Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: GM’s refusal to approve dealer relocation held unlawful, (Oct 1, 2015)

By Linda O’Brien, J.D., LL.M.

Au auto manufacturer’s refusal to approve a dealer’s request to relocate its dealership—based on the dealership agreement’s incorporation of a non-dualing policy—was unlawful under the Illinois Motor Vehicle Franchise Act for conditioning approval on entering into an exclusivity agreement, the federal district court in Chicago has held (Motor Werks Partners L.P. v. General Motors LLC, September 29, 2015, Shah, M.).

Automobile dealership Motor Werks has been a dealer for General Motors (GM) since opening a Cadillac dealership in 1989. With GM’s agreement, Motor Werks moved its dealership in 2000 to a location in Barrington, Illinois. In 2012, the parties executed a dealer agreement, which required GM’s written authorization pursuant to its business judgment before the dealer could make any change to the location or premises. GM’s business judgment was set forth in its policy on non-dualing: “non-GM products should not be sold or serviced at GM dealerships.”

In 2013, Motor Werks requested approval to move back to its original location, which it was renovating. Motor Werks contended that the renovated location would substantially increase service capacity while satisfying GM image standards. However, unlike the current facility, the new auto mall would feature brands other than Cadillac, including competitors in the luxury car market. GM denied the relocation request based on its standing non-dualing policy. Motor Werks filed suit, alleging violations of the Illinois Motor Vehicle Franchise Act. Specifically, Motor Werks claims that GM’s conduct violated the prohibition on auto manufacturers directly or indirectly conditioning their approval of franchise changes on the dealer’s willingness to enter into an exclusive use agreement. Motor Werks then moved for summary judgment.

The court first determined that the plaintiff was entitled to a declaration that the basis for GM’s refusal to approve Motor Werks’ relocation request was unlawful. It was undisputed that GM did not require Motor Werks to sign any agreement in connection with the relocation and therefore did not directly condition approval on the plaintiff’s willingness to enter into a prohibited contract. However, when the parties renewed their franchise relationship in 2012, the plaintiff’s ability to relocate became conditioned on any new facilities being exclusive. Thus, when the provision was invoked by GM in denying Motor Werks’ relocation request, the provision constituted an indirect conditioning of approval on entering an exclusive use agreement, which fell within the scope of the Act.

Although the court’s interpretation of the of the Act favored the plaintiff’s theory of the case, summary judgment was inappropriate on the entirety of the plaintiff’s claims in light of remaining factual disputes, the court found. Even if the auto maker conditioned relocation on exclusive use, no violation of the Act occurred if separate and reasonable consideration was offered and accepted. In this case, Motor Werks contended that it never received any separate consideration to remain exclusive. GM responded that dealers who remain exclusive were entitled to certain benefits, such as “Dealer Network Change Assistance,” another GM brand, and a “facility image stipend.” Since such benefits were not available to dealers that did not follow the non-dualing policy, they could reasonably constitute separate and reasonable consideration, the court concluded.

The case is No. 1:14-cv-00119.

Attorneys: Bethany Naomi Schols (Hardt Stern & Kayne PC) for Motor Werks Partners, L.P. J. Todd Kennard (Jones Day) for General Motors LLC.

Companies: Motor Werks Partners, L.P.; General Motors LLC

Cases: FranchisingDistribution IllinoisNews