STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BROWARD TRUCK & EQUIPMENT )

COMPANY, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 93-5966

)

NAVISTAR INTERNATIONAL ) TRANSPORTATION, CORPORATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Susan B. Kirkland, held a formal hearing in this case on March 1 and 2, 1994, in Boca Raton, Florida.

APPEARANCES

For Petitioner: James D. Adams, Esquire

Adams, Quinton & Fuller, P.A. 7300 W. Camino Real

Boca Raton, Florida 33433

For Respondent: Timothy J. McDermott, Esquire

Tripp, Scott, Conklin & Smith

110 Tower, 28th Floor

110 Southeast 6th Street

Fort Lauderdale, Florida 33301 STATEMENT OF THE ISSUES

Whether Respondent's intent to terminate Petitioner's franchise agreement is an unfair or prohibited cancellation pursuant to Section 320.641, Florida Statutes.

PRELIMINARY STATEMENT

By letter dated July 16, 1993, Respondent, Navistar International Transportation, Corp. (Navistar) advised Petitioner, Broward Truck & Equipment Company, Inc. (Broward Truck) of its intent to terminate its Dealer Sales/Maintenance Agreement with Broward Truck. On October 14, 1993, Broward Truck filed a Complaint for determination of whether Navistar's action was unfair or prohibited. The Complaint was forwarded to the Division of Administrative Hearings on October 18, 1993, for an assignment of a Hearing Officer. The case was scheduled for hearing on December 17, 1993. Broward Truck filed a Motion for Continuance, which was granted, and the hearing was rescheduled for hearing on March 1 and 2, 1994.

At hearing Petitioner presented the testimony of three witnesses and the deposition testimony of one witness. Petitioner's Exhibits 1-15 were admitted into evidence. Respondent presented the testimony of six witnesses.

Respondent's Exhibits 1-4, 6-28, 30-37, 39, 40, 43, 46, 48, 49, 52, and 53 were admitted into evidence.

The parties agreed to the filing of the proposed recommended orders ten days after the filing of the transcript. The transcript was filed March 18, 1994. The parties timely filed their proposed recommended orders. The parties' proposed findings of fact are addressed in the appendix to this Recommended Order.

FINDINGS OF FACT

1. Petitioner, Broward Truck & Equipment Co., Inc. (Broward Truck), located at 2909 South Andrews Avenue, Fort Lauderdale, Broward County, Florida, sells both new and used medium and heavy trucks, parts, and equipment and provides service for vehicles. Broward Truck was started in 1949 as a dealership for what was then known as International Harvester. International Harvester later became Navistar International Transportation Corporation, (Navistar), the Respondent.

   
   

2. Broward Truck is owned by Joanne McIlvaine and her son, Reed McIlvaine, who is the president and managing shareholder of the company.

   
   

3. Navistar is a foreign corporation whose corporate offices are located in Chicago, Illinois. It manufactures and markets trucks, parts, and accessories under the trade name of "International."

   
   

4. Broward Truck contracted with Navistar Financial Corporation (Navistar Financial) for the financing of its floor plan and the purchase of parts. Navistar Financial is a wholly owned subsidiary corporation and a corporate affiliate of Navistar.

   
   

5. Broward Truck entered into its current Dealer Sales/Maintenance Agreement (Agreement) with Navistar on August 28, 1987. The Agreement was not negotiated. Mr. McIlvaine, having read the agreement, signed it on behalf of Broward Truck. The purpose of the agreement is "to establish [Broward Truck] as a dealer of the goods covered by the Agreement, and to govern the relations between [Broward Truck] and Navistar in promoting the sale of those goods, in their purchases and sale by [Broward Truck], and in providing warranty and other services for their users."

   
   

6. Section 16 of the Agreement sets forth the operating requirements of Broward Truck. Sections 16(a)(2), (b), and (c) provide:

   
   

   16. In order to establish and conduct its operations on a basis to promote an enduring and profitable business, to obtain a reasonable portion of the sales potential of trucks, parts and maintenance in its Trade Area for the goods covered by the Agreement and to render the service essential to the maintenance of the reputation and customer acceptance of International vehicles, the Dealer agrees:

   * * *

   1. Capital Requirements

      (2) To provide at all times sufficient working capital and net worth to enable it to fulfill properly all of the Dealer's responsibilities and duties under the Agreement. The Dealer agrees that, whenever the actual net worth or working capital of the Dealership is in the opinion of Navistar inadequate to properly fulfill all the responsibilities of the Dealership commensurate with the potential of its Trade Area, the Dealer shall retain in the business a reasonable percentage of the Dealer's net profit until an adequate level of working capital and/or net worth is attained.

      * * *

   2. Sales Requirements: The dealer further agrees:

      1. To achieve a reasonable share of the market, for the goods and services covered by the Agreement, in the Trade Area served by the Dealer's location. In gauging the Dealer's performance under this Subsection, Navistar will compare the Dealer's market penetration and percent of sales to objectives that may

         be established for the Dealer by Navistar from time to time with those of other dealers of Navistar selling like goods, and will also compare the Dealer's market penetration with those of dealers in goods which are competitive in price and characteristics to those offered by the Dealer. In each case Navistar will, as far as possible, select comparative dealers from the immediate geographical areas similar to that of the Dealer. Navistar will also measure the Dealer's performance by

         penetration figures, published by organizations accepted by the automotive and truck industry, applicable to the normal area served by the Dealer and applicable also to larger regions including the national market. In any event, Navistar will consider any factors relevant to the Dealer's performance as an entity, so that while the dominant tests are to be objective ones, equities of the Dealer shall temper the results of such tests.

