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Autowest Inc. v. Peugeot Inc.

decided: November 18, 1970.


Lumbard, Chief Judge, Smith and Kaufman, Circuit Judges.

Author: Lumbard

LUMBARD, Chief Judge:

Peugeot, Inc., a New York corporation and wholly owned subsidiary of the French automobile manufacturer Associete De Automobiles Peugeot, imports Peugeot automobiles and parts from France and sells them in the United States through an organization of distributors and dealers. Autowest, Inc., a California corporation, was Peugeot's franchised distributor in the nine western states, including California and Washington, from October, 1964, until its status was terminated on February 15, 1966.

Upon termination, Autowest promptly commenced this suit in the Eastern District of New York, alleging (1) breach of contract; (2) termination in violation of the so-called Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-25; and (3) termination in violation of New York General Business Law § 197. On March 29, 1966, following extensive hearings, Judge Dooling denied Autowest's application for a preliminary injunction, 287 F. Supp. 718. On September 10, 1969, notice was served to substitute the law firm of Buchner, Fassler & Oestreicher as Autowest's attorneys. Peugeot promptly moved to disqualify the firm under the Canons of Ethics, on the ground that Leonard J. Fassler, Esq., a partner in the firm, was secretary and a substantial stockholder of Autowest, and that he will "be an essential witness on behalf of plaintiff at the coming trial and his credibility will be very much at issue." On September 18, 1969, Judge Dooling denied the motion.

Trial was begun before Judge Dooling and a jury on October 14, 1969. At the close of plaintiff's case, Judge Dooling dismissed the first cause of action for breach of contract. On October 27, the jury, in answer to a special interrogatory, found Peugeot liable under both the federal and state acts, and awarded $500,000 damages not including interest. Judgment was entered on the verdict, and the defendant appeals.

Peugeot makes four arguments: (1) the evidence failed to establish liability under either statute; (2) plaintiff's proof of damages was neither admissible nor sufficient; (3) Fassler should not have been permitted to represent Autowest; (4) written evidence of complaints from dealers about Autowest was improperly refused.

We affirm the judgment under the Automobile Dealers' Day in Court Act, and consequently find it unnecessary to decide whether recovery would also be warranted under New York General Business Law § 197.*fn1


The facts, viewed most favorably to the plaintiff, as they must be, are as follows: Before he became Autowest's president and principal stockholder, Joseph Anzelon was the general manager of the parts and service division of World-Wide Automobile Corporation, the Volkswagen distributor for New York, Pennsylvania, and Connecticut. Anzelon had been with World-Wide from its inception, and thus was a high official in a tremendously successful organization. In early 1964, Anzelon began discussing with officials of Renault, Inc. the possibility of becoming Renault's distributor in the Far West. Anzelon also met with Henri Combe, executive vice-president of Peugeot, Inc., and other Peugeot officials, to become a Peugeot distributor. Anzelon explained to Combe that he would follow the policies that had made Volkswagen successful. Specifically, he intended to develop a quality dealer organization and to eliminate all bad dealers so as to improve Peugeot's reputation in sales and service. Combe, dissatisfied with Peugeot's performance in the West, agreed to go along with Anzelon. Both parties realized that this policy would necessarily mean a substantial decline in sales and number of dealers, as well as considerable operating losses, in the first year or two. Anzelon also informed Combe that he would be unwilling to move to Los Angeles and make the necessary investment unless the franchise was on a long-term basis of at least ten years.

With the understanding that he would receive a Peugeot franchise, Anzelon negotiated the purchase of all shares of Renault's 100% subsidiary, Renault West, which had been the distributor of Renault and Peugeot in that area for several years. On October 1, the stock purchase agreement was consummated. Anzelon paid $100,000 in cash and executed approximately $374,000 in promissory notes. He also guaranteed a note for $325,694 from Renault West to Renault, Inc. Renault West was appointed distributor of Renault and Peugeot products on that date, and changed its name to Autowest.

The franchise agreement between Peugeot and Renault West (or Autowest) provided:

"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."

However, apparently because of Anzelon's desire for a long-term arrangement, the standardized franchise agreement was supplemented by a collateral letter-agreement executed the same day, providing:

"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 . . . . However, the parties shall execute a new Distribution Agreement in September of each year, during which your corporation continues to be a Peugeot distributor."

