STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
HAMPTON AUTOMOTIVE GROUP, INC., ) d/b/a HAMPTON NISSAN, )
)
Petitioner, )
)
vs. )
) NISSAN NORTH AMERICA, INC., )
)
Respondent. )
Case No. 11-1157
)
RECOMMENDED ORDER
An administrative hearing was held in this case on
February 9-10, February 13-16, and July 19, 2012, in Tallahassee, Florida, before James H. Peterson III, Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: John W. Forehand, Esquire
R. Craig Spickard, Esquire Kurkin Forehand Brandes, LLP
800 North Calhoun Street, Suite 1B Tallahassee, Florida 32303
For Respondent: Andy Bertron, Esquire
Nelson, Mullins, Riley, & Scarborough LLP 3600 Maclay Boulevard South, Suite 202
Tallahassee, Florida 32312
Keith Hutto, Esquire
M. Ronald McMahan, Jr., Esquire
Nelson, Mullins, Riley & Scarborough, LLP 1320 Main Street, 17th Floor
Columbia, South Carolina 29201
Cecil L. Davis, Jr., Esquire Legal Department
Nissan North America, Inc. One Nissan Way
Franklin, Tennessee 37067 STATEMENT OF THE ISSUE
Whether the intended termination under that Notice of Termination of the Dealer Sales and Service Agreement, dated December 7, 2010, between Respondent Nissan North America, Inc., and Petitioner Hampton Automotive Group, Inc., d/b/a Hampton Nissan, is unfair or prohibited within the meaning of section 320.641, Florida Statutes.
PRELIMINARY STATEMENT
On December 7, 2010, Nissan North America, Inc. (Nissan or Respondent), sent Hampton Automotive Group, Inc., d/b/a Hampton Nissan (Hampton or Petitioner), a notice of intent to terminate the Dealer Agreement between the parties. Hampton filed a Petition pursuant to section 320.641(3), Florida Statutes, seeking a ruling that Nissan’s termination is unfair and prohibited under Florida law. The matter was referred to the Division of Administrative Hearings for the assignment of an Administrative Law Judge to conduct a final hearing.
At the final hearing held February 9-10, February 13-16, and July 19, 2012, Nissan presented the testimony of Patrick Doody, Kim Maas, Will James, Nick Reese, Fred Adcock, Herbert Walter, and Sharif Farhat, and offered 98 exhibits which were admitted into evidence as Exhibits R1 through R35, R37 through R41, R43 through R89, R91 through R99, R101, and R105.
Hampton presented the testimony of Mike Perry, Donald Moyers, Mark Hampton, and Joe Roesner, and offered 24 exhibits which were received into evidence as Exhibits P3, P5 through P7, P9, P13, P16 through P19, and P21 through P34.
The final hearing was initially concluded on February 16, 2012. However, on March 29, 2012, Hampton filed a Motion to Reopen Final Hearing and Hearing Record, for Additional Discovery, and to Schedule Additional Hearing Time. Nissan timely filed a Response to the Motion. After hearing argument on the Motion, an Order was entered reopening the final hearing, granting a limited scope of additional discovery, and setting July 19, 2012, as an additional hearing date.
These proceedings were recorded and a transcript was prepared. Ten volumes of Transcript were filed prior to the last day of hearing. After close of the final hearing on July 19, 2012, the parties were given 10 days from the filing of the Transcript of the last day of hearing within which to file proposed recommended orders. The Transcript of the final hearing
consists of a total of 11 volumes, including the Transcript of the last day of the hearing, which was filed August 8, 2012. The parties timely filed their respective Proposed Recommended Orders which have been considered in preparing this Recommended Order.
FINDINGS OF FACT
Hampton is a “motor vehicle dealer,” as defined by section 320.60(11)(a), Florida Statutes.
Nissan is a “licensee” as defined by section 320.60(8).
Nissan does not sell cars directly to consumers in the state of Florida. Rather, it relies on its dealers to market and sell its vehicles to consumers.
Hampton Automotive Group, Inc., purchased the Nissan dealership in Fort Walton Beach, Florida, on August 4, 1998, and entered into a Dealer Sales and Service Agreement with Nissan (Dealer Agreement). Mark Hampton is the 100 percent owner of Hampton.1/
The Dealer Agreement is a “franchise agreement” as defined by section 320.60(1).
The Dealer Agreement, like other Dealer Sales and Service Agreements that Nissan enters with its dealers, contains several provisions designed to ensure that Hampton achieves and maintains sufficient levels of sales performance.
Section 3 of the Dealer Agreement entitled “Vehicle Sales Responsibilities of Dealer,” sets forth Hampton's obligations with respect to the sale of vehicles.
Section 3A sets forth the general sales obligation of Hampton, which is to “actively and effectively promote through its own advertising and sales promotion activities the sale at retail (and if Dealer elects, the leasing and rental) of Nissan Vehicles to customers located within the Dealer’s Primary Market Area.” Article Second, Section B outlines the same general obligation.
Section 3B of the Dealer Agreement provides that “performance of [Hampton's] sales responsibility for Nissan Cars and Nissan Trucks will be evaluated by [Nissan] on the basis of such reasonable criteria as [Nissan] may develop from time to time.” This provision allows Nissan to evaluate Hampton's sales performance using any method, so long as it is reasonable.
The Dealer Agreement contains specific examples of reasonable criteria that Nissan may use to evaluate sales performance. Although the Agreement does not restrict Nissan to the listed examples, Nissan uses sales penetration, which is “Dealer’s sales as a percentage of registrations of competitive vehicles,” as an example of reasonable criteria in section 3(B)(2)(ii).
Section 3(B)(3) of the Dealer Agreement also specifies the region benchmark to which a dealer’s sales penetration is
compared, stating that a dealer’s sales penetration may be compared to the “sales and/or registrations of all other Authorized Nissan Dealers combined in Seller’s Sales Region.”
As permitted by section 3 of the Dealer Agreement, Nissan uses Retail Sales Effectiveness (RSE) to determine whether a dealer is meeting its sales obligation under the Agreement.
RSE is calculated by first determining the dealer’s sales penetration or market share, which is the dealer’s total new Nissan vehicle sales anywhere, divided by the number of competitive new vehicles registered in the dealer’s Primary Market Area (PMA). The resulting number is expressed as a percentage to show the dealer’s sales penetration.
The dealer’s sales penetration is then compared as a ratio to the sales penetration of the entire Nissan region, to determine the dealer’s RSE.
A simple expression of the RSE formula is: Dealer’s Sales Penetration ÷ Region Sales Penetration. Breaking down each of these into their component parts, the RSE calculation would be:
(Dealer’s sales anywhere ÷ Competitive Registrations in the Dealer’s PMA)÷(Combined Sales of all Region Dealers ÷ Competitive Registrations in the Region)
A dealer who reaches 100 percent RSE is performing at an average level, which is a “C” level of performance.
Although the terminology and calculations may vary slightly, RSE or sales penetration is the industry standard method used to measure dealer sales performance.
RSE is a fair method of evaluating dealer performance with conservative expectations because no dealer is expected to perform above an average level and because the dealer gets credit for sales anywhere, while only being held responsible for the sales opportunities within its PMA.
Approximately 60 percent of dealers in the Nissan's Southeast Region, within which Hampton is located, meet or exceed the “average” sales penetration of 100 percent RSE.
Nissan has been using RSE as its standard to measure dealer sales performance for over 30 years.
This evaluation method is communicated to dealers not only in the Dealer Agreement, but also in contacts and visits with the dealer and correspondence.
Hampton’s owner admits that he knew Nissan was evaluating the dealership’s sales performance using RSE.
