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Simmons v. General Motors Corp.

Decided: August 11, 1981.


Botter, King and McElroy. The opinion of the court was delivered by Botter, P.J.A.D.


This appeal concerns the right of General Motors Corp. (GM) to terminate an Oldsmobile motor vehicle dealership franchise held by Simmons Oldsmobile, Inc. (Simmons Olds) whose stock was sold to William Perretti without GM's approval. The principal focus of this appeal are provisions in the final judgment entered in the Chancery Division on November 27, 1979 which allowed Perretti to sell the dealership within six months' time to someone acceptable to GM notwithstanding that the trial judge found that GM had been justified in rejecting Perretti as a GM dealer. In a letter dated December 3, 1979 expanding and explaining his oral opinion, the trial judge stated that he held that "it was clear that Mr. Perretti was unacceptable to General Motors Corporation as a dealer-operator, if for no other reason than he held five Chrysler franchises and had a 'bad reputation.' A rejection for these reasons 'seem[s] reasonable as a business [j]udgment.'" However, in his oral opinion the judge had held that because there was "procedural unfairness" in GM's handling of Perretti's application for approval as a dealer-operator, Perretti would be given the right to transfer the dealership to someone else. In his letter opinion the trial judge found that Perretti could take back a mortgage in an effort to "just get out and get the best he can out of his investment," even if the mortgage would constitute a continuing financial investment in the dealership.

On this appeal GM contends that the trial judge exceeded his authority in ordering the continuation of the Oldsmobile franchise even for these limited purposes. Perretti did not file a cross-appeal. The trial judge also held binding the sale from plaintiffs (Simmons) to Perretti of the stock in Simmons Olds as well as the sale of real estate to A.M.S. Inc., a corporation owned by Perretti. The sale of these properties was not conditioned on GM's approval of Perretti as a dealer. Accordingly, plaintiffs' attorneys have advised that they are not participating in the appeal since they prevailed below (in upholding the unconditional sale of their property) and the appeal concerns

issues related only to GM, Perretti and the Simmons Olds corporation.*fn1

After receiving notice of the sale of the stock in Simmons Olds to Perretti and of the sale of the business premises to A.M.S. Inc., GM notified Simmons on April 16, 1969 that the Dealer Sales and Service Agreement pursuant to which GM had granted a franchise to Simmons Olds would be terminated on May 2, 1979. On May 1, 1979 plaintiffs instituted this action naming as party defendants GM, its zone manager, David Lahti, William Perretti and A.M.S. Inc. Plaintiffs alleged that GM's attempt to terminate constituted a breach of contract with

Simmons and violated the Franchise Practices Act (act), N.J.S.A. 56:10-1 et seq. Plaintiffs also charged that Lahti had interfered with their contractual relations and legitimate prospective economic advantage and expectations. Plaintiffs sought an injunction to prevent the termination of the dealer agreement, and, in the alternative, a declaration that if the franchise could be lawfully terminated by GM that the agreement by which the stock and business premises were sold to Perretti and A.M.S. Inc. would continue in full force and effect. Money damages were also sought against GM and Lahti.

On the same day that the complaint was filed, the trial judge authorized Simmons Olds to intervene in the proceeding, and an order to show cause with temporary restraints was issued enjoining GM from implementing the termination of its dealer agreement with Simmons Olds and from discontinuing shipments of automobiles and other products to Simmons Olds. The order also provided that Perretti and A.M.S. Inc. were to continue to conduct and manage the business and business premises of Simmons Olds. On June 21, 1979 the restraints were continued pendente lite. GM's motions for leave to appeal from this order and for summary disposition were denied by this court.

Thereafter, Perretti and A.M.S. Inc. filed their answer to the complaint and, in the same pleading, Simmons Olds filed a third-party complaint against GM alleging that GM's action in seeking to terminate the franchise was unreasonable and arbitrary and contravened the Franchise Practices Act. Simmons Olds demanded judgment against GM compelling it to issue a new franchise to Simmons Olds naming William Perretti as owner-operator. In the same pleading Perretti alleged a third-party complaint claiming that GM interfered with the present and prospective economic advantage of Perretti and demanding damages against GM.

The case came on for trial in October 1979, at the conclusion of which the trial judge entered an oral decision. The judgment entered on November 27, 1979, reflecting that decision, may be paraphrased as follows:

1. The action against Lahti was dismissed with prejudice.

2. GM had no absolute right to reject Perretti's application as a dealer-operator.

3. As of October 31, 1979, the date of the trial judge's decision, Perretti "is deemed rejected by [GM] as dealer-operator of Simmons Oldsmobile . . . such designation pursuant to Paragraph Third of the Dealer Selling Agreement."

