UNIVERSITY CHRYSLER PLYMOUTH INC v. CHRYSLER CORPORATION

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Court of Appeal, Fourth District, Division 1, California.

UNIVERSITY CHRYSLER–PLYMOUTH, INC., et al., Plaintiffs, Respondents and Cross–Appellants, v. CHRYSLER CORPORATION, Defendant, Appellant and Cross–Respondent.

No. D016750.

Decided: August 19, 1994

Baker, Hostetler, McCutchen Black, Baker & Hostetler, Michael M. Johnson, Fredric S. Abrolat, Franklin H. Wilson, Ralph Zarefsky, Los Angeles, Solomon, Ward, Seidenwurm & Smith and Murray M. Bankhead, San Diego, for defendant, appellant and cross-respondent. James S. Marinos,Benjamin R. Seecof, and Robert J. Fredrick, San Diego, for plaintiffs, respondents and cross-appellants.

This case has been here before—more than once.   For all the paper it has generated, at this point the parties' dispute is fairly simple.   Plaintiffs and respondents University Chrysler–Plymouth, Inc., and Robert H. Baker (collectively University) do not believe defendant and appellant Chrysler Corporation (Chrysler) should have opened a competing Chrysler–Plymouth dealership on Balboa Avenue in the Kearny Mesa area of San Diego.   University also believes Chrysler should have permitted University to act as a dealer for a line of cars built for Chrysler by the Italian manufacturer, Maserati.

In the trial court the jury agreed with University and awarded University $600,480 in damages caused by the opening of the Kearny Mesa dealership.   The jury also awarded University $50,700 in damages caused by Chrysler's refusal to provide University with the Maserati line of cars.

We reverse.   As to the Kearny Mesa dealership, we find no legal theory which supports the damage awards.   Nothing in the Vehicle Code or the parties' dealership agreement impaired Chrysler's right to open the competing dealership.   With respect to the Maserati line of cars, we find University failed to exhaust its available administrative remedies.

FACTUAL AND PROCEDURAL HISTORY

The parties' dispute over Chrysler's plan to open a dealership in Kearny Mesa commenced in 1983.   At that time Chrysler gave University notice of Chrysler's plan to open the competing dealership and University filed a protest with the New Motor Vehicle Board (Board).   University's protest alleged Chrysler did not have good cause to open the dealership within the meaning of Vehicle Code 1 sections 3062 and 3063.   Under sections 3062, 3063 and 507,2 the Board, upon a proper showing, is empowered to prevent a manufacturer from opening a dealership within 10 miles of an existing dealer of the same “line-make.”   The existing dealer must demonstrate that in light of its investment, the competition which exists, the service being provided, and the effect of the proposed dealership on the market in the area, no good cause to open the new dealership exists.3

Because of constitutional challenges to the composition of the Board, the Board was not able to rule on University's Kearny Mesa protest.   The trial court, however, was able to rule on the issue raised by University's protest and the trial court found Chrysler had good cause to open the Kearny Mesa dealership.   The trial court vacated an injunction which had prevented Chrysler from opening the dealership and issued another injunction which prevented the Board from interfering with Chrysler's ability to open the Kearny Mesa dealership.

In our opinion in University Chrysler–Plymouth, Inc. v. New Motor Vehicle Board, ((Aug. 30, 1988) D006225, D004828 [nonpub. opns] ) we found that because the trial court's ruling on the good cause issue had not been challenged by University, the ruling was binding in any further proceedings before the Board or superior court.   Thus we dismissed University and the Board's respective appeals which had been based on contentions that the trial court had no power to permit the Kearny Mesa dealership to open.

At the time of our opinions in D006225 and D004828, University's damage claims had not been considered by the trial court.   In 1992 University's damage claims finally went to trial.   At the close of trial the jury was asked to determine University's claims that Chrysler had unlawfully attempted to terminate University's dealer agreement, caused inventory shortages, interfered with University's attempt to sell the dealership, refused to sell another dealership to Robert Baker, the principal shareholder of University, established the Kearny Mesa dealership and failed to offer University a Maserati dealership.

By way of its responses to special verdict forms, the jury found in favor of Chrysler on all the claims except the Kearny Mesa and Maserati claims.   On those claims the jury awarded University a total of $631,080.   In responses to special interrogatories, the jury further found that Chrysler had violated section 11713.2, subdivision (e),4 and the implied covenant of good faith and fair dealing.   Finally, the jury found that Chrysler had not acted with any malice, oppression or fraud.

