Beck Chevrolet Co., Inc., Appellant,v.General Motors LLC, Respondent.BriefN.Y.June 2, 2015To be Argued by: JAMES C. MCGRATH (Of the Bar of the State of Massachusetts) (Time Requested: 30 Minutes) CTQ-2015-00002 Court of Appeals of the State of New York BECK CHEVROLET CO., INC., Appellant, – v. – GENERAL MOTORS LLC, Respondent. –––––––––––––––––––––––––––––– ON APPEAL FROM THE QUESTION CERTIFIED BY THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NOS. 13-4066-CV AND 13-4310-CV BRIEF FOR RESPONDENT SEYFARTH SHAW LLP Attorneys for Respondent General Motors LLC World Trade Center East Two Seaport Lane, Suite 300 Boston, Massachusetts 02210 Tel.: (617) 946-4800 Fax: (617) 946-4801 Date Completed: September 16, 2015 DISCLOSURE STATEMENT Pursuant to New York Court of Appeals Rule 500.1(f), defendant- respondent, General Motors LLC (“GM”), a non-governmental entity, states that it is wholly-owned by General Motors Holdings LLC, which is wholly-owned by General Motors Company. A list of GM’s subsidiaries and affiliates is attached hereto at Addendum A. Table of Contents Page - i - CERTIFIED QUESTIONS ...................................................................................... ix INTRODUCTION ..................................................................................................... 1 STATEMENT OF FACTS ........................................................................................ 5 A. The Parties’ Contractual Relationship and GM’s Retail Sales Index. ..................................................................................................... 5 B. GM’s Standard Sales Performance Review Process. .......................... 10 C. Old GM’s Bankruptcy and The Participation Agreement. ................. 13 D. GM’s Modest Revisions to Beck’s Market Area. ............................... 15 E. Beck Failed to Capitalize on the Special Assistance GM Provided. .............................................................................................. 16 F. GM’s Consideration of “Other Relevant Factors” Undercuts Beck’s Complaints of Specific Localized Sales Challenges. .............. 17 PROCEDURAL HISTORY ..................................................................................... 19 A. The Federal District Court Proceeding. .............................................. 19 B. The Second Circuit Certification Decision. ........................................ 23 C. The DMV Proceeding. ........................................................................ 24 ARGUMENT ........................................................................................................... 26 I. THE 2008 AMENDMENTS TO THE DEALER ACT WERE DESIGNED TO INCREASE TRANSPARENCY, NOT ADDRESS ANY PERCEIVED ABUSES. ...................................................................... 26 A. The 1983 Enactment Of The Dealer Act Was Driven By Market Conditions in the Mid-20th Century. .................................................. 28 B. The Motor Vehicle Industry Has Changed Dramatically Since The Dealer Act Passed in 1983. .......................................................... 29 C. The Legislative History of the 2008 Amendments Emphasized the Need for Transparency, Not Protection. ........................................ 31 II. THE COURT SHOULD ANSWER THE FIRST CERTIFIED QUESTION, “NO,” BECAUSE SEGMENT ADJUSTED SALES EFFECTIVENESS IS NOT AN UNREASONABLE, ARBITRARY OR UNFAIR WAY TO EVALUATE SALES PERFORMANCE. ............. 33 Table of Contents (continued) Page - ii - A. The Court Should Reframe The First Certified Question Because This Case Involves Whether GM’s RSI Is Unreasonable, Arbitrary Or Unfair, Not Whether GM Is Entitled To Terminate Beck Or Any Other Dealer. ............................ 35 B. It Is Not Unreasonable, Arbitrary, Or Unfair To Use Sales Effectiveness As One Of The Factors In Determining A Dealer’s Compliance With Its Franchise Agreement. ........................ 39 C. GM’s Retail Sales Index Is Not An Unreasonable, Arbitrary Or Unfair Method Of Evaluating Dealer Sales Performance. .................. 45 D. GM Treated Beck Fairly and Reasonably And Was Entitled To Expect The Performance Improvement Beck Promised. .................... 51 E. Beck’s Cases Do Not Support A Conclusion That Using Adjusted State Average Sales Effectiveness To Monitor Dealer Performance Is Unreasonable, Arbitrary, or Unfair. ........................... 55 1. Sales Effectiveness Is Routinely Found To Be A Reasonable Benchmark For Evaluating Various Market Actions. ............................................................ 56 2. Beck’s Case Law Is Neither Binding Nor Persuasive. .................................................................... 59 III. THE COURT SHOULD ANSWER THE SECOND CERTIFIED QUESTION, “NO,” BECAUSE GM’S MODEST REVISION TO BECK’S ASSIGNED MARKET AREA DID NOT CONSTITUTE A “MODIFICATION” OF BECK’S FRANCHISE. .......................................633 CONCLUSION ........................................................................................................ 71 - i - TABLE OF AUTHORITIES Page(s) Federal Cases Arciniaga v. Gen. Motors Corp., 418 F. Supp. 2d 374 (S.D.N.Y. 2005) .......................................................... 69, 70 Arciniaga v. Gen. Motors Corp., 460 F.3d 231 (2d Cir. 2006) ............................................................................... 70 Beck Chevrolet Co., Inc. v. Gen. Motors LLC, 787 F.3d 663 (2d Cir. 2015) .............. 1, 17, 23, 24, 33, 36, 37, 41, 44, 53, 54, 64 Beck Chevrolet Co., Inc. v. Gen. Motors LLC, C.A. No. 11-cv-2856 (AKH) (S.D.N.Y. July 11, 2012) ..................................... 41 Brown v. Greene, 577 F.3d 107 (2d Cir. 2009) ............................................................................... 45 Burgin Motor Co., Inc. v. Am. Motors Sales Corp., 449 F. Supp. 842 (D.S.C. 1978) ......................................................................... 42 Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d 892 (7th Cir. 1998) .............................................................................. 30 Coady Corp. v. Toyota Motor Distribs., Inc., 361 F.3d 50 (1st Cir. 2004) ..................................................................... 39, 43, 44 Gabe Staino Motors, Inc. v. Volkswagen of Am., Inc., No. 99-5034, 2005 WL 1041196 (E.D. Pa. Apr. 29, 2005) ............................... 44 Gen. Motors Corp. v. Darling’s, 444 F.3d 98 (1st Cir. 2006) ................................................................................. 40 Grand Light & Supply Co. v. Honeywell Inc., 771 F.2d 672 (2d Cir. 1985) ............................................................................... 40 In re Chait Props., Inc., No. 8-11-78236-REG, 2013 WL 4858296 (Bankr. E.D.N.Y. Sept. 10, 2013) ............................................................................................................. 49 Table of Authorities (continued) Page - ii - Interpharm, Inc. v. Wells Fargo Bank, Nat’l Ass'n, 655 F.3d 136 (2d Cir. 2011) ............................................................................... 45 Love Pontiac, Cadillac, Buick, GMC Truck, Inc. v. Gen. Motors Corp., No. 97-2490, 1999 WL 125562 (4th Cir. Mar. 10, 1999) .................................. 42 Madsen v. Chrysler Corp., 261 F. Supp. 488 (N.D. Ill. 1966), vacated, 375 F.2d 773 (7th Cir. 1967) ................................................................................................................... 62 Marquis v. Chrysler Corp., 577 F.2d 624 (9th Cir. 1978) .............................................................................. 62 Milos v. Ford Motor Co., 317 F.2d 712 (3d Cir. 1963) ............................................................................... 42 Mobil Oil Corp. v. Karbowski, 667 F. Supp. 927 (D. Conn. 1987), aff’d, 879 F.2d 1052 (2d Cir. 1989) ................................................................................................................... 44 Mt. Lebanon Motors, Inc. v. Chrysler Corp., 283 F. Supp. 453 (W.D. Pa. 1968) ...................................................................... 62 New Motor Vehicle Bd. of California v. Orrin W. Fox Co., 439 U.S. 96 (1978) .............................................................................................. 28 Petereit v. S.B. Thomas, Inc., 63 F.3d 1169 (2d Cir. 1995) ............................................................................... 40 Shelby County v. Holder, 133 S. Ct. 2612 (2013) ........................................................................................ 29 Subaru Distribs. Corp. v. Subaru of Am., Inc., 47 F. Supp. 2d 451 (S.D.N.Y. 1999) .................................................................. 66 Superior Pontiac Buick GMC, Inc. v. Nissan North Am., Inc., No. 08-10642, 2012 WL 1079719 (E.D. Mich. Mar. 30, 2012) ................... 51, 56 Swartz v. Chrysler Motors Corp., 297 F. Supp. 834 (D.N.J. 1969) .......................................................................... 62 Table of Authorities (continued) Page - iii - The Premier Collection, LLC v. Jaguar Land Rover N. Am., LLC, No. 14-8329, Decision on Plaintiffs’ Motion for Preliminary Injunction (S.D.N.Y. June 29, 2015) ............................................................ 44, 51 United States v. Perez–Frias, 636 F.3d 39 (2d Cir. 2011) ................................................................................. 45 Vaughn v. Air Line Pilots Ass'n, Int'l, 604 F.3d 703 (2d Cir. 2010) ............................................................................... 45 State Cases Andy Chevrolet Co. v. Gen. Motors Corp., Case No. 05-01-MVDB-304-J (Ohio Motor Veh. Dealer Bd. Aug. 22, 2006) ............................................................................................................. 62 Application of Corp. Counsel of N.Y.C., Vernon Parkway and Garden Place, 285 N.Y. 326 (1941) ................................................................................ 36 B & F Bldg. Corp. v. Liebig, 76 N.Y.2d 689 (1990) ......................................................................................... 41 Bankers Trust Co. v. J. V. Dowler & Co., 47 N.Y.2d 128 (1979) ......................................................................................... 48 Barenboim v. Starbucks Corp., 21 N.Y.3d 460 (2013) ................................................................................... 36, 37 Brian Hoxie’s Painting Co. v. Cato-Meridian Cent. School Dist., 76 N.Y.2d 207 (1990) ......................................................................................... 27 Brown Motor Sales Co. v. Hyundai Motor Am., No. 10AP-725, 2011 WL 4541304 (Ohio Ct. App. Sept. 30, 2011) .................. 57 Commodity Futures Trading Comm’n v. Walsh, 17 N.Y.3d 162 (2011) ......................................................................................... 37 Eaton Motor Co. v. Gen. Motors Corp., No. 04-0019 LIC (Tex. Motor Veh. Div. Jan. 16, 2006) .................................... 62 Engel v. CBS, Inc., 93 N.Y.2d 195 (1999) ......................................................................................... 37 Table of Authorities (continued) Page - iv - Gen. Motors Corp. v. Fountain Oldsmobile-GMC Truck, No. 03-1319, Recommended Order (Fla. Div. Admin. Hrgs. May 27, 2004), adopted by Final Order No. HSMV-04-396-FOF-DMV (Fla. DHSMV July 15, 2004) ................................................................. 49, 50, 58 Gen. Motors Corp. v. Kinlaw, 338 S.E.2d 114 (N.C. Ct. App. 1985) ................................................................. 61 Gen. Motors Corp. v. State of Illinois Motor Vehicle Review Bd., 836 N.E.2d 903 (Ill. App. Ct. 2005), aff’d, 862 N.E.2d 209 (Ill. 2007) ................................................................................................................... 59 Graff Chevrolet Co. v. Texas Motor Vehicle Bd., 60 S.W.3d 154 (Tex. App. 2001) ........................................................................ 57 Halleen Chevrolet, Inc. v. Gen. Motors Corp., No. 00AP-1454, 2001 WL 722101 (Ohio Ct. App. June 28, 2001) ................... 57 Halleen Chevrolet v. GMC, No. 03-050MVDB-277 SS, at 12-13 (Ohio Mot. Veh. Dealers Bd. July 21, 2006), aff’d sub nom., Gen. Motors Corp. v. Halleen Chevrolet, No. 06CVF-11739 (Ohio Ct. Common Pleas Franklin Cnty. Sept. 20, 2008) .......................................................................................... 61 Hampton Automotive Grp. v. Nissan North Am., Inc., Recommended Order Case No. 11-1157 (Fla. Div. Admin. Hrgs. Sept. 12, 2012), adopted by Final Order No. HSMV-12-853-FOF- MS (Fla. DHSMV Oct. 24, 2012) ....................................................................... 58 Harfenes v. Sea Gate Assoc., Inc., 167 Misc.2d 647 (Sup. Ct., N.Y. Cnty. 1995) .................................................... 33 Hartley Buick GMC Truck, Inc. v. Am. Honda Motor Co., No. FMD 2010-05 (N.Y. DMV Div. of Safety & Bus. Hearings Nov. 1, 2011), aff’d, No. 28447 (N.Y. DMV Admin. Appeals Bd. Feb. 28, 2012) ..................................................................................................... 42 Hoag v. Chancellor, Inc., 246 A.D.2d 224 (1st Dep’t 1998) ....................................................................... 48 Table of Authorities (continued) Page - v - In re Kerry Ford, Inc., 666 N.E.2d 1157 (Ohio Ct. App. 1995) .............................................................. 66 In re Ralph Gentile, Inc. v. Nissan North Am., Inc., No. TR-07-0001 (Wis. Div. of Hearings and Appeals Feb. 4, 2010) ................. 43 Infiniti Automobiles of Norwood, Inc. v. Nissan North Am., Inc., Findings of Fact, Rulings of Law, and Order, No. 2004-00010, slip op. (Mass. Sup. Ct. Aug. 4, 2005) ...................................................................... 58 JJM Sunrise Automotive, LLC v. Volkswagen Grp. of Am., Inc., 46 Misc. 3d 755 (Sup. Ct., Nassau Cnty. 2014) ................................................. 69 Landmark Chevrolet Corp. v. Gen. Motors Corp., No. 02-0002 LIC (Tex. Dep’t of Trans. Mot. Veh. Bd. Sept. 16, 2004), aff’d sub nom. Austin Chevrolet, Inc. v. Motor Veh. Dealer Bd., 212 S.W.3d 425 (Tex. App. 2006) .............................................................. 60 McMaster v. Owens, 275 A.D. 506 (3rd Dep’t 1949) .......................................................................... 32 Michael Cadillac, Inc. v. Volkswagen of Am., Inc., No. PR-1819-02 (Cal. New Motor Veh. Bd. June 17, 2003) ....................... 50, 58 Nissan N. Am., Inc. v. Royal Nissan, L.L.C., 794 So.2d 45 (La. Ct. App. 2001) ....................................................................... 70 North Shore, Inc. v. Gen. Motors Corp., No. MVRB 79-01 (Ill. Mot. Veh. Rev. Bd. May 28, 2003) ......................... 59, 60 Racine Harley-Davidson, Inc. v. Harley Davidson Motor Co., Inc., 717 N.W.2d 184 (Wis. 2006) .............................................................................. 70 Ralph Gentile, Inc. v. State, Div. Hearings and Appeals, No. 10-cv- 1050 (Wis. Cir. Ct. Racine Cnty. Sept. 13, 2010) .............................................. 43 RCJD Motors, Inc. v. Huffines Dodge Plano, L.P., No. 608-10-5694.LIC, Proposal for Decision (Tex. Office of Admin. Hearings Apr. 2, 2012), adopted by Order, No. 10- 0048.LIC (Tex. Dep’t of Motor Vehicles July 12, 2012) ................. 56, 57, 58, 61 Table of Authorities (continued) Page - vi - Sims v. Nissan N. Am., Inc., Nos. 12AP-833 and 12AP-835, 2013 WL 3270914 (Ohio Ct. App. June 25, 2013) ..................................................................................................... 62 Van Wie Chevrolet, Inc. v. Gen. Motors LLC, Index No. 2012-0284 (Sup. Ct., Onondaga Cnty.) ....................................... 68, 69 Wildenstein & Co. v. Wallis 79 N.Y.2d 641 (1992) ......................................................................................... 36 Yesil v. Reno, 92 N.Y.2d 455,457 (1998) .................................................................................. 36 Zimbrick, Inc. v. Am. Honda Motor Co., Inc., Nos. TR-08-0007 and TR-08-0039 (Wis. Div. Hearings and Appeals Aug. 9, 2010), aff’d sub nom, Zimbrick, Inc. v. State, Div. Hearings & Appeals, 812 N.W.2d 540 (Wis. Ct. App. 2012) ............................ 57 Federal Statutes Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 U.S.C. § 1226(a)(2) ........................................................................................................ 70 State Statutes Ala. Code § 8-20-4(3)(z) .......................................................................................... 65 Ark. Code Ann. § 23-112-403(a)(5) ........................................................................ 65 Ga. Code Ann. § 10-1-663(b)(5).............................................................................. 65 Iowa Code § 322A.3A ............................................................................................. 65 Minn. Stat. § 80E.13(p) ............................................................................................ 65 Miss. Code Ann. § 63-17-73(1)(d)(xiii) .................................................................. 65 N.C. Gen. Stat. § 20-305(38) ................................................................................... 65 N.H. Rev. Stat. Ann. § 357-C:3(III)(o) .................................................................... 65 N.Y. Veh. & Traf. Law § 460 .................................................................................. 29 Table of Authorities (continued) Page - vii - N.Y. Veh. & Traf. Law § 463(2)(d) ......................................................... 4, 35, 38, 55 N.Y. Veh. & Traf. Law § 463(2)(ff) ........................................ ix, 4, 5, 20, 63, 64, 69 N.Y. Veh. & Traf. Law § 463(2)(ff)(2) ............................................................. 68, 67 Neb. Rev. Stat. §§ 60-1420, 60-1424 ...................................................................... 65 New York Franchised Motor Vehicle Dealer Act, N.Y. Veh. & Traf. Law § 460 et seq. .................................................................................................. 1 N.Y. Veh. & Traf. Law § 463(2)(gg) ............ ix, 1, 20, 24, 25, 26, 32, 33, 36, 37, 38, 39, 40, 41, 43, 44, 45, 47, 55 Pa. Stat. Ann. Title 63, § 818.12.1 ........................................................................... 65 S.C. Code Ann. § 56-15-98 ...................................................................................... 65 Vt. Stat. Ann. Title 9, § 4097(24) ............................................................................ 65 Wis. Stat. § 218.0116(8) .......................................................................................... 70 Other Authorities 1A Sutherland Statutory Construction § 22:29 (7th ed.) ......................................... 27 2011 McKinney’s Session Law News of N.Y., Ch. 548 (S.1347) .......................... 65 2014 McKinney’s Session Law News of N.Y., Ch. 26 (A.7844-B) ....................... 