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BEILOWITZ v. GENERAL MOTORS CORPORATION
December 3, 2002
STEVEN I. BEILOWITZ D/B/A STEVENS BEIL, A SOLE PROPRIETORSHIP, PLAINTIFF,
GENERAL MOTORS CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Orlofsky, District Judge
Thomas Hobson, an English liveryman who lived in the seventeenth
required his customers to take the horse nearest to the stable
door or none at all.*fn1 Accordingly, a "Hobson's choice" refers to an
apparently free choice that offers no real alternative.*fn2 Here, the
Defendant franchisor, General Motors Corporation ("GM"), offered the
Plaintiff franchisee, Steven Beilowitz ("Beilowitz"), a Hobson's choice
either to accede to GM's new business plan, which would result in the
loss of forty percent of Beilowitz's revenue, or, after a
twenty-three-year-long relationship with GM, to be cut out of doing any
business with GM at all. This case illustrates the very reason the New
Jersey Franchise Practices Act ("NJFPA"), N.J.S.A. §§ 56:10-1, et
seq., was enacted — to protect franchisees, possessed of less
bargaining power than their franchisors, from such daunting "choices."
Thus, for the reasons set forth below, I shall grant Beilowitz's
application for a preliminary injunction from the strictures of GM's new
Earlier in this action, GM filed a motion to disqualify the law firm of
Pepper Hamilton from representing Beilowitz, which this Court denied.
See Beilowitz v. General Motors Corp., Civ. A. No. 02-3870(SMO), 2002 WL
31409956 (D.N.J. Oct. 28, 2002). The parties conducted expedited
discovery, comprehensively briefed the issues presented, and this Court
heard lengthy oral arguments on Beilowitz's application for preliminary
injunctive relief at a November 22, 2002 order-to-show-cause hearing.
This Court has jurisdiction over this action based on the diverse
citizenship of the parties and the requisite amount in controversy,
pursuant to 28 U.S.C. § 1332 (2002).
1. Beilowitz is the owner and Chief Executive Officer of Stevens Beil,
Sibco Distributors and Genuine Car Parts in Pennsauken, New Jersey
(hereafter, "Stevens Beil"). See Decl. of Steven I. Beilowitz, 8/7/02
("Beilowitz Decl."), ¶ 1.
2. GM, founded in 1908, is the world's largest vehicle manufacturer with
manufacturing operations in more than thirty countries and sales in
about 200 countries. See GM Company Profile, available at
<http://www.gm.com/company/corp_info/profiles> (last visited
Nov. 26, 2002).
3. Stevens Beil is a major distributor of multiple lines of General
Motors' AC Delco brand auto parts, and sales of AC Delco auto parts
comprise over ninety-seven percent of its business. Beilowitz Decl.
¶¶ 2-3, 6.
4. For over twenty-three years, Stevens Beil has been an authorized
distributor of AC Delco parts, Beilowitz Decl. ¶ 4, and sells to
a variety of customers, including car dealerships, gas stations,
fleet accounts, and jobbers, which are smaller sub-distributors who
in turn resell products to gas stations and automotive repair
centers, id. ¶ 5.
5. Many long-term clients of Stevens Beil equate the Stevens Beil name
with AC Delco parts. See Supp'l Decl. of Counsel Containing
Additional Hearing Exs., 11/20/02 ("Supp'l Counsel Decl."), Ex. B.
2. BUSINESS RELATIONSHIP BETWEEN STEVENS BEIL AND GENERAL MOTORS
6. Throughout the twenty-three years in which Stevens Beil has been an
authorized AC Delco distributor, GM has imposed no geographic
restrictions on where Stevens Beil could sell its auto parts.
Beilowitz Decl. ¶ 15.
7. In 2001, Stevens Beil sold AC Delco auto parts in at least eleven
states and the District of Columbia. Beilowitz Decl. ¶ 13;
Decl. of Howard I. Langer, 10/4/02 ("Langer Decl."), Exs. F & G.
Its current customer base extends throughout the Eastern Coast of the
United States and is concentrated in areas between Virginia and
Massachusetts. Beilowitz Decl. ¶ 25.
8. Stevens Beil has a large inventory of over 28,000 AC Delco part
numbers, including parts that other AC Delco distributors do not
normally keep in stock. Beilowitz Decl. ¶ 9. The current value
of Stevens Beil's AC Delco inventory is $4.5 million. Id. ¶ 11.
This large inventory is advantageous to Stevens Beil because
competition among authorized AC Delco distributors hinges on
inventory, as well as on efficient service, competitive pricing, and
business goodwill. Id. ¶ 8.
