Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mich.: Chrysler dealership’s contract reformation counterclaims fail, (Aug 18, 2015)

By Greg Hammond, J.D.

Chrysler Group, LLC, now known as FCA US LLC, was entitled to summary judgment of a dealership’s counterclaims for declaratory relief as to modification and contract reformation of a letter of intent (LOI). The federal district court in Detroit determined that the LOI was never orally modified and the dealership’s reformation claim lacked merit (Chrysler Group, LLC v. Eagle Auto-Mall Corp., August 17, 2015, Cohn, A.).

Eagle Auto-Mall Corp. entered into an LOI with FCA in January 2014, which became effective February 27, 2014. Under the terms of the LOI, FCA agreed to enter into Chrysler and Jeep Sales and Service Agreements with Eagle if the dealership provided a facility for the exclusive display, sales, and service of the Chrysler and Jeep vehicles in compliance with the requirements of the LOI, including completion of all requirements within specified time periods. The agreement gave Eagle the choice of constructing a new facility, renovating an existing facility, or using a facility that already meets the requirements under the LOI.

In July 2014, FCA notified Eagle of its repudiation of, and failure to perform, the LOI by filing a declaratory judgment action against Eagle. The action sought judicial assistance in determining the parties’ rights and obligations under the LOI, including FCA’s right to terminate the LOI. Eagle, in its counterclaims, argued that the LOI was modified by an oral agreement between the parties or that the LOI did not reflect the parties’ intent and must therefore be reformed.

Modification. Eagle first claimed, based on oral discussions with and conduct by certain FCA employees, that FCA agreed to eliminate the LOI’s express requirement to renovate an existing facility within eight months and instead agreed to a “newbuild site plan” within a “commercially reasonable amount of time.” The court rejected this argument, noting that the newbuild site plan was not proposed until three months after the renovation period had expired. Further, Eagle failed to identify any evidence that FCA ever agreed to the plan. Rather, Eagle admitted that it received a letter that it was in breach of the LOI for repudiating its obligation to complete the renovation of its facility within eight months and that it did not have the necessary permits to construct the facility described in the “new build site plan,” nor final construction plans and drawings.

Second, Eagle claimed that FCA agreed orally to extend the eight month renovation deadline to an unspecified time in the future and to waive the requirement in the LOI. The court first noted that this alleged modification contradicted and was irreconcilable with Eagle’s claim that FCA agreed to a “new build site plan” in lieu of the eight month renovation project. Nevertheless, the court still considered the claim and concluded that there was insufficient evidence of any modification; that Eagle’s actions were consistent with the LOI, as written, but not as allegedly modified; and that Eagle confirmed, in a letter, the validity of the eight month deadline and exclusivity requirement. The court additionally concluded that none of the FCA employees Eagle spoke with had the authority to modify the LOI and that the alleged oral amendments were “much too vague” to be enforced and did not rise to the level of a “contract” between the parties.

Reformation. The court next determined that Eagle’s reformation counterclaim was merely a repackaging of its modification claim. In rejecting the counterclaim, the court found that the doctrine of contract reformation was inapplicable to the evidence in this case because Eagle presented no evidence: (1) of the agreement actually made by the parties that it claimed was not reflected in the LOI; (2) that the terms of the LOI failed to reflect the true intentions of the parties at the time the agreement was executed; or (3) that the parties intended to agree on the provision of a facility even if it would require an open-ended completion deadline or a waiver of the exclusivity requirement for two years or more. FCA’s motion for summary judgment on the modification and reformation counterclaim was consequently granted.

The case number is 14-12964.

Attorneys: Patrick G. Seyferth (Bush, Seyferth & Paige) and Robert D. Cultice (WilmerHale) for FCA US LLC. Alexander E. Blum (Mantese Honigman, PC) for Eagle Auto-Mall Corp.

Companies: FCA US LLC; Eagle Auto-Mall Corp.

Cases: FranchisingDistribution MichiganNews