65 Assembly Mem. In Support, Bill Jacket for S. 5399-A, L.1983, Chapter 815 ......................................................................................................... 29 Black’s Law Dictionary (9th ed. 2009) ..................................................................... 40 Francine Lafontaine & Fiona Scott Morton, Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis, 24 J. Econ. Perspectives 233 (2010) ................................................................................ 28, 31 Gerald R. Bodisch, Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers, Competition Advocacy Paper #EAG 09-1 CA, Economic Analysis Group, U.S. Dep’t of Justice (May 2009) .................................................................................................... 30, 31 Table of Authorities (continued) Page - viii - Mark Cooper, A Roadblock on the Information Superhighway: Anticompetitive Restrictions on Automotive Markets, Consumer Fed’n of Am. (Feb. 2001) ................................................................................... 30 McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 191 cmt. .............................. 27 McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 311 cmt. .............................. 33 N.Y. Automobile Dealers Assoc. Letter in Support dated July 31, 2008, Bill Jacket for S.B. 8678, L.2008, Chapter 490........................................ 32 N.Y. Sen. Sponsor’s Mem., Bill Jacket for S.B. 8678, L.2008, Chapter 490 ....................................................................................................................... 32 Thomas B. Leary, Comm’r, Fed. Trade Comm’n, State Auto Dealer Regulation: One Man’s Preliminary View, Speech at the Int’l Franchise Ass’n 34th Annual Legal Symposium (May 8, 2001). ...................... 28 Webster’s Third New Int’l Dictionary (Merriam-Webster 2002) ........................... 40 - ix - CERTIFIED QUESTIONS 1. Is a performance standard that requires “average” performance based on statewide sales data in order for an automobile dealer to retain its dealership “unreasonable, arbitrary, or unfair” under New York Vehicle & Traffic Law section 463(2)(gg) because it does not account for local variations beyond adjusting for the local popularity of general vehicle types?1 2. Does a change to a franchisee's Area of Primary Responsibility or AGSSA constitute a prohibited “modification” to the franchise under section 463(2)(ff), even though the standard terms of the Dealer Agreement reserve the franchisor's right to alter the Area of Primary Responsibility or AGSSA in its sole discretion? 1 For the reasons discussed in Part II.A infra, GM respectfully requests that the Court reframe the first certified question as follows: Is a performance standard that uses ʺaverageʺ performance based on statewide sales data in order to determine an automobile dealer’s compliance with a franchise agreement ʺunreasonable, arbitrary, or unfairʺ under New York Vehicle & Traffic Law section 463(2)(gg) because it does not account for local variations beyond adjusting for the local popularity of general vehicle types? INTRODUCTION The two certified questions presented here raise significant policy issues that will affect GM, other domestic and foreign motor vehicle manufacturers, and their authorized dealers, not only in the State of New York, but across the country. Answering either certified question in the affirmative will upend long-accepted practices within the motor vehicle industry. Nothing in the legislative history or actual text of the New York Franchised Motor Vehicle Dealer Act, N.Y. Veh. & Traf. Law § 460 et seq. (“Dealer Act”) suggests that the Legislature intended such a dramatic result when it adopted the two statutory provisions at issue here in 2008. The first certified question asks whether using a segment-adjusted state average sales metric is an “unreasonable, arbitrary, or unfair” way to determine a dealer’s compliance with its franchise agreement under section 463(2)(gg) of the Dealer Act. The answer is, “No.” The law does not require “individually tailored or perfectly just performance standards.” Beck Chevrolet Co., Inc. v. Gen. Motors LLC, 787 F.3d 663, 676 (2d Cir. 2015). Both the legislative history and text of section 463(2)(gg) afford motor vehicle manufacturers a fair degree of deference when evaluating their dealers, provided that they clearly communicate the applicable performance standard, which GM has indisputably done for all of its dealers, including Beck Chevrolet Co., Inc. (“Beck”). After a four day trial dedicated solely to this issue, the United States District - 2 - Court for the Southern District of New York concluded that GM’s sales performance standard—which virtually every motor vehicle manufacturer uses—is fair and reasonable because it is objective, administratively convenient, easily understood, sufficiently localized, and drives performance improvement. Certainly no basis exists for a blanket ruling that this industry-wide standard is “unreasonable, arbitrary or unfair” under all circumstances. That assessment should be made, if at all, only in the context of an individual case under unique circumstances not present here. Relying on “evidence” that the district court excluded as inadmissible, Beck wants this Court to invalidate the use of a well-recognized, widely-adopted performance metric simply because, according to Beck, that metric does not account for certain subjective factors that Beck claims excuse its chronic underperformance. Beck then proposes alternative “standards” that fail to account for the subjective factors it claims GM’s standard does not consider. Nor do Beck’s proposed standards share any of the beneficial attributes that GM’s standard exhibits. Worse, the adoption of Beck’s proposed “standards” would create the very problem that Beck decries—disparate performance standards throughout the State of New York, relegating downstate dealers to perpetual mediocrity and holding upstate dealers to unreasonably high benchmarks. Beck suggests that a negative answer will give motor vehicle manufacturers - 3 - the unfettered contractual and statutory right to terminate their relationships with any dealer whose sales effectiveness falls below average. Nothing could be further from the truth. Manufacturers have neither the desire nor the ability to terminate dealers simply because their sales effectiveness happens to dip below average. Sales effectiveness is one factor that GM and its competitors use to evaluate a dealer’s sales performance, its ability to capitalize on sales opportunities, and its compliance with its obligations under the standard Dealer Agreement. To determine whether a dealer has materially breached its sales performance obligations, GM has also agreed to consider “any other relevant factors” and follows a multi-step process before deciding whether to terminate its relationship with a poor performing dealer. For precisely this reason, many GM dealers throughout New York with below average sales effectiveness scores have never been threatened with termination. In Beck’s case, the “other relevant factors” GM considered in assessing its sales performance included the following: (i) Beck’s specific agreement to improve its performance to “average” over a three year period to avoid being wound down as part of old GM’s bankruptcy in 2009; (ii) Beck’s failure to take advantage of the additional vehicle allocation and business counseling GM provided to help Beck try to meet its commitment; (iii) Beck’s failure to improve its sales performance despite the improvement of its neighboring Chevrolet dealers - 4 - during the same time period (even without making a specific commitment), and, perhaps most strikingly, (iv) the exemplary sales effectiveness of the Ford and Chrysler dealers in Yonkers, facing the same so-called “import bias” Beck has argued stymied its ability to improve. Of course, the issue presented here is not whether GM had the right to terminate its relationship with Beck under the Dealer Agreement or section 463(2)(d) of the Dealer Act, which requires franchisors to demonstrate they have “due cause” and acted “in good faith” before terminating a dealer’s franchise agreement. That decision is the subject of a separate administrative proceeding before the New York Department of Motor Vehicles (“DMV”), which has been hotly disputed, resulted in inconsistent decisions, and remains on appeal. The second certified question asks whether a manufacturer’s exercise of its contractual right to revise a dealer’s non-exclusive assigned market area in its sole discretion constitutes a “modification” of the dealer’s franchise, entitling the dealer to an opportunity to challenge the proposed revision under section 463(2)(ff) of the Dealer Act. While GM agrees to consider the dealer’s input before revising its market area, the parties agreed that the manufacturer, who has a responsibility to an entire dealer network comprised of multiple dealers with competing interests, should ultimately decide the issue of which census tracts should be allocated to which dealers. Nothing indicates that the Legislature intended to trump that right - 5 - when it adopted section 463(2)(ff). STATEMENT OF FACTS A. The Parties’ Contractual Relationship and GM’s Retail Sales Index. Beck operates a Chevrolet dealership in Yonkers, New York, pursuant to a General Motors Dealer Sales and Service Agreement and incorporated Standard Provisions (“Dealer Agreement”). Article 9 of the Dealer Agreement, entitled “Review of Dealer’s Sales Performance,” emphasizes the importance of sales to the parties’ contractual relationship: General Motors’ willingness to enter into this Agreement is based in part on Dealer’s commitment to effectively sell and promote the purchase, lease and use of Products in Dealer’s Area of Primary Responsibility. The success of General Motors and Dealer depends to a substantial degree on Dealer taking advantage of available sales opportunities. A156. A dealer’s Area of Primary Responsibility (“APR”) is the non-exclusive geographic sales area over which a dealer is responsible for selling vehicles and otherwise representing GM. A143. For APRs that are served by multiple dealers, such as Westchester County, GM assigns each dealer its own geographic subset of the APR, known as an Area of Geographic Sales and Service Advantage (“AGSSA”). A119 at ¶ 83; A1250. A dealer’s AGSSA consists of those census tracts that are closer to that dealer’s location than other Chevrolet dealers, subject - 6 - to adjustment for additional factors, such as traffic flows and natural barriers. Based on this proximity, the dealer has a geographic advantage over other Chevrolet dealers in marketing vehicles to customers within its AGSSA. A119 at ¶ 83; A1095 at 436. Although GM uses a dealer’s AGSSA to assess its sales performance, the dealer is free to sell vehicles to any customers regardless of their location. A156-57. All major motor vehicle manufacturers operating in the United States employ a common methodology to monitor the sales effectiveness of their dealers. GM refers to this standard methodology as a “Retail Sales Index” or “RSI.” A dealer’s RSI is calculated by dividing (x) the dealer’s actual retail sales (regardless of the customer’s location) by (y) the dealer’s expected sales. A dealer’s expected sales are determined by applying Chevrolet’s state market share in a particular vehicle segment (e.g., mid-size sedan, pick-up truck, etc.) to all of the competitive retail motor vehicle registrations in the dealer’s AGSSA for that segment: Chevrolet’s Statewide Segment Expected Sales = Market Share in x Registrations in Segment Dealer’s AGSSA (repeated for each vehicle segment in which Chevrolet competes) A875.13 at ¶ 13; A1001-02 at 269-73; A1316. The various segments are then combined and the resulting fraction is then multiplied by 100 to calculate an aggregate RSI score: - 7 - RSI = Dealer's Total Sales Expected Sales Based on Adjusted State Average x 100 Under this methodology, for example, if Beck sells 50 Chevrolets in a year anywhere, and its total expected sales are 100 vehicles based on Chevrolet’s segment-adjusted state average market share and the number of competitive registrations in the Yonkers AGSSA, then Beck’s RSI would be 50. When a dealer’s total sales equal the expected sales in its AGSSA (e.g., if Beck sold 100 vehicles in this example), its RSI is 100. An RSI of 100 does not reflect a “perfect” score; instead, it represents an “average” score. A1003 at 278. Significantly, the “segment-adjustment” process accounts for local consumer preferences (measured by new car vehicle registrations) in a particular dealer’s AGSSA. A1001 at 268; A1092 at 430. For example, because Chevrolet does not compete in every vehicle segment (like luxury sedan), registrations within its AGSSA in those segments are not included in the calculation of the dealer’s RSI. Further, because pick-up trucks are less popular in the Yonkers AGSSA than they are elsewhere in the State of New York, segmentation adjusts the expected retail sales downward for that vehicle segment. As the district court found, Beck is wrong when it asserts that segmentation “does not take into account most local consumer preferences and market - 8 - conditions.” Beck Br. at 1. Consumer preferences for a particular vehicle segment in a local market are often mistaken for “brand bias.” A1315. As a result of such preferences, a domestic brand might have a lower overall market share in a local market even though it has a higher overall market share statewide. But segmentation directly adjusts for these local consumer preferences. Id. In Yonkers, for instance, the mid-size sedan was the most popular competitive vehicle type in 2012 with 1,796 registrations. A1316. Chevrolet competes in this segment with its Malibu model. Id. While Chevrolet had a 12.17% total combined market share in the State of New York for all segments in which it competed (A1236), its market share in the specific mid-size sedan segment was only 6.39%. A1316. If GM required Beck to sell enough mid-sized sedans to meet Chevrolet’s combined statewide market share of 12.17%, then Beck would have been required to sell 219 Malibus in 2012. But GM only requires its dealers to sell the number of mid-size sedans to equal Chevrolet’s state average market share in that particular segment. As a result, Beck was only expected to sell 115 Malibus in 2012, or 104 fewer than at state average. A1100 at 447. Beck achieved state average sales in several vehicle segments, but it never sold enough of the vehicles in those segments to overcome its deficiencies in the vehicle segments in which it underperformed. See id. at 448 (discussing A1316). This segmentation process is common in the motor vehicle industry and is - 9 - one that Beck’s own expert utilizes. A980 at 184; A982 at 193. By relying on historic registration data reflecting actual local consumer purchasing preferences, segmentation accounts for a variety of socioeconomic and demographic factors that would otherwise be left to guesswork. It is undisputed that segment adjustment reduced the number of Beck’s expected sales (the RSI denominator) by more than 25% from unadjusted state average. A1001 at 269; A1316. For this reason, the unadjusted market share figures Beck presents in its Brief (pp. 9-10) are misleading because they ignore the relative popularity of certain segments upstate (particularly pickups) relative to Yonkers. A1315, A1151 at 557. Segmentation accounts for these differences to Beck’s significant benefit. GM has used segment-adjusted state average market share to calculate RSI throughout the United States since 1999. A972 at 151. Before 1999, GM used a national market share standard to determine a dealer’s expected sales in its AGSSA. A1001 at 269. GM switched to a state average standard to address dealer concerns regarding perceived regional differences in market share. A1310-11; A1000 at 265-66. GM’s competitors use either a state, regional, or national standard. A1054-55 at 348-49; A1094 at 433-34. Beck’s expert conceded that a state standard is preferable to a national standard and that no manufacturer uses a sales effectiveness standard more localized than adjusted state average. A972 at 151-52; see also A1055 at 349. - 10 - B. GM’s Standard Sales Performance Review Process. GM’s sales performance review process is robust and transparent. Article 9 of the Dealer Agreement provides that “General Motors will provide Dealer with a written report at least annually pursuant to the procedures then in effect evaluating Dealer’s sales performance.” A156. In fact, GM provides dealers with a detailed, written Sales Performance Review (“SPR”) on a quarterly basis. See, e.g., A1293- 09. In addition to providing the dealer’s overall RSI score, these reports detail the information used to determine the scores, describe how the segmentation process works, and highlight dealer performance and areas of opportunity at an individual segment and model level. A1003 at 277; A1042-43 at 322-23. For instance, the SPR reports exactly how many mid-sized sedans were registered in Yonkers, Chevrolet’s state average market share in that segment, how many Malibus Beck was expected to sell, how many Beck actually sold, and how many Malibus were purchased by customers located in Yonkers from any Chevrolet dealer. A1296. This information enables the dealer to determine where to focus its marketing efforts to maximize its sales opportunities. The report also provides the dealer’s “Rank in State” among all same brand dealers. A1293-1309; A1006 at 287; A1011 at 307. GM is only asking its dealers to strive for average performance. Article 9 provides that: “Satisfactory performance of Dealer’s sales obligations under Article - 11 - 5.1 requires Dealer to achieve a Retail Sales Index equal to or greater than 100. If Dealer’s Retail Sales Index is less than 100, Dealer’s Sales Performance will be rated as provided in the General Motors Sales Evaluation Process.” A157. Under GM’s Sales Evaluation Process, the Dealer Rating System is as follows: SUPERIOR 100 RSI or greater and in the top 15% of the Dealers in the state SATISFACTORY 100 RSI or greater (but not in top 15% of dealers) NEEDS IMPROVEMENT 85.0 to 99.9 RSI NEEDS SIGNIFICANT IMPROVEMENT 84.9 RSI or lower (but not in bottom 15% of dealers) UNSATISFACTORY 84.9 RSI or less and in the bottom 15% of dealers in the state A1311. Contrary to Beck’s exaggerated argument that GM’s methodology will leave half its dealers in breach of their contractual obligations, the only immediate consequence of an RSI below 100 is a below average performance rating. Such a rating merely shows GM and its dealers where to focus their sales efforts and resources. It does not automatically place the dealer at risk of termination. Indeed, significant additional contractual steps must occur before GM will determine