Amicus Curiae Brief — George Lussier Enterprises, Inc. v. Subaru of New England, Inc.

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INTEREST OF THE AMICUS CURIAE

The interest of amicus curiae National Automobile

Dealers Association has been described in the preceding

motion for leave to file this brief in support of petitioners’

petition for writ of certiorari.’

STATEMENT OF THE CASE

The Decision Below

The Court of Appeals for the First Circuit held in this

case that a motor vehicle manufacturer does not violate

the Automobile Dealers Day in Court Act, 15 U.S.C.

§§ 1221-1225, when it withholds desired vehicles from its

dealere in an attempt to force the dealers to purchase

unwanted accessories. George Lussier Enterprises, inc. v.

Subaru of New England, Inc., 393 F.3d 36 (1st Cir. 2004);

Petitioners’ App. at 20. The First Circuit held that such

conduct was not coercion under the Act unless the dealers

had a contractual right to the vehicles withheld. Jd. The

First Circuit denied en banc review. .

Statutory Background

In 1956, Congress enacted the Automobile Dealers Day

in Court Act, 15 U.S.C. §§ 1221-1225. The ADDCA gives

automobile dealers the right to recover damages from

manufacturers who fail “to act in good faith in performing

' Pursuant to Rule 37.6 of the Rules of the Court, counsel for the

amicus curiae states that no counsel for any party authored this

brief in whole or in part and that no person or entity other than

the amicus curiae, its members or its counsel has made a

monetary contribution to the preparation or submission of this

brief.

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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. § 1222.

“Good faith” is defined as “the duty of each party to any

franchise .. . to ect in a fair and equitable manner toward

each other so as to guarantee the one party freedom from

coercion, intimation, or threats of coercion or intimation

from the other party.” 15 U.S.C. § 1221(e). However,

“recommendation, endorsement, exposition, persuasion,

urging or argument shall not be deemed to constitute a

lack of good faith.” Jd.

As the Court of Appeals for the Tenth Circuit has

pointed out, Congress explained that under the ADDCA:

“The existence of coercion or intimidation depends

upon the circumstances arising in each particular case

and may be inferred from a course of conduct. For

example, manufacturer pressure, direct or indirect,

upon a dealer to accept automobiles, parts, accessories,

or supplies which the dealer does not need, want, or feel

the market is able to absorb, may in appropriate

instances constitute coercion or intimidation. Similarly

coercion or intimidation may be found where the

manufacturer attempts to require the dealer to handle

exclusively, or sell a specified quota of, parts, accesso-

ries, and tools made or approved by the manufacturer.”

American Motors Sales Corp. v. Semke, 384 F.2d 192, 196

(10th Cir. 1967) (quoting 1956 U.S. Code Cong. & Admin.

News, p. 4603) (emphasis added).

The legislative history of the ADDCA shows that its

purpose was to provide a federal cause of action and a

counterweight to one-sided franchise contracts. H.R. REP.

No. 2850, 84th Cong., 2d Sess.. reprinted in 1956 U.S.

Code Cong. & Admin. News, p. 4596. Recognizing this

legislative intent, circuit courts have held that Congress

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enacted the ADDCA to create a new level of protection that

does not depend on contract terms. Hanley v. Chrysler

Motors Corp., 433 F.2d 708, 710 (10th Cir. 1970); Globe

Motors, Inc. v. Studebaker-Packard Corp., 328 F.2d 645,

646 (3d Cir. 1964).

SUMMARY OF THE ARGUMENT

The Court of Appeals for the First Circuit erred in

holding that the test under Automobile Dealers Day in

Court Act, 15 U.S.C. § 1221-1225, for a coercive sanction

is based solely on contractual rights. Moreover, the case

law demonstrates that there is disagreement among the

circuit courts regarding the proper test for “coercion”

under the Act. Although the circuit courts generally agree

that coercion requires a “wrongful demand” that will result

in “sanctions,” they disagree as to the meaning of these

terms. By granting the petition for writ of certiorari, the

Supreme Court can eliminate the disparate judicial results

and formulate a uniform test for coercion under this

important federal statute.

REASONS FOR GRANTING THE WRIT

I. INCONSISTENT CIRCUIT COURT HOLDINGS

AS TO THE TEST FOR “COERCION”

United States Supreme Court review of the decision by

the Court of Appeals for the First Circuit is needed to

clarify the “coercion” element of the Automobile Dealers

Day in Court Act (““ADDCA”), 15 U.S.C. §§ 1221-1225,

particularly as that element relates to a manufacturer

withholding desired vehicles in an attempt to force dealers

to do something that benefits the manufacturers, but not

necessarily the dealers. This practice has been addressed

in lower federal court rulings on many occasions since the

ADDCA’s enactment nearly 50 years ago, however, with

disparate results. This case presents an opportunity for

the Supreme Court to resolve the conflicts among the

circuit courts concerning an important federal statute that

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governs an industry that has a significant impact on the

United States economy.

