Scuncio Motors, Inc. v. Subaru of New Eng.

• Decision Date: 20 December 1982
• Docket Number: Civ. A. No. 82-0716.
• Citation: 555 F. Supp. 1121
• Parties: SCUNCIO MOTORS, INC. v. SUBARU OF NEW ENGLAND, INC.
• Court: U.S. District Court — District of Rhode Island

555 F. Supp. 1121

SCUNCIO MOTORS, INC. v. SUBARU OF NEW ENGLAND, INC.

Civ. A. No. 82-0716.

United States District Court, D. Rhode Island.

December 20, 1982.

COPYRIGHT MATERIAL OMITTED

Hale & Dorr, Robert W. Mahoney, Donald R. Frederico, Boston, Mass., Vetter & White, George M. Vetter, Jr., Providence, R.I., for defendant.

Letts, Quinn & Licht, Frank Licht, Providence, R.I., for plaintiff.

OPINION

SELYA, District Judge.

Plaintiff, Scuncio Motors, Inc. ("Scuncio") is an automobile dealer, retailing Subaru automobiles since 1972, and defendant Subaru of New England, Inc. ("SNE") is a distributor for the manufacturer of Subaru vehicles. They have been parties to a series of dealership agreements, the latest of which I will call "the Agreement," which will be described hereinafter in greater detail. Scuncio admits that it failed to comply with certain provisions of the Agreement. In consequence of such noncompliance, SNE informed Scuncio, by letter dated August 25, 1982 (the "Termination Letter") that SNE would "terminate and cancel" the Agreement, effective December 1, 1982.

On October 26, 1982, Scuncio filed suit in the Superior Court for the County of Providence, seeking, among other things, to enjoin SNE from terminating the Agreement and to have portions of the Agreement declared void and unenforceable under the "Act Relating to Motor Vehicle Manufacturers and Dealers," Rhode Island General Laws, § 31-5.1-1 et seq. (1956), as amended (the "Dealers' Law"). SNE properly removed the action to this Court pursuant to the provisions of 28 U.S.C., § 1441(a). Scuncio's motion to remand was argued and denied on November 12, 1982. Scuncio's motion for a temporary restraining order was consolidated for hearing with the complaint's prayers for preliminary injunction, and a hearing was held in this Court on November 29, 1982.¹

Jurisdiction is based on 28 U.S.C., § 1332. The Court, sitting in diversity jurisdiction, must apply the substantive law of Rhode Island. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Lyons v. Salve Regina College, 565 F.2d 200, 202 (1st Cir.1977), cert. denied, 435 U.S. 971, 98 S.Ct. 1611, 56 L.Ed. 62 (1978). The Rhode Island Supreme Court has not yet, however, had occasion to pass upon or to interpret the Dealers' Law.² Thus, it becomes this Court's obligation to make an informed prophecy as to the meaning and effect of that statute. Erie Railroad Co. v. Tompkins, supra; Nature Conservancy v. Machipongo Club, Inc., 579 F.2d 873, 875 (4th Cir.), cert. denied, 439 U.S. 1047, 99 S.Ct. 724, 58 L.Ed.2d 706 (1978); Sealey v. Ford Motor Co., 499 F.Supp. 475, 478 (E.D. N.C.1980); Skrzat v. Ford Motor Co., 389 F.Supp. 753, 754 (D.R.I.1975); Oresman v. G.D. Searle & Co., 321 F.Supp. 449, 456 (D.R.I.1971).

I. The Preliminary Injunction Standard

In order to obtain a preliminary injunction, plaintiff must satisfy four criteria:

The Court must find: (1) that plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that plaintiff has exhibited a likelihood of success on the merits; and (4) that the public interest will not be adversely affected by the granting of the injunction.

Planned Parenthood League v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981); Women's Community Health Center, Inc. v. Cohen, 477 F.Supp. 542, 544 (D.Me.1979).³ All four of these criteria are important. In the First Circuit, however, the third component, the likelihood of success on the merits, has been described as "a prerequisite to the granting of preliminary injunctive relief." Local Div. 589, Amalgamated Transit Union v. Commonwealth of Massachusetts, 666 F.2d 618, 645 (1st Cir.1981), cert. denied, ___ U.S. ___, 102 S.Ct. 2928, 73 L.Ed.2d 1329 (1982); Auburn News Co. v. Providence Journal Co., 659 F.2d 273, 277 (1st Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982). If there is a close factual dispute which could go either way at a trial on the merits, a court should be reluctant to issue an injunction pendente lite. A-Copy, Inc. v. Michaelson, 599 F.2d 450, 451 (1st Cir.1978).

In the present case, plaintiff has palpably met three of the four prerequisites for preliminary injunctive relief.

Plaintiff, as a one-brand dealer, will doubtless be forced out of business if the injunction is denied, thus making irreparable injury manifest. Second, this potential harm to plaintiff substantially outweighs, in the Court's view, any reasonably likely harm to the defendant (a conclusion which defendant does not seriously challenge). Third, granting the injunction will cause no discernible effect on the public interest. The "likelihood of success" criterion is, therefore, the fulcrum on which this ruling must turn.

