(to be published in the Summer edition of the Forum on Franchising of the American Bar Association.)
Franchising and distribution through a dealer network is the format by which business in the retail and wholesale automotive world has been conducted for many decades beginning in the early 20th century. In response to the dominance of and many perceived abuses and coercive practices on the part of the domestic manufacturers and distributors toward their dealer networks, a call for governmental involvement and regulation arose.
This article reviews the more significant issues and the regulatory approaches by both the federal and state governments in response to calls from the retail dealer body for legislative assistance. In reviewing the statutory schemes adopted by several states, the discussion focuses on the legislative history and rules adopted by Massachusetts simply because the authors are members of the Massachusetts bar and assisted in the development and lobbying of the statute. We compare and consider the regulatory schemes in California, Connecticut, Florida, Georgia and Texas, as well.
Several studies of the retail automobile industry were conducted in the early 1950's which served as the factual and theoretical bases for remedial legislation.[1] For example, United States Senate Report 2073 in 1956, a significant analysis of the industry, laid out the rationale for the Congressional enactment of the "Automobile Dealers - Day in Court Act." [2] and later state regulatory schemes. The Senate report provided, in pertinent part:
"when the dealer has invested to the extent required to secure a franchise, he becomes in a real sense the economic captive of his manufacturer. The substantial investment of his own personal funds by the dealer in the business, the inability to convert easily the facilities to other uses, the dependence upon a single manufacturer for supply of automobiles, and the difficulty of obtaining a franchise from another manufacturer all contribute toward making the dealer an easy prey for domination by the factory. On the other hand, from the standpoint of the automobile manufacturer, any single dealer is expendable. The faults of the factory-dealer system are directly attributable to the superior market position of the manufacturer " [3]
As calls for governmental regulation grew more intense, debates followed concerning, among other things, issues of freedom of contract and entrepreneurialism as against the need for governmental involvement and the standards by which that involvement was defined.[4] Ultimately, despite many arguments opposing regulation asserting, among other things, determined, constitutional and antitrust issues, states began to enact regulatory schemes which were held to be valid exercises of legislative power against federal constitutional and antitrust arguments.[5] Additionally, several states considered business practices in the industry with particular emphasis on the need to serve the public welfare. For example, the [Massachusetts] Legislative Research Council ("Council") studied industry issues.[6] The report of the Council served as the basis for remedial legislation adopted in 1970 by Massachusetts[7] and was cited favorably in Tober Foreign Motors, Inc. et al v. Reiter Oldsmobile, Inc.[8] Tober Foreign Motors, Inc. is one of several decisions which dealt with a legislature's powers of economic regulation. It upheld the constitutionality of a regulatory statute and concluded that the statute did not conflict with or violate federal antitrust law. The Massachusetts statute, which was enacted largely on the strength of these studies,[9] defines a number of coercive and oppressive practices which were declared to be illegal. M.G.L. c. 93B, §§3 and 4, declare that unfair methods of competition and unfair and deceptive acts or practices defined in he statute, "are hereby declared to be unlawful." In a succinct statement, the Court summarized the abuse and coercion that prompted the legislation and observed ."
"among those [practices] condemned are: requiring dealers to accept unwanted parts or accessories as a condition of securing the cars they request; implementing unfair plans for the allocation of cars among dealers; failing to deliver cars to dealers in reasonable quantities and at reasonable times; threatening cancellation of franchises; refusing without good cause to extend franchise agreements; discriminating in pricing among franchisees; except in special situations, operating manufacturer-owned retail outlets within the market areas of franchisees " Tober at 321.
Additionally, the Massachusetts statute deals with the appointment and/or relocation of additional franchisees in the relevant market area of an existing dealer handling the same line make(s), the termination of franchisees, the refusal to extend or renew a franchise upon its expiration, modification of the obligations of a dealer as a condition for the extension or renewal of an existing franchise, the requirement that all dealers are offered comparable franchise terms, approval of successor franchises, the right of franchisees to congregate and a prohibition of unreasonable dealer restrictions regarding to the right of a dealer to sell or transfer all or an interest in a dealership, discipline, non-competition covenants, site control, rights of first refusal and options to purchase.
Similarly, in a challenge to the lawfulness and efficacy of state regulation, the United States Supreme Court in 1978 in New Motor Vehicle Board of California v. Orrin W. Fox Co.,[10] upheld the lawfulness of the California regulatory statute and observed that the purpose of state statutes restricting encroachment is to protect franchisees from destructive intrabrand competition and the unequal economic power of manufacturers. The Court noted:
The disparity in bargaining power between automobile manufacturers and their dealers prompted Congress and some [at that time] 25 states to enact legislation to protect retail car dealers from perceived abuse and oppressive acts by manufacturers - Among its other safeguards, the Act protects the equities of existing dealers by prohibiting automobile manufacturers from adding dealerships to the market areas of existing franchisees where the effect of such intrabrand competition would be injurious to existing franchisees and to the public interest. [11]
With a few exceptions as states adopted regulatory schemes, certain common abusive and coercive practices were declared illegal, unlawful or deceptive, by each, including the following:
(a) the methods by which new vehicles are allocated;
(b) the allocation of discretionary vehicles.[12], i.e., turn-backs;
(c) the coerced purchase of new vehicles and commodities including supplying new vehicles and commodities which were not ordered;
(d) issues involving facilities, their location, size and design;
(e) the requirement that new vehicles comparably equipped be sold at the same price to all dealers located within the jurisdiction;
(f) the prohibition against the use of sales incentives and programs to vary wholesale pricing among dealers, i.e., that parts and commodities be sold at the same price to dealers within the jurisdiction;
(g) issues involving advertising and advertising cooperatives;
(h) warranty audit and reimbursement, incentive audit and reimbursement, collection practices following warranty and incentive audits;
(i) new vehicle preparation;
(j) threats of termination to coerce compliance;
(k) restrictions upon capital and financial structures; and,
(l) restrictions upon succession and the sale or transfer of proprietary interests in dealerships including approval or rejection of successors.[13]
State regulatory schemes dealt not only with perceived abuses such as those mentioned in the preceding paragraphs, but also encroachment and termination issues as well as issues relating to the licensing of dealerships, manufacturers, distributors and salesmen; succession and transfer rights; the exercise of property rights such as rights of first refusal; and dualling. State regulation of the industry has taken a variety of forms relating not only to substance of the issues, but also the dispute resolution processes, including the forums in which disputes are heard and resolved, arbitration, private rights of action, appellate review and the standards applied. Several states incorporated the substance and procedures for dispute resolution into their licensing schemes utilizing existing organizations within their motor vehicle departments and independent administrative agencies to hear and resolve disputes and, in some instances, limiting private rights of action; others, such as Georgia and Massachusetts, have adopted regulatory schemes in which the courts are the forum in which disputes between dealers, distributors and manufacturers are resolved requiring dealers to apply for injunctive relief under common law principles to maintain the status quo while the issues are heard.