Other than acknowledging that the purpose of the

ADDCA is to protect motor vehicle dealers from abuses

arising from a manufacturer’s superior bargaining power,

see New Motor Vehicle Bd. of Calif. v. Orrin W. Fox Co.,

439 U.S. 96, 100-01 & n.4 (1978), the Supreme “ourt has

never had an occasion to construe or apply the ..UDCA. As

explained earlier, the circuit courts have held generally

that a lack of good faith under the ADDCA requires a

showing of “coercion.” Wallace Motor Sales, Inc. v. Ameri-

can Motor Sales Corp., 780 F.2d 1049 (1st Cir. 1985); Milos

v. Ford Motor Co., 317 F.2d 712 (3d Cir. 1963), cert.

denied, 375 U.S. 896 (1963); Minson Piymouth, Inc. v.

Chrysler Motors Corp., 554 F.2d 1266 (4th Cir. 1977);

Hanley v. Chrysler Motors Corp., 433 F.2d 708 (10th Cir.

1970). Moreover, circuit courts have established a fairly

uniform test for “coercion,” construing it as requiring a

“wrongful demand” by the manufacturer that will result in

“sanctions” if ignored by the dealer. Autohaus Brugger, Inc.

v. Saab Motors, Inc., 567 F.2d 901, 911 (9th Cir. 1978),

cert. denied, 436 U.S. 946 (1978); Wallace Motor Sales, 780

F.2d at 1056.

Although there is general agreement about the two

components of the coercion test, material disagreements

exist among the circuit courts concerning what constitutes

a “wrongful demand” and what constitutes “sanctions.”

II. CONFLICT AMONG CIRCUIT COURTS AS TO

“WRONGFUL DEMAND”

Some circuit courts have adopted a test to determine

whether a manufacturer’s demand is coercive by deciding

whether a dealer’s compliance with a manufacturer’s

demand benefits only the manufacturer or both parties. In

Volkswagen Interamericana, S.A. v. Rohlsen, 360 F.2d 437,

442 (1st Cir. 1966), cert. denied, 385 U.S. 919 (1966), the

First Circuit noted that, when a dealer’s compliance with

a manufacturer’s demand would “benefit only, or primar-

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ily, the manufacturer,” the demand was “[pJarticularly

suspect.” This is known as the one-sided benefit test.

Although the First Circuit now labels its one-sided

benefit test as dicta, see George Lussier, 393 F.3d at 45;

Petitioners’ App. at 30, the test has been adopted by

several circuit courts, including the Eleventh and Second

Circuits. See Cabriolet Porsche Audi, Inc. v. American

Honda Motor Co., 773 F.2d 1193, 1210 (11th Cir. 1985),

cert. denied, 475 U.S. 1122 (1986) (distributor’s “suggestion

did not present a [demand] which benefit[ed] only, or

primarily, the manufacturer’ ”) (quoting Rohlsen, 360 F.2d

at 442); Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556,

561-62 (2d Cir. 1970) (demand that benefits only the

manufacturer is “[p]Jarticularly suspect,’ [and] can be

easily extorted by the manufacturer at the dealer’s ex-

pense”) (quoting Rohlsen, 360 F.2d at 442). In addition, as

petitioners point out in their petition, numerous district

courts have followed suit and adopted the one-sided benefit

test enunciated in Rohlsen. See Petitioners’ Pet. for Writ

of Cert. at 12-13 (collecting cases).

The fact that the First Circuit subsequently disavowed

its own one-sided benefit test coupled with the fact that

other courts have since adopted it only underscores the

need for Supreme Court review. Moreover, whether the

one-sided benefit test is adopted does not put an end to the

disagreement because, unlike the First Circuit in this case,

other circuit courts have construed a demand that requires

a dealer to buy unwanted vehicles or accessories to be a

wrongful demand and, hence, coercion under the ADDCA.

One of the principal evils that the ADDCA was designed

to stop was the exertion of pressure by manufacturers on

dealers to buy unwanted vehicles, parts, accessories or

supplies. Woodard v. General Motors Corp., 298 F.2d 121,

128 (5th Cir. 1962), cert. denied, 369 U.S. 887 (1962) (“The

principal effect of the bill . . . is to give the dealer a right

of action against the manufacturer, where the manufac-

turer fails to act in a fair and equitable manner so as to

guarantee the dealer freedom from coercion, intimidation

or threats of coercion or intimidation.’ ”) (citing S. REP. No.