II. Likelihood of Success on the Merits

Plaintiff argues that its likelihood of success on the merits is assured for a number of reasons. Plaintiff contends, first, that the proposed termination violates a 1982 amendment to the Dealers' Law, which limits the freedom of a manufacturer or agent, such as SNE, to require dealers, such as plaintiff, to expand their facilities. R.I. G.L. § 31-5.1-4(c)(19) (1982 Amendment). The plaintiff further argues that the defendant's conduct in attempting to terminate plaintiff's dealership is illegal under other sections of the Dealers' Law, because such conduct is and has been arbitrary, in bad faith, unconscionable, coercive and predatory. Id. at § 31-5.1-4(A), (B) and (C)(17). These contentions must be examined separately.

A. The 1982 Amendment

The 1982 amendment to the Dealers' Law makes it unlawful for a "manufacturer or officer, agent or other representative thereof":

To require that a dealer expand facilities without a guaranty of sufficient supply of new motor vehicles to justify such an expansion or to require that a dealer expand facilities to a greater degree than is necessary to sell and service the number of vehicles that said dealer sold and serviced in the most recent calendar year.

Id. at § 31-5.1-4(C)(19) (1982 Amendment).⁴

The applicability of this amendment to the case at bar must be determined against the factual backdrop of the particular franchise relationship. The resultant facts must then be analyzed from both chronological and legal perspectives in this case.

1. The Refranchising Negotiations

Joseph Scuncio, Jr. is the principal of Scuncio. Mr. Scuncio testified that as early as 1974, SNE representatives occasionally discussed with him the advisability of expanding or of relocating his Subaru dealership to a larger facility. Deposition of Joseph Scuncio, Jr., taken November 18, 1982 ("Scuncio Deposition") at 7-8. He admitted that the relocation of his dealership would have been desirable because he would then have received more cars to sell, id. at 18-19, and would have been able to expand his parts department. Indeed, between 1974 and 1980, Mr. Scuncio made three attempts to find another site for his dealership; he discussed some of these possibilities with SNE.⁵ Thus, it could have come as no surprise to Mr. Scuncio to learn that, on the agenda for discussion in the negotiations with SNE for a renewal of his dealership agreement, was the issue of site relocation.

The negotiations regarding the new dealership agreement began in May, 1981,⁶ when Mr. H.J. Burbank, the Vice-President of Marketing for SNE, sent Scuncio a letter, dated May 29, 1981, enclosing a Subaru Dealership Agreement, a Subaru Dealership Agreement and Standard Provisions Booklet, a set of Regional Dealership Minimum Standards for Capital, Inventory, Facilities and Personnel, and a Dealer Profile comparing Scuncio to the Regional Dealership Minimum Standards. Letter, dated May 29, 1981, from H.J. Burbank to Mr. Joseph Scuncio ("Defendant's Exhibit I").

The Dealer Profile indicated that, according to SNE standards applicable to a dealership of Scuncio's size, the site on which the Scuncio dealership was located was deficient in that it contained only 11,450 square feet, compared to the 43,500 square feet required by SNE. Scuncio's first floor parts department contained only 351 square feet, compared to applicable SNE standards of 1,000 square feet. SNE standards provided for 37 parts bins and racks, yet Scuncio had only 6. Scuncio did not have a Subaru accessory display case, whereas the standards mandated one. Scuncio had only one mechanical lift; SNE standards call for two. Scuncio had only 70 square feet for office space; SNE standards provided for 359 square feet. Scuncio did not have three of the four signs specified by SNE standards. Scuncio's personnel complement fell short of SNE standards in at least three respects. Dealer Profile, Exhibit A to affidavit of Richard S. Joyce, Sr., dated November 23, 1982 ("Joyce Affidavit").⁷

The May 29, 1981 letter informed Scuncio that the Dealer Profile would be the key document used during refranchising negotiations and advised Scuncio to verify the accuracy of its contents. Defendant's Exhibit I. Within the next one and a half months, SNE sent Scuncio four letters reminding the plaintiff of the importance of the Dealer Profile and of the upcoming refranchising meeting. One of the letters, Defendant's Exhibit K, stressed the importance of raising any questions regarding the Dealer Profile with the SNE District Sales Manager.⁸ Mr. Scuncio forwarded the documents to his counsel. Scuncio Deposition at 50. Mr. Scuncio signed the Dealer Profile without raising the slightest question as to the accuracy of its contents. Id. at 45-46.

The refranchising meeting between Scuncio and SNE took place on July 24, 1981. Scuncio was represented by counsel. Id. at 49-50; Joyce Affidavit at Para. 6. At the meeting, SNE and Scuncio discussed Scuncio's overall operations to assist Scuncio in improving its financial position. Scuncio Deposition at 52-53. The need...