USA: No cure opportunity has to be given if dealer's breach cannot be cured

Many state motor vehicle dealer statutes require that dealers have a chance to cure contractual breaches before being terminated. Does a statutorily-mandated cure provision require a motor vehicle franchisor to provide a dealer with an opportunity to cure a breach that, absent the statute, would be incurable? The New York Franchised Motor Vehicle Act requires that a franchisor provide a dealer with a "reasonable time" to cure a material breach of contract that forms the basis for a termination. It does not, however, expressly address the interplay of the statutory cure period with common law principles applicable to incurable breaches. In Giuffre, the court concluded that the Dealer Act does not require a motor vehicle franchisor to provide a dealer with an opportunity to cure breaches that were incurable under New York common law.

Giuffre Hyundai, LTD v. Hyundai Motor America, No. 13-cv-0520, 2013 U.S. Dist. LEXIS 67795 (May 10, 2013)

Read the full casenote on Day Pitney's website, here.

 

Greece: Fiat dealers asked to waive rights

The transition from one block exemption to the next has always been troublesome, although we seem to have got past the technique of terminating the entire network and offering reappointment to some or all of them. However, this time round Fiat Group Automobiles Hellas S.A. (FGAH) seem to have excelled themselves. Determined, it seems, to enter fully into the spirit of the new regulation, which of course contains nothing in the way of dealer protection, they are requiring their dealers to waive any accrued rights that they might have under the old Regulation.

They have sent out a letter of intent, in English as well as in Greek, which requires dealers to waive their rights against FGAH in relation to their existing agreements and the termination of those agreements. On 31 January next year, dealers will be required to declare that they have no claims against Fiat arising from the existing agreements and their termination, and irrevocably to waive any claims they do have.

Greek FIAT dealers are not amused. They consider the importer's and the manufacturer's actions unacceptable. The Greek car market, in common with much of the Greek economy, is in crisis, and dealers fear that FGAH is intending sometime probably next year (hence the date mentioned in the letter) to transfer the import contract to a third party. Waiving claims to protection from termination with that in prospect is not an attractive proposition for the dealers (though for the importer, in anticipation of handing over the franchise, it makes commercial sense to clear the decks).

Moreover, under Greek law I am told that a dealer may very possibly have a claim for a goodwill indemnity on termination based on the commercial agents directive (Directive 86/653 EC) and the Greek law which implements it, Presidential Decree 219/91. Recent Greek Supreme Court judgments (139/2006 and more recently 15/2013 and 16/2013, although I am not convinced that the first of those links is to the right case) indicate that dealers are more likely than not entitled to a goodwill indemnity. The Fiat letter seems to be designed to ensure no such claims will be possible, notwithstanding that Article 19 of the Directive specifies that the parties may not derogate from the indemnity and compensation provisions (Articles 17 and 18) before the contract is terminated. It would also rule out claims for sunk costs.

The commercial agents directive has been mooted by CECRA and the European Distribution Lawyers as an alternative source of protection for dealers, given the removal of their protection in the latest block exemption. But it could never serve such a purpose directly, for the simple reason that dealers are not and never have been commercial agents. At best, the directive could provide a model to be used to create a European equivalent, perhaps, of the dealers day in court acts found throughout the United States. What the Greek Presidential Decree says I do not know, but if it extends commercial-agents-style protection to dealers, it goes beyond what the directive requires, and I cannot see that a EU point involving Article 19 can arise - which is not to say that the Decree itself contains no such provision, just that if it does it's a home-grown Greek thing.

Fiat's action makes the conclusion of the new contract conditional upon the acceptance of unrelated terms and obligations, and takes undue advantage of the situation in which dealers who have significant sunk investments find themselves, especially in a crisis market with no alternatives. Lawyers acting for dealers contend that this approach is illegal under Greek law, so we might find ourselves watching this for quite long time.

When can a manufacturer terminate dealers to facilitate restructuring?

Perhaps the most contentious issue in the block exemption concerns the ability of the supplier (manufacture or imperter) to terminate on shorter than usual notice - one year instead of two where "it is necessary to re-organise the whole or a substantial part of the network". Great: the first question I asked myself when I saw that language was, what has to be necessary? The termination (in order to effect a reorganisation), or the reorganisation itself?

Logically, I think the first makes more sense - you can tell when termination is necessary but can't really apply an objective standard to judging when a reorganisation is necessary. Desirable, perhaps, but necessary, well, that can rarely happen.

I hadn't done so before, but I thought a look at the French text would help, and indeed it does: "le fournisseur résilie l'accord en raison de la nécessité de réorganiser l'ensemble ou une partie substantielle du réseau". Pretty clear, then, that my rule of thumb doesn't work in French.

