STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
NEW COUNTRY MOTOR CARS OF PALM BEACH, LLC, d/b/a MASERATI OF PALM BEACH,
Petitioner,
vs.
MASERATI NORTH AMERICA, INC.,
Respondent.
/ RECOVERY RACING, LLC, d/b/a MASERATI OF FT. LAUDERDALE,
Petitioner,
vs.
MASERATI NORTH AMERICA, INC.,
Respondent.
/
Case No. 17-1768
Case No. 17-1770
RECOMMENDED ORDER
Pursuant to notice, a formal administrative hearing was held in these cases on October 3 through 5, 2017, in Delray Beach, Florida, before Robert L. Kilbride, Administrative Law Judge of the Division of Administrative Hearings ("DOAH").
APPEARANCES
For Petitioners: Russell P. McRory, Esquire
James M. Westerlind, Esquire Michael P. McMahan, Esquire Arent Fox, LLP
1675 Broadway
New York, New York 10019 (Qualified Representatives)
Charles Andrew Gallaer, Esquire Arent Fox, LLP
1675 Broadway
New York, New York 10019
Jonathan P. Harvey, Esquire Jonathan P. Harvey Law Firm, PLLC 677 Broadway
Albany, New York 12207 (Qualified Representative)
Elias C. Schwartz, Esquire Elias C. Schwartz, PLLC
343 Great Neck Road
Great Neck, New York 11021
For Respondent: Robert D. Cultice, Esquire
Matthew Tymann, Esquire
Wilmer Culter Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109 (Qualified Representatives)
J. Andrew Bertron, Jr., Esquire
Nelson Mullins Riley and Scarborough LLP 3600 Maclay Boulevard South, Suite 202
Tallahassee, Florida 32312 STATEMENT OF THE ISSUES
Whether Respondent, Maserati North America, Inc.’s ("MNA"), proposed 2017 Commercial Policy Program ("2017 Program") is a modification of the franchise agreement between MNA and Petitioner, New Country Motor Cars of Palm Beach, LLC, d/b/a
Maserati of Palm Beach ("Palm Beach"), or Petitioner Recovery Racing, LLC, d/b/a Maserati of Ft. Lauderdale ("Fort Lauderdale"); and, if so, whether it is fair and not prohibited by section 320.641(3), Florida Statutes (2016).
Whether MNA’s proposed modifications to the Existing Franchise Agreements with Petitioners are fair and not prohibited under section 320.641(3).
PRELIMINARY STATEMENT
On March 13, 2017, each Petitioner filed a petition with the Florida Department of Highway Safety and Motor Vehicles ("DHSMV") pursuant to section 320.641, seeking a determination of whether the 2017 Program and the Proposed New Franchise Agreement were unfair and prohibited actions under section 320.641(3).
DHSMV forwarded the petitions to DOAH. The undersigned was assigned to handle the proceedings, and the cases were consolidated on April 11, 2017, for a subsequent final hearing.
At the final hearing in October 2017, Petitioners presented testimony from Palm Beach’s Executive Vice President Chris Mackey; Fort Lauderdale’s President Garrett Hayim; and called MNA’s Chief Financial Officer Tony Tullio.
MNA called and presented testimony from Tullio, its expert witness; Joseph Gardemal; and MNA’s Dealer Network Manager Leah Strauss. Petitioners’ Exhibits 1 through 97 and Respondent’s Exhibits 1 through 93 were admitted in evidence by stipulation of
the parties.1/ Petitioners’ Exhibits 98, 100, and 115 were admitted at the hearing.
The hearing Transcript was filed with DOAH on October 6, 2017. At the parties’ joint request, the deadline for post- hearing submittals was extended until November 21, 2017.
References to the Florida Statutes are to the 2016 version, unless otherwise indicated.
FINDINGS OF FACT
Based on the evidence presented, the Pre-hearing Stipulation of the parties and the record as a whole, the following relevant and material Findings of Fact are made2/:
BACKGROUND
Petitioners are "motor vehicle dealers" as defined in section 320.60(11)(a). (Pre-H E.1.)
MNA manufacturers Maserati vehicles, parts, and merchandise and is a "licensee" as defined in section 320.60(8). (Pre-H E.2.)
MNA and Palm Beach are parties to a Maserati Dealer Retail Sales and Service Agreement and Standard Provisions dated June 28, 2007. MNA and Fort Lauderdale are parties to a Maserati Dealer Retail Sales and Service Agreement and Standard Provisions dated June 19, 2008. (Pre-H E.3.; PX1; PX2).3/
Under the Existing Franchise Agreement, MNA granted Palm Beach and Fort Lauderdale the non-exclusive right to purchase
Maserati vehicles and parts from MNA at wholesale, and re-sell them at retail at facilities operated by the dealers.
(PX1, p. ii)
The Existing Franchise Agreement governs, in part, the parties’ contractual relationship and is subject to the Florida Dealer Act, sections 320.60 through 320.70.
CLAIM CONCERNING MNA’s BONUS PROGRAM
Pricing and Payments to Dealers Under MNA’s Existing Program
The price paid by Petitioners to MNA for Maserati vehicles is the wholesale price (or "invoice price"). For years, MNA has set the wholesale price unilaterally. There is nothing which expressly prohibits MNA from changing wholesale prices, periodically, or increasing them from year to year.
Petitioners do not dispute that MNA has the right to set wholesale prices, and this right is also provided for in the Existing Franchise Agreement. (PX1, p. 5, § 3.14)
The price paid by retail customers to Petitioners for Maserati vehicles is referred to as the retail price (or "transaction price"). The "Manufacturer’s Suggested Retail Price" ("MSRP") is the retail price suggested by MNA, but Petitioners seldom sell vehicles at the MSRP. The actual sales price is almost always lower than MSRP, because purchasers customarily negotiate the sale price and do not agree to pay the full MSRP.
Under the existing program, Petitioners generate revenue
on the sale (or lease) of Maserati vehicles based on: (1) the retail price paid by customers; and (2) bonuses, rebates, incentives, and other benefit programs offered by MNA that are calculated or paid on a per-vehicle basis ("Program Payments").
These Program Payments are not specifically outlined in the Existing Franchise Agreement, but instead are incentive programs offered by MNA and accepted by Petitioners. These Program Payments may change from time to time in response to market and industry conditions.
"Holdback" payments are the primary example of a Program Payment offered by MNA. MNA calculates "holdback" on a per-vehicle basis and calculates the "holdback" amount as a percentage of the MSRP for each vehicle. The percentage of MSRP that MNA has paid to its dealers has changed over the years, but under the existing arrangement, it has been 4% of the vehicle’s MSRP.
MNA’s "Holdback" Program
As mentioned, prior to the new and proposed 2017 Program, MNA used and Petitioners accepted "holdback" payments in an amount equivalent to 4% of the MSRP for each vehicle sold at retail ("2016 Program").
MNA made no payments at the time of wholesale. In order to receive the "holdback" payment, the dealer was only
required to sell the vehicle at retail. This constituted an incentive program for dealers to sell and move vehicles.
Petitioners point out that the following provisions in the Existing Franchise Agreement refer, in part, to the current practice of making "holdback" payments: "Dealer shall sell and service Maserati Products in conformity with reasonable policies and practices established from time to time by Maserati"; (PX1,
p. i, Preamble) "Maserati will sell Maserati Vehicles to Dealer at such prices and upon such terms and conditions as it may establish from time to time." (PX1, p. 2, § 3.1)
Reasons for Development of the 2017 Commercial Policy Program
In 2015, as a result of changes to its business and the luxury car market, MNA began to develop an updated commercial policy under which bonuses and other incentives would be paid. The need for a change was driven primarily by the successful introduction in late 2013 of a lower-priced Maserati vehicle, known as the Ghibli.4/
As a result, in part, of the introduction of the Ghibli model, retail sales of Maserati vehicles increased by approximately 700% from 2010 through 2016, and by 170% from 2013 through 2014. Over the same six-year period, MNA’s "car park," the number of Maserati vehicles actually on the road, increased by 360%, and Maserati parts sales increased correspondingly by nearly 300%. (RX29, pp. 0000032-0000034; RX41)
Due to this rapid growth and the expansion of its customer base, as well as the increased competition in the new market it had entered, MNA decided to re-evaluate its business model, including the bonus and incentive policies and practices it had with its dealers. (RX29, p. 0000035)
Among other things, MNA surveyed the programs, practices, and policies of its competitors, including the manufacturers that occupied the luxury car market segment that MNA had entered. Those included Jaguar, Audi, Infiniti, BMW, and Lexus. (RX3; RX7; RX20, p. 0002811; RX 21 (PX46), p. 0002864)
Through its research, MNA learned that its existing 2016 Program differed from that of its competitors in several respects: First, MNA appeared to be the only luxury car company using fixed "holdback" payments as the sole or primary sales incentive, and that it was not following the more common practice of making "bonus" payments based on performance and other criteria. Second, MNA’s "holdback" component of its program was higher than that of its competitors.
Also, MNA found that some of its competitors made "bonus" payments tied exclusively to certain performance metrics. (RX3; RX20, p. 0002811; RX21 (PX 46), p. 0002864)
Based on this research and other considerations, MNA decided to change from a "holdback-only" policy to one that combined "holdback" payments with incentive-based bonus payments.
