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AUTO SUNROOF OF LARCHMONT, INC. v. AMERICAN SUNROO

July 26, 1986

AUTO SUNROOF OF LARCHMONT, INC., Plaintiff, against AMERICAN SUNROOF CORPORATION, AUTO SUNROOF, INC., EASTERN SUN AUTO TOP, Defendants.


The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, D.J.

Plaintiff Auto Sunroof of Larchmont, Inc. (ASL) installs sunroofs in cars as a distributor for defendant American Sunroof Corporation (ASC), a sunroof manufacturer. In settlement of litigation concerning their 1977 franchise agreement, ASL and ASC on January 6, 1982 entered into a "sales agreement" that limited ASC's right to contract with new distributors in a territory consisting of several New York and New Jersey counties -- a territory assigned to ASL. After entering the agreement, ASC contracted with two new dealers in the territory, Auto Sunroof, Inc. (Auto Sunroof) and Eastern Sun Auto Top (Eastern Sun). Plaintiff, claiming ASC's actions violated the sales agreement, commenced this action against ASC, seeking an injunction against further violations, as well as damages for breach of contract, interference with future business relationships, and prima facie tort. ASL's complaint also asserts claims against the new distributors, Eastern Sun and Auto Sunroof, seeking damages for tortious interference with its contractual relationship with ASC.

 After ASL filed suit, defendant ASC notified plaintiff that it would contract with a third new distributor, in Union County, New Jersey, unless ASL exercised an option to establish a facility there. ASL moves under Fed. R. Civ. P. 65 that ASC be preliminarily enjoined from contracting for the establishment of a new facility in Union County. Eastern Sun and Auto Sunroof move under Fed. R. Civ. P. 12(b)(2) for dismissal of the claims against them for lack of in personam jurisdiction. ASC and Eastern Sun also move for a transfer of venue to New Jersey pursuant to 28 U.S.C. § 1404(a).

 ASL'S MOTION FOR A PRELIMINARY INJUNCTION

 Under its sales agreement with ASL, ASC agreed not to contract for the establishment of any new retail sales and servicing facilities in seven New Jersey and six New York counties. This commitment was, however, subject to the exception that ASC could establish additional dealerships if it determined in its "honest business judgment" that ASL's market penetration in the territory was inadequate, and if it first gave ASL written notice of its intention to establish such additional facilities and offered ASL the option to own and operate the facilities.

 In mid-1985, at a cost of $ 1,500,000 plaintiff opened a new plant and facility in New Rochelle, New York, to provide efficient service within its territory. Plaintiff alleges that the new facility is running efficiently and can service the actual and foreseeable needs of the car dealers in the territory, without another new facility. ASC, however, contends otherwise. In a letter dated March 21, 1986, ASC notified ASL of its intention to establish a new facility in Linden, New Jersey, located in Union County, a part of plaintiff's territory. The letter gave ASL 90 days to decide whether it wanted to open a facility in Linden, a deadline later extended to August 2, 1986.

 To date, ASL has not exercised its option; instead, it seeks a preliminary injunction preventing ASC from establishing any new installation facility in Union County. ASL in essence asserts that ASC's March 21, 1986 letter is a retaliatory measure against ASL for commencing its suit and that ASC did not exercise honest business judgment in concluding that an additional facility is needed. ASL states that it does not have the finances to o pen a new facility in Linden and that despite ASC's survey indicating that it has not fully exploited its market, it is fully capable of serving the area from its New Rochelle facility. Apart from these allegations, however, plaintiff has offered no evidence to sustain its contention that ASC did not exercise its honest business judgment in determining that market penetration in the territory is inadequate.

 Under the law of this circuit, a preliminary injunction may be granted only when "the moving party demonstrates (1) irreparable harm and (2) either (a) a probability of success on the merits or (b) sufficiently serious questions going to the merits to make them fair grounds for litigation and a balance of hardships tipping decidedly in the moving party's favor." *fn1"

 In arguing that it faces irreparable harm, ASL claims that ASC's opening of a new Linden facility would harm it by causing it to lose sunroof customers, lose sales of incidental products to those customers, lose referral sales, and lose the ability to serve customers in the Linden area in an efficient manner. This harm would be irreparable, it argues, because the exact amount of loss would be incalculable and because it would ultimately put ASL out of business.

 Plaintiff, however, has offered no proof that it will be put out of business. Instead of presenting concrete data on how much of its business is from Linden and how close it already is to business failure, plaintiff offers only the self-serving statement of its President that its business will collapse. With nothing more than this statement, plaintiff's claim is speculative.

 Additionally, the cases relied upon by plaintiff in arguing that it will suffer irreparable harm are readily distinguishable from the instant case. In both Interphoto Corp. v. Minolta, Corp.2 and Jacobson & Co., Inc. v. Armstrong Cork Co.,3 plaintiffs were terminated distributors who alleged that their inability to sell defendants' products would deprive them of the full line of goods needed to satisfy their current customers. In Armstrong, plaintiff had outstanding contractual obligations to provide defendant's products and would have been deprived of 80% of the goods it usually stocked. Cut off from their suppliers, plaintiffs would have lost customers to competitors who were able to offer the defendants' goods. ASC, however, has not refused to supply ASL with sunroofs; indeed, it has offered ASL the chance to open a new facility in New Linden. In light of these facts and defendant's contention that it needs a distributor in Linden to supply customers that plaintiff has failed to attract, the possibility that plaintiff will lose customers is much more uncertain than it was in Minolta or Armstrong. Indeed, plaintiff conceivably might lose no sales at all.

 Moreover, plaintiff fails to prove that any lost sales would not be compensable in money damages. On the contrary, defendant's claimed ability to project sunroof sales in plaintiff's territory suggests that plaintiff's lost sales could be calculated. Incidental sales could be estimated according to the ratio between plaintiff's sunroof sales and incidental sales in recent years. With regard to referral sales, plaintiff has adduced no evidence that it can expect any referrals simply by virtue of doing business with customers in Linden. The harm of lost referrals, while perhaps difficult to quantify, is by the same token too speculative to support imposition of a preliminary injunction.

 ASL has also failed to bear its burden of proving that it is likely to succeed on the merits of its claim that ASC's contracting with a new Linden distributor would violate the sales agreement. *fn4" At the outset, the parties have a sharp dispute over whether the sales agreement, which restricts ASC's establishment of "retail" dealerships, even applies to the establishment of the Linden facility, which would serve auto dealers. The parties dispute whether a purchase by an auto dealer is a "retail" transaction. Even assuming ASL can clear this initial hurdle, however, it has not established a likelihood of success. Given ASC's March 21, 1986 letter, ASL cannot claim it has not been notified of ASC's intent to set up a franchise or that AC has failed to offer it the Linden location.

 ASL's remaining argument on the merits is that ASC seeks to establish the Linden franchise to retaliate for ASL's lawsuit and thus did not exercise "honest business judgment" in concluding that ASL failed to penetrate its market adequately. ASC effectively refutes this allegation in its affidavits. ASC states that it began considering establishing a Linden franchise in 1985 and decided to do so in January 1986, well before ASL filed its complaint. ASC also states that it concluded ASL's market penetration was inadequate based on 1) its assessment of the number of sunroof sales it could expect given the population in the area, 2) its receipt of numerous inquiries from persons wanting to become ASC dealers in the area, 3) the expressed dissatisfaction of northern New Jersey dealers with sending their cars to plaintiff's New Rochelle facility, and 4) evidence of delays in installation at ASL's facility. Although ASL ...


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