Thursday, November 26, 2009

Discontinuation of Truck Line Did Not Terminate Franchise

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

A truck manufacturer and one of its subsidiaries did not terminate, cancel, or fail to renew a truck dealer’s franchise when they discontinued the production of the subsidiary’s truck line because the dealer continued to have the right to sell parts and provide service for the manufacturer’s products, a federal district court in Brattleboro, Vermont, has ruled. Thus, the manufacturer and subsidiary did not violate the Vermont motor vehicle dealer law.

The motor vehicle dealer law prohibited the termination of franchises unless the manufacturer satisfied the law’s notice requirement, had "good cause" for termination, and acted in good faith.

Continuation of Part Sales, Service

Although the manufacturer discontinued the manufacture of the line of trucks, as it had reserved the right to do in the parties’ agreement, the dealer could continue to sell parts and provide service for the line of trucks, and the agreement remained in effect with regard to everything but selling new trucks, according to the court.

Because the dealer law’s termination provision applied only when a franchise had been terminated, cancelled, or not renewed—and the dealer’s entire franchise agreement had not been terminated, cancelled, or not renewed—the dealer failed to state a claim for which relief could be granted.

Constructive Termination

The dealer argued that the defendants constructively terminated its franchise. It contended that a constructive termination occurred when a franchisor took actions that were not expressly a termination of the agreement, but had a sufficiently adverse effect upon the franchisee. However, the dealer made no allegations that its dealership could not survive or that the discontinuation of the manufacture of the truck line would have an adverse effect, the court observed.

The dealer could continue to provide parts and service to trucks of the line under the agreement, and the dealer’s franchises for other of the manufacturer’s brands continued in effect. Thus, even if a claim for constructive termination was cognizable under the dealer law, the dealer did not adequately plead such a termination, the court held.

The decision is L&B Truck Services, Inc. v. Daimler Trucks N.A. LLC, CCH Business Franchise Guide ¶14,249.

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