      2. To promote aggressively the sale of each item of goods covered by the Agreement of the type for which a demand exists within the Trade Area served by the Dealer and participate in promotional programs that may be announced by Navistar from time to time.

      3. To advertise and promote goods covered by this Agreement, to use promotional and advertising material provided for in Section

         24 of the Agreement and be guided by the suggestions and requests of Navistar in its

         advertising and sales promotions activities.

      4. To maintain an inventory of International vehicles, optional equipment, maintenance parts, and accessories at or above the minimum levels established by Dealer Central and in keeping with the sales possibilities in its Trade Area for all goods covered by the Agreement.

      5. To cooperate with Navistar in placing orders for goods in accordance with advance ordering programs announced by Navistar.

      6. To participate in demonstration programs that may be announced by Navistar from time to time and maintain demonstration vehicles at or above the minimum levels established

         by Navistar in stock in addition to new unsold vehicle inventory of the type for which a demand exists within the Dealer's Trade Area.

      7. To maintain an effective prospect system for the vehicles covered by this Agreement including a current list of prospective purchasers of International vehicles that will be furnished to Navistar upon request.

   3. Management Requirements: The Dealer further agrees:

      1. To engage, train and maintain sales, maintenance and accounting personnel sufficient to obtain a reasonable share of the sales possibilities in its Trade Area for the goods covered by the Agreement, to maintain promptly and efficiently International vehicles in use in that area

         and to maintain proper and accurate accounting records.

      2. To provide financial, accounting, inventory, sales, and maintenance reports provided for in the Agreement within the time period specified.

   * * *

   (8) To attend Navistar-conducted or sponsored product, sales and maintenance meetings and use training materials and programs which may be offered by Navistar from time to time.

   
   

7. Broward Truck's trade area, its area of responsibility, is Broward County.

   
   

8. In 1985, Mr. McIlvaine and Don Gray opened a second Navistar dealership in Riviera Beach, Palm Beach County, Florida. Mr. Gray operated the Riviera Beach dealership, and Mr. McIlvaine was in charge of Broward Truck. Broward Truck had guaranteed some of the debts of the Riviera Beach dealership, and there was cross-collateralization of jointly owned assets.

9. In March, 1991, Navistar Financial discovered that Broward Truck had converted trust sale proceeds due to Navistar Financial, and, correspondingly, experienced a sold out of trust condition involving secured Navistar Financial vehicles.

   
   

10. The dealership in Riviera Beach did not do well, resulting in a drain on Broward Truck's working capital and net worth. In February, 1992, Mr. McIlvaine bought Mr. Gray's share of the Riviera Beach dealership for $350,000. The purchase was funded by Broward Truck.

    
    

11. In February, 1992, Mr. McIlvaine learned that the Riviera Beach dealership owed approximately $430,000 in state sales taxes and federal excise taxes for which Broward Truck was responsible. Broward Truck began paying the tax bill, and as of the date of the hearing Broward Truck owed approximately

    $20,000 on the tax liability.

    
    

12. In May, 1992, Broward Truck was put on a C.O.D. status for the purchase of parts because of an outstanding open account balance. This meant that Broward Truck no longer would have a line of credit on which it could purchase parts but would have to pay cash for the parts when they were delivered to Broward Truck.

    
    

13. In July, 1992, Joanne McIlvaine infused $365,000 into Broward Truck. There has been no significant infusion of capital since that time.

    
    

14. In August, 1992, Navistar Financial advised Broward Truck that in order for Navistar Financial to continue floor plan privileges, Broward Truck would have to bring its open account balance current no later than October 31, 1992. Additionally, Broward Truck had delayed in paying for delivered floor plan trucks. Navistar Financial advised that another such incident would be grounds for elimination of floor plan privileges. Navistar was provided a copy of the letter.

    
    

15. By January 8, 1993, Broward Truck owed Navistar Financial $376,140.51 on open account. Navistar Financial made a written demand that Broward Truck either pay the balance by February 1, 1993, or agree to a schedule of payments; otherwise, Navistar Financial would withdraw the floor plan privileges. Navistar was copied with the written demand. By letter dated February 5, 1994, Broward agreed to bring the open account balance current by June 5, 1993. Navistar was also copied with this letter.

    
    

16. Paragraph 27(c) of the Agreement provides that Navistar may terminate the Agreement, after giving not less than ninety days' prior notice to Broward Truck, for any violation by Broward Truck of its obligations under Section 16 of the Agreement which requires a dealer to have at all times sufficient working capital and net worth to enable the dealership to fulfill properly all of its responsibilities and duties under the Agreement.

