Opinion ID: 1102298
Heading Depth: 1
Heading Rank: 3

Heading: The Dealership's Claims Against GM

Text: The dealership's fraud claims against GM were based on allegations that GM had misrepresented that it would enforce its rules governing the purchase of program [10] vehicles from GM-Sponsored auctions against all GM dealerships, and that GM had failed to disclose (had suppressed) that it did not uniformly enforce its rules. The dealership also alleged that GM had engaged in wanton conduct by consciously violating § 8-20-4(3)a., a part of the Dealer Act (by enforcing the auction rules against it but not against other GM dealerships), knowing that such a violation would likely or probably result in injury to the dealership. The pertinent facts surrounding these claims are as follows: GM began auctioning program vehicles to its authorized dealerships in the mid-1980s. Certain written rules governed the purchase of these program vehicles, including the following set out in a GM-Sponsored Auction Policies and Procedures manual: Resale Requirements. Dealer agrees to use these vehicles to enhance its selling and leasing efforts in its Area of Primary Responsibility and to sell or lease the vehicles to retail customers from the dealership's GM approved Dealership Location. The resale of vehicles purchased at a GM-Sponsored Auction to wholesalers, brokers, lessors, non-GM dealers, or different line make GM dealers, or the purchase of vehicles at GM auctions for export sales, is not within the intent of the program. Soliciting or procuring different line make auction vehicles from other GM dealers is also not within the program's intent. Any failure to comply with the requirements of the GM Auction Program, or any attempt to circumvent the intent of this program, as determined by the GM Auction Department in its sole discretion, will result in suspension of the Dealer's privilege to participate in GM-Sponsored Auctions. We hope you agree that the GM Auction Program and that adherence to these guidelines for participating dealers will enhance the value of General Motors franchises everywhere. Holding. Vehicles purchased at auctions should reasonably be what a dealership expects to sell or lease to retail customers from its GM approved Dealership location in the short term. However, in the event a dealer has not been able to sell a unit purchased at a GM-Sponsored Auction within 45 days from the date of purchase, the dealer may offer the vehicle for sale at a GM Dealer Tailgate Sale following a regularly scheduled GM-Sponsored Auction. Dealer Audits. GM has established certain requirements for dealer participation in GM-Sponsored Auctions. By participating in the auction, Dealer agrees to authorize the GM Auction Department, and its authorized representative, to examine, reproduce and take copies of dealer records related to the purchase of vehicles at GM-Sponsored Auctions, and the sale or lease of such vehicles. Such examinations will only be conducted during regular business hours, and upon written notice to dealer. Failure of Dealer to comply with such a request will result in the suspension of Dealer's privilege to participate in GM-Sponsored Auctions. Bell received and understood these rules. George Schmid, the manager of GM's Pontiac Division's Atlanta zone, testified that he had informed Bell that the auction rules had to be strictly observed by all the dealers. The representations set out in GM's policies and procedures manual and the representation made by Schmid formed the primary basis for the dealership's misrepresentation claim. In December 1989, GM suspended the dealership's auction privileges because, according to GM, the dealership had violated the auction rules in the manner in which it had purchased and disposed of a number of program vehicles. [11] Auction privileges were eventually restored to the dealership, with the assistance of Schmid; Lee McDaniel, a representative of GM's Minority Dealer Development Department; and Bill Johnson, a GM auction coordinator. The dealership continued thereafter to purchase vehicles at auction. This suspension did not form the basis of the dealership's claims against GM. However, according to Bell, he was later told by an unidentified person at a GM-sponsored auction in Moody, Alabama, that he could not purchase 25 vehicles. Bell testified that Gordon Warren, the assistant sales manager of GM's auction department, told him later that the auction personnel had [done] what they should have [done] in declining his purchase request. Bell took this to mean that GM was denying his request because he was violating auction rules by attempting to purchase too many vehicles (i.e., more vehicles than would have been necessary to enhance [the dealership's] selling and leasing efforts in its Area of Primary Responsibility). GM's apparent reasoning in this regard proved to be correct because, according to the undisputed evidence, Bell had wanted to implement an enhanced program vehicle sales policy at his dealership, whereby he would purchase large numbers of program vehicles at auction, hold them for 45 days, and then sell them at wholesale. This plan violated GM's auction rules. Bell planned to finance his auction purchases with the assistance