Court Opinion

ID: 3199832
Source: CourtListenerOpinion
Date Created: 2016-05-03 13:10:50.102075+00
Date Added: 2024-06-11T14:50:26.200370
License: Public Domain

This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 48
Beck Chevrolet Co., Inc.,
            Appellant,
        v.
General Motors LLC,
            Respondent.

          Russell P. McRory, for appellant.
          James C. McGrath, for respondent.
          Greater New York Automobile Dealers Association; Evans
Chevrolet; New York State Automobile Dealers Association; New
York State Automobile Dealers Association; Alliance of Automobile
Manufacturers et al., amici curiae.

RIVERA, J.:
          The United States Court of Appeals for the Second
Circuit certified to this Court questions requiring our
interpretation of two provisions of New York's Franchised Motor
Vehicle Dealer Act (Dealer Act), codified at Vehicle and Traffic
Law § 460 et seq.   The first question concerns the propriety of a

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franchisor sales performance standard that relies on statewide
data and some local variances, but fails to account for local
brand popularity.   Based on our reformulation of the question, we
conclude that use of such a standard to determine compliance with
a franchise agreement is unlawful under the Dealer Act.     The
second question asks whether a franchisor's unilateral change of
a dealer's geographic sales area constitutes a prohibited
modification to the franchise.    We conclude that it does not.

                                  I.
           The underlying federal action involves a dispute
between franchisor and Chevrolet car manufacturer General Motors
LLC (GM), and a Westchester County-based franchised motor vehicle
dealer, Beck Chevrolet Co., Inc. (Beck).    Beck is a long-time
automobile dealership with a Chevrolet franchise dating back to
GM's predecessor-in-interest.    During the predecessor's
bankruptcy proceeding, Beck entered a Wind-Down agreement to
terminate its franchise in exchange for a money payout.     After GM
acquired certain of the predecessor's assets, GM rescinded the
Wind-Down agreement and entered a Participation Agreement with
Beck.   The Participation Agreement, along with Beck's Dealer
Sales and Services Agreement with incorporated Standard
Provisions (Dealer Agreement), allows Beck to operate as a GM
franchise operation.
           Under these agreements GM required Beck to achieve a

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specified level of sales performance within a geographic location
designated by GM, referred to as an Area of Geographic Sales and
Service Advantage (AGSSA).   The AGSSA consists of U.S. census
tracts closest in proximity to the dealer, subject to certain
traffic condition adjustments.    GM carves out an individual
dealer's AGSSA from a geographic sales region known as an Area of
Primary Responsibility (APR), which is shared by a group of
dealers in the same urban location.      Dealers, like Beck, are
responsible for the sale and marketing of Chevrolet vehicles and
products within their respective AGSSA.
           GM measured Beck's sales performance based on a Retail
Sales Index (RSI), a methodology commonly employed by vehicle
manufacturers in the United States, and applied by GM to all its
dealers.   The RSI is a percentage determined by a fractional
equation, which divides a dealer's actual total retail sales
during a particular time period, by the dealer's expected sales.
In other words, the mathematical representation of an RSI is
actual sales (the numerator) over expected sales (the
denominator), multiplied by 100.
           Expected sales are determined using a multistep
formula, whereby GM determines Chevrolet's statewide market share
for a particular type of vehicle segment--for example a mid-sized
sedan or pickup truck--then multiplies that number by the total
retail motor vehicle registrations in the dealer's AGSSA for that
same segment, and repeats the process for each vehicle segment.

