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Maple Shade Motor Corp. v. KIA Motors of America, Inc.

384 F. Supp.2d 770 (D. N.J. 2005)

FRANCHISES — There is no violation of the New Jersey Franchises Practices Act when a manufacturer terminates a franchise agreement based upon a failure of its franchisee to substantially comply with the terms of the agreement.

A car dealer entered into a franchise agreement with a manufacturer to showcase and sell its cars. Prior to entering into the franchise agreement, the dealer showcased another manufacturer’s cars. The written franchise agreement provided for the dealer to build a separate showroom for the manufacturer’s car models on the property so that it was separated from the other manufacturer’s cars. The agreement included timetables for obtaining approvals and completing construction of the showroom. Until the showroom was to be built, the dealer showcased both manufacturers’ cars in the same showroom. As time went by and the showroom was still not constructed, the manufacturer sent notices to the dealer to build the showroom as provided for in the agreement. On at least nine separate occasions, the manufacturer warned the dealer that its failure to build the separate showroom violated the terms of the agreement. The manufacturer then notified the dealer that it was terminating the franchise agreement. The dealer sued claiming that the manufacturer violated the New Jersey Franchise Practices Act, N.J.S.A. 56:10-5. That statute provides that a franchisor cannot terminate the franchise unless it has good cause to do so. It defines “good cause” as failure by a franchisee to substantially comply with the requirements imposed by the franchise agreement. The dealer claimed that it substantially complied with the terms of the franchise agreement and that the manufacturer did not have good cause to terminate the agreement. The Court disagreed, finding that the franchise agreement specifically required the dealer to build a separate showroom for the manufacturer’s cars within a certain timetable and that the dealer’s failure to do so constituted good cause for termination of the franchise agreement under the New Jersey Franchise Practices Act. It rejected the dealer’s contention that the requirement to build a separate showroom was voided because the contract was signed after some of the deadlines in the contract had already passed. The Court noted that the timetable listed in the agreement provided the dealer with a timetable of eighteen months from the date the agreement was presented for signature. Further, it found that the dates listed in the contract did not have any independent importance other to reflect an estimate of the time determined to be needed in order to complete the project. Therefore, a court may imply a reasonable timetable for completion of the project even though the contract was signed after several of the dates had passed. The Court also rejected the dealer’s claims that when the franchise agreement was negotiated it received oral assurances that it would not be required to build a separate showcase unless the other car manufacturer objected to the showing of the manufacturer’s cars. The Court found that the franchise agreement specifically stated that it superceded any previous oral or written agreements between the parties. Since the franchise agreement unconditionally required the dealer to build a separate showroom, any oral discussions prior to signing the contract did not negate that obligation. Lastly, the dealer argued that the manufacturer should be estopped from enforcing the obligation to build a showroom since it let the dealer continue selling its cars for several years after the deadline for building the showroom had passed. The Court rejected the dealer’s argument. It noted that the franchise agreement specifically stated that the delay or failure by the manufacturer to require performance or the waiver of a requirement did not affect the manufacturer’s right to demand performance at a later date. It also noted that the manufacturer’s conduct, in sending at least nine letters to the dealer demanding that it comply with the franchise agreement by building a separate showroom, demonstrated that it did not waive that requirement.


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