Court Opinion

ID: 4222035
Source: CourtListenerOpinion
Date Created: 2017-11-20 17:00:31.490707+00
Date Added: 2024-06-11T14:41:55.585491
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                             Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                    File Name: 17a0263p.06

                  UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

 SIMS BUICK-GMC TRUCK, INC.,                            ┐
                                 Plaintiff-Appellant,   │
                                                        │
                                                        >      No. 16-3871
        v.                                              │
                                                        │
                                                        │
 GENERAL MOTORS LLC,                                    │
                                Defendant-Appellee.     │
                                                        ┘

                        Appeal from the United States District Court
                      for the Northern District of Ohio at Youngstown.
                   No. 4:14-cv-02238—Solomon Oliver Jr., District Judge.

                                 Argued: October 4, 2017

                          Decided and Filed: November 20, 2017

                  Before: CLAY, ROGERS, and SUTTON, Circuit Judges.
                                 _________________

                                        COUNSEL

ARGUED: Christopher M. DeVito, MORGANSTERN, MACADAMS & DEVITO CO.,
L.P.A., Cleveland, Ohio, for Appellant. J. Todd Kennard, JONES DAY, Columbus, Ohio, for
Appellee. ON BRIEF: Christopher M. DeVito, MORGANSTERN, MACADAMS & DEVITO
CO., L.P.A., Cleveland, Ohio, for Appellant. J. Todd Kennard, JONES DAY, Columbus, Ohio,
for Appellee. John C. Camillus, STOCKAMP & BROWN, LLC, Dublin, Ohio, for Amicus
Curiae.
       SUTTON, J., delivered the opinion of the court in which CLAY, J., joined. ROGERS, J.
(pp. 11–12), delivered a separate dissenting opinion.
 No. 16-3871              Sims Buick-GMC Truck v. General Motors                        Page 2

                                     _________________

                                          OPINION
                                     _________________

       SUTTON, Circuit Judge. General Motors provides sales incentives to dealers who sell
cars to GM employees, retirees, and their family members at a discounted rate. As part of the
process, the dealer must collect a signed agreement from the purchaser that establishes his
eligibility for the program. In 2014, General Motors audited one of its dealers, Sims Buick-
GMC Truck, and discovered a number of transactions in which Sims had failed to collect the
agreement from purchasers within the timeline set by General Motors. GM debited Sims’
account $47,493.28 for improper incentive payments, and Sims filed this lawsuit alleging breach
of contract and violations of the Ohio Dealer Act. The district court granted summary judgment
for General Motors.    Because the parties’ dealership arrangement permitted the debit and
because a timely filed Consumer Dealer Agreement constitutes “material documentation” under
§ 4517.59(A)(20)(a) of the Ohio Dealer Act, we affirm.

                                                I.

       Sims Buick-GMC Truck sells GM cars and trucks in Warren, Ohio. It participates in
GM’s Vehicle Purchase Program, which allows GM employees, retirees, and their family
members, among other affiliates, to buy vehicles at a reduced price. Each sale under the
Purchase Program entitles the dealer to a financial incentive payment. After the dealer sells a
vehicle to an eligible purchaser, the dealer submits an incentive claim to GM, and GM issues a
credit to the dealer. Sims is located near a large GM plant in Lordstown, Ohio, and the Purchase
Program accounts for 80% to 90% of its sales.

       Under the Purchase Program, the dealer must collect and submit a number of forms,
including a Consumer Dealer Agreement. The Consumer Agreement includes the purchaser’s
name, qualification for participation in the Purchase Program, and an authorization number
generated by General Motors and provided to the purchaser.

       General Motors initially did not impose any timing requirement on when dealers
collected the Consumer Agreement. But in 2012, it issued a bulletin that required dealers to
 No. 16-3871              Sims Buick-GMC Truck v. General Motors                          Page 3

obtain a Consumer Agreement when they delivered the vehicle to the purchaser. General Motors
relaxed this requirement in 2014 by allowing a 30-day grace period after delivery.

       In March 2014, General Motors audited Sims’ new car sales between March 26, 2013 and
January 9, 2014. The audit revealed a number of transactions under the Purchase Program in
which Sims had not obtained a completed Consumer Agreement on time and yet still collected
incentive payments from General Motors. The car company debited Sims’ account $66,674.91
for improper payments. It later reduced the amount to $47,493.28.

       Sims sued General Motors in the Ohio Court of Common Pleas alleging breach of
contract and violations of the Ohio Dealer Act. Invoking the diversity jurisdiction of the federal
courts, General Motors removed the case to the United States District Court for the Northern
District of Ohio, where the parties cross-moved for summary judgment. The court granted
General Motors’ motion for summary judgment.

                                                   II.

       At summary judgment, the question is whether a genuine issue of material fact requires a
trial or whether one party should win as a matter of law. Civil Rule 56(a). We review that
question with fresh eyes and draw all reasonable factual inferences in favor of Sims. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587–88 (1986).

       Breach of Contract. Sims maintains that General Motors’ charge back breached the
parties’ primary contract, known as the GM Dealer Sales and Services Agreement, because it
does not require Sims to collect Consumer Agreements within a set timeframe. We disagree.

       Michigan law, as an initial matter, governs this inquiry. In a diversity case, we apply the
choice-of-law principles of the forum State, here Ohio. State Farm Mut. Auto. Ins. Co. v.
Norcold, Inc., 849 F.3d 328, 331 (6th Cir 2017). Ohio law enforces a contract’s choice-of-law
provision unless (1) the chosen State has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties’ choice or (2) its application
would contradict a fundamental policy of another State with a materially greater interest in the
issue. See Sekeres v. Arbaugh, 508 N.E.2d 941, 942 (Ohio 1987). The parties chose Michigan
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                         Page 4

law to govern their disputes under the contract, and neither exception applies. General Motors
maintains its headquarters in Michigan, which suffices to meet Ohio’s substantial relationship
test. See Century Bus. Servs., Inc. v. Barton, 967 N.E.2d 782, 793–95 (Ohio Ct. App. 2011).
Although Sims does business in Ohio, Ohio’s interest in the dispute is no greater than
Michigan’s. See id.

       The contract authorizes the type of deadline that General Motors imposed in this case.
Section 11.2 states that the dealer “agrees to timely submit true and accurate applications or
claims.” R. 1-1 at 41. Section 6.3.1 adds that, “[if] General Motors offers any incentives to
customers or dealers, and payment is conditioned upon the purchase or lease of a new Motor
Vehicle, Dealer agrees to comply with the then current applicable policies and procedures in the
General Motors Incentive Manual, as amended from time to time.” Id. at 35. The December
2012 Incentive Manual in turn requires that, under the Purchase Program, the Consumer
Agreement must be “signed by the customer and dealer at time of delivery and must be retained
in the deal jacket at the selling dealership.” R. 28-1 at 10.

       The Incentive Manual also states that “Dealers should refer to the individual incentive
program administrative message/bulletins for their official rules and responsibilities under the
programs.” Id. On October 2, 2012, General Motors issued Incentive Bulletin 13-06, which like
the Incentive Manual provided that the Consumer Agreement “must be signed by the customer
and dealer at time of delivery and must be retained in the deal jacket at the selling dealership.”
Id. at 21–23. On February 1, 2014, GM issued Incentive Bulletin 14-06-004, which relaxed the
delivery date deadline and allowed the Consumer Agreement to “be completed and signed no
later than 30 calendar days from the date of delivery.” Id. at 25–27.

