Clair International, Inc. v. Mercedes-Benz of North America, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 96-1398

CLAIR INTERNATIONAL, INC.
AND FOREIGN MOTORS WEST, INC.,

Plaintiffs, Appellants,

v.

MERCEDES-BENZ OF NORTH AMERICA, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Selya, Circuit Judge,

Aldrich and Cyr, Senior Circuit Judges,

Richard B. McNamara, with whom Gregory A. Holmes and Stephanie A.

Bray were on brief for appellants.

Mark P. Szpak, with whom Peter K. Levitt and Ropes & Gray were on

brief for appellee.

September 5, 1997

CYR, Senior Circuit Judge. Plaintiffs Clair
CYR, Senior Circuit Judge.

International, Inc. and Foreign Motors West, Inc. appeal from a

district court judgment dismissing their respective claims for

breach of contract and violation of Mass. Gen. Laws ch. 93B

against Mercedes-Benz of North America ("MBNA"), the North

American distribution organization for Mercedes-Benz automobiles.

The central controversy concerns whether the restructuring

effected by MBNA among its franchisees in the Greater Boston area

during the mid-1990s breached its dealership agreement with

plaintiffs-appellants. We affirm the district court judgment.

I
I

BACKGROUND
BACKGROUND

During the early 1990s, MBNA was represented by two

dealerships in the North Shore area of Greater Boston: Auto

Engineering, Inc. ("Auto Engineering"), located in Burlington,

and Gauthier Motors, Inc. ("Gauthier"), located in Salem. Auto

Engineering closed in April 1993,1 leaving Gauthier as the only

MBNA presence on the North Shore. Gauthier, among the older

Mercedes-Benz dealerships in the United States, operated from

what MBNA considered an inadequate facility, a small, outmoded

dealership located in downtown Salem. In early 1993, MBNA

approved a plan for relocating the Gauthier dealership to Route

1Auto Engineering relocated its dealership without MBNA
authorization on November 2, 1992. See McLane v. Mercedes-Benz

of North America, Inc., 3 F.3d 522, 523 (1st Cir. 1993). As a

result, Mercedes gave notice of termination. Auto Engineering
then obtained a temporary injunction prohibiting termination
until April 11, 1993, at which time the injunction expired. See

id. at 523-24. See infra p. 9.

2

128, which would enable it to service the entire North Shore

area. Whereupon, Gauthier began its search for an outside

investor to finance its relocation plan.

Unable to secure a suitable investor, in October 1994

Gauthier decided to sell its dealership outright to Michael

Cantanucci, an experienced automobile dealer who already owned

more than twenty non-MBNA franchises. In due course, Cantanucci

obtained a purchase and sale agreement on a parcel of land along

Route 128, as the site of the proposed new, exclusive MBNA

dealership. After completing a routine "due diligence" check,

which took approximately one month, MBNA approved the franchise

transfer to Cantanucci.

The exclusivity provision was important to MBNA, which

faced increased competition from new luxury automobile lines and

planned to shift to larger, exclusive dealerships in order to

meet the challenge. At the time, moreover, MBNA had no exclusive

dealership in the Greater Boston area, and Mercedes-Benz was

developing several new products, at least one of which, a sports

utility vehicle, was to be sold only at exclusive dealerships.

Upon learning of the proposed location for the

Cantanucci dealership, Herb Chambers, a Mercedes-Benz dealer in

Somerville, Massachusetts, protested to MBNA, claiming that the

proposed Route 128 site was too close to his Somerville

dealership. In December 1994, Chambers brought an action against

MBNA to enjoin construction of its proposed Route 128 dealership.

Although the suit was dismissed in April 1995, six months had

3

elapsed during which Cantanucci had not proceeded with

construction of the new dealership facility due to the Chambers

litigation.

Meanwhile, differences were developing between MBNA and

Cantanucci concerning the proposed new dealership, particularly

the timetable for construction, since MBNA had been without

adequate North Shore representation for approximately two years.

