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AUTOWEST, INC. v. PEUGEOT

March 29, 1966

Autowest, Inc.
v.
Peugeot, Inc.


Dooling, D.J.


The opinion of the court was delivered by: DOOLING

Memorandum

DOOLING, D.J.:

 Plaintiff's motion is to enjoin defendant from terminating the importer-distributor relation between the parties or substituting a new Western States distributor for plaintiff (15 U.S.C. §§ 1221-1225, New York General Business Law §§ 195-197, Bateman v. Ford Motor Co., 3d Cir. 1962, 302 F.2d 63, 66-67, Cf. Wagner v. World Wide Automobiles, W.D.N.Y. 1961, 201 F. Supp. 22, 24, Staten Island Motors, Inc. v. American Motor Sales Corp., D.N.J. 1959, 169 F. Supp. 378, 381); defendant moves to enjoin plaintiff from threatening to sue the Western States dealers if they stop dealing with plaintiff and give their business to defendant's substitutional distributor. Both motions are denied.

 The facts have been separately found.

 It may be that "equity jurisdiction" exists to arrest defendant's unilateral ending of whatever importer-distributor relation existed on February 15, 1966, when defendant acted. Bateman v. Ford Motor Co., supra, says that. All New York Auto Corp. v. Renault, Inc., N.Y. Co. 1959, 19 Misc.2d 790, 190 N.Y.S.2d 410, aff'd., 1st Dept. 1960, 10 A.D.2d 910, 202 N.Y.S.2d 200 notes that the absence of a truly adequate remedy at law is not implicit in the ending of a dealership, and Deltown Foods, Inc. v. Tropicana Products, Inc., S.D.N.Y. 1963, 219 F. Supp. 887 indicates that even the presence of an express statutory base for the prayer for injunction does not dispense with the need to show a fair prospect of ultimate success on the merits. It may be, too, that there are supposable circumstances in which a preliminary injunction must be granted - as where private right and a strong statutory public policy coincide in demanding maintenance of a status quo of dealing. Bergen Drug Co. v. Parke, Davis & Co., 3rd Cir. 1962, 307 F.2d 725; Cf. House of Materials, Inc. v. Simplicity Pattern Co., 2d Cir. 1962, 298 F.2d 867, 870, 871-872. And there are cases where an express (or genuinely implicit) covenant not to deal with any one else is ready at hand to give a contract base for a negative injunction that is relatively certain to preserve or restore the old distributor-dealer relationship. Standard Fashion Co. v. Siegel-Cooper Co., 1898, 157 N.Y. 60, 66, 51 N.E. 408; Liedermann v. Voco, Inc., Kings Co. 1947, 73 N.Y.S.2d 462; Cf. Butterick Pub. Co. v. Frederick Loeser & Co., Inc., 1921, 232 N.Y. 86, 133 N.E. 361.

 In the present case, however, the claim to preliminary injunctive relief rests only on the existence of the importer-distributor relation and the controverted promise of its continuance supported by the statutory restrictions on discontinuance and the fact that termination for the duration of a lawsuit is, necessarily, irreversible and, therefore, permanent. There is here no promise on defendant's part not to deal with others (Cf. Garvin v. American Motor Sales Corp., 3rd Cir. 1963, 318 F.2d 518, 520); the business expectation of the parties and the probabilities of fact are not, for present purposes, relevant; a legal fear may have dictated foregoing the right to be an exclusive distributor; the surrender of it is nonetheless real for that fact.

