Argued October 6, 2014.
[Copyrighted Material Omitted]
The plaintiff, a motor vehicle dealer, appeals from a July 13, 2012, order granting summary judgment to the defendant, a motor vehicle manufacturer, and a September 30, 2013, final judgment denying the plaintiff's two remaining claims for injunctive relief, entered in the United States District Court for the Southern District of New York (Alvin K. Hellerstein, Judge). The plaintiff's contract and New York Dealer Act claims arise principally out of a dispute over the defendant's performance standards, vehicle allocation system, and alleged unlawful modification of its franchise agreement with the plaintiff. We conclude that New York state law is insufficiently developed for us to ascertain its proper interpretation in the context of several issues raised on this appeal, and that questions as to what the applicable laws require should therefore be certified to the New York Court of Appeals. We further conclude that the district court did not err in dismissing the plaintiff's vehicle allocation claim, denying the plaintiff's request for attorney's fees, or dismissing the defendant's counterclaim for rescission.
We therefore AFFIRM in part and CERTIFY the remaining questions to the New York Court of Appeals.
RUSSELL P. MCRORY, Arent Fox LLP, New York, NY, for Plaintiff--Appellant-Cross-Appellee.
JAMES C. MCGRATH, Seyfarth Shaw LLP, (Christina Chan, Bingham McCutchen LLP, on the brief), Boston, MA, for Defendant--Appellee-Cross-Appellant.
Before: SACK, LIVINGSTON, and LOHIER, Circuit Judges.
Sack, Circuit Judge :
This appeal requires us to address, apparently for the first time, several provisions contained in New York's Franchised Motor Vehicle Dealer Act (the " Dealer Act" ), codified at New York Vehicle and Traffic Law sections 460 - 473. The plaintiff, Beck Chevrolet Co., Inc., is the proprietor of a Chevrolet dealership of the same name (the corporation and dealership are referred to hereinafter collectively as " Beck." ). Beck brought suit against its franchisor, General Motors, LLC (" GM" ), for claims arising under the Dealer Act, and state contract law claims, for imposition of unfair and unreasonable performance standards, unfair modification of the franchise agreement, and refusal to deliver vehicles. The district court (Alvin K. Hellerstein, Judge ), granted GM's motion for summary judgment with respect to the claims in Beck's first amended complaint, but granted it leave to assert two claims for injunctive and declaratory relief under the Dealer Act, sections 463(2)(c) and (gg). Following a bench trial, the district court dismissed the second amended complaint and GM's counterclaim for rescission of the franchise agreement. It also denied each party's application for attorney's fees.
Several of the issues we must consider in order to resolve this appeal require that we address unsettled questions of New York law. Beck challenges the district court's rulings that GM's performance metrics are neither unfair nor unreasonable and that GM's expansion of Beck's sales area did not constitute a " modification" of its Franchise Agreement under section 463 of the Dealer Act. We conclude that New York state law is insufficiently developed in these areas to enable us to predict with confidence how the New York Court of Appeals would resolve these questions. We therefore certify to the Court of Appeals two questions concerning the application of the Dealer Act. We affirm the district court's dismissal of Beck's claims for attorney's fees and unfair allocation of vehicles, and GM's counterclaim for rescission of the Participation Agreement.
Beck, located in Yonkers, New York, is a retail dealer in Chevrolet automobiles. It is operated under a set of franchise agreements entered into with the defendant, GM, which is a limited liability company whose sole member is a citizen of Delaware with its principal place of business in Michigan.
In 2009, General Motors Corp. (" Old GM" ) entered into widely reported bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. In the course of those proceedings, Old GM, the defendant GM's predecessor corporation, sought to shrink its dealer network in an effort to reduce competition among retail dealers in General Motors automobiles and improve the profitability of the remaining individual franchises.
