GENERAL MOTORS CORPORATION CHEVROLET MOTOR DIVISION v. THE NEW A.C. CHEVROLET, INC. dba THE NEW A.C. CHEVROLET, Appellant
No. 00-5251
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
August 27, 2001
2001 Decisions, Paper 195
On Appeal from the United States District Court For the District of New Jersey (D.C. Civil No. 98-cv-00112) District Judge: Honorable Faith S. Hochberg. Argued: November 30, 2000. Volume 1 of 2. Precedential or Non-Precedential.
WILLIAM F. LANG, III (ARGUED) MARTIN G. MARGOLIS, Esq. THOMAS G. RUSSOMANO, Esq. The Margolis Law Firm, P.A. 60 Pompton Avenue (Route #23) Verona, New Jersey 07044 Counsel for Appellant
* Honorable Frank S. Magill, Senior Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.
DANIEL L. GOLDBERG, ESQ. (ARGUED) ALICIA L. DOWNEY Bingham Dana LLP 150 Federal Street Boston, MA 02110
LOIS H. GOODMAN, ESQ. Carpenter, Bennett & Morrissey 100 Mulberry Street Three Gateway Center Newark, NJ 07102 Counsel for Appellee
OPINION OF THE COURT
BECKER, Chief Judge.
This is an extremely complicated motor vehicle dealer franchise termination case marked by disputes over what is known in the industry as “dualing,” i.e., the acquisition by an automobile franchisee of a franchise of a different manufacturer. This case comes before us on appeal from a series of orders entered by the District Court for the District of New Jersey in a declaratory judgment action arising out of a franchise termination. The plaintiff is General Motors Corporation, Chevrolet Motor Division (GM), the franchisor. In 1998, GM notified the defendant, New AC Chevrolet, Inc. (New AC), a dealer in Jersey City, New Jersey, that its franchise agreement would be terminated. As the basis for its termination decision, GM pointed to New AC‘s insistence on adding a “dualed” Volkswagen franchise to its dealership business despite GM‘s repeated objections to such an addition.
In its suit, GM sought a declaration that the proposed termination was in compliance with the parties’ dealer agreement, which forbade the addition of other vehicle lines without GM‘s prior written authorization; the federal
Although New AC‘s appeal takes issue with the entire series of orders entered by the District Court during the
With respect to New AC‘s challenges to the March 8, 2000 order, we first reject New AC‘s contention, stressed at oral argument, that its addition of a Volkswagen line did not constitute a breach of its franchise agreement with GM because Volkswagen sales and service were offered at a separate dealership location and facility. We do not think the facts of this case support such a contention. We further conclude that there is no genuine issue as to the materiality of this breach. A breach is material if it will deprive the injured party of the benefit that is justifiably expected under the contract, and, in this case, GM‘s justifiable expectation is best evidenced by the mutually agreed upon provisions of the dealer agreement that proscribe New AC from offering a “dualed” vehicle line without GM‘s prior written authorization.
The most significant challenge that New AC raises in connection with its appeal of the March 8, 2000 summary judgment order, a contention also heavily emphasized at oral argument, concerns
We assume arguendo, as New AC would like us to do, that under New Jersey franchise law, a franchisor‘s motivation in effecting a franchisee‘s termination is relevant to the “good cause” inquiry. Put another way, we assume that a franchisor will not possess the “good cause” required for termination by
New AC‘s argument for GM‘s bad faith centers primarily on what we will call the “Project 2000” or“Plan 2000” theory; the central aspect of this theory is the contention that GM‘s decision to terminate New AC, ostensibly for its “dualing” of a Volkswagen line, was part of its predetermined decision to strip New AC of its Chevrolet franchise, and to have another dealer serve as GM‘s exclusive Chevrolet franchisee in Jersey City. Examining the record evidence put forth by New AC in support of the “Project 2000” theory, we do not think it suffices to create a genuine issue as to GM‘s bad-faith motivation. Because we conclude that New AC‘s “dualing” of a Volkswagen franchise constituted a material breach of its dealer agreement (and represented substantial noncompliance with its franchise obligations), and because we find that New AC failed to create a genuine issue as to GM‘s bad faith, we will affirm the District Court‘s March 8, 2000 order in all respects.
We then turn to New AC‘s challenges to the January 13, 1999 dismissal order, which primarily require us to construe the allegations that New AC set forth in its counterclaim. Here, New AC‘s first objection is to the District Court‘s dismissal of Count One of its counterclaim, which alleges that GM violated the provisions of the
In reviewing the District Court‘s
Applying this standard to the facts as alleged in New AC‘s counterclaim, we conclude that New AC adequately stated a claim for relief under the
New AC also contests the District Court‘s dismissal of Count Four of its counterclaim, which alleges inter alia that GM‘s actions violated the implied duty of good faith and fair dealing by predetermining the outcome of its management review process, and by approving the relocation of a competing Chevrolet franchisee. Examining the pertinent allegations made in New AC‘s counterclaim, we first conclude that New AC failed to make the factual allegations necessary to support a claim that such an implied duty was breached when GM predetermined the outcome of its management review process. We then turn to the more significant question of whether such a duty of good faith even arises under Michigan law--the state law that the parties agree is applicable to the resolution of this issue--in connection with GM‘s decision to authorize the relocation of a competing Chevrolet franchisee.
Under Michigan state contract law, “[w]here a party to a contract makes the manner of its performance a matter of its own discretion, the law does not hesitate to imply the proviso that such discretion be exercised honestly and in good faith.” Burkhardt v. City Nat‘l Bank of Detroit, 226 N.W.2d 678, 680 (Mich. Ct. App. 1975). We conclude that the pertinent franchise agreement provision, which commits such a relocation decision to the sole discretion of GM, gives rise to an implied duty of good faith. Nonetheless, we believe that the District Court‘s decision to the contrary does not mandate reversal of the District Court‘s
Aside from these principal issues, New AC brings a series of less significant challenges to the other orders entered by the District Court during the life span of this litigation. We resolve these issues summarily, with brief commentary, infra at note 25, and hold that none warrant reversal of any of the District Court‘s orders. We thus affirm the decision of the District Court in all respects.
I.
A. Factual Background
New AC is a New Jersey corporation operating as an automobile dealer in Jersey City. GM is a Delaware corporation engaged in the manufacture and distribution of automobiles and automobile parts and accessories. Chevrolet is a division of GM. New AC commenced business as a Chevrolet franchisee in 1983. New AC‘s dealership was then, and continues to be today, located at 3085 Kennedy Boulevard in Jersey City. The present litigation is not the first between GM and New AC; the two companies earlier sparred over the relocation of a competing Chevrolet franchise, the DiFeo Chevrolet dealership (DiFeo). Because the events surrounding DiFeo‘s relocation are relevant to certain issues on this appeal, we set forth the key facts.
We turn now to the facts of the present litigation. At all relevant times, the franchise relationship between GM and New AC was governed by a series of standardized Chevrolet “Dealer Sales and Service Agreements,” which fix the rights and obligations of franchisor GM and franchisee New AC, and are renewable every five years. At the time of GM‘s termination decision, the operative “Dealer Sales and Service Agreement” was one that had become effective on November 1, 1995 (Dealer Agreement). The specific
The events directly leading up to the present litigation commenced when New AC decided to supplement its then-existing dealership business by adding a Volkswagen line of vehicles. In late December 1995, New AC submitted applications for a franchise to Volkswagen of America, Inc. (Volkswagen). Volkswagen approved New AC‘s request, and on February 23, 1996, New AC signed a letter of intent with Volkswagen agreeing to serve as an authorized Volkswagen dealer in Jersey City.
