Beck Chevrolet Co., Inc., Appellant,v.General Motors LLC, Respondent.BriefN.Y.Jun 2, 2015State of New York Court of Appeals DICK BAILEY SERVICE (212) 608-7666 (718) 522-4363 (516) 222-2470 (914) 682-0848 Fax: (718) 522-4024 1-800-531-2028 - Email: firstname.lastname@example.org -Website: www.dickbailey.com BECK CHEVROLET CO., INC., Appellant, v. GENERAL MOTORS LLC, Respondent. CTQ-2015-00002 BELLAVIA BLATT & CROSSETT, P.C. Attorneys for New York State Automobile Dealers Association 200 Old Country Road, Suite 400 Mineola, New York 11501 (516) 873-3000 AMICUS CURIAE BRIEF OF “NEW YORK STATE AUTOMOBILE DEALERS ASSOCIATION” IN SUPPORT OF BECK CHEVROLET CO., INC. ON APPEAL FROM THE QUESTIONS CERTIFIED BY THE UNITED STATES DISTRICT COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NOS. 13-4066-CV AND 13-4310-CV Of Counsel: LEONARD A. BELLAVIA, ESQ. SHAUN M. MALONE, ESQ. Date Completed: February 4, 2016 i TABLE OF CONTENTS Page(s) TABLE OF AUTHORITIES.......................................................................... ii CORPORATE DISCLOSURE STATEMENT.............................................. 1 QUESTIONS CERTIFIED FOR REVIEW ................................................... 1 STATEMENT OF NYSADA’S INTEREST IN THE OUTCOME .............. 2 PRELIMINARY STATEMENT .................................................................... 2 LEGAL ARGUMENT.................................................................................... 4 POINT I GENERAL MOTORS’ PRACTICES ARE PRECISELY THE TYPES OF ABUSES THAT THE NEW YORK DEALER ACT WAS DESIGNED TO PREVENT ....................................... 4 POINT II A MANUFACTURER’S FAILURE TO ADJUST FOR LOCAL MARKET FACTORS WHEN ESTABLISHING A DEALER’S SALES PERFORMANCE STANDARDS IS “UNREASONABLE” UNDER VTL § 463(2)(GG)......................................................................... 10 POINT III A MANUFACTURER’S AMENDMENT OF A DEALER’S APR CONSTITUTES A “MODIFICATION” OF THE DEALER AGREEMENT FOR THE PURPOSES OF NEW YORK VEH. & TRAF. LAW § 463(2)(ff)............................................................... 18 CONCLUSION............................................................................................. 23 ii TABLE OF AUTHORITIES Page(s) Cases: Beck Chevrolet Co. v. General Motors, 787 F.3d 663, 668 (2015)............................................................................ 15 Bender v Jamaica Hosp., 40 NY2d 560, 562  ........................................................................... 12 Coady Corp. v. Toyota Motor Distributors, Inc., 361 F.3d 50 (1st Cir. 2004)......................................................................... 13 Doctors Council v New York City Employees' Retirement Sys., 71 NY2d 669  ................................................................................... 12 Forest Home Dodge, Inc. v. Karns, 138 N.W.2d 214, 217-18 (Wis. 1965) .......................................................... 7 Matter of Johnson v. Joy, 48 NY2d 689 (1979) ................................................................................... 14 Matter of Raritan Dev. Corp. v Silva, 91 NY2d 98, 106-107 ................................................................ 12, 13 Matter of Tommy & Tina v. Department of Consumer Affairs, 95 A.D.2d 724 (1st Dept 1983), affirmed 62 NY2d 671 (1984) ................ 14 Patrolmen's Benevolent Assn. v City of New York, 41 NY2d 205, 208....................................................................................... 12 Statutes/Regulations and Misc.: 15 U.S.C. §1221 et seq. .................................................................................. 5 New York Vehicle & Traffic Law section 460 .............................................. 7 New York Vehicle & Traffic Law section 463 .............................................. 8 New York Vehicle & Traffic Law section 463(2).......................................... 8 New York Vehicle & Traffic Law section 463(2)(gg) .......................... passim iii New York Vehicle & Traffic Law section 463(2)(ff) ........................... passim New York Vehicle & Traffic Law section 463(2)(ff)(3)....................... passim Automobile Dealers’ Day in Court Act of 1956............................................. 5 Florida State University Law Review, Vol. 29:105 ....................................... 5 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of Practice for the Court of Appeals of the State of New York, proposed amicus curiae New York State Automobile Dealers Association makes the following disclosures: New York State Automobile Dealers Association is a private, non-profit, non-government entity. It has no parent corporation and no subsidiaries. There is no publicly-held corporation or entity that holds ten percent (10%) or more of its stock. QUESTIONS CERTIFIED FOR REVIEW 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 vehicle types? 