The Franchise Memorandum

In another case from the Third Circuit, the appellate court affirmed a lower court’s decision to grant a franchisor’s motion for summary judgment. Audi of Am. v. Bronsberg & Hughes Pontiac, Inc., 2020 WL 2988888 (3d Cir. June 4, 2020). Audi of America and Wyoming Valley Motors (WVM) were parties to a 1997 franchise agreement that permitted WVM to operate a location-specific Audi dealership. In 2011, Audi unveiled a plan to convert all franchised locations to exclusive dealerships, with a six-year transition period. To comply with these new requirements, WVM purchased real estate near the existing dealership to relocate the Audi franchised business. Around the same time, WVM and a third party company, Napleton, entered into an asset purchase agreement whereby WVM would sell its entire business, including the Audi franchised business, to Napleton. While WVM requested Audi’s consent to relocate to the new location, it failed to notify Audi of the proposed transfer. Audi granted its preliminary approval for relocation, but retained the right to revoke its approval if WVM failed to perform the terms and conditions of the franchise agreement. Once WVM received Audi’s approval, it disclosed the proposed sale and transfer to Napleton. Audi requested additional details, but WVM and Napleton failed to disclose integral information, which eventually resulted in Audi seeking and obtaining an injunction to stop WVM from transferring the franchised business. Audi ultimately refused to allow the transfer, and Napleton filed various claims against Audi, including tortious interference. The district court granted summary judgment on these claims and Napleton then appealed.

The appellate court’s review focused on whether Audi’s conduct was privileged or justified. As the court stated, the issue was whether Audi’s conduct was “sanctioned by the rules of the game which society has adopted.” The court noted that substantial deference must be given to Audi if its actions protected “an existing legitimate business concern.” First, the court affirmed that Audi had legitimate business concerns related to the franchise, its value, and its ownership, and that Audi was not merely punishing Napleton for its past role in a diesel emissions lawsuit. Second, the court affirmed that Audi had only revoked its consent to the relocation agreement once Audi learned about the undisclosed transfer of the real estate. “On those facts, there is no evidence on which ‘a reasonable jury could return a verdict for the nonmoving party,’ making summary judgment for Audi proper.”