The Massachusetts statute [14] adopted after the decision in New Motor Vehicle Board of California v. Orrin W. Fox Co., provides, inter alia, " " it shall be a violation " for a manufacturer, distributor - without good cause, in bad faith or in an arbitrary or unconscionable manner to: (a) grant or enter into a franchise agreement with a person who would be permitted or required by the franchise agreement to conduct its dealer operations from a site any boundary of which is situated within the relevant market area of an existing motor vehicle dealer representing the same line make - or (b) permitting the relocation of an existing motor vehicle dealer representing the same line make as another existing motor vehicle dealer to a site any boundary of which is within the relevant market area of an existing dealer. " (emphasis added)
Under the Massachusetts statute as in every other regulatory instance, the right of an existing dealer to challenge or protest the proposed appointment of an additional dealer or the relocation of an existing dealer is dependent upon whether the proposed appointee or relocating dealer is to be sited within its market area or what is termed "its relevant market area." The location of a proposed appointee or relocating an existing dealer handling the same line make(s), in an existing dealer's relevant market area is the jurisdictional requirement which must be satisfied to entitle the existing dealer to exercise its right of protest.
The relevant market area of an existing dealer is the geographic area in which it is located, the boundaries of which are determined by statute. "Relevant market area" is defined in a variety of ways. In Massachusetts,[15] for example, the relevant market area of a dealer is the geographic area within either an 8- or 14-mile radius from the dealership facility depending upon which county the existing dealership is located with somewhat more complicated rules if the dealership is situated at or near a county line.[16] California defines the relevant market area of a dealership as -"any area within a radius of ten miles from the site of a potential new dealership -"[17] Connecticut focuses upon the existing dealer, defining the relevant market area of a protesting dealer, simply, as the geographic area within a fourteen mile radius from its facility or the area encompassed within its area of responsibility, whichever is larger.[18] Colorado defines relevant market area as the area encompassed within the area of responsibility of the existing dealer as specified in its franchise agreement or the areas encompassed within a 5 to 10-mile radius of an existing dealer depending upon the county in which it is located and its population, whichever is greater. Florida approaches the threshold issue differently by considering, among other things, county, county population, a the geographic area within a radius of 20 miles from the site of the proposed appointee, and the positioning of 25% of the actual sales by a protesting dealer into an area encompassed by a radius of 12.5 miles from the site of the proposed dealer or relocated dealer within any 12-month period within the prior 36 months.[19] Georgia, similar to most, focuses upon the existing dealership, defining relevant market area as " - the area located within an eight-mile radius of an existing dealership -" [20] Texas offers an alternative. Section 2301.652 (b) of the Texas Occupations Code, provides:
Except as provided by Subsection (c), a person has standing under this section to protest an application to establish or relocate a dealership if the person filing the protest is a franchised dealer of the same line-make whose dealership is located:
(1) in the county in which the proposed dealership site is to be located; or
(2) within a 15 mile radius of the proposed dealership site.[21]
Interestingly, a Massachusetts dealer is currently attempting to avoid the constraints of statutorily-defined relevant market area. The dealer alleges in a pending suit that the proposed new appointee, while sited just outside its relevant market area, nevertheless plans to relocate into its relevant market area in a two-step process once it develops market share. [22] In the notice of intent, the distributor announced a location within the protesting dealer's relevant market area. When it became apparent that a protest would ensue, the proposed appointee actually located several hundred yards beyond the perimeter of the protesting dealer's relevant market area. No new or revised notice was issued.
The California statute which, incidentally, was the first in the country, focuses on a number of discreet abuses.[23] Section 11713.2 of the California Manufacturer, Transporters, Etc. Code, prohibits a manufacturer or distributor from coercing a dealer to accept vehicles and other commodities which it did not order, to expense advertising and promotional materials to a dealer and to coerce a dealer into a commitment by threatening termination. Section 11713.3 was subsequently amended in 1991 adding a number of additional acts and practices to the list of unlawful acts such as, but not limited to the failure of a manufacturer or distributor to deliver vehicles in reasonable quantities after publicly announcing that they would be available, interference with the capital structure of a dealership and restricting in a variety of ways the sale and/or transfer of a proprietary interest in a dealership.
Connecticut adopted similar legislation in 1982. [24]
A different approach was taken by Florida. Under its licensing provisions, the license of a manufacturer may be denied, suspended or revoked throughout the state or in a specific location, for a number of reasons including, its failure to comply with the statute frequently enough to establish a pattern of wrongdoing, has indulged in any illegal act relating to its business, has coerced or attempted to coerce a dealer into accepting delivery of motor vehicles and other commodities which it has not ordered, has coerced or attempted to coerce a motor vehicle dealer into any agreement, the applicant or licensee has threatened to modify or replace a franchise with a replacement franchise to the detriment of a dealer, has entered into a franchise agreement with a dealer who does not have adequate facilities to service the new motor vehicle warranty issued by the manufacturer or distributor and advertising by the applicant or licensee is false, deceptive or misleading. [25]
Georgia, amended its regulatory scheme in 1993 [26] to add and declare as unlawful, more than twenty acts and practices characterized as coercive. Among the acts proscribed are coercion to order or accept delivery of commodities and equipment not voluntarily ordered other than as required by the franchise agreement, to be required to accept motor vehicles with special equipment and features not included in public advertising, to interfere with the management of a dualled franchise, to fail to deliver new motor vehicles and commodities at reasonable times and in reasonable quantities if publicly advertised as being available, to obtain money or other benefits from a person with whom a dealer does business other than as compensation for services rendered unless such payment or benefit are promptly accounted for and transmitted to the dealer, to release financial information pertaining to a dealer except in response to judicial process, to employ deceptive advertising, to require a dealer to assent in advance to any release, assignment, novation or estoppel that would relieve the franchisor from liability, to - "fail to observe good faith in any aspect of dealings between the franchisor and the dealer - ," to deny any dealer the right of free association with other dealers for any lawful purpose and to sell, lease or offer to sell or lease, a new motor vehicle or any accessory to any dealer for less than the actual price or the price offered to any other dealer for a similar vehicle or accessory, comparably equipped or to use any artifice or device, including a sales incentive program by which a vehicle or accessory is sold for a lesser price than that offered generally. Stringent rules were also adopted governing warranty audits, sales incentive audits and the ability of the franchisor to charge discrepancies discovered by the audit back to the dealer.
Texas, by comparison, has enacted admonitions to dealers as well as proscriptions upon manufacturers and distributors. Section 2301.351 of the Texas Occupations Code prohibits a dealer from using false, deceptive or misleading advertising, violate a rule of the Board or aid or abet a person who violates any provision of the act.
An analysis of the key regulatory issues is set out below.
The most litigated issues are encroachment, that is, the sitting of an additional dealer in the relevant market of an existing dealer handling the same line make(s), relocating an existing dealer into the relevant market area of another existing dealer handling the same line make(s), outright termination of franchise, refusal to extend or renew a franchise at its normal expiration and the extension or renewal of a franchise only upon condition that the dealer accept material changes in the arrangement.
Encroachment has been and continues to be the "hot button" issue.[27] When it became apparent that the Federal Dealer's Day in Court Act offered no protection against the establishment of new dealers or the relocation of existing dealers into areas already represented by a dealer handling the same line make(s), or the range of terminations and refusals to extend or renew franchises, dealers refocused their objective and looked to the states for remedial legislation and protection. [28] Every state which has adopted some form of regulation, has dealt with the encroachment issue and issues relating to termination, the refusal of the manufacturer or distributor to renew or extend franchise terms and the conditioning of an extension or renewal of a franchise at its expiration upon acceptance of material changes in franchise terms.