that a dealer is not in compliance with its Dealer Agreement. As an integral part of the “Review of Dealer’s Sales Performance” under Article 9, GM must consider “any other relevant factors” before concluding that a dealer’s - 12 - unsatisfactory sales performance constitutes a default under the Agreement: In addition to the Retail Sales Index, General Motors will consider any other relevant factors in deciding whether to proceed under the provisions of Article 13.2 to address any failure by Dealer to adequately perform its sales responsibilities. General Motors will only pursue its rights under Article 13.2 to address any failure by Dealer to adequately perform its sales responsibilities if General Motors determines that Dealer has materially breached its sales performance obligations under this Dealer Agreement. A157.2 Even if it determines that action under Article 13.2 is warranted, GM must then follow a multi-step process before considering whether to terminate the parties’ relationship. A166. First, GM will review the inadequate sales performance with the dealer. Id. Second, GM will notify the dealer of its failure to perform in writing and provide at least six months for the dealer to improve. Id. Third, GM will determine whether the dealer remains in material breach of its sales obligations. Id. Finally, GM may terminate the Dealer Agreement only after providing the dealer with 90 days’ advance written notice. Id. It is “extremely rare” for GM to pursue an involuntary termination of its relationship with a dealer based on poor sales performance. A1007 at 294. GM’s field staff routinely works with dealers to improve their sales performance before ever reaching that point. Id. Among other things, GM offers various dealer 2 Article 13 addresses breaches of the Dealer Agreement that the Dealer has an opportunity to cure. Article 13.2 specifically addresses the Dealer’s failure to adequately perform its sales responsibilities. A164-66. - 13 - performance improvement programs to address chronic performance issues. A1008 at 295. As GM’s Manager of Dealer Network Planning & Analysis, Alvon Giguere, testified, “GM is not interested in terminating dealers”; it is interested in “improving performance of our dealers and our brands.” Id. C. Old GM’s Bankruptcy and The Participation Agreement. GM’s performance in the metro New York area struggled historically due to problems with its dealer network. A1008-09 at 298-300. GM simply had too many dealers and, as the result of excessive intra-brand competition, those dealers were not strong enough inter-brand competitors to increase GM’s market share. In June 2009, Old GM sought bankruptcy protection. A875.12 at ¶ 5. As a condition of obtaining financing from the United States Treasury, Old GM drastically reduced the size of its dealer network. A875.12 at ¶¶ 5-6; A1009 at 299-300. This consolidation was designed to decrease intra-brand competition and thereby increase sales opportunities per dealer. A1005 at 284; A1007 at 291-92. More sales result in better dealer profitability, followed by greater investment in the dealership. Ideally, the remaining dealers would build brand equity (and market share) by improving consumer perception through such amenities as more attractive facilities and better customer service. As part of this process, GM reduced the number of Chevrolet dealers in the Westchester County APR by half, from eight dealers to four. A973 at 156, 158. - 14 - To facilitate the consolidation, Old GM offered Participation Agreements to those dealers that met the criteria to be retained, and offered Wind Down Agreements to underperforming dealers, allowing them to wind down their operations by October 31, 2010, in exchange for cash payments. A875.12 at ¶ 7. Due to its historically poor sales performance, GM offered and Beck accepted a Wind Down Agreement with a cash payment of approximately $390,000. Id. at ¶ 8. After Old GM transferred its assets to GM, Beck asked GM to reconsider its wind down status. A1007 at 292. GM ultimately agreed to rescind the Wind Down Agreement and offered Beck a Participation Agreement allowing it to continue operating. Id. That Participation Agreement was specifically conditioned on Beck’s agreement to improve its sales effectiveness over a three year period by achieving RSI scores of 70 in 2010, 85 in 2011, and 100 by 2012. A133 at ¶ 9(a). Lest there be any confusion about the applicable standard, the Participation Agreement explained exactly how GM would evaluate Beck’s sales performance using segment-adjusted state average RSI: Dealer’s aggregate RSI for [Chevrolet] is determined by dividing (x) the sum of the total of Dealer’s reported retail sales (by unit) for [Chevrolet] as set forth on the Retail Sales Performance Review Report prepared by GM for each applicable calendar year, by (y) the total of the sales (by unit) that Dealer needs to equal the State of New York average (segment adjusted) for [Chevrolet], as set forth on the Retail Sales Performance Review Report prepared by GM for the applicable calendar year. (By way of illustration, if Dealer’s reported - 15 - retail sales for the calendar year 2010 for [Chevrolet] totals 700 units, and if the total of the sales Dealer needs to equal the State of New York average (segment adjusted) for the calendar year 2010 for [Chevrolet] equals 1000, then the aggregate RSI for the calendar year 2010 is 70). Id. Fully cognizant of these express terms, with the advice of counsel, and without objection, Beck signed the Participation Agreement in September 2009. A128-36. D. GM’s Modest Revisions to Beck’s Market Area. As a result of the consolidation of its dealer network, GM revised the various AGSSAs of its remaining dealers throughout the United States in order to reassign census tracts previously assigned to Wind Down dealers to the remaining dealers, and make other appropriate adjustments. A234-35. Article 4.2 of the Dealer Agreement addresses a Dealer’s Area of Primary Responsibility: Dealer is responsible for effectively selling, servicing and otherwise representing General Motors Products in the Area designated in a Notice of Area of Primary Responsibility. The Area of Primary Responsibility is used by General Motors in assessing performance of dealers and the dealer network. General Motors retains the right to revise Dealer’s Area of Primary Responsibility at General Motors sole discretion consistent with dealer network planning objectives. A143 (emphasis added). By letter dated April 22, 2011, GM notified Beck that GM planned to revise Beck’s AGSSA by adding four census tracts in Westchester County and removing seven census tracts in Bronx County, for a net reduction of three tracts, which would result in a slight increase in the total number of competitive registrations. - 16 - A234-39; A313 at ¶ 11. GM, however, agreed to evaluate Beck’s sales performance using the geography assigned to Beck at the time that it executed the Participation Agreement, so the change to Beck’s geography did not adversely affect Beck’s sales effectiveness in any way, shape, or form. A1076 at 394. E. Beck Failed to Capitalize on the Special Assistance GM Provided. In addition to using Beck’s old AGSSA, GM took a number of other steps to help Beck achieve the benchmarks it promised to meet. First, GM notified Beck in October 2010 that GM would not enforce the requirement that Beck achieve an RSI of 70 in 2010 and would instead begin tracking Beck’s RSI performance beginning in 2011. A182-83. Second, GM enrolled Beck in its Dealer Performance Agreement Process (“DPAP”). Under DPAP, an assigned GM team would meet quarterly with the dealer to assess its performance and address any business issues affecting its ability to achieve its performance requirements. A182-83. Third, GM offered Beck a special injection of new vehicle inventory to help it build sales momentum. Because a dealer’s allocation is based on its historical sales rate, dealers often find it difficult to increase their allocation quickly. A334 at ¶ 16. Beginning in October 2010, however, GM voluntarily implemented a special four-month vehicle allocation program that offered Beck and certain other dealers enough additional new units to meet the sales requirements they had - 17 - committed to in the Participation Agreements. A182-83. Beck complained about and resisted GM’s offers of assistance. For instance, Beck turned down most of the additional new vehicle inventory GM offered during the special allocation period, but then immediately began ordering inventory that it had not earned as soon as the program ended. 787 F.3d at 669-70, 678. When it did not receive all of the extra inventory, Beck asserted a claim against GM for violation of Section 463(2)(a) of the Dealer Act. Id. The district court granted GM summary judgment dismissing that claim, which the Second Circuit affirmed based on Beck’s contradictory ordering patterns. Id. at 678-79. F. GM’s Consideration of “Other Relevant Factors” Undercuts Beck’s Complaints of Specific Localized Sales Challenges. Despite its specific commitment to attain an RSI of 70 in 2010, 85 in 2011, and 100 in 2012—based upon its 2009 geography—Beck’s RSI never exceeded 51 during those three years. In fact, Beck’s sales effectiveness remained static throughout that period regardless of the benchmark employed. A1312; A994 at 241-42. To excuse its continued, chronic underperformance, Beck claimed that metropolitan New York customers have a so-called “import bias” against domestic (GM, Ford, and Chrysler) vehicles, particularly Chevrolets. The evidence at trial, however, undercut Beck’s position. As part of its undertaking to consider “any other relevant factors,” GM explores the effect of consumer bias for or against a particular brand through - 18 - various analyses. A1009 at 300. Among other things, GM can measure the effect of import brands in a particular market by calculating a dealer’s RSI based only on domestic vehicle registrations (Ford, Chrysler and GM) in its AGSSA after artificially removing all import brand vehicle registrations (Toyota, Honda, Nissan, etc.). A1008 at 297. In this case, such an analysis reflected that Beck’s Chevrolet performance remained inadequate even when measured only against the other domestic competition. A1327; A1112-13 at 474-76. Further undermining its “import bias” theory, Beck’s two closest domestic competitors—the Ford and Chrysler dealerships located on the same street and less than one mile away from Beck in Yonkers—both exceeded their manufacturers’ state average sales standards and significantly outsold Beck. A1325-26; A1050-51 at 339-40; A1093 at 432; A1109 at 467; A1111-12 at 472-73. Specifically, while Beck’s RSI hovered around 50 for the entire three-year period from 2010 through 2012, the Ford dealer exceeded 110, and the Chrysler dealer exceeded 120. A1326. GM also takes into account whether a dealer is making the operational effort to improve its performance to “Satisfactory” levels. A1009 at 301; A1052-53 at 344-45. At trial, GM established that other Chevrolet dealers in the downstate metropolitan area have obtained RSI scores over 100 or significantly improved their performance with increased effort. A1318-22; A1104 at 456; A1107 at 462- 63; A1068 at 377; A1693-94; A1696-98. One Chevrolet dealer in the downstate - 19 - counties regularly achieved an RSI over 200 (A1320), and another Chevrolet dealer located in Queens improved its RSI from 55 in 2011 to 125 in 2012 (A1318), while Beck’s remained stagnant (A1317). In fact, the record evidence even demonstrated that within Beck’s own AGSSA—an area where it should have been the dominant Chevrolet dealer given its geographic advantage—Beck was actually outsold in 2011 and 2012 by Curry Chevrolet, a Chevrolet dealer that is less convenient to customers living in Beck’s AGSSA. A1120 at 491; A1121-22 at 493-94; A1333. As GM’s expert testified, this “is a confirmation that it’s not a matter of a rejection of the brand but a rejection of the dealer.” A1133 at 517. PROCEDURAL HISTORY A. The Federal District Court Proceeding. Beck sued GM on April 27, 2011 in the Supreme Court for the State of New York seeking an order to show cause alleging that an April 6, 2011 offer from GM to extend the Dealer Agreement (which by its terms was set to expire that month) constituted an unlawful modification of that agreement. After GM removed the case to the United States District Court for the Southern District of New York, the federal district court denied Beck’s petition as moot. A298. Beck then amended its complaint, asserting a variety of statutory, contractual and common law claims. Among them, Beck alleged that GM “use[d] an unreasonable, arbitrary or unfair - 20 - sales or other performance standard in determining a franchised motor vehicle dealer’s compliance with a franchise agreement” in violation of section 463(2)(gg) of the Dealer Act, and that GM’s modest revision to Beck’s AGSSA—which did not affect Beck’s ability to perform under its Participation Agreement—constituted an unlawful modification of the parties’ Dealer Agreement under section 463(2)(ff). The district court granted summary judgment for GM on Beck’s section 463(2)(ff) claim, finding that, as a matter of law, the Dealer Agreement reserved to GM the right to revise a dealer’s market area in its sole discretion. See A1635-38. The district court then held a bench trial in September 2013 on Beck’s section 463(2)(gg) claim.3 Despite Beck’s inflammatory rhetoric to the contrary, see, e.g., Beck Br. at 2, 12, 39-40, and 43, the trial did not address whether GM had the right to terminate Beck. In fact, Beck specifically asked the court to preclude GM from offering evidence of Beck’s operational deficiencies at trial: “This case is also not about the actual RSI achieved by Beck, and the consequences which might flow from that calculation. Those are issues that this Court has already acknowledged are not before it and instead will ultimately be determined in the administrative 3 Beck also proceeded to trial on its claim that GM’s facility requirements violated section 463(2)(c), but the court ruled that Beck had “abandoned” that claim after it failed to present any supporting evidence. A1705-06. Beck did not appeal that ruling, yet it has still sprinkled references to it throughout its brief here, which are irrelevant to the issues before this Court and should be disregarded. See, e.g., Beck Br. at 7, 10-11. - 21 - proceeding pending before the New York State Department of Motor Vehicles . . . .” See Plaintiff’s Memorandum of Law in Support of its Motion In Limine to Preclude Certain Testimony at Trial at 3 (GM’s Compendium at 398).4 Noting that “this is not a termination case,” the court granted Beck’s motion and ultimately precluded GM from introducing this evidence. A893. At trial, GM presented testimony from two witnesses: (1) Mr. Giguere, GM’s Manager of Dealer Network Planning & Analysis, who is responsible for GM’s dealer network and the preparation of GM’s sales performance reports, and (2) Sharif Farhat, Vice President of Urban Science Applications, an international consulting firm that helped develop the retail sales effectiveness standard at issue in this case and works with virtually every motor vehicle manufacturer on dealer network issues. A998-99 at 258-60; A1004 at 279; A1087-89 at 419-23. Beck presented a single witness, Joseph Roesner of the Fontana Group. After considering all of the evidence, the district court entered judgment for GM on September 24, 2013, ruling in a thoroughly reasoned oral decision (A1676- 1707) that “the methodology used by General Motors is not unreasonable, arbitrary, or unfair in measuring sales performance by Beck Chevrolet Co., Inc.” A1677. The court concluded that the “segmentation” process adequately addressed 4 Plaintiff’s Memorandum of Law in Support of its Motion In Limine, along with the legislative history documents and unreported decisions cited herein, is reproduced in the accompanying General Motors’ Compendium of Unreported Decisions, Legislative Documents, and Case Filings (“GM’s Compendium”). - 22 - differences between the Yonkers market and the State of New York generally: “I find that the segments expressed an adequate adjustment for business transactions and/or business measurements, and I therefore rule in favor of General Motors on that particular point.” A1685. As a result, the court found “that the RSI adjusts for different popularity of vehicles and different biases of consumers under normal business circumstances.” A1684. The court also recognized that GM considers not only the RSI in monitoring dealer performance but also any other relevant factors: The segmented nature of the calculations allows for adjustments as to popularity within brands, and General Motors uses other indices to check the reasonableness of its performances, comparing, for example, a local dealer like Beck to local dealers selling Fords and local dealers selling Chryslers, and ascertains from those standards that a weak performer, like Beck, compares poorly against the greater sales performance of the Ford dealer and the Chrysler dealer. If imports are, as Beck argues, a major impediment to measuring its performance, that should be true equally to the Ford dealer and the Chrysler dealer, but General Motors shows statistically that that is not so and it is outperformed by Ford and Chrysler in its AGSSA. Another check is to use Beck’s performance against neighboring dealers, and those statistics show that at least one of them sells more cars, more vehicles, in Beck’s AGSSA than Beck does itself. The [Chevrolet] dealer to the north, Curry, operating in Scarsdale, sells more cars, more vehicles, in the Beck AGSSA of Yonkers and surrounding areas than does Beck, and that also is an index that can be used to confirm the reasonableness of using statewide standards. A1693-94. The district court recognized that the ability of other downstate dealers to - 23 - improve represents an “indication of [RSI’s] fairness” and found that RSI “identifies dealers who have missed opportunities to increase their sales against competition,” noting that “Beck has not been able to improve its RSI year to year − scoring 50.1 in 2010, 50.9 in 2011, and 50.6 in 2012.” A1697. B. The Second Circuit Certification Decision. Beck appealed certain aspects of the summary judgment and trial decisions. The Second Circuit certified two questions to this Court and affirmed the district court’s decision in all other respects. Rather than “cast[ ] doubt” on GM’s sales effectiveness methodology as Beck suggests, see Beck Br. at 20, the Second Circuit simply sought this Court’s guidance on the controlling legislative purpose and proper statutory interpretation of sections 463(2)(gg) and 463(2)(ff), presenting the issues in a fair and balanced manner. In doing so, the circuit court began by noting that “[s]ome of the legislative history suggests that the legislature was primarily concerned with performance standards that were too confusing or too poorly communicated to be understood and followed by automobile dealers.” 