The Franchise Memorandum

The Sixth Circuit Court of Appeals has affirmed dismissal of claims against FCA International Operations regarding the termination of a Chrysler distributor in Angola. Union Commercial Servs. Ltd. v. FCA Int’l Operations, LLC, 2019 WL 4011895 (6th Cir. Aug. 26, 2019). FCA as the successor in interest of Chrysler International Corporation, was the grantor of a 2006 nonexclusive distributor agreement with Union Commercial Services, an Angolan private business. In 2009, Chrysler began working with Union’s Angolan competitor, Auto-Star, a company controlled by high-ranking Angolan government and military leaders. By 2011, AutoStar directly competed with Union selling Chrysler products within Union’s territory. Around that time, Auto-Star offered to purchase an ownership interest in Union, which Union declined. In 2014, Chrysler terminated the distributor agreement with Union. Believing it was terminated because FCA wanted to exploit the sales market with the government officials associated with Auto-Star, Union sued FCA in Michigan federal court. After a multi-count complaint was dismissed, Union appealed focusing on two legal theories: (1) that Chrysler breached the implied covenant of good faith and fair dealing by working with Auto-Star, a company that would bribe Angolan state officials and attempted to purchase part of Union; and (2) that Chrysler tortiously interfered with the business relations of Union by encouraging Auto-Star to purchase part of Union, by enabling Auto-Star to take sales from Union, and by ending the relationship after Union would not participate in a scheme to bribe Angolan state officials.

In a split decision, the Sixth Circuit affirmed the dismissal of both claims. In its claim for breach of the implied covenant of good faith and fair dealing, Union relied upon Article 13.6 of the distributor agreement, which required that Union cooperate with Chrysler’s efforts to comply with the Foreign Corrupt Practices Act. Union argued that the provision implied that Chrysler would in fact make efforts to comply with the act. The court held that nothing contained within the language of the provision imposed any obligation on Chrysler to take steps to comply with the act, but rather, the provision imposed duties upon Union to cooperate if Chrysler were to take steps to comply with the act. Although the choice to comply with its statutory obligations was within Chrysler’s discretion, the obligations in Article 13.6 flowed only to Union and therefore could not create an implied duty on Chrysler. On the tortious interference claim, the court concluded that malice on the part of Chrysler could not be reasonably inferred from Union’s bribery allegation. The court held that the general allegation that Chrysler violated the Foreign Corrupt Practices Act was not a specific, affirmative act that demonstrated Chrysler’s improper motive.