Allan J. Newman, Maher & Newman, Ltd., Chicago, for plaintiff-appellant.

David N. McBride and Larry R. Goldstein, Chicago (Ross, Hardies, O'Keefe, Babcock & Parsons, Chicago, of counsel), for defendant-appellee.

Jann, Carroll, Kruse, Sain & Dolin, Ltd., Chicago (David A. Epstein and Gary A. Weintraub, Chicago, of counsel), for intervenor-appellee.

HARTMAN, Justice:

Plaintiff Scala/O'Brien Porsche Audi, Inc. ("Scala") sought relief under the Illinois Motor Vehicle Franchise Act (Ill.Rev.Stat.1979, ch. 1211/2, par. 751, et seq.) ("Act") ¹ when its franchisor, defendant Volkswagen of America, Inc. ("Volkswagen"), proposed to establish a new franchise allegedly in violation of the Act. Scala appeals from the dismissal with prejudice of its complaint for failure to state a cause of action pursuant to Intervenor Richard M. Mancuso's ("Mancuso") motion, and from the denial of Scala's subsequent motion to vacate or amend the dismissal order. For the reasons set forth below, we reverse.

Scala, an automobile dealer, was engaged in the sale and service of new Porsche and Audi vehicles at 2750 West Lawrence Avenue in Chicago, pursuant to a two-part "Porsche Audi Dealer Agreement" ("Agreement") dated August 30, 1978 with Volkswagen's Porsche Audi Division, Central Region, an automobile distributor. The first part consisted of Scala's appointment as a Porsche Audi dealer. Although it contained such specific information as the name of the dealership, its owners, management, location and the term for which the Agreement was to be in effect, no specific market area was therein delineated. The remainder of the Agreement comprised certain standard provisions applicable to all Porsche Audi dealers, such as distributor's and dealer's basic obligations, dealer's facilities and mode of operations and the grounds and means by which the Agreement might be terminated prior to the expiration of its term. Article 14(23) of the standard provisions, a definitional section, provided as follows:

" 'Dealer's Area,' 'its Area' or 'the Area' refers to the normal area for Dealer's Porsche Audi Operations corresponding to the location of Dealer's Premises."

In a letter dated July 27, 1979, Volkswagen advised Scala that on or after September 26, 1979, it intended to enter into an Agreement with an independent person who would make a significant investment in a new dealership to be located in the downtown Chicago area. Scala filed its complaint on September 20, 1979 pursuant to sec. 4(e)(8) of the Act, praying inter alia that, in the absence of a showing of "good cause" for the granting of an additional franchise within the market area served by Scala, Volkswagen should be enjoined from its issuance. Scala relied principally upon the following language of that section (Ill.Rev.Stat.1979, ch. 1211/2, par. 754):

"(e) It shall be deemed a violation for a manufacturer (or) distributor * * * :

"(8) to grant an additional franchise of the same line make in the relevant market area previously granted to another franchisee; provided, however, that if the manufacturer wishes to grant such an additional franchise to an independent person in a bona fide relationship in which such person is prepared to make a significant investment subject to loss in such a dealership, then the manufacturer shall give notice to the existing dealer or dealers of the same line make within the market area of the proposed additional franchise at least 60 days prior to establishment of the additional franchise. Unless the parties agree upon the establishment of such additional franchise, the propriety of the granting of such additional franchise shall be determined pursuant to the guidelines of Section 12, with the franchiser having the burden of proof; * * *."

The complaint referred to but did not incorporate the Agreement and contained no mention of any other sources, written or otherwise, from which "the market area served by plaintiff" might be determined.

Mancuso filed a petition to intervene as a party defendant on September 26, 1979, asserting that he was the putative recipient of the proposed additional franchise and would be adversely affected by a determination unfavorable to Volkswagen. On September 27, 1979, the trial court granted Mancuso's petition and leave to file instanter his motion to dismiss, which alleged, among other grounds, that the complaint failed to state a cause of action. During argument of the motion on September 28, 1979, Scala acknowledged that its action was predicated entirely upon the relevant provisions of the Act and had no basis in prior law. Finding that sec. 4(e)(8) of "(t)he Act can only secure rights for dealers where the dealer's franchise itself spells out clearly an (exclusive) area of operation" and that the Agreement could not be construed as granting such, the trial court granted the motion and dismissed the complaint with prejudice. To Scala's query as to whether filing of an amended complaint would be allowed, the court replied that it "wouldn't foreclose any kind of innovative thinking" but regarded amendment as "fruitless in this instance."

On October 24, 1979, Scala filed a "motion to reconsider and to vacate or amend" the court's prior dismissal order, alleging in pertinent part that dismissal without granting Scala an opportunity to amend the complaint would effectively deprive it of protection from violations of the Act by Volkswagen other than those initially claimed. Vacatur of the dismissal was sought as relief, or in the alternative "that the Order be amended to allow Plaintiff to file its amended complaint." In oral argument on its motion Scala characterized the franchise agreement as "incomplete" and alluded to "certain oral designations * * * or other written documents" supplementary to it, from which could be determined a designated market area pursuant to the Act. In denying the motion, the court observed that Scala had not previously referred in pleadings or argument to evidence extrinsic to the Agreement and that a complaint based upon a separate violation of the Act by Volkswagen would constitute a different cause of action.

Acknowledging that the Agreement lacks any explicit provision designating a specific area within which it was to operate exclusively, Scala maintains that it is not therefore precluded from coverage by sec. 4(e)(8). Central to this view is its assessment of the term "relevant market area" as used in that section. Although "market area" is defined in sec. 2(p) of the Act (Ill.Rev.Stat.1979, ch. 1211/2, par. 752(p)) as "the franchisee's area of primary responsibility as defined in its franchise " (emphasis added), Scala distinguishes "relevant market area" as a distinct concept used only in sec. 4(e)(8) and a term of art in anti-trust and fair trade litigation, in which determination of the relevant market area is made factually on an individual basis. (See, e. g., Luria Brothers and Co. v. Federal Trade Commission (3d Cir.1968), 389 F.2d 847, cert. denied (1968), 393 U.S. 829, 89 S.Ct. 94, 21 L.Ed.2d 100.) In this regard Scala looks to the rule contained in sec. 4(a) of the Act that "(i)n construing the provisions of this Section, the courts may be guided by the interpretations of the Federal Trade Commission Act (15 U.S.C. 45 et seq.), as from time to time amended." (Ill.Rev.Stat.1979, ch. 1211/2, par. 754(a).) Accordingly, determination of "relevant market area" under the Act is interpreted as requiring only a general geographic delineation and a consideration of economic and marketing factors, both of which Scala finds in its franchise with Volkswagen, respectively as the definition of "dealer's area" quoted above and certain "sales performance" measures contained among the standard provisions of the Agreement to determine whether the individual dealer has achieved "the best sales performance possible in its Area for Porsche Audi...