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? - 2 - STATEMENT OF NYSADA’S INTEREST IN THE OUTCOME New York State Automobile Dealers Association (“NYSADA”) is a trade organization that represents nearly one thousand (1,000) New York automobile and truck dealers, dedicated to addressing important issues affecting the dealership rights in the state of New York, and particularly manufacturer-dealer relations. NYSADA’s members consist of motor vehicle dealers across the State of New York, from Buffalo to Montauk. Due to its membership consisting of so many automobile dealers, and its representation of those dealers as a group, NYSADA has unique perspectives on, and interests in, the issues that have been presented to this Court by the Second Circuit Court of Appeals. Thus, NYSADA submits this amicus curiae brief on the two important questions presented in this appeal, in the hope that its perspectives may be of value to the Court in reaching sound and just conclusions. PRELIMINARY STATEMENT The questions presented in this appeal are whether the Dealer Act permits manufacturers such as General Motors to (a) impose vehicle sales performance standards upon its dealers that are based on broad, statewide averages that do not take into account local market differences that dealers face, and to (b) unilaterally modify the geographic market areas of responsibility of dealers, which directly effects dealers’ ability to meet the statewide sales averages imposed. - 3 - Notwithstanding the specific dispute between General Motors and Beck Chevrolet, and the specific facts that underlie that dispute, the important empirical question is what interpretation and effect should be given to the two New York statutory subsections that directly address both the “unreasonable sales performance standards” question (New York VTL § 463(2)(gg)) and the question of whether the material modification of a dealer’s geographic area of primary market responsibility substantially alters the dealer’s investment or its anticipated return on investment under an existing franchise agreement (New York VTL § 463(2)(ff)). Based upon the clear language and plain meaning of both New York VTL § 463(2)(gg) and VTL § 463(2)(ff), the answers to these questions is clear, particularly in light of the legislative intent and purpose of the Dealer Act, which is to remedy the historical imbalance of economic power that manufacturers have in comparison to dealers. Under subsection (gg), a manufacturer may not impose sales performance standards based on statewide market share averages, or any other “blunt” metric, where doing so would impose materially different, more onerous contractual obligations upon some dealers to the detriment of other dealers. Similarly, under subsection (ff), a manufacturer may not unilaterally expand a dealer’s obligations pursuant to a Dealer Agreement by redefining its geographic area of market responsibility in an unfair, illogical manner where doing - 4 - so would materially impair a dealer’s ability to meet the manufacturer’s assumptions as to the dealer’s expected sales in that market. LEGAL ARGUMENT POINT I GENERAL MOTORS’ PRACTICES ARE PRECISELY THE TYPES OF ABUSES THAT THE NEW YORK DEALER ACT WAS DESIGNED TO PREVENT New York, has enacted—as has virtually every other state—legislation closely regulating automobile manufacturer-dealer relations. State dealer acts emerged from, initially, and are modeled on the United States Congress’s recognition in 1956 of the abuses that manufacturers were imposing upon dealers due to their unequal bargaining powers. “By the 1920s, manufacturers had firmly established the independent dealer system, in which the manufacturer and dealer entered into a contract establishing the rights and obligations of the relationship. The manufacturer’s bargaining position in these contracts was clearly greater than that of the dealer. The economic ebb and flow and the natural competition created by the existence of competing manufacturers—to whom dealers could go if their manufacturer abused its power too greatly—kept the system somewhat in balance through the first half of the century. However, the inequities arising from the inequality of power became generally recognized as a threat to the efficient provision of vehicles to consumers. Pushed along by public opinion and [industry trade groups], regulation began to emerge. The most prominent early example of - 5 - this regulation was the federal Automobile Dealers’ Day in Court Act (“ADDICA”).” Florida State University Law Review, Vol. 29:105; see 