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The results for each segment are combined to achieve the dealer's
total expected sales in its AGSSA.       By way of illustration,
assume in a given year that Chevrolet has a particular mid-sized
sedan model and that the sales of that model represent 12% of all
mid-sized sedans sold in New York State (constituting one vehicle
segment).   Further assume that the number of mid-sized sedan
registrations in a dealer's AGSSA is 1500, meaning there are 1500
mid-sized sedans registered in the AGSSA.       In that case, 1500 is
multiplied by the 12% statewide share, equaling 180 expected
sales for this segment.   This same mathematical formula is
repeated for each segment of vehicles in which Chevrolet
competes, meaning in each segment for which Chevrolet has a model
that could be sold in New York state.       Assume four segments
total, and that the formula results in the following expected
sales by segment: 180, 120, 75, 25.       These are added together for
a combined number of 400.   The 400 represents the dealer's total
expected sales and will be the denominator in the equation used
to determine the dealer's RSI.
            As stated, GM includes in the dealer's expected sales
only registrations for vehicle segments in which Chevrolet
competes, and does not include registrations for non-Chevrolet
vehicle segments. Through this segmentation or
"segment-adjustment" GM accounts for local popularity of
particular types of vehicles.    For example, if pickup trucks are
less popular in a given AGGSA, compared to the rest of the state,

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a dealer's expected sales are adjusted downward.
           A 100 RSI constitutes satisfactory performance of a
dealer's sales obligations under the Dealer Agreement.
Nevertheless, GM treats this not as a perfect score but as an
average score, and as explained in the Dealer Agreement, GM
expects dealers below 100 "to pursue available sales
opportunities exceeding this standard."   GM's Dealer Rating
System classifies dealers as follows: "Superior" for a 100 or
greater RSI, and the dealer is in the top 15% of all dealers in
the state; "Satisfactory" for a 100 RSI and the dealer is not in
the top 15%; "Needs Improvement" for a 85 to 99.9 RSI; "Needs
Significant Improvement" for an 84.9 or lower RSI and the dealer
is not in the bottom 15% of dealers in the state; and
"Unsatisfactory" for an 84.9 or less RSI and the dealer is in the
bottom 15%.
           Applying this rating system to the hypothetical dealer
in the prior example, if the dealer sells 400 Chevrolet cars,
because its expected sales were also 400, the dealer's RSI is 100
(400 divided by 400 equals 1, multiplied by 100 to achieve an RSI
as a percentage).   Since the dealer achieved its target sales,
which constitutes an average sales performance, the dealer would
be rated "superior" if the dealer is in the top 15% of all
dealers statewide, or "satisfactory" if the dealer is not in the
top 15%.   If the dealer with the same expected sales of 400 sells
instead 200 Chevrolets, then its RSI is 50 (200 divided by 400,

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equals .5, multiplied by 100 to achieve an RSI as a percentage).
The dealer achieved only half of its target sales, and would be
rated as "needs significant improvement" if the dealer is not in
the bottom 15% of all dealers, or "unsatisfactory" if the dealer
is in the bottom 15%.
          Unless all dealers meet or exceed their expected target
sales, there will be some dealers who score below 100.   A below
100 score is below average performance.   Since the expected sales
number is based on an adjusted state market average, as the
number of sales increases, so do the number of actual sales
necessary to achieve a 100 RSI.   In other words, the RSI sales
performance measure moves upward (or downward) depending on
market variations.   Consequently, a dealer's performance is
dependent on the performance in the market against which the
dealer is measured, and the statewide market is subject to local
variations, only one of which is reflected in the RSI (vehicle
segment preference).
          Under the Participation Agreement, GM required Beck to
trend-up to the 100 RSI average benchmark within three years.     In
the first year Beck had to attain an RSI of 70, in the second
year an 85 RSI, and a 100 RSI in its third year.   When Beck
failed to timely achieve these RSI scores it defaulted on the
Participation Agreement, and potentially became subject to a
"needs significant improvement" or "unsatisfactory" dealer
rating.

