Opinion ID: 484942
Heading Depth: 2
Heading Rank: 2

Heading: Dealers' Act Claim

Text: 26 Appellants contend that World-Wide's insistence that Empire Volkswagen cease dualing constituted a wrongful demand for which World-Wide should be held accountable under the Dealers' Act. They further contend that World-Wide's coercive conduct in reducing their allocation of automobiles is sufficient to impose liability under the Act. We reject those contentions. 27 The Dealers' Act provides that an automobile dealer may recover damages against an automobile manufacturer that fails 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. 15 U.S.C. Sec. 1222 (1982). Good faith is defined as the duty of the dealer and the manufacturer to act 28 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. 29 15 U.S.C. Sec. 1221(e). The term good faith, in Dealers' Act terms, has a narrow, restricted meaning. Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901, 911 (9th Cir.), cert. denied, 436 U.S. 946, 98 S.Ct. 2848, 56 L.Ed.2d 787 (1978). In order to succeed on a Dealers' Act claim, the dealer must demonstrate that the manufacturer exercised coercion or intimidation or made threats against the dealer, Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 561 (2d Cir.1970), to achieve an improper or wrongful objective, Quarles v. General Motors Corp., 597 F.Supp. 1037, 1041 (W.D.N.Y.1984), aff'd on opinion below, 758 F.2d 839 (2d Cir.1985); accord R.D. Imports Ryno Indus., Inc. v. Mazda Distribs. (Gulf), Inc., 807 F.2d 1222 (5th Cir.1987); Cabriolet Porsche Audi, Inc. v. American Honda Motor Co., 773 F.2d 1193, 1210 (11th Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1641, 90 L.Ed.2d 186 (1986); Howard v. Chrysler Corp., 705 F.2d 1285 (10th Cir.1983); Fray Chevrolet Sales, Inc. v. General Motors Corp., 536 F.2d 683 (6th Cir.1976). As we stated in Autowest, more is required than coercion and subsequent termination for failure to submit, for otherwise the manufacturer would be precluded from insisting upon reasonable and valid contractual provisions. Autowest, 434 F.2d at 561 (citing Woodard v. General Motors Corp., 298 F.2d 121 (5th Cir.), cert. denied, 369 U.S. 887, 82 S.Ct. 1161, 8 L.Ed.2d 288 (1962)). Failure to act in good faith under the Dealers' Act can be found only where there is evidence of a wrongful demand enforced by threats of coercion or intimidation. McDaniel v. General Motors Corp., 480 F.Supp. 666, 676 (E.D.N.Y.1979), aff'd mem., 628 F.2d 1345 (2d Cir.1980), quoted in Quarles, 597 F.Supp. at 1041; see H.D. Corp. v. Ford Motor Co., 791 F.2d 987, 990 (1st Cir.1986); Gregoris Motors v. Nissan Motor Corp. in U.S.A., 630 F.Supp. 902, 911-12 (E.D.N.Y.1986). We therefore turn to an examination of whether World-Wide's demand that Empire Volkswagen cease dualing was wrongful for purposes of the Dealers' Act. 30 The original dealership agreements provide that World-Wide may from time to time prescribe standards for Empire Volkswagen's facilities, including provisions relating to the style, size and layout of showrooms. Joint App. at 2043, 2063 (Volkswagen Dealer Agreement); id. at 2088, 2109 (Porsche-Audi Dealer Agreement). At the time Empire Volkswagen commenced operations as a Volkswagen-Porsche-Audi dealership, approximately ten World-Wide automobiles were displayed in its showroom. Joint App. at 563. It is undisputed that after the addition of the Ford franchise, only five World-Wide automobiles were on display. Id. at 567. In light of the fact that World-Wide retained the right to control the size and layout of Empire Volkswagen's showrooms, it can hardly be considered unreasonable, let alone wrongful, for World-Wide to protest a fifty percent cutback in the showroom space available for display of its products, and to demand a return to the status quo ante. Therefore, we hold that World-Wide's attempt to ensure that Empire Volkswagen continue to represent adequately World-Wide's automobiles in the franchisee's showroom, control of which World-Wide retained in the original franchise agreements, did not constitute a wrongful demand for purposes of the Dealers' Act. See R.D. Imports, 807 F.2d at 1228 (rejecting dealer's claim of wrongful demand to cease