STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BILL GALLMAN PONTIAC, GMC )

TRUCK, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 89-0505

) GENERAL MOTORS CORPORATION, ) PONTIAC MOTORS DIVISION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Veronica E. Donnelly, held a formal hearing in the above-styled case on December 11-14, 1989, in Naples, Florida.

APPEARANCES

For Petitioner: James D. Adams, Esquire

Feaman, Adams, Harris, Fernandez & Deutch, P.A.

Corporate Plaza, Fourth Floor 4700 N.W. Second Avenue

Boca Raton, Florida 33431

For Respondent: Vasilis C. Katsafanas, Esquire

Rumberger, Kirk, Caldwell, Cabaniss, Burke & Wechsler

11 East Pine Street Orlando, Florida 32802

William J. Whalen, Esquire Office of General Counsel General Motors Corporation New Center One Building 3031 West Grand Boulevard Detroit, Michigan 48232

S. Thomas Wienner, Esquire Dykema Gosset

35th Floor, 400 Renaissance Center Detroit, Michigan 48243

STATEMENT OF THE ISSUES

Whether General Motors' decision not to renew its franchise agreement with Gallman Pontiac was "unfair" as the term is defined by Section 320.641(3), Florida statutes.

PRELIMINARY STATEMENT

By letter dated January 21, 1989, the Department of Highway Safety and Motor Vehicles (the Department), submitted a verified complaint filed by Petitioner, Bill Gallman Pontiac-GMC Truck, Inc. (Gallman Pontiac) to the Division of Administrative Hearings (the Division). The complaint challenges the nonrenewal of Gallman Pontiac's franchise agreement by the Respondent, General Motors Corporation, Pontiac Motor Division (General Motors). The Division was asked to only consider the issue of whether the decision not to renew was unfair, pursuant to Section 320.641, Florida Statutes. Therefore, the issue of whether the notice of nonrenewal was legally sufficient for the intended purpose, as alleged in the verified complaint, is not addressed in this Recommended Order.

During the hearing, Gallman Pontiac presented four witnesses and filed thirty two exhibits. The exhibit marked as Petitioner's #DD was not admitted into evidence. General Motors called four witnesses and filed thirty two exhibits, Respondent's Exhibit #24 was rejected. The Hearing Officer filed one exhibit. All other exhibits filed by the parties were accepted.

The transcript of hearing was filed on March 3, 1990. Pursuant to stipulation, the parties were given thirty days in which to file proposed recommended orders. Rulings on the proposed findings of fact submitted by the parties are in the Appendix of the Recommended Order.

FINDINGS OF FACT

Background

1. On or about October 28, 1988, (general Motors Corporation, Pontiac Division (General Motors) notified it franchisee, Bill Gallman Pontiac, GMC Truck, Inc. (Gallman Pontiac), a licensed motor vehicle dealer in the State of Florida, of its election not to renew the franchise agreement, effective ninety days from the date of the delivery of the notice of its decision.

   
   

2. Because the franchise agreement was scheduled to expire on November 20, 1988, Bill Gallman would have the option to void the nonrenewal due to General Motor's failure to notify the motor vehicle dealer ninety days in advance of the proposed nonrenewal. To avoid this result and to comply with the franchise agreement, General Motors informed the dealer in the same notification that the current agreement was being extended for the same ninety day period in which the dealer had been given notice of the proposed nonrenewal.

   
   

3. General Motors' extension of the term of the franchise agreement was a unilateral proposed novation that was accepted by Gallman Pontiac when he relied upon the modification and continued to do business under the novation. Gallman Pontiac's acceptance of the novation is clearly demonstrated by the timing of the verified complaint in this proceeding, which was filed on January 12, 1989.

4. The specific reason stated by General Motors for its decision not to renew its franchise agreement beyond the ninety-day period was that Gallman Pontiac failed to fulfill its minimum sales performance responsibilities pursuant to its contractual obligations as set forth in the Dealer Sales and Service Agreement.

   
   

5. Gallman Pontiac subsequently filed a verified complaint, pursuant to Section 320.641, Florida Statutes, to contest the proposed nonrenewal of the franchise agreement. The complaint alleges that the proposed nonrenewal is unfair and that the grounds asserted for the nonrenewal were factually untrue and/or legally insufficient for the intended purpose.