15 U.S.C. § 1221 et seq. Congress passed ADDICA in 1956. A congressional report discussed the problem as follows: “Automobile production is one of the most highly concentrated industries in the United States, a matter of grave concern to officers of the Government charged with enforcement of the antitrust laws. Today there exist only 5 passenger car manufacturers, 3 of which produce in excess of 95 percent of all passenger cars sold in the United States. There are approximately 40,000 franchised automobile dealers distributing to the public cars produced by these manufacturers. Dealers have an average investment of about $100,000. This vast disparity in economic power and bargaining strength has enabled the factory to determine arbitrarily the rules by which the two parties conduct their business affairs. These rules are incorporated in the sales agreement or franchise which the manufacturer has prepared for the dealer’s signature. Dealers are with few exceptions completely dependent on the manufacturer for their supply of cars. When the dealer has invested to the extent required to secure a franchise, he becomes in a real sense the economic captive of his manufacturer. The substantial investment of his own personal funds by the dealer in the business, the inability to convert easily the facilities to other uses, the dependence upon a single manufacturer for supply of automobiles, and the difficulty of obtaining a franchise from another manufacturer all contribute toward making the dealer an easy prey for domination by the factory. On the other hand, from the standpoint of the automobile manufacturer, any single dealer is expendable. The faults of the factory-dealer system are directly attributable to the superior market position of the manufacturer.” Congressional Reporter No. 84-273, at 2 (1956). Congress’s remedy for manufacturers’ abuses of dealers, as codified in ADDICA, was succinct and to the point: - 6 - “An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found, or has an agent, without respect to the amount in controversy, and shall recover the damages by him sustained and the cost of suit by reason of the failure of said automobile manufacturer from and after August 8, 1956, to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer. Provided, that in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith.” See ADDICA (15 U.S.C. § 1221) “The term “good faith” shall mean the duty of each party to any franchise, and all officers, employees, or agents thereof to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party …” Id., § 1221(e). ADDICA is a forerunner of the states’ dealer franchise laws, including New York’s, and the legislatures that enacted virtually all of them discuss in their legislative histories the inequities and the abuses of dealers by manufacturers that prompted ADDICA’s enactment. The underlying purpose of the state’s motor vehicle franchise laws have been recognized by many courts across the country. For example, the Wisconsin Supreme Court had this to say about the enactment of its dealer statutes: “Sec. 218.01(3) is a part of the Wisconsin Auto Dealership Law, which was enacted in 1935. Implicit in this law is the recognition of the gross disparity of bargaining power between the manufacturer of automobiles and the local retailer. It was enacted in recognition of the long history of abuse of dealers by manufacturers. These laws deal with the relationship between auto - 7 - manufacturers and auto dealers. The purpose of the law is to furnish the dealer with some protection against unfair treatment by the manufacturer. Sec. 218.01(3)(f) was enacted into law in 1955. Earlier enactments had guarded against specific evils occasioned by what the legislature considered the unfair or overreaching tactics of manufacturers, e.g., forced acceptance of unordered autos or parts; coercion or unfair treatment through threat of cancellation; unfair cancellation or refusal to renew franchises, or without due regard to the equities of the dealer.” Forest Home Dodge, Inc. v. Karns, 138 N.W.2d 214, 217-18 (Wis. 1965). Similarly, the legislative intent and purpose of New York’s Dealer Act is to remedy the unequal bargaining power that manufacturers have historically enjoyed in their dealings with franchised dealers. The Act itself states as follows, in NY VTL § 460 (“Legislative Findings): “The legislature finds and declares that the distribution and sale of motor vehicles within this state vitally affects the general economy of the state and the public interest and the public welfare, and that in order to promote the public interest and the public welfare and in the exercise of its police power, it is necessary to regulate motor vehicle