GM Corp Chevrolet v. New A.C. Chevrolet

Opinions of the United

2001 Decisions States Court of Appeals

for the Third Circuit

8-27-2001

GM Corp Chevrolet v. New A.C. Chevrolet

Precedential or Non-Precedential:

Docket 00-5251

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"GM Corp Chevrolet v. New A.C. Chevrolet" (2001). 2001 Decisions. Paper 195.

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Volume 1 of 2

Filed August 27, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-5251

GENERAL MOTORS CORPORATION

CHEVROLET MOTOR DIVISION

v.

THE NEW A.C. CHEVROLET, INC.

dba THE NEW A.C. CHEVROLET,

Appellant

On Appeal from the United States District Court

For the District of New Jersey

(D.C. Civil No. 98-cv-00112)

District Judge: Honorable Faith S. Hochberg

Argued: November 30, 2000

Before: BECKER, Chief Judge, RENDELL and

MAGILL,* Circuit Judges.

(Filed: August 27, 2001)

WILLIAM F. LANG, III (ARGUED)

MARTIN G. MARGOLIS, Esq.

THOMAS G. RUSSOMANO, Esq.

The Margolis Law Firm, P.A.

60 Pompton Avenue (Route #23)

Verona, New Jersey 07044

Counsel for Appellant

_________________________________________________________________

* Honorable Frank S. Magill, Senior Judge of the United States Court of

Appeals for the Eighth Circuit, sitting by designation.

LAWRENCE S. BUONOMO, ESQ.

GM Legal Staff

General Motors Corporation

3031 West Grand Boulevard

Detroit, MI 48232

DANIEL L. GOLDBERG, ESQ.

(ARGUED)

ALICIA L. DOWNEY

Bingham Dana LLP

150 Federal Street

Boston, MA 02110

LOIS H. GOODMAN, ESQ.

Carpenter, Bennett & Morrissey

100 Mulberry Street

Three Gateway Center

Newark, NJ 07102

Counsel for Appellee

OPINION OF THE COURT

BECKER, Chief Judge.

This is an extremely complicated motor vehicle dealer

franchise termination case marked by disputes over what is

known in the industry as "dualing," i.e., the acquisition by

an automobile franchisee of a franchise of a different

manufacturer. This case comes before us on appeal from a

series of orders entered by the District Court for the District

of New Jersey in a declaratory judgment action arising out

of a franchise termination. The plaintiff is General Motors

Corporation, Chevrolet Motor Division (GM), the franchisor.

In 1998, GM notified the defendant, New AC Chevrolet, Inc.

(New AC), a dealer in Jersey City, New Jersey, that its

franchise agreement would be terminated. As the basis for

its termination decision, GM pointed to New AC's insistence

on adding a "dualed" Volkswagen franchise to its dealership

business despite GM's repeated objections to such an

addition.

In its suit, GM sought a declaration that the proposed

termination was in compliance with the parties' dealer

2

agreement, which forbade the addition of other vehicle lines

without GM's prior written authorization; the federal

Automobile Dealers Day in Court Act (ADDCA), 15 U.S.C.

SS 1221-25; and New Jersey's Franchise Practices Act

(NJFPA), N.J. Stat. Ann. SS 56:10-1 to 56:10-15. In its

response, New AC asserted that the planned termination

was actually part of GM's predetermined design to remove

New AC as a Chevrolet franchisee, and to have another

dealer serve as its exclusive Chevrolet distributor in Jersey

City. Consequently, New AC filed a counterclaim, alleging

essentially that GM's decision to terminate New AC's

franchise, as well certain other of its actions toward New

AC, ran afoul of the expressed and implied terms of the

franchise agreement, the ADDCA, and the NJFPA.

Although New AC's appeal takes issue with the entire

series of orders entered by the District Court during the

two-year course of this litigation, New AC's most significant

challenges are made in connection with two orders--the

January 13, 1999 order dismissing inter alia Counts One

and Four of New AC's counterclaim on Fed. R. Civ. Pro.

12(b)(6) grounds, and the March 8, 2000 order granting

summary judgment in GM's favor on the ADDCA, NJFPA,

and state contract law claims, see General Motors Corp. v.

New A.C. Chevrolet, Inc., 91 F. Supp. 2d 733 (D.N.J. 2000).

We first take up New AC's challenge to the March 8, 2000

summary judgment order, for the issues raised in

connection with this challenge bear directly on the core of

the dispute between GM and New AC, and require us to

examine the nature of the relationship between an

automobile franchisor and franchisee. In pertinent part, the

March 8, 2000 order determined: (1) that there was no

genuine issue that New AC committed a material breach of

the franchise agreement by insisting on the operation of a

Volkswagen vehicle line on its dealership premises; and (2)

that GM possessed the "good cause" necessary for a lawful

franchise termination under S 56:10-5 of the NJFPA. See id.

at 738-39, 740-41.

With respect to New AC's challenges to the March 8,

2000 order, we first reject New AC's contention, stressed at

oral argument, that its addition of a Volkswagen line did

not constitute a breach of its franchise agreement with GM

3

because Volkswagen sales and service were offered at a

separate dealership location and facility. We do not think

the facts of this case support such a contention. We further

conclude that there is no genuine issue as to the

materiality of this breach. A breach is material if it will

deprive the injured party of the benefit that is justifiably

expected under the contract, and, in this case, GM's

justifiable expectation is best evidenced by the mutually

agreed upon provisions of the dealer agreement that

proscribe New AC from offering a "dualed" vehicle line

without GM's prior written authorization.

The most significant challenge that New AC raises in

connection with its appeal of the March 8, 2000 summary

judgment order, a contention also heavily emphasized at

oral argument, concerns S 56:10-5 of the NJFPA. As noted

above, this statutory provision supplements all private

franchise agreements in New Jersey by directing that

termination occur only if the franchisor possesses"good

cause." N.J. Stat. Ann. S 56:10-5. It defines "good cause" as

"failure by the franchisee to substantially comply with those

requirements imposed upon him by the franchise." Id.

Although S 56:10-5, by its terms, appears to define "good

cause" only by reference to the actions of the franchisee,

New AC argues that the franchisor must also act in good

faith in order to possess the "good cause" necessary for

termination under S 56:10-5. Because the District Court, in

its March 8, 2000 opinion, took the (contrary) position that

a franchisor's good faith was irrelevant to the"good cause"

inquiry, see General Motors Corp., 91 F. Supp. 2d at 740

n.10, New AC submits that the Court's decision should be

reversed.

We assume arguendo, as New AC would like us to do,

that under New Jersey franchise law, a franchisor's

motivation in effecting a franchisee's termination is relevant

to the "good cause" inquiry. Put another way, we assume

that a franchisor will not possess the "good cause" required

for termination by S 56:10-5 unless it also makes that

decision in good faith. Nonetheless, we conclude that New

AC has failed to furnish the record evidence necessary to

create a genuine issue that GM acted in bad faith (or with

an improper motive) in terminating New AC's Chevrolet

franchise.

4

New AC's argument for GM's bad faith centers primarily

on what we will call the "Project 2000" or"Plan 2000"

theory; the central aspect of this theory is the contention

that GM's decision to terminate New AC, ostensibly for its

"dualing" of a Volkswagen line, was part of its

predetermined decision to strip New AC of its Chevrolet

franchise, and to have another dealer serve as GM's

exclusive Chevrolet franchisee in Jersey City. Examining

the record evidence put forth by New AC in support of the

"Project 2000" theory, we do not think it suffices to create

a genuine issue as to GM's bad-faith motivation. Because

we conclude that New AC's "dualing" of a Volkswagen

franchise constituted a material breach of its dealer

agreement (and represented substantial noncompliance

with its franchise obligations), and because we find that

New AC failed to create a genuine issue as to GM's bad

faith, we will affirm the District Court's March 8, 2000

order in all respects.

We then turn to New AC's challenges to the January 13,

1999 dismissal order, which primarily require us to

construe the allegations that New AC set forth in its

counterclaim. Here, New AC's first objection is to the

District Court's dismissal of Count One of its counterclaim,

which alleges that GM violated the provisions of the

ADDCA. The ADDCA is a federal remedial statute, enacted

to redress the bargaining disparity between large

automobile manufacturers and local dealerships. The

ADDCA generally requires a manufacturer to act in"good

faith" in its relations with its dealers, see 15 U.S.C. S 1222,

and defines "good faith" narrowly as precluding "coercion,

intimidation, or threats of coercion or intimidation," id. at

S 1221(e).

In reviewing the District Court's Fed. R. Civ. Pro. 12(b)(6)

dismissal of New AC's ADDCA counterclaim, we begin by

clarifying the type of automobile manufacturer conduct that

constitutes coercion or intimidation. We have previously

stated that the type of coercion or intimidation rendered

actionable by the ADDCA occurs only when the

manufacturer makes a "wrongful demand which will result

in sanction if not complied with." Buono Sales, Inc. v.

Chrysler Motors Corp., 449 F.2d 715, 724 (3d Cir. 1971)

5

(internal quotations and citations omitted). We now explain

that while a manufacturer does not make a wrongful

demand if it merely insists that the dealer comply with a

reasonable obligation imposed by the franchise agreement,

a dealer can state a claim for relief under the ADDCA by

alleging that the manufacturer's reliance on those

objectively reasonable provisions is, in fact, motivated by a

pretextual, bad-faith reason.

Applying this standard to the facts as alleged in New AC's

counterclaim, we conclude that New AC adequately stated

a claim for relief under the ADDCA based on GM's approval

of the relocation of a competing Chevrolet franchisee, and

its decision to terminate New AC due to the latter's

"dualing" of a Volkswagen line. However, we do not think

that our conclusion necessitates setting aside the District

Court's dismissal of Count One of New AC's counterclaim,

as New AC was not prejudiced by the District Court's

erroneous dismissal of these claims. New AC had a full and

fair opportunity to discover and present evidence

supporting these claims to the District Court, either

because GM's declaratory judgment action presented a

mirror image of the claim which remained alive in the

litigation and was ultimately adjudicated by the District

Court, or because the claim was inextricably linked to New

AC's "Project 2000" theory of bad faith, with respect to

which New AC's record evidence failed to create a genuine

issue of material fact.

New AC also contests the District Court's dismissal of

Count Four of its counterclaim, which alleges inter alia that

GM's actions violated the implied duty of good faith and fair

dealing by predetermining the outcome of its management

review process, and by approving the relocation of a

competing Chevrolet franchisee. Examining the pertinent

allegations made in New AC's counterclaim, we first

conclude that New AC failed to make the factual allegations

necessary to support a claim that such an implied duty was

breached when GM predetermined the outcome of its

management review process. We then turn to the more

significant question of whether such a duty of good faith

even arises under Michigan law--the state law that the

parties agree is applicable to the resolution of this issue--in

6

connection with GM's decision to authorize the relocation of

a competing Chevrolet franchisee.

Under Michigan state contract law, "[w]here a party to a

contract makes the manner of its performance a matter of

its own discretion, the law does not hesitate to imply the

proviso that such discretion be exercised honestly and in

good faith." Burkhardt v. City Nat'l Bank of Detroit, 226

N.W.2d 678, 680 (Mich. Ct. App. 1975). We conclude that

the pertinent franchise agreement provision, which commits

such a relocation decision to the sole discretion of GM,

gives rise to an implied duty of good faith. Nonetheless, we

believe that the District Court's decision to the contrary

does not mandate reversal of the District Court's 12(b)(6)

dismissal, as New AC had a full and fair opportunity to

obtain and present evidence establishing GM's bad faith

but failed to do so adequately.

Aside from these principal issues, New AC brings a series

of less significant challenges to the other orders entered by

the District Court during the life span of this litigation. We

resolve these issues summarily, with brief commentary,

infra at note 25, and hold that none warrant reversal of any

of the District Court's orders. We thus affirm the decision

of the District Court in all respects.

I.

A. Factual Background

New AC is a New Jersey corporation operating as an

automobile dealer in Jersey City. GM is a Delaware

corporation engaged in the manufacture and distribution of

automobiles and automobile parts and accessories.

Chevrolet is a division of GM. New AC commenced business

as a Chevrolet franchisee in 1983. New AC's dealership was

then, and continues to be today, located at 3085 Kennedy

Boulevard in Jersey City. The present litigation is not the

first between GM and New AC; the two companies earlier

sparred over the relocation of a competing Chevrolet

franchise, the DiFeo Chevrolet dealership (DiFeo). Because

the events surrounding DiFeo's relocation are relevant to

certain issues on this appeal, we set forth the key facts.

7

In 1992, New AC and Bell Chevrolet were the only two

Chevrolet franchises located in Jersey City, and both had

dealerships situated along Kennedy Boulevard. In

November of 1992, DiFeo acquired Bell Chevrolet (one

month later, DiFeo itself was acquired by United Auto

Group, although it continued to operate under the DiFeo

name), and moved the dealership to Clendenny Avenue. In

1995, DiFeo sought to relocate its Chevrolet franchise yet

again, this time to a location on Route 440 in Jersey City,

and sought GM's permission for the move. Because Route

440 was apparently a more commercially attractive site, GM

approved the relocation, and informed New AC that the

DiFeo franchise would be moving to a location on Route

440. Concerned that DiFeo's relocation would damage its

dealership business, New AC challenged the move both at

the administrative level and before the Superior Court of

New Jersey.1 New AC did not prevail, either in the

administrative proceedings or in the Superior Court, see

New A.C. Chevrolet, Inc. v. Chevrolet Div. of Gen. Motors

Corp., 688 A.2d 116 (N.J. Super. Ct. App. Div. 1997), and

DiFeo's 1995 relocation to the Route 440 site was allowed

to proceed.

We turn now to the facts of the present litigation. At all

relevant times, the franchise relationship between GM and

New AC was governed by a series of standardized Chevrolet

"Dealer Sales and Service Agreements," which fix the rights

and obligations of franchisor GM and franchisee New AC,

and are renewable every five years. At the time of GM's

termination decision, the operative "Dealer Sales and

Service Agreement" was one that had become effective on

November 1, 1995 (Dealer Agreement). The specific

_________________________________________________________________

1. New AC's challenge was brought pursuant to the New Jersey Motor

Vehicle Franchise Act (NJMVFA), N.J. Stat. Ann.SS 56:10-16 to 56:10-

25, which provides a protest procedure by which an existing automobile

dealer can contest (and eventually enjoin) its franchisor's decision to

relocate a new dealer into the same market area, by demonstrating that

such a move would be "injurious" to the existing dealer and to the public

interest. See id. SS 56:10-18, 56:10-19. Such a protest is heard, in the

first instance, by the Motor Vehicle Franchise Committee, but the

Committee's final determination can be appealed to the Superior Court

of New Jersey.

8

provisions of the Dealer Agreement will be canvassed in

more extensive fashion below, as they become pertinent to

the analysis of this appeal. For present purposes, however,

the most important provision is Article 4.4.2 of the Dealer

Agreement, which requires the franchisee to obtain prior

written permission from GM before altering the location or

the use of its dealership premises, and identifies the

addition of a different vehicle line as an alteration covered

by this approval requirement: "No change in location or in

the use of Premises, including addition of any other vehicle

lines, will be made without Division's [i.e., GM's] prior

written authorization."

The events directly leading up to the present litigation

commenced when New AC decided to supplement its then-

existing dealership business by adding a Volkswagen line of

vehicles. In late December 1995, New AC submitted

applications for a franchise to Volkwagen of America, Inc.

(Volkswagen). Volkswagen approved New AC's request, and

on February 23, 1996, New AC signed a letter of intent with

Volkswagen agreeing to serve as an authorized Volkswagen

dealer in Jersey City.

About five weeks after executing the letter of intent, New

AC first informed GM, by letter, of its plans to operate a

Volkswagen franchise as part of its dealership business. In

response, GM requested that New AC supply further

information concerning the planned Volkswagen franchise,

and submit a proposed Location and Premises Addendum

which would identify the space at New AC's Kennedy

Boulevard dealership that would be allocated to GM uses

and the space that would allocated to Volkswagen uses.

Furthermore, GM specifically reminded New AC that Article

4.4.2 of the Dealer Agreement governs New AC's ability to

add new vehicle lines to its dealership business.

New AC replied about two weeks later, maintaining that

it planned to keep the physical space and personnel

devoted to Volkswagen sales and servicing separate and

distinct from the space and personnel responsible for GM

sales and service. In addition, New AC provided the

proposed Location and Premises Addendum. The proposed

Addendum represented that the total space at the Kennedy

Boulevard dealership then-assigned to GM use would be

9

decreased by 1,000 square feet, which would be re-

allocated to Volkswagen use. After reviewing the materials

furnished by New AC, GM denied New AC's request for the

addition of a Volkswagen line of vehicles. By way of

explanation, GM noted that its dealer strategy "generally

disfavors dualing of GM lines with the vehicle lines of

another manufacturer;" it also identified New AC's

deficiencies as a dealer in four areas: capitalization, sales

performance, customer satisfaction, and training, and

stated GM's concern that the addition of a Volkswagen line

would exacerbate these deficiencies.

New AC reacted to this denial by asking for non-binding

management review of the decision, in accordance with

GM's internal grievance procedure, as detailed in the GM

handbook entitled "Dispute Resolution Process for

Chevrolet, Pontiac, Oldsmobile or GMC Truck Dealers." GM

conducted the requested management review, but informed

New AC that its denial of the Volkswagen line addition

would stand. New AC then asked GM to reconsider and

represented that it had improved the deficiencies in its

capitalization, sales performance, customer satisfaction,

and training that GM had earlier observed. Again, GM stood

by its denial, stressing its general policy against"dualing of

GM lines with those of another manufacturer." Again, GM

pointed New AC to its obligations under Article 4.4.2 of the

Dealer Agreement, stating: "[P]lease be reminded that any

change to, or in the use of, a dealer's facility requires the

prior written approval of the division."

Despite GM's denials, New AC proceeded with its plans to

add a Volkswagen line of vehicles at the Kennedy Boulevard

dealership. GM officials learned that New AC had begun

operating a Volkswagen franchise around January 1997.

On January 15, 1997, Daniel Durkin, GM's Zone Manager

for the area including Jersey City, wrote to New AC

informing the franchisee that it was in material breach of

the Dealer Agreement due to its "addition of the

Volkswagen franchise without obtaining General Motors

written approval," as required under Article 4.4.2 of the

Dealer Agreement. Durkin warned New AC that "if this

serious situation is not satisfactorily resolved or corrected

within 30 days from your receipt of this letter, then

10

Chevrolet Motor Division may elect to terminate the Dealer

Agreement and cease all business relationships with your

dealer company." Durkin sent a second letter of warning to

New AC about one month later, on February 11, 1997,

stressing that "[t]he only rectification acceptable to

Chevrolet is for The New A.C. Chevrolet to remove

Volkswagen from the Chevrolet premises, which can be

accomplished by providing completely separate sales and

service facilities for Volkswagen."

GM's interactions with New AC during this period were

not, however, limited to the sending of warning letters.

Around June of 1997, in an apparent attempt to arrive at

a mutually satisfactory compromise avoiding the

termination of New AC's Chevrolet dealership, Durkin

suggested that New AC consider offering Oldsmobiles,

manufactured by another GM division, as a second line of

vehicles at the Kennedy Boulevard location. According to

Durkin, the DiFeo dealership, the other Chevrolet

franchisee operating in Jersey City, was in the process of

relinquishing both its Chevrolet and Oldsmobile franchises.

Durkin recommended that New AC explore the possibility of

acquiring the soon-to-be relinquished Oldsmobile franchise,

and indicated that GM would support the addition of

Oldsmobile to New AC's dealership under the appropriate

circumstances. Durkin mentioned that GM hoped for a

dealership presence around Route 440, a more centralized

commercial location in Jersey City, and that, to that end,

GM was pursuing a lease option on property in the Route

440 vicinity. Durkin suggested that GM would be willing to

offer financial support to New AC to develop the Route 440

property as a satellite location for a "dualed"

Chevrolet/Oldsmobile dealership, or to convert New AC's

existing Kennedy Boulevard facility into one better suited

for the sale and service of "dualed" Chevrolet and

Oldsmobile lines.

Although GM offered this compromise, it remained

steadfast in its insistence that New AC abandon its

Volkswagen franchise. At the same time that Durkin

suggested that GM would support the addition of an

Oldsmobile line, he made clear to New AC that the

continuation of the Volkswagen franchise was not a

11

workable option: "Under any circumstances, whether or not

you choose to pursue the opportunities outlined above, the

continued unauthorized presence of Volkswagen at your

current location remains an unacceptable violation of your

Dealer Sales and Service Agreement." In addition,

throughout the summer and fall of 1997, GM repeatedly

sent letters to New AC reiterating that New AC's continued

operation of the Volkswagen franchise was in violation of

the Dealer Agreement.

Throughout the summer and fall of 1997, New AC and

GM explored the viability of the proposed Oldsmobile

compromise. GM investigated the possibility of leasing

various sites along the Route 440 corridor, and repeatedly

extended the deadline for New AC to accept or reject the

Oldsmobile compromise. Ultimately, this proposed plan fell

through when GM informed New AC that it was unable to

complete leasing arrangements for the Route 440 sites it

had contemplated, and when New AC responded by

insisting that it would not discontinue its Volkswagen

franchise. New AC contended that it had adequately

addressed GM's concerns about the "dualing" of Chevrolet

and Volkswagen lines at the Kennedy Boulevard dealership

by constructing a separate showroom and using a separate

staff for the Volkswagen vehicles, and by working toward

creating a separate Volkswagen parts and service facility.

Finally, in January of 1998, about eighteen months after

New AC first informed GM of its intention to obtain and

operate a Volkswagen franchise at the Kennedy Boulevard

dealership, GM terminated New AC's Chevrolet franchise. In

a letter dated January 5, 1998, Daniel Durkin observed

that New AC, by maintaining a Volkswagen line, "has been

in continual violation" of provisions of the Dealer

Agreement. Specifically, Durkin asserted that New AC was

in violation of Article 4.4.2 of the agreement, which, as

noted above, provides that "[n]o change in location or in the

use of Premises, including addition of any other vehicle

lines, will be made without [GM's] prior written

authorization." Durkin also relied on Article 13.1.5 of the

Dealer Agreement, which identifies the following franchisee

conduct as a material breach of the agreement: "Any sale,

transfer, relinquishment, or discontinuance of use by [New

12

AC] of any of the Dealership Premises or other principal

assets required in the conduct of the Dealership

Operations, without [GM's] prior written approval." Durkin

informed New AC that, because of these material breaches,

GM was electing "to terminate the Dealer Sales and Service

Agreement and cease all business relationships with The

New A.C. Chevrolet Company effective sixty days from. . .

receipt of this letter."

B. Procedural History

1. The Pleadings

The present litigation commenced when, on January 5,

1998--the same day on which Durkin informed New AC of

its termination as a Chevrolet franchisee--GM filed a

complaint in the District Court seeking a declaration that

its termination of the New AC franchise was lawful. Count

I of GM's complaint requested a declaration that the

termination did not constitute a breach of any provision of

the Dealer Agreement. Count II requested a declaration that

the termination did not violate the federal Automobile

Dealers Day in Court Act (ADDCA), 15 U.S.C. SS 1221-25.

Count III asked for a declaration that the termination was

not in violation of New Jersey's Franchise Practices Act

(NJFPA), N.J. Stat. Ann. SS 56:10-1 to 56:10-15.2

_________________________________________________________________

2. In its August 26, 1998 order, the District Court granted GM leave to

amend this original complaint, to include claims based on New AC's

post-termination conduct, particularly New AC's continued display of

Chevrolet and GM signage after the revocation of its Chevrolet franchise.

In its amended complaint, GM asserted that New AC's use of such

signage violated the Lanham Act, 15 U.S.C. S 1051 et seq. (Counts VI

and VII); the common law of trademark infringement and unfair

competition (Count VIII); and Article 17.5 of the Dealer Agreement

(Count IX). Counts I, II, and III of the Amended Complaint rescribed the

three counts contained in GM's original complaint, requesting a

declaration that New AC's termination did not breach the Dealer

Agreement and did not contravene the ADDCA or the NJFPA. GM's

amended complaint also contained five counts based on two other post-

termination actions allegedly taken by New AC. Because GM eventually

consented to the dismissal of all five of these counts, in connection with

the District Court's March 8, 2000 order granting GM summary

judgment, these claims are not at issue on this appeal.

13

On April 2, 1998, New AC responded by filing a nine-

count counterclaim, basically alleging that GM's course of

conduct in dealing with New AC violated the express and

implied terms of the Dealer Agreement, as well as the

ADDCA, and the NJFPA. (The specific allegations made in

particular counts will be set forth below, as they become

relevant to our analysis.) In terms of relief, New AC

requested $25 million in compensatory damages plus

additional punitive damages on each of the first eight

counts, and an injunction preventing GM from terminating

New AC's Chevrolet franchise and ordering GM to allow

New AC to operate a Volkswagen franchise.

2. The Principal Orders

Although New AC's appeal challenges a series of orders

entered by the District Court during the two-year course of

this litigation, New AC's most significant contentions arise

in connection with only two, the January 13, 1999 order

partially granting GM's motion to dismiss seven of the nine

counts of New AC's counterclaim, and the March 8, 2000

order granting GM summary judgment, see General Motors

Corp. v. New A.C. Chevrolet, Inc., 91 F. Supp. 2d 733

(D.N.J. 2000). We summarize these two orders here; we will

discuss the details of the remaining challenged orders

below (particularly infra in note 25), as they become

pertinent to our analysis.

GM filed a motion to dismiss seven of the nine counts in

New AC's counterclaim, which the District Court granted in

an order and accompanying opinion entered on January

13, 1999. On this appeal, New AC only challenges the

District Court's dismissal of Counts One and Four. In

Count One, New AC alleged that GM violated the ADDCA by

engaging in a course of wrongful conduct that rose to the

level of coercion and intimidation. The District Court

disagreed, concluding that the coercion and intimidation

alleged by New AC did not constitute the type of coercion

and intimidation required for an ADDCA violation.

In Count Four, New AC alleged that GM breached the

express and implied terms of the Dealer Agreement by

allowing the DiFeo Chevrolet franchise to relocate, and by

14

"refusing to comply with its self-imposed mediation

process." The District Court decided that the contentions

contained in Count Four failed to state a claim, on the

grounds that the counterclaim failed to allege any facts

indicating that New AC was denied an opportunity to

participate in private mediation, or that GM acted in bad

faith in permitting the DiFeo relocation.

Following the Court's January 13, 1999 order dismissing

seven of the nine counts contained in the counterclaim,

only Counts Two and Three, both asserting that GM

violated the NJFPA, remained alive. Count Two alleged that

GM had violated S 56:10-5 of the NJFPA, prohibiting the

termination of motor vehicle dealers without "good cause."

Count Three alleged that GM had violated S 56:10-7(e) of

the NJFPA, barring the imposition of unreasonable

standards of performance on automobile dealers, by

imposing unreasonable restrictions on New AC. New AC

and GM proceeded to discovery on Counts Two and Three

of New AC's counterclaim, as well as on all of the claims set

forth in GM's amended complaint.

After the conclusion of discovery, GM moved for summary

judgment, see Fed. R. Civ. Pro. 56, on the portions of its

amended complaint alleging that New AC's franchise

termination was lawful (Counts I, II, and III) and that New

AC's post-termination use of GM signage was unlawful

(Counts VI, VII, VIII, and IX). GM also sought summary

judgment against New AC on Counts Two and Three of the

counterclaim just described. New AC cross-moved for

summary judgment with respect to GM's entire amended

complaint.

In its March 8, 2000 order and accompanying opinion,

the District Court resolved the summary judgment motions

in GM's favor. See General Motors Corp., 91 F. Supp. 2d at

734. With respect to Count I of the amended complaint,

which seeks a declaration that New AC's termination was in

accord with the provisions of the Dealer Agreement, the

Court concluded that the plain language of the agreement

clearly gave GM the authority to end New AC's franchise

based on New AC's addition of a Volkswagen line over GM's

express objection. See id. at 738-39. With respect to Count

II of the amended complaint, which seeks a declaration that

15

the termination was proper under the ADDCA, the Court

observed that New AC had failed to furnish any factual

support for the claim that GM's conduct amounted to

coercion or intimidation. See id. at 739-40. Finally, with

respect to Count III of the amended complaint and Counts

Two and Three of New AC's counterclaim, which focus on

the NJFPA, the Court found that New AC's unauthorized

addition of a Volkswagen line constituted "good cause" for

termination as that term is defined in the NJFPA, and

further concluded that New AC had failed to present any

evidence that the performance standards imposed by GM

on New AC were unreasonable. See id. at 740-41.

The District Court's March 8, 2000 order also granted

summary judgment for GM on Counts VI, VII, VIII, and IX,

the sections of GM's amended complaint contending that

New AC's continued post-termination display of GM signage

violated federal and state trademark and unfair competition

law, and breached the terms of the Dealer Agreement. See

id. at 741-43. Although adjudicating New AC liable for

trademark infringement, the March 8, 2000 order did not

set the amount of GM's damages. Rather, the District Court

directed the parties to submit additional briefs regarding

the proper measure of damages, the amount of time New

AC was to be granted for removal of the GM signage, and

whether New AC was entitled to compensation for the

signage under the NJFPA. See id. at 743.

New AC timely appealed the March 8, 2000 order (and a

subsequent April 5, 2000 order awarding GM relief) to this

Court. The District Court had federal question jurisdiction

over the ADDCA and Lanham Act claims under 28 U.S.C.

S 1331, and diversity jurisdiction over the state common

law and statutory claims under 28 U.S.C. S 1332. For the

reasons set forth in the margin, notwithstanding GM's

objections, we have appellate jurisdiction under 28 U.S.C.

S 1291 over all of the orders challenged by New AC.3

_________________________________________________________________

3. In its notice of appeal, New AC relates that it is appealing from the

District Court's March 8, 2000 order granting GM summary judgment

and its April 5, 2000 order awarding GM relief. In the March 8, 2000

order, the District Court adjudicated all of the open liability issues in

the

litigation, determining that GM was not to be held liable for its

16

II. The March 8, 2000 Order

We first take up New AC's challenges to the District

Court's March 8, 2000 order, which finally adjudicated

_________________________________________________________________

termination of New AC's Chevrolet franchise, and that New AC was

responsible for its post-termination use of GM's trademarks. The April 5,

2000 order further specified the relief that GM was to receive: the

District Court entered a permanent injunction against New AC,

prohibiting its continued use of GM's marks; granted GM attorneys fees

in the amount of $15,940.32; and awarded GM damages in the amount

of "10% of defendant's [i.e., New AC's] profits, trebled; profits to be

measured from May 20, 1998, through the date of this Order [i.e., April

5, 2000]." The April 5, 2000 order, however, did not reduce the amount

of these damages to a sum certain.

Prior to the filing of the appellate briefs, GM moved to dismiss the

appeal, contending that the District Court's order was not final for

purposes of 28 U.S.C. S 1291, and this motion has been pending before

us. Were our finality determination to be based solely on the face of the

March 8, 2000 and April 5, 2000 orders, we would be constrained to

conclude that the orders were not final under S 1291. Section 1291 of

Title 28 authorizes appellate jurisdiction over inter alia "all final

decisions of the district courts of the United States." 28 U.S.C. S 1291.

A final order is one that "ends the litigation on the merits and leaves

nothing for the court to do but execute the judgment." Catlin v. United

States, 324 U.S. 229, 233 (1945).

In general terms, a decision that fixes the parties' liability but leaves

damages unspecified is not final, and the adjudication of liability is not

immediately appealable. See United States v. Schaefer Brewing Co., 356

U.S. 227, 233-34 (1958); Sun Shipbuilding & Dry Dock Co. v. Benefits

Review Bd., 535 F.2d 758, 760 (3d Cir. 1986) (per curiam). Although the

District Court's April 5, 2000 order set forth a reasonably precise

formula for the determination of damages (i.e., 10% of net profits during

a specified period of time), so that one could characterize the

unperformed damage calculation as a merely mechanical or ministerial

act that would not preclude our exercise of appellate jurisdiction, see

Parks v. Pavkovic, 753 F.2d 1397, 1402 (7th Cir. 1985) (determining that

S 1291 finality exists when "computing the money owed . . . is unlikely

to engender dispute or controversy, and will require no analytic or

judgmental determinations that might . . . give rise to other appealable

questions"), our precedent squarely forecloses us from doing so. See

Marshak v. Treadwell, 240 F.3d 184, 191 (3d Cir. 2001) (holding that an

order awarding the defendants damages for trademark infringement in

the amount of "the profits [plaintiff] earned in each year, beginning with

17

GM's liability for the termination of New AC's Chevrolet

franchise, granting summary judgment in GM's favor. See

_________________________________________________________________

the first act of infringement in 1970 and ending with the first day of

trial

testimony in this case" was not final because the damage calculation

"cannot reasonably be characterized as merely ministerial. . . . [T]he

parties here have a long history of contentious litigation, and there is a

substantial likelihood that `one or both parties will dispute the ultimate

amount of damages awarded . . . .' "); Apex Fountain Sales, Inc. v.

Kleinfeld, 27 F.3d 931, 934, 936 (3d Cir. 1994) (holding that a civil

contempt order directing that an accounting be performed to determine

the net profit the plaintiff would have realized absent the defendant's

contemptuous conduct was not final, because "no judgment containing

a final dollar amount ha[d] been entered" and because the factual

determination of net profit "will not be easily reached").

In the instant matter, however, the analysis of our appellate

jurisdiction is not limited by the face of the March 8, 2000 and April 5,

2000 orders, as subsequent, post-appeal proceedings bear directly on

our S 1291 finality calculus. See Aluminum Co. of America v. Beazer East,

Inc., 124 F.3d 551, 557 (3d Cir. 1997) ("Even if the appeals court would

have lacked jurisdiction at the time an appeal was filed, the court has

jurisdiction if, as a result of subsequent events, there are no longer any

claims left to be resolved by the district court."). Following the

District

Court's April 5, 2000 order, the only claims left to be resolved were the

application of the damage formula and the reduction of damages to a

sum certain. During the pendency of this appeal before this Court, the

District Court actively managed the matter in order to arrive at a precise

damage figure. On November 8, 2000, the Magistrate Judge submitted a

report and recommendation fixing the damages New AC owed to GM not

only under the April 5, 2000 order, but also under a subsequent May 11,

2000 order holding New AC in civil contempt for failing to comply with

the April 5, 2000 directive to cease use of GM's trademarks. The final

figure, covering all of the damages and attorneys fees awarded to GM,

was set at $324,644.52. The parties filed no objections to the report and

recommendation, and the District Court approved the Magistrate Judge's

report on December 12, 2000. In that December 12, 2000 order, the

District Court also entered a final judgment against New AC for the

$324,644.52 damage amount, and neither New AC nor GM noticed an

appeal. It is clear that this order adjudicated all of the unresolved

issues

then-pending before the court, and we thus conclude that these post-

appeal adjudications suffice to render New AC's appeal from the March

8, 2000 and April 5, 2000 orders final for S 1291 purposes. GM's motion

to dismiss the appeal is therefore denied.

There is one final issue presented regarding the scope of our appellate

jurisdiction. New AC's appeal presents challenges not only to the March

18

General Motors Corp. v. New A.C. Chevrolet, Inc., 91 F.

Supp. 2d 733, 734 (D.N.J. 2000). Our review of a grant or

denial of summary judgment is plenary. See Mathews v.

Lancaster Gen. Hosp., 87 F.3d 624, 632 (3d Cir. 1996). We

may uphold the grant of summary judgment only if, like the

District Court, we determine that there are no genuine

issues of material fact and the movant is entitled to

summary judgment as a matter of law. See Tice v. Centre

Area Transp. Auth., 247 F.3d 506, 511 n.2 (3d Cir. 2001).

In making this determination, we view the facts in the light

most favorable to the non-moving party. See id.

Although New AC's briefing falls far short of analytical

clarity, it appears that New AC raises three basic,

alternative grounds for reversal of the District Court's

March 8, 2000 disposition. First, New AC appears to

contend that there is a genuine issue as to whether a

breach of the Dealer Agreement occurred at all (and hence

whether GM had "good cause" for termination), since, in

New AC's submission, the terms of the franchise agreement

did not prohibit its specific "dualing" of a separate

Volkswagen line. Second, New AC offers the alternative

_________________________________________________________________

8, 2000 and April 5, 2000 orders identified in New AC's notice of appeal,

but also to a series of non-final orders entered earlier in the

litigation.

Specifically, New AC contests (1) a May 15, 1998 order denying New AC

a preliminary injunction; (2) an August 26, 1998 order denying New AC's

motion to dismiss; (3) a January 13, 1999 order partially granting GM's

motion to dismiss; (4) orders entered on March 8, 1999 and April 28,

1999 by the Magistrate Judge that limited the scope of New AC's

discovery; and (5) an order entered on August 4, 1999 denying New AC's

motion for disqualification of the District Judge originally assigned to

the

case and vacatur of all orders entered by that Judge. Generally, we

construe notices of appeal liberally and, therefore, we review earlier

non-

final orders not specified in the notice of appeal where (1) there is a

connection between the specified and unspecified order; (2) the intention

to appeal the unspecified order is apparent; and (3) the opposing party

is not prejudiced and has a full opportunity to brief the issues. See

Pacitti v. Macy's, 193 F.3d 766, 777 (3d Cir. 1999). Because we find that

all of these elements are clearly satisfied in this case, we conclude that

the scope of our appellate jurisdiction encompasses all of the prior non-

final orders, unspecified in the notice of appeal, to which New AC

currently raises challenges.

19

argument that, even if its addition of a Volkswagen

franchise did represent a breach of the terms of the Dealer

Agreement, the "dualing" was not sufficiently egregious to

justify New AC's franchise termination, i.e., the breach was

not material. Finally, New AC contends, in essence, that

even if the District Court was correct in determining that

New AC did not substantially comply with the Dealer

Agreement by insisting on the addition of a Volkswagen

line, reversal of the summary judgment grant on the NJFPA

claims is warranted because the Court erred in concluding

that GM's motivation for terminating the franchise--i.e.,

GM's good faith or lack thereof--was irrelevant to the

question whether GM had "good cause" for New AC's

termination as a Chevrolet dealer.

A. Breach

New AC's first major contention with respect to the

District Court's summary judgment grant in the March 8,

2000 order is with the conclusion that a breach of the

Dealer Agreement occurred at all. In New AC's submission,

the terms of the Dealer Agreement never prohibited the

addition of a Volkswagen franchise at a separate dealership

site, and thus, GM's permission was never required for the

Volkswagen addition. In New AC's view, GM was powerless

to object to the addition because New AC did not employ

any of the space it had previously dedicated to GM use to

later sell and service Volkswagen automobiles. This is what

the District Court, in its prior May 15, 1998 opinion,

referred to as the "different premises" /"different

businesses" theory. In essence, New AC contends that there

is a genuine issue as to whether it breached the terms of

the franchise agreement at all, and that the District Court

erred in deciding otherwise. We disagree.

The "different premises" / "different business" line of

argument rests heavily on an interpretation of New AC's

obligations under the Dealer Agreement with respect to its

dealership facilities. The key word on which New AC

focuses is the term "premises," which appears in both

Articles 4.4.2 and 13.1.5 of the Dealer Agreement, the

provisions that GM claims New AC materially breached by

insisting on the addition of a Volkswagen line of vehicles.

20

Specifically, Article 4.4.2 states in relevant part that "[n]o

change in location or in the use of Premises, including

addition of any other vehicle lines, will be made without

[GM's] prior written authorization." (emphasis added).

Article 13.1.5 includes in the list of dealer actions that

constitute material breaches of the Agreement, "[a]ny sale,

transfer, relinquishment, or discontinuance of use by

Dealer of any of the Dealership Premises or other principal

assets required in the conduct of the Dealership

Operations, without [GM's] prior written approval."

(emphasis added).

New AC asserts that the term "premises" should be read

narrowly to cover only the physical facilities accompanying

the 3085 Kennedy Boulevard address. According to New

AC, the Volkswagen showroom is located at a site adjacent

to and physically distinct from the facilities at 3085

Kennedy Boulevard, a site assigned the address of 3081

Kennedy Boulevard. Moreover, New AC submits that, at

least as of 1998, it was close to setting up a separate parts

and service area for the Volkswagen vehicles, and informed

GM that it would use different staffs to sell and service its

Chevrolet and Volkswagen automobiles. Thus, New AC's

argument goes, the Volkswagen site is separate and distinct

from the New AC dealership's "premises," and the site's use

by New AC for Volkswagen purposes does not represent a

change in the location or use of New AC's "premises" within

the meaning of Article 4.4.2, or a transfer or

discontinuance of "premises" use within the meaning of

Article 13.1.5.

In granting summary judgment to GM on Count I of its

amended complaint, the District Court dismissed New AC's

"different premises" / "different business" theory in a

footnote:

This Court rejects New A.C.'s effort to redefine the

term "Premises" to avoid the clear meaning of this

contractual provision. The "Premises" is clearly the

dealership property being operated as an exclusive

Chevrolet franchise as defined in the Location and

Premises Addendum to General Motors Corporation

Dealer Sales and Service Agreement . . . . GM's

decision to denominate minimum requirements

21

governing the display of Chevrolet vehicles, et cetera,

does not alter the fact that the "Premises" included all

dealership property located at 3085 Kennedy

Boulevard, Jersey City, New Jersey.

General Motors Corp., 91 F. Supp. 2d at 739 n.9. On

appeal, New AC takes issue with the District Court's

conclusion, claiming that the District Court's interpretation

of the term "premises" as used in the Dealer Agreement is

incorrect.

According to New AC, a correct interpretation of the term

must start with Article 4.4.1, which states: "Dealer agrees

to conduct Dealership Operations only from the approved

location(s) within its Area of Primary Responsibility. The

Location and Premises Addendum identifies Dealer's

approved location(s) and facilities ("Premises")." New AC

asserts that the terms "location" and "facilities" are

conceptually separate; i.e. that "location" refers to the street

address of the dealership (3085 Kennedy Boulevard) while

the term "facilities" refers to the square footage

designations made in the Location and Premises

Addendum. (Under the terms of the franchise relationship,

New AC is obligated to submit such an Addendum, which

lists the various dealer locations, and contains a"premises

space analysis" showing the manner in which the dealer's

different departments allocate stalls and square footage

between GM and non-GM uses.) Furthermore, New AC

asserts, the term "premises" covers only the dealer's

"facilities" and not its "location." Thus, New AC's argument

goes, the District Court erred by concluding that the term

"premises" covered all dealership property at 3085 Kennedy

Boulevard, rather than just the stall and square footage

designations listed in the Location and Premises

Addendum.

Like the District Court, we are dubious of New AC's

Addendum-only construction of the term "premises."

However, we need not decide whether this construction is

the appropriate one. We believe that New AC's argument

loses on its own terms because, even accepting arguendo

New AC's assertion that "premises" covers only the stall and

square footage designations listed in the Location and

Premises Addendum, the Addenda in the record before us

22

indisputably demonstrate that at least a portion of the

"facilities" (and hence "premises") originally allocated to GM

use at 3085 Kennedy Boulevard would be (and presumably

were) converted to Volkswagen use with the addition of the

Volkswagen line.

In the 1990 Location and Premises Addendum for 3085

Kennedy Boulevard, furnished to GM prior to New AC's

request for the Volkswagen addition, all of the space was

allocated to GM use. Conversely, the proposed 1996

Addendum, which New AC supplied at GM's request once

New AC asked for permission to add a Volkswagen line to

its dealership, clearly indicates that some of the space

originally dedicated to GM use would be shifted to the

Volkswagen line. For instance, 100 square feet of general

office space and 900 square feet of part storage space

would be converted to Volkswagen use, as would four

mechanical service bays.4 Accordingly, even were we

inclined to follow New AC's suggestion to construe

"premises" narrowly to include only the space allocations

contained in the Location and Premises Addenda, those

Addenda demonstrate that at least some portion of the

"premises" at 3085 Kennedy Boulevard were transferred

from GM to Volkswagen use. Thus, the space-designation-

only argument offers New AC no assistance, and we

conclude that New AC breached Articles 4.4.2 and 13.1.5 of

the Dealer Agreement.

_________________________________________________________________

4. At various times, New AC indicated to GM that it would eventually

move the Volkswagen service and parts storage facilities to a separate,

physically distinct space. The record does not indicate whether this was

eventually accomplished. The record does show that, at least as of May

14, 1998, over four months after GM informed New AC that its Chevrolet

franchise was terminated and six days before the termination was

formally implemented, New AC was continuing to devote four service

bays and part of the small parts department at the 3085 Kennedy

Boulevard location to Volkswagen use. At all events, the dispositive

question here is whether New AC was in material breach of the Dealer

Agreement as of the time GM decided to terminate the Dealer Agreement,

thereby furnishing GM with a justifiable ground for termination, rather

than whether such a breach continued to exist at some point thereafter.

23

B. Materiality

As an alternative challenge to the District Court's March

8, 2000 grant of summary judgment, New AC submits that

its addition of a Volkswagen franchise over GM's express

and repeated objections, even if considered a breach of the

Dealer Agreement, was not egregious enough to warrant

severance of the franchise relationship. New AC's argument

here is that any breach that it committed was not a

material one, and thus did not justify termination of the

franchise contract.5 We disagree, concluding that, on the

record before us, there is no genuine issue that New AC's

Volkswagen addition constituted a material breach.

