Opinion ID: 1971777
Heading Depth: 1
Heading Rank: 2

Heading: Due Cause

Text: The statute before us prohibits termination or nonrenewal of a dealer's agreement without due cause. [2] Unfortunately, the Legislature did not define that term, and we therefore must determine the meaning of the phrase and then decide whether or not due cause existed. In the absence of clear guidance within the statute, we look to other sources. Some of the other jurisdictions that have enacted the regulatory statutes similar to ours have defined due cause. Most who have done so provide that the existence and materiality of any breach, default, or violation of the agreement by the dealer is sufficient due cause to terminate the relationship when considered with any other pertinent circumstances. [3] Our own state has enacted the Motor Fuel Distribution and Sales Act, G.L. 1956 (1976 Reenactment) chapter 55 of title 5, as assigned by P.L. 1976, ch. 324, § 1, which regulates franchise agreements between oil companies and service-station owners, a purpose akin to that of the statute before us. In that statute, the Legislature prohibited termination of an agreement except for due cause. That statute provides that among several acts that would constitute due cause was [s]ubstantial noncompliance with the obligations of the franchise agreement. Section 5-55-4(3)(J). The Massachusetts Motor Vehicle Dealer Statute to which the trial justice referred provides that a dealer's material breach of an obligation is one important factor to be considered together with all other pertinent circumstances in determining the existence of due cause. Mass. Ann. Laws, ch. 93B, § 4(4)(vii) (Michie/Law. Coop. 1972). Those states whose Legislatures have attempted to define the term just cause or good cause or due cause within the context of justification for nonrenewal of a franchise or dealership agreement have all agreed that such causes include substantial noncompliance with obligations in the agreement. Furthermore, those courts that have applied statutes that do not contain a definition of the cause sufficient to justify nonrenewal of a franchise agree quite uniformly with the statutory definitions. See Russ Thompson Motors, Inc. v. Chrysler Corp., 425 F. Supp. 1218 (D.N.H. 1977), which applied a New Hampshire statute identical to ours and concluded that an automobile dealer's failure to comply with a provision of a dealership agreement created due cause for nonrenewal. The purpose for this kind of regulatory legislation is remedial; that is, it is designed primarily to prevent arbitrary termination on the part of a manufacturer at the expense of a dealer and also to prevent harm to the general public. Some writers and commentators have variously described motor-vehicle franchise agreements as economic death sentences (Kessler, Automobile Dealer Franchises: Vertical Integration By Contract, 66 Yale L.J. 1135 (1957)) and unilateral contracts [with] terms dictated by the manufacturers ( Mazda Motors of America, Inc. v. Southwestern Motors, Inc., 36 N.C. App. 1, 7, 243 S.E.2d 793, 798 (1978), modified, 296 N.C. 357, 250 S.E.2d 250 (1979)). Franchise-protection statutes are intended to rectify grossly disproportionate bargaining power. Westfield Centre Service, Inc. v. Cities Service Oil Co., 158 N.J. Super. 455, 475, 386 A.2d 448, 459 (1978). The ability to exercise power and to exert economic pressure in a legally permissible fashion depends on the circumstances of each case. American Motors Sales Corp. vs. Semke, 384 F.2d 192, 197-98 (10th Cir.1967). The evidence in the record establishes that the necessity for and desirability of separation of Dunne's leasing business from the Kenworth dealership was accepted by Dunne, its principals, and Kenworth as far back as 1976. There is evidence that the leasing operation adversely impacted on the dealership in the areas of parking, cleanliness, parts sales, and service. Evidence in the form of photographs supporting the testimony about conditions at Dunne and the appearance of cleanliness and order in Kenworth dealerships in other locations illustrates quite graphically the changes Kenworth sought. Also, the division of employees' responsibilities resulting from the continued use of the one facility for both businesses was not acceptable to Kenworth. In October of 1976, Dunne, Senior, agreed that the facility was physically inadequate to house the leasing operation as well as the parts-sales and servicing requirements of the dealership. Dunne's general manager at that time indicated a desire to make the move within a year, and Kenworth requested that the desire be converted to a written action plan with a precise time table. This mutual acknowledgment of the problem occurred during a time when Dunne was meeting all of its sales quotas for 1976. In February of 1977, because the situation had not changed, Kenworth requested a written commitment and a plan for improvement by July 1977. By that date, however, Dunne had not responded, and Kenworth renewed its request for a written plan covering Dunne's future intentions for the facility. Nothing had happened by September of 1977, although Dunne still agreed that the move was necessary. A meeting proposed to discuss the move that was to occur in October of 1977 was not held because of Dunne, Senior's death. In February of 1978 Kenworth requested a written proposal from Dunne, Junior, for a new dealership agreement. That proposal was submitted in July 1978. Kenworth then raised the mutual acknowledgment of the fact that the facility had reached the saturation point and that the leasing operation had to be removed. Kenworth asked that the commitment to move be written into the new agreement. By letter dated July 31, 1978, Dunne, Junior, committed himself to removal of the leasing operation by January 31, 1979; however, on October 4, 1978, the parties entered into a new dealership agreement that, by its terms, extended Dunne's commitment to remove the leasing operation to April 4, 1979. During a visit at Dunne's by Kenworth personnel on December 