About five weeks after executing the letter of intent, New AC first informed GM, by letter, of its plans to operate a Volkswagen franchise as part of its dealership business. In response, GM requested that New AC supply further information concerning the planned Volkswagen franchise, and submit a proposed Location and Premises Addendum which would identify the space at New AC‘s Kennedy Boulevard dealership that would be allocated to GM uses and the space that would allocated to Volkswagen uses. Furthermore, GM specifically reminded New AC that Article 4.4.2 of the Dealer Agreement governs New AC‘s ability to add new vehicle lines to its dealership business.
New AC replied about two weeks later, maintaining that it planned to keep the physical space and personnel devoted to Volkswagen sales and servicing separate and distinct from the space and personnel responsible for GM sales and service. In addition, New AC provided the proposed Location and Premises Addendum. The proposed Addendum represented that the total space at the Kennedy Boulevard dealership then-assigned to GM use would be
New AC reacted to this denial by asking for non-binding management review of the decision, in accordance with GM‘s internal grievance procedure, as detailed in the GM handbook entitled “Dispute Resolution Process for Chevrolet, Pontiac, Oldsmobile or GMC Truck Dealers.” GM conducted the requested management review, but informed New AC that its denial of the Volkswagen line addition would stand. New AC then asked GM to reconsider and represented that it had improved the deficiencies in its capitalization, sales performance, customer satisfaction, and training that GM had earlier observed. Again, GM stood by its denial, stressing its general policy against“dualing of GM lines with those of another manufacturer.” Again, GM pointed New AC to its obligations under Article 4.4.2 of the Dealer Agreement, stating: “[P]lease be reminded that any change to, or in the use of, a dealer‘s facility requires the prior written approval of the division.”
Despite GM‘s denials, New AC proceeded with its plans to add a Volkswagen line of vehicles at the Kennedy Boulevard dealership. GM officials learned that New AC had begun operating a Volkswagen franchise around January 1997. On January 15, 1997, Daniel Durkin, GM‘s Zone Manager for the area including Jersey City, wrote to New AC informing the franchisee that it was in material breach of the Dealer Agreement due to its “addition of the Volkswagen franchise without obtaining General Motors written approval,” as required under Article 4.4.2 of the Dealer Agreement. Durkin warned New AC that “if this serious situation is not satisfactorily resolved or corrected within 30 days from your receipt of this letter, then
GM‘s interactions with New AC during this period were not, however, limited to the sending of warning letters. Around June of 1997, in an apparent attempt to arrive at a mutually satisfactory compromise avoiding the termination of New AC‘s Chevrolet dealership, Durkin suggested that New AC consider offering Oldsmobiles, manufactured by another GM division, as a second line of vehicles at the Kennedy Boulevard location. According to Durkin, the DiFeo dealership, the other Chevrolet franchisee operating in Jersey City, was in the process of relinquishing both its Chevrolet and Oldsmobile franchises. Durkin recommended that New AC explore the possibility of acquiring the soon-to-be relinquished Oldsmobile franchise, and indicated that GM would support the addition of Oldsmobile to New AC‘s dealership under the appropriate circumstances. Durkin mentioned that GM hoped for a dealership presence around Route 440, a more centralized commercial location in Jersey City, and that, to that end, GM was pursuing a lease option on property in the Route 440 vicinity. Durkin suggested that GM would be willing to offer financial support to New AC to develop the Route 440 property as a satellite location for a “dualed” Chevrolet/Oldsmobile dealership, or to convert New AC‘s existing Kennedy Boulevard facility into one better suited for the sale and service of “dualed” Chevrolet and Oldsmobile lines.
Although GM offered this compromise, it remained steadfast in its insistence that New AC abandon its Volkswagen franchise. At the same time that Durkin suggested that GM would support the addition of an Oldsmobile line, he made clear to New AC that the continuation of the Volkswagen franchise was not a
Throughout the summer and fall of 1997, New AC and GM explored the viability of the proposed Oldsmobile compromise. GM investigated the possibility of leasing various sites along the Route 440 corridor, and repeatedly extended the deadline for New AC to accept or reject the Oldsmobile compromise. Ultimately, this proposed plan fell through when GM informed New AC that it was unable to complete leasing arrangements for the Route 440 sites it had contemplated, and when New AC responded by insisting that it would not discontinue its Volkswagen franchise. New AC contended that it had adequately addressed GM‘s concerns about the “dualing” of Chevrolet and Volkswagen lines at the Kennedy Boulevard dealership by constructing a separate showroom and using a separate staff for the Volkswagen vehicles, and by working toward creating a separate Volkswagen parts and service facility.
Finally, in January of 1998, about eighteen months after New AC first informed GM of its intention to obtain and operate a Volkswagen franchise at the Kennedy Boulevard dealership, GM terminated New AC‘s Chevrolet franchise. In a letter dated January 5, 1998, Daniel Durkin observed that New AC, by maintaining a Volkswagen line, “has been in continual violation” of provisions of the Dealer Agreement. Specifically, Durkin asserted that New AC was in violation of Article 4.4.2 of the agreement, which, as noted above, provides that “[n]o change in location or in the use of Premises, including addition of any other vehicle lines, will be made without [GM‘s] prior written authorization.” Durkin also relied on Article 13.1.5 of the Dealer Agreement, which identifies the following franchisee conduct as a material breach of the agreement: “Any sale, transfer, relinquishment, or discontinuance of use by [New
B. Procedural History
1. The Pleadings
The present litigation commenced when, on January 5, 1998--the same day on which Durkin informed New AC of its termination as a Chevrolet franchisee--GM filed a complaint in the District Court seeking a declaration that its termination of the New AC franchise was lawful. Count I of GM‘s complaint requested a declaration that the termination did not constitute a breach of any provision of the Dealer Agreement. Count II requested a declaration that the termination did not violate the federal
2. The Principal Orders
Although New AC‘s appeal challenges a series of orders entered by the District Court during the two-year course of this litigation, New AC‘s most significant contentions arise in connection with only two, the January 13, 1999 order partially granting GM‘s motion to dismiss seven of the nine counts of New AC‘s counterclaim, and the March 8, 2000 order granting GM summary judgment, see General Motors Corp. v. New A.C. Chevrolet, Inc., 91 F. Supp. 2d 733 (D.N.J. 2000). We summarize these two orders here; we will discuss the details of the remaining challenged orders below (particularly infra in note 25), as they become pertinent to our analysis.