Materiality goes to the essence of the contract; a breach

is material if it "will deprive the injured party of the benefit

that is justifiably expected" under the contract. 2 E. Allan

Farnsworth, Farnsworth on Contracts S 8.16, at 497 (2d ed.

1998). We think there can be no dispute that New AC's

insistence on adding a Volkswagen franchise to its

dealership, contrary to GM's repeated objections to this

decision, rose to the level of material breach. GM's

justifiable expectations regarding New AC's performance

under the franchise agreement are best evidenced by the

provisions of the Dealer Agreement. In Article 13.1, the

parties to the Dealer Agreement explicitly defined certain

acts or events as constituting material breaches of the

contract. Article 13.1.5 specifically includes as a material

breach, "[a]ny sale, transfer, relinquishment, or

discontinuance of use by Dealer of any of the Dealership

Premises or other principal assets required in the conduct

of the Dealership Operations, without [GM's] prior written

approval."

To similar effect is Article 4.4.2, which directly governs

situations in which a dealer seeks to add another vehicle

franchise: "No change in location or in the use of Premises,

_________________________________________________________________

5. It is hornbook law that when one party to a contract commits a

material breach, the non-breacher has the option of either continuing

the contract and suing for partial breach, or terminating the agreement

in its entirety. See 2 E. Allan Farnsworth, Farnsworth on Contracts

S 8.16, at 495 (2d ed. 1998). In the case of a non-material breach, the

termination option is not open to the non-breacher. See id. at 495-96.

24

including addition of any other vehicle lines, will be made

without [GM]'s prior written authorization."6 In light of our

discussion supra in Part II.A regarding New AC's "different

premises" / "different business" theory, it is clear that New

AC's operation of a Volkswagen franchise and its blatant

disregard of GM's objection to that addition violated Articles

13.1.5 and 4.4.2 of the Dealer Agreement, and

consequently represented a material breach of the franchise

agreement.

To be sure, absent Articles 13.1.5 and 4.4.2, New AC

would have the generally unfettered right to put its

dealership property to the uses it sees fit, including the

operation of an independent and competing vehicle line.

See 1 Gladys Glickman, Franchising, S 10.07[7], at 10-72

(2001) ("If the franchisee is the owner or lessee of the

premises from which the franchised business is conducted

he or she has the right to use the premises for any purpose

permitted by the zoning laws and the landlord unless the

franchisor, by contract, further restricts the businesses

which may be operated on the premises."). In New AC's

case, however, the parties mutually agreed to constrain the

exercise of that right by conferring on GM the power to

disapprove of a proposal to "dual" another vehicle line, a

power which GM clearly and consistently employed to deny

New AC's request to add a Volkswagen line to its

dealership.

Mindful of the disparity in bargaining leverage that can

arise between a franchisor and franchisee, we do not

suggest that Articles 4.4.2 or 13.1.5, or GM's reliance on

those contractual provisions to disapprove of New AC's

decision to "dual" a Volkswagen franchise, are unassailable.

We think, for instance, that New AC could raise viable

_________________________________________________________________

6. Although Article 4.4.2 is not included within Article 13.1's enumerated

list of material breaches, Article 13.1.13 makes clear that the list is

non-

exhaustive, stating (perhaps tautologically) that"[a]ny other material

breach of Dealer's obligations under this Agreement not otherwise

identified in this Article 13 or in Article 14" can constitute a material

breach. Given the substantial similarity of the obligations imposed by

Articles 4.4.2 and 13.1.5 on a franchisee seeking to alter the use of its

dealership facilities, we believe that a violation of Article 4.4.2 will

typically amount to a material breach of the Dealer Agreement.

25

challenges to those provisions on the ground that such

anti-"dualing" provisions in general impose unreasonable

obligations on franchisees like New AC, or that GM's

reliance on such provisions in New AC's particular case

constitutes an unreasonable application of the anti-

"dualing" prohibition. In regard to the former contention,

New AC has never challenged Articles 4.4.2 or 13.1.5--

either in the District Court, see General Motors Corp., 91 F.

Supp. 2d at 739 n.8, or on this appeal--on the ground that

such anti-"dualing" proscriptions constitute, as a general

matter, unreasonable restrictions on a franchisee's rights.7

We assume, therefore, that Articles 4.4.2 and 13.1.5

impose reasonable obligations on franchisees, and conclude

that a franchisee's breach of a reasonable franchise

obligation--committed over the express and persistent

objections of the franchisor--is a material one. Cf. Amerada

Hess Corp. v. Quinn, 362 A.2d 1258, 1268-69 (N.J. Super.

Ct. Law Div. 1976) ("Plainly, noncompliance by a franchisee

with his reasonable franchise obligations, resulting in an

actual or potential adverse effect upon the sales of the

franchisor's products, would constitute substantial

noncompliance thereof for purposes of termination,

impairing as it does the franchisor's fundamental reason for

initially entering into the relationship."); accord Brattleboro

Auto Sales, Inc. v. Subaru of New England, Inc., 633 F.2d

649, 652 (2d Cir. 1980) (upholding a manufacturer's

termination of a Subaru dealer under the Vermont

franchise practices statute, on the ground that the

manufacturer "reasonably could have concluded that [the

dealer's] sales and service of Subaru cars would suffer as a

result of [the dealer's] simultaneous promotion of several

lines of directly competing cars").

New AC, however, does appear to contest the

reasonableness of GM's reliance on the anti-"dualing"

provisions of the Dealer Agreement in this particular case,

attempting to minimize the seriousness of its breach by

_________________________________________________________________

7. Instead, New AC focused on arguing that its addition of a Volkswagen

line never violated the anti-"dualing" provisions of Articles 13.1.5 or

4.2.2, because Volkswagen-related activities would occur at a separate

vehicle site. We rejected this argument supra in Part II.A.

26

summarily asserting that, because GM permits numerous

other dealers to operate additional vehicle lines, New AC's

addition of a Volkswagen line over GM's objections could

not affect the core of the franchise relationship between GM

and New AC, and thus does not rise to the level of a

material breach. If the evidence proffered by New AC

demonstrated that GM routinely permitted dealers similarly

situated to New AC--e.g., in similar geographical areas,

with similar competitors and consumer bases--to operate

competing vehicle franchises, then such evidence would

tend to show that GM arbitrarily withheld its approval of

New AC's proposed Volkswagen addition, and could

significantly undermine the idea that GM justifiably and

reasonably expected its franchisees to offer only single, GM

vehicle lines. However, New AC makes no such showing.

While we may judicially notice the existence of multi-line

vehicle dealers, New AC points to no record evidence

identifying any of the other GM dealers operating multi-line

dealerships, or indicating which vehicle lines are offered at

those dealerships. More importantly, New AC offers no

evidence tending to show that these multi-line dealers are

similarly situated to New AC. In sum, based on the record

evidence before us, there is no genuine issue as to the fact

that New AC's decision to add a Volkswagen franchise

despite GM's objection constituted a material breach of the

Dealer Agreement.8

_________________________________________________________________

8. New AC raises this same basic argument in the context of challenging

the District Court's grant of summary judgment on the NJFPA claims,

i.e., Count III of GM's amended complaint and Count Two of New AC's

counterclaim, framing the contention in slightly different doctrinal

terms.

New AC argues that GM did not have the "good cause" necessary to

lawfully terminate New AC's Chevrolet franchise in accordance with

S 56:10-5 of the NJFPA because New AC never failed to "substantially

comply" with its obligations under the franchise agreement. We find New

AC's argument here similarly unpersuasive.

First, we believe that our determination as to whether New AC's breach

was material under the terms of the franchise agreement resolves the

question whether New AC "substantially compl[ied]" with the agreement

for purposes of S 56:10-5's "good cause" requirement. N.J. Stat. Ann.

S 56:10-5. Put simply, we see no real or practical difference between a

conclusion that a party materially breached a contract, and a conclusion

27

C. "Good Cause"

New AC's best argument for reversal of the District

Court's grant of summary judgment for GM concerns the

NJFPA claims. Before the District Court and again on

appeal, New AC argues that, although the NJFPA defines

"good cause" solely as "failure by the franchisee to

substantially comply with those requirements imposed

upon him by the franchise," N.J. Stat. Ann. S 56:10-5, a

_________________________________________________________________

that the party failed to substantially comply with its obligations under a

contract. To decide otherwise would be simply to engage in linguistic

games. Cf. Farnsworth, S 8.16, at 496 ("The doctrine of material breach

is simply the converse of the doctrine of substantial performance.

Substantial performance is performance without a material breach, and

a material breach results in performance that is not substantial."); cf.

also Amerada Hess, 362 A.2d at 1266-67 (observing that the well-

established "concept of substantial performance .. . generally utilized in

the realm of building contracts but applied, where appropriate, to other

contractual agreements as well" "has been carried into the franchise

milieu by the `good cause' requirement for termination"--specifically, by

S 56:10-5's substantial non-compliance standard).

At all events, we find New AC's contention unavailing, even leaving

aside our analysis of the materiality of New AC's breach. In asserting

that New AC's conduct in connection with the Volkswagen franchise did

not rise to the level of substantial noncompliance necessary for "good

cause" under the NJFPA, New AC cites for comparison two decisions in

which a franchisee's breach was held to constitute substantial

noncompliance for purposes of S 56:10-5. See Jiffy Lube Int'l, Inc. v.

Weiss Bros., Inc., 834 F. Supp. 683 (D.N.J. 1993); Amerada Hess Corp.

v. Quinn, 362 A.2d 1258 (N.J. Super. Ct. Law Div. 1976). We believe,

however, that New AC's conduct in this case is at least as egregious and

serious as the franchisees' actions in Amerada Hess and Jiffy Lube. Like

the franchisee in Jiffy Lube, New AC deliberately disregarded its

obligations to its franchisor GM, insisting on maintaining a competing

manufacturer's vehicle line even in the face of GM's numerous and

repeated objections. Moreover, like the franchise arrangement in Jiffy

Lube, the Dealer Agreement between GM and New AC made the pertinent

obligations explicit, and authorized GM to terminate the relationship if

those requirements were violated, thereby indicating the integral nature

of those obligations to the franchise relationship. In sum, we conclude

that there is no genuine issue either that New AC's conduct materially

breached the Dealer Agreement, or that such breach constituted

substantial noncompliance within the meaning ofS 56:10-5.

28

franchisor cannot possess the requisite "good cause" unless

it also acts in good faith (and without an improper,

pretextual motive). New AC then challenges the District

Court's explicit conclusion that, once the Court determined

that New AC's addition of a Volkswagen line constituted

"good cause" for terminating the Chevrolet franchise under

NJFPA S 56:10-5, GM's motive behind that termination was

entirely irrelevant. See General Motors Corp. , 91 F. Supp.

2d at 740 n.10.9

The District Court rejected this contention, concluding

that a franchisor's motivation was irrelevant to the NJFPA

"good cause" inquiry, in the course of granting summary

judgment in GM's favor on Count III of GM's amended

complaint, and on Count Two of New AC's counterclaim,

both of which raised the question whether GM's

termination of New AC's Chevrolet franchise constituted a

violation of S 56:10-5.10 The District Court supported its

conclusion by citing to Karl's Sales & Service, Inc. v. Gimbel

Bros., Inc., 592 A.2d 647 (N.J. Super. Ct. App. Div. 1991),

and Major Oldsmobile, Inc. v. General Motors Corp., No. 95-

7595, 1996 U.S. App. LEXIS 11443 (2d Cir. May 17,1996),

both of which stated that a party's motivation in

terminating an agreement is irrelevant when the terms of

the agreement confer upon that party the legal right to

terminate its obligations. See Karl's Sales, 592 A.2d at 651

_________________________________________________________________

9. With respect to this ground for reversal, New AC is not disputing the

District Court's conclusion that New AC "fail[ed] . . . to substantially

comply with those requirements imposed upon him by the franchise,"

N.J. Stat. Ann. S 56:10-5, when it chose to"dual" a Volkswagen line at

its dealership over GM's consistent objections. See General Motors Corp.,

91 F. Supp. 2d at 739. In fact, we have already rejected the argument

that New AC's "dualing" of Volkswagen did not constitute substantial

noncompliance within the meaning of S 56:10-5's "good cause" definition.

See supra note 8. Rather, New AC is arguing here that, even conceding

that its "dualing" amounts to substantial noncompliance, New Jersey law

would impose an additional, implicit requirement of good faith before

"good cause" under the NJFPA could be said to exist.

10. These two claims are mirror images: In Count Two of its

counterclaim, New AC alleges that GM violated S 56:10-5 by terminating

its Chevrolet franchise without good cause. In Count III of its amended

complaint, GM seeks a declaration that the termination was effected with

good cause, and thus satisfied the requirements ofS 56:10-5.

29

("The law is clear that where the right to terminate a

contract is absolute under the wording in an agreement,

the motive of a party in terminating such an agreement is

irrelevant to the question of whether the termination is

effective."); Major Oldsmobile, 1996 U.S. App. LEXIS 11443,

at *7-8 ("As long as a party has the legal right to terminate

its obligation under the contract, it is legally irrelevant

whether the party was also motivated by reasons which

would not themselves constitute valid grounds for

termination of the contract.") (internal quotation marks,

brackets, and citations omitted).

New AC contends that the District Court's reasoning is

erroneous in that it fails to take account of the obligations

imposed by S 56:10-5 of the NJFPA on a franchisor

contemplating a franchise termination, and the manner in

which that provision modifies, in the franchise context, the

common law rule regarding severance of a private

contractual relationship pursuant to a termination at will

provision. New AC is surely correct in asserting that

S 56:10-5 modifies the termination provisions of all

franchise agreements governed by the laws of New Jersey:

Even if the terms of a private franchise agreement permit

termination at will, S 56:10-5's good cause requirement will

supersede that arrangement and impose a good cause

requirement on the franchisor's decision. This is because

the NJFPA was enacted in large part to counteract the

unequal bargaining power between franchisor and

franchisee, which would allow a franchisor to leverage its

bargaining strength so as to insert provisions in its private

agreements with franchisees that would allow it to sever the

franchise relationship at will. See, e.g., Westfield Ctr. Serv.,

Inc. v. Cities Serv. Oil Co., 432 A.2d 48, 53 (N.J. 1981)

(noting that "[f]ranchisors have drafted contracts permitting

them to terminate or to refuse renewal of franchises at will"

and observing that "[t]he New Jersey Legislature was

sensitive to the overall problem" when it enacted the NJFPA

in 1971).

Karl's Sales and Major Oldsmobile certainly state the

proper rule as regards private contractual relationships.

They apparently were not, however, called upon to consider

the NJFPA's statutory modification of that relationship;

30

Karl's Sales and Major Oldsmobile neither cite to nor

discuss the NJFPA in general or S 56:10-5 in particular,

presumably because NJFPA claims were never raised in

either case. Insofar as the District Court concluded, solely

on the authority of Karl's Sales and Major Oldsmobile, that

a franchisor's motivation is irrelevant to a claim that a

franchisor's termination violated S 56:10-5, its decision was

reached in error.

