STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LOVE NISSAN,

Petitioner,

vs.

NISSAN NORTH AMERICA, INC.,

Respondent.

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) Case No. 04-2247

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RECOMMENDED ORDER

Upon due notice, a disputed-fact hearing was conducted in this case on March 7-11 and 16-18, 2005, in Tallahassee, Florida, before Ella Jane P. Davis, a duly-assigned Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: John W. Forehand, Esquire

Walter Forehand, Esquire Lewis, Longman & Walker, P.A.

125 South Gadsden Street, Suite 300 Post Office Box 10788

Tallahassee, Florida 32302

Alex Kirkin, Esquire Pathman Lewis, LLP

One Biscayne Tower, Suite 2400 Two South Biscayne Boulevard Miami, Florida 33131

For Respondent: Dean Bunch, Esquire

Sutherland Asbill & Brennan, LLP 2282 Killearn Center Boulevard Tallahassee, Florida 32309-3576

S. Keith Hutto, Esquire

Steven A. McKelvey, Jr., Esquire

M. Ronald McMahan, Jr., Esquire

Nelson Mullins Riley & Scarborough, LLP 1320 Main Street, 17th Floor

Columbia, South Carolina 29201

Cristian S. Torres, Esquire Nissan North America, Inc. 18501 South Figueroa Street Gardena, California 09248-0191

STATEMENT OF THE ISSUES

Whether Respondent Nissan North America, Inc.'s April 1, 2004, Notice of Termination of the Dealer Sales and Service Agreement between itself and Petitioner Love Nissan, Inc., was undertaken in good faith; undertaken for good cause; clearly permitted by the franchise agreement; and was based on a material and substantial breach of the dealer agreement; and whether the grounds relied upon for termination have been applied in a uniform and consistent manner.

PRELIMINARY STATEMENT

On April 1, 2004, Nissan North America, Inc., (Nissan) issued a Notice of Termination (NOT) of its Dealer Sales and Service Agreement to Love Nissan, Inc., (Love Nissan or Love). Love timely filed a protest with the Florida Department of Highway Safety and Motor Vehicles. The matter was referred to

the Division of Administrative Hearings on or about June 25, 2004.

By agreement of the parties, this cause was originally scheduled for a final hearing on the merits on February 7-18, 2005. Ultimately, the case was rescheduled, again at the parties' request, for the dates set forth above.

According to law, and by stipulation of the parties, Nissan bore the duty to go forward and the burden of proof by a preponderance of the evidence of all statutory elements. All concerned acknowledge that, regardless of the style of these proceedings, the Florida Department of Highway Safety and Motor Vehicles is the agency which will enter the final order herein.

Nissan presented the testimony of Jonathan Finkel, Andrew Delbrueck, Patrick Doody, Herbert Walter, and

James Anderson. Nissan's Exhibits 9, 11, 14, 16-38, 40-46, 72,

91, 95-98, and 100-112, were admitted in evidence.

Love presented the testimony of Joseph Roesner,

Robert (Bob) Halleen, Chad Halleen, and Robert Dilmore. Love's Exhibits 10, 14, 17, 23, 39, 45, 52, 54-57, 59-60, and 60A were

admitted in evidence. Love's Exhibits 10A and 61 were not admitted in evidence, but were proffered, along with related testimony.

Some exhibits constitute depositions of additional witnesses.

In the course of hearing, the undersigned made the following evidentiary rulings, among others:

1. In this franchise termination proceeding, the 2001 amendment to Section 320.641, Florida Statutes, requiring that a manufacturer's grounds for termination be applied by it in a "uniform and consistent manner" applies to this action from June 8, 2001, the amendment's effective date, through the issuance of NISSAN'S Notice of Termination to the franchisee/dealer, LOVE.

   
   

2. All evidence between June 8, 2001, and April 1, 2004, the Notice of Termination date, is relevant to determine whether or not NISSAN has satisfied this requirement.

   
   

3. Dissimilar treatment of other dealers which occurred after the Notice of Termination, if any such dissimilar treatment occurred, is irrelevant to the issues of this cause.1/

A Transcript of 14 volumes was filed on April 1, 2005. The parties filed their respective Proposed Recommended Orders timely, in accord with their stipulation. Both proposals have been considered in preparation of this Recommended Order.

FINDINGS OF FACT

1. Nissan is a "licensee" as defined by Section 320.60(8), Florida Statutes.

2. Love is a "motor vehicle dealer," in relationship with Nissan, as defined by Section 320.60(11)(a)1., Florida Statutes.

3. At all times material, Love Nissan's principals have been retailers of both Nissan and Honda automobiles in Homosassa

   Springs, Citrus County, Florida. The Honda dealership is called, "Love Honda." (See Finding of Fact 11.) Honda is a competitor of Nissan.

4. Nissan and Love are parties to a Dealer Sales and Service Agreement, which is a "franchise agreement" as defined by Section 320.60(1), Florida Statutes, and which is referred to herein as "the dealer agreement."

5. This is an automobile dealer termination case, arising from Nissan's April 1, 2004, Notice of Intent to Terminate the Dealer Sales and Service Agreement.

6. Love's dealer agreement with Nissan, executed March 4, 1999, is the acknowledged contract between the parties. Nissan drafted it.

7. Charles Halleen purchased Love Nissan on July 23, 1990.

   
   

   At all times material, Charles Halleen had a long and successful history in the automotive sales and service industry. From the time Charles Halleen purchased the dealership, his son,

   Robert Halleen, worked at the dealership. Robert also has been involved in the automotive sales and service industry most of his life. When Charles Halleen acquired Love, Robert took control over most dealership operations, other than sales.

   Robert Halleen's duties increased as he began to oversee used car sales. Chad Halleen, Charles Halleen's grandson and

   Robert Halleen's son, also worked part-time or full-time at the dealership from 1990 through the date of hearing.

8. However, until 1994, a non-family member served as Love's executive manager and was responsible for new vehicle sales, advertising, and ordering from Nissan of the vehicles to be sold by Love.

9. From 1994 to 1999, Charles Halleen owned the Love dealership and served as its dealer principal. During the same period, Robert Halleen served as Love's general manager. Since 1994, Love has been a poor performer saleswise.

10. Effective March 4, 1999, Nissan approved Charles Halleen's transfer of ownership of Love Nissan to Robert Halleen, and to Robert's son, Chad Halleen. Robert Halleen became 90 percent owner of the dealership, and Chad Halleen received the remaining 10 percent ownership. At the same time, Robert Halleen and Chad Halleen entered into the dealer agreement with Nissan that is at issue in these proceedings. Pursuant to that dealer agreement, Robert Halleen became Love's dealer principal and Chad Halleen became Love's executive manager.

11. Robert and Chad Halleen also own Love Honda, which is located adjacent to Love Nissan. The Nissan and Honda dealerships have separate showrooms, display areas, and parking

    areas, but they share a service facility which is located behind the Love Nissan showroom.

12. Section 320.645, Florida Statutes, prohibits a manufacturer from owning a motor vehicle dealership that sells the cars it manufactures directly to the public. Nissan cannot sell cars at retail in Florida and therefore must rely on its dealers to sell cars to the ultimate consumers. Accordingly, Nissan's agreements with its dealers contain provisions to help ensure that dealers achieve and maintain sufficient and satisfactory levels of sales performance.

13. Within the dealer agreement, Love is referred to as "dealer," and Nissan is referred to as "seller."

14. The following provisions of the dealer agreement impact this case:

    Section 3: Vehicle Sales Responsibilities of Dealer.

    
    

    1. General Obligations of Dealer. Dealer shall 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 Dealer's Primary Market Area. Dealer's Primary Market Area is a geographic area which Seller uses as a tool to evaluate Dealer's performance of its sales obligations hereunder. Dealer agrees: that it has no right or property interest in any such geographic area which Seller may designate; that, subject to Section 4 of this Agreement, Seller may add, relocate or replace dealers in Dealer's Primary Market

       Area; and that Seller may, in its reasonable discretion, change Dealer's Primary Market Area from time to time.

       
       

    2. Sales of Nissan Cars and Nissan Trucks. Dealer's performance of its sales responsibility for Nissan Cars and Nissan Trucks will be evaluated by Seller on the basis of such reasonable criteria as Seller may develop from time to time, including for example:

       
       

       1. Achievement of reasonable sales objectives which may be established from time to time by Seller for Dealer as standards for performance.