GM filed a motion to dismiss seven of the nine counts in New AC‘s counterclaim, which the District Court granted in an order and accompanying opinion entered on January 13, 1999. On this appeal, New AC only challenges the District Court‘s dismissal of Counts One and Four. In Count One, New AC alleged that GM violated the
In Count Four, New AC alleged that GM breached the express and implied terms of the Dealer Agreement by allowing the DiFeo Chevrolet franchise to relocate, and by
Following the Court‘s January 13, 1999 order dismissing seven of the nine counts contained in the counterclaim, only Counts Two and Three, both asserting that GM violated the
After the conclusion of discovery, GM moved for summary judgment, see
In its March 8, 2000 order and accompanying opinion, the District Court resolved the summary judgment motions in GM‘s favor. See General Motors Corp., 91 F. Supp. 2d at 734. With respect to Count I of the amended complaint, which seeks a declaration that New AC‘s termination was in accord with the provisions of the Dealer Agreement, the Court concluded that the plain language of the agreement clearly gave GM the authority to end New AC‘s franchise based on New AC‘s addition of a Volkswagen line over GM‘s express objection. See id. at 738-39. With respect to Count II of the amended complaint, which seeks a declaration that
The District Court‘s March 8, 2000 order also granted summary judgment for GM on Counts VI, VII, VIII, and IX, the sections of GM‘s amended complaint contending that New AC‘s continued post-termination display of GM signage violated federal and state trademark and unfair competition law, and breached the terms of the Dealer Agreement. See id. at 741-43. Although adjudicating New AC liable for trademark infringement, the March 8, 2000 order did not set the amount of GM‘s damages. Rather, the District Court directed the parties to submit additional briefs regarding the proper measure of damages, the amount of time New AC was to be granted for removal of the GM signage, and whether New AC was entitled to compensation for the signage under the
New AC timely appealed the March 8, 2000 order (and a subsequent April 5, 2000 order awarding GM relief) to this Court. The District Court had federal question jurisdiction over the
II. The March 8, 2000 Order
We first take up New AC‘s challenges to the District Court‘s March 8, 2000 order, which finally adjudicated GM‘s liability for the termination of New AC‘s Chevrolet franchise, granting summary judgment in GM‘s favor. See
Although New AC‘s briefing falls far short of analytical clarity, it appears that New AC raises three basic, alternative grounds for reversal of the District Court‘s March 8, 2000 disposition. First, New AC appears to contend that there is a genuine issue as to whether a breach of the Dealer Agreement occurred at all (and hence whether GM had “good cause” for termination), since, in New AC‘s submission, the terms of the franchise agreement did not prohibit its specific “dualing” of a separate Volkswagen line. Second, New AC offers the alternative argument that, even if its addition of a Volkswagen franchise did represent a breach of the terms of the Dealer Agreement, the “dualing” was not sufficiently egregious to justify New AC‘s franchise termination, i.e., the breach was not material. Finally, New AC contends, in essence, that even if the District Court was correct in determining that New AC did not substantially comply with the Dealer Agreement by insisting on the addition of a Volkswagen line, reversal of the summary judgment grant on the NJFPA claims is warranted because the Court erred in concluding that GM‘s motivation for terminating the franchise—i.e., GM‘s good faith or lack thereof—was irrelevant to the question whether GM had “good cause” for New AC‘s termination as a Chevrolet dealer.
A. Breach
New AC‘s first major contention with respect to the District Court‘s summary judgment grant in the March 8, 2000 order is with the conclusion that a breach of the Dealer Agreement occurred at all. In New AC‘s submission, the terms of the Dealer Agreement never prohibited the addition of a Volkswagen franchise at a separate dealership site, and thus, GM‘s permission was never required for the Volkswagen addition. In New AC‘s view, GM was powerless to object to the addition because New AC did not employ any of the space it had previously dedicated to GM use to later sell and service Volkswagen automobiles. This is what the District Court, in its prior May 15, 1998 opinion, referred to as the “different premises” / “different businesses” theory. In essence, New AC contends that there is a genuine issue as to whether it breached the terms of the franchise agreement at all, and that the District Court erred in deciding otherwise. We disagree.
New AC asserts that the term “premises” should be read narrowly to cover only the physical facilities accompanying the 3085 Kennedy Boulevard address. According to New AC, the Volkswagen showroom is located at a site adjacent to and physically distinct from the facilities at 3085 Kennedy Boulevard, a site assigned the address of 3081 Kennedy Boulevard. Moreover, New AC submits that, at least as of 1998, it was close to setting up a separate parts and service area for the Volkswagen vehicles, and informed GM that it would use different staffs to sell and service its Chevrolet and Volkswagen automobiles. Thus, New AC‘s argument goes, the Volkswagen site is separate and distinct from the New AC dealership‘s “premises,” and the site‘s use by New AC for Volkswagen purposes does not represent a change in the location or use of New AC‘s “premises” within the meaning of Article 4.4.2, or a transfer or discontinuance of “premises” use within the meaning of Article 13.1.5.
In granting summary judgment to GM on Count I of its amended complaint, the District Court dismissed New AC‘s “different premises” / “different business” theory in a footnote:
This Court rejects New A.C.‘s effort to redefine the term “Premises” to avoid the clear meaning of this contractual provision. The “Premises” is clearly the dealership property being operated as an exclusive Chevrolet franchise as defined in the Location and Premises Addendum to General Motors Corporation Dealer Sales and Service Agreement . . . . GM‘s decision to denominate minimum requirements
governing the display of Chevrolet vehicles, et cetera, does not alter the fact that the “Premises” included all dealership property located at 3085 Kennedy Boulevard, Jersey City, New Jersey.
General Motors Corp., 91 F. Supp. 2d at 739 n.9. On appeal, New AC takes issue with the District Court‘s conclusion, claiming that the District Court‘s interpretation of the term “premises” as used in the Dealer Agreement is incorrect.
According to New AC, a correct interpretation of the term must start with Article 4.4.1, which states: “Dealer agrees to conduct Dealership Operations only from the approved location(s) within its Area of Primary Responsibility. The Location and Premises Addendum identifies Dealer‘s approved location(s) and facilities (“Premises“).” New AC asserts that the terms “location” and “facilities” are conceptually separate; i.e. that “location” refers to the street address of the dealership (3085 Kennedy Boulevard) while the term “facilities” refers to the square footage designations made in the Location and Premises Addendum. (Under the terms of the franchise relationship, New AC is obligated to submit such an Addendum, which lists the various dealer locations, and contains a “premises space analysis” showing the manner in which the dealer‘s different departments allocate stalls and square footage between GM and non-GM uses.) Furthermore, New AC asserts, the term “premises” covers only the dealer‘s “facilities” and not its “location.” Thus, New AC‘s argument goes, the District Court erred by concluding that the term “premises” covered all dealership property at 3085 Kennedy Boulevard, rather than just the stall and square footage designations listed in the Location and Premises Addendum.
Like the District Court, we are dubious of New AC‘s Addendum-only construction of the term “premises.” However, we need not decide whether this construction is the appropriate one. We believe that New AC‘s argument loses on its own terms because, even accepting arguendo New AC‘s assertion that “premises” covers only the stall and square footage designations listed in the Location and Premises Addendum, the Addenda in the record before us
In the 1990 Location and Premises Addendum for 3085 Kennedy Boulevard, furnished to GM prior to New AC‘s request for the Volkswagen addition, all of the space was allocated to GM use. Conversely, the proposed 1996 Addendum, which New AC supplied at GM‘s request once New AC asked for permission to add a Volkswagen line to its dealership, clearly indicates that some of the space originally dedicated to GM use would be shifted to the Volkswagen line. For instance, 100 square feet of general office space and 900 square feet of part storage space would be converted to Volkswagen use, as would four mechanical service bays.4 Accordingly, even were we inclined to follow New AC‘s suggestion to construe “premises” narrowly to include only the space allocations contained in the Location and Premises Addenda, those Addenda demonstrate that at least some portion of the “premises” at 3085 Kennedy Boulevard were transferred from GM to Volkswagen use. Thus, the space-designation-only argument offers New AC no assistance, and we conclude that New AC breached Articles 4.4.2 and 13.1.5 of the Dealer Agreement.