The Massachusetts statute [29] provides " it shall be a violation" for a manufacturer, distributor - without good cause, in bad faith or in an arbitrary or unconscionable manner to: (a) grant or enter into a franchise agreement with a person who would be permitted or required by the franchise agreement to conduct its dealer operations from a site any boundary of which is situated within the relevant market area of an existing motor vehicle dealer representing the same line make - or (b) permitting the relocation of an existing motor vehicle dealer representing the same line make as another existing motor vehicle dealer to a site any boundary of which is within the relevant market area of an existing dealer . " (emphasis added)
The issue, once the right to protest is established through the application of relevant market principles or statutory criteria, is the propriety of the proposed appointment or relocation, whether the proposed appointment or relocation is without good cause, is made in bad faith or in an arbitrary or unconscionable manner or [30] whether there is good cause not to grant the additional franchise.[31] Good cause is defined in a variety of ways.[32] Massachusetts, for example, defines good cause by enumerating a number of factors which the trier of fact must consider. M.G.L. c. 93B, §6(g). See, by comparison: California - California Vehicle Code Annotated §3063. Even though states approach the issue from different angles, they nevertheless arrive at essentially the same test. [33]
Good cause to make the proposed appointment or approve the relocation or, conversely, whether there is good cause not to grant the franchise, is the central issue. Ultimately, as will be seen, once a protest is lodged by the existing dealer, the decision is taken from the manufacturer or distributor and placed squarely in the hands of the trier of fact.
Massachusetts adopted the most detailed definition of good cause drawing in part from the California definition but including additional details and specific facts which must be considered - regardless whether the manufacturer or distributor followed the statutory process.[34] M.G.L. Ch. 93B, Section 6(g), provides:
In determining whether the proposed appointment or relocation is for good cause, the court shall consider all pertinent circumstances, that include but are not limited to:
(1) whether the establishment of the additional franchise or relocation of the existing motor vehicle dealer appeared to be warranted by economic and marketing conditions including anticipated future changes;
(2) the retail sales and service business transacted by the protesting motor vehicle dealer or dealers and other motor vehicle dealers of the same line make with a place of business in the relevant market area to be served by the additional franchise or proposed new location of the existing motor vehicle dealer during the 3 year period immediately preceding the notice as compared to the business available to them;
(3) the investment necessarily made and obligations incurred by the protesting motor vehicle dealer or dealers to perform their obligations under existing franchise agreements;
(4) the permanency of the investment of the protesting motor vehicle dealer or dealers;
(5) whether it is beneficial or injurious to the public welfare for an additional franchise to be established or for the existing motor vehicle dealer to be relocated;
(6) whether the protesting motor vehicle dealer or dealers and other motor vehicle dealers of the same line make with a place of business in the relevant market area to be served by the additional franchise or proposed relocating motor vehicle dealer are providing adequate competition and convenient consumer care for the motor vehicles of the same line make owned and operated by residents and persons with places of business in the relevant market area to be served by the additional franchise or proposed relocating motor vehicle dealer; and,
(7) whether the protesting motor vehicle dealer or dealers and other motor vehicle dealers of the same line make with a place of business in the relevant market area to be served by the additional franchise or proposed relocating motor vehicle dealer have adequate motor vehicle sales and service facilities, equipment, vehicle parts and qualified personnel to reasonable provide for the needs of the consumers in the relevant market area to be served by the additional franchise or proposed relocating motor vehicle dealer; and,
(8) whether the establishment of an additional franchise or relocation of an existing motor vehicle dealer would increase competition and therefore be in the public interest.
Connecticut draws heavily on both California and Massachusetts delineating eleven statutory factors which may be considered by the Commissioner.[35] Florida, approaches the issue in a somewhat different fashion, focusing upon whether the licensee shows - "that the existing franchised dealer or dealers of the same line-make in the community or territory of the proposed dealership are not providing adequate representation" [36] with the burden to establish inadequate representation on the applicant licensee.[37] Plantation Datsun, Inc. v. Calvin, App. 1 Dist., 275 So. 2d 26 (1973); see also, Larry Dimmitt Cadillac, Inc. v. Seacrest Cadillac, Inc. App. 1 Dist., 558 So. 2d 136 (1990) (multiple dealer area specified in franchise entitled to great weight but not conclusive on the question) Georgia permits a protesting dealer to seek injunctive relief in the courts. Section 10-1-664(b) provides that an injunction shall issue unless - the franchisor can prove by a preponderance of the evidence that the existing dealership is not providing adequate representation of the line-make motor vehicle in the existing dealership's relevant market area and that the new or relocated dealership is necessary to provide the public with reliable and convenient sales and service within the relevant market area.[38]
In determining good cause to or good cause not to allow the sitting of a proposed appointee or the relocation of an existing dealership, the trier of fact is allowed under the statutes discussed, to consider current and future economic trends, demographics, marketing considerations focusing on the adequacy of existing sales and service and whether through additional interbrand competition, the public interest will be served. Texas , as well as Florida and Georgia , considers - whether the manufacturer or distributor of the same line-make of new motor vehicle is being adequately represented as to sales and service. Thus, the business purposes of the manufacturer and distributor are clearly in play as factors to be considered as well as the requirements of the public and its interest - the focus of the California , Connecticut and Massachusetts statutes.
Recent litigation in Massachusetts is instructive.[39] Two of three recent encroachment cases tried, resulted in a decision in favor of the distributor and allowed the appointment of the additional dealership. The earliest of the three cases, Richard Lundgren, Incorporated, d/b/a v. American Honda Motor Co., Inc. decided in 1994, found in favor of the protesting dealer. Fuller Enterprises, Inc. and Kelly Nissan, were decided in 2003. They are decisions based in great part on the lack of performance by the protesting dealer, its inability to develop market share in the challenged market or failure to demonstrate an adverse impact on its profitability. Lundgren, by comparison, involved what some might term egregious circumstances in addition to the statutory requirements, namely, that the decision to appoint the additional dealer was announced immediately following the protesting dealer's expensive relocation at the strong insistence of the distributor and suggestions that the proposed appointee had a corrupt relationship with the distributor.
The decision in Kelly Nissan, introduces an approach which may have broad implications. Vast amounts of documentary evidence and extensive testimony, both from lay witnesses and expert witnesses, was received by the Court. In assessing the Massachusetts statute, the Court in Kelly Nissan noted:
An analysis of good cause under the Massachusetts Dealer Franchise Act requires the balancing of many competing facts. The drafters of the current version of M.G.L. c. 93B,§6 sought to take into fair account the interests of manufacturers and distributors [§§6(g)(1) and 6(g)(2)], the interests of pre-existent franchisees [§§6(g)(3) and 6(g)(4)], and perhaps most extensively, the interests of the consuming public [§§6(g)(5) and 6(g)(8)].