9. Stevens Beil has invested more than $500,000 in a customized computer
system designed to price and monitor the inventory of its AC Delco
parts. Beilowitz Decl. ¶ 21.
10. The Stevens Beil operation has been successful for itself and GM.
From 1990 to 2001, the company's overall sales volume increased from
$8.4 million to $27.5 million. See Beilowitz Decl. ¶ 10. From
2000 to 2001, sales increased from $24.2 million to $27.5 million.
Id. ¶ 10; Langer Decl., Ex. E. Of these 2001 sales, $10.7
million were made in New Jersey. Beilowitz Decl. ¶ 14.
11. Beilowitz received two awards from GM for his "tremendous" sales
performance, earning him a year's use of a luxury car and a trip to
Switzerland. See App. of Exs. to Pl.'s Supp'l Mem. in Supp. of Mot.
for Prelim. Inj. ("App. of Pl.'s Exs."), Exs. 51-52.
12. For the past twenty-three years, the relationship between Stevens
Beil and GM has been governed by a series of contracts that have been
in substantially the same form. Beilowitz Decl. ¶¶ 12, 17. The
first of these contracts was entered on March 28, 1979. See
Supplemental Decl. of Steven Beilowitz in Supp. of Application for
Prelim. Inj., 10/4/02 ("Supp'l Beilowitz Decl."), Ex. O.
13. The most recent "AC Delco Direct Supply Account Agreement" was in
effect for a period of two years from the date of entry, May 25,
1999. See Beilowitz Decl., Ex. A, § 11. This agreement required
Stevens Beil to:
(1) advertise the AC Delco trademark, see Beilowitz
Decl. ¶ 17(a), Ex. A, §§ 2B &
(2) participate in national promotional programs
sponsored by GM, see id. ¶ 17(b), Ex. A,
(3) maintain AC Delco signage at its place of
business in New Jersey, see id. ¶ 17(c),
Ex. A, § 2D;
(4) place the AC Delco trademark on all of its
vehicles*fn4, see id. ¶ 17(d), Ex. A § 2D;
(5) maintain sufficient staff to promote the sale of
AC Delco products*fn5, see id. ¶ 19(c),
Ex. A, § 2G(1); and
(6) hold promotions and special contests to increase
customer awareness of AC Delco products, see
id. ¶ 19(e), Ex. A, § 2G(4).
14. The AC Delco contract also required Stevens Beil to maintain and
staff a "will call" counter at its Pennsauken facility to serve
"secondary customers." Beilowitz Decl., Ex. A, § 2D(3).
15. GM required Stevens Beil to submit all of its advertising copy to GM
for prior approval. Beilowitz Decl. ¶ 18.
3. PROMOTION AND SALE OF AC DELCO PRODUCTS BY STEVENS BEIL
16. Stevens Beil has placed the AC Delco trademark on all of its business
communications, including its stationery, business cards and
invoices. Beilowitz Decl. ¶ 20(a), Ex. E.
17. At Stevens Beil's Pennsauken location, twenty-three sample products
of AC Delco product lines are displayed. See Supp'l Beilowitz Decl.
¶ 2, Ex. A.
18. Customers who choose to pick up items at the front counter typically
call ahead so that the item and invoice are ready for them upon
arrival. Supp'l Beilowitz Decl. ¶ 3. Some customers show up
without having called ahead of time. Id.
19. Stevens Beil has sponsored a number of local events prominently using
the AC Delco mark in conjunction with "Stevens Beil," including:
(1) a 1994 automobile race at the Pocono Raceway,
see Supp'l Beilowitz Decl. ¶ 4, Ex. B;
(2) a 2002 Variety Club Miss America Pageant Float,
see id. ¶ 5, Ex. C;
(3) an automobile race at the Flemington Motor
Speedway in Flemington, New Jersey, see
Beilowitz Decl., Ex. F; and
(4) a holiday toy drive at The Children's Hospital of
Philadelphia, see id., Ex. G.
20. Additionally, Stevens Beil, with AC Delco's sponsorship, has hosted a
number of instructional clinics at its Pennsauken facility on topics
of automotive maintenance and repair.*fn6 See Beilowitz Decl., Ex.
4. GM'S IMPLEMENTATION OF THE "DDG" PROGRAM
21. On January 23, 2002, GM offered Stevens Beil the new version of the
AC Delco Direct Account Supply Agreement, the so-called Dedicated
Distribution Agreement ("DDA"), which, for the first time, created
the Dedicated Distribution Group ("DDG") Program.*fn7 See Beilowitz
Decl. ¶ 24, Ex. B.
