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holding that, where express contract clause limited defendant's discretion to open new car dealership in certain geographic locations, defendant's remaining discretion “may not be exercised in bad faith so as to frustrate the other party's right to the benefit under the agreement” (quoting Richbell Info. Servs. v. Jupiter Partners, 309 A.D.2d 288, 302 (1st Dep't 2003))
Summary of this case from Trireme Energy Holdings, Inc. v. Innogy Renewables U.S. LLCOpinion
2012-11-14
LEGEND AUTORAMA, LTD., plaintiff, Audi of Smithtown, Inc., et al., respondents, v. AUDI OF AMERICA, INC., a division of Volkswagen of America, Inc., appellant, et al., defendant.
Hogan Lovells U.S. LLP, New York, N.Y. (John J. Sullivan, Eric J. Stock, James Clare, James R. Vogler, pro hac vice, Steven J. Yatvin, pro hac vice, and John C. DeMoulpied, pro hac vice, of counsel), for appellant. Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York, N.Y. (Russell P. McRory of counsel), for respondents.
Hogan Lovells U.S. LLP, New York, N.Y. (John J. Sullivan, Eric J. Stock, James Clare, James R. Vogler, pro hac vice, Steven J. Yatvin, pro hac vice, and John C. DeMoulpied, pro hac vice, of counsel), for appellant. Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York, N.Y. (Russell P. McRory of counsel), for respondents.
WILLIAM F. MASTRO, J.P., PLUMMER E. LOTT, LEONARD B. AUSTIN, and JEFFREY A. COHEN, JJ.
In an action, inter alia, to recover damages for breach of fiduciary duty, the defendant Audi of America, Inc., a division of Volkswagen of America, Inc., appeals from an order of the Supreme Court, Suffolk County (Emerson, J.), dated July 14, 2011, which denied its motion for summary judgment dismissing the second amended complaint insofar as asserted against it.
ORDERED that the order is modified, on the law, by deleting the provision thereof denying that branch of the motion of the defendant Audi of America, Inc., a division of Volkswagen of America, Inc., which was for summary judgment dismissing the third cause of action in the second amended complaint insofar as asserted against it and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed, with one bill of costs to the defendant Audi of America, Inc., a division of Volkswagen of America, Inc.
The defendant Audi of America, Inc., a division of Volkswagen of America, Inc. (hereinafter Audi), is the United States importer and distributor of Audi-brand vehicles, and operates a network of approximately 265 dealers located throughout the country. The plaintiffs Audi of Smithtown, Inc., and Audi of Huntington, Inc. (hereinafter together the dealer plaintiffs) are two franchised Audi dealers in Suffolk County, which operate pursuant to identical Dealer Agreements with Audi. In 2007, Audi entered into a Dealer Agreement with Atlantic Imports, Inc. (hereinafter Atlantic), appointing it as an authorized Audi dealer in Suffolk County, to operate at a location within 13 miles of each of the dealer plaintiffs.
The dealer plaintiffs, among others, commenced this action against Audi, among others, alleging that the circumstances surrounding the appointment of Atlantic as a newly franchised dealer breached express terms of their Dealer Agreements with Audi, the covenant of good faith and fair dealing implied in those agreements, and Audi's fiduciary obligations to them. Audi moved for summary judgment dismissing the second amended complaint insofar as asserted against it. While the motion was pending, the other plaintiffs discontinued their actions against Audi. The Supreme Court thereafter denied the motion, and Audi appeals.
The Supreme Court properly denied that branch of Audi's motion which was for summary judgment dismissing, insofar as asserted against it, the second cause of action in the second amended complaint, which alleged breach of the express terms of the Dealer Agreements and breach of the covenant of good faith and fair dealing implied in those agreements. Implicit in every contract is a covenant of good faith and fair dealing, which encompasses any promise that a reasonable promisee would understand to be included ( see Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N.E.2d 289;New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318, 639 N.Y.S.2d 283, 662 N.E.2d 763). The covenant embraces a pledge that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract” ( Dalton v. Educational Testing Serv., 87 N.Y.2d at 389, 639 N.Y.S.2d 977, 663 N.E.2d 289 [internal quotation marks omitted] ). “The duty of good faith and fair dealing, however, is not without limits, and no obligation can be implied that ‘would be inconsistent with other terms of the contractual relationship’ ” ( id. at 389, 639 N.Y.S.2d 977, 663 N.E.2d 289, quoting Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 304, 461 N.Y.S.2d 232, 448 N.E.2d 86).
