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MARTIN MOTOR SALES v. SAAB-SCANIA OF AMERICA

January 27, 1978

MARTIN MOTOR SALES, INC., Plaintiff,
v.
SAAB-SCANIA OF AMERICA, INC. and SAAB-SCANIA (AB), Defendants



The opinion of the court was delivered by: MOTLEY

CONSTANCE BAKER MOTLEY, D.J.

 Findings of Fact and Conclusions of Law

 Martin Motor Sales, Inc. (Martin Motors), plaintiff, is a family-owned New York Corporation. Martin Motor's business is selling automobiles. Defendant Saab-Scania (AB) (Saab-Sweden) is the Swedish corporation which manufactures the Saab automobile. Its co-defendant, Saab-Scania of America, Inc. (Saab-America) is a wholly owned subsidiary of Saab-Sweden. Saab-America is a Connecticut corporation. It is in the business of importing and distributing Saab automobiles and parts to dealers in the United States such as Martin Motors.

 Jurisdiction is based on diversity of citizenship. In addition, federal question jurisdiction arises under 15 U.S.C. §§ 1221 et seq., the Automobile Dealers' Day in Court Act (Act). Plaintiff claims that defendants violated 15 U.S.C., § 1222 *fn1" when defendant unilaterally terminated plaintiff's two Saab franchises in the Bronx and Manhattan. Plaintiff claims that defendant acted in bad faith since the termination of the franchises was aimed at penalizing plaintiff for its refusal to buy outdated and mechanically defective Saabs from Saab-America.

 Section 1222 reads in pertinent part:

 
An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, . . . and shall recover the damages by him sustained and the cost of suit by reason of the failure of said automobile manufacturer from and after August 8, 1956 to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer: Provided, That in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith.

 A bench trial was held on twelve non-consecutive days between January 12, 1977 and February 23, 1977. The court now finds that plaintiff should prevail on its claim that defendants violated 15 U.S.C. § 1222. Damages are awarded in the sum of $36,840.

 Findings of Fact on Liability

 Martin Schlanger is the president of Martin Motors and took over the operation from his father in 1963 at age 25. At that time the business of Martin Motors was the sale of used cars. Since then the company has entered into numerous new car franchises. In January 1964 Martin Motors began its formal relationship with Saab by signing a Dealer's Selling Agreement (DSA) with Saab-America on January 1, 1964 for the sale of Saabs in the Bronx at 766 Southern Boulevard. On November 8, 1967 Martin Motors and Saab-America signed a DSA for a franchise in the Bronx and for one in Manhattan at 1274 Second Avenue. Subsequent DSA's were signed for these two franchises in 1969. Martin Motors was the only Saab dealer in the Bronx and Manhattan. On December 16, 1970 a DSA was signed for 1274 Second Avenue.

 The substance of plaintiff's complaint is that its Manhattan and Bronx franchises were either unlawfully terminated by defendants or not renewed by them in bad faith.

 Although Martin Motors maintained a separate location in the Bronx and in Manhattan for the service of the new cars which it sold, Saab-America had never required separate franchises for these service facilities. It required franchise agreements only for those two locations where the cars were actually sold. Despite the fact that Martin Motors moved its facilities in the Bronx to 1965 Jerome Avenue with Saab-America's knowledge and consent and its service facility in Manhattan to 406 East 91st Street, the terms of the DSA's never varied.

 In late 1971 Martin Motors again moved its Manhattan service facility while keeping its location at 1274 Second Avenue for the sale of new Saabs. With the consent of all franchisors of Martin Motors, including Saab-America, plaintiff opened its new facility at 700 11th Avenue (11th Avenue) on January 4, 1972. It sold other brands of new automobiles at 11th Avenue, but it sold no Saabs there. It used that location for the storage and service of Saab vehicles and the sale of Saab parts.

 The lease for 11th Avenue was signed on November 13, 1971. Shortly thereafter, Martin Motors and Saab-America entered into discussions as to whether Saab would be interested in another Manhattan franchise. *fn2" Plaintiff would benefit because in addition to adding an additional sales outlet in Manhattan, plaintiff could obtain additional advertising subsidies from Saab-America.

