A federal judge in Pittsburgh has let stand a $3.5 million jury award against General Motors for unreasonably withholding its consent to a buy-sell agreement.
U.S. District Judge Donald Ziegler said there was ample evidence that GM wrongfully interfered with efforts by Nicholas Crivelli and Nick Crivelli Chevrolet Inc. to buy financially troubled Scheidmantel Oldsmobile-Cadillac of Beaver Falls, Pa.
Ziegler also said there was sufficient expert testimony to support the jury's calculation that Crivelli lost $3.5 million in potential profits when GM sandbagged his effort to buy the failing dealership from Paul Scheidmantel.
GM will appeal, defense lawyer James Mollica of Pittsburgh said. 'It's not unreasonable to have a good reason for making a dealer decision. We had a contractual right of first refusal, which we chose to exercise.'
The scenario is complicated: In 1991, Scheidmantel executed a buy-sell agreement with Floyd McElwain, who planned to keep the dealership in Beaver Falls. Oldsmobile's zone office approved the deal, but McElwain rescinded the offer before GM's final approval, citing concern that Scheidmantel would be unable to pay off creditors at the closing.
At that point, Crivelli negotiated to buy the Oldsmobile-Cadillac dealership; he planned to move it seven miles to Vanport, where he had a Chevrolet store. The Oldsmobile zone office recommended rejection because of the move, allowing GM to exercise its right of first refusal under the dealer agreement.
But without notifying Crivelli of any decision, the zone office invited McElwain to buy the dealership and keep it in Beaver Falls. The zone office showed him the Crivelli-Scheidmantel buy-sell agreement, disclosing the offering price.
Unaware of those behind-the-scene activities, Crivelli renegotiated with Scheidmantel and notified GM that he would keep the franchise in Beaver Falls after all. A week later, however, GM announced it was exercising its right of first refusal on the Crivelli deal but would allow McElwain to assume GM's rights and duties.
What Ziegler called 'the debacle' was compounded by creditors that forced Scheidmantel's dealership into bankruptcy court. At that point, Crivelli bid $330,000 to acquire the Cadillac franchise alone, and someone else bid for the Oldsmobile franchise. However, the bankruptcy court approved the sale of the dealership to McElwain 'based on the representation that GM preferred McElwain.'
Scheidmantel received $400,000, according to the judge.
Crivelli then sued GM under the Pennsylvania dealers' act, which makes it a violation for manufacturers to 'unreasonably withhold consent to the sale, transfer or exchange of the franchise to a qualified buyer capable of being licensed as a new-vehicle dealer.'
Ziegler rejected GM's bid to overturn the verdict.
'There is no dispute that Nich-olas Crivelli was a qualified buyer because he has operated several successful GM dealerships in western Pennsylvania,' the judge said. He also pointed to evidence that Crivelli had modified his original offer by agreeing to keep the dealership in Beaver Falls.
'Prior to the time GM exercised its contractual right of first refusal, Crivelli had satisfied all conditions that GM required of a prospective purchaser,' he added. 'Despite these facts and without notice to Crivelli, representatives of GM pursued another purchaser, McElwain, who had no buy-sell agreement with Scheidmantel and who had rescinded a prior agreement, and used the Crivelli buy-sell agreement in that effort.
'Based on the evidence, the jury could find that, in exercising its contractual rights, GM unreasonably withheld its consent to the sale or transfer to the only qualified buyer at that time, or a buyer who was at least more qualified than Floyd McElwain.'
The judge rejected GM's argument that language in the dealer agreement trumps the law prohibiting unreasonable withholding of consent to a qualified buyer.
The decision is good news for franchised dealers, said Crivelli's lawyer, Diane Perer of Pittsburgh. 'There are a number of these statutes nationwide, but there's an amazing lack of decisions,' she said. 'There's finally an opinion that says, 'You can't do this.'
'It may spawn litigation by disgruntled and spurned purchasers,' Perer added.
But GM attorney Mollica said the verdict impairs a manufacturer's ability to make reasonable business decisions and contradicts the goal of the law to protect the rights of selling dealerships. Here, he noted, Scheidmantel ended up with $70,000 more from McElwain than Crivelli offered.
'The objective of every manufacturer is to get the best possible representation in an area,' Mollica said, comparing it to an employment situation where 'you have to make decisions, and if you have more than one candidate, someone is going to be disappointed.'