Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Me. Sup. Ct..: Auto franchise arrangement included dealer incentive program; compliance with notice requirement was mandatory, (Jan 24, 2014)

By Linda O’Brien, J.D., LL.M.

The Maine Motor Vehicle Franchise Board properly concluded that the franchise arrangement between an automobile dealership and an automobile manufacturer encompassed a dealer incentive program and the manufacturer was required to strictly comply with the notice requirement for informing the dealer of the program’s termination, the Maine Supreme Judicial Court has ruled (Ford Motor Company v. Darling’s, January 21, 2014, Per Curiam).

In 1989, Darling’s and Ford Motor Company entered into a Ford Service and Sales Agreement (SSA) that recognized Darling’s as an authorized Ford products dealer. The SSA provided that Ford may issue guides establishing reasonable standards for dealership facilities and operations and publish bulletins to establish prices, charges, discounts, and other terms of sale. In 2000, Ford introduced the Blue Oval Certified (BOC) program, a customer-satisfaction incentive that offered Ford dealers a cash bonus on the retail price of each vehicle the dealer sold. The program was described in guides issued between 2001 and 2004. In August 2004, Ford broadcast on its internal television network that the BOC program would conclude by March 2005. A few days later, Ford issued an electronic communication to its dealers confirming the program’s termination. The BOC program was discontinued as scheduled in March 2005.

Darling’s filed a complaint against Ford with the Maine Motor Vehicle Franchise Board, alleging violations of the Maine Business Practices Between Motor Vehicle Manufacturers, Distributors and Dealers Act (Dealers Act). Darling’s claimed that Ford’s termination of the BOC program constituted a modification of the SSA that substantially and adversely affected its return on investment that required Ford to give Darling’s 90 days written notice. The Board determined that Ford knowingly violated the Act, levied a civil penalty, and awarded damages to Darling’s. Both parties filed suit in superior court, seeking to review the Board’s administrative action. Following a jury trial, the jury returned a verdict affirming the Board’s factual findings. Ford appealed, contending that the Board erred in concluding that the incentive program was part of Ford’s and Darling’s franchise.

Meaning of “franchise”. The court found that the SSA and BOC program were part of an overall franchise arrangement between Darling’s and Ford, and Ford’s termination of the BOC program was an attempt to modify Darling’s franchise during its term. A “franchise” is defined under the Dealer Act as an oral or written arrangement for a definite or indefinite period in which a manufacturer, distributor, or wholesaler grants to a motor vehicle dealer a license to use a trade name, service mark, or related characteristic, and in which there is a community of interest in the marketing of motor vehicles or services related to wholesale, retail, or leasing. The statute’s use of the term “arrangement” implies a broader course of dealing than the one-time occurrence of Darling’s and Ford entering into the SSA. Moreover, the SSA expressly contemplated the inclusion of future obligations between the parties. Accordingly, it was reasonable to construe the term “arrangement” to include the BOC program.

Notice requirement. The court also affirmed the Board’s conclusion that compliance with the notice requirement was mandatory and Ford violated the requirement by failing to provide Darling’s with 90 days’ written notice by certified mail before it terminated the BOC program. The court rejected Ford’s arguments that its failure was inconsequential, since Darling’s had actual notice of the program’s termination and that strict compliance was not always necessary. Because automobile dealers receive many communications from manufacturers, often through informal means, it was reasonable for the legislature to impose a strict notice requirement on manufacturers whenever they make a modification to a franchise that substantially and adversely affects the dealer’s rights or return on investment.

Further, Ford’s failure to give written notice prejudiced Darling’s by depriving it of the opportunity to file a protest with the Board and request a determination as to whether Ford had good cause for the modification. Finally, Ford’s alternative efforts to notify its franchisees that the BOC program would end and Darling’s actual knowledge of the termination of the BOC program were insufficient to satisfy the notice requirement.

The case is No. BCD-12-583.

Attorneys: Daniel L. Rosenthal (Marcus, Clegg & Mistretta, P.A.) for Ford Motor Company. Judy A.S. Metcalf (Eaton Peabody P.A.) for Darling’s.

Companies: Ford Motor Company; Darling’s

Cases: FranchisingDistribution MaineNews