 Whatever else may be thought, it cannot be easily supposed that importer-distributor contracts form a class especially eligible for specific performance as, legal history seems to indicate, are land contracts and contracts for unique chattels - or the services of uniquely talented people. Rather the right to the equitable specific relief of injunction, it would seem, must be here made out from some aggregate of circumstances that demonstrates that specific relief is manifestly more appropriate than damages. That cannot here be done. The galling harness of an injunction cannot create teamwork. At best an experiment, a preliminary injunction could well be wholly damaging here, jeopardizing any claim for damages that plaintiff might otherwise have without giving it any assurance that the experiment would not simply lengthen its losses. Too much would depend on efforts of continuing cooperation that are difficult to expect of parties locked in litigation and impossible to command. Cf. Bach v. Friden Calculating Mach. Co. Inc., 6th Cir. 1946, 155 F.2d 361, 366; Engemoen v. Rea, 8th Cir. 1928, 26 F.2d 576, 578-579. A negative injunction will not serve where it is cooperation and reciprocal action that is required; here the duties and the rights of the importer are of that sort and not simple duties to pay money. Cf. Bethlehem Engineering Export Co. v. Christie, 2d Cir. 1939, 105 F.2d 933, 935.

 On the facts of the present case as they appeared from the affidavits and testimony, it cannot be said that a fair prospect of ultimate success has been shown. The tantalizing question of the status of the relation between the parties on February 15, 1966, is, perhaps, only superficially difficult. It would not be too easy to infer an automatic franchise extension of one year if the parties had been altogether silent at the end of the first year and had, in that way, created some basis for arguing that they must have meant to adopt exactly the first year contract form as their contract for an intended second year. That would defy their explicit undertaking to write out a new agreement each year and deny to their silence and inaction the legal effect that their contract advertently sought to impose on it. More pointedly, it would rule out the inference that their failure to execute a new contract had meaning, the plain meaning that they would follow along without definite term until they reached either a parting or a will to reduce their arrangement to a new writing. But here the parties adverted to the need for a new agreement, deferred consideration of whether to make a new agreement or part, and then went on, in inconclusiveness of manifested intention, and did not again advert to making an agreement. No inference of an intention to be bound to each other for a definite term grows out of ground so lean. The ambiguity may have pleased each party, for perhaps each had much to consider and reconsider as the Renault transaction took shape; and, perhaps, each may have thought that the future was not going to be a simple continuance but a thing of a new shape altogether when the Renault transaction was over. Plaintiff's present position does not imply that it may not calculatedly have kept its whole position under reserve until January 10 at least.

 The ambiguities here are not ambiguities of inference from evidence that can be supposed to have a single meaning if its riddle can be read; the ambiguities here are intrinsic in the conduct of the parties, unless one imposes on them the idea that they, somehow, intended to contract by silence or inadvertence or both. There is no ground at all for inferring inadvertence here; no ground either for saying that their omission to make a new agreement was not advertent. So, on the present record, there is no way of saying that a contract for a definite term was made out. In this view the lesson of New York Telephone Co. v. Jamestown Telephone Co., 1940, 282 N.Y. 365, 371, 26 N.E.2d 295, limited as it is (Cf. Miller v. Schloss, 1916, 218 N.Y. 400, 406-407, 113 N.E. 337; Martin v. Campanaro, 2d Cir. 1946, 156 F.2d 127, 129) - that an expired contract may furnish the transactional terms on which a continuing relation will operate - has no application; the expired contract is impotent to establish that there is a new contract and to define the duration of the new contract; it may furnish, in default of a new agreement, the basis on which the transactions that constitute the informal continuance of the relation will be conducted and liquidated, but it goes no farther. Cf. Martin v. Campanaro, supra.

 That does not mean that defendant could act in disregard of relevant statutory duties engrafted on the relation. But viewed in that perspective the evidence simply fails to meet the applicable standards.

 Defendant's cross-motion does not require discussion.

 The motions must be denied.

 The following are the findings of fact and conclusions of law made on the hearing of the motion of plaintiff for a preliminary injunction and the cross-motion of defendant for a preliminary injunction:

 Findings of Fact

 1. Plaintiff is a corporation organized under the laws of the State of California and it has its principal place of business in Long Beach, California.

 2. Defendant is a New York corporation and it has its principal place of business in the County of Queens in the Eastern District of New York.