In its appellate briefing and at oral argument, New AC

goes further and contends that, under New Jersey law, an

examination of whether a franchisor's termination of a

franchise was supported by "good cause," within the

meaning of S 56:10-5, would necessarily include an inquiry

into whether the franchisor acted in good faith (and without

some impermissible, pretextual motive). Although this

argument is an interesting one, and, as we explain briefly

in the margin, New Jersey law offers no clear answer on

this point, resolution of this issue is not necessary to our

disposition.11 This is because, even were we to assume

_________________________________________________________________

11. The plain language of S 56:10-5 strongly suggests that good faith (or

the absence of some pretextual motive) on the part of the franchisor is

not a requisite element of the "good cause" necessary to terminate a

franchisee in accordance with the NJFPA. Importantly, S 56:10-5 does

not leave the term "good cause" open, but rather adopts a specialized

definition of the phrase: "For the purposes of this act, good cause for

terminating, canceling, or failing to renew a franchise shall be limited

to

failure by the franchisee to substantially comply with those requirements

imposed upon him by the franchise." N.J. Stat. Ann. S 56:10-5. This

statutory definition of "good cause" focuses solely on the objective

actions of the franchisee--i.e., whether the franchisee substantially

complied with franchise requirements--and not on the subjective

motivations of the franchisor--i.e., whether the franchisor's decision was

undertaken in bad faith.

Other pertinent provisions within the NJFPA, particularly S 56:10-9,

support the idea that a franchisor's motivation is irrelevant to the "good

cause" inquiry. Section 56:10-9 allows a franchisee's substantial

noncompliance to serve as a complete defense in"any action" instituted

under the NJFPA by a franchisee. See N.J. Stat. Ann. S 56:10-9.

Although we could find no New Jersey cases on point, a fair reading of

that provision suggests that if a terminated franchisee were to bring an

action against its franchisor claiming a violation of S 56:10-5 because

the

31

arguendo that a franchisor's motivation bears on the

S 56:10-5 "good cause" inquiry, New AC has failed to

furnish record evidence sufficient to create a genuine issue

_________________________________________________________________

franchisor lacked the requisite "good cause" for the decision, the

franchisor could avoid liability simply by demonstrating that the

franchisee failed to substantially comply with its franchise obligations.

We also note that when other jurisdictions have desired to include a

good faith component in the termination provisions of analogous

franchise protection statutes, they have explicitly done so in the

language of the statute. See, e.g., Conn. Gen. Stat. S 42-133v(a) (barring

the termination of a franchise unless the franchisor"has good cause for

. . . termination . . . and has acted in good faith"); Ky. Rev. Stat. Ann.

S 190.045(1) (Michie) (similar); N.D. Cent. Code S 51-07-01.1 (defining

"good cause" as "failure . . . to comply with those requirements imposed

by the written contract" but providing that the franchisor's determination

of whether "good cause" exists "must be made in good faith").

Notwithstanding the foregoing, New Jersey courts, in construing

separate provisions in franchise-related statutes, have imposed good

faith requirements in particular circumstances, despite the statute's

omission of an explicit good faith requirement. For instance, in

Monmouth Chrysler-Plymouth, Inc. v. Chrysler Corp. , 509 A.2d 161 (N.J.

1986), the New Jersey Supreme Court construed a provision of the New

Jersey Motor Vehicle Franchise Act, N.J. Stat. Ann.SS 56:10-16 to

56:10-25, a statutory scheme animated by the same franchise-oriented

concerns as the NJFPA. As noted supra note 1, the NJMVFA allows an

existing automobile dealer to challenge (and eventually enjoin) its

franchisor's decision to relocate a new dealer into the same market area,

by demonstrating that such a move would be "injurious" to the existing

dealer and to the public interest. See N.J. Stat. Ann. SS 56:10-18, 56:10-

19. Section 56:10-23 enumerates several factors that bear on the

question whether a relocation is "injurious," but the provision omits

mention of the franchisor's motivation or good faith as one of the

relevant factors. Nonetheless, despite this statutory silence, Monmouth

Chrysler-Plymouth explicitly held that "an additional criterion to be

considered in determining injury under the Motor Vehicle Franchise Act

is the motivation of the franchisor in designating the new dealer." 509

A.2d at 170 (emphasis added). But even were we to predict, based on

Monmouth Chrylser-Plymouth, that New Jersey would imply a good faith

element into the NJFPA's "good cause" requirement, such a prediction

would not affect our disposition. As we explain in the text above, New AC

has failed to present evidence sufficient to create a genuine issue as to

GM's bad faith, and thus the District Court's summary judgment grant

will be affirmed.

32

as to whether GM acted in good faith (or without a

pretextual motive) in terminating New AC's Chevrolet

franchise.

New AC's contention that GM acted in bad faith or on

pretext in ending its franchise relationship with New AC

centers primarily on what we will call the "Project 2000"or

"Plan 2000" theory. "Project 2000" is a general business

plan developed by GM sometime around 1995, and

continuously implemented thereafter. In developing"Project

2000," GM officials examined various individual automobile

marketing areas, and sought to create the optimal plan for

the sale of GM vehicle lines in those areas. GM officials

generally believed that the optimal business strategy would

be to have a single dealer, selling and servicing only a

single GM line, in each marketing area.

According to New AC's allegations, set forth in its

counterclaim and repeated in its appellate briefing and at

oral argument, under the "Project 2000" business plan,

GM's principal goal for the Hudson County marketing area,

in which the New AC dealership was located, was to

establish a single dealer as the exclusive Chevrolet

franchisee. Furthermore, New AC argues, GM considered

the Route 440 area to be the most viable commercial strip

in Jersey City, and wanted its designated Jersey City

Chevrolet franchise to be located along Route 440. New AC

contends that, under the "Project 2000" strategy, GM

preferred that the DiFeo dealership, which moved to a

Route 440 site in 1995, serve as this exclusive franchisee,

and therefore favored closing New AC's Chevrolet

dealership. Thus, according to New AC, when GM decided

to terminate New AC's franchise, it used New AC's addition

of a Volkswagen line as a pretext for finally implementing

its single-dealer, single-line "Project 2000" strategy.

At this stage, however, we are reviewing the District

Court's grant of summary judgment, and New AC cannot

simply rest on its mere allegations concerning a"Project

2000" plan to eliminate its dealership. Rather, New AC

must point to "pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any," Fed. R. Civ. Pro. 56(c), that create a

genuine issue of material fact that GM adopted a strategy

33

designed to eliminate New AC's Chevrolet franchise in

Jersey City and that GM employed New AC's addition of a

Volkswagen franchise as a pretextual reason for effecting

that strategy. Based on the record evidence before us, we

believe that New AC has failed to create any such genuine

issue.

Before examining the specific evidence on which New AC

relies, we note that, other than the general contention that

the addition of a Volkswagen line was a pretextual reason

employed by GM to mask the true motive for its termination

of New AC's Chevrolet franchise, the details of New AC's

"Project 2000" argument are less than pellucid. We must

cobble together the specifics of New AC's argument from

incomplete pieces. Therefore, it is important, at the outset,

to clarify New AC's contentions so as to get to the heart of

New AC's argument concerning GM's bad faith and

pretextual motivation.

New AC does not appear to contend, as a general matter,

that GM's stated preference for a single-line dealer

distribution network is either unreasonable or lacking a

legitimate business justification. That is, New AC does not

contend that, as a general rule, it is improper for

automobile manufacturers to preclude their dealers from

"dualing" another vehicle line. See supra Part II.B. Rather,

New AC appears to be arguing that, under the particular

facts of its case, GM's objection to New AC's "dualing" of a

Volkswagen line was not a good-faith application of a

single-line preference, but rather a bad-faith, pretextual

reason, masking another, true motivation behind GM's

action. According to New AC's opening appellate brief, this

true motivation is GM's predetermined decision, made as

early as the mid-1990s as part of "Project 2000," to sever

its franchise relationship with New AC.

In order to survive summary judgment on this NJFPA

claim, New AC must point to evidence creating a genuine

issue of material fact that, prior to New AC's 1996 decision

to add a Volkswagen franchise, GM decided to end its

Chevrolet franchise arrangement with New AC, and that

GM used New AC's operation of a Volkswagen franchise to

obscure the fact that this decision constituted the true

motivation behind New AC's termination. As factual support

34

for this theory, New AC focuses primarily on three GM

corporate documents. The first is an October 5, 1995

memorandum titled "Dealer Network Planning" and

addressed to all GM dealers, which announced GM's future

business strategy, an expansion of the "2000 Plan"

originally commenced in 1990 (a precursor to "Project

2000"), designed to increase GM's and its dealers'

profitability "by assuring that each brand is properly

presented to the public, and by renewed emphasis on

having the right number of dealers, at the right locations

and of the right size." In addition to this general goal, the

"Dealer Network Planning" memorandum also expressed a

preference for single dealers in a market area selling only

single lines of GM vehicles:

The New General Motors Network Strategy is simple:

Wherever the local market sales potential for the

refocused brand provides an opportunity for a

profitable dealership selling and servicing that brand

alone, General Motors should have a single line,

exclusive dealer conforming in image and customer

practices to the norm established for that brand.

Further, General Motors brands are not commodities

and should never be offered to the public from facilities

that also offer competing brands.

In New AC's submission, this "Dealer Network Planning"

memorandum sets forth the core of "Project 2000"--i.e., the

single-line, single-dealer strategy.

According to New AC, two other corporate documents

demonstrate the implementation of this "Project 2000"

single-line, single-dealer strategy in the Jersey City region.

A report titled "Year 2000 Plan: Essex and Hudson

Counties, NJ MDAs: Marketing Area Highlights" includes a

section on State Route 440 in Jersey City, the approximate

location of both the DiFeo and New AC Chevrolet dealership.12

_________________________________________________________________

12. The report itself is not dated. In its opening brief, New AC fixes the

date of the document as 1992 or 1993. This is consistent with the

statement made in GM's 1995 "Dealer Network Planning" memorandum,

which noted that GM had first commenced a "Year 2000" strategy of

developing the optimal business plan for dealers in specific market

regions in 1990.

35

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37

In that section, GM identifies the automobile dealerships

located at the intersection of State Route 440 and

Communipaw Avenue as "the only primary shopping area

for Hudson County." The report also contains evaluations of

both the New AC Chevrolet dealership and the Bell

Chevrolet dealership (which was subsequently acquired by

DiFeo). GM observed that both dealerships were in isolated

neighborhood areas, away from Route 440's "primary

shopping area," and had out-of-date facilities. However, GM

appeared much more optimistic about Bell Chevrolet's

chances for future economic success.

For Bell, the report's evaluation noted that "[t]he plan is

to relocate to the State Route 440 autorow area in Jersey

City," while for New AC, the report stated that"viability of

the dealer point is questionable" and observed that "[t]he

plan is to maintain representation and monitor viability of

the point." Finally, a third document, a report dated

February 7, 1996 and titled "Dealer Year 2000 Plan," set

forth the updated plan for the New AC dealership:"Monitor

market conditions -- future viability is questionable."

We are unpersuaded that these documents establish a

genuine issue that GM, prior to New AC's 1996 request to

add a Volkswagen dealership, made a decision to terminate

New AC's Chevrolet franchise. Significantly, none of these

documents refers to a decision by or an intent on the part

of GM to end its franchise relationship with New AC. In

these documents, GM does call New AC's future financial

viability into question, but there is no indication that, at

the time these documents were drafted, GM had concluded

that these economic worries warranted the termination of

New AC's Chevrolet dealership.

To be sure, New AC could be asking us to infer from the

concerns expressed by GM in these documents over the

continued viability of the New AC franchise that, at some

point subsequent to February 1996 (the date of the most

recent of the three documents, the "Dealer Year 2000

Plan"), GM arrived at the conclusion that termination was

necessary, and opportunistically employed New AC's 1996

Volkswagen line addition to mask its true motivation.13 In

_________________________________________________________________

13. Of course, concerns over the continued financial viability of a

franchise are likely to constitute legitimate, reasonable business reasons

38

light of the record evidence, however, we believe that "this

is not a reasonable inference from the evidence but instead

is a leap of faith." Northview Motors, Inc. v. Chrysler Motors

Corp., 227 F.3d 78, 95 (3d Cir. 2000). Contrary to New AC's

contentions concerning GM's bad faith, the record evidence

indicates that in the period between the time that New AC

informed GM that it had decided to operate a Volkswagen

franchise and the time that GM informed New AC of its

final decision to terminate New AC's Chevrolet franchise--

importantly, a period that spanned over one-and-a-half

years--GM actually sought to preserve its franchise

relationship with New AC.

New AC first informed GM of its decision to seek a

Volkswagen franchise on April 2, 1996. Were GM simply

using the addition of this vehicle line as a pretext to

implement its predetermined decision to eliminate the New

AC franchise, one would expect New AC's termination to

occur shortly after this notification. Yet, even after again

informing New AC on June 24, 1996 that it was opposed to

the Volkswagen addition, GM delayed for over eighteen

months before finally advising New AC on January 5, 1998

that its Chevrolet franchise was terminated. In the

intervening period, GM sent New AC repeated warning

letters, furnishing New AC with numerous opportunities to

relinquish its Volkswagen franchise and thereby preserve

its franchise relationship with GM. In fact, as late as May

13, 1998, the date on which the District Court heard oral

argument on New AC's motion for a preliminary injunction

barring its franchise termination, GM's counsel represented

to the Court that GM was willing to continue New AC's

Chevrolet franchise provided that New AC ceased offering

the Volkswagen line.

Moreover, GM did not simply issue warnings to New AC;

rather, GM sought to forge a compromise position,

addressing New AC's desire to add another vehicle line by

offering to help establish an Oldsmobile line at New AC's

_________________________________________________________________

for the franchise's termination. Therefore, we assume arguendo, as we

believe New AC would like us to, that GM's pessimistic assessment of

New AC's potential future performance was unwarranted and unjustified.

39

dealership and indicating that GM was willing to supply

financial support to New AC. Of course, GM insisted that

any compromise include New AC's abandonment of the

Volkswagen franchise, but New AC steadfastly refused to

take such an action.14 In light of this evidence, we cannot

help but conclude that New AC has failed to establish a

genuine issue that GM acted in bad faith or out of an

improper, pretextual motive in terminating New AC's

Chevrolet franchise. Accordingly, we affirm the District

Court's grant of summary judgment in GM's favor on Count

III of the amended complaint and Count Two of the

counterclaim.15

_________________________________________________________________

14. At oral argument, New AC offered a new theory to explain the one-

and-a-half-year delay between New AC's addition of Volkswagen and

GM's notice of franchise termination. According to New AC, at around

the time in 1996 that New AC announced its intention to operate a

Volkswagen line, DiFeo Chevrolet, the only other Chevrolet franchisee in

Jersey City, was in the process of ending its operations and

relinquishing its Chevrolet franchise. Were GM at that time to implement

its predetermined decision to terminate New AC, it would be left with no

Chevrolet franchise representation in the Jersey City market area. Thus,

according to New AC, GM was forced to deal, and attempt to

compromise, with New AC.

We believe that New AC's proffered theory amounts to pure

speculation. Importantly, New AC points to no evidence in the record

providing factual support for this theory. For instance, for New AC's

account to remain logically consistent, it would need to be shown that

DiFeo, or some other Chevrolet franchisee, re-commenced operations in

Jersey City some time prior to GM's January 5, 1998 notice of

termination to New AC (so that GM could terminate New AC and still

retain a single Chevrolet franchisee in Jersey City). We could find no

such evidence in the record before us, however.