The Court continued:
An evaluation for good cause is not directly analogous to one designed to determine good faith or intent. Since the goals of §6 include a balanced protection of the rights of franchisees and the public, a subjective belief on the part of the manufacturer or distributor that a new franchise is justified is insufficient on its own to establish good cause. Such a subjective belief in the existence of good cause must be supported by objective reality in order to substantiate good cause. Therefore, a complete evaluation of the situation at hand must include an examination of both Nissan's subjective beliefs at the time it made its proposal regarding Group 1 in Woburn, as well as the objective realities of the Woburn market, both leading up to that decision and presently.[40]
The Court held that the determination of good cause may take into account the reasonable good faith business judgment of the manufacturer or distributor; his holding was based in part on Amoco Oil Company v. Lloyd Dickson, 378 Mass. 44, 389 N.E.2d 406 (1979), which concerned the termination of a gasoline dealer under a different statute, i.e., M.G.L. c. 93E, §5A (regulating gasoline dealers and distributors). Nonetheless, the Court urged that a good faith business decision should suffice under the statute and that the exercise of a good faith decision-making process should be sufficient under section 6(g). The Court found a linkage between the rules governing encroachment and termination. It suggested that the ruling of the Supreme Judicial Court that the termination of a lease because the lessee was not sufficiently profitable to the supplier, notwithstanding the lack of a specific breach or violation, satisfied the "due cause" requirement of the statute. The phrase, "due cause," was interpreted to include any basis supported by the supplier's reasonable business decision made in good faith. The Court explained that while the exercise reasonable good faith business judgment by the manufacturer or distributor is not in and of itself adequate to support a finding of good cause under section 6, it is another pertinent factor that should be considered.[41]
The approach of the Court in Kelly Nissan in requiring proof of objective reality further impacts and substantially prejudices the ability of a motor vehicle dealer to successfully protest the appointment of an additional motor vehicle dealer or relocation of an existing dealer handling the same line make, into its relevant market area. It has raised the level of proof required by the protesting motor vehicle dealer to defeat the proposed appointment or relocation and preserve its market integrity. The cost to produce the quality and quantum of evidence is substantial[42] and the anticipated cost of a challenge or protest may have the collateral effect of depriving the motor vehicle dealer of the level economic playing field that is the philosophical underpinning of the regulations and their purpose, and consequently, its ability to effectively challenge the decision of its distributor.
The second critical issue in the regulatory scheme is dealer termination.
By way of example, M.G.L. c. 93B, §5(a), provides:
" it shall be a violation" for a manufacturer, distributor - without good cause, in bad faith or in an arbitrary or unconscionable manner: (1) to terminate the franchise agreement of a motor vehicle dealer; (2) to fail or refuse to extend or renew the franchise agreement of a motor vehicle dealer upon its expiration; (3) to offer a renewal, replacement or succeeding franchise agreement containing terms and conditions the effect of which is to substantially change the sales and service obligations, capital requirements or facilities requirements of a motor vehicle; or (4) to amend, add or delete any other material term or condition set forth in a motor vehicle dealer's franchise agreement.
(h) For purposes of this section, good cause may be found if the motor vehicle dealer failed to comply with or observe a provision of the franchise agreement that is material to the franchise relationship, including without limitation, reasonable sales and service performance criteria, capital, personnel, and facilities requirements which were communicated in writing to the motor vehicle dealer within a reasonable period before the effective date of termination, such that a reasonable opportunity to cure was afforded.
(j) In determining whether good cause has been established for terminating, refusing to extend or renew or changing or modifying the obligations of the motor vehicle dealer as a condition to offering a renewal, replacement or succeeding franchise agreement, the court shall consider all the pertinent circumstances, that may include, but shall not be limited to:
(1) the amount of business transacted by the affected dealer during the 3 year period immediately preceding such notice as compared to the business available to it;
(2) the investment necessarily made and obligations incurred by the affected motor vehicle dealer to perform its obligations under the existing franchise agreement;
(3) the permanency of the investment of the affected motor vehicle dealer;
(4) whether it is injurious or beneficial to the public welfare for the franchise of the affected motor vehicle to expire, to be modified, or to be terminated, or for the affected motor vehicle dealer to be replaced;
(5) whether the affected motor vehicle dealer has adequate motor vehicle sales and service facilities, equipment, vehicle parts and qualified personnel to reasonably provide for the needs of the consumers for motor vehicles handled by the effected motor vehicle dealer;
(6) whether the affected motor vehicles dealer has been and is rendering adequate services to the public; and,
(7) the existence and materiality of any breaches, defaults or violations by the affected motor vehicle dealer of the terms or provisions of the existing franchise agreement or of applicable law.
The Massachusetts statute requires a dealer being terminated to mount a defense as complicated and far reaching as that under the encroachment provisions. A dealer being offered a renewal, replacement or succeeding franchise agreement containing terms and conditions the effect of which is to substantially change the sales and service obligations, capital requirements or facilities requirements of a motor vehicle, or an amended motor vehicle dealer's franchise agreement, may have sufficient incentive to protest the action of the distributor and develop the necessary information. However, the factors enumerated under section 5(j) are not limited to the substance or subject matter of the amendments or changes insisted upon by the distributor as a condition to renewal, but instead are broad and, thus, may require considerable expert and lay evidence to establish the objective reality required by the Court in Kelly Nissan to negate the good cause requirement.
M.G.L. c. 93B, §10(a), may ease the burden for the terminated motor vehicle dealer somewhat by narrowing the issues. Section 10(a) provides that it is unlawful for a - distributor to directly or indirectly coerce a motor vehicle dealer to agree to any restrictions relative to the transfer, sale, ability to renew, termination, discipline, noncompetition covenants, site control - right of first refusal, option to purchase, compliance with subjective standards and assertion of equitable or legal rights.[43] Section 10(a) further provides that the refusal of an applicant for an appointment or a dealer considering relocating to agree to any such terms whether in the franchise agreement or as a component of any collateral lease, sublease or pledge arrangement, may not be the basis for denying an appointment or approval to relocate. As a consequence, under the terms of the statute, the issues that may be the subject of any such conditioned amendment, would in all likelihood, be limited to sales and service performance criteria, capital, personnel, and facilities requirements
Nevertheless, in Amoco Oil Company v. Lloyd Dickson, the Court held that "due cause" in a statute analogous to M.G.L. c. 93B, is not limited to breaches of the agreements between the franchisee and distributor. The Court stated:
- we construe "due cause" to include reasons other than dealer default among the reasons justifying the cancellation or termination of a dealer's lease or marketing agreement. (citations omitted)
and:
In our recognition of the statutory purpose to eliminate the historical economic disadvantage of gasoline station dealers in relation to oil companies, we should not assume a legislative intention to overcompensate and thus to generate inequities against suppliers - It is simply not clear that in all instances the public interest would be served by requiring suppliers to continue marketing agreements with dealers whose business operations had been and would be chronically and irremediably unprofitable to the suppliers.[44]
The balancing of interests enacted by the legislature is somewhat inconsistent with the decision of the Court in Amoco Oil Company by requiring proof of a number of elements that have little to do with the termination process. The affected motor vehicle dealer should be required only to meet only the specific allegations of inadequacy, poor performance or material breach of contract, as the case may be.[45] The problem is exacerbated by the fact that no breach of agreement or wrongdoing need necessarily be asserted to support an effort to terminate a franchise agreement beyond any enumerated grounds for termination set forth in the franchise agreement. Consequently, it is conceivable, although not necessarily likely, that collateral issues may exist.[46] Appended hereto as Appendix A is a skeletal analysis of the termination statutes in effect in each state. Appendix A is a copy of Appendix C entitled, "Key Termination Provisions of State Motor Vehicle Franchise Laws," published in ABA Section of Antitrust Law, The Franchise and Dealership Termination Handbook (2004).
