Dealer's Rights During These Challenging Times In The Automobile Industry

By Nancy N. Lubrano

March 9, 2010

The recent sweeping closures of automobile dealerships as a result of termination by the manufacturers may have dealers marching into court.  The Automobile Dealer’s Day in Court Act ("ADDCA") provides dealers with legal recourse despite contract terms.  Under the ADDCA, dealers may recover damages where manufacturers did not act in good faith when complying with the terms of contracts, terminating contracts, or failing to renew contracts.  The ADDCA goes a long way to level the field between dealers and manufacturers.  The federal statute provides broader protection in that "good faith" requires the parties to "act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided that recommendation, endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith."  The parties’ conduct is examined independent of the agreed upon contract terms.  Thus, the federal statute protects against a broader range of conduct than state statutes because generally, state statutes proscribe specific conduct.  Dealers may also still bring claims under common law tort and contract claims for unlawful termination.  As manufacturers continue to control losses by terminating relationships with dealerships only to then seek recovery of alleged damages pursuant contracted obligations, they must be mindful of the powerful tools available to dealers who can seek legal recourse for wrongful termination, retaliation, or coercive conduct engaged in by manufacturers which may amount to bad faith under ADDCA.