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RELIABLE VOLKSWAGEN SALES & SERV. CO. v. WORLD-WID

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY


April 11, 1963

RELIABLE VOLKSWAGEN SALES AND SERVICE COMPANY, Inc., Plaintiff,
v.
WORLD-WIDE AUTOMOBILE CORP., Fifth Avenue Motors, Inc., Queensboro Motors Corp., Volkswagen of America, Inc., Volkswagen United States, Inc., Volkswagenwerk, G.m.b.H., Charles J. Dillon and Arthur Stanton, Defendants

The opinion of the court was delivered by: WORTENDYKE

Plaintiff filed two actions of a similar nature against the defendants; one in the Southern District of New York, and one in this District. The former having been transferred to this Court, the two cases were consolidated for trial, on June 30, 1960. Among the various causes of action alleged, one (Count 3) is predicated upon the Automobile Dealer Franchise Act, 15 U.S.C. § 1221 et seq. At a supplementary pretrial conference held on February 11, 1963, attended by all counsel and the Court, it was decided to submit for determination, prior to trial, the issue of whether or not plaintiff is entitled to rely upon the cited statutory sections; the critical question being the existence vel non of a 'franchise' as defined by the terms of the Act.

Plaintiff, Reliable Volkswagen Sales & Service Company, Inc. (hereinafter Reliable) is a corporation of the State of Connecticut, with its principal place of business in the City of Bridgeport. It is engaged in the retail sales of various types of motor vehicles, and parts thereof, of foreign manufacture. Plaintiff was incorporated on January 24, 1956, the date of filing of the certificate of incorporation, for the purpose of engaging 'in the manufacture, sale and distribution of automobiles, motor cars, motor trucks and other mechanically propelled vehicles * * * more particularly that automobile known as VOLKSWAGEN,' and 'to engage in the repair and servicing of automobiles, motor cars, motor trucks and other mechanically propelled vehicles and more particularly the repair and servicing of that certain automobile known as VOLKSWAGEN.' On May 16, 1956, the Connecticut Department of Motor Vehicles approved a license for the sale of Volkswagens by one of plaintiff's officers, Lawrence Oliver, d/b/a Reliable Volkswagen Sales Inc. A letter dated January 13, 1956, from World-Wide Automobile Corp. certifying Reliable Motor Sales Incorporated as a dealer was submitted to the Dealers and Repairers Section (presumably of the Connecticut Department of Motor Vehicles). *fn1" The letter referred to concluded with: 'This letter of authorization in no way constitutes a franchise agreement between the above-named dealer and World-Wide Automobiles Corporation.'

The defendant Volkswagenwerk G.m.b.H. (hereinafter VW), is a corporation of the German Federal Republic, engaged in the manufacture of Volkswagen automobiles and parts for the same, at Wolfsburg, West Germany. VW originally imported its products into the United States of America for sale therein; but later effected such importation through a subsidiary, which it caused to be organized under the laws of the State of New York, known as Volkswagen United States, Inc. (hereinafter VUS). More recently, VW caused to be organized, under the laws of the State of New Jersey, another subsidiary corporation known as Volkswagen of America, Inc. (hereinafter VOA), having a principal place of business at Englewood Cliffs, New Jersey, which the complaint alleges, supervised the distribution of Volkswagen automobiles and parts in the United States, in behalf of VW. Volkswagen automobiles and parts for the same are sold in commerce between West Germany and the United States of America, and among the several States of the latter.

 The defendant World-Wide Automobile Corp. (hereinafter W-W), a New York State corporation, with a place of business in Long Island City, handles the distribution, within the State of New York, New Jersey and Connecticut, of Volkswagen vehicles and parts manufactured by VW and imported and sold by and through VOA and VUS.

 The defendants Fifth Avenue Motors, Inc. and Queensboro Motors Corp., both New York corporations, are retail dealers handling VW products in Manhattan and Long Island City, New York, and they obtain their merchandise through W-W.

 The individual defendants, Dillon and Stanton, are officers and directors of W-W, Fifth Avenue and Queensboro.