of Bob Lee Alphin, a Georgia used car dealer, who had agreed to invest $1,100,000 in the venture. It was for the purpose of implementing this new enhanced program-vehicle purchasing policy that Bell had traveled to the Moody auction. The dealership based all three of its claims against GM primarily on allegations that GM had not enforced its auction rules against one other GM dealer, Devon Lowe. [12] The evidence indicates that Lowe, who owned, or had an interest in, three GM dealerships, purchased approximately 500 program vehicles per week from GM-sponsored auctions, held them for 45 days, and then sold them wholesale to other dealerships. The evidence also suggests that this volume purchasing was contrary to the intent of the auction rules and that although it had caught the attention of GM's management, no disciplinary action had been taken against Lowe for this activity. According to the dealership, GM discriminated against it by not enforcing the auction rules against Lowe. Also, according to the dealership, GM was guilty of misrepresenting that all GM dealerships had to comply with the auction rules, and of suppressing information that would have indicated that it was not enforcing the rules against Lowe. What we deem to be the linchpin of the dealership's argument, which was made in response to GM's contention that the dealership could prove no damage, is set out in various parts of its brief as follows: Had the relevant information been properly and timely shared with [the dealership], it would have immediately apprised Mr. Bell that there were not only `differences,' but substantial differences, in how the GM Auction Department Rules were interpreted and enforced between and among various GM dealerships. Bell Motor Company could then have taken appropriate action, under the Alabama Motor Vehicle Franchise Act or otherwise, to avoid the injuries which it ultimately suffered as a result of its lack of proper information and knowledge. One of the relevant provisions in the franchise act, set out in the original complaint as affording the plaintiffs a basis for relief, has to do with the prohibition against a manufacturer's `establish[ing] or implement[ing] a plan or system for the allocation and distribution of new or used motor vehicles to motor vehicle dealers which is arbitrary, capricious or unreasonably discriminatory....' (Emphasis added.) See: Section 8-20-4(3)a. of the Code of Alabama (1975). Clearly, the unequal enforcement interpretation of the GM Auction Department Rules constituted an arbitrary system by the manufacturer for the distribution of used (e.g., `program') vehicles and Charles Bell Motor Company was injured as a result of that misconduct. Whether, based on the evidence, the complaints advanced by the plaintiffs are under the rubric of fraud, suppression, or a violation of the Motor Vehicle Franchise Act, the undisputed fact remains that the dealership has been injured and it is clearly entitled to a redress of all the grievances associated with that injury. .... [The formula for calculating the damage suffered by the dealership as a result of GM's failure to enforce the auction rules against Lowe] was grounded in available capital for the Bell dealership of $1.1 million from Mr. Alphin; an average `program car' purchase price of $8,000; a minimum net profit (after interest, carrying charges, auction costs, transportation) of $500 per unit and a 45 day holding period for the vehicles at the Bell dealership in Tuskegee. .... ... [I]t was altogether reasonable for the damages to be calculated to the time of trial. Had Bell Motors been permitted to pursue its GM Auction expansion in 1991 with outside, available, capital, it would have reasonably realized net profits of approximately $34,250 every 45 days. This would have been over and above the original capital which would be utilized again for the purchase of additional program cars. [The $34,250 every 45 days is derived by calculating 50% of the net profit on 137 units per 45 days at a minimum net profit of $500 per vehicle, all of which is supported by substantial evidence.] This would have translated into a reasonable net dealership profit of $277,765 per year not including interest or other income these funds would be expected to generate. After carefully examining the briefs and the record, we conclude that GM was entitled to a judgment as a matter of law on all three of the dealership's claims. The dealership's argument, as we understand it, is that had it known that GM was not enforcing the auction rules uniformly against Lowe with respect to his volume purchases of program vehicles, [13] it could have filed an action under the Dealer Act and sought damages and injunctive relief. Section 8-20-4(3)a. states that it is an unfair and deceptive trade practice for a manufacturer, such as GM, [t]o adopt, change, establish, or implement a plan or a system for the allocation and distribution of new or used motor vehicles to motor vehicle dealers which is arbitrary, capricious, or unreasonably discriminatory or to modify an existing plan so as to cause the same to be arbitrary, capricious, or unreasonably discriminatory. Section 8-20-11 provides as follows: Notwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or