Mike Naughton Ford, Inc. v. Ford Motor Co.

Citations: 862 F. Supp. 264; 1994 U.S. Dist. LEXIS 17730; 1994 WL 485904Docket: Civ. A. 92 N 1702

Court: District Court, D. Colorado; July 25, 1994; Federal District Court

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Mike Naughton Ford, Inc. and Courtesy Ford, automobile dealers in southeast Denver, Colorado, are plaintiffs in a breach of contract case against Ford Motor Company, the defendant. The plaintiffs challenge Ford's intention to establish a new franchise, Arapahoe Ford, in proximity to their existing dealerships. They assert claims for breach of contract, violation of the Colorado Automobile Dealers Act, and breach of the implied covenant of good faith and fair dealing. The case is under consideration following Ford's Motion for Summary Judgment filed on February 10, 1993, with jurisdiction established under 28 U.S.C.A. § 1332.

The plaintiffs entered into identical franchise agreements with Ford, which outline their rights and obligations concerning dealership locations. The contested area, known as the Arapahoe Road/County Line Road distribution point, has seen various Ford dealerships over the past 15 years, with ownership and locations changing due to market conditions. The area remained vacant after Grooms Automotive closed in November 1990. On June 17, 1992, Ford expressed its intent to award a new franchise to Arapahoe Ford, situated 7 to 10 miles from the plaintiffs' dealerships.

Plaintiffs contend that the southeast Denver market is currently unfavorable for the establishment of Arapahoe Ford, citing the prior failures of dealerships in the Arapahoe Road/County Line Road area. Their claims assert that granting a franchise to Arapahoe Ford would breach the franchise agreement regarding the appointment of additional dealers, violate Colorado Revised Statutes section 12-6-120(1)(h), and infringe upon the implied covenant of good faith and fair dealing. Ford counters that it is not appointing an "additional" dealership as defined by the agreement or statute, but rather establishing a "replacement" dealership, which is permissible under the franchise terms and state law. 

The court finds no genuine issues of material fact regarding the plaintiffs' claims and concludes Ford is entitled to summary judgment. It cites the relevant legal standards for granting summary judgment under Rule 56(c) of the Federal Rules of Civil Procedure, emphasizing the moving party's burden to demonstrate the absence of a genuine issue of material fact and the nonmoving party's obligation to show sufficient evidence to establish a triable issue. The court also discusses the specific provisions of the franchise agreement related to the appointment of additional dealers, particularly highlighting the requirements for appointing a dealer within ten miles of an existing dealership. Ultimately, the court grants Ford's motion for summary judgment based on the absence of material facts that would necessitate a trial.

The franchise agreement designates 'dealer's locality' as the area assigned to the Dealer by the Company for sales and service of Company products. Plaintiffs argue that Ford's establishment of a new franchise near Interstate 25 and Arapahoe Road constitutes the appointment of an 'additional dealer' under paragraph 9(c), which requires a market study before awarding the franchise, particularly because it would operate within the plaintiffs' localities and within ten miles of their businesses. Although Ford conducted a study suggesting market viability for the new dealership, plaintiffs contest this expansion.

Ford, however, claims that paragraph 9(d) governs the situation, allowing for the appointment of a dealer as a replacement for a previous dealer or to fill an ‘established open point’ without restriction from paragraph 9(c). Ford argues that the new franchise at Arapahoe Ford is a replacement for Grooms Automotive, which ceased operations in 1990 at a previously approved location. 

The court must determine which contractual provision prevails, with the interpretation of the contract and any ambiguity being legal questions. The existence of disagreement between the parties does not imply ambiguity; thus, the contract's clear and unambiguous terms should be enforced as per their plain meaning. Paragraph 9(d) clearly permits Ford to appoint a franchisee as a replacement dealer or to fill an open point at a previously approved location.

Paragraph 9(d) of the franchise agreement is not restricted by paragraph 9(c), which pertains only to the appointment of additional dealerships in regions already served by established Ford dealers. Ford correctly applies paragraph 9(d) to appoint Arapahoe Ford as a franchisee for the Arapahoe Road/County Line Road distribution point, recognized as an 'established open point' since three different Ford dealers have operated in that vicinity since 1979. Notably, Hover Ford and Leo Payne Ford, along with its successor Grooms Automotive, were located near this area, confirming its status as an open point. The franchise agreement does not impose limitations related to current market conditions or the elapsed time since a previous dealer occupied the location; instead, it focuses solely on geographical proximity. Arapahoe Ford meets the proximity requirement by being situated near a previously approved location.

