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Colonial Ford, Inc. v. Ford Motor Co.

LEXSEE 592 f2d 1126

COLONIAL FORD, INC., a Utah corporation, Plaintiff-Appellee,
Cross-Appellant, vs. FORD MOTOR COMPANY, a Delaware
corporation, Defendant-Appellant, and FORD MOTOR CREDIT
COMPANY, a Delaware corporation. Defendant-Appellant,

Nos. 76-2079, 76-2080, 76-2083


592 F.2d 1126; 1979 U.S. App. LEXIS 17125; 1979-1 Trade
Cas. (CCH) P62,455; 51 A.L.R. Fed. 805

February 5, 1979


Rehearing Denied March 1, 1979.


Peter W. Billings, Stanford B. Owen and Peter W. Billings, Jr., of Fabian &
Clendenin, Salt Lake City, Utah, for defendant-appellant Ford Motor Co.

Harold G. Christensen and R. Brent Stephens, of Snow, Christensen &
Martineau, Salt Lake City, Utah, and George V. Burbach, Dearborn, Mich., for
defendant-appellant and cross-appellee, Ford Motor Credit Co.

Daniel L. Berman, Richard W. Giauque and Gordon Strachan, of Berman &
Giauque, Salt Lake City, Utah, for plaintiff-appellee and cross-appellant
Colonial Ford, Inc.

Before SETH, Chief Judge, and DOYLE and McKAY, Circuit Judges.



We have granted Ford Motor Company's petition for rehearing because we may
have understated a significant element of the case. While we believe some
clarification of our prior opinion n1 is in order, except as clarified herein
our prior opinion with respect to the dispute between Ford Motor Company and
Colonial is reaffirmed. We also have granted Colonial Ford, Inc.'s petition for
rehearing. We conclude that a new trial should be granted with reference to the
592 F.2d 1126; 1979 U.S. App. LEXIS 17125; 1979-1 Trade Cas. (CCH) P62,4

issue of whether Ford Motor Credit Company is liable to Colonial for acts
allegedly done in violation of the Automobile Dealers' Day in Court Act, 15
U.S.C. @@ 1221-1225 (1976).

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n1. Colonial Ford, Inc. v. Ford Motor Co., 577 F.2d 106 (10th Cir. 1978).

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In our original opinion, reported at 577 F.2d 106, we pointed out that Ford
Motor insisted that Marshall Pease be given the right to acquire a forty-nine
percent interest in the automobile dealership. The record also shows that Ford
demanded as a condition to the franchise that Pease be given absolute control of
the enterprise. This position was asserted in meetings between Robert Parr of
Ford and LeGrande Belnap of the dealership. Ford's Dealer Policy Board took the
status of the franchise under advisement pending a resolution of these ownership
and control issues. Belnap, who had by this time acquired a large investment in
the enterprise, was under significant pressure to have the franchise issue
resolved. The Board nonetheless deferred action on the franchise until all
conditions and demands were complied with, including the requirement that
"Marshall Pease (be) given a buy-in by Belnap." It appears that on July 9th,
Parr advised Belnap that Ford Motor required for reinstatement of the franchise
that Pease be given control of the dealership and a forty-nine percent buy-in
that was to be paid from profits. Although Belnap strongly opposed the buy-in
requirement, to protect his investment, he ultimately had to agree. The record
shows that Pease paid $ 20,000.00 down on the buy-in contract and thereafter
withdrew this amount from the dealership. Ford Motor's absolute requirement
meant that Pease received a free ride to a forty-nine percent interest in a
large dealership which interest, of course, reduced Belnap's ownership share.
Ford Motor would have us attach no consequence to Belnap's loss. In its
petition for rehearing, Ford states: "There is no reason why the reduction of
Belnap's stock ownership from 100% To 51% Prevented him from providing
additional working capital." We are not persuaded.

