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MT. LEBANON MOTORS, INC. v. CHRYSLER CORP.

May 1, 1968

MT. LEBANON MOTORS, INC., Plaintiff,
v.
CHRYSLER CORPORATION and Chrysler Motors Corporation, Defendants



The opinion of the court was delivered by: DUMBAULD

 In the case at bar plaintiff, a Dodge dealer, whose franchise was terminated by Chrysler *fn1" on January 31, 1964, effective ninety (90) days thereafter, sues for damages under 15 U.S.C. § 1222 which provides:

 
"An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found, or has an agent, without respect to the amount in controversy, and shall recover the damages by him sustained and the cost of suit by reason of the failure of said automobile manufacturer from and after August 8, 1956 to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer: Provided, That in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith."
 
"(e) The term 'good faith' shall mean the duty of each party to any franchise, and all officers, employees, or agents thereof to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided, That recommendation, endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith."

 It has been judicially determined that the words "fair and equitable" do not here have the meaning that they might have in Price Control legislation during the Second World War or in a railroad reorganization. See 11 U.S.C. § 621; Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 115, 60 S. Ct. 1, 84 L. Ed. 110 (1939); Yakus v. United States, 321 U.S. 414, 420, 64 S. Ct. 660, 88 L. Ed. 834 (1944). The legislative history indicates that they are to be interpreted in the context of coercion, arising from the inequality of bargaining power between the oligopolistic automobile industry and the local dealer with less formidable economic power. Milos v. Ford Motor Co., 317 F.2d 712, 715, 7 A.L.R.3d 1162 (C.A.3, 1963). Violation of the Act as thus construed requires a wrongful demand which will result in sanctions if not complied with. Termination of a franchise is a severe sanction; and if inflicted for wrongful reasons would subject the manufacturer to liability under the statute. Berry Brothers Buick, Inc. v. General Motors Corp., 257 F. Supp. 542, 546 (E.D.Pa., 1966), aff'd 377 F.2d 552 (C.A.3).

 Plaintiff's cancellation was purportedly for inadequate sales performance. The termination notice was limited to asserted breach of contract for failure to meet his fair share of minimum sales responsibility (MSR) in the local automobile market. Testimony indicated that in fact other factors were considered by the company. Mere breach of contract by the dealer does not necessarily relieve the manufacturer of liability under the statute, whose very purpose was to afford protection against undue bargaining power on the part of the automobile makers. Furthermore, failure to meet MSR does not per se prove inadequate or unsatisfactory sales performance, in view of the criteria for determining MSR and a dealer's fair share thereof. Testimony indicates that sometimes more and sometimes less than 50% of dealers fall below the prescribed figure. See Madsen v. Chrysler Corp., 261 F. Supp. 488, 492, 506 (N.D.Ill.E.D.1967).

 It is a jury question whether Chrysler's action was motivated by honest business judgment or by personal animosity against plaintiff's president Samuel A. Liberto because of his prominent part in promoting opposition by privately-financed dealers to the operation of "factory stores" or for other insufficient reasons.

 In addition to alleged violation of the so-called Automobile Dealers' Day in Court Act, the complaint also alleged, pursuant to Section 4 of the Clayton Act (15 U.S.C. § 15), violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2), as well as discrimination between purchasers in violation of the Robinson-Patman Act (15 U.S.C. § 13), besides violation of Section 7 of the Clayton Act (15 U.S.C. § 18). *fn2" In advance of the trial defendant moved to limit the issues at trial by striking out plaintiff's claims other than under the Automobile Dealers' Day in Court Act. The Court granted the motion to strike the claim under 15 U.S.C. § 18 for the reason that that claim simply was based upon the formation of separate corporations for each dealership in which Chrysler held some or all of the stock; and this technique appeared to be a normal practice of causing the formation of subsidiary corporations as expressly permitted by Section 7 of the Clayton Act (15 U.S.C. § 18) rather than a forbidden merger or acquisition affecting competition in the usual antitrust sense.

 Ruling on the other claims was deferred until renewal at the close of plaintiff's evidence by defendants' motion for directed verdict. At this time the Court denied the motion with respect to the Sherman Act counts, but granted the motion with respect to the Robinson-Patman Act count.

 The gist of plaintiff's case is that Chrysler, beginning in 1962, established a number of dealerships which were either wholly owned and financed by Chrysler (denominated "contractual dealers") or substantially owned and controlled by Chrysler, the manufacturer holding 75% of the stock in the dealership corporation, and the so-called "dealer enterprise" (DE) dealer, who managed the dealership and was also paid a salary by the dealership corporation, 25% of the stock of the dealership corporation. In a later refinement of this method, Chrysler would loan to the DE dealer half of the 25% investment.

 Plaintiff offered evidence tending to show that the Chrysler-financed dealerships, commonly called "factory stores", engaged in price-cutting and massive advertising, to the detriment of privately-financed dealerships in the Pittsburgh area, which were not able to afford advertising on such a large scale or to accept profits as small as those obtained by the factory stores in their deals with customers.

 Plaintiff's proof tended to show that the factory stores consistently lost money and were unprofitable; but that from time to time, when circumstances required, Chrysler would make gifts or additional investments in the form of "capital contributions" to the factory-financed dealerships, thus enabling them to continue in business, notwithstanding their losses resulting from their normal operations.

 There was also evidence that the "dealer enterprise" division of Chrysler would from time to time furnish temporary employees to the factory stores when they experienced a shortage of adequate personnel and would furnish assistance to the factory stores in establishing their accounting systems and would also ...


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