Contrary to Audi's contention, the dealer plaintiffs' claim that is based on the alleged breach of the covenant of good faith and fair dealing is not inconsistent with the nonexclusivity provision of the “standard provisions” that are incorporated into the Dealer Agreements. While Audi retained the discretion to add newly franchised dealers within the existing dealers' territories, “even an explicitly discretionary contract right may not be exercised in bad faith so as to frustrate the other party's right to the benefit under the agreement” ( Richbell Info. Servs. v. Jupiter Partners, 309 A.D.2d 288, 302, 765 N.Y.S.2d 575;see Carvel Corp. v. Diversified Mgmt. Group, Inc., 930 F.2d 228, 232). Viewing the evidence in the light most favorable to the dealer plaintiffs ( see Schaffe v. SimmsParris, 82 A.D.3d 867, 918 N.Y.S.2d 531), Audi failed to eliminate all material, triable issues of fact in connection with this issue. Thus, Audi failed to meet its burden of making a prima facie showing of entitlement to judgment as a matter of law on so much of the second cause of action as alleged a breach of the covenant of good faith and fair dealing, and that branch of the motion was properly denied ( see Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642;Gjokaj v. Fox, 25 A.D.3d 759, 809 N.Y.S.2d 156).
Likewise, Audi failed to make a prima facie showing of entitlement to judgment as a matter of law dismissing so much of the second cause of action in the second amended complaint as alleged the breach of the express terms of the Dealer Agreements, including Audi's obligation to “actively assist Dealer in all aspects of Dealer's Operations through such means as Audi considers appropriate.” Audi submitted transcripts of depositions in which its executives testified that the normal approach to underperformance issues was to discuss such issues with the dealers and give them time to implement action plans prior to opening a newly franchised dealership. Audi also submitted testimony that such an approach was not followed here. Accordingly, Audi failed to meet its burden of eliminating all material, triable issues of fact on this claim and, as such, that branch of the motion was properly denied ( see Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d at 853, 487 N.Y.S.2d 316, 476 N.E.2d 642;Gjokaj v. Fox, 25 A.D.3d 759, 809 N.Y.S.2d 156).
However, the Supreme Court should have granted that branch of Audi's motion which was for summary judgment dismissing, insofar as asserted against it, the third cause of action in the second amended complaint, which alleged a breach of fiduciary duty. A conventional business relationship, without more, is insufficient to create a fiduciary relationship. Rather, a plaintiff must show special circumstances that transformed the parties' business relationship to a fiduciary one ( see AHA Sales, Inc. v. Creative Bath Prods., Inc., 58 A.D.3d 6, 9, 867 N.Y.S.2d 169;L. Magarian & Co. v. Timberland Co., 245 A.D.2d 69, 665 N.Y.S.2d 413). The general rule is that there is no fiduciary relationship between a franchisee and a franchisor ( see Akkaya v. Prime Time Transp., Inc., 45 A.D.3d 616, 845 N.Y.S.2d 827;Wilmington Trust Co. v. Burger King Corp., 34 A.D.3d 401, 826 N.Y.S.2d 205;Marcella & Co. v. Avon Prods., 282 A.D.2d 718, 724 N.Y.S.2d 192;Bevilacque v. Ford Motor Co., 125 A.D.2d 516, 519, 509 N.Y.S.2d 595). While the relationship between automobile manufacturers and dealers is recognized as one characterized by a dealer's dependency upon the manufacturer, this dominance, taken alone, is insufficient to establish a confidential relationship ( see A.S. Rampell, Inc. v. Hyster Co., 3 N.Y.2d 369, 376, 165 N.Y.S.2d 475, 144 N.E.2d 371).
On its motion, Audi established that the situation presented by this case is not one of the “rare instances” in which the terms of the franchise agreements and the nature and extent of the parties' relationships may have created confidential relationships ( Lake Erie Distribs. v. Martlet Importing Co., 221 A.D.2d 954, 955, 634 N.Y.S.2d 599;see Franklin Park Lincoln–Mercury, Inc. v. Ford Motor Co., 2011 WL 5361738, 2011 U.S. Dist. LEXIS 125807 [N.D. Ohio];cf. Zimmer–Masiello, Inc. v. Zimmer, Inc., 159 A.D.2d 363, 552 N.Y.S.2d 935;Matter of Sbarro Holding [ Shien Tien Yuan ], 111 Misc.2d 910, 445 N.Y.S.2d 911,affd.91 A.D.2d 613, 456 N.Y.S.2d 416). In opposition to this showing, the dealer plaintiffs failed to raise a triable issue of fact regarding the existence of a fiduciary duty.
Audi's remaining contention is without merit.