One of MNA’s goals in developing the 2017 Program was to "[d]evelop a simple and competitive commercial policy that elevates MNA dealer performance by rewarding positive behavior." (RX84, p. 0002895; see also RX29, p. 0000036)
With this goal in mind, MNA formed a dealer advisory committee and met with the committee to discuss potential elements of a new 2017 Program and to receive dealer feedback.5/ (RX8; RX9; RX11; RX13, p. 0002393; RX14, p. 0002616; RX20,
pp. 0002807, 0002809; RX21(PX46), p. 0002855)
Under the 2017 Program which was launched, MNA’s dealers would receive a "holdback" payment equal to 2% of MSRP at the time of their wholesale purchase of vehicles from MNA.
Notably, in addition to the 2% "holdback payment," the core of the new 2017 Program provided all Maserati dealers the opportunity to receive bonus payments worth up to an additional 3.5% of MSRP per vehicle that they sold at retail. The additional 3.5% was based on certain performance criteria and other performance metrics.
In short, under the new 2017 Program, if certain performance standards were met Maserati’s dealers could receive, in total, payments worth up to 5.5% of the MSRP per vehicle, potentially more than the 4% total that was available under the 2016 Program. (RX. 29, p. 0000038)
Introduction of MNA’s 2017 Commercial Policy Bonus Program
Some factual findings concerning the introduction of the 2017 Program are necessary to resolve this proceeding.
On August 10, 2016, MNA issued a memo to its dealers announcing that it was delaying the implementation of its 2016 Program. (RX16)
On October 25, 2016, MNA presented the proposed 2017 Commercial Policy to its dealers at a national meeting in Dallas, Texas. A PowerPoint presentation and written materials were provided to the dealer participants, which explained the reasoning and basis for the 2017 Program and provided details about the new "holdback" and "bonus" program.
MNA also announced at the October 2016 national dealer meeting that it intended to increase its 2017 Tier 1 (national) advertising spending by an amount equal to 0.5% of the MSRP on every vehicle that its dealers sold or leased at retail during 2017. MNA’s goal was to enhance the brand’s recognition by focusing on the relative attainability of MNA’s new models, the Ghibli and Levante, and to respond to the public’s belief that Maserati vehicles were only available for prices above $100,000.
Dealers who did not attend the Dallas conference, received the PowerPoint presentation and written materials via e- mail on November 1, 2016. (Pre-H E.7.; RX29; RX30)6/
Subsequently, a notice of the 2017 Program and a related Commercial Policy Program Manual were also provided to all dealers on January 4, 2017. (PX7; PX9)
The manual accompanying the notice announced as follows:
Maserati North America Inc. ("MNA") has introduced the voluntary Commercial Policy Bonus Program ("Program") to support our mutual goal of being the world-class brand with industry leadership in facilities, customer experience, and sales and aftersales operations. Formally launching on January 4, 2017, the Program will provide all qualified authorized dealers in good standing, an opportunity to earn a performance bonus of up to 5.5% of Base MSRP on retail sales beginning April 1, 2017. This program replaces the current margin structure in place effective November 1, 2016.
The purpose of this manual is to ensure that each dealership is aware of the program structure and components, business objectives, subsequent payouts, compliance requirements and all timelines pertaining to the Program. This manual is organized to provide specific bonus element identifications, definitions, calculations and updated policy texts. [PX9]
Another portion of the manual addressed the Program Timing\Bonus amount. The manual stated:
Effective November 1, 2016, the new dealer margin will go into effect. As a result, the current holdback amount of 4% will be replaced by a 5.5% earned dealer performance bonus ("DPB") as described in the Maserati Commercial Policy Program. The DPB will be paid upon the shipment of new Maserati vehicles to dealers during the transition
phase (November 1, 2016 through March 31,
2017). Therefore, effective November 1, 2016, all dealers will have until the first qualifying period at the end of Q1 2017 to become compliant with the Commercial Policy guidelines in order to earn the performance bonus. Dealers will need to qualify for receipt of the 5.5% margin beginning January 4, 2017, or components thereof, by meeting or exceeding various operational objectives. As described in greater detail below, qualification will occur in the
quarter prior for subsequent quarter retails, meaning that, for example, the period January 4 -- March 31, 2017, will allow dealers to qualify for bonus payments on 2nd quarter retails. [PX9, p. 2]
Of particular significance is that dealers had until the end of March 2017 "to become compliant with the Commercial Policy guidelines in order to earn the performance bonuses." Id.
This series of announcements in 2016 and 2017, and the resulting period of delay before the effective date of the 2017 Program, gave the dealers well over 90 days’ notice of MNA’s intention to modify the existing 4% "holdback" program.7/
Details of the 2017 Commercial Policy Program
The 2017 Program offered payments to dealers totaling up to 5.5% of the MSRP consisting of (1) a "holdback" payment in the amount of 2% of MSRP for every vehicle purchased at wholesale, and (2) a bonus up to 3.5% of MSRP for every vehicle sold at retail. The 3.5% of MSRP in bonus payments was broken down into several incentive-based components, as described below.8/
Facility Bonus
MNA offered a 0.5% "facility bonus" to dealers who met or exceeded MNA’s current Corporate Identity ("CI") facility standards. (RX29, p. 0000043). This bonus component involved the building(s), showroom(s), and other facilities used by the dealers to display, sell, and service Maserati vehicles.
MNA chose to implement a facility bonus after considering that some of its luxury competitors, including Jaguar and Audi, offered facility-based incentives. (RX18, p. 0002731; RX20, p. 0002811; RX21, p. 0002864)
Before implementing the facility bonus, MNA concluded that 60% of its dealers would qualify for the bonus as of September 2016. (RX21, p. 0002856). That determination influenced MNA’s conclusion that the facility component of the 2017 Program was a reasonable and achievable standard. MNA projected that 76% of dealers would qualify for the facility bonus by March 31, 2017. (RX21, p. 0002856)9/
Three other performance components were included in the 2017 Program and were worth a total 2% of MSRP for each vehicle sold at retail--(1) lead response time (1.0%);
(2) employee training (0.5%); and (3) sales of parts (called "aftersales") (0.5%). (RX29, pp. 0000057-0000066)
Lead Response Time
The lead response time component is designed to reduce dealer response time in reacting to sales leads and to improve customer experience and sales. (RX29, p. 0000057). MNA’s research showed that consumers tend to submit sales inquiries to multiple dealerships and that over 50% of customers purchased from the first responding dealer. Id. Also, customer
satisfaction dropped by 10% every 60 minutes that the customer inquiry went unanswered. Id.
The new lead response time bonus under the 2017 Program, is worth 1% of MSRP for every retailed vehicle and is paid to dealers who respond within two hours to at least three of four "mystery shoppers" within a three-month period. (RX29,
p. 0000058)
Employee Training
The employee training component of the 2017 Commercial Program was designed to encourage dealers to train employees to deliver the best customer experience. MNA’s research showed that employee training increases a dealer’s sales and gross profit, reduces employee turnover, and increases customer loyalty.
(RX29, p. 0000061)10/
MNA is one of several manufacturers that offer incentive payments for maintaining certain levels of employee training. (RX21, p. 0002864)
MNA’s employee training bonus is worth the equivalent of 0.5% of MSRP for retailed vehicles. To receive the bonus, 75% of a dealer’s sales and non-technical aftersales staff must earn six training credits per quarter and meet annual certification requirements. (RX29, p. 0000062). Dealer staff can earn training credits off-site, online, or in the dealership. (RX29, pp. 0000062-0000063)11/
Although receiving the employee training bonus generally requires hitting both a quarterly and an annual training objective, MNA represented at the hearing that it does not penalize dealers who have reached 100% training compliance, and whose employees, therefore, have no new courses to take in any given quarter. Under those circumstances, MNA would pay the bonus.
Sale of Parts
The sale of parts component is worth an additional 0.5% of MSRP per retailed vehicle. Dealers receive the bonus if they purchase a preset volume of parts and accessories in a calendar quarter.
The target was based on third-party data regarding the number of vehicles in a dealer’s "car park" (actual vehicles registered and on the road in the dealer’s geographic area) and/or past parts sales by the dealer. (RX29, p. 0000065)
MNA developed the sale of parts incentive to encourage dealers to stock an adequate inventory of parts to meet reasonable business needs and customer expectations.
The research MNA relied on showed that, on average, its dealers were unable to complete the repair of a Maserati vehicle until three and a half days after the customer dropped the vehicle off for service. This was due, in part, because dealers sometimes did not have required parts. This adversely impacted customer satisfaction, as customers could be without their vehicle for several days. (RX29, p. 0000065)
Likewise, due to the dramatic increase in Maserati’s "car-park," parts needed by customers had steadily increased, such that more parts had to be stocked by dealers to reasonably keep up with demand. (RX29, pp. 0000033-0000034)
MNA concluded that incentivizing dealers to purchase and stock more parts would increase customer satisfaction, improve service workshop efficiency, reduce the number of days vehicles were down, and ultimately improve dealer profitability.