 As a condition for the new franchise, Saab-America demanded that plaintiff order 30 Saab vehicles. This number was finally set at 21 by both parties, but plaintiff still objected to the "mix" of cars which Saab demanded that it take. Many of these cars were 1971 models which admittedly had defects giving rise to many mechanical problems. Saab's goal was to shift the burden of selling these undesirable automobiles from itself to Martin Motors.

 By May 1972 the parties had still not renewed the franchises in Manhattan and the Bronx. Saab's position in May 1972 was essentially that, as a condition for the renewal of these two franchises, Martin Motors must apply for a new 11th Avenue franchise and accompany this with an order for Saab's predetermined "mix" of 21 automobiles.

 Martin Motors did order 21 cars as agreed but steadfastly refused to order the "mix" which was demanded by Saab-America. Relations broke down over this issue. By letter dated June 29, 1972 from W. Donald Carmack, Vice President of Sales for Saab-America, Martin Motors was denied a new franchise for 11th Avenue because it refused to agree to order the 21 cars designated by Saab-America. On June 30, 1972 Martin Motors received a letter from J. J. Upham, President of Saab-America, informing plaintiff that its DSA for the Bronx and Manhattan would not be renewed "when it terminates on September 30, 1972." Upham's subsequent letter on July 10, 1972 superseded the June 30 one and informed Martin Motors that its DSA had expired on September 30, 1971.

 Defendants claim that plaintiff's franchise was terminated because plaintiff's sales of new Saabs had fallen drastically from the previous year and, among other things, plaintiff allowed its inventory of spare Saab parts to fall well below acceptable levels. The reason for this lackadaisical attitude, claims defendants, is that plaintiff was disgruntled over Saab-America's new policy of refusing to pay plaintiff annual subsidies to compensate plaintiff for doing business in the high cost metropolitan area. These subsidies, of admittedly questionable legality, ranged from $35,000 to $85,000 per year.

 The court finds that Martin Motors' franchises for the Bronx and Manhattan were terminated because of its refusal to purchase the mix of 21 cars designated by Saab-America. In 1971 plaintiff sold the most Saabs in his "district" and "region" and ranked in the first ten dealers nationally with respect to sales volume. 1971 was also a record year for plaintiff for new Saab sales. Although sales did falter in the first half of 1972, the reason for this was doubtless due to the continuing dispute over Saab-America's demand that Martin Motors buy the specified "mix" of cars. Martin Motors nevertheless sold 55 cars in the first half of 1972.

 The court finds that the "poor sales" rationale is a subterfuge for the real reason for cancellation and refusal to renew. There were numerous letters from Saab-America in the first half of 1972 relating to the 11th Avenue location and its demand that plaintiff purchase a "mix" of Saabs. Not one letter referred to plaintiff's alleged poor sales performance. Not a single letter urged plaintiff to improve its sales. Not a single letter warned plaintiff that unless its performance improved, its franchises would be terminated. If its poor sales and poor inventory control were the reason for the franchise termination, there would have (or at least should have) been a clear record of this fact in writing prior to the termination and, if not, by proof at trial.

 Conclusions of Law on Liability

 Both Saab-America and Saab-Sweden maintain that the court need not reach the question of whether the facts found above would render them liable under the Act since, for reasons unique to each defendant, the action must be dismissed. Saab-America argues that it is neither a "manufacturer" of automobiles, nor is it "under the control" of a manufacturer. 15 U.S.C. § 1221(a). Saab-Sweden argues that Saab-America, and not itself, entered into a franchise agreement with plaintiff. Since Saab-Sweden was not a party to the franchise, it could not have violated the act by terminating or failing to renew that franchise.

 On July 30, 1974, before any testimony had been taken in the case, the court rendered an opinion denying Saab-Sweden's motion to dismiss for lack of personal jurisdiction. The court held that based on the facts available to it at that time, Saab-Sweden was "transacting business" in New York through its agent, Saab-America. This was sufficient to establish personal jurisdiction under N.Y.C.P.L.R. § 302(a)(1). It followed that there was jurisdiction under the Act, 15 U.S.C. § 1222, which reads, in pertinent part:

 
An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found or has an agent . . .

 The court now reaffirms its holding of July 30, 1974.

