Thursday, August 21, 2008

Criminal Convictions, Relocation of Dealership Constituted Good Cause for Termination

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A motorcycle dealer’s criminal convictions and unauthorized relocation of his dealership constituted “good cause” for a manufacturer to terminate the parties’ relationship under the Oregon motor vehicle dealer law, the federal district court in Eugene, Oregon has ruled.

Theft, Possession of Stolen Vehicle

The dealer was convicted of two counts of theft, one count of attempted theft, and one count of possession of a stolen vehicle, arising from his purchase of a stolen motorcycle on eBay. These convictions led to the revocation of the dealer’s municipal business license because the crimes were related to his business dealings.

Even though the amount of business transacted at the dealership remained high following the convictions—and the dealer was not responsible for the day-to-day operations at the relocated dealership—the court refused to force the manufacturer to continue dealing with an individual “whose reputation for dishonesty has been demonstrated through convictions for theft.”

The dealer stretched the record in an attempt to demonstrate that the manufacturer had engaged in the abusive practices that the motor vehicle dealer law was designed to prevent, the court noted. However, there was no reasonable evidence to suggest that the franchisor sought to terminate the parties’ agreement for any reason other than that permitted by the dealer law—the franchisee’s failure to comply in good faith with the reasonable requirements of the franchise.

Contract Termination Provision

The dealership agreement specifically permitted termination for any act by the dealer that violated any law, adversely affected the dealership’s operation, or injured the goodwill and reputation of the dealer, the manufacturer, or the manufacturer’s products.

The August 8 decision in Everything Cycles, Inc. v. Yamaha Motor Corp. will appear at CCH Business Franchise Guide ¶13,952.

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