Chapter 93B, being a remedial statute designed to protect the franchised dealer and the public welfare, places heightened burdens on the manufacturer and distributor in their relationships with automotive dealers. By considering the manufacturer's or distributor's business judgment as the Court in Kelly Nissan and Amoco did, which is, in reality, the "bottom line," the Court will, in effect lessen their burden in justifying its decisions regarding the appointment, relocation and termination of dealers.[47] For example, an interpretation of the term, "good cause," under the Indiana Franchise Law, in Wright-Moore Corporation v. Richoh Corporation, [48] is instructive. In Wright-Moore, the Court held that a manufacturer did not have good cause to terminate an agreement with one of its distributors under the terms of the Indiana Franchise Law.[49] The manufacturer argued that it had good cause given its own internal economic reasons. The Court rejected such an analysis by stating:
- franchise statutes are designed to prevent franchisors from extracting quasi-rents from franchisees. They are designed to ensure fair dealing between the parties. If the business reasons of the franchisor were sufficient, the protections of the statute would be meaningless since it is in the franchisor's short term business interest (and therefore good cause) to act opportunistically. (While this may not be effective in the long term as the franchisor may lose reputation or good will, a court is unlikely to make this determination.) Even absent opportunistic behavior, a franchisor could virtually always claim a plausible business reason for termination. Without a smoking gun, it would be difficult, if not impossible, for a franchisee to prove that a particular action is not in the business interests of the franchisor.
The California statute, consistent with Wright-Moore, emphasizes protection of the franchisee as well as the public interest. It does not focus upon the interests of the franchisor. Section 3060 of the California Motor Vehicle Code, provides that - no franchisor shall terminate or refuse to continue any existing franchise ¿¿ unless the notices provided in the statute are given. If the franchisor files a timely protest with the Board, the franchisor may not terminate or refuse to continue until the Board makes its findings. Section 3060(b)(1) further provides:
no franchisor shall modify or replace a franchise with a succeeding franchise if the modification or replacement would substantially affect the franchisee's sales and service obligations or investment, unless the franchisor has first given the board and each affected franchisee written notice thereof.
The statute further provides that if a franchisee files a protest in a timely manner, the modification or replacement will not become effective until the board determines that there is good cause for the modification or replacement.
Section 3061 defines good cause in these circumstances. It provides that the board shall take into consideration the existing circumstances including, but not limited to:
(a) Amount of business transacted by the franchisee, as compared to business available to the franchisee.
(b) Investment necessarily made and obligations incurred by the franchisee to perform its part of the franchise.
(c) Permanency of the investment.
(d) Whether it is injurious or beneficial to the public welfare for the franchise to be modified or replaced or the business of the franchisee to be disrupted.
(e) Whether the franchisee has adequate motor vehicle sales and service facilities, equipment, vehicle parts, and qualified service personnel to reasonably provide for the needs of consumers for the motor vehicles handled by the franchisee and has been and is rendering adequate services to the public.
(f) Whether the franchisee fails to fulfill the warranty obligations of the franchisor to be performed by the franchisee.
Section 42-133v of the Connecticut statute takes a somewhat different approach. It includes both a good cause and good faith requirement as well as basing termination on the fault of the Dealer to adequately perform. It provides - good cause exists for the purposes of a termination, cancellation or non-renewal if: (1) there is a failure by the Dealer to comply with a provision of the franchise which is both reasonable and of material significance to the franchise relationship; or (2) the failure of the Dealer to comply with reasonable performance criteria established by the manufacturer or distributor in writing and the dealer was, after notice, afforded a reasonable opportunity to cure (at least six months) and failed to demonstrate substantial progress towards compliance during such period. Georgia had adopted similar provisions. [50]
Florida provides: "A discontinuation, cancellation or non-renewal of a franchise agreement is unfair if it is not clearly permitted by the franchise agreement; is not undertaken in good faith; if not undertaken for good cause; or is based on an alleged breach of the franchise agreement which is not in fact a material and substantial breach."[51]
The Texas statue requires that: "Notwithstanding the terms of any franchise, a manufacturer, distributor, or representative may not terminate or discontinue a franchise with a franchised dealer-unless the manufacturer, dealer or representative provides notice of termination or discontinuance as required-and: (1) the manufacturer, distributor, or representative receives the dealer's informed written consent; (2) the appropriate tike for the dealer to protest - has expired; or (3) the board makes a determination of good cause [52] If a timely protest is filed by the dealer, the franchisor may not terminate the franchise until the board determines whether the party seeking termination or discontinuance has established by a preponderance of the evidence that there is good cause for the proposed termination or discontinuance.[53]
It is difficult to understand why and under what circumstances the reasonable business judgment of the manufacturer or distributor should be considered by a fact finder in light of the specific statutory criteria laid out in the Massachusetts statute.[54] The only additional factor that Massachusetts case law has recognized in review of an appointment of a new dealer has been possible retaliatory motives on the part of the manufacturer.[55]
Whether one is speaking of the appointment or relocation of an existing dealer or the termination of a franchise, the Massachusetts statute is clear in requiring proof on the part of both parties as to the various elements of the statute. Whether the exercise of reasonable business may be considered by the trier of fact in an appointment or relocation case or in regard to a possible termination of a franchise, is debatable. Fortunately, in Kelly Nissan, the Court acknowledged the argument but found that - it would be utterly inadequate to support a finding of good cause under c. 93B [56] Nevertheless, the Court recognized the exercise of reasonable business judgment to be a factor to be considered. Whether it would be extended to a termination contest and serve as the basis for a termination, is questionable.[57]
The suggestion by the Court in Kelly Nissan that - a subjective belief on the part of the manufacturer - that a new franchise is justified is insufficient on its own to establish good cause. Such a subjective belief in the existence of good cause must be supported by objective reality in order to substantiate due cause - Had the Court stopped at this point, simply insisting on objective proof to validate the data that the manufactured considered in making its decision, it could be argued that it is entirely appropriate that the manufacturer demonstrate the truth and reliability of the data it considered. However, by stating, -therefore, a complete evaluation of the situation at hand must include an examination of both [the distributor's] subjective beliefs at the time it made its proposal regarding [the proposed appointment] as well as the objective realities of the - market, both leading up to that decision and presently - goes well beyond the requirements of the statute and may impact not only appointment and relocation issues but also franchise terminations. The Court suggests is that it makes little difference what data the manufacturer considered and relied upon in making its decision to propose an additional dealer or the relocation of an existing dealer because if a protest is lodged, the protesting dealer will be required to demonstrate that the manufacturer not only considered and relied upon insufficient data but that there is no present justification whatsoever to support that decision. It is suggested that only the reliability and sufficiency of the data and factual material that the manufacturer used in making its decision should be considered by the trier of fact in assessing whether there is good cause to support the proposed appointment or relocation or for not approving the decision should be considered by the Court - not whether the decision to appoint an additional dealer or relocate an existing dealer is for good cause on the basis of data and factual materials never considered by the manufacturer.