dualing--manufacturer's actions not violative of Dealers' Act when manufacturer merely suggest[s] ways for [dealer] to maintain or increase its allocation of cars); Autohaus Brugger, 567 F.2d at 911 (supplier not prohibited from terminating distributor for inadequacy of representation), cited with approval in State Distribs., Inc. v. Glenmore Distilleries Co., 738 F.2d 405, 413 (10th Cir.1984); Ed Houser Enters., Inc. v. General Motors Corp., 595 F.2d 366, 370 (7th Cir.1978) (demands to correct deficiencies in facility not wrongful when franchise agreement mandates standards to be met); cf. Cabriolet Porsche Audi, Inc., 773 F.2d at 1210-11 (manufacturer's proposal to increase dealer's allotment of cars if dealer ceased dualing not wrongful). 31 In addition, on the facts properly before us, the January 1978 agreement between the parties was a valid contractual undertaking, of which World-Wide was entitled to seek enforcement. World-Wide's grant of the Porsche-Audi franchise to Empire Volkswagen expressly was made contingent upon Empire Volkswagen's promise to build a separate facility for Porsche-Audi automobiles. See Joint App. at 1872. As discussed above, appellants are barred from contesting World-Wide's good faith in seeking to enforce the promise by virtue of their Rule 41(a)(2) motion. World-Wide waived its requirement that a separate Porsche-Audi facility be built as part of the January 1978 compromise agreement between the parties. By the terms of the compromise, World-Wide agreed to provide Empire Volkswagen with an increased allocation of vehicles in exchange for Empire Volkswagen's promise to construct a separate Volkswagen-Porsche-Audi facility. Joint App. at 1197-98. Thus, the January 1978 agreement contained a specific promise by Empire Volkswagen to construct a separate facility for World-Wide's vehicles. In light of the original franchise agreements, the undisputed facts in the record, and World-Wide's agreement to forgo its contractual right to a separate Porsche-Audi facility, we hold that Empire Volkswagen's obligation to construct a separate Volkswagen-Porsche-Audi facility was reasonable and, therefore, that World-Wide properly asserted its legal right to enforce that contractual provision. See Autowest, 434 F.2d at 561 (use of coercion to enforce valid contractual provision not wrongful under the Dealers' Act); see also Gage v. General Motors Corp., 796 F.2d 345, 351 (10th Cir.1986) (for purposes of the Dealers' Act, exercise of legal rights cannot amount to coercion, intimidation or threats as a matter of law). Whether or not the showroom was too small in fact, it was reasonable for World-Wide to insist, even by coercive means, see Autowest, 434 F.2d at 561, on compliance with the contractual obligation to build a separate facility. 3 See Ed Houser Enters., 595 F.2d at 370; Kotula v. Ford Motor Co., 338 F.2d 732, 738-39 (8th Cir.1964) (no violation of Dealers' Act if termination results from dealer failing to comply with contractual undertakings), cert. denied, 380 U.S. 979, 85 S.Ct. 1333, 14 L.Ed.2d 273 (1965); Milos v. Ford Motor Co., 317 F.2d 712, 717-18 (3d Cir.) (demanding compliance with contractual promise to expand facilities not wrongful), cert. denied, 375 U.S. 896, 84 S.Ct. 172, 11 L.Ed.2d 125 (1963); Woodard v. General Motors Corp., 298 F.2d 121, 128 (5th Cir.) (manufacturer not guilty of bad faith under Dealers' Act when it terminates a dealership for long-term violation of valid contractual provision), cert. denied, 369 U.S. 887, 82 S.Ct. 1161, 8 L.Ed.2d 288 (1962); see also Conroy Datsun, Ltd. v. Nissan Motor Corp. in U.S.A., 506 F.Supp. 1051, 1057-58 (N.D.Ill.1980) (demand to correct facility deficiencies pursuant to written agreement not wrongful); cf. Shor-Line Rambler, Inc. v. American Motor Sales Corp., 543 F.2d 601 (7th Cir.1976) (manufacturer's unreasonable and unrealistic demands to build new facilities, increase credit and make extensive personnel changes held wrongful). See generally Annot., 54 A.L.R. Fed. 314, 320-23 (1981 & Supp.1986). Our determination that World-Wide's demand was not wrongful for purposes of the Dealers' Act obviates the need to address appellants' various claims of standing under the Act.