          
          

       2. Dealer's sales of Nissan Cars and Nissan Trucks in Dealer's Primary Market Area and/or the metropolitan area in which Dealer is located, as applicable, or Dealer's sales as a percentage of:

          3.B.2.(i) registrations of Nissan Cars and Trucks;

          3.B.2.(ii) registrations of Competitive Vehicles;

          3.B.2.(iii) registrations of Industry

          Cars;

          3.B.2.(iv) registrations of vehicles in the Competitive Truck Segment;

          
          

       3. A comparison of Dealer's sales and/or registrations to sales and/or registrations of all other Authorized Nissan Dealers combined in Seller's Sales Region and District in which Dealer is located and, where Section 3.C applies, for all other Authorized Nissan Dealers combined in the metropolitan area in which Dealer is located; and

          
          

       4. A comparison of sales and/or registrations achieved by Dealer to the sales or registrations of Dealer's competitors.

          The sales and registration data referred to in Section 3 shall be those utilized in Seller's records or in reports furnished to Seller by independent sources selected by it and generally available for such purpose in the automotive industry. If such reports of registration and/or sales are not generally available, Seller may rely on such other registration and/or sales data as can be reasonably obtained by Seller.

          
          

    3. Metropolitan Markets.

       If Dealer is located in a metropolitan or other marketing area where there are located one or more Authorized Nissan Dealers other than Dealer, the combined sales performance of all Nissan Dealers in such metropolitan or other marketing area may be evaluated as indicated in Sections 3.B.2 and 3.B.3 above, and Dealer's sales performance may also be evaluated on the basis of the proportion of sales and potential sales of Nissan Vehicles in the metropolitan or other marketing area in which Dealer is located for which Dealer fairly may be held responsible.

       
       

    4. Additional Factors for Consideration. Where appropriate in evaluating Dealer's sales performance, Seller will take into account such reasonable criteria as Seller may determine from time to time, including, for example, the following: the Dealership Location; the general shopping habits of the public in such market area; the availability of Nissan Vehicles to Dealer and to other Authorized Nissan Dealers; any special local marketing conditions that would affect Dealer's sales performance differently from the sales performance of other Authorized Nissan Dealers; the recent and long term trends in Dealer's sales performance; the manner in which Dealer has conducted its sales operations (including advertising, sales promotion, and treatment of customers); and the other factors, if any, directly affecting Dealer's sales opportunities and performance.

    
    

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    1. Assistance Provided by Seller.

       1. Sales Training Courses.

          Seller will offer from time to time sales training courses for Dealer sales personnel. Based on its need thereof, Dealer shall, without expense to Seller, have members of Dealer's sales organization attend such training courses and Dealer shall cooperate in such courses as may from time to time be offered by Seller.

       2. Sales Personnel.

          To further assist Dealer, Seller will provide to Dealer advice and counsel on matters relating to new vehicle sales, sales personnel training and management, merchandising, and facilities used for Dealer's vehicle sales operations.

          
          

    2. Evaluation of Dealer's Sales Performance.

    Seller will periodically evaluate Dealer's performance of its responsibilities under this Section 3. Evaluations prepared pursuant to this Section 3. Evaluations prepared pursuant to this Section 3.H. will be discussed with and provided to Dealer, and Dealer shall have an opportunity to comment, in writing, on such evaluations.

    Dealer shall promptly take such action as may be required to correct any deficiencies in Dealer's performance of its responsibilities under this Section 3.

    
    

    * * * Section 12. Termination.

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    1. Termination by Seller for Non- Performance by Dealer.

       
       

       1. If, based upon the evaluations thereof made by Seller, Dealer shall fail to

          substantially fulfill its responsibilities with respect to:

          12.B.l.a. Sales of new Nissan Vehicles and the other responsibilities of Dealer set forth in Section 3 of this Agreement;

          1. Maintenance of the Dealership Facilities and the Dealership Location set forth in Section 2 of this Agreement;

          2. Service of Nissan Vehicles and sale and service of Genuine Nissan Parts and Accessories and the other responsibilities of Dealer set forth in Section 5 of this Agreement;

          3. The other responsibilities assumed by Dealer in this Agreement including, without limitation, Dealer's failure to:

          12.B.1.d.(i)Timely submit accurate sales, service and financial information concerning its Dealership Operations, ownership or management and related supporting data, as required under this Agreement or as may be reasonably requested by Seller;

          12.B.1.d.(ii)Permit Seller to make an examination or audit of Dealer's accounts and records concerning its Dealership Operations after receipt of notice from Seller requesting such permission or information;

          12.B.1.d.(iii)Pay Seller for any Nissan Products or any other products or services purchased by Dealer from Seller, in accordance with the terms and conditions of sale; or

          12.B.1.d.(iv)Maintain net worth and working capital substantially in accordance with Seller's Guides therefore; or

          
          

       2. In the event that any of the following occur:

    12.B.2.(i) any dispute, disagreement or controversy between or among Dealer and any third party or between or among the owners or management personnel of Dealer relating to the management or ownership of Dealer develops or exists which, in the reasonable

    opinion of Seller, tends to adversely affect the conduct of the Dealership Operations or the interests of Dealer or Seller, or

    12.B.2.(ii) any other act or activity of Dealer, or any of its owners or management occurs, which substantially impairs the reputation or financial standing of Dealer or of any of its management subsequent to the execution of this Agreement:

    Seller will notify Dealer of such failure and will review with Dealer the nature and extent of such failure and the reasons which, in Seller's or Dealer's opinion, account for such failure.

    Thereafter, Seller will provide Dealer with a reasonable opportunity to correct the failure. If Dealer fails to make substantial progress towards remedying such failure before the expiration of such period, Seller may terminate this Agreement by giving Dealer notice of termination, such termination to be effective at least ninety

    (90) days after such notice is given.

    During such period Dealer will commence such actions as may be necessary so that the termination obligations of Seller and Dealer set forth in this Agreement may be fulfilled as promptly as practicable.

    
    

15. Therefore, it may be said that Love and Nissan have agreed and contracted that Love will "actively and effectively promote the sale at retail" of new Nissan vehicles; that Love will be evaluated by Nissan on Love's sales performance within its designated Primary Market Area (PMA); and that Nissan may evaluate Love's "performance of . . . sales responsibility . . . on the basis of such reasonable criteria as [Nissan] may develop from time to time."

16. At all times material, Love's PMA has included all of Citrus County and parts of Levy and Hernando Counties, although during the critical period of time, Nissan twice adjusted Love's PMA boundaries as described below.

17. At all times material, Robert and Chad Halleen knew that Nissan makes periodic evaluations of Love's sales performance, and that pursuant to the dealer agreement, Nissan could terminate Love for failure to "substantially fulfill its responsibilities with respect to sales of new Nissan vehicles."

18. Nissan, in fact, used the criteria set forth in Section 3.B.2.(ii), of the dealer agreement to evaluate Love, that is: Love's percentage of competitive vehicle registrations, compared to the "sales and/or registrations of all other Authorized Nissan Dealers combined in [Love's] sales region." It is undisputed that the dealer agreement outlines the "sales penetration" calculation Nissan is permitted to use, and did use, to evaluate Love and all other Nissan dealers' sales performance.

19. This is a statistically dense case, and accordingly, the weight and credibility of testimony in the respective experts' various fields has been analyzed and considered in arriving at the following factual analysis of those statistics, but it is unrefuted that Love's sales performance on Nissan

    automobiles has always been below Nissan's southeast region average by every standard used to evaluate Love's performance.

20. Nissan has consistently used sales penetration to evaluate the sales performance of all Nissan dealers, not just Love. Sales penetration is calculated by dividing a dealer's total new vehicle sales by the number of competitive new vehicles registered in a dealer's PMA. The resultant quotient is expressed as a percentage, to show the dealer's sales penetration. Each dealer's sales penetration is then compared as a ratio to Nissan's sales penetration throughout the region, to determine whether the dealer being analyzed is penetrating its PMA below, at, or above the average for all Nissan dealers in the region. Historically, by case law, and by expert testimony in the instant proceeding, it is found that Nissan's method for evaluating its dealers' sales performances is a reasonable, industry-accepted practice for evaluating new car dealers.2/

21. Furthermore, this methodology has "built-in" benefits for the dealers being analyzed. Because all sales are included in the denominator of the calculation, and not just those sales from the geographical market areas assigned to the respective dealers, the total region penetration figure is lowered, thus helping more dealers demonstrate at least average penetration.

