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The Franchise Memorandum

Court Denies Preliminary Injunction for Termination of Oral Dealer Agreement and Alleged Discrimination
Posted in Terminations

A federal court in Ohio recently denied a dealer's motion for a preliminary injunction that would have required a tire manufacturer to continue supplying the dealer with products pending adjudication of the dealer's claims for wrongful termination and violation of 42 U.S.C. § 1981. In B Sr S Tires, Inc. v. Bridgestone Americas Tire Operations, LLC, 2014 U.S. Dist. LEXIS 26119 (N.D. Ohio Feb. 27, 2014), the plaintiff dealer was a thirty-plus year distributor of Bridgestone and Firestone tires and a minority-owned business that frequently fulfilled supply contracts for the U.S. government. The parties conceded that their relationship was not governed by a comprehensive written contract. The dealer alleged that the parties' oral understandings and course of performance resulted in a contract that required Bridgestone to show "good cause" for termination. In 2011, Bridgestone provided certain requested product pricing information to the dealer and, using the information, the dealer was able to bid on and win six government contracts. Bridgestone included language warning that its provision of pricing information was not a guarantee to supply products. In February 2013, Bridgestone provided the dealer with written notice that it would terminate its authorization to sell Bridgestone products at year-end. In October 2013, the U.S. government exercised an option under its supply contracts with the dealer requiring that the dealer continue to supply tires for dates beyond January 2014. The dealer also alleged that Bridgestone provided pricing to a nonminority firm, enabling that firm to underbid and win contracts over the dealer. The dealer brought suit alleging the termination violated the parties' oral agreement, was discriminatory under § 1981, and was barred by promissory estoppel. The dealer sought a preliminary injunction requiring Bridgestone to continue to supply products pending resolution of the dispute.

With regard to the discrimination claim, Bridgestone asserted that its reason for termination was that the dealer did not have the warehouse capacity and tire service capabilities that most dealers possess, and that the dealer was "difficult and unpleasant." Bridgestone also asserted that the pricing afforded to the dealer's competitor was available to all dealers meeting applicable size requirements. The court found that the dealer did not provide sufficient evidence to dispute these assertions and did not, therefore, show a likelihood of success on its § 1981 claim for discrimination on the basis of race. With respect to the claim Bridgestone wrongfully terminated without good cause, the court noted that under general contract principles, an oral agreement that is silent on grounds for termination is terminable at will. Finally, the dealer's claim for promissory estoppel was not likely to succeed because Bridgestone gave the dealer express warnings in all pricing communications that the pricing information was not a guarantee to supply. The court then addressed whether denying the dealer's motion would result in irreparable harm, finding that the dealer's inability to continue purchasing Bridgestone products would significantly harm its business and reputation, and that continuing to supply the dealer for a few more months would not significantly harm Bridgestone. Nonetheless, the dealer had been given almost ten months' notice of termination, during which time it could have mitigated its damages. Finally, the court determined that granting injunctive relief in this case, where the dealer had waited ten months to assert its claims, would encourage undesirable behavior from future claimants. The court denied the dealer's motion for injunctive relief.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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