The Franchise Memorandum

In DaimlerChrysler Motors Company, LLC v. Manuel, et al., 2012 Tex. App. LEXIS 1489 (Tex. Ct. App. Feb. 24, 2012), a Texas appellate court affirmed the trial court’s finding that DaimlerChrysler (Chrysler) breached the best efforts provision of its contract with its dealer. In this case, Chrysler entered into an agreement with the dealer for a new Chrysler-Jeep dealership in South Arlington, Texas. The agreement stated that Chrysler granted the dealership subject to the possibility that it could be protested by another dealer, which would delay its establishment. The contract stated that in the event of a protest, Chrysler would use its “best efforts” to litigate or settle the dispute. Before the appellees began constructing the new dealership, another dealer filed a protest. Chrysler engaged in multiple attempts to resolve the dispute, including discussions with the protestor, going before the Texas Motor Vehicle Commission, and filing suit in court. Eight months after the protest was filed, Chrysler began settlement negotiations and ultimately settled the case. Because the economy and market for new cars had dropped significantly in the meantime, the dealership still sued. The trial court found that Chrysler failed to use its best efforts to resolve the protest and awarded the dealership $370,668. Chrysler appealed.

In affirming, the court of appeals noted that the best efforts provision had a measurable goal of resolving any protest within a reasonable time. It also found that even absent a date certain by which Chrysler was obligated to litigate or settle the protest, Chrysler’s eventual settlement did not meet the goal. After observing that Chrysler had a $30 million budget to resolve protests and that it could have offered the protesting dealerships at least two locations, the court found that Chrysler’s failure to attempt to settle until eight months after the protest was enough to support the finding of breach.