If the analysis of the Court expands into termination matters, refusals to extend or renew, offers to extend or renew, or issue a new franchise agreement contingent upon an agreement to the material changes proposed by the manufacturer, as well, the statutory purpose is defeated. Few, if any dealers, will be in a position to mount an adequate evidentiary challenge. Certainly, dealers facing termination having to develop evidence on issues which exceed and do not directly involve the asserted cause for termination will find it difficult, if not impossible, to succeed. The desire to protect franchised dealers and the public welfare, and thus level the economic playing field to give dealers a reasonable chance to protect their interests, may be lost.
ENDNOTES
--------------------------------------------------------------------------------
[1] ABA Antitrust Section, Monograph 17, notes 82, 84 and 92. Infra. n. 9.
[2] 15 U.S.C. §§1221 - 1225. The federal statute focuses on good faith but does not offer prophylactic remedies, such as equitable or injunctive relief to prevent, for example, an alleged bad faith termination. The statute has not been successful in remedying many of the problems it was intended to address and rectify. See S. Rep. 983, Id. at 40. Section 1225 provides for and encourages state action. As a consequence, the states became the principal arena in which the abuses of the industry were remediated.
[3] S. Rep. No. 2073, 84th Cong. 2d Session at 2 (1956). See New Motor Vehicle Board of the State of California et al v. Orrin W. Fox Co. et al, 439 U.S. 96, (1978).
[4] See ABA Antitrust Section Monograph No. 17, Franchise Protection: Laws Against Termination and the Establishment of Additional Franchises (1990) for an interesting and comprehensive discussion of the policy and legal issues involved in encroachment matters and termination cases.
[5] New Motor Vehicle Board of the State of California et al v. Orrin W. Fox Co. et al, supra. n. 3.; Cf. Tober Foreign Motors, Inc. et al (General Motors Corporation) v. Reiter Oldsmobile, Inc. , infra. n. 8.
[6] Charged by (Massachusetts) House Order 5089 of 1967 to study and report on the establishment of a board of registration of motor vehicle manufacturers, distributors, dealers and repairmen.
[7] Massachusetts was the second state to adopt a motor vehicle franchise act. California was first. Ca. Veh. Code Ann. §§ 3060 et seq.
[8] 376 Mass. 313, 381 N.E. 2d 908 (1978). See also Senate Report No. 1879, 84th Cong., 2d Sess., entitled Bigness and Concentration of Economic Power A Case Study of General Motors Corp., at 79 H.R.Rep. No. 2850, 84th Cong., 2d Sess., FTC Report on Motor Vehicle Industry at 1075. See other materials cited in Tober Foreign Motors, Inc. at 319, 320.
[9] St. 1970, c. 814, §1, , eff. Jan. 1, 1971, as amended. Effective September 1, 2002, the statute was repealed and reenacted. Ch. 222 of the Acts of 2002. The statute is designated Chapter 93B.
[10] 439 U.S. 96, 100 (1978).
[11] Id., 101, 102. See also, Monmouth Chrysler Plymouth, Inc. v. Chrysler Corp., 102 N.J. 485, 509 A. 2d 161 (1986); Tober Foreign Motors, Inc., Id. N. 6; Chrysler Corp. v. New Motor Vehicle Bd. 153 Cal.Rptr. 41, 103 Cal.App. 3d 412 (App. 3 Dist. 1979).
[12] The Coady Corp., d/b/a/ 495 Toyota v. Toyota Motor Distributors, Inc. (D. Mass. 2003) 346 F. Supp, 2d 225.
[13] Principal among the abusive practices dealt with are termination of franchises, the refusal to extend or renew franchises upon their normal expiration, acceptance of a change or modification of franchise terms as a condition to the renewal or extension of an expiring franchise and the sitting of competitive in-line franchises which will be discussed in detail later in this article.
[14] MASS. GEN. LAWS ch. 93B, §6.
[15] Massachusetts recently amended its statute. Infra., n. 9. Prior to the amended version of Ch. 93B becoming effective on September 1, 2002, Massachusetts defined the relevant market area of a protesting dealer as the most narrowly circumscribed geographic area immediately adjacent to and surrounding its dealership facilities into which it sold at least two-thirds of its new vehicles and retail, non-warranty, repair and service business during the three years prior to notice. Former M.G.L. c. 93B, §4(3)(l). See American Honda Motor Co., Inc. v. Bernardi's, Inc. , 432 Mass. 425, 735 N.E. 2d 348 (2000). Under the prior definition, Massachusetts attempted to relate the relevant market area of a dealer to its actual sales and service patterns. The Supreme Judicial Court revised the statutory criteria to produce a circular form of market. Id.
[16] MASS. GEN. LAWS ch. 93B, §1.
[17] CAL. VEH. CODE ANN. §507 (2004).
[18] CONN. GEN. STAT. ANN. §§42-133r(14).
[19] FLA. STAT. ANN. ch. 320, §320.642(3)(a) and (b).
[20] George Motor Vehicle Franchises Practices Act, §10-1-622-13.1.
[21] TEX. OCC. CODE ANN. §2301.652 (c) reads: A franchised dealer may not protest an application to relocate a dealership under this section if the proposed relocation site is not:
(1) more than one mile from the site where the dealership is currently located; or
(2) closer to the franchised dealer than the site from which the dealership is being relocated.
[22] Defendant's assertions that the new dealership location is at 444 Quincy Avenue, Braintree, outside the relevant market area, and that it is premature speculation that Quirk Infiniti will wind up at 20 Granite Street, simply presents a factual issue likely unresolvable until trial. If, as alleged, defendants have a scheme for a two-step move to 20 Granite Street, hoping to take advantage of the 4-mile safe harbor under M.G.L. c. 93B, Section 6(b)(1), it is unlikely that such an agreement would pass muster under the statute. Infiniti Automobiles of Norwood Inc. V. Nissan North America Inc. et al, Norfolk Superior Court, C.A. NOCV2004-00010 (opinion issued in denial of a motion to dismiss for failure to state a claim).
[23] 1973 Cal. Stat., c. 996, p. 1967, §16, operative July 1, 1974. See Article 4 dealing with terminations of franchises, establishing and relocating dealerships, delivery and preparation obligations, warranty reimbursement. Additional unlawful acts are enumerated in 1973 Cal. Stat., c. 996, p. 1976, §29 - Manufacturers, Transporters, Etc., §11713.2 and include coercion or attempted coercion of a dealer by a manufacturer or distributor to buy a motor vehicle, part, accessory or appliance which it had not ordered, to coerce a dealer to pay for promotional materials or threaten termination to coerce a dealer to enter into any agreement or undertaking. Section 11713.3 was added in 1991, making it unlawful to fail to supply reasonable quantities of vehicles, parts and accessories ordered by a dealer if such motor vehicles, parts and accessories were publicly advertised as being available. Additionally, it is unlawful for a manufacturer or distributor to require a change in the capital structure or management of a dealership or to prevent a proprietor from selling or transferring his interest in a dealership unless the sale or transfer results in a sale or transfer of the franchise.
