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OLD COUNTRY TOYOTA CORP. v. TOYOTA MOTOR DISTRIBS.

March 27, 1997

OLD COUNTRY TOYOTA CORP. and JOHN S. BUCALO, JR., Plaintiffs, against TOYOTA MOTOR DISTRIBUTORS, INC, and TOYOTA MOTOR SALES, U.S.A., INC., Defendants.


The opinion of the court was delivered by: PLATT

 PLATT, District Judge.

 Defendants TOYOTA MOTOR DISTRIBUTORS, INC. and TOYOTA MOTOR SALES, U.S.A., INC. (collectively "Toyota") move for summary judgment pursuant to Federal Rule of Civil Procedure 56. Toyota argues that three of the four causes of action remaining in plaintiffs' OLD COUNTRY TOYOTA CORP. ("Old Country") and JOHN BUCALO's Second Amended Complaint are barred by the applicable statute of limitations and that plaintiffs' fourth cause of action is barred by the statute of frauds.

 BACKGROUND

 Old Country, a corporation of which Bucalo was vice president and manager, was a franchise dealer of Toyota motor vehicles. Bucalo and others in his family owned all of Old Country's stock until the company sold its assets to John Staluppi on 2 October 1989.

 A Toyota Dealer Sales and Services Agreement ("Dealer Agreement") governed Old Country's relationship with Toyota. Pursuant to the Dealer Agreement, Toyota sold motor vehicles to Old Country for re-sale to the general public.

 Plaintiffs' first, second, and fifth causes of action allege that Toyota breached the Dealer Agreement by failing to allocate vehicles to Old Country in accordance with the terms of the Agreement. Any such breaches would have taken place prior to the 2 October 1989 sale to Staluppi. Plaintiffs also assert a right to have received a reasonable quantity of vehicles under New York's Franchised Motor Vehicle Dealer Act. Veh. & Traf. L. §§ 460-72. Plaintiffs' sixth cause of action alleges that Toyota reneged on an oral agreement entered into on 28 September 1989 to allow Bucalo to become part of the new dealership as a shareholder and general manager upon completion of the sale to Staluppi.

 Toyota argues that plaintiffs' claims relating to the Dealer Agreement are barred by the four year statute of limitations applicable to sale of goods contracts under the Uniform Commercial Code ("UCC"). UCC § 2-725. Toyota asserts that, in addition to being time barred, Bucalo's claim for breach of the alleged oral agreement is barred by the UCC's statute of frauds. UCC § 2-201(1).

 DISCUSSION

 A. Breach of the Dealer Agreement

 Federal courts sitting in diversity are required to follow the statute of limitations rules of the forum state, Guaranty Trust Co. v. York, 326 U.S. 99, 110, 89 L. Ed. 2079, 65 S. Ct. 1464 (1945), in this case New York.

 Given a sufficient factual record, a district judge properly may determine as a matter of law whether an agreement falls under the UCC. Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 742 (2d Cir. 1979). A contract is one for "'service' rather than 'sales' when 'service predominates,' and the sale of items is 'incidental.'" Triangle, 604 F.2d at 742 (citation omitted). A contract must be considered one for sales when services are "'merely incidental or collateral to the sale of goods.'" Id. at 743 (citation omitted).

 Though to the Court's mind whether a dealership agreement properly falls under the UCC presents a difficult question, "New York courts explicitly have ruled that [the UCC] applies to a dealership agreement." Wallach Marine Corp. v. Donzi Marine Corp., 675 F. Supp. 838, 840 (S.D.N.Y. 1987) (Sweet, J.) (citing Crabtree Automotive, Inc. v. BMW of N. Am., 105 A.D.2d 825, 482 N.Y.S.2d 28, 29 (App. Div. 1984) (holding oral agreement to approve sale of BMW dealership void under UCC); Swerdloff v. Mobil Oil Corp., 74 A.D.2d 258, 427 N.Y.S.2d 266, 267 (App. Div. 1980) (holding oral promise to grant dealership void under UCC)). Though neither cited case analyzed the terms of the agreements at issue, the policy impetus behind Judge Sweet's holding is compelling: "since franchising presently accounts for at least twenty percent of all retail business," it would be "anomalous" for ongoing franchise sales agreements not to be covered by the UCC. Wallach Marine, 675 F. Supp. at 840 (citations omitted) (holding oral franchise agreement unenforceable under UCC Statute of Frauds). Indeed, the meaning of "goods" under the UCC must be given broad scope "so as to carry out the underlying purpose of the Code of achieving uniformity in commercial transactions." Coca-Cola Bottling Co. v. Coca-Cola Co., 696 F. Supp. 57, 85 (D. Del. 1988), aff'd, 988 F.2d 386 (3d Cir.), cert. denied, 510 U.S. 908, 126 L. Ed. 2d 239, 114 S. Ct. 289 (1993). Consistent with that purpose, the Appellate Division has concluded that the granting of a franchise, as well as the franchisor's consent to the transfer of a franchise, are sales agreements covered by the UCC. Crabtree, 482 N.Y.S.2d at 826.

 Courts "in virtually every jurisdiction that have addressed this issue have concluded" that dealership agreements are "predominantly for the sale of goods." American Suzuki Motor Corp. v. Bill Kummer, Inc., 65 F.3d 1381, 1386 (7th Cir. 1955); see also Paulson, Inc. v. Bromar, Inc., 775 F. Supp. 1329, 1333 (D. Hawaii 1991) (finding that sixteen jurisdictions have determined that the UCC applies to distributorship agreements). Notwithstanding such conclusions, this Court believes that, given their variety, the prudent course is to analyze the facts and terms peculiar to each agreement to determine whether it falls under the UCC. The Second Circuit's approach in a related context supports this conclusion. See North Am. Leisure Corp. v. A & B Duplicators, Ltd., 468 F.2d 695, 697-98 (2d Cir. 1972) (analyzing surrounding facts to determine that, in "essence," oral manufacturing agreement analogous to publishing agreement and thus not "sales" contract). See also Wagstaff v. Protective Apparel Corp. of Am., Inc., 760 F.2d 1074, 1076-77 (10th Cir. 1985) (analyzing facts to conclude distributorship agreement not "sale of goods" contract); Wells v. 10-X Mfg. Co., 609 F.2d 248, 254-55 (6th Cir. 1979) (finding manufacturing agreement not sales contract based on ...


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