15. New AC also contests the District Court's grant of summary

judgment in GM's favor on Count Three of New AC's counterclaim, which

alleges that GM violated S 56:10-7 of the NJFPA when it "impose[d]

unreasonable restrictions upon NEW AC, as a franchised motor vehicle

dealer, relative to the assertion of its legal or equitable rights

respective

to its Chevrolet/Geo franchise." New AC asserts that the Court

erroneously granted summary judgment here because it mistakenly

believed that New AC waived its right to oppose GM's summary judgment

motion by failing to respond to the motion, and/or because the Court

mistakenly assumed that its disposition of Count Two of the

40

D.

In short, we believe that none of New AC's challenges

with respect to the District Court's March 8, 2000 order

necessitate reversal of that order. Accordingly, the District

Court's March 8, 2000 order will be affirmed in its entirety.

III. The January 13, 1999 Order

New AC's other principal arguments in this appeal

challenge the District Court's January 13, 1999 order

which dismissed inter alia Count One of New AC's

counterclaim, alleging that GM's course of conduct violated

the ADDCA, and Count Four, alleging that GM's actions

violated the express and implied terms of the Dealer

Agreement. Our review of a district court's decision

granting a motion to dismiss a claim under Fed. R. Civ. Pro

12(b)(6) is plenary. See Weston v. Pennsylvania , 251 F.3d

420, 425 (3d Cir. 2001); Lorenz v. CSX Corp., 1 F.3d 1406,

1411 (3d Cir. 1993). We accept all factual allegations in the

complaint as true, and we draw all reasonable inferences in

the light most favorable to the non-movant. See Weston,

251 F.3d at 425. We may affirm a 12(b)(6) dismissal only if

it is certain that no relief could be granted to the non-

movant under any set of facts which could be proven. See

id.

A. Count One (ADDCA)

1.

In Count One of its counterclaim, New AC alleges that

GM's actions toward it amounted to a violation of the

_________________________________________________________________

counterclaim controlled its disposition of Count Three. Examining the

District Court's March 8, 2000 decision, it is clear that the Court

neither

relied on a waiver theory nor confused its Count Two analysis with its

Count Three analysis. Rather, the Court granted summary judgment for

GM on Count Three for the independent reason that New AC failed to

create a genuine issue as to the unreasonableness of the franchise

requirements imposed on New AC. New AC does not challenge this

conclusion on appeal and, accordingly, we will affirm the Court's grant

of summary judgment on Count Three.

41

ADDCA. "The ADDCA is a remedial statute enacted to

redress the economic imbalance and unequal bargaining

power between large automobile manufacturers and local

dealerships, protecting dealers from unfair termination and

other retaliatory and coercive practices." Northview Motors,

Inc. v. Chrysler Motors Corp., 227 F.3d 78, 92 (3d Cir.

2000). The substance of the ADDCA cause of action is set

forth principally in 15 U.S.C. S 1222, which authorizes an

"automobile dealer" to "bring suit against any automobile

manufacturer engaged in commerce . . . by reason of the

failure of said automobile manufacturer . . . 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." 15 U.S.C.

S 1222. Thus, to make out an ADDCA violation, four

elements must be established: (1) that the plaintiff is an

automobile dealer; (2) that the defendant is an automobile

manufacturer engaged in commerce; (3) that there is a

manufacturer-dealer relationship embodied in a written

franchise agreement; and (4) that the defendant

manufacturer failed to act in good faith, thereby injuring

the plaintiff dealer. See Northview, 227 F.3d at 93.

The first three elements of an ADDCA claim are clearly

established, and thus the dispositive issue is whether, in

Count One, New AC sufficiently pleaded GM's failure to act

in good faith, as that term is understood in the ADDCA

context. Crucial at this point is the understanding that the

definition of "good faith" contained in the ADDCA is

specialized and narrow. An automobile dealer cannot

establish lack of good faith merely by demonstrating that

the manufacturer acted arbitrarily, unreasonably, or in a

generally unfair manner; rather, the dealer must establish

that the manufacturer's conduct constituted "coercion,

intimidation, or threats of coercion or intimidation" directed

at the dealer. 15 U.S.C. S 1221(e).16

_________________________________________________________________

16. The full text of 28 U.S.C. S 1221(e)'s"good faith" definition is as

follows:

The term "good faith" shall mean the duty of each party to any

franchise, and all officers, employees, or agents thereof to act in

a

fair and equitable manner toward each other so as to guarantee the

one party freedom from coercion, intimidation, or threats of

coercion

or intimidation from the other party: Provided , That

recommendation, endorsement, exposition, persuasion, urging or

argument shall not be deemed to constitute a lack of good faith.

42

The narrowness of this definition is evident not only from

the statute's plain language, but also from the case law

construing S 1221(e). See, e.g., Northview, 227 F.3d at 93

("[I]t is well established that the duty of`good faith' dealing

imposed by the Act must be given a narrow, rather than

expansive, construction."). We have expressly stated that

coercion or intimidation is a necessary element of a cause

of action under the ADDCA, see id., and also have

elaborated on the type of conduct that will qualify as

coercion or intimidation.

We have explained that mere termination of a franchisee

does not, on its own, constitute an ADDCA violation, nor

does it afford a presumption that an ADDCA violation has

occurred. For instance, our decision in Buono Sales, Inc. v.

Chrysler Motor Corp., 449 F.2d 715 (3d Cir. 1971), made

clear that "termination [of the franchise] alone will not

violate the statute." Id. at 724; see also Milos v. Ford Motor

Co., 317 F.2d 712, 716 (3d Cir. 1963) ("The argument that

termination before expiration [of the franchise agreement] is

prima facie evidence of a violation is untenable. The Act

expressly conditions recovery of damages on a failure of the

manufacturer to act in good faith. Termination in itself does

not suffice."). Rather, to state an ADDCA claim, the danger

of termination "must have previously been used as a threat

in an attempt to force the dealer to do certain things.

Examples . . . include a manufacturer's pressure on a

dealer to accept cars, parts, etc. which the dealer does not

want or to handle exclusively or sell a quota of parts,

accessories, etc." Buono Sales, 449 F.2d at 724.

The type of coercion or intimidation rendered actionable

by the ADDCA occurs only when the automobile

manufacturer makes a "wrongful demand which will result

in sanctions if not complied with." Id. at 724 (internal

quotations and citations omitted); see also Rea v. Ford

Motor Co., 497 F.2d 577, 585 (3d Cir. 1974) ("[A] violation

of this Act results if there is a wrongful demand[made]

which will result in sanctions if not complied with.")

(internal quotation marks omitted). A demand is wrongful if

it pressures the dealer into taking an action it would not

take otherwise, see, e.g., id. at 583, 585 (upholding a jury

verdict finding Ford in violation of the ADDCA based on

43

Ford's threat to cease shipping Ford vehicles unless the

dealer resigned its Oldsmobile franchise in a neighboring

town), or impels the dealer into forfeiting its rights under

the dealer agreement, see, e.g., Northview, 227 F.3d at 93

(noting that "a manufacturer's coercion of a dealer into

relinquishing the right to sell competing car lines may be

actionable [under the ADDCA], at least if the dealer's

franchise agreement gives it the right to make such sales").

A manufacturer does not make a wrongful demand if it

merely insists that the dealer comply with a reasonable

obligation imposed by the franchise agreement. For

instance, in Globe Motors, Inc. v. Studebaker-Packard Corp.,

328 F.2d 645 (3d Cir. 1964), we set aside a jury verdict

finding that an automobile manufacturer acted in bad faith,

within the meaning of the ADDCA, by requiring its dealer to

meet net working capital financial requirements. See id. at

648. In so doing, we observed that the financial

requirements, which were expressly set forth in the

franchise agreement, made clear "that under the contract

the [manufacturer] had [the] right to insist on the [dealer's]

compliance with his contractual commitment as to net

working capital." Id.; see also Milos , 317 F.2d at 717-18

("An attempt to enforce an unambiguous contractual

obligation . . . can hardly be said to constitute coercion or

intimidation.").

This is not to say, however, that a manufacturer who

chooses to terminate a dealer can immunize itself from

ADDCA liability by simply pointing to a franchise

agreement provision with which the dealer ostensibly failed

to comply and assert that such provision was the basis for

its severance of the franchise relationship. Even if a

manufacturer contends that its termination decision was

motivated by a desire to enforce a reasonable contractual

provision and that it possessed "objectively valid reasons

for terminating its relations with a dealer," a franchisee can

state a claim for relief under the ADDCA by alleging that

the manufacturer possessed "an ulterior motive for its

action." Northview, 227 F.3d at 94; cf. Rea, 497 F.2d at 585

(stating that "[a] manufacturer does not breach its duty to

act in good faith by terminating a franchise when a dealer

has failed to fulfill a reasonable obligation or agreement

44

made in connection with the operation of the dealership,"

but stressing that "whether a manufacturer has acted with

sufficient justification to constitute good faith in bringing

pressure to bear on a dealer is a factual question the

determination of which will depend on the circumstances

arising in each particular case"). That is, a manufacturer's

insistence that a dealer adhere to its franchise obligations

can constitute a wrongful, sanction-backed demand (and

thus the type of coercion or intimidation necessary to state

an ADDCA violation), if the manufacturer's reliance on

those obligations is motivated by a pretextual, bad-faith

reason.

2.

With this understanding of legal framework governing

New AC's ADDCA claim in mind, we now turn to New AC's

specific allegations. Specifically, Count One avers that GM's

"course of wrongful conduct as set forth in this complaint

constitutes coercion, intimidation and/or threats of

coercion or intimidation within the meaning of 15 U.S.C.

S 1221 et seq., and is in violation ofS 1221 et seq., entitling

NEW AC to damages." As the language quoted above

demonstrates, Count One does not identify the precise

actions on the part of GM that New AC believes violate the

ADDCA, but it does refer us to the factual allegations

contained in the previous portions of the counterclaim (and

expressly incorporates the counterclaim's preceding

paragraphs by reference).

Examining all of the factual allegations, the District

Court determined that New AC's ADDCA claim was focused

on two sets of actions allegedly taken by GM: (1) GM's 1995

approval of the relocation of the DiFeo Chevrolet dealership

to a site closer to Route 440, a move that, according to New

AC, was intended to channel business away from New AC

and toward DiFeo; and (2) GM's decision to terminate New

AC based on the latter's decision to add a Volkswagen line

to its dealership.17 The Court concluded that neither of

_________________________________________________________________

17. On appeal, New AC does not dispute the District Court's decision

that these two sets of action are the "course of wrongful conduct" alleged

in Count One of its counterclaim.

45

these alleged actions stated a legal claim for relief under the

ADDCA. Given our obligation, at the 12(b)(6) stage, to

construe all allegations and to draw all reasonable factual

inferences in favor of the non-movant, see Weston, 251

F.3d at 425, we are constrained to disagree.

With respect to New AC's allegations concerning the 1995

DiFeo relocation, New AC's core claim appears to be set

forth in paragraph 93 of its counterclaim, which states:

[GM] . . . may well have a hidden agenda as[GM's]

Project 2000 is implemented which may include the

unlawful attempt to force NEW AC out of business by

establishing the DiFEO dealership at a site that

invades NEW AC's recognized area of focus of sales

penetration. Said action directs Chevrolet/Geo

business away from NEW AC to DiFEO; injures NEW

AC's heretofore existent Chevrolet business so

profoundly as to render NEW AC relatively

unprofitable.

Paragraph 93 can be fairly read as alleging that GM,

through the approval of DiFeo's relocation, brought

pressure to bear on New AC in order to impel New AC to

forfeit one of the rights to which it is entitled under the

franchise agreement, i.e., the right to continue as a

Chevrolet franchisee through the full life of the Dealer

Agreement, without having its franchise prematurely

terminated.

Although provisions of the Dealer Agreement do appear to

confer GM with the authority to make such a dealer

relocation--for instance, Article 4.3 provides that "the

relocation of an existing dealer," such as DiFeo, is "within

the sole discretion" of GM, "pursuant to its business

judgment"--we have noted above that a manufacturer

cannot shield itself from ADDCA liability by merely relying

on an objective provision of a franchise agreement when the

dealer claims that the manufacturer's reliance on such a

provision is pretextual. See Northview, 227 F.3d at 94

(stating that a manufacturer's "objectively valid reasons" for

a decision will not preclude an ADDCA claim, if the dealer

can demonstrate that the manufacturer possessed"an

ulterior motive for its action"). New AC makes just an

46

allegation of pretext in paragraph 93, claiming that GM's

reason for approving the DiFeo relocation was not

motivated by a legitimate business goal, but rather was

part of "Project 2000' "s "hidden agenda."

We reach a similar conclusion with respect to the second

set of actions alleged to violate the ADDCA, i.e., GM's

termination of New AC's Chevrolet franchise based on New

AC's "dualing" of a Volkswagen line. Here, New AC could

reasonably be characterized as asserting that it was entitled

to sell a Volkswagen line of vehicles under the terms of the

Dealer Agreement, and that GM's persistent refusal to

permit such "dualing" constituted an attempt by GM to

pressure New AC into forfeiting this entitlement. To be sure,

as the District Court recognized in its opinion, Article 4.4.2

unambiguously requires that a franchisee receive prior

written authorization from GM before adding a vehicle line

to its dealership, and GM's actions could be characterized

as a mere attempt to require New AC to comply with its

reasonable franchise obligations. Again, however, a dealer

can state an ADDCA claim against a manufacturer,

notwithstanding the manufacturer's reliance on an

objectively valid contractual provision, by establishing that

the manufacturer's motive is a pretextual or bad faith one.

New AC's complaint in this case, when construed under our

liberal Fed. R. Civ. Pro. 12(b)(6) standard, see Weston, 251

F.3d at 425, can be fairly read as alleging that GM's

reliance on Article 4.4.2 of the Dealer Agreement was not a

good-faith business decision, but rather a pretextual

attempt to have New AC forfeit its right to sell additional

non-GM vehicle lines.

3.

Although we conclude that the District Court erred in

dismissing Count One of New AC's counterclaim, we believe

the Court's error to be harmless, as it did not impact New

AC's substantial rights. See 28 U.S.C. S 2111 ("On the

hearing of any appeal . . . in any case, the court shall give

judgment after an examination of the record without regard

to errors or defects which do not affect the substantial

rights of the parties."); Fed. R. Civ. Pro. 61 ("[N]o error or

defect in any ruling or order or in anything done or omitted

47

by the court . . . is ground for . . . vacating, modifying, or

otherwise disturbing a judgment or order, unless refusal to

take such action appears to the court inconsistent with

substantial justice.").18 We hold a non-constitutional legal

error harmless if it is highly probable that the error did not

affect the judgment. See McQueeney v. Wilmington Trust

Co., 779 F.2d 916, 924-25 (3d Cir. 1985). Thus, in making

this harmless error determination, we must be well-

satisfied that the error did not prejudice a party, but we

need not disprove every reasonable possibility of prejudice.

See Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682,

694 n.15 (3d Cir. 1991); United States v. Jannotti, 729 F.2d

213, 219-20 & n.2 (3d Cir. 1984).

