United States Court of Appeals, Fourth Circuit
United States Court of Appeals, Fourth Circuit
United States Court of Appeals, Fourth Circuit
2d 327
Daniel Lee Goldberg, Bingham, Dana & Gould, Boston, Mass., argued
(William N. Berkowitz, Boston, Mass., Joseph G. Finnerty, Jr., Piper &
Marbury, Baltimore, Md., Carol H. Lesnek-Cooper, General Motors
Corp., Detroit, Mich., on brief), for defendant-appellant.
Daniel Christopher Ohly, Hazel & Thomas, P.C., Baltimore, Md., argued
(Arnold M. Weiner, Bruce L. Mann, Baltimore, Md., Ronald D. West,
West & Feinberg, P.C., Bethesda, Md., on brief), for plaintiff-appellee.
William T. Lehner, Richmond, Va., James A. Moors, John P. Kitzmiller,
Nat. Auto. Dealers Ass'n, McLean, Va., for amicus curiae Nat. Auto.
Dealers Ass'n.
William H. Crabtree, Edward P. Good, Motor Vehicle Mfrs. Ass'n of
U.S., Inc., Detroit, Mich., Charles H. Lockwood, II, John T. Whatley,
Ass'n of Intern. Auto. Mfrs., Inc., Arlington, Va., Stephen M. Shapiro,
Kenneth S. Geller, Mayer, Brown & Platt, Washington, D.C., for amici
curiae Motor Vehicle Mfrs. Ass'n of U.S., Inc. and Ass'n of Intern. Auto.
Mfrs., Inc.
Before POWELL, Associate Justice (Retired), U.S. Supreme Court, sitting
The question in this case is whether a truck dealer has separate franchises for
purposes of state law in the different lines of vehicles it is authorized to sell.
The question of how a franchise should be defined grows out of General
Motors Corporation's (GMC) decision to discontinue manufacturing heavy duty
trucks. Numerous GMC Truck dealers across the nation have challenged the
impact of this decision on their businesses. Here, Central GMC, a Maryland
dealership authorized to sell light, medium, and heavy duty trucks, contends
that it had a separate franchise in heavy duty trucks that was impermissibly
terminated. The district court agreed and awarded Central over $2 million in
damages.
We reverse. Under the Maryland statute at issue, Central had one franchise
encompassing all three lines of trucks. Central's franchise therefore was not
terminated when GM discontinued a line of trucks that comprised only part of
that franchise. The Maryland statutory scheme governing the franchise
relationship was not intended to deter manufacturers from making adjustments
in their product mixes dictated by economic circumstances. Indeed, to hold this
discontinuance of an unprofitable product a franchise termination would risk
sanctioning an impermissible state restraint upon interstate commerce.
I.
3
by a new Motor Vehicle Addendum." The Truck Dealer Agreement stated that
"General Motors may discontinue any line of Product" and that GM would not
be liable for a delay in delivering products that was caused by "any
discontinuance of manufacture or sale."
4
In the fall of 1986, GMC began informing its truck dealers about the details of
the new enterprise. In September, GMC announced to its dealers including
Central that it had reached a tentative agreement with Volvo and that "it is
anticipated that not every GMC Truck dealer will be selected to be a part of the
new joint venture." In December 1986, GMC notified its dealers that it would
discontinue offering heavy duty trucks for sale on December 31, 1987 and that
the heavy duty truck addendum would expire on that date. The December letter
further stated that "the remaining motor vehicle addenda and the General
Motors Corporation Dealer Sales and Service Agreement will not be affected."
The Volvo GM corporation selected new dealers for its heavy duty trucks
generally from among the existing Volvo and GMC dealers. The selection of
dealers for the new corporation was conducted by a committee comprised of
three GMC representatives and three Volvo representatives. Because a sales
territory often contained both Volvo and GMC dealers, the committee
frequently had to choose among dealers. Central was not selected to be one of
the new enterprise's dealers. Consequently, when Central's heavy duty truck
addendum expired on December 31, 1987, new GMC heavy duty trucks would
no longer be available for sale nor would Central sell trucks manufactured by
the new corporation. Central retained, however, the right to sell and service
GMC light and medium duty trucks. Central also executed an agreement in
January 1988 enabling it to continue servicing GMC heavy duty trucks as well
as to work on Volvo GM trucks.
8
On December 30, 1987, Central brought an action against GMC alleging that
Central had a franchise in heavy duty trucks and that this franchise would be
wrongfully terminated under section 15-209 of the Maryland Transportation
Code if GMC canceled the heavy duty truck addendum. 1 The action was
originally brought before the Maryland Motor Vehicle Administration but was
removed by GMC to federal district court. The court, on summary judgment,
rejected GMC's principal argument that Central had one franchise in all GMC
trucks, not a separate franchise in heavy duty trucks, and that GMC had simply
exercised its right to withdraw from the heavy duty truck market. Finding GM
liable for a wrongful franchise termination, the district court then determined
the damages caused by the termination. The court rejected GM's argument that
it had a Seventh Amendment right to a jury trial on the issue of damages.