RSE is a reasonable criterion to measure dealer sales performance and it was reasonable for Nissan to evaluate Hampton's sales performance using RSE.
At the Final Hearing, Hampton argued that it should be evaluated based on market penetration rather than sales penetration. Market penetration is the ratio of Nissan
registrations in a dealer’s PMA, no matter what dealer sold the vehicle, to competitive registrations in the PMA, which is then compared to Region average.
Because market penetration looks at registrations in the market by any dealer, it does not measure the efforts or sales performance of the dealer in the market. Using market penetration as a measure artificially increases the perception of the sales effectiveness of an underperforming dealer because that dealer would get credit for sales made by other dealers through no effort of the underperforming dealer.
Using the market penetration calculation, a dealer could sell no vehicles, yet reach 100 percent (or more) of region average base upon sales by other dealers to customers in its PMA.
The market penetration within Hampton's PMA for years 2008 through 2010 was higher than Hampton's sales penetration within that PMA, indicating that consumers within Hampton's PMA desired Nissan’s products, but not so much from Hampton.
Neither Nissan nor any other manufacturer uses market penetration to measure the sales performance of a dealer.
Market penetration is not a reasonable criterion to measure Hampton's performance under the Dealer Agreement.
Section 3H of the Dealer Agreement provides that Nissan will “periodically evaluate” Dealer’s performance of its sales
responsibilities and discuss these evaluations with the dealer. The dealer agrees to correct any deficiencies.
Nissan evaluates its dealers and provides feedback on their performance in several ways. First, Nissan has District Operations Managers (DOMs) who call on dealers routinely to discuss various areas of performance, and to review reports that outline the dealer's RSE performance and other information pertinent to dealer operations. Various department and training managers from Nissan may also assist a dealer. Nissan's senior management often notifies a dealer of violations of the Dealer Agreement, including poor sales performance.
Nissan DOMs have extensive industry experience and have had the opportunity to work with top-performing dealers, as well as poor-performing dealers. DOMs provide advice and counsel and share best practices with dealers on things that can impact sales, including items such as customer service, product training, inventory management, and other areas. DOMs also share data with dealers to help identify areas of opportunity to grow and improve.
Nissan counseled with Hampton and its owner for a number of years regarding Hampton's poor sales performance and operational deficiencies prior to the December 2010 Notice of Termination.
Since becoming a Nissan dealer in 1998, Hampton has performed poorly from a sales perspective. In 2002 and 2003,
Nissan issued several notices of default to Hampton based on their unsatisfactory sales performance and related operational deficiencies. On November 3, 2003, Nissan issued Hampton a notice of termination for poor sales performance.
Around the same time, Nissan conducted a nationwide audit of dealer PMAs. As part of that audit, Nissan instituted a new rule limiting the size of a PMA to 25 miles. As a result of this new rule, Hampton’s PMA was reduced in size. Because Hampton was responsible for a smaller area, its sales penetration increased to 80 percent of average. Although this performance was still poor because it was 20 percent less than average, it was not among the worst in the state, and Nissan withdrew the NOT.
After Nissan withdrew its NOT, Hampton’s operations did not change, and its RSE drifted back towards the bottom of the state, even in its reduced PMA. For the next few years, Nissan continued counseling with Hampton regarding its declining sales penetration, poor customer service scores, lack of training for its employees, and other problems at the dealership.
During this time, Hampton experienced significant management turnover. Article Fourth of the Dealer Agreement, stresses the importance of "qualified management" for the dealer and requires Hampton to provide a qualified executive manager with "full managerial authority for [Hampton's operations], . . . [who] shall continually provide his or her personal services in
operating the dealership and [who] will be physically present at the Dealership Facilities."
The lack of a qualified executive manager was an ongoing problem at Hampton. Nissan continuously counseled with Hampton concerning this issue.
Ben Bondi was the last approved executive manager at the dealership.2/ Following his departure in 2005, Hampton had a number of managers in a few short years. In mid-2005, after Ben Bondi was let go, Carl Roscitti became general manager for about five months. By November 2005, Mr. Roscitti was gone, and Rick Himmel was the manager for two months. Following Mr. Himmel's departure, in February 2006, Al Brockette served as manager for about three months. Alan Reese replaced him for three months beginning in April 2006. Brent Joy took over for Mr. Reese in August 2006 for a month. In September 2006, Tom Buckley took over for two or three months. None of these individuals were provided with the level of authority or decision-making ability expected of an executive manager.
Throughout this period of management turnover, Hampton’s sales performance was declining. By the end of 2006, Hampton’s RSE, even in its new PMA, had fallen to 75.41 percent, which ranked it 132/154 dealers in the Southeast Region, 50/58 dealers in the State of Florida, and last among the 15 dealers in Hampton’s district.
In 2007, Rusty Chambers and Jeff Kagan served as the management team at Hampton. Although neither of these individuals served as executive manager, they provided some consistency at the dealership, and they had more authority than prior managers. Operations improved somewhat under their management. For the first time in its history, Hampton reached region average in 2007, at 102.7 percent.
In February 2008, after reaching region average RSE in 2007, Mr. Hampton intentionally put his dealership on finance credit hold so it could not order any more vehicles. This cancelled all vehicle orders and prevented the dealership from purchasing inventory. By taking this action, Hampton not only reduced its present inventory, but also lowered its sales rate, impacting future allocations.
Upon learning that Hampton was on finance hold, Nissan notified Mr. Hampton of the drastic impact this would have on sales performance, incentives, and future allocations. During a meeting with the DOM, Mr. Hampton said that he had too much inventory and that he planned to force his sales staff to sell what they had before ordering any more.
On March 6, 2008, with the finance hold still in place, Nissan personnel sent a letter to Hampton and met with its owner to discuss the situation. Although the flooring line had been suspended for over a month, the owner said he “planned to leave
[the suspension] in place and force the staff to sell what they currently had available.” When told that this was a violation of the Dealer Agreement, Mr. Hampton stated that “he did not care about the agreement because Nissan had already tried to get him once and they could not get him.”
Having a dealership put itself on finance hold is extremely unusual, and Nissan personnel had never seen any other dealership take this type of action. Even Hampton’s own expert agreed he would not recommend it. This operational decision had a direct impact on Hampton’s sales performance in 2008 and beyond.
After Hampton put itself on finance hold, its inventory dropped from 160 vehicles to 60, and its sales penetration began to drop immediately.
By mid-2008, Mr. Hampton had fired the management team of Rusty Chambers and Jeff Kagan, and the management turnover resumed. Following their departure, Ralph Harris served as sales manager at the store, and there was no executive or general manager. Nissan continued to counsel with Hampton throughout 2008 concerning sales performance, the lack of an executive manager, and operational deficiencies.
During meetings with the dealership, the DOM reviewed empirical data and discussed areas of opportunity for the dealership. Rather than discussing ways to implement the suggestions and improve performance, Hampton’s owner accused the
DOM of being critical, and would try to change the subject to irrelevant matters whenever the DOM asked a challenging question about dealership operations.
Hampton’s performance continued to decline. In July 2008, Nissan’s DOM contacted Hampton’s owner to discuss the dramatic drop in sales, poor customer service performance, and what steps the dealership planned to take to turn the business around. Rather than provide an action plan, Mr. Hampton stated that he had nothing further to discuss and did not see the point of meeting with the DOM. At this point, Mr. Hampton decided he no longer wanted to meet with the DOM or Nissan personnel to discuss dealership business, despite the negative impact this could have on sales performance.
By October 2008, the dealership had no executive manager, general manager, sales manager or finance and inventory manager. On several occasions, Nissan personnel attempted unsuccessfully to contact Mr. Hampton to discuss the situation.
