The United States District Court for the Central District of
California recently granted summary judgment on the plaintiffs'
Automobile Dealer's Day in Court Act ("ADDCA") claim
related to an alleged constructive termination of a Hyundai
dealership. See Estes Automotive Group, Inc. v. Hyundai Motor
Amer., Case No. 8:10-cv-00287, Order [Doc. No. 81] (March 25,
2011).
Two plaintiffs initially purchased a Hyundai dealership in
Merced, California in 2002. In 2007, the dealership moved into a
new facility that the plaintiffs financed through Hyundai Capital
America ("HCA") by way of a construction loan, and, at
the same time, plaintiffs entered into a floor plan financing
agreement. See id. at p. 2. According to the court, the
dealership's profits slipped in 2008 and 2009, and the
plaintiffs sought financial assistance from the defendants. By
January 2009, an owner of the dealership requested a six-month
forbearance on the construction loan from HCA, which was followed
by about a year of discussions about financial assistance that the
defendants could provide to the plaintiffs. See id. On
January 21, 2010, HCA served the plaintiffs with a Secondary Notice
of Default and Acceleration of Debt on both the construction loan
and the floor plan financing. The dealership closed a few days
later. See id. at p. 3.
In analyzing the parties' arguments at the summary judgment
stage, the court indicated that under the ADDCA, a dealer may sue
in federal court "'for the failure of the automobile
manufacturer to act in good faith in performing or complying with
any of the terms o[r] provisions of the franchise, or in
terminating, canceling, or not reviewing the dealer's
franchise.'" Id. at p. 5 (quoting Autohaus
Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901, 910 (9th
Cir. 1978)). As the court in Estes also explained:
[F]ailure to exercise good faith within the meaning of the
[ADDCA] has a limited and restricted meaning. It is not to be
construed liberally.... The existence or nonexistence of "good
faith" must be determined in the context of actual or
threatened coercion or intimidation. In order to lack good faith
the manufacturer's actions must be unfair and inequitable in
addition to being for the purpose of coercion and intimidation.
Coercion or intimidation must include a wrongful demand which will
result in sanctions if not complied with, and it is necessary to
consider not only whether the manufacturer brought pressure to bear
on the dealer, but also his reason for doing so. When a termination
or nonrenewal of a franchise is involved, there must be a
"causal connection" between the dealer's resistance
to the coercive conduct and the termination or nonrenewal for there
to be a lack of good faith under the [ADDCA].
Id. at p. 6 (quoting Autohaus Brugger, 567
F.2d at 911)(ellipses and brackets in Estes).
The court found that "[t]he ADDCA permits a dealer to bring
suit for damages when the automobile manufacturer fails to act in
good faith in (1) performing or complying with any of the terms or
provisions of the franchise agreement, or (2) terminating,
canceling, or not renewing the dealer's franchise."
Id. at p. 8. As to (1), the court found that the
Estes plaintiffs failed to identify any provision of the
dealer agreement that was violated.
The plaintiffs admitted that the defendants did not terminate,
cancel, or fail to renew the dealership until "well after the
events described in this action and indeed, approximately ten
months after the filing of the action." Id. The
plaintiffs nevertheless argued that the dealer agreement was
constructively terminated in four ways. In analyzing the
plaintiffs' arguments, the court assumed without deciding that
constructive termination is actionable under the ADDCA, but
nonetheless awarded summary judgment in the defendants' favor.
See id. at p. 8-9.
First, the plaintiffs argued that the defendants diverted and
withheld money owed to the dealership. The plaintiffs argued that
when a customer purchased a vehicle and the dealership sent in the
contract for funding, the proceeds would be diverted to HCA as a
result of financing obligations. In addition, the plaintiffs
claimed that Hyundai Motor America ("HMA") diverted money
owed to the dealership for warranty repairs, factory rebates,
dealer cash, and incentives to HCA and that the plaintiffs were
never provided with an accounting of these "diverted"
funds. See id. at p. 9. The court rejected these
assertions, finding the allegedly improper diversion assertions
"inconsistent with the written, signed Assignment Agreement
between [p]laintiffs and [d]efendants." Id. The court
explained that "HMA's transfer of monies owed to
[p]laintiffs did not 'bleed [p]laintiffs' assets and
operating capital' but rather offset financial obligations
[p]laintiffs owed to HCA." Id. at p. 10. In short,
the court found that there was no indication that
"HMA/HCA's conduct in complying with the Assignment
Agreement was coercive or intimidating." Id.
Second, the plaintiffs argued that the dealer agreement was
constructively terminated based on defendants' allegedly
misrepresenting to plaintiffs that HMA and HCA would provide
financial support. That argument, too, the court rejected,
explaining that "oral representations or promises that are not
part of the franchise agreement are not actionable under the
ADDCA" and elsewhere elaborated that the United States Court
of Appeals for the Seventh Circuit had previously explained that,
in light of "the ADDCA's plain language, oral
representations or promises that are not a part of the written
franchise agreement or contract 'may not form the basis of a
claim of bad faith, coercion or intimidation, under the
Act.'" Id. at p. 10, 11 (quoting Lawrence
Chrysler Plymouth, Inc. v. Chrysler Corp., 461 F.2d 608, 610
(7th Cir. 1972).) In any event, even if the alleged oral
misrepresentations were actionable, the court found that the
plaintiffs failed to establish any link between the alleged
misrepresentations regarding financing and the alleged termination.
See id. at p. 11.
Third, the plaintiffs argued that the defendants violated the
ADDCA by attempting to force the plaintiffs to sell the dealership
to a certain candidate. The court found that argument was not
supported by the evidence submitted, including an email that set
forth the criteria that the manufacturer "could reasonably be
expected to have for evaluating" potential candidates. See
id. at p. 12.
The plaintiffs' final argument was that HMA and HCA refused
to consider the plaintiffs' preferred buyer. The court found
that argument "is similarly not supported by the
evidence." Id. In sum, the court found that
plaintiffs "have failed to establish any coercion or
intimidation by HMA or HCA such that [d]efendant could be liable
under the ADDCA. There are no allegations or evidence of any
demand, let alone a wrongful demand, nor any causal connection
between HMA's and HCA's actions and the alleged
constructive termination." Id. at p. 13. The court
declined to exercise supplemental jurisdiction over the
plaintiffs' state law claims, finding that it was in the
interest of judicial economy, convenience, fairness, and comity for
those claims to be handled in a pending state court action. See
id.
Estes serves as an important reminder of some of the potential defenses available to dealers' ADDCA claims. Among other things, the decision can be used to argue that the statute has limited applicability to oral misrepresentation claims and that dealer plaintiffs must establish a causal link between the alleged wrongdoing and cognizable harm under the statute.
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