Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBTUION—S.D.N.Y.: Kia’s refusal to approve two New York dealerships’ proposed sales was not unlawful, (Aug 23, 2016)

By E. Darius Sturmer, J.D.

Kia Motors America did not violate the New York Franchised Motor Vehicle Dealer Act by refusing to consent to two franchisees’ proposed sales of their Kia dealerships in the Bronx and Long Island City to prospective buyers, the federal district court in New York City has ruled. Kia Motors’ refusals to consent to the proposed transfers were permissible under settlement agreements that had been entered into among the parties to resolve numerous other disputes. A motion for summary judgment in favor of Kia Motors on all of the franchisees’ claims was, therefore, granted (H.B. Automotive Group, Inc. v. Kia Motors America, August 22, 2016, Caproni, V.).

The complaining franchisees— two dealerships doing business as Kia of the Bronx (Bronx Kia) and Kia of Long Island City (Kia-LIC)— had entered into a master settlement agreement (MSA) in March 2012 providing that Bronx Kia would voluntarily terminate its dealership by the end of September 2013 and that Kia-LIC would renovate its facility by June 2013 to meet Kia Motors’ standards or face further consequences. The agreement gave Bronx Kia the opportunity to transfer the franchise to an approved purchaser, subject to stringent deadlines. Kia-LIC’s subsequent decision not to renovate led to an involuntary dealership termination that later resulted in a separate interim settlement agreement (ISA) concerning the franchisee’s ability to transfer that dealership to a potential buyer, pursuant to similarly prescribed time conditions. Kia Motors then rejected several applications by the franchisees seeking consent to transfer, on the basis of inadequacy and untimeliness.

Permissibility of refusal. The refusal to consent to the Bronx Kia sale was not unreasonable under either Sec. 466 or Sec. 463(2)(k) of the Dealer Act, the court determined. Kia Motors was under no obligation to review a proposal that had been submitted late. It was not unreasonable in itself to refuse a request to sell after a franchise was already subject to termination. A dealer properly subject to termination—as Bronx Kia undisputedly was under the MSA and Kia-LIC was under the ISA—did not have a free and clear right to transfer at all.

Bronx Kia failed to abide by the deadlines specified in the MSA, submitting application materials for a proposed sale ten days after they were due. Kia Motors did not waive its right to object on timeliness grounds by reviewing the application, as the company clearly stated it was doing so “in an attempt to settle the litigation.”

Furthermore, Kia Motors relied on reasonable factors in declining to consent to the Bronx Kia sale, the court added. The application was incomplete and contained information related to customer satisfaction scores that was itself unsatisfactory. Customer satisfaction scores were valid grounds on which to refuse a transfer proposal, the court observed.

With respect to Kia-LIC, the ISA did not impose a duty upon Kia Motors to review the franchisee’s proposed transfer. The ISA between Kia-LIC and Kia Motors expressly provided that Kia Motors was under no obligation to review the deal and that Kia-LIC had no right to transfer its Kia assets free and clear of the notice of termination that Kia Motors had served upon it. Moreover, it was undisputed that Kia Motors found the proposal to be substantively deficient. The inadequacies relating to sales effectiveness data, customer satisfaction reports, and facility proposals, as well as the failure to submit the corresponding asset purchase agreement (APA) with the third-party purchaser, were all reasonable grounds on which to disapprove the transfer.

The case is No. 13-CV-4441 (VEC).

Attorneys: Stevan Hendrik Labonte (Labonte Law Group PLLC) and Steven Jay Harfenist (Friedman, Harfenist, Langer & Kraut) for H.B. Automotive Group, Inc. d/b/a KIA of the Bronx and Major Motors of Long Island City, Inc. d/b/a KIA of Long Island City. Michelle Anne Kisloff (Hogan Lovells US LLP) for KIA Motors America, Inc.

Companies: H.B. Automotive Group, Inc.; Major Motors of Long Island City, Inc.; KIA Motors America, Inc.

Cases: FranchisingDistribution NewYorkNews