   
   

   The Mathematical Formula for Sales Effectiveness

   
   

6. The manufacturer's primary purpose for entering into a franchise agreement with a dealer is to have its automobiles sold. To determine whether a dealer is meeting its responsibilities in this regard, the franchise agreement contains a mathematical formula which is used to evaluate the sales performance of all dealers who sell Pontiacs. Pursuant to the formula, which is expressed in the agreement and tide annual sales performance evaluation form, a dealer's sales ratio and registration ratio must be calculated. A dealer's sales ratio is determined by dividing the dealer's actual unit sales of new motor vehicles, wherever registered, by industry new unit registrations in the Dealer's Area of Prime Responsibility. A dealer's registration ratio is determined by dividing new motor vehicle unit registrations by industry new unit registrations in the Dealer's Area of Prime Responsibility. After these ratios are recorded, the dealer's sales and registration ratios are compared to zone and national registration ratio levels to determine sales and registration effectiveness. If the individual dealer's sales and registration performances reach a comparative level of 85 percent effectiveness to the zone and national levels, the dealer's performance is considered effective by General Motors. When the comparisons were made in this case, the dealer's sales effectiveness was 53.6 percent in 1987 and 68.5

   percent in 1988. Registration effectiveness was 56.5 percent in 1987 and

   74.1 percent in 1988. These levels of performance do not meet the minimum levels required by the franchise agreement.

   
   

   Other Considerations Under the Agreement

   
   

7. In addition to the mathematical formula, the franchise agreement states that General Motors will consider other relevant factors in its sales evaluation, including the following factors: the trend over a reasonable period of time of dealer's sales performance; the manner in which dealer has conducted the sales operations, including advertising, sales promotion and treatment of customers; sales to fleet customers if they have affected registrations; the manner in which dealer has submitted orders for new motor vehicles to the Pontiac Division; the availability of new motor vehicles to dealer; and significant local conditions that may have directly affected dealer's performance.

   
   

8. If the mathematical formulas regarding sales and registration effectiveness set forth in the franchise agreement were the sole measure used to determine Gallman Pontiac's sales performance through January 1989, it is clear that the dealer was not meeting its contractual obligations to General Motors in this area of responsibility. However, under the terms of the agreement, General Motors must look to other relevant factors that may have directly affected dealer's performance before a final determination can be made regarding

   an individual dealer's sales effectiveness. Contrary to the terms of the agreement, the annual evaluation forms show that Gallman Pontiac's performance was evaluated on retail sales only. The other relevant factors in the franchise agreement were not reviewed before the decision not to renew the franchise agreement was made.

   
   

   Other Relative Factors in the Agreement Which Should Have Been Considered in the Dealers Evaluation

   
   

9. When the trend of the Gallman Pontiac's sales performance is reviewed, the evidence shows that Gallman Pontiac's sales performance over the life of the franchise agreement has improved relative to market growth by a small percentage (7.51%). This slight upward trend does not demonstrate an effective performance as the sales were below an acceptable standard before the increase in sales, and the improvement barely exceeded the local market growth. The time period over which the trend evaluation occurred is reasonable in this case because both parties agreed to a two-year term in the franchise agreement, which was subject to an overall evaluation prior to a renewal of the agreement.

   
   

10. Although there was opinion testimony from a former sales manager from the dealership that Gaillman Pontiac did not order sufficient quantities and mix of vehicles, and imprudently focused the advertising towards the limited, younger group of buyers in Naples, this testimony was not found to be credible by the Hearing Officer. All of the other evidence presented by both sides regarding the manner in which the dealer conducted sales operations demonstrates that Gallman Pontiac met or exceeded his contractual obligations in this area of responsibility.

    
    

11. Sales to fleet customers did not affect registrations in 1988. The dealer chose not to compete in the fleet market because the later resale

    of these vehicles interferes with the sale of new vehicles at this dealership.

    
    

12. The manner in which the dealer submitted orders to the Pontiac Division was not criticized by General Motors. The dealer's procedures were continuously reviewed and evaluated through the Dealer Assistance Program. There was no showing that the dealer's ordering procedures directly affected its sales performance. The allocation procedures were applied to Gallman Pontiac in the same manner they were applied to other dealers. The evidence did not show that imprudent selections were made by the dealer in the ordering process, nor was it sufficiently established that manufacturer delays or the unavailability of certain products interfered with the dealer's sales in Naples.

    
    

13. A significant local condition that may have directly affected the dealer's sales performance was the lack of receptivity in the Naples market area for linemakes in the class of automobiles offered by Pontiac. Actual sales performance data for all new car registrations in the area show that the Naples market prefers to purchase automobiles from the high group of automobiles such as Cadillac, Lincoln, BMW, Mercedes Benz, and Porsche. Pontiac does not have a linemake designed to compete in this market segment.

