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WAHSNER v. AMERICAN MOTORS SALES CORP.

October 23, 1984

EDWARD WAHSNER, et al.
v.
AMERICAN MOTORS SALES CORP., et al.



The opinion of the court was delivered by: GILES

 GILES, J.

 Edward Wahsner and Stevin Novin filed this action against American Motors Sales Corporation (AMSC) and Rich Will, an AMSC Zone Manager, under the Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-1225 (Dealers' Day Act). They allege AMSC terminated them in bad faith in violation of the Dealers' Day Act. They also allege that Will induced AMSC to breach its franchise agreement with plaintiffs. *fn1" AMSC and Rich Will have filed a motion for summary judgment asserting that Wahsner and Novin signed releases in which they relinquished all claims against defendants. For the reasons which follow, this motion shall be denied.

 FACTS

 On April 15, 1978, Wahsner and Novin were installed as co-investors/operators of the dealership, Economy AMC/Jeep, Inc. (Economy) as part of AMSC's dealership investment program. Wahsner and Novin each invested $25,000 for a total of $50,000. AMSC invested $75,000. First Pennsylvania Bank provided the remainder of Economy's capital in the form of a loan in the amount of $125,000 guaranteed by AMSC. *fn2" Wahsner and Novin each signed an employment agreement. These agreements provided that AMSC employed Wahsner as president and general manager of Economy and Novin as vice-president and co-manager of Economy. Both employment agreements were terminable at will at any time by the board of directors or by voluntary resignation. Wahsner and Novin also each signed a stock agreement which provided that AMSC owned 750 shares (all of the issued and outstanding shares) of preferred stock and that Wahsner and Novin each owned 250 shares of the common stock. An addendum to the stock agreement provided that in the event Novin and/or Wahsner ceased to be officers of Economy, AMSC had the right to purchase their stock at book value or to liquidate the dealership. According to the investment plan, profits clear of all encumbrances were to be applied to the redemption of outstanding preferred stock. If all worked well, all of the outstanding preferred stock eventually would be redeemed and Wahsner and Novin would become the sole owners of the dealership. The document entitled "Dealer Franchise Provisions" allowed AMSC to terminate the dealer for failure to conduct business in accordance with each of the requirements set forth earlier in the document by giving written notice at least ninety days prior to the date of termination.

 Wahsner and Novin operated Economy for approximately three years. At some point or points during these three years, Economy was listed in AMSC's top ten dealer list. *fn3" After operating at a profit for the first six months, Economy began to operate at a loss and this loss trend was never reversed. In February, 1980, W. R. Crawford, who was responsible for running AMSC's dealership investment program and was Economy's first vice president, recommended that Economy's loan be recapitalized. This recapitalization increased First Pennsylvania Bank's loan to $150,000 *fn4" and required AMSC to provide a new capital loan guarantee to the First Pennsylvania Bank. In July, 1980, Crawford recommended another recapitalization of Economy, this time in the amount of $124,000. Because First Pennsylvania Bank had participated in the February, 1980 recapitalization of Economy, Crawford proposed that the July, 1980 recapitalization be totally funded by AMSC, and so it was.

 In intracompany correspondence to Crawford, M. P. Mauricio, the Northeast Branch Manager of the Dealer Investment Department, diagnosed Economy's problems as including (1) ineffective management of employees, (2) a decrease in departmental sales while departmental expenses increased, (3) frozen capital and (4) poor documentation of costs. On March 10, 1981, Crawford recommended in intracompany correspondence that Wahsner and Novin be removed as officers of Economy and that their stock interest be dissolved. He stated that "the primary reason for this recommended course of action is excessive and escalating losses of the dealership due to the continued lack of management action to coordinate and improve the overall operation." He also stated that there had been numerous meetings to work with Wahsner and Novin to improve operation of Economy. However, these attempts to reverse the loss trend had proven unsuccessful. Crawford included "a chronology of the attached dealership contact reports, intercompany memos, audits and letters substantiating this request for removal." Wahsner and Novin had invested $50,000 in common stock in 1978. Between April, 1978 and January, 1981, the dealership accumulated losses amounting to $104,880. Thus the decision was made to remove Wahsner and Novin from the Economy dealership.

 On March 15, 1981, Crawford sent mailgrams to Wahsner and Novin which read in pertinent part:

 
You are hereby notified that, at the request of Mr. H. C. Cleary and myself as director of Economy AMC Jeep, Inc., a special meeting of the board of directors of that corporation will be held on Wednesday, March 18, 1981 . . . for the purpose of reviewing continuing losses and to implement appropriate actions with respect to the future management of Economy. . . .

 On March 18, 1981, Novin drove both himself and Wahsner to the meeting in a car owned by the dealership. On the way to the meeting, they stopped by Economy where they discovered that the locks were being changed. Although they found the changing of the locks strange, neither this nor the mailgram indicated to them that their resignations would be requested at the meeting.

 Present at the meeting were Crawford, Will, Herbert C. Cleary, the new branch manager, Wahsner and Novin. *fn5" Once the meeting began, Crawford informed Wahsner and Novin that the board was requesting their resignations because it was not satisfied with their operation of Economy. Both Wahsner and Novin were flabbergasted by the request and refused to resign. Upon their refusal, Crawford told them that if they did not resign, the board would remove them and they would leave the meeting with absolutely nothing. They still refused to resign. The board then offered them $5,000.00 cash settlement, two weeks severance pay, two weeks vacation and use of the company car. After they refused this offer, Crawford recommended to Wahsner and Novin that they talk it over. Crawford and the others present left the room so that Wahsner and Novin could talk privately. During their private discussion, Wahsner and Novin decided they should resign. In deposition testimony Wahsner and Novin stated they interpreted Crawford's statement that they would leave with absolutely nothing if they did not resign as meaning that they would have to walk home because they had arrived in a company car. Novin also claimed during deposition that he felt under great pressure and powerless to fight the board. He believed that if they did not resign, it would be difficult to find work elsewhere. He also stated during his deposition that he could not risk losing whatever security was being offered because he had a family to support and a child with a heart ailment requiring medical attention and hospitalization. Before actually resigning, however, they agreed that they would make sure that they would each receive the $5,000.00, letters of recommendation and continued hospitalization.

 After about twenty minutes, Crawford and the others rejoined Wahsner and Novin. Crawford reassured them that they would each receive $5,000.00 and agreed to the letters of recommendation and continued hospital coverage. Wahsner and Novin then tendered their resignations. Wahsner refused to sign his release until after he had received his check. Both Wahsner and Novin returned with Crawford and Cleary to the dealership to obtain their checks. Each received checks in the amount of $8,184.58 (two weeks severance pay plus $5,000.00 less withholding taxes), two weeks plus three days of vacation pay, continuation of medical insurance until March 31, use of the company cars until April 30 and a letter of recommendation. In return, Wahsner and Novin executed letters of resignation, assignments of stock, waivers of certain rights under the stock agreements and general releases. *fn6" Neither Wahsner nor Novin returned any of the consideration they received from defendants.

 After Wahsner and Novin resigned, Dick Gorham took over the dealership. Later, Rich Will took over and the ...


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