manufacturers, distributors and factory or distributor representatives and to regulate dealers of motor vehicles doing business in this state in order to prevent frauds, impositions and other abuses upon its citizens and to protect and preserve the investments and properties of the citizens of this state.” The legislative history of the Dealer Act notes the “great disparity in bargaining power between the motor vehicle manufacturer and the motor vehicle dealer.” See Memorandum in Support of Legislation, Governor’s Bill Jacket, 1983, Chapter 815, Section 1. “The bill seeks to provide certain basic protections for the dealer in areas where such protection is deemed necessary.” Id. “The franchise agreements which have been developed over a long course of dealings - 8 - between the manufacturer and the dealer have reached a point where the dealer has few if any rights in comparison to those of the motor vehicle manufacturer. This result is an undue imbalance in bargaining power and in many cases the dealer is at the mercy of the manufacturer.” Id. The legislature, recognizing that the Act would not fulfill its purpose of protecting dealers from being forced to accept unfair terms imposed on them by manufacturers in their franchise agreements made a point to make the various protections afforded to dealers in the Act applicable by operation of law, superseding the terms of any written franchise agreement. The protections imparted to dealers under the Act apply “notwithstanding the terms of any franchise contract.” NY VTL § 463(2). The New York Legislature’s intent of preventing manufacturers’ from unfairly treating its dealers is obvious when reading the various dealer protections enumerated in the Act. That includes the two statutory provisions directly at issue in this appeal, as set forth in NY VTL § 463: 2. It shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract: * * * (ff) (1) To modify the franchise of any franchised motor vehicle dealer unless the franchisor notifies the franchised motor vehicle dealer, in writing, of its intention to modify the franchise of such dealer at least ninety days before the effective date thereof, stating the specific grounds for such modification. - 9 - (2) For purposes of this paragraph, the term “modify” or “modification” means 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. * * * (gg) To use 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. [Italics added] Each of the questions certified to this Court by the Second Circuit Court of Appeals must be considered in light of the legislature’s intent in enacting the Dealer Act and the two foregoing provisions. In each case, the plain meaning of the statutory language, when viewed in consideration of the goal of protecting dealers from manufacturers’ abuses, leads to the same conclusion. First, that where a manufacturer attempts to impose sales performance standards based on statewide market share averages as a condition of the dealer retaining its franchise, those performance standards are “unreasonable” if the dealer’s local market materially differs from the statewide average. Second, that where a manufacturer bases its decision to retain or terminate a dealer based on its sales within a defined geographic market area, the manufacturer may not unilaterally modify its definition of a dealer’s market area if such a modification materially impairs the dealer’s ability to retain its franchise. - 10 - POINT II A MANUFACTURER’S FAILURE TO ADJUST FOR LOCAL MARKET FACTORS WHEN ESTABLISHING A DEALER’S SALES PERFORMANCE STANDARDS IS “UNREASONABLE” UNDER VTL § 463(2)(GG) The question that lead the Second Circuit to certify the question of whether GM’s application of statewide market share averages to each dealer’s individual APR in order to determine its sales performance benchmarks was the question of whether § 463(2)(gg) should be interpreted as preventing manufacturers from using that methodology only if doing so would be “egregiously” unfair to the dealer. According to the district court’s adopted interpretation of the language of that section, a court will reverse only egregious or deceptive decisions of the franchisor. In reaching this errant conclusion the district court reasoned that the statute “does not demand perfection . . . or warrant a substitution of judicial for business judgment." (A1872) The district court erred in reading an "egregiousness" requirement into § 463(2)(gg), for no such standard exists in that section. In doing so, the district court misread relevant case law and neglected to construe § 463(2)(gg) according to the plain meaning of its language. There is no such heightened level of severity as “egregiousness” in that section, which reads, quite unambiguously, as