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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 (1956-1957); 66 Yale L.J. 1135, 1171-1180 (1957). But see Barney Motor Sales v. Cal Sales, Inc., 178 F.Supp. 172 (S.D. Cal., 1959).

Plaintiff urges that even under this construction of the Act sufficient evidence of coercion and intimidation was adduced to justify the jury's verdict. He prefaces this with a reminder of the limited scope of our review in cases in which the jury has returned a verdict. In support of that verdict, he asserts that Ford's termination of the contract before the expiration date is prima facie evidence of a violation; that the franchise agreement reeks with unfairness and inequity; and that Ford's demands regarding his sales quotas and his facilities were oppressive and unreasonable. He particularizes his sales-performance objection by stating that his quotas were unfair as compared with those of other dealers in the area. Lastly, he advances the proposition that because the manufacturer sets the sales figures, it has the burden of proving that they are reasonable and justified.

The argument that termination before expiration is prima facie evidence of a violation is untenable. The Act expressly conditions recovery of damages on a failure of the manufacturer to act in good faith. Termination in itself does not suffice. As this court stated in Bateman v. Ford Motor Co., 302 F.2d 63, 66 (C.A. 3, 1962): "A franchise is not a marriage for life." The following excerpt from the House Report makes that clear:

"The bill, however, does not prohibit the manufacturer from terminating or refusing to renew the franchise of a dealer who is not providing the manufacturer with adequate representation. Nor does the bill curtail the manufacturer's right to cancel or not renew an inefficient or undesirable dealer's franchise." 3 U.S. Code Cong. & Adm. News 4603 (1956).

The terms of the 1957 franchise agreement fail to reveal any evidence of unfairness or inequity.*fn6 With respect to sales quotas, the criteria provided in the agreement, e.g., the relationship of sales to vehicle users and the total registration of vehicles in the area, appear to be eminently reasonable, objective and nondiscriminatory. In this regard the comment of the district court in Leach v. Ford Motor Co., 189 F.Supp. at 352, is appropriate:

"Assignment of a market potential in the course of honest business judgment by a manufacturer to a dealer as a measure of expected performance within an area is not inherently unfair or arbitrary. A market potential is not a requirement that a dealer sell a given number of cars in any event. Rather, it is a percentage factor of one dealer's share of sales by many dealers in an area. * * * Only if the percentage factor for any one dealer is out of line could he be prejudiced by the so-called market potential formula."

Having determined that the contract is not coercive as written, we now turn to the question of whether it was administered in bad faith. With respect to the adequacy of plaintiff's facilities, it will be recalled that Milos himself acknowledged this deficiency and the first franchise was granted only after he promised to remedy it within two years. Thus, this is not a case of a manufacturer who, having induced a dealer to accept a franchise and make a substantial investment, then seeks to compel him to expand his facilities.Rather, it is a case of one party to a contract freely entered into requiring the other party to perform. An attempt to enforce an unambiguous contractual obligation, under these circumstances, can hardly be said to constitute coercion or intimidation. Woodard v. General Motors Corp., 298 F.2d at 128.

As pointed out by the district court, the undisputed evidence discloses that plaintiff's sales record was substandard, not merely in terms of the objectives assigned to him, but in comparison with the record of other dealers.*fn7 That evidence devitalizes the ascertion of coercion, intimidation, and discrimination. However, plaintiff seeks solace in his claim that the sales quota of Kennedy, a dealer in his area, was 300 cars both before and after the existence of the Milos franchise. He also makes much of the fact that in 1957 his potential was increased, whereas that of 56 per cent of all other dealers was decreased and only 44 per cent had a quota increase.

With respect to Kennedy's quota, the record clearly discloses that it was reduced from 391 cars in 1955 to 163 in 1956, after the establishment of plaintiff's dealership. More important than this, plaintiff's arguments miss the mark, for absent a showing of discrimination or unfairness in the assignment of sales quotas, he has introduced no evidence of coercion or intimidation on this point.The adjustment of figures in 1957 proves only that in applying its sales formula for that year, Ford increased the potential of Milos along with that of 44 per cent of its dealers in the metropolitan area.

The contention that Ford had the burden of proving that its sales figures were reasonable is without merit. The Act conditions recovery on a failure of the manufacturer to act in good faith, and the Senate Report declares: "As in all actions under this bill, the dealer would have the burden of showing absence of good faith by the manufacturer." S. Rep. No. 2073, 84th Cong., 2d Sess. (1956). See also 102 Cong. Rec. 14071 (1956) (Remarks of Representative Celler). Moreover, even assuming the validity of plaintiff's proposition, we have previously indicated that there is nothing inherently unfair or arbitrary in the assignment of a market potential.

The sum of all this is that the record is devoid of any evidence which would support a jury finding that the termination of plaintiff's franchise resulted from the failure of Ford to act in "good faith" as that term is defined in the Automobile Dealers Day in Court Act.

Of course, our conclusion makes it unnecessary for us to consider Ford's alternative arguments challenging the constitutionality of the statute.

The judgment of the district court will be affirmed.

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