Similarly, dealers would no longer have to order parts for "rush delivery" to avoid causing customers to be without their vehicles for several days. (RX29, p. 0000065)12/
Sale of Pre-owned Vehicles
The final component of the 2017 Program, which made up the remaining portion of the 3.5% award, related to the sale of pre-owned vehicles by the dealers.
MNA would pay dealers 1% of MSRP for every new Maserati vehicle sold at retail if they sold a target number of pre-owned vehicles. The target number was 10% of the number of new vehicles the dealer sold in the same quarter of the prior year. (RX29, p. 0000071; RX21, p. 0002860)
MNA implemented this bonus component of the 2017 Program in anticipation of an increase in the number of used Maserati vehicles which would exist in 2017.13/ (RX29,
p. 0000071)
MNA decided to incentivize dealers to purchase used or pre-owned Maserati vehicles by offering a bonus for reselling a target number of these vehicles. (RX29, p. 0000069)
The sale of pre-owned or used vehicles was not a requirement, but, like other components of the 2017 Program, was an opportunity for a financial benefit to the dealer. The dealer was free to try for this bonus, or not, as it deemed appropriate. (RX29, p. 0000070)
The evidence indicated that there were other manufacturers who also offered bonus programs related to the sale of pre-owned vehicles.
Implementation of the 2017 Commercial Policy Program
After the presentation of the 2017 Commercial Policy at the October 25, 2016, dealer meeting in Dallas, MNA received feedback from some of its nationwide dealers regarding the new programs. The feedback was generally positive, with many dealers supporting the performance-based incentives offered, and backing MNA’s decision to take the company in a new direction. (RX71; See also RX54, RX61, RX62, and RX70)
MNA began the 2017 Commercial Policy with a "start-up" or transition period, from November 1, 2016, through March 31, 2017 (roughly 150 days).
Of considerable importance to this case is that during the transition period (November 1, 2016, through March 31, 2017), MNA paid dealers 5.5% of MSRP for every vehicle purchased at wholesale. This was paid regardless of dealer performance under the new 2017 Program or whether the dealer sold the vehicle at retail. The 5.5% was paid to the dealer upon the shipment of the new Maserati vehicles to the dealer during the transition phase. (RX34)
After the initial launch period, MNA revised the 2017 Program in an effort to improve it based, in part, on dealer input and suggestions. For instance, in March 17, 2017, in response to dealer feedback, MNA announced that the "sale of parts" objective of the new 2017 Program could be reached not
only through purchases of parts sold at retail by the dealer, but also through the purchase of parts to be used by the dealers in their warranty repairs. (RX57)
Payments Received by Petitioners Under the 2017 Commercial Policy Program Compared to the 2016 Program
In considering the ultimate question of whether the 2017 Program is fair and not prohibited, it is useful to consider the facts concerning how Petitioners have fared and performed during portions of 2017 as compared to the same period in 2016.
Before the advent of the 2017 Program, Petitioners received money on the sale of Maserati vehicles from two sources: from consumers who purchased or leased vehicles at retail, and from MNA in the form of Program Payments such as "holdbacks."
Prior to November 2016, Petitioners sold vehicles at prices negotiated with their customers and received payments from MNA under the 2016 Program in an amount equal to 4% of the MSRP on every vehicle they sold at retail.
During the transition period from November 1, 2016, through March 31, 2017, Petitioners received payments under the 2017 Program in an amount equivalent to 5.5% of MSRP on every vehicle purchased from MNA and shipped to the dealer. If the 2016 Program had been in place during that same transition period, Petitioners would have received instead 4% of MSRP on every vehicle retailed.
Turning to certain periods of 2017, testimony and reports from MNA’s expert, Joseph Gardemal, confirmed that both Palm Beach and Fort Lauderdale received more in payments from MNA under the 2017 Program than they would have received under the 2016 Program.
More specifically, comparing the best information available from April through July 2016 (before the start of the 2017 Program) to information from April through July 2017 (after the program was launched), Gardemal concluded that MNA’s payments to Fort Lauderdale increased from $447,144 to $619,068 in total, or from $3,413 to $4,329 per new Maserati vehicle sold at retail. (RX81, pp. 23, 55)
MNA’s payments to Palm Beach likewise increased from
$191,333 to $355,826 in total, or from $3,827 to $4,090 per new vehicle retailed. (RX81, pp. 28, 68)
Petitioners offered no persuasive evidence to support their contention that their profits on new vehicle sales decreased as a result of the 2017 Program or that the 2017 Program has resulted in less overall profitability to them.
Gardemal demonstrated from Petitioners’ financial statements, in part, that Petitioners’ overall profit on the sale of Maserati vehicles, taking into account not just program payments from MNA but also gross profit margin, increased from
2016 to 2017. Gardemal’s conclusions, described below, were not satisfactorily rebutted by Petitioners in any material respect.
Fort Lauderdale was able to increase the average retail price per new Maserati vehicle sold from $78,400 in April through July 2016 to $86,100 during the same four-month period in 2017, a 9.9% increase in average retail price per vehicle sold.
Fort Lauderdale also sold 9.2% more vehicles from April through July 2017 than it sold during the same period of 2016. Fort Lauderdale earned $2,000,000 more in new vehicle sales revenue from April through July 2017 than before from April through July 2016. (RX81, pp. 21-22, 51-52)
Fort Lauderdale’s increase in sales revenue in 2017 offset its increased cost for new Maserati vehicles. In comparison, from April through July 2016, Fort Lauderdale generated a negative gross profit on new Maserati sales, losing
$208,000 total and $1,590 per unit.
However, in the same four months of 2017, Fort Lauderdale earned a positive profit on new Maserati sales of
$82,000 total and $573 per unit. Fort Lauderdale’s gross profit increased under the 2017 Program by a total of $290,000 and
$2,163 per unit sold, as compared to the same period in 2016. (RX81, pp. 22-23, 54)
Palm Beach also increased its total revenue on new Maserati sales from April through July 2017 compared to the same
period in 2016, by approximately $3,000,000. Although Palm Beach did not increase its average retail price in 2017 to cover the January 1, 2017, invoice price increase (RX81, pp. 26-28, 64-67), Palm Beach still made more in overall profit under the 2017 Program than it had under the 2016 Program.
From April through August 2016, Palm Beach received
$221,029 in gross profits, plus holdback payments compared to the higher amount of $267,730 for the same period in 2017. This represented an increase of $46,701. (RX81, pp. 30-31, 73)
Petitioners argued that because their expenses will increase to achieve the 2017 Program targets, they will "net" less money under the 2017 Program than they would have received under the 2016 Program.
However, they presented no persuasive evidence of additional expenses they claim have been imposed by the 2017 Program. Notably, Fort Lauderdale admitted that it had already decided to provide a "Generation 2" facility on its own initiative nearly three years before the 2017 Program was announced, and the Existing Franchise Agreement at Section 4.1 already obligated Petitioners to upgrade to a "Generation 2" facility.
Nor did Petitioners adduce any persuasive evidence that the "lead response" and "employee training" components of the 2017 Program will cost them significant amounts of money.
Petitioners’ arguments also overlook that for every part used by a Petitioner in a warranty repair, MNA not only reimburses Petitioners for the cost of the part but also adds a 35%-to-40% markup as well.
The evidence revealed that the 2017 Commercial Program has had a positive financial impact on most Maserati dealers. Of MNA’s 111 dealers nationwide, only 11 have received less in payments under the 2017 Program than they did under the 4% holdback payment provided under the 2016 Program. Maserati dealers who perform better with respect to the 2017 Program’s metrics also sell more Maserati vehicles. (RX81, pp. 32-33, 77; see Id. p. 76)
The undersigned concludes that the facts support a finding that the 2017 Program represents fair and reasonable modifications to the franchise agreement and contractual relationship between the parties and is not prohibited.
Further, as a result of the presentation to the dealers in Dallas in October 2016, as well as several notices that were issued by MNA on November 1, 2016, and January 4, 2017, along with the manual, the undersigned finds that the dealers received more than 90 days' notice before the effective date of the 2017 Program. While the facts did not establish that DHSMV was copied with these notices, the undersigned finds that MNA substantially
complied with the statute, and there was no prejudice to the dealers as a result of any lack of notice to DHSMV.
THE PROPOSED NEW DEALER FRANCHISE AGREEMENT
Background
On December 16, 2016, MNA sent notice to Petitioners informing each of them that MNA "intends to offer you a new form of dealer agreement . . . that will replace your existing agreement" ("Proposed New Agreement").
The notice included a list of changes or modifications (RX31; Pre-H Ex. 4) and advised Petitioners that the changes were designed to update the Existing Franchise Agreement, create additional flexibility, and better position the brand for growth.
The notice stated in bold text, "Please do not sign and return the attached copy of the New Agreement" and informed Petitioners that MNA would send the new agreement for their signature at a later date.
On or about December 16, 2016, MNA also sent a notice to DHSMV with the heading "Notice of New Maserati North America, Inc. Dealer Agreement" and enclosed a copy of the Proposed New Agreement and a document titled "Summary of Changes."
