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Federal Court Holds Manufacturer Did Not Timely Exercise Right of First Refusal

A federal district court in Maryland recently determined that a manufacturer did not timely exercise its right of first refusal to purchase a truck dealership from one of its dealers. Paccar Inc. d/b/a Peterbilt Motors Co. v. Elliot Wilson Capitol Trucks LLC, 2013 U.S. Dist. LEXIS 21004, (D. Md. Feb. 8, 2013). In granting the dealer’s cross motion for summary judgment, the court focused on the requirement that the dealer give notice in order to trigger the thirty-day option period set forth in the dealership agreement. Dealer Elliot Wilson claimed that the option had expired because Peterbilt untimely exercised it three months after receiving actual notice of the proposed sale. Peterbilt claimed that the notice it received from Elliot Wilson lacked sufficient detail to allow it to act on its right of first refusal because it did not adequately describe the material terms of the sale.

After examining the information provided by Elliot Wilson, the court determined that notice sufficiently informed the manufacturer of the terms of the sale. Although the dealer did not give Peterbilt the actual proposed purchase agreement, it clearly communicated the purchase price and other terms of the deal. Thus, according to controlling case law, the notice triggered Peterbilt’s duty to clarify, within a reasonable time period, any questions it had about the sale. Since Peterbilt was aware of the transaction’s essential terms and had sufficient time to obtain any other details it needed, the court determined that actual notice had been given and the option period had begun to run. The court therefore held that Peterbilt’s exercise of its right of first refusal after the thirty-day deadline was ineffective.

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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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