follows: 1. It shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract: - 11 - (gg) To use an unreasonable, arbitrary or unfair sales or other performance standard in determining a franchised motor vehicle dealer's compliance with a franchise agreement. Of the three standards set forth in that section, (i.e., unreasonable, arbitrary or unfair), arguably the lowest standard(s) that would render a manufacturer’s actions unlawful is the “unreasonableness” standard and the “unfairness” standard, which are roughly equivalent in meaning.1 Neither the term “unreasonableness” nor the term “unfairness” rises to the level of the “egregiousness” standard that was inserted into the statute by the district court. As the Second Circuit Court noted in its opinion, the district court’s adoption of the egregiousness standard, under which anything less than “egregious” inequities imposed upon a dealer constitutes mere “business judgment” of the manufacturer, is “highly deferential to the franchisor.” (A1673-1674) Clearly the legislature, when enacting the Dealer Act and § 463(2)(gg), which was intended to remedy past abuses committed by manufacturers against dealers, did not intend for the Act to be “highly deferential to the franchisor.” Moreover, the insertion of an “egregiousness” requirement into § 463(2)(gg) which, by the plain meaning of its language only requires “unreasonableness” to demonstrate a manufacturer’s violation of it, is unwarranted. This Court has long adhered to the view that " '[i]t is fundamental that a court, in interpreting a statute, should attempt to effectuate the intent of the 1 The term “arbitrary,” in contrast, plainly means actions undertaken without forethought or logical basis, which may or may not be “unreasonable” or “unfair” as to a particular dealer. - 12 - Legislature,' " but the Court has consistently emphasized that " 'where the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used' " Matter of Raritan Dev. Corp. v Silva, 91 NY2d 98, 106-107 , citing Patrolmen's Benevolent Assn. v City of New York, 41 NY2d 205, 208; Doctors Council v New York City Employees' Retirement Sys., 71 NY2d 669 .) The statute’s terms prohibiting a manufacturer’s imposition of “unreasonable” or “unfair” sales performance objectives on a dealer should be afforded their clear meaning, and not substituted by the heightened degree of culpability implied by the district court’s “egregious” standard. "Absent ambiguity the courts may not resort to rules of construction to broaden the scope and application of a statute, because no rule of construction gives the court discretion to declare the intent of the law when the words are unequivocal" Bender v Jamaica Hosp., 40 NY2d 560, 562 . “The courts are not free to legislate and if any unsought consequences result, the Legislature is best suited to evaluate and resolve them." 91 N.Y.2d, at 107. There is no ambiguity in § 463(2)(gg) that requires the introduction of an “egregiousness” standard that the legislature never chose to include. To do so would necessarily be based on the baseless conclusion that the three standards that the legislature did choose to include in § 463(2)(gg)—i.e., unreasonable, arbitrary, or unfair—are somehow vague, or inadequate to convey the legislature’s intent. They are not. - 13 - Moreover, it is telling that the district court found it necessary, in order to reach its conclusion that General Motors’ sales performance methodology does not violate § 463(2)(gg), to adopt an “egregiousness” requirement that is not actually stated or implied in the statute. Arguably, this constituted a tacit admission by the district court that had it not required Beck Chevrolet to prove that General Motors’ practice of not adjusting sales performance standards to account for Beck’s local conditions was “egregious,” then Beck Chevrolet would have met its burden under the statute. The district court, in reaching its decision to imply an “egregiousness” requirement into § 463(2)(gg), relied in part upon the First Circuit's position analysis in Coady Corp. v. Toyota Motor Distributors, Inc., 361 F.3d 50 (1st Cir. 2004), interpreting the Massachusetts Dealer Act, in which that court held that "[a] distributor acting honestly is entitled to latitude in making commercial judgments[,] and . . . [i]n this context, it is only the egregious decision that should be labeled 'arbitrary' or 'unfair.'" Id., 361 F.3d at 56. In doing so, the district court essentially adopted a standard—“egregiousness”—that was not chosen by the legislature in that either. The district court would have been better served by attempting to effectuate the clear intent of the legislature by construing § 463(2)(gg) “so as to give effect to the plain