Colonial Imports v. Volvo CV-98-342-B 01/09/01 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Colonial Imports Corporation d/b/a Volvo of Nashua
v. Civil No. 98-342-B Opinion NO. 01DNH008 Volvo Cars of North America, Inc.
MEMORANDUM AND ORDER
Colonial Imports Corporation, a retail automobile dealership
owned and operated by Wilfrid Piekarski, alleges that Volvo Cars
of North America, Inc., a distributor of automobiles, automobile
parts, and accessories, violated the New Hampshire Motor Vehicle
Franchise Act, N.H. Rev. Stat. Ann. § 357-C:1 et seq., by
instituting a flawed dealer incentive program and then
administering that program to the financial detriment of
Colonial. Colonial also asserts various other state law claims
for relief based on this same course of conduct. I have before
me Volvo’s motion for summary judgment, (Doc. N o . 3 9 ) . For the
reasons set forth below, I grant Volvo’s motion. I. BACKGROUND1
In 1986, Colonial entered into an agreement with Volvo to
sell and service its automobiles. The parties’ business
relationship initially appeared to be successful. Colonial was
consistently one of Volvo’s top dealers in New England in terms
of sales volume during the 1990's. This sales volume, combined
with Colonial’s high scores on customer satisfaction surveys,
enabled Colonial to receive $2,200,000 in cash incentive payments
under Volvo’s “Dealer of Excellence” program between 1992 and
1995.
A. The Partnering for Excellence Program
Volvo began to experience a downturn in its business during
the early 1990s. Competition increased during this period, sales
dropped from the record highs of the 1980's, and profits
declined. J.D. Power & Associates, a leading automobile industry
analyst, ranked Volvo in the bottom quartile of the industry for
customer satisfaction. Moreover, Volvo’s competitors began to
aggressively upgrade their facilities and dealership staff.
1 I describe the background facts in the light most favorable to Colonial, the nonmoving party. -2- In 1996, in response to this competitive environment, Volvo
encouraged its dealers to improve their facilities, hire new
employees and/or extensively retrain old employees through a
program known as “Partnering for Excellence” (“PFE”). The goal
of the PFE program was to improve Volvo’s J.D. Power customer
satisfaction ratings and, ultimately, its sales.
Volvo recognized that the improvements it wanted would place
a serious financial burden on its dealers. As an incentive to
encourage dealers to upgrade their facilities and staff, the PFE
program provided that a dealer could receive cash awards, in
addition to those available under the Dealer of Excellence
program, for every Volvo sold. In order to be eligible for PFE
awards a dealer had t o : (1) comply with certain facility and
personnel standards set by Volvo; and (2) maintain a customer
satisfaction index (“CSI”) rating of 83 in showroom satisfaction
and 70 in service satisfaction for each month during a six-month
period.2 There were two PFE periods: January 1st to June 30th
2 The CSI thresholds for the PFE program were at least as high as those for the Dealer of Excellence program. Dep. of Peter Butterfield, Ex. 1 to Aff. of W . Piekarski (hereinafter “Piekarski Aff.”), submitted with Pl.’s O b j . to Def.’s Mot. for Summ. J., (Doc. N o . 4 1 ) , at 124-25. Thus, if a dealer qualified for a PFE award, he most likely qualified for a Dealer of
-3- and July 1st to December 31st.
1. CSI Ratings
Under both the PFE program and the Dealer of Excellence
program, CSI ratings for showroom and service satisfaction were
determined by customers’ responses to surveys conducted by a
private contractor, Audits & Surveys Worldwide. Audits & Surveys
surveyed all Volvo customers who recently had purchased or leased
a new Volvo or who recently had had their Volvo serviced by a
Volvo dealer. PFE Section II §§ 3.1, 3.5, 4.1, 4.5.3 The
survey’s initial questions were “screening questions” intended to
establish that the proper person was being interviewed. PFE
Section II §§ 3.5, 4.5. Customers were then asked thirteen
showroom-related questions or fifteen service-related questions
about their experience with their Volvo dