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W & D Imports, Inc. v. American Honda Motor Co. Inc.

February 4, 2008

W & D IMPORTS, INC. D/B/A WILLIS HONDA, PETITIONER-APPELLANT,
v.
AMERICAN HONDA MOTOR CO. INC., AND ALL STAR MOTORS, L.L.C., RESPONDENTS-RESPONDENTS.



On appeal from the Motor Vehicle Franchise Committee, Department of Law and Public Safety, No. MFC 10956-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 7, 2008

Before Judges S.L. Reisner, Gilroy and Baxter.

Petitioner W & D Imports, Inc., d/b/a Willis Honda (Willis or petitioner), located in Burlington, New Jersey appeals from a final decision of the Motor Vehicle Franchise Committee*fn1 , dismissing petitioner's protest of a decision by the franchisor American Honda Motor Company, Inc. (American Honda or the company) to establish a new Honda dealership franchise in Hamilton Township, New Jersey. We affirm.

I.

To put this appeal in context, we begin with an overview of the relevant statute. The Motor Vehicle Franchises Act, N.J.S.A. 56:10-16 to -29, prohibits a franchisor from granting a new franchise if it would cause injury to an existing franchisee or to the public:

No motor vehicle franchisor shall grant, relocate, reopen or reactivate a franchise or establish, relocate, reopen or reactivate a business, for the purpose of doing business on the retail level, if the franchise or business will be injurious as determined pursuant to [N.J.S.A. 56:10-23].

[N.J.S.A. 56:10-18.]

In making that determination, the Committee considers a series of factors:

(1) The effect that the proposed franchise or business would have on the provision of stable, adequate and reliable sales and service to purchasers of vehicles in the same line make in the relevant market area;

(2) The effect that the proposed franchise or business would have on the stability of existing franchisees in the same line make in the relevant market area;

(3) Whether the existing franchisees in the same line make in the relevant market area are providing adequate and convenient consumer service for motor vehicles of the line make in the relevant market area, which shall include the adequacy of motor vehicle sales and service facilities, equipment, supply of motor vehicle parts and qualified service personnel;

(4) The effect on a relocating dealer of a denial of its relocation into the relevant market area.

[N.J.S.A. 56:10-23(a).]

A franchisee's potential lost profits do not constitute injury unless the loss will be significant:

[A]n appropriate standard for measuring injury under the Act, both to a franchisee and to the public interest, is proof that the effect of a new dealership would be to reduce the profitability of the protesting dealer to an extent sufficient to cause a substantial deterioration of that dealer's ability to provide adequate customer services.

That standard of injury strikes a balance between evidence of inevitable termination due to business failure, a standard we find relevant but difficult to prove, and evidence merely of reduced profits. [Monmouth Chrysler-Plymouth, Inc. v. Chrysler Corp., 102 N.J. 485, 499 (1986).]

Injury is presumed if the objector*fn2 can establish any of the following factors:

(1) for the 24-month period prior to notice pursuant to section 4 of P.L.1982, c.156 (C.56:10-19), the average market penetration of the franchisees given notice pursuant to section 4 of P.L.1982, c.156 (C.56:10-19) is at least equal to the average market penetration of all franchisees in the same line make in the zone, district, region or other similar geographic designation, other than a national geographic designation, used by the motor vehicle franchisor into which the proposed franchise or business will be assigned, . . . ;

(2) the proposed franchise or business is likely to cause not less than a 25% reduction in new vehicle sales or not less than a 25% reduction in gross income for the protesting franchisee;

(3) the proposed franchise or business will not operate a full service franchise or business at the proposed location; or

(4) an owner or operator of the proposed franchise or business has engaged in materially unfair or deceptive business practices with respect to a motor vehicle franchise or business.

[N.J.S.A. 56:10-23(b).]

However, the presumption of injury does not apply to the granting, reopening or reactivation of a franchise if the proposed franchisee is a minority or a woman. N.J.S.A. 56:10-23(c).

II.

Willis Honda's protest was directed at a decision by the franchisor American Honda to grant a franchise to All Star Motors, L.L.C., a dealership which would be owned in part by Jessie Armstead, who is African-American. However, as will be discussed in greater detail later in this opinion, Armstead's minority status was not a critical factor in the Committee's decision to deny the protest, because Willis failed to establish that creation of a new franchise would cause injury to its business or to the public.

From the voluminous hearing record, we have distilled the following as the most pertinent facts. We begin with the testimony of William Green, the manager of market planning for American Honda's Acura and Honda divisions. Willis Honda called Green as its first witness and questioned him extensively. Green was responsible on a nationwide basis for determining whether American Honda had the proper number of dealerships in the appropriate locations, whether the existing dealerships were competitive in the marketplace, and whether the dealerships conformed to Honda's image standards.

Green described the process by which American Honda decided whether to establish a new dealership. The company routinely considered the performance of its dealers in their respective geographic markets, including their penetration of various market segments (e.g., the small car segment). On a semi-annual basis, the company also reviewed each metro market throughout the United States. If the reviews showed significant problems, a full-fledged market study might be ordered to analyze the deficiencies and recommend improvements. Finally, the company also ...


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