The Franchise Memorandum

Even before its recent bankruptcy filing and widespread dealer reduction announcements, GM was involved in significant litigation with its dealers concerning distribution issues. Five recent cases, briefly discussed below, are representative.

In Courtesy Oldsmobile, Inc. v. General Motors Corp., 2009 WL 1353762 (9^th Cir. May 15, 2009), and C&O Motors, Inc. v. General Motors Corp., 2009 WL 891033 (4^th Cir. Apr. 1, 2009), the courts concluded that GM did not violate dealer agreements or state motor vehicle franchise laws when it discontinued its Oldsmobile line. In the Courtesy case, the court noted that the agreement did not give the dealer an “absolute” opportunity to enter into a new dealership contract at the expiration date. In addition, the contract’s statement that it was GM’s aim to have the dealer “achieve a reasonable return on investment” was not actionable because the contractual language was “unambiguously aspirational and insufficient to impose an obligation on” the car company. Moreover, the court concluded that the dealer’s statutory claims failed because GM retained complete discretion as to the distribution of vehicles and the dealer had not filed an administrative appeal, which is a requirement for filing suit under the state dealership relationship statute. Finally, there was no violation of Nevada’s unfair trade practice statute because the alleged statements made by GM about which the dealer complained were “not directed at the public” and were not “knowingly false.” The court in C&O reached the same general conclusions with respect to a dealership in West Virginia, holding that its claim for lost profits against GM caused by the phase-out of the Oldsmobile line was barred because the dealer had suffered no economic loss when it opened a more successful Nissan dealership in its place.

However, in General Motors Corp. v. Harry Brown’s, LLC, No. 08-3924 (8^th Cir. Apr. 16, 2009), and Saturn of Denville v. General Motors Corp., 2009 WL 154559 (D.N.J. May 29, 2009), the courts turned away GM’s attempt to restrict dealers from carrying competing car brands in the extraordinary economic context created by the current recession. In Harry Brown’s, the court denied a injunction prohibiting the dealer from combining with a nearby dealer of Chrysler vehicles, which would be stocked alongside GM automobiles, primarily because the “longtime public association of the two dealerships,” their overlapping customer bases and proximity to each other lessened the harm to GM that could usually be expected from selling the two brands of cars under one roof. Similarly, in Saturn of Denville the court enjoined GM from enforcing a prohibition on dual branding by a dealer who sought to sell cars from Saturn and KIA.  The dispute in that case arose during the midst of the GM’s current restructuring, when the company decided not to continue with the brand in its long-term plans. Given Saturn’s limited advertising, low incentives, and lack of unique models, along with the impending termination of the Saturn brand, the court found it would be an “unreasonable restriction” under the New Jersey Franchise Practices Act for GM to preclude the dealer from combining its Saturn facility with a KIA dealership. Similarly, in General Motors Corp. v. DealMaker, LLC, the Eighth Circuit affirmed the district court’s denial of a preliminary injunction barring a dealer’s proposed relocation request and request to carry another line of cars on the grounds that GM’s claims for harm to goodwill and customer relationships was the equivalent to a claim of lost profits, was too speculative in nature, and thus did not rise to the level of irreparable harm.