787 F.3d at 674 (citations omitted). The Second Circuit appeared to recognize that GM’s performance standard satisfied any legislative concerns regarding transparency. Indeed, the court addressed Beck’s “core contention that the statewide average GM uses to determine expected sales is unreasonable” only after “[a]ssuming arguendo that Beck’s reading of the - 24 - statute is correct.” Id. Even then, the Second Circuit recognized the “significant virtues” in GM’s sales effectiveness methodology: At the same time, however, section 463(2)(gg) does not mandate that franchisors impose individually tailored or perfectly just performance standards. It prohibits only performance standards that are “unreasonable, arbitrary or unfair.” And, as the district court recognized, GM’s performance standards have significant virtues, including ease of administration, predictability, uniformity, and encouragement of innovation in struggling markets. They give GM greater flexibility to demand changes or shut down unproductive dealerships. And, importantly, they appear to represent the industry standard. Id. at 676. Based on section 463(2)(gg)’s legislative purpose and language, these “significant virtues” confirm the reasonableness and fairness of GM’s performance standard. C. The DMV Proceeding. During the course of the district court proceedings, GM notified Beck that it did not plan to renew Beck’s Dealer Agreement upon its expiration in light of Beck’s chronically poor sales performance coupled with its failure to take any steps to improve. In response, Beck commenced an adjudicatory proceeding with the DMV on June 13, 2013. After the district court ruled in GM’s favor, the ALJ concluded that Beck had elected to litigate the reasonableness of GM’s performance standard in federal court and therefore could not re-litigate that issue. After considering the parties’ submissions, he then ruled that GM had “due cause” - 25 - to terminate the Dealer Agreement as a result of Beck’s repeated failures to improve its sales performance despite GM’s “substantial attempts” to help and Beck’s “ample opportunity to cure” its sales deficiencies. A1894-96. Beck appealed the ALJ’s decision to the DMV Administrative Appeals Board (“Board”). In its decision dated April 29, 2014, the Board reversed and remanded, distinguishing the finding that RSI is not unreasonable or unfair from a finding that GM had due cause to terminate Beck: “While the determination of the Federal Court in this related manner can certainly be regarded as persuasive authority regarding whether the sales or performance standard was reasonable under VTL § 463(2)(gg), it is not conclusive or binding on the subsequent action commenced under VTL § 463(e)(2)(1).” N.Y. DMV Admin. Appeals Bd. Decision of Appeal dated April 29, 2014 at 4 (GM’s Compendium at 4). After an adjudicatory hearing, the ALJ issued a new decision on October 6, 2014, finding that GM lacked due cause not to renew Beck’s Dealer Agreement despite Beck’s woeful underperformance. A1883-91. The ALJ declined to adopt the district court’s conclusion that GM’s performance standard was not unreasonable or unfair. In doing so, the ALJ committed numerous errors. Among other things, he acknowledged that GM considers other relevant factors before terminating a dealer but erroneously concluded that the termination notice relied only on RSI, even though GM specifically mentioned Beck’s specific commitment - 26 - under the Participation Agreement and its failure to capitalize on GM’s various offers of assistance. He compounded this error by ignoring other relevant factors such as the performance of Beck’s neighboring Chevrolet, Ford, and Chrysler dealers and concluding that GM did not have “due cause” to terminate Beck if dealers with lower RSI scores were not being terminated. This reasoning inappropriately elevates a dealer’s RSI as the sole factor justifying termination and unnecessarily exposes dealers to termination even if their operational effort and other factors might not warrant it. GM has appealed that decision on numerous grounds, and that appeal remains pending. In all events, the disparate results in the district court and DMV proceedings illustrate that the issues involved in a proceeding under section 463(e)(2)(1) governing terminations go beyond those under section 463(2)(gg) governing sales performance standards. ARGUMENT I. THE 2008 AMENDMENTS TO THE DEALER ACT WERE DESIGNED TO INCREASE TRANSPARENCY, NOT ADDRESS ANY PERCEIVED ABUSES. As the Second Circuit recognized, the legislative history of the Dealer Act and its series of amendments reveals that the Legislature’s purpose in regulating franchise relationships between motor vehicle dealers and manufacturers has evolved markedly during the 30-plus years since the Act was adopted in 1983. Beck focuses upon legislative statements from 1983 and 1992, see Beck Br. at 24- - 27 - 26, but its reliance is misplaced because the two provisions at issue here were added to the Act in 2008. Under basic principles of statutory construction, the legislative history of the 2008 Amendments should guide the Court’s interpretation of the operative provisions. See, e.g., 1A Sutherland Statutory Construction § 22:29 (7th ed.) (“To ascertain the meaning of amendatory language, courts . . . consider records of legislative proceedings and reports of legislative committees concerning the amendment . . . .” (emphasis added)); McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 191 cmt. (legislative purpose of “amendatory acts” “is usually to make an old statute express and conform to a more recent legislative intention . . . .”) (emphasis added); Brian Hoxie’s Painting Co. v. Cato-Meridian Cent. School Dist., 76 N.Y.2d 207, 210-11 (1990) (relying on legislative history of amendment to determine legislature’s intent). Indeed, changes in the auto industry—including more robust competition among manufacturers, increased size and economic power of dealers, and a growing consensus that dealer protection laws are anti-competitive and harm consumers—provide important context for the legislative intent in 2008. Interpreted in light of the transparency-focused 2008 legislative history, the flexible language of sections 463(2)(ff) and 463(2)(gg) should be construed to confer significant leeway upon manufacturers in evaluating their dealer networks and adjusting AGSSAs, provided that they clearly communicate the applicable - 28 - standards to their dealers. A. The 1983 Enactment Of The Dealer Act Was Driven By Market Conditions in the Mid-20th Century. State motor vehicle franchise regulations like the Dealer Act gained traction in the mid-twentieth century when a few large manufacturers with considerable financial resources accounted for the vast majority of new motor vehicles sold in the U.S. See Francine Lafontaine & Fiona Scott Morton, Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis, 24 J. Econ. Perspectives 233, 238-39 (2010), available at http://faculty.som.yale.edu/FionaScottMorton/documen ts/StateFranchiseLawsDealerTerminationsandtheAutoCrisis.pdf; Thomas B. Leary, Comm’r, Fed. Trade Comm’n, State Auto Dealer Regulation: One Man’s Preliminary View, Speech at the Int’l Franchise Ass’n 34th Annual Legal Symposium (May 8, 2001), available at https://www.ftc.gov/public- statements/2001/05/state-auto-dealer-regulation-one-mans-preliminary-view. In light of a then-perceived disparity in bargaining power between small dealers and a few large manufacturers, Congress and the states sought to regulate their interaction, purportedly to ensure consumers of ongoing, reliable delivery and servicing of motor vehicles. See, e.g., New Motor Vehicle Bd. of California v. Orrin W. Fox Co., 439 U.S. 96, 100-01 (1978) (observing that “[t]he disparity in bargaining power between automobile manufacturers and their dealers prompted Congress and some 25 States to enact legislation to protect retail car dealers from - 29 - perceived abusive and oppressive acts by the manufacturers . . . .”). Expressing a desire to correct a perceived “imbalance in bargaining power” between manufacturers and dealers and to “provide certain basic protections for the dealer” to create “a healthier marketplace for all parties concerned,” Assembly Mem. In Support, Bill Jacket for S. 5399-A, L. 1983, ch. 815, at 6, the New York Legislature adopted the Dealer Act in 1983 to “promote the public interest and the public welfare.” N.Y. Veh. & Traf. Law § 460. B. The Motor Vehicle Industry Has Changed Dramatically Since The Dealer Act Passed in 1983. While the Legislature may have enacted the Dealer Act 30 years ago to protect dealers, the landscape has shifted as a result of significant changes in economic and market conditions. Thus, dealer protection cannot explain and certainly does not justify the 2008 Amendments. The Supreme Court has recently cautioned that legislation cannot stand forever on the basis of “conditions that originally justified the[ ] measures”; rather, “a statute’s ‘current burdens’ must be justified by ‘current needs.’” Shelby County v. Holder, 133 S. Ct. 2612, 2618-19, 2627 (2013). In the same vein, reliance on the historical “disparity in bargaining power” justification as grounds for reading the 2008 Amendments “broadly as a remedial [measure] that favors dealers,” see Beck Br. at 22, ignores the reality that market conditions have rendered that antiquated refrain obsolete. To begin with, the motor vehicle manufacturing industry is far less - 30 - concentrated today than it was in the mid-20th century. See Mark Cooper, A Roadblock on the Information Superhighway: Anticompetitive Restrictions on Automotive Markets, Consumer Fed’n of Am., 31-32 (Feb. 2001), available at http://www.consumerfed.org/pdfs/internetautosales.pdf. Inter-brand rivalry among manufacturers has fostered a beneficial, competitive climate for dealers, in which many dealers now have franchise agreements with multiple manufacturers and fewer dealerships are dependent on a single manufacturer than in the past. Gerald R. Bodisch, Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers, Competition Advocacy Paper # EAG 09-1 CA, Economic Analysis Group, U.S. Dept. of Justice (May 2009), at 8, http://www.justice.gov/sites/default/files/ atr/legacy/2009/05/28/246374.pdf. Recent decades have also witnessed a substantial increase in the size, scale, and economic resources of motor vehicle dealers. Indeed, there has been “a proliferation of large chain dealerships, including some entities that own hundreds of outlets across multiple product lines.” Leary, supra. See also Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d 892, 897 (7th Cir. 1998) (“Modern automobile dealers are substantial and sophisticated businesses.”). Not surprisingly, in the same year that the amendments at issue became effective, the U.S. Department of Justice recognized that: holding up dealers is unlikely to be a viable long-run strategy for a manufacturer when, as in the auto industry, reputation is - 31 - important. Opportunistic behavior by a manufacturer would erode its reputation, making it difficult to attract new dealers and have existing dealers continue to provide the promotion and service essential to attracting . . . customers . . . . Bodisch, supra, at 7, 11. Instead of protecting dealers from manufacturer “abuses,” certain franchise laws can become anti-competitive protectionist tools that actually harm consumer welfare. See, e.g., Lafontaine & Morton, supra, at 234, 242-43, 248 (“[T]heory and evidence suggest that the protection that automobile dealers have obtained from local legislatures has been to the detriment not only of manufacturers, but also of consumers, resulting in higher cost of retailing and higher prices for cars, inflexibility of the dealer network, and a lack of innovation in car distribution.”). This combination of changes, particularly when paired with protectionist franchise regulations that place a thumb on the scale in favor of dealers, made further “remedial” regulation of the dealer-manufacturer relationship unnecessary. Rather, Sections 463(2)(ff) and 463(2)(gg) of the Dealer Act should be construed in light of the specific legislative purpose articulated at the time of the 2008 Amendments. C. The Legislative History of the 2008 Amendments Emphasized the Need for Transparency, Not Protection. The 2008 Amendments to the Dealer Act do not contain any reference to perceived “abuses” or “superior economic power” of manufacturers. Recognizing - 32 - the “changes in the auto industry as a whole,” the bill’s sponsors instead emphasized the need to ensure “fair and open transactions, competition, and service to the public.” See N.Y. Sen. Sponsor’s Mem., Bill Jacket for S.B. 8678, L.2008, ch. 490, at 13. More specifically, the sponsors of section 463(2)(gg) described this provision as an “important step . . . [to] bring[ ] more openness in dealer franchisor communications,” which would “require[ ] that a franchisor communicate the performance standard in writing, in a clear and concise manner.” Id. Even the Greater New York Automobile Dealers Association—a vocal dealer advocate—agreed: [F]ranchisors often impose performance standards on dealers in order to measure the success and worth of a franchise. However, these standards are often extremely complicated, and are frequently not sufficiently communicated to the dealers upon whom they are imposed. In an effort to prevent misunderstandings and provide greater openness, this legislation prohibits unreasonable, unfair, and arbitrary sales standards and requires that sales standards be communicated to the franchisees in writing in a clear and concise manner. Letter in Support dated July 31, 2008, Bill Jacket for S.B. 8678, L.2008, ch. 490, at 42-44 (Mark Schienberg, President of the Greater New York Automobile Dealers Association). Under settled New York law, a statute enacted in derogation of the common law right of contract must be strictly construed as narrowly as its words and underlying purpose permit. See, e.g., McMaster v. Owens, 275 A.D. 506, 508 (3rd - 33 - Dep’t 1949) (statute imposing conditions on school board’s power “[wa]s in derogation of the common-law right of contract, and must be strictly construed”); Harfenes v. Sea Gate Assoc., Inc., 167 Misc.2d 647, 652-53 (Sup. Ct., N.Y. Cnty. 1995) (rejecting plaintiffs’ argument that remedial statute should be interpreted broadly where statute was “in derogation of the common law”); McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 311 cmt. (“An act which infringes upon common right is strictly construed.”). Interpreted in light of the 2008 legislative history’s focus on improving the transparency and clarity of dealer performance standards, sections 463(2)(ff) and 463(2)(gg) should be read to allow manufacturers considerable flexibility in evaluating their dealer networks and adjusting AGSSAs, provided that they clearly communicate the applicable adjustments and performance metrics to their dealers. II. THE COURT SHOULD ANSWER THE FIRST CERTIFIED QUESTION, “NO,” BECAUSE SEGMENT ADJUSTED SALES EFFECTIVENESS IS NOT AN UNREASONABLE, ARBITRARY OR UNFAIR WAY TO EVALUATE SALES PERFORMANCE. Section 463(2)(gg) prohibits any franchisor from [U]sing an unreasonable, arbitrary or unfair sales or other performance standard in determining a franchised motor vehicle dealer's compliance with a franchise agreement. Before applying any sales, service or other performance standard to a franchised motor vehicle dealer, a franchisor shall communicate the performance standard in writing in a clear and concise manner. 787 F.3d at 676. Because that provision addresses “determining . . . compliance - 34 - with a franchise agreement,” not requiring its termination, this Court should modify the first question slightly to reflect the statutory language and ensure that the Court’s guidance is determinative of the claim that was actually decided by the district court, as discussed more fully below. Regardless of how the first question is framed, the statute’s flexible language reflects that it was not intended to inject ongoing judicial oversight over a franchisor’s legitimate business judgment about how to monitor dealer performance. Instead, the statute was designed to safeguard dealers from conduct that transcends the bounds of acceptable commercial standards, with the primary focus on whether the standard was clearly communicated and capable of being reasonably and fairly understood. Obviously, such a determination is highly-fact specific and, in this case, the district court concluded that GM’s method of evaluating its dealers was both reasonable and fair after a multi-day bench trial. Recent cases interpreting different types of statutory provisions have reached similar results, while a few have reached the opposite result based on the unique circumstances presented. As described more fully below, no basis exists for a blanket ruling that current industry-wide performance standards are invariably “unreasonable, arbitrary or unfair,” particularly when viewed in context with the significant contractual and statutory protections afforded to motor vehicle dealers. For these reasons, the Court should answer the first question in the negative. - 35 - A. The Court Should Reframe The First Certified Question Because This Case Involves Whether GM’s RSI Is Unreasonable, Arbitrary Or Unfair, Not Whether GM Is Entitled To Terminate Beck Or Any Other Dealer. Beck decries that a negative answer to the first certified question would give GM the “green light” to terminate all Chevrolet dealers in downstate New York that did not achieve an RSI of 100. Beck Br. at 43. This hyperbole ignores the various contractual and statutory safeguards that protect dealers from termination. As Mr. Giguere explained, “[S]imply because a dealer fails to meet the 100 RSI target or objective doesn’t mean that we would be considering taking action against that dealer for breach. We generally reserve that type of action for a dealer who has been at the very low end of the [ratings] spectrum.” A1006 at 288; A1003 at 278. Indeed, as the district court found, the Dealer Agreement requires that “when deciding whether to begin the process for terminating a dealer, GM will consider not only the RSI but, ‘any other relevant factors.’” A1686. Even after GM follows multiple contractual steps and then decides the dealer has underperformed so badly that GM has no recourse but to pursue termination, a dealer may still avail itself of the protections under section 463(2)(d) of the Dealer Act. As a result, the first certified question as currently formulated (1) is predicated on the inaccurate presumption that GM terminates all dealers that fall short of “average” performance based on statewide sales data, and therefore (2) is not dispositive of the actual legal issue decided in the district court and pending - 36 - before the Second Circuit. For these reasons, GM respectfully requests that this Court accept the Second Circuit’s invitation (787 F.3d at 682) to modify the question as follows: Is a performance standard that uses “average” performance based on statewide sales data in order to determine an automobile dealer’s compliance with a franchise agreement “unreasonable, arbitrary, or unfair” under New York Vehicle & Traffic Law section 463(2)(gg) because it does not account for local variations beyond adjusting for the local popularity of general vehicle types? Under New York law, a certified question must present a question of law which in itself is decisive of some part of the controversy involved in the appeal. Application of Corp. Counsel of N.Y.C., Vernon Parkway and Garden Place, 285 N.Y. 326, 332 (1941); Yesil v. Reno, 92 N.Y.2d 455,457 (1998). The question must be construed in the factual context of the real case in controversy before the appellate court in order to provide a meaningful and appropriate answer. Wildenstein & Co. v. Wallis 79 N.Y.2d 641, 645 (1992). If the certified question posed to the Court is not dispositive of the correctness of the trial court’s specific rulings pending on appeal, then the question should be reframed or rejected. Application of Corp. Counsel of N.Y.C., 285 N.Y. at 326, 332; Barenboim v. Starbucks Corp., 21 N.Y.3d 460, 470-71 (2013). On multiple occasions, this Court has reframed certified questions to make them more readily answerable, to more meaningfully address the underlying legal - 37 - issue, and to remove abstractness, ambiguity, inaccurate factual inferences or presumptions of law, or other obstacles. See, e.g., Barenboim, 21 N.Y.3d at 470- 71; Engel v. CBS, Inc., 93 N.Y.2d 195, 199 (1999); Commodity Futures Trading Comm’n v. Walsh, 17 N.Y.3d 162, 175-76 (2011). Initially, the first certified question mischaracterizes the nature and role of GM’s performance standard and, in doing so, disregards factual findings made by the district court (left undisturbed by the Second Circuit). By asking the Court to determine whether a performance standard “that requires ‘average’ performance … in order for an automobile dealer to retain its dealership” violates section 463(2)(gg), the first question presumes that GM attempts to terminate all dealers that fall short of “average” performance. As detailed above, that is neither the purpose of GM’s RSI standard, nor does it reflect the manner in which RSI is actually used. The Second Circuit recognized that a dealer’s failure to achieve average performance based on statewide sales data does not necessarily mean that a dealer will not retain its dealership and acknowledged that “GM prefers not to terminate dealers who fall below target levels, and has remedial programs to help improve performance at these dealerships.” 