    
    

17. On January 11, 1993, Navistar advised Broward Truck that it was in breach of the Agreement and had not performed in accordance with Section 16, Subparagraph (a)(2). Navistar further advised that if Broward Truck had not taken appropriate corrective action by July 16, 1993, Navistar would consider itself entitled to serve notice to terminate in accordance with Section 27(c) of the Agreement.

18. David Harden, the parts representative for Navistar, met with Mr. McIlvaine to discuss Broward Truck's participating in a onetime surplus parts return program, called SPUR. This would have infused approximately $500,000 into Broward Truck. In order to participate in the program, the dealership had to conduct a survey. Broward Truck could not afford to have the survey done, resulting in it not being able to take advantage of the program.

    
    

19. In April, 1993, Broward Truck had a negative cash balance of $39,000. In May, June, and July, 1993, Broward Truck again experienced negative cash balances in the amounts of $48,910.81, $48,910.81 and $41,512.43, respectively. This negative position continued through January, 1994, at which time Broward Truck had a negative cash balance of $132,790.90.

    
    

20. In May, 1993, Broward Truck had to write off $350,000 in uncollectible accounts receivable owed it by the failed Riviera Beach dealership, further reducing its working capital and net worth.

    
    

21. By letter dated May 4, 1993, Navistar Financial advised Broward Truck that the open account balance as of May 31, 1993, would have to be paid in full by June 15, 1993 or Navistar Financial would withdraw Broward Truck's floor plan privileges.

    
    

22. On June 16, 1993, Broward Truck, still owing Navistar Financial

    $130,000 on open account, sent Navistar Financial a check for $41,232.73, which was returned for insufficient funds.

    
    

23. The failure of Broward Truck to completely pay off its delinquent balance by June 15, 1993, was communicated to Navistar by Navistar Financial, as was the passing of the June, 1993, NSF check by Broward Truck.

    
    

24. Navistar Financial withdrew its floor plan for new stock inventory purchases, but left the floor plan for used trucks in place. It also left in place the floor plan for presold trucks subject to an assignment of the proceeds to Navistar Financial.

    
    

25. On July 12, 1993, Broward Truck sent Navistar Financial Truck a check for $31,058.53. This check was also returned for insufficient funds. The fact of this second NSF check was communicated to Navistar by Navistar Financial.

    
    

26. As of July 16, 1993, Broward Truck still owed Navistar Financial

    $132,000 on its delinquent open account for parts purchases.

    
    

27. By letter dated July 16, 1993, Navistar notified Broward Truck that it was cancelling the Agreement effective October 22, 1993, citing Section 16 - Subparagraph (a)(2) of the Agreement, and Broward Truck's C.O.D status, inability to meet open account obligations and lack of a new truck floor plan.

    
    

28. The parties have stipulated that the formal notification of proposed termination and cancellation given to Broward Truck by Navistar met all of the technical requirements of Section 320.641, Florida Statutes, in terms of mode of service, ninety days notice, and service upon the Department of Highway Safety and Motor Vehicles.

    
    

29. In September, 1993, Reed and Joanne McIlvaine stopped receiving pay checks from Broward Truck. All other employees have received their salaries.

30. By October, 1993, Broward Truck paid the balance on its open account with Navistar Financial. In November, 1993, Navistar Financial extended a

    $100,000 line of credit to Broward Truck for the purchase of parts.

    
    

31. Broward Truck failed to pay sales taxes to the Department of Revenue for June, July, August, and September, 1993. It has paid the June taxes and is trying to work out a pay schedule with the Department of Revenue to pay the remaining taxes owed. As of January 31, 1994, Broward Truck owed the Department of Revenue $131,271.45 for sales taxes.

    
    

32. Section 13 of the Agreement pertaining to "Sales on Credit" addresses Broward Truck's payment obligations to Navistar and any affiliate of Navistar in connection with trucks or goods purchased by Broward where there is a security interest or credit obligation involved. The Agreement provides that "cash proceeds of such resale [by Broward Truck of goods subject to security interests] shall be immediately forwarded to Navistar and all other proceeds will be held separately in trust for Navistar and subject to its order." By letters dated August 22, 1992, and January 28, 1993, Navistar Financial reminded Broward Truck of the obligation to pay for the trucks as they are delivered.

    
    

33. Broward Truck's practice was to forward the funds to Navistar Financial within ten days of the date the funds cleared and became available.

    
    

34. On January 31 and February 1, 1994, Navistar Financial performed an audit on Broward Truck's floor plan inventory. Navistar noted that there were five vehicles which had been sold without remitting the payments immediately to Navistar Financial. Broward Truck's sales manager did admit that payment for at least one of the five vehicles had not been forwarded to Navistar Financial in a timely manner. Reed McIlvaine admitted that Broward Truck currently owes Navistar Financial $77,000 for trucks which were claimed to be sold out of trust.

    
    

35. In February, 1994, Broward Truck sent Navistar Financial a check for

    $52,000 for which there was insufficient funds.

    
    

36. By letter dated February 1, 1994, Sun Bank, citing eleven checks that Broward Truck had written since the summer of 1993 on insufficient funds or non- cleared funds, advised Broward Truck that the bank would no longer pay NSF items due to either unavailable or uncollected funds on Broward Truck's account.