[24] CONN. GEN. STAT., P.A. 82-445, §11, eff. June 8, 1982. The Connecticut statute adds one significant element to the scenario: it prohibits a prospective release or waiver which would relieve any person from liability under sections 42-133r to 42-133ee, or require any controversy to be referred to any forum other than to the court system.
[25] FLA. STAT. ANN. ch. 320, §320.64.
[26] Motor Vehicle Fair Practices Act, Code 1981, §10-1-660, enacted by Ga. L. p. 1585, §2.
[27] Cf. Unreported Massachusetts decisions, denying relief to protesting dealers, Fuller Enterprises, Inc. v. Mitsubishi Motor Sales of America, Inc., Superior Court, Middlesex County Civil Action No. MICV2003-01257-D; Kelly Nissan of Lynnfield, Inc. v. Nissan of North America, Inc. et al, Superior Court, Essex County, Civil Action No. 03-0052; See also, Richard Lundgren, Incorporated, d/b/a v. American Honda Motor Co., Inc., 45 Mass.App.Ct. 410, 699 N.E. 2d 11 (1998), rev. den. 428 Mass. 1107, 705 N.E. 2d 278 (1998) rev'd on other grounds. But see Richard Lundgren, Incorporated v. American Honda Motor Co., Inc. 1994 WL 879478 (Mass. Super.) (egregious circumstances favored protesting dealer; relief granted to protesting dealer); See also, Ricky Smith Pontiac, Inc. v. Subaru of New England, Inc. et al, 14 Mass.App.Ct. 396, 440 N.E. 2d 29 (1982).
[28] ABA Antitrust Section: Monograph No. 17, supra. n. 9, at p.89.
[29] MASS. GEN. LAWS ch. 93B, §6,
[30] MASS. GEN. LAWS ch. 93B, § 6.
[31] California - CAL. VEH. CODE ANN. §3063; Connecticut - CONN. GEN. STAT. ANN. §§42-133dd.
[32] The California statute provides:
In determining whether good cause has been established for not entering into or relocating an additional franchise for the same line make, the board shall take into consideration the existing circumstances, including, but not limited to, all of the foregoing:
(a) Permanency of the investment;
(b) Effect on the retail motor vehicle business and the consuming public in the relevant market area;
(c) Whether it is injurious to the public welfare for an additional franchise to be established;
(d) Whether the franchisees of the same line-make in that relevant market area are providing adequate competition and convenient consumer care for the motor vehicles of the line-make in the market area which shall include the adequacy of motor vehicle sales and service facilities, equipment, supply of vehicle parts and qualified service personnel;
(e) Whether the establishment of an additional franchise would increase competition and thus be in the public interest.
[33] The following are examples of other states' enumeration of good cause:
(a) Alabama - ALA. CODE § 8-20-4, uses standard of reasonableness which is defined as a non-exclusive list of four factors, including "anticipated future changes" in economic and marketing conditions as well as the past, present, and anticipated retail sales and service business transacted by the objecting dealer;
(b) Arkansas - ARK. CODE. ANN. § 23-112-311, uses standard of "good cause" which is defined as a non-exclusive list of six factors similar to those used in Massachusetts;
(c) Florida - FLA. STAT. ANN. § 320.60 et. seq, provides that a license will be denied when the licensee fails to show that the existing dealer is not providing adequate representation. The statute provides non-exclusive list of eleven categories of evidence that may be considered;
(d) Illinois - ILL. COMP. STAT. § 710/2 defines good cause as facts establishing commercial reasonableness in lawful or privileged competition and business practices as defined at common law. 710/12 states that in determining whether good cause exists, "all relevant circumstances" shall be considered. The statute provides a non-exclusive list of factors which includes the proviso that good cause shall not be shown solely by a desire for further market penetration;
(e) Maine - ME. REV. STAT. ANN. tit. 204, § 1174-A, defines good cause as a non-exclusive list of six factors similar to those used in Massachusetts;
(f) Michigan - MICH. STAT. ANN. § 445.1576, defines good cause as a non-exclusive list of six factors similar to those used in Massachusetts;
(g) Nebraska - NEB. REV. STAT. § 60-1434, defining good cause as a non-exclusive list of six factors similar to those used in Massachusetts;
(h) New Jersey - N.J. STAT. ANN. §§ 56:10-18; 56:10-23, The new appointment must not be "injurious to existing franchisees or to the public interest." The statute provides a non-exclusive list of four factors that may be considered in determining whether the appointment is "injurious";
(i) North Carolina - N.C. GEN. STAT. § 20-305 In determining good cause the "existing circumstances" must be considered which include a non-exclusive list of seven factors; and
(j) Ohio - OHIO REV. CODE ANN. § 4517.51, good cause is determined by the "existing circumstances" which include a non-exclusive list of six factors.
Generally, the courts will employ a factor by factor analysis set forth in the statute in order to determine whether "good cause" exists. Seee.g. Gallo Motor Center v. Mazda Motor of America, 204 F.Supp. 2d 144, 151-156 (D. Mass. 2002) (applying the relevant factors under a prior version of the statute). See also McDonald Ford Sales, Inc. v. Ford Motor Co., 418 N.W. 2d 716, 718-720 (Mich. App. 1988) (analyzing seven statutory factors in analogous Michigan statute); Wilkins Dodge, Inc. v. Chrysler Corp., 426 N.W. 2d 903, 906 (Minn. App. 1988) (analyzing nine statutory factors in analogous Minnesota statute); General Motors Corporation v. O'Daniel Oldsmobile, Inc., 439 N.W. 2d 453, 457-459 (Neb. 1989) (analyzing six statutory factors in analogous Nebraska statute).
[34] The standard in the Alabama statute (Acts 1981, No. 81-390, p. 596, §1) , is whether the proposed appointment is "unreasonable." Alabama draws heavily on the Massachusetts statute, enumerating a number of non-exclusive factors which must be considered by the trier of fact. See also, Arkansas statute, 23-112-31(c).
[35] CONN. GEN. STAT. ANN. §§42-133dd(c) provides: In determining whether good cause has been established for not entering into a franchise - the commissioner shall take into consideration the existing circumstances, including, but not limited to: (1) The permanency and size of investment made and the reasonable obligations incurred by the existing new motor vehicle dealers in the relevant market area; (2) growth or decline in population and new car registrations in the relevant market area; (3) effect on the consuming public in the relevant market area; (4) whether it is injurious or beneficial to the public welfare for a new dealer to be established; (5) whether the dealers of the same line make in that relevant market area are providing adequate competition and convenient customer care for the motor vehicles of the line make in the market area including the adequacy of motor vehicle sales and service facilities, equipment, supply of motor vehicle parts, and qualified service personnel; (6) whether the establishment of a new dealer would increase or decrease competition; (7) the effect on the relocating dealer of a denial of its relocation into the relevant market area; (8) whether the establishment or relocation of the proposed dealership appears to be warranted and justified based on economic and marketing conditions pertinent to dealers competing in the community or territory, including anticipated future changes; (9) the reasonably expected market penetration of the line-maker motor vehicle for the community or territory involved, after consideration of all factors which may affect such penetration, including, but not limited to, demographic factors such as age, income, education, size class preference, product popularity, retail lease transactions, or other factors affecting sales to consumers of the community or territory; (10) the economic impact of an additional franchise or relocated motor vehicle dealership upon the existing motor vehicle dealers pf the same line make in the relevant market area to be served by the additional franchisee or relocated motor vehicle dealership and (11) the retail sales and service business transacted by the existing dealers of the same line make in the market area to be served by the proposed new or relocated dealer as compared to the business available to them during the three-year period immediately preceding notice.
