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CHINETTI-GARTHWAITE IMPORTS v. FERRARI SOCIETA PER

November 30, 1978

CHINETTI-GARTHWAITE IMPORTS, INC.
v.
FERRARI SOCIETA PER AZIONI ESERCIZIO FABBRICHE AUTOMOBILI E CORSE



The opinion of the court was delivered by: CAHN

MEMORANDUM

INTRODUCTION

 Plaintiff, Chinetti-Garthwaite Imports, Inc. (CGI), is the importer and distributor for Ferrari automobiles in the eastern part of the United States. Defendant, Ferrari Societa Per Azioni Esercizio Fabbriche Automobili E Corse (Ferrari), is the manufacturer of Ferrari automobiles. CGI alleges that Ferrari violated the Automobile Dealers' Day in Court Act, 15 U.S.C. § 1221-1225 (hereinafter the Act), by informing CGI that it would not renew CGI's franchise and then attempting to negotiate another agreement less favorable to CGI. *fn1" CGI argues that Ferrari used the notice of nonrenewal as a lever to force CGI to accede to Ferrari's wishes and that such an action is the type of coercion which the Act forbids. *fn2" CGI further alleges that termination of its franchise will cause it irreparable harm and therefore seeks both temporary and permanent injunctive relief.

 On September 8, 1978, following notice to Ferrari, I entered a temporary restraining order on CGI's Ex parte motion. Thereafter, counsel appeared for Ferrari and entered into several stipulations extending the temporary restraining order until November 20, 1978, when a decision on the plaintiff's motion for a preliminary injunction would be made. *fn3" Discovery has been afforded to both parties.

 CGI is entitled to a preliminary injunction if it can show that:

 1. It will sustain irreparable harm if the injunction is not granted,

 2. On balance, granting the injunction will benefit it more than it will harm the defendant, and,

 3. It is likely to succeed on the merits. *fn4" Constructors Ass'n of Western Pa. v. Kreps, 573 F.2d 811, 814-15 (3d Cir. 1978); Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir. 1975).

 CGI has satisfied the first requirement. If the injunction is not granted it will go out of business. As the court of appeals held in Bateman v. Ford Motor Co., 302 F.2d 63 (3d Cir. 1962), loss of a business results in irreparable harm and is the sort of injury for which injunctive relief may be granted. See Randy's Studebaker Sales, Inc. v. Nissan Motor Corp., 533 F.2d 510, 513 (10th Cir. 1976). CGI introduced credible evidence that it could not readily become the importer for another manufacturer and would therefore have to go out of business if preliminary relief were not granted. Therefore, it has met its burden of proving that it will be irreparably harmed.

 CGI has also satisfied the second requirement. It has shown that maintaining the status quo will benefit it more than it will hurt Ferrari. CGI is operating profitably; its audited financial statements show profits in excess of $ 700,000 for fiscal year 1978. It expects to double its revenues during the current fiscal year and has received orders for over one hundred more cars than Ferrari can deliver. Indeed, Ferrari is more than one hundred cars behind schedule at the present time. Therefore, it is difficult to see how Ferrari will be harmed by allowing CGI to continue in business pending a final determination of the matter. Ferrari will not go out of business; on the contrary, Ferrari will continue to benefit from CGI's profitability.

 CGI has also satisfied the third requirement. It has shown that it has a reasonable likelihood of succeeding on the merits. The Act gives dealers a remedy against manufacturers who bargain in bad faith and defines bad faith as the use of coercion. 15 U.S.C. §§ 1221-1222. This case poses two issues which require further discussion: (1) is CGI a dealer as that term is defined in the Act, and (2) did Ferrari exercise coercion by notifying CGI that its franchise agreement would not be renewed and then entering into contract negotiations with it.

 On the first issue I find that plaintiff is a dealer and is subject to the protection of the Act with respect to both its importer and distributor functions. *fn5" Section 1221(c) provides that the term dealer includes "any . . . corporation . . . engaged in the sale or distribution of passenger cars . . . ." Although the Act does not directly address the issue of whether an importer is a dealer, its purpose and legislative history suggest that an importer should be considered a dealer, at least in this case. The House report states that "the manufacturer's obligation to act in good faith extends to all of his franchised dealers, including: dealers who sell automobiles to other dealers . . . for resale to the public . . . ." H.R.Rep. No. 2850, 84th Cong., 2d Sess. (1956), Reprinted in 1956-3 U.S.Code Cong. & Admin.News, pp. 4596, 4604 (hereinafter 1956 USCCAN). CGI buys cars from Ferrari for resale to other dealers; it should therefore be considered a dealer.

 The Act's failure to mention importers does not command a different conclusion. First, Congress did not limit the word "dealer" to retail dealers. Instead it specifically provided that a distributor would also be considered a dealer, thereby showing that it wished to extend the benefits of the Act to enterprises which like a dealership, depend on the manufacturer and are therefore subject to coercion by it. 15 U.S.C. § 1221(c). An importer is similar to a distributor in that it depends on the manufacturer for survival. Therefore, importers as well as dealers and distributors need protection from coercion by their manufacturers.

 Second, when Congress enacted this legislation it was concerned with the relationship between manufacturers and dealers. 1956 USCCAN, at 4596-99. In examining this relationship it probably had in mind the domestic manufacturer who obviously does not use a United States importer. Therefore, it is not surprising that the Act omits specific reference to importers. Given the policy behind the Act, that omission should not be determinative. To exclude importers from the protection of the Act would be to ignore the congressional concern with righting the imbalance in bargaining power between the manufacturer and those who depend on it for the survival of their businesses. Furthermore, if the Act covered distributors but not importers it would leave the latter enterprises at the mercy of the manufacturer merely because their manufacturer is foreign rather than domestic. The policy behind the statute does not support such an unintended result.

 Unfortunately, counsel has not cited, and our independent research has not disclosed, any case precisely on point. The case of Grappone, Inc. v. Subaru of America, Inc., 403 F. Supp. 123 (D.N.H.1975), relied upon by Ferrari, is clearly distinguishable. The plaintiff in Grappone tried to establish that the importer was the manufacturer. The court, however, found that unless ...


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