787 F.3d at 669. That certain New York dealers with RSI scores lower than Beck’s have not been terminated further highlights the mistaken presumption embedded in the first certified question. See Engel, 93 N.Y.2d at 199. - 38 - Second, the first question as currently framed does not position this Court to dispose of the legal issue decided by the district court and pending on appeal. The propriety of GM’s termination of Beck is not before the Second Circuit or this Court. Section 463(2)(gg) makes it unlawful for a franchisor to use an unreasonable, arbitrary or unfair sales standard to determine a dealer’s compliance with its franchise agreement, not to determine whether the dealer will retain its dealership. The Dealer Act has a separate provision safeguarding dealers from termination without “due cause.” See N.Y. Veh. & Traf. Law § 463(2)(d). The district court analyzed GM’s RSI standard independent of Beck’s termination, finding only that RSI was not an “unreasonable, arbitrary, or unfair” way to measure sales performance. The first certified question is framed too narrowly to provide guidance on that issue. GM respectfully submits that the proposed modified question more closely tracks the text of section 463(2)(gg) and, therefore, would allow this Court to more directly address the legal issue pending on appeal.5 5 After this Court had accepted the certified questions, GM asked the Second Circuit to modify the first question consistent with its present request. A1943-50. Beck opposed GM’s request, arguing that “GM will have an opportunity to make the same request to re-cast the first certified question in its brief to the New York Court of Appeals, the Court to which GM’s request really should be made.” A1957. The Second Circuit denied GM’s motion without explanation. A1981. - 39 - B. It Is Not Unreasonable, Arbitrary, Or Unfair To Use Sales Effectiveness As One Of The Factors In Determining A Dealer’s Compliance With Its Franchise Agreement. Regardless of whether this Court answers the first question as presented or as modified, the record provides no basis from which to conclude that measuring dealer sales effectiveness using segment-adjusted state average market share is unreasonable, arbitrary, or unfair. As a practical matter, the flexibility to exercise business judgment in measuring dealer sales performance is necessary to allow manufacturers to respond to market pressures and changes in the industry. Courts routinely uphold manufacturers’ rights to use their reasoned business judgment in establishing sales performance standards and, in so doing, have held that “reasonableness” and “fairness” are lenient standards affording a measure of deference to legitimate business decisions. The Second Circuit and district court recognized that GM’s performance standard has significant virtues. Beck’s demand that GM’s standard account for every conceivable “local factor” arguably affecting its sales performance considerably overstates section 463(2)(gg)’s requirements and would negate RSI’s utility as a performance measure. The plain language of section 463(2)(gg) confirms that where GM acts according to its honest business judgment and within the bounds of industry standards, that judgment should be presumed reasonable and fair absent compelling contrary evidence. See Coady Corp. v. Toyota Motor Distribs., Inc., - 40 - 361 F.3d 50, 56 (1st Cir. 2004) (“A distributor acting honestly is entitled to latitude in making commercial judgments; and [the Massachusetts dealer act] was not meant to insulate dealers from the ordinary flux of pressure and striving that is part of a free economy.”). Contemporaneous legal dictionary definitions of the relevant terms describe “unreasonable” as “irrational or capricious,” and “arbitrary” as something “founded on prejudice or preference rather than on reason or fact.” Black’s Law Dictionary (9th ed. 2009). Similarly, “unfair” is defined as “marked by injustice, partiality, or deception.” Webster’s Third New Int’l Dictionary (Merriam-Webster 2002). GM’s standard simply does not approach any of these more unjust levels. Consistent with the stated legislative purpose, GM also regularly communicated with Beck regarding its RSI and how it was calculated. Section 463(2)(gg) does not dictate or prescribe a particular performance standard. Instead, it grants manufacturers the deference and flexibility to establish and use any reasonable standard. See Gen. Motors Corp. v. Darling’s, 444 F.3d 98, 109 (1st Cir. 2006) (“Absent a clear mandate from the legislature, [courts] are disinclined to unnecessarily interfere with the bargains that have been struck between the manufacturers and their distributors.”); see also Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1183 (2d Cir. 1995) (“It is certainly not the will of the Connecticut legislature to afford such a high level of protection to franchisees as to drive franchisors from the state.” (citing Grand Light & Supply Co. v. Honeywell - 41 - Inc., 771 F.2d 672, 677 (2d Cir. 1985) (declining an interpretation of the Act that would result in “legislative overkill” and “unjustifiably interfere with the normal functioning of the marketplace”))). As the Second Circuit recognized, the legislative history discussed above is particularly relevant in determining the intent underlying section 463(2)(gg). The Legislature is presumed to have been aware of the law in existence—including the extensive case law addressing the use of statewide benchmarks—at the time of the 2008 Amendments. See, e.g., B & F Bldg. Corp. v. Liebig, 76 N.Y.2d 689, 693 (1990). If it had intended to abrogate the use of statewide standards as “unreasonable, arbitrary, or unfair,” the legislative history and statutory language would reflect as much. In reality, the amendment’s legislative sponsors and interested constituents—including dealer representatives—were expressly concerned only with the clarity of manufacturers’ performance standards and whether they were sufficiently communicated to dealers. Given this legislative purpose, section 463(2)(gg) only requires an approach that is consistent with commercial norms. See, e.g., Beck Chevrolet, 787 F.3d at 676 (“[S]ection 463(2)(gg) does not mandate that franchisors impose individually tailored or perfectly just performance standards.”); Beck Chevrolet Co., Inc. v. Gen. Motors LLC, C.A. No. 11-cv-2856 (AKH) (S.D.N.Y. July 11, 2012) (“[the sales performance standard] doesn’t necessarily have to be kind to the dealer. It - 42 - must be, in the words of the statute, not unreasonable, not unfair. . . . [a]nd not arbitrary.”) (A1666); Hartley Buick GMC Truck, Inc. v. Am. Honda Motor Co., No. FMD 2010-05, at 8-9 (N.Y. DMV Div. of Safety & Bus. Hearings Nov. 1, 2011) (“Although not a perfect system, I find sales effectiveness standards similar to this RSE to be utilized by most manufacturers . . . .”), aff’d, No. 28447, at 9 (N.Y. DMV Admin. Appeals Bd. Feb. 28, 2012). Courts have routinely held that motor vehicle manufacturers employing their business judgment in administering sales performance standards are presumed to be acting fairly and reasonably. E.g., Love Pontiac, Cadillac, Buick, GMC Truck, Inc. v. Gen. Motors Corp., No. 97-2490, 1999 WL 125562, at *3 (4th Cir. Mar. 10, 1999) (“Arbitrary conduct consists of acts which are unreasonable, capricious or nonrational; not done according to reason or judgment, depending on will alone . . . [b]y definition, an action which is based on a legitimate business rationale is not an arbitrary action.” (internal quotation omitted)); Milos v. Ford Motor Co., 317 F.2d 712, 717–719 (3d Cir. 1963) (“Assignment of a market potential in the course of honest business judgment by a manufacturer to a dealer as a measure of expected performance within an area is not inherently unfair or arbitrary.”) (citation omitted); Burgin Motor Co., Inc. v. Am. Motors Sales Corp., 449 F. Supp. 842, 851 (D.S.C. 1978) (“[T]here is nothing inherently unfair or arbitrary in the assignment of market potential or in fixing sales objectives” and finding that defendant - 43 - manufacturer is “entitled to exercise its business judgment in determining [dealers’] sales objectives . . .”); In re Ralph Gentile, Inc. v. Nissan North Am., Inc., No. TR-07-0001, at 2-3 (Wis. Div. of Hearings and Appeals Feb. 4, 2010) (citing the manufacturer’s “wide latitude to decide how to evaluate the sales performance of its dealers . . .” to conclude that regional sales effectiveness was a reasonable form of evaluation), aff’d sub nom, Ralph Gentile, Inc. v. State, Div. Hearings and Appeals, No. 10-cv-1050 (Wis. Cir. Ct. Racine Cnty. Sept. 13, 2010), aff’d, 334 Wis. 2d 712, 800 N.W.2d 555 (2011). The First Circuit specifically examined prohibitions against “unfair” or “arbitrary” conduct under the Massachusetts dealer act in the context of a motor vehicle dealer’s complaint regarding a manufacturer’s vehicle allocation program. Coady Corp., 361 F.3d at 56. The Court in Coady endorsed the use of a “reasonable business practice” approach to evaluate whether a manufacturer’s conduct was arbitrary or unfair. Id. at 56. Under that approach, the Court held that the Massachusetts Act “does not demand perfection,” only “reasonable” rather than “foolproof” steps; therefore, “it is only the egregious decision that should be labeled ‘arbitrary’ or ‘unfair.’” Id. at 56-57 (citation omitted). Beck contends that, by relying on Coady, the district court improperly inserted an egregiousness requirement into section 463(2)(gg). But the district court here (and the First Circuit in Coady) simply recognized that the language of the respective statutes did - 44 - not warrant “a substitution of judicial for business judgment.” A1704-05. The Second Circuit did not disagree with the First Circuit’s reasoning in Coady, but simply recognized that the statute at issue there did not specifically preclude “unreasonable” conduct and questioned whether that meant section 463(2)(gg) might establish a higher bar. 787 F.3d at 673. It does not. Courts specifically considering a variety of “reasonableness” standards have similarly concluded that they preserve a franchisor’s right to exercise its business judgment. See Gabe Staino Motors, Inc. v. Volkswagen of Am., Inc., No. 99-5034, 2005 WL 1041196, at *12 (E.D. Pa. Apr. 29, 2005) (interpreting “unreasonable” under the Pennsylvania Board of Vehicles Act to be guided by other cases finding “that [a] manufacturer acting in the course of ‘honest business judgment’ could not be found to be inherently unfair or arbitrary”) (citations omitted); Mobil Oil Corp. v. Karbowski, 667 F. Supp. 927, 936 n.14 (D. Conn. 1987) (“A determination of reasonableness and materiality of a franchise provision under [the Petroleum Marketing Practices Act] involves an evaluation of the franchisor’s business judgment, giving deference to the franchisor’s legitimate business judgments and decisions”), aff’d, 879 F.2d 1052 (2d Cir. 1989); The Premier Collection, LLC v. Jaguar Land Rover N. Am., LLC, No. 14-8329, Decision on Plaintiffs’ Motion for Preliminary Injunction, at 28-29, 33-35 (S.D.N.Y. June 29, 2015) (manufacturer reasonably exercised its business judgment in denying approval of dealer’s site - 45 - construction plan based on its legitimate business concerns).6 Given the lenient language that the legislature adopted in section 463(2)(gg), the many identified virtues of segment-adjusted state average sales effectiveness— its objectivity, administrative convenience, transparency, customization, and performance motivator—must not fall prey to an unworkable standard of perfection. C. GM’s Retail Sales Index Is Not An Unreasonable, Arbitrary Or Unfair Method Of Evaluating Dealer Sales Performance. After carefully examining the evidence presented at trial in light of the commercial standards in section 463(2)(gg), the district court correctly found that GM’s adjusted state average RSI standard is not unreasonable, arbitrary, or unfair. A1699 (“But I have to examine these terms in relationship to community standards and business standards of unreasonable, arbitrary and unfair, and I find that the average statewide measurements used by Chevrolet are not unreasonable, arbitrary or unfair.”). Adjusted state average RSI is superior to any available alternative, 6 See also Interpharm, Inc. v. Wells Fargo Bank, Nat’l Ass'n, 655 F.3d 136, 145-47 (2d Cir. 2011) (“In any number of contexts, reasonable discretion is commonly understood to allow a decision maker to choose from a broad range of choices not conflicting with law or reason.” (citing United States v. Perez–Frias, 636 F.3d 39, 42 (2d Cir. 2011) (reviewing criminal sentence for reasonableness under abuse-of-discretion standard, such that sentence will be set aside “only in exceptional case[ ]” where it “cannot be located within the range of permissible decisions” (internal quotation marks omitted)); Vaughn v. Air Line Pilots Ass'n, Int'l, 604 F.3d 703, 709 (2d Cir. 2010) (“A union's actions are arbitrary only if . . . the union's behavior is so far outside a wide range of reasonableness as to be irrational.” (internal quotation marks omitted)); Brown v. Greene, 577 F.3d 107, 110 (2d Cir. 2009) (“In assessing whether counsel’s performance was objectively reasonable, we must indulge a strong presumption that counsel's conduct falls within the wide range of reasonable professional assistance . . . .” (internal quotation marks omitted))). - 46 - including the various standards Beck’s expert arbitrarily created, in at least five different ways. A1001 at 268. First, RSI accurately measures dealer sales performance. Every motor vehicle manufacturer—and even Beck’s own expert—uses the same type of sales effectiveness metric to evaluate dealer performance. A971 at 149-50; A972 at 151. Because dealer size and market potential vary, using the raw number of sales does not accurately evaluate whether a dealer is adequately capturing the available sales opportunities. For this reason, a dealer’s sales must be compared to a benchmark. The only dispute in this case is how that benchmark—the RSI denominator— should be determined. Even Beck’s expert agrees, however, that using an adjusted state average approach is a valid way to monitor trends in dealer performance over time—which is precisely how GM was able to conclude that Beck showed no improvement over the three year period under the Participation Agreement. A994 at 241-42. Second, adjusted state average RSI is objective, consistent, and administratively workable. A1000 at 263; A1078 at 399-400; A1091 at 427-28. As the district court properly concluded, “[a] standard to be a standard must be objective. It cannot give rise to unique arguments of exceptions if the standard is to be generally applicable and not arbitrary as to particular dealers. It has to be made to fit all sizes in all categories that can be said or reasonably be said to be - 47 - within a local market.” A1692; see also A1082 at 407-08; A1144 at 541-42. Indeed, using state boundaries to develop the applicable standard results in a readily identifiable group of dealers and avoids subjective decisions about the proper geographic boundaries. A1083 at 409-10; A990 at 223-24. Thus, the predictability of GM’s standard dovetails squarely with sections 463(2)(gg)’s legislative intent to ensure clarity when manufacturers communicate their performance requirements to dealers. In contrast, Beck’s expert arbitrarily selected different geographic areas not used by any motor vehicle manufacturer, which artificially inflated Beck’s sales effectiveness score. These local standards, based on ever-changing geographic boundaries, would require constant reassessment, become less predictable, less objective, hard for dealers to understand, and administratively burdensome if implemented nationwide—the exact opposite of what section 463(2)(gg) requires manufacturers to communicate to their dealers. A1001 at 267; A990 at 224. Nor do these various “standards” account for the amount of competition, advertising levels, or leasing activity that Beck claims GM’s standard lacks. Instead, Beck just arbitrarily selected different geographic areas to use as the benchmark because they lowered Beck’s expected