Anzelon took over a chaotic and inefficient distribution system. He immediately instituted vigorous measures to upgrade the quality of sales and service and to terminate dealers who were unsuitable. Numerous disagreements with Peugeot developed in such areas as suggested retail price, signs to be used by dealers, advertising policy, and the proper size of Autowest's inventory. These disagreements were substantially settled at meetings of June 3 and November 29, 1965.

On September 30, 1965, the anniversary of Autowest's franchise, Combe sent Anzelon a letter suggesting a 30-day extension of the agreement pending a meeting, in view of the "differences of opinion" between the two companies. These differences were aired at the November 29 meeting. Anzelon never responded to the 30-day extension proposal. In October Combe asked for an explanation for Autowest's charging its dealers $40 over Peugeot's suggested distributor's price, and Anzelon replied that this had been in effect since June. At the November 29 meeting, Combe again raised the issue of the extra $40 mark-up. Anzelon explained that this money would be used as a reserve for advertising, and agreed to keep Peugeot informed of the use made of this fund.

In early December, 1965, Autowest began discussions with Renault, Inc. regarding termination of the Renault franchise. In order to decide their future course, the Autowest officials tried to estimate what their prospects would be if they continued solely as a Peugeot distributor. Based on their deliberations, Robert Farinelli, the comptroller, drew up a ten-year income projection which showed that Autowest could recoup all losses and make substantial profits. At that time, Autowest, like its predecessor Renault West, continuously showed losses.

Combe was kept informed of the Renault negotiations. When advised that a stock sale was being considered, Combe replied that this could create a problem in that the Peugeot franchise might remain with the corporation. At the end of December, 1965, Fassler called Combe to ask whether the Peugeot franchise would be affected by the Renault sale. In reply, Combe asked what Autowest's policy would be with respect to its dealer price. Fassler informed him that Autowest would go along with the suggested price. Apparently, the parties misunderstood each other. Combe had in mind the price charged by Autowest to dealers, while Fassler thought he was concerned with the suggested retail price. On January 3, 1966, Anzelon sent Combe a copy of Autowest's circular to dealers, which showed that the $40 mark-up was still being charged.

On January 10, 1966, Autowest and Renault signed a termination agreement, which included a sale to Renault of a considerable portion of Autowest's assets. Autowest's debt to Renault was cancelled, and Anzelon's indebtedness was reduced. Because the purchase price was keyed to the value of the assets sold, the closing was not effectuated until February 13, 1966. When he was informed of the agreement on January 10, Combe immediately wrote to Autowest requesting a certified year-end financial statement and also a certified statement giving effect to the asset sale. He further asked that information as to the projected assets and liabilities of Autowest be sent to him within ten days. Around January 15, Fassler delivered to Peugeot a pro forma financial statement giving effect to the Renault transaction, which included $100,000 in cash representing the additional investment which Autowest's officers intended to put into the business as soon as the asset sale was consummated. Peugeot was not informed that this $100,000 was not already in the business.

During the latter part of January, 1966, Combe visited Autowest at its new premises in Long Beach. Combe became very angry at Autowest's mark-up to its dealers, and, because of his misunderstanding with Fassler in their December telephone conversation, he called Anzelon a liar. When asked whether he was dictating the price Autowest must charge to its dealers, Combe replied that he knew the American law and would not be trapped into answering. From this point, if not earlier, the Autowest-Peugeot relationship quickly deteriorated. After spending a few days in San Francisco, Combe returned to Long Beach. He apologized for his language during the previous visit. A shipment of cars was due to arrive in Seattle. In Anzelon's presence, Combe turned the shipping documents over to Peugeot's Far West representative, James MacLaughlin, with instructions not to give them to Autowest until full payment was received.

On February 8, 1966, Peugeot's California attorneys demanded that its accountants be permitted immediately to examine Autowest's books. After consulting with Farinelli, the comptroller, and determining that everyone was too busy with the Renault valuation, Fassler refused. The Seattle shipment arrived on February 10, and was paid for on February 14. The next day, Peugeot terminated Autowest's status as distributor, listing numerous reasons under four main headings: insufficiency of sales ...

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