It is clear that New AC was not prejudiced by the District

Court's failure to liberally construe Count One of the

counterclaim. With respect to New AC's claim that GM

violated the ADDCA when it terminated New AC for

"dualing" a Volkswagen line, we note that the Court

permitted Count II of GM's amended complaint to proceed

to discovery. Count II of the amended complaint, seeking a

declaration that New AC's termination did not violate the

ADDCA, is a mirror image of the relevant portion of Count

One of the counterclaim, and thus necessarily requires an

adjudication as to whether GM's termination decision

amounted to coercion and intimidation within the meaning

of 15 U.S.C. S 1221(e). Count II remained alive through

discovery, thus affording New AC the opportunity to obtain

evidence of coercive or intimidating conduct on the part of

GM in connection with the Chevrolet franchise termination,

and to have that evidence considered by the District Court.19

_________________________________________________________________

18. Although Fed. R. Civ. Pro. 61 technically applies only to the district

courts, see Fed. R. Civ. Pro. 1 ("These rules govern the procedure in the

United States district courts . . . ."), the Supreme Court has admonished

the Courts of Appeals to "act in accordance with the salutary policy

embodied in Rule 61." McDonough Power Equip., Inc. v. Greenwood, 464

U.S. 548, 554 (1984). Moreover, the Supreme Court has observed that

the federal harmless error statute, 28 U.S.C. S 2111, applies directly to

the Courts of Appeals, and "incorporates the same principle as that

found in Rule 61." Id.

19. In its March 8, 2000 opinion, the District Court in fact granted

summary judgment in GM's favor on Count II, observing that New AC,

even after the completion of discovery, failed to furnish any facts

establishing coercion or intimidation on GM's part. See General Motors

Corp. v. New A.C. Chevrolet, Inc., 91 F. Supp. 2d 733, 740 (D.N.J. 2000).

48

We reach the same conclusion with respect to New AC's

claim that an ADDCA violation occurred when GM

approved the 1995 DiFeo relocation. This ADDCA claim is

inextricably linked with New AC's "Project 2000" bad faith

theory. See supra Part II.C (summarizing the"Project 2000"

theory). Paragraph 93 of the counterclaim, for instance,

explicitly alleges that the decision to approve DiFeo's

relocation was made as a result of GM's "Project 2000"

"hidden agenda." In essence, New AC is contending that

GM's relocation approval was motivated by a desire to

constructively or formally terminate New AC as a Chevrolet

franchisee so as to establish a competing dealership, DiFeo,

as GM's exclusive Chevrolet dealer in Jersey City, in

furtherance of a the single-dealer goal embodied in the

"Project 2000" business strategy.

This close nexus between New AC's "Project 2000" theory

and its bad faith allegations proves significant to our

harmless error analysis. Although an erroneous dismissal

of a claim will ordinarily work a prejudice on the party

asserting the claim, in that the dismissal will remove the

claim from the litigation and prohibit the party from

pursuing discovery with respect to the dismissed claim, the

factual and procedural circumstances of this case clearly

indicate that New AC's opportunity to gather evidence

regarding the "Project 2000" plan was not impeded in any

respect. The history of the proceedings before the District

Court demonstrates that New AC has had a full and fair

opportunity to participate in discovery concerning the

"Project 2000" theory, and thus had the chance to establish

a genuine issue as to whether GM did indeed act in bad

faith in its course of conduct toward New AC. As explained

at length supra in Part II.C, New AC failed to furnish the

record evidence necessary to create a genuine issue that

GM adopted, in bad faith, a strategy designed to eliminate

New AC's franchise in Jersey City. Thus, even if the

relocation portion of Count One had remained live in the

litigation, we are firmly convinced, based on the clear

record evidence in this case, that New AC would not have

succeeded in establishing a genuine issue that GM's

approval of the DiFeo relocation was actuated by a bad-

faith, "Project 2000" motive.

49

We are thus satisfied that the District Court's legal error

in construing the allegations made in Count One of the

counterclaim did not work a prejudice on New AC.

Accordingly, we will affirm the District Court's dismissal of

Count One.

B. Count Four (Breach of Dealer Agreement)

In Count Four of the counterclaim, New AC alleges,

rather inartfully, that certain actions taken by GM with

respect to New AC violated the express and implied terms

of the Dealer Agreement. The relevant allegations are

contained in paragraph 116 of the counterclaim, which

states in full:

During the ongoing term of the NEW AC franchise,

[GM] breached the expressed and implied terms and

provisions of those agreements: by relocating/adding a

Chevrolet/Geo franchise and thereby establishing a

Chevrolet/Geo dealership within an unreasonable

geographic and marketing distance from NEW AC; by

attempting to interfere with, render impotent and/or

otherwise terminate NEW AC's Chevrolet/Geo franchise

by destroying the economic viability of same by

relocating/adding a Chevrolet/Geo franchise and

dealership to a geographic location whereby it will draw

and drain significant business away from NEW AC, and

by affording and sanctioning DiFEO Chevrolet/Geo's

resultant and grossly unfair competitive advantage to

the direct disadvantage of and damage to NEW AC; by

refusing to comply with its self-imposed mediation

process, and by using the unfair competitive advantage

of the dualed DiFEO dealership to effect the actual or

constructive termination of NEW AC in order to reduce

the number of Chevrolet/Geo dealers in the New York

New Jersey Metropolitan area in accordance with the

dictates of Project 2000 as expressed.

Based on these allegations, New AC presents two

principal contentions. First, New AC asserts that the

District Court erred in deciding that Count Four did not

encompass a claim that GM breached an implied duty of

good faith and fair dealing by predetermining the outcome

50

of its own management review process. In addition, New AC

contends that the District Court erroneously concluded that

an implied duty of good faith and fair dealing did not even

arise in connection with the provision of the Dealer

Agreement governing GM's power to authorize and approve

the relocation of a competing franchisee.20 Before turning to

_________________________________________________________________

20. New AC also argues that the District Court erroneously construed

Count Four as not encompassing a claim that GM's refusal to permit the

addition of a Volkswagen line to New AC's dealership breached the

express terms of the Dealer Agreement. We agree that the Court's

reading of New AC's complaint was erroneous. To be sure, paragraph

116 of Count Four of the counterclaim, quoted above, does not reference

GM's refusal to permit New AC to operate a Volkswagen franchise.

Nonetheless, a few dozen paragraphs earlier, New AC clearly makes the

requisite allegation: In paragraph 92, New AC states that GM's "refusal

to permit NEW AC to establish a Volkswagen franchise. . . is in violation

of the FRANCHISE [i.e., the terms of the Dealer Agreement]." Although

New AC's complaint is awkwardly drawn--its breach of contract claim

based on GM's refusal to allow the "dualing" of a Volkswagen line is not

included with the general list of contract claims raised in Count Four,

but rather is set forth in paragraph 92, under the caption "The New AC

Volkswagen Franchise Acquisition"--given our liberal notice pleading

regime, see Weston, 251 F.3d at 429-30, we will not hold New AC's

drafting irregularities against it.

Nonetheless, we will affirm the District Court's dismissal of this

portion of Count Four, concluding that any error committed by the

District Court was harmless, as it did not work a prejudice on New AC.

See supra Part III.A.3. (setting forth the applicable harmless error

standard). Although the District Court dismissed Count Four of the

counterclaim, Count I of GM's amended complaint remained alive in the

litigation. The claim asserted by GM in that count--that GM's

termination of New AC, on the ground that New AC persisted in

operating a Volkswagen franchise over GM's objection, was lawful under

the terms of the Dealer Agreement--fairly encompasses New AC's claim

that GM's refusal to permit the Volkswagen addition represented a

breach of the franchise agreement. By adjudicating Count I, the District

Court would necessarily determine whether GM's objection to the added

Volkswagen franchise was in accordance with the Dealer Agreement

between GM and New AC. Because Count I remained active in the

litigation, proceeded to discovery, and was ultimately adjudicated by the

District Court, see General Motors Corp., 91 F. Supp. 2d at 738-39, we

conclude that the District Court's failure to fully apply the liberal

pleading rules to New AC's claims respecting GM's objection to the

Volkswagen franchise did not affect New AC's substantial rights, and

thus amounted to nothing more than harmless error.

51

each of these contentions, we note that the District Court

decided, and the parties on appeal agree, that Michigan law

governs the implied covenant of good faith issue. This is

because of the express choice of law provision contained in

Article 17.12 of the Dealer Agreement, which states in

relevant part that "[t]his agreement is governed by the laws

of the State of Michigan."21

1.

New AC contends that the District Court erred in

construing New AC's counterclaim when the Court

concluded that Count Four did not include a claim for a

breach of the implied covenant of good faith and fair

dealing based on the fact that GM allegedly predetermined

the outcome of its management review process. The District

Court declined to address this breach of contract claim on

the ground that such a contention appeared nowhere in

Count Four of the counterclaim. New AC submits that the

District Court's decision was erroneous, in that the Court

failed to liberally construe the allegations of New AC's

counterclaim. We disagree.

The franchise agreement between GM and New AC

establishes a private mechanism for the resolution of

disputes between the manufacturer and dealer arising out

of the respective obligations imposed on them by the

franchise arrangement. This mechanism is described in a

document entitled "Dispute Resolution Process for

Chevrolet, Pontiac, Oldsmobile or GMC Truck Dealers," and

the basic procedure is summarized in that document's

foreword. In essence, if a dealer is dissatisfied with one of

GM's decisions, believing it to be inconsistent with its rights

under the Dealer Agreement, its first recourse is to seek

"Division Management Review."

In general, the dealer initiates the "Division Management

Review" process by sending a letter to GM's General Sales

_________________________________________________________________

21. New Jersey gives effect to contracting parties' private choice of law

clauses unless they conflict with New Jersey public policy. See

Instructional Sys., Inc. v. Computer Curriculum Corp., 614 A.2d 124, 133

(N.J. 1992). We ascertain no such conflict here.

52

and Service Manager within 60 days of receipt of the

challenged decision. The letter must clearly request

management review and state the reasons for the dealer's

challenge. If the dealer objects to the result of the "Division

Management Review" process, it can seek binding

arbitration as an alternative to instituting a legal action,

but such binding arbitration will occur only if both the

dealer and GM mutually agree to pursue it. At the same

time, the administrator of the private dispute resolution

process can attempt to explore the option of informal, non-

binding mediation with GM and the dealer. Again, however,

the dispute will be mediated only upon the dealer's and

GM's mutual agreement. In considering New AC's

contention, we assume arguendo that Michigan law would

impose an obligation on GM to conduct its private dispute

resolution process in good faith. Nonetheless, examining

the substance of New AC's counterclaim, it is evident that,

in its counterclaim, New AC fails to allege the facts

necessary to show that a breach of such an implied

covenant occurred.

New AC's counterclaim does reference the Management

Review process described above in several places, although

no such allegations appear under the Count Four heading.

In various paragraphs of its counterclaim, New AC states

that it sought administrative review of two decisions made

by GM: GM's 1998 decision to terminate New AC's

Chevrolet franchise, and its earlier 1996 decision refusing

to permit the addition of a Volkswagen line to New AC's

dealership. First, in paragraph 72 of its counterclaim, New

AC alleges that on January 26, 1998, it requested

"Management Review of GM's January 5, 1998 termination

notice." Importantly, New AC does not, however, claim that

GM's response to this Management Review request was

improper in any fashion, let alone assert that GM's conduct

of the review procedure breached an implied covenant of

good faith. Put simply, with regard to administrative review

of GM's decision to terminate New AC's Chevrolet franchise,

New AC's complaint simply alleges that such review was

sought; it does not claim that GM's handling of the review

process was wrongful in any respect. Accordingly, we

cannot say that this allegation suffices for 12(b)(6) purposes

53

to state a claim for a breach of an implied covenant of good

faith.

New AC does go somewhat further in its allegations

concerning administrative review of GM's earlier 1996

decision to refuse New AC's request to add a Volkswagen

franchise to its dealership. In paragraphs 37 through 43 of

the counterclaim, New AC alleges that it sought

Management Review of this refusal, and, in paragraph 47,

New AC asserts that the Management Review that was

conducted "did not comport with the purpose, intent and

spirit of [GM's] mandated dispute resolution process."

Although this last allegation does maintain that GM's use

of the Management Review procedure was faulty in some

abstract sense, New AC fails to allege the reasons why GM's

internal review was unlawful in general, or in breach of an

implied covenant of good faith in particular. Moreover, New

AC's allegations do not establish the factual basis for this

claim. That is, New AC's counterclaim does not include

factual allegations demonstrating why the administrative

review GM conducted in connection with its 1996 refusal of

the Volkswagen addition did not comply with the purpose

of the Management Review process.

Perhaps New AC could have alleged that the review

omitted the steps specified in GM's "Dispute Resolution

Process" document, or that New AC was denied a

meaningful opportunity to present its case to the relevant

decision-makers, but New AC's counterclaim does not

contain these types of allegations. New AC's minimalist,

conclusory allegations--amounting, in essence, to nothing

more than a bare bones claim that GM's decision was

"wrongful in the air"--do not suffice to cross the 12(b)(6)

threshold. Cf. 2 James Wm. Moore, Moore's Federal

Practice S 12.34[1][b], at 12-61 to 12-63 (3d ed. 2001)

("Liberal construction has its limits, for the pleading must

at least set forth sufficient information for the court to

determine whether some recognized legal theory exists on

which relief could be accorded the pleader. . . .[C]onclusory

allegations or legal conclusions masquerading as factual

conclusions will not suffice to prevent a motion to dismiss.

While facts must be accepted as alleged, this does not

automatically extend to bald assertions, subjective

54

characterizations, or legal conclusions.") (internal quotation

marks, citations, and footnotes omitted).

Finally, New AC also relies on language in paragraph 116

of Count Four, which states inter alia that GM "breached

the expressed and implied terms and provisions" of its

franchise agreement "by refusing to comply with its self-

imposed mediation process." However, as set forth above in

our summary of the "Dispute Resolution Process"

document, such voluntary mediation is initiated only when

the administrator of the dispute resolution process seeks to

explore such an option with GM and the dealer, and

requires the mutual agreement of both GM and the dealer

before it can be pursued. Canvassing New AC's

counterclaim, we can find no allegation that either New AC

or the dispute resolution administrator requested the

institution of voluntary mediation, or that any such request

was denied. Thus, New AC's conclusory allegation that GM

breached an implied covenant of good faith "by refusing to

comply with its self-imposed mediation process" does not

clear the 12(b)(6) hurdle.

2.

New AC also contends that the District Court erred in

deciding, as a matter of law, that the Dealer Agreement

provision granting GM the power to approve the relocation

of competing franchisees did not give rise to an implied

covenant that GM would make that decision in good faith.

The District Court offered this construction in connection

with its dismissal of the portion of Count Four in which

New AC alleged that GM breached an implied covenant of

good faith and fair dealing by approving the 1995 relocation

of DiFeo Chevrolet, a competing franchisee, to a more

desirable commercial location, thereby siphoning business

away from New AC.22

Although Michigan law on the implied covenant of good

_________________________________________________________________

22. New AC made a virtually identical contention regarding GM's

approval of the DiFeo relocation in paragraph 93 of Count One of its

counterclaim, which appeared to allege inter alia that this relocation

approval violated the ADDCA. See supra Part III.A.2.