sales requirements. A1694-95; A990 at 227. The district court properly characterized these areas as “[g]errymandered” and accurately concluded that using them as the benchmark “would force General Motors to take - 48 - an index of sales expectations that’s nothing better than mediocre.” A1695; see also A1123 at 497 (“They begin with a benchmark that’s inadequately performing and conclude that a dealer that’s inadequately performing is doing fine.”). Of course, lowering the benchmark for downstate dealers by dividing the State of New York in half would obviously raise the bar against which upstate dealers are judged, potentially evoking claims of unreasonableness or unfairness from them. GM has examined alternative standards, including localized standards, but has not identified a more appropriate standard than state average RSI. A1000-11 at 266-68. The evidence amply supported the district court’s conclusion that “[t]he fact that it’s administratively convenient and objective and gives rise to undisputable information, equally applicable to every dealer, is a point in favor of its reasonableness.” A1696. Third, adjusted state average RSI is the industry standard, and no manufacturer uses a more localized benchmark. See Bankers Trust Co. v. J. V. Dowler & Co., 47 N.Y.2d 128, 134 (1979) (in determining “commercial reasonableness” under the U.C.C., court explained that “[c]ustoms and usages that actually govern the members of a business calling day-in and day-out not only provide a creditor with standards that are well recognized, but tend to reflect a practical wisdom born of accumulated experience”); Hoag v. Chancellor, Inc., 246 A.D.2d 224, 231 (1st Dep’t 1998) (“In determining whether conduct is objectively - 49 - reasonable, industry norms may be appropriately considered.”); see also In re Chait Props., Inc., No. 8-11-78236-REG, 2013 WL 4858296, at *6 (Bankr. E.D.N.Y. Sept. 10, 2013) (finding expert’s appraisal “reasonable” since “methodology was consistent with industry standards”). The district court appropriately found this consistency persuasive: “The fact that all automobile manufacturers in the United States evaluate their dealers using measures similar to statewide RSIs [and] in even more dispersed geographical areas is an indication of the reasonableness in using state average.” A1696. GM even uses the same sales effectiveness standard in making its own business decisions regarding its dealer network, allocation of resources, and other internal business matters. A1003-04 at 278-82. Fourth, adjusted state average RSI is localized. It is based upon sales in a state, not based upon sales on a regional or national level. GM’s state average standard is further localized through the segmentation process which adjusts the standard on a vehicle segment level to account for local preferences within the dealer’s market area. A1001 at 268-69. Courts and administrative agencies have routinely found that segmentation adequately adjusts for local market conditions. See, e.g., Gen. Motors Corp. v. Fountain Oldsmobile-GMC Truck, No. 03-1319, Recommended Order, at 15-17 (Fla. Div. Admin. Hrgs. May 27, 2004) (finding that Fontana Group’s conclusion that urban consumers had import bias and that - 50 - appropriate sales standard for urban dealer is a comparison of demographically similar dealers was unreasonable; rather, Mr. Farhat’s segment adjustment process better accounted for import bias), adopted by Final Order No. HSMV-04-396- FOF-DMV (Fla. DHSMV July 15, 2004); Michael Cadillac, Inc. v. Volkswagen of Am., Inc., No. PR-1819-02, at 12-13 (Cal. New Motor Veh. Bd. June 17, 2003) (“The segment adjustment methodology does appear to adequately take demographic differences between markets into account when those markets are compared for the purposes of judging performance or estimating the future performance which could be obtained.”). Indeed, the district court highlighted the benefits of segmentation in its decision, finding “that the RSI adjusts for different popularity of vehicles and different biases of consumers under normal business circumstances,” and also “expressed an adequate adjustment for business transactions and/or business measurements.” A1684-85. Further adjustments to RSI are not warranted because they would negate its utility. A1086 at 416; A1093 at 431-32. GM and all motor vehicle manufacturers must be able to monitor dealer performance accurately so they can identify areas of performance deficiencies and market opportunities. Improving dealer performance is the single most important factor to increasing market share. Trying to develop a standard that factors in every conceivable local difference is unnecessary because segmentation already performs that function by relying on actual consumer - 51 - behavior, measured by new vehicle registrations. GM’s contractual agreement to “consider any other relevant factors” adequately safeguards against any lingering doubt that some local anomaly remains unaccounted for. See, e.g., Superior Pontiac Buick GMC, Inc. v. Nissan North Am., Inc., No. 08-10642, 2012 WL 1079719, at *18 (E.D. Mich. Mar. 30, 2012) (“Further, the reasonableness of the methodology is supported by the fact the assessment is not contradicted by other measurements.”). Finally, adjusted state average RSI communicates valuable business information and is coupled with other performance measures. GM provides Beck and all dealers with detailed SPRs on a quarterly basis that set forth its actual performance at a brand, segment and model level, its rank in the state, and its performance rating. A1003 at 277. Where a dealer ranks and where its RSI score falls on this continuum is itself a part of the performance measurement. D. GM Treated Beck Fairly and Reasonably And Was Entitled To Expect The Performance Improvement Beck Promised. Beck’s rhetoric regarding “abusive” conduct lacks merit. GM voluntarily gave Beck a second chance to continue operations when it rescinded the Wind Down Agreement in exchange for Beck’s agreement to meet a specific, clearly- defined and communicated performance metric, not immediately but only within three years. What the parties agree to in their contract is relevant to the reasonableness of a manufacturer’s actions. The Premier Collection, LLC, No. 14- - 52 - 8329, at 28-29 (holding that where the dealers “failed to live up to their contractual obligations,” the manufacturer “acted reasonably in not ultimately letting them off the hook”). Here, Beck reiterated its acceptance of RSI when it voluntarily decided—on the advice of experienced counsel—to forgo a substantial wind down payment and instead commit to a specific standard as a condition of its reinstatement. Consistent with section 463(2)(gg)’s goal of transparency, GM even sent Mr. Giguere from Detroit to meet with Beck’s principals in New York in March 2011 to explain how GM uses RSI to evaluate sales performance. A1010 at 303- 04; A1047-48 at 331-34. At that meeting, Mr. Giguere walked them through one of Beck’s annual sales performance reports and explained (1) how Beck’s RSI score was calculated using the information contained in the report, (2) how, where, and why Beck ranked among other Chevrolet dealers in New York, and (3) how segmentation adjusts sales expectations. A1010 at 305-06; A1293-1309; A1012 at 312; A1047-49 at 332-35. At no time during or after this one-on-one tutorial did Beck voice any concerns about or objections regarding the reasonableness or fairness of GM’s use of RSI. A1012 at 311-12; A1045 at 327-28; A1047-48 at 333-34. The district court found this evidence of Beck’s acquiescence compelling. A1687. Despite its specific commitment, Beck failed to improve its performance at - 53 - all between 2010 and 2012. A1317; A1103-04 at 454-55. Having failed to live up to its promises, Beck now argues that the use of segment-adjusted state average market share cannot possibly provide a realistic benchmark to evaluate the performance of downstate metropolitan Chevrolet dealers. To make its point, Beck shamelessly relies on information and documents that the district court excluded as inadmissible. See Beck Br. at 13-15 (citing A1453-61, A1463-64, A1467-69); Beck Br. at 43 (citing A1463-64, A1467-69). Beck challenged these evidentiary rulings on appeal, but they were each affirmed by the Second Circuit. Beck Chevrolet, 787 F.3d at 680-81. This material is only in the record because it was attached to Beck’s Offer of Proof. See A1427-89. Indeed, the charts at pages 13- 14 of Beck’s Brief come straight out of its Offer of Proof (A1503-04). While Beck relies heavily on excluded evidence regarding the purported disparities in the level of competition between the upstate and downstate counties, it offered no evidence regarding the level of competition in the Yonkers AGSSA. Regardless, GM’s expert explained that any difference in competitive levels upstate versus downstate does not result in the complained-of disparity in market share because the segmentation process takes that factor into account. A1150 at 555, A1151 at 557. After considering the testimony of both experts, the district court agreed that GM could reasonably expect its dealers to improve: This surrender of markets need not be inevitable. A proper sales quota will require American dealers to be aggressive in resisting this - 54 - supposed bias towards imports and take back markets. And to indicate that that can be done, the more effective sales performances by Ford was shown by the experts in the very same area, in the very same AGSSA, as Beck. So if Ford can perform and get a much better score in an RSI calculation, why can't Beck? That's a question that suggests that there is an adequate adjustment and that there is no unreasonableness or arbitrariness or unfairness in expecting Beck to improve its standards up to state average. A1695-96. In affirming the district court’s evidentiary rulings excluding evidence of advertising levels and leasing activity, the Second Circuit held that this information was not relevant to the reasonableness or fairness of GM’s standard. 787 F.3d at 681. Beck’s continued reliance on this information in the face of two contrary court rulings is inappropriate. In all events, various corroborating factors confirmed the reasonableness and fairness of GM’s RSI standard. Based on this overwhelming evidence, the district court appropriately concluded that “whatever argument can be made by Beck that something is unreasonable or arbitrary or unfair is more than met by the various ways that the standard is set and administered by Chevrolet.” A1698-99. To be sure, GM needs its Chevrolet dealer network in the downstate counties to improve its performance, but that must happen through increased operational effort, not by lowering the standard to make their performance appear acceptable. A1005 at 285-86; A1069-70 at 380-82. GM has taken significant steps to facilitate that process. After Old GM reduced the number of Chevrolet dealers during its bankruptcy, GM then provided additional financial and advertising support to - 55 - downstate dealers to assist them in improving their operations and increasing market share. A1109 at 466; A1009 at 301-02; A966 at 129. Dealers such as Beck now need to take advantage of the additional sales, which will not happen by holding them to a lower standard. E. Beck’s Cases Do Not Support A Conclusion That Using Adjusted State Average Sales Effectiveness To Monitor Dealer Performance Is Unreasonable, Arbitrary, or Unfair. Unlike the situation presented here, the propriety of a manufacturer’s sales performance standard is typically evaluated in the context of a dealer’s statutory claim that the manufacturer lacks “good cause” to take some perceived adverse action, such as attempting to terminate the parties’ relationship, adding a dealer to the network, or allowing a dealer to relocate. By definition, “good cause” is a more stringent standard of review than whether the use of a particular metric is “unreasonable, arbitrary or unfair.” For this reason, the Dealer Act contains specific provisions dealing with those types of situations separate and distinct from section 463(2)(gg). See N.Y. Veh. & Traf. Law §§ 463(2)(d) (requiring “due cause” and “good faith” to terminate a dealer) and § 463(2)(cc) (requiring “good cause” to establish or relocate a dealer). Beck’s cases all involve the use of sales effectiveness in connection with specific market actions, not the use of RSI to evaluate sales performance in the ordinary course. These cases involve a fact-driven assessment of whether existing - 56 - sales opportunities support the proposed market action under certain statutory “good cause” factors, and the results vary depending on the particular facts and circumstances presented. That a performance standard may have been questioned in the context of a unique set of facts and under a stricter level of scrutiny than the “reasonableness” and “fairness” standard applicable here holds little persuasive value. Where, on the other hand, a performance standard survives this more rigorous analysis, such cases imply that a lower bar of mere “reasonableness” should pose no problem for GM’s RSI metric. 1. Sales Effectiveness Is Routinely Found To Be A Reasonable Benchmark For Evaluating Various Market Actions. Even under the more exacting “good cause” analysis, courts and administrative boards have routinely endorsed the use of adjusted state average (or even broader regional or national averages) as a measure of a dealer’s sales effectiveness. See, e.g., Superior Pontiac Buick GMC, Inc., 2012 WL 1079719, at *18 (relying on Mr. Farhat’s analysis, court “finds that Nissan’s methodology, although perhaps not perfect, is reasonable. The use of a regional benchmark controls to great extent for economic and marketing conditions and allows segment adjustment for context as to how a dealer is performing. It also accounts for unique consumer characteristics in a particular market.” (citations omitted)); RCJD Motors, Inc. v. Huffines Dodge Plano, L.P., No. 608-10-5694.LIC, Proposal for Decision, at 17-22 (Tex. Office of Admin. Hearings Apr. 2, 2012) (rejecting the - 57 - view espoused by Beck that performance benchmarks should be based only on demographically similar sales areas and upholding reasonableness of state average), adopted by Order, No. 10-0048.LIC, at 4-5 (Tex. Dep’t of Motor Vehicles July 12, 2012); Brown Motor Sales Co. v. Hyundai Motor Am., No. 10AP-725, 2011 WL 4541304, at *9-10 (Ohio Ct. App. Sept. 30, 2011) (use of a broader national sales standard, as set out in the parties’ franchise agreement, was not unreasonable); Zimbrick, Inc. v. Am. Honda Motor Co., Inc., Nos. TR-08-0007 and TR-08-0039, at ¶¶ 8-11 (Wis. Div. Hearings and Appeals Aug. 9, 2010) (endorsing Honda’s use of segment-adjusted state average sales effectiveness, similar to GM’s here, and noting the pervasive use of such standards throughout the automotive industry), aff’d sub nom, Zimbrick, Inc. v. State, Div. Hearings & Appeals, 812 N.W.2d 540 (Wis. Ct. App. 2012); Halleen Chevrolet, Inc. v. Gen. Motors Corp., No. 00AP-1454, 2001 WL 722101, at *9 (Ohio Ct. App. June 28, 2001) (citing state average standard as reliable); Graff Chevrolet Co. v. Texas Motor Vehicle Bd., 60 S.W.3d 154, 157 (Tex. App. 2001) (affirming ALJ’s acceptance of evaluating an underperforming dealer on the basis of a state average standard). In many of these decisions, the fact finder credited the testimony of GM’s expert, Mr. Farhat and his firm, and rejected the testimony of Beck’s expert, Mr. Roesner and his firm. See, e.g., Infiniti Automobiles of Norwood, Inc. v. Nissan - 58 - North Am., Inc., Findings of Fact, Rulings of Law, and Order, No. 2004-00010, slip op., at 16-17 (Mass. Sup. Ct. Aug. 4, 2005) (“The Court finds that the analytical methodology employed by Farhat and Urban Science is reasonable for evaluating Infiniti’s market performance and for assessing proposed solutions for strengthening that performance” and that “[Fontana Group’s] impact analysis methodology rests upon inconsistent standards which distort the estimated effect upon the plaintiff and yield speculative results.”); Hampton Automotive Grp. v. Nissan North Am., Inc., Recommended Order Case No. 11-1157, at 7, ¶ 18 (Fla. Div. Adm. Hrgs. Sept. 12, 2012) (crediting Farhat testimony that “[Retail Sales Effectiveness] is a fair method of evaluating dealer performance with conservative expectations because no dealer is expected to perform above an average level and because the dealer gets credit for sales anywhere, while only being held responsible for sales opportunities within its PMA” and rejecting Roesner’s alternative benchmarks), adopted by Final Order No. HSMV-12-853-FOF-MS (Fla. DHSMV Oct. 24, 2012); RCJD Motors, Inc., No. 608-10-5694.LIC, at 17 (rejecting protesting dealer’s argument that “Mr. Roesner’s selection of demographically similar areas was more appropriate than Mr. Farhat’s”); see also Fountain Oldsmobile-GMC Truck, Final Order No. HSMV-04-396-FOF-DMV, at 15-17; Michael Cadillac, Inc., No. PR-1819-02, at 12-13. The fact that courts and administrative agencies routinely endorse the use of - 59 - sales effectiveness as a measure of market opportunity under a good cause standard further supports a negative answer to the first question. 