12 and 13, 1978, and by means of a letter dated January 12, 1979, Kenworth again reminded Dunne of the commitment to remove the leasing operation. Visits by Kenworth representatives to Dunne's facility in February and April of 1979 revealed that Dunne had apparently taken no action to perform on the agreement. On June 14 and 15 during another visit by Kenworth personnel and later by means of a letter of June 28, 1979, Kenworth again related its position to Dunne, reminding it of the earlier commitment and placing them on notice that it was in violation of the existing agreement. Dunne was specifically advised that unless the change was made in time to run the full cycle of any subsequent agreement, there would be no renewal. By letter of August 15, 1979, Dunne acknowledged that the removal had not yet been accomplished but would assuredly be completed by August 31, 1979. This did not occur. A later visit in September 1979 by Kenworth personnel disclosed no apparent action to remove the leasing operation. During trial, Dunne's witnesses never denied that the removal of the facility was desirable, that it would improve the Kenworth operation in general and increase its potential or that it would permit more parking, better housekeeping, and less congestion. A review of the record makes it abundantly clear that after Dunne failed to remove the leasing operation within the contractual time, Kenworth placed Dunne on notice that there would be no renewal unless the removal was completed in time to run the full cycle of the new agreement. Dunne promised thereafter to complete the removal by August 15 and later by August 30, but failed to do so. There is no question that its failure to comply constituted a material breach of the contract. Dunne, Junior, conceded that he had misjudged the importance that Kenworth was placing on removal. In view of the clear language of Kenworth's notice and warnings, the miscalculation is very difficult to justify. Dunne contends that as long as its sales quotas were met, it cannot be found to have materially breached the agreement. To pursue this argument to its logical conclusion, one would have to agree that Dunne's maintenance of its sales quotas could justify its disregard of any other aspect of the agreement. Numerous cases have held that the meeting of sales quotas will not justify nonperformance of other material contractual obligations. Excello Wine Co. v. Monsieur Henry Wines, Ltd., 474 F. Supp. 203 (S.D. Ohio 1979); Sundown Imports, Inc. v. Arizona Department of Transportation, 115 Ariz. 428, 565 P.2d 1289 (Ct.App. 1977); Nagle Motors, Inc. v. Volkswagen North Central Distributors, Inc., 51 Wis.2d 413, 187 N.W.2d 374 (1971). In fact, in Amoco Oil Co. v. Dickson, 378 Mass. 44, 389 N.E.2d 406 (1979), it was held that a dealer's performance of all contractual obligations does not preclude existence of due cause for termination. In that case, all contractual obligations were being met and a profit was being realized. The manufacturer, however, made a good-faith decision that the service station was not profitable enough to continue the operation. The court concluded that the manufacturer's termination was justified. In the case before us, in addition to finding a material breach, the trial justice also found that failure to remove the leasing operation, considered with all other pertinent circumstances, established due cause for nonrenewal. Those other pertinent circumstances included the fact that plaintiff's facility was inadequate and fell far short of Kenworth's requirements and expectations. The trial justice found further that the nonrenewal of Dunne's franchise would have little, if any, adverse effect on the public since the market area is small and similar agencies located in nearby states could service the needs of the public in the Rhode Island area. It is also interesting to note that the trial justice found Dunne's investment to be minimal, that it was incurred in part for its leasing enterprise housed in the same facility, and that its capital investment was not permanent since the physical structure was leased. Although Dunne challenges this latter finding and asserts that Dunne's investment in Kenworth was approximately $1,300,000, evidence exists to establish that $1,264,000 of that investment was inventory. Stock inventory is not the type of capital investment that is relevant to a consideration of causes for nonrenewal. The evidence that the trial justice apparently found credible would indicate that the capital investment by Dunne having a bearing on these issues was more in the neighborhood of $40,000 for the entire period of Dunne's relationship with Kenworth. After review of the record, we conclude that Kenworth offered Dunne ample opportunity to comply with all provisions of the agreement. We conclude further, as did the trial justice, that the failure to comply, in and of itself, constituted just cause for nonrenewal as provided by the statute. At no time does Dunne assert that it did not breach its contractual commitment to separate the leasing activities from the Kenworth dealership. Dunne argues, however, that it was error for the trial justice to find that breach a material one. The materiality of a breach of contract is essentially a factual question. The resolution of such a factual issue requires consideration of all of the pertinent evidence and the conduct and relationship of the parties. DiMario v. Heeks, 116 R.I. 44, 351 A.2d 837 (1976); Ferris v. Mann, 99 R.I. 630, 210 A.2d 121 (1965). The finding of a trial justice sitting without a jury is entitled to great weight and will not be disturbed unless he overlooked or misconceived material evidence or was clearly wrong. See, e.g., Ferris v. Hawkins, R.I., 457 A.2d 253, 255 (1983); Altieri v. Dolan, R.I., 423 A.2d 482, 484 (1980); Taffinder v. Thomas, 119 R.I. 545, 549, 381 A.2d 519, 521 (1977); see 1 Kent, R.I.Civ.Prac. § 52.5 at 384 (1969). Our review of the record persuades us that the trial justice was justified in finding that the breach in this case was a material one.