Tesla direct sales banned in Louisiana

Louisiana is the latest state to ban Tesla's direct sales to consumers, according to Automotive News, while in Michigan the manufacturer has issued subpoenas in a legal action to challenge the state law which has the same effect.

The Virginia Automobile Dealers Association has called on state regulators to investigate and sanction Tesla Motors Inc. for what it calls “serious, systemic, and habitual violations” of state laws at its existing locations. This includes offering illegal test drives at a shopping-mall gallery. Tesla, unsurprisingly, is not taking it lying down. There is more on Autoblog here.

This comes on top of a lawsuit earlier this year by which the VADA sought to prevent Tesla from opening a second outlet, which it argues the manufacturer cannot do until next year. And last August teh state took issue with Tesla's referral scheme, arguing that it meant that unlicensed individuals were making money from trading in new cars.

USA: Dealer prevails in Performance Dispute Win

A press release from Arent Fox LLP, Law Firm, explains how the firm won an important case, in which the plaintiff was Beck Chevrolet Co., Inc., on the selective and arbitrary imposition by vehicle manufacturers of unfair and unreasonable sales standards. The issue arose from the use of state-wide benchmarks, which failed to take account of local factors, and turned on  two provisions of New York’s Franchised Motor Vehicle Dealer Act. Many dealers in the UK might wish there was a similar law here ...

The case, Beck Chevrolet Co., Inc. v General Motors LLC 2016 NY Slip Op 03412, came before the New York Court of Appeals (Rivera, J) on certified questions from the United States Court of Appeals for the Second Circuit, and was decided on 3 May.

Arent Fox partner Russell P. McRory said:

Beck Chevrolet’s success will help stop manufacturers from implementing unfair and unreasonable sales standards that are selectively and arbitrarily applied, particularly when broad state or regional averages are applied to dealers located in markets bearing little resemblance to the state or regional benchmarks. This precedent could help set a new standard that will be referenced in performance disputes across the country.”

More information available from here.
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Court: Fiat contract termination invalid

Gericht: Fiat-Vertragskündigung unwirksam reports the KFZ-Betrieb website (which evidently does not limit itself to trucks). Google Translate has provided me with this (tidied up a little) and I think I can safely say that its use falls within section 30(2). FIAT had cancelled all 550 dealer agreements and 900 authorised repairer agreements in Germany.

The Regional Court (Landgericht) Frankfurt has declared the termination of all FIAT's dealers' contracts  invalid (AZ: 3-08 O 113/14). ... A board member of the Association had filed a fundamental lawsuit against the dismissals of the Alfa dealer contract and the Fiat, Alfa and Jeep service contracts.

Fiat had terminated nationwide every dealer and service contract in February 2014, after it had come into force on 1 January 2014. Originally, the importer had promised the partners long-term planning security with these contracts. Among other things, this circumstance, the General Court now considered to be relevant that the dismissal was contrary to good faith, according to the association. Especially also because Fiat had insufficient grounds to recite that dismissal is only a few weeks after the introduction of the contracts was necessary due to changed circumstances.

Already in December a different chamber of the LG Frankfurt had declared invalid clauses from the Letter of Intent from Fiat Germany to selected Fiat partner, because traders should therefore continue without any review of new contracts. Therefore, the judgment regarding the dismissals have far-reaching consequences, according to the association.

The intention of Fiat to reduce margins drastically redefine the margins at its discretion in model changes was, just questioned how the envisaged by the importer subject to the changes to the standards, according to the release. Both schemes make the new contracts for the incalculable dealer trade body. They would therefore rejected by the vast majority of its members in any case.

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Changing dealer margins does not breach EU competition rules

Our friends at Van Bael and Bellis in Brussels report in their newsletter, VBB on Competition Law (2014 no 6) that the Commission has rejected a rather optimistic-looking complaint from the Italian dealer association, Federauto, alleging that Volkswagen Group Italia's SEAT dealer agreements violated EU competition rules by reducing dealers' margins from 15.85 to 12.85 per cent, and converting part of the margin from fixed to variable. Typically the wholesale price is calculated by subtracting the dealer margin from the recommended retail price.

