Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Fla.: General Motors may be liable for constructively terminating franchise agreement, (Jan 21, 2015)

By Jody Coultas, J.D.

Franchisee Hopkins Pontiac GMC, Inc. stated a claim against General Motors LLC for constructive termination of its franchise in violation of the Florida Motor Vehicle Dealer Act (FMVDA), the federal district court in Panama City has held (Hopkins Pontiac GMC, Inc. v. General Motors LLC, January 20, 2015, Smoak, R.).

In reliance on representations from General Motors that it would obtain a Buick franchise to go alongside its GMC franchise, Hopkins took out a $1.5 million mortgage against its property, pledged its entire used vehicle inventory, had its principals pledge personal property and sign personal guaranties for Hopkins’s credit, and raised $200,000 to $300,000 in additional equity from its principals. However, General Motors consolidated other franchises into another Buick business, which resulted in Hopkins losing its GMC franchise.

Around the same time, General Motors Acceptance Corporation (GMAC), allegedly in collusion with General Motors to facilitate General Motors’ strategy of eliminating Hopkins as a dealer, reduced and suspended Hopkins’ credit, demanded immediate payments, and increased interest rates. General Motors also imposed new requirements, including demanding immediate payment for vehicles and withholding warranty and rebate payments. These requirements were allegedly contrary to industry standards.

Under pressure from GMAC’s threat to seize its entire inventory unless it either satisfied all of its existing debts or provided proof that it would sell its franchise, Hopkins negotiated the sale of its GMC franchise. Because General Motors refused to pay any portion of the purchase price, the GMC franchise was sold at a fire-sale price.

Florida Motor Vehicle Dealer Act. The FMVDA prohibits the threat of cancelation of a franchise agreement by the manufacturer without 90-day advance written notice. Hopkins argued that the imposition of new terms and its reneging on its promises regarding the Buick dealership constituted veiled threats to terminate the agreement. However, in the court’s view, these actions were not threats to do anything. General Motor’s actions actually amounted to the alleged constructive termination. Therefore, the claim regarding threats in violation of the FMVDA was dismissed by the court.

Hopkins presented sufficient evidence to support its claim that General Motors constructively terminated its franchise agreement, according to the court. The FMVDA prohibits the actual cancelation of a franchise agreement by the manufacturer. Constructive termination occurs when the franchisor “so greatly reduces the value of the franchise as to epitomize the very abuse of disparity in economic power that the Act seeks to prevent.” Hopkins argued that General Motors imposition of new terms and its reneging on its promises regarding the Buick resulted in constructive termination of the franchise agreement. General Motors’ actions were authorized by the Dealer Agreement, but were unusual and out of the course of both ordinary business practice and their previous course of dealings. General Motors’ actions caused Hopkins, hard-pressed for working capital, to fail as a business. This amounted to constructive termination of the dealer agreement.

Additionally, GMAC was and is an independent entity from General Motors, and its actions were not attributable to General Motors under an agency theory.

Breach of contract. Hopkins’ failed to state a claim for breach of contract against General Motors, according to the court. The complaint cited General Motors’ refusal to allow alternative inventory financing, requiring cash on delivery for new vehicles and parts, withholding warranty and rebate payments, and conspiring with GMAC to impose onerous and harmful financing requirements. However, Hopkins was unable to point to any language in the agreement between the parties that was breached by any of the alleged actions.

Breach of Good Faith and Fair Dealing. Because Hopkins could not show a breach of any express term of the contract, there could be no claim for breach of good faith and fair dealing.

Promissory estoppel. Finally, Hopkins adequately stated a claim for promissory estoppel because of the promise to provide a portion of the sale price, according to the court.

The case is No. 5:14-cv-00183-RS-EMT.

Attorneys: Steven H. Blatt (Bellavia Blatt Andron & Crossett, PC) for Hopkins Pontiac GMC Inc. Dixon Ross McCloy, Jr. (Harrison Sale McCloy), and Jeffrey Alan Lipps (Carpenter & Lipps LLP) for Ally Financial Inc. Steven Ira Klein (Rumberger Kirk & Caldwell PA) for General Motors LLC.

Companies: Hopkins Pontiac GMS, Inc.; General Motors LLC; General Motors Acceptance Corporation

Cases: FranchisingDistribution FloridaNews