Moreover, during the summer of 1995 Cantanucci had agreed to

acquire a Mercedes dealership in Connecticut, which concerned

MBNA for two reasons. First, MBNA had never dealt with

Cantanucci before, yet suddenly was faced with the prospect that

he could control two MBNA dealerships in New England. Second,

the $10,000,000 investment required for the Connecticut

dealership could leave Cantanucci without adequate financing to

proceed with the North Shore dealership, where MBNA considered an

adequate Mercedes-Benz presence vital.

These concerns were borne out when Cantanucci

approached MBNA for permission to construct a smaller facility on

Route 128, then attempted to renege on the exclusivity provision.

Although Cantanucci later agreed to meet the original terms after

MBNA declined his request, the new permanent facility on Route

128 could not be completed for approximately ten more months, and

Cantanucci declined to open a temporary service facility during

the interim as MBNA had requested.

At this point, with Gauthier running out of operating

capital and MBNA confronting the prospect that there might soon

4

be no Mercedes-Benz presence on the North Shore, MBNA decided to

offer its North Shore dealership to Chambers.

The MBNA decision was based in part on its perceived

need to move quickly, due to the extended period during which the

North Shore had been without a suitable Mercedes-Benz presence,

especially in light of the competition from new luxury automobile

lines being marketed at large, exclusive dealerships. Further,

MBNA considered Chambers the Mercedes-Benz dealer best able to

become an immediate force in the North Shore market area. As an

established Massachusetts automobile dealer, Chambers had access

to advertising opportunities on a scale no new dealer could

match. Indeed, MBNA regarded Chambers as its top dealer in the

Greater Boston area, especially since he had the highest profit

margin and was rated its best dealer "at point of sale."2

Moreover, Chambers was well capitalized and planned to proceed

immediately with construction of an exclusive dealership facility

meeting all MBNA specifications, on a very desirable site he

already owned in Danvers, Massachusetts.

In the meantime, Chambers had agreed to operate a

temporary MBNA dealership facility at a site in Lynnfield,

Massachusetts, pending construction of the permanent facility.

Finally, he not only agreed to operate an exclusive Mercedes-Benz

dealership on the North Shore, but to convert his existing

2The "point of sale" rating assesses the degree of customer
satisfaction with the dealer at the time the vehicle is
purchased. Chambers fared less well in terms of the vehicle
"service" rating.

5

Somerville dealership to an exclusive dealership as well, giving

MBNA two exclusive dealerships in an important market area where

it had none.

At this point, MBNA approached Cantanucci, explaining

that it intended to honor its commitment to him but would prefer

that the North Shore dealership go to Chambers. MBNA offered to

make Cantanucci whole, however, by reimbursing him for the amount

paid to Gauthier for the North Shore franchise, as well as any

out-of-pocket costs incurred.3 In August 1995, Cantanucci

readily agreed to withdraw.

On September 27, 1995, Gauthier ceased to operate,

leaving MBNA with no permanent Mercedes-Benz dealership on the

North Shore, though Chambers was operating the temporary

dealership in Lynnfield, Massachusetts. See supra p. 5.

Thereafter, MBNA never sought another candidate for the North

Shore area, having already concluded, even before Gauthier

proposed Cantanucci, that Chambers was the preferred candidate,

except for the fact that Chambers already owned a Mercedes-Benz

dealership in Somerville, a contiguous MBNA market area.

MBNA had a longstanding policy against granting the

same dealer more than one dealership in contiguous market areas.

Its dealership agreements in 1992 stated the policy as follows:

[T]o foster competition among Mercedes-Benz

3MBNA further proposed to make up any difference between the
price Cantanucci had paid to acquire the Route 128 site, and the
price received for it. Ultimately, however, Cantanucci sold the
land to Chambers for the original purchase price. But see infra

pp. 16-17.

6

dealers, it is Mercedes-Benz's policy not to
permit, except in extraordinary

circumstances, an existing dealer, owner, or

operator to have interest in the ownership or
management of another competitive Mercedes-
Benz sales and service dealership in the same
area of responsibility or in a contiguous
market area.

(Emphasis added.) Nonetheless, a standard dealership agreement

provision states:

Notwithstanding any provision of this Agree-
ment, the final decision whether to establish

additional dealers, or relocation of [sic] an

existing dealer, shall be made by MBNA solely

pursuant to its own business judgment, and

nothing in this Agreement shall be construed
to require Dealer's consent to the
establishment of an additional dealer or
relocation of an existing dealer.