 3. Defendant is an importer of Peugeot automobiles and related products which are manufactured by a French corporation all of the stock of which is owned by a French holding corporation the stock of which is traded on the French stock exchange and is owned generally by the members of the public.

 4. Peugeot automobiles have been sold in this country apparently since approximately 1957-1958.

 5. Until October 1, 1964, Peugeot products were distributed in the West Coast States and in Idaho, Montana, Nevada, Utah, Arizona and Alaska by Renault West, Inc., a corporation all of the stock of which was owned by Renault, Inc., a corporation associated with the French manufacturer of Renault automobiles.

 6. Renault West had approximately 76 dealers in the nine Western States at October 1, 1963, and 55 dealers in those States at October 1, 1964; on October 1, 1964, three of the 55 dealers were under notice of termination and were later terminated as dealers.

 7. The dealers of Renault West, Inc., were with few exceptions dealers both in Renault and in Peugeot automobiles; the Renault automobile was lower priced than the Peugeot selling in the price range of the Volkswagen; the Peugeot was priced in the range of American "compact" cars.

 8. In the years preceding October 1, 1964, both Renault and Peugeot retail sales in the continental United States had shrunk substantially; Renault sales had declined from about 90,000 units a year to 44,000 units in 1961, to about 30,000 in 1962 and about 22,600 in 1963; sales of Peugeot had declined from about 6,400 in 1961, to about 4,900 in 1962, to 2,994 in 1963, and in 1964 were approximately 3,046; the sharp decline in Renault sales preceded by about a year the decline in Peugeot sales; the decline in Renault sales was not ascribed to the introduction of the American compact cars; the decline in Peugeot sales coincided with the introduction of the American compacts; other foreign cars apparently affected by the introduction of the American compacts in their price range included the Fiat, Mercedes Benz, English Ford and Simca; only the English Ford and Simca apparently recorded a decline in sales comparable to that of the Peugeot.

 9. In 1964 Joseph Edward Anzelon had been engaged in the automobile business for 16 years; he had first been in an automobile business in Seattle, Washington, thereafter held a position in Europe with an automobile distribution firm, and for the 12 years preceding October 1, 1964, had been associated with Volkswagen in New York City; he had played an important part in the development of the Volkswagen distribution organization and at the time he left it shortly before associating with Renault West, Inc., he was general manager of the parts and service division of Volkswagen and was outranked in the company only by the president and owner of the company.

 10. Before October 1, 1964, Anzelon discussed with Renault, Inc. and Peugeot, Inc. taking over Renault West, Inc. and acting as distributor in the nine Far Western States above named for Renaults and Peugeots under agreements that, it was understood from the beginning, would be independent of each other.

 11.Anzelon was unwilling if he took over Renault West, Inc., to undertake to act as a distributor for Renault alone or Peugeot alone for two principal reasons: first, the income from both distributor franchises would be needed to support the operation; and second, no matter what long range planning might be, it would be upsetting of and damaging to the dealer networks of each of the two automobiles if their distributions were separated without any advance preparation of the ground.

 12. By separate negotiation, Anzelon acquired from Renault, Inc. the stock of Renault West, Inc., and in a separate negotiation on behalf of Renault West, Inc. entered into a distributor agreement with Renault, Inc., in October 1964. The annual loss that had been sustained in Renault West, Inc. preceding the time when it was taken over by Anzelon effective October 1, 1964, was $300,000.

 13. It was contemplated at the time of the acquisition by Anzelon of the stock of Renault West, Inc. that its name would be changed to Autowest, Inc. and that change was effected very shortly after October 1, 1964.

 14. In the discussion between plaintiff and defendant preceding the execution of the distributorship agreement between them plaintiff emphasized that the success of the Volkswagen in this country was generally believed to be traceable to its aggressive service program; plaintiff indicated that if it became the Peugeot distributor it would emphasize presentation to Peugeot purchasers and existing Peugeot car owners of an effective service organization, including parts availability, and that the dealer network would be made up of dealers who believed in and offered efficient and effective sales and service and maintained adequate parts supplies; plaintiff indicated that if it became distributor it would discontinue dealers who did not adopt an aggressive service and parts program in addition to being effective in the sales of cars, since plaintiff considered that sales of cars without the support of adequate service damaged rather than promoted the good will of cars.

