In a major victory for dealers, a federal appeals court has blocked American Honda Motor Co. Inc.'s efforts to terminate a New York dealership's Acura franchise.
A unanimous three-judge panel from the 2nd U.S. Circuit Court of Appeals found sufficient evidence that the automaker offered a 'false reason' for terminating the Bronx Auto Mall Inc. franchise - namely, the assertion that the facility needed renovations.
The dealership successfully contended that American Honda's demand for renovations was merely a pretext, and that the company's real motive was to trim the ranks of its dealers and to eliminate dualed franchises.
American Honda acted in bad faith in its relationship with the dealership, the 2nd Circuit panel in New York City said. 'Stating a false reason for termination of a dealership violates the (New York Franchised Dealer) Act's prohibition of false business practices.
'In addition, because American Honda had not demonstrated the reasonableness of its demand that Bronx Auto Mall make certain substantial renovations, it could not insist on those renovations as a prerequisite to renewal of the franchise agreement.'
The May 12 appellate ruling upheld a 1996 order by U.S. District Judge Lewis Kaplan, who prohibited American Honda from terminating the franchise agreement.
Leonard Bellavia, a dealer attorney in Mineola, N.Y., said the decision helps clarify the covenant of good faith and fair dealing that factories owe their franchisees. 'Some standards have been established, below which the factory can't go without risk of liability.'
In this case, that liability leaves American Honda responsible for about $450,000 in attorney fees and legal costs racked up by Bronx Auto Mall. The appellate court affirmed that award.
Thomas Moore, the New York City lawyer who argued the case for the dealership, said the decision means automakers can't hide their primary motives.
'You have to be honest with your dealers,' Moore said. 'What this (decision) stands for is that a manufacturer cannot terminate a dealer in bad faith. That means they can't have a hidden motive for the termination.'
American Honda will not ask the U.S. Supreme Court to review the decision, according to Eric Portuguese, the New York City attorney who argued the company's appeal. 'That's the end of the case,' he said.
Acura spokesman Michael Spenser said, 'We're currently reviewing the decision to determine what our future options will be.'