A federal appeals court has upheld General Motors' right to redefine a South Carolina dealership's area of primary responsibility and to appoint new dealers.
The 4th U.S. Circuit Court of Appeals in Richmond, Va., unanimously rejected a suit by a former dealership that had been denied the right to establish a satellite outlet on Hilton Head Island.
Terry Rhadigan, GM's safety and legal communications officer, said the company is pleased by the appeals court decision. 'We believe this verdict correctly reflects an automotive manufacturer's right to - with appropriate analysis - make its own decisions regarding the identity of its dealers.'
There will be no further appeal, according to the dealership's attorney.
In 1989, Love Pontiac-Cadillac-GMC Truck Inc. signed a five-year agreement that designated Hilton Head as part of its area of primary responsibility.
At the time, Love owned two stores in Beaufort. The agreement granted GMC Truck Division the right to appoint more dealers if it gave Love at least 30 days' written notice, and it empowered GMC Truck to make the final decision 'pursuant to its business judgment.'
In 1993, Love proposed a GMC Truck satellite on Hilton Head. GMC Truck refused, however, citing corporate directives about the proper mix of GM products offered at a single dealership and Love's 'ineffectiveness in selling GMC trucks' in Beaufort, the appeals court said.
Instead, GMC Truck notified Love it would alter the dealership's area of primary responsibility to exclude Hilton Head and would give the GMC franchise for the island to Heritage Motors, an established Hilton Head dealership that handled Pontiac, Buick, Oldsmobile and BMW. The agreement with Heritage was finalized in January 1994.
Love sued in U.S. District Court in Charleston, S.C., seeking monetary damages for breach of contract, fraud and violation of the South Carolina dealer law.
The dealership's lawyer, Ben Zuckerman of Columbia, said GM improperly had decided to award the franchise to Heritage even before giving his client the required 30-day notice, meaning Love's written comments 'wouldn't matter.' He also said GM failed to follow its own required procedures.
Love sold its two Beaufort stores while the lawsuit was pending, he said.
U.S. District Judge Dennis Shedd tossed out the case without trial.
In the new decision, the appeals court ruled against Love, finding that GM's action was 'based on a reasonable exercise of business judgment.'
For example, the three-judge panel said GM had conducted market studies and other analyses before deciding to add a GMC dealership on Hilton Head.
'The determination that Heritage rather than Love should be awarded that dealership was based on corporate policy and the poor performance of Love's existing dealership in representing GMC Truck,' the court said.
Decisions based on 'legitimate business rationales' are not arbitrary, it added, and 'awarding a new franchise to one existing GM dealer rather than another existing GM dealer cannot be called shockingly unjust or unfair because inevitably one of the two had to be chosen over the other.'
The appeals court also ruled that GM did not violate its dealership agreement, saying, 'The terms of the contract leave no ambiguities as to GM's discretion to establish additional dealerships and alter a dealer's area of primary responsibility.
'The contract provides that notice and opportunity to be heard be given Love, but the final decision is left solely to GMC Truck's discretion pursuant to its business judgment.'