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William S. Gray, Auto Partners, LLC, Sunrise Automotive, LLC D/B/A v. Toyota Motor Sales

August 25, 2011

WILLIAM S. GRAY, AUTO PARTNERS, LLC, SUNRISE AUTOMOTIVE, LLC D/B/A SUNRISE TOYOTA & SUNRISE SCION, PLAINTIFFS,
v.
TOYOTA MOTOR SALES, U.S.A., INC., DEFENDANT.



The opinion of the court was delivered by: Seybert, District Judge:

MEMORANDUM AND ORDER

Plaintiffs William S. Gray ("Gray"), Auto Partners, LLC ("Auto Partners") and Sunrise Automotive, LLC ("Sunrise" and, collectively, "Plaintiffs") sued Toyota Motor Sales, USA, Inc. ("Defendant") and Toyota Motor Corp ("TMC"). Plaintiffs assert several state law claims, as well as claims under New York's Franchised Motor Vehicle Dealer Act (the "Dealer Act") and the federal Dealers' Day in Court Act, 15 U.S.C. 1221 et seq. (the "Day in Court Act"). Plaintiffs voluntarily dismissed their claims against TMC. Pending before the Court is Defendant's motion to dismiss. For the following reasons, that motion is granted and Plaintiffs shall file an Amended Complaint, if at all, within thirty days of this Order.

BACKGROUND

Sunrise is a franchised Toyota Dealer located in Oakdale, New York. (Compl. ¶ 4.) Pursuant to a Dealer Agreement between Sunrise and Defendant (the "Dealer Agreement"), Sunrise is operated by Auto Partners, a limited liability company managed by Gray. (Id. ¶ 16.) Plaintiffs do not elaborate on the ownership structure between Plaintiffs in the Complaint, but they assert in their motion papers that Auto Partners owned 99% of Sunrise and Gray owned the remaining 1%. Gray, in turn, also owned 95% of Auto Partners. (Pls. Opp. 16.)

Among other provisions, the Dealer Agreement contains a clause that prohibits Sunrise from transferring ownership without Defendant's written consent. (Chiappa Declaration, Ex. 1, Dealer Agreement Sec. VI.)*fn1 Such consent, the contract states, shall not be unreasonably withheld. (Id.) The Dealer Agreement illustrates some of the factors that would constitute reasonable reasons for the Defendant to withhold its consent:

DEALER agrees that factors which would make DISTRIBUTOR'S withholding of consent reasonable would include, without limitation, the failure of a new Owner or General Manager to meet DISTRIBUTOR'S standards with regard to financial capability, experience and success in the automobile dealership business. (Id.)

In 2006, Plaintiffs attempted to sell the Sunrise franchise to Group 1 Automotive, Inc. ("Group 1"). In October, Gray entered into a non-binding letter of intent with Group 1, pursuant to which Group 1 agreed to purchase Sunrise for: (i) the net value of Sunrise's assets; (ii) $17 million for Sunrise's goodwill; and (iii) the lesser of $15 million or the appraised value of the buildings and land on which Sunrise operated. In furtherance of the proposed sale, Group 1 (which already operated two Toyota dealerships) requested Defendant's consent to consummate the sale, but the Defendant refused, citing Group 1's unsatisfactory "consumer satisfaction index" ("CSI") score. As a result of Defendant's refusal, the Group 1 deal fell through. (Compl. ¶¶ 18-20.)

Plaintiffs maintain that the CSI score was merely a pretext for Defendant's refusal, but they do not elaborate on a possible ulterior motive. (Id. ¶ 21.)

In January 2007, Plaintiffs explored a second proposal to sell Sunrise, this time to Don Lia ("Lia"). In February, Gray, on behalf of Sunrise, entered into an Asset Purchase Agreement with Lia by which Lia agreed to purchase Sunrise's customer and service files, its goodwill and its trade name for approximately $16 million. Also in February, Gray, on behalf of Auto Partners, entered into an Agreement to Sell and Purchase with Lia, by which Lia agreed to buy the land and buildings for $15 million. (Id. ¶¶ 23-27.)

On or about May 4, 2007, Lia sought Defendant's consent for the proposed sale. Defendant did not respond within sixty days, and Gray's counsel reiterated the request for consent on July 11, 2007. Defendant never formally responded to either request, but a representative of Defendant "advised Lia that he should withdraw his application on the basis of an unsatisfactory CSI rating." (Id. ¶¶ 29-30.) As a result, on July 24, 2007, Gray sent Lia a letter terminating the proposed sale. (Id. ¶ 32)

A year later, Plaintiffs tried to sell Sunrise a third time. In May 2008, Gray, on behalf of Sunrise, entered into an Asset Purchase Agreement with an affiliate of Len Stoler, Inc. ("LSI"). LSI was able to obtain Defendant's consent to the proposed transfer, and it bought Sunrise for $24,250,000. (Id. ¶¶ 34-37.)

Plaintiffs thereafter commenced this suit, asserting essentially that Defendant unreasonably withheld its consent to the Group 1 and Lia sales and that this forced Plaintiffs to sell Sunrise to LSI for less than what Group 1 was willing to pay. They also claim that they are entitled to recover approximately $500,000 in brokers' commissions they incurred as a result of their multiple attempts to sell the dealership. (Id. ¶ 38.)

DISCUSSION

Plaintiffs assert eight claims: (1) breach of the Dealer Agreement; (2) breach of the implied covenant of good faith and fair dealing; (3) tortious interference with contract; (4) tortuous interference with a prospective economic advantage; (5) negligence; (6) fraud; (7) violation of the Dealer Act; and (8) violation of the Day in Court Act. For the reasons that follow, Defendant's motion to dismiss is granted. Plaintiffs may file an Amended Complaint in accordance with the discussion below.

I. The Motion to Dismiss

To survive a Rule 12(b)(6) motion, a plaintiff must plead sufficient factual allegations in the complaint to "state a claim [for] relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929, 949 (2007). The complaint does not need "detailed factual allegations," but it demands "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. In addition, the facts pleaded in the complaint "must be enough to raise a right to relief above the speculative level." Id. Determining whether a plaintiff has met his burden is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009). However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).

Additionally, under Federal Rule of Civil Procedure 9(b), claims sounding in fraud are subject to a heightened pleading requirement. Under this standard, plaintiffs must "allege facts that give rise to a strong inference of fraudulent intent." Cohen v. Cohen, __ F. Supp. 2d __, 2011 WL 1157283, at *7 (S.D.N.Y. Mar. ...


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