meaning of the words used." Matter of Raritan Dev. Corp. v Silva, 91 NY2d 98. - 14 - The district court would also have been better served by giving more credence and weight to the decision and opinion of the New York Department of Motor Vehicles, the very state agency that is charged with the enforcement of New York’s Vehicle & Traffic Law. Beck Chevrolet’s protest of General Motors’ termination of its dealer agreement based upon its failure to meet GM’s sales performance standards resulted in a number of findings that are both instructive and based on that agency’s expertise in such matters. The New York DMV’s rulings included the determination that General Motors’ use of statewide average market shares to determine Beck’s required sales level without adjusting for material local variations in competition and preferences for brands and types of vehicles was “unreasonable” (which is the term the legislature actually chose in the statute) under the Dealer Act because such a methodology “does not realistically reflect the Chevrolet sales challenges that Beck and other New York Metropolitan dealers face. (A1891) The DMV also found that General Motors was “not applying the RSI uniformly to all dealers in New York.” (Id.) The construction afforded to a particular statute by the agency responsible for its administration is entitled to the greatest weight. Matter of Tommy & Tina v. Department of Consumer Affairs, 95 A.D.2d 724 (1st Dept 1983), affirmed 62 NY2d 671 (1984), and should be upheld if not irrational or unreasonable. Matter of Johnson v. Joy, 48 NY2d 689 (1979). - 15 - The Second Circuit Court itself, although it did not ultimately decide the question, cast significant doubt on the district court’s ruling that GM’s blunt application of statewide market share averages to all dealers, in every market, without adjustment, is permissible under § 463(2)(gg). That court noted that “[i]t seems sensible enough to conclude that car dealers located in different parts of a single state would face different barriers to success, including variations in local brand preferences. By failing to take this into account, the existing performance standards make it likely that the lowest-performing dealers will be concentrated in areas in which GM’s brands are the weakest.” Beck Chevrolet Co. v. General Motors, 787 F.3d 663, 668 (2015). Particularly troubling is General Motors’ argument, and the district court’s apparent adoption and acceptance of it, that because virtually all motor vehicle manufacturers in the United States impose a substantially similar “statewide market share average” analysis when determining a dealer’s expected sales, the practice must be “reasonable” and therefore acceptable under § 463(2)(gg). (A1217) The Dealer Act itself was enacted to remedy widespread abuses by manufacturers that had become both pervasive and unacceptable to the legislature. § 463(2)(gg) was enacted specifically to prevent manufacturers from imposing oppressive sales performance requirements on dealers. As such, to assume that GM’s practice of not fairly adjusting dealers’ sales requirements is permissible under § 463(2)(gg) because “everyone does it” is circular logic or, rather, circular - 16 - illogic. More importantly, it abdicates any real attempt to give meaning and effect to the legislature’s intent when it prohibited manufacturers from imposing “unreasonable, arbitrary or unfair” sales performance standards on dealers. The unreasonable nature of General Motors’ sales performance standards methodology was aptly demonstrated in both the DMV proceeding and in the district court trial. Essentially, GM has imposed sales requirements upon Beck Chevrolet that are unattainable by any reasonable measure of market reality. The flaw in GM’s methodology essentially arises from the fact that New York is a large state that consists of many communities that are polar opposites of each other, from rural upstate farmland to the urban metropolis of New York City. As such, New York also contains APRs which GM has defined for its dealers that face vastly different market dynamics when it comes to selling Chevrolet vehicles. Indeed, it is hardly necessary to analyze the manner in which GM arrived at Beck Chevrolet’s sales requirements based on statewide averages; the results themselves are telling. The trial evidence in the district court indisputably established that the Chevrolet brand’s market share is much lower in the nine (9) downstate counties (6.37%) than it is in the fifty-three (53) upstate counties (18.4%). (A1257-1261).2 2 The reasons for Chevrolet’s relative lack of popularity in Beck’s downstate urban market were fairly established by Beck’s expert witness at trial, based upon statistical