At the end of October, Carl Stark took over as sales manager at Hampton. Although he claimed to have authority over the store’s operations, he was not an executive manager. He did not have authority over parts, service, pay plans, advertising budget, used vehicle appraisals, or many other facets of the dealership operations.
From October 2008 to May 2010, Mr. Stark remained the sales manager, but there was no general manager, executive manager or even an executive manager candidate at Hampton. Although he promoted Mr. Stark and left him in a management position for an extended period of time, Mr. Hampton said he was not effective and was “extremely slow.”
By the end of 2008, Hampton’s RSE had dropped to 67.1 percent, which ranked 140/155 dealers in the Southeast Region and 53/58 dealers in the State of Florida.
On January 14, 2009, Nissan’s Region Vice President sent a letter to Hampton expressing concern at the declining RSE performance, and asking him to submit a plan for improvement. No plan was ever submitted.
Throughout 2009, Mr. Hampton refused to meet with the Nissan DOM, and there was no executive manager at the store. Although Mr. Hampton refused to meet with her, the DOM provided all relevant monthly reports to him by e-mail, expressed concern over the continuing decline in RSE, identified areas of opportunity, suggested best practices that could help the dealership improve, and offered to meet any time to discuss dealership business. Mr. Hampton never responded to any of these overtures.
In October 2009, the Region Vice President sent additional letters to Mr. Hampton, expressing concern over the
lack of an executive manager at the dealership, the continuing and alarming decline in RSE performance, and the poor owner loyalty that was contributing to this decline. He reminded the dealer of its obligations under the Dealer Agreement and requested that immediate steps be taken to turn things around.
By the end of 2009, Hampton’s RSE had dropped to 58.4 percent, which ranked 227/245 dealers in the Region and 56/58 dealers in the State of Florida.
In January 2010, Nissan’s fixed operations manager spoke with Mr. Hampton on the phone concerning an available program to help recapture service customers, improve marketing efforts, and increase customer traffic. Mr. Hampton was originally interested in the program, but later called back to decline the program because, according to Mr. Hampton, if it brought in more customers, he would have to hire additional staff, which would drive up expenses.
On February 3, 2010, Nick Reese, Nissan’s Area General Manager (AGM), took his whole team to Fort Walton Beach to meet with Mr. Hampton and to express Nissan’s serious concerns over the dealership’s declining RSE and lack of an executive manager. They discussed the dealership’s poor sales performance, now ranked at the bottom of the state, and asked how the dealership planned to improve. Although Mr. Hampton agreed they were not delivering, he would not identify any plan to improve. Instead, he tried to
change the subject to some unrelated business deal he was working on and to Hyundai’s launch of a new Sonata. He failed to focus on Nissan sales and expressed no sense of urgency to correct the problems.
During this same meeting, Hampton’s sales manager stated that they could not improve sales with the dealership’s existing advertising budget. Advertising was a problem and a major contributor to the lack of traffic at the dealership. Total advertising for the dealership in 2009 had fallen to one-fourth of its 2007 levels –- from over $1 million in 2007 to $242,058 in 2009.
Following the meeting, Mr. Reese sent a letter to Hampton concerning the poor RSE and owner loyalty at the store. He asked the dealer to take immediate action to improve, but this was never done.
On April 27, 2010, Nissan’s DOM met with Carl Stark, the acting manager, to discuss the continuing decline in RSE, which had fallen to 45.5 percent, 240/244 in the Region and 57/58 in the state. Mr. Stark again expressed concern about the lack of advertising and stated that all advertising was being directed by Mr. Hampton’s staff in Lafayette.
On May 4, 2010, Mr. Reese called Mr. Hampton to follow- up on their February meeting. He informed Mr. Hampton that there had been no change in performance, and the dealer would receive a
notice of default. During this call, Mr. Hampton admitted he could not manage the store from 300 miles away and stated that it was his entire fault and that he would do the same thing as Nissan since the store is not performing. Mr. Hampton also claimed he had hired a “heavy hitter” to serve as general sales manager and wanted to see if he could turn things around. This new general sales manager never came to work at Hampton in Fort Walton.
On May 20, 2010, Nissan issued a notice of default (NOD) to Hampton based on the dealership’s unsatisfactory sales performance and continued lack of an executive manager. The NOD provided Hampton with 180 days to cure the default, and it specifically warned that failure to cure the breaches set forth in the NOD would result in termination.
The NOD outlined the many discussions Nissan had with the dealer over the course of several years regarding its declining sales performance, and it outlined numerous operational deficiencies that contributed to this performance, including lack of an executive manager, poor customer service, failure to market and effectively advertise, failure to maintain inventory, and lack of capitalization. Mr. Adcock, Nissan’s Region Vice President, hoped that issuing the NOD would get the dealership’s attention, notify Mr. Hampton of the seriousness of the situation, and give Hampton time to improve performance.
By May 2010, when the NOD was issued, Hampton’s RSE had dropped to 47.3 percent, which ranked 56/58 dealers in the state of Florida.
On May 22, 2010, Mr. Hampton contacted Mr. Reese to advise him that he hired Kevin Drye as the general manager of Hampton. He acknowledged that the store had been mismanaged and said that Mr. Drye would be his final attempt and, if it did not work out, he was going to sell the store. Mr. Drye lasted about a month as general manager and was gone by mid-June.
On June 24, 2010, the DOM met with Mr. Hampton, as Mr. Drye was gone and the store had no general manager. During
this contact, the DOM discussed Hampton’s low RSE and the effect that constant management changes, lack of training, minimal advertising, and other operational problems were having on the dealership. Mr. Hampton acknowledged the issues, but did not outline a plan for improvement.
On June 28, 2010, Mr. Reese contacted Mr. Hampton and asked about his plans for a manager at the store since Mr. Drye had left. Mr. Hampton stated that he was bringing over a young, aggressive general manager from his Lafayette Toyota store and Nissan would be seeing good things soon. Following this call, Mr. Hampton did not move a general manager to the Fort Walton Beach store for at least two more months.
On August 25, 2010, the AGM and DOM again traveled to Fort Walton Beach to meet with Mr. Hampton and discuss the performance problems at the dealership. The cure period was more than halfway over, and there had been no improvement in the Hampton’s sales performance. The AGM advised Mr. Hampton that the NOD would turn into a notice of termination if there was no improvement. Rather than providing a plan to improve, Mr. Hampton responded by stating that Florida is a dealer-friendly state and that Nissan would not terminate him. He showed no intention of trying to improve and no concern about the NOD cure period. Other than claiming that he had hired yet another new general manager, who had not relocated to Fort Walton Beach, Mr. Hampton outlined no plan to improve.
On September 3, 2010, Mr. Reese again contacted
Mr. Hampton to discuss the RSE and operational problems at the dealership. Rather than discussing dealership business,
Mr. Hampton tried to change the subject to talk about unrelated matters. He also stated that he had purchased 100 used Nissans from an auto auction for the dealership to sell. This was a big concern for Nissan, as it would shift the focus of salespeople to used cars, which would not improve Hampton’s RSE. At the time of this contact, the new manager still had not relocated to Fort Walton, and nobody was on-site managing the store.
In September 2010, Hampton’s new manager, Don Moyers, finally relocated to Fort Walton Beach, four months into the NOD period. Mr. Moyers, however, was still responsible for the management of Hampton Toyota in Lafayette, and he bounced back and forth between the two stores for the remainder of the NOD cure period.
At the Final Hearing, Mr. Moyers described the state of the dealership when he arrived four months into the cure period. He stated that the dealership was disorganized, there was no accountability, they were not following procedures, they lacked training, they lacked leadership, there were no checks and balances, there were no systems in place for traffic control, and they were not consistently counting customers, or doing follow-up calls. He admitted the dealership was performing poorly in all areas –- sales, service, parts, and finance and insurance (F&I).