    
    

    Application of the Other Relevant Factors To The Decision Not To Renew

    
    

14. Because the franchise agreement and the annual sales evaluation form have not made provisions for any adjustments to the original statistical formula based upon the additional considerations mentioned in paragraphs 9-13,

    these factors are to be considered independently from the initial mathematical calculation. The purpose of the review of these factors is to determine if the statistical analysis is a reliable indicator of the sales performance of the dealer who is being evaluated before General Motors makes its final decision regarding termination. There has been no showing that General Motors ever used the additional considerations for any other purpose in its course of dealings with other dealers in the past or that any other interpretation has been given to these factors.

    
    

15. In this case, when the additional relevant factors are reviewed in addition to the ineffective sales and registration performance statistics, the mathematical formula continues to be a reliable indicator that the sales performance at the Gallman Pontiac dealership does not meet required standards. The additional considerations set forth in the franchise agreement which are relevant to this case, do not seriously undermine the fairness of the application of the initial mathematical calculation to the sales performance of Gallman Pontiac. While the local market's lack of receptivity directly affects Gallman Pontiac's performance, the statistical formula takes this into account to a large degree when a dealer is required to meet eighty-five percent of the zone or national average to demonstrate minimum performance. If yet another mathematical formula was created to give additional weight to this local condition beyond the provision in the minimum standards formula, the manufacturer could be harmed by a individual dealer's lack of market penetration efforts. Because it is difficult to determine the primary cause and effect of poor market penetration in a specific area, the statistical formula is generally fair to both sides in most situations. It does not unfairly accuse either the dealer or the manufacturer as being responsible for the lack of sales.

    
    

    One indicator of the fairness involved in the application of the formula as designed can be found in Mr. Anderson's comparative analysis of the Naples automobile market and the Sarasota market. Mr. Anderson is the expert in automobile marketing analysis presented by General Motors. This analysis refutes the opinion of Dr. Ostlund, the expert presented by Gallman Pontiac during the hearing regarding automobile marketing analysis.

    
    

    It is Dr. Ostlund's opinion that Naples is a unique market in which the usual statistical formula becomes unfair if it is applied to all registrations in the Dealer's Area of Responsibility. Based upon this analysis, Dr. Ostlund suggests that a weighted average be applied in the standard formula to all of the sales made by Gallman Pontiac during the franchise period. However, even if this were done, Gallman Pontiac's performance would have been 84.7 percent, which is still below the required standard of 85 percent.

    
    

    Contrary to Dr. Ostlund's analysis, the Naples-Sarasota comparison conducted by Mr. Anderson demonstrates that Pontiac can compete in a high income area with similar demographics to Naples within the same zone along the same Florida coast. Therefore, the usual statistical formula remains a reliable indicator of the sales effectiveness of a Pontiac dealer in Naples, Florida, and should be applied without any further weighting of averages in the statistical analysis required by the franchise agreement.

    
    

    Application of Additional Factors Relevant to the Decision Not to Renew Pursuant to Statute

    
    

16. A nonrenewal of the franchise agreement is clearly permitted by the franchise agreement.

17. The nonrenewal has been undertaken in good faith and good cause. The manufacturer has continuously encouraged the dealer to meet sales performance standards and has worked with Gallman Pontiac in an effort to achieve this goal within the time frame agreed to by the parties. Because franchise dealers are the major outlet the manufacturer has for the sale of new automobiles, it is essential that minimum levels of sales performance are achieved on a regular basis. Failure to meet the minimum sales performance over the term of this agreement by Gallman Pontiac is a material and substantial breach of the contract.

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter pursuant to Section 120.57(1), Florida Statutes.

    
    

19. When the franchise agreement between tie parties was executed on November 21, 1986, state laws regulating such contracts formed part of the agreement as if they had been expressly incorporated into the agreement. Fla. Beverage Corp. v. Div. of Alcoholic Bev., 503 So.2d 396 (Fla. 1st DCA 1987), review denied 511 So.2d 998 (Fla. 1987).

    
    

20. Since the signing of this agreement, there have been amendments to Section 320.641, Florida Statutes, which governs the process by which a motor vehicle dealer's franchise agreement can be cancel led by the manufacturer. To determine how the statutory amendments effect this agreement, the parties must look to Section 320.6692, Florida Statutes [1988], which states:

    
    

    Application of this act shall apply to all presently existing or hereafter established systems of distribution of motor vehicle's in this state, except to the extent that such application would impair valid contraytual agreements in violation of the State Constitution or Federal Constitution... All agreements renewed or entered into subsequent to October 1, 1988, shall be governed hereby.