analyses: (a) stronger consumer preference for imported brands and increased competition from import dealers (A1147), and (b) General Motors’ greater allocation of advertising resources to the upstate markets. (A1463) - 17 - In other words, upstate dealers historically capture triple the market share of all comparable vehicles sold in its market as compared to downstate dealers. However, when determining Beck Chevrolet’s expected sales, GM assumes that Beck, in its downstate urban market, will achieve the statewide average Chevrolet market share, which is greatly skewed upward by the significantly higher market shares enjoyed by rural, upstate dealers. Stated another way, GM’s methodology applies an expected sales level to Beck Chevrolet that is based upon an assumed market share that has little logical relation to the market in which Beck actually operates. As a result of this fundamental flaw in logic and methodology, as of the time of the trial in the district court only 4 of 23 downstate Chevrolet dealers were meeting General Motors’ sales performance standard (i.e., 100% of RSI). (A1263- 1265). This means that, according to GM’s flawed sales performance standards, at any given time more than 80% of the downstate dealers are not complying with their dealer agreements and are subject to termination. This also highlights how “unreasonable” and “unfair” GM’s methodology is, unless one assumes that, coincidentally, all of the incompetent Chevrolet dealers happen to have congregated downstate in the New York City metropolitan area. Stated simply, GM’s practice of requiring downstate dealers, including Beck Chevrolet, to meet sales performance standards that bear little resemblance to their actual markets, such that 80% of them are unable to meet those standards, is “unreasonable” and “unfair” under the plain-English meaning of those terms, and - 18 - under the clear meaning and intent of § 463(2)(gg). For that reason, the Court should rule that GM’s attempt to terminate Beck Chevrolet’s dealer agreement based upon its inability to meet unadjusted, statewide market share averages is impermissible under the Dealer Act. POINT III A MANUFACTURER’S AMENDMENT OF A DEALER’S APR CONSTITUTES A “MODIFICATION” OF THE DEALER AGREEMENT FOR THE PURPOSES OF NEW YORK VEH. & TRAF. LAW § 463(2)(ff) General Motors provided Beck Chevrolet with written notice that it was redefining Beck Chevrolet’s Area of Primary Responsibility (“APR”). It is beyond reasonable dispute that GM’s modification of the APR was undertaken within the context of § 463(2)(ff). Indeed, the written notice provided by GM specifically stated that “This notice is provided pursuant to New York Vehicle & Traffic Law § 463(2)(ff)(1).” (A234) On the question of whether General Motors’ unilateral amendment of Beck Chevrolet’s APR constituted a prohibited “modification” of the franchise agreement under VTL § 463(2)(ff), despite the fact that the dealer agreement itself permits amendments to a dealer’s market area, the answer is in the affirmative based on the unambiguous language of the statute. - 19 - The Dealer Act provides a dealer the right to challenge actions by a manufacturer that materially alter the dealer’s rights and obligations under the dealer agreement. That right is set forth in VTL § 463(2)(ff)(3), as follows: If any franchised motor vehicle dealer who receives a written notice of modification institutes an action within one hundred twenty days of receipt of such notice as provided in section four hundred sixty-nine of this article to have a review of the threatened modification, such action shall serve to stay, without bond, the proposed modification until a final judgment has been rendered in an adjudicatory proceeding or action as provided in section four hundred sixty-nine of this article. 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. In any action brought by the dealer, the franchisor shall have the burden of proving that such modification is fair and not prohibited. General Motors’ implicitly argues that the terms of the dealer agreement, which seemingly authorize GM to modify the dealer’s APR, somehow obviate the effect, or the application, of VTL § 463(2)(ff). The argument that Beck Chevrolet somehow waived its protections under § 463(2)(ff), or that the terms of the dealer agreement take precedence, is flatly contradicted by the Dealer Act itself, which states that all of its prohibitions apply “notwithstanding the terms of any franchise contract …” VTL § 463(2). That provision, which removes the possibility of the parties waiving or obviating the dealer protections provided in the Act, is a clear expression of the legislature’s desire to prevent manufacturers from avoiding those protections