Despite repeated requests from Nissan for several years, Hampton never provided a plan to improve performance or demonstrated a sense of urgency. Mr. Hampton admits that he never called the Nissan's Regional Vice President, never went to meet with him, never responded to any of the letters Nissan wrote during the NOD period, and never prepared any specific plan to address the deficiencies. In fact, Mr. Hampton did not even tell his manager, Mr. Moyers, that the store had been issued an NOD or
that the dealership had a limited cure period to improve its sales performance.
Based on the continuing poor performance of the store, its lack of improvement and lack of any commitment to improve, Mr. Adcock began the process for requesting a notice of termination.
By early December, the cure period had expired, and there had been no improvement in RSE. The dealership’s RSE had declined from 102.7 percent in 2007 to 66.55 percent in 2008,
56.83 percent in 2009, and 49.73 percent through September 2010.
This ranked Hampton 56th of the 58 dealers in Florida. From May 2010 to September 2010, RSE had barely changed, from 47 percent to
49 percent.
As of early December, Nissan knew Hampton’s sales numbers for October and November, which were 22 and 13 respectively. This was less than half of what the dealer needed to sell to reach region average, and Nissan knew the RSE had actually declined from September to November. The November RSE data confirmed that sales penetration through November 2010 actually declined to 48.5 percent RSE.
On December 7, 2010, Mr. Adcock made the final decision that Hampton's dealership should be terminated and Nissan issued a notice of termination (NOT) to Hampton for unsatisfactory sales performance.
At trial, neither party disputed that Hampton’s sales performance was extremely poor. However, each party offered different explanations for this poor performance.
Hampton argued that the economy, the real estate bubble, and unemployment in Fort Walton Beach caused its poor sales performance. The evidence does not support this.
The RSE calculation takes into account the state of the economy in a particular PMA. If the economy slows for any reason in a PMA, it would affect every brand of vehicle, and the competitive registrations would be lower. This would lower the sales expectation for Hampton, as it is only expected to gain an average share of competitive registrations.
The unemployment rate in Fort Walton Beach was far lower than the rest of Florida. If rising unemployment did affect RSE, it would impact other Florida dealers in PMAs with higher unemployment rates to a far greater degree than Hampton, thus improving Hampton’s relative performance. That expectation however, did not happen. The unemployment rate in nearby PMAs was much higher than Fort Walton Beach, yet those dealers exceeded region average RSE. This would not occur if the economy and unemployment rate was the cause of Hampton’s low RSE.
Hampton’s arguments regarding economic conditions are further undercut by Mr. Hampton’s own statements. In June 2010, he told Mr. Reese there was a lot of growth in the area because it
had not been hit by the oil spill and the military base was expanding.
Hampton also blamed its poor performance on a large military population in its PMA and the lack of Nissan military incentives. The evidence does not support this.
The military population in Fort Walton Beach declined from 2007 to 2010. If a higher military population was hurting Hampton’s RSE, its performance would have improved during this period, but it declined substantially. In addition, Nissan dealers with the largest military populations in their PMAs on average exceeded 100 percent RSE, including other dealers in the Florida Panhandle.
Hampton’s own expert stated that the lack of military incentives probably did not have a big effect on Hampton’s sales performance. He further stated that if lack of military incentives were a problem, it would possibly be something that Hampton would want to discuss with a Nissan representative. Hampton, however, never mentioned to Nissan that lack of military incentives was a problem.
Hampton also argued at the final hearing that Hampton had 27 competitors in its PMA, which was too many to reach RSE. The evidence does not support this.
Hampton did not explain how it managed to reach 102.7 percent of Region average in 2007 despite having 28 competitors at
that time. Hampton’s own expert analysis showed that a dealership with 27 competitors in its PMA should be expected to hit 99.6 percent of average, whereas Hampton reached only 48.5 percent through November 2010. Every other Nissan dealership in the entire state of Florida with 27 or more competitors performed at a higher level than Hampton. Dealerships with a similar number of competitors in the Nissan Southeast Region on average reached 110 percent RSE.
Hampton also argued that the PMA was not drawn correctly. Hampton’s expert, however, admitted he had no dispute with how the dealership’s PMA is drawn and that he would draw it the same way.
Hampton implied that the 2010 census may change the PMA and argued that if Nissan added a dealer in its PMA, this would reduce its size and increase Hampton’s RSE (assuming its sales do not change).
Although Hampton’s PMA was reduced after the 2000 census, this was not because of the census results, but because Nissan limited its PMA to a 25-mile radius. There was no evidence that Hampton’s PMA would be significantly altered by the 2010 census.
As with other manufacturers, Nissan assigns a PMA primarily based on proximity to the Nissan dealership, because a customer generally will buy from the most convenient dealer. The
actual census tract of the population closest to Hampton is larger than the 25-mile radius assigned to Hampton. Because its PMA is smaller than the census tract of the closest population, Hampton’s RSE is enhanced because Hampton can sell into nearby unassigned areas, but Hampton is not held responsible for the competitive registrations within those unassigned areas. If Hampton’s PMA were constructed on a pure proximity of population to dealership basis, including areas beyond the 25-mile limitation, Hampton’s RSE would be even lower.
Although Hampton argued that adding a new dealer would reduce the size of its PMA, it never suggested that Nissan add a new dealer, and its expert denied that another dealer was needed in the PMA.
To affirm that the PMA definition had no impact on Hampton’s performance, Nissan’s expert analyzed Hampton based on sales by distance, without regard to PMA boundaries. This confirmed that Hampton’s performance was far below that of other Panhandle dealers. In a 0-4-mile radius, Hampton penetrated the market at 38.3 percent RSE versus 112.8 percent for nearby Nissan dealers. The results were similar at 4-8 miles, 8-12 miles, and beyond, confirming that the PMA definition did not cause Hampton’s poor RSE.
Hampton further argued that its sales performance was caused by a lack of available inventory and that it did not
receive enough vehicles during the cure period to reach 100 percent RSE. This argument ignores the application of Nissan’s uniform allocation system, Hampton’s long history of declining vehicles and reducing inventory levels, and its ability to obtain additional vehicles by working within the allocation system and taking advantage of supplemental vehicles that were available.
Nissan’s allocation system is based on the relative "days’ supply" of each dealer, and it fairly and equitably distributes vehicles to the dealers who need them the most. "Days’ supply" is the industry standard measurement of dealership inventory. A dealer’s days’ supply is the number of days their current inventory would last based on their sales rate. For example, if a dealer sells one car per day (30 per month) and has
60 vehicles in inventory, that dealer would have a 60-days’ supply. If the dealer sells 3 cars per day (90 per month) with the same inventory, the dealer would have only a 20-days’ supply.
The system is responsive to a dealer’s sales rate and inventory levels. As a dealer increases its sales rate by selling its inventory faster, this also lowers its days’ supply, allowing the dealer to earn more vehicles.
Both Hampton’s owner and general manager admitted that Hampton earned vehicles under the allocation system the same as every other dealer. Mr. Hampton also admitted that other dealers
have more inventory because they have a higher sales rate and lower days’ supply.
Hampton’s claims of insufficient inventory are undercut by its own actions in the timeframe prior to the NOT. For a period of several years, the dealership declined a substantial number of vehicles that it had been allocated. From April 2007 to November 2010, Hampton declined over 1400 vehicles. Hampton’s practice was to decline the majority of product offered and “dealer trade” for what it needed. This strategy was repeatedly invoked by various managers at the dealership, even though Nissan personnel counseled against it because it limited vehicle availability at the dealership.