(Pre-H Ex. 5; PX11)
On or about March 8, 2017, MNA filed an affidavit with DHSMV stating, among other things, that "[a]ny franchise agreement offered to a motor vehicle dealer in this state shall
provide that all terms and conditions in such agreement inconsistent with the law and rules of this state are of no force and effect." (Pre-H Ex. 6; PX12; RX83)
Petitioners did not seriously dispute, and the undersigned finds, that the Existing Franchise Agreement clearly permits MNA to modify it. (PX1, p. iv, § J ("Modification of Agreement"), 1 (provisions "may be amended, superseded or substituted from time to time"); see also PX1, p. 20, § 14.4
("Termination Due to Offer of New or Modified Dealer Agreement")).
By way of the Proposed New Agreement, MNA seeks to modify its "blanket" dealer agreement, which has been on file with DHSMV for over ten years. It desires to update and modernize the dealer agreement in the face of industry changes, to accommodate recent sales growth, and to align the agreement with other brands under the same corporate umbrella.
There are several proposed modifications which have been challenged by Petitioners, each of which are addressed below.
Electronic and Hybrid Vehicles
Section 2A. of the Proposed New Agreement makes it clear that electric and hybrid electric vehicles are excluded from the agreement and will not be allocated or sold to Petitioners. (PX3)
Section 27 of the Proposed New Agreement also defines "MASERATI Vehicles" to include "all new motor vehicles (excluding Electric Vehicles and Hybrid Electric Vehicles other than those Electric Vehicles and Hybrid Electric Vehicles, if any, specifically designated in the Motor Vehicle Addendum)."
(PX3, p. 34)
The Proposed New Agreement, therefore, excludes the allocation or sale of electric and hybrid electric vehicles to Petitioners.
Petitioners introduced an article from a trade publication known as Automotive News in which a reporter cites a statement from the CEO of Fiat Chrysler Automobiles, a sister company of MNA, that MNA intends to electrify its fleet of vehicles following 2019. (PX4). MNA's witness, Leah Strauss, testified, however, that she knows of no current plans by MNA to sell electric or hybrid vehicles.
MNA claims that it exempted electric and hybrid electric vehicles from the Proposed New Agreement because they are operated and serviced differently than traditional gas vehicles and require specific safety and servicing training. Furthermore, MNA claims that new knowledge of applicable legal compliance conditions must be gained before electric or hybrid vehicles can be safely and legally operated and serviced.
Petitioners contend and fear that MNA excluded electric and hybrid vehicles from the Proposed New Agreement as part of a plan to transition to a direct-sales distribution model in which MNA would sell electric and hybrid vehicles directly to consumers, as Tesla Inc. does now. This concern by Petitioners is not an unreasonable one.
Strauss testified that if MNA develops electric and hybrid vehicles, it will sell them through "our only customers, which are our dealers," and that MNA has no plans to sell vehicles directly to consumers.
While this statement by Strauss may allay some concerns, it is the written language in the Proposed New Agreement that would likely control and govern the rights between the parties insofar as the sale or allocation of hybrid and electric vehicles is concerned.
The proposed modification and exclusion of electric and hybrid vehicles would also bring about an unexpected change from the existing agreement in which there is no restriction on the type of Maserati vehicles which are allocated or sold to the dealers.
Consequently, the undersigned finds that the proposed exclusion of hybrid and electric vehicles from the Proposed New Agreement would be unfair. MNA did not carry its burden on this point and offered no persuasive argument as to why it could not
include hybrid and electric vehicles and condition their sale to the dealers on proof that specific safety and servicing training standards were met in advance by the dealers.
To exclude an entire line or type of Maserati vehicle, when the prior agreement did not do so, is an abrupt change and unfair provision. When viewed in light of the dealer’s substantial commitment of time, personnel, resources, and money, the exclusion of hybrid and electric vehicles does not withstand fair scrutiny. See § 320.64(22), Fla. Stat.
The undersigned finds that the inclusion of this provision in the new agreement is unfair, violates section 320.341(3), and should be stricken.
Change in Ownership or Management
Section 5 of the Proposed New Agreement provides that dealers must give MNA notice of their intent to change the dealer principal or majority owner. Further, MNA may require the dealer to pay outstanding debts before considering a proposed change in ownership. (PX3, p. 5, § 5)
The Existing Franchise Agreement requires dealers to provide MNA with notice of a potential change in ownership and grants MNA "the right in its reasonable discretion to approve or disapprove" any change. (PX1, p. 7, § 5.2)
The Proposed New Agreement materially differs only in enumerating that one reason MNA may refuse to consider a request
for a change is that a dealer owes MNA money. It is primarily a change in timing alone, as the Existing Franchise Agreement also requires dealers to pay "all outstanding monetary obligations" to MNA by the time of closing, versus the time of consideration or consent to the change under the Proposed New Agreement. (PX1, p. 10, § 5.7(k))
Petitioners testified that they accrue new debts to MNA daily and that section 5 would allow MNA to refuse to consider proposed ownership changes unless each consecutive day’s debt were paid off.
Strauss, however, testified that MNA proposed this provision to provide the necessary flexibility needed to deal with situations in which the selling dealer owes MNA "an exorbitant amount of money," such as "upwards of a million dollars."
In such cases, there is a risk to MNA in waiting to collect at closing. Once the sale closes, MNA may no longer access the dealer’s account and, therefore, has less adequate protection if, for example, a dealer files for bankruptcy.
Likewise, once the existing dealer sells and ceases to be a dealer, MNA has less recourse to satisfy any debt owed by the selling dealer.
Section 5 of the new agreement is fair, justified, and not prohibited under the reasoning offered by MNA. Petitioners
had agreed under the Existing Franchise Agreement to pay their debts to MNA before transferring ownership and ceasing to be a MNA dealer, requiring timely payment and clearance before considering the request is fair and not prohibited.
Software Agreement
Section 8 of the Proposed New Agreement requires dealers to execute and comply with the current and future version of MNA’s Software License, Data Exchange, and Electronic Commerce Agreement ("Software Agreement"). (PX3, p. 6). No comparable requirement exists in the Existing Franchise Agreement.
As to Fort Lauderdale, the new provision is not a material modification, because Fort Lauderdale signed the Software Agreement in October 2016——before MNA announced its intent to offer a new dealer agreement. (RX85)
Regardless, the more persuasive evidence shows that signing the Software Agreement will be beneficial to both MNA and the dealers. The purpose of requiring dealers to sign and comply with the Software Agreement is to ensure that MNA and its dealers can exchange information electronically more easily. Among other things, the effect is to facilitate the creation of better and more efficient business and marketing plans.
The uncontroverted testimony, and reasonable inferences from the evidence, demonstrates that section 8 will
benefit MNA and the dealers, and is fair and not prohibited. MNA included this provision in good faith and for good cause.
Allocation
Section 12(B) of the Proposed New Agreement provides that "MNA shall use commercially reasonable efforts to make MASERATI Vehicles and MASERATI Products available to Dealer." (PX3, p. 8, § 12(B))
The Existing Franchise Agreement provides that at "times when demand for Maserati Vehicles in North America exceeds available supply," MNA will "endeavor to provide a fair, reasonable and equitable distribution of Maserati vehicles" among all dealers. (PX1, pp. 2-3, § 3.2)
The Existing Franchise Agreement uses the words "fair, reasonable and equitable." The Proposed New Agreement uses the words "commercially reasonable." From a practical standpoint, those phrases are substantially the same, and the new definition constitutes a fair change from the old one.
Section 12(B) of the Proposed New Agreement is a fair and reasonable modification, and is not prohibited. MNA adopted it in good faith and for the good cause of ensuring that its distribution of vehicles is done in a commercially reasonable way at all times.
Sale of Non-Vehicle Products
This section primarily involves the sale of Maserati merchandise, including clothes, apparel, and novelties bearing the Maserati mark and insignia.
The Existing Franchise Agreement does not grant dealers the right to sell Maserati products, other than vehicles and vehicle parts, but instead leaves that decision solely to MNA. (PX1, p. 13, §§ 7.6, 7.7)
In addition, the Existing Franchise Agreement expressly allows MNA "to enter into any marketing and sale arrangements for non-automotive Maserati products, which arrangements could preclude any or all Maserati dealers from marketing and/or selling such products." (PX1, p. 1 (§ 1.12), p. 13 (§ 7.7))
Conversely, Section 13(B)(3) of the Proposed New Agreement expands dealers’ rights relative to the Existing Franchise Agreement by granting them an explicit right in the Proposed New Agreement to sell "MASERATI Products," which are defined as "all products other than MASERATI Vehicles that MNA offers for sale to Dealer and that Dealer purchases for re-sale or lease under the terms of this Agreement." (PX3, p. 12
§ 13(B)(3)) and p. 34 (definition of "MASERATI Products"))
Petitioners are concerned that new Section 13(B)(3) would deprive them of exclusive rights to purchase merchandise and accessories from MNA and resell them to retail customers.
However, as explained above, they do not have the exclusive right under the Existing Franchise Agreement.
New Section 13(B)(3) was adopted in good faith and for good cause. The new provision, adding more items, is fair, not prohibited and could result in the expansion of the dealers’ rights to sell Maserati merchandise (which does not exist under the existing agreement). It also clarifies MNA’s right under the existing agreement to sell parts and merchandise through non- dealer channels.