Following a bench trial, the court awarded Central $1,850,701 as the value of
its franchise and $277,605 in prejudgment interest.
II.
10
The critical issue in this appeal is whether Central's interest in the sale of heavy
duty trucks constitutes a franchise under Maryland law. Central contends that it
has a separate franchise in heavy duty trucks corresponding to the addendum to
the Truck Dealer Agreement. Central argues that its position is bolstered by the
fact that heavy duty trucks occupy a distinct niche in the truck sales market.
GMC responds that Central has only one GMC franchise that encompasses the
sale of light, medium, and heavy duty trucks. In GMC's view, when it withdrew
from the market for heavy duty trucks, Central's franchise remained intact as it
continued to sell light and medium duty trucks. We think GMC's position more
closely conforms to the statutory definition of franchise and more clearly
respects the distinction between discontinuing a product line and terminating an
entire franchise.
11
The starting point for our analysis is naturally the language of the Maryland
statute. See Dole v. United Steelworkers of America, 494 U.S. 26, 110 S.Ct.
929, 934, 108 L.Ed.2d 23 (1990). Section 11-125 of the Maryland
One written arrangement, the GMC Dealer Sales and Service Agreement,
governs the relationship between GMC and Central. This agreement provides
Central with the right to use the GMC trademark. All the trucks distributed to
Central under the Agreement were sold under a single trade name, "GMC
Truck." The Agreement also gave Central the right to identify itself as "an
authorized GMC Truck dealer." Plainly this evidence indicates that Central has
one statutory franchise in GMC trucks and that the sale of heavy duty trucks
was simply one part of that franchise. Even Central at times appears to
recognize the efficacy of this approach to defining its franchise. At one point in
its administrative complaint, for example, Central speaks of holding "a
franchise to sell GMC trucks." Later in the complaint, Central terms heavy duty
trucks a "component" of its GMC franchise. Furthermore, both before and after
the heavy duty truck models were discontinued, Central identified itself as a
GMC Truck dealer.
14
15
In our view, the addenda are not separate arrangements between the parties, but
rather constituent parts of the whole Truck Dealer Agreement. See Lippo v.
Mobil Oil Corp., 776 F.2d 706, 713 n. 13 (7th Cir.1985) (franchise agreement
consisting of five separate documents executed at the same time is to be read as
a whole). "[W]hen interpreting any contract provision, the agreement must be
considered as a whole." NSC Contractors, Inc. v. Borders, 317 Md. 394, 564
A.2d 408, 412 (1989). Bethesda Ford, a case relied upon by Central, is not
inconsistent with this basic approach to contract interpretation. In that case, the
court concluded only that agreements or understandings outside the original
Sales and Service Agreement on the leasing of a dealer's facilities could be
considered part of its franchise. 572 F.Supp. at 630. Bethesda Ford did not
involve the issue of whether a product line constitutes a franchise nor did the
case sanction dividing a dealership into separate franchises corresponding to
the addenda attached to its main Dealer Agreement. Interpreting the Dealer
Agreement as a whole avoids a basic inconsistency in Central's position.
Central contends that it has three franchises corresponding to the three lines of
trucks it sold, but to follow Central's own logic it would have four separate
franchises corresponding to the four addenda. Although two of the four
addenda pertain to medium duty trucks, not even Central suggests that it has
two separate medium duty truck franchises.
16
Central simply exaggerates the legal significance of the addenda. The addenda
merely listed which trucks were available for purchase. They were subsidiary,
i.e. addenda, to the main contract and were frequently changed when model
offerings varied. When GMC canceled the heavy duty truck addendum, as
GMC had reserved its right to do, Central continued to receive other GMC
trucks and its rights under the Dealer Agreement remained in effect. In short,
Central continued to operate as a GMC Truck dealer well after GMC ceased to
make heavy duty trucks.
17
Central also contends that it has a franchise in heavy duty trucks because GMC
treated the sales and services of these trucks differently than it treated light and
medium duty trucks. See Arthur Glick Truck Sales, Inc. v. General Motors
Corp., 865 F.2d 494 (2d Cir.1989); General Motors Corp. v. Gallo GMC Truck
Sales, Inc., 711 F.Supp. 810 (D.N.J.1989). For example, Central notes that
GMC assigned it a different area of geographic responsibility for heavy duty
trucks than it did for the other two truck lines. We are unpersuaded, however.
The different assignments not surprisingly stemmed from variations in demand
for various truck models over geographic regions. Designating different regions
for different products creates no separate franchises in each product when
Central is the selling agent for them all.