22. Nissan advises dealers who are in trouble saleswise, or who are likely to get in trouble saleswise, before it is too late to salvage the dealership. Among other means of doing this is Nissan's practice of sending dealers who rank in the bottom

    10 of the sales penetration rankings a quarterly letter expressing Nissan's concern with the dealership's sales performance. From 1997 to 2004, Love Nissan received many such letters. The first such letter arrived in 1997, before Robert and Chad Halleen took over the running of Love Nissan. Robert Halleen claims that in 1997, upon receipt of Love's first "bottom 10" letter, Nissan's District Operations Manager (DOM) told him that bottom 10 letters were a mere formality and that he should not worry about receiving them. While this unrefuted testimony is credible, it does not excuse Love's later failure to respond to requests and advice from Nissan; failure to respond to bottom 10 letters; or failure to respond to notices of default (NODs), by bringing Love's sales penetration into line with the region average for the next six-plus years.3/

23. From 1997 to April 1, 2004, in addition to bottom 10 letters, Nissan repeatedly notified Love of its evaluations on the basis of Love's sales penetration as compared to the region average and Love's ranking among Nissan dealers; notified Love that it was not meeting Nissan's expected level of sales; and

    offered advice and counsel, through its DOM, on increasing sales, as more specifically described below.

24. On November 29, 1999, nine months into Robert and Chad Halleen's ownership and administration of Love, Love received Nissan's certified bottom 10 letter, stating that Love needed to improve its sales penetration to meet the region average. As of that date, Love's penetration was 33 percent of the region average.

25. On November 21, 2000, Nissan sent Love an NOD, advising that Love was in default on several provisions of the dealer agreement. The letter notes that it is the third such notice.

26. Love had unilaterally, and without Nissan's prior approval as required by the dealer agreement, added the Daewoo car line to Love's dealership. Daewoo is another import competitor of Nissan. Although Love's showroom for Daewoo was located elsewhere, some Daewoo automotive service was conducted at the Love Nissan service facility, which already was shared with Love Honda. Nissan cited this situation as one of the four elements of a default by Love, along with Love's failure to maintain its facilities, insufficient capitalization, and poor sales performance/penetration.

27. The NOD also advised Love that its sales penetration had been decreasing: 35.5 percent of region average in 1998,

    which was 390 units short of the region average units sold that year; 32.0 percent of the region average in 1999; and 28.1 percent of region average in 2000, year to date (YTD). Nissan gave Love 90 days to avoid termination by reaching the region's average sales penetration.

28. By year's end, Love was only at 29.5 percent penetration, but Love Nissan's attorney sent an explanation of the Daewoo situation to Nissan on January 9, 2001. His letter stated, in pertinent part:

    . . . as you note in your letter, Mr. Halleen has purchased land adjacent to the dealership facilities and has already moved the Daewoo sales to that land. Also, the rest of the Daewoo related complaints are not an issue as Mr. Halleen has remedied that problem so that Daewoo service or parts is not infringing on any portion of Nissan's use of any of the facilities.

    . . . the numbers that have been provided to you are not accurate or have not been appropriately applied to the situation regarding Love Nissan's Guides for Dealership Facilities. At this time, we believe that Love Nissan is now, and has been in substantial compliance with these Guides. [There follows a discussion of alleged square footage of the facility as Love compared it to the Nissan guidelines.]

    
    

    . . . Mr. Halleen . . . disagrees with the current "planning potential" that has been assessed to Love. . . .

    
    

29. On February 1, 2001, Nissan sent Love a follow-up NOD, again advising Love that its current sales penetration was the

    lowest of the 58 Florida dealers, and again advising that Love must remedy its default of the dealer agreement.

30. On June 29, 2001, Nissan sent Love another certified letter. Nissan again informed Love that it was in breach of the dealer agreement based upon its sales penetration through

    April 2001, which was only 47.2 percent of region average. Nissan requested a response from Love by July 16, 2001, with a plan to cure its default, but Love did not respond.

31. The effect of this correspondence was additional time beyond the 90 days in which Love could show performance improvement.

32. By a July 16, 2001, NOD, Nissan reiterated the same unauthorized addition of Daewoo to the already shared service department, failure to meet facility guidelines, and unsatisfactory sales performance, and set a 30 days' time limit for Love to come up with a written plan for improvement and a 90 days' deadline for Love to meet the region sales average.

33. The July 16, 2001, NOD also advised Love that, at Love's request, Nissan had reduced the size of Love's PMA and had recalculated sales penetration pursuant to the new PMA, but that Love's sales penetration, as recalculated, was still at only 54 percent of the average region sales penetration.

34. The NODs were jointly signed by W. J. Kirrane, Nissan's Vice-President and General Manager, and Brad Bradshaw, Nissan's then-Southeast Region Vice-President.

35. Love's response to the July 16, 2001, NOD came from Robert Halleen, dated August 10, 2001. It was addressed to Mr. Kirrane, in California, and was copied to Mr. Bradshaw. It read, in pertinent part:

    Your letter sent to me July 16, 2001, Notice of Default . . . shows a total lack of communication within Nissan as well as a total lack of commitment to your dealers.

    Our DOM's [sic.] have continually worked to adjust our PMA to try to eliminate some of the obstacles in penetrating this market.

    
    

    Even by your own numbers, our penetration is increasing. . . . I would appreciate any help you can give me. . . .

    We currently have thirty two Nissans in stock (we normally stock 70-80) and had 3 units taken from our last allocation. If Nissan wants me to sell more cars they need to provide them.

    
    

    Regarding your concerns over Daewoo, there is no evidence of Daewoo parts and service in our Nissan facility now or in the past. Daewoo currently resides in a building one mile south of our Nissan facility.

    
    

    Concerning your facilities question, I do not believe anyone who has ever been to our dealership could call it inadequate. We have more than enough land to adequately display and sell Nissans (approximately 4 acres). Our service department is not running at full capacity, so I must assume that it also is more than adequate for the job.

    * * *

    
    

    Mr. Kirrane, if you are truly interested in Love Nissan improving its penetration, then sit down with me at the upcoming dealer meeting and explain how I can do this.

    
    

36. The foregoing letter indicates several troubling things about the Halleens' approach to solving Love's sales penetration problems: a misunderstanding of how a PMA is established; a failure to recognize that Nissan had recently readjusted Love's PMA; and a peculiar belief that the PMA itself somehow inhibited sales, as opposed to being just an evaluation tool. Further, it at least suggests that Robert Halleen misunderstood Nissan's allocation and ordering system as explained by several witnesses. It did not propose any plan for improving sales penetration. The letter also did not re- address, with any specificity, the Nissan facility guidelines by square-footage of each part of the facility, but it did give an owner's reassurance that Daewoo service was no longer being performed in Love's Nissan-Honda facility.4/

37. Mr. Kirrane, from California, did not meet with Robert Halleen as suggested, or personally respond to the foregoing letter. Nissan's position is that Love was adequately served by its local DOMs and by Nissan's Region Vice-President.

38. On September 5, 2001, a certified letter from Region Vice-President Bradshaw responded to Robert Halleen's August 10,

    2001, letter. Mr. Bradshaw's response memorialized a phone conversation between himself and Robert Halleen, which

    Mr. Bradshaw believed had resolved the PMA issue; offered Love help with allocation of product (inventory); acknowledged Love's relocation of Daewoo service; and cited several visitations by the DOM to assist Love. The Region Vice-President's letter further addressed Love's poor sales penetration and requested that Love propose a plan for achieving the region average. Love did not send Nissan any written plan.

39. On November 26, 2001, Nissan sent another certified letter to Love, advising that, even with Love's new PMA, Love's sales penetration had fallen to 51.1 percent of the region average, and requesting a plan of improvement. No plan was received.

40. Nissan sent a certified letter to Love on March 4, 2002, advising that Love's sales penetration was only 50 percent of region average and requesting a plan for improvement by March 31, 2002. Love did not respond with a plan of correction for improvement of its sales.

41. In October 2002, Nissan's DOM visited Love to discuss sales performance and the need to improve.

42. On March 24, 2003, Nissan sent Love another certified letter, advising that Love's sales penetration percentage had declined in 2002 to 50.6 percent from an already low 50.9

    percent the previous year, and that Love was in breach of the dealer agreement.