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          In the middle of the second year, GM notified Beck that
it would extend the dealer agreement into future years on
condition that Beck met its performance requirements, including
achieving the 85 RSI by the second year's end, and the 100 RSI in
the third year.   Failure to achieve the 85 RSI in the second year
meant that "GM shall have no obligation to extend the Dealer
Agreement."   By separate letter GM also informed Beck that it was
increasing its AGSSA by four census tracts in Westchester County,
and reducing the AGSSA by seven tracts in Bronx County.
          After Beck sued GM in State court alleging violations
of the Dealer Act based on the performance standard and changes
in the AGSSA, GM removed the action to the United States District
Court for the Southern District of New York.    After procedural
history not relevant to the questions certified to us, Beck filed
a second amended complaint asserting, inter alia, two Dealer Act
claims for injunctive and declaratory relief.    The first claim
alleged that GM used an unreasonable, arbitrary and unfair
performance standard in determining Beck's compliance with its
agreements, pursuant to VTL § 463 (2) (gg), and sought to enjoin
GM from using a New York statewide average to calculate Beck's
sales performance.   Beck claimed the RSI was unreasonable and
unfair as a matter of law because it failed to account for local
customer preferences and low brand popularity in New York's
downstate region.    The second claim alleged that GM's unilateral
change to Beck's AGSSA was an unfair modification within the

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meaning of VTL § 463 (2) (ff), because the new area enlarged
Beck's sales territory, with the effect of increasing Beck's
sales targets and facility requirements.
          The district court held against Beck on both claims,
and Beck appealed.    The Second Circuit determined that resolution
of the appeal depended on unsettled New York law, and certified
two questions concerning the propriety of GM's performance
standard and unilateral modification under the Dealer Act (787
F3d 663 [2d Cir 2015]).    The first certified question as framed
by the Second Circuit asks
          "Is a performance standard that requires
          'average' performance based on statewide
          sales data in order for an automobile dealer
          to retain its dealership 'unreasonable,
          arbitrary or unfair' under New York Vehicle &
          Traffic Law section 463 (2) (gg) because it
          does not account for local variations beyond
          adjusting for the local popularity of general
          vehicle types?"
The second certified question concerns GM's revision of Beck's
AGSSA, and asks
          "Does a change to a franchisee's Area of
          Primary Responsibility or AGSSA constitute a
          prohibited 'modification' to the franchise
          under section 463 (2) (ff), even though the
          standard terms of the Dealer Agreement
          reserve the franchisor's right to alter the
          Area of Primary Responsibility or AGSSA in
          its sole discretion?"

                                 II.
                     A. FIRST CERTIFIED QUESTION
          As a threshold matter we consider GM's recommendation

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that we reformulate the first certified question because it is
predicated on the incorrect presumption that GM terminates all
dealers who have a below-average sales performance, when, in
fact, GM bases termination on the RSI and other relevant factors.
Beck objects to the proposed reframing of the question, arguing
that the consequences that flow from the application of a
manufacturer's sales performance metric are relevant to the
statute's interpretation, and that Beck was threatened with
nonrenewal of its franchise solely because of its RSI score.
          We agree with the parties that the question certified
by the Second Circuit posits a case in which below-average sales
performance results in termination of a dealership.   Section 463
(2) (gg), in contrast, makes no mention of termination, and
instead applies to standards used to assess dealer compliance
with a franchise agreement.   Such assessment may lead to
franchisor conduct short of termination, but which nonetheless
adversely impacts a dealer.
          We do not adopt the approach taken by our dissenting
colleague to the first certified question because whether a
franchisor's standard complies with VTL § 463(2)(gg) is in the
first instance a legal question concerning the propriety of the
general criteria by which a dealer is measured.   Contrary to the
dissent's view of the statute, a standard can appear facially
unreasonable, arbitrary or unfair, without reference to facts
particular to any individual dealer.   While a standard that

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appears fair as written may be applied in an unfair manner, and a
standard that is reasonable in the abstract may have irrational
consequences in practice, resolution of the reframed question
does not require the type of as-applied analysis advocated by the
dissent.   Instead, we consider the standard's lawfulness against
benchmarks as framed by GM, which rely on general data and not an
individual dealer's facts.
           Therefore, to provide appropriate guidance on the
statute's anticipated coverage, and in accordance with our
discretion in these matters, we proceed to answer the following
reformulated question,
           Is a performance standard that uses "average"
           performance based on statewide sales data in
           order to determine an automobile dealer's
           compliance with a franchise agreement
           "unreasonable, arbitrary, or unfair" under
           New York Vehicle & Traffic Law section
           463(2)(gg) because it does not account for
           local variations beyond adjusting for the
           local popularity of general vehicle types?
(see Barenboim v Starbucks Corp., 21 NY3d 460, 469 [2013]
[reformulating the certified question to track the language of
the statute at issue]; Commodity Futures Trading Comm’n v Walsh,
17 NY3d 162, 177-178 [2011] [reformulating a certified
question]).
           As our well-established rules of statutory construction
direct, we begin our analysis with the language of the statute,
recognizing that "our primary consideration is to ascertain and
give effect to the intention of the Legislature" (People v