 15. Plaintiff indicated in the preliminary talks that if it became the Peugeot distributor, sales of Peugeots during the first year might be less than in the last preceding year, that in the second year of operation sales would be restored to the level of the year preceding the changeover, and that thereafter sales would increase. An indicated sales trend was from 42 cars a month (for example) in 1964 to 30 cars a month in 1965 with sales returning to the level of 42 (or 39) cars a month in 1966 and to 54 (or 50) cars a month in 1967.

 16. During the negotiations when it was indicated to plaintiff that defendant would appoint it as distributor under its standard form of one year contract, plaintiff indicated that he was unwilling to undertake the project, which would involve his setting up on the West Coast, without some protection.

 17. Apparently in talks going on with Renault, Inc. with respect to plaintiff's becoming the Renault distributor for the Western States plaintiff made the same objection and, under the somewhat different terms of the standard Renault, Inc. agreement, plaintiff arrived at an arrangement under which the absolute right of termination formally embodied in the printed Renault agreement was modified so as to provide that

 ". . . neither party will give notice of termination or terminate said Agreement except for good faith cause within the meaning of the Automobile Dealers' Day in Court Act (15 USC Section 1221 et seq.)."

 18. The printed form of Peugeot Distribution Agreement contained the following

 "32. This agreement shall continue for a period of one year from the effective date set forth at the foot of the agreement, unless terminated prior to that time according to any other provision of the agreement.

 "33. This agreement will terminate automatically, without notice from either party to the other, immediately upon the happening of any of the following events: . . . (g) the expiration of one year from the effective date of this agreement.

 "34. PEUGEOT may terminate this agreement at any time if the DISTRIBUTOR (a) fails to fulfill adequately its functions under the agreement; . . .

 "37. This agreement may be renewed only by execution in writing of a new distribution agreement."

 19. On or about October 1, 1964, and effective October 1, 1964, plaintiff and defendant signed a written Peugeot Distribution Agreement (Exhibit 1) and two supplementary letters; the first supplementary letter of October 1, 1964, Exhibit 2, added to the Agreement the two following paragraphs.

 "1. You shall have primary responsibility for the promotion and development of sales of Peugeot vehicles and related products in the following states of the United States: California, Oregon, Washington, Idaho, Montana, Nevada, Utah, Arizona, and Alaska.

 Peugeot will not alter such area of primary responsibility by excluding therefrom any area in which your performance as a distributor meets all the requirements of the Distribution Agreement.

 "2. Notwithstanding the provision of Chapter L, Paragraph 32, of the Distribution Agreement, neither party will give notice of termination or terminate the said agreement except for good faith cause within the meaning of the Automobile Dealers Day in Court Act (15 U.S.C., Sec. 1221, et seq.) or in the event of any substantial change in the persons who own the shares of your corporation. However, the parties shall execute a new Distribution Agreement in September of each year, during which your corporation continues to be a Peugeot distributor."

 20. When Anzelon took over plaintiff and it signed the distributorship agreement with defendant there was no agreement that plaintiff would be the sole and only distributor of Peugeot cars in the area defined in the supplementary letter agreement; in fact Peugeot did not sell cars to dealers in the designated territory through any other organization in the period from October 1, 1964, through February 28, 1966.

 21. A second agreement executed concurrently with the Distributor Agreement related to financing (Exhibit 31); in substance defendant agreed to extend credit to plaintiff until January 11, 1965, with respect to expected arrivals in November and December of 180 1965 Peugeots ordered by Renault West, Inc. before October 1, 1964; the expected arrivals had an invoice value of $259,445.