Mr. Hampton admitted it was his strategy, even in 2010, to intentionally keep a low inventory of only the fastest moving vehicles and to dealer trade for any other vehicles. He testified that he does not care how many vehicles are in inventory, as long as they do not have any aged units. This strategy is reflected in the dealership’s pay plan, which reduces the manager’s pay if he orders inventory that does not sell within 90 days.
The financial hold to reduce inventory levels which
Mr. Hampton instituted at the dealership in 2008 served as a clear demarcation for the dealership’s inventory levels. Hampton’s inventory levels dropped from 120 vehicles to a range of 60-80 vehicles, and its sales rate was soon cut in half.
Hampton does not claim that it lacked inventory overall, but claims only that it did not receive enough of certain “hot models” in late 2010. Hampton’s inventory levels in these “hot models,” however, were consistent with the rest of the Southeast Region.
In addition, Hampton’s sales were poor in almost every segment, showing that it was not a lack of certain “hot models” that caused its poor sales performance. For example, although it had access to plenty of Titans, Pathfinders, and Armadas, Hampton penetrated those segments at only 64 percent, 33 percent, and 16 percent of region average, respectively.
Nissan personnel explained the allocation system in detail to various managers at Hampton over the years. As Nissan personnel explained, the best way to earn more vehicles under the allocation system is to increase the sales rate by selling the vehicles you have faster.
During the cure period from May to November 2010, Hampton was offered 166 vehicles in the allocation system, even though it sold only 123. Thus, its inventory on the ground went up during this time period, although its sales penetration did not change. If Hampton had increased its sales rate during the cure period, it would have earned more vehicles under the allocation system.
Hampton also had the opportunity to obtain additional vehicles from the “Pass Two” turndown list. “Pass Two” vehicles are specified and equipped by the region with the most popular equipment to sell quickly. If any dealer in the district declines or fails to affirmatively accept any Pass Two vehicles offered in allocation, the DOM offers these to dealers within his district. During the cure period, the DOM offered Hampton first cut at the entire Pass Two turndown list each month before offering them to any other dealer. When the DOM provided the list (often including over 150 vehicles) to Hampton each month, he either got no response or Hampton accepted only a few vehicles.
Hampton also suggested that there was a market issue that affected its sales. Hampton argued that, because the successors to two other terminated dealers (Love Nissan and Classic Nissan) performed poorly after termination, this must mean the problems those dealers and Hampton faced were the result of some unidentified market issue, rather than their own operations. The evidence did not support this.
Hampton’s expert admitted that he did not analyze the operations of those other two terminated dealerships, and that he could not tell one way or the other whether the performance at those dealerships was based on operational rather than market issues.
After the initial final hearing was completed on February 16, 2012, Hampton argued that incentive variations were an additional cause of its poor performance. As a result of that argument and the granting of a motion on that issue filed by Hampton, the record was reopened and the parties were permitted to obtain additional discovery and present additional evidence on this issue, the findings on which are detailed below.
Beginning in May 2009, Nissan began to vary incentives offered on a few specific models depending on where the customer resided. On these few select models, customers residing in Florida were offered more favorable lease incentives, and customers residing in the rest of the Southeast Region were offered more favorable purchase incentives.
Hampton argued that it was harmed by the incentive variations because Fort Walton Beach has a lower leasing rate than the State of Florida or the Southeast Region as a whole.
Hampton’s expert, however, could not quantify the impact, if any, this had on Hampton Nissan’s sales performance, and he did not analyze any PMA other than Fort Walton Beach. Both sales and leases count as a retail transaction for purposes of calculating sales penetration.
It is very common in the automobile industry to vary incentive offers based on customer residency. The mere fact that incentive variances existed does not show a negative impact on
Hampton or any other dealer. To determine if there was any impact, it is necessary to analyze the sales and registration
data.
Prior to mid-2009, the incentive programs for customers
located in Florida and in the rest of the Southeast Region were identical. Thus, incentive variations did not trigger Hampton’s sales performance decline, which began in 2007 and declined most dramatically from 2007 to 2008.
If incentive variations benefited Florida dealers located in areas where leasing was more prevalent, as Hampton argues, Hampton’s sales performance in 2009 would have declined more when compared to the rest of the state than when compared to the Southeast Region. However, Hampton’s sales performance decline is similar regardless of whether a state or region benchmark is used.
Sales penetration can be adjusted to account for the leasing rates in a particular area by separating lease and purchase data and adjusting the expectation accordingly. After adjusting for the lower leasing rates in the Fort Walton Beach PMA, Hampton’s sales penetration during the cure period from June through November 2010, was only 45.9 percent of the region average, showing that low leasing rates in the market had very little impact, if any, on Hampton's sales performance.
The incentive variations beginning in mid-2009 impacted only four models –- Sentra, Maxima, Rogue, and Murano. Both before and after the incentive variations began, these models accounted for only 25 percent of Hampton’s sales. If the incentive variations had caused Hampton’s poor performance, its sales decline should have been greater in these models, but Hampton’s sales performance decline was consistent among both impacted and non-impacted models.
Hampton’s expert testified that advertising better purchase incentives on one model could bring in customers who ultimately purchase a different model. He did not know, however, if this actually happened, and there is no evidence that Hampton changed their advertising in any way based on the available incentives.
On a few other models –- Pathfinder, Armada, Z, and Frontier –- a Florida customer was eligible for the same purchase incentive as a customer in the rest of the Region, but also was eligible for a more beneficial lease incentive than customers in the rest of the Region. Because the incentives offered to Florida customers on both lease and purchase were equal to or better than incentives offered outside Florida, the incentives on these models could not have negatively impacted Hampton or any other dealer in Florida.
Although industry lease levels in the Fort Walton Beach PMA were lower than the State of Florida as a whole, leasing was more prevalent in Fort Walton Beach than in the other three West Panhandle PMAs –- Panama City, Pensacola, and Marianna (5.9 percent leasing rate compared to 7.1 percent in Fort Walton Beach). If the incentive variations negatively impacted Florida dealers in low leasing areas, these dealers should perform worse than Hampton after the lease variations began, yet all three exceeded region average sales penetration.
If the incentives offered to customers in the Fort Walton Beach PMA were uncompetitive because of low leasing preferences, the brand performance in the PMA would have declined after the incentive variations began. However, the data shows that the Nissan brand actually performed better in the Fort Walton Beach PMA after the incentive variations began.
While Nissan brand penetration increased in the PMA, Hampton’s contribution declined, meaning that customers in Hampton's PMA were purchasing (or leasing) Nissan vehicles at higher rates, yet not from the Hampton dealership. This reflects an operational problem at the dealership.
Ultimately, the leasing rates for a brand in a particular market are impacted by the methodology and sales processes of the dealer in the market. Hampton’s own expert conceded that advertising, dealer operations, sales strategy,
pricing, management, sales staff ability, sales training, and the number of sales people influence both sales performance and whether a customer decides to buy or lease a vehicle.
Although industry leasing in the Fort Walton Beach PMA was 7.1 percent, Nissan brand leasing was only 5.9 percent. By comparison, Nissan leasing in the other West Panhandle PMAs was 12 percent, more than double the industry-leasing rate. This reflects a lack of effort by Hampton. According to its financial statements, Hampton made only one Nissan lease from 2006-2010. Had it captured the available lease opportunity at the same rate as other district dealers, it would have made an additional 22 to
45 retail transactions per year.
Although not asserted as an excuse for its poor performance, Hampton argued that Nissan acted in bad faith because
(1) the termination was secretly based on Hampton’s decision not to enroll in Nissan’s facility program; and (2) Nissan offered to provide financial assistance to a potential buyer of the store. The evidence does not support Hampton’s argument.
