Not for Publication in West's Federal Reporter
United States Court of Appeals
For the First Circuit
No. 10-1488
SOUTH SHORE IMPORTED CARS, INC.
Plaintiff, Appellant,
v.
VOLKSWAGEN OF AMERICA, INC.
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Lynch, Chief Judge,
Souter, Associate Justice,*
and Stahl, Circuit Judge.
Paul Marshall Harris, with whom Murtha Cullina LLP, was on
brief, for appellant.
Steven J. Yatvin, with whom Barack Ferrazzano Kirschbaum &
Nagelberg LLP, was on brief, for appellee.
July 5, 2011
*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
SOUTER, Associate Justice. South Shore Imported Cars, Inc.
brought this action against Volkswagen of America, Inc., for breach
of an auto sales franchise agreement in violation of Mass. Gen.
Laws ch. 93B, known as the Dealer's Bill of Rights. The statute
limits a manufacturer like V.W. from terminating a dealer's
franchise agreement except for good cause, id. § 5(a), and
specifically requires a reasonable opportunity to cure a violation
of the agreement, id. § 5(h), and a minimum notice of 60 days with
specification of cause prior to the effective date of any
termination, id. § 5(b).
In December 2008, South Shore's bank cancelled its revolving
credit agreement for financing inventory purchases from V.W. The
bank informed V.W., which in turn notified South Shore that loss of
the line of credit was a breach of the franchise agreement (a claim
not disputed) and demanded that the dealer obtain a substitute.
When South Shore's efforts failed, V.W. told the dealer in mid-June
that it had 15 days to obtain new credit, and on July 7, 2009, V.W.
served South Shore with the 60-day notice of termination, effective
September 8.
Although new bank financing was elusive, South Shore's efforts
to sell the dealership reached the point of a purchase-sale
agreement on August 28, which was sent to V.W. on August 31. The
sale was conditioned on V.W.'s approval, and South Shore requested
V.W. to send the buyers an application form in accordance with the
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franchise terms, requiring V.W. to treat such an application in
good faith but giving V.W. time for consideration extending well
beyond September 8.
On September 4, V.W. decided not to forward the form to the
buyers, and South Shore filed the present action on the stated
effective date of termination of the agreement, originally in state
court. The state court had not acted on South Shore's request for
an injunction against termination by the time V.W. removed the case
to federal court, after which the parties executed a stand-still
agreement requiring V.W. to continue to deal with South Shore
during litigation, but expressly saving V.W.'s claims and rights,
and this was embodied in an injunction issued by agreement. In the
action itself, South Shore claimed that V.W.'s willingness to
continue to deal with it from December 2008 to July 2009
constituted a waiver of South Shore's breach, thus depriving V.W.
of the good cause necessary to justify termination, and entailing
the further consequence that V.W. itself broke the agreement by
refusing to tender a franchise application to the buyer and
consider it in good faith.
On cross-motions for summary judgement, the district court saw
no merit in the waiver argument. The court went on, however, to
consider South Shore's claim that a week before the effective date
of franchise termination, V.W. was obligated by the franchise
agreement and by Mass. Gen. Laws ch. 93B, § 4(c)(8), to give full
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consideration to the intending buyer as an applicant for a
dealership, which if favorable would supposedly have satisfied the
condition on which the purchase-sale agreement was hinged. In
awarding summary judgement to V.W., the district court held that no
obligation to consider the buyer ever arose under the terms of the
contract or the statute, because the duty to consider was premised
on South Shore's possession of a franchise that could be sold,
whereas by the week before the termination date the franchise
agreement was no longer in full force and effect and consequently
the franchise could not be conveyed.
In pursuing de novo review in this court, Wilson v. Moulison
N. Corp., 639 F.3d 1, 6 (1st Cir. 2011), South Shore has abandoned
its waiver theory, and argues instead that the district court was
in error to rest on the notion of a diminished franchise right as
negating V.W.'s obligation to consider a franchise application by
the buyer. South Shore says it was not purporting to transfer the
franchise, but was instead attempting to sell its assets and
inventory during the period within which, it claims, the franchise
agreement was in full effect and it was statutorily entitled to
attempt to "cure" the otherwise good cause to terminate.
This appeal can be resolved fairly simply on V.W.'s argument
that its obligation under the franchise agreement to consider a
buyer at South Shore's behest did not extend to a buyer proposed a
week before the scheduled termination of the franchise itself.
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This route to decision necessarily clears several hurdles that
South Shore stresses at some length. First, South Shore claims
that an injunction against terminating the franchise during the
pendency of litigation as authorized by § 5(g) of the statute
required V.W. to respect South Shore's contract rights (such as
requiring consideration of a buyer's application for franchise) as
if the parties were dealing without imminent termination. However
that may be, the short answer is that South Shore's request for an
injunction under § 5(g) was never ruled upon, since it was
superceded by the parties' agreement for an injunction on terms to
which the parties assented. Those terms provided that consent to
enter the order was not to be taken as waiving V.W.'s position that
the franchise agreement had already terminated, or as an extension
or renewal of that agreement. If, then, V.W.'s litigating position
was sound (as we hold it was), it was unaffected by the consensual
injunction.
Second, we see nothing potentially dispositive in South
Shore's argument that its statutory right to a reasonable time to
cure any material breach amounting to good cause to terminate
extended to a right to demand V.W.'s active consideration of a
buyer with good bank credit so long as it requested this before the
moment of franchise termination. The argument confuses two
distinct rights. The statutory right to cure within a reasonable
time, § 5(h), applies by definition to the act of breach, losing
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inventory financing. South Shore never succeeded in getting new
credit and has never claimed that it did. V.W.'s acceptance of a
proposed buyer by awarding a new franchise would not have cured the
breach but would have obligated South Shore to terminate its own
franchise agreement voluntarily in accordance with its terms.
Terminating the franchise would have ended the period of the
breach, but not by curing it.
Finally, it does not matter whether the district court was on
sound ground when it reasoned that the purchase-sale agreement
failed to trigger an obligation on V.W.'s part to consider the
buyer's franchise application because at the moment of South
Shore's demand the franchise was no longer in full force, and South
Shore was therefore attempting to "assign" what it "no longer
owned." South Shore Imported Cars, Inc. v. Volkswagen of America,
Inc., No. 09-11570, 2010 WL 1137558, at * 6 (D. Mass. March 22,
2010). For even if the sales contract was not an attempted
assignment of the franchise (as by its inclusion of intangibles),
and even if any such purported assignment was at odds with the
franchise agreement, South Shore still has its claim that V.W. was
bound by statute to honor its contractual obligation to give good
faith consideration to a franchise application by a proposed buyer,
and for reasons given in V.W.'s brief we are satisfied that this
claim misconstrues the contract.
Quite simply, V.W.'s contractual obligation to consider the
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application of the franchise's intending buyer cannot be applied to
South Shore's request a week before termination, because both by
statute and by contract, V.W. had the right to a longer period to
make due diligence enquiries about the buyer than the remaining
period of the franchise. The statute gives V.W. at least 30 and up
to 60 days to decide on the buyer's application, § 4(e)(8), and the
franchise agreement provides for 45. South Shore is thus claiming
that V.W. must exercise due diligence and come to a decision (or be
bound by a default approval under § 4(e)(8)) beyond the effective
period of the franchise agreement.
South Shore has two answers to this objection. The first is
to emphasize that the agreement obligates V.W. to give good faith
consideration to any buyer proposed by South Shore "during the term
of this agreement," which it in effect says must mean that V.W. is
obliged to consider an eleventh-hour application even if it
requires action beyond the stated termination date. We think this
is an unlikely reading, however, in light of the further provision
in the next subsection of the agreement that if a manufacturer does
approve such an application, "[u]pon the consummation of Dealer's
approved proposal, Dealer will deliver to [V.W.] a voluntary
termination of this Agreement." But in circumstances like those
here, a voluntary termination would be superfluous. Even on South
Shore's view, the termination for unremedied good cause would be
postponed only until V.W. made a decision (in fact or by default),
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after which the prior dealer would have no franchise under the
agreement that it could terminate voluntarily. Since contracts are
to be read as a whole, the reasonable reading of the agreement is
that V.W. must consider a dealer's proposed successor only when the
remaining duration of the agreement includes sufficient time for
the period of enquiry by the manufacturer that the statute and
agreement allow.
South Shore has pointed to nothing in the statute specifically
inconsistent with this reading,1 but it does argue that if such a
reading is accepted, "nothing would prevent a manufacturer from
simply sending a notice of termination to deliberately thwart and
delay a dealer from selling its dealership assets to a third-party
buyer." But, as is already apparent, there is much to prevent such
a ploy: § 5(a) requires good cause for a termination and forbids
bad faith and arbitrary or unconscionable action.
Affirmed.
1
Because no injunction under § 5(g) of the statute was issued
in this case, we intimate nothing about whether such an injunction
would require a different result.
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