Federauto argued that this violated the rationale behind the dealer protection provisions of Regulation 1400 and of Regulation 330. It seems that they did not say that the letter of the regulation had been violated, but its spirit: and invoking dealer protection measures in Regulation 330 looks like a triumph of hope over experience. The Commission rejected the complaint, not apparently by reference to the block exemption but by reference to Article 101, which it thought had not been infringed - there was no evidence that competition was restricted, the clauses in the agreements complained of were not hardcore restrictions, and the application of the new margins was not resale price maintenance.

Perhaps more interesting is the complaint that the manufacturer did not have a code of conduct for relations with dealers. Of course, the Supplemental Guidelines say that having a code of conduct is a relevant factor in assessing a supplier's conduct in individual cases concerning pressure on dealers to achieve anti-competitive outcomes, and the lack of an agreed code of conduct remains a highly contentious issue. Here, though, it cut no ice, because there was no suggestion that the manufacturer had been applying pressure for such outcomes on the dealers - just because there is no code of conduct does not mean that there is a breach of the rules.

VBB opine that this is an important case, showing that dealer protection, eliminated with the expiry of Regulation 1400, is dead and buried. Indeed it is, as far as the block exemption is concerned: it remains possible that a dealer protection issue could have effects prohibited by the competition rules and not exempted by Regulation 330, and it also remains possible that some other legislation will fill the gap one day, even if the block exemption continues to maintain its laissez-faire approach.

US: Dealer sues JLR and dealership group over failed acquisition

Automotive News reports a lawsuit  over a failed acquisition of five Long Island dealerships (three of them Jaguar Land Rover ones). The plaintiff, Napleton Dealership Group, claims that it had an agreement to buy them before JLR announced that it was going to exercise its right of first refusal. The agreement was not made conditional on the manufacturers' approval, and the seller did not disclose that JLR had the right to block it.


There are also allegations that some sort of impropriety was involved, as Napleton had spent six months on due diligence investigations and the eventual buyer completed in a single month. No-one in Europe would be surprised at a manufacturer having a favoured buyer in mind, but as we know they do things differently in the States. Whether that allegation holds water or not depends on the evidence, and is surely not the interesting aspect for Motor Law readers.


Of course, dealer agreements here commonly preserve the manufacturer's right to decide who is admitted to the network, at least to the extent permitted by the block exemption. Napleton's lawyer is quoted as saying that some manufacturers do the same in the US, and he describes it as having a 'chilling effect' on the dealer's ability to attract a buyer. Exactly! But whether such restrictions are universal or just common, it's surprising that six months of due diligence didn't pick it up. Would a dealer here be expected to disclose the existence of such a provision? Unlikely: the general rule is 'caveat emptor', which is why we do due diligence investigations.

US: Legal action over warranty reimbursement law dropped

The Alliance of Automobile Manufacturers has dropped a legal action in Florida in which it challenged a dealer-friendly law which required them to pay the same rates for warranty work as retail customers. The suit, filed six years ago, was in the discovery phase when the court ordered the Alliance to disclose what it insisted was confidential business information. It was withdrawn on 2 July, according to Automotive News.

The trade association promised to continue to oppose state legislation “that is anti-consumer … [and] anti-competitive and could result in higher process for vehicles and repairs” - words the meaning of which, as we know, can differ greatly from one person to the next. In any event, the Alliance went on, after it filed the suit the legislature had made a couple of important changes to the law (unspecified in the reports I have read) so when they were removed from the legal claim what remained was narrow and confined to interstate commerce – the Alliance’s implication being that withdrawing the whole suit really isn’t a big deal. Perhaps the big deal in the story is that any lawmakers anywhere could pass legislation so generous to dealers!