Nissan’s facility program is similar to those used by other manufacturers, and it is voluntary. Nissan offered the program to Hampton, as it did to its other dealers. Nissan's market study suggested that conversion of Hampton to an image facility devoted exclusively to sales of Nissan products would be successful in Hampton's location. Although Nissan recommended
that Hampton consider converting to an imaged facility, it was not required. Although it may have contributed to the poor sales performance, Hampton’s decision to decline participation in the facility program had no bearing on the decision to issue the NOD or NOT.
Nissan’s offer to provide financial assistance to a potential buyer of the store also does not evidence any bad faith. Mr. Hampton’s own broker referred the potential buyer to Nissan. Prior to engaging in any substantive discussions with this potential buyer, Nissan personnel obtained Mr. Hampton’s permission. The price Mr. Hampton sought for the dealership was very high, and Nissan offered financial assistance to help bridge the gap. This offer would allow Mr. Hampton to get a higher price for his dealership, and provide Nissan with a proven performer.
Reasons for Hampton's Poor Performance
Lack of Executive Manager
It is critically important for a dealership to have an authorized on-site executive manager to provide leadership and direction. Without this, it is difficult for Nissan’s field team to work with anyone at the dealership to help a dealer improve sales.
Mr. Hampton admitted that the number one reason for the poor sales performance at the store was his failure to have qualified management on-site. He admitted that he made all the
management-hiring decisions and that Nissan sent him many written notifications about the failure to have qualified management at the store.
Management turnover and lack of an executive manager was a continuing problem at Hampton. Hampton had between 10-12 general managers or management candidates from 2006-2010. Even when the dealership had someone serving as general manager, he did not have the authority of an executive manager.
Most dealership decisions and functions were run out of Hampton’s headquarters in Lafayette, including accounts payable, parts and service statements, payroll, financial statements, inventory logging, and floorplan redemptions. The team in Lafayette also made the decisions regarding all manager pay plans and most employee pay plans, set the advertising budget, and re- appraised every used vehicle traded in at the dealership.
A number of Hampton’s managers expressed frustration over their lack of authority over the dealership operations, with everything being controlled out of Lafayette and their hands being tied regarding advertising, vehicle appraisals, and other day-to- day operational issues.
At the Final Hearing, Hampton argued that the lack of an executive manager at the dealership was Nissan’s fault because they did not help Hampton hire a good executive manager. However, Nissan had no system to identify or recommend potential employees
for its dealers, who are independent businesses responsible for making their own hiring and firing decisions.
Capitalization
Mr. Hampton is the 100 percent owner of Hampton Automotive Group and 13 other entities. The Hampton organization pulled significant amounts of money out of the Fort Walton Beach dealership through owner’s salary, institutional advertising (which consisted of “talent fees” paid to Mr. Hampton to star in commercials), outside services, rent, and management fees. In these five categories alone, $6.3 million was pulled out of the dealership’s balance sheet in five years.
Hampton argued that the removal of capital was irrelevant because there was money available for the dealership from the Hampton organization. Even if this money was available, it was never invested in the dealership. The financial statements reveal that, because of various “costs” paid to the Hampton organization, the Fort Walton Beach store lost over $1 million per year in 2008 and 2009. In addition, the Fort Walton Beach dealership lost capital by paying off millions of dollars in loans to other Hampton entities in 2008-2010, further lowering its capital levels. These losses and the withdrawal of capital correlate to the declining sales performance at the dealership.
In meetings with Nissan, Mr. Hampton stated that he kept the dealership because he personally made $10 million from it
in five years. He also stated that owners’ salaries, management fees, institutional advertising, and other entries on the financial statement were “fluff that went directly to him,” and that, although the dealership showed a loss, it provided him with plenty of profit.
(c) Advertising
In 2006 and 2007, the dealership spent over $1 million on advertising. In 2008, Hampton cut its advertising budget in half, to $526,355. In 2009, Hampton cut its advertising budget in half again, to $242,058. Despite the issuance of an NOD, Hampton’s advertising expenditures remained low in 2010, at
$284,430. During this same time period, sales performance steadily declined, from 102.7 percent in 2007 to 67.1 percent in 2008, to 58.4 percent in 2009, to 48.5 percent through November 2010. While the dealership advertising was cut in half in 2008 and again in 2009, the owners’ salary stayed consistent at
$480,000.
There is a direct correlation between investment in advertising and sales volume. The less a dealership advertises, the less traffic it attracts, and the less it sells. Nissan DOMs noted that advertising was a major problem at the dealership and the limited ad budget hurt the dealership’s sales performance. Even in 2010, Hampton’s managers complained that their “options were limited based on [the] meager advertising budget” and their
“hands are tied due to the limit[ed] amount of resources allocated to advertise in the community.” Though advertising had been cut by 75 percent from 2007 levels, Hampton did not increase its advertising budget during the NOD period.
Several experts analyzed Hampton’s advertising trend and noticed the same decline on a relative basis that is reflected on an actual basis in the financial statements. On a per-new-unit (vehicle) basis, advertising dropped from an above average $500-
$600 per unit in 2006-2008 to 20 percent below average at less than $400 per unit in 2009-2010. Hampton also spent less of its gross profit to advertise than other dealers in the region.
Hampton’s advertising per expected sale fell from a high of $620 in 2007 to $263 in 2010.
d) Sales Staff
From 2007 to 2010, Hampton cut its sales staff in half, from 13 in 2007 to 6 in 2010. Hampton’s general manager testified that, when he arrived in August 2010, they only had seven salespeople, and they needed 10 just based on the traffic they had at that time. The pay plan for managers discouraged hiring salespeople by lowering management pay if salesperson compensation increased.
Successful dealers have a trained and certified sales staff, as product knowledge is a key element in selling. Hampton failed to have training programs in place and failed to take
advantage of Nissan’s offers of training. Hampton refused to send any of its staff to off-site training offered by Nissan.
Hampton’s own manager admitted that sales personnel lacked sufficient training as late as August 2010.
Other than in 2007, when Hampton performed at average, the dealership lacked a sales force that was dedicated to the Nissan brand. Having a dedicated sales staff can make a great impact on sales performance, as they have better product knowledge and are vested in the sale of Nissan products.
At the Final Hearing, Mr. Hampton testified that one of the reasons Nissan sales suffered is that the sales force focused more on Hyundai sales.
(e) Lack of Focus on Sales Performance
At the Final Hearing, Mr. Hampton admitted that he was focused on personal profitability rather than sales numbers or adequate representation of the Nissan brand. He testified that he was proud of how the dealership performed in 2007-2010 because it was profitable, despite its poor sales performance.
Hampton's pay plan for General Managers was not based on sales performance, but instead on gross profit, even during the NOD period. In addition, salespeople at Hampton are paid based on gross profit, and they had no incentive to focus on a particular brand, even during the NOD period.
Hampton did not take advantage of programs and incentives offered to improve sales performance. The dealership never participated in any tactical incentive programs offered by Nissan, which provide employees with trips, cash, and other incentives directly from Nissan to help drive sales. Mr. Hampton advised his staff not to try to hit retro bonuses, which provide a great monetary incentive to make a certain number of sales. He decided that making the sales necessary to hit a retro would just open them up to an audit.
Hampton was one of only two or three dealers in the entire region that refused to participate in a truck retro where Nissan offered up to $10,000 in incentives on each Titan sale.
