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Foulke Management Corp., D/B/A Atlantic Audi v. Audi of America

December 18, 2012

FOULKE MANAGEMENT CORP., D/B/A ATLANTIC AUDI, PLAINTIFF-RESPONDENT,
v.
AUDI OF AMERICA, INC., DEFENDANT-APPELLANT.



On appeal from an interlocutory order of Superior Court of New Jersey, Law Division, Camden County, Docket No. L-277-12.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 5, 2012

Before Judges Axelrad, Nugent and Haas.

In this motor vehicle franchise termination action, we granted defendant Audi of America, Inc.'s (Audi's) motion for leave to appeal to review paragraph two of the April 18, 2012 order of the Law Division. In that paragraph of the order, the trial judge required Audi to provide its franchisee, plaintiff Foulke Management Corp., d/b/a Atlantic Audi (Atlantic), with a guaranteed number of new vehicles each month during the pendency of the litigation. Audi argues the judge exceeded his authority under the New Jersey Franchise Practices Act (the Act), N.J.S.A. 56:10-1 to -31, and because there were sharply disputed issues of material facts, mandatory preliminary injunctive relief should not have been granted. After reviewing the record in light of the contentions advanced on appeal, we reverse the judge's decision, vacate paragraph two of the April 18, 2012 order, and remand for further proceedings consistent with this opinion.

I.

Audi sells and distributes Audi-brand vehicles, parts, and accessories to authorized Audi dealers in the United States. Atlantic initially became an authorized Audi dealership in November 1996. Atlantic is located in Pleasantville and is assigned to Audi's Eastern Region. Atlantic also sells Volkswagens, Chryslers and Jeeps.

On February 3, 2003, Audi and Atlantic entered into their latest Dealer Agreement (the Agreement), which requires Audi to "sell and deliver Authorized Products to [Atlantic] in accordance with" its terms. The Agreement does not give Atlantic "any exclusive right to sell or service" Audi vehicles or products "in any area or territory."

Article Five of the Agreement requires Atlantic to "use its best efforts to promote the sale" of Audi vehicles "at such levels as may be indicated from time to time by" Audi. Atlantic is also required to "achieve the best sales possible" in its area "for each model and type of" Audi vehicle.

Audi uses an industry-standard "sales expectation" approach to evaluate a dealer's sales effectiveness. As explained in the certification of its General Manager for the Eastern Region, Michael Brairton, Audi compares the dealer's total number of sales against the "sales expectation," which is the number of Audi vehicles that would need to be sold in the dealer's local geographic area for Audi to achieve regional average market share in that area. According to Audi's calculations, "in order to be an average performing dealer[,] Atlantic would have had to have sold 150 vehicles" in 2010.

The Agreement does not provide that a specific number of vehicles will be allocated to Atlantic to sell in any given year. Because the vehicles are manufactured in Germany and distributed throughout the world, there is a limited supply of vehicles in the United States. Although Article Eight of the Agreement states that "Audi will endeavor to make a fair and equitable allocation and distribution of the [vehicles] available to it" to each dealer, no franchisee is guaranteed that it would receive the number of vehicles that would enable it to meet Audi's regional sales expectations for the dealer.

Instead, dealers compete with each other to earn vehicles. Using a computerized system and various proprietary formulae, allocations of vehicles are made with a goal of equalizing all dealers' available supply of vehicles, i.e., each dealer should have a certain number of vehicles in its inventory at any given time. A dealer "earns" an allocation of new vehicles based on its current inventory level and the rate at which it sells vehicles. Simply stated, the dealers that sell the most vehicles in the shortest period of time have their inventories replenished the soonest and these dealers receive the most new Audis each year. Dealers that do not do as well receive fewer vehicles each month.

Audi asserts that, beginning in 2006, Atlantic failed to meet Audi's annual sales expectations. As a result, and pursuant to its allocation system, Audi began sending Atlantic fewer new vehicles to sell. In the three years prior to the commencement of this litigation, Atlantic's performance was particularly poor. In 2009, Atlantic earned and received twenty-nine new cars from Audi and sold thirty-five.*fn1 In 2010, it received thirty-eight new vehicles and sold forty-two. In 2011, it received an allocation of forty-six new vehicles and sold forty-eight.

On November 22, 2011, Audi sent a termination notice to Atlantic stating that the Dealer Agreement would be terminated within sixty days. Audi explained the notice was based upon Atlantic's poor sales effectiveness, which placed it "at or near the very bottom of Audi's entire dealer network in the United States." Audi also stated that Atlantic's "customer service satisfaction is also well below that of other dealers[.]" Finally, Audi asserted that Atlantic had changed its ownership without receiving Audi's prior approval.

On January 19, 2012, Atlantic filed a complaint against Audi in the Law Division and sought to prevent the termination of its franchise under the provisions of the Act. Atlantic sought an immediate stay of the termination ...


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