 Count 3 of the complaint alleges that in or about April 1954 'plaintiff and defendant World-Wide entered into an agreement whereby plaintiff was designated as the duly authorized retail dealer in the City of Bridgeport, State of Connecticut, of Volkswagen automobiles, trucks, accessories and parts, to be supplied and furnished to plaintiff by defendant World-Wide.' (Emphasis supplied.) The third count further recites that plaintiff received vehicles from defendants from January 1, 1955 to January 1, 1957, and that on or about January 1st, 1956 the defendants agreed to sell to plaintiff a minimum of 30 Volkswagenwerk manufactured products per month on the condition that plaintiff enlarge, expand and rebuild his show-room and allied facilities. Plaintiff charges that by reason of the foregoing it was an automobile dealer within the terms of the Act and that the 'agreement of franchise' heretofore alleged 'purported to and did fix the legal rights and liabilities of the respective parties thereto in regard to the distribution, sale and servicing of motor vehicles and parts * * *.' Finally, this cause of action states that defendants, acting in an unfair manner, cancelled and refused to carry out the contracts and agreement pursuant to which defendants had appointed and constituted plaintiff an authorized dealer, by reason of which plaintiff suffered damage.

 The narrow question here presented to the Court by stipulation of all of the parties, is whether or not a 'franchise' existed within the definition set forth in the Act; it being agreed that, if none is found, the third cause of action must fall. *fn2" The statute, 15 U.S.C. § 1221, itself defines the word as follows: '(b) The term 'franchise' shall mean the written agreement or contract between any automobile manufacturer engaged in commerce and any automobile dealer which purports to fix the legal rights and liabilities of the parties to such agreement or contract.'

 If a definition of a word used is given in a statute the statutory definition is controlling. Otherwise the word will be given its common ordinary meaning. Von Weise v. Commissioner, etc., 8 Cir., 1934, 69 F.2d 439, cert. den. 292 U.S. 655, 54 S. Ct. 866, 78 L. Ed. 1504; Western Union Telegraph Co. v. Lenroot, 1944, 323 U.S. 490, 65 S. Ct. 335, 89 L. Ed. 414; National Labor Relations Board v. Coca-Cola Bottling Co., 1956, 350 U.S. 264, 76 S. Ct. 383, 100 L. Ed. 285; Addison v. Holly Hill Co., 1944, 322 U.S. 607, 64 S. Ct. 1215, 88 L. Ed. 1488.

 It is conceded by plaintiff that it never entered into a franchise agreement of a formal nature, similar to those generally in use in the automobile industry in this country. In describing such an agreement, Professor Kessler states in Automobile Dealer Franchises: Vertical Integration by Contract, 66 Yale Law Journal 1135, 1138/9, 1957, 'The franchise is embodied in a detailed, standardized contract presented by the manufacturer to the dealer. The master contract is frequently accompanied by printed addenda concerning such matters as capital requirements and succession. Modern franchise contracts show great similarity; the absence of complete uniformity may be ascribed to the competition for dealers among the five remaining manufacturers. This high degree of standardization is best illustrated by the 'entire agreement' clauses.'

 Plaintiff contends, however, that the Act does not limit the relief which it affords to one who has entered into such a formal agreement, but additionally protects one in its position, that is, one who has acted as a dealer, and is considered as such by the manufacturer notwithstanding the absence of a franchise agreement such as that described supra. Recognizing the necessity of meeting the statutory requirement in order to sustain its third cause of action, plaintiff claims the benefit of a purported integrated contract, which it asserts satisfies that requirement. In support of its position, and as evidence of its integrated contract, plaintiff has submitted 292 documents to the Court.

 In determining whether a franchise existed, Reliable poses two questions for the Court's determination, viz.: '(1) Is the 'written agreement or contract' contemplated by the statute restricted solely to a single, formal writing, or may the series of writings, read together, satisfy the statutory requirement? and (2), Do the writings submitted by plaintiff, when read together, 'fix the legal rights and liabilities of the parties'?' A further question suggests itself to the Court, i.e. whether defendant W-W is an automobile manufacturer as defined in the Act. 15 U.S.C. 1221(a) defines 'automobile manufacturer' as any corporation 'engaged in the manufacturing or assembling of passenger cars, trucks, or station wagons, including any * * * corporation which acts for and is under the control of such manufacturer or assembler in connection with the distribution of said automotive vehicles.' By the express terms of the exclusive distribution agreement between VW and W-W, the latter transacts all business resulting from the distribution in its own name and for its own account; and it is not authorized to legally represent VW, or make any commitments on behalf half of VW. From this it appears that W-W might well be held to be outside of the statutory definition of 'automobile manufacturer.' Because, however, this point has not been briefed by counsel, and against the possibility that there may be other facts in the case not presently disclosed to the Court, I do not decide this question; decision thereon not being essential to the determination of the question now before the Court.

