Product manufacturers and distributors often require in their agreements with a retail dealer or franchisee that the dealer/franchisee may not sell or transfer his/her interests in the retail business to someone else, without first obtaining the approval of the manufacturer/distributor.  Those agreements commonly provide that approval will not be withheld unreasonably.  Litigation often results when approval is not given because the applicant is not acceptable for some reason.  Sometimes this litigation is brought by the selling dealer/franchisee, who might claim, for example, that it has been damaged because it could not find another buyer for as good a price.  In addition to bringing a contract breach claim that approval was withheld unreasonably, sometimes, as in the motor vehicle industry, for one example, a dealer will also sue under a dealer protection statute which imposes a similar obligation.

Commonly the dealer moves on to find another buyer, and does not sue.  In all events, disappointed buyers often want to sue to force a sale.  They have alleged various theories in lawsuits over the years, e.g., common law torts such as interference with prospective contract or relationships, third party beneficiary of the manufacturer-dealer relationship, or breach of the dealer protection statute.  An issue that is often litigated in such cases is whether these disappointed buyers, who have no contract relationship with the disapproving manufacturer/franchisor, have standing to sue it.[1]

A recent decision by a Washington state appellate court held that a disappointed transferee of a Nissan dealership whom the manufacturer would not approve did not have standing under that state’s motor vehicle dealer protection statute, reasoning that this state’s statute was intended to protect sellers rather than prospective buyers.  Tacoma Auto Mall, Inc. v. Nissan North America, Inc., 279 P.3d 487, 493 (Wash. 2012).  The plaintiff relied heavily on a California decision which had permitted a disappointed gasoline dealer applicant to bring common law claims against the disapproving distributor, Don Rose Oil Co., Inc. v. Lindsley, 160 Cal. App. 3d 752 (1984).  The Washington court cited, however, a more recent, gasoline dealer decision disapproving and noting the limits of Don Rose as to statutory claims, Dameshghi v. Texaco Refining & Marketing, Inc., 3 Cal. App. 4th 1262, (1992) (disapproved in part on other groundsinTrope v. Katz, 11 Cal. 4th 274, 287 (1995)).  Thus the Washington court suggested that California law is in accord with it that disappointed transferees of dealerships do not have standing to sue under such laws.

The Washington court did not cite – presumably because neither of the parties called its attention to – a more recent – indeed, so far as we know, the most recent – California decision from the motor vehicle industry itself on this issue, Fladeboe v. American Isuzu Motors Inc., 150 Cal. App. 4th 42 (2007).  The appellate court in Fladeboe reversed a trial court, which had held that a disappointed transferee did not have standing to sue the manufacturer for refusing to approve its purchase of a motor vehicle dealership.  Id.  The Fladeboe court neither discussed nor cited to Don Rose, Dameshghi or any case addressing franchise or distribution relations.  Instead, Fladeboe relied solely on a decision permitting a city to sue as to the validity of one of its own ordinances, because it was threatened with the injury of either violating the statute or conducting a costly election.  Id., at 54-56 (citingCity of Irvine v. Irvine Citizens Against Overdevelopment, 25 Cal. App. 4th 868, 874 (1994)).  Nevertheless, Fladeboe ultimately ruled in favor of the manufacturer, both because the dealer had unclean hands and because the legal standard governing the manufacturer’s exercise of its discretion to approve, or not, was entitled to great deference and, in that case, supported the decision to withhold approval.  Id. at 58, 63-64.

[1] A recent decision by an Indiana federal court illustrates the risks of a manufacturer dealing directly with, and allegedly making promises to and entering into an agreement with, an applicant to purchase a dealership.  In Andy Mohr Truck Center, Inc. v. Volvo Trucks North America, Bus. Franch. Guide (CCH) ¶14,912 (S.D. Ind. Oct. 9, 2012), a court refused to dismiss claims for breach of oral and written contract, promissory estoppel, and violation of Indiana’s Crime Victims’ Act arising from the alleged promise by Volvo Trucks to allow the applicant to become a dealer for Mack Trucks (another brand owned by Volvo Trucks) if the applicant purchased a Volvo Trucks dealership for the same facility, as it did.