Both University and Chrysler filed post-trial motions 5 which the trial court denied.   Following entry of judgment Chrysler filed a timely notice of appeal and University filed a timely notice of cross-appeal.

DISCUSSION

IChrysler's AppealA. Kearny Mesa

As we stated at the outset, we find no legal basis for the jury's award of $600,480 in damages growing out of Chrysler's decision to open a competing dealership in Kearny Mesa.

 Our prior judgments in D006225 and D004828 foreclosed any claim the Kearny Mesa dealership were barred by sections 3062 and 3063.  (See also Gill v. Hughes (1991) 227 Cal.App.3d 1299, 1304, 278 Cal.Rptr. 306.)   Other than the good cause provisions of section 3062 and 3063, University had no other basis for challenging Chrysler's right to establish the Kearny Mesa dealership.

Although the jury found Chrysler violated section 11713.2, subdivision (e), by its terms that provision only applies to threats to cancel a dealership agreement.6  Regulation of a manufacturer's ability to establish new and competing dealerships is governed by the express provisions of sections 3062 and 3063.   Thus the establishment of a competing dealership in Kearny Mesa did not give rise to any rights protected by section 11713.2, subdivision (e).7

 Similarly, University's dealership agreement does not provide it with any protection against establishment of competing Chrysler dealerships.   The absence of any contractual protection against competitive dealerships is best illustrated by the circumstances which prompted enactment of the statutory protection afforded by sections 3062 and 3063.   In describing those statutory protections, the United States Supreme Court stated:  “The disparity in bargaining power between automobile manufacturers and their dealers prompted Congress and some 25 States to enact legislation to protect retail car dealers from perceived abusive and oppressive acts by the manufacturers.   California's version is its Automobile Franchise Act.   Among its other safeguards, the Act protects the equities of existing dealers by prohibiting automobile manufacturers from adding dealerships to the market areas of its existing franchises where the effect of such intraband competition would be injurious to the existing franchisees and to the public interest.”  (New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co. (1978) 439 U.S. 96, 101–102, 99 S.Ct. 403, 407–408, 58 L.Ed.2d 361, fns. omitted.) 8  Indeed in describing enactment of similar legislation, the Supreme Court of Wisconsin stated:  “Implicit in this law is the recognition of the gross disparity of bargaining power between the manufacturer of automobiles and the local retailer.   It was enacted in recognition of the long history of the abuse of dealers by manufacturers.   [Citation.]   These laws deal with the relationship between auto manufacturers and auto dealers.   The purpose of the law is to furnish the dealer with some protection against unfair treatment by the manufacturer.”  (Forest Home Dodge, Inc. v. Karns (1966) 29 Wis.2d 78, 138 N.W.2d 214, 217, 218;  see also American Motors Sales Corp. v. New Motor Vehicle Bd. (1977) 69 Cal.App.3d 983, 986, 138 Cal.Rptr. 594:  “There is a long history of legal warfare between the automobile manufacturers and their dealers.”)

Given this historical context, it is somewhat difficult to accept University's argument that aside from the protection provided by sections 3062 and 3063, establishment of the Kearny Mesa dealership was nonetheless barred by express or implied provisions in University's dealership agreement with Chrysler.   Such an agreement, under which a dealer is given a contractual right to object to the establishment of a competing dealership would be inconsistent with the entire history of relations between large powerful manufacturers and small independent dealers.   That history teaches dealers have very little bargaining power and that the only real protection dealers have achieved is by way of legislative enactments.  (New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., supra, 439 U.S. at pp. 103–104, 99 S.Ct. at 408–409.) 9

Our skepticism about the availability of any contractual remedy is confirmed by examination of University's dealership agreement with Chrysler.   The agreement provides:  “DIRECT DEALER will have the non-exclusive right, subject to the provisions of this agreement, to purchase from CHRYSLER for resale at retail (or to other authorized Chrysler dealers) new Chrysler passenger cars and Chrysler passenger car parts and accessories in the Sales Locality:  ․”  (Emphasis added.)

Where only the non-exclusive right to purchase products has been granted by a manufacturer, a dealer does not acquire any right to prevent other competitors from entering any given market or territory.  (See Eichman v. Fotomat Corp. (9th Cir.1989) 880 F.2d 149, 164;  BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 991, 209 Cal.Rptr. 50.)   In particular the implied covenant of good faith and fair dealing cannot be used to create any territorial rights which are not provided by express terms of the contract.  “The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation.  [Citation.]  ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose.’․  ‘In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.’ ”  (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031–1032, 14 Cal.Rptr.2d 335.)   Thus, “as a general rule where there is no express grant of an exclusive territory in a contract or franchise agreement, none will be impliedly read into the contract.  [Citations.]”  (Eichman v. Fotomat Corp., supra, 880 F.2d at p. 164.)

Admittedly, in addition to the implied covenant of good faith and fair dealing, Chrysler's contract contained an “INTRODUCTION” which set forth the mutuality of the parties' interests under the agreement.   However, the “INTRODUCTION”, like the implied covenant, does not itself provide any territorial rights to University.10  Thus it cannot be fairly interpreted as altering the fundamental character of the agreement from a non-exclusive arrangement to one under which University obtained market protection.

In sum then the Kearny Mesa award must be reversed because University had no other protection with respect to competing Chrysler dealerships, other than the rights provided by sections 3062 and 3063.   Those rights were finally determined in our opinions in in D006225 and D004828 and the trial court erred in failing to give our disposition collateral estoppel effect.

B. Maserati

Chrysler began importing the Maserati line of automobiles in 1988, long after University's complaint was filed.   According to Chrysler, because of low production, Chrysler provided the Maseratis to only 300 of its 2,000 dealers.

At trial University provided evidence that although it had been promised the Maserati line of cars by Chrysler officials, Chrysler never honored the promise.

 University's Maserati claim was clearly cognizable by the Board under section 3050 which gives the Board the power to consider “ ‘any matter concerning the activities or practices of any ․ manufacturer.’ ”  (Yamaha Motor Corp. v. Superior Court (1987) 195 Cal.App.3d 652, 656, 240 Cal.Rptr. 806) (Yamaha.)   However, unlike its claims with respect to the Kearny Mesa dispute, University never attempted to bring its Maserati claim before the Board.   University's failure to exhaust an available administrative remedy barred any proceeding on the Maserati claim in superior court.  (Ibid.)  “The decision in Yamaha Motor Corp. v. Superior Court (1986) 185 Cal.App.3d 1232, 230 Cal.Rptr. 382 applied the exhaustion doctrine where a motorcycle dealer sued Yamaha for breach of the franchise agreement, breach of the implied covenant of good faith and fair dealing, and intentional interference with prospective business advantage arising out of Yamaha's refusal to sell a new product to the dealer and its sale to other dealers in the area.   The court held that failure to seek relief before the Board barred the suit.   The allegations of the complaint were held a proper subject of protest to the Board within sections 3060 and 3062.

“The Yamaha decision, supra, points out the fundamental importance of the exhaustion doctrine in California.   It is jurisdictional.  [Citation.]  Whether or not the administrative remedy is permissive and whether or not it may afford complete relief, the complainant must exhaust it before seeking judicial assistance.   The reasons for the rule are to lighten the burden on courts by providing the benefit of the agency's expertise in preparing a full record and sifting the evidence.  [Citations.]   Many cases support this proposition;  ‘this legislatively mandated policy promoting the resolution of disputes by specialized boards and fostering judicial economy has been well explained․’  [Citations.]”  (Yamaha, supra, 195 Cal.App.3d at p. 657, 240 Cal.Rptr. 806;  see also Mathew Zaheri Corp. v. Mitsubishi Motor Sales (1993) 17 Cal.App.4th 288, 295, 21 Cal.Rptr.2d 325.)

University attempts to avoid the exhaustion doctrine by arguing that because its other damage claims were already being heard in the superior court, it would not have been efficient to bring the Maserati claims to the Board and then to the trial court in a piecemeal fashion.11  We are not aware of any efficiency exception to the exhaustion doctrine.   Moreover, while it may have been efficient from University's perspective, it was not efficient from the perspective of the administrative scheme created by the Legislature.   The Maserati claim was heard in superior court without the benefit of the administrative review and fact finding which the Legislature has provided for such disputes.   In particular, had the Board been given an opportunity to act, it could have ordered Chrysler to provide Maseratis to University, thereby relieving the trial court of the burden of determining all or part of University's damages.

Thus, like the Kearny Mesa award, the Maserati award must also be reversed.

II

University's Cross–Appeal

On its cross-appeal University contends the trial court erred in refusing to award it attorney fees under section 11726.   Section 11726 provides in pertinent part:  “Any licensee suffering pecuniary loss because of any willful failure by any other licensee to comply with provision of Article 1 (commencing with Section 11700) ․ may recover damages and reasonable attorney fees therefor in any court of competent jurisdiction.”

