Opinion ID: 1192553
Heading Depth: 2
Heading Rank: 4

Heading: the relevant standard for evaluating refusal to consent

Text: The Act does not provide specific guidelines to define a reasonable standard; it merely requires that a manufacturer may not unreasonably withhold consent to a franchise transfer. Section 57-16-5(L). Cf. Fla.Stat. ch. 320.643 (establishing a presumption of unreasonableness if a manufacturer withholds consent from a franchisee who is of good moral character and meets uniformly-applied standards or qualifications). Amicus for the Manufacturers Association have urged this Court to interpret the term unreasonable as requiring a showing of bad faith or some unlawful motive. Absent express legislative intent, we do not read into the statute a standard higher than reasonable. That would make a cause of action under the Act the equivalent of the common-law action Key might have brought, but did not. Chrysler argues that the appropriate legal standard should have been whether, based upon the facts known at the time the decision to withhold consent to the transfer was made, a reasonable person could have concluded that Key was materially deficient with respect to one or more of the appropriate, performance-related criteria Chrysler uses to evaluate franchise transfers. Chrysler claims that it was unaware of local conditions that rendered its MSR inaccurate, and thus should not be held accountable for facts of which it did not know and was not made aware. We understand Chrysler's argument as follows. The trial court and the Court of Appeals applied the wrong legal standard, and under the correct legal standard, there was insufficient evidence as a matter of law to support a verdict for Key. We agree with part of Chrysler's argument. We believe the trial court may not have applied the correct legal standard. However, we also believe there was evidence to support recovery under the correct standard, had the Legislature authorized Key to bring a cause of action as a prospective franchisee or had Key been the selling dealer. We construe the Act to require the manufacturer to act with due cause. See § 57-16-9 (manufacturer cannot restrict the transfer of a franchise without due cause). In particular, the due-cause formulation more clearly indicates that the manufacturer need not undertake any independent investigation to determine whether the applicant for the franchise is qualified. Key, 119 N.M. at 282, 889 P.2d at 890 (Hartz, J., dissenting). Although the Legislature might have imposed such an obligation, it has not. See Jerome L. Withered, The No-Assignment-without-Consent Clause in Franchise Agreements, 4 Franchise L.J., 1, 18-19 (1984) (in light of the consequences to the franchisee of a wrongful denial of consent to transfer, it does not seem unfair and should not create an undue burden upon the franchisor to require it to take reasonable investigative steps to corroborate derogatory information upon which it relies in denying consent to transfer the franchise). We also construe due cause as establishing an objective standard, consistent with that adopted in Kestenbaum v. Pennzoil Co., 108 N.M. 20, 766 P.2d 280 (1988), cert. denied, 490 U.S. 1109, 109 S.Ct. 3163, 104 L.Ed.2d 1026 (1989). What was required of Pennzoil in Kestenbaum v. Pennzoil Co . was fact-specific and turned on the contract of employment. There Kestenbaum proved that he was entitled to be treated fairly, have the opportunity to know some specifics of the charges against him, be given a chance to defend himself, and his supervisors could not determine whether there was just cause for the termination until hearing and fairly considering Kestenbaum's side of the story. Id. at 22, 766 P.2d at 282. Pennzoil's liability did not turn on a duty to investigate, but rather on its blind reliance on an inadequate summary of an investigation that had been negligently undertaken. The test established in Kestenbaum v. Pennzoil Co . was whether Pennzoil had reasonable grounds to believe that sufficient cause existed to justify discharging Kestenbaum from its employment. Id. at 27, 766 P.2d at 287. That test is one of objective reasonableness at the time Pennzoil acted, not on evidence adduced at trial as to whether grounds did or did not in fact exist. By analogy to Kestenbaum v. Pennzoil Co ., the reasonableness of Chrysler's refusal to consent depended upon whether Chrysler should have investigated further into the circumstances underlying the MSR. The trial court's findings of fact that Chrysler relied on an inaccurate MSR do not support its conclusion that Chrysler's withholding of consent to Borman's proposed transfer was unreasonable. The Act requires only that Chrysler had reasonable grounds to believe that the MSR data upon which it acted was sufficient to justify its withholding of consent to the transfer. Whether, under the circumstances, including its own relationship to Key and its knowledge of the sales figures of other dealers in the relevant area, Chrysler should have investigated the reliability of the reported MSR data is a determinative question of fact not addressed by the trial court. The evidence might have supported different findings. That is, for example, it might have been unreasonable on these facts to emphasize the index. Key's complaint alleges other facts indicative of a successful sales record and a satisfactory relationship with the franchisor. Under these circumstances, Chrysler might have acted unreasonably when it did not give Key an opportunity to comment, explain, or justify his sales record. However, the Act seems to us, read as a whole, to require the franchisor's consent as a protection for the manufacturer and to require that consent not be unreasonably withheld, as a protection for the selling dealer. So read, the Act does not appear to have imposed either requirement for Key's benefit. We conclude that Key lacks standing to challenge Chrysler's action, and he has not stated a cause of action under any other provision. Because Key lacks standing as a prospective franchisor and has not stated a cause of action as a franchisee, further proceedings are not necessary. Therefore, we need not remand to permit the trial court to enter amended findings and conclusions on the basis of an objective standard of due cause for Chrysler's actions.