As an alternative challenge to the District Court‘s March 8, 2000 grant of summary judgment, New AC submits that its addition of a Volkswagen franchise over GM‘s express and repeated objections, even if considered a breach of the Dealer Agreement, was not egregious enough to warrant severance of the franchise relationship. New AC‘s argument here is that any breach that it committed was not a material one, and thus did not justify termination of the franchise contract.5 We disagree, concluding that, on the record before us, there is no genuine issue that New AC‘s Volkswagen addition constituted a material breach.
Materiality goes to the essence of the contract; a breach is material if it “will deprive the injured party of the benefit that is justifiably expected” under the contract. 2 E. Allan Farnsworth, Farnsworth on Contracts § 8.16, at 497 (2d ed. 1998). We think there can be no dispute that New AC‘s insistence on adding a Volkswagen franchise to its dealership, contrary to GM‘s repeated objections to this decision, rose to the level of material breach. GM‘s justifiable expectations regarding New AC‘s performance under the franchise agreement are best evidenced by the provisions of the Dealer Agreement. In Article 13.1, the parties to the Dealer Agreement explicitly defined certain acts or events as constituting material breaches of the contract. Article 13.1.5 specifically includes as a material breach, “[a]ny sale, transfer, relinquishment, or discontinuance of use by Dealer of any of the Dealership Premises or other principal assets required in the conduct of the Dealership Operations, without [GM‘s] prior written approval.”
To similar effect is Article 4.4.2, which directly governs situations in which a dealer seeks to add another vehicle franchise: “No change in location or in the use of Premises,
To be sure, absent Articles 13.1.5 and 4.4.2, New AC would have the generally unfettered right to put its dealership property to the uses it sees fit, including the operation of an independent and competing vehicle line. See 1 Gladys Glickman, Franchising, § 10.07[7], at 10-72 (2001) (“If the franchisee is the owner or lessee of the premises from which the franchised business is conducted he or she has the right to use the premises for any purpose permitted by the zoning laws and the landlord unless the franchisor, by contract, further restricts the businesses which may be operated on the premises.“). In New AC‘s case, however, the parties mutually agreed to constrain the exercise of that right by conferring on GM the power to disapprove of a proposal to “dual” another vehicle line, a power which GM clearly and consistently employed to deny New AC‘s request to add a Volkswagen line to its dealership.
Mindful of the disparity in bargaining leverage that can arise between a franchisor and franchisee, we do not suggest that Articles 4.4.2 or 13.1.5, or GM‘s reliance on those contractual provisions to disapprove of New AC‘s decision to “dual” a Volkswagen franchise, are unassailable. We think, for instance, that New AC could raise viable
We assume, therefore, that Articles 4.4.2 and 13.1.5 impose reasonable obligations on franchisees, and conclude that a franchisee‘s breach of a reasonable franchise obligation—committed over the express and persistent objections of the franchisor—is a material one. Cf. Amerada Hess Corp. v. Quinn, 362 A.2d 1258, 1268-69 (N.J. Super. Ct. Law Div. 1976) (“Plainly, noncompliance by a franchisee with his reasonable franchise obligations, resulting in an actual or potential adverse effect upon the sales of the franchisor‘s products, would constitute substantial noncompliance thereof for purposes of termination, impairing as it does the franchisor‘s fundamental reason for initially entering into the relationship.“); accord Brattleboro Auto Sales, Inc. v. Subaru of New England, Inc., 633 F.2d 649, 652 (2d Cir. 1980) (upholding a manufacturer‘s termination of a Subaru dealer under the Vermont franchise practices statute, on the ground that the manufacturer “reasonably could have concluded that [the dealer‘s] sales and service of Subaru cars would suffer as a result of [the dealer‘s] simultaneous promotion of several lines of directly competing cars“).
New AC, however, does appear to contest the reasonableness of GM‘s reliance on the anti-“dualing” provisions of the Dealer Agreement in this particular case, attempting to minimize the seriousness of its breach by
While we may judicially notice the existence of multi-line vehicle dealers, New AC points to no record evidence identifying any of the other GM dealers operating multi-line dealerships, or indicating which vehicle lines are offered at those dealerships. More importantly, New AC offers no evidence tending to show that these multi-line dealers are similarly situated to New AC. In sum, based on the record evidence before us, there is no genuine issue as to the fact that New AC‘s decision to add a Volkswagen franchise despite GM‘s objection constituted a material breach of the Dealer Agreement.8
C. “Good Cause”
New AC‘s best argument for reversal of the District Court‘s grant of summary judgment for GM concerns the NJFPA claims. Before the District Court and again on appeal, New AC argues that, although the NJFPA defines “good cause” solely as “failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise,”
The District Court rejected this contention, concluding that a franchisor‘s motivation was irrelevant to the NJFPA “good cause” inquiry, in the course of granting summary judgment in GM‘s favor on Count III of GM‘s amended complaint, and on Count Two of New AC‘s counterclaim, both of which raised the question whether GM‘s termination of New AC‘s Chevrolet franchise constituted a violation of
New AC contends that the District Court‘s reasoning is erroneous in that it fails to take account of the obligations imposed by
Karl‘s Sales and Major Oldsmobile certainly state the proper rule as regards private contractual relationships. They apparently were not, however, called upon to consider the NJFPA‘s statutory modification of that relationship;
In its appellate briefing and at oral argument, New AC goes further and contends that, under New Jersey law, an examination of whether a franchisor‘s termination of a franchise was supported by “good cause,” within the meaning of
According to New AC‘s allegations, set forth in its counterclaim and repeated in its appellate briefing and at oral argument, under the “Project 2000” business plan, GM‘s principal goal for the Hudson County marketing area, in which the New AC dealership was located, was to establish a single dealer as the exclusive Chevrolet franchisee. Furthermore, New AC argues, GM considered the Route 440 area to be the most viable commercial strip in Jersey City, and wanted its designated Jersey City Chevrolet franchise to be located along Route 440. New AC contends that, under the “Project 2000” strategy, GM preferred that the DiFeo dealership, which moved to a Route 440 site in 1995, serve as this exclusive franchisee, and therefore favored closing New AC‘s Chevrolet dealership. Thus, according to New AC, when GM decided to terminate New AC‘s franchise, it used New AC‘s addition of a Volkswagen line as a pretext for finally implementing its single-dealer, single-line “Project 2000” strategy.
At this stage, however, we are reviewing the District Court‘s grant of summary judgment, and New AC cannot simply rest on its mere allegations concerning a “Project 2000” plan to eliminate its dealership. Rather, New AC must point to “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,”
Before examining the specific evidence on which New AC relies, we note that, other than the general contention that the addition of a Volkswagen line was a pretextual reason employed by GM to mask the true motive for its termination of New AC‘s Chevrolet franchise, the details of New AC‘s “Project 2000” argument are less than pellucid. We must cobble together the specifics of New AC‘s argument from incomplete pieces. Therefore, it is important, at the outset, to clarify New AC‘s contentions so as to get to the heart of New AC‘s argument concerning GM‘s bad faith and pretextual motivation.