 22. The arrangement described in the preceding finding was entered into in view of the fact that, when Anzelon took over, plaintiff had an inventory in the order of $1,500,000 consisting largely of Renault cars, with which the West Coast banks had not been happy; it was recognized that plaintiff could not finance the additional 180 cars with the banks until the existing inventory had been reduced. The general terms of payment under the Distribution Agreement were that defendant would deliver the cars to the distributor at the United States Port of Entry against cash paid on or before the date of delivery; the distributor was required to pay for all other products at ten days after being billed by defendant.

 23. Until January 10, 1966, plaintiff maintained an adequate staff to perform its distributor obligations; it had adequate sales and service personnel and employed up to approximately 50 people in all of the usual functions carried on by a distributor of the kind involved. Its staff included personnel qualified to give proper training to dealer personnel and to initiate them in repair and maintenance techniques as well as in parts management and other aspects of the business, including warranty claim procedures, etc.; plaintiff's physical facilities at El Segundo, California, were adequate.

 24. Defendant was content with plaintiff's announced general approach to the problem of maintaining and improving the dealer network, giving increased emphasis to the extension of service, and insisting upon adequate service as a sine qua non to continued dealership; defendant had reservations about the extent to which stern supervision as distinguished from amiable cajolery would be effective in strengthening the Peugeot dealer network; defendant did not consider that Peugeot, selling only a very minor fraction of the number of cars sold by Volkswagen, could make exacting demands upon dealers and maintain their good will and effective cooperation.

 25. Plaintiff did not pay the open account between it and the defendant on or before January 11, 1965 as provided by the October 1, 1964 letter agreement (Finding 21).

 26. Plaintiff paid defendant for cars only after they had been wholesaled, and meanwhile plaintiff sought to obtain financing.

 27. At March 31, 1965, the open account stood at $595,000 and plaintiff had 271 cars in inventory.

 28. Plaintiff had anticipated before the year-end that it would be able to obtain the conventional type of automobile distributor's financing through Bank of America; plaintiff was unable to effect the financing in part because of the unexpected insistence on the part of Bank of America that the French manufacturer of the Peugeot automobiles give as a collateral undertaking its engagement to re-purchase any financed cars that were not sold.

 29. Under date of April 29, 1965, defendant advised plaintiff that effective May 1 it would commence to charge interest on open account, and it did charge $2,426.30 interest in respect to the month of May, 1965.

 30. Plaintiff obtained financing with the First Western National Bank on or about July 21-27, 1965, and from and after that date with respect to the arrivals of cars at the California Ports plaintiff was able to meet the payment obligations of the distribution agreement.

 31. The financing arranged through the First Western National Bank was confined to California Ports; when plaintiff's order for cars of December 1965 manufacture, due to arrive at Seattle in the last of January or first part of February, was about to arrive, defendant advised plaintiff that it would expect to be paid in cash against delivery of the documents on or before the arrival of the cars at Seattle; plaintiff had not arranged financing and it did not advise defendant that it had arranged financing until after the arrival of the vessel carrying the cars at Seattle on February 10, 1966. Payment for them was not made until a check dated February 15, 1966, was delivered to defendant in New York late in the day on February 14, 1966; the documents against which payment was to be made were at the time in California, as plaintiff knew.

 32. The Seattle arrival referred to in the next preceding Finding involved a payment by plaintiff of approximately $36,000; the payment was made by a check of Columbia Funding Corp., which was not a corporation known to defendant; the defendant had earlier been advised by plaintiff that it expected to finance the Seattle arrival through the First National Bank of Seattle.

 33. When plaintiff became distributor there were 55 dealers in the nine Far Western States selling Peugeot cars; a great many of these had not signed any formal franchise agreements, Renault West, Inc. not having managed to have regular dealership agreements signed, although it had been supplied with the required forms for doing so.

 34. During the period October 1, 1964, through February 28, 1966, the number of dealers was reduced from 55 to 29; of the 55 dealers 3 were under notice of termination on October 1, 1964. Twenty-seven others were discontinued as ...


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