 Section 1(e) of the original Bill which passed the Senate in 1956 (S. 3879, 84th Cong. 2d Sess. (1956)) defined a 'franchise' as including any 'understanding or arrangement between any automobile manufacturer and any automobile dealer.' It may well be that under this broad language plaintiff would be able to spell out such an arrangement. Certainly the documents submitted establish, as mentioned above, that the plaintiff was a dealer in Volkswagen automobiles and parts for a certain period of time. Were this a common law action, the plaintiff might be able to establish, by proper evidence, either a contract or an estoppel to deny a contract upon which it could rely. However, we are here dealing with a statutory cause of action, and as such the plaintiff must show compliance with the prerequisites to the maintenance thereof, established therein. A sine qua non to recovery is proof of a written contract which 'purports to fix the legal rights and liabilities of the parties * * *.' The broader language referred to and included in the original Senate Bill was subsequently deleted from the legislation as enacted.

 Section 1 of the Restatement of Contracts defines a contract as 'a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.' Section 3 of the same Restatement defines 'agreement' as having a broader meaning than 'contract.' It states: 'An agreement is a manifestation of mutual assent by two or more persons to one another.'

 In employing the phrase 'agreement or contract' the Congress must either have intended to treat the two nouns as synonymous or antonymous. Whether considered as synonymous or as differing entities, the statutory definition requires that the legal rights and liabilities of the parties be fixed thereby.

 In Helvering v. Northwest Steel Rolling Mills, 1940, 311 U.S. 46, 49, 61 S. Ct. 109, 111, 85 L. Ed. 29, the Supreme Court said: 'The natural impression conveyed by the words 'written contract executed by the corporation' is that an explicit understanding has been reached, reduced to writing, signed and delivered.' Cf. Sommer v. Nakdimen, 8 Cir., 1938, 97 F.2d 715, cited by plaintiff, where the Court expressed its recognition that 'a written contract may be spelled out by reading together two or more separate writings.' The Court in Sommer went on to qualify this statement by saying 'when read together they must disclose the contract declared upon.' See also H. Herfurth Jr., Inc. v. United States to Use of Squire, 1936, 6 App.D.C. 220, 85 F.2d 719. Corbin, in discussing the problem, states: 'There must be found a final closing of the deal, each party indicating by an overt expression that the process of negotiation is complete and that he now assents to all the terms already tentatively adopted. The correspondence must show what those terms are; and the fact that they were so adopted by both parties must be established.' 1 Corbin on Contracts 31 (1960 Ed.).

 Plaintiff's argument based upon the claimed analogy of the principles of law relevant to the Statute of Frauds is inapposite to the question presently confronting us. The statutory requirement that the agreement between the parties be embodied in a writing in the present case is the definition in the Act under which, if at all, plaintiff derives this cause of action. We are not here concerned with the Statute of Frauds, whether it be that of New York, New Jersey or Connecticut, in seeking to ascertain whether a written franchise agreement existed between the parties.

 'A written memorandum of a contract is not identical with a written contract. A written contract will indeed serve as a memorandum, but a memorandum includes also any writing which states the terms agreed upon, though not intended or adopted by the parties as a final complete statement of their agreement.' Restatement of the Law of Contracts, 207, comment (a).

 'Integrated contracts must be distinguished from written memoranda by which contracts may be proved, and from contracts formed by letters or other informal writings the words of which have not been assented to by both parties as a definite and complete expression of their agreement.' Id. 228, comment (a).

 Assuming (but not deciding) that by 'written agreement or contract' the Congress envisioned the term as encompassing an integrated written contract, is proof thereof established by the documents submitted? Can it be said that W-W and Reliable assented that these writings should establish a contract? The answer is clearly negative. The proof before me is devoid of any evidence of such assent; nor can these 292 documents conceivably be deemed to spell out an agreement which purports to fix the rights and liabilities of the parties. The standard VW franchise contract is properly before the Court, having been submitted by defendants for purposes of this decision. *fn3" Contained therein are many obligations undertaken by one party with concomitant rights in favor of the other. None of the obligations so disclosed or rights so established is revealed in the exhibits submitted by plaintiff to the Court. I recognize that to be a franchise no specific obligation need be in any particular contract or agreement; but from the documents submitted NO such rights or liabilities are established.