55

faith is rather sparse, it can be fairly said that Michigan

recognizes that such a covenant can arise in certain

circumstances, depending on the nature of the contractual

arrangement between the parties. Specifically, two

principles supply the framework for analyzing whether a

contractual provision gives rise to an implied covenant of

good faith. First, under Michigan law, "[w]here a party to a

contract makes the manner of its performance a matter of

its own discretion, the law does not hesitate to imply the

proviso that such discretion be exercised honestly and in

good faith." Burkhardt v. City Nat'l Bank of Detroit, 226

N.W.2d 678, 680 (Mich. Ct. App. 1975). At the same time,

"Michigan law does not imply the good faith covenant where

parties have `unmistakably expressed' their respective

rights." Hubbard Chevrolet Co. v. General Motors Corp., 873

F.2d 873, 877 (5th Cir. 1989) (applying Michigan contract

law).23

_________________________________________________________________

23. In its appellate brief, GM argues that this portion of Count Four of

the counterclaim does not state a claim for legal relief because Michigan

law does not recognize an independent cause of action for breach of an

implied covenant of good faith. This characterization of Michigan law is

technically correct, as Michigan courts have stated on numerous

occasions that "Michigan does not recognize an independent tort action

for an alleged breach of a contract's implied covenant of good faith and

fair dealing." Ulrich v. Federal Land Bank of St. Paul, 480 N.W.2d 910,

911 (Mich. Ct. App. 1991) (per curiam) (emphasis added); see also Kewin

v. Massachusetts Mut'l Life Ins. Co., 295 N.W.2d 50, 56 (Mich. 1980);

Dahlman v. Oakland Univ., 432 N.W.2d 304, 306 (Mich. Ct. App. 1988)

(per curiam). However, we do not believe this settled Michigan rule to be

applicable to New AC's specific claim. As the allegations set forth in

paragraph 116 of New AC's counterclaim make clear, see supra Part

III.B, New AC is not asserting that GM's alleged bad faith breached a

duty that GM owed to New AC independent of the contractual obligations

fixed by the Dealer Agreement and is not claiming that such a breach

should be independently actionable, cf. Kewin , 295 N.W.2d at 56;

Dahlman, 432 N.W.2d at 306. Rather, fairly read, Count Four of New

AC's counterclaim alleges that GM's conduct in approving the DiFeo

relocation breached an implied covenant of good faith emanating from

the terms of the Dealer Agreement. As noted in the text above, cases

such as Hubbard and Burkhardt make clear that, under Michigan law,

such an implied obligation can arise when, for instance, the specific

contractual terms make a party's performance under the contract

entirely discretionary.

56

New AC's allegation concerning GM's approval of the

DiFeo relocation thus required the District Court to

determine whether the terms of the Dealer Agreement

regarding GM's approval of competing dealers' relocations

gave rise, under the framework set forth above, to an

implied covenant that GM render that decision in good

faith. The pertinent provision of the Dealer Agreement is

Article 4.3, captioned "Establishment of Additional

Dealers," which provides:

[GM] reserves the right to appoint additional dealers

but [GM] will not exercise this right without first

analyzing dealer network planning considerations.

Prior to establishing an additional dealer within

Dealer's Area of Primary Responsibility, [GM] will

advise Dealer in writing and give Dealer thirty days to

present relevant information before [GM] makes a final

decision. [GM] will advise Dealer of the final decision,

which will be made solely by [GM] pursuant to its

business judgment. . . .

Neither the appointment of a dealer at or within

three miles of a former dealership location as a

replacement for the former dealer nor the relocation of

an existing dealer will be considered the establishment

of an additional Dealer for purposes of this [section].

Such events are within the sole discretion of [GM],

pursuant to its business judgment.

(emphasis added).

It is difficult (if not impossible) to read Article 4.3 as

anything other than a provision making the relocation

decision a matter for GM's own discretion, a provision that,

under existing Michigan contract law, would give rise to a

good faith obligation. Article 4.3, by its terms, states that

the "relocation of an existing dealer"--in this case, the

moving of DiFeo Chevrolet from its Kennedy Boulevard

location to a site closer to Route 440--is "within the sole

discretion of [GM], pursuant to its business judgment."

Michigan law, through decisions such as Burkhardt, clearly

teaches that it is these precise situations--situations in

which one party retains unfettered control over part of its

performance under a contract--that call most strongly for

57

the application of an implied covenant of good faith. See,

e.g., Burkhardt, 226 N.W.2d at 680 ("Where a party to a

contract makes the manner of its performance a matter of

its own discretion, the law does not hesitate to imply the

proviso that such discretion be exercised honestly and in

good faith."); see also Ferrell v. Vic Tanny Int'l, Inc., 357

N.W.2d 669, 672-73 (Mich. Ct. App. 1984) (per curiam)

(holding that a health club's authority, under its contract

with club members, to promulgate rules and regulations

governing the use of its facilities was sufficiently

discretionary to give rise to an implied covenant of good

faith and fair dealing); cf. Paradata Computer Networks, Inc.

v. Telebit Corp., 830 F. Supp. 1001, 1006 (E.D. Mich. 1993)

(observing that "discretion is the hallmark of the covenant"

of good faith).24

_________________________________________________________________

24. The District Court reached the opposite conclusion, deciding that

Article 4.3 of the Dealer Agreement unambiguously expressed the

obligations of the parties in regard to the DiFeo relocation decision, and

thus did not yield any implied covenant of good faith. In so doing, the

Court relied almost exclusively on Hubbard, a case from the Court of

Appeals for the Fifth Circuit, applying Michigan law to a dispute between

an automobile dealer and the vehicle manufacturer concerning the

relocation of a franchise, a dispute similar to the disagreement between

GM and New AC in this case over the DiFeo relocation.

In Hubbard, a Chevrolet franchisee sought to move its location to a site

other than the one specified in its dealership agreement. Much like the

agreement in this case, the contract in Hubbard required the franchisee

to receive prior written approval from GM for any move of the dealership

premises. See Hubbard, 873 F.2d at 874. GM denied its franchisee's

request, and the franchisee brought suit alleging inter alia that the

relocation provision requiring GM's prior written approval carried with it

an implied covenant that GM's decision would be made in good faith. See

id. at 875. The Fifth Circuit disagreed, concluding that the relevant

relocation provision did not give rise to any implied covenant, since it

unmistakably and fully expressed the respective rights of GM by

precisely identifying the dealer's original location and "flatly

preclud[ing]

relocation absent GM's approval." Id. at 878. The Court stressed that the

dealer agreement "gave GM the authority to approve or disapprove

relocation for its own reasons, and thus set out the limits of what the

contract requires of the parties." Id.

In this case, the District Court concluded that Article 4.3 of the Dealer

Agreement was analogous to the contractual provision at issue in

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However, our conclusion that the District Court

committed error in construing Michigan law does not

necessitate reversal of this portion of the Court's January

13, 1999 order, because we consider this error to be

harmless. See supra Part III.A.3 (setting forth the applicable

harmless error standard). It is abundantly clear from New

AC's amended counterclaim, its appellate brief, and its

contentions at oral argument, that New AC's theory behind

GM's bad faith is integrally and inextricably linked with the

manufacturer's "Project 2000" or "Plan 2000" business

strategy. For instance, paragraph 113 of Count Four of the

counterclaim expressly states that GM's relocation decision

was intended "to effect the actual or constructive

termination of NEW AC in order to reduce the number of

Chevrolet/Geo dealers in the New York New Jersey

Metropolitan area in accordance with the dictates of Project

2000 as expressed."

As we explained supra in Part II.C and again in Part

III.A.3, New AC has had a full and fair opportunity to

participate in discovery concerning the "Project 2000"

theory, in order to establish a genuine issue as to whether

GM did indeed act in bad faith. Yet, New AC has not

succeeded in establishing a genuine issue that GM adopted

a strategy designed to eliminate New AC's franchise in

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Hubbard, in that both clearly conferred manufacturer GM with the

authority to approve or disapprove the dealership move for its own

reasons. We believe this conclusion and rationale is at considerable odds

with the principle of Michigan law stated in Burkhardt, which makes

clear that an implied covenant of good faith arises precisely in those

situations "[w]here a party to a contract makes the manner of its

performance a matter of its own discretion." Burkhardt, 226 N.W.2d at

680. Most provisions conferring blanket discretion on a decision maker,

such as the relocation provision in Article 4.3, will give that decision

maker the power to make the choice for its own reasons; such is the

nature of the exercise of unfettered discretion. Were we to construe

Article 4.3's language--which on its face confers unfettered and

unbounded discretion to GM--as an unmistakable and exhaustive

expression of the parties' obligations, we would leave few if any

situations in which the implied covenant of good faith would ever arise.

We believe such a result would be in significant tension with extant

Michigan contract law.

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Jersey City and thus acted in bad faith in its course of

dealing with New AC. Therefore, even if the District Court's

interpretation of Michigan contract law had not been in

error, and New AC's claim concerning the DiFeo relocation

approval had remained active in the litigation, we are firmly

convinced, based on the clear record evidence in this case,

that New AC would not have succeeded in establishing a

genuine issue that GM's approval of the DiFeo move was

actuated by a bad-faith, "Project 2000" motive.

Consequently, we are satisfied that New AC was not

prejudiced by the District Court's error, and consider such

error to be harmless.

3.

In sum, we conclude that none of New AC's challenges

with respect to the District Court's January 13, 1999 order

necessitate reversal of that order. Accordingly, the District

Court's January 13, 1999 order will be affirmed in its

entirety.25

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25. In addition to the four principal points discussed in the text above,

New AC also raises a series of challenges to four other sets of orders,

and to the District Court's award of attorneys fees in GM's favor.

Because we find these arguments insubstantial and unpersuasive, we

deal with them summarily here.

The May 15, 1998 Order

Following the filing of its counterclaim, New AC moved for a

preliminary injunction blocking GM's scheduled termination of New AC's

Chevrolet franchise. The District Court denied New AC injunctive relief in

a May 15, 1998 order. The challenge to this order that New AC raises on

this appeal presents a straightforward application of the claim preclusion

doctrine, since the propriety of this preliminary injunction denial has

already been appealed to this Court by New AC on a prior occasion and

been resolved against New AC. All of the elements necessary to grant our

prior order claim preclusive effect are present: The prior order

represents

a final adjudication of the question whether New AC was entitled to

preliminary injunctive relief; that question was litigated before this

Court

by the same parties that are before us today; and New AC's current

appeal raises the exact question that was decided in our prior order. See

Corestates Bank, N.A. v. Huls America, Inc., 176 F.3d 187, 194 (3d Cir.

1999) (setting forth the elements of the claim preclusion doctrine). Quite

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IV. Conclusion

We affirm the orders of the District Court in all respects.

(Text continued on page 63)

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clearly, the claim preclusion doctrine does not permit New AC to re-visit

and re-argue issues already decided by this Court in the same litigation.

Accordingly, we dismiss the portion of New AC's appeal challenging the

District Court's May 15, 1998 order.

The August 26, 1998 Order

On June 16, 1998, New AC moved to dismiss GM's declaratory

judgment action under Fed. R. Civ. Pro. 12(b)(6). The District Court

denied New AC's motion in an order entered on August 26, 1998, and

New AC now challenges that dismissal. Our review of the District Court's

denial of a motion to dismiss is plenary. We accept all factual

allegations

in the complaint as true, and we draw all reasonable inferences in the

light most favorable to the non-movant. See Weston v. Pennsylvania, 251

F.3d 420, 425 (3d Cir. 2001). We believe that a mere examination of the

face of GM's original complaint suffices to establish its legal adequacy

for

12(b)(6) purposes, and therefore affirm the District Court's August 26,

1998 order.

The March 8, 1999 and April 28, 1999 Discovery Orders

New AC also questions the propriety of two orders entered by the

Magistrate Judge during the course of discovery, on March 8, 1999 and

April 28, 1999, respectively. According to New AC, as part of the

discovery conducted on Counts Two and Three of its counterclaim,

alleging that GM violated the NJFPA by inter alia imposing unreasonable

standards of performance on New AC in contravention of S 56:10-7(e),

New AC sought documents from GM regarding GM's dealer network. In

the March 8, 1999 order, the Magistrate Judge rejected New AC's broad

request, and instead required GM to furnish only those documents

related to New AC. On April 28, 1999, the Magistrate Judge denied New

AC's motion for reconsideration of the March 8, 1999 decision. On

appeal, New AC contends that this limitation was erroneous, since New

AC should have been allowed to gather information regarding GM's

relationships with other franchisees--e.g., the type of performance

standards imposed on those franchisees--in order to help establish that

the standards placed on New AC were unreasonable.

Under Fed. R. Civ. Pro. 72(a), once a magistrate judge to whom a

nondispositive pretrial matter is referred enters a written order, the

parties have ten days after service of that order within which to serve

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and file objections, which will be considered by the district court. See

Fed. R. Civ. Pro. 72(a). The Rule makes clear that, following this ten-day

period, "a party may not thereafter assign as error a defect in the

magistrate judge's order to which objection was not timely made." Id.;

see also Continental Cas. Co. v. Dominick D'Andrea, Inc., 150 F.3d 245,

252 (3d Cir. 1998). The record contains no indication that New AC

attempted to file objections to the Magistrate Judge's March 8, 1999 or

April 28, 1999 decisions with the District Court. Accordingly, New AC

has waived any challenge it had to these two discovery orders.

The August 4, 1999 Order

New AC also employs the instant appeal to challenge the District

Court's August 4, 1999 denial of its motion seeking the recusal of the

District Judge originally assigned to the litigation and the vacatur of

all

of the orders entered by that Judge during the course of the litigation.

In June of 1999, New AC brought this motion seeking the

disqualification of the Judge pursuant to 28 U.S.C.SS 144 and 455. The

District Court forcefully rejected New AC's motion both on the ground

that the motion was untimely and that it failed on the merits. We review

a district court's denial of a motion for recusal for abuse of discretion.

See Blanche Road Corp. v. Bensalem Township, 57 F.3d 253, 265 (3d

Cir. 1995). We agree with the District Court that New AC's recusal

motion fell outside of 28 U.S.C. S 144's 10-day time limit, see 28 U.S.C.

S 144 (providing that an affidavit setting forth the facts and reasons for

recusal "shall be filed not less than ten days before the beginning of the

term at which the proceeding is to be heard, or good cause shall be

shown for failure to file it within such time"). We also agree that it was

entirely lacking in merit. We therefore conclude that the Court did not

abuse its discretion in denying the motion, and affirm the Court's

August 4, 1999 order.

Attorneys Fees

In the conclusion of its opening appellate brief, New AC requests that

we set aside all attorneys fees and costs awarded by the District Court

to GM in this case. The District Court granted these fees in connection

with its determination, in its April 5, 2000 order, that New AC knowingly

infringed GM's trademarks and breached Article 17.5 of the Dealer

Agreement by continuing to use GM marks even after its termination as

a Chevrolet franchisee, and in connection with its May 11, 2000 order

holding New AC in civil contempt for failing to comply with the Court's

directive to cease the use of GM marks.

We find no basis for vacatur of the District Court's attorneys fees and

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A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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costs award. New AC has never challenged the Court's grant of summary

judgment in GM's favor on the trademark infringement claims or on the

claim that New AC's post-termination use of the marks constituted a

breach of Article 17.5, and has never argued that the Court's civil

contempt finding was erroneous. Because our jurisprudence makes clear

that "[a]n issue is waived unless a party raises it in its opening brief,"

Reform Party of Allegheny County v. Allegheny County Dep't of Elections,

174 F.3d 305, 316 n.11 (3d Cir. 1999) (citation omitted), and because we

believe that a mere conclusory request for relief, unaccompanied by any

proffered basis for the grant of such relief, does not suffice to raise an

issue, we will deny New AC's request to vacate the District Court's

attorneys fees and costs award.

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