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Ballman, 15 NY3d 68, 72 [2010], quoting Matter of DaimlerChrysler
Corp. v Spitzer, 7 NY3d 653, 660 [2006][internal quotation marks
and citation omitted]).   In this endeavor we are guided by the
principle that "the text of a provision 'is the clearest
indicator of legislative intent and courts should construe
unambiguous language to give effect to its plain meaning' "
(Albany Law School v New York State Off. of Mental Retardation
and Dev. Disabilities, 19 NY3d 106, 120 [2012], quoting Matter of
DaimlerChrysler Corp., 7 NY3d at 660).
          As its title makes clear, section 463 of the Dealer Act
protects dealers from "Unfair business practices by franchisors."
Section 463 (2) (gg) provides that,
          "[i]t shall be unlawful for any franchisor,
          notwithstanding the terms of any franchise
          contract: . . . [t]o use an unreasonable,
          arbitrary or unfair sales or other
          performance standard in determining a
          franchised motor vehicle dealer's compliance
          with a franchise agreement. Before applying
          any sales, service or other performance
          standard to a franchised motor vehicle
          dealer, a franchisor shall communicate the
          performance standard in writing in a clear
          and concise manner."
(VTL § 463 [2] [gg]).
          The Dealer Act does not define what constitutes
"unreasonable, arbitrary or unfair" performance standards.
However, these determinates of impermissible conduct are familiar
concepts in the law (see Black's Law Dictionary [10th ed. 2014]
[unreasonable: "Not guided by reason; irrational or capricious";
arbitrary: "founded on prejudice or preference rather than on

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reason or fact"; unfair: "Inequitable in business dealings"]).
Notably, a standard need only violate one of these proscriptions
to run afoul of VTL § 463 (2) (gg).     As a consequence, the
statute limits a range of performance standards made unlawful by
the Dealer Act.
            Whether a performance standard is "unreasonable,
arbitrary or unfair" depends on considerations unique to the
franchise business, which is driven by sales in a competitive
market.   A performance standard that measures dealer success
based on data that fails to accurately represent market
challenges would appear to undermine the franchisor and dealer’s
common goal of selling and servicing vehicles and franchisor
products.    At a minimum, VTL § 463 (2) (gg) forbids the use of
standards not based in fact or responsive to market forces
because performance benchmarks that reflect a market different
from the dealer’s sales area cannot be reasonable or fair.
            The standard employed here reflects GM’s acceptance
that market forces matter in assessing dealer sales performance.
The RSI is based on an equation in which the market-–actual and
aspirational–-sets the foundation for measuring a dealer’s
achievement.    As GM's standard recognizes, a dealer works within
a constructed market–-one set both by externalities and by GM’s
business needs.    Thus, GM measures a dealer's sales performance
by comparison to a statewide class of dealers, but adjusts the
standard to reflect certain local market peculiarities with

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respect to one metric: local consumer purchasing preferences for
certain vehicle types.   Although having made the determination to
incorporate local concerns in its dealer performance standard, GM
has also specifically chosen to exclude from its measure the
impact of customer brand preference on dealership sales.    Yet,
customer purchases are influenced not solely by preferences for a
type of vehicle, for which GM accounts through its segmentation
formula, but also by brand popularity and import bias.    Moreover,
those dealers, like Beck, who service an assigned area in which
Chevrolet is less popular are disadvantaged when measured against
dealers in other parts of the state in which the Chevrolet brand
is stronger and facilitates dealer sales performance.    Therefore,
once GM determined that statewide raw data must be adjusted to
account for customer preference as a measure of dealer sales
performance, GM’s exclusion of local brand popularity or import
bias rendered the standard unreasonable and unfair because these
preference factors constitute market challenges that impact a
dealer’s sales performance differently across the state.    It is
unlawful under section 463 (2) (gg) to measure a dealer's sales
performance by a standard that fails to consider the desirability
of the Chevrolet brand itself as a measure of a dealer's effort
and sales ability.
          GM contends that inclusion of these factors is both
undesirable and unduly burdensome.     GM essentially argues that it
can set a standard that misrepresents external market forces.

