Amnon Siegel on the Rights of Automobile Dealers

Amnon Siegel on the Rights of Automobile Dealers

Legal Recourse for Automobile Dealers Facing Termination

Recent challenging times in the automobile industry have led to harsh conflicts between manufacturers and dealers, but as manufacturers attempt to tighten their belts in an effort to preserve cash and cut losses, they should be wary not to do so in a manner that violates dealers’ rights. A dealer facing termination by a manufacturer is not without legal recourse. In addition to common law tort and contract claims for unlawful termination, there are several powerful federal and state statutes that protect automobile dealers.

One of the broadest protections afforded dealers is the federal Automobile Dealers’ Day in Court Act (ADDCA). 15 U.S.C. Section 1221, et seq. This can be an effective way of circumventing contract terms that require arbitration rather than allowing a dealer to seek damages in court.

However, the ADDCA is ambiguous regarding the availability of attorneys’ fees. Under Section 1222, a dealer bringing a lawsuit under the ADDCA may recover “damages and the cost of suit” upon showing the failure of an automobile manufacturer to act in good faith. Some courts argue that the legislative history of the ADDCA indicates that “cost of suit” provided in Section 1222 does not include attorneys’ fees. In an amended bill, the legislative committee deleted the right to reasonable attorneys’ fees as an element of damages. Pursuant to the amended bill, a dealer would be limited to recovery of damages sustained and the cost of suit.

Other cases argue that the ADDCA provision of “costs of suit” is more ambiguous: “The right to recover counsel fees and costs is less explicit and certain under the Automobile Dealers’ Day in Court Act….” Judice’s Sunshine Pontiac, Inc. v. General Motors Corp., 418 F. Supp. 1212, 1222 (D.C.N.J. 1976). Under this line of cases, the court may rely on state law to decide whether an award of attorneys’ fees is appropriate. In order to ensure the availability of attorneys’ fees, a prospective plaintiff dealer should consider combining an ADDCA claim with additional common law tort, contract, or state statutory violation claims. Many states have adopted their own version of the ADDCA, some providing attorneys’ fees. However, California has not adopted the ADDCA. Instead, California drafted its own regulations to govern motor vehicle franchises. These include: the California Automobile Franchise Act; Vehicle Code Section 11713, et seq.; and the Franchise Investment Law. These regulations provide somewhat similar, though more specific protection than the ADDCA. The California regulations are much more extensive than the ADDCA and protect not only the dealers from bad faith conduct of the manufacturers (as the ADDCA does), but also protect the manufacturers as well as consumers from various unfair practices by dealers.

Additionally, California created an administrative board, the New Motor Vehicle Board, to review claims under the California Automobile Franchise Act and Vehicle Code Sections 11713, et seq. Any notice of termination from a manufacturer must include specific instructions regarding how a dealer may protest the termination with the New Motor Vehicle Board within a certain number of days (15 to 60 days depending on the notice). See Vehicle Code Section 3060. If a dealer does not protest termination within the specified time period, the dealer waives all possible claims under the California Automobile Franchise Act for improper termination of the franchise. Vehicle Code Section 3060(C). Similarly, the majority of case law indicates that any claim for violation of the regulations provided in Vehicle Code Sections 11700 et seq. must first exhaust the Board’s administrative remedies before seeking judicial remedies. Yamaha Motor Corp. v. Superior Court, 195 Cal. App. 3d 652, 240 Cal. Rptr. 806 (1987). However, after final determination by the Board, the court may review all decisions, where pursuant to Vehicle Code Section 11726, damages, attorneys’ fees, and injunctive relief are all available.

Given the devastating effect of termination on a dealer’s financial livelihood, it is important to consider whether such termination was justified and conducted in good faith. If not, a dealer has several powerful tools to seek redress. Some scholars even believe that the scope of actionable conduct is expanding, particularly under the ADDCA with its already broader standard. Because of this, it is important to keep abreast of the most current case law in the field. 

Amnon Siegel joined Miller Barondess in 2007. His litigation practice includes business torts, breach of contract, intellectual property, and general business disputes. He received his Juris Doctorate in 2004 from New York University School of Law. Christen Douglas is an associate with Miller Barondess, specializing in complex civil litigation. She graduated from the University of Virginia School of Law and began her legal career at Miller Barondess in 2007.