Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ala.: Hyundai used best efforts to locate lessee for premises of terminated dealership, (Sep 19, 2013)

By John W. Arden, J.D., LL.M.

Motor vehicle manufacturer Hyundai Motor America used its best efforts to locate a lessee to take over dealership facilities of terminated dealer Crump-Buhler, LLC and obtained a new dealer within a reasonable time, as required by the Alabama Motor Vehicle Franchise Act, according to a magistrate judge in the federal district court in Jasper, Alabama (Crump-Buhler, LLC v. Hyundai Motor America, September 16, 2013, Putnam, T.). Thus, Hyundai was not required to pay rent to Crump-Buhler during the 13 months it took to locate a new dealer and close the deal.

In 2005, John H. Crump signed a dealership sales and service agreement with Hyundai Motor America to operate a Hyundai dealership in Jasper, Alabama. Crump Hyundai leased the dealership facilities, which included a showroom, service bays, and large paved parking lots. The property previously was used as a Mitsubishi dealership, adjoined Crump’s Mazda dealership, and shared a general office with the Mazda dealership. Crump Hyundai agreed to pay $7,812 per month for five years, beginning in September 2005 and ending on August 31, 2010.

During 2008, the dealership experienced financial difficulties, operating with negative net working capital and overdrawing its bank account by approximately $1 million. Because of these difficulties, Crump decided to try to sell the dealership in the summer of 2008. In October 2008, Fifth Third Bank suspended Crump’s line of credit, which was a requirement of the dealership agreement. Hyundai notified Crump that if the financing plan was not reinstated, Hyundai would consider terminating the agreement. Less than two weeks later, the dealership was damaged by fire and the business was closed. When Hyundai’s market representative visited the dealership in November 2008, the building was locked and closed.

In February 2009, Hyundai informed Crump Hyundai that it needed to provide substantiation that the property had been repaired after the fire in order to seek another tenant for the building. On March 5, 2009, Hyundai terminated the dealership agreement based on Crump’s lack of floor plan financing. Hyundai’s market representative began attempting to find a dealer to take over the dealership and the leased property in April 2009. He talked with area Hyundai dealers, Honda dealers, Toyota dealers, and Nissan dealers about opening a Hyundai dealership in the Crump location. Eventually, the representative recruited Tal Vickers and Kevin Callahan, who signed a new dealership agreement and lease on the dealership facilities in June 2010.

Crump-Buhler filed suit, alleging that Hyundai wrongly refused to pay rent between the termination of dealership and the lease of the property by the new dealer, in violation of the Alabama Motor Vehicle Franchise Act. Hyundai moved for summary judgment on the grounds that it used its “best efforts” to find a lessee of the property and produced a lessee within a “reasonable time,” as required by the Motor Vehicle Franchise Act. Crump asserted that whether Hyundai’s efforts were sufficient and whether the time was reasonable were fact-intensive questions not amenable to summary adjudication. The district court was left with a movant that demonstrated by evidence that there was no genuine issue of material fact, and a nonmovant that had failed to present any evidence that put the movant’s evidence into dispute.

“Best efforts” and “reasonable time.” The two essential elements of Crump’s case were whether Hyundai failed to exercise its “best efforts” and whether 13 months was a reasonable time in which to locate and process the paperwork for a new lease. Crump argued that Hyundai surely could have done more than it did, such as looking for tenants who were not automobile dealers or using a broker to negotiate a lease with a non-automobile business. The court pointed out that the statute required the manufacturer to locate a lessee “who will offer to lease” the premises for “a reasonable term” and at “a reasonable rent.” Not just any lessee would do.

A lessee that could properly meet the reasonable term and reasonable rent requirements almost certainly would have to be a car dealership, the court concluded. The facility was configured for a car dealership, with a large showroom and service bays. The building was surrounded by a large paved lot for displaying a large number of automobiles. There was no evidence that the premises could be easily sub-divided or reconfigured for a business other than a car dealership. Thus, Hyundai’s “best efforts” were focused properly on finding a replacement dealership to lease the premises.

Thirteen months to locate a specialized lessee that could afford to rent for “a reasonable term” and at “a reasonable rent” was clearly reasonable, and there was no evidence to the contrary, according to the district court. There was no evidence that Hyundai failed to contact automobile dealerships that existed and could afford to lease the space.

Based on all of the arguments and evidence, the court held that Crump Hyundai failed to demonstrate that Hyundai Motor America violated the Alabama Motor Vehicle Franchise Act.

The case is No. 6:11-cv-2264-TMP.

Attorneys: Edward R. Jackson (Jackson Fikes Hood & Brakefield) for Crump-Buhler LLC. Daniel B. Snyder (Burr & Forman) for Hyundai Motor America.

Companies: Crump-Buhler, LLC; Hyundai Motor America

Cases: FranchisingDistribution AlabamaNews