 Reliable has endeavored to assist the Court by classifying the 292 documentary exhibits upon which it bases its contention that a franchise existed between it and the defendant under the following 13 categories, viz.:

 (1) Correspondence from World-Wide to Reliable Motor Sales Inc. (Exhibits 1-59 incl.);

 (2) Correspondence from World-Wide to Reliable Volkswagen Sales & Service Co., Inc., (Exhibits 60-77 incl.);

 (3) Telegrams from World-Wide to Reliable concerning delivery of vehicles (Exhibits 78-93 incl.);

 (4) Written notices from World-Wide to Reliable relating to allocation of vehicles (Exhibits 94-117 incl.);

 (5) Lists of dealers issued by World-Wide (Exhibits 118-124 incl.);

 (6) Letters from Reliable Motor Sales to World-Wide (Exhibits 125 and 126);

 (7) Letters from Reliable Volkswagen Sales to World-Wide (Exhibits 127-168 incl.);

 (8) Letters from World-Wide to customers of Reliable, referring to Reliable as World-Wide dealer (Exhibits 169-179 incl.);

 (9) Notices 'to all authorized Volkswagen dealers', concerning termination of dealerships, sent by World-Wide to Reliable (Exhibits 180-198 incl.);

 (10) Circular letters addressed 'to all authorized Volkswagen dealers', sent by World-Wide to Reliable (Exhibits 199-227 incl.);

 (11) Circular letters, addressed 'to all Volkswagen dealers' sent by World-Wide to Reliable (Exhibits 228-275 incl.);

 (12) Circular letters, addressed 'to all dealers', sent by World-Wide to Reliable (Exhibits 276-282 incl.);

 (13) Miscellaneous written communications sent by World-Wide to Reliable (Exhibits 283-292 incl.).

 The exhibits comprising the first category contain references to Reliable as an authorized Volkswagen dealer; invite Reliable to avail itself of the benefits of a factory service school; make inquiry respecting the warranty claims of customers of Reliable; require payment of an over-due merchandise account; make inquiry regarding the absence of orders from Reliable; particularize unsatisfactory items disclosed on inspection of Reliable's facilities; make inquiry respecting payment for inspections on vehicles sold by Reliable; offer aid in the planning and development of an addition to or modification of Reliable's facilities; confirm oral discussions between representatives of World-Wide and Reliable; urge Reliable to place its merchandise orders promptly; press Reliable for payments due on merchandise purchased; urge adherence to World-Wide's suggested policies for retaining customer good will; criticize inadequacy of Reliable's customer service; request submission of floor and plot plans of existing facilities for future planning and development; invite attendance of Reliable at an area dealer meeting; and other appropriate communications from the distributor to a retailer of a product in furtherance of their common interest in advancing sales, and obtaining and retaining customer good will.

 Whether considered separately or in their totality, the documents in the first category fail to spell out a written agreement or contract which purports to fix the legal rights and liabilities of Reliable and World-Wide inter sese. From the correspondence reviewed, it may be inferred and implied that World-Wide was a distributor of Volkswagen products; that Reliable was an authorized dealer in those products; that World-Wide was the source from which Reliable obtained its merchandise; and that the relationship between the parties was that of wholesaler and retailer.

 The last document embraced in the first category (No. 59), is the letter of September 27, 1957 to Reliable Motor Sales, Inc. from World-Wide Automobiles Corp., referring to a circular letter regarding amendments and supplements to Volkswagen Salesmen's Manual and requesting that the instruction sheet which was part thereof be signed by the user and returned, as requested previously.

 The first document in the second category is numbered 60, being a letter dated October 4, 1956 from W-W to 'Reliable Volkswagen' respecting a customer's warranty complaint, and requesting comments thereon. The next communication in the second category is a form letter from W-W to Reliable Volkswagen Sales of October 5, 1956, returning a vehicle order form for completion. The remaining communications in the second category, from W-W, are addressed either to Reliable Volkswagen Sales, Inc., Reliable Volkswagen Sales & Service, Inc. or to Reliable Volkswagen, and are generally of a character similar to those embraced in the first category; i.e., they are normal routine business correspondence appropriate to a relationship of wholesaler and retailer existing between the parties, and to the merchandise in which they dealt.