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However, measuring the dealer's performance against a market the
dealer never faces is not reasonable or fair within the meaning
of section 463 (2) (gg).   It is the equivalent of holding a
dealer in New York State to a standard based on the market of a
foreign country or another state without appropriate adjustments
for local differences.   In both cases, the dealer is measured
against a sales landscape that is not within the dealer's
experience.
          GM claims that the standard has a certain utility
because it is intended to identify dealers in need of
improvement.   This boils down to GM desiring to rid itself of
ineffective dealers in order to increase its brand market share.
Certainly a franchisor has a business interest in addressing
weaknesses in its sales force.   However, in doing so, a
franchisor must not deploy unreasonable, arbitrary or unfair
performance standards.   The standard used by GM excludes local
variance in market competitiveness, and masks the dealer
mediocrity of which GM complains.   To comply with the Dealer Act,
if a franchisor intends to measure a dealer's performance based
on a comparison to statewide data for other dealers, then the
comparison data must take into account the market-based
challenges that affect dealer success.   Here, if Beck cannot keep
up with comparably placed dealers in its sales area, then
termination may be appropriate, but as it stands the RSI excludes
an important measure of comparability.

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            Notwithstanding GM's claim that the RSI methodology is
consistent with industry norms, it remains the case that any
performance standard adopted by a franchisor to determine a
dealer's compliance with a franchise agreement is subject to the
limitations set forth in the Dealer Act.   While we recognize that
industry norms are important because they express the wisdom
borne of experience, and reflect considered thought on the part
of industry members, they are not beyond the reach of the
statute.    We are especially cautious in this regard because this
is an industry in which the parties hold unequal bargaining
positions, and an industry standard may reflect the entrenchment
of the very inequality and favoritism that the Legislature
sought to counterbalance in the Dealer Act.   Thus, GM may not
rely on a standard that is unreasonable and unfair simply because
of its prevalence within an industry the Legislature   sought to
regulate.
            Relatedly, assuming arguendo that the use of statewide
data reflects a certain administrative convenience, the standard
would still be unlawful because although it might not be
unreasonable or arbitrary, it is still unfair.   Moreover, section
463 (2) (gg) prohibits unfair practices in order to protect
dealers, not to alleviate a franchisor's potential administrative
burdens associated with its performance standards.
            Our analysis also furthers the Act's statutory purpose.
By enacting the Dealer Act, the Legislature sought to address a

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historical inequality in the vehicle franchise business that
favored automobile manufacturers over motor vehicle dealers
(Assembly Mem in Support of Legislation, Bill Jacket, L. 1983,
ch. 815, § 1, at 7; see New Motor Vehicle Bd. of Cal. v Orrin W.
Fox Co., 439 U.S. 96, 100–101 n 4 [1978], quoting S.Rep. No. 2073,
84th Cong., 2d Sess., 2 [1956] [US Senate finding that the
"highly concentrated" automobile industry created a "vast
disparity in economic power and bargaining strength" between
automobile manufacturers and their dealers, in which
manufacturers "determine arbitrarily the rules by which the two
parties conduct their business affairs"]; see also Automobile
Dealers' Day in Court Act, 15 USC §§ 1221–1225).   The imbalance
placed dealers at the mercy of manufacturers who were able to
draft and impose protectionist agreements favorable to
manufacturers, placing at risk a dealer's financial investment
(see Assembly Mem in Support, at 7).   As the Memorandum in
Support of Legislation explained,

          "[t]here is a great disparity in bargaining
          power between the motor vehicle manufacturer
          and the motor vehicle dealer. The franchise
          agreements which have been developed over a
          long course of dealing between the
          manufacturer and the dealer have reached a
          point where the dealer has few if any rights
          in comparison to those of the motor vehicle
          manufacturer. This results in an undue
          imbalance in bargaining power and the dealer
          is in many cases at the mercy of the
          manufacturer. In reality, the motor vehicle
          dealer who frequently has millions of dollars
          invested in dealership real property,

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           equipment and good will can do nothing to
           oppose the will of the manufacturer without
           jeopardizing this substantial investment.
           This bill seeks to provide certain basic
           protection for the dealer in areas where such
           protection is deemed necessary. If enacted,
           the protection afforded the dealer through
           the terms of the bill would counterbalance
           the numerous protections afforded the
           manufacturer under the terms of its franchise
           agreement with the dealer. The result would
           be a healthier marketplace for all parties
           concerned"
(id at 7; see New Motor Vehicle Bd. of Cal., 439 U.S. at 100–101 n
4 [manufacturer's arbitrary "rules are incorporated in the sales
agreement or franchise which the manufacturer has prepared for
the dealer's signature"]).   The legislature expanded protections
for dealers by enacting the Dealer Act in derogation of common
law contract rules, statutorily overriding agreement provisions
that were unfair to dealers (see VTL § 463 [2] [making the 2008
amendments applicable "notwithstanding the terms of any franchise
contract"]).   The legislature thereby sought to affirmatively
"establish an equilibrium of bargaining power" (L. 1983, ch. 815,
at 7).   Furthermore, by amending the statute to include section
463 (2) (gg), thereby imposing a writing requirement to ensure
transparency and a substantive measure of lawfulness, the
legislature identified the misuse of performance standards as one
unfair business practice that needed to be reined in.
           Our interpretation of VTL § 463 (2) (gg) should not be
understood as an invitation for a court to substitute its opinion
for a franchisor's determination of how best to achieve its

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bottom-line business goals.    Decisions about how best to improve
the quality of dealerships and increase dealer sales involve
business judgments rightly left to franchisors, and not the
courts.   Nevertheless, the legislature, by its enactment of the
Dealer Act, has determined it is in the interest of the state to
subject a franchisor's performance standards to statutory limits
in order to prevent unfair business practices, and has seen fit
to place review of franchisor standards squarely within the
authority of the courts.
                   B.    SECOND CERTIFIED QUESTION
           The second certified question concerns GM's revision of
Beck's AGSSA, and asks
           "Does a change to a franchisee's Area of
           Primary Responsibility or AGSSA constitute a
           prohibited 'modification' to the franchise
           under section 463 (2) (ff), even though the
           standard terms of the Dealer Agreement
           reserve the franchisor's right to alter the
           Area of Primary Responsibility or AGSSA in
           its sole discretion?"
We conclude that such change is not an impermissible modification
within the meaning of the statute.
           Under VTL § 463 (2) (ff) (1), "it shall be unlawful for
any franchisor, notwithstanding the terms of any franchise
contract . . . . [t]o modify the franchise of any franchised
motor vehicle dealer, unless the franchisor notifies the . . .
dealer in writing . . . at least ninety days before the effective
date, stating the specific grounds for such modification."    A
"modification" is "any change or replacement of any franchise if

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such change or replacement may substantially and adversely affect
the new motor vehicle dealer's rights, obligations, investment or
return on investment" (id. § 463 [2] [ff] [2]).   A franchise is
statutorily defined as
          "a written arrangement for a definite or
          indefinite period in which a manufacturer or
          distributor grants to a franchised motor
          vehicle dealer a license to use a trade name,
          service mark or related characteristics and
          in which there is a community of interest in
          the marketing of motor vehicles or services
          related thereto"
(VTL § 462 [6]).   Thus, a modification is not limited to a change
in the franchise contract because other documents may be
constituent parts of the parties' written arrangement, reflecting
their shared interest in the sales and servicing of vehicles and
other franchisor products.
          The statute provides the dealer with a private right of
action to challenge a modification, and places on a franchisor
"the burden of proving that such modification is fair and not
prohibited" (VTL §§ 463 [2] [ff] [3]; 469).   Under the statute
"[a] modification is deemed unfair if it is not undertaken in
good faith; is not undertaken for good cause; or would adversely
and substantially alter the rights, obligations, investment or
return on investment of the franchised motor vehicle dealer under
an existing franchise agreement" (id. § 463 [2] [ff] [3]).
          To the extent section 463 (2) makes unlawful certain
franchisor abuses, "notwithstanding the terms of any franchise
contract," this section abrogates contract principles which

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traditionally bind parties to their agreements (see B & F Bldg.
Corp. v Liebig, 76 NY2d 689, 693 [1990] ["The Legislature is
presumed . . . to have abrogated the common law only to the
extent that the clear import of the language of the statute
requires"]).   As a consequence, a franchisor may not insulate
itself from the requirements and proscriptions of section 463 (2)
(ff) by contractually reserving in the standard Dealer Agreement
the power to revise an AGSSA, as GM did in this case.   Otherwise,
a franchisor with superior bargaining power could easily
circumvent the purpose of the Dealer Act by reserving the right
to change franchise terms at will, even where a change results in
significant adverse affects on the dealer.
           The fact that the Dealer Agreement does not contain
details about the AGSSA does not remove a franchisor's revision
of the AGSSA from the ambit of section 463 (2) (ff) because a
change in the AGSSA is a change to the franchise.   The AGSSA is a
subset of a dealer's APR, which is specifically referenced in the
Dealer Agreement.   The AGSSA defines the dealer's geographic
sales area and serves as an essential metric of a dealer's sales
performance.   As such it affects a dealer's competitive position
and ability to comply with its obligation under the Dealer
Agreement to "effectively sell[], servic[e] and otherwise
represent[] General Motors Products" in the dealer's designated
APR.   In other words, a revised AGSSA has the potential to
significantly impact the franchise arrangement.   GM recognized

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this very fact in its letter to Beck informing it of the
revisions to its AGSSA, which GM described as a notice "provided
pursuant to New York Vehicle & Traffic Law § 463(2)(ff)(1)."
          However, by its terms, section 463 (2) (ff) (1) is
concerned only with those modifications that result in negative
consequences for the dealer, and which meet its requirements for
determining whether a change is statutorily impermissible.    Thus,
the only prohibited modification is one that "may substantially
and adversely affect the new motor vehicle dealer's rights,
obligations, investment or return on investment."   In addition,
the modification must be deemed unfair, meaning "it is not
undertaken in good faith; is not undertaken for good cause; or
would adversely and substantially alter the rights, obligations,
investment or return on investment of the franchised motor
vehicle dealer under an existing franchise agreement" (VTL § 463
[2] [ff] [3]).
          Given this statutory language, we cannot say that a
revision to a dealer's geographic sales area categorically
violates section 463 (2) (ff).   The revised area may not have a
substantial impact or be adverse to a dealer's interests within
the meaning of the statute.   Indeed, a change could improve a
dealer's sales performance opportunities and competitive
position, for example by assigning a geographic area with greater
sales potential, by reducing the dealer's geographic area thereby
improving the dealer's RSI, or by leveling the playing field

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among dealers within the same dealer network.    Thus, a revision
of the AGSSA is not perforce violative of section 463 (2) (ff).
Rather, such change must be assessed on a case-by-case basis,
upon consideration of the impact of the revision on a dealer's
position.
            Accordingly, the first certified question, as
reformulated, should be answered in accordance with this opinion
and the second certified question answered in the negative.