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2073, 84th Cong., 2d Sess. 2); see also American Motors

Sales Corp. v. Semke, 384 F.2d 192, 196 (10th Cir. 1967)

(“manufacturer pressure, direct or indirect, upon a dealer

to accept automobiles, parts, accessories, or supplies which

the dealer does not need, want, or feel the market is able

to absorb, may in appropriate instances constitute coercion

or intimidation’ ”) (quoting 1956 U.S. Code Cong. & Admin.

News, p. 4603).

Unlike the First Circuit’s holding in this case, other

circuit courts have held that a manufacturer’s demand

that a dealer buy unwanted vehicles or accessories consti-

tutes a wrongful, coercive demand under the ADDCA. See,

e.g., David R. McGeorge Car Co. v. Leyland Motor Sales,

Inc., 504 F.2d 52, 56 & n.7 (4th Cir. 1974), cert. denied, 450

U.S. 992 (1975) (“it now appears to be settled that a

manufacturer's coercive attempt to force unwanted

automobiles on a dealer constitutes bad faith dealing for

purposes of the Act”); American Motors Sales, 384 F.2d at

196-97 (manufacturer's demand that the dealer order

unwanted cars in order to receive desired cars was coer-

cive).

Moreover, at least 35 states expressly prohibit manufac-

turers from coercing dealers into buying unwanted vehi-

cles, parts or accessories.” The First Circuit held in this

case and several other circuit courts have held in other

cases that the standard for coercion under the ADDCA is

2 Ala. Code § 8-20-4; Ariz. Rev. Stat. § 28-4458; Ark. Code

§ 23-112-403; Cal. Code § 11713.2; Colo. Rev. Stat. § 12-6-120;

Conn. Gen. Stat. § 42-133bb; Del. Code. § 4913; Ga. Code

§ 10-1-661; Idaho Code § 49-1613; 815 Ill. Comp. Stat. 710/4; Ind.

Code § 9-23-3-8; Ky. Rev. Stat. § 190.070; Me. Rev. Stat. § 1174;

Mass. Gen. Laws ch. 93B, § 4(b); Mich. Comp. Laws § 445.1573;

Minn. Stat. § 80E.12; Miss. Code § 63-17-73; Mo. Rev. Stat.

§ 407.825; Mont. Code § 61-4-208; Neb. Rev. Stat. § 60-1436; Nev.

Rev. Stat. § 5; N.H. Rev. Stat. § 357-C:3; N.M. Stat. § 57-16-5;

N.Y. Law § 463; N.C. Gen. Stat. § 20-304; Ohio Rev. Code

§ 4517.41; Or. Rev. Stat. § 650.130; Pa. Cons. Stat. § 12; R.I. Gen.

Laws § 31-5.1-3; S.C. Code § 56-15-30; Utah Code § Part 2; Vt.

Stat. tit. 9, § 4096; Va. Code § 46.2-1569; W. Va. Code

§ 17A-6A-10; Wis. Stat. § 218.0116(1)(h).

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the same as the standard under state law. George Lussier,

393 F.3d at 47 (collecting cases); Petitioners’ App. at 32;

see also Hubbard Chevrolet Co. v. General Motors Corp.,

873 F.°d 873, 876 (5th Cir. 1989), cert. denied, 493 U.S.

978 (1989); Gage v. General Motors Corp., 796 F.2d 345,

350-51 (10th Cir. 1986). However, the state laws provide

expressly that a manufacturer demand that dealers buy

unwanted vehicles, parts or accessories as a wrongful

demand and improper.

As a result, the debate extends beyond the circuit courts

and implicates the interpretation of state law as well.®

Logically, if the test for coercion under the ADDCA is

equivalent to the test under these state laws, a demand

that dealers buy unwanted accessories that is deemed

wrongful under state law must also be wrongful under the

ADDCA.

III. CONFLICT AMONG CIRCUIT COURTS AS TO

“SANCTIONS”

Circuit court holdings have been particularly disparate

in cases in which a manufacturer engages in the practice

of withholding desired automobiles from dealers in an

attempt to force the dealers to take some action that they

would not take otherwise. As with unwanted accessories,

the circuit courts are at loggerheads over the meaning of

“sanctions” in this situation.

For example, withholding desired automobiles has been

held to be a sanction in American Motors Sales Corp. v.