Compliance With Emissions Laws
Section 14(G) of the Proposed New Agreement requires dealers to comply with all laws concerning motor vehicle safety and emissions control and to "provide such information and assistance to MNA as may be required in connection with the performance of obligations imposed" by such laws. The new provision also obligates MNA to reimburse dealers for parts and labor involved in installing required safety and emissions control devices. (PX3, pp. 14-15)
Under Section 6.3 of the Existing Franchise Agreement, dealers agree to comply with all federal, state, and local vehicle emission, safety, and warranty legislation. The current
section also obligates dealers "to disclose information with respect to the foregoing" in response to MNA’s reasonable requests. (PX1, p. 11, § 6.3)
The new Section 14(G) does not impose material costs on dealers and does not represent an adverse change from the existing Section 6.3.
The primary difference between the two provisions is that Section 14(G) obligates MNA to reimburse dealers for parts and labor related to emissions requirements. Petitioners’ obligations under the old and new provisions are comparable.
The information or assistance dealers must provide under the new provision is that which is "required" in order to comply with federal, state, or local laws. (PX3, pp. 14-15,
§ 14(G)).
Section 14(G) is fair and not prohibited. It was adopted in good faith and for good cause to ensure full and effective compliance with emissions laws.
Compliance with Laws
Section 14(I) of the Proposed New Agreement imposes a general requirement on dealers to comply with any and all applicable laws. (PX3, p. 15, § 14(I)). The section is essentially the same as Section 6.3 of the Existing Franchise Agreement. Strauss testified that there was no substantive change.
Petitioners contend that the Proposed New Agreement does not expressly obligate MNA to comply with the law, and therefore, the obligation to follow the law is not mutual.
From a practical standpoint, the same essential language, however, appears in the Existing Franchise Agreement. Moreover, the absence of express reciprocal language would not give MNA license to violate the law, particularly under the detailed and protective scheme found in chapter 320. The new provision is also controlled by Florida jurisprudence which holds that the law existing at the time a contract is entered into is incorporated into the contract, as if it had been expressly stated in the contract itself. Fla. Beverage Corp. v. Div. of
Alcoholic Beverages & Tobacco, 503 So. 2d 396 (Fla. 1st
DCA 1987); Daytona Beach v. Amsel, 585 So. 2d 1044 (Fla. 1st
DCA 1991); Nat'l Distrib. Co. v. James B. Beam Distilling Co., 845 F.2d 307 (11th Cir. 1988).
Section 14(I) is not materially different than the old provision. It is fair and not otherwise prohibited.
Facilities
Under Section 17(A)(1) of the Proposed New Agreement, Petitioners agree to satisfy MNA’s facility requirements, as set forth from time to time. (PX3, p. 16, § 17(A)(1); see id., p. 33 ("Dealership Facilities and Location Addendum" may be "in such form as may be used from time to time") ("Manuals" are "current
or future" MNA documents containing relevant "policies, standards, rules, regulations, directives, processes and procedures."))
This provision is substantially identical to Section 4.1 of the Existing Franchise Agreement, in which
Petitioners agreed to "continuously comply" with MNA’s corporate identification program and facilities guide and to "maintain and enhance" their facilities pursuant to MNA’s reasonable recommendations. (PX1, p. 6)
The facility requirement referred to in the Existing Franchise Agreement are set forth in MNA’s 2014 Corporate Identity Guide (RX 86) and are the same as those referred to in the Proposed New Agreement. Section 17(a)(1) does not constitute a material change to Petitioners’ Existing Franchise Agreement.
The facilities provision in the Proposed New Agreement is fair and not prohibited. It was adopted in good faith and for good cause to ensure compliance with MNA’s corporate identity requirements. More specifically, it had valid objectives to maintain and improve the corporate image, increase sales and potential profitability for both parties.
Sales Performance Evaluation
Unlike the existing agreement, Section 18(A)(1) of the Proposed New Agreement sets out a "Minimum Sales Responsibility,"
which must be met by the Petitioners. (Emphasis added). (PX3, p. 19, § 18(A)(1))
The second paragraph of the new section (A)(1) also gives MNA broad discretion to determine which alternative computation method to use to determine MSRP.14/
On the other hand, in the Existing Franchise Agreement, Petitioners agreed to more of an aspirational sales performance standard, which required them to "use best efforts to achieve the best sales performance" in a set geographic area, which is referred to as the "Relevant Market Area." (PX1, p. 12,
§ 7.2). And while sales performance objectives could be changed from time to time by MNA under the Existing Franchise Agreement, it required consultation with the dealer.
Also, under the Existing Franchise Agreement, Petitioners received and benefited from evaluation reports detailing their sales effectiveness. These reports would presumably help the dealer to better gauge its performance and understand how it measured up in the eyes of MNA. Similar reports do not appear to be required in the Proposed New Agreement.
Although Strauss contended that MNA does not and will not apply different standards to different dealers in determining MSRP, this option appears to be possible under the language in Section (18)(A)(1), second paragraph. (MNA retains broad
discretion to choose from either one of the two computation methods as MNA "deems it appropriate.")
Suffice it to say that several of the provisions of the proposed Section 18(A) grant exceedingly broad discretion to MNA. For instance, MNA may, in its sole judgment, take into account local conditions––helpful or adverse to the dealer–– should it choose to.
Similarly, MNA may, in its sole judgment, revise the sales performance standards or adopt other sales performance standards, which if changed, must be achieved by the dealer.
Petitioners contend that a failure to comply with Section 18(A) could result in termination under Section 22(B)(3) of the Proposed New Agreement. (PX3, p. 25)
MNA correctly points out that the Florida Dealer Act, chapter 320, governs the termination of franchise agreements. However, if one party is granted broad discretion to arbitrarily set or change the sales performance rules, the dealer is at an unfair disadvantage.
Regardless of the testimony from Strauss contending that MNA did not adopt Section 18(A) to terminate dealers more easily, the fact remains that Section 18(A) of the Proposed New Agreement grants a distinct and unfair advantage to MNA to revise or configure the sales performance standards in an unfair and arbitrary manner to suit its needs.
Section 18(A) embodies a veritable succession of discretionary and arbitrary calls that make it difficult for a dealer to understand what the rules are, or will be.
MNA has not met its burden of proving that the new Section 18(A) is fair and not prohibited. As a result, it should be stricken.
Net Working Capital and Floorplan Line of Credit
Sections 19(A) and 19(B) of the Proposed New Agreement require Petitioners to (1) maintain minimum net working capital as specified by MNA and (2) maintain an adequate floorplan line of credit with a financial institution in an amount satisfactory to MNA in order to enable dealers to perform their obligations under the Proposed New Agreement. (PX3, p. 20)
Under Section 3.3 of the Existing Agreement, Petitioners agreed to "continuously maintain floor plan financing
. . . in an amount and with a financing institution reasonably acceptable to Maserati." (PX1, p. 3). Further, under Section
10.1 of the Existing Agreement, Petitioners agreed to "at all times comply" with the reasonable capital and operating standards requirements established from time to time by MNA. (PX1, p. 16)
These working capital requirements have been in place for years under the Existing Franchise Agreement signed by each of Petitioners and are designed to ensure that Petitioners can reasonably pay MNA for vehicles they purchase.
Petitioners testified that Sections 19(A) and 19(B) of the Proposed New Agreement represent an unfair modification because they do not explicitly require MNA to act reasonably, and they grant MNA the right to terminate them for failure to meet the net working capital or floorplan line of credit standards.
There was no persuasive evidence that, over the nine plus years that Petitioners have operated under the working capital and floorplan credit line standards, MNA has acted unreasonably or that the Proposed New Agreement is intended to eliminate a "reasonableness" standard.
Regardless, in the event MNA were to attempt an unreasonable application of these standards and terminate the franchise, Petitioners would be entitled to challenge this decision and assert their rights under the termination provisions of the Florida Dealer Act.
New Sections 19(A) and 19(B) are substantively identical to Sections 3.3 and 10.1 of the Existing Franchise Agreement and are fair and not prohibited. They are proposed in good faith and for good cause to ensure that the dealers are able to adequately and reasonable pay for the vehicles they purchase.
The new language is straightforward and clear regarding what is required. This is not an unreasonable or unfair objective.
Examination of Records
Section 19(F) of the Proposed New Agreement reserves MNA’s right, during regular business hours, to inspect Petitioners’ facilities and examine their records relating to Maserati operations, without notice and for any reason. (PX3, p. 21)
Sections 6.9 and 10.7 of the Existing Franchise Agreement grants MNA inspection rights as well, except they require "reasonable notice." (PX1, pp. 12, 17)
MNA proposed the new Section 19(F) to safeguard against the submission and payment of inaccurate or fraudulent claims by dealers.
Under the current system, dealers submit claims for payment to MNA, and MNA pays the claims without any contemporaneous verification, subject only to an audit at a later date. For example, when a dealer requests reimbursement plus a markup for the sale of a part at warranty, MNA credits money to the dealer’s account without knowing whether the claim was genuine.