 The nature of categories 3 and 4 is described in the statement of each of these categories, i.e., telegrams from W-W to Reliable concerning the delivery of vehicles, and written notices from W-W to Reliable relating to the allocation of vehicles. Typical of category 3 is a telegraphic request to Reliable to pick up a Volkswagen automobile from a Brooklyn pier. Exhibit 95, in category 4, is a notice from W-W to Reliable containing a break-down of Reliable's quota of Volkswagen automobiles for the production month of October 1955; and number 117, the last of that category, is a similar notice for the production month of July, 1957.

 Exhibits 118 through 124 (category 5) are dealer lists sent out by W-W to the various Volkswagen automobile dealers in its distribution territory from February 15, 1955 to April 1, 1957.

 Under date of November 26, 1957 Reliable Motor Sales Inc. wrote to W-W respecting Reliable's sale of a used Volkswagen automobile to one Loda, and reporting that Loda made various complaints which Reliable endeavored to satisfy but without success. The letter embodies Reliable's report to W-W of its handling of the matter.

 Other letters from Reliable Motor Sales Inc. and Reliable Volkswagen Sales to W-W are embodied in Exhibits 125 through 168 (categories 6 and 7) which relate to problems arising between Reliable and its customers, out of warranties or otherwise, inspection coupons for new cars, and other routine communications rendered necessary by and appropriate to the respective distribution and sales functions being performed by each of the parties. Nothing contained in any of the exhibits in these two categories constitutes an expression or admission of any terms of a franchise contract fixing the legal rights and liabilities of the parties other than the disclosure that W-W was a distributor of Volkswagen automobiles, that Reliable was an authorized retail dealer in such automobiles, and that W-W sold to Reliable the automobiles and parts which Reliable resold to its customers under a warranty running to the ultimate customer, obligating both the wholesaler and the retailer.

 Exhibits 169-179, category 8, are letters from W-W to customers of Reliable, in some of which W-W refers to Reliable as 'our dealer' but the contractual relationship, if any, between W-W and Reliable is not disclosed by any of these letters. Similarly, the notices referred to in category 9 addressed to 'All authorized Volkswagen dealers' relating to termination of dealerships, simply evidences (1) that Reliable was an authorized Volkswagen dealer and (2) that certain other dealerships authorized by W-W were terminated. The notice in each instance requested the dealer to whom it was sent to correct his dealer list accordingly.

 Categories 10, 11 and 12 (exhibits 199-282) consist of circular letters from W-W addressed to all authorized Volkswagen dealers, and disclosing the general objective of improving the market for Volkswagen vehicles and protecting the business of authorized dealers in that product. For example, exhibit 199 is a circular letter dated July 30, 1954 addressed to all authorized Volkswagen dealers upon the subject of wholesale sales of Volkswagen vehicles to unauthorized dealers. This notice reports that Volkswagen cars have been finding their way into retail outlets not recognized by W-W as authorized dealers. The letter also states: 'Since it is the intention of World-Wide Automobiles Corp. to protect their authorized dealers, this letter will serve as definite and final notification that sales of Volkswagen vehicles to unauthorized dealers will not be tolerated.' Other circular letters report and suggest new features of Volkswagen cars, forms of advertising, increases in freight charges, color changes in vehicles, proportions of models to be expected from the factory, types of letterheads and forms, price change new car warranties, service coupons, credit part provisions, and other information necessary and convenient for the assistance and direction of retail dealers and obtainable only from World-Wide. In these three categories (10, 11 and 12) there is nothing which brings any item thereof or the aggregate of the same, within the statutory definition of franchise. The relationship between the parties is no different than that which usually and necessarily exists between any wholesaler and his retail outlets.

 Category 13 is comprised of miscellaneous documents sent by W-W to its dealers in the New York, New Jersey, Pennsylvania and Connecticut area, puffing the Volkswagen automobile, promising delivery acceleration, assuring equity in distribution among dealers, and providing for financing, instructions on servicing, etc. In the earliest of these miscellaneous communications, i.e., exhibit 283, W-W states that 'each dealer will be protected against nearby competition because he will have an exclusive franchise in his area. In some cases this will cover hundreds of square miles.'

 This single embodiment of the word 'franchise' does not suffice to bring any of the communications in category 13, or all of them in the aggregate, within the definition of franchise, as contained in Section 1221(b).

 I find that the proof adduced fails to establish a 'franchise' within the definition of the term as contained in the Act, 15 U.S.C. § 1221(b). The answer to the second question posed by the plaintiff being in the negative, I need not, and do not decide the first question.

 An order may be submitted dismissing the third count of this consolidated action.


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