43. Chad Halleen responded to Nissan's then-Region Vice- President, Patrick Doody, generally stating Love's intent to increase sales via increased advertising and expressing concerns about how Nissan calculates sales penetration versus how Honda calculates sales penetration. He also expressed a concern about getting new Nissan cars/trucks and the desired type of Nissan cars/trucks in time to sell Nissan units in July 2003, based on how few units he currently had on his lot and how few he had on order. This letter also evidenced Chad Halleen's misunderstanding of Nissan's allocation and ordering system, and it proposed no plan of correction.

44. Jon Finkel, Nissan's then-DOM, met with the Halleens on April 11, 2003, at the dealership. Love's then 51.2 YTD percent of region average sales penetration was discussed.

45. On May 23, 2003, Nissan sent Love another certified letter, advising that Love's sales penetration had fallen to

    45.9 percent of region average through March 2003, which constituted a decrease from both the previous month and the previous year.

46. On June 24, 2003, DOM Finkel again visited Chad Halleen to assist with new signage, inventory, and "leads" for sales.

47. On June 27, 2003, Nissan issued another NOD to Love, again based on Love's current sales penetration of 46.7 percent and long-term sales penetration deficits. It gave notice of a breach of the dealer agreement and held out to Love the option of curing its breach by increasing sales penetration to reach the region average. At this stage, Love's performance had resulted in 200-plus lost Nissan sales per year, each year since 1999.

48. Mr. Finkel also called on Love in July of 2003 and advised that Love had improved to 48.2 percent of the region average in sales penetration. He also called on August 8, 2003, and advised that Love had climbed to 50.7 percent of average, but reminded Love that under the terms of the current NOD, Love had to attain region average sales penetration by September 2003 or Nissan would terminate the dealer agreement.

49. On August 15, 2003, Nissan sent another bottom ten letter, again advising Love of its deficient sales penetration and requesting that Love submit a plan for improvement to region average by September 15, 2003. Love's response was received by Nissan on September 18, 2003, but it contained no specific plan for the future and mostly related Love's previous July and August 2003 changes in hiring trained personnel in both sales and service areas; discussed compensation incentives already instituted for sales personnel; and stated that Love recently

    had sometimes lost money on new car deals by pricing them low, just to move Nissan units. These prior changes so far had produced minimal effect and so far had not significantly improved Love's sales penetration figures. Cutting Love's profit margin clearly was not a long-term solution to improve the dealer's sales penetration.

50. On September 24, 2003, Mr. Finkel again met with Love to discuss Love's sales penetration, which was then at 53.1 percent of the region average, through July 2003. He again reminded Love that it needed to meet the region average sales penetration by the end of the month or Nissan would terminate the dealer agreement.

51. However, Love's raw score of new car sales and penetration percentage had modestly increased after the June NOD, and Nissan accordingly extended the NOD as of November 5, 2003.

52. Mr. Finkel met with Love on December 8, 2003, to discuss the October 2003 sales penetration report, which for Love still hovered at only 56.6 percent of region average sales penetration.

53. Mr. Finkel's report memorializes that at that time, Chad Halleen indicated he planned to renovate parts of the facility; Mr. Finkel urged Chad Halleen to "de-dual" with Honda in order to take advantage of the generally improving Nissan

    market; Mr. Halleen said he did not think he could do that financially, due to Nissan's space requirements; and Mr. Finkel said he would get back to Mr. Halleen about the space requirements. Love did not volunteer capital to build a new facility or to de-dual or offer a comprehensive sales penetration plan.

54. Mr. Finkel also set a sales objective for Love of 400 new Nissan vehicles for 2004. This goal was not a Nissan requirement or an approved Nissan evaluation tool, and the figure has never been used to evaluate Love for active and effective sales performance/penetration. It was Mr. Finkel's own incentive idea. Love contends that an aspirational raw score like this should have been Nissan's requirement all along, yet at no time did Love ever sell 400 new Nissan vehicles in a year.

55. On February 10, 2004, Mr. Finkel again met with Love to discuss that the 2003 year-end data showed that Love had fallen back to a 55.8 percent of region average sales penetration.

56. On April 1, 2004, Nissan issued the NOT which gave rise to the instant case. The NOT was based on Love's historical and continued poor sales performance, as evidenced by statistics and evaluation through December 31, 2003.

57. At the time that the NOT was sent to Love, Nissan did not base the NOT on Love's sales penetration for the first quarter of 2004, which ended March 31, 2004. Due to a nationwide audit, Love's PMA had been inconsequentially changed on March 1, 2004.5/ However, the figures representing actual sales penetration up to the date of termination, April 1, 2004, including calculations based on the latest PMA, have since been reviewed by Nissan, and these statistics support a finding that through March 2004, Love's sales penetration ranked 147th of the

    154 Nissan dealers in the region; 56th of the 57 Nissan dealers then in Florida; and 17th of the 17 Nissan dealers in its district.

58. After five years of a variety of counseling sessions, warnings, NODs, and extensions, and after Nissan's realignment of Love's PMA in 2001, at Love's request, Love still had failed to ever meet the regional sales average and, despite repeated solicitation by Nissan of a comprehensive written plan for improvement of Love's sales penetration, Love had failed to submit such a plan.

59. Nonetheless, the Halleens, father and son, testified that since they took over Love in 1999, they have had a private plan that is best described as "slow, stable growth." This seems to mean, among other things, that they chose not to accept all of Nissan's suggestions simultaneously, but wanted to build

    and improve Love's sales force first, before increasing its advertising, before ordering/stocking certain new models of Nissan vehicles. The problem with this "plan," apparently first advanced at hearing, is that it has never resulted in Love meeting the region sales penetration average.

60. In attempting to fulfill its obligations under Subpart 3.G.2., of the dealer agreement, Nissan, through its DOMs, Region Vice-Presidents, and other corporate management, at various times during the last five years, has advised Love as set out previously (see Findings of Fact 38, 46, and 53) and has also advised Love to stay open on Sundays; increase advertising; and hire and train competent personnel in both sales and service fields, including getting all Love's service personnel trained and certified by Nissan so that Love could offer customers "certified Nissan used cars and service," thereby engendering customer satisfaction and brand loyalty. Nissan also has suggested that Love maintain a steady workforce, conduct off- site sales, and stock and move new models. Few of these suggestions have been implemented by Love.

61. Love had previously tried staying open on Sundays, but found it not to be cost-effective and decided to stay closed on Sundays, even though staying open would have meant Love would have been the only dealer of any brand open on Sundays in Homosassa and therefore more competitive. The Halleens

    represented at hearing that they intend to eventually stay open one or more Sundays per month, but they did not clearly indicate this to Nissan prior to the NOT or explain why they would not open on Sundays at that time.

62. Only since late 2003, have the current owners significantly increased their advertising budget and spread out their advertising through several newspapers, billboards, coupon books, two radio stations, mail-delivered print ads, cable television spots, various telephone books, and direct mail. This effort was late, and the amounts spent up to the date of the NOT were well below Nissan's advertising recommendations.

63. Love's sales manager testified that sales staff has been adequate for several years at Love. However, traditionally, Love has maintained that there are not a lot of trained dealership personnel in its local community or its PMA and that there are few persons who are willing to move to Homosassa to work. Love asserts that it is difficult to lure trained sales personnel to Love's rural location, and that larger markets, where income and prestige are more attractive, lure away personnel that Love has trained. Yet the fact remains that other dealers with similar problems are outselling Love. Also, traditionally, Love would not follow Nissan's advice to send its salespeople to training sessions conducted at other Nissan dealerships for fear that its employees would be lured

    away by that dealership, and Love has frequently not had Nissan certified mechanics in its service department. Since 2003, Chad Halleen works on the premises from opening until after closing. He has created an aggressive recruitment program and

    sales incentive program. He has instituted daily sales meetings with staff, weekly motivational meetings, and promotional cookouts, but these late efforts did not result in effective sales penetration figures prior to the NOT.

64. Traditionally, Love has resisted holding off-site sales, as recommended by Nissan, but Love pointed out only one location where there might, possibly, be a legal impediment to off-site sales, and offered no other reason for not holding off- site sales.