New AC does not appear to contend, as a general matter, that GM‘s stated preference for a single-line dealer distribution network is either unreasonable or lacking a legitimate business justification. That is, New AC does not contend that, as a general rule, it is improper for automobile manufacturers to preclude their dealers from “dualing” another vehicle line. See supra Part II.B. Rather, New AC appears to be arguing that, under the particular facts of its case, GM‘s objection to New AC‘s “dualing” of a Volkswagen line was not a good-faith application of a single-line preference, but rather a bad-faith, pretextual reason, masking another, true motivation behind GM‘s action. According to New AC‘s opening appellate brief, this true motivation is GM‘s predetermined decision, made as early as the mid-1990s as part of “Project 2000,” to sever its franchise relationship with New AC.
In order to survive summary judgment on this NJFPA claim, New AC must point to evidence creating a genuine issue of material fact that, prior to New AC‘s 1996 decision to add a Volkswagen franchise, GM decided to end its Chevrolet franchise arrangement with New AC, and that GM used New AC‘s operation of a Volkswagen franchise to obscure the fact that this decision constituted the true motivation behind New AC‘s termination. As factual support
The New General Motors Network Strategy is simple:
Wherever the local market sales potential for the refocused brand provides an opportunity for a profitable dealership selling and servicing that brand alone, General Motors should have a single line, exclusive dealer conforming in image and customer practices to the norm established for that brand.
Further, General Motors brands are not commodities and should never be offered to the public from facilities that also offer competing brands.
In New AC‘s submission, this “Dealer Network Planning” memorandum sets forth the core of “Project 2000“—i.e., the single-line, single-dealer strategy.
According to New AC, two other corporate documents demonstrate the implementation of this “Project 2000” single-line, single-dealer strategy in the Jersey City region. A report titled “Year 2000 Plan: Essex and Hudson Counties, NJ MDAs: Marketing Area Highlights” includes a section on State Route 440 in Jersey City, the approximate location of both the DiFeo and New AC Chevrolet dealership.12
For Bell, the report‘s evaluation noted that “[t]he plan is to relocate to the State Route 440 autorow area in Jersey City,” while for New AC, the report stated that “viability of the dealer point is questionable” and observed that “[t]he plan is to maintain representation and monitor viability of the point.” Finally, a third document, a report dated February 7, 1996 and titled “Dealer Year 2000 Plan,” set forth the updated plan for the New AC dealership: “Monitor market conditions — future viability is questionable.”
We are unpersuaded that these documents establish a genuine issue that GM, prior to New AC‘s 1996 request to add a Volkswagen dealership, made a decision to terminate New AC‘s Chevrolet franchise. Significantly, none of these documents refers to a decision by or an intent on the part of GM to end its franchise relationship with New AC. In these documents, GM does call New AC‘s future financial viability into question, but there is no indication that, at the time these documents were drafted, GM had concluded that these economic worries warranted the termination of New AC‘s Chevrolet dealership.
To be sure, New AC could be asking us to infer from the concerns expressed by GM in these documents over the continued viability of the New AC franchise that, at some point subsequent to February 1996 (the date of the most recent of the three documents, the “Dealer Year 2000 Plan“), GM arrived at the conclusion that termination was necessary, and opportunistically employed New AC‘s 1996 Volkswagen line addition to mask its true motivation.13
New AC first informed GM of its decision to seek a Volkswagen franchise on April 2, 1996. Were GM simply using the addition of this vehicle line as a pretext to implement its predetermined decision to eliminate the New AC franchise, one would expect New AC‘s termination to occur shortly after this notification. Yet, even after again informing New AC on June 24, 1996 that it was opposed to the Volkswagen addition, GM delayed for over eighteen months before finally advising New AC on January 5, 1998 that its Chevrolet franchise was terminated. In the intervening period, GM sent New AC repeated warning letters, furnishing New AC with numerous opportunities to relinquish its Volkswagen franchise and thereby preserve its franchise relationship with GM. In fact, as late as May 13, 1998, the date on which the District Court heard oral argument on New AC‘s motion for a preliminary injunction barring its franchise termination, GM‘s counsel represented to the Court that GM was willing to continue New AC‘s Chevrolet franchise provided that New AC ceased offering the Volkswagen line.
Moreover, GM did not simply issue warnings to New AC; rather, GM sought to forge a compromise position, addressing New AC‘s desire to add another vehicle line by offering to help establish an Oldsmobile line at New AC‘s for the franchise‘s termination. Therefore, we assume arguendo, as we believe New AC would like us to, that GM‘s pessimistic assessment of New AC‘s potential future performance was unwarranted and unjustified.
D.
In short, we believe that none of New AC‘s challenges with respect to the District Court‘s March 8, 2000 order necessitate reversal of that order. Accordingly, the District Court‘s March 8, 2000 order will be affirmed in its entirety.
III. The January 13, 1999 Order
New AC‘s other principal arguments in this appeal challenge the District Court‘s January 13, 1999 order which dismissed inter alia Count One of New AC‘s counterclaim, alleging that GM‘s course of conduct violated the ADDCA, and Count Four, alleging that GM‘s actions violated the express and implied terms of the Dealer Agreement. Our review of a district court‘s decision granting a motion to dismiss a claim under
A. Count One (ADDCA)
1.
In Count One of its counterclaim, New AC alleges that GM‘s actions toward it amounted to a violation of the
The first three elements of an ADDCA claim are clearly established, and thus the dispositive issue is whether, in Count One, New AC sufficiently pleaded GM‘s failure to act in good faith, as that term is understood in the ADDCA context. Crucial at this point is the understanding that the definition of “good faith” contained in the ADDCA is specialized and narrow. An automobile dealer cannot establish lack of good faith merely by demonstrating that the manufacturer acted arbitrarily, unreasonably, or in a generally unfair manner; rather, the dealer must establish that the manufacturer‘s conduct constituted “coercion, intimidation, or threats of coercion or intimidation” directed at the dealer.
We have explained that mere termination of a franchisee does not, on its own, constitute an ADDCA violation, nor does it afford a presumption that an ADDCA violation has occurred. For instance, our decision in Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715 (3d Cir. 1971), made clear that “termination [of the franchise] alone will not violate the statute.” Id. at 724; see also Milos v. Ford Motor Co., 317 F.2d 712, 716 (3d Cir. 1963) (“The argument that termination before expiration [of the franchise agreement] is prima facie evidence of a violation is untenable. The Act expressly conditions recovery of damages on a failure of the manufacturer to act in good faith. Termination in itself does not suffice.“). Rather, to state an ADDCA claim, the danger of termination “must have previously been used as a threat in an attempt to force the dealer to do certain things. Examples . . . include a manufacturer‘s pressure on a dealer to accept cars, parts, etc. which the dealer does not want or to handle exclusively or sell a quota of parts, accessories, etc.” Buono Sales, 449 F.2d at 724.