2. Beck’s Case Law Is Neither Binding Nor Persuasive. Beck has cited a few cases in which state average sales effectiveness was found not to be the preferred approach to measure market opportunity in the particular circumstances presented. None of them dealt with the precise issue presented here. Further, these cases demonstrate why the reasonableness of a particular standard should be considered in the context of a specific factual situation, as the district court did here. Beck relies heavily on the Illinois Motor Vehicle Review Board’s 2003 decision in North Shore, Inc. v. Gen. Motors Corp., No. MVRB 79-01 (Ill. Mot. Veh. Rev. Bd. May 28, 2003), which was later affirmed by fractured panels of the Illinois Appeals Court and Supreme Court, evaluating whether the Board’s “factual findings were against the manifest weight of the evidence.” See Gen. Motors Corp. v. State of Illinois Motor Vehicle Review Bd., 836 N.E.2d 903, 911 (Ill. App. Ct. 2005), aff’d, 862 N.E.2d 209 (Ill. 2007). North Shore addressed the distinct fact- intensive question of whether Old GM had “good cause” to add two GMC Truck dealerships in the Chicago area under a specific set of statutory factors. Under the circumstances presented in that case—decided over a decade ago, in a different market, prior to the consolidation of Old GM’s dealer network—the - 60 - ALJ questioned whether state average was the appropriate benchmark to determine whether sufficient additional sales opportunity existed to support two more dealers in a saturated market without adversely affecting existing dealers. But in doing so, the ALJ “emphasize[d] that the circumstances of this case are unique” and cautioned that “[w]e certainly do not mean to say that Mr. Anderson’s analysis is flat-out, always inappropriate.” North Shore, No. MVRB 79-01, at 90. Here, the district court considered North Shore but rejected its applicability for two reasons. First, unlike the Westchester APR, where GM recently reduced the number of Chevrolet dealers by 50%, the markets at issue in North Shore were “very crowded and well-represented markets.” A1701. Second, the lack of available product was a significant concern in North Shore (A1701-02), unlike the situation here where Beck turned down hundreds of vehicles. Beck’s reliance on Landmark Chevrolet Corp. v. Gen. Motors Corp., No. 02-0002 LIC (Tex. Dep’t of Trans. Mot. Veh. Bd. Sept. 16, 2004), aff’d sub nom. Austin Chevrolet, Inc. v. Motor Veh. Dealer Bd., 212 S.W.3d 425 (Tex. App. 2006), is similarly unpersuasive. That case addressed the “adequacy of representation” as part of one dealer’s statutory protest to the addition of another dealership in its market area. On appeal, the court upheld the Board’s decision to use the dealer’s preferred standard but noted that “the Board did not determine that the [Texas state average] standard was flawed in all cases. It determined, based on the evidence - 61 - presented at the hearing, that [the dealer’s] standard was more appropriate to calculate adequacy of representation on the facts of this case.” Austin Chevrolet, 212 S.W.3d at 437 (emphasis added). The Texas Office of Administrative Hearing noted this very qualification much more recently when it adopted the use of Mr. Farhat’s approach over Mr. Roesner’s, explaining that the Landmark/Austin decision “did not determine whether a particular measure was accurate or best.” RCJD Motors, Inc., No. 608-10-5694.LIC, at 20. The other decisions Beck cites do not advance its position that using sales effectiveness to evaluate dealer performance is inherently unreasonable or unfair. Halleen Chevrolet v. GMC, No. 03-050MVDB-277 SS, at 12-13 (Ohio Mot. Veh. Dealers Bd. July 21, 2006), aff’d sub nom., Gen. Motors Corp. v. Halleen Chevrolet, No. 06CVF-11739 (Ohio Ct. Common Pleas Franklin Cnty. Sept. 20, 2008) (hearing examiner found that GM lacked “good cause” to approve the relocation of a Chevrolet dealer and reasoned that localized performance standard would better take into account presence of Ford factories in the market, which significantly hampered Chevrolet sales performance there); Gen. Motors Corp. v. Kinlaw, 338 S.E.2d 114, 118-120 (N.C. Ct. App. 1985) (manufacturer lacked good cause to terminate an underperforming dealer based on prevailing economic conditions and failures with GM’s distribution system and noting in dicta that any geography-based average sales standard, national, state or regional, portrays an - 62 - incomplete assessment of performance and thus “could” be unreasonable); Eaton Motor Co. v. Gen. Motors Corp., No. 04-0019 LIC, at 23 (Tex. Motor Veh. Div. Jan. 16, 2006) (finding that GM unreasonably withheld approval of the sale and transfer of a GM dealership because GM’s use of RSI 100 standard could preclude half of all Texas Chevrolet dealers from qualifying for transfer); Andy Chevrolet Co. v. Gen. Motors Corp., Case No. 05-01-MVDB-304-J at ¶¶ 8, 25, 26, 31, 33 (Ohio Motor Veh. Dealer Bd. Aug. 22, 2006) (GM lacked “good cause” to terminate an underperforming metro-Cleveland dealer under Ohio’s Act where GM never advised the dealer that the prior owner was already subject to a performance- based term agreement before approving the new dealer’s purchase); Sims v. Nissan N. Am., Inc., Nos. 12AP-833 and 12AP-835, 2013 WL 3270914, at *1, 3 (Ohio Ct. App. June 25, 2013) (Nissan lacked “good cause” to terminate a dealer “under the unique circumstances of this case” because GM had an “exceptionally large” market share as the result of a manufacturing plant within the dealer’s PMA). Beck even relies on a number of older cases that pre-date the adoption of segmentation to localize sales effectiveness metrics and are therefore of no value here. See Marquis v. Chrysler Corp., 577 F.2d 624 (9th Cir. 1978); Swartz v. Chrysler Motors Corp., 297 F. Supp. 834 (D.N.J. 1969); Mt. Lebanon Motors, Inc. v. Chrysler Corp., 283 F. Supp. 453 (W.D. Pa. 1968); Madsen v. Chrysler Corp., 261 F. Supp. 488 (N.D. Ill. 1966), vacated, 375 F.2d 773 (7th Cir. 1967). - 63 - In sum, nothing in these cases suggests that it is unreasonable or unfair to use RSI to monitor dealer sales performance. III. THE COURT SHOULD ANSWER THE SECOND CERTIFIED QUESTION, “NO,” BECAUSE GM’S MODEST REVISION TO BECK’S ASSIGNED MARKET AREA DID NOT CONSTITUTE A “MODIFICATION” OF BECK’S FRANCHISE.The second certified question addresses whether GM’s decision to revise Beck’s AGSSA constituted an unfair modification to its franchise in violation of section 463(2)(ff) of the Dealer Act. Under that provision, a franchisor may not “modify” a dealer’s “franchise” without providing advance notice and allowing the dealer to challenge the proposed modification as “unfair.” N.Y. Veh. & Traf. Law § 463(2)(ff). The Dealer Act strictly limits the terms “modify” or “modification” to “any change or replacement of any franchise if such change or replacement may substantially and adversely affect the new motor vehicle dealer’s rights, obligations, investment or return on investment.” Id. at § 463(2)(ff)(2). Further, such “[a] modification is deemed unfair if it is not undertaken in good faith; is not undertaken for good cause; or would adversely and substantially alter the rights, obligations, investment or return on investment of the franchised motor vehicle dealer under an existing franchise agreement.” Id. at § 463(2)(ff)(3). Here, GM did not “change” or “replace” Beck’s franchise—GM simply revised Beck’s AGSSA in accordance with GM’s preexisting contractual rights. The Dealer Agreement defines a dealer’s “Area of Primary Responsibility” as the - 64 - “geographic area designated by General Motors from time to time in a Notice of Area of Primary Responsibility.” A180 (emphasis added). Further, the Agreement provides that “General Motors retains the right to revise Dealer’s Area of Primary Responsibility at General Motors sole discretion consistent with dealer network planning objectives.” A143. Thus, the parties’ contract conveyed no expectation that Beck’s APR was fixed in any way and made clear that Beck’s APR was subject to periodic revision in accordance with the contract’s clear terms. The Second Circuit recognized that, “[i]f the agreement expressly reserves to GM the power to unilaterally revise the Area of Primary Responsibility, such a revision might not constitute a contract modification.” Beck Chevrolet, 787 F.3d at 677. The circuit court reasoned that the statute’s reach likely turned on whether the purpose of the statute was designed to address perceived imbalances in the parties’ bargaining power or to simply ensure clarity in communications and negotiations. Id. As discussed above, nothing in the 2008 legislative history of section 463(2)(ff) suggests that it was designed to curb some perceived abuse accompanying the long-standing practice of leaving market area revisions to the discretion of the manufacturer. If the New York Legislature had intended to restrict the parties’ right to contract regarding the terms and conditions of market area revisions, it would have done so explicitly, as legislatures in numerous other states have done both before - 65 - and since the 2008 Amendments. See, e.g., Ga. Code Ann. § 10-1-663(b)(5) (franchisor may not “unreasonably change the market area of a dealer as set forth in the dealer’s franchise agreement”); Iowa Code § 322A.3A (same); Minn. Stat. § 80E.13(p) (same); Vt. Stat. Ann. tit. 9, § 4097(24) (franchisor may not change relevant market area set forth in the franchise agreement without “good cause”); Ark. Code Ann. § 23-112-403(a)(5) (same); N.H. Rev. Stat. Ann. § 357-C:3(III)(o) (same); Ala. Code § 8-20-4(3)(z) (franchisor may not “change a dealer’s area of responsibility under the franchise” agreement “arbitrarily or without due regard” to pattern of vehicle sales and registrations in dealer’s market area); Miss. Code Ann. § 63-17-73(1)(d)(xiii) (same); N.C. Gen. Stat. § 20-305(38) (same); Pa. Stat. Ann. tit. 63, § 818.12.1 (franchisor may not unreasonably alter dealer’s area of responsibility); S.C. Code Ann. § 56-15-98 (same); Neb. Rev. Stat. §§ 60-1420, 60-1424 (franchisor may not change dealer’s area of responsibility defined in franchise agreement without “good cause”). The Legislature’s omission of such an express regulation reflects a conscious decision on its part that should not be disturbed by the Court—particularly given the Legislature’s subsequent amendment of other provisions of the Dealer Act. See 2011 McKinney’s Session Law News of N.Y., Ch. 548 (S.1347); 2014 McKinney’s Session Law News of N.Y., Ch. 26 (A.7844-B). Article 4.2 of the Dealer Agreement sets forth a robust process that GM - 66 - follows before it changes a dealer’s APR, which is completely consistent with the legislative goal of openness and transparency. A143; see also A234-39. If GM determines that market conditions warrant a change to a dealer’s APR, then GM will send that dealer a preliminary notice soliciting the dealer’s comments regarding the proposed change. The dealer has 30 days to provide GM with information that the dealer believes pertinent to the decision. GM will consider whatever information the dealer may provide, but GM is entitled to exercise its discretion to make a decision that promotes overall dealer network objectives. GM did not “change” or “replace” the parties’ agreement in a way that adversely affected Beck’s “rights” or “obligations” when it revised Beck’s AGSSA in 2011. A1637-38 (“[The Act] says that if the change of a franchise or the replacement of a franchise substantially and adversely affects the investment, then [a modification] happens. First you have to see the change. And since the agreement gave the franchisor the prerogatives that it exercised, I hold there’s no change.”); see also Subaru Distribs. Corp. v. Subaru of Am., Inc., 47 F. Supp. 2d 451, 459 n.3 (S.D.N.Y. 1999) (changes such as “quota amendments . . . do not constitute material amendments of the [Dealership Agreement] because [they] involve[ ] changes that were clearly contemplated by the parties at the time they entered into the [Dealership Agreement].”); In re Kerry Ford, Inc., 666 N.E.2d 1157, 1162-63 (Ohio Ct. App. 1995) (subsequent amendment “explicitly - 67 - referenced and contemplated in the original sales and service agreement” did not constitute “significant or material alteration”). By way of comparison, the Dealer Agreement provides that GM will periodically furnish the dealer with one or more motor vehicle addenda specifying the vehicle models that the dealer may purchase. A151. The Dealer Agreement also provides that GM may change a motor vehicle addendum at any time. One could hardly contend that the introduction or discontinuation of a particular vehicle model pursuant to this provision constituted a “modification” of the Dealer Agreement. The same holds true for adjustments that GM makes in its “sole discretion” to a dealer’s AGSSA. To rule otherwise would put GM and other motor vehicle franchisors in an untenable position, all but guarantying litigation over what until now has been a contractually permitted business decision. Nothing in the statutory language or legislative history suggests an intent to disturb this long-standing policy. While the district court noted the absence of any evidence that the revisions were discriminatory or intended to harm Beck, it granted GM summary judgment because no modification had occurred as that term is defined in section 463(2)(ff)(2): So what we have is a manufacturer or franchisor acting consistent with prerogatives reserved to the manufacturer and the dealer agreement creating a logical market area different from that which had been there previously, but not illogically so. And that, to me, is not a - 68 - modification as the word is defined in (ff). * * * I hold there is no modification. The franchise agreement and the franchise status is not changed. A1635-36. While GM’s notice letter referenced section 463(2)(ff)(1) out of an abundance of caution, that does not constitute evidence that the revision amounts to a “modification” of the contract, which is a legal issue based on the interpretation of that unambiguous document. In this case, there is a total absence of facts supporting Beck’s claim that the revision to its AGSSA was anything other than an assertion of GM’s clear-cut, contractual right. GM revised Beck’s AGSSA pursuant to the steps described in Article 4.2, resulting in a net change of 3 census tracts which were not even used to calculate the denominator when GM determined Beck’s RSI. Beck’s own expert could only speculate that “GM’s decision to include in the 2011 AGSSA Census tracts that are closer to other Chevrolet dealers could have negative effects for Beck.” A314 at ¶13 (emphasis added). For this additional reason, Beck failed to sustain its burden to establish that the proposed revision “may substantially and adversely affect the new motor vehicle dealer’s rights, obligations, investment or return on investment.” N.Y. Veh. & Traf. Law § 463(2)(ff)(2). In support of its position, Beck relies on two opinions issued by the Onondaga County Supreme Court in Van Wie Chevrolet, Inc. v. Gen. Motors LLC, Index No. 2012-0284. The first decision was the order denying GM’s motion to - 69 - dismiss based on traditional pleading standards. The second was the order granting the dealer summary judgment—a decision which GM has appealed. See A1840- 1863. Van Wie involved one dealer’s attempt to challenge the relocation of another dealer as an unlawful modification under section 463(2)(ff) of the Dealer Act even though the relocation was exempt from protest under section 463(2)(cc) of the Act. Initially, the court erred when it failed to dismiss the modification claim because section 463(2)(cc) provides the sole statutory basis to challenge another dealer’s relocation. See JJM Sunrise Automotive, LLC v. Volkswagen Grp. of Am., Inc., 46 Misc. 3d 755 (Sup. Ct., Nassau Cnty. 2014) (dismissing unfair modification claim under section 463(2)(ff) and holding that section 463(2)(cc) provides the sole basis to challenge a dealer’s establishment or relocation). The court compounded its error by failing to consider the statutory definitions of “franchise” (instead speculating about what a dictionary definition “could be”). Nor did the court examine the terms of GM’s Dealer Agreement or address how the exercise of its right to revise a dealer’s market area in its “sole discretion” could nonetheless constitute an unlawful modification. For all of these reasons, Van Wie is unlikely to survive GM’s pending appeal. Beck’s reliance on the district court’s decision in Arciniaga v. Gen. Motors Corp., 418 F. Supp. 2d 374 (S.D.N.Y. 2005), is even more of a stretch. That case did not involve section 463(2)(ff) or address its unique definition of “modify.” - 70 - Instead, that case dealt with whether the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 U.S.C. § 1226(a)(2), trumped Old GM’s right to insist on arbitration. 418 F. Supp. 2d at 377. The central holding of that case was reversed, relegating the district court’s reasoning to, at most, highly questionable dicta. See Arciniaga v. Gen. Motors Corp., 460 F.3d 231 (2d Cir. 2006). Beck also relies on decisions from other jurisdictions, construing different state statutes and distinguishable dealer agreements. The Wisconsin Supreme Court’s decision in Racine Harley-Davidson, Inc. v. Harley Davidson Motor Co., Inc., 717 N.W.2d 184 (Wis. 2006) involved (i) a statute that, unlike New York, did not define the terms “modify” or “modification” and (ii) a dealer agreement that, unlike GM’s, did not reserve market area revisions to the manufacturer’s “sole discretion.” Id. at 204; Wis. Stat. § 218.0116(8). The court reached its conclusion only by reading together multiple distinct provisions of the Wisconsin Act. 717 N.W.2d at 188. Similarly, in Nissan N. Am., Inc. v. Royal Nissan, L.L.C., 794 So.2d 45 (La. Ct. App. 2001), the court assumed, without analyzing the issue, that a market area revision constituted a modification under the Louisiana Act. Because there are no facts supporting Beck’s claim that GM acted in any way that was inconsistent with its contractual rights, the second question should be answered in the negative. CONCLUSION For the foregoing reasons, GM respectfully requests that the Court answer "No" to both certified questions. Dated: Septem ber 1 7, 2015 Respectfully submitted, SEYFARTH SUA W LLP Ja /./ jomcgrath@seyfarth.com Katherine R. Moskop kmoskop@seyfarth.com Two Seaport Lane Seaport East, Suite 300 Boston, Massachusetts 02110 (61 7) 946-4800 Attorneys for Defendant-Respondent, General Motors LLC - 71 - ADDENDUM A Exhibit 21 GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation 06 Ormskirk Limited England and Wales 2140879 Ontario Inc. Canada ACAR Leasing Ltd. Delaware ACF Investment Corp. Delaware Adam Opel AG Germany AFS Management Corp. Nevada AFS SenSub Corp. Nevada Aftermarket (UK) Limited England Aftermarket Italia S.r.l. in liquidazione Italy AL Mansour Automotive SAE Egypt AmeriCredit Automobile Receivables Trust 2010-3 Delaware AmeriCredit Automobile Receivables Trust 2010-4 Delaware AmeriCredit Automobile Receivables Trust 2011-1 Delaware AmeriCredit Automobile Receivables Trust 2011-2 Delaware AmeriCredit Automobile Receivables Trust 2011-3 Delaware AmeriCredit Automobile Receivables Trust 2011-4 Delaware AmeriCredit Automobile Receivables Trust 2011-5 Delaware AmeriCredit Automobile Receivables Trust 2012-1 Delaware AmeriCredit Automobile Receivables Trust 2012-2 Delaware AmeriCredit Automobile Receivables Trust 2012-3 Delaware AmeriCredit Automobile Receivables Trust 2012-4 Delaware AmeriCredit Automobile Receivables Trust 2012-5 Delaware AmeriCredit Automobile Receivables Trust 2013-1 Delaware AmeriCredit Automobile Receivables Trust 2013-2 Delaware AmeriCredit Automobile Receivables Trust 2013-3 Delaware AmeriCredit Automobile Receivables Trust 2013-4 Delaware AmeriCredit Automobile Receivables Trust 2013-5 Delaware AmeriCredit Automobile Receivables Trust 2014-1 Delaware AmeriCredit Automobile Receivables Trust 2014-2 Delaware AmeriCredit Automobile Receivables Trust 2014-3 Delaware AmeriCredit Automobile Receivables Trust 2014-4 Delaware AmeriCredit Automobile Receivables Trust 2015-1 Delaware AmeriCredit Consumer Loan Company, Inc. Nevada AmeriCredit Financial Services, Inc. Delaware AmeriCredit Funding Corp. XI Delaware AmeriCredit Syndicated Warehouse Trust Delaware Annunciata Corporation Delaware APGO Trust Delaware Approach (UK) Limited England and Wales Argonaut Holdings LLC Delaware Atlantic Automobiles SAS France Auto Distribution Provenance SAS France GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Auto Fornebu AS Norway Auto Lease Finance