65. Love's recent reduced pricing to increase unit sales has increased its unit sales while adversely affecting its gross profit margin, but even these extraordinary efforts did not result in reaching region average sales penetration figures before termination. Moreover, this sacrifice has the potential of adversely affecting Love's capitalization and long term success.

66. The parties have each formed the opinion that Love's problems with Nissan new car/truck inventory impacted its sales penetration. Love maintains that it could not get the amount and variety of Nissan inventory it needed. Nissan suggests that

    the Halleens did not understand how to use the Nissan allocation of product and ordering system to their advantage.

67. Nissan established that, over time, Love sometimes failed to confirm its allocations, so that Nissan had to contact Love directly; that over time, Love sometimes declined vehicles offered under Nissan's current production order system; and that over time, Love frequently declined to take "pass 2" vehicle offerings, believing them to be somehow inferior or having been repeatedly rejected by other Nissan dealers, neither of which perceptions is accurate. Nissan further established that on occasion, its DOM intervened to provide units when Nissan complained about availability.

68. The totality of the evidence also shows that there was an on-going discussion between Love and Nissan's successive DOMs to the effect that Nissan repeatedly recommended that Love should stock more cars, in more or different models, in more colors, with more optional packages, in order to make more sales, and that, for a long period of time, the Halleens' concept of slow and steady growth caused them to resist the varietal approach suggested by Nissan. This was because the Halleens believed they knew their potential clientele, up close (see Findings of Fact 59 and 71), better than did Nissan, at a distance, and the Halleens perceived that they might be "stuck" with new Nissan models they believed they could not turn over in

    a reasonable amount of time. However, Love's inventory regularly stayed at 60-90 days supply,6/ which was the level the Halleens wanted, and Love's inventory sometimes exceeded 90 days' supply, the level advocated by Nissan's representative.

    Therefore, it is clear that Love got its ordered inventory; had the inventory mix it selected; and that same inventory did not penetrate Love's PMA adequately and never reached the region average sales penetration.

69. Love was responsible for selecting and ordering its own inventory for its potential clientele both by quantity and variety. No fault in this regard has been credibly attached to Nissan.

70. Pursuant to 3.D. of the dealer agreement, there are additional factors beyond just sales penetration/performance that Nissan is obligated to consider in the termination of a dealer.

71. Herein, one of the factors identified by Love as unique is that 32 percent of the residents of Love's PMA as constituted at any time were retirees, the majority of whom are over 65 years of age and who wanted to pay cash, without taking advantage of the several new car financing plans and packages which are the financial lifeblood of most dealerships and which would benefit Love's gross profit margin, capitalization, and cash flow, while Nissan's targeted customer demographic is 29 to

    54 years of age. However, the financing issue is a capitalization problem, which periodically has been a concern voiced by Nissan. Likewise, the segmentation analysis, which is part of Nissan's regional evaluations and rankings, divides competitive registrations into separate types or "segments" of vehicles sold in a market. The dealer is evaluated only on its expected penetration for each segment. If one segment does not perform well in a certain PMA, the dealer is held to a lower sales expectation for that type of vehicle. Even adjusting for segments, Love's sales penetration figures do not pass muster.

72. Another unique factor alleged by Love is that there is no significant retail activity in Homosassa or Crystal River to draw consumers to Love from other parts of its PMA. That said, Nissan credibly represented that its sales penetration methodology took into account the local marketing conditions, area, shopping habits of the public, traffic patterns, natural and man-made boundaries, and other relevant issues concerning the Homosassa market when it performed a market study in Love's area and when it twice re-evaluated and altered Love's PMA.7/

73. Love identified commuting patterns in its PMA to be going away from Love's location to other PMAs and claims this factor exposes commuters to more advertising by other dealers than to Love's advertising, as well as exposing them to the presence of those other dealers in and outside Love's PMA, but

    this would seem to be a problem with Love's advertising, if anything. Finally, even Love ultimately conceded that this is not a phenomenon unique to Love Nissan but is faced by all dealers near Love experiencing sales into the PMA by competing same line dealers.

74. Demographic factors are a built-in component of the assigned PMA. Region average sales penetration is achievable, regardless of metropolitan or more rural location. Sales penetration by non-metropolitan dealers (as defined by Nissan) in Florida for March 2004 YTD was 98.3 percent versus 98.6 percent for metropolitan dealers (as defined by Nissan). While Florida dealerships are not the comparison required by the dealership agreement, this statistic is meaningful in the present case, because of Love's approach to the issue. More to the point, however, is the fact that each analysis of the region and the PMA found Love lacking in sales and provided a fair comparison with all other dealers.

75. Love complained that its sales penetration success was impeded because there are more domestic car dealerships in its PMA than import dealerships in its PMA, but how this renders Love's situation different from other Nissan dealers in the same region was not clearly enunciated and no nexis between this factor and Love's lack of sales success was clearly established.8/

76. Love claims, as another unique factor, that dealers in larger communities tend to stock more inventory than dealers in smaller communities and that greater variety can be a reason for potential car buyers to travel further to a larger dealer. Once again, this factor would seem to have been a problem solvable by Love's stocking a larger inventory and a more varied inventory, but it does not render Love's situation unique. (See Findings of Fact 59 and 66-69.)

77. Also, Love asserts that consumers on the periphery of Love's PMA are physically closer to dealers in other PMAs, but this is clearly a factor common to almost every PMA in the nation.

78. Love submits that it should only be required to sell in, and be evaluated on, its sales based on Citrus County, its home county, because Citrus County is the only area Love can "reasonably be expected to serve," but Love offered no credible reason why it should be singled out to be assigned such a limited territory. Robert and Chad Halleen knew the size and extent of Love's PMA when they assumed control of Love in 1999, and the dealership agreement is clear as to how Love's sales were to be evaluated by Nissan. Nissan re-evaluated and adjusted Love's PMA once at Love's request and once pursuant to a national audit of PMAs. A reduction of the PMA to one county was not demonstrated to be a reasonable measuring technique.9/

    Even Love's expert, Mr. Roesner, admitted that Love's PMA was properly drawn and that none of the areas included in Love's PMA should be assigned to other dealers.

79. All the foregoing allegedly "unique factors" raised by Love amount to Love's dissatisfaction with its inventory, PMA, or capitalization. As previously stated, Love largely controlled and intentionally limited its own inventory. Capitalization was also under Love's control. Love's PMA is a creation of Nissan, but one which reasonably measures demographics and sales. The PMA adjustments have been previously discussed.

80. Finally, Love contends that Nissan has not treated Love in "a uniform and consistent" manner with other specifically named dealerships that have also, in some years, not met their region sales average. These are: Nissan of Melbourne, which did not meet its region sales average for four years and which had worse results than Love in 2001 and 2003; Alan Jay Nissan, which did not meet its region sales average for four years and had worse results than Love for 2001, 2002, and 2003; Hampton Nissan and Hill Nissan, each of which did not meet the region average for four years and each of which was worse than Love in 2002 and 2003; Nissan of Lakeland/Jenkins Nissan, which did not meet the region sales average for four years; and Lake Nissan, which was worse than Love in 2002.

81. Nissan readily admitted that any individual circumstances considered for one dealer should be considered for all dealers, but in fact, each of the foregoing dealerships presented a unique situation very different than Love's situation. Obviously, the degree of Nissan corporate knowledge about each dealer on the date of Love's April 1, 2004, NOT is pivotal.10/

82. Nissan of Melbourne experienced two ownership changes between 2001 and April 1, 2004. Its sales penetration improved with the new dealer in 2001, but it was sold again. After the second sale, Nissan also gave the second new dealer a chance to improve sales penetration. After the second sale, Melbourne's sales penetration was still higher than Love's for each of the first three months of 2004, but Nissan would not have known the whole of that quarter's statistics for either dealer on April 1, 2004.

83. Alan Jay Nissan's dealer principal recognized that his dealership was in trouble and personally sought out Nissan's current Southeast Region Vice-President, Patrick Doody, to lobby a comprehensive Nissan sales improvement plan which included relocation and construction of a new, exclusive Nissan dealership separate from Alan Jay's existing Toyota dealership. The dealer presented a detailed marketing plan, personnel changes, changes in compensation, and a plan for increased

    capitalization. The capitalization of the project was initially raised by the dealer, and he made a "dramatic investment" in Nissan inventory before Nissan committed to his plan. Alan Jay's plan was implemented in 2003. Love had been offered several chances to submit a comprehensive improvement plan to Nissan, but did not. Nissan management perceived Love's principals as not involved and uncooperative in sales improvement; they perceived Alan Jay's principal as implementing a practical plan for success and gave him an opportunity to succeed. Although the first quarter of 2004 figures were not available when Love was terminated, they ultimately showed that, by the time Nissan issued the NOT to Love, Alan Jay's sales penetration had gone from 48.09 percent in 2003, to 88.61 percent of the region sales penetration through March 2004.

