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GMC v. GALLO GMC TRUCK SALES

April 24, 1989

GENERAL MOTORS CORPORATION, Plaintiff,
v.
GALLO GMC TRUCK SALES, INC., Defendants



The opinion of the court was delivered by: RODRIGUEZ

 This matter comes before the court on cross-motions for summary judgment in a case involving the termination by plaintiff General Motors Corporation (hereinafter "GMC") of the heavy duty truck line of defendant Gallo GMC Truck Sales (hereinafter "Gallo"). The crucial issue in the case is whether an agreement between a manufacturer and a dealer authorizing the dealer to sell and service a specific class of trucks constitutes a separate franchise agreement. If so, the termination of the truck line would fall within the ambit of the New Jersey Franchise Practices Act, which provides that a franchiser may terminate or fail to renew a franchise only for good cause. See N.J. STAT. ANN. 56:10-1 - 56:10-15 (West 1989). Defendant Gallo has moved for partial summary judgment, alleging that GMC is liable for violating the New Jersey Franchise Practices Act (hereinafter "Franchise Act" or "Act"). GMC also has moved for summary judgment on all of Gallo's counterclaims. GMC asserts that the cancellation of the heavy duty addendum was not a termination of a franchise under the Act. For the reasons stated herein, this court grants Gallo's motion for summary judgment, finding that GMC is liable under the Act. In addition, the court denies GMC's motion for summary judgment.

 I.

 Plaintiff GMC is a multi-national corporation engaged in the production and marketing of trucks through its GMC Truck Division under the nameplate "GMC Truck." Defendant Gallo has been a GMC Truck franchisee since 1976 and has sold GMC heavy duty trucks since 1981.

 The agreement between GMC and Gallo is contained in a Dealer Sales and Service Agreement (hereinafter "dealer agreement"), which gives Gallo a non-exclusive right to buy GMC trucks, parts and accessories and permits Gallo to identify itself as an authorized GMC Truck dealer. The goods Gallo may purchase, sell or service under the dealer agreement are limited to those items identified in the agreement's "Motor Vehicle Addenda." Attached to Gallo's dealer agreement are three such addenda. One addendum authorizes Gallo to purchase from GMC certain "light duty" truck models, those models with a total weight of less than 1,400 pounds when fully loaded. A second addendum designates certain "medium duty" models, those with a fully loaded weight greater than 1,400 pounds but less than 33,000 pounds. A third addendum, acquired in 1981, authorizes Gallo to purchase from three "heavy duty" models, those with a total weight greater than 33,000 pounds fully loaded.

 On November 7, 1986, GMC notified all of its dealers that its heavy duty truck models would be discontinued. Also on that date, GMC renewed Gallo's heavy duty truck addendum, but advised Gallo that it would be cancelled no later than December 31, 1987.

 Pursuant to the terms of the memorandum of understanding GMC and Volvo executed a stock purchase agreement on December 9, 1986. On December 23, 1986 GMC again notified Gallo that its heavy duty truck addendum would be cancelled on December 31, 1987.

 In an apparent effort to maintain its heavy duty truck operations Gallo applied for a Volvo GM dealer agreement. Volvo GM denied Gallo's application and instead awarded its South Jersey area dealership to Jesco Volvo White, Inc. of Williamstown, N.J. (hereinafter "Jesco"). Gallo was notified of that decision on June 22, 1987.

 On October 16, 1987, Gallo filed a letter of protest with the New Jersey Motor Vehicle Franchise Committee, pursuant to the Franchise Act, against GMC, Volvo GM and Jesco. See N.J. STAT. ANN. 56:10-19. All the defendants named in that action moved to dismiss the protest, claiming that the Motor Vehicle Franchise Committee lacked jurisdiction to adjudicate Gallo's claims because the termination did not fall under the Act. By consent, Gallo voluntarily dismissed the protest action and reached a settlement agreement with Volvo GM and Jesco *fn1" whereby Gallo is permitted, until December 31, 1989, to provide warranty service and purchase parts for the heavy duty trucks Gallo had recently sold and for the trucks Gallo had in stock at the time its heavy duty addendum was cancelled.

 On December 2, 1987, GMC filed the present action, seeking a declaratory judgment under 28 U.S.C. § 2001 that GMC's cancellation of Gallo's heavy duty truck addendum did not constitute a "termination" or "cancellation" of Gallo's GMC truck franchise within the New Jersey Franchise Practices Act. Gallo filed an amended answer and counterclaimed, alleging that GMC's actions did in fact violate the Act. Gallo also alleges breach of contract and fraudulent concealment on the part of GMC and seeks injunctive and compensatory relief.

 On December 31, 1987, Gallo's heavy duty truck addendum was cancelled, and GMC ceased to manufacture heavy trucks, with one exception. Pursuant to an exclusive supply contract with Volvo GM, GMC agreed to continue manufacturing a version of the "Brigadier," a heavy duty truck model, for up to one year, and sell it to Volvo GM. By the terms of the agreement GMC would take orders for the Brigadier until August 1, 1988, and would cease production of heavy duty trucks altogether on December 16, 1988. On September 2, 1988, GMC telexed its dealers that formerly sold GMC heavy duty trucks, informing them that Brigadiers and two other GMC heavy duty truck models, the General and Astro, were available for sale and re-invoice to eligible dealers.