22. The DDG Program is part of GM's new overall growth strategy, to take
advantage of opportunities in the automobile "aftermarket," or
replacement parts, business. See Certif. of Stephen F. Payerle in
Oppos. to Pl.'s Mot. for Prelim. Inj. 10/31/02 ("Payerle Certif."),
23. Under the DDG Program, only a select group of distributors known as
the Dedicated Distribution Group will have the right to market AC
Delco products. See Supp'l Beilowitz Decl., Ex. N, p. 18.
24. Under the DDA, Stevens Beil would no longer be permitted to sell AC
Delco products throughout the country, but would instead be confined
to selling in an assigned "Direct Marketing Area," or "DMA," in the
Philadelphia area. See Beilowitz Decl. ¶ 25.
25. Stevens Beil would be prohibited from selling to its existing
customers located outside of the Philadelphia DMA.*fn8 See Beilowitz
Decl. ¶ 25.
26. Within the Philadelphia DMA, two other AC Delco distributors,
who are competitors of Stevens Beil, would also be permitted
to sell AC Delco products.*fn9 Beilowitz Decl. ¶ 26; Dep.
of David Danna, 9/12/02 ("Danna Dep."), 62:22 to 63:18.
27. Under the DDA, Stevens Beil would be required to open satellite
facilities within the DMA at locations to be determined by GM.
Beilowitz Decl. ¶ 27.
28. The DDA also requires Stevens Beil to develop a business plan
approved by GM to meet sales goals set by GM, Beilowitz Decl.
¶ 28, in addition to submitting periodic sales reports,
opening its books to GM for regular inspection, and releasing
its customer information to GM, id. ¶ 29.
29. According to GM's financial projections, Stevens Beil has the
potential to make $35 million under the DDG program in the
Philadelphia DMA. Payerle Certif., Ex. 129; Danna Dep. 94:17-21.
30. Thomas Reynolds, the GM Zone Sales Manager who prepared the business
plans for Stevens Beil and other AC Delco distributors under the DDG
program, predicted that Stevens Beil could make $35 million in sales
in 2002 under the DMA. Dep. of Thomas Reynolds, 10/24/02 ("Reynolds
Dep."), 143:3-9. It is unclear, however, what the basis for Reynolds'
optimistic prediction was. When asked at his deposition if he took
into account Stevens Beil's sales outside the Philadelphia DMA in
arriving at the $35 million figure, Reynolds testified:
The way I understood the DDG program is that
[Beilowitz] was gonna [sic] sell in an area that
he himself said that he wasn't selling a whole lot
into, but we never got into the mechanics of the
numbers and quite frankly if he threw out a
number, I'd look at it as an alleged number and
based on the number of vehicles that I believed to
be in that marketplace, I believed with his
commitment to do the job we could've achieved $35
million within 12 to 18 months.
31. Notably, Reynolds later testified that, in making his business
projections about Stevens Beil's potential performance under the DDG
program, he did not even know the boundaries of the Philadelphia
DMA, as he "was not privy to the DMAs." Reynolds Dep., 166:10-11.
E. IRREPARABLE HARM TO STEVENS BEIL CAUSED BY THE DMA PROGRAM
33. There is conflicting expert testimony as to whether GM's target for
Stevens Beil under the DMA program is reasonably attainable.
According to GM's expert, James A. Anderson*fn10, if AC Delco
achieves its target of a thirty-four percent market penetration*fn11,
Stevens Beil's revenue opportunity will be "in excess of
$45,000,000." See Decl. of James A. Anderson, 11/1/02 ("Anderson
Decl."), ¶¶ 20, 29-34.
34. Anderson based his projections on three data sources, from The Polk
Company, Dun & Bradstreet, and Claritas. See Anderson Decl.
¶ 10. In his report, however, Anderson concedes that "[s]ince
the automotive aftermarket customers do not report or register their
purchases, it is a difficult process to calculate the value of the
business available at a low level of geography." Id. ¶ 23.
35. According to Beilowitz's expert, Richard Lancioni, GM's performance
projections are unrealistic because the independent automobile parts
aftermarket is a "mature market," characterized by a slowdown in
sales growth because the products have achieved acceptance by
buyers." See Revised Decl. of Richard A. Lancioni, 10/8/02 ("Lancioni
Decl."), ¶¶ 12-13. Because the market is mature, every customer
already has an existing supplier, ...
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