84. Hampton Nissan was on the road to termination at one point. After study, Nissan adjusted Hampton's PMA, effective March 1, 2004, as part of a nationwide revision of PMAs. Love's PMA was adjusted at the same time, but was not substantially altered. (See Finding of Fact 57.) Prior to proceeding to termination, Nissan gave Hampton an opportunity to be evaluated upon its new PMA, much as it had given Love the same opportunity in 2001. Nissan had not compiled and analyzed the March 2004 results of its regional evaluations, including the new 2004 PMAs, when it terminated Love on April 1, 2004, but the sales

    already made by both dealers ultimately showed that Hampton was performing far better than Love by April 1, 2004. When the compiled and analyzed first quarter 2004 sales penetration figures became available shortly after April 1, 2004, they demonstrated that Hampton's penetration had risen to 95.74 percent of the region in March. Neither in 2001, nor 2004, did changes to Love's PMA meaningfully improve Love's sales penetration performance.

85. Sales penetration by Hill Nissan had been adversely affected by the re-routing of a major thoroughfare away from that dealership. Hill responded to Nissan's complaints about Hill's declining sales penetration by requesting to relocate and construct an improved facility, but before Nissan committed to this, Hill demonstrated a dramatic improvement in sales.

86. Nissan of Lakeland was sold to a new dealer and renamed "Jenkins Nissan" in 2003. The new owner instituted a plan to relocate the dealership in order to improve its sales penetration up to the region average, but within a year and even before the move to the new location, there had been significant improvement. As of March 2004, Jenkins had reached sales penetration at 81.68 percent of the region average.

87. The access road in front of Lake Nissan was rerouted and closed for an extended period due to construction. Lake created a plan of correction which included constructing a new

    facility to attract customers and agreed with Nissan that if Lake did not meet region average sales penetration by June 2005, Lake would sell the dealership, presumably to a retailer who could meet the desired average.

88. Love has not demonstrated that any road construction, sale of the dealership, or any other problem beyond its control affected Love's poor sales penetration.

89. Love also ascribes lack of good faith to Nissan's business decisions to not terminate these other struggling dealers who were confronted with conditions largely beyond their control and who offered Nissan detailed plans to overcome their disadvantages, but Love has not presented any persuasive evidence to that effect. Love only has presented evidence that after Hill, Lake, and Lakeland/Jenkins committed their finances to building new facilities to take advantage of Nissan's growth in the industry, Nissan gave some additional money toward those goals up to amounts consistent with the maximum amounts in Nissan's dealer assistance program for such projects. Nissan will provide assistance money up to $420,000.00 for major facility changes but requires that the dealer submit a plan and/or demonstrate improved performance first. An additional

    $80,000.00 can be "earned" by the dealer based on improved performance. However, there is no indication that Love has ever considered building a new facility, let alone offered to build a

    new facility, or has asked for financing from Nissan for such a project. Basically, Love has never offered Nissan any tangible plan of correction or substantial improvement of its penetration percentage, as have the other named dealers.

90. Love demonstrated that Nissan has suggested to Love that it build a new facility and let its Honda dealership go so as to take advantage of the improving Nissan market, but Love was free to reject that suggestion along with all the other Nissan suggestions it rejected. The penetration figures are the result of Love's choices, not Nissan's coercion.

91. Love also has suggested that the NOT herein is related to Nissan's 2001 objection to Love's adding a Daewoo dealership and due to Love's continuing association with Honda. Neither suggestion was proven. Indeed, there was no mention of the Daewoo connection by either party after 2001, and mention of the Honda connection was reasonable in the context it came up. (See Findings of Fact 38 and 53.)

    CONCLUSIONS OF LAW

    
    

92. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding, in accordance with Sections 120.569 and 120.57(1), Florida Statutes.

93. This cause is governed by Chapter 320, Florida Statutes, including but not limited to Section 320.641(3),

    Florida Statutes. This section was most recently amended on June 8, 2001, to include a provision requiring "uniform and consistent application of the grounds for termination." The dealer agreement between Love and Nissan was executed on March 4, 1999, and has not been amended since its execution. However, the amendments to Section 320.641(3) apply to this action from their effective date, June 8, 2001, until April 1, 2004, the date of the Notice of Termination herein.

94. Section 320.641(3), Florida Statutes, provides:

    
    

    Any motor vehicle dealer who receives a notice of intent to discontinue, cancel, not renew, modify, or replace may within 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; or, if the grounds relied upon for termination, cancellation, or nonrenewal have not been applied in a uniform and consistent manner by the licensee. A modification or replacement is unfair if it is not clearly permitted by the franchise agreement; is not undertaken in good faith;

    or is not undertaken for good cause. The applicant or licensee shall have the burden of proof that such action is fair and not prohibited.

    
    

95. The duty to go forward and the burden to prove, by a preponderance of the evidence, Nissan's compliance with Section 320.641(3), Florida Statutes, is upon Respondent Licensee, Nissan.

96. The thrust of Love's defense in this cause has been

    
    

    (1) that Love's only obligation, pursuant to the dealer agreement, was to "actively and effectively promote the sale at retail" of Nissan vehicles within its PMA, and (2) that Nissan inequitably terminated Love, while permitting other equally, or more egregiously, unsuccessful Nissan dealers to continue to operate. More specifically, Love asserts that, because Nissan could have imposed, but did not from the beginning impose, upon Love a specific, objective performance obligation, such as requiring the sale of a given number of new cars which Nissan expected Love to sell in a specified period of time, there is no clear criteria for measuring Love's "active and effective" promotion of Nissan sales. Love argues that the dealer agreement does not require that Love achieve a particular level of sales penetration or exceed the level of sales penetration of other Nissan dealers. Love suggests, instead, that Nissan is free to use as an evaluation tool Love's level of sales

    penetration, as compared to the region average and the sales penetration of other dealers, but that Love's failure to meet the region average or to perform above the bottom of the dealer ranking is not, in and of itself, a valid basis for termination of the dealer agreement. While acknowledging that it is a low volume sales performer, Love suggests that Love's failure to meet the regional sales average is an improper measuring guide when the term or terms, "average" or "average sales," are not specifically used in the dealer agreement as a measurement of "active and effective promotion of sales." Rather, Love asserts that the threshold issue is whether, in light of problems "unique" to its PMA, Love's sales activities satisfy the "active and effective" obligation established in the dealer agreement.

    Love also maintains that, to the extent the obligations imposed by the dealer agreement upon Love are ambiguous, such ambiguity should be resolved in Love's favor, because Nissan was the drafter of the agreement. See Homestead v. Johnson, 760 So. 2d 80 (Fla. 2000).

97. In addressing Love's arguments generally, it can be said that Love may have actively promoted Nissan sales, but Love did not meet the conjunctive requirement of effectively promoting Nissan sales. The NOT specifically cites Love Nissan's historical performance and its sales penetration in the calendar years 2001, 2002, and 2003. Although sales performance

    in 2004 is mentioned, this was not a basis for termination. Even if the first quarter of 2004 is considered, it affords Love no comfort. The evidence is clear that Love's performance has always been below the region average pursuant to an evaluation methodology which is generally accepted in the industry and which is a reasonable one. It is a methodology Nissan has consistently used to evaluate all its dealers, not just Love.

    Love's principals knew of, and agreed to, the evaluation method used, and the PMAs upon which it was sequentially based from the inception of the dealer agreement. The PMA was adjusted once, at Love's request. Pursuant to their contract, Nissan advised Love periodically of the jeopardy of the dealership arising from Love's poor sales penetration and offered advice on how to improve sales penetration. Love deliberately chose not to implement most of Nissan's suggestions. Love identified other dealers who ranked below or near Love during one time period or another but no dealer whose performance was as consistently poor and long-standing as Love's at the time of Love's termination.

