Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Auto dealership sues General Motors for wrongful termination, (Aug 19, 2015)

By Linda O’Brien, J.D., LL.M.

A Cadillac, Buick, and GMC automobile dealership is seeking damages and injunctive relief against General Motors for the unlawful termination of its dealership agreement, according to a complaint filed in the federal district court in Miami, Florida (Vera-Williamson Investments, Inc. v. General Motors, LLC, August 17, 2015).

According to the complaint, Vera-Williamson Investments operated a franchised dealership of General Motors (GM) brand vehicles since 2004. Vera’s dealership facility was damaged by hurricane in 2005. As a result of the storm, Vera renovated the facility to GM’s specifications. After GM filed for bankruptcy in 2009 and reshaped its dealer network, Vera operated as a Buick, GMC, and Cadillac franchised dealer at its present location.

GM operates an incentive program entitled “Essential Brand Elements” (EBE), within which a dealer undertakes certain program requirements in return for GM’s payment of bonuses upon achievement of those requirements. Although GM contends the EBE program is voluntary, nonparticipation in the program can result is the loss of millions of dollars and make a dealer less competitive in the marketplace, the complaint claimed. Thus, GM allegedly uses the program and its bonus payments to force dealers to commit to facility modifications that are otherwise unneeded or unjustified. Moreover, the EBE program creates a pricing disadvantage for nonparticipating dealers since EBE compliant dealers receive a per-vehicle bonus at the end of each quarter, the complaint alleges.

The lawsuit states that, in 2012, GM conducted a site visit of the Vera dealership. Although Vera completed a major renovation in 2009, after the tour, GM demanded that Vera substantially alter the facility if it desired to benefit from GM’s EBE program. While Vera worked to secure approval of the GM required modifications from the city zoning board, GM ceased paying funds to Vera under the EBE program for failure to submit final EBE compliant construction drawings. Subsequently, the city disapproved Vera’s facility modification proposal on zoning grounds. Although Vera remained compliant with the other EBE requirements, GM continued to withhold EBE funds from Vera due to the facility image issues.

GM evaluates its dealers’ sales performance using a metric entitled “Retail Sales Index” (RSI), which measures the dealer’s sales share compared to the overall market share of the brand in the state. GM requires its dealers to meet 100 percent of RSI to be in compliance with the dealer agreement. The RSI standard is flawed because it treats every market in a state in the same manner notwithstanding unique market circumstances, such as consumer behavior, demographic diversity, income, and number of competitive brands, the complaint charges.

The complaint also alleges that, in November 2012, GM notified Vera that the dealer did not achieve 100 percent RSI for Cadillac and its RSI was unacceptable. Vera responded that the RSI did not account for unique market circumstances, its assigned territory was too large, and it was unable to obtain a sufficient number of vehicles to meet consumer demand. Further, its working capital deficiency was largely due to GM’s refusal to pay EBE funds. The sales performance letters from GM continued to 2014, despite the fact that Vera has consistently been a top 50 Cadillac dealer in terms of sales volume in the United States and outsold its three closest Cadillac competitors. Ultimately, GM notified Vera in May 2015 that it was terminating the dealer agreement for failure to meet sales performance, customer service, and working capital requirements.

Vera asserts claims for unlawful termination, breach of contract, unjust enrichment, and violations of the Florida motor vehicle dealer statute. The action seeks injunctive relief, damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 0:15-cv-61724-KMW.

Attorneys: Richard N. Sox, Jason T. Allen, and Nicholas A. Bader (Bass Sox Mercer) for Vera-Williamson, Investments, Inc.

Companies: Vera-Williamson Investments, Inc.; General Motors, LLC

News: FranchisingDistribution FloridaNews