FCA US LLC v. Eagle Auto-Mall Corp.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17a0426n.06

Case No. 16-2375

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Jul 20, 2017
FCA US LLC, f/k/a CHRYSLER GROUP, LLC, ) DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellee, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
EAGLE AUTO-MALL CORP., ) DISTRICT OF MICHIGAN
)
Defendant-Appellant. )

OPINION

BEFORE: SILER, McKEAGUE, and WHITE, Circuit Judges.

McKEAGUE, Circuit Judge. Eagle Auto-Mall wants to sell new Jeeps and Chryslers in

Riverhead, New York and FCA wants its vehicles sold in that market. But FCA declines to enter

into a dealer arrangement with potential partners unless they meet FCA’s expectations for sales

and service facilities. Accordingly, FCA and Eagle signed a Letter of Intent (LOI) to enter into a

Chrysler and Jeep sales and service agreement conditioned on Eagle’s ability to meet those

expectations.

In essence, the LOI outlined procedures and timelines for Eagle to propose and FCA to

approve a new or renovated sales and service facility. But things fell apart during the term of the

LOI, and the parties bring us this case on a complicated procedural posture—each claiming the

other breached the LOI. The district court held that (1) FCA did not waive or modify any terms
Case No. 16-2375, FCA US LLC v. Eagle Auto-Mall Corp.

in the LOI, (2) Eagle breached the LOI, and (3) FCA did not breach. It granted FCA summary

judgment and dismissed the case. We affirm, for the following reasons.

I

Eagle owns auto dealerships in Riverhead, New York. For years, it sold Chrysler and

Jeep vehicles out of a facility that also housed its Mazda-Kia-Volvo dealership. That changed in

2009 when Chrysler (now FCA) filed for bankruptcy and, following reorganization, rejected its

dealer agreement with Eagle and 788 other dealerships.

In response, Congress passed “Section 747,” establishing an arbitration process that

allowed for canceled dealerships, such as Eagle’s, to be reinstated. See Consolidated

Appropriations Act of 2010, § 747. Pub L. No. 111-117, 123 Stat. 3034, 3219-21. Under the

provision, if a dealer prevailed at arbitration, the manufacturer was to provide it with a

“customary and usual” LOI to enter into a franchise agreement. See id.

Eagle availed itself of Section 747 and won at arbitration, so FCA sent Eagle a LOI to

enter into a franchise agreement. At first, Eagle attempted to negotiate terms of the LOI but then

sued when negotiations failed. In resolving that dispute, the Eastern District of New York found

that the proposed LOI was customary and usual, as required by Section 747, and that Eagle was

not entitled to further relief. Eagle Auto Mall Corp. v. Chrysler Grp., LLC, 920 F. Supp. 2d 327,

331 (E.D.N.Y. 2013). The Second Circuit affirmed. Eagle Auto Mall Corp. v. Chrysler Grp.

LLC, 550 F. App’x 69 (2d Cir. 2014).

After the Second Circuit found it was customary and usual, FCA sent Eagle the LOI that

is the subject of this appeal. The document lays out procedures by which FCA could approve or

reject Eagle’s proposals for an on-brand sale and service facility before the parties would enter

into a franchise agreement. To this end, the LOI gave Eagle three choices for providing a

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compliant facility for exclusive sales and service of FCA brands: (1) create a new facility within

eighteen months, (2) renovate an existing facility within eight months, or (3) meet the facility

requirements, without renovations, within ninety days. Eagle’s president, Mark Calisi, signed

the LOI in January 2014 and indicated that Eagle would take the second option: renovate an

existing facility.

In early February, but before it endorsed the LOI, FCA sent two representatives—Brian

Freeman and George Neubauer—to Riverhead to meet with Calisi and visit the proposed site of

the dealership. At the meeting, Calisi explained that the plan for the new Eagle Chrysler-Jeep

sales and service facility involved two phases. First, Eagle would renovate an existing building

across the street from its Mazda-Kia-Volvo dealership into a new car showroom and sales

facility, which it intended to open as soon as it was complete. Second, Eagle would construct a

stand-alone service facility nearby. While the service facility was being constructed, Eagle

would temporarily service Chrysler-Jeep vehicles at its Mazda-Kia-Volvo dealership. Calisi said

that completion of both phases would take more than two years. At the end of the meeting,

Freeman evidently told Calisi that everything “looks great” and that “we are moving forward.”