       Just as Sims had the right to expect General Motors to make the incentive payments in
connection with the Purchase Program, General Motors had the right to expect Sims to comply
with the requirements for obtaining the incentive payments. The terms of the relevant contracts
leave no room for Sims’ position. It was required to obtain and keep the relevant Consumer
Agreements according to these timelines.
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                            Page 5

       It makes no difference that the underlying GM-Sims contract does not establish this
deadline. General Motors offers many allowance and incentive programs, each designed to meet
dynamic market conditions and business needs. To preserve flexibility, the contract incorporates
the Incentive Manual by reference and says that it will be “amended from time to time.” R. 1-1
at 35. Sims contractually bound itself to this arrangement and cannot undo the bargain now.

       Resisting this conclusion, Sims argues that General Motors breached an implied covenant
of good faith and that a jury, not a court, must assess the allegation. But Michigan contract law
does not recognize such an independent cause of action. Belle Isle Grill Corp. v. City of Detroit,
666 N.W.2d 271, 279–80 (Mich. Ct. App. 2003). It uses the principle of good faith to evaluate a
party’s established contractual obligations or statutory duties, not to create a freestanding right of
action. Gorman v. Am. Honda Motor Co., Inc., 839 N.W.2d 223, 233–35 (Mich. Ct. App. 2013).

       As just shown, General Motors’ actions matched its rights and responsibilities under the
contract and were performed in good faith. The car maker acted honestly and in a commercially
reasonable manner. It imposed the Consumer Agreement deadline to ensure the integrity of the
incentive program and provided Sims with notice of the change. Confirming the point, Sims
knew about the changes. Mr. Sims, owner and president of the Sims dealership, admitted that he
requires his salespeople to consult the incentive bulletins regularly for appropriate policies and
procedures. And he testified that, for the period at issue, they were able to determine the
requirements of the incentive program. Even though the audit period ended on January 9, 2014,
and the 30-day grace period was not issued until February 1, 2014, GM debited Sims only for
those transactions that would have violated the more lenient standard. That was not the action of
a manufacturer bent on unfairly squeezing each dollar out of a dealer.

       Sims’ invocation of Littlejohn v. Parish, 839 N.E.2d 49 (Ohio Ct. App. 2005), adds little.
The state court overturned a grant of summary judgment on a breach of contract claim in which
one party argued that the other had not acted in good faith. But Littlejohn does not establish that
all breach of good faith allegations must be decided by a jury. It merely found a genuine issue of
material fact as to whether a group of mortgagors and mortgagees had dealt reasonably with each
other under Ohio contract law. Id. at 55. No such dispute of fact remains here, making General
Motors entitled to judgment as a matter of law.
 No. 16-3871                Sims Buick-GMC Truck v. General Motors                         Page 6

       Ohio Dealer Act. Sims also seeks relief under the Ohio Dealer Act. Ohio Rev. Code
Ch. 4517. Ohio, like many States, regulates the relationship between car manufacturers and
dealers. The laws take aim at the disparity in bargaining power between manufacturers and
dealers, protecting dealers from abusive requirements imposed unilaterally by manufacturers.
See New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 439 U.S. 96, 100–01 (1978). Where
applicable, the Ohio Act overrides terms in franchise agreements that violate its protections.
Ohio Rev. Code § 4517.59(A).

       Sims relies primarily on § 4517.59(A)(20)(a) of the Act, which identifies permissible and
impermissible charge backs. On the green-light side of the Act, a manufacturer may reduce a
sales incentive if it shows that the claim “lacks material documentation or is false, fraudulent, or
a misrepresentation.” Id. § 4517.59(A)(20)(a). On the red-light side of the Act, a manufacturer
may not issue a chargeback due to a dealer’s “incidental failure to comply with a specific claim
processing requirement, such as a clerical error, that does not put into question the legitimacy of
the claim.” Id. Sims maintains that General Motors’ reduction of its sales incentive payments
falls on the impermissible side of this line.

       No one claims that Sims was engaged in fraud or anything like it. The question, then, is
whether General Motors’ requirements with respect to Consumer Agreements and the timing of
obtaining them amount to “material documentation.”