(Emphasis added.) This "business judgment" provision and all

other standard dealership agreement provisions are incorporated

by reference into each dealership agreement.

By the time MBNA awarded the North Shore dealership to

Chambers, however, it was operating under a policy adopted in

April 1993:

[A] policy that existed in the past which

prohibited a proven successful Mercedes-Benz

operator from operating more than one Point,

does not lend itself to the most effective

and efficient way to meet today's competitive

challenges. Today it is the strength of the

overall dealership operation that insures
customer satisfaction in terms of products
and services.

Therefore, it is in our best interests to

permit, in appropriate circumstances, the

common ownership of more than one dealer

point for the express purpose of meeting the

challenges of a competitive marketplace.

7

(Emphasis added.)4

On December 4, 1995, three dealers brought suit against

MBNA: Clair International, Inc., located in Dedham; Foreign

Motors West, Inc., located in Natick; and Smith Motor Sales of

Haverhill, Inc., in Haverhill. Their complaint alleged that

awarding Chambers a second dealership, to be based in Danvers

a market area contiguous to the Somerville market area where

Chambers already had a dealership breached their dealership

contracts and violated Mass. Gen. Laws ch. 93B. The complaint

sought only to enjoin Chambers from opening and operating a new

dealership in Danvers, Lynnfield, or any other area contiguous to

the Somerville dealership.

Following a three-day bench trial, the district court

found that MBNA had breached its contract with Smith, though not

with Clair or Foreign Motors.5 It determined that the dealership

provision governing contiguous market areas, see supra pp. 6-7,

4Although MBNA did not provide advance notice to existing
dealers regarding its amended policy, appellants raise the notice
issue solely in connection with their belated attempt to assert a
chapter 93B claim independently of any breach-of-contract claim.
See infra pp. 16-17 & note 7.

5The trial court decided that MBNA's conduct vis-a-vis Smith
had been based on a "mixed" motive. It found that Smith did not
operate the type of dealership MBNA wanted to work with in the
future and that MBNA had already tried to persuade Smith to
relocate to the larger Manchester, New Hampshire, market. Thus,
the court found that MBNA had installed Chambers not only to meet
its own pressing marketing needs in the North Shore area, but
also to foster its goal of promoting larger dealerships. The
district court further found that MBNA had not violated Mass.
Gen. Laws ch. 93B, however, and denied the injunctive relief
requested by Smith. Finally, since the court directed that a
trial on damages be scheduled in the Smith case at a later date,
Smith is not a party to the present appeal.

8

was contractual in nature, rather than a mere recital of company

policy. The court nonetheless ruled that the unambiguous

contract language required it to ascertain, from the vantage

point of MBNA, whether or not "extraordinary circumstances"

warranted its business judgment to install Chambers in an

additional dealership in a contiguous market area. The court

went on to find that the demise of the Gauthier dealership,

coupled with the closing of Auto Engineering, see supra note 1,

had given rise to an extraordinary circumstance in the eyes of

MBNA. The court further found that it was vital to MBNA that

Chambers be installed in the North Shore dealership, given the

extended duration of its dealership problems in the area and the

increased competition from other luxury automobile lines. The

district court findings foreclosed all relief to Clair and

Foreign Motors, whose claims for injunctive relief under chapter

93B were premised exclusively on the alleged breach of their

contracts by MBNA. Finally, the district court certified the

judgment against Clair and Foreign Motors pursuant to Fed. R.

Civ. P. 54(b) ("Rule 54(b)").

II
II

DISCUSSION
DISCUSSION

1. Appellate Jurisdiction
1. Appellate Jurisdiction

A. Rule 54(b)
A. Rule 54(b)

MBNA has moved to dismiss the appeal, on the ground

that the Rule 54(b) certification was improper. Rule 54(b)

permits entry of a final judgment as to fewer than all parties in

9

a civil action upon "an express determination that there is no

just reason for delay." After provisionally denying the motion

to dismiss, we instructed the parties to brief both the Rule

54(b) certification challenge and whether 28 U.S.C. 1292(a)(1)

might afford an alternate jurisdictional ground for the appeal,

see part II, 1.B, infra.