18
The Maryland statute defines franchise not in terms of whether product lines
occupy a distinct niche or are geared to different markets, but rather in terms of
written arrangements and the license and right to use a trade name. To adopt
Central's proposed approach is not only contrary to the statutory directive but it
would also introduce substantial uncertainty into business relationships. To
determine whether a franchise existed, parties could no longer look simply to
the written arrangement governing their relationship. Instead, the question of
franchise existence would require detailed studies measuring product
differentiation as well as inquiries into a manufacturer's varying strategies for
designing, distributing, and marketing different product lines. The relative
Central attempts to shift the focus, however, from the language of the statute to
its asserted purpose. According to Central, any reading of the statute must be
informed by its overarching purpose of protecting vehicle dealers from the
superior bargaining power possessed by vehicle manufacturers. To give effect
to these protections, Central contends that GMC's withdrawal of the heavy duty
truck line should be treated as a franchise termination. We disagree for three
reasons: (1) general purposes are a less reliable guide to statutory interpretation
than the specific language chosen by the legislative branch to implement those
purposes; (2) the general purpose of protecting dealers against abuses of
superior bargaining power was not intended to insulate them from every
adverse turn in a market economy; and (3) a reading of the Maryland statute
equating the discontinuance of a product line with impermissibly terminating a
franchise would raise significant commerce clause concerns. As we have
addressed the specific statutory language in the preceding section, we now turn
to our second and third points of response to Central's position in this case.
A.
20
21
Central is certainly correct that the statute's focus on preventing frauds and
other abuses was intended to prevent overbearing behavior by franchisors
which often possess greater bargaining power than do their franchisees. See
Bethesda Ford, 572 F.Supp. at 630. In this case, however, GMC did not exploit
any disparities in bargaining power vis-a-vis Central. It simply withdrew from
the heavy duty truck market in a non-discriminatory fashion by canceling all
pre-existing heavy duty truck addenda. GMC took these actions in a good faith
effort to stem the rising tide of losses associated with its presence in the heavy
duty truck market. We do not believe that economic restructuring of this sort is
a form of abuse proscribed by the dealer protection statute; rather it is a
legitimate response to changed market conditions. See Jimenez v. BP Oil, Inc.
853 F.2d 268, 272-73 (4th Cir.1988); Medina & Medina v. Country Pride
Foods, Ltd., 858 F.2d 817, 823 (1st Cir.1988) (reporting opinion of the
Supreme Court of Puerto Rico on a certified question); American Mart Corp. v.
Joseph E. Seagram & Sons, Inc., 824 F.2d 733, 734 (9th Cir.1987).
22
There are, to be sure, many contentions in this case revolving around the
question of whether GMC's decision to participate in the joint venture
constituted an illegal abuse of its power. Central argues that GMC's continued
manufacture of its Brigadier model heavy duty truck for a year after the
addendum was canceled evidences a continued participation in the market.
GMC responds by noting that while it is true that GMC continued to
manufacture the Brigadier for one year, GMC did so as a subcontractor for the
joint venture and sold Brigadiers only to the venture. Central points to several
other facts which it claims are proof that GMC did not withdraw from the
market. These include the following: the inclusion of "GMC" in the brand
name of the joint venture's trucks; provision of GMC truck specifications,
tooling, and fixtures to the joint venture; mandatory compatibility of the joint
venture's truck engines and transmissions with those produced by a General
Motors division; and GMC's right to elect a portion of the joint venture's board
of directors. Not surprisingly, GMC argues that other facts prove that it has
withdrawn from the market, and these include the following: Volvo owns 76
percent of the stock in the joint venture and controls seven of the ten seats on
the board; the joint venture is a separate, independent entity with its own
management team, manufacturing facilities, and dealer network; GMC has
ceased production, dismantled assembly lines, and discharged personnel in its
former heavy duty truck division; Volvo contributed far more assets to the joint
venture than GMC; and Volvo controls the day-to-day operations of the joint
venture.
23
We need not delve into this hornets' nest of charges and countercharges because
to do so would only obscure the central point of the analysis: the cessation of
production of heavy duty trucks was a legitimate, lawful reaction by GMC to
unfavorable market conditions. Once the decision to cease production of heavy
duty trucks had been made, GMC faced the choice of complete liquidation of
the division or investment of salvageable heavy duty truck assets in a joint
venture. GMC opted for the latter course, and we do not believe this to be
legally infirm. We again emphasize that it is not the fact that GMC's market
response took the form of a joint venture that is controlling so much as the fact
that the venture itself represented a legitimate response on the part of GMC to a
pronounced decline in the market position of its product. Such a legitimate,
nondiscriminatory response to changing commercial realities does not
constitute an abuse of superior bargaining power and hence does not run afoul
of the purpose of the Maryland statute.
24
B.
25
Central nonetheless asserts that damage awards, unlike injunctions, have only
an incidental impact on interstate commerce. See Gallo, 711 F.Supp. at 819.
The Supreme Court, however, has noted that impermissible state "regulation
can be as effectively exerted through an award of damages as through some
form of preventive relief." San Diego Bldg. Trades Council v. Garmon, 359
U.S. 236, 247, 79 S.Ct. 773, 780, 3 L.Ed.2d 775 (1959). Moreover, the threat of
substantial damage awards, by making the cost of exiting the market
prohibitive, could have the same effect on GMC's operations as if GMC were
formally ordered to continue producing unprofitable heavy duty trucks for the
Maryland market.
27
IV.
28
29
REVERSED.
The statute also lists two additional purposes: "to prevent the creation or
perpetuation of monopolies and to promote the public safety and welfare." 1972
Md. Laws, ch. 544 at 1505. We think these purposes are largely derivative of
those enumerated in the text of this opinion