       Context allows us to eliminate one possibility for identifying “material documentation”
requirements imposed by a car manufacturer. A requirement is not material simply because a
manufacturer opts to put it in a contract. The animating point of the Ohio Dealer Act, and like-
minded laws enacted in other States, is to override some contractual terms imposed by car
makers. That’s why the law nullifies terms in a car dealer contract that violate the law. Id.
§ 4517.59(A). That objective could never be accomplished if a car maker’s decision to include a
requirement in a contract automatically made it a “material” obligation. Were it otherwise,
General Motors could have required all Consumer Agreements to be printed in 10-point, Times
New Roman font and claimed that a dealer lacked “material documentation” if the agreements
were printed in 11-point or Arial font. That’s precisely the kind of pretextual and abusive hurdle
that the Ohio legislature sought to prevent car makers from unfairly imposing on car dealers.
 No. 16-3871                 Sims Buick-GMC Truck v. General Motors                         Page 7

        Confirming the point is the provision’s later reference to a car dealer’s “incidental failure
to comply with a specific claim processing requirement, such as a clerical error, that does not put
into question the legitimacy of the claim.” Id. § 4517.59(A)(20)(a). A requirement thus is not
“material” if it is “incidental” in nature, mirrors a “clerical error,” and could never affect the
“legitimacy of the claim.”

        Having established that a “material” requirement is not whatever a car manufacturer says
it is, we must decide what it is. The definition of “material” is a good place to start. In everyday
English, a timing requirement is material if it is “significant, important, [or] of consequence.”
Oxford English Dictionary (3d ed. online version 2017).

        The General Motors’ requirements were significant and important. Jeffrey Watts, the
Director of Dealer Mediations for General Motors, stated that the company established the
deadline for two business reasons. The first was that the deadline would prevent “abuse or
potential abuse” and protect the integrity of the incentive program.          This is a reasonable
explanation.     It is more difficult for an ineligible purchaser to obtain a General Motors
authorization number from a friend or an acquaintance if he must produce it at the time of the
vehicle’s delivery and at the same time complete paperwork showing his eligibility for the
program, rather than being permitted to do so months or even years after the fact. The longer the
window of opportunity for providing the paperwork, General Motors appreciated, the more
susceptible the incentive program is to abuse. That objective seeks to avoid abuse, not to impose
it on dealers.

        The second explanation was that the deadline would promote good relations with
customers by eliminating the risk of having to pester them for documentation months after a sale.
This too comports with lived experience. Just as no one enjoys receiving a residual cable or
utilities bill for a negligible amount months after moving somewhere else, no one enjoys
receiving a latent request for paperwork with respect to an already completed purchase. Sims
carries the Buick and GMC brand in its name and sells Buick and GMC vehicles. If a customer
is apt to hold McDonald’s (not just the franchisee) responsible for an order of stale fries, so a
purchaser would connect General Motors (not just the dealer) with a nettlesome voice mail
demanding paperwork six months after the car purchase.
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                          Page 8

       These legitimate business explanations suffice to show that a timely filed Consumer
Agreement constitutes “material documentation” and did not amount to an “incidental failure to
comply with a specific claim processing requirement, such as a clerical error.” It’s not as if
General Motors docked Sims because a clerk placed the Consumer Agreements in the wrong
deal folder. It required that the dealer obtain the necessary paperwork—confirming above all
that this purchaser was entitled to this employee/family discount—soon after the buyer drove the
car off the lot. The longer an illegitimate buyer has the car, the harder it will be to undo the
transaction or recover the full value of the car.

       Sims points out that remedial laws “shall be liberally construed in order to promote their
object,” and this principle has been applied to other parts of the Act. Ohio Rev. Code § 1.11; see
Earl Evans Chevrolet, Inc. v. Gen. Motors Corp., 598 N.E.2d 1187, 1193 (Ohio Ct. App. 1991).
That is true. But that principle does not allow us to alter the conventional meaning of a statute’s
terms or for that matter to label a requirement immaterial when it is not. Giving effect to a
statute’s language is usually the best way to “promote [its] object.” See In re Carter, 553 F.3d
979, 985–86 (6th Cir. 2009). That’s all we are trying to do here.

       Sims and the Ohio Automobile Dealers Association, as amicus curiae, emphasize that the
statute uses the present tense, rather than the past tense, when it says “lacks material
documentation.” For this reason, they say, General Motors could not show that Sims “lacks
material documentation” for these transactions because Sims had collected all of the Consumer
Agreements by the time the audit was done. But that is verbal gymnastics—and question
begging gymnastics at that. We could just as easily say that Sims continues to lack material
documentation at the time of the audit, and indeed forever, if we understand the documentation
at issue to be timely executed Consumer Agreements.

       Sims’ essential point is that the Ohio Act prohibits charge backs for any errors that it
cures before the conclusion of an audit. The statute, it is true, refers to requirements that go to
the “legitimacy of the claim.” But, if accepted, this argument would mean that car makers could
never enforce a documentation time deadline or for that matter any sort of prophylactic rule. The
Act allows the manufacturer to conduct an audit at any time within twelve months after the date
the dealer submits a claim. Ohio Rev. Code § 4517.59(A)(18). But Sims’ interpretation would
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                          Page 9

force General Motors to conduct audits every month to enforce a 30-day deadline in this way.
And imagine how difficult it would be to enforce a time-of-delivery deadline. The argument
exceeds the statute’s grasp.

       Sims points us to a case from a Pennsylvania state court and an order from a
Pennsylvania state agency. See Volkswagen of Am., Inc. v. State Bd. of Vehicle Mfrs., Dealers
& Salespersons, 840 A.2d 479 (Pa. Commw. Ct. 2004); Lieberth & Sons Dodge, Inc. v.
DaimlerChrysler Motors Co., LLC, Pa. State Bd. of Vehicle Mfrs., Dealers and Salespersons File
No. 2005-60-01503 (Mar. 24, 2006). But these cases arise under § 818.9(e)(2) of Pennsylvania’s
Board of Vehicles Act, which permits manufacturers to charge back only for “false or
unsubstantiated claims.” 63 Pa. Stat. Ann. § 818.9(e)(2). That’s not what this statute says.
Section 4517.59(A)(20)(a) permits charge backs when the claim is “false, fraudulent, or a
misrepresentation” or “lacks material documentation.”

       We can make quick work of Sims’ other statutory claims. Sims argues that General
Motors’ charge back violated § 4517.59(A)(19), which requires the manufacturer to approve or
disapprove each incentive claim by the dealer within thirty days of receipt. But it is undisputed
that General Motors made its initial incentive claim payments within thirty days of receipt. It
just debited Sims’ account for a portion of that amount after the audit. This is precisely the
sequence of events that § 4517.59(A)(20) contemplates in addressing the circumstances under
which a manufacturer may charge back a dealer’s account. To read (A)(19) as Sims suggests
would render (A)(20) meaningless.

       Sims adds that General Motors violated § 4517.59(A)(1), which requires the
manufacturer to act in good faith in its interactions with the dealer. Good faith is defined in the
Act as “honesty in the conduct or transaction concerned and the observance of reasonable
commercial standards of fair dealing in the trade.” Ohio Rev. Code § 4517.01(AA). This claim
fails as we have already established that General Motors conducted itself in an honest and
reasonable manner.

       Sims adds one thing more—that the district court should have certified the meaning of
the Act to the Ohio Supreme Court. We review this decision for an abuse of discretion.
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                     Page 10

Pennington v. State Farm Mut. Auto. Ins. Co., 553 F.3d 447, 449–50 (6th Cir. 2009). Although
the Ohio Supreme Court has never interpreted these provisions of the Act, sufficient Ohio
contract and statutory interpretation precedent guided its reasoned decision. Certification is
disfavored in any event when the party, as here, makes the request after the district court has
already decided the issue against it. Id. at 450.