[36] FLA. STAT. ANN. §320.642(2)(a)2
[37] Id. Subsection (b) provides: In determining whether the existing franchised motor vehicle dealer or dealers are providing adequate representation in the community or territory for the line-make, the department may consider evidence which may include, but is not limited to:
1. The impact of the establishment of the proposed or relocated dealer on the consumers, public interest, existing dealers, and the licensee; provided, however, that financial impact may only be considered with respect to the protesting dealer or dealers.
2. The size and permanency of the investment reasonably made and reasonable obligations incurred by the existing dealer or dealers to perform their obligations under the dealer agreement.
3. The reasonably expected market penetration of the line-make motor vehicle for the community or territory involved, after consideration of all factors such as age, income, education, size class preference, product popularity, retail lease transactions, or other factors affecting sales to consumers of the community or territory.
4. Any actions by the licensees in denying its existing dealer or dealers of the same line-make the opportunity for reasonable growth, market expansion, or relocation, including the availability of line-make vehicles in keeping with the reasonable expectations of the licensee in providing an adequate number of dealers in the community or territory.
5. Any attempts by the licensee to coerce the existing dealer or dealers into consenting to additional or relocated franchises of the same line-make in the community or territory.
6. Distance, travel time, traffic patters and accessibility between the existing dealer or dealers of the same line-make and the location of the proposed additional or relocated dealer.
7. Whether benefits to consumers will likely occur from the establishment or relocation of the dealership which the protesting dealer or dealers prove cannot be obtained by other geographic or demographic changes or expected changes in the community or territory.
8. Whether the protesting dealer or dealers are in substantial compliance with their dealer agreement.
9. Whether there is adequate interbrand and intrabrand competition with respect to said line-make in the community or territory and adequately convenient consumer care for the motor vehicles of the line-make, including the adequacy of sales and service facilities.
10. Whether the establishment or relocation of the proposed dealership appears to be warranted and justified based on economic and marketing conditions pertinent to dealers competing in the community or territory, including anticipated future changes.
11. The volume of registrations and service business transacted by the existing dealer or dealers of the same line-make in the relevant community or territory of the proposed dealership.
[38] GA. CODE ANN. §10-1-664(b) lists eleven factors that the court may consider. The factors are identical to the factors adopted by Florida. Id. n. 36.
[39] Fuller Enterprises, Inc. v. Mitsubishi Motor Sales of America, Inc., Superior Court, Middlesex County Civil Action No. MICV2003-01257-D (2003); Kelly Nissan of Lynnfield, Inc. v. Nissan of North America, Inc. et al, Superior Court, Essex County, Civil Action No. 03-0052 (2003); See also, Richard Lundgren, Incorporated, d/b/a v. American Honda Motor Co., Inc., 1994 WL 879478 (Mass. Super.).
[40] The Court in Kelly Nissan stated: "The plaintiff has objected strenuously to this Court's consideration of any evidence which Nissan was not aware at the time of its Group 1 proposal. This Court repeatedly overruled those objections for the reasons outlined above. Regardless, such objections are deemed to have been waived by the plaintiff's introduction of voluminous amounts of objective evidence in support of its case, of which Nissan was not aware before this litigation commenced." Kelly Nissan, at 41, n. 10.
[41] Including business judgment as a factor within the regulatory scheme is troubling because the franchisor will always be able to provide a plausible business reason for its actions, effectively gutting the protections the statute was designed to provide. An interpretation of the term, "good cause," in the Indiana Franchise Law, in Wright-Moore Corporation v. Ricoh Corporation, 908 F. 2d128, 137 (7th Cir. 1990), is instructive. See text, infra.
[42] It is anticipated that the charges for the type of feasibility study that would allow a protesting dealer to meet the data presented by the manufacturer or distributor to demonstrate the objective reality required by the Court to establish good cause, could well exceed $100,000. Coupling expert and feasibility charges with counsel fees, the cost of prosecuting a protest through to a decision under the Court's ruling, may well be prohibitive and thus frustrate protests.
[43] MASS. GEN. LAWS ch. 93B, §10(a).
[44] Amoco Oil Co., supra. at pp. 47 , 50.
[45] The factors enumerated under section 5(j) suggest an intent to balance the interests of the motor vehicle dealer and the public. Subsections (4), (5) and (6) relate to the public welfare; subsections (1) and (7) relate to the distributor. Subsections (2), (3) and (7) focus upon the interests of the motor vehicle dealer.
[46] See ABA Section of Antitrust Law, The Franchise and Dealership Termination Handbook (2004), co-authored by the authors of this article in which many of the collateral issues arising out of terminations and attempted terminations are considered.
[47] See Harhen v. Brown. 431 Mass. 838, 845, 730 N.E. 2d 859 (2000) (in the corporate law context, stating that business judgment is a deferential standard for review).
[48] 908 F.2d 128, 137, 138 (7th Cir. 1990).
[49] Id. at 130.
[50] Georgia Motor Vehicle Franchise and Succession Act, §10-1-651.
[51] FLA. STAT. ANN. ch. 320, §320.641(3).
[52] § TEX. OCC. CODE ANN. §2301.453(a) (2004).
[53] TEX. OCC. CODE ANN. §2301.453(e),(g) (2004).
[54] In order to eliminate the potential for abuse of dealers by manufacturers and distributors, the statute provides eight non-inclusive criteria to be considered in determining whether there is good cause for a manufacturer or distributor to appoint an additional franchise in the relevant market area of an existing dealer handling the same make of vehicle. M.G.L. c. 93B § 6 (g). Although the statute provides that pertinent additional circumstances may be considered, the trier of fact uses a factor-by-factor analysis to determine whether a manufacturer or distributor is justified in appointing an additional dealer. Gallo Motor Center v. Mazda Motor of America, 204 F.Supp. 2d 144, 151-156 (D. Mass. 2002) (applying the relevant factors under a prior version of the statute); see also McDonald Ford Sales, Inc. v. Ford Motor Co., 418 N.W. 2d 716, 718-720 (Mich. App. 1988) (analyzing seven statutory factors in analogous Michigan statute); Wilkins Dodge, Inc. v. Chrysler Corp., 426 N.W. 2d 903, 906 (Minn. App. 1988) (analyzing nine statutory factors in analogous Minnesota statute); General Motors Corporation v. O'Daniel Oldsmobile, Inc., 439 N.W. 2d 453, 457-459 (Neb. 1989) (analyzing six statutory factors in analogous Nebraska statute).
[55] American Honda Motor Co., Inc. v. Bernardi's, Inc., 113 F.Supp. 2d 58, 63 (D. Mass. 1999).
[56] Id. at 45.
[57] Compare: American Honda Motor Co., Inc. v. Compare: American Honda Motor Co., Inc. v. Bernardi's, Inc., 113 F. Supp. 2d 58, 62 (D. Mass. 1999).
905967.DOC;1
