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Milos v. Ford Motor Co.

filed: May 24, 1963.


Author: Staley

STALEY, Circuit Judge: Plaintiff Zigmund A. Milos appeals from a judgment of the district court entered upon its order granting defendant Ford Motor Company's motion for judgment under Rule 50, F.R. Civ. P., following a jury verdict in favor of plaintiff. Plaintiff brought suit under the Automobile Dealers Day in Court Act, 15 U.S.C.A. §§ 1221-1225, seeking damages for the termination of his franchise agreement.*fn1

The operative facts may be summarized as follows: In 1955 Ford reviewed its sales outlets in the metropolitan area of Pittsburgh, Pennsylvania, and decided that an "open point" existed in the Oakmont-Verona section. Plaintiff applied for the new dealership, but the adequacy of his facilities was questioned by several Ford representatives. However, on November 30, 1955, shortly after plaintiff signed a commitment letter acknowledging this deficiency and promising to remedy it within two years of his acceptance by Ford,*fn2 the parties executed a franchise contract for an indeterminate term.

In 1956 differences arose concerning the operation of the franchise. Apparently these were centered on the sales quotas which had been assigned to Milos, although the record also indicates that there were discussions concerning the size of plaintiff's staff and the amount of promotional material which he should purchase.In March 1957, a Ford representative asked plaintiff when he intended to add facilities to his enterprise. Later that month Milos met with Fitch, Ford's assistant district sales manager, for the purpose of discussing a building program and plaintiff's sales performance. Fitch again pressed the necessity for expansion, but plaintiff stated that he was willing to discuss an addition approximately half the size of that advocated by Fitch.

On April 1, 1957, a new franchise agreement was executed, the expiration date of which was September 30, 1962. The expiration date was made subject to the termination provisions of the agreement.*fn3 On April 2, 1957, plaintiff wrote to Fitch acknowledging his need for additional facilities but stating that he would be unable to engage in a building program during 1957.*fn4 This issue was discussed again with Fitch on June 28, 1957, Milos declaring that financial difficulties precluded a decision on expansion until March 1958. Fitch then referred the matter to Smith, Ford's district sales manager.

The entire operation of the franchise was discussed at a meeting with Smith on July 22, 1957. Milos said that he was willing to engage in a reasonable building program at a later date but the size of the facilities suggested by the Ford representatives was unreasonable. Smith then wrote to Johnston, regional sales manager, on July 26, 1957, recommending termination of Milos' franchise. Johnston visited plaintiff on September 12, 1957. Subsequently, in a letter to the general sales manager in Dearborn, Michigan, Johnston reported on his interview with Milos and forwarded the file which recommended dealer termination. The general sales office reviewed the matter, and on January 28, 1958, a termination notice was sent to Milos.*fn5

At plaintiff's request a hearing was granted before defendant's Dealer Policy Board on March 3, 1958. The Board confirmed the termination by letter of May 7, 1958. A second hearing was had before the Board on July 10, 1958, but to no avail, and the termination became effective August 11, 1958.Certain benefits were offered to plaintiff on condition that he release Ford from further liability under the agreement, but Milos refused this offer and instituted the present suit.

At the outset, it should be noted that Milos admits that he did not fulfill the sales objective assigned to him.Nor is it disputed that he failed to increase his facilities in accordance with his original commitment. These were the reasons assigned by Ford for terminating his franchise. The essence of plaintiff's contention is that these sales and facilities requirements were oppressive and unreasonable, and Ford's insistence upon them constituted a failure to act in "good faith" as required by the statute.

The Act grants a dealer the right to sue for damages by reason of the failure of the manufacturer "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 * * *." 15 U.S.C.A. § 1222. The critical term is "good faith" which is defined as "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." 15 U.S.C.A. § 1221 (e). Plaintiff urges that we construe the term liberally, not confining it to acts of coercion and intimidation. As he puts it, "conduct dealing with reasonableness, fairness, justice and equity in and of themselves (without coercion) can be taken into consideration in other circumstances in determining whether or not an actionable cause arises under the Dealers Franchise Act * * *."

The plain language of the statute does not warrant such an approach; the legislative history rejects it. Perhaps the most succinct and direct refutation of plaintiff's contention is found in the following excerpt from the House Report:

"The principal effect of the bill as amended by the committee is to give the dealer a right of action against the manufacturer, where the manufacturer fails to act in a fair and equitable manner so as to guarantee the dealer freedom from coercion, intimidation, or threats of coercion or intimidation. The term 'fair and equitable' as used in the bill is qualified by the term 'so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party.' In each case arising under this bill, good faith must be determined in the context of coercion or intimidation or threats of coercion or intimidation. Each party to an automobile franchise would have a special obligation to guarantee the other party freedom from coercion or intimidation of any kind." H.R. Rep. No. 2850, 84th Cong., 2d Sess. (1956), 3 U.S. Code Cong. & Adm. News 4596, 4603 (1956).

The issue was again raised on the floor of the House in the following colloquy:

"Mr. Halleck. In other words, while the words 'fair and equitable' are used, speaking of the relationship between the parties, those words 'fair and equitable' would be limited, as this language is contained in the bill, to 'coercion and intimidation'?

"Mr. Celler. That is correct." 102 Cong. Rec. 14070 (1956).

Hence, it is not surprising that the cases fully support this limitation. Pierce Ford Sales, Inc. v. Ford Motor Co., 299 F.2d 425 (C.A. 2, 1962); Woodard v. General Motors Corp., 298 F.2d 121 (C.A. 5, 1962); Augusta Rambler Sales, Inc. v. American Motors Sales Corp., 213 F.Supp. 889 (N.D. Ga., 1963); Leach v. Ford Motor Co., 189 F.Supp. 349 (N.D. Cal., 1960); Staten Island Motors, Inc. v. American Motors Sales Corp., 169 F.Supp. 378 (D.N.J., 1959). See also 70 Harv. L. Rev. 1239, 1247-1250 ...

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