The dealership control arrangement was not a "management" aspect of the
dealership in which Ford would have a legitimate interest, but instead was a
requirement for the transfer of "ownership" to a particularly favored person.
It is obvious that the position would be more attractive to a manager with
ownership, but the matters are nevertheless separate. The record does not
indicate the exact reason why Pease was to be placed in such a position, but it
is clear that it was entirely the idea of Ford Motor and was resisted by Belnap
until it became impossible to continue opposition.

Ford Motor takes the position that these events happened before a new
franchise was issued. It is true these events occurred during the dealership's
operation in the hiatus between Ford's notice of franchise termination to Petty
Ford, Inc. the dealership Belnap had acquired and Belnap's formally executing
his franchise agreement with Ford. Ford contends that this chronological
circumstance makes the Pease buy-in a matter of "contract," and that, as a
result, Ford could use the franchise to enforce everything which had gone on
before. Ford apparently would consider irrelevant the pressures and coercion
592 F.2d 1126; 1979 U.S. App. LEXIS 17125; 1979-1 Trade Cas. (CCH) P62,4

applied prior to formal execution of the "new" franchise: all became regularized
by the franchise; all became purified as "contractual."

We cannot agree that the timing of franchises can be so manipulated to
regularize improper and coercive demands and to avoid the consequences of the
Automobile Dealers' Day in Court Act, 15 U.S.C. @@ 1221-1225 (1976). These
pre-franchise events described above necessarily became involved in the
franchise, and the Act was violated by Ford's demands for what it blandly
described as "contractual performance." The bad faith of Ford Motor Company thus
carried over into the franchise and permeated the entire relationship.


Ford Motor Credit is a wholly owned subsidiary of Ford Motor Company. Its
primary business is financing the distribution of Ford automobiles by providing
Ford dealers with capital. Approximately 90 percent of its multibillion dollar
financing was in this enterprise; the remaining 10 percent was invested in
nonautomotive loans. It is the conduct of Ford Motor Credit in providing
financing to Colonial which forms the basis of the complaint against the
financing subsidiary in this case. The particular issue before us on rehearing
is whether Ford Motor Credit is subject to the Automobile Dealers' Day in Court
Act, 15 U.S.C. @@ 1221-1225 (1976). The Act authorizes federal court actions by
automobile dealers for bad faith acts by automobile manufacturers. An
"automobile manufacturer" is defined to include "any person, partnership, or
corporation which acts for and is under the control of such manufacturer . . .
in connection with the distribution of . . . automotive vehicles." 15 U.S.C. @
1221(a). We must determine whether Ford Motor Credit comes within the scope of
this inclusive definition.

The trial court submitted the question of the Act's applicability to the jury
with an instruction which in effect made "control" depend on specific overt acts
in the actual transactions with Colonial. Colonial argues that a wholly owned
subsidiary which acts for a manufacturer in connection with distribution of
automobiles is subject to the Act as a matter of law and that the jury should
have been so instructed. We agree. n2 In light of the broad remedial purposes
of the Act, the element of "control" is conclusively established by a showing
that Ford Motor Credit was a wholly owned subsidiary of Ford Motor and that its
involvement with Colonial was exclusively for the purpose of facilitating the
distribution of automobiles manufactured by its parent. n3

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n2. The only question for the jury under the Act was whether Ford Motor
Credit conducted itself in good faith in its relationship with Colonial. While
the good faith issue was submitted to the jury in the trial below, it was
submitted by means of a special interrogatory which permitted the jury to reach
a conclusion based either on whether good faith actually existed or on whether
the Act applied at all. The interrogatory read:

State whether the defendant Ford Motor Credit Company failed to act in good
faith in its business relations with Colonial Ford, in violation of the Dealer
Day in Court Act.

Brief of Ford Motor Credit Co., at 3.

