Appeals court affirms Ford's right to deny dealership's bid to move

Discretionary tactic
At issue: Ford's refusal to approve Florida dealership relocation

Status: Appeals court affirms Ford was within its discretion

Ford Motor Co.'s sales and service agreement gave it discretion to deny a Tampa dealership's request to relocate, thus scuttling a proposed transfer of the franchise to CarMax, a unanimous federal appeals panel has ruled.

The decision recognizes Ford's contractual right under its sales and service agreement to exercise its best judgment regarding the location of its dealerships. It also reinforces the principle that a prospective dealership buyer must accept all provisions of a sales and service agreement, including the requirement for the manufacturer's approval for any relocation.

In 1998, Ernie Haire Ford Inc. negotiated to sell its assets to CarMax, conditioned on the proposed relocation. When Ford did not approve the relocation, CarMax withdrew from the deal.

The dealership, shareholders Mary Haire and Ernest B. Haire III, and broker Auto Assets Trust sued, claiming that Ford's denial violated Florida's dealer law. It alleged that Ford performed only a limited amount of due diligence on the proposed transaction and that most of the factors in Ford's own relocation manual favored the move.

They sought damages based on the profit they would have made on the transaction, according to the dealership's lawyer, John Agliano of Tampa.

But Ford countered that the relocation would generate protest litigation by other dealerships and expressed concern about having a new-car dealership located with a used-car superstore, according to the 11th Circuit U.S. Court of Appeals in Atlanta.

In a decision by appeals Judge Susan Black, the court said a lower court judge correctly dismissed the case without trial.

The dealership is bound by its sales and service agreement, which plainly gives Ford discretion to exercise its best judgment on location issues, the court said. "The central purpose of the dealership agreement was to sell cars, not to relocate the dealership," the judge said. "In disapproving the relocation, Ford did not preclude the dealership from selling cars."

The court also rejected arguments that Ford violated the state dealer law or acted in bad faith, adding that the plaintiffs "have failed to show that Ford's sole basis for disapproving the transaction was malicious."

Ford spokeswoman Kathleen Vokes said the company agrees with the ruling.

But dealership lawyer Agliano criticized the decision, saying, "It seems to give this manufacturer a veto right over any relocation, no matter how reasonable." He said his clients are evaluating whether to ask the appeals court for a rehearing.

He also said the court was wrong to deny a trial because there is a factual dispute about whether Ford's decision violated an implied covenant of good faith, fair dealing and reasonableness. A jury, he said, should resolve that dispute.

You can send e-mail to Eric Freedman at

You can reach Eric Freedman at freedma5@msu.edu

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