Court Opinion

ID: 220278
Source: CourtListenerOpinion
Date Created: 2011-07-05 17:56:14+00
Date Added: 2024-06-11T17:28:44.493418
License: Public Domain

Not for Publication in West's Federal Reporter

          United States Court of Appeals
                      For the First Circuit

No. 10-1488
                 SOUTH SHORE IMPORTED CARS, INC.

                      Plaintiff, Appellant,

                                 v.

                   VOLKSWAGEN OF AMERICA, INC.

                       Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Richard G. Stearns, U.S. District Judge]

                              Before

                       Lynch, Chief Judge,
                   Souter, Associate Justice,*
                    and Stahl, Circuit Judge.

     Paul Marshall Harris, with whom Murtha Cullina LLP, was on
brief, for appellant.
     Steven J. Yatvin, with whom Barack Ferrazzano Kirschbaum &
Nagelberg LLP, was on brief, for appellee.

                             July 5, 2011

     *
          The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
      SOUTER, Associate Justice.           South Shore Imported Cars, Inc.

brought this action against Volkswagen of America, Inc., for breach

of an auto sales franchise agreement in violation of Mass. Gen.

Laws ch. 93B, known as the Dealer's Bill of Rights.                       The statute

limits   a   manufacturer     like   V.W.       from    terminating       a   dealer's

franchise    agreement   except      for     good      cause,   id.   §    5(a),    and

specifically requires a reasonable opportunity to cure a violation

of the agreement, id. § 5(h), and a minimum notice of 60 days with

specification    of   cause    prior       to   the     effective     date     of   any

termination, id. § 5(b).

      In December 2008, South Shore's bank cancelled its revolving

credit agreement for financing inventory purchases from V.W.                        The

bank informed V.W., which in turn notified South Shore that loss of

the line of credit was a breach of the franchise agreement (a claim

not disputed) and demanded that the dealer obtain a substitute.

When South Shore's efforts failed, V.W. told the dealer in mid-June

that it had 15 days to obtain new credit, and on July 7, 2009, V.W.

served South Shore with the 60-day notice of termination, effective

September 8.

      Although new bank financing was elusive, South Shore's efforts

to   sell the   dealership reached           the    point   of   a    purchase-sale

agreement on August 28, which was sent to V.W. on August 31.                        The

sale was conditioned on V.W.'s approval, and South Shore requested

V.W. to send the buyers an application form in accordance with the

                                       -2-
franchise terms, requiring V.W. to treat such an application in

good faith but giving V.W. time for consideration extending well

beyond September 8.

     On September 4, V.W. decided not to forward the form to the

buyers, and South Shore filed the present action on the stated

effective date of termination of the agreement, originally in state

court.   The state court had not acted on South Shore's request for

an injunction against termination by the time V.W. removed the case

to federal court, after which the parties executed a stand-still

agreement requiring V.W. to continue to deal with South Shore

during litigation, but expressly saving V.W.'s claims and rights,

and this was embodied in an injunction issued by agreement.                  In the

action itself, South Shore claimed that V.W.'s willingness to

continue   to   deal     with   it   from     December   2008   to    July    2009

constituted a waiver of South Shore's breach, thus depriving V.W.

of the good cause necessary to justify termination, and entailing

the further consequence that V.W. itself broke the agreement by

refusing to     tender    a   franchise      application   to   the   buyer    and

consider it in good faith.

     On cross-motions for summary judgement, the district court saw

no merit in the waiver argument.             The court went on, however, to

consider South Shore's claim that a week before the effective date

of franchise termination, V.W. was obligated by the franchise

agreement and by Mass. Gen. Laws ch. 93B, § 4(c)(8), to give full

                                       -3-
consideration   to   the   intending     buyer   as   an   applicant   for   a

dealership, which if favorable would supposedly have satisfied the

condition on which the purchase-sale agreement was hinged.                   In

awarding summary judgement to V.W., the district court held that no

obligation to consider the buyer ever arose under the terms of the

contract or the statute, because the duty to consider was premised

on South Shore's possession of a franchise that could be sold,

whereas by the week before the termination date the franchise

agreement was no longer in full force and effect and consequently

the franchise could not be conveyed.

     In pursuing de novo review in this court, Wilson v. Moulison

N. Corp., 639 F.3d 1, 6 (1st Cir. 2011), South Shore has abandoned

its waiver theory, and argues instead that the district court was

in error to rest on the notion of a diminished franchise right as

negating V.W.'s obligation to consider a franchise application by

the buyer.   South Shore says it was not purporting to transfer the

franchise, but was instead attempting to sell its assets and

inventory during the period within which, it claims, the franchise

agreement was in full effect and it was statutorily entitled to

attempt to "cure" the otherwise good cause to terminate.

     This appeal can be resolved fairly simply on V.W.'s argument

that its obligation under the franchise agreement to consider a

buyer at South Shore's behest did not extend to a buyer proposed a

week before the scheduled termination of the franchise itself.