As part of this effort, Old GM offered two types of agreements to its franchisees. Some were offered a Participation Agreement, under which their franchises would continue, while others were offered a Wind-Down Agreement, under which their
franchises would be terminated in exchange for cash payments to them. Beck initially executed a Wind-Down Agreement in which it agreed to terminate its operations in or before October 2010 in exchange for a payment to Beck of approximately $390,000.
Old GM subsequently sold substantially all of its assets and assigned its interest in all its Participation and Wind-Down Agreements with franchisees to GM, the defendant in this case. Beck asked GM to reconsider Old GM's decision to terminate the franchise. GM agreed to offer Beck a Participation Agreement in place of the Wind-Down Agreement. The parties executed that agreement in September 2009.
From that point on, two contracts governed Beck's relationship with GM: a Dealer Sales and Services Agreement (the " Dealer Agreement" ), which contains standard provisions that set out the basic terms of the relationship between GM and any dealer franchise, and a September 2009 Participation Agreement, which further modified and supplemented the basic Dealer Agreement. Together, these agreements govern several issues central to this dispute, including Beck's primary geographic area of responsibility and the performance standards to which it is subject. The terms of these agreements are all subject to the Dealer Act, which also contains certain mandatory provisions governing the manufacturer-franchisee relationship.
Performance Monitoring Formula
The primary issue on appeal relates to GM's use of a Retail Sales Index (" RSI" ) to measure its dealers' sales performance. In arriving at the RSI value for a particular dealership, GM assigns each dealer an " Area of Primary Responsibility" and, in some instances, an " Area of Geographic Sales and Service Advantage" (" AGSSA" ). An Area of Primary Responsibility is a geographic area in which a dealer is expected to sell GM automobiles and otherwise represent GM. Urban Areas of Primary Responsibility, such as the part of Westchester County, New York, in which Beck is located, are typically served by more than one GM dealer. GM accordingly subdivides those areas into AGSSAs, for each of which a single dealer is responsible. Both the Areas of Primary Responsibility and the AGSSAs are composed of census tracts drawn by the U.S. Census Bureau. AGSSAs and Areas of Primary Responsibility are non-exclusive -- dealers are allowed to sell and market vehicles to consumers outside of their own AGSSAs. The function of these territory markers is not to protect dealers from competition but to provide a benchmark against which GM can measure dealers' sales.
In determining an RSI for a Chevrolet dealer such as Beck, GM divides the dealer's actual retail sales by its expected sales, which are calculated as described below. Expressed as a formula:
Dealer's Total Sales/Expected Sales Based on State Average x 100 = RSI Dealers are required to attain an RSI of at least 100, which GM contends is an " average" score. " Total sales" measures all of a particular dealer's actual sales in a particular period of time. The " expected sales" metric is based not on the raw state average among dealers, but on an " adjusted" statewide average market share for Chevrolet products in the dealer's AGSSA.
GM calculates each dealer's expected sales by first taking into account all new motor vehicle registrations in the United States. It then compiles the registrations by census tract and subdivides them into " segments" of the motor vehicle market, based on types of automobiles. To choose two examples, small sport utility vehicles are a segment, as are mid-size sedans.
GM adjusts the expected sales figure for statewide and local characteristics. First, it takes into account Chevrolet's market share within the segments in which it competes on a statewide basis. For example, because Chevrolet does not compete in the luxury sedan segment of the market, that segment is excluded when calculating Chevrolet's statewide market share. Chevrolet does compete in the markets for mid-size sedans and pickup trucks, however. If, hypothetically, there are 10,000 mid-size sedans sold in New York State and 600 of those are Chevrolets, Chevrolet will have a 6 percent market share in New York State among mid-size sedans. If there are 20,000 pickup trucks sold in New York State, and 5,000 of those are Chevrolets, Chevrolet will have a 25 percent market share in New York State among pickup trucks.