592 F.2d 1126; 1979 U.S. App. LEXIS 17125; 1979-1 Trade Cas. (CCH) P62,4

n3. A jury question may be presented if the requisite element of control is
alleged on a basis other than corporate parental ownership. For example, a bank
that is not a part of the manufacturer's corporate empire may be alleged to be
under the manufacturer's control for purposes of the Act. The question would be
one for the trier of fact. See, e. g., Volkswagen Interamericana, S.A. v.
Rohlsen, 360 F.2d 437, 441-42 (1st Cir.), Cert. denied, 385 U.S. 919, 87 S. Ct.
230, 17 L. Ed. 2d 143 (1966).

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The Act is designed to curtail the kinds of coercion and intimidation of
retail dealers by manufacturers made possible by the parties' relative economic
inequality. Woodard v. General Motors Corp., 298 F.2d 121, 127 (5th Cir.),
Cert. denied, 369 U.S. 887, 82 S. Ct. 1161, 8 L. Ed. 2d 288 (1962); DeCantis v.
Mid-Atlantic Toyota Distributors, Inc., 371 F. Supp. 1238, 1241 (E.D.Va.1974).
The most obvious point of leverage in the manufacturer-dealer relationship is
financing. When, as in this case, a manufacturer uses a wholly owned subsidiary
to facilitate that financing, it brings the subsidiary within the remedial
purposes of the Act whether or not it is shown that the manufacturer ordered the
specific conduct complained of. It would be unrealistic to suppose that a
wholly owned subsidiary working to facilitate the parent's distributive
activities would act other than to promote the desires of its parent. Thus the
Act's "control" requirement is satisfied by showing corporate ownership and
confluence of interest.

We find support for our position in York Chrysler-Plymouth, Inc. v. Chrysler
Credit Corp., 447 F.2d 786 (5th Cir. 1971). In that case, a Chrysler sales
subsidiary was held to be a manufacturer under the Act even though its only
activity was to distribute automobiles manufactured by its parent. This result
was reached despite the fact that each corporation was legally independent and
operated in its own sphere. Id. at 791. The court analyzed the issue as

The $ 107,000 judgment was entered against Chrysler Corporation and Chrysler
Motors Corporation. Chrysler Corporation manufactures the automobiles but sells
them only to Chrysler Motors Corporation, its wholly-owned sales subsidiary.
Chrysler Motors has sole responsibility for distribution and marketing of
Chrysler products, and it is this corporation alone which enters into franchise
contracts with automobile dealerships.

Clearly both Chrysler Corporation and Chrysler Motors are automobile
manufacturers as defined in the Act. Chrysler Motors is such because it is a
"corporation which acts for and is under the control of such manufacturer or
assembler (Chrysler Corporation) in connection with the distribution of said
automotive vehicles." 15 U.S.C. @ 1221(a). Either could be sued for failure "to
act in good faith in performing or complying with any of the terms or provisions
of the franchise." 15 U.S.C. @ 1222. n4

4. The court went on to suggest that a further requirement for suit was that
the defendant manufacturer have a contractual relationship or agreement with
the dealer. 447 F.2d at 791. In the instant case, it is unquestioned that Ford
Motor Credit had entered into a contractual relationship with Colonial.

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592 F.2d 1126; 1979 U.S. App. LEXIS 17125; 1979-1 Trade Cas. (CCH) P62,4

447 F.2d at 791. The Chrysler case did not employ a specific transactional
analysis of the Act's application. Instead, it focused on the general
functional relationship between the parent and the subsidiary. We take the same
approach here. We hold that the Act's provisions did apply to Ford Motor
Credit. We therefore order a new trial on the question of Ford Motor Credit's
liability to Colonial under the provisions of the Act.

In addition, we expressly reaffirm our earlier conclusion that the acceptance
of certain real estate installment payments by Ford Credit did not give rise to
a waiver of its claims. We conclude, however, that the injunction ordered to
remain in effect pending appeal which injunction we previously indicated should
be set aside should be preserved until, upon remand, the district court is able
to determine what remedial relief might be appropriate in light of today's
decision. Subject to the opinion of this court as modified on rehearing, the
fashioning of appropriate remedies is a matter that should be left to the court


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