    
    

37. Navistar Financial again placed Broward Truck on C.O.D. status for the purchase of parts.

    
    

38. By letter dated February 17, 1994, counsel for Navistar Financial advised Broward Truck that Navistar Financial was terminating all financing arrangements and floor plan arrangements with Broward Truck effective March 7, 1994.

    
    

39. The Agreement requires Broward Truck to maintain accounting records that accurately reflect the financial condition of the dealership and to furnish balance statements and profit and loss statements to Navistar on a quarterly basis or otherwise as requested by Navistar. In August, 1992, Navistar asked Broward Truck to send its balance sheet on a monthly basis via computer.

    Broward Truck, lacking the computer capability, failed to do so.

40. The Agreement also requires that Broward Truck send "its fully detailed and audited annual financial and operating statements to Navistar . . . within sixty (60) days after the close of its fiscal year." Broward Truck's fiscal year is June 1 - May 31. Broward did not provide a statement within sixty days of May 31, 1993, because it had not paid its accountants. As of the date of the hearing, Broward Truck still had not sent Navistar an audited financial statement for the fiscal year ended May 31, 1993. Broward Truck has given the accountants a lump sum to finish the year-end work but has not received a financial statement.

    
    

41. Navistar has used a number of financial ratios over the years to evaluate the sufficiency or adequacy of its dealerships', including Broward Truck's, working capital and net worth. Navistar reviews the internal financial statements of the dealership and applies the financial ratios to determine whether the dealership meets the minimum sufficiency guidelines established by Navistar.

    
    

42. One of the ratios used is the "current ratio." The current ratio measures the dealership's ability to pay its obligations on a timely basis. The minimum guideline for the current ration is 1.5 to 1. On October 31, 1992, the current ratio for Broward Truck was 2.34 to 1. In July, the most current financial statement which Broward Truck had furnished to Navistar was for the month ended April, 1993. Based on this unaudited financial statement, Broward Truck's current ratio was 1.39 to 1.

43. Another ratio is the "acid test ratio," which measures the liquidity of a dealership. The minimum guideline is 2.5 to 1. On October 31, 1992, Broward Truck's acid test ratio was 2.68 to 1. Based on Broward Truck's April, 1993, financial statement its acid test ratio was .73 to 1. Broward Truck furnished Navistar with an unaudited financial statement for January 1994. Based on the January statement, Broward's acid test ratio was .49 to 1.

    
    

44. "Total debt to equity" is another financial ratio utilized by Navistar. This ratio measures whether a dealership is depending too much on debt to finance the business. The maximum guideline is 2 to 1. On October 31, 1992, Broward Truck's total debt to equity ratio was 1.02 to 1. Based on the April, 1993, financial statement, Broward Truck's total debt to equity ratio was

    .20 to 1.

    
    

45. Another financial ratio used by Navistar is the "working ratio as percent of total assets." This ratio measures the liquidity of the dealership. The minimum guideline is 26 to 33. On October 31, 1992, Broward Truck's working ratio as percent of total assets was 53.1. Based on the April, 1993 unaudited financial statement, Broward Truck's working ratio as percent of total assets was 23.02. Based on the January, 1994 statement, the ratio was 24.26.

    
    

46. Based on Broward Truck's January, 1994, financial statement, Broward Truck owed $423,000 to various vendors. Of the total accounts payable due and owing by Broward Truck, 74 percent were delinquent, with 37 percent of that amount being due over 90 days. As a result of its delinquent account, Broward Truck was also put on C.O.D. status by one its freight vendors whom Broward Truck had owed since July, 1993.

    
    

47. The January, 1994 statement does not reflect the tax lien that Broward Truck owes on the Riviera Beach dealership or a debt of $62,000 owed to Navistar Financial for paying for work done for Broward Truck by Roland Auto Body.

48. Based on the January, 1994 statement Broward Truck has an operating loss of $86,000.

    
    

49. The January, 1994, statement reflects in assets $187,000 of notes receivable of which approximately $137,000 is a note receivable from the Riviera Beach dealership. The note is probably worthless. The long term notes receivables are listed as $24,900, of which $10,000 is a four-year-old promissory note from Mr. McIlvaine, whose net worth is zero. Under assets the statement lists parts and accessories of $788,914 of which $500,000 are Navistar parts. Some of these parts are old and obsolete.

    
    

50. Navistar has offered a number of advanced ordering programs in which dealerships could participate. These programs offer special discount terms and a longer time for the floor plan without additional cost to the dealer. Because of Broward Truck's financial condition, it is unable to participate in these programs.

    
    

51. During the last year in the Southeastern Region of which Broward Truck is a part, one out of every three medium trucks was sold from the dealer's inventory and one out of every four heavy trucks was sold out of the dealer's inventory.

    
    

52. Broward Truck's lack of working capital and the lack of financing of stocking vehicles precluded it from maintaining an inventory of vehicles which met the minimum stocking levels established by Navistar. In 1992, Broward Truck averaged an inventory of ten medium trucks and two heavy trucks, which was below the minimum level of twelve medium trucks and four heavy trucks. In 1993, Broward Truck averaged an inventory of two to three medium trucks as a result of presold deals that fell through and zero heavy trucks. The minimum level for 1993 was ten medium trucks and three heavy trucks.