    
    

21. In this case, the two year franchise agreement was to expire on November 20, 1988. General Motors sent Gallman Pontiac a letter on October 28, 1988 to inform the motor vehicle dealer that General Motors did not intend to renew the agreement. However, this same letter extended the term of the existing franchise by ninety days in an attempt to avoid the provisions of Section 320.641(1)(b), Florida Statutes [1985], which gave the motor vehicle dealer the opportunity to void the nonrenewal. The statute provides as follows:

    
    

    The failure by the licensee to comply with the 90-day notice period and procedure prescribed herein shall render voidable, at the option of the motor vehicle dealer, any discontinuation, cancellation, nonrenewal, modification, or replacement of any franchise agreement...

    
    

22. Unwittingly, when General Motors attempted to eliminate Gallman Pontiac's option to void the nonrenewal by extending the term of the current franchise by ninety days, a new agreement was created for the period of time

    between October 28, 1988 through January 26, 1989. This extension was a new, unilateral contract or novation created after October 1, 1988. Due to the timing of the creation of the new agreement, it was subject to Section 320.641, Florida Statutes [1988], which was in effect during the period of time this novation occurred. See Mercedes-Benz of North America v. Mike Smith Pontiac GMC, Inc. et al., 15 FLW 1236 (Fla. 1st DCA 1990).

    
    

23. Section 320.641(3), Florida Statutes [1988], places additional burdens upon a manufacturer who has determined it is not willing to renew a franchise agreement than the prior statute as it relates to the issue of whether the nonrenewal of the agreement is unfair. The revised statute states:

    
    

    A ... nonrenewal of a franchise agreement is unfair if it is not clearly permitted by the franchise agreement; is not undertaken in good faith; is not undertaken for good cause; or is based on an alleged breach of the franchise agreement which is not in fact a material and substantial breach.

    
    

24. The evidence presented demonstrates that General Motors' decision not to renew the franchise agreement with Gallman Pontiac was, on balance, in accordance with all of the applicable statutory and contract

provisions proved at hearing. The nonrenewal of the franchise agreement was fair under the facts presented in this case.

RECOMMENDATION

Based upon the foregoing, it is RECOMMENDED:

That the Department of Highway Safety and Motor Vehicles enter a Final Order dismissing Gallman Pontiac's complaint with prejudice.

DONE and ENTERED this 28 day of June, 1990, in Tallahassee, Leon County, Florida.

VERONICA E. DONNELLY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904)488-9675

Filed with the Clerk of the Division of Administrative Hearings this 28 day of June, 1990.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-0505

Petitioner's Proposed Findings of Fact are addressed as follows:

1. Accepted. See HO #1.

2. Accepted. See HO #3.

3. Reject all but last sentence. Conclusions of Law. Accept the last sentence.

4. Rejected. Conclusion of Law.

5. Accepted.

6. Reject that the dealer code problem can be attri- buted to the conduct of the manufacturer. Insufficient proof.

7. Accepted.

8. Accepted.

9. Accepted.

10. Rejected.

11. Reject the weighted average basis. See HO #14 and #15..

12. Rejected. Irrelevant.

13. Rejected. Irrelevant.

14. Accepted. See HO #4.

15. Accepted. See HO #6.

16. Accepted.

17. Accepted.

18. Accepted.

19. Rejected. Speculative.

20. Rejected. Contrary to fact. See HO #15.

21. Rejected. Contrary to fact. See HO #15.

22. Rejected. Contrary to fact. See HO #15.

23. Rejected. Irrelevant.

24. Rejected. Irrelevant.

25. Accepted. See HO #17.

26. Rejected. Irrelevant. Attempt to shift evidentiary burden.

27. Rejected. See HO #15.

28. Accepted. See HO #13.

29. Rejected. See HO #15.

30. Rejected. See HO #15.

31. Accepted. See HO #13.

32. Accepted. See HO #13.

33. Accepted.

34. Accepted.

35. Accepted.

36. Accepted. See HO #8.

37. Accepted.

38. Rejected. See HO #15.

39. Accepted.

40. Accepted.

41. Rejected. Irrelevant.

42. Accepted.

43. Rejected. See HO #15.

44. Accepted.

45. Rejected. See HO #14.

46. Accepted.

47. Accepted.

48. Accept that additional factor's need to be considered. Rejected Dr. Ostlund's interpretation. See HO #9 through #15.

49. Rejected. Improper summary.

50. Rejected. Irrelevant.

51. Accepted. See HO #6.

52. Accepted.

53. Accepted, except for the last sentence which is an opinion or closing argument as opposed to a finding of fact.

54. Accepted.

55. Rejected. See HO #14.

56. Accepted.

57. Accepted, except for Nissan.

58. Accepted.

59. Accepted.

60. Rejected. See HO

61. Accepted.

62. Accepted.

63. Rejected. Closing argument as opposed to finding of fact.

64. Rejected. Irrelevant and contrary to fact.

65. Accepted.

66. Accepted.

67. Accepted.

68. Accepted.

69. Rejected. Irrelevant.

70. Rejected. Contrary to fact.

71. Rejected. Conclusionary.

72. Accepted.

73. Rejected. Irrelevant.

74. Rejected. See HO #10.

75. Rejected. See HO #17.

76. Rejected. See HO #15 and #17.

77. Rejected. See HO #17.

78. Accepted.

79. Rejected. Contrary to fact. See HO #17.

Respondent's Proposed Findings of Fact are addressed as follows:

1. Accepted.

2. Rejected. Irrelevant.

3. Rejected. Irrelevant.

4. Accepted. See HO #6.

5. Accepted. See HO #6.

6. Accepted. See HO #6.

7. Accepted. See HO #8.

8. Accepted.

9. Accepted.

10. Accepted.

11. Accepted.

12. Accepted. See HO 415.

13. Accepted.

14. Accepted.

15. Accepted. See HO #15.

16. Accepted.

17. Accepted. See HO #15.

18. Accepted. See HO #13.

19. Accepted.

20. Accepted.

21. Accepted. See HO #15.

22. Accepted.

23. Accepted.

24. Accepted.

25. Accepted. See HO #11.

26. Accepted.

27. Accepted.

28. Accepted.

29. Accepted.

30. Rejected. Irrelevant.

31. Accepted. See HO #15.

32. Rejected. Irrelevant.

33. Accepted.

34. Accepted.

35. Rejected. Redundant.

36. Accepted.

37. Rejected. Irrelevant.

38. Rejected. Irrelevant.

39. Accepted.

40. Accepted.

41. Accepted.

42. Accepted.

43. Rejected. Irrelevant.

44. Accepted. See HO #14.

45. Accepted.

46. Accepted. See HO #9.

47. Rejected. Unreliable conclusion.

48. Accepted. See HO #17.

49. Rejected. Irrelevant. Outside the reasons given for nonrenewal. See HO #8.

50. Rejected. Same reason as given in above.

51. Rejected. Same reason as 49 and 50. Also contrary to fact.

52. Rejected. Irrelevant to this hearing.

53. Rejected. Irrelevant to this hearing.

54. Accepted. See HO #17.

55. Accepted. See HO #15.

56. Rejected. Redundant and argumentative.

57. Accepted.

58. Accepted.

59. Rejected. Improper argument.

60. Rejected. The use of "sales reported" was allowed by the Hearing Officer at hearing.

61. Rejected. Irrelevant in these proceedings.

62. Rejected. Irrelevant and unreliable speculation.

63. Rejected. Irrelevant.

64. Rejected. Irrelevant.

65. Rejected. Dr. Ostlund was very credible.

Mr. Anderson's analysis, based upon y~he Sarasota- Naples comparison, which tended to refute the testimony of Dr. Ostlund, was given greater weight by the Hearing Officer.

COPIES FURNISHED:

James D. Adams, Esquire Michael J. Alderman, Esquire Feaman, Adams, Harris, Department of Highway Fernandez & Deutch, P.A. Safety And Motor Vehicles Corporate Plaza, Fourth Floor Neil Kirkman Building

4700 N.W. Second Avenue Tallahassee, Florida 32399-0500 Boca Raton, Florida 33431

S. William Fuller, Jr., Esq. Vasilis C. Katsafanas, Esquire Fuller Johnson & Farrell Rumberger, Kirk, Caldwell, Post Office Box 1739 Cabaniss, Burke & Wechsler Tallahassee, Florida 32302

11 East Pine Street

Orlando, Florida 32802 Charles J. Brantley, Director

Division of Motors Vehicles William J. Whalen, Esquire Department of Highway Office of General Counsel Safety and Motor Vehicles General Motors Corporation B439 Neil Kirkman Building

New Center One Building Tallahassee, Florida 32399-0500 3031 West Grand Boulevard

Detroit, Michigan 48232 Enoch J. Whitney, Esquire

General Counsel

S. Thomas Wienner, Esquire Departments of Highway Dykema Gossett Safety and Motor Vehicles 35th Floor Neil Kirklan Building

400 Renaissance Center Tallahassee, Florida 32399-0500 Detroit, Michigan 48243

Docket for Case No: 89-000505

Orders for Case No: 89-000505