A few weeks later, FCA signed the LOI, making February 27, 2014, the document’s

effective date. The next day, Freeman sent Calisi a letter formally approving Eagle’s proposed

site for a Chrysler-Jeep dealership and inviting him to follow up with architectural plans.

Calisi sent a first set of architectural plans to Neubauer on March 6, 2014. Neubauer

contacted Calisi to “give him guidance” because the plans “needed work.” Following that

feedback, Calisi went back to the drawing board and hired a new, Chrysler-approved architect.

Around this time, Calisi called Freeman and expressed concerns about completing renovations

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within the LOI’s eight-month time frame. Calisi says Freeman told him timeline issues “come

up all the time” and that “we will work with you.”

On April 2, 2014, the new architect sent an email to Calisi and Neubauer, asking them to

attend a meeting about the design concept. Neaubauer declined. About a month later, on May 6,

the architect submitted detailed plans to FCA. On June 2, Freeman sent Calisi a letter formally

denying the proposal, noting two main objections: (1) that Eagle had not provided an exclusive

service department that would be operational within the LOI timeframe and (2) that Eagle’s

proposal used the basement, in a split-level design, to meet square footage requirements.

Nonetheless, the letter said that FCA would review an amended proposal if “Eagle is able to

provide a facility within the specified timeframe as described within the LOI.” Calisi responded

by thanking FCA for the “courtesy” of being allowed to submit an amended proposal addressing

the reasons for rejection. Ten days later, Eagle submitted a third set of plans. This time, though,

the plans were for construction of an entirely new facility, rather than a renovation.

After receiving those plans, Freeman called Calisi to discuss. During the call, Calisi

acknowledged that Eagle would not be able to complete the new construction within eight

months. In response, Freeman told Calisi that the LOI would be terminated. Calisi “pleaded”

with Freeman, telling him that he had known “about the sales department” and “the shared

service” in the original plans ever since his February 2014 visit to Riverhead. But Freeman did

not relent, and notified Calisi in writing later that day that Eagle was in breach of the LOI and

that FCA had filed a complaint to “seek the court’s assistance in resolving our dispute with

regard to our respective rights and obligations under the LOI.” This appeal is a growth of that

complaint.

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FCA filed the complaint in Michigan state court, seeking a declaratory judgment that

FCA had no further obligations under the LOI and that FCA could terminate the agreement

based on Eagle’s repudiation. Eagle removed to the Eastern District of Michigan and filed

counterclaim for declaratory judgment, damages, and equitable relief, asserting modification,

reformation, fraud, promissory estoppel, and breach of contract and breach of a seeking a duty of

good faith and fair dealing.

The district court entered a discovery plan that split the case into two phases. First, the

court addressed Eagle’s modification and reformation claims—effectively allowing the court to

clarify the LOI’s operative terms. Second, the court addressed the remaining claims—focusing

on who may have breached.

During the first phase, FCA moved for summary judgment on Eagle’s modification and

reformation claims. On August 17, 2015, the court granted the motion, holding that “the LOI

was neither orally modified by the parties nor is it subject to reformation.” Afterwards, Eagle

filed an amended counterclaim, removing its modification, fraud, and promissory estoppel claims

and asserting only that FCA breached the LOI.

FCA filed a motion to dismiss this amended counterclaim under Rule 12(b)(6) and asking

for summary judgment on all remaining claims. Eagle filed an opposing motion for summary

judgment. On September 12, 2016, the court dismissed Eagle’s breach-of-contract counterclaim,

granted FCA’s motion for summary judgment, and denied Eagle’s cross-motion. Eagle now

appeals both the August 17 order, which held that the terms of the LOI were not modified, and

the September 12 order, which granted FCA’s request for declaratory relief.

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II

A

We begin, like the district court did, by determining whether terms in the LOI were

modified. In its August 17 order, the court granted summary judgment in favor of FCA on

Eagle’s claims that the LOI was modified or subject to reformation. We review de novo,

drawing all permissible inferences in favor of Eagle. See Rose v. State Farm Fire & Cas. Co.,

766 F.3d 532, 535 (6th Cir. 2014). If the evidence establishes no genuine issue as to any

material fact, we are to affirm the district court’s order granting summary judgment. Id. By the

LOI’s terms, we apply Michigan law. R. 78-2, LOI, PID 2196.