       For these reasons, we affirm.
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                            Page 11

                                       _________________

                                             DISSENT
                                       _________________

       ROGERS, Circuit Judge, dissenting. Exactly for the reasons given by the majority, a
documentation requirement imposed by a car manufacturer is not material under the Ohio Dealer
Act, Ohio Rev. Code § 4517.59(A)(20)(a), “simply because a manufacturer opts to put it in a
contract.” Maj. Op. at 6. Likewise, the majority’s test of “significance or importance” makes
good sense. Such a test serves the balance established in the Act of permitting a manufacturer to
impose requirements reasonably related to the manufacturer’s interests, while not allowing
requirements that serve primarily the oppressive purpose of justifying chargebacks. Summary
judgment was not warranted, however, on the application of the test to the facts of this case.

       The timing requirement imposed by GM is not a deadline for getting the paperwork to
GM, but rather a deadline that GM requires the dealer to impose on the customer. There is no
argument here that how long a purchaser takes to give the required document to the dealer at all
affects the timing of GM’s processing of the paperwork. The only two bases in the record for the
requirement are reflected in a paragraph from an affidavit of GM’s employee Jeffrey Watts:

                The change in the timing requirement was made in 2012 in response to
       abuse or potential abuse to GM’s incentive system that GM discovered. When a
       vehicle is delivered under the program without the completed required CDA,
       eligibility for the VPP incentive is at risk. Mitigation of that risk is entirely within
       the dealer’s control because the dealer can work with the customer to obtain the
       required documentation. Having a defined “deadline” for obtaining the CDAs
       also promotes relationships with customers by ensuring that dealers promptly
       complete all required documentation and avoids having delays and potentially
       upsetting customers if dealers have to track down customers for documentation
       months after a sale.

       The reference to “abuse or potential abuse” gives no indication how a timing requirement
will prevent abuse.    The majority independently provides a “prophylactic” theory for the
manufacturer’s abuse contention: by denying chargebacks where the customer had more time to
obtain the required documentation, it will be harder for purchasers to obtain the required
document illegitimately. But there is nothing in the record to indicate that it takes longer to get
an illegitimate document than to get a legitimate one, particularly when the purchaser decides
 No. 16-3871               Sims Buick-GMC Truck v. General Motors                          Page 12

when to first walk into the dealership. Assessing the validity of a policy based upon a court’s
ability to come up with some possible justification for it also smacks of rational basis review
under the Equal Protection Clause, rather than the enforcement of a remedial statute like the one
here, designed to protect dealers from manufacturer oppression. See Earl Evans Chevrolet, Inc.
v. Gen. Motors Corp., 598 N.E.2d 1187, 1193 (Ohio Ct. App. 1991).

       The other justification for the timing requirement that GM requires dealers to impose is
that customers will be upset by having more rather than less time to provide the needed
documentation. This sounds at best like an after-the-fact rationalization rather than a genuine
concern.

       Conclusive acceptance of such weak rationales as significant or important effectively
reads the protection against petty chargebacks out of the statute. Similar rationales could be spun
for the font requirement that the majority correctly gives as a paradigmatic example of a contract
requirement that would not be material under the Dealer Act. A larger font would permit the
document to be read more easily, or might convey seriousness rather than frivolity. Such
rationales would not be irrational, but they would not meet the materiality requirement that
would justify making the dealer bear the cost of the incentives offered by the manufacturer.

       In short, the dealer in this case has presented a genuine issue of material fact as to
whether the timing requirement was not material.          Accepting the flimsy rationales of the
manufacturer in this case, without more, unduly undermines the protections of the Ohio Dealer
Act. On this point I respectfully dissent. In all other respects, I agree with the majority opinion.