As a result, Ford is entitled to summary judgment regarding the plaintiffs' breach of contract claim. Even if the proposed franchise were to be considered an 'additional dealership,' Ford has met the conditions outlined in paragraph 9(c), which requires a market study demonstrating the necessity for the additional dealership. Paragraph 9(a) grants Ford the discretion to determine the number and location of authorized dealerships based on various factors, including demographics and competitive representation. The interpretation of contractual terms may involve either a subjective or objective standard depending on the nature of the contract's subject matter. Objective standards apply to commercial value and quality, while subjective standards are employed for matters of taste and judgment, particularly if the provision serves as a personal concession to one party.

In cases involving a subjective standard, the party asserting its rights is the exclusive decision-maker regarding its satisfaction, without consideration for the fairness of its choice. The only constraint on such contracts is the requirement of good faith. In this context, Ford's discretion over the number and location of its dealerships, as outlined in the franchise agreement, is governed by this subjective standard. The agreement explicitly states that these determinations rely solely on Ford's opinion or judgment. Following an evidentiary hearing related to the plaintiffs' request for injunctive relief, it was determined that there was no evidence of bad faith from Ford, which leads to the conclusion that Ford is entitled to summary judgment regarding the plaintiffs' breach of contract claim.

Moreover, the plaintiffs argue that the proposed appointment of Arapahoe Ford violates the Colorado Automobile Dealers Act, specifically section 12-6-120(1)(h), which prohibits manufacturers from establishing new franchises in areas served by existing dealers if it would be inequitable to them. The Act includes criminal penalties for willful violations and allows affected dealers to recover attorney fees. However, this statute does not apply to the current case since it pertains only to the establishment of new dealerships and lacks provisions regarding replacement dealerships or specific geographic limitations. Unlike statutes in other states that contain such provisions, the Colorado law does not address the reappointment of dealerships after a closure or the geographical proximity of new franchises to existing ones.

The Colorado 'additional dealer' statute does not apply to replacement dealerships, as evidenced by the appointment of Arapahoe Ford, which does not establish an 'additional' dealership under section 12-6-120(1)(h). Ford's intention to appoint Arapahoe Ford is to replace a previously established distribution point, maintaining the existing number of authorized Ford dealerships in southeast Denver. Therefore, Ford is granted summary judgment on the plaintiffs' claim regarding this provision. Furthermore, even if the statute were applicable, it is deemed unconstitutionally vague according to the vagueness test from *Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc.* and adopted by the Colorado Supreme Court. This relaxed vagueness test applies because the statute is an economic regulation with civil enforcement and minor criminal penalties, not infringing on protected rights. A party challenging a statute on vagueness must show it lacks fair warning of prohibited conduct. Although precision is not required, the Colorado statute fails to set reasonable enforcement standards, particularly in defining when adding a new franchise would be inequitable to existing dealers. This lack of clarity parallels findings in *General Motors Corp. v. Blevins*, which similarly ruled on the vagueness of a previous statute regarding franchise agreements.

The additional franchise provision in Colorado law lacks an "ascertainable standard of guilt," rendering it unconstitutionally vague, as it forces individuals to guess the meaning of terms related to the addition of franchises and business practices. Previous cases, such as Trail Ridge Ford, Inc. v. Colorado Dealer Licensing Bd. and LDS, Inc. v. Healy, highlight similar vagueness issues concerning the terms "unconscionable" and "unethical practices." 

Plaintiffs also claim a breach of the covenant of good faith and fair dealing due to the intended appointment of Arapahoe Ford, arguing it violates the Franchise Agreement and Colorado law. Under Colorado law, this covenant implies that parties must perform their contractual obligations in good faith, but does not create new terms. Breaching this covenant results only in a breach of contract with standard remedies. The court finds no evidence of bad faith on the part of Ford, which acted within the terms of the contract regarding dealership appointments. 

Consequently, the court grants Ford's motion for summary judgment, concluding that plaintiffs failed to substantiate their claims. The plaintiffs did not contest Ford's statement of undisputed facts, and Ford properly notified the Colorado Attorney General of the constitutional challenge, which the Attorney General declined to address. The breach of the covenant of good faith does not constitute an independent tort claim outside of specific insurance agreements.