provisions of any waiver, and notwithstanding any other legal remedies available, any person who is injured in his business or property by a violation of this chapter by the commission of any unfair and deceptive trade practices, or because he refuses to accede to a proposal for an arrangement which, if consummated, would be in violation of this chapter, may bring a civil action in a court of competent jurisdiction in this state to enjoin further violations, to recover the damages sustained by him together with the costs of the suit, including a reasonable attorney's fee. (Emphasis added.) Thus, we agree with the dealership, based on the evidence before us (which we must view in the light most favorable to the dealership), that it could have filed an action under the Dealer Act and sought damages and injunctive relief based on GM's favorable treatment of Lowe. However, nothing in the Dealer Act or otherwise in the record would indicate that the dealership could have forced GM to change its auction rules so as to allow the dealership to purchase program vehicles in volume for the purpose of selling them at wholesale. Although there was evidence indicating that GM did not enforce the auction rules uniformly with respect to Lowe, there was no evidence that GM did not adequately enforce its rules as to the vast majority of its other dealerships or that it had, or would have, considered modifying its auction rules so as to make it permissible, from a GM policy point of view, for dealerships to purchase program vehicles at auction for the purpose of selling them at wholesale. Stated differently, all the dealership could have accomplished by suing GM under the Dealer Act would have been limited to enjoining GM from discriminating against it by favoring Lowe and to recover whatever damages it might have incurred as a result of Lowe's violation of the rules. We can find no legal basis to support the dealership's argument that it could have sued under the Dealer Act and secured the right to sell 137 vehicles every 45 days at a profit of $500 per vehicle ($1,096,000). Consequently, we can find no legal support for the dealership's contention that it suffered damage as a result of misrepresentation or suppression on the part of GM. The undisputed evidence shows that the dealership was attempting to secure an advantage over GM dealerships on the eastern bypass in Montgomery (who did not participate in the auction program) by violating GM's auction rules prohibiting the volume purchase of program vehicles for the purpose of selling them at wholesale. The dealership based its fraud claims on the faulty premise that it had the right to do this, when, in fact, it had only the right under the Dealer Act to force GM to enforce its rules against Lowe. Because damage is an essential element of a fraud claim, and because the dealership could not prove that any fraud on GM's part arising out of its favorable treatment of Lowe caused it any damage for which it could recover in this fraud action, we hold that the trial court erred in not entering a judgment for GM as a matter of law on the misrepresentation and suppression claims. As to the wantonness claim, the dealership alleged in its complaint that GM had engaged in [r]epeated intentional and conscious violations of the relevant provisions of the [Dealer Act]. It argued in its brief on appeal as follows: The original complaint alleged that the actions constituting wantonness included, but were not necessarily limited to, various matters set out as examples of wanton misconduct. One of the allegations incorporated by reference `repeated intentional and conscious violations of the relevant provisions of the Alabama Motor Vehicle Franchise Act, as previously enumerated in the complaint.' Since the Act violations included the arbitrary system for allocating new and used motor vehicles to dealers, the complaint stated a cause of action for wantonness against GM in connection with its Auction Program. Even if this had not been the case, evidence presented or an issue raised and tried without objection results, by operation of law, in the pleadings being deemed to conform to the evidence. [Citations omitted.] For the same reasons as supported the wantonness claims dealing with the repossession chargeback scheme and the retail paper buying fraud, the jury was amply justified in finding for the plaintiffs on their claims of wantonness in connection with the misrepresentation and suppression associated with the GM Auction Department issue. As a matter of law, for the same reasons they proved their fraud and suppression claims, wantonness was clearly established. As previously noted, the dealership dismissed all of its claims under the Dealer Act. The dealership's wantonness claim is based on a theory that GM breached a duty arising out of the Dealer Act. The dealership does not argue that GM had a duty of common law or constitutional origin to treat all of its dealerships the same insofar as the Auction Program was concerned. By dismissing its claims under the Dealer Act, the dealership foreclosed any finding by the jury that GM had wantonly violated that Act. The wantonness claim against GM should not have been submitted to the jury.