    
    

53. At any given time, Broward Truck does have some Navistar units on its lot. These units can be presold units in process, units for which orders were cancelled, or demonstrators. For example, in late February, 1994, Broward Truck had three new Navistars on the lot, two of which were presold units that had been cancelled.

    
    

54. Broward Truck uses a computer locator system, which enables it to locate vehicles through out the United States. Additionally Broward Truck obtains trucks by transfer from two large dealerships in South Florida.

55. The locator system is not an adequate substitute for having actual trucks in inventory. By having trucks in inventory, the customers can view and test drive the trucks.

    
    

56. Relying on presold trucks as a substitute for inventory is insufficient. Presold units are usually on the dealership lot less than 15 days before they are delivered. Additionally, many presold units require modifications at local body shops during the 15-day period.

    
    

57. Navistar offered a demonstration program called 444 Easy as 1,2,3 which had special provisions for the purchase of trucks to be used as demonstrators. Navistar's financial condition precluded it from participating in this program and from maintaining demonstrator models on the sales lot at or above the minimum levels established by Navistar.

58. Navistar offers an advertising program called Supernet. In this program, Navistar gets a list of the dealer's customers and sends fliers to the customers announcing specials such as a discount on parts. Navistar sells the advertised parts to the dealership at a special price to offset the reduced cost to the customer. The dealership pays the postage and a service charge per customer as the cost of participating in the program. Supernet also has a training component by which the dealerships receive training materials. Broward Truck participated in the Supernet program but stopped in mid to late 1993 because of its cash situation.

    
    

59. In 1993, Navistar sponsored a parts vendor training session in Atlanta, Georgia. Broward Truck was unable to participate due to its financial condition.

    
    

60. To determine how well a dealership is providing market penetration in its trade area, Navistar looks to the dealership's in-market share, which reflects the number of trucks a dealer actually sells in its trade area. In- market penetration is a better indicator of how well a dealership is performing in its area of responsibility because it reflects the selling efforts of the local dealer. In 1993, Broward Truck's in-market share for medium trucks in Broward County was 18.3 percent The average Florida dealer's in-market penetration for medium trucks in its trade area was 23.1 percent.

    
    

61. In 1993, Broward Truck's in-market share for heavy trucks was 2.9 percent, whereas the average Florida dealer had an in-market share for heavy trucks of 7.3 percent.

    
    

62. The market potential for selling new Navistar trucks in Florida in 1993 was very strong.

    
    

63. Each year Navistar assigns its dealerships a Delivered Truck Unit (DTU) sales objective for the Navistar fiscal year, which is November 1 - October 31. The DTU sales objective is for all Navistar trucks sold by the dealership, regardless where the customer is located. For 1993, Broward Truck's DTU sales objective was 108 medium trucks and 30 heavy trucks. Broward did not meet its DTU sales objective for 1993. It sold 80 medium trucks and 14 heavy trucks.

    
    

64. Navistar assigns its dealerships objectives for the purchase of parts from Navistar. In Navistar's fiscal year 1992, Broward Truck's parts purchase objective was $1,578,500. Broward Truck actually purchased $2,090,997, of which approximately $360,000 to $480,000 were purchases for the Riviera Beach dealership, which was on C.0.D. status.

    
    

65. In its 1992 year-end review of Broward Truck, Navistar noted that Broward Truck's parts inventory was marginal due to Broward Truck being place on

    C.O.D. status.

    
    

66. In fiscal year 1993, Broward Truck's parts purchase objective was

    $1,697,452. Broward Truck's parts purchase for that period was $1,372,336, which was 80.8 percent of its objective. In the southeastern region, the dealerships averaged 109.9 percent of their objectives.

    
    

67. For the first quarter of Navistar's 1994 fiscal year, November, 1993 through January, 1994, Broward Trucks had met over 100 percent of its objective for the purchase of parts for that quarter.

68. Navistar is sponsoring the 1994 Megabucks IV contest for its dealerships. The contest runs from December 1, 1993, through July, 29, 1994. Points are awarded for S.R.C. engines purchased. For the first two months of the contest, Broward Truck garnered eight points, which placed it among the dealerships in the top performing group.

    
    

69. The latest customer satisfaction survey conducted by Navistar on Broward Truck's service, indicates that the customers are satisfied with the service. Broward Truck is doing well in the area of service.

    
    

70. Broward Truck has a contract to sell the Riviera Beach dealership for

    $1.25 million, consisting of $1 million in cash and $250,000 in parts which will be transferred to Broward Truck. The purchaser has been approved by Navistar as a Navistar dealership. The closing has been rescheduled four times. At the time of the hearing, the closing was scheduled to be held the following week.

    
    

71. The Riviera Beach dealership has a total debt of $2.1 million, of which $1.85 million is secured with Broward Truck as the guarantor.

    
    

72. Broward Truck has been discussing a financing arrangement with Associates Commercial Corporate (Associates) to finance parts purchases and a floor plan on new truck inventory on unsold units. As of the date of the hearing, there was no written agreement between Broward Truck and Associates.

