The Franchise Memorandum

The United States Court of Appeals for the Fifth Circuit recently concluded that a prospective purchaser of a vehicle dealership is not a third-party beneficiary of the seller’s dealership agreement. In K.P.’s Auto Sales, Inc. v. General Motors Corp., 2008 WL 4580087 (5th Cir. Oct. 15, 2008), K.P. offered to buy an existing Cadillac dealership, which submitted the proposed sale to GM for approval.  K.P.’s lawsuit alleged that GM then improperly shared confidential information about K.P. and its principal with another dealer, who used that information to outbid K.P. In its case, K.P. argued that it was a third-party beneficiary of the selling dealer’s contract with GM, which barred GM from disclosing confidential information submitted in the context of a proposed sale. The district court granted summary judgment to GM, concluding that K.P. was not a third-party beneficiary of the dealership agreement. 

The Fifth Circuit affirmed. The court of appeals found that the dealership agreement between ADG and GM did not manifest a clear intent to benefit any other party. Accordingly, K.P. could not rely on that agreement to challenge GM’s conduct.