by imposing adhesive contracts on dealers by virtue of their superior bargaining power. - 20 - Since the issue in this case is not whether GM provided sufficient notice of the proposed amendment, the real question is whether or not the unilateral modification of Beck Chevrolet’s APR was prohibited by § 463(2)(ff). The answer, which is in the affirmative, requires analysis of whether GM’s modification of Beck’s APR was “unfair” within the meaning of that term as stated in § 463(2)(ff)(3). Under that section, a modification of a dealer’s franchise agreement is “unfair” if the manufacturer’s modification either (a) “was not undertaken in good faith,” (b) “was not undertaken for good cause,” or (c) “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. For the purposes of the inquiry in this case the clearest path to the answer lies in the latter standard, because it is obvious that GM’s change of Beck’s market area adversely altered Beck’s obligations under the dealer agreement, the nature and risks of its investment in the Chevrolet franchise, and its return on that investment. See Id. The definition of a dealer’s APR in this context has no significance or ramifications to the dealer apart from the fact that GM uses the APR to determine the dealer’s RSI. The dealer is given no exclusive rights to sell Chevrolets in its APR. The definition of a dealer’s APR has no functional purpose from a sales or marketing standpoint; it’s purposely is entirely analytical. GM utilizes “new vehicle” registration data within the dealer’s APR area to determine the market - 21 - share that the dealer should achieve in Chevrolet sales, by assuming that the dealer should be able to capture market share within its APR consistent with Chevrolet’s market share for the state as a whole (which is unfair in itself, as discussed supra). As such, a change in the dealer’s APR directly affects its ability to meet the minimum RSI (i.e., 100) that GM has established for the dealer. To state it simply, the bigger the discrepancy between GM’s assumption of a dealer’s ability to compete in a defined geographic area and the dealer’s actual ability to compete in that market, the more inaccurate and unreasonable is the definition of that dealer’s market, and the more unreasonable will be the dealer’s baseline RSI. In this case, it is not reasonably disputable that General Motors’ modification of Beck Chevrolet’s APR made it more difficult for Beck to achieve the baseline RSI that GM’s methodology established for Beck’s dealership. Beck’s expert witness, Joseph Roessner, concluded, and testified, that GM’s modification of Beck’s APR would result in a lower sales performance under GM’s RSI methodology (i.e., that it would impair Beck’s ability to achieve a 100 RSI score). (A1574) Although General Motors argued against that conclusion at trial, that argument was belied by General Motors’ own internal study of Beck’s objection to the modification, which found that “preliminary analysis indicates that there may be sufficient evidence to support the dealer’s concern.” (A674) Neither is it subject to reasonable dispute that the modification of Beck’s market area “would adversely and substantially alter the rights, obligations, - 22 - investment or return on investment of the franchised motor vehicle dealer under an existing franchise agreement.” VTL § 463(2)(ff)(3). The potential penalty that GM (and in fact all manufacturers) impose, or attempt to impose, upon a dealer that fails to meet GM’s RSI is the termination of the dealer’s franchise agreement. It is impossible to conjure a consequence that more substantially alters a dealer’s “rights, obligations or return on investment” than the complete loss of the dealer’s business. Based upon an application of the clear, unambiguous intent of § 463(2)(ff)(3), it must be concluded that a manufacturer’s modification of a dealer’s area of primary market responsibility, where the modification materially affects the dealer’s ability to meet the manufacturer’s sales benchmarks and, thus, materially affects the dealer’s ability to retain the franchise in which it has invested, is a prohibited modification of the dealer agreement under the Dealer Act. For the foregoing reasons, the Court should answer this second certified question in the affirmative, as follows: notwithstanding the terms of any franchise agreement, § 463(2)(ff) of the New York Dealer Act prohibits the modification of a motor vehicle dealer’s area of primary market responsibility if the proposed change materially affects the dealer’s ability to meet the manufacturer’s sales performance standards, and where compliance with those standards is a necessary precondition to the dealer continuing the franchise.