Smith's Sports Cycles, Inc. v. American Suzuki Motor Corp.

• Citation: 82 So.3d 682
• Decision Date: 14 October 2011
• Docket Number: 1100400.
• Parties: SMITH'S SPORTS CYCLES, INC. v. AMERICAN SUZUKI MOTOR CORPORATION.
• Court: Supreme Court of Alabama

82 So.3d 682

SMITH'S SPORTS CYCLES, INC.

v.AMERICAN SUZUKI MOTOR CORPORATION.

1100400.

Supreme Court of Alabama.

Oct. 14, 2011.

John Martin Galese and Jeffrey L. Ingram of Galese & Ingram, P.C., Birmingham, for appellant.

Melissa Fletcher Allaman of Nelson, Mullins, Riley & Scarborough LLP, Tallahassee, Florida; and Dent M. Morton of Burr & Forman, LLP, Birmingham, for appellee.

BOLIN, Justice.

Smith's Sports Cycles, Inc. (“Smith”), appeals from a judgment in a nonjury trial in favor of American Suzuki Motor Corporation (“Suzuki”) on Smith's claim that Suzuki wrongfully terminated the parties' franchise agreement.

I. Facts and Procedural History

Smith and Suzuki entered into a written franchise agreement, effective February 14, 1989, authorizing Smith to operate a Suzuki dealership in Tuscaloosa. Pursuant to the franchise agreement, Suzuki supplied motorcycles, all-terrain vehicles, and utility vehicles manufactured by it to Smith, who, in turn, sold those products to the general public. Smith also sold the products of other manufacturers.

On April 17, 2006, Suzuki sent Smith a “Notice of Default and Opportunity to Cure.” The notice listed six areas of the parties' franchise agreement as to which Suzuki deemed Smith to be in default, mostly dealing with the appearance of Smith's dealership facility. Suzuki demanded that Smith take certain actions to cure the default within 180 days. On June 27, 2006, Suzuki sent another letter to Smith stating that Smith remained in default of the franchise agreement because Smith had taken none of the requested actions.

On October 20, 2006, Suzuki issued a “Notice of Termination” to Smith, informing Smith that it intended to terminate the franchise agreement based, in part, on the appearance of and the deteriorating condition of Smith's dealership facility. Smith subsequently sued Suzuki, alleging that the nonrenewal or termination of the franchise agreement constituted a breach of the franchise agreement and that the termination was in violation of the Alabama Motor Vehicle Franchise Act, § 8–20–1 et seq., Ala.Code 1975 (“the Franchise Act”). The trial court conducted a 12–day bench trial. After hearing the evidence, the trial court entered a judgment in favor of Suzuki on Smith's breach-of-contract claim, concluding that there was not substantial evidence that Suzuki had breached any provision of the franchise agreement. The trial court also entered a judgment in favor of Suzuki on Smith's claim that Suzuki had violated the Franchise Act. The trial court noted in its judgment that the franchise agreement “is terminated effective 42 days from the entry of this judgment.” Smith appeals.

II. Standard of Review

“When evidence is presented ore tenus, the trial court is ‘ “unique[ly] position[ed] to directly observe the witnesses and to assess their demeanor and credibility.” ’ Ex parte T.V., 971 So.2d 1, 4 (Ala.2007) (quoting Ex parte Fann, 810 So.2d 631, 633 (Ala.2001)). Therefore, a presumption of correctness attaches to a trial court's factual findings premised on ore tenus evidence. Ex parte J.E., 1 So.3d 1002, 1008 (Ala.2008)....

“....

“ ‘However, the ore tenus standard of review has no application to a trial court's conclusions of law or its application of law to the facts; a trial court's ruling on a question of law carries no presumption of correctness on appeal.’ Ex parte J.E., 1 So.3d at 1008 (citing [ Ex parte ] Perkins, 646 So.2d [46,] 47 [ (Ala.1994) ], and Eubanks v. Hale, 752 So.2d 1113, 1144–45 (Ala.1999)). This Court ‘ “review[s] the trial court's conclusions of law and its application of law to the facts under the de novo standard of review.” ’ Id. (quoting Washington v. State, 922 So.2d 145, 158 (Ala.Crim.App.2005)).”

Espinoza v. Rudolph, 46 So.3d 403, 412 (Ala.2010).

III. The Franchise Act

“The purpose of the [Franchise] Act is clear. It is to protect the state's citizens from abuses by motor vehicle manufacturers and dealers, and, to that end, to regulate manufacturers and dealers and the dealings between manufacturers and their dealers.” Sutherlin Toyota, Inc. v. Toyota Motor Sales USA, Inc., 549 So.2d 460, 461 (1989). Section 8–20–5 of the Franchise Act governs cancellations, modifications, and terminations of franchise relationships; it states, in pertinent part:

“(a) Notwithstanding the terms, provisions, or conditions of any agreement or franchise or notwithstanding the terms or provisions of any waiver, no manufacturer shall cancel, terminate, modify, fail to renew, or refuse to continue any franchise relationship with a licensed new motor vehicle dealer unless the manufacturer has:

“(1) Satisfied the notice requirement of this section.

