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Beilowitz v. General Motors Corp.

December 4, 2002


The opinion of the court was delivered by: Orlofsky, District Judge



Thomas Hobson, an English liveryman who lived in the seventeenth century, 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 business plan.


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, comprehen-sively 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 (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.


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:

(a) advertise the AC Delco trademark, see Beilowitz Decl. ¶ 17(a), Ex. A, §§ 2B & 2G(3);

(b) participate in national promotional programs sponsored by GM, see id. ¶ 17(b), Ex. A, § 2G(4);

(c) maintain AC Delco signage at its place of business in New Jersey, see id. ¶ 17(c), Ex. A, § 2D;

(d) place the AC Delco trademark on all of its vehicles *fn4 , see id. ¶ 17(d), Ex. A § 2D;

(e) maintain sufficient staff to promote the sale of AC Delco products *fn5 , see id. ¶ 19(c), Ex. A, § 2G(1); and

(f) 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.


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:

(a) a 1994 automobile race at the Pocono Raceway, see Supp'l Beilowitz Decl. ¶ 4, Ex. B;

(b) a 2002 Variety Club Miss America Pageant Float, see id. ¶ 5, Ex. C;

(c) an automobile race at the Flemington Motor Speedway in Flemington, New Jersey, see Beilowitz Decl., Ex. F; and

(d) 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. D.


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."), Ex. 149.

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. Id. 145:2-14.

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.

32. At oral argument, counsel for GM explained "whether or not [Beilowitz] winds up coming out ahead or not with respect to this quid pro quo that the DDG and DMA system provides, is something that we can't say now. [Beilowitz] can make up his lost sales. If the DDG ...

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