The LOI is a valid, binding contract that will be enforced according to its terms. See

Rory v. Continental Ins. Co., 703 N.W.2d 23, 26 (Mich. 2005). And because “mutuality is the

centerpiece to waiving or modifying a contract,” a party may not unilaterally alter the original

contract. Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362, 364 (2003).

However, terms in a contract can be unilaterally waived under Michigan law if established “by

clear and convincing evidence that a contracting party, relying on the terms of the prior contract,

knowingly waived enforcement of those terms.” Id. at 374. Such waiver can be inferred from

declarations, acts, or conduct. See H.J. Tucker & Assocs., Inc. v. Allied Chucker & Eng’g Co.,

234 Mich. App. 550, 564 (1999). But merely identifying words or actions inconsistent with a

contract term does not constitute waiver unless “unequivocal” and contrary to “any other intent.”

Sandler v. AII Acquisition Corp., Inc., 954 F.2d 382, 385 (6th Cir. 1992).

Eagle’s modification/reformation claims can be distilled down to an assertion that FCA

changed the terms of the LOI through its course of conduct. Specifically, Eagle claims that

Freeman and Neubauer were authorized to modify the LOI on behalf of FCA and that they

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“waived or modified the eight-month deadline for Eagle to complete renovations, and other

substantive terms of the LOI.” Appellant Br. at 37. Eagle points to three categories of evidence

in support of its claim that FCA waived or modified the LOI’s terms: (1) Freeman and Neubauer

were authorized to modify its terms, (2) FCA “regularly” modifies LOI terms with other dealers,

and (3) evidence purporting to show that Freeman and Neubauer modified provisions of the

Eagle LOI.

Only the third category relates to a material fact. While it may be genuinely disputed that

Freeman and Neubauer had authority to modify terms of the LOI or that FCA regularly waived

terms of LOIs it had with other dealers, those findings (which we accept as true for purposes of

this appeal) are irrelevant if there is no genuine dispute as to whether FCA waived or modified

terms of the Eagle LOI.

Eagle provides four pieces of evidence to support its claim that FCA did just that. First,

Eagle brings up Freeman saying everything “looks great” and that things were “moving forward”

following the February 10, 2014 meeting where Eagle’s preliminary two-phase, non-compliant

renovation plan was discussed. But this evidence cannot constitute waiver of the deadline term

because any understandings or agreements made during that meeting precede the effective date

of the LOI. By its clear terms, the LOI was the parties’ “entire agreement” and “supersede[d] all

prior negotiations, understandings, correspondence and agreements” and did not become

effective until it was signed by FCA’s national dealer placement manager on February 27, 2014.

R. 1-2, LOI, PID 25. Thus, at best, the February 10, 2014 on-site discussions are evidence of a

“prior” understanding that was superseded when the LOI became effective some seventeen days

later.

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But Eagle provides other evidence to support its modification claim. First, it points to the

fact that Freeman and Neubauer knew Eagle was preparing to propose a two-phase renovation

plan but provided no warning that FCA would not approve that plan until it was formally

rejected. But this evidence doesn’t get Eagle very far as, at best, it “establishes only that [FCA]

remained silent despite being aware of [Eagle]’s conduct inconsistent with the terms of their

contract. [And] [m]ere knowing silence generally cannot constitute waiver.” Quality Prods.

& Concepts Co., 469 Mich. at 365. Still, we consider this silence, for what it’s worth, in

combination with the other evidence Eagle offers.

And Eagle offers two more pieces of evidence. First, that when Calisi expressed

concerns about the timeline, Freeman assured him that the issue “comes up all the time” and that

“we will work with you.” And finally that, in its letter rejecting the proposal, Freeman wrote that

FCA would reconsider its rejection if “Eagle is able to provide a facility within the specified

timeframe as described within the LOI.”

