Opinion ID: 480266
Heading Depth: 1
Heading Rank: 3

Heading: the dealers' act claim

Text: 18 Gulf asserts on appeal that Fox and Myers' Automobile Dealers' Day in Court Act theories are legally insufficient and it was therefore entitled to judgment notwithstanding the verdict. Alternatively, Gulf argues that the district court erred in denying its motion for new trial because the Dealers' Act verdict is against the weight of the evidence. 19 We do not agree that Gulf was entitled to judgment n.o.v. The Dealers' Act authorizes an automobile dealer to bring a cause of action against an automobile manufacturer and its distributor for failure to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer. 15 U.S.C. Sec. 1222. The duty of good faith imposed by the Act requires that both parties to a franchise 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. Id. Sec. 1221(e). This circuit has interpreted the statutory language as requiring proof of both unfair treatment and some measure of coercion or intimidation to support a claim. See Howard v. Chrysler Corp., 705 F.2d 1285 (10th Cir.1983); Randy's Studebaker Sales, Inc. v. Nissan Motor Corp., 533 F.2d 510 (10th Cir.1976). The existence of coercion or intimidation depends upon the circumstances arising in each particular case and may be inferred from a course of conduct. H.R.Rep. No. 2850, 84th Cong., 2d Sess., reprinted in 1956 U.S.Code Cong. & Ad.News 4596, 4603. See Marquis v. Chrysler Corp., 577 F.2d 624, 633-35 (9th Cir.1978). 20 The duty of good faith requires that manufacturers and distributors comply with the terms of their franchise agreements in a manner not calculated to force individual dealers out of business. Junikki Imports, Inc. v. Toyota Motor Corp., 335 F.Supp. 593, 595 (N.D.Ill.1971); see also Randy's Studebaker, 533 F.2d at 516 & n. 9 (approving Junikki ). Withholding scarce vehicles from some dealers through a discriminatory allocation scheme, with forced termination as the intended result, is thus conduct undertaken in bad faith in violation of the Act. Randy's Studebaker, 533 F.2d at 516 & n. 9; see also David R. McGeorge Car Co. v. Leyland Motor Sales, Inc., 504 F.2d 52, 56 (4th Cir.1974) (prohibiting discriminatory allocation to achieve wrongful result). 21 Manufacturers and distributors of course remain free to promote competition and maximize their own profits. To that end, the Act allows for the termination of inefficient dealers, the use of persuasion in seeking voluntary termination, and the addition of new dealers to exploit fully a particular market. See Randy's Studebaker, 533 F.2d at 515. Similarly, the allocation of scarce vehicles based upon prior sales performance is generally permissible as a legitimate means of promoting competition through efficient distribution. See, e.g., Cecil Corley Motor Co. v. General Motors Corp., 380 F.Supp. 819, 840 (M.D.Tenn.1974). [M]ere arbitrariness on the part of a manufacturer does not constitute a violation of the federal act. Gage v. General Motors Corp., 796 F.2d 345, 351 (10th Cir.1986). Allocating vehicles in a manner which expressly discriminates against a certain class of dealers, however, rises to bad faith when the facts also indicate a design to force dealer termination or achieve some other wrongful objective. See Southern Rambler Sales, Inc. v. American Motors Corp., 375 F.2d 932, 935 (5th Cir.), cert. denied, 389 U.S. 832, 88 S.Ct. 105, 19 L.Ed.2d 92 (1967). 22 The line between promoting competition and compelling termination is properly determined by the finder of fact in each case. See Shor-Line Rambler, Inc. v. American Motors Sales Corp., 543 F.2d 601, 604 (7th Cir.1976). The jury here found that the line had been crossed. We will not reverse the denial of a new trial motion asserting insufficient evidence unless the verdict is clearly or overwhelmingly against the weight of the evidence. World of Sleep, Inc. v. La-Z-Boy Chair Co., 756 F.2d 1467, 1481 (10th Cir.1985). 23 Fox and Myers contended at trial that Gulf failed to act in good faith in performing or complying with the terms of their franchise agreements. The evidence in this case adequately supports a conclusion that Gulf attempted to compel termination of the franchises through the discriminatory allocation of RX-7s. Many of Gulf's established franchises had been weakened by several years of poor sales for all dealers. With Mazda's prospects improving, Gulf's avowed policy of drastic action against established but financially ailing franchises suggests an intention to eliminate them in favor of new or otherwise better situated dealers. Gulf representatives made several attempts, lawful in and of themselves, to convince Fox and Myers voluntarily to terminate. The jury could reasonably have inferred that Gulf's allocation system was designed to compel the same result, particularly since the system discriminated in at least one potentially impermissible respect. Thus, Gulf established a significant number of new franchises once the RX-7 was introduced. Unlike existing dealers, these new franchises received an allotment of RX-7s without regard for any initial success in selling GLCs. There is evidence that the appeal of RX-7s helped sales of GLCs by bringing more potential customers to the dealers' facilities. The lack of a balanced inventory severely disadvantaged established dealers in their efforts to sell GLCs and made it correspondingly more difficult to obtain RX-7s. 4 24 Gulf's knowledge of these facts when deciding to link the availability of RX-7s to GLC sales for established dealers alone raises a possible inference of bad faith on its part. Gulf also threatened to terminate Myers and other dealers if they did not refrain from contemplating legal action in response to the allocation system. Gulf asserts that it discriminated to allow new dealers a fair chance to develop a sales record. Yet the same need could also be attributed to established dealers who could otherwise sell only a single model. The jury could thus have discounted Gulf's explanation in favor of the less benign intention that dealers such as Fox and Myers not survive the allocation system's implementation. We cannot say that the jury verdict against Gulf on the Dealers' Act claim is clearly against the weight of the evidence.