In light of our determination University did not establish any basis for recovery from Chrysler, the cross-appeal is largely moot.   Without a showing of some loss caused by a violation of the Vehicle Code, the plain terms of the statute do not permit recovery of attorney fees.

We reject University's contention the trial court and Chrysler relieved University of the burden of showing pecuniary loss.   The trial court insisted the jury be given special interrogatories which asked it to determine whether Chrysler was guilty of willfully violating any one of three Vehicle Code sections.   The trial court told the parties that if the jury found such a violation in post-trial proceedings, the trial court would determine the amount of attorney fees authorized by section 11726.12  The trial court did not, in giving the jury the duty of determining whether there was a predicate Vehicle Code violation, in any manner suggest that University would be relieved of the burden of showing that such a violation caused a pecuniary loss.

Judgment reversed.   Appellant and cross-respondent to recover its costs of appeal.

FOOTNOTES

FN1. All statutory references are to the Vehicle Code unless otherwise specified..  FN1. All statutory references are to the Vehicle Code unless otherwise specified.

2.   Section 507 states:  “The ‘relevant market area’ is any area within a radius of 10 miles from the site of a potential new dealership.”

3.   Section 3062 states:  “(a) Except as otherwise provided in subdivision (b), if a franchisor seeks to enter into a franchise establishing an additional motor vehicle dealership within a relevant market area where the same line-make is then represented, or seeks to relocate an existing motor vehicle dealership, the franchisor shall, in writing, first notify the board and each franchisee in that line-make in the relevant market area of the franchisor's intention to establish an additional dealership or to relocate an existing dealership within or into that market area.   Within 20 days of receiving that notice or within 20 days after the end of any appeal procedure provided by the franchisor, any such franchisee may file with the board a protest to the establishing or relocating of the dealership.   If, within this time a franchisee files with the board a request for additional time to file a protest, the board or its secretary, upon a showing of good cause, may grant an additional 10 days to file the protest.   When such a protest is filed, the board shall inform the franchisor that a timely protest has been filed, that a hearing is required pursuant to Section 3066, and that the franchisor shall not establish or relocate the proposed dealership until the board has held a hearing as provided in Section 3066, nor thereafter, if the board has determined that there is good cause for not permitting the dealership.   In the event of multiple protests, hearings may be consolidated to expedite the disposition of the issue.  [¶] For the purposes of this section, the reopening in a relevant market area of a dealership that has not been in operation for one year or more shall be deemed the establishment of an additional motor vehicle dealership.  [¶] (b) Subdivision (a) does not apply to either of the following:  [¶] (1) The relocation of an existing dealership to any location which is both within the same city as, and is within one mile from, the existing dealership location.  [¶] (2) The establishment at any location which is both within the same city as, and is within one-quarter mile from, the location of a dealership of the same line-make that has been out of operation for less than 90 days.  [¶] (c) Subdivision (a) does not apply to any display of vehicles at a fair, exposition, or similar exhibit if no actual sales are made at the event and the display does not exceed 30 days.   This subdivision shall not be construed to prohibit a new vehicle dealer from establishing a branch office for the purpose of selling vehicles at the fair, exposition, or similar exhibit, even though that the event is sponsored by a financial institution, as defined in Section 31041 of the Financial Code or by a financial institution and a licensed dealer.   The establishment of these branch offices, however, shall be in accordance with subdivision (a) where applicable.  [¶] (d) For the purposes of this section, the reopening of a dealership that has not been in operation for one year or more shall be deemed the establishment of an additional motor vehicle dealership.”Section 3063 states:  “In determining whether good cause has been established for not entering into or relocating an additional franchise for the same line-make, the board shall take into consideration the existing circumstances, including, but not limited to, all of the following:  [¶] (a) Permanency of the investment.  (b) Effect on the retail motor vehicle business and the consuming public in the relevant market area.  [¶] (c) Whether it is injurious to the public welfare for an additional franchise to be established.  [¶] (d) Whether the franchisees of the same line-make in that relevant market area are providing adequate competition and convenient consumer care for the motor vehicles of the line-make in the market area which shall include the adequacy of motor vehicle sales and service facilities, equipment, supply of vehicle parts, and qualified service personnel.  [¶] (e) Whether the establishment of an additional franchise would increase competition and therefore be in the public interest.”

