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Tynan v. General Motors Corp.

Decided: June 12, 1991.

LAWRENCE F. TYNAN, L.T. CHEVROLET & OLDS, INC., AND TOWNE CHEVROLET, INC., PLAINTIFFS-APPELLANTS,
v.
GENERAL MOTORS CORPORATION, DEFENDANT-RESPONDENT, AND J & B CHEVROLET AND OLDS, INC., AND R.W. EMERICK, JR. AND FOUR (4) JOHN DOES, BEING THE FICTITIOUS NAMES OF EMPLOYEES AND AGENTS OF GENERAL MOTORS CORPORATION AND ITS DIVISIONS, DEFENDANTS



On appeal from Superior Court of New Jersey, Law Division, Morris County.

King, R.s. Cohen and Stern. The opinion of the court was delivered by Stern, J.A.D. Cohen, R.s., J.A.D. (dissenting in part).

Stern

The principal issue on this appeal is whether a contract purchaser of an existing automobile franchise is a "franchisee" entitled to the protection of the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to -15 (the Act). In granting summary judgment for defendants, Judge Russell answered in the negative. She concluded that plaintiff, Laurence Tynan (Tynan), was not a "franchisee" within the meaning of N.J.S.A. 56:10-3d and that to obtain the Act's protection one must be "offered or granted" a "franchise" by the "franchisor." We agree and affirm the judgment.

I.

Plaintiff Tynan was the "sole owner" or the "principal shareholder" of plaintiff Towne Chevrolet, a former General Motors (GM) franchisee which had "sold all of its assets" in July, 1985. As "dealer operator" and "dealer owner" of Towne, Tynan had been active in dealer organizations throughout the period that

Towne remained an active dealership. In December 1985, Tynan entered into a conditional agreement with another GM franchisee, J & B Chevrolet and Olds, Inc. (J & B), to purchase that dealership. Plaintiff L.T. Chevrolet and Olds, Inc. was formed by Tynan to acquire the assets of J & B. The sale was contingent upon GM's issuance and execution of a "Dealer Sales and Service" or franchise agreement with Tynan. GM refused the franchise proposal offered by Tynan, citing its past relationship with him as the ground for its refusal. Tynan thereafter commenced this suit alleging violations of the Franchise Practices Act and various constitutional and common law grounds for relief. Judge Russell ultimately dismissed the entire complaint. She concluded that Tynan had no standing under the Act and that the complaint otherwise failed to state a claim for relief.

The counts alleging violations of the Franchise Practices Act are based on two separate theories. The first is premised on GM's refusal to consent to the transfer of the J & B franchise. The second is premised on GM's failure to reimburse Tynan for motor vehicle parts supplied under warranty by his former dealership, Towne Chevrolet. Under this second theory, Tynan seeks reimbursement for the parts previously supplied.

A.

Tynan was a district manager for the Chevrolet Division of GM in the 1950s and 1960s. He subsequently left GM and in 1969 became owner and president of Towne Chevrolet in Middletown, which, as we noted, was a GM franchised dealership. From 1970 to July 1985, plaintiff's dealership "ranked in the top group for his area in terms of volume and customer satisfaction." Tynan sold the dealership to a third party in July 1985. On July 14, 1985, Tynan wrote to defendant R.W. Emerick, the Chevrolet Zone Manager, that he had resigned as "Dealer/Operator of Towne . . . and therefore, terminate my Dealer Sales and Service Agreement for Chevrolet Motor Vehicles."

While Tynan owned Towne, he became an active member in the Chevrolet National Dealer Council (CNDC) on the local, regional and national levels. However, Tynan and other member dealers, who became dissatisfied with the representation they were receiving from CNDC, formed a new dealer association called the National Chevrolet Dealer Alliance (NCDA). Tynan ultimately became president of NCDA and actively advanced the interests of its member dealers. During his tenure as president of NCDA, Tynan was vocal in protesting GM policies and acts that he and other dealers believed were contrary to the dealers' economic interests. Upon the sale of Towne, however, Tynan no longer had any interest in any GM franchise.

On December 4, 1985, Tynan entered into an agreement to purchase the J & B franchise. The agreement was contingent upon Tynan entering into a "dealer/seller" agreement with GM. In other words, GM's consent to the franchise purchase was expressly required.*fn1 To perfect the purchase, Tynan formed L.T. Chevrolet & Olds, Inc., which was to become the franchisee under the contingent agreement with J & B.

Under N.J.S.A. 56:10-6, a franchise cannot be sold or transferred without notice to the franchisor. Within 60 days of the notice, the franchisor must provide written notice to the existing franchisee if the proposed transferee is unacceptable. In so doing, the franchisor must set "forth material reasons relating to the character, financial ability or business experience of the proposed transferee." N.J.S.A. 56:10-6.

In January, 1986, Tynan made a proposal and thereafter a revised proposal to become the "dealer operator" of the J & B dealership. These proposals were submitted to GM.