Nissan’s Treatment of Other Dealers
Section 12(B)(1) of the Dealer Agreement allows Nissan to terminate the Agreement if a dealer fails to substantially fulfill its sales responsibilities. Due to the complexities involved, Nissan evaluates potential dealer terminations on a case-by-case basis. Both Hampton’s expert and Nissan’s expert agreed that it would be unreasonable to apply a bright-line test for termination, because circumstances affecting sales penetration must be considered. Consistent with this opinion, Nissan first considers the dealer’s sales penetration and then reviews any circumstances that might affect sales penetration or warrant delaying the termination.
Nissan does not terminate every dealer who falls below
100 percent RSE, because a dealer that is just slightly below average would not considered to be in substantial and material breach of the Dealer Agreement.
Nissan’s starting point for considering a sales performance termination is the dealer’s RSE, and those dealers near the bottom of the state in terms of performance may be considered in substantial breach warranting termination.
Next, in making the determination of whether to issue a notice of default or termination, Nissan considers the materiality of the RSE deficiency, the ranking among other dealers in the state, the effectiveness and turnover in management, ineffective or insufficient advertising, and other factors that might contribute to the success or failure of a dealer. Nissan also considers whether the dealer has come forth with a meaningful plan to improve and turn things around. Each of these factors is applied consistently and uniformly to any dealer facing potential termination.
After considering Hampton’s extremely poor performance, its steady decline in RSE, its long history of management turnover and operational deficiencies that continued during the NOD period, and its lack of a plan or even a willingness to take the steps necessary to improve, Nissan determined it was necessary and appropriate to terminate Hampton.
Hampton’s counsel specifically identified three other dealers that he believed must be terminated before Hampton to uniformly apply the grounds for termination: Ocala Nissan, Celebrity Nissan, and Crystal Nissan. Notably, Hampton’s expert report reflects that the PMAs of all three of these dealers performed better than Hampton in Registration Effectiveness, Hampton’s preferred measure of performance.
With respect to RSE, Hampton’s expert analysis shows that Ocala Nissan’s average sales performance from 2008-2010 was better than Hampton’s, with an average RSE of 65.8 percent compared to 59.6 percent for Hampton. Like Hampton, Ocala was issued a notice of default. Unlike Hampton, Ocala immediately called the Region Vice President to schedule a meeting after receiving the notice of default, came to the Region office with a plan to provide qualified management at all levels, and implemented a plan to overhaul the dealership operations with a substantial increase in advertising. While any one of these actions alone may not have been enough to delay a notice of termination, the action plan convinced Nissan that the dealer was taking the necessary steps to improve performance, and they delayed the issuance of a notice of termination to provide Ocala with a limited time to implement the plan and improve performance. While not stellar, Ocala’s RSE performance was better than Hampton’s at the time the NOT was issued to Hampton.
Celebrity Nissan was a replacement dealer for Classic Nissan, a dealer who was issued a notice of termination, but sold the dealership while appealing the Department’s decision approving the termination. Upon purchasing the dealership, Celebrity had to operate from the same substandard facility as the terminated dealer and had to overcome the prior dealer’s history of poor performance in the market. When Celebrity failed to significantly improve performance at the store, Nissan issued a notice of default. In response, Celebrity notified Nissan that Celebrity was going to sell the dealership and requested Nissan to provide a buyer's assistance letter. Once Celebrity was in active negotiation with the buyer, Nissan saw no benefit in seeking termination and, instead, gave the dealer time to move forward with the sale. The dealer who purchased Celebrity began performing well.
Like Celebrity, Crystal Nissan was a replacement for a terminated dealer who sold the dealership while appealing the Department’s decision approving the termination. Crystal had to share a facility with the prior dealer’s Honda store until it could build its own facility. Crystal’s predecessor had been a 20-year poor performer, and Crystal was tasked with essentially
creating the market. According to Hampton’s own expert, Crystal’s “average” performance from 2008-2010 was higher than Hampton’s.
In addition, Crystal, with an 80 percent RSE at the end of 2009,
was performing far better than Hampton and remained over 15 points higher than Hampton at the time the NOT was issued to Hampton in
December 2010.
CONCLUSIONS OF LAW
The Division of Administrative hearings has jurisdiction over the subject matter and the parties to this proceeding, in accordance with sections 120.569, 120.57(1), 320.641, and 320.699, Florida Statutes.3/
Under section 320.641, which governs the termination of a motor vehicle dealer’s franchise agreement, Nissan bears the burden of establishing that termination of Hampton’s franchise agreement is fair and not prohibited.
Nissan’s burden of proof is by a preponderance of the evidence. § 120.57(1)(j), Fla. Stat. ("Findings of fact shall be based upon a preponderance of the evidence, except in penal or licensure proceedings or except as otherwise provided by statute and shall be based exclusively on the evidence of record and on matters officially recognized.").
Section 320.641(3) provides:
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; or, if the grounds relied upon for termination, cancellation, or
nonrenewal have not been applied in a uniform and consistent manner by the licensee. If the notice of discontinuation, cancellation, or nonrenewal relates to an alleged failure of the new motor vehicle dealer’s sales or service performance obligations under the franchise agreement, the new motor vehicle dealer must first be provided with at least
180 days to correct the alleged failure before a licensee may send the notice of discontinuation, cancellation, or nonrenewal.
The evidence demonstrated that Nissan provided the required cure period. On May 20, 2010, Nissan issued a Notice of Default, which specifically outlined the dealer’s sales performance deficiencies and provided the opportunity to correct these failures. The Notice of Termination was issued on
December 7, 2010, more than 180 days after the Notice of Default. At the time Nissan issued the NOT, it knew that the dealership’s RSE through the end of November (the cure period) was below 50 percent of average and among the worst in the entire State.
Nothing in section 320.641(3) requires that the opportunity to correct sales-performance failures take any specific form. Prior to issuance of the NOD, Nissan had been counseling Hampton regarding its poor performance for an extended period of time, going back to 2008 for its most recent performance decline. In letters and meetings, Nissan outlined Hampton’s performance deficiencies and provided them the opportunity to correct the failures. These letters and meetings also provided
Hampton with a cure period of much longer than 180 days prior to the NOT.
“The Dealer Agreement establishes the terms of the business relationship between [a manufacturer] and a dealer.” Stella Chevrolet, Inc. v. Roberts Chevrolet, Inc., Case No. 88- 3099, ¶ 15 (Fla. DOAH Jan. 30, 1990; HSMV May 4, 1990). As noted in Love Nissan, Inc. v. Nissan N. Am., Inc., Case No. 04-2247, ¶
100 (Fla. DOAH July 14, 2005; HSMV April 12, 2006):
The Florida Legislature could have mandated .
. . the methodology by which manufacturers evaluate dealer sales performance or could have imposed minimum sales performance standards for termination, but it chose to leave those matters up to the agreement between the parties.
The Dealer Agreement requires that Hampton “actively and effectively promote” the retail sale of Nissan vehicles, and it specifically provides that Nissan can choose any reasonable method to evaluate Hampton’s performance of its sales obligations. Nissan used the industry standard method, RSE, which is also outlined as an example of reasonable criteria in the Dealer Agreement. Love, ¶ 98.
Nissan’s use of RSE has been found to be reasonable in previous administrative decisions under section 320.641. See, e.g., Classic Nissan, Inc. v. Nissan N. Am., Inc., Case No. 05- 2426, ¶¶ 12, 14 (Fla. DOAH Mar. 20, 2007; HSMV Oct. 31, 2007); Love, ¶¶ 20, 98. Hampton was aware that its sales performance was
being evaluated using RSE, and the use of RSE to measure Hampton’s performance of its sales obligations is reasonable.