                               - 22 -
Beck Chevrolet Co., Inc. v General Motors, LLC
No. 48

PIGOTT, J.(dissenting, in part):
          Vehicle and Traffic Law § 463 (2) (gg) makes it
unlawful for any franchisor, regardless of the terms of a
franchise contract, "[t]o use an unreasonable, arbitrary or
unfair sales or performance standard in determining a franchised
                                                                  1
motor vehicle dealer's compliance with a franchise agreement."
These general and amorphous adjectives "unreasonable,"
"arbitrary" and "unfair" are similar to those found in the
Uniform Commercial Code and lend themselves to varying
interpretations depending on the circumstances of a particular
business situation.   A performance standard that may be
"unreasonable, arbitrary or unfair" as applied to one dealer, in
a metropolitan area, may be perfectly reasonable when applied to
another in another area of the state.   Because in my view a
determination concerning the reasonableness, arbitrariness or
unfairness of a particular sales performance standard necessarily
requires a factual, rather than a legal, determination, I dissent
from the majority's response to the first certified question.
          District Court conducted a bench trial over several

     1
       Beck does not claim that GM failed to "communicate the
performance standard in writing in a clear and concise manner,"
which is also required by section 463 (2) (gg).

                               - 1 -
                                - 2 -                         No. 48

days and rendered a determination that the RSI performance
standard, which uses a statewide sales average adjusted for local
conditions, was not unreasonable, arbitrary or unfair.    In making
that determination, District Court considered and rejected the
testimony of Beck's expert that the standard did not account for
brand popularity and import bias, holding that the Retail Sales
Index's (RSI) use of "segmentation" adequately accounted for
those particular variables.    Crediting the testimony of GM's two
experts, District Court also determined that the RSI standard was
"administratively convenient," "objective," and "uniformly
applied."    That factual determination concerning the performance
standard should not be disturbed unless there is no record
evidence to support it.
            The majority reaches a different factual conclusion,
however, stating that "GM's exclusion of local brand popularity
or import bias rendered the [RSI] standard unreasonable and
unfair because these preference factors constitute market
challenges that impact a dealer's sales performance differently
across the state" (majority op, at 12-13).    Putting aside that
what constitutes an "unreasonable," "arbitrary" or "unfair"
standard is a factual determination, I do not believe it is this
Court's role or function to determine, as a matter of law, that
GM's failure to include these particular "preference factors" as
part of its currently-formulated RSI violated section 463 (2)
(gg).   We should be mindful that our decision will apply not only

                                - 2 -
                                 - 3 -                          No. 48

to the particular facts in this case, but to all automobile
manufacturers and dealerships in this state.       Indeed, the Second
Circuit acknowledges that GM's performance standards "appear to
represent the industry standard" (787 F3d 663, 676 [2d Cir
2015]).
          Contrary to the majority's subjective conclusion, GM's
use of the RSI with a segmented adjustment does not amount "to GM
desiring to rid itself of ineffective dealers in order to
increase its brand market share" (majority op, 13) -- a fact that
we are not empowered to determine.       However, if that were GM's
true motive, it would have stuck with the Wind-Down Agreement
that Beck signed instead of entering into the Participation
Agreement with Beck instead.   Nor would GM have continued working
with Beck from 2010 through 2012 to improve Beck's performance
had it been GM's intention that the Beck dealership fail.       It is
evident from the record that the RSI is a tool utilized by GM to
determine if a franchisee is achieving certain benchmarks, and,
if not, the RSI operates as a canary in the coal mine to alert GM
that the franchisee needs assistance.
          In my view, the majority's opinion sets a standard that
will require other franchisors to follow suit, and, to that
extent, its interpretation of section 263 (2) (gg) goes beyond
what the legislature intended.    Therefore, I dissent.

                                 - 3 -
                                  - 4 -                           No. 48

*   *   *   *   *     *   *   *    *      *   *   *   *   *   *   *   *
Following certification of questions by the United States Court
of Appeals for the Second Circuit and acceptance of the questions
by this Court pursuant to section 500.27 of the Rules of Practice
of the New York State Court of Appeals, and after hearing
argument by counsel for the parties and consideration of the
briefs and the record submitted, first certified question
answered in accordance with the opinion herein and second
certified question answered in the negative. Opinion by Judge
Rivera. Chief Judge DiFiore and Judges Abdus-Salaam, Stein and
Fahey concur. Judge Pigott dissents in part in an opinion.
Judge Garcia took no part.

Decided May 3, 2016

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