The type of coercion or intimidation rendered actionable by the ADDCA occurs only when the automobile manufacturer makes a “wrongful demand which will result in sanctions if not complied with.” Id. at 724 (internal quotations and citations omitted); see also Rea v. Ford Motor Co., 497 F.2d 577, 585 (3d Cir. 1974) (“[A] violation of this Act results if there is a wrongful demand [made] which will result in sanctions if not complied with.“) (internal quotation marks omitted). A demand is wrongful if it pressures the dealer into taking an action it would not take otherwise, see, e.g., id. at 583, 585 (upholding a jury verdict finding Ford in violation of the ADDCA based on
A manufacturer does not make a wrongful demand if it merely insists that the dealer comply with a reasonable obligation imposed by the franchise agreement. For instance, in Globe Motors, Inc. v. Studebaker-Packard Corp., 328 F.2d 645 (3d Cir. 1964), we set aside a jury verdict finding that an automobile manufacturer acted in bad faith, within the meaning of the ADDCA, by requiring its dealer to meet net working capital financial requirements. See id. at 648. In so doing, we observed that the financial requirements, which were expressly set forth in the franchise agreement, made clear “that under the contract the [manufacturer] had [the] right to insist on the [dealer‘s] compliance with his contractual commitment as to net working capital.” Id.; see also Milos, 317 F.2d at 717-18 (“An attempt to enforce an unambiguous contractual obligation . . . can hardly be said to constitute coercion or intimidation.“).
This is not to say, however, that a manufacturer who chooses to terminate a dealer can immunize itself from ADDCA liability by simply pointing to a franchise agreement provision with which the dealer ostensibly failed to comply and assert that such provision was the basis for its severance of the franchise relationship. Even if a manufacturer contends that its termination decision was motivated by a desire to enforce a reasonable contractual provision and that it possessed “objectively valid reasons for terminating its relations with a dealer,” a franchisee can state a claim for relief under the ADDCA by alleging that the manufacturer possessed “an ulterior motive for its action.” Northview, 227 F.3d at 94; cf. Rea, 497 F.2d at 585 (stating that “[a] manufacturer does not breach its duty to act in good faith by terminating a franchise when a dealer has failed to fulfill a reasonable obligation or agreement
2.
With this understanding of legal framework governing New AC‘s ADDCA claim in mind, we now turn to New AC‘s specific allegations. Specifically, Count One avers that GM‘s “course of wrongful conduct as set forth in this complaint constitutes coercion, intimidation and/or threats of coercion or intimidation within the meaning of
Examining all of the factual allegations, the District Court determined that New AC‘s ADDCA claim was focused on two sets of actions allegedly taken by GM: (1) GM‘s 1995 approval of the relocation of the DiFeo Chevrolet dealership to a site closer to Route 440, a move that, according to New AC, was intended to channel business away from New AC and toward DiFeo; and (2) GM‘s decision to terminate New AC based on the latter‘s decision to add a Volkswagen line to its dealership.17 The Court concluded that neither of
With respect to New AC‘s allegations concerning the 1995 DiFeo relocation, New AC‘s core claim appears to be set forth in paragraph 93 of its counterclaim, which states:
[GM] . . . may well have a hidden agenda as [GM‘s] Project 2000 is implemented which may include the unlawful attempt to force NEW AC out of business by establishing the DiFEO dealership at a site that invades NEW AC‘s recognized area of focus of sales penetration. Said action directs Chevrolet/Geo business away from NEW AC to DiFEO; injures NEW AC‘s heretofore existent Chevrolet business so profoundly as to render NEW AC relatively unprofitable.
Paragraph 93 can be fairly read as alleging that GM, through the approval of DiFeo‘s relocation, brought pressure to bear on New AC in order to impel New AC to forfeit one of the rights to which it is entitled under the franchise agreement, i.e., the right to continue as a Chevrolet franchisee through the full life of the Dealer Agreement, without having its franchise prematurely terminated.
Although provisions of the Dealer Agreement do appear to confer GM with the authority to make such a dealer relocation—for instance, Article 4.3 provides that “the relocation of an existing dealer,” such as DiFeo, is “within the sole discretion” of GM, “pursuant to its business judgment“—we have noted above that a manufacturer cannot shield itself from ADDCA liability by merely relying on an objective provision of a franchise agreement when the dealer claims that the manufacturer‘s reliance on such a provision is pretextual. See Northview, 227 F.3d at 94 (stating that a manufacturer‘s “objectively valid reasons” for a decision will not preclude an ADDCA claim, if the dealer can demonstrate that the manufacturer possessed “an ulterior motive for its action“). New AC makes just an
We reach a similar conclusion with respect to the second set of actions alleged to violate the ADDCA, i.e., GM‘s termination of New AC‘s Chevrolet franchise based on New AC‘s “dualing” of a Volkswagen line. Here, New AC could reasonably be characterized as asserting that it was entitled to sell a Volkswagen line of vehicles under the terms of the Dealer Agreement, and that GM‘s persistent refusal to permit such “dualing” constituted an attempt by GM to pressure New AC into forfeiting this entitlement. To be sure, as the District Court recognized in its opinion, Article 4.4.2 unambiguously requires that a franchisee receive prior written authorization from GM before adding a vehicle line to its dealership, and GM‘s actions could be characterized as a mere attempt to require New AC to comply with its reasonable franchise obligations. Again, however, a dealer can state an ADDCA claim against a manufacturer, notwithstanding the manufacturer‘s reliance on an objectively valid contractual provision, by establishing that the manufacturer‘s motive is a pretextual or bad faith one. New AC‘s complaint in this case, when construed under our liberal
3.
Although we conclude that the District Court erred in dismissing Count One of New AC‘s counterclaim, we believe the Court‘s error to be harmless, as it did not impact New AC‘s substantial rights. See
It is clear that New AC was not prejudiced by the District Court‘s failure to liberally construe Count One of the counterclaim. With respect to New AC‘s claim that GM violated the ADDCA when it terminated New AC for “dualing” a Volkswagen line, we note that the Court permitted Count II of GM‘s amended complaint to proceed to discovery. Count II of the amended complaint, seeking a declaration that New AC‘s termination did not violate the ADDCA, is a mirror image of the relevant portion of Count One of the counterclaim, and thus necessarily requires an adjudication as to whether GM‘s termination decision amounted to coercion and intimidation within the meaning of
This close nexus between New AC‘s “Project 2000” theory and its bad faith allegations proves significant to our harmless error analysis. Although an erroneous dismissal of a claim will ordinarily work a prejudice on the party asserting the claim, in that the dismissal will remove the claim from the litigation and prohibit the party from pursuing discovery with respect to the dismissed claim, the factual and procedural circumstances of this case clearly indicate that New AC‘s opportunity to gather evidence regarding the “Project 2000” plan was not impeded in any respect. The history of the proceedings before the District Court demonstrates that New AC has had a full and fair opportunity to participate in discovery concerning the “Project 2000” theory, and thus had the chance to establish a genuine issue as to whether GM did indeed act in bad faith in its course of conduct toward New AC. As explained at length supra in Part II.C, New AC failed to furnish the record evidence necessary to create a genuine issue that GM adopted, in bad faith, a strategy designed to eliminate New AC‘s franchise in Jersey City. Thus, even if the relocation portion of Count One had remained live in the litigation, we are firmly convinced, based on the clear record evidence in this case, that New AC would not have succeeded in establishing a genuine issue that GM‘s approval of the DiFeo relocation was actuated by a bad-faith, “Project 2000” motive.