This earlier story is also of interest: http://politics.heraldtribune.com/2014/04/19/suit-car-repairs-move-bill-public/

 

CNPA claim against Chevrolet due in court in Paris on 26 September

The tribunal de commerce, Paris, will hear oral argument on 26 September in the claim brought by the CNPA as a result of the termination of Chevrolet's dealer agreements. The manufacturer has decided to resist the claim and demand indemnities from CNPA.
The delay is accounted for by the need to put together a tribunal of three judges and a rapporteur for the case, rather than having it heard by only one judge. CNPA considered it important not to have one judge only.

As we previously reported, CNPA base their claim on:

• The brutality of the announcement of the withdrawal of the brand, reported in the media without any prior information to professionals and no notice period to allow them time to prepare for this event with respect to their customers.
• Disloyalty Chevrolet who knowingly concealed its network for several months the decision of General Motors.
• Non-compliance with the contractual notice period of two years, since the NFPC can prove that Chevrolet no longer fulfills many of its contractual obligations with respect to its network.

The hearing which took place on 30 May has allowed this procedure to enter a new stage but also for the CNPA to obtain the reaction of Chevrolet. Of course, the brand responds point by point to those complaints. But we also learn that compensation would be required to compensate the NFPC Chevrolet of "denigrating campaign by the trade union organization" and would also bring to an earlier halt sales in the franchise.

For the CNPA, the period of nearly four months for argument promotes a more balanced verdict (for 3 judges will have to decide instead of one), but it can also turn against him. "This late date may favor Chevrolet intimidating practices vis-à-vis dealers who still refuse to settle for decreasing financial protocol proposed by the brand," says the NFPC.

In order to avoid lengthy procedures, nearly 70% of the network has already signed an agreement with the brand. "Nobody has an interest in feeding trials with chronic issues that are crucial for distributors. In the interest of the profession, we must find solutions for everyone, "says Jean-Pierre Rinaudo, head of Vulcan group. In particular the amount of compensation has reportedly been revised upwards in many cases to facilitate the signing of agreements.

(Largely translated from an article in L'Argus, 5 June 2014 (http://www.largus.fr/actualite-automobile/affaire-chevrolet-le-constructeur-se-defend-4227379.html) - further material to be added in due course). Additional coverage available at http://news.autoplus.fr/news/1482925/Justice-Tribunal-France-Chevrolet-Concessionnaires, http://www.autoactu.com/chevrolet-contre-le-cnpa---les-plaidoiries-fixees-a-fin-septembre.shtml (subscription required), http://www.autoactu.com/chevrolet-contre-le-cnpa---les-plaidoiries-fixees-a-fin-septembre.shtml.

Tesla and the Car Dealers’ Lobby

This is the title of an article by Daniel A Crane of the University of Michigan Law School, available via the Antitrust & Competition Policy Blog.  It should be of interest to anyone with an unhealthy fascination for distribution law.

Greece: Fiat dealers asked to waive rights

The transition from one block exemption to the next has always been troublesome, although we seem to have got past the technique of terminating the entire network and offering reappointment to some or all of them. However, this time round Fiat Group Automobiles Hellas S.A. (FGAH) seem to have excelled themselves. Determined, it seems, to enter fully into the spirit of the new regulation, which of course contains nothing in the way of dealer protection, they are requiring their dealers to waive any accrued rights that they might have under the old Regulation.

They have sent out a letter of intent, in English as well as in Greek, which requires dealers to waive their rights against FGAH in relation to their existing agreements and the termination of those agreements. On 31 January next year, dealers will be required to declare that they have no claims against Fiat arising from the existing agreements and their termination, and irrevocably to waive any claims they do have.

Greek FIAT dealers are not amused. They consider the importer's and the manufacturer's actions unacceptable. The Greek car market, in common with much of the Greek economy, is in crisis, and dealers fear that FGAH is intending sometime probably next year (hence the date mentioned in the letter) to transfer the import contract to a third party. Waiving claims to protection from termination with that in prospect is not an attractive proposition for the dealers (though for the importer, in anticipation of handing over the franchise, it makes commercial sense to clear the decks).