“(2) Acted in good faith as defined in this chapter.

“(3) ... [G]ood cause for the cancellation, termination, modification, nonrenewal, or noncontinuance.

“(b) Notwithstanding the terms, provisions, or conditions of any agreement or franchise or the terms or provisions of any waiver, good cause shall exist for the purposes of a termination, cancellation, modification, nonrenewal, or noncontinuance when:

“(1) There is a failure by the new motor vehicle dealer to comply with a provision of the franchise which provision is both reasonable and of material significance to the franchise relationship, provided that the manufacturer first acquired actual or constructive knowledge of such failure not more than 180 days prior to the date on which notification is given by the manufacturer pursuant to the requirements of this section.

“....

“(c) The manufacturer shall have the burden of proof for showing that it has acted in good faith, that the notice requirements have been complied with, and that there was good cause for the franchise termination, cancellation, modification, nonrenewal, or noncontinuance.”

(Emphasis added.)

IV. Discussion

The trial court determined that Suzuki provided sufficient evidence demonstrating that Smith had violated two provisions of the parties' franchise agreement: Section 1.4, dealing with the appearance and maintenance of the dealership facility, and Section 3.3, dealing with the service area and equipment. Additionally, the trial court concluded that Suzuki had complied with the requirements of § 8–20–5. The dispositive issue on appeal is whether Suzuki met the requirements set forth in § 8–20–5 for termination of a franchise relationship.

Section 3.3 of the franchise agreement states:

“Section 3.3 Service Area and Equipment. [Smith] shall maintain an appropriate sized service department which shall be painted, neat and properly organized to insure efficient operation and inspire consumer confidence. [Smith] shall equip this department with the appropriate and necessary shop equipment, furniture, Suzuki ‘Special’ tools and those tools used in normal day to day operations.”

Suzuki's April 17, 2006, letter to Smith regarding Section 3.3 asking Smith to take certain actions to cure what it termed a default states, in pertinent part:

“Smith is in breach of these provisions because the service department is not of an appropriate size, is not painted, and is not neat and properly organized. [Smith] is also in breach of these provisions because the assembly and set-up guides for Suzuki products are poorly organized and not in use; the assembly and set-up area is littered with debris and old parts; tools are not stored neatly when not in use; Suzuki PDI [predelivery-instruction] certificates are not organized separately from other manufacturers; assembly guides and bulletins are not in binders and available for set-up staff; warranty parts are not easily identifiable and are difficult to locate; and the warranty parts retention area is disorganized, inefficient and messy.”

The letter went on to list the actions Smith needed to take within 180 days to “cure” the default:

“....

“3. Each technician work area will be kept neat[,] clean and organized.

“4. The work areas will be located within easy access of the receiving area, vehicle storage, exits and parts supply.

“5. A technician work in progress storage area will be provided.

“6. The work areas shall include, at a minimum, a workbench, tool storage, vehicle lifts, trash cans, air outlets, electrical outlets, and non-skid floor space.

“7. Parts stored around the service office and entrance should be cleared away.

“8. Debris and all non-warranty parts should be thrown out.

“9. Warranty parts area should be established and designated by manufacturer.

“10. Parts over 120 days from claim paid should be thrown out.

“11. All other parts should be tagged with full information for easy identification.”

The trial court stated the following regarding the service area of the dealership facility and the equipment addressed in Section 3.3 of the franchise agreement:

“The evidence established that [Smith] did not comply with these reasonable provisions. It was further established that the failure to organize the area led to set-up errors and a failure to perform recall or remedial repair work on equipment that could lead to safety hazards. This was a breach of the agreement that was not cured as reasonably required. The notice provision was met, the action was taken in good faith, and there was good cause for the termination under this ground.”

Section 1.4 of the franchise agreement states:

“Section 1.4 Appearance and Maintenance. [Smith's] place of business will at all times be maintained so as to present a good image for [Smith] and Suzuki. It is [Smith's] responsibility to maintain an attractive store for the benefit of the customer, [Smith], and Suzuki. [Smith] acknowledges that modern marketing studies show that an attractive, well-lighted, neat and clean store will attract more customers and contribute more to the development and growth of [Smith's] business.”

Suzuki's “cure” letter, dated April 17, 2006, states:

“Within 180 days of the date of receipt of this letter, the showroom, both sales offices, and the service area will be cleaned and all...