A federal appeals court has told the owners of two Houston Saturn dealerships they will have to arbitrate their dispute over whether Saturn Corp. should have sold them three more Saturn stores.
But Fernando Somoza and Kirk Franceschini, co-owners of Paramount Saturn Ltd. of Houston, have decided to quit the case instead of taking it to arbitration. They say they have little chance of winning in arbitration because the arbitration panel is made up of General Motors employees and dealers appointed by Saturn.
"We can't afford to continue to fight GM," says Franceschini, who with his partner owns an Infiniti dealership and a Volkswagen dealership in addition to two Saturn stores.
He says he and Somoza already have spent $70,000 on the case.
The United States Court of Appeals for the Fifth Circuit on April 11 backed a lower court order requiring Paramount Saturn Ltd. of Houston to arbitrate the case instead of taking it to the Texas Motor Vehicle Board.
The board does not have exclusive jurisdiction over disputes between auto manufacturers and their dealers, and Saturn's franchise agreement requires dealers to settle disputes with the factory through binding arbitration, the appeals court wrote.
The dealers claim that Saturn violated Texas law by failing to act in good faith when it refused to sell three Houston Saturn dealerships to Paramount. They argue it is Saturn's policy to give established dealers first crack at Saturn stores that come up for sale in the same market, and they had written and verbal assurances that they would be first in line for these dealerships.
But last year Saturn sold the Houston dealerships plus three Dallas stores to Don Hudler, former chairman of Saturn Corp.
Saturn had intended to incorporate the six stores into its retail chain, the now-defunct Saturn Retail Enterprise.
But Texas, which has a ban on factory-owned dealerships, required Saturn to sell the stores.