Semke, 384 F.2d 192 (10th Cir. 1967); Rea v. Ford Motor

Co., 497 F.2d 577 (3d Cir. 1974), cert. denied, 419 U.S. 868

(1974); David R. McGeorge Car Co. v. Leyland Motors

Sales, Inc., 504 F.2d 52 (4th Cir. 1974) cert. denied, 420

° To the extent that the First Circuit's contractual rights test is

deemed the test for coercion, NADA contends that state statutes

apply a broader standard. However, petitioners do not challenge

the First Circuit's ruling that the test for coercion is the same

under the ADDCA and state laws. Therefore, NADA accepts that

ruling for purposes of this brief.

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U.S. 992 (1975); Randy’s Studebaker Sales, Inc. v. Nissan

Motor Corp., 533 F.2d 510 (10th Cir. 1976); Juntkki

Imports, Inc. v. Toyota Motor Co., 335 F. Supp. 593 (N.D.

Ill. 1971); Evanston Motor Co. v. Mid-Southern Toyota

Distributors, Inc., 436 F. Supp. 1370 (N.D. Ill. 1977); Speed

Auto Sales, Inc. v. American Motors Corp., 477 F. Supp.

1193 (E.D.N.Y. 1979). However, withholding desired

automobiles has been held not to be a sanction in Southern

Rambler Sales, Inc. v. American Motors Corp., 375 F.2d

932 (5th Cir. 1967), cert. denied, 389 U.S. 832 (1967);

Overseas Motors, Inc. v. Import Motors, Ltd., 519 F.2d 119

(6th Cir. 1975), cert. denied, 423 U.S. 987 (1975); Colonial

Dodge, Inc. v. Chrysler Corporation, 11 F. Supp. 2d 737 (D.

Md. 1996), aff'd, 121 F.3d 697 (4th Cir. 1997).

In this case, the First Circuit held that withholding

desired vehicles was not coercion unless the dealers could

show that they were contractually entitled to the vehicles

withheld. George Lussier, 393 F.3d at 44; Petitioners’ App.

at 27. However, this holding defies Congress’ intent in

enacting the ADDCA, which was to protect dealers from

abusive and oppressive acts by manufacturers that result

from the manufacturer’s superior bargaining power over

its dealers. Orrin W. Fox, 439 U.S. at 100-01 & n.5. The

imbalance in bargaining power allows a manufacturer to

draft a franchise agreement with terms most favorable to

it and the dealer has no choice but to accept the agreement

without changes. See, e.g., STEWART MACAULAY, LAW AND

THE BALANCE OF POWER: THE AUTOMOBILE MANUFACTUR-

ERS AND THEIR DEALERS 9 (1966); Harold Brown and Jerry

Cohen, Franchising; Constitutional Considerations for

“Good Cause” State Legislation, 16 Hous. L. REv. 21, 26

(1978-79); Harold Brown, A Bill of Rights for Auto Dealers,

12 B.C. INDUS. & COMM. L. REV. 757, 769 (1971).

As a result of this well-known power imbalance, the

ADDCA created a new level of protection for dealers that

does not depend on contract terms. Hanley v. Chrysler

Motors Corp., 433 F.2d 708, 710 (10th Cir. 1970) (ADDCA

creates a new cause of action, other than breach of con-

tract, that did not exist before); see also Globe Motors, Inc.

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v. Studebaker-Packard Corp., 328 F.2d 645, 646 (3d Cir.

1964) (ADDCA “did not provide a new remedy for breach

of contract but created a new cause of action”). By making

a violation of the ADDCA dependent on showing that the

manufacturer breached its contractual obligations, the

First Circuit has eviscerated the ADDCA and rendered it

meaningless. Moreover, the First Circuit’s holding conflicts

with the holdings of the Third and Tenth Circuits. Id.

The facts in this case show that the dealers were re-

quired to purchase unwanted accessories (which is a

“wrongful demand”) or be denied access to over 30% of the

total supply of vehicles that Subaru of New England made

available to its dealers (which is a “sanction”). There is no

evidence that the dealers voluntarily agreed that Subaru

of New England could withhold 30% of its total vehicle

allocation from dealers who did not purchase unwanted

accessories. Subaru of New England exploited its superior

bargaining power to create a substantial pool of desired

vehicles to use for this purpose. Because manufacturers

unilaterally control the allocation of vehicles to their

dealers, it is virtually impossible for dealers to have a

contractual right to any specific vehicles.