Section 12(B)(1)(A) of the Dealer Agreement clearly permits Nissan to terminate a dealer where, as here, the dealer has failed to substantially fulfill its sales responsibilities. Based on Nissan’s evaluations of its sales performance, the evidence showed that Petitioner failed to actively and effectively promote the sale of new Nissan vehicles, and, as a result, it experienced a substantial decline in sales penetration to among the worst in the entire state.
Hampton’s argument that the Dealer Agreement does not impose any sales obligation on the dealer, but rather, only a “marketing” obligation is contradicted by the plain language of the Dealer Agreement and has been rejected by the Department. See e.g., Love, ¶¶ 96-97. Even if a dealer is actively promoting the sale of vehicles, it is not effectively promoting them if the promotion does not result in a reasonable level of sales performance. Id.
Nissan’s termination of Hampton’s Dealer Agreement was undertaken in good faith based on Hampton's extremely poor sales performance, its operational decisions which led to such performance, and its unwillingness or inability to take the steps necessary to improve.
Nissan provided appropriate and continuing notice to Hampton of its declining sales penetration and offered specific recommendations on ways to improve. Hampton ignored these recommendations and often refused to meet with Nissan personnel. See Love, ¶ 103 (providing notice of poor performance and recommendations to dealer shows good faith); accord Classic,
¶ 167.
Nissan’s termination of Hampton’s Dealer Agreement was for good cause. Hampton was not only a long-time poor performer, but it also experienced a substantial and continuing decline in sales penetration to among the worst performers in the entire state of Florida. See Classic, ¶ 170 (finding poor sales performance to be good cause for termination); accord Love, ¶ 104.
While Hampton is free to make its own operational decisions, it is contractually obligated to effectively represent the Nissan brand and to fulfill its sales performance obligations. Its failure to do so provided good cause for termination.
Hampton’s poor sales performance was due to operational problems at the dealership, including issues related to management, advertising, customer relations, lack of training, and capitalization. Hampton’s owner even admitted that the management turnover and lack of a qualified, on-site Executive Manager for many years is the primary cause of its poor performance. See Classic, ¶¶ 171-172 (lack of executive manager relevant to good
cause). These operational decisions had an immediate and continuing impact on the dealer’s sales performance.
A dealership’s failure to achieve reasonable market share is a material and substantial breach. “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 [the dealer] is a material and substantial breach of the contract.” Bill Gallman Pontiac GMC Truck, Inc. v. GMC, Case No. 89-0505,
¶ 17 (Fla. DOAH June 29, 1990; HSMV Aug. 19, 1994).
Every slight failure to achieve average sales penetration may not be a material and substantial breach warranting termination. “The magnitude of the short-fall must be considered in determining whether a dealer’s performance is so ineffective as to warrant termination.” Love, ¶ 105; accord Classic, ¶¶ 178-179.
Hampton did not merely fail to achieve average RSE; its performance was significantly below average. By November 2010, Hampton was performing at 48.5 percent of average, among the worst performers in the state and the region. Hampton’s lack of any substantive effort to improve its sales performance also evidences the materiality of its breach. Classic, ¶ 179. Hampton’s breach
of its sales obligations in the Dealer Agreement is material and substantial.
The “uniform and consistent” requirement of section 320.641(3) does not require that a manufacturer treat every under- performing dealer “identically,” issuing the same number of NODs, or terminating the dealer only after the exact same length of poor performance. Rather, the uniform and consistent requirement requires the manufacturer to show that it has “treated similarly- situated dealers in a uniform and consistent manner, and that it has not singled out any particular dealer for disparate treatment,” using criteria not applied to other dealers. Love,
¶ 108.
The evidence showed that Nissan uniformly and consistently applied the same performance standard and considerations to all dealers, including Hampton, and that Hampton was not singled out for disparate treatment. Although Hampton identified other dealers whose performance was poor at some period of time, Nissan explained the circumstances surrounding these dealers, who either improved performance, sold their dealership rather than face potential termination, or came forward with a specific action plan to improve after receiving an NOD. None of these dealers are similarly situated to Hampton, and Nissan applied the grounds for termination in a uniform and consistent manner.
The manufacturer may take into account each particular dealer’s circumstances, including factors beyond the dealer’s control that may have prevented the dealer from reaching its sales penetration obligation, as well as the efforts of the dealers to effectively address the poor performance. Love, ¶¶ 106-109 (holding that manufacturer may take into account all appropriate dealer circumstances); Classic, ¶¶ 182-183 (lack of plan or willingness to improve differentiated dealer from other poor performers).
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Highway Safety and Motor Vehicles enter a final order dismissing Petitioner’s protest and approving the December 7, 2010, Notice of Termination.
DONE AND ENTERED this 12th day of September, 2012, in Tallahassee, Leon County, Florida.
S
JAMES H. PETERSON, III
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 2012.
ENDNOTES
1/ The Dealer Agreement identifies Hampton Automotive Group, Inc. as a Florida corporation. The purchase by Hampton Automotive Group, Inc., included the Nissan, Hyundai, Mitsubishi, and Volvo dealership in Fort Walton Beach, Florida, at the location where Hampton Automotive Group currently operates Hampton Nissan (Hampton), Hampton Hyundai, and Hampton Mitsubishi. Mark Hampton owns other companies with a Mitsubishi dealership, a Toyota dealership, and a used car dealership in Lafayette, Louisiana.
2/ Article Fourth (b) of the Dealer Agreement obligates Hampton to obtain the written consent of Nissan before changing its executive manager.
3/ Unless otherwise noted, all references to the Florida Statutes are to the current, 2012 versions, pertinent portions of which have not changed since prior to the occurrence of material facts in this case.
COPIES FURNISHED:
John W. Forehand, Esquire Kurkin Forehand Brandes, LLP
800 North Calhoun Street, Suite 1B Tallahassee, Florida 32303 jforehand@kfb-law.com
Craig Spickard, Esquire Kurkin Forehand Brandes, LLP
800 North Calhoun Street, Suite 1B Tallahassee, Florida 32303 cspickard@kfb-law.com
Virginia Gulde, Esquire
Nelson, Mullins, Riley & Scarborough LLP 3600 Maclay Boulevard South, Suite 202
Tallahassee, Florida 32312 virginia.gulde@nelsonmullins.com
Andy Bertron, Esquire
Nelson, Mullins, Riley & Scarborough LLP 3600 Maclay Boulevard South, Suite 202
Tallahassee, Florida 32312 andy.bertron@nelsonmullins.com
Keith Hutto, Esquire
Nelson, Mullins, Riley & Scarborough, LLP 1320 Main Street, 17th Floor
Post Office Box 11070
Columbia, South Carolina 29211
Steven A. McKelvey, Jr., Esquire
Nelson, Mullins, Riley & Scarborough, LLP 1320 Main Street, 17th Floor
Post Office Box 11070
Columbia, South Carolina 29201 steve.mckelvey@nelsonmullins.com
M. Ronald McMahan, Jr., Esquire
Nelson, Mullins, Riley & Scarborough, LLP 1320 Main Street, 17th Floor
Post Office Box 11070
Columbia, South Carolina 29201 ronnie.mcmahan@nelsonmullins.com
Boyd Walden, Director of Motorist Services Department of Highway Safety
and Motor Vehicles
Neil Kirkman Building, Room B-435 2900 Apalachee Parkway, Mail Stop 61
Tallahassee, Florida 32399
Steve Hurm, General Counsel Department of Highway Safety
and Motor Vehicles
Neil Kirkman Building, Room A-432 2900 Apalachee Parkway, Mail Stop 61
Tallahassee, Florida 32399
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Oct. 24, 2012 | Agency Final Order | |
| Sep. 12, 2012 | Recommended Order | The proposed termination of the dealer agreement meets statutory requirements and is not unfair. |