4. The contracts effecting the sale of stock of Simmons Olds to Perretti as well as the sale of real estate by plaintiffs to A.M.S. Inc., and the deed effecting the transfer of the real estate, constitute valid transfers and are binding upon plaintiffs and Perretti as well as A.M.S. Inc.; said transfers were adjudged not contingent on GM's acceptance of Perretti as a designated dealer-operator.

5. The sale of stock and dealership facilities "are not to be deemed and shall not be treated as grounds for termination" of the franchise, and said franchise shall continue to be held by Simmons Olds subject to the further provisions of the judgment.

6. For a period of three months Perretti and GM may undertake to find a dealer-operator candidate acceptable to GM for the acquisition of the stock of Simmons Olds and for the real estate and other assets as may be tied in with the general transaction, at a price that is satisfactory to plaintiffs and Perretti. Simmons Olds and Perretti have a right during this period to try to get the "best deal" they can. If, on January 31, 1980, there is an unaccepted and outstanding offer which would allow Simmons and Perretti to recoup their investment and the dealer-operator is acceptable to GM, said offer shall be deemed accepted and shall be specifically enforced.

7. In the event the parties fail within the three-month period to effect a sale and there is no outstanding offer as specified in paragraph 6, Perretti and GM may undertake to find a dealer-operator acceptable to GM for a further three-month period terminating on April 30, 1980.

8. In implementing the foregoing, GM shall make a good faith determination of acceptability of a dealer-operator applicant.

In the event no transfer is accomplished pursuant to paragraphs 6 and 7, the franchise shall be terminated. All other claims were dismissed with prejudice, and the injunction was continued for the purpose of effectuating the provisions of the judgment. This appeal followed.

In large part the facts in the case are clear and uncontroverted. On June 1, 1973 Allen Simmons, who was then the owner-operator of an established Toyota dealership in Ramsey, New Jersey, entered into a Dealer Sales and Service Agreement with GM whereby Simmons Olds became a franchised Oldsmobile Motor Vehicle Dealer. Apparently the relationship proved satisfactory and on November 1, 1975 GM and Simmons Olds, the dealer corporation of which Allen Simmons owned 100% of the stock, entered into a renewal of the Dealer Agreement. Simmons testified that he was named in the agreement as the only person designated as the dealer-operator or dealer-owner, and he ran the business until the sale to Perretti in 1979. The dealer or franchise agreement expressly provided in paragraph 3 that Allen F. Simmons would be the dealer-owner and dealer-operator, that the dealer-operator will actively manage the franchise, and the dealer-owner will own beneficially and of record the entire interest in the dealership as indicated in a management and ownership addendum executed simultaneously.

The second paragraph in the agreement contains the dealer's undertaking to maintain dealership operations in accordance with the provisions of paragraph 3 of the agreement. It provides that the dealer recognizes that it has been granted a franchise "in reliance upon the undertaking of the Dealer, and not of any third party or parties, to fulfill the responsibilities herein described . . . ." Subparagraph (b) of the third paragraph of the agreement provides:

It follows from the provisions set forth in subparagraph (a)(2) above that this Agreement shall be construed as being in the nature of a personal service agreement. Dealer acknowledges and agrees that, except as otherwise provided in this Agreement, Dealer may continue to enjoy the benefits to be derived from the Franchise and Related Rights only so long as Dealer is, and continuation of the business relations between Oldsmobile and Dealer established by this Agreement are conditioned upon Dealer being, managed and owned as provided herein.

Throughout 1976 and 1977 Simmons Olds was operated smoothly and successfully. In fact, with GM's approval, on January 1, 1977 the dealership was moved to larger quarters in the same municipality. Then, in the spring of 1977, Simmons, upon solicitation of an offer of a "better deal" by Mr. Rehill of the Trust Company of New Jersey, Jersey City, changed his financing arrangements from the Midlantic Bank to Rehill's bank. However, by January 1978 Simmons began experiencing financial difficulties in the form of cash flow problems with the new bank that was handling his floor plan financing. According to Simmons, this was caused by delays in financing retail contracts sent to the bank for discounting. The cash shortage ran as high as $125,000 at times. The bank also "would take a car check every week, sometimes twice a week instead of the usual once a month that we had enjoyed in the years previous," Mr. Simmons testified. This also interfered with the inventory carried by Simmons Olds.

In September 1978 Rehill and another bank representative visited the dealership premises and gave notice that Simmons Olds was "out of trust" and would be placed on a limited financing basis. This would restrict Simmon Olds to financing only for cars that were sold and not cars ordered for inventory. Despite the injection of additional funds, Simmons could not prevent the further decline in his business. He testified that inventory restrictions prevented him from maintaining sales volume that would make the dealership profitable. In early October he was told by Rehill to find another financing institution. He testified that ...

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