The Rule 54(b) certification is problematic. First, it

includes no findings on the relationship between certified and

uncertified claims. See Credit Francais Int'l, S.A. v. Bio-Vita,

Ltd., 78 F.3d 698, 706 (1st Cir. 1996); Feinstein v. Resolution

Trust Corp., 942 F.2d 34, 39-40 (1st Cir. 1991); Spiegel v.

Trustees of Tufts College, 843 F.2d 38, 43 (1st Cir. 1988).

Moreover, our review of the record reveals substantial overlap

between the Clair and Foreign Motors cases, on the one hand, and

the Smith case awaiting trial in the district court. Yet the

present appeal would have us interpret contractual provisions

common to all three dealership agreements. See Bio-Vita, 78 F.3d

at 707-08 (Rule 54(b) certification improvidently granted in

light of overlap between certified and pending claims); Kersey v.

Dennison Mfg. Co., 3 F.3d 482, 487-88 (1st Cir. 1993) (Rule 54(b)

certification improper given interlocking factual issues common

to adjudicated and unadjudicated claims); Spiegel, 843 F.2d at

44-45 (Rule 54(b) certification improper where dismissed and

pending claims "stem from essentially the same factual

averments").

Second, the central benefit identified in the district

10

court's decision to certify the adverse judgments against Clair

and Foreign Motors that the appellate court might resolve the

Mass. Gen. Laws ch. 93B claims in the process is illusory,

especially since the district court has yet to address any

chapter 93B claim. See infra p. 16.6

B. Interlocutory Jurisdiction (28 U.S.C. 1292(a)(1))
B. Interlocutory Jurisdiction (28 U.S.C. 1292(a)(1))

The courts of appeals are invested with jurisdiction

over appeals from "[i]nterlocutory orders of the district courts

. . . granting, continuing, modifying, refusing or dissolving

injunctions, or refusing to dissolve or modify injunctions." 28

U.S.C. 1292(a)(1). Clair and Foreign Motors have not

demonstrated that section 1292(a)(1) confers appellate

jurisdiction over their claims.

The district court order had the practical effect of

denying injunctive relief to these appellants. See, e.g.,

Manchester Knitted Fashions, Inc. v. Amalgamated Cotton Garment &

Allied Indus. Fund, 967 F.2d 688, 690 (1st Cir. 1992) (partial

summary judgment had practical effect of granting injunction);

Plymouth Cty. Nuclear Info. Comm., Inc. v. Boston Edison Co., 655

F.2d 15, 17-18 (1st Cir. 1981) (order precluding injunctive

relief on stricken claims had "practical effect" of denying

6We would have no occasion to address any chapter 93B claim
at the present time. Were we to conclude that the district court
erred in its interpretation of the dealership contract, or in its
determination that MBNA did not breach the contract, we would
remand to the district court for further consideration of the
Clair and Foreign Motors claims. As there is no chapter 93B
ruling to review, however, our remand order would leave any such
claims for resolution by the district court in the first
instance.

11

injunction). Consequently, appellants must satisfy the test set

out in Carson v. American Brands, Inc., 450 U.S. 79, 84 (1981).

There, the Supreme Court announced that an

interlocutory order which has the practical effect of granting,

denying, or altering an injunction, is not immediately appealable

as of right under section 1292(a)(1), unless the appellant can

show that the order "might have a serious, perhaps irreparable,

consequence, and that [it] can be effectually challenged only by

immediate appeal." Id. (internal quotation marks omitted). See

also Casas Office Machines, Inc. v. Mita Copystar America, Inc.,

42 F.3d 668, 672-73 (1st Cir. 1994). Appellants, however, have

identified no immediate and irreparable harm that would be

occasioned were the district court order not immediately

appealable.

Nevertheless, given both the problematic nature of the

Rule 54(b) certification and the time which has passed since its

entry, we conclude that the interests of justice are best served

by proceeding to the merits. See United States v. Connell, 6

F.3d 27, 29 n.3 (1st Cir. 1993) (It is well settled that "an

appellate court may forego the resolution of a jurisdictional

question if, as is true here, the appeal is uncomplicated and

easily resolved in favor of the party to whose benefit the

jurisdictional question would redound."); see also Norton v.

