An Ohio appeals court has upheld the right of General Motors, DaimlerChrysler and Toyota Motors Sales U.S.A. to terminate franchises with a dealer convicted of fraud and conspiracy.
The felony conviction alone is sufficient to justify termination under the dealer agreements, but beyond that, the companies had valid performance-related reasons to terminate, the Ohio Court of Appeals ruled.
There will be a further appeal, according to Monte Zinn, owner of Monte Zinn Chevrolet Co., Monte Zinn Dodge and Monte Zinn Toyota of Springfield.
The three automakers have been trying to terminate the franchises since Zinn's guilty plea to the federal charges in 1995, according to the decision. He was fined and placed on probation for two years. In addition, the Ohio Motor Vehicle Dealer Board suspended his dealer's license for three days.
In his guilty plea, Zinn acknowledged making a false statement to immigration officials so a resident of Fiji could obtain a nonimmigrant visa for training at his Dodge dealership, court records show. Documents were submitted that falsely showed the man was eligible for the visa.
'He was a trainee in the body shop,' Zinn told Automotive News. 'He needed one year of work experience in the field to qualify for a visa but didn't have it. It's a matter of intent. I operated with the heart rather than the head.'
He said Hyundai did not attempt to terminate its franchise and that he received a Kia franchise after the conviction.
At issue in the litigation are Zinn's agreements with GM, the former Chrysler Corp. and Toyota, all containing a provision allowing termination if he were convicted of a felony.
Zinn protested the terminations to the state dealer board, which upheld his protests. However, a Franklin County Court of Common Pleas judge ruled in favor of the auto companies.
The appeal contended the charges were unrelated to the dealerships and did not provide a valid basis to terminate the franchises. Zinn's lawyer, Robert Kaiser of Cincinnati, said, 'The conviction had absolutely no impact on the operation of the dealerships.'
The auto companies argued to the contrary and asserted that felony convictions of dealer principals can damage the companies' reputation and public trust.
In a unanimous decision, the appeals court held a felony conviction alone is enough to establish 'good cause' for termination under Ohio law.
'There is no language (in the dealer law) that indicates that more than one factor must weigh in favor of a good cause determination before a franchise may be terminated,' the three-judge panel said.
The court also said the companies had sufficient other reasons to allow termination. With GM, for example, it cited a hearing examiner's findings that Zinn's 'overall sales effectiveness had been in the bottom half of Chevrolet dealers in its service area and consistently ranked in the bottom 20 percent of all dealers in customer service and satisfaction.' The corporate dealerships also made 'few investments' in the business while Zinn owned the property and facilities.
As for the DaimlerChrysler protest, the court referred to the hearing examiner's findings that the Dodge dealership had been 'sizably undercapitalized every year from 1991, and that between 1992 and 1996, new-vehicle sales volume increased at less than half the rate as the zone level and actually decreased between 1995 and 1996.' The dealership's owner-loyalty scores were below national and regional levels, as well.
The court said auto companies 'uniformly terminated dealerships following felony convictions' and that other Toyota dealers could provide adequate service if the franchise is terminated. Terry Miller, a lawyer in Columbus, Ohio, who represents Toyota in the case, said, 'The dealership's sales performance was substandard.'
Zinn disputed the criticisms and said his 1999 sales 'were up dramatically over '98. The record shows we're here operating successfully.'
DaimlerChrysler's senior staff counsel, David King, called the decision 'a pretty straight reading' of the Ohio dealer law. 'I don't think any dealers or manufacturers are going to be surprised,' he said.
King and Miller said the court has delayed the terminations until Zinn finishes the appeals process.
In a statement, GM said it is pleased with the ruling and will continue its efforts to complete the termination.
'The decision supports GM's position that this dealer-operator, as convicted felon, is not suitable to operate a GM dealership,' the statement said. 'Exclusion of convicted felons as dealer-operators is important for GM, other GM dealers and, most importantly, customers.'