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LEON v. CHRYSLER MOTORS CORP.

February 28, 1973

Michael LEON and Michael Fuschetti, partners, trading as West Side Motors, Plaintiffs,
v.
CHRYSLER MOTORS CORPORATION, a Delaware corporation, et al., Defendants


Coolahan, District Judge.


The opinion of the court was delivered by: COOLAHAN

Plaintiffs brought this action originally to enjoin certain allegedly discriminatory and anti-competitive trade practices observed by defendant Chrysler Motors Corporation in favor of defendant Newark Chrysler & Plymouth, Inc. As the lawsuit has progressed from its inception in February 1969, however, it has become apparent that the real relief sought by plaintiffs is to dissociate themselves from two advertising associations, composed of New Jersey, New York and Connecticut Chrysler and Plymouth dealer franchises. The New York, New Jersey and Connecticut Plymouth Advertising Association, Inc. (PAA) and New York, New Jersey and Connecticut Chrysler Imperial Dealers Advertising Association, Inc. (CIDAA) were joined as defendants in December 1970. The case has been settled as to defendants Chrysler Motors Corporation and Newark Chrysler & Plymouth, Inc., leaving the PAA and CIDAA as the only parties against whom relief is sought. There exists no dispute as to the relevant facts, and the matter now awaits disposition by the Court upon cross motions for summary judgment under Rule 56, F. Rules Civ. P.

 Plaintiff West Side Motors is a partnership having its principal place of business in Newark, New Jersey and has been a franchised Chrysler Motors dealer approximately 35 years. It has negotiated direct dealership agreements with Chrysler Motors Corporation from time to time, most recently in March 1965, for the sale of Chryslers, Plymouths and Imperials. Obviously, plaintiff's management has gone to considerable expense and effort to develop the franchise's good will and reputation within the northern New Jersey consumer community. The description of this case is roughly a history of plaintiffs' struggle to promote and protect that good will and reputation as they see fit.

 In or about 1959, both the PAA and CIDAA were incorporated as non-profit membership corporations under the law of New York. These two Associations were formed by franchised Chrysler Motors dealers in New York, New Jersey and Connecticut. Not all dealers participated in the incorporation of the Associations, but virtually all who did not have joined subsequently. Today, there are 160 dealerships in each Association, which the Court understands to represent a vast majority of the total number of franchises existing in the tri-state area serviced by the PAA and CIDAA. West Side Motors entered the PAA in or about June 1961 and the CIDAA in or about January 1963. All members, of course, are bound by the respective membership agreement of each Association, *fn1" insofar as the provisions therein or any internal legislation of the Associations do not contravene New York law controlling non-profit corporations. The by-laws and membership agreements of the PAA and CIDAA are almost identical.

 As one may readily infer from the names of the Associations, their raison d'etre is mass advertising. *fn2" The benefits of mass advertising as compared to individual advertising were evidently clear to Chrysler Motors dealers throughout New York, New Jersey and Connecticut, as virtually all such franchise holders incorporated or later joined the advertising Associations.

 However, until approximately three years ago, individual dealer identification nonetheless found its way into the PAA and CIDAA mass advertising campaigns. This policy caused disputes among the dealers because in some instances, considering the use of mass media such as radio, television, and newspapers, media coverage spread over the territories serviced by scores of dealerships. One could obviously expect quarrels to develop concerning which dealerships were to be individually identified, upon which media, how often and under what circumstances. Further, individualized identification consumed valuable radio and television time at the expense of product identification. It was some three years ago, therefore, that the PAA and CIDAA Boards of Directors voted *fn3" to end the advertising practice of individualized dealer identification. The past policy was replaced with a new advertising campaign, based on the slogan "See Your Local Chrysler Dealer."

 Shortly thereafter, plaintiffs sued the Chrysler Motors Corporation and Newark Chrysler & Plymouth, Inc., alleging various discriminatory and anti-competitive practices in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2; Sections 4, 12, and 16 of the Clayton Act, 15 U.S.C. §§ 15, 22, and 26; and Subsections 2(a), (d), (e), and (f) of the Robinson-Patman Act, 15 U.S.C. § 13(a). The complaint averred that Chrysler had, for whatever reason, given the Newark dealership preferential treatment over West Side Motors. Plaintiffs claimed that Chrysler Motors had delayed delivery of cars, failed to compensate West Side for increased costs in honoring the Chrysler warranty, wrongfully refused credit on auto parts, overcharged for cars delivered, withheld pertinent trade information, refused to carry on normal dealer-manufacturer correspondence, and committed numerous deliberate accounting errors. It was alleged that in all these respects, Newark Chrysler & Plymouth received favored treatment. This aspect of the litigation, however, has been settled and is not presently before this Court.

 Most important for purposes of the action as it presently stands, plaintiffs have alleged that Newark Chrysler & Plymouth, as well as other neighboring competitors, has benefited, to the financial prejudice of West Side Motors, from the new, regionalized advertising program *fn4" of the PAA and CIDAA. Newark Chrysler & Plymouth, a newly formed, 1968 dealership franchise, is a member of the Associations and pays its pro rata share of dues per the assessment schedule described hereinafter. Nonetheless, plaintiffs contend that their inability to finance their own, individualized advertising has become a severe competitive handicap. Additionally, it has been alleged and conceded that one local competitor is not a member of either the PAA or CIDAA. *fn5" Thus, plaintiffs allege, advertisement dues assessed against West Side Motors have been used in fact to divert good will and patronage away from it to a nonpaying, unassociated Chrysler-Plymouth dealership.

 The assessment and collection of Association dues is governed by the by-laws and membership agreements of the respective groups. The by-laws provide that the dues of each member shall be fixed by the Board of Directors, but shall be no less than $10 and no more than $30 per car sold by the dealer. The PAA membership agreement sets a contribution of $10 per car. The CIDAA rate was $15 at the time West Side Motors entered the Association in 1963, but has subsequently risen to $20 per car, effective January 1, 1971. Both agreements recite the belief that "it will be more convenient . . . if [the Association] authorizes Chrysler Motors Corporation to collect from Direct Dealer and transmit to [the Association] the amount due . . . ." Therefore, the PAA and CIDAA receive payment of dues from the manufacturer, Chrysler Motors, which simply adds the amount onto the invoice delivered to the dealer.

 There is also an arrangement by which dealers, and ultimately the PAA and CIDAA, are reimbursed by Chrysler Motors Corporation for advertisements identifying local dealers. After a dealership has joined either the PAA or the CIDAA, it then executes a reimbursement agreement with Chrysler Motors Corporation, which agrees to pay the dealership up to $5 for every Plymouth *fn6" and up to $15 for every Chrysler or Imperial sold, contingent upon satisfactory proof of such advertising expenditures and continued payments by the dealership to the PAA and CIDAA. The dealership assigns to the PAA and CIDAA its right to receive such reimbursement and directs the manufacturer to pay such amounts over to the Associations in the name of the dealership. The manufacturer retains the right to terminate the agreement ninety days after giving notice.

 Because of the proximity of a non-Association competitor and plaintiffs' thorough dissatisfaction with the PAA and CIDAA advertising campaigns, West Side Motors resolved to sever its connections with both Associations. On November 7, 1968, Michael Leon, a partner of West Side Motors, mailed a letter to the CIDAA advising that as of December 1, 1968 "we no longer want to be a member of the CIDAA Assessment Group. We therefore do not want to be charged $15.00 for advertising on our invoices." An identical message was sent to the PAA. And the following day, both Associations were notified that as of the termination date, West Side Motors did not wish to be included in any newspaper or poster advertising. Mr. A. M. Augustine, president of both the PAA and CIDAA, presented Leon's letters to the Boards of Directors at their regular monthly meetings in mid-December 1968, but apparently the Directors did not treat those rather cryptic messages as a formal request for voluntary withdrawal as provided for in the by-laws. These provisions are crucial to the resolution of this litigation.

 According to Article III, Section 3.2 of the by-laws, each member agrees not to withdraw from the Association without the consent of a majority of all members. Section 3.4 provides that membership in the Association ceases upon termination of the dealership franchise. Short of that, only dissolution of the Association will terminate membership in the Association as well as the obligation to pay advertising assessments. These rules are also included in the membership agreement, *fn7" by which the dealer agrees to be bound by the by-laws of the Association and by any amendments thereto not inconsistent with the provisions of the membership agreement. *fn8" Unless a majority of Association members can be persuaded to vote against their economic interests, each member is, practically speaking, locked into the Association perpetually.

 It is obvious that the Boards of Directors regarded Leon's notice of severance as something less than an effective request for a vote upon its voluntary withdrawal in accordance with Article III, Section 3.2 of the by-laws. *fn9" Augustine was instructed by the Boards to inform Leon of the formal procedure set out in the by-laws for voluntary withdrawal, but he did not do so until mid-January 1969, and then, only in response to a letter from Leon's attorney stating that West Side Motors considered itself withdrawn from the Associations, would not pay further assessments, and would deal appropriately with "further attempts to indulge in economic coercion." Augustine's correspondence simply restated the withdrawal provisions of the by-laws. Three times subsequent to this exchange of letters, Augustine wrote to Leon to inform him of advertising campaigns. On January 22 and July 1, 1969, Augustine wrote Leon to advise him that the Boards of Directors had authorized numerous billboard advertising campaigns in the West Side Motors vicinity. These letters stated the proposed billboard sites and advised Leon that each billboard would identify West Side Motors as a local dealer. As previously noted, Leon then informed Augustine on July 10, 1969 that West Side Motors did not desire to belong to either Association, to participate in any advertising or promotional program, or to have its name carried on any billboard advertising sponsored by the PAA or CIDAA. Augustine responded by letter of July 14, 1969 that the Associations would, as they must, accede to West Side Motors' refusal to participate in further advertising campaigns, but that West Side Motors would continue as a member of the PAA and CIDAA until the voluntary withdrawal machinery of Article III, Section 3.2 had been cranked into action. Except for the letter mailed by plaintiffs' attorney on September 10, 1971 to comply with this procedural formality, there has been apparently no other relevant action taken by the parties to date.

 In their cross-motion for summary judgment, defendants present a threshold procedural question. They argue that any action to dissolve the corporate affiliations is premature until plaintiffs have exhausted intracorporate remedies, that is, until the plaintiffs' formal request for a vote upon voluntary withdrawal has been acted upon this June or July at the respective annual ...


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