Mathews, 427 U.S. 524, 532 (1976); Sierra Club v. Larson, 2 F.3d

462, 466 (1st Cir. 1993); In re Unanue Casal, 998 F.2d 28, 33

(1st Cir. 1993); Narragansett Indian Tribe v. Guilbert, 934 F.2d

12

4, 8 n.5 (1st Cir. 1991); Federal Deposit Ins. Corp. v. Caledonia

Inv. Corp., 862 F.2d 378, 381 (1st Cir. 1988).

2. Construing the Dealership Agreements
2. Construing the Dealership Agreements

The dealership agreements included two provisions

directly pertinent to the MBNA decision to install Chambers in

the North Shore area dealership. The first provision prohibits

MBNA from awarding franchises to the same dealer in contiguous

market areas except in "extraordinary circumstances." The second

provision sweeps more broadly, however, enabling MBNA to exercise

its business judgment as to whether an additional franchise

should be awarded to an existing dealer in a contiguous market

area.

The district court made two important legal rulings

regarding these provisions. First, it held that the "extraordi-

nary circumstances" provision is contractual in nature and

binding upon MBNA. It then construed the "extraordinary

circumstances" provision in relation to the "business judgment"

provision, as follows:

But what does it mean? In the context read
in light of the more sweeping clause . . .
which leaves to Mercedes-Benz the virtually
unfettered, save by the covenant of good
faith and fair dealing . . . what does this
more limited but more precise clause mean?
Legally . . . to read it in harmony in . . .
a way that effectuates the intention of the
parties, it means that this clause is read
such that, absent extraordinary circumstances
in the eyes of Mercedes-Benz, they will not
appoint a dealer to have two points in
contiguous market areas and that they will
interpret the implementation of this policy
in a fashion as to foster competition, to
give the phrase to foster competition

13

significance, in its context. Now, that's
what this language means on its face.

Thus, the district court rejected both the MBNA claim that the

"extraordinary circumstances" provision was simply a policy

statement, and the theory advanced by appellants that the

"business judgment" provision had no application in the present

context.

Appellants challenge the district court ruling on the

ground that its "extraordinary circumstances" determination

should have been based on an objective reasonableness standard,

not merely on reasonableness in the eyes of MBNA. As the present

claim challenges the district court's construction of unambiguous

contractual terms in an integrated agreement, we review de novo

the "plain meaning" the district court ascribed to these terms.

State Police Ass'n v. Commissioner of Internal Revenue, No. 97-

1319, slip op. at 5 (1st Cir. Aug. 20, 1997); United States

Liability Ins. Co. v. Selman, 70 F.3d 684, 687 (1st Cir. 1995).

The choice-of-law provision in the dealership agreement

designates New Jersey law. See McCarthy v. Azure, 22 F.3d 351,

356 n.5 (1st Cir. 1994) (reasonable choice-of-law provision to be

respected). Since MBNA has its principal place of business in

New Jersey, we honor this designation.

As the district court recognized, "a document should be

read to give effect to all its provisions and to render them

consistent with each other." Mastrobuono v. Shearson Lehman

Hutton, Inc. 115 S. Ct. 1212, 1219 (1995) (Illinois law; citing

RESTATEMENT (SECOND) OF CONTRACTS 203 and cmt. b (1979); 202

14

(5)); see also Coolidge & Sickler, Inc. v. Regn, 80 A.2d 554, 557

(N.J. 1951) ("'The design of the parties to a written contract is

to be collected from the instrument as an entirety. . . . Words,

phrases and clauses are not to be isolated but related to the

context and the contractual scheme as a whole, and given the

meaning that comports with the probable intention. The literal

sense of the terms may be qualified by context.'" (quoting

Mantell v. International Plastic Harmonica Corp., 55 A.2d 250,

255 (N.J. 1947))); Andreaggi v. Relis, 408 A.2d 455, 468 (N.J.

Super. 1979) ("All provisions of a document must be read and

should be harmonized where possible in interpreting a docu-

ment."). Unlike appellants, the district court construed the

dealership agreement as a whole, in the sense that it did not

render meaningless the broad contractual caveat that MBNA, in the

exercise of its exclusive business judgment, was to be the

ultimate arbiter. Thus construed, the "extraordinary circum-

stances" provision simply encapsulates the essential nature of

the business judgment MBNA is permitted to make regarding whether

to award the same dealer more than one dealership in contiguous

market areas.