Notwithstanding the absence of a contractual right, the

manufacturer’s control over the supply of vehicles is an

“important sanction” that the manufacturer can use to

force its will on its dealers. MACAULAY, supra, at 12. The

motor vehicle franchise system allows manufacturers to

avoid the large capital investment in sales outlets and

service facilities necessary to render consumer demanded

services by shifting these investment costs to their dealers.

See, e.g., Note, State Motor Vehicle Franchise Legislation:

A Survey and Due Process Challenge to Board Compensa-

tion, 33 VAND. L. REV. 385, 387 (1980); MACAULAY, supra,

at 6. Large capital investments make the dealer dependent

on the manufacturer and subject to the manufacturer’s

dictates, whether or not they are fair or reasonable.

MACAULAY, supra, at 11-12; BROWN, supra, at 760-61.

Whether a dealer receives “an appropriate selection of

different types of cars and trucks” from the manufacturer

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directly affects its return on investment. MACAULAY,

supra, at 6. Moreover, it is well known that franchise

agreements obligate the dealer to “sell as many cars as

dealers in similar areas sell.” Jd. at 7.

In this case, the dealer agreements drafted by Subaru of

New England provide that each dealer must achieve “a

level of registrations on an annual basis in the dealer’s

area of responsibility reasonably comparable, in respect of

import make automobile market penetration, to that

attained on the average by all other dealers appointed by

distributor in their respective areas of responsibility.”

Court of Appeals App. at 1003 (emphasis added); see also

George Lussier, 393 F.3d at 41 (“Essentially, the more cars

the dealer sold, the more cars they would earn in future

allocations.”); Petitioners’ App. at 22. Therefore, if a dealer

receives less than the average supply of vehicles relative

to the registrations in its market, the dealer may not

achieve average sales performance, which, in turn, makes

the dealer’s franchise vulnerable to cancellation by the

manufacturer.

Because of the substantial capital investments and

contractual obligations needed to achieve average sales

performance, dealers have no real choice other than to do

what is necessary to have full access to the entire pool of

motor vehicles that the manufacturer supplies to its

dealers. Thus, it is coercion for a manufacturer to withhold

a substantial portion of that pool from dealers who choose

not to buy unwanted accessories. Recognizing this reality,

the Supreme Court has held previously that “discrimina-

tion in the shipment of automobiles, as a means of influ-

encing dealers to use [the manufacturer’s wholly owned

credit subsidiary]” was a practice that “fall[s] within the

common understanding of ‘coercion’. . . .” Ford Motor Co.

v. United States, 335 U.S. 303, 317 (1948).

The appropriate test for coercion should be whether the

alleged coercive conduct leaves the dealers with no choice

but to comply with the manufacturer’s wrongful demand.

Such a test is consistent with the common meaning of the

term “coercion,” particularly with respect to economic

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coercion, which presumably is what Congress had in mind

when it enacted the ADDCA.* The word “coerce” means:

to restrain, control, or dominate, mollifying individual

will or desire (as by force, power, violence, or intimida-

tion) . . . to compel to an act or choice by force, threat,

or other pressure .. . to effect, bring about, establish

or enforce by force threat, or other pressure.

WEBSTER’S THIRD NEW INTERN’L DICTIONARY 439 (1986).

The common definition includes the use of economic

pressure to compel someone to do what he or she would not

choose to do otherwise.

Because the circuit courts disagree as to what consti-

tutes a “wrongful demand” and what constitutes “sanc-

tions” as those terms are used to describe coercion under

the ADDCA, this case presents an opportunity for the

Supreme Court to clarify the law and ensure consistent

legal heidings throughout the circuit courts.

CONCLUSION

The Court of Appeals for the First Circuit erred in

holding that the test for “coercion” under the Automobile

Dealers Day in Court Act is based solely on contractual

rights. Moreover, the case law demonstrates that there is

a disagreement among the circuit courts regarding the

proper test for coercion under the Act. Accordingly, the

Supreme Court should grant petitioners’ petition for writ

of certiorari in order to formulate a consistent and uniform

test for this important federal statute.

* The legislative history of the ADDCA focuses on the economic

coercion that dealers suffer at the hands of manufacturers after

the dealers have made substantial capital investments in

facilities, equipment and training to represe t the manufac-

turer’s products, as opposed to physical coercion. See, e.g.,

MACAULAY, supra, at 5-12; BROWN, supra, at 760-61.

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Respectfully submitted,

Paul R. Norman

Counsel of Record

Catherine Cetrangolo

Boardman, Suhr, Curry & Field LLP

One South Pinckney Street, Fourth FI.

P.O. Box 927

Madison, Wisconsin 53701-0927

(608) 257-9521

Counsel for Amicus Curiae

National Automobile Dealers Association