Opinion ID: 2974392
Heading Depth: 3
Heading Rank: 1

Heading: Automobile Dealers’ Day in Court Act

Text: GM first contests the district court’s determination that Caruana has standing to pursue his ADDCA claims. Because the Act provides a cause of action for an “automobile dealer” when an “automobile manufacturer” fails to act in good faith in carrying out a franchise agreement, we must consider whether Caruana himself is an “automobile dealer,” the district court having concluded that -3- No. 05-5458 Caruana v. Gen. Motors Corp. Caruana could not maintain a derivative claim. 15 U.S.C. §§ 1221–1225; see id. § 1222. An “automobile dealer” is “any person, partnership, corporation, association, or other form of business enterprise . . . operating under the terms of a franchise and engaged in the sale or distribution of passenger cars, trucks, or station wagons.” Id. § 1221(c). A “franchise” is “the written agreement or contract between any automobile manufacturer engaged in commerce and any automobile dealer which purports to fix the legal rights and liabilities of the parties to such agreement or contract.” Id. § 1221(b). Caruana argues that he qualifies as an “automobile dealer” by virtue of his being a party to the franchise agreement, which emphasized his personal role. He highlights the clause designating the agreement as a “Personal Services Agreement, entered into . . . on Dealer’s assurance that Dealer Operator will provide personal services by exercising full managerial authority over Dealership Operations.” To show that he and his dealership were essentially indistinguishable, Caruana notes that he signed the agreement on behalf of Tennessee Motors, he was the “Dealer Operator” referred to in the agreement, and GM could terminate the franchise agreement if Caruana became incapacitated. Yet the contract delimits Tennessee Motors as the “only party to [the] Agreement with General Motors,” and Tennessee law instructs that we construe the contract “according to its plain terms.” Pitt v. Tyree Org. Ltd., 90 S.W.3d 244, 252 (Tenn. Ct. App. 2002) (citations omitted). Caruana also contends that he qualifies as a dealer because he is “an intended third party beneficiary of the Agreements.” Under Tennessee law, however, a third party may enforce a contract -4- No. 05-5458 Caruana v. Gen. Motors Corp. only if, among other things, the parties have not otherwise agreed. Owner-Operator Indep. Drivers Ass’n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 70–71 (Tenn. 2001). The franchise agreement provides, “This Agreement is not enforceable by any third parties and is not intended to convey any rights or benefits to anyone who is not a party to this Agreement.” Caruana thus may not assert the rights of Tennessee Motors as a third party beneficiary. Caruana essentially seeks to sue as a shareholder for the corporation’s injuries. In this circuit, individual shareholders, even sole shareholders, generally do not have standing under the ADDCA to sue for the corporation’s injuries. As we explained in Dienstberger v. General Motors Corp., No. 94-4336, 1995 WL 559374, at  (6th Cir. Sept. 20, 1995) (unpublished opinion), a plaintiff who sues “in his sole capacity as a shareholder . . . lacks standing to challenge [the manufacturer’s] action. Only the corporate entity . . . could sue [the manufacturer] . . . .” Dienstberger applied the well-established doctrine, articulated in Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals., Inc., 862 F.2d 597, 602–03 (6th Cir. 1988), that shareholders and officers of a franchisee lack standing to sue the franchisor for the franchisee corporation’s injuries. The district courts in this circuit apply this rule to ADDCA claims, and we see no reason here to depart from it. See, e.g., Salem Mall Lincoln Mercury, Inc. v. Hyundai Motor Am., No. C-3-95-231, 1998 WL 1572766, at  (S.D. Ohio Aug. 18, 1998) (“When the dealership is doing business in the corporate form, ‘the statute contains no hint that it intends a departure from the established principle that the locus of the right of action is the corporation.’” (quoting Vincel v. White Motor Corp., 521 F.2d 1113, 1120 (2d Cir. 1975)); Hagen v. Gen. Motors Corp., No. C-1-75-321, 1976 WL 1304, at  (S.D. Ohio Aug. 27, 1976). -5- No. 05-5458 Caruana v. Gen. Motors Corp. Many of our sister