98. The dealer agreement permits Nissan to select its methodology for evaluating its dealers' sales performance. One commonly-accepted, industry-wide methodology for measuring "effectiveness" of a dealership is the methodology employed by Nissan. Nissan demonstrated, and it is undisputed, that sales penetration is an industry-wide accepted standard for evaluation

    of dealers, and therefore falls within the scope of "reasonable criteria," as permitted by the dealer agreement. Nissan has used this methodology for a minimum of the preceding five years, including the period since the most recent statutory amendments in 2001. Love did not demonstrate that Nissan has used any other dealer evaluation methodology in the preceding five years or since the statutory amendments in 2001. While competing statistics may be slippery things, there is no dispute that Nissan's statistical analysis has correctly measured Love's results and has correctly compared those results with the other dealers in the PMA. While Love correctly asserts that statistics should not be "conclusive," they are permitted by the franchise agreement and persuasive here.

99. The dealer agreement establishes the terms of the business relationship between [a manufacturer] and a dealer. Stella Chevrolet, Inc., et al. v. Roberts Chevrolet, Inc., et al., DOAH Case No. 88-3099 (Administrative Law Judge Sartin, RO January 30, 1990; FO May 4, 1990).

100. The Florida Legislature could have mandated, in its amendments, 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. Section

     3.A. of the dealer agreement in this case clearly obligated Love

     to "actively and effectively promote the sale at retail" of Nissan vehicles within its PMA. Love accepted and agreed to this obligation, yet Love's sales performance was chronically poor. Nissan demonstrated that by a commonly recognized methodology within the industry, Love consistently ranked sales at only about half the rate of an average dealer in Love's region. Section 3.B. of the dealer agreement clearly permits Nissan to evaluate Love's sales performance utilizing reasonable criteria. Sales penetration is specifically set forth in Section 3.B. of the dealer agreement as an acceptable dealer evaluation methodology. Nissan has consistently used region average sales penetration as its evaluation standard. This standard has not been hidden from Love and has been repeatedly disclosed to Love. Indeed, pursuant to Section 3.H. of the dealer agreement, Nissan has repeatedly advised Love of its failure to achieve and maintain region average and that continued failure in this regard was grounds for termination of the dealer agreement. Section 12.B.1.a. of the dealer agreement also clearly permits Nissan to terminate a dealer when that dealer has failed to substantially fulfill its responsibilities with respect to sales of new Nissan vehicles. Therefore, it is concluded that Love's termination was clearly permitted by the franchise agreement between the parties.

101. It is likewise concluded that Nissan undertook the April 1, 2004, termination due to a material and substantial breach of the dealer agreement, in good faith, and for good cause.

102. Love introduced no evidence proving any ulterior motive or lack of good faith for the termination. The evidence shows that Nissan terminated Love solely for its poor sales performance. Love's poor sales performance dates back to at least 1994, a total of 10 years. Since 1999, Nissan has sent eight or more certified letters to Love, reiterating that Nissan uses sales penetration to evaluate dealer performance and that Love remained substantially below region average. The undersigned has considered the "miscue" of one Nissan DOM to Mr. Robert Halleen (see Finding of Fact 22) and that Nissan has been influenced by extensively detailed action plan(s) submitted by another dealer or dealers (see Findings of Fact 80-87), but the material and substantial fact remains that each time Nissan requested from Love a response and action plan to cure Love's deficiencies, Love failed to provide one.

103. Additionally, Nissan's DOMs repeatedly visited Love's dealership to advise and assist Love in improving its sales performance. Love rarely followed their suggestions and ultimately little effect was felt. See Bill Gallman Pontiac GMC Truck, Inc. v. General Motors Corp, DOAH Case No. 89-0505

     (Administrative Law Judge Donnelly, RO June 28, 1990; FO February 28, 1991), finding termination undertaken in good faith by manufacturer and for good cause where the manufacturer "continuously encouraged the dealer to meet sales performance standards and has worked with [the dealer] in an effort to achieve this goal." Cf-Nolette Motors, Inc. v. Mazda Motors of

     America, Inc., DOAH Case Nos. 98-1457 and 98-2596 (Administrative Law Judge Adams, RO May 12, 1999; FO August 13, 1999), finding lack of good faith where manufacturer failed to notify the dealer of alleged breaches, but the result turned upon abandonment of the franchise. Nissan demonstrated good faith by, at Love's request, reevaluating and reducing Love's PMA in 2001. Nissan demonstrated good faith by providing Love multiple opportunities to cure its default of sales obligations prior to issuing the NOT. Nissan issued to Love four separate NODs between 2000 and 2003. In each NOD, Nissan clearly advised Love of its deficiencies and allowed Love at least 90 days to cure the deficiencies. Even when Love did not timely cure its deficiencies, Nissan granted Love more time, including a final extension in November of 2003. Nissan was within its rights to terminate Love on the basis of sales penetration figures through December of 2003, which penetration figures it had as of the date of the April 1, 2004, NOT. See Broward Truck and Equipment Company v. Navistar International Transportation Corp., DOAH

     Case No. 93-5966 (Administrative Law Judge Harrell, RO April 29, 1994; FO August 19, 1994) vacated on other grounds by In Re:

     Broward Truck and Equipment, Case No. 94-21195 (S.D. Florida Bankruptcy Court, October 4, 1994), finding that termination was undertaken in good faith where manufacturer gave dealer six months' notice and opportunity to cure, but the case also discusses capitalization problems more explicitly; and Rick Starr Lincoln-Mercury, Inc., v. Nissan Motor Corp., DOAH Case No. 92-5187 (Administrative Law Judge Rigot, RO June 10, 1993; FO August 5, 1993), finding good faith where manufacturer acted in "consistent, honest, and forthright manner" with its dealer and even offered to extend deadlines for compliance on several occasions, but the case also discusses an exclusive facility contract clause more explicitly. On April 1, 2004, Nissan had additional figures for the quarter immediately preceding, January-March, 2004. Those figures were not fully compiled and analyzed until after the NOT had been sent. Those compiled figures, when analyzed in accordance with the standard sales penetration methodology that Nissan had appropriately and consistently used, showed that Love's sales penetration had further declined each of those first three months of 2004, which immediately preceded the NOT.

104. Love has been a chronically poor new sales performer for Nissan. In 1999, Love received 32.0 percent of the average

     sales penetration achieved by dealers in the region. In 2000, Love achieved 29.5 percent of the region average new car sales. In 2001, following Nissan's reduction of Love's PMA, Love achieved 50.9 percent of region average. In 2002, Love's region average was 50.6 percent. In 2003, Love achieved 55.8 percent of the region average. While Love demonstrated improvement in its percentage scores between 1999 and the end of 2003, if the Nissan sales penetration region average is comparable to a passing grade of "C," Love's average sales penetration, at best, in 2003, rated only a little more than half of an average "C" grade. Love's poor sales performance has resulted in substantial lost sales opportunity for the manufacturer Nissan in the Homosassa, Florida, market. Nissan has met its burden of showing good cause for termination of its dealer agreement with Love. See Broward Truck and Equipment Company v. Navistar International Transportation Corp., and Bill Gallman Pontiac GMC Truck, Inc., v. General Motors Corp., both supra, finding dealer's failure to achieve reasonable share of market to be substantial and material breach of contract and good cause for termination.

105. Not every failure to achieve the manufacturer's region average sales penetration standard will constitute a material and substantial breach of the agreement warranting termination. The magnitude of the short-fall must be considered

     in determining whether the dealer's performance is so ineffective as to warrant termination. Unfortunately, herein, Love has materially and substantially failed to meet its sales obligations under its dealer's agreement with Nissan. Love has never achieved Nissan's region average sales penetration standard, and at least since 1999, Love's yearly sales penetration has ranged only between 29.5 percent and 55.8 percent of that achieved by the average dealer in Nissan's region. Consequently, Nissan has established that its loss of the new sales market occasioned by continuing to work through the Love dealership has been so material and substantial as to go directly to the core of the business relationship between Nissan and Love. Nissan has met its burden of showing that Love's breach of sales performance obligations constitutes a material and substantial breach of the dealer agreement. See Broward Truck and Equipment Company v. Navistar International Transportation Corporation, and Bill Gallman Pontiac GMC Truck, Inc. v. General Motors, Corp., both supra.

