Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Mont.: Automobile dealer’s constructive termination claims survive motion to dismiss, (Sep 25, 2013)

By Edward L. Puzzo, J.D.

A former automobile dealer’s constructive termination and other claims under the Montana Motor Vehicle Dealer Act and the Federal Automobile Dealer’s Day in Court Act required fact-based determinations and could not be dismissed prior to discovery, the federal district court in Helena, Montana has ruled (Grimes Buick-GMC v. GMAC, September 23, 2013, Lovell, C.).

Grimes operated a General Motors auto dealership as a franchisee and had a loan agreement with GMAC (formerly known as General Order Motors Acceptance Corporation and now known as Ally Financial, Inc.), giving him a line of credit to finance the purchase of new and used vehicles.

Background. Grimes alleged that in early 2009, GMAC, acting as an actual or apparent agent of General Motors, had acted wrongfully and in bad faith for the purpose of eliminating Grimes as General Motors dealer, resulting in constructive termination of the dealership agreement in violation of the Montana Motor Vehicle Dealer Act (MMVDA). Grimes further alleged that GMAC’s actions, including using the return of a check for insufficient funds as the pretext to force the sale of the dealership at below market value, caused Grimes to suffer substantial losses, and that he was entitled to an amount equal to three times its pecuniary loss under the MMVDA. Grimes also alleged that GMAC violated the Federal Automobile Dealer’s Day in Court Act (FADDCA) by failing to act in good faith in complying with the provisions of the franchise agreement and in terminating that agreement.

Dealership sale. In response, GMAC stated that the 2009 sale of Grimes’s dealership mooted both the MMVDA and FADDCA claims. Citing the 1999 Montana case of Shamrock Motors, Inc. v. Ford Motor Company, 974 P.2d 1150, GMAC claimed that the sale of a dealership’s franchise mooted a petition for judicial review of an auto manufacturer’s termination of its franchise agreement. The court disagreed, because, unlike in Shamrock, Grimes was not seeking reinstatement of its franchise agreement. Thus, the Grimes’ claims were not moot.

Constructive termination. GMAC also maintained that neither MMVDA nor FADDCA cover claims of constructive termination. With regard to the FADDCA, the focus must be on the motivations and intentions of the manufacturer to intimidate, threaten, or coerce a dealer in violation of FADDCA, the court stated. If the requisite evidence can be marshaled to support a claim of constructive termination, a jury should decide the factual inquiry. With regard to the MMVDA, the court continued, there was no case on point as to whether or not claims of constructive termination could be brought. However, since one of the Act’s purposes is to protect the dealer from a manufacturer taking unfair advantage of its economic leverage, it is reasonable to believe that the legislature intended that MMVDA dealer protections would extend to indirect terminations. The court therefore declined to dismiss the claims on this basis.

Franchisor status. GMAC argued that it was not a franchisor, manufacturer, or an agent of a franchisor or manufacturer. This would have to be determined entirely by facts and evidence, so dismissal on this basis prior to discovery would be inappropriate, the court ruled.

Limitations period. Finally, GMAC alleged that the FADDCA claim was time-barred. A three-year statute of limitation began to run in April 2009, it claimed, and Grimes did not file his complaint until August 2009. Grimes responded that it did not learn of facts from which it could infer that GMAC was forcing a constructive termination until September 2009, when Grimes allegedly discovered that GMAC had not imposed the same conditions and restrictions on other dealerships. GMAC may ultimately prove to be correct that it did not breach its contracts with Grimes, but dismissal on a statute of limitations basis would be premature prior to discovery on Grimes’ allegations, the court ruled.

The case is Civil Action No. CV 12-73-H-CCL.

Attorneys: Bruce M. Spencer (Smith Law Firm) and Steven Blatt (Bellavia Gentile & Associates, LLP) for Grimes Buick-GMC, Inc. Donald H. Cram and Duane M. Geck (Severson & Werson) for GMAC, LLC.

Companies: Grimes Buick-GMC, Inc.; GMAC, LLC; Ally Financial, Inc.

Cases: FranchisingDistribution MontanaNews