    
    

73. Navistar does a Dealer Performance Improvement Process (DPIP) review on its dealerships on an annual basis. Navistar did not perform a DPIP review on Broward Truck for 1993 as well as several other dealerships due to the transfer of Edward A. Panowicz to Atlanta as Navistar's manager of dealer operations for the southeast region. Additionally, the hearing in this case had been postponed; thus Navistar delayed the 1993 DPIP review.

    
    

74. Prior to the termination notice, David Harden, Navistar's parts manager, would normally visit Broward Truck once every three weeks. After he visited Broward Truck in October, 1993, his next visit to the dealership took place in February, 1994.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

76. Pertinent to this case, Section 320.641(3), Florida Statutes provides:

    
    

    Any motor vehicle dealer whose franchise agreement is discontinued, canceled, not renewed, modified, or replaced may, within the 90-day notice period, file a petition or complaint for a determination of whether such action is an unfair or prohibited discontinuation, cancellation, nonrenewal, modification, or replacement. Agreements and certificates of appointment shall continue in

    effect until final determination of the issues raised in such petition or complaint by the motor vehicle dealer. A discontinuation, cancellation, or 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.

    
    

77. To determine whether the termination in this case was unfair or prohibited, an examination must be made of those grounds set forth in the Agreement which would allow termination/cancellation; the good faith in deciding to terminate; whether termination was for good cause and whether the breaches of the Agreement, if any, were material and substantial. In assessing such matters, the Petitioner has the burden of demonstrating that the intended cancellation is unfair or prohibited. See International Harvester Co. v. Calvin, 353 So.2d 144 (Fla. 1st DCA 1977).

    
    

78. The Agreement allows for termination for a violation of a dealership's obligations of Section 16 of the Agreement, which sets forth the requirement that the dealership must have at all times sufficient working capital and net worth to enable the dealership to fulfill properly all of its responsibilities and duties under the Agreement and lists specific sales and management requirements.

    
    

79. Broward Truck failed to have sufficient working capital and net worth, resulting in it being unable to fulfill all of its duties and responsibilities under the Agreement in violation of Section 16(a)(2). It has maintained a negative cash balance since April 1993. As of January, 1994, it had an operating loss of $86,000. From May 1992 through October, 1993, Broward had an outstanding open account with Navistar Financial, resulting in Broward Truck being placed on C.O.D. status for that period of time. As of the date of the hearing, Broward Truck was on C.O.D. status for the purchase of parts because of its inability to timely pay its open account balance. As of the date of the hearing, Navistar Financial had withdrawn all financing arrangements with Broward Truck, effective March 7, 1994, due to Broward Truck's financial condition. Broward Truck gave Navistar Financial three checks which bounced, the latest one in February, 1994. Broward Truck was on C.O.D. status with at least one other vendor due to its inability to meet its financial obligations. Due to its financial condition, Broward failed to remit sales taxes to the Department of Revenue for June, July, August, and September, 1993, and as of January 31, 1994, owed the Department of Revenue $131,271.45 in back taxes. Based on the acid test ratio and the working ratio as percent of total assets, both of which measure the liquidity of a dealership, Broward Truck was below the minimum acceptable levels in April, 1993, and January, 1994. Broward Truck owes $1.85 million on the secured debts of the Riviera Beach dealership. However, the proposed sale of the Riviera Beach dealership would result in Broward Truck receiving only $1 million in cash, leaving an outstanding secured debt of $850,000. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

80. Broward Truck failed to achieve a reasonable share of its market for the goods covered by the Agreement in its trade area in violation of Section 16(b)(1) of the Agreement. Due to its financial condition, Broward Truck's in- market share in 1993 for medium and heavy trucks was well below the in-market share for the average Florida dealer. In 1993, Broward failed to meet it DTU sales objectives for both medium and heavy trucks. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

81. Broward Truck failed to maintain an inventory of vehicles at or above the minimum levels established by Navistar in violation of Section 16(b)(4) of the Agreement. Due to its financial condition, in both 1992 and 1993, Broward Truck failed to maintain the minimum stocking levels set by Navistar for medium and heavy trucks. At the end of the 1992 fiscal year, Broward Truck's parts inventory was marginal due to its being placed on C.O.D. status. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

82. Broward Truck failed to cooperate with Navistar by placing orders in accordance with the advance ordering programs announced by Navistar in violation of Section 16(b)(5). Because of Broward Truck's financial condition, it was unable to participate in the advanced ordering programs. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

83. Broward Truck failed to participate in demonstration programs announced by Navistar and failed to maintain demonstration vehicles at or above the minimum levels established by Navistar in violation of Section 16(b)(6). Because of its financial condition, Broward Truck was unable to participate in demonstration programs such as 444 Easy as 1,2,3, and to maintain sufficient demonstrators on its lot. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

84. Broward Truck failed to provide financial and accounting reports as required by the Agreement in violation of Sections 16(c)(2) and 25 of the Agreement. Due to its financial condition, Broward Truck did not provide monthly balance sheets and profit and loss statements as requested by Navistar. Broward Truck had been unable to pay its accountants, resulting in not providing an audited financial statement within 60 days of the close of its fiscal year. This is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

85. Broward Truck failed to immediately forward to Navistar Financial the cash proceeds from the resale of new trucks in 1994, subject to Navistar Financial's floor plan security interests in violation of Section 13 of the Agreement, which sets forth Broward Truck's duties and responsibilities regarding credit sales. This failure was due to Broward's lack of working capital. It is a substantial and material breach of the Agreement and constitutes good cause for termination.

