Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—9th Cir.: Mercedes may have to reimburse rejected transferee for exercising right of first refusal, (Nov 6, 2014)

By Greg Hammond, J.D.

Mercedes Benz USA, LLC could be required to reimburse a proposed transferee for expenses incurred in negotiating an Asset Purchase Agreement, after Mercedes timely exercised its right of first refusal (ROFR). An order of summary judgment was therefore partially reversed and remanded by the U.S. Court of Appeals in San Francisco (Fresno Motors, LLC v. Mercedes Benz USA, LLC, November 5, 2014, Gettleman, R.).

Background. Fresno Motors, LLC and Selma Motors, Inc. entered into an Asset Purchase Agreement (APA) with a Mercedes-Benz dealership. However, Mercedes, the manufacturer and importer of the vehicles sold by the dealership, exercised its ROFR contained in its dealership agreement with the dealer. The plaintiffs filed suit, contesting the timeliness and propriety of Mercedes’ exercise. Specifically, the plaintiffs alleged: (1) intentional interference with existing contractual advantage; (2) intentional interference with prospective economic advantage; (3) violation of California’s Unfair Competition Law (UCL); (4) violation of California Vehicle Code Section 17133.3(t); and (5) fraudulent concealment. The district court granted Mercedes’ motion for summary judgment on all of its claims, and the plaintiffs timely appealed.

Reimbursement. Fresno and Selma successfully appealed only one claim—the California Vehicle Code (CVC) claim, seeking reimbursement for expenses incurred in negotiating the APA that was usurped when Mercedes exercised its ROFR. The appellate court disagreed with the lower court’s decision that the plaintiffs did not have standing to pursue their CVC claim because the statute provides no private right of action to proposed transferees. Contrary to the lower court’s holding, the appellate court found that the statute gave the initial buyer a statutory right to recover its reasonably incurred expenses from the manufacturer, even in the absence of a contractual right. Consequently, the plaintiffs—as the proposed transferees—had standing to sue, and the lower court’s decision regarding this claim was reversed and remanded.

Tortious interference. On appeal, the plaintiffs argued that Mercedes exercised its ROFR in an untimely and unlawful manner because (1) the manufacturer emailed notice after 5:00 p.m. on the last day notice of ROFR was due, and (2) the notice was emailed instead of mailed. However, the court first determined that the plaintiffs were not entitled to formal notice, as the dealership agreement only obligated Mercedes to provide the dealership with notice of its ROFR. Nevertheless, even if the plaintiffs were entitled to such notice, the court found that the date, time, and manner by which Mercedes exercised its ROFR were incontestably established by the documents in the record, demonstrating that Mercedes timely and lawfully exercised its ROFR. Specifically, the court determined that there was no evidence to remotely suggest that the plaintiffs took any detrimental action between 5:00 p.m. and 5:18 p.m., when it received notice from Mercedes, and the electronic form of the notice was sufficient under the California Vehicle Code and Electronic Transfer Act.

Fraudulent concealment. The plaintiffs also brought a claim for fraudulent concealment, arising from an Acknowledgment Agreement between Mercedes and its dealership and an alleged promise that Mercedes would guarantee a sublease of the dealership premises in the event that it assigned its right to purchase the dealership to a third party. In granting summary judgment in favor of Mercedes, the district court concluded that the plaintiffs misinterpreted the Acknowledgement Agreement as a guaranty and that the allegedly concealed facts were immaterial, previously disclosed, and readily discoverable. The appellate court affirmed, noting that any alleged guaranty did not relieve Asbury from its obligations to its landlord. Consequently, the fraudulent concealment claim had no merit.

Unfair competition. Lastly, the court affirmed the lower court’s decision granting summary judgment to Mercedes on the unfair competition claim, because the UCL claim was based on the plaintiffs’ already failed tortious interference and fraudulent concealment claims.

The case number is 12-15981.

Attorneys: Alexander F. Stuart, Ellyn E. Nesbit (Willoughby, Stuart & Bening), and Oliver W. Wagner (Wagner Jones Helsley, P.C.) for Fresno Motors, LLC. Gwen J. Young and Ryan P. Day (Wheeler, Trigg, O’Donnell LLP) for Mercedes Benz USA, LLC.

Companies: Fresno Motors, LLC; Selma Motors, Inc.; Mercedes Benz USA, LLC

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