Corporation Cayman Islands Auto Partners III, Inc. Delaware Autohaus G.V.O. GmbH Germany Autovision (Scotland) Limited Scotland Autozentrum West Köln GmbH Germany Aviation Spectrum Resources Holdings, Incorporated Delaware Ballards of Watford Limited England and Wales Banco GMAC S.A. Brazil Baylis (Gloucester) Limited England and Wales Beerens O.C. NV Belgium Berse Road (No. 1) Limited England Berse Road (No. 2) Limited England Betula Cars S.L. Spain BilCirkeln Malmo AB Sweden Blackdown Motor Company Limited England and Wales Bochum Perspektive 2022 GmbH Germany BOCO (Proprietary) Limited South Africa Boco Trust South Africa Brandish Limited England and Wales Bridge Motors (Banbury) Limited England and Wales Bridgewater Chevrolet, Inc. Delaware Britain Chevrolet, Inc. Delaware BS Auto Praha sro Czech Republic Carve-Out Ownership Cooperative LLC Delaware Caterpillar Logistics SCS Italy Charles Hurst Motors Limited Northern Ireland Chevrolet Austria GmbH Austria Chevrolet Belgium NV Belgium Chevrolet Cadillac of Pawling, Inc. Delaware Chevrolet Central and Eastern Europe Hungary Chevrolet Deutschland GmbH Germany Chevrolet Espana, S.A. Spain Chevrolet Euro Parts Center B.V. Netherlands Chevrolet Europe GmbH Switzerland Chevrolet Finland Oy Finland Chevrolet France France Chevrolet Italia S.p.A. Italy Chevrolet Nederland B.V. Netherlands Chevrolet of Columbus, Inc. Delaware Chevrolet of Novato, Inc. Delaware Chevrolet Otomotiv Ticaret Limited Sirketi Turkey GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Chevrolet Poland Sp. z o.o. Poland Chevrolet Portugal, Lda. Portugal Chevrolet Sales (Thailand) Limited Thailand Chevrolet Sales India Private Ltd. India Chevrolet Sociedad Anonima de Ahorro para Fines Determinados Argentina Chevrolet Suisse S.A. Switzerland Chevrolet Sverige AB Sweden Chevrolet UK Limited Ltd England CHEVYPLAN S.A. Sociedad Administradora de Planes de Autofinanciamiento Comercial Colombia Controladora General Motors, S.A. de C.V. Mexico Coskata, Inc. Delaware Courtesy Buick-GMC, Inc. Delaware Crash Avoidance Metrics Partners LLC Michigan Crash Avoidance Metrics Partnerships Michigan Crosby Automotive Group, Inc. Delaware Curt Warner Chevrolet, Inc. Delaware Daniels Chevrolet, Inc. Delaware DCJ1 LLC Delaware Dealership Liquidations, Inc. Delaware Delphi Energy and Engine Management Systems UK Overseas Corporation Delaware DENICAR S.R.L. Italy Detroit Investment Fund, L.P. Delaware Diso Madrid S.l.r. Spain DMAX, Ltd. Ohio Doraville Bond Corporation Delaware Drive Motor Retail Limited England and Wales Eden (GM) Limited England and Wales Elasto S.A. Ecuador Empower Energies, Inc. Delaware Envia Systems, Inc. Delaware F G Barnes (Maidstone) Limited England and Wales Fabrica Nacional de Autobuses Fanabus, S.A. Venezuela FAW Harbin Light Duty Vehicle Company Limited China FAW-GM Hongta Yunnan Automobile Manufacturing Company Limited China FAW-GM Light Duty Commercial Vehicle Co., Ltd. China Fludicon GmbH Germany Fox Valley Buick-GMC, Inc. Delaware G.M.A.C. Financiera de Colombia S.A. Compania de Financiamiento Comercial Colombia G.M.A.C.-Comercio e Aluguer de Veiculos, Lda. Portugal General International Insurance Services Limited Bermuda General International Limited Bermuda General Motors (China) Investment Company Limited China GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation General Motors (Hong Kong) Company Limited Hong Kong General Motors (Thailand) Limited Thailand General Motors - Colmotores S.A. Colombia General Motors Africa and Middle East FZE United Arab Emirates General Motors Asia Pacific (Pte) Ltd. Singapore General Motors Asia Pacific Holdings, LLC Delaware General Motors Asia, Inc. Delaware General Motors Asset Management Corporation Delaware General Motors Australia Ltd. Australia General Motors Austria GmbH Austria General Motors Auto LLC Russian Federation General Motors Automobiles Philippines, Inc. Philippines General Motors Automotive Holdings, S.L. Spain General Motors Belgium N.V. Belgium General Motors Chile Industria Automotriz Limitada Chile General Motors China, Inc. Delaware General Motors CIS,LLC Russian Federation General Motors Company Delaware General Motors Coordination Center BVBA Belgium General Motors Daewoo Auto and Technology CIS LLC Russian Federation General Motors de Argentina S.r.l. Argentina General Motors de Mexico, S. de R.L. de C.V. Mexico General Motors del Ecuador S.A. Ecuador General Motors do Brasil Ltda. Brazil General Motors East Africa Limited Kenya General Motors Egypt, S.A.E. Egypt General Motors Espana, S.L.U. Spain General Motors Europe Holdings, S.L.U. Spain General Motors Europe Limited England and Wales General Motors Financial Company, Inc. Texas General Motors Financial International B.V. Netherlands General Motors Financial Italia S.p.A. Italy General Motors Financial of Canada, Ltd. Ontario General Motors Financial UK Limited England and Wales General Motors Finland Oy Finland General Motors Foundation, Inc. Michigan General Motors France France General Motors Global Service Operations, Inc. Delaware General Motors Hellas S.A. Greece General Motors Holdings LLC Delaware General Motors Holdings Participacoes Ltda. Brazil General Motors India Private Limited India GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation General Motors International Holdings, Inc. Delaware General Motors International Operations Pte. Ltd. Singapore General Motors International Services Company SAS Colombia General Motors Investment Management Corporation Delaware General Motors Investment Participacoes Ltda. Brazil General Motors Investments Pty. Ltd. Australia General Motors Ireland Limited Ireland General Motors Israel Ltd. Israel General Motors Italia S.r.l. Italy General Motors Japan Limited Japan General Motors Limited England General Motors LLC Delaware General Motors Manufacturing Poland Sp. z o.o. Poland General Motors Nederland B.V. Netherlands General Motors New Zealand Pensions Limited New Zealand General Motors of Canada Limited Canada General Motors Overseas Commercial Vehicle Corporation Delaware General Motors Overseas Corporation Delaware General Motors Overseas Distribution LLC Delaware General Motors Peru S.A. Peru General Motors Poland Spolka, z o. o. Poland General Motors Portugal Lda. Portugal General Motors Powertrain (Thailand) Limited Thailand General Motors Powertrain - Europe S.r.l. Italy General Motors Powertrain - Uzbekistan CJSC Uzbekistan General Motors Research Corporation Delaware General Motors South Africa (Pty) Limited South Africa General Motors Suisse S.A. Switzerland General Motors Taiwan Ltd. Taiwan General Motors Technical Centre India Private Limited India General Motors Thailand Investments, LLC Delaware General Motors Treasury Center, LLC Delaware General Motors Turkiye Limited Sirketi Turkey General Motors UK Limited England General Motors Uruguay S.A. Uruguay General Motors Uzbekistan Closed Joint Stock Company Uzbekistan General Motors Venezolana, C.A. Venezuela General Motors Ventures LLC Delaware General Motors Warehousing and Trading (Shanghai) Co. Ltd. China General Motors-Holden's Sales Pty. Limited Australia Genie Mecanique Zairois, S.A.R.L. Congo, The Democratic Republic GeoDigital International Inc. Ontario GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Global Human Body Models Consortium, LLC Michigan Global Tooling Service Company Europe Limited England and Wales GM (UK) Pension Trustees Limited England GM - Isuzu Camiones Andinos de Chile SpA Chile GM - Isuzu Camiones Andinos de Colombia S.A. Colombia GM - ISUZU Camiones Andinos del Ecuador GMICA Ecuador Cia. Ltda. Ecuador GM Administradora de Bens Ltda. Brazil GM APO Holdings, LLC Delaware GM Auslandsprojekte GmbH Germany GM Automotive Services Belgium NV Belgium GM Automotive UK England GM Components Holdings, LLC Delaware GM Daewoo UK Limited England GM Deutschland GmbH Germany GM Eurometals, Inc. Delaware GM Europe Treasury Company AB Sweden GM Finance Co. Holdings LLC Delaware GM Financial Automobile Leasing Trust 2014-1 Delaware GM Financial Automobile Leasing Trust 2014-2 Delaware GM Financial Automobile Leasing Trust 2014-PP1 Delaware GM Financial Automobile Receivables Trust 2012-PP1 Delaware GM Financial Automobikle Receivables Trust 2014-PP1 Delaware GM Financial Canada Leasing Ltd. Ontario GM Financial Consumer Discount Company Pennsylvania GM Financial de Mexico, S.A. de C.V., SOFOME.N.R. Mexico GM Financial Management Trust Delaware GM Financial Mexico Holdings LLC Delaware GM GEFS HOLDINGS (CHC4) ULC Nova Scotia GM Global Purchasing and Supply Chain Romania Srl Romania GM GLOBAL SERVICES PHILIPPINES, INC. Philippines GM Global Technology Operations LLC Delaware GM Global Tooling Company LLC Delaware GM Holden Ltd. Australia GM Holdings U.K. No.1 Limited England and Wales GM Holdings U.K. No.3 Limited England and Wales GM International Sales Ltd. Cayman Islands GM Inversiones Santiago Limitada Chile GM Investment Trustees Limited England GM Korea Company Korea, Republic of GM Korea Ltd. Korea, Republic of GM LAAM Holdings, LLC Delaware GM Nigeria Limited Nigeria GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation GM Personnel Services, Inc. Delaware GM Plats (Proprietary) Limited South Africa GM PSA Purchasing Services S.A. Belgium GM Retirees Pension Trustees Limited England GM Subsystems Manufacturing, LLC Delaware GM Supplier Receivables LLC Delaware GM Viet Nam Motor Company Ltd. Vietnam GM Warranty LLC Delaware GM-AVTOVAZ CJSC Russian Federation GM-DI Leasing LLC Delaware GM-UMI Technology Research and Development Ltd. Israel GMAC - Instituicao Financeira de Credito, S.A. Portugal GMAC Administradora de Consorcios Ltda. Brazil GMAC Automotriz Limitada Chile GMAC Bank GmbH (German entity) Germany GMAC Banque S.A. France GMAC Colombia S.A. LLC Delaware GMAC Comercial Automotriz Chile S.A. Chile GMAC Continental Corporation Delaware GMAC de Venezuela, C.A. Venezuela GMAC Espana de Financiacion, S.A. Unipersonal Spain GMAC Financial Services AB Sweden GMAC Financial Services GmbH Germany GMAC HB Sweden GMAC Holding S.A. de C.V. Mexico GMAC Holdings (U.K.) Limited England GMAC Lease B.V. (aka Masterlease Europe) Netherlands GMAC Leasing GmbH (Austrian entity) Austria GMAC Leasing GmbH (German entity) Germany GMAC Nederland N.V. Netherlands GMAC Real Estate GmbH & Co KG Germany GMAC Servicios S.A.S. Colombia GMAC Suisse SA Switzerland GMAC UK plc England GMAC-Prestadora de Servios de Mo-de-Obra Ltda. Brazil GMACI Corretora de Seguros S.A. Brazil GMAM Real Estate I, LLC Delaware GMCH&SP Private Equity II L.P. Canada GMF Automobile Leasing Trsut 2014-PP1 Delaware GMF Automobile Leasing Trust 2013-PP1 Delaware GMF Europe Holdco Limited United Kingdom GMF Europe LLP England and Wales GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation GMF Floorplan Owner Revolving Trust Delaware GMF Funding Corp. Delaware GMF Germany Holdings GmbH Germany GMF Global Assignment LLC Delaware GMF International LLC Delaware GMF Leasing LLC Delaware GMF Leasing Warehousing Trust Delaware GMF Prime Automobile Warehouse Trust I Delaware GMF Prime Automobile Warehouse Trust II Delaware GMF Prime Automobile Warehouse Trust III Delaware GMF Wholesale Receivables LLC Delaware Go Motor Retailing Limited England and Wales Go Trade Parts Limited England and Wales Grand Pointe Holdings, Inc. Michigan Grand Pointe Park Condominium Association Michigan H.S.H. Limited England and Wales Haines & Strange Limited England and Wales Heritage Chevrolet Cadillac Buick GMC, Inc. Delaware Holden Employees Superannuation Fund Pty Ltd Australia Holden New Zealand Limited New Zealand HRL Laboratories, LLC Delaware Hydrogenics Corporation Ontario IBC Pension Trustees Limited England IBC Vehicles Limited England Industries Mecaniques Maghrebines, S.A. Tunisia Infinite Velocity Automotive, Inc. Delaware ISF Internationale Schule Frankfurt-Rhein-Main Geschaftsfunhrungsgesellschaft mbH Germany ISF Internationale Schule Frankfurt-Rhein-Main GmbH & Co. KG Germany Isuzu Truck South Africa (Pty.) Limited (ITSA) South Africa IUE-GM National Joint Skill Development and Training Committee Ohio Jeffery (Wandsworth) Limited England and Wales JS Folsom Automotive, Inc. Delaware Kalfatra Utveckling AB Sweden Lakeside Chevrolet Buick GMC Ltd. Ontario Laplante Cadillac Chevrolet Buick GMC Ltd. Ontario LCV Platform Engineering Corp. Japan Lease Ownership Cooperative LLC Delaware Lidlington Engineering Company, Ltd. Delaware Limited Liability Company "JV Systems" Russian Federation Lookers Birmingham Limited England and Wales MAC International FZCO United Arab Emirates Mack Buick-GMC, Inc. Delaware GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Manassas Chevrolet, Inc. Delaware Marshall of Ipswich Limited England and Wales Marshall of Peterborough Limited England and Wales Marshall of Stevenage Ltd England and Wales Martin Automotive, Inc. Delaware Mascoma Corporation Delaware Master Lease Germany GmbH Germany Masterlease Europe Renting, S.L. Spain Merced Chevrolet, Inc. Delaware Mike Reichenbach Chevrolet, Inc. Delaware Millbrook Pension Management Limited England Monetization of Carve-Out, LLC Delaware Motor Repris Automocio S.L. Spain Motorbodies Luton Limited England and Wales Motors Holding LLC Delaware Motors Properties (Trading) Limited England and Wales Motors Properties Limited England and Wales Multi-Use Lease Entity Trust Delaware Murketts of Cambridge Limited England and Wales Neovia Logistics Supply Chain Services GmbH Germany New Castle Chevrolet, Inc. Delaware NJDOI/GMAM Core Plus Real Estate Investment Program, L.P. Delaware NJDOI/GMAM Opportunistic Real Estate Investment Program, L.P. Delaware North American New Cars, Inc. Delaware Novasentis, Inc. Delaware Now Motor Retailing Limited England and Wales OEConnection LLC Delaware OEConnection Manager Corp. Delaware Omnibus BB Transportes, S. A. Ecuador OnStar de Mexico S. de R.L. de C.V. Mexico OnStar Europe Ltd. England and Wales OnStar Global Services Corporation Delaware OnStar Middle East FZ-LLC United Arab Emirates OnStar, LLC Delaware Opel Danmark A/S Denmark Opel Group GmbH Germany Opel Norge AS Norway Opel Southeast Europe LLC Hungary Opel Special Vehicles GmbH Germany Opel Sverige AB Sweden Opel Szentgotthard Automotive Manufacturing LLC Hungary Opel Wien GmbH Austria GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Open Synergy GmbH Germany Orange Motors B.V. Netherlands OT Mobility, Inc. Delaware P. T. Mesin Isuzu Indonesia Indonesia P.T. G M AutoWorld Indonesia Indonesia P.T. General Motors Indonesia Indonesia Pan Asia Technical Automotive Center Company, Ltd. China Patriot Chevrolet, Inc. Delaware Pearl (Crawley) Limited England and Wales Performance Buyout Fund of Funds II Parallel, L.P. Delaware Performance Buyout Fund of Funds II, L.P. Delaware Performance Buyout Fund of Funds, L.P. Delaware Performance Direct Investments I, L.P. Delaware Performance Direct Investments II, L.P. Delaware Performance Equity Management, LLC Delaware Performance Global Fund of Funds I, L.P. Delaware Performance Opportunities Fund, L.P. Delaware Performance Venture Capital II, L.P. Delaware Performance Venture Capital III, L.P. Delaware Performance Venture Capital, L.P. Delaware Peter Vardy (Perth) Limited Scotland PIMS Co. Delaware Plan Automotor Ecuatoriano S.A. Planautomotor Ecuador Powermat Technologies Ltd. Israel Princeton Chevrolet, Inc. Delaware Promark Global Advisors Limited England PROSTEP AG Germany Proterra Inc Delaware PT. General Motors Indonesia Manufacturing Indonesia Quantum Fuel Systems Technologies Worldwide, Inc. Delaware Randstad WorkNet GmbH Germany Reeve (Derby) Limited England and Wales Reg Vardy (VMC) Limited England and Wales Renton Cadillac Pontiac GMC, Inc. Delaware Riverfront Holdings III, Inc. Delaware Riverfront Holdings Phase II, Inc. Delaware Riverfront Holdings, Inc. Delaware RMH III, Inc. Delaware Ruedas de Aluminio, C.A. Venezuela Saab Automobile AB Sweden Saab Finance Limited England Saankhya Labs Pvt. Ltd. India GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation SAIC General Motors Investment Limited China SAIC General Motors Sales Company Limited China SAIC GM Wuling Automobile Company Limited China Sakti3, Inc. Delaware Salmon Street Ltd. Australia Sandoval Buick GMC, Inc. Delaware Sarmiento 1113 S.A. (en liquidacion) Argentina SB (Helston) Limited England and Wales SDC Materials, Inc. Delaware Servicios GMAC S.A. de C.V. Mexico Seward (Wessex) Limited England and Wales Shanghai Chengxin Used Car Operation and Management Company Limited China Shanghai General Motors Corporation Ltd. China Shanghai GM (Shenyang) Norsom Motors Co. Ltd.. China Shanghai GM Dong Yue Motors Company Limited China Shanghai GM Dong Yue Powertrain Company Limited China Shanghai OnStar Telematics Co. Ltd. China Sherwoods (Darlington) Limited England and Wales Simpson Garden Grove, Inc. Delaware Sirrus, Inc. Delaware Sistemas de Compra Programada Chevrolet, C.A. Venezuela Skurrays Limited England Slaters (GM) Limited England and Wales Smokey Point Buick Pontiac GMC, Inc. Delaware Southern (Merthyr) Limited England and Wales Stam-Terberg Autobedrijven B. V. Netherlands Sterling Motor Properties Limited England and Wales Superior Chevrolet, Inc. Delaware Tactus Technology, Inc. Delaware Telogis, Inc. Delaware The NanoSteel Company, Inc. Delaware Thurlow Nunn (JV) Limited England and Wales Thurlow Nunn (MV) Limited England and Wales Todd Wenzel Buick GMC of Davison, Inc. Delaware Tradition Chevrolet Buick, Inc. Delaware Tula Technology, Inc. Delaware Tustain Motors Limited England and Wales TÜV NORD Bildung Opel GmbH Germany Union Motors Car Sales S.r.l. Romania United States Advanced Battery Consortium, LLC Michigan United States Automotive Materials Partnership, LLC Michigan United States Council for Automotive Research LLC Michigan GENERAL MOTORS COMPANY AND SUBSIDIARIES, JOINT VENTURES, AND AFFILIATES OF THE REGISTRANT AS OF DECEMBER 31, 2014 Company Name State or Sovereign Power of Incorporation Uptown Chevrolet-Cadillac, Inc. Delaware Valentine Buick GMC, Inc. Delaware Van Kouwen Automotive I B V Netherlands Vauxhall Defined Contribution Pension Plan Trustees Limited England and Wales Vauxhall Motors Limited England Vehicle Asset Universal Leasing Trust Delaware Vence Lone Star Motors, Inc. Delaware Vertu Motors (Chingford) Limited England and Wales Vertu Motors (VMC) Limited England and Wales VHC Sub-Holdings (UK) England Vickers (Lakeside) Limited England and Wales Vision Motors Limited England and Wales VMO Properties Limited England and Wales VRP Venture Capital Rheinland-Pfalz Nr. 2 GmbH & Co. KG Germany Welcome S.R.L. Italy Wheatcroft (Worksop) Limited England and Wales Whitehead (Rochdale) Limited England and Wales William Grimshaw & Sons Limited England Wilson & Co. (Lincoln) Limited England and Wales Wilson & Co. (Motor Sales) Limited England and Wales Wind Point Partners III, L.P. Delaware Woodbridge Buick GMC, Inc. Delaware WRE, Inc. Delaware Zona Franca Industrial Colmotores SAS Colombia Total - 486