Last month, the Bundesgerichtshof (the German federal supreme court) held that a manufacturer can terminate on one year's notice to restructure its dealer and repairer network if it can establish what the lawyers who won the case call "comprehensible financial grounds" on which to do so. Dr. Dominik Wendel and Dr. Albin Ströbl of law firm Nörr Stiefenhofer Lutz yesterday obtained a Federal Supreme Court (BGH) judgement according to which the importer Nissan legally terminated all dealerships and workshops with one year's notice (judgement of 24. June, File: VIII ZR 150/08). The judgment doesn't seem to be available on the Web, but here is the story (as put out, I believe, by Nörr: there is an English translation on a subscription-only service, from which I quote below). Here is another account, also in German, and here is a piece by Rechtsanwalt Dr. Johannes Öhlböck from Vienna. (I have to confess not having practised my rudimentary German on either of these.)

The lawyers tell us: "The reduced notice period of one year applies if the manufacture can establish that the reduction of the dealership network is necessary on financial grounds, Art. 3 ss. 5b) ii) Block Exemption Regulation". That, with respect, seems to be how the BGH interprets it, but it isn't what the English or French versions say. In German, I am a little lost, but "für den Lieferanten ergibt sich die Notwendigkeit, das Vertriebsnetz insgesamt oder zu einem wesentlichen Teil umzustrukturieren" doesn't seem to me to make express reference to financial grounds. Surely those grounds are merely desirable - entirely to do with the manufacturer's profits?
The first instance court in Cologne, it seems to me, was closer to the mark. Nörr say:

"TheHigher Regional Court (OLG) Cologne required "convincing" grounds forthe necessity of the termination within a year - and found that thetermination was invalid (judgement of 7. December 2007, File 19 U59/07). The OLG Frankfurt am Main considered on the other hand whetherNissan had provided a comprehensible ("nachvollziehbare") financial prognosis and drawn defensible conclusions therefrom - and affirmed the validity of the termination (judgement 13 Mai 2008, File 11 U 39/07 (Kart))."

I don't think the standard espoused by the Frankfurt court reaches the height demanded by the word "necessary", although it might well be within the spirit of the Regulation. Am I being too much of a common lawyer, thinking that if it says "necessary" it means necessary? This provision is an essential piece of dealer protection - one of those unfashionable bits of the block exemption that Mr Cesarini would like to throw out in the next iteration of the legislation - and a generous interpretation leaves the dealers exposed. Remember the Mercedes Benz fiasco, years ago, courting litigation by ditching its entire UK network on 12 months' notice? The BGH wouldn't bat an eyelid at that.
The most worrying part of this, for dealers, is its timing. Quoting again:

"'The judgement of the BGH on the standard affirming the OLG Frankfurt am Main has fundamental significance for all motor manufacturers and comes at the right time due to the possible amendment of the motor vehicle sector regulation in 2010', said Wendel and Ströbl."

Exactly. While the Vulkan Silkebord case says that a change in the regulation is not enough in itself to create the requisite necessity, the way it has worked in previous transition stages has been that the manufacturers and importers have terminated and offered reappointment. If they can get away this easily with one year's notice, the dealer protection provisions are hardly worth the paper they are printed on.
Can we please have an appeal to Luxembourg?

Termination of dealer contracts in run up to 2010

Ferrari's CEO Amadeo Felisa is quoted (second-hand - originally in Autmotive News Europe) on the termination of dealer agreements throughout Europe last August.

"The cancellation was done in preparation for the new franchise contracts that will be needed to comply with the next block exemption, as the current one expires in 2010.

"Ferrari has made significant investments in the past decade to completely renew its headquarters, factory and products. We want our dealers to follow us by upgrading their corporate standards to match what the new Ferrari is.

"We have 80 dealers in Europe. If they want to continue partnering with us, we would be happy to continue doing business with them."

Ferrari dealers are not the only group in such a position.  The transition from one regulation to another has always been fraught, and usually (at least, as far as I know) suppliers have taken it as a good reason to terminate all their dealer agreements and offer new ones to selected dealers.  Perhaps at least all 80 Ferrari dealers in Europe will be getting new agreements - but it's clear that they will have to meet a new, improved set of dealer standards if they are to qualify.

Ther is nothing in the block exemption that requires suppliers to terminate their contracts with dealers.  Whether this is necessary is a matter purely for national contract law, as the Court of Justice of the European Communities made clear in Case 125/05, Vulcan Silkebord.  But, like so much in the relationship between car manufacturer and dealer, dealers don't hurry to assert their legal rights against the dominant party in the relationship.