Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—6th Cir.: Ford dealership states claims for bad faith against Ford, (Jul 25, 2013)

By Jody Coultas, J.D.

Toledo area Ford dealership Franklin Park Lincoln-Mercury, Inc. stated, in part, Ohio Motor Vehicle Dealers Act claims against Ford Motor Company for allegedly acting in bad faith with respect to the franchise agreement, the U.S. Court of Appeals in Cincinnati has held (Franklin Park Lincoln-Mercury, Inc. v. Ford Motor Company, July 24, 2013, Norris, A.). The dealership could not state a claim for breach of fiduciary duty or predatory pricing.

Franklin Park filed suit against Ford after Ford permitted another Lincoln-Mercury dealer in the area to merge with an existing Ford dealership and allegedly facilitated the transaction despite knowing that it would harm Franklin Park because the Toledo area could only support one Lincoln-Mercury dealership.

A district court granted Ford summary judgment on Franklin Park’s Ohio Motor Vehicle Dealers Act and breach of common law fiduciary duties claims.

Franklin Park argued that the franchise relationship between it and Ford place Ford in a position of disproportionate power and dominance over Franklin Park, required Franklin Park to provide confidential and proprietary information to Ford, creating a confidential relationship, and made Franklin Park dependent on Ford for economic survival. As a general rule, franchise relationships are not inherently fiduciary in nature and do not create a fiduciary duty unless by specific and mutual agreement. Although the automobile market is highly competitive one and a second Toledo dealership may negatively impact Franklin Park, the case was no different than any other franchisor-franchisee relationship. The franchise agreements established a number of duties on the part of Franklin Park, but also granted the dealership a fair amount of autonomy. There was no evidence that made this case a “rare instance” where a confidential relationship gave rise to a fiduciary duty, according to the court.

The district court did not err in granting summary judgment in favor of Ford on Franklin Park’s Ohio Motor Vehicle Dealers Act for predatory pricing, according to the court. The Act prohibits predatory practice or discriminate against any new motor vehicle dealer including discriminating against a franchisee, as compared to a same line-make franchisee, with regard to motor vehicle allocation, motor vehicle sales expectations, motor vehicle market penetration, motor vehicle planning volume requirements, customer service satisfaction requirements, dealership facility requirements, or dealer capitalization requirements. However, the Act did not list dealership transfers as a practice that could give rise to a claim of discrimination or predatory practice. Ford merely made a business decision and nothing indicated that it was anything more than that. Franklin Park was unable to show that Ford’s actions were aimed at driving the dealership out of business.

There was sufficient evidence to overturn the district court’s dismissal of Franklin Park’s Ohio Motor Vehicle Dealers Act claims based on Ford’s failure to act in good faith, according to the court. The Ohio Motor Vehicle Dealers Act barred Ford from failing to act in good faith in its treatment of Franklin Park. The district court mistakenly dismissed the claim for failure to allege that Ford failed to act in good faith with regard to the “terms, provisions, or conditions” of the franchise agreement. However, the duty of good faith is not tied to specific provisions of a franchise agreement, but rather arises when a franchisor acts “under the terms, provisions, or conditions of a franchise.”

Under the correct standard, Franklin Park sufficiently stated a claim. Franklin Park sufficiently alleged that Ford and Franklin Park operated under a franchise agreement and that Ford acted in bad faith. The allegedly bad faith actions included intentionally concealing from Franklin Park that Ford’s buy-sell arrangement with the new dealership was contingent upon the operation of the Lincoln/Mercury franchise, and that Ford worked to drive Franklin Park out of the market and out of business.

The case is No. 11-4375.

Attorneys: Reginald Sherman Jackson, Jr. (Connelly, Jackson & Collier) for Franklin Park Lincoln-Mercury, Inc. Dominic Francis Perella (Hogan Lovells) for Ford Motor Company

Companies: Franklin Park Lincoln-Mercury, Inc. Ford Motor Company

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