                                   -4-
This route to decision necessarily clears several hurdles that

South Shore stresses at some length.              First, South Shore claims

that an injunction against terminating the franchise during the

pendency of litigation as authorized by § 5(g) of the statute

required V.W. to respect South Shore's contract rights (such as

requiring consideration of a buyer's application for franchise) as

if the parties were dealing without imminent termination.                 However

that may be, the short answer is that South Shore's request for an

injunction    under    §    5(g)   was   never   ruled    upon,   since     it   was

superceded by the parties' agreement for an injunction on terms to

which the parties assented.          Those terms provided that consent to

enter the order was not to be taken as waiving V.W.'s position that

the franchise agreement had already terminated, or as an extension

or renewal of that agreement. If, then, V.W.'s litigating position

was sound (as we hold it was), it was unaffected by the consensual

injunction.

     Second,    we    see   nothing      potentially     dispositive   in    South

Shore's argument that its statutory right to a reasonable time to

cure any material breach amounting to good cause to terminate

extended to a right to demand V.W.'s active consideration of a

buyer with good bank credit so long as it requested this before the

moment   of   franchise      termination.        The   argument   confuses       two

distinct rights.      The statutory right to cure within a reasonable

time, § 5(h), applies by definition to the act of breach, losing

                                         -5-
inventory financing.   South Shore never succeeded in getting new

credit and has never claimed that it did.   V.W.'s acceptance of a

proposed buyer by awarding a new franchise would not have cured the

breach but would have obligated South Shore to terminate its own

franchise agreement voluntarily in accordance with its terms.

Terminating the franchise would have ended the period of the

breach, but not by curing it.

     Finally, it does not matter whether the district court was on

sound ground when it reasoned that the purchase-sale agreement

failed to trigger an obligation on V.W.'s part to consider the

buyer's franchise application because at the moment of South

Shore's demand the franchise was no longer in full force, and South

Shore was therefore attempting to "assign" what it "no longer

owned."   South Shore Imported Cars, Inc. v. Volkswagen of America,

Inc., No. 09-11570, 2010 WL 1137558, at * 6 (D. Mass. March 22,

2010).    For even if the sales contract was not an attempted

assignment of the franchise (as by its inclusion of intangibles),

and even if any such purported assignment was at odds with the

franchise agreement, South Shore still has its claim that V.W. was

bound by statute to honor its contractual obligation to give good

faith consideration to a franchise application by a proposed buyer,

and for reasons given in V.W.'s brief we are satisfied that this

claim misconstrues the contract.

     Quite simply, V.W.'s contractual obligation to consider the

                                 -6-
application of the franchise's intending buyer cannot be applied to

South Shore's request a week before termination, because both by

statute and by contract, V.W. had the right to a longer period to

make due diligence enquiries about the buyer than the remaining

period of the franchise.       The statute gives V.W. at least 30 and up

to 60 days to decide on the buyer's application, § 4(e)(8), and the

franchise agreement provides for 45.          South Shore is thus claiming

that V.W. must exercise due diligence and come to a decision (or be

bound by a default approval under § 4(e)(8)) beyond the effective

period of the franchise agreement.

     South Shore has two answers to this objection.             The first is

to emphasize that the agreement obligates V.W. to give good faith

consideration to any buyer proposed by South Shore "during the term

of this agreement," which it in effect says must mean that V.W. is

obliged   to   consider   an   eleventh-hour      application    even   if   it

requires action beyond the stated termination date.             We think this

is an unlikely reading, however, in light of the further provision

in the next subsection of the agreement that if a manufacturer does

approve such an application, "[u]pon the consummation of Dealer's

approved proposal, Dealer will deliver to [V.W.] a voluntary

termination of this Agreement."            But in circumstances like those

here, a voluntary termination would be superfluous.             Even on South

Shore's view, the termination for unremedied good cause would be

postponed only until V.W. made a decision (in fact or by default),

                                     -7-
after which the prior dealer would have no franchise under the

agreement that it could terminate voluntarily. Since contracts are

to be read as a whole, the reasonable reading of the agreement is

that V.W. must consider a dealer's proposed successor only when the

remaining duration of the agreement includes sufficient time for

the period of enquiry by the manufacturer that the statute and

agreement allow.

     South Shore has pointed to nothing in the statute specifically

inconsistent with this reading,1 but it does argue that if such a

reading is accepted, "nothing would prevent a manufacturer from

simply sending a notice of termination to deliberately thwart and

delay a dealer from selling its dealership assets to a third-party

buyer." But, as is already apparent, there is much to prevent such

a ploy:   § 5(a) requires good cause for a termination and forbids

bad faith and arbitrary or unconscionable action.

     Affirmed.

     1
      Because no injunction under § 5(g) of the statute was issued
in this case, we intimate nothing about whether such an injunction
would require a different result.

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