B. Count Four (Breach of Dealer Agreement)
In Count Four of the counterclaim, New AC alleges, rather inartfully, that certain actions taken by GM with respect to New AC violated the express and implied terms of the Dealer Agreement. The relevant allegations are contained in paragraph 116 of the counterclaim, which states in full:
During the ongoing term of the NEW AC franchise, [GM] breached the expressed and implied terms and provisions of those agreements: by relocating/adding a Chevrolet/Geo franchise and thereby establishing a Chevrolet/Geo dealership within an unreasonable geographic and marketing distance from NEW AC; by attempting to interfere with, render impotent and/or otherwise terminate NEW AC‘s Chevrolet/Geo franchise by destroying the economic viability of same by relocating/adding a Chevrolet/Geo franchise and dealership to a geographic location whereby it will draw and drain significant business away from NEW AC, and by affording and sanctioning DiFEO Chevrolet/Geo‘s resultant and grossly unfair competitive advantage to the direct disadvantage of and damage to NEW AC; by refusing to comply with its self-imposed mediation process, and by using the unfair competitive advantage of the dualed DiFEO dealership to effect the actual or constructive termination of NEW AC in order to reduce the number of Chevrolet/Geo dealers in the New York New Jersey Metropolitan area in accordance with the dictates of Project 2000 as expressed.
Based on these allegations, New AC presents two principal contentions. First, New AC asserts that the District Court erred in deciding that Count Four did not encompass a claim that GM breached an implied duty of good faith and fair dealing by predetermining the outcome
1.
New AC contends that the District Court erred in construing New AC‘s counterclaim when the Court concluded that Count Four did not include a claim for a breach of the implied covenant of good faith and fair dealing based on the fact that GM allegedly predetermined the outcome of its management review process. The District Court declined to address this breach of contract claim on the ground that such a contention appeared nowhere in Count Four of the counterclaim. New AC submits that the District Court‘s decision was erroneous, in that the Court failed to liberally construe the allegations of New AC‘s counterclaim. We disagree.
The franchise agreement between GM and New AC establishes a private mechanism for the resolution of disputes between the manufacturer and dealer arising out of the respective obligations imposed on them by the franchise arrangement. This mechanism is described in a document entitled “Dispute Resolution Process for Chevrolet, Pontiac, Oldsmobile or GMC Truck Dealers,” and the basic procedure is summarized in that document‘s foreword. In essence, if a dealer is dissatisfied with one of GM‘s decisions, believing it to be inconsistent with its rights under the Dealer Agreement, its first recourse is to seek “Division Management Review.”
In general, the dealer initiates the “Division Management Review” process by sending a letter to GM‘s General Sales
New AC‘s counterclaim does reference the Management Review process described above in several places, although no such allegations appear under the Count Four heading. In various paragraphs of its counterclaim, New AC states that it sought administrative review of two decisions made by GM: GM‘s 1998 decision to terminate New AC‘s Chevrolet franchise, and its earlier 1996 decision refusing to permit the addition of a Volkswagen line to New AC‘s dealership. First, in paragraph 72 of its counterclaim, New AC alleges that on January 26, 1998, it requested “Management Review of GM‘s January 5, 1998 termination notice.” Importantly, New AC does not, however, claim that GM‘s response to this Management Review request was improper in any fashion, let alone assert that GM‘s conduct of the review procedure breached an implied covenant of good faith. Put simply, with regard to administrative review of GM‘s decision to terminate New AC‘s Chevrolet franchise, New AC‘s complaint simply alleges that such review was sought; it does not claim that GM‘s handling of the review process was wrongful in any respect. Accordingly, we cannot say that this allegation suffices for 12(b)(6) purposes
New AC does go somewhat further in its allegations concerning administrative review of GM‘s earlier 1996 decision to refuse New AC‘s request to add a Volkswagen franchise to its dealership. In paragraphs 37 through 43 of the counterclaim, New AC alleges that it sought Management Review of this refusal, and, in paragraph 47, New AC asserts that the Management Review that was conducted “did not comport with the purpose, intent and spirit of [GM‘s] mandated dispute resolution process.” Although this last allegation does maintain that GM‘s use of the Management Review procedure was faulty in some abstract sense, New AC fails to allege the reasons why GM‘s internal review was unlawful in general, or in breach of an implied covenant of good faith in particular. Moreover, New AC‘s allegations do not establish the factual basis for this claim. That is, New AC‘s counterclaim does not include factual allegations demonstrating why the administrative review GM conducted in connection with its 1996 refusal of the Volkswagen addition did not comply with the purpose of the Management Review process.
Perhaps New AC could have alleged that the review omitted the steps specified in GM‘s “Dispute Resolution Process” document, or that New AC was denied a meaningful opportunity to present its case to the relevant decision-makers, but New AC‘s counterclaim does not contain these types of allegations. New AC‘s minimalist, conclusory allegations—amounting, in essence, to nothing more than a bare bones claim that GM‘s decision was “wrongful in the air“—do not suffice to cross the 12(b)(6) threshold. Cf. 2 James Wm. Moore, Moore‘s Federal Practice S 12.34[1][b], at 12-61 to 12-63 (3d ed. 2001) (“Liberal construction has its limits, for the pleading must at least set forth sufficient information for the court to determine whether some recognized legal theory exists on which relief could be accorded the pleader. . . . [C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss. While facts must be accepted as alleged, this does not automatically extend to bald assertions, subjective
Finally, New AC also relies on language in paragraph 116 of Count Four, which states inter alia that GM “breached the expressed and implied terms and provisions” of its franchise agreement “by refusing to comply with its self-imposed mediation process.” However, as set forth above in our summary of the “Dispute Resolution Process” document, such voluntary mediation is initiated only when the administrator of the dispute resolution process seeks to explore such an option with GM and the dealer, and requires the mutual agreement of both GM and the dealer before it can be pursued. Canvassing New AC‘s counterclaim, we can find no allegation that either New AC or the dispute resolution administrator requested the institution of voluntary mediation, or that any such request was denied. Thus, New AC‘s conclusory allegation that GM breached an implied covenant of good faith “by refusing to comply with its self-imposed mediation process” does not clear the 12(b)(6) hurdle.
2.
New AC also contends that the District Court erred in deciding, as a matter of law, that the Dealer Agreement provision granting GM the power to approve the relocation of competing franchisees did not give rise to an implied covenant that GM would make that decision in good faith. The District Court offered this construction in connection with its dismissal of the portion of Count Four in which New AC alleged that GM breached an implied covenant of good faith and fair dealing by approving the 1995 relocation of DiFeo Chevrolet, a competing franchisee, to a more desirable commercial location, thereby siphoning business away from New AC.22
Although Michigan law on the implied covenant of good
[GM] reserves the right to appoint additional dealers but [GM] will not exercise this right without first analyzing dealer network planning considerations.
Prior to establishing an additional dealer within Dealer‘s Area of Primary Responsibility, [GM] will advise Dealer in writing and give Dealer thirty days to present relevant information before [GM] makes a final decision. [GM] will advise Dealer of the final decision, which will be made solely by [GM] pursuant to its business judgment. . . .
Neither the appointment of a dealer at or within three miles of a former dealership location as a replacement for the former dealer nor the relocation of an existing dealer will be considered the establishment of an additional Dealer for purposes of this [section]. Such events are within the sole discretion of [GM], pursuant to its business judgment.
(emphasis added).