But this evidence, taken as a whole and reading it most favorably to Eagle, does not come

close to “clear and convincing evidence” that FCA, relying on specific terms of the LOI,

“knowingly waived enforcement of those terms.” See id. at 374. The only term Eagle

specifically identifies as waived or modified through this course of conduct is the eight-month

renovation deadline.1 However, there is no evidence that anyone asked for or agreed to a new

deadline, and so, without any evidence of mutual assent to a new term, the original term remains

unmodified. See id. at 364. Meanwhile the best Eagle can offer to show unilateral waiver was

Neubauer’s one-time hazy assurance that “we will work with you” on the timeline. That is not

1
Facility exclusivity is a derivative of the deadline issue. Eagle determined that it would
be unable to complete a new exclusive service facility within eight months, the reason it sought
to service, on a temporary basis, FCA-brand vehicles in the same service facility as its non-FCA
dealership.
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nearly enough to unequivocally waive a contract term. See Sandler, 954 F.2d at 385. As the

district court put it, “Eagle’s attempt to turn conversations and stray statements into something

more is unavailing.” R. 60, August 17 Order, PID 1824.

Finally, Eagle makes no argument on appeal in support of its reformation claim. Such

claims are deemed abandoned. Kleiber v. Honda of Am. Mfg., Inc., 485 F.3d 862, 872 (6th Cir.

2007). In all, Eagle has failed to establish a genuine issue whether the terms of the LOI were

waived, modified, or subject to reformation. The parties’ fates are tied to its original terms.

B

We move next to the claims of breach. In its amended counterclaim, Eagle claims that

FCA breached an implied covenant of good faith and fair dealing. The district court considered

this claim in response to FCA’s Rule 12(b)(6) motion to dismiss. The court found that Eagle

“essentially” alleged a breach of a generic duty of good faith and fair dealing which is not

recognized in Michigan law. R. 99, Sept. 12 Order, PID 3387 (citing Belle Isle Grill Corp. v.

City of Detroit, 256 Mich. App. 463, 476 (2003)). Further, it found that enforcing the asked-for

implied covenant would impermissibly override explicit contract terms. R. 99, Sept. 12 Order,

PID 3387. The court dismissed the claim. Id. We review de novo, asking whether the pleading

contained adequate factual matter, accepted as true, to state a claim for relief that is plausible on

its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Michigan courts imply a duty of good faith in fulfilling discretion-based contract terms.

That is, while “Michigan does not recognize a [generic, free-standing] claim for breach of an

implied covenant of good faith and fair dealing,” Belle Isle Grill Corp. 256 Mich. App. at 476, it

does impose an implied good-faith covenant on contracting parties where “one party to the

contract makes its performance a matter of its own discretion.” Blackward Props., LLC v. Bank

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of Am., 476 F. App’x 639, 643 (6th Cir. 2012) (quoting Stephenson v. Allstate Ins. Co., 328 F.3d

822, 826 (6th Cir. 2003)) (emphasis added). However such an implied covenant cannot

“override express contract terms.” Stephenson, 328 F.3d at 826–27. In other words, there can be

no implied covenant where the parties have “unmistakably expressed their respective rights” and

obligations. Id. at 827. Courts have long wrangled with the distinction, asking in contexts much

like this one whether an implied duty of good faith kicks in on a matter of discretion or if express

terms control instead. See id. at 826–27; see also Charles J. Faruki, The Defense of Terminated

Dealer Litigation: A Survey of Legal and Strategic Considerations, 46 OHIO ST. L.J. 925, 975–78

(1985) (collecting cases).

On appeal, Eagle argues that the relevant pleading contained the good-faith cause of

action recognized in Michigan—one based on performance tied to discretion—but, by dismissing

it, the district court improperly characterized the claim as the free-standing type not actionable in

the state. FCA says the district court was right, the claim is of the off-limits, generic variety,

and, moreover, enforcing the covenant as Eagle demands would override the LOI’s express

terms.