106. This brings us to the last test, that is, whether or not Nissan has applied the grounds for termination in a "uniform and consistent" manner. Love puts forth that no matter how it is described, at least one-half of the dealers in Nissan's Southeast Region will not achieve the regional average sales penetration. This is certainly true, simply because

     mathematical averaging principles work that way. However, Love's premise that to terminate Love without terminating all other dealers who fall below average or below Love is to behave inconsistently or without uniformity is unreasonable and contrary to the statute's intent. Love referred to six other dealers whom Love implied were not "treated the same" as Love. Nissan presented evidence that it had applied the same performance penetration evaluation standards to all dealers, and then took into account all appropriate individual dealer circumstances. Nissan then distinguished Love's circumstances from those of the other six dealers. Most of these dealers received some sort of extension, much as Love had received in 2001 (see Finding of Fact 33) and in 2003 (see Finding of Fact 51), causing some overlapping of statistical reporting periods. One received an extension based on a PMA change, but experienced significant sales penetration after its PMA was revised; some of the other six dealers performed better than Love historically; some improved their performance dramatically by the time Love was terminated; some performed poorly but not for the extended length of time that Love performed poorly; some went through recent ownership changes and demonstrated subsequent improvement; and some had poor performance caused by road construction and other outside elements but instituted plans of corrective action that impressed corporate Nissan.

107. As to whether Nissan's giving those other dealers time extensions, financing, or plan approval based on their de- dualling with Nissan competitors, or based on their building new facilities partly financed by Nissan, constituted lack of good faith by Nissan toward Love is concerned, Nissan provided adequate commercial reasons, including a changed PMA; improved performance; aggressive, affirmative proposals; dramatic investment in Nissan inventory; and new facility capitalization initiated by the dealers, as reasons for those corporate decisions. Love was not similar to these dealers in any of those respects.

108. A free marketplace mandates that a manufacturer be free to consider particular dealer circumstances affecting a dealer's sales performance prior to terminating that dealer. It is the essence of a free economy that industry executives be able to use their expertise in granting reasonable exceptions to contractual dealers in order to help those dealers improve their performance, thus making a profit for both the franchisor and the franchisee. An example of this may be found in Nissan's repeated grants of extensions of time for improvement to Love. To interpret the amended Section 320.641(3), Florida Statutes, to require that a manufacturer treat every dealer "identically" as opposed to "uniformly and consistently" would be to abrogate the clear language of the statute. Rather, the "uniform and

     consistent" requirement of Section 320.641(3), Florida Statutes, is here interpreted to impose upon a manufacturer the burden of showing 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. This case is complicated by monthly and quarterly statistical analysis by Nissan, but there is no contractual or statutory requirement that Nissan select a particular day, week, month, or year, and terminate only the dealer whose sales performance is numerically "worse" or "worst" at the selected time, nor is there any contractual or statutory provision which requires that no accommodation be made for any dealer, and that only sales penetration figures be applied to invoke termination in every case of poor performance. Indeed, to read such requirements into the statute, when the statute has not specifically established them, would be counter-productive to manufacturer- dealer relations and would inhibit sales within the entire automotive industry. If a manufacturer's patience and efforts in favor of helping a failing dealer elevate that dealer from a "worse" or "poor" performer to a "better" performer and the manufacturer is thereby deemed to have forfeited its right to pursue termination if that dealer fails to succeed, it is doubtful that any manufacturer would dare to devote substantial time and effort to help dealers improve. Dealers in Love's

     situation would be the worse for such an interpretation.

     
     

     Indeed, under such an interpretation, Love would probably not have received several extensions or its requested change of PMA.

109. Herein, the evidence shows that Nissan applied the same performance/penetration evaluation standards to each of its dealers, and then took into account all appropriate individual dealer circumstances related to each individual dealer's performance, and that those individual circumstances were considered on a case-by-case basis, but none of those individual circumstances which applied to the six other dealers were applicable to Love. Love's sales penetration has ranked consistently among the very worst in the state of Florida and throughout the entire southeast region longer than any other named dealer. Accordingly, it is concluded that Nissan has met its burden of showing uniform and consistent application of the grounds relied upon in this case for termination of Love.

110. Nissan has established all statutory grounds for termination.

RECOMMENDATION

Based on the foregoing Findings of Facts and Conclusions of Law, it is

RECOMMENDED: that a final order be entered, dismissing Love's Protest/Petition and ratifying the April 1, 2004, Notice of Termination by Nissan.

DONE AND ENTERED this 14th day of July, 2005, in Tallahassee, Leon County, Florida.

S

ELLA JANE P. DAVIS

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 14th day of July, 2005.

ENDNOTES

1/ This ruling did not preclude the use, by either party, of performance data for the period of January through March, 2004, even though such information had not been evaluated by Nissan as of April 1, 2004, the date of the Notice of Termination. The fact that this "quarter year" data was not relied upon by Nissan as a basis for Love's termination does not alter its validity for use as evidence by either party in examining the performance of the franchisee, Love, up to the date of termination, April 1, 2004. (See Findings of Fact 56-57. Cf.-Finding of Fact 81 and n. 10.).

2/ Even Love's witness, Mr. Roesner, who was accepted as an expert in "local automobile industry and dealer performance analysis," conceded that Nissan's evaluation of sales penetration practice was not an unreasonable methodology for evaluating dealers' performance. He described it as "typical."

3/ It is noted that the NOT herein addresses Love's sales penetration failures in 2001, 2002, and 2003, by chart only, and addresses Love's historical sales penetration and Love's lack of cooperation within the worded text of the letter.

4/ It is noted that the letter's representation that "there is no evidence" of Daewoo's presence is arguably an avoidance of the admission made previously in Love's lawyer's letter that Daewoo service and parts were in the same facility but were not "infringing" on any portion of Nissan's use of the facility.

5/ This PMA change was the result of a year-long study and nationwide PMA audit which also adjusted Hampton Nissan's PMA. (See Finding of Fact 84.) This change in PMA did not affect Love's location in the largest shopping area in the PMA and did not significantly affect Love's penetration problem prior to termination.

6/ "Days supply" is a commonly used term and calculation in the industry, which refers to the number of days it would take the dealer to sell all of the cars in its inventory if the dealer continued to sell at its current rate without obtaining any new vehicles. For example, a dealer who has 30 vehicles and sells one per day will have a 30 "days supply of vehicles," as will a dealer who has 90 vehicles if that dealer sells three vehicles per day. By using a "days supply" calculation, one is able to more accurately compare relative inventories.

7/ See Findings of Fact 33 and 57, and n. 5.

8/ Even Love's expert admitted this comparison would not provide a clear picture, because the competition contains both domestic and imported cars. Furthermore, removing domestic cars or import cars from the mix is unrealistic and offers no fair comparison.

9/ Only such an apples-to-oranges comparison benefits Love statistically. Love's 2003 sales of 29 new Nissan cars/trucks compared with Citrus County average sales penetration of 384 cars/trucks shows an average or better than average penetration, i.e., seventy-five percent.

10/ See n. 1 and Findings of Fact 55-56, on use of first quarter 2004 YTD figures and when these figures were available.

COPIES FURNISHED:

John W. Forehand, Esquire Walter Forehand, Esquire Lewis, Longman & Walker, P.A.

125 South Gadsden Street, Suite 300 Post Office Box 10788

Tallahassee, Florida 32302

Alex Kirkin, Esquire Pathman Lewis, LLP

One Biscayne Tower, Suite 2400 Two South Biscayne Boulevard Miami, Florida 33131

Dean Bunch, Esquire

Sutherland Asbill & Brennan, LLP 2282 Killearn Center Boulevard Tallahassee, Florida 32309-3576

S. Keith Hutto, Esquire

Steven A. McKelvey, Jr., Esquire

M. Ronald McMahan, Jr., Esquire

Nelson Mullins Riley & Scarborough, LLP 1320 Main Street, 17th Floor

Columbia, South Carolina 29201

Cristian S. Torres, Esquire Nissan North America, Inc. 18501 South Figueroa Street Gardena, California 09248-0191

Carl A. Ford, Director Division of Motor Vehicles Department of Highway Safety

and Motor Vehicles

Neil Kirkman Building, Room B-439 Tallahassee, Florida 32399-0500

Michael J. Alderman, Esquire Department of Highway Safety

and Motor Vehicles

Neil Kirkman Building, Room A-432 2900 Apalachee Parkway

Tallahassee, Florida 32399-0500

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.

Docket for Case No: 04-002247

Orders for Case No: 04-002247