Thursday, March 13, 2014
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Verdict Over Termination of Franchise Left Standing
By a MetNews Staff Writer
The California Supreme Court yesterday left standing an award of nearly $1.4 million to a motor vehicle dealer in a suit against its former franchisor.
The justices, at their weekly conference in San Francisco, denied petitions for review by both parties in Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corporation, U.S.A. (2013) 221 Cal. App. 4th 867.
In a ruling by Div. Six of this district’s Court of Appeal, Powerhouse prevailed on the major issue in the case, as the panel held its could sue the franchisor for unreasonable refusal to approve the sale of the dealership, without exhausting statutory procedures for protesting termination of the franchise.
The Court of Appeal affirmed the award of compensatory and punitive damages and attorney fees incurred in the litigation to Powerhouse, but rejected a cross-appeal by which Powerhouse and its bankrupt ex-owner, Timothy Pilg, sought additional damages and attorney fees.
Intentional Interference
A San Luis Obispo Superior Court jury found that Yamaha intentionally interfered with a contract for the sale of the dealership, committed a bad-faith breach of its contract with Powerhouse, and violated state franchising laws.
Pilg was a dealer for several years before entering into his franchise agreement with Yamaha in 1998.
In 2007, Powerhouse was incorporated and a new agreement was reached. A year later, however, Pilg closed the dealership, and began negotiations to sell to another Yamaha franchisee, MDK Motorsports.
According to testimony, Pilg contacted a Yamaha division manager, Rod Stout, and was informed that the sale of Powerhouse was possible. One week later, MDK and Powerhouse signed the agreement for sale, and Yamaha began processing MDK as a new franchisee.
Proceedings Begun
On July 10, 2008, representatives from all three companies attended a meeting to discuss and expedite the sale. At the same time, however, unbeknownst to Powerhouse or MDK, Yamaha began the Vehicle Code Sec. 3060 procedure for terminating its franchise agreement with Powerhouse.
Due to a misaddressed notice of termination, Powerhouse did not receive notice until July 26, 2008. Powerhouse filed a Sec. 3060 protest to the notice, Yamaha moved to dismiss, and the New Motor Vehicle Board granted the motion, finding that Yamaha should not be barred on “estoppel” principles from challenging the timeliness of the protest.
As a result of the ruling, MDK cancelled its purchase of Powerhouse. Pilg filed for bankruptcy in October 2009.
The trustee in bankruptcy filed suit, alleging, among other things, an unreasonable withholding of consent to sale and breach of contract and the covenant of good faith.
Argument Rejected
On appeal, Yamaha argued that it could not have acted unreasonably in considering the sale of Powerhouse, making Vehicle Code § 11713.3—which prohibits a franchisor from unreasonably withholding consent to the sale of a franchise—inapplicable, because after the board’s ruling, the franchise agreement terminated, leaving Powerhouse with nothing to sell and Yamaha nothing to approve.
Justice Steven Perren, writing for the Court of Appeal, disagreed, saying:
“We agree that the Board retains jurisdiction to decide the timeliness of a dealer protest, but such a determination does not preempt or limit a dealers’ section 11713.3 and common law rights. . . .While section 3060 provides an expeditious method for terminating a franchise under certain circumstances, it does not preclude a civil action when the facts show unreasonable conduct by the franchisor in violation of other statutes and general contract law. Section 3050, subdivision (e) provides that ‘[n]otwithstanding subdivisions (c) and (d), the courts have jurisdiction over all common law and statutory claims.’”
On the cross-appeal, however, the court agreed with Yamaha that Pilg could not personally recover damages under §11713.3, and that Powerhouse could not recover attorney fees incurred in the proceedings before the board.
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