circuits apply this standing limitation without exception. See, e.g., Tucker v. Chrysler Credit Corp., No. 97-1364, 1998 WL 276266, at  (4th Cir. May 29, 1998); Pearson v. Ford Motor Co., 68 F.3d 1301, 1303 (11th Cir. 1995); Olson Motor Co. v. Gen. Motors Corp., 703 F.2d 284, 289–90 (8th Cir. 1983); Sherman v. British Leyland Motors, Ltd., 601 F.2d 429, 439–40 (9th Cir. 1979); Vincel, 521 F.2d at 1120. Several circuits have recognized exceptions to the rule against shareholder standing, and Caruana argues that his case fits one of these exceptions. In Kavanaugh v. Ford Motor Co., 353 F.2d 710, 716 (7th Cir. 1965), the Seventh Circuit allowed a shareholder of a franchisee corporation to sue Ford because the corporation was “substantially owned and controlled by Ford.” This relationship, the court reasoned, “effectively insulates Ford from liability under the act.” Id. at 717. The Seventh Circuit relied on the “settled doctrine that the fiction of corporate entity will be disregarded whenever it has been adopted or used to evade the provisions of a statute.” Id. Caruana alleges no such facts regarding his adoption of the corporate form. Later analysis of Kavanaugh has essentially limited it to situations where the manufacturer also owns a controlling interest in the dealership. See Salem Mall, 1998 WL 1572766, at  (rejecting plaintiffs’ reliance on Kavanaugh as misplaced when they made no showing that the manufacturer “forced” the corporate form on them or that the manufacturer controlled the dealership); see also Vincel, 521 F.2d at 1120 (“the circumstances in [Kavanaugh] which induced the court to disregard the corporate entity were compelling”). -6- No. 05-5458 Caruana v. Gen. Motors Corp. Caruana also urges us to adopt the exception articulated by the Fifth Circuit in York ChryslerPlymouth v. Chrysler Credit Corp., 447 F.2d 786 (5th Cir. 1971). In York, the Fifth Circuit recognized that “individuals would not come within the scope of the Act merely because they were sole stockholders, officers and directors of the corporate franchise holder,” id. at 790, but because the franchisees in York “were so inextricably woven” into the franchise agreement, the court granted them standing. Id. This reasoning, however, fails to respect the plain language of the ADDCA. As the court in Salem Mall explained, “the York court misinterpreted the holding in the . . . Kavanaugh decision, in reaching a conclusion that ‘essential’ persons—or as the Plaintiffs characterize it, those persons having a ‘personal commitment’—enjoy an exception to the plain language of the ADDCA.” 1998 WL 1572766, at . The district court in this case followed Salem Mall in correctly rejecting Caruana’s reliance on York, in keeping with several circuits that have criticized or declined to follow York. See, e.g., Tucker, 1998 WL 276266, at ; Pearson, 68 F.3d at 1303; Olson Motor Co., 703 F.2d at 289 n.5; Sherman, 601 F.2d at 440 n.11; Vincel, 521 F.2d at 1120. The district court also discussed and relied on Imperial Motors, Inc. v. Chrysler Corp., 559 F. Supp. 1312 (D. Mass. 1983), in determining Caruana’s standing. Although Imperial Motors’s facts resemble those in this case, Imperial Motors relied on York and Kavanaugh in permitting plaintiff suits beyond the purview of the plain language of the statute, id. at 1314–15, and as previously discussed, we find these extensions unsupported by the ADDCA. -7- No. 05-5458 Caruana v. Gen. Motors Corp. Caruana bemoans 12(b)(6) dismissal as denying him the opportunity to present facts establishing his standing to sue under the Act. Such dismissals require courts to accept all factual allegations contained in the complaint as true and “determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief.” In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Meador v. Cabinet for Human Res., 902 F.2d 474, 475 (6th Cir. 1990)). Though Caruana alleges in his complaint that he is an “automobile dealer” as defined by the ADDCA, this allegation is a legal conclusion, and “we need not accept as true legal conclusions or unwarranted factual inferences.” Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Without allegations of fact to support “dealer” status, 12(b)(6) dismissal fits. We hold that the district court erred by permitting Caruana to assert claims under the ADDCA.