    
    

86. Navistar's termination of Broward Truck was undertaken in good faith. Navistar gave Broward Truck six-months notice in order to allow Broward Truck an opportunity to cure its existing breaches. Navistar also attempted to help infuse capital into the dealership through its one-time surplus parts return program, but Broward Truck was unable to participate due to lack of funds to conduct the required survey. Navistar has treated Broward Truck as an ongoing dealership since it gave notice of its intent to terminate.

    
    

87. Broward Truck has failed to meet its burden of proof to establish that the termination is unfair or prohibited.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered upholding Respondent's decision

to terminate/cancel Petitioner's franchise.

DONE AND ENTERED this 29th day of April, 1994, in Tallahassee, Leon County, Florida.

SUSAN B. KIRKLAND

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 29th day of April, 1994.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-5966

To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact:

Petitioner's Proposed Findings of Fact.

1. Paragraphs 1-2: Accepted in substance.

2. Paragraphs 3-4: Rejected as subordinate to the facts actually found.

3. Paragraph 5: Accepted in substance.

4. Paragraph 6: Rejected as subordinate to the facts actually found.

5. Paragraph 7: The first sentence is rejected as not supported by the greater weight of the evidence. The second sentence is rejected as constituting argument.

6. Paragraph 8: The first sentence is rejected as not supported by the greater weight of the evidence. The second sentence is accepted in substance. The third sentence is accepted in substance as it relates to the amount owed Navistar in October, 1993. The fourth sentence is rejected as subordinate to the facts actually found.

7. Paragraph 9: The first sentence is rejected as argument. The first part of the second sentence is

   rejected as subordinate to the facts actually found and speculative to the extent that Broward Truck could successfully mortgage the Broward Truck property. The second part of the second sentence and the third sentence are rejected to the extent that they imply that Associates and Broward Truck have a written contract for the financing. The fourth sentence is accepted in substance. The fifth sentence is accepted.

8. Paragraph 10: The first sentence is rejected as irrelevant. The second sentence is accepted. The third sentence is rejected as irrelevant and speculative.

9. Paragraph 11: The first sentence is accepted. The second, third , and fourth sentences are rejected as subordinate to the facts actually found. The fifth and sixth sentences are accepted in substance.

10. Paragraph 12: The first and second sentences are accepted in substance. The third sentence is rejected as subordinate to the facts actually found. The last sentence is rejected as subordinate to the facts actually found. The remainder of the paragraph is accepted in substance.

11. Paragraph 13: Rejected as constituting a conclusion of law.

12. Paragraph 14: The first sentence is accepted. The remainder is rejected as constituting argument.

13. Paragraph 15: The first sentence is accepted. The second sentence is accepted in substance.

14. Paragraphs 16-17: Rejected as not supported by the greater weight of the evidence.

15. Paragraph 18: Rejected as not supported by the greater weight of the evidence to the extent that it implies that Navistar made an agreement and reneged on the agreement. The evidence showed that Broward Truck could not participate in the one-time part return program because it could not afford the required survey.

16. Paragraph 19: Rejected as constituting a conclusion of law.

17. Paragraphs 20-21: Rejected as constituting argument.

18. Paragraph 22: The reference to "contract of adhesion" is rejected as constituting a conclusion of law. The remainder of the sentence is accepted in substance.

19. Paragraph 23: The first sentence is rejected as constituting a conclusion of law. The remaining is rejected as subordinate to the facts actually found.

20. Paragraph 24: The first sentence is accepted. The second sentence is rejected as constituting argument.

21. Paragraph 25: Accepted in substance.

22. Paragraph 26: Rejected as not supported by the greater weight of the evidence.

23. Paragraph 27: Rejected as subordinate to the facts actually found.

24. Paragraph 28: Accepted in substance.

25. Paragraph 29: Rejected as not supported by the greater weight of the evidence.

26. Paragraphs 30-34: Rejected as subordinate to the facts actually found.

27. Paragraph 35: Rejected as unnecessary.

28. Paragraphs 36: Rejected as constituting argument.

29. Paragraph 37: The first two sentences are rejected as unnecessary. The third sentence is rejected as constituting argument. The remainder is rejected as subordinate to the facts actually found.

30. Paragraph 38: Rejected as constituting argument.

31. Paragraph 39: Rejected as not supported by the greater weight of the evidence. The second sentence is accepted in substance. The last sentence is rejected as constituting argument.

32. Paragraphs 40-42: Accepted in substance.

33. Paragraphs 43-45: Rejected as subordinate to the facts actually found.

34. Paragraph 46: The first sentence is rejected as not supported by the greater weight of the evidence. The last sentence is rejected as constituting a conclusion of law.

35. Paragraph 47: Rejected as constituting a conclusion of law.

36. Paragraph 48: The first two lines are rejected as not supported by the greater weight of the evidence as it relates to sales, but accepted in substance as it relates to service. The last three lines are rejected as not supported by the greater weight of the evidence.