The Proposed New Agreement reserves MNA’s right to inspect without notice to verify that a dealer’s records support a claim, particularly under circumstances where it reasonably suspects false claims have been made.
Section 19(F) is fair and not prohibited. It was adopted in good faith and for good cause to address valid business concerns.
Confidentiality
Section 19(H) of the Proposed New Agreement restricts MNA from disclosing dealers’ financial information to third parties but allows the disclosure of such information to "MNA’s parent, members, subsidiaries, and affiliates." (PX3, p. 22). It also allows disclosure for a list of reasonable legal and business reasons.
Similarly, Section 10.6 of the Existing Franchise Agreement prohibits distribution to third parties but allows MNA to disclose dealer data to its affiliates and if "required to do so by law."
Both agreements endeavor to keep Petitioners’ information within the MNA family, with exceptions when and if the law requires disclosure. The Proposed New Agreement spells out more precisely the entities with which MNA may share Petitioners’ information and under what circumstances.
Both the existing and proposed provisions are governed by section 320.64(28), such that any nominal differences between them will have no significant effect on Petitioners. The reasons offered by MNA for proposing Section 19(H), including conformance with its parent company’s FCA dealer agreements, are consistent
with good-faith business justification and constitute good cause. The new provision is fair and not prohibited.
Termination
Section 22 of the Proposed New Agreement lists the grounds for which MNA may seek to terminate the franchise agreement. If any of these contractual provisions or grounds conflict with termination provisions of chapter 320 or related agency rules, the statute and rules will control and govern the question of whether MNA can terminate the franchise agreement.
§ 320.641, Fla. Stat.
This provision is fair, not prohibited, and based on good cause and good faith.
Severability Clause
MNA uses a "blanket" agreement, as authorized in section 320.63(3), for all its dealers in Florida and nationwide. MNA’s current "blanket" agreement has been on file with DHSMV for over a decade. To account for the differences in states’ laws, and the fact that state laws may change over the years, MNA includes a "severability" clause.
The severability clause provides that in the event a provision in its "blanket" agreement is found to violate state law, the provision is amended to comply with state law or is deleted altogether. (PX3, pp. 24-27; § PX1, pp. 20-22 (Art. 14))
Thus, in the event any portion of proposed section 22, or any other provision of the Proposed New Agreement, is found to be in conflict with any provision of the Florida Dealer Act, the Dealer Act provisions would prevail and govern. See also Fla. Beverage Corp. v. Div. of Alcoholic Beverages & Tobacco, 503 So.
2d at 396.
The new proposal at Section 22 is very similar to the old one. It is reasonable and MNA adopted the section in good faith and for the good cause to reserve its rights in states that, unlike Florida, do not have controlling provisions.
Indemnification
Section 25 of the Proposed New Agreement addresses MNA’s and dealers’ indemnification rights. (PX3, pp. 29-30) Article 13 of the Existing Franchise Agreement does the same (PX1, pp. 18-20), and the two clauses are substantially similar.
This modification is fair, not prohibited, and proposed in good faith and for sufficient good cause.
Right to Replace or Modify
Section 26(I) of the Proposed New Agreement would grant MNA the right to replace the agreement with a new, superseding agreement. (PX3, p. 32)
Section 14.4 of the Existing Franchise Agreement makes clear that MNA has that same right, providing that MNA may terminate the agreement on 30 days’ notice (subject to state
notice requirements) in order to offer to all dealers then in good standing a new or modified form of the agreement.
(PX1, p. 20)
The two provisions are functionally identical.
Regardless, each is operative only to the extent it is consistent with state law.
This new provision is fair and not prohibited, particularly because chapter 320 would still govern and require proof that a replacement agreement or modification is fair and not prohibited.
Amendments
Section 26(N) of the Proposed New Agreement relates to amendments to the agreement. Section 320.641(3) states that a proposed modification to a franchise agreement is unfair unless it is "clearly permitted" in the Existing Franchise Agreement.
Thus, to comply with the law, manufacturers would predictably want to include a provision allowing modifications. Nonetheless, Florida law governs attempted modifications, and they still must be proven by the manufacturer to be fair and not prohibited.
Section 26(N) and any proposed modification is governed by the Florida Dealer Act and is fair, not prohibited, and a reasonable provision.
Applicable Law
Section 26(O) of the Proposed New Agreement provides that Michigan law governs the agreement. (PX3, p. 33). To the extent that provision conflicts with section 320.64(31)(c), it is not operative.
Florida law, particularly chapter 320, governs the old and new agreement. Nonetheless, for this Florida franchise agreement and with these dealers, the use of this provision would be unfair and is superfluous. Under the Florida Dealer Act, it simply has no force or effect and should be stricken.
Release
Section 26(P) of the Proposed New Agreement provides that, with specified exceptions, dealers release MNA from "claims and causes of action that it may have against MNA for money damages arising from any act or omission that occurred" prior to the effective date of the agreement. (PX3, p. 3)
Conversely, section 320.64(20) prohibits only prospective releases. To the extent the new provision conflicts with section 320.64(20), it would be void and of no force and effect.
MNA included this provision to ensure that it has a fresh start and clear understanding of its legal relationship with a prospective dealer before signing a new franchise agreement.
The rationale for the provision provides good cause, and is consistent with good-faith business judgment. It is fair and not prohibited.
CONCLUSIONS OF LAW
DOAH has jurisdiction over the parties and the subject matter of this proceeding pursuant to sections 120.569, 120.57, and 320.699, Florida Statutes (2017).
The Florida Motor Vehicle Dealer Act ("Dealer Act"), found at sections 320.61 through 320.70, is intended "to protect the public health, safety, and welfare of the citizens of the state by regulating the licensing of motor vehicle dealers and manufacturers, maintaining competition, providing consumer protection and fair trade." § 320.605, Fla. Stat.
Several state and federal courts have elaborated on the purpose behind the Dealer Act.
In Mike Smith Pontiac, GMC, Inc. v. Mercedes-Benz of
North America, Inc., 32 F.3d 528, 533-534 (11th Cir. 1994), the
Eleventh Circuit stated the general purpose of the Dealer Act:
The Florida Legislature enacted the Dealer Protection Act (the Act) to ensure fair dealing at all levels among all participants in the distribution and sale of motor vehicles, and to redress the economic imbalance which naturally exists between national manufacturers and local dealers.
International Harvester Co. v. Calvin, 353 So. 2d 144, 147 (Fla. 1st DCA 1977). The
express purpose of the statute is to protect the public health, safety, and welfare . . .
by regulating the licensing of . . . dealers and manufacturers, maintaining competition, providing consumer protection and fair trade and providing minorities with opportunities for full participation as . . . dealers."
§ 320.605, Fla. Stat. This legislation is directed toward eliminating the harsh practices large manufacturers had inflicted upon franchisees. Mercedes-Benz of North America, Inc. v. Department of Motor Vehicles, 455 So. 2d 404, 410 (Fla. 2d DCA
1984); see International Harvester, 353 So.
2d, 147.
One Florida state court has observed that the Florida Legislature enacted chapter 320, in part, to equalize the conceded difference in bargaining power between the dealers and manufacturers, and to accord some protection to the motor vehicle dealer as the weaker of the two parties. J.R. Furlong, Inc. v. Chrysler Corp., 419
So. 2d 385, 388 (Fla. 3d DCA 1982).
The Dealer Act has also been described as part of a legislative program to ensure fair dealing at all levels between motor vehicle manufacturers, the dealers and the consuming public." Int’l Harvester Co. v. Calvin, 353 So. 2d 144, 147
(Fla. 1st DCA 1977).
Petitioners’ claims are governed, in part, by notification requirements set forth in section 320.641(1)(a), which provide that a licensee or manufacturer:
Shall give written notice to the motor vehicle dealer and the department of . . . the licensee’s intention to modify a franchise . . . , which modification . . . will adversely alter the rights or
obligations of a motor vehicle dealer under an existing franchise agreement or will substantially impair the sales, service obligations, or investment of the motor vehicle dealer, at least 90 days before the effective date thereof, together with the specific grounds for such action.
The "definitional" sections of chapter 320 are also of consequence and relevant to the issues in this case.
A "franchise agreement" is defined to include several things, and means "a contract, franchise, new motor vehicle franchise, sales and service agreement, or dealer agreement or any other terminology used to describe the contractual
relationship between a manufacturer . . . and a motor vehicle dealer." (Emphasis added). § 320.60(1), Fla. Stat.
Thus, franchise modifications and the attendant rights, obligations, and protections afforded under section 320.641 may, under the appropriate circumstances, extend to and include bonus, rebate, incentive, or other benefit programs, if they are a part of the contractual relationship between the manufacturer and dealer. See § 320.60(1), Fla. Stat.
The undersigned concludes that the 2017 Commercial Program is clearly a part of the contractual relationship between the parties.
To define a franchise agreement more narrowly, or conclude that it is limited only to what is within the four corners of the written franchise agreement itself, would
seriously weaken the protective scheme outlined in chapter 320, and encourage manufacturers to exclude important financial terms or bonus programs from the foundational franchise agreement.
As a practical example, a manufacturer could outline bonus and incentive programs only in its policies, manuals, or practices, and then claim that since those financial terms are not, within the "four corners" of the franchise agreement, they are not, therefore, subject to or controlled by the modification provisions of chapter 320. This would subvert the purpose of the law and run afoul of the objectives of chapter 320.
Moreover, the Florida Legislature understood that the business relationship between dealers and manufactures is based on more than just the initial franchise agreement. It is evolving and not static.
That is, the contractual relationship is frequently driven by bonus and incentive programs that change, morph, and fluctuate over time to adjust to market forces, industry "best practices," and consumer demands.
As a result, it is the broader, multi-faceted franchise business relationship that defines the parameters of the franchise agreement between the parties, and that chapter 320 is intended to protect and check.
This full business relationship between a manufacturer and dealer may be expressed in the franchise agreement itself
and, as here, in other policies, practices or programs that the parties have agreed to, accepted, or have ratified by their conduct and course of dealings.
MNA has argued that if the 2017 Commercial Policy is viewed as a part of the "franchise agreement," the manufacturer would never be able to change its dealer bonuses or other incentive programs. But that is the whole point of the law-- modifications may be permitted, so long as they are fair and not prohibited.
This argument also overlooks the clear and obvious protective intent of the statute--if a manufacturer wishes to modify a franchise agreement or related bonus program to keep pace with market changes or best corporate practices, it may do so. However, if and when it is properly challenged by a disgruntled dealer, it must prove that the change is fair.15/
The undersigned concludes that section 320.641(3) is meant to include the proposed modification of any rights or obligations which are considered an integral part of the full contractual relationship between a manufacturer and a dealer. Here, that contractual relationship includes both the base franchise agreement and the 2017 Program.
The crux of this dispute revolves around the proper interpretation and application of section 320.641(3). That section provides, in pertinent part:
Any motor vehicle dealer who receives a notice of intent to discontinue, cancel, not renew, modify, or replace may, within the 90-day notice period, file a petition or complaint for a determination of whether such action is an unfair or prohibited discontinuation, cancellation, nonrenewal, modification, or replacement 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.
Other provisions of section 320.641 should be considered as well.
Section 320.641(2) states: "Franchise agreements are deemed to be continuing unless the applicant or licensee has
notified the department of the discontinuation of, cancellation of, failure to renew, modification of, or replacement of the agreement of any of its motor vehicle dealers; and annual renewal of the license provided for under §§ 320.60-320.70 is not necessary for any cause of action against the licensee." (Emphasis added).
Since motor vehicle dealer franchise agreements in Florida are continuing in nature, this makes it all the more important that a proper balance is struck between protecting the dealer’s investment of time, resources, and money against the manufacturer’s need to make reasonable changes to the contractual
relationship, and to ensure that both parties remain profitable and keep pace with a very competitive industry.
As previously mentioned, to maintain a level playing field, the Florida Legislature has imposed a duty on manufacturers to prove that modifications they wish to make during this "continuing" contractual relationship are fair. To do this, a manufacturer must prove that the proposed modifications are (1) clearly permitted by the franchise agreement, (2) are done in good faith, and (3) are done for good cause. § 320.641(3), Fla. Stat.
There is a limited body of case law in Florida addressing legal issues which arise under section 320.641. The existing case law typically involves the proposed termination or transfer of a dealer franchise agreement, or the location of a new incoming dealer. They seldom address issues directly related to the proposed modification of a franchise agreement under the current version of section 320.641.
Fortunately, because the standard for proving a franchise termination is similar, if not identical, to justifying a franchise modification, termination cases under section 320.641 provide useful guidance.
In Central Buick GMC Inc. v. General Motors LLC, 2017 U.S. Dist. LEXIS 100367 (M.D. Fla. 2017), the dealership
contended that the manufacturer terminated the parties' franchise
agreement in violation of section 320.641(3). Several legal principles emerge from that case which are applicable to franchise modification cases as well.
Like the majority of courts surveyed, the Central Buick court recognized that dealer franchise agreements are
contracts between the parties, that general principles of contract law apply, and that contract interpretation is ordinarily a matter of state law.
The court addressed the phrase "good faith" found in chapter 320. While recognizing that Florida courts have not squarely addressed the concept of "good faith" under section 320.641(3), the court pointed out that under Florida contract law, an implied covenant of good faith arises and limits a party’s discretion to act.
The court also observed that when applying the "good faith" standard under chapter 320, the manufacturer had the burden of showing that its termination or other action was "neither capricious, nor in contravention of the parties' reasonable expectations."
With the exception of the new provisions (1) excluding hybrid and electric vehicles at Section 2(A), (2) defining sales performance evaluation at Section 18(A), and (3) the inclusion of a provision applying Michigan law at Section 22(O), the proposed modifications in the Proposed New Agreement and the provisions of
the 2017 Program are not capricious, nor are they in contravention of the parties’ reasonable expectations.
For instance, it is clear that the parties envisioned that modifications or amendments would occur to their contractual relationship. (In fact, this is expressly recognized in the existing agreement.)
It would be unreasonable for a dealer to expect that a manufacturer’s MSRP pricing or the manufacturer’s bonus or incentive programs for dealers would never change.
Despite the host of issues involved when modifications are sought to a nationwide franchise agreement, the undersigned views the issue in this case as fairly simple and straightforward: Has the manufacturer proven that the modifications in the Proposed New Agreement and the 2017 Commercial Policy are fair and not prohibited?
This uncomplicated view finds support in comments by the First District in the frequently cited case of International
Harvester Co. v. Calvin, 353 So. 2d 144 (Fla. 1st DCA 1977).
There, the issue involved the court’s analysis of the cancellation of a franchise agreement by the manufacturer which DHSMV had found to be done in bad faith.
The International Harvester court concluded that the only material criterion for DHSMV to consider in a dispute
arising under section 320.641(3) is whether the franchise agreement had been unfairly canceled. Id. at 147.
The district court recognized that there is an inherent economic imbalance which customarily exists between national manufacturers and local dealers. It also acknowledged that courts must protect dealerships from arbitrary and discriminatory action by manufacturers.
In a footnote discussing the concept of "bad faith" versus "good faith," the court noted "The aims of the manufacturer and dealer are basically the same, to make a profit. It makes less sense to attribute a bad motive to a manufacturer when the relationship with the dealer is so obviously symbiotic." Id. at 149 n3.
In International Harvester, the court upheld the
manufacturer’s termination and pointed out that it was appropriate for the manufacturer to rely upon objective and empirical data in making the decision to terminate. This point is particularly salient in this case. Id. at 148.
In this case, the evidence revealed that MNA had researched the industry, analyzed market data, and formed its own advisory committee of dealers before making the proposed changes to its "blanket" franchise agreement and launching the 2017 Commercial Policy.
MNA clearly relied upon objective and empirical data before it embarked upon its course of modifying the franchise agreement and bonus program.
In Ernie Haire Ford, Inc. v. Ford Motor Co., 260 F.3d 1285 (11th Cir. 2001), the court reiterated several "good faith" principles announced in International Harvester and remarked that even where one party has sole discretion under a contract, that party, in exercising its discretion, must act in good faith and in accordance with the contracting parties' reasonable expectations.
The Eleventh Circuit added, however, that "the limit placed on a party’s discretion is not great," and pointed out that "unless no reasonable party would have made the same discretionary decision, it seems unlikely that [the party's] decision would violate the covenant of good faith." Id. At 1292 (citing Sepe v. City of Safety Harbor, 761 So. 2d 1182 (Fla. 2d
DCA 2000), accord Cipran v. BP Prods. N. Am., Inc., 375 F. Supp.
2d 1355 (S.D. Fla. 2005)).
Particularly noteworthy was the Court’s practical observation that even if a manufacturer’s decision is not in the dealer's best interests, that does not mean that the decision was capricious or in contravention of the party's reasonable expectations. Ernie Haire Ford, Inc. v. Ford Motor Co., 260 F.3d
at 1292.
Under the facts of this case, and the reasonable inferences from those facts, the contractual relationship between the parties comtemplated that MNA could roll out and implement holdback, bonus, or other incentive policies or practices utilizing certain metrics and performance standards. This indeed had been the practice since the inception of the relationship.
Assuming arguendo that the reference to MNA’s "policies and practices" in the existing agreement was unclear or ambiguous, the course of dealings between the parties should be considered. See generally L & H Constr. Co. v. Circle Redmont,
Inc., 55 So. 3d 630 (Fla. 5th DCA 2011); Rafael J. Roca, P.A. v. Lytal & Reiter, Clark, Roca, Fountain & Williams, 856 So. 2d 1
(Fla. 4th DCA 2003); and Mayflower Corp. v. Davis, 655 So. 2d 1134 (Fla. 1st DCA 1994).
The course of dealing and practice between these parties over the years reveals a consistent practice of acknowledging that bonus and incentive programs were an integral part of the contractual relationship.
The 2017 Program is as much a part of the ongoing contractual relationship as the franchise agreement itself. Both combined, define the full and multi-faceted contractual relationship between the parties.
Taking into account the business reasons and justification arising from the evidence and reasonable inferences
arising from the evidence, the undersigned concludes that the 2017 Program was a fair modification of the franchise agreement and contractual relationship between the parties, was properly noticed to the dealers, and was not prohibited.
The modification of the prior holdback program and adoption of the 2017 Program was clearly permitted by the existing franchise agreement, was modified for legitimate and good faith business reasons and was proposed for good cause to remain profitable, to properly incentivize the dealers, and to keep pace with best industry practices in the luxury automotive industry.
MNA developed the 2017 Program over more than a year, in consultation with dealers, and has continued to update the program in response to dealer feedback. MNA has been fair and not capricious in implementing the 2017 Program.
Between 2010 and 2016, MNA experienced a significant increase in sales, entered a new consumer market, and gained competitors who were incentivizing their dealers through programs with bonus payments. MNA developed the 2017 Program to modernize and compete.
All components of the 2017 Program were designed with objective data and research-backed business goals in mind. Initial reports suggest that the 2017 Program was well received by many dealers and is working.
PROPOSED NEW DEALER AGREEMENT
MNA’s December 16, 2016, letters informing dealers and DHSMV of MNA’s intent to offer the Proposed New Agreement satisfied the statutory 90-day notice period. See
§ 320.641(1)(a), Fla. Stat. In addition, in March 2017, MNA sent an affidavit to DHSMV satisfying the requirements of section 320.63(3).
The modifications in the Proposed New Agreement meet the test of being "clearly permitted" by the Existing Franchise Agreement, which provides that its provisions "may be amended, superseded or substituted from time to time" (PX1) and that MNA may amend or modify the agreement (PX1, p. iv, § J). This element of fairness is not in serious question.
With the exception of proposed changes (1) excluding electric and hybrid vehicles from allocation in Section 2;
the sales performance evaluation in Section 18(A); and
application of Michigan law in Section 26(O), all other provisions of the Proposed New Agreement are fair and not prohibited under the standards outlined in section 320.641(3).
The provisions of the Proposed New Agreement determined by the undersigned to be fair and not prohibited include:
Section 5 ("Change in Ownership or Management");
Section 14(G) ("Compliance With Safety and Emissions Control Requirements");
Section 8 ("Software License, Data Exchange and Electronic Commerce");
Section 12(B) ("Availability and Allocation of Maserati Vehicles and Maserati Products");
Section 13(B)(3) ("Dealer’s Sales Obligations");
Section 14(I) ("Compliance With All Other Laws");
Section 17(A)(1) ("Facilities");
Section 19(A) ("Minimum Net Working Capital");
Section 19(B) ("Floorplan Line of Credit");
Section 21 ("Sale of Dealer Assets or Owner’s Interest");
Section 22 ("Termination");
Section 25 ("Defense and Indemnification");
Section 26(I) ("New and Superseding Dealer Agreements"); and
Section 26(N) ("Amendments").
Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that:
A final order be entered by the Department of Highway Safety and Motor Vehicles: (1) DISMISSING Petitioners’ claims regarding MNA’s 2017 Commercial Policy Bonus Program; and (2) GRANTING, IN PART, AND DENYING, IN PART, Petitioners’ claims regarding modifications in the Proposed New Agreement, as set forth above.
DONE AND ENTERED this 23rd day of January, 2018, in Tallahassee, Leon County, Florida.
S
ROBERT L. KILBRIDE
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 23rd day of January, 2018.
ENDNOTES
1/ The undersigned accepted the parties’ proposal that all exhibits on the pre-hearing exhibit list would be admitted subject to the parties’ right to argue any objections to the admissibility of exhibits in their post-hearing filings.
2/ Citations to the record are as follows: (i) Pre-hearing Stipulation--"Pre-H"; (ii) Transcript--"Tr."; (iii) Petitioners' exhibits--"PX"; (iv) Respondent's exhibits--"RX." The seven- digit page numbers of Respondent's exhibits are Bates-stamped numbers.
3/ Petitioners’ separate franchise agreements are substantively identical and may be referred to collectively as the "Existing Franchise Agreement."
4/ Prior to the introduction of the Ghibli, MNA operated as a "super luxury" manufacturer whose vehicles were priced in excess of $100,000. Introducing the Ghibli, which is priced at approximately $70,000, moved MNA into a larger and broader market of customers.
5/ Details of these committee meetings were not presented by witnesses during the final hearing.
6/ It was not clear if Petitioners attended the meeting or received the materials, or both. Nonetheless, there was no material dispute, and a reasonable inference from the facts indicates that both Petitioners were notified and made aware of the details of the 2017 Program by no later than November 1, 2016.
7/ Based on the facts and evidence presented, the delay is measured by the period between the first formal announcement on October 26, 2016, and March 31, 2017, when the modifications of the 2017 Program became effective. Even if January 4, 2017, was used as the notification date, MNA was substantially in compliance with the 90-day notification period under section 320.641(1). Concerning the format of the notice under section 320.641(1), the only material requirement is that it be "written." Both the written materials and PowerPoint presentation from the October 26, 2016, meeting in Dallas and the January 4, 2017, notice and manual met this requirement. If the intent of the statute is to ensure that affected dealers are properly notified and able to timely file a complaint, then the facts reveal that this was fully accomplished in this case.
Although there was no evidence presented to show that DHSMV was sent a copy of the 2017 Program in October 2016 or January 4, 2017, there was no prejudice to the dealers by the failure to do so. This conclusion is further supported by the fact that MNA paid the dealers a full 5.5% of MSRP until the end of March 2017, effectively benefiting all dealers in an amount greater than the previous 4% holdback.
8/ As the case developed, the crux of this dispute revolves around the fairness or unfairness of these components.
9/ The Existing Franchise Agreement obligates Petitioners to "continuously comply" with MNA’s CI standards. (PX1,
NCFL000318, § 4.1). Those standards are contained in a guide published by MNA that has been in effect since September 2014. (RX86)
10/ Petitioners did not dispute that training programs are beneficial to dealers.
11/ Petitioners’ Existing Franchise Agreement requires "that all personnel engaged in [] Maserati Operations must attend all applicable training courses offered by Maserati." (PX1, p. 8,
§ 5.4)
12/ "Rush delivery" of requested parts also added additional costs for the parties.
13/ The projected spike in used vehicles was the result of the expiration in 2017 of the three-year leases that were used by retail customers to purchase the Ghibli in 2014, which was its first full sales year. Five Thousand (5,000) Maserati vehicles were projected to come "off lease" in 2017, as opposed to One Thousand (1,000) in 2016.
14/ The New Agreement creates a sale standard based on "Minimum Sales Responsibility" and gives Maserati the discretion to determine, conceivably, on a dealer-by-dealer basis, whether to use a measurement adjusted for total vehicles sold in the market, or sales limited to competitors that Maserati deems are appropriate comparisons.
15/ This is particularly true since franchise are deemed to be "continuing in nature." § 320.641(2), Fla. Stat.
COPIES FURNISHED:
Russell P. McRory, Esquire James M. Westerlind, Esquire Michael P. McMahan, Esquire Arent Fox, LLP
1675 Broadway
New York, New York 10019
Charles Andrew Gallaer, Esquire Arent Fox, LLP
1675 Broadway
New York, New York 10019 (eServed)
Jonathan P. Harvey, Esquire Jonathan P. Harvey Law Firm, PLLC 677 Broadway
Albany, New York 12207 (eServed)
Elias C. Schwartz, Esquire Elias C. Schwartz, PLLC
343 Great Neck Road
Great Neck, New York 11021
Robert D. Cultice, Esquire
Wilmer Cutler Pickering Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02109 (eServed)
Matthew Tymann, Esquire
Wilmer Cutler Pickering Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02019
J. Andrew Bertron, Esquire
Nelson Mullins Riley and Scarborough, LLP 3600 Maclay Boulevard South, Suite 202
Tallahassee, Florida 32312 (eServed)
Joseph R. Gillespie, Agency Clerk Department of Highway Safety
and Motor Vehicles Room A-432, Mail Stop 2 2900 Apalachee Parkway
Tallahassee, Florida 32399 (eServed)
Palmer Brand, Interim Bureau Chief Bureau of Dealer Services Division of Motorist Services Department of Highway Safety
and Motor Vehicles
Neil Kirkman Building, Room B-374 2900 Apalachee Parkway
Tallahassee, Florida 32399-0635 (eServed)
Robert Kynoch, Director Division of Motorist Services Department of Highway Safety
and Motor Vehicles
Neil Kirkman Building, Room B-435 2900 Apalachee Parkway
Tallahassee, Florida 32399-0635 (eServed)
Christie S. Utt, General Counsel Department of Highway Safety
and Motor Vehicles
Neil Kirkman Building, Room A-432 2900 Apalachee Parkway
Tallahassee, Florida 32399-0500 (eServed)
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 |
|---|---|---|
| Feb. 04, 2019 | Second Agency FO | |
| Feb. 27, 2018 | Agency Final Order | |
| Jan. 23, 2018 | Recommended Order | The manufacturer proved that a majority of modifications to the dealer franchise agreements was fair and not prohibited, a few were not. Modifications to its dealer bonus program made by the 2017 Commercial Policy program were fair and not prohibited. |