Second, the expected sales figure takes into account the relative popularity of a particular segment in the dealer's AGSSA. In other words, the market-share percentages described above are used to calculate each dealer's expected sales. If Chevrolet is a particularly strong statewide competitor in the market for a particular type of car -- pickup trucks, for example -- but the market for pickup trucks in a particular (likely urban or suburban) AGSSA is relatively small, then the dealership's expected sales targets for pickup trucks would be relatively low. For example, a Chevrolet dealer in an AGSSA in which only four total pickup trucks are purchased in a given year would be expected to sell only one Chevrolet pickup truck, while a dealer in an AGSSA in which 100 pickup trucks are purchased in a given year would be expected to sell twenty-five. GM asserts
that these segment-based adjustments reduced Beck's targets by more than twenty-five percent from the unadjusted state average. Beck does not contend otherwise.
Local adjustments do not account for local brand popularity, however. For example, dealers like Beck operating in the southern part of the state (" downstate" ) do not receive a downward adjustment in sales expectations even though Chevrolet, as a brand, is more popular in upstate markets than in Yonkers, Beck's location, and elsewhere in Westchester County and some nearby suburban counties.
Beck's Performance under the Current RSI Formula
The Dealer Agreement establishes the basic outlines of GM's performance evaluation process. Specifically, it provides that a dealer's RSI is " satisfactory" only if it is equal to or greater than 100. If the dealer's RSI is above 100 and in the top fifteen percent statewide, it is classified by GM as " superior."
If performance falls below satisfactory, GM is authorized by the Participation Agreement to take one or more remedial measures set forth in Article 13.2 of the Dealer Agreement. The ultimate step possible in this process is termination of the agreement on ninety days' prior written notice. The Participation Agreement further provides:
In addition to the [RSI, GM] will consider any other relevant factors in deciding whether to proceed under the provisions of Article 13.2 to address any failure by Dealer to adequately perform its sales responsibilities. [GM] will only pursue its rights under Article 13.2 to address any failure by Dealer to adequately perform its sales responsibilities if [GM] determines that Dealer has materially breached its sales performance obligations under this Dealer Agreement.
J.A. 157. According to GM, GM prefers not to terminate dealers who fall below target levels, and has remedial programs to help improve performance at those dealerships.
Beck's RSI was considerably lower than 100 in the years leading up to GM's 2009 bankruptcy reorganization. The Participation Agreement established a roadmap for improving Beck's performance in stages, requiring Beck to attain an RSI of 70 in 2010, 85 in 2011, and 100 in 2012. But Beck's RSI fell far short of these targets, remaining close to 50 in each year. GM ultimately waived the Participation Agreement's performance requirements for the 2010 calendar year, but began enforcing performance targets in 2011.
Beck asserts that many of its performance issues derived from its inability to obtain adequate inventory from GM. GM uses a vehicle allocation system called " turn and earn," through which a dealer's allotted inventory is calculated as a function of past sales. While Beck was operating under the Wind-Down Agreement, it was not permitted to place orders for new vehicle inventory with GM. According to Beck, Beck's depressed inventory caused sales to slow. Beck argues that as a result of this slowdown, it could not order adequate inventory under the " turn and earn" process even after it entered into the Participation Agreement which permitted it to order vehicles from GM.
In an effort to boost sales, GM instituted a " special vehicle allocation process" that was in effect from October 2010 through January 2011. The program was designed to allow dealers to order more vehicles during those four months than the " turn and earn" program would have permitted. Despite its depressed inventory in the months leading up to the program's launch, Beck objected to the program as a
" poison pill and recipe for disaster." Letter from Russell S. Geller, Vice President, Beck Chevrolet Co., Inc., to James W. Bunnell, General Manager--U.S. Sales operations, General Motors LLC (Oct. 11, 2010) (J.A. 185-86). The program, Beck asserted, would result " in the delivery of too many vehicles too quickly," and would overload Beck's facilities, imposing high additional costs. Id. The vehicles would be delivered in winter, an unpopular season for purchasing new cars in New York, and Beck would be unlikely to sell them in a timely fashion. Beck opted not to participate heavily in the allocation program, declining 661, or 87 ...