 On September 26, 1988, Gallo filed a motion for partial summary judgment in its favor on count 3 of its counterclaim under the Franchise Act. Gallo alleges that since the termination of its heavy duty truck operations, it has been unable to obtain GMC heavy duty trucks, parts or accessories, and has been unable to perform warranty work on behalf of GMC. On October 25, 1988, GMC filed a cross-motion for summary judgment in its favor, on its own complaint and on Counts 1 through 5 of Gallo's counterclaim. This court heard oral argument on November 29, 1988 and reserved decision.

 II. STANDARD FOR SUMMARY JUDGMENT

 The entry of summary judgment is appropriate only when "there is no genuine issue of material fact" and "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Whether a fact is indeed "material" is determined by the controlling substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). If a disputed fact exists and under the controlling substantive law might affect the outcome of the suit, then entry of summary judgment is precluded. Id.

 Summary judgment procedure "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex, 477 U.S. at 327 (citations omitted).

 The moving party bears the responsibility of informing the district court of the basis for its motion. Id. at 323. In addition, that party must identify those portions of the pleadings, discovery papers and affidavits (if any) which demonstrate that no genuine issue of material fact exists. Id. Once the moving party has satisfied these requirements, the burden then shifts to the nonmoving party to present affirmative evidence that a material fact is genuine. If the evidence is such that a reasonable jury might return a verdict in his favor, summary judgment will not be granted. Anderson, 477 U.S. at 248, 257.

 III. COUNT THREE

 Defendant Gallo brought this motion for partial summary judgment on count 3 of its amended counterclaim, which alleges a violation of the New Jersey Franchise Practices Act. Gallo asserts that its heavy duty truck business was covered by one of three franchise agreements between itself and GMC, and that the existence of each franchise is dependent upon the combination of two documents, the dealer agreement and the Motor Vehicle Addenda for that specific line of trucks. Gallo contends that GMC's cancellation of its heavy duty truck addendum effectively terminated the heavy duty truck franchise, as the addendum is necessary to the existence of the franchise. Further, Gallo asserts that GMC's termination of that franchise agreement was not for good cause and is therefore a violation of the Franchise Act.

 GMC contends that only one franchise agreement exists between itself and Gallo, and that it is contained entirely in the dealer agreement. According to GMC, however, the heavy duty truck addendum merely listed the heavy duty truck models which Gallo was licensed to sell. GMC asserts that the discontinuation of those GMC products did not affect the existence of Gallo's franchise, as the dealer agreement and two other Motor Vehicle Addenda remain in effect. Therefore, GMC claims, the Franchise Act was not violated.

 A. New Jersey Franchise Practice Act

 The substantive law controlling this issue is delineated in the Franchise Practices Act. A "franchise," as defined in the Act, is

 
a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristics, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise.

 N.J. STAT. ANN. 56:10-3a. (West 1989). A "person" is defined as "a natural person, corporation, partnership, trust, or other entity." N.J. STAT. ANN. 56:10-3b.

 It is a violation of the Act for a franchisor to terminate, cancel or fail to renew a franchise without good cause. For the purposes of the Act, "good cause" is limited to failure by the franchisee substantially to comply with the requirements imposed upon him by the franchise. See N.J. STAT. ANN. 56:10-5 (West 1989). The courts of New Jersey have consistently given effect to the plain meaning of this provision. See, e.g., Dunkin' Donuts of America v. Middletown Donut Corp., 100 N.J. 166, 178, 495 A.2d 66, 72 (1985); Shell Oil Co. v. Marinello, 63 N.J. 402, 307 A.2d 598 (1973), cert. denied, 415 U.S. 920, 39 L. Ed. 2d 475, 94 S. Ct. 1421 (1974).

 The Act reflects the legislative concern over long-standing abuses in the franchise relationship. Shell Oil Co. v. Marinello, 63 N.J. at 409, 307 A.2d at 602. The legislature recognized the franchisor's superior bargaining position in the franchise relationship, and "the inevitable intertwining of the franchisee's livelihood with the franchise." Amerada Hess Corp. v. Quinn, 143 N.J. Super. 237, 253, 362 A.2d 1258, 1267 (Law Div. 1976). Despite their common interest in the success of the franchise, the franchisor and the franchisee also have vastly divergent interests. As long as the franchisor benefits from the increased public exposure and distribution of its goods, it matters little to the franchisor whether a particular franchisee remains in business, as there will always be another franchisee available to take that place in the distribution network. Neptune T.V. & Appliance Serv., Inc. v. Litton Microwave Cooking Prods. Div., 190 N.J. Super. 153, 163, 462 A.2d 595, 600 (App. Div. 1983). Once a franchisee has succeeded, through the expenditure of his own efforts and capital, to establish a local reputation for the franchise name, his franchise is vulnerable to termination. Id. It is the potential for abuse attendant upon an arbitrary and uncompensated termination of a franchise which the Franchise Practices Act was intended to address. Id. at 164, 462 A.2d at 601.

 It is undisputed that Gallo operates as a franchisee of GMC. The issue in question is whether, as GMC claims, the franchise agreement is contained in the parties' dealer agreement, or whether, as Gallo asserts, Gallo operated under three separate franchise agreements, each embodied in the combination of the dealer agreement with a separate addendum. If the former is true, then the franchise is still in effect, and was not affected by GMC's withdrawal from the heavy duty truck market. If ...


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