Antitrust Law Daily Wrap Up, TOP STORY—EDWis: Establishment of New Dealership Did Not Violate Wisconsin Motor Vehicle Dealer Law, Breach Oral Exclusivity Agreement, (Nov 1, 2012)

By John W. Arden, J.D., LLM.

Chrysler’s opening of a new Fiat dealership in Madison, Wisconsin—through a dealership other than an existing Milwaukee Fiat dealer—did not violate the Wisconsin Motor Vehicle Dealer Law or breach oral agreements regarding the dealer’s exclusivity within the Wisconsin market, the federal district court in Madison has ruled (Bergstrom Imports Milwaukee, Inc. v. Chrysler Group LLC, October 31, 2012, Griesbach, W.). Thus, the dealer’s claims were dismissed.

When the Fiat brand was reintroduced to the U.S. market in 2011, the Chrysler Group LLC, which was controlled by Fiat, undertook to establish a network of American dealers. When Fiat met with eventual dealer John Bergstrom, it stated that it was considering only a single Milwaukee-based dealership for the Wisconsin market, according to the complaint. Bergstrom soon learned that Fiat planned to open a dealership 40 miles away in Kenosha, Wisconsin, which Fiat considered part of the Chicago market.

The Kenosha dealership raised concerns for Bergstrom, whose profit and revenue assumptions were based on state-wide exclusivity. According to the complaint, Fiat’s representative gave oral assurances that Bergstrom would have a right of first refusal over any Wisconsin dealership, other than the Kenosha dealership. Bergstrom agreed to go ahead with opening the Milwaukee dealership on the assumption that his company would have the exclusive right to sell in Wisconsin, apart from Kenosha, the complaint alleged. On December 1, 2010 Bergstrom signed a letter of intent, again with the assurances from Fiat’s representative of this exclusivity. A dealership agreement was signed on February 8, 2011. Bergstrom spent more than $800,000 in remodeling his Milwaukee dealership to convert it into a Fiat dealership and received Fiat vehicles in March 2011.

The reintroduction of the brand did not go well nationally. Chrysler sold only 11,000 Fiat vehicles, compared to its forecast of 50,000. Fiat CEO Sergio Marchionne conceded in an interview that the Fiat launch had been botched and that Fiat had not supported it dealers during the rollout. As a result, Bergstrom claimed operating losses in excess of $1 million.

By the end of 2011, Bergstrom learned that Fiat planned to open a dealership in Madison, some 90 miles west of his Milwaukee dealership. He met with senior Chrysler officials, who confirmed that they were going forward with the plans. Bergstrom filed suit in state court. The case was removed to federal court based on diversity of citizenship.

The action asserted five separate counts, including unconscionable and arbitrary conduct in violation of the Wisconsin Motor Vehicle Dealer Law, breach of contract, breach of the implied covenant of good faith, and estoppel. Chrysler brought a motion to dismiss.

Motor Vehicle Dealer Law Claims

Chrysler argued that the Motor Vehicle Dealer Law provided a statutory mechanism for existing dealers to challenge a manufacturer’s decision to open an additional dealership. The statute governs the establishment of a new dealership within ten miles of an existing dealership. A dealer may file a complaint with the state, which holds an administrative hearing to determine whether there is good cause to allow the opening of a new dealership. The statute sets out a list of factors to use in determining good cause.

Bergstrom’s effort to cite the statutory prohibition of unconscionable and arbitrary practices was “simply a facile means of side-stepping the statute’s intent to create an exclusive remedy,” the court found. “The legislature created a very specific procedure and directed the Division of Hearings and Appeals to consider various issues germane to the question, including the impact of a second dealership on the public welfare. Allowing an aggrieved dealer to simply claim ‘unconscionability’ would muddle the process and obviate the need for the very procedure the legislature created.”Bergstrom’s effort to cite the statutory prohibition of unconscionable and arbitrary practices was “simply a facile means of side-stepping the statute’s intent to create an exclusive remedy,” the court found. “The legislature created a very specific procedure and directed the Division of Hearings and Appeals to consider various issues germane to the question, including the impact of a second dealership on the public welfare. Allowing an aggrieved dealer to simply claim ‘unconscionability’ would muddle the process and obviate the need for the very procedure the legislature created.”

