Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: GM dealer alleges constructive termination of franchise, (Aug 8, 2014)

By Linda O’Brien, J.D., LL.M.

Franchisor General Motors and its automotive financing division, Ally Financial, wrongfully engaged in a strategy and scheme to constructively terminate an automobile dealership’s franchise and thereby reduce the General Motors automobile dealer network, according to a complaint in the federal district court in Panama City, Florida (Hopkins Pontiac GMC, Inc. v. Ally Financial, Inc., August 6, 2014).

Hopkins Pontiac GMC, Inc. is an automobile dealership selling certain vehicles manufactured by General Motors. Ally Financial, formerly known as General Motors Acceptance Corporation (GMAC), provides commercial financing to General Motors’ franchised automobile dealerships for the purpose of purchasing motor vehicles to hold in inventory. The arrangement is commonly referred to as dealer floor plan financing.

The complaint alleges that Hopkins and General Motors (GM) executed certain loan agreements under which GMAC provided Hopkins with a wholesale line of credit to finance its acquisition of new and used motor vehicles for sale to consumers. In 2010, GM regional managers represented that Hopkins, as part of its dealer development network planning, would obtain a Buick franchise to accompany its existing GM franchise. In reliance on GM’s representations, Hopkins secured a $1.5 million mortgage against its real property and pledged its entire used vehicle inventory to obtain a line of credit for its inventory floor plan financing.

Despite GM’s alleged representations to Hopkins that it would obtain a Buick franchise, GMAC, under the control of or apparent agent of GM, initiated a strategy to reduce the number of automobile dealerships that sell GM vehicles. Without justification and in bad faith, GMAC (1) substantially reduced Hopkins floor plan inventory availability; (2) conducted daily audits of the dealership; (3) required that floor plan vehicles be immediately paid off upon sale; (4) raised the interest rate of Hopkin’s floor plan financing; (5) suspended Hopkin’s GM credit; and (6) demanded that Hopkins either sell its franchise or immediately satisfy its entire floor plan inventory, the complaint charged.

According to the complaint, Hopkins received approval from a third-party lender to replace its floor plan financing; however, GM did not consent to such lender and refused to allow Hopkins to borrow funds from this lender. GM also refused to sell new vehicles to Hopkins unless it received cash or certified checks and withheld warranty and rebate payments due to Hopkins.

The defendants’ wrongful conduct effectively restricted Hopkins from acquiring sufficient new and used automobile inventory from GM for resale to consumers, the complaint charged. The actions of the defendants violated industry custom and practice, were not commercially reasonable, and were intentionally fabricated. Additionally, the defendants undertook no actions to terminate or restrict the floor plan financing to numerous other GM dealers that were in similar or worse financial circumstances as Hopkins. The effect of the defendants’ wrongful conduct was devastating to its business, and Hopkins was forced to sell the franchise to another GM franchisee at a substantially reduced selling price.

Hopkins asserts claims for breach of contract, breach of good faith and fair dealing, negligent misrepresentation, and violations of the Automobile Dealer’s Day in Court Act and Florida Motor Vehicle Dealer Act. The action seeks damages, costs of suit, attorneys’ fees, and any other just and proper relief.

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

Attorneys: Robert D. Sale for Hopkins Pontiac GMC, Inc.

Companies: Hopkins Pontiac GMC, Inc.; Ally Financial Inc.; General Motors LLC

News: FranchisingDistribution FloridaNews