 The jurisdictional facts may be summarized: Saab-America is a wholly owned subsidiary of Saab-Sweden. The business of Saab-America is to import Saab automobiles and distribute them to franchises in the United States. Saab-America exercises day to day supervision of these franchises in order to assure that they meet Saab's standards. There was no evidence that Saab-Sweden was involved in importing its products to the United States, thus Saab-America performed this vital function for its parent company. Without Saab-America, Saab-Sweden would have had to import these automobiles itself.

 Saab-Sweden maintained a general supervisory role over the United States operations of its subsidiary. It sent representatives here to inspect franchise facilities and to recommend improvements required to maintain Saab's standards of service. Representatives from Saab-Sweden trained plaintiff's personnel. Saab-Sweden invited franchisees to tour its Swedish manufacturing facilities; Martin Schlanger did travel to Sweden on at least one occasion and other personnel of plaintiff went there on numerous other occasions.

 The facts in this case are strikingly similar to those in Sunrise Toyota, Ltd. v. Toyota Motor Co., Ltd., 55 F.R.D. 519 (S.D.N.Y. 1972). In Sunrise, Judge Lasker held that Toyota was "doing business" in New York through its importing and distributing agent in the United States. This finding of agency was sufficient to establish jurisdiction under 15 U.S.C. § 1222. See also Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556 (2d Cir. 1970).

 Saab-America is the agent of Saab-Sweden. As such, it is a "manufacturer" under 15 U.S.C. § 1221(a) and is liable under 15 U.S.C. § 1222. Saab-Sweden is also liable under the latter section since it transacts business in New York through its agent.

 An extended discussion is not necessary to demonstrate that defendants have violated the Act and are liable to plaintiff for damages. The court has found that the franchise was either not renewed or terminated because plaintiff refused to buy outdated model cars and cars which suffered from a history of mechanical problems. These are precisely those kinds of abuses which Congress attempted to eliminate by passing the Act. David R. McGeorge Car Co., Inc. v. Leyland Motor Sales, Inc., 504 F.2d 52, 56 (4th Cir. 1974), cert. denied, 420 U.S. 992, 43 L. Ed. 2d 674, 95 S. Ct. 1430 (1975); American Motors Sales Corporation v. Semke, 384 F.2d 192, 197 (10th Cir. 1967); Volkswagen Interamericana, S.A. v. Rohlsen, 360 F.2d 437, 442 (1st Cir.), cert. denied 385 U.S. 919, 17 L. Ed. 2d 143, 87 S. Ct. 230 (1966) ("particularly suspect under the act are conditions which benefit only, or primarily, the manufacturer . . ." - such as requiring the dealer to buy unwanted automobiles); Woodard v. General Motors Corporation, 298 F.2d 121, 127-28 (5th Cir. 1962), cert. denied 369 U.S. 887, 8 L. Ed. 2d 288, 82 S. Ct. 1161 (1962).

 It is not necessary for the court to rule on any of plaintiff's other eight causes of action. All but three pray for the identical amount of damages which plaintiff argues was caused by defendants' breach of the Dealers' Day in Court Act. Presumably, the measure of damages would be precisely the same for each of these causes of action. Plaintiff's Fourth cause of action asks for treble damages for violation of the antitrust laws. That claim has been abandoned since no mention is made of any antitrust statutes in plaintiff's post-trial brief. Plaintiff's Eighth cause of action prays for punitive damages based on defendants' fraud. Plaintiff has not sustained his burden of proving fraud. Finally, the Ninth cause of action is moot since it prays for an injunction pending the determination of this action.

 Findings of Fact and Conclusions of Law on Damages

 Plaintiff's complaint prays for damages in the sum of $15,030,800. This claim has been scaled down after trial; *fn3" a total of $8,250,000 is requested in plaintiff's proposed findings of fact. In addition, plaintiff also asks for an award of attorney's fees pursuant to 15 U.S.C. § 1222.

 The claimed damage figure is arrived at as follows: The termination of the Saab franchise cost plaintiff lost profits of $50,000 for lost sales of new Saabs; $20,000 for lost sales of used automobiles; $60,000 for lost sales of parts; $120,000 in lost labor charges. The sum of these individual losses is $250,000. Plaintiff claims that it would have retained the Saab franchise for Martin Schlanger's lifetime - which was an expected 33 more years at the time of termination. Thus, $250,000 lost profits for 33 years equals $8,250,000.

 The court rejects this figure and awards damages in the ...


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