By letter dated March 21, 1986 to J & B, GM advised J & B, with a copy to Tynan, that its consent to the franchise transfer

was disapproved. GM expressly stated that Tynan was not an acceptable transferee of a GM dealership. The reason was expressly based on GM's prior relationship with Tynan. The letter stated:

Article 2.1 of the General Motors Corporation Dealer Sales and Service Agreement Additional Provisions Booklet and Paragraph THIRD of the General Motors Corporation Dealer Sales and Service Agreement provide that the Dealer Agreement is entered into in reliance upon the qualifications of the person named as dealer operator. It is clear that the mutual respect and confidence necessary to reach a mutually satisfactory business relationship between Mr. Tynan and Chevrolet was not achieved during his tenure at Middletown. We therefore believe it is not in the best interest of Chevrolet, General Motors, or the consuming public to enter a Dealer Agreement with any company in which Mr. Tynan would exercise management or ownership. Therefore, we must decline your request that Mr. Tynan be named as dealer operator at Belvidere, New Jersey.

J & B, which the parties agree had standing to sue GM under the Act, did not challenge GM's decision. Rather, J & B exercised its right to terminate the agreement with Tynan and sold its business to a third party whom GM accepted as a franchisee.*fn2

Judge Russell found that since "Tynan [was] not a [GM] franchisee" on January 21, 1986, having sold the Towne franchise, he had no standing under the Act to challenge GM's decision. She subsequently determined that as the allegations

regarding the tortious interference was based on violations of the Act, that claim had to be dismissed as well. The judge further found that a corporation cannot conspire with itself, could not enter a conspiracy where the corporation and its employees acted within the scope of their authority, and, in any event, did not conspire to commit a wrong.

B.

Tynan and Towne Chevrolet further alleged that between June 1, 1977 and July 1, 1985 Towne Chevrolet, while still operated by Tynan, supplied parts to retail customers pursuant to GM warranties. Tynan alleged that GM failed to reimburse Towne for those parts at the "prevailing retail price" as required under N.J.S.A. 56:10-15 and owed the dealership $178,587 for warranty parts reimbursement. At the time of the sale of its assets in 1985, Towne assigned the warranty claim to Tynan as "sole owner" of Towne. Judge Russell also dismissed this claim, as it was not asserted within the time period required. The judge wrote: "Where the basis for potential jurisdiction under the [Act] had already been voluntarily allowed by plaintiff to lapse, subsequent conduct by defendant General Motors cannot be construed to be the cause of lack of jurisdiction." (emphasis in original).

II.

Plaintiff Tynan contends that he had standing to sue GM under the Franchise Practices Act. The judge ruled that Tynan, as a rejected prospective transferee, could not assert the statutory cause of action created in favor of "franchisees". In essence, the judge determined that Tynan was not a "franchisee" protected by the Act. We agree.

The Act "define[s] the relationship and responsibilities of franchisors and franchisees in connection with franchise arrangements" in this State. N.J.S.A. 56:10-2. Under the Act a

"franchisee" is "a person to whom a franchise is offered or granted." N.J.S.A. 56:10-3d (emphasis added).

With respect to transfers of a franchise, the Act provides:

It shall be a violation of this act for any franchisee to transfer, assign or sell a franchise or interest therein to another person unless the franchisee shall first notify the franchisor of such intention by written notice setting forth in the notice of intent the prospective transferee's name, address, statement of financial qualification and business experience during the previous 5 years. The franchisor shall within 60 days after receipt of such notice either approve in writing to the franchisee such sale to proposed transferee or by written notice advise the franchisee of the unacceptability of the proposed transferee setting forth material reasons relating to the character, financial ability or business experience of the proposed transferee. If the franchisor does not reply within the specified 60 days, his approval is deemed granted. No such transfer, assignment or sale hereunder shall be valid unless the transferee agrees in writing to comply with all the requirements of the franchise then in effect. [ N.J.S.A. 56:10-6].*fn3

The Act further provides that:

Any franchisee may bring an action against its franchisor for violation of this act in the Superior Court of the State of New Jersey to recover damages sustained by reason of any violation of this act and, where appropriate, shall be entitled to injunctive relief. Such franchisee, if successful, shall also be entitled to the costs of the action including but not limited to reasonable attorney's fees. [ N.J.S.A. 56:10-10].

Tynan argues that as a contract purchaser of a "franchise" he is entitled to the protections of a "franchisee". He argues that the Legislature intended to protect the persons who would suffer from the arbitrary conduct of franchisors with respect to the transfer of a franchise. There is some appeal to his contention because only the transferor and transferee can be hurt by the wrongful denial of consent.

GM maintains, however, that only a "franchisor" can "offer" a "franchise" and therefore plaintiff was not a "franchisee" with respect to the J & B transaction. GM points to N.J.S.A. 56:10-6 which distinguishes between a franchisee and a "proposed transferee" or "prospective transferee". According to

GM, a purchaser does not become a "franchisee" within the meaning of the Act until "offered" a franchise by the ...


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