Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Truck dealer’s contract claims against Peterbilt proceed, (Apr 2, 2015)

By Edward L. Puzzo, J.D.

In a dispute between a truck dealer and a regional manager for manufacturer Peterbilt, over whether an initial agreement for sale of the dealership was binding, the breach of contract claims survived a motion for summary judgment, but the fraud and misrepresentation claims were dismissed, the federal district court in Central Islip, New York has ruled (New York Metro Peterbilt, Inc. v. Peterbilt Motors Company, March 30, 2015, Hurley, D.).

New York Metro Peterbilt was an authorized dealer of Peterbilt trucks, pursuant to an October 2009 dealership agreement with Peterbilt Motors Company. In 2011, New York Metro’s owner Barclay Ehrler began discussions with Maurico Leal, a Peterbilt Motors regional manager, over the possible lease by Leal of one of the New York Metro’s two locations, or an asset purchase of the franchise. On November 29, 2011, Leal paid Ehrler $40,000 towards the purchase price, and the two entered into a purchase agreement.

Breach of contract claim against Leal. New York Metro and Ehrler alleged that Leal breached the purchase agreement by failing to pay the total sums owed. Leal denied that a contract existed between the parties. Instead, he alleged that there was only a non-binding preliminary agreement, so there could be no breach of contract. Leal moved for summary judgment on plaintiffs’ breach of contract claim.

When parties to proposed commercial transactions enter into preliminary agreements and later fail to execute a more formal agreement, the court explained, the issue often arises as to whether the preliminary agreement is a binding contract, or an unenforceable agreement to agree. The key is the intent of the parties.

In the Second Circuit, four factors are used to determine whether the parties to a preliminary agreement intended to be fully bound by that agreement: (1) whether there was an express reservation of the right not to be bound in the absence of a writing; (2) whether there was partial performance of the contract; (3) whether all of the terms of the alleged contract had been agreed upon; and (4) whether the agreement at issue was the type of contract that is usually committed to writing.

As to the first factor, defendant Leal argued that a reference in the agreement that the purchase and sale were to take place according to terms outlined in the agreement indicated that the agreement was merely an outline and not a binding contract. The court noted that the agreement did not precisely itemize furniture, fixtures, or inventory and lacked specificity in many respects. However, the court also noted, that there was no language indicating the agreement was a proposal, draft, or memorandum of understanding, nor did it reference a future binding contract. The court concluded that the intent of the parties could not be determined from examining the agreement. To make this determination, the dispute must be presented to a trier of fact. Thus, summary judgment was not appropriate, and the court declined to dismiss plaintiffs’ breach of contract claim.

Fraud claim against Leal. Plaintiffs also brought a fraud claim against Leal, alleging that he agreed to purchase plaintiff’s business without intending to consummate the transaction. However, the court ruled that this claim arose out the same facts as the breach of contract claim, was redundant, and lacked any misrepresentations outside of the alleged contract. Therefore, the court dismissed the fraud claim.

Breach of contract claim against Peterbilt. Plaintiffs alleged that Peterbilt Motors, while not a party to the agreement in question, was liable to them under an agency theory. A principal is liable to third parties for the acts of an agent operating within the scope of his real or apparent authority, the court noted. The plaintiffs produced communications between Leal and Michael Conroy, a Peterbilt representative, concerning the sale of New York Metro to Leal prior to the execution of the agreement. The court found that, while the statements do not directly reference Peterbilt’s grant of authority to Leal to engage in the dealership transaction on its behalf, a reasonable trier of fact could find that this letter raised a question as to whether Leal acted with apparent authority. Thus the breach of contract claim against Peterbilt should not be dismissed, the court ruled.

Misrepresentation claim against Peterbilt. Plaintiffs alleged that Peterbilt made fraudulent misrepresentations to them—specifically, that it would extend the term of the dealership agreement while negotiating the terms of the sale of dealership assets. Plaintiffs claimed that they would have marketed their dealership to third parties absent Peterbilt’s misrepresentations. However, a claim of fraudulent misrepresentation requires proof that (1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance. Here, plaintiffs failed to specify what material false statements were allegedly made by Peterbilt, the court found. Statements made in discussions between Leal and Peterbilt’s Conroy were not false at the time they were made. Thus, plaintiffs’ misrepresentation claims against Peterbilt must be dismissed, the court ruled.

The case is Civil Action No. 13-CV-843 (DRH)(GRB).

Attorneys: Steven G. Pinks and Jonathan W. Lipshie (Pinks, Arbeit & Nemeth, Esqs.) for New York Metro Peterbilt, Inc. and Barclay Ehrler. Anthony M. Pisciotti and Jeffrey Martin Malsch (Pisciotti, Malsch & Buckley, P.C.) and James A. Bertron and Dean Bunch (Nelson Mullins Riley & Scarborough LLP) for Peterbilt Motors Company. Donna M. Alkin and Joseph J.J. Visci (Visci & Associates, PC) for Peterbilt Of New York City, LLC and Mauricio Leal.

Companies: New York Metro Peterbilt, Inc.; Peterbilt Motors Company; Peterbilt Of New York City, LLC.

Cases: FranchisingDistribution NewYorkNews