The district court was correct to dismiss Eagle’s claim. The second amended

counterclaim asserts that the LOI gave FCA “unfettered discretion” to terminate Eagle’s site and

facility proposals and to extend deadlines, but that FCA did not exercise that discretion in good

faith. While Eagle may be right that some discretion was baked into FCA’s performance under

the LOI and that such discretion required good faith, FCA is right that explicit terms account for

what Eagle alleges was FCA’s bad-faith exercise of any discretion. Specifically, terms of the

unmodified LOI required Eagle to provide an “exclusive” facility within “eight months” and said

that FCA had “no obligation to extend any time periods.” R. 78-2, LOI, PID 2193, 2195, 2196–

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97. Eagle’s claim is that FCA breached its duty of good faith by not extending the eight-month

deadline and by not approving a non-exclusive site plan. Allowing that claim to survive would

be to circumvent the explicit terms of the LOI. We agree with the district court that Eagle’s

second amended counterclaim alleging FCA breached a duty of good faith and fair dealing

should be dismissed because no such duty applied to the explicit terms, such as the exclusivity

and timing terms, in the LOI. In short, Eagle failed to adequately state a claim for which relief

may be granted.

C

After dismissing Eagle’s claim that FCA breached a duty of good faith and fair dealing,

the district court next considered Eagle’s cross-motion for summary judgment and whether FCA

breached the LOI. But this analysis was superfluous. Other than the allegation that FCA did not

exercise discretion in good faith, Eagle’s second amended counterclaim did not otherwise allege

that FCA breached any other term in the LOI or prematurely terminated the agreement. See R.

76, Sec. Amd. Counterclaim, PID 2161–62. Thus, there was no claim that FCA breached for the

court to consider on summary judgment. That is, once the district court properly granted FCA’s

motion to dismiss on Eagle’s good-faith claim, any other claims that FCA breached necessarily

withered on the vine.2

However, even considering the arguments that Eagle raises in its briefing (those asserting

that the district court erred by finding there was no genuine issue of breach by FCA) we find they

2
Perhaps, rather than as a standalone claim, Eagle intends its summary judgment breach
arguments as a defense to its own breach. That is, Eagle concedes that it breached, but only
because FCA breached first. Such a defense is recognized in Michigan law. See Stoddard v.
Manufacturers Nat. Bank of Grand Rapids, 234 Mich. App. 140, 163 (1999). However, it is not
apparent that Eagle intends its arguments this way. Even so, Eagle provides no evidence that
FCA failed to perform any obligations or otherwise terminated the LOI, so the defense fails for
the same reasons the standalone claim does.
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have a fatal flaw: Eagle does not point to any evidence that FCA breached a term of the LOI.

Instead, Eagle’s arguments that FCA breached are premised on a defense of its own actions.

That is, Eagle argues that it did not anticipatorily breach, but FCA did by filing its complaint

asserting Eagle had. This argument is a nonstarter. Even a mistaken belief that another party

breached does not itself constitute breach. And Eagle provides no facts showing that FCA

ceased performance when it filed the complaint, that filing a lawsuit constituted breach under

their agreement, or that FCA otherwise “unequivocally declare[d] the intent not to perform.”

Stoddard v. Manufacturers Nat. Bank of Grand Rapids, 234 Mich. App. 140, 163 (1999).

By its language, FCA’s complaint did not terminate the LOI; it asked the court for

permission to terminate. See R. 1-2, Complt., PID 15 (asking for declaratory judgment that FCA

“has the right to terminate the Eagle LOI,” that “[t]he Eagle LOI is terminated,” and that FCA

“shall have no further obligations or liability to Eagle”).

In all, Eagle has provided no evidence to show FCA prematurely terminated the LOI or

otherwise ceased performance. Thus, we agree with the district court: Eagle has not shown that

there is a genuine issue of material fact whether FCA breached the LOI.

D

In any event, FCA has no further obligations or liabilities to Eagle. Because the terms of

the LOI were not waived, modified, or subject to reformation, Eagle materially breached by

failing to complete its renovations within the LOI’s eight-month window. By its terms, the LOI

would expire if the renovations were not complete by October 27, 2014, and FCA had not

extended the deadline. It is undisputed that Eagle had not completed renovations by then; nor

does it allege that it attempted to meet the contract’s terms in the four months that remained after

FCA filed its complaint but was prevented by FCA from doing so. And, as discussed above, the

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deadline was not modified. Thus, as the district court found, Eagle was in material breach of the

LOI as of October 27, 2014, and the district court did not err in entering summary judgment in

favor of FCA on its claim that Eagle breached.

III

For the foregoing reasons, we affirm the district court.

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