Moreover, under Greek law I am told that a dealer may very possibly have a claim for a goodwill indemnity on termination based on the commercial agents directive (Directive 86/653 EC) and the Greek law which implements it, Presidential Decree 219/91. Recent Greek Supreme Court judgments (139/2006 and more recently 15/2013 and 16/2013, although I am not convinced that the first of those links is to the right case) indicate that dealers are more likely than not entitled to a goodwill indemnity. The Fiat letter seems to be designed to ensure no such claims will be possible, notwithstanding that Article 19 of the Directive specifies that the parties may not derogate from the indemnity and compensation provisions (Articles 17 and 18) before the contract is terminated. It would also rule out claims for sunk costs.

The commercial agents directive has been mooted by CECRA and the European Distribution Lawyers as an alternative source of protection for dealers, given the removal of their protection in the latest block exemption. But it could never serve such a purpose directly, for the simple reason that dealers are not and never have been commercial agents. At best, the directive could provide a model to be used to create a European equivalent, perhaps, of the dealers day in court acts found throughout the United States. What the Greek Presidential Decree says I do not know, but if it extends commercial-agents-style protection to dealers, it goes beyond what the directive requires, and I cannot see that a EU point involving Article 19 can arise - which is not to say that the Decree itself contains no such provision, just that if it does it's a home-grown Greek thing.

Fiat's action makes the conclusion of the new contract conditional upon the acceptance of unrelated terms and obligations, and takes undue advantage of the situation in which dealers who have significant sunk investments find themselves, especially in a crisis market with no alternatives. Lawyers acting for dealers contend that this approach is illegal under Greek law, so we might find ourselves watching this for quite long time.

US: Tesla licensed in Massachusets

Tesla wins license to sell cars near Boston, says Automotive World. Not a matter of direct concern to us in Europe, but another illustration of the way dealers are protected in the United States. Tesla's approach to selling cars, which has been compared to Apple's retail operation, cuts right across dealer protection and licensing legislation, and is proving highly contentious (though I can't help feeling that the dealers are trying to stop an incoming tide). Hard to imagine having to obtain a licence to sell cars - hard also for Americans to imagine a manufacturer getting such a licence, as they are supposed to be there to protect dealers ...

Former Chrysler dealers sue manufacturer in New York

Another item from Automotive News (I have been catching up on my reading after a week that allowed for little reading time): the fall-out from Chrysler's woes continues, and in the latest development two former dealers are taking action alleging that they were wrongly terminated back in 2009. Another illustration of the huge difference in the protection afforded to dealers in the States compared with what the block exemption (and domestic legislation) offers over here.

Dealing with dealer disputes: the Canadian way

How dealers will be protected from the arbitrary exercise of manufacturers' market power is, of course, a key topic whenever one talks about the block exemption (and who doesn't?). Here's an interesting piece (and here's another) by Irvin Schein, a commercial litigator at Minden Gross LLP, about how such disputes are handled in Canada, where National Automobile Dealer Arbitration Program exists to deal with precisely that sort of thing.

It sets out rules which bind both parties once they adopt them by signing an implementation agreement, usually at the same time as signing the dealer agreement. Where there is a conflict between the program and the dealer agreement, the program explicitly takes precedence. Very similar in many ways to the much-vaunted code of good practice to be operated as a supplement to the block exemption. Make that codes of good practice, as it is unlikely that there'll be one agreed code.

The Canadian program is more than just procedural rules: it also contains substantive provisions. There's a long list of the sorts of disputes that will be covered, including refusals to renew a dealer agreement. So manufacturers and importers are obliged to renew, unless they have cause not to do so. Just as US dealers have their Day in Court Act, so Canadian ones have their day in arbitration.

Just what we need over here - some would say.

Selling franchised dealerships

In addition to motor industry legal news here, I maintain a blog on the Block Exemption - not as frequently as I would like, but today I have posted a piece about the rules on transferring franchised dealerships and posting it on this blog as well seems unnecessary when a link will do just as well. I'll continue to use The Blog Exemption for block exemption news and comments.