4.   Section 11713.2, subdivision (e), provides:  “It shall be unlawful and a violation of this code for any manufacturer, manufacturer branch, distributor, or distributor branch licensed under this code to coerce or attempt to coerce any dealer in this state:  [¶] (e) To enter into any agreement with the manufacturer, manufacturer branch, distributor, or distributor branch, or to do any other act prejudicial to the dealer by threatening to cancel a franchise or any contractual agreement existing between the dealer and manufacturer, manufacturer branch, distributor, or distributor branch.   Notice in good faith to any dealer of the dealer's violation of any terms or provisions of such franchise or contractual agreement shall not constitute a violation of this article.”

5.   In its post-trial motions Chrysler moved for a new trial and judgment notwithstanding the verdict.   In its post-trial motions University moved for judgment notwithstanding the verdict, a new trial, an order vacating judgment, prejudgment interest and attorney fees.

6.   See footnote 3, supra.

7.   As we have noted, University made a separate claim Chrysler had unlawfully attempted to terminate its dealership.   Although in its response to a special interrogatory the jury found a violation of section 11713.2, subdivision (e), the jury refused to award University any damages on its termination claim.   Like the trial court we believe these results mean the jury found Chrysler made unlawful threats but that the threats did not harm University.

8.   We note that the Legislature alluded to these circumstances at the time it enacted the statutory scheme regulating the conduct of vehicle manufacturers and dealers.   Section 1 of Statutes 1973, chapter 996, page 1964, provided in part:  “The Legislature finds and declares that the distribution and sale of new motor vehicles in the State of California vitally affects the general economy of the state and the public welfare and that ․ it is necessary ․ to avoid undue control of the independent new motor vehicle dealer by the vehicle manufacturer or distributor.”   (Emphasis added.)

9.   The only case we have found in which a vehicle manufacturer provided a dealer with anything resembling territorial protection is Ri–Joyce, Inc. v. New Motor Vehicle Bd. (1992) 2 Cal.App.4th 445, 3 Cal.Rptr.2d 546.   There Mazda provided a dealership agreement which contained the following provision:  “ ‘(iii) if MAZDA determines it would be in the best interests of customers or MAZDA to do so, MAZDA may elect to appoint another dealer to promote, sell and service MAZDA Products near DEALER's Approved Location.   DEALER and MAZDA shall give each other at least sixty days' written notice prior to taking any of the foregoing actions, for the purpose of enabling the parties to discuss whether there exist any mutually agreeable alternatives to the proposed action.   To the extent any consent is required from a party, such party will not unreasonably withhold its consent to any of the foregoing actions by the other․’ ”  (Id. at p. 457, 3 Cal.Rptr.2d 546.)   On appeal the court found this provision might be interpreted to provide the dealer with more market protection than is provided by sections 3063 and 3062.   (Ibid.)  University's agreement with Chrysler does not contain any similar provision.

10.   The introduction states:  “The purpose of the relationship established by this agreement is to provide a means for the sale and service of Chrysler passenger cars and Chrysler passenger car parts and accessories in a manner that will best serve the interests of the retail customer and be of benefit to DIRECT DEALER and CHRYSLER.“While the undertakings of this relationship are set forth in the provision that follow, their success rests on a recognition of the mutuality of interests of DIRECT DEALER and CHRYSLER, and a spirit of understanding and cooperation by both parties in the day to day performance of their respective functions.“It is the mutual goal of this relationship to promote the sale of Chrysler products by maintaining and advancing their excellence and reputation by earning, holding, and furthering the public regard for CHRYSLER and all Chrysler dealers.“To achieve these purposes DIRECT DEALER and CHRYSLER agree as follows:․”

11.   We note the good cause determination in the Kearny Mesa dispute was made by the trial court because at that time the Board was not constitutionally able to hear the matter.   We are not aware of any constitutional impediment which prevented the Board from hearing the later Maserati dispute.

12.   The trial court stated:  “Any legal fees will arise out of the Vehicle Code.   I want a specific tailored instruction to them about was X violated by the Vehicle Code, yes or no, and then I can pick that up and say, all right, let's have our hearing post trial on the attorneys fees authorized by the Vehicle Code.   But I think we should ask that jury the foundational question to the jury about your entitlement to those.   That would be a particular Vehicle Code section.”  (Emphasis added.)

BENKE, Associate Justice.

KREMER, P.J., and TODD, J., concur.

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