Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash.: Volvo properly terminated heavy construction equipment dealer agreement, (Dec 5, 2014)

By Jody Coultas, J.D.

The federal district court in Seattle granted Volvo Construction Equipment North America, LLC partial summary judgment of Federal Dealer Act and good faith and fair dealing claims filed by franchisee Clyve/West, Inc. (Volvo Construction Equipment North America, LLC v. Clyde/West, Inc., December 3, 2014, Robart, J.).

Volvo was concerned that Clyde/West, a Volvo heavy construction equipment dealer, was undercapitalized and that its share in the Washington market for construction equipment was inadequate. After Clyde/West was unable to sell its dealership, the parties entered into a revised franchise agreement that granted Clyde/West the right to sell road equipment, consummated Clyde/West’s acquisition of certain road equipment assets, and mutually settled and released the parties’ claims.

Section 7.1 of the agreement granted both parties the express contractual right to terminate with 180 days’ notice, with or without cause. Section 22.1 provides that, if either party breaches the Agreement, the other party “may” give the breaching party written notice and 60 days to cure, at the end of which time, the non-breaching party may terminate the contract immediately. Section 22.2 provided that Volvo may terminate the agreement should Clyde/West failed to achieve and maintain certain market shares or consistently failed to order to stock sufficient inventory to achieve such market shares. Clyde/West had 180 days after written notice from Volvo to remedy the default.

After Volvo notified Clyde/West it was terminating the franchise agreement, Volvo brought a suit requesting a declaratory judgment that its termination of Clyde’s dealership did not violate the Washington Manufacturers’ and Dealers’ Franchise Agreements Act, the Washington Franchise Investment Protection Act, the Federal Dealer Suits Against Manufacturers Act, or any covenant of good faith and fair dealing implied by the agreement.

Duty of good faith and fair dealing. Even if Clyde/West’s underperformance was the subjective reason behind Volvo’s termination of the agreement, Volvo did not have a duty of good faith and fair dealing to terminate the agreement pursuant to a termination provision other than Section 7.1. A duty of good faith and fair dealing is implied in every contract, and obligates the parties to cooperate with each other so that each may obtain the full benefit of performance. However, the duty of good faith requires only that the parties perform in good faith the obligations imposed by their agreement. Section 7.1 unequivocally granted both parties the right to terminate the agreement for any reason, while Section 22.2 gave Volvo the option of allowing a dealer in breach of the agreement’s market performance provisions time to cure. Clyde/West failed to provide support for its argument that the duty of good faith limited Volvo’s “discretion” to exercise an express contractual right, such as that provided by Section 7.1. Also, Section 7.1 did not render the agreement or Section 22.2 provision illusory.

Federal Dealer Suits Against Manufacturers Act. The Federal Dealer Act authorizes an automobile dealer to bring suit against an automobile manufacturer who fails to act in good faith when terminating the dealer’s franchise. The Act applies to dealers and manufacturers of passenger cars, trucks, and station wagons. Federal courts have consistently construed these terms to “exclude . . . arguably similar vehicles,” including mobile homes, snowmobiles, and motorcycles.

Volvo’s heavy construction equipment did not come within the scope of the Federal Dealer Act, according to the court. Heavy construction equipment was more closely analogous to a tractor than to a passenger car or truck based on legislative intent. An advertisement of Volvo’s articulated haulers that referred to the equipment as a “truck” did not change the fact that trucks are generally vehicles that transport a limited number of people and small amounts of cargo over established roadways. Articulated haulers are used to move massive amounts of cargo at off-road construction sites, and are much larger than passenger trucks. Therefore, Clyde/West was not an “automobile dealer” entitled to bring suit under the Act, and Volvo was not an “automobile manufacturer” capable of being sued under the Act.

The case number is C14-0534JLR.

Attorneys: Ann Maher (Whyte Hirschboeck Dudek SC), Karthik Nadesan (Nadesan Beck PC) and William M. Bankston (Bankston Gronning O'hara, PC) for Volvo Construction Equipment North America LLC. Jessica L. Farley (PIA Anderson Dorius Reynard & Moss LLC) for Clyde/West Inc.

Companies: Volvo Construction Equipment North America, LLC; Clyde/West Inc.

Cases: FranchisingDistribution WashingtonNews