It is difficult (if not impossible) to read Article 4.3 as anything other than a provision making the relocation decision a matter for GM‘s own discretion, a provision that, under existing Michigan contract law, would give rise to a good faith obligation. Article 4.3, by its terms, states that the “relocation of an existing dealer“—in this case, the moving of DiFeo Chevrolet from its Kennedy Boulevard location to a site closer to Route 440—is “within the sole discretion of [GM], pursuant to its business judgment.” Michigan law, through decisions such as Burkhardt, clearly teaches that it is these precise situations—situations in which one party retains unfettered control over part of its performance under a contract—that call most strongly for
However, our conclusion that the District Court committed error in construing Michigan law does not necessitate reversal of this portion of the Court‘s January 13, 1999 order, because we consider this error to be harmless. See supra Part III.A.3 (setting forth the applicable harmless error standard). It is abundantly clear from New AC‘s amended counterclaim, its appellate brief, and its contentions at oral argument, that New AC‘s theory behind GM‘s bad faith is integrally and inextricably linked with the manufacturer‘s “Project 2000” or “Plan 2000” business strategy. For instance, paragraph 113 of Count Four of the counterclaim expressly states that GM‘s relocation decision was intended “to effect the actual or constructive termination of NEW AC in order to reduce the number of Chevrolet/Geo dealers in the New York New Jersey Metropolitan area in accordance with the dictates of Project 2000 as expressed.”
As we explained supra in Part II.C and again in Part III.A.3, New AC has had a full and fair opportunity to participate in discovery concerning the “Project 2000” theory, in order to establish a genuine issue as to whether GM did indeed act in bad faith. Yet, New AC has not succeeded in establishing a genuine issue that GM adopted a strategy designed to eliminate New AC‘s franchise in
3.
In sum, we conclude that none of New AC‘s challenges with respect to the District Court‘s January 13, 1999 order necessitate reversal of that order. Accordingly, the District Court‘s January 13, 1999 order will be affirmed in its entirety.25
IV. Conclusion
We affirm the orders of the District Court in all respects.
(Text continued on page 63)
A True Copy:
Teste:
Clerk of the United States Court of Appeals for the Third Circuit
Notes
We believe that New AC‘s proffered theory amounts to pure speculation. Importantly, New AC points to no evidence in the record providing factual support for this theory. For instance, for New AC‘s account to remain logically consistent, it would need to be shown that DiFeo, or some other Chevrolet franchisee, re-commenced operations in Jersey City some time prior to GM‘s January 5, 1998 notice of termination to New AC (so that GM could terminate New AC and still retain a single Chevrolet franchisee in Jersey City). We could find no such evidence in the record before us, however.
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.
Nonetheless, we will affirm the District Court‘s dismissal of this portion of Count Four, concluding that any error committed by the District Court was harmless, as it did not work a prejudice on New AC. See supra Part III.A.3. (setting forth the applicable harmless error standard). Although the District Court dismissed Count Four of the counterclaim, Count I of GM‘s amended complaint remained alive in the litigation. The claim asserted by GM in that count—that GM‘s termination of New AC, on the ground that New AC persisted in operating a Volkswagen franchise over GM‘s objection, was lawful under the terms of the Dealer Agreement—fairly encompasses New AC‘s claim that GM‘s refusal to permit the Volkswagen addition represented a breach of the franchise agreement. By adjudicating Count I, the District Court would necessarily determine whether GM‘s objection to the added Volkswagen franchise was in accordance with the Dealer Agreement between GM and New AC. Because Count I remained active in the litigation, proceeded to discovery, and was ultimately adjudicated by the District Court, see General Motors Corp., 91 F. Supp. 2d at 738-39, we conclude that the District Court‘s failure to fully apply the liberal pleading rules to New AC‘s claims respecting GM‘s objection to the Volkswagen franchise did not affect New AC‘s substantial rights, and thus amounted to nothing more than harmless error.
In Hubbard, a Chevrolet franchisee sought to move its location to a site other than the one specified in its dealership agreement. Much like the agreement in this case, the contract in Hubbard required the franchisee to receive prior written approval from GM for any move of the dealership premises. See Hubbard, 873 F.2d at 874. GM denied its franchisee‘s request, and the franchisee brought suit alleging inter alia that the relocation provision requiring GM‘s prior written approval carried with it an implied covenant that GM‘s decision would be made in good faith. See id. at 875. The Fifth Circuit disagreed, concluding that the relevant relocation provision did not give rise to any implied covenant, since it unmistakably and fully expressed the respective rights of GM by precisely identifying the dealer‘s original location and “flatly preclud[ing] relocation absent GM‘s approval.” Id. at 878. The Court stressed that the dealer agreement “gave GM the authority to approve or disapprove relocation for its own reasons, and thus set out the limits of what the contract requires of the parties.” Id.
In this case, the District Court concluded that Article 4.3 of the Dealer Agreement was analogous to the contractual provision at issue in
The May 15, 1998 Order
Following the filing of its counterclaim, New AC moved for a preliminary injunction blocking GM‘s scheduled termination of New AC‘s Chevrolet franchise. The District Court denied New AC injunctive relief in a May 15, 1998 order. The challenge to this order that New AC raises on this appeal presents a straightforward application of the claim preclusion doctrine, since the propriety of this preliminary injunction denial has already been appealed to this Court by New AC on a prior occasion and been resolved against New AC. All of the elements necessary to grant our prior order claim preclusive effect are present: The prior order represents a final adjudication of the question whether New AC was entitled to preliminary injunctive relief; that question was litigated before this Court by the same parties that are before us today; and New AC‘s current appeal raises the exact question that was decided in our prior order. See Corestates Bank, N.A. v. Huls America, Inc., 176 F.3d 187, 194 (3d Cir. 1999) (setting forth the elements of the claim preclusion doctrine). Quite
The August 26, 1998 Order
On June 16, 1998, New AC moved to dismiss GM‘s declaratory judgment action under
The March 8, 1999 and April 28, 1999 Discovery Orders
New AC also questions the propriety of two orders entered by the Magistrate Judge during the course of discovery, on March 8, 1999 and April 28, 1999, respectively. According to New AC, as part of the discovery conducted on Counts Two and Three of its counterclaim, alleging that GM violated the NJFPA by inter alia imposing unreasonable standards of performance on New AC in contravention of S 56:10-7(e), New AC sought documents from GM regarding GM‘s dealer network. In the March 8, 1999 order, the Magistrate Judge rejected New AC‘s broad request, and instead required GM to furnish only those documents related to New AC. On April 28, 1999, the Magistrate Judge denied New AC‘s motion for reconsideration of the March 8, 1999 decision. On appeal, New AC contends that this limitation was erroneous, since New AC should have been allowed to gather information regarding GM‘s relationships with other franchisees—e.g., the type of performance standards imposed on those franchisees—in order to help establish that the standards placed on New AC were unreasonable.
Under
The August 4, 1999 Order
New AC also employs the instant appeal to challenge the District Court‘s August 4, 1999 denial of its motion seeking the recusal of the District Judge originally assigned to the litigation and the vacatur of all of the orders entered by that Judge during the course of the litigation. In June of 1999, New AC brought this motion seeking the disqualification of the Judge pursuant to
Attorneys Fees
In the conclusion of its opening appellate brief, New AC requests that we set aside all attorneys fees and costs awarded by the District Court to GM in this case. The District Court granted these fees in connection with its determination, in its April 5, 2000 order, that New AC knowingly infringed GM‘s trademarks and breached Article 17.5 of the Dealer Agreement by continuing to use GM marks even after its termination as a Chevrolet franchisee, and in connection with its May 11, 2000 order holding New AC in civil contempt for failing to comply with the Court‘s directive to cease the use of GM marks.
We find no basis for vacatur of the District Court‘s attorneys fees and