In any event, Bergstrom essentially conceded the issue by not addressing it in its brief, the court found. Thus, it abandoned any statutory claim based on Chrysler’s opening of a new dealership in Madison.

Failure to Support Dealership

Bergstrom claimed that Chrysler (1) failed to support its dealership and (2) insisted that Bergstrom go “full steam ahead” in getting its facilities ready while refusing to ship sufficient inventory or support the product with advertising and service support.

The court dispatched some of the claims on the ground that Bergstrom knew that creating a new dealership would not be cheap. It could not fault Chrysler for insisting that it sell Fiats in a Fiat dealership, rather than in a Hyundai showroom. Bergstrom did not cite any precedent suggesting that the Wisconsin Motor Vehicle Dealer Law was so broad as to allow a would-be dealer to sign an agreement for a dealership and then sue based on the agreed-to provisions, the court observed.

Bergstrom focused on the fact that it opened in January and that Chrysler refused to supply any new inventory until March. This was part of the weak rollout that forced the Fiat CEO to issue an apology. An industry publication, Automotive News, called Chrysler’s launch of Fiat the worst blunder of 2011. Nevertheless, one could not infer that Chrysler acted with intentional or reckless disregard for Bergstrom’s dealership in particular, the court stated. The picture that emerged was a universal failure to support the launch throughout the country—a kind of “business negligence” perhaps but not action directed to intentionally harming Bergstrom.

Nothing in the complaint required equitable relief or was suggestive of outrageous conduct. “If Chrysler fumbled the ball, it was not because it was acting unconscionably or arbitrarily but because it made errors of business judgment,” the court found.

Breach of Contract

Bergstrom alleged that Chrysler’s failure to provide vehicles during the first two months of the dealership, failure to market Fiats, and discriminatory treatment of Bergstrom breached the dealership agreement. The obligations described in the agreement were obligations of Bergstrom to Chrysler. Reading the contract as a whole, the minimum inventory provision required Chrysler to supply Bergstrom with vehicles necessary to satisfy its minimum inventory and minimum sales obligations.

Bergstrom did not claim that it was unable to fulfill its obligations under the agreement. The fact that Bergstrom did not get the cars it wanted right away did not violate the contract, since no one alleged that Bergstrom failed to meet its contractual obligations.

Chrysler’s alleged failure to provide marketing support was not shown to have breached the franchise agreement, the court ruled. There was no requirement in the franchise agreement requiring advertising or marketing support.

The dealer further alleged that Chrysler’s discriminatory treatment of its dealership violated the dealership agreement. It was hard to imagine how this “discrimination” caused any financial harm to Bergstrom, according to the court. The dealer suggested that it was at some kind of a competitive disadvantage. However, the other dealers were in other states. It was wholly speculative that a Milwaukee dealer somehow lost business to a Chicago dealer due to discrimination by Chrysler.

Good Faith and Fair Dealing

A claim that Chrysler breached the implied duty of good faith and fair dealing was dismissed. Even if Chrysler’s conduct could be described as business negligence, there was no suggestion that Chrysler was treating Bergstrom unfairly or dealing in bad faith.

Breach of Oral Contract

Finally, an allegation that Chrysler breached an alleged oral contract, giving Bergstrom a right of first refusal over any future new dealerships in Wisconsin, was rejected based on an integration clause in the written franchise agreement. The agreement also stated that Chrysler reserved the tight to appoint other dealers throughout the state.

Accordingly, Bergstrom’s action against Chrysler was dismissed with prejudice.

The case is No. 12-C-603.

Daniel T Flaherty (Godfrey & Kahn SC) for Bergstrom Imports Milwaukee, Inc. Rachael M Trummel (Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP) for Chrysler Group LLC.

MainStory: TopStory FranchisingDistribution WisconsinNews