37. Paragraph 49: Rejected as constituting argument.

Respondent's Proposed Findings of Fact.

1. Paragraph 1: Accepted in substance.

2. Paragraphs 2-4: Accepted.

3. Paragraphs 5-10: Accepted in substance.

4. Paragraph 11: Accepted.

5. Paragraph 12: Accepted in substance.

6. Paragraphs 13-14: Rejected as subordinate to the facts actually found.

7. Paragraph 15: Accepted in substance.

8. Paragraphs 16-20: Rejected as subordinate to the facts actually found.

9. Paragraphs 21-26: Accepted in substance.

10. Paragraph 27: Accepted.

11. Paragraphs 28-29: Accepted in substance.

12. Paragraph 30: Accepted.

13. Paragraphs 31-33: Accepted in substance.

14. Paragraphs 34-36: Accepted.

15. Paragraph 37: Accepted in substance.

16. Paragraphs 38-40: Accepted.

17. Paragraphs 41-42: Accepted in substance.

18. Paragraphs 43-45: Accepted.

19. Paragraphs 46-49: Accepted in substance.

20. Paragraph 50: Accepted.

21. Paragraphs 51-57: Accepted in substance.

22. Paragraph 58: The second sentence is rejected as not supported by the evidence. The date was February 1, 1993. The remaining sentences are accepted in substance.

23. Paragraph 59: Accepted in substance.

24. Paragraph 60: Accepted.

25. Paragraphs 61-63: Accepted in substance.

26. Paragraph 64: Accepted.

27. Paragraph 65: Rejected as unnecessary.

28. Paragraphs 66-67: Accepted in substance.

29. Paragraphs 68-70: Accepted.

30. Paragraphs 71-76: Accepted in substance.

31. Paragraph 77: Accepted.

32. Paragraphs 78-80: Accepted in substance.

33. Paragraph 81: Rejected as unnecessary detail.

34. Paragraphs 82-92: Accepted in substance.

35. Paragraph 93: Rejected as unnecessary

36. Paragraph 94: Rejected as not supported by the greater weight of the evidence.

37. Paragraph 95: Rejected as not supported by the greater weight of the evidence. Mr. Cooper did sign the report but it was not a confirmation that there was a proceeds conversion.

38. Paragraphs 96-97: Accepted in substance.

39. Paragraphs 98-99: Accepted

40. Paragraph 100: Accepted in substance.

41. Paragraph 101: Rejected as constituting argument.

42. Paragraphs 102: The first three lines are rejected as constituting argument. The last two lines are accepted in substance.

43. Paragraphs 103-104: Accepted in substance.

44. Paragraphs 105-106: Rejected as repetitive.

45. Paragraph 107: Rejected as unnecessary.

46. Paragraph 108: Accepted in substance.

47. Paragraphs 109-110: Rejected as unnecessary and subordinate to the facts actually found.

48. Paragraph 111: Rejected as unnecessary.

49. Paragraph 112: Rejected as constituting expert testimony. Mr. Harden was neither tendered nor accepted as an expert.

50. Paragraphs 113-117: Accepted in substance.

51. Paragraph 118: Rejected to the extent that it implies that there were numerous customers complaining. The evidence presented only showed one customer who was complaining.

52. Paragraph 119: Rejected as constituting argument.

53. Paragraph 120: Rejected as repetitive.

54. Paragraph 121: Rejected as constituting argument.

55. Paragraph 122: Accepted in substance.

56. Paragraph 123: Rejected as repetitive.

57. Paragraph 124: Accepted in substance.

58. Paragraph 125: Rejected as unnecessary.

59. Paragraph 126: Accepted in substance.

60. Paragraph 127: Rejected as subordinate to the facts actually found.

61. Paragraphs 128-137: Accepted in substance.

62. Paragraph 138: The first sentence is accepted. The second sentence is rejected as unnecessary.

63. Paragraphs 139-140: Rejected as unnecessary.

64. Paragraphs 141-142: Accepted in substance.

65. Paragraph 143: Accepted.

66. Paragraph 144: Rejected as irrelevant.

67. Paragraph 145: Accepted.

68. Paragraph 146: Rejected as subordinate to the facts actually found.

69. Paragraph 147: Rejected as constituting argument.

70. Paragraphs 148-150: Rejected as unnecessary.

71. Paragraph 151: Accepted.

72. Paragraphs 152-162: Accepted in substance.

73. Paragraph 163: Accepted.

74. Paragraphs 164-165: Rejected as constituting argument.

75. Paragraph 166: Rejected as constituting a conclusion of law.

76. Paragraph 167: Rejected as constituting argument.

COPIES FURNISHED:

Mike Alderman, Esquire Office of General Counsel

Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Room A432

Tallahassee, Florida 32399-0500

James D. Adams, Esquire Camino Real Centre

7300 West Camino Real Boca Raton, Florida 33433

Timothy J. McDermott, Esquire Post Office Box 14245

Fort Lauderdale, Florida 33302-4245

Charles J. Brantley, Director Division of Motor Vehicles

Room B439, Neil Kirkman Building Tallahassee, Florida 32399-0500

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 93-005966

Orders for Case No: 93-005966