3. "Extraordinary Circumstances"
3. "Extraordinary Circumstances"

The district court based its "extraordinary

circumstances" determination on the evidence adduced at trial.

Focusing especially on the extended period during which MBNA had

been without adequate representation on the North Shore, it found

that "the demise or imminent demise of Gauthier on the North

15

Shore, coupled with the squeezing out of Auto Engineering . . .

[was] an extraordinary circumstance in the eyes of Mercedes." We

review its finding only for "clear error." Selman, 70 F.3d at

687 ("clear error" standard "pertains whenever the trial court

decides factual matters that are essential to ascertaining the

parties' rights in a particular situation (though not dependent

on the meaning of contractual terms per se)").

The district court reasonably found that the extended

absence of an adequate MBNA presence on the North Shore

constituted an extraordinary circumstance in the eyes of MBNA,

especially since MBNA was facing aggressive competition from new

luxury automobile lines operating from large, exclusive

dealerships, whereas MBNA had no exclusive dealership in the

North Shore market area and soon could be without any dealership

there. MBNA's decision to award a North Shore dealership to

Chambers in these extraordinary circumstances, see supra Section

I, was well within the broad and exclusive "business judgment"

discretion conferred upon it by the dealership agreement. There

was no clear error.

Next, we consider appellants' claims under Mass. Gen.

Laws ch. 93B. Since there was no breach of contract by MBNA,

their chapter 93B claims fail as well. See supra pp. 10-11 &

note 6.

Appellants assert that MBNA promulgated a secret policy

inconsistent with the contractual restrictions on multiple

dealerships in contiguous market areas, and that MBNA "secretly

16

subsidized" Chambers by affording him financial assistance in

acquiring the Route 128 property from Cantanucci. See supra note

3. Appellants mischaracterize the trial court record, however,

in attempting to demonstrate that enough evidence of "general

unfairness" by MBNA came in by consent, at trial, to raise the

specter of a chapter 93B violation notwithstanding the absence of

a breach of contract.

The district court initially excluded all evidence of

subsidies, since appellants had never alleged a chapter 93B claim

independent of their breach-of-contract claims.7 Clair and

Foreign Motors then changed course, and ultimately the proffered

evidence was admitted, but only to establish "extraordinary

circumstances." We cannot conclude, on such a record, that the

proffered evidence came in by consent to establish "general

unfairness." To the contrary, neither MBNA nor the district

court acquiesced, let alone consented, to the trial of a chapter

93B claim predicated on general unfairness. Nor did Clair or

Foreign Motors move to amend their pleadings, see Fed. R. Civ. P.

15(b), to reflect their newfound general unfairness theory.

Given the explicit restrictions repeatedly imposed by the

district court in allowing the "extraordinary circumstances"

evidence, we conclude that the general unfairness theory was not

tried below. See DCPB, Inc. v. City of Lebanon, 957 F.2d 913,

7Further, based on the fact that the complaint included no
independent chapter 93B claim, the district court ruled that
MBNA's failure to give its dealers notice of the new policy was
immaterial, since MBNA had complied with the "extraordinary
circumstances" provision in the dealership agreement.

17

917 (1st Cir. 1992) ("The introduction of evidence directly

relevant to a pleaded issue cannot be the basis for a founded

claim that the opposing party should have realized that a new

issue was infiltrating the case."). See also In re Rauh,

F.3d , , 1997 WL 394424, *7 (1st Cir. July 18, 1997)

(collecting cases). 8

III
III

CONCLUSION
CONCLUSION

Accordingly, the district court judgment is affirmed;

costs to MBNA.

8Appellants' further contention that an injunction should
have been granted under the common-law standard was never
raised below. See Violette v. Smith & Nephew Dyonics, Inc., 62

F.3d 8, 10-11 (1st Cir. 1995), cert. denied, 116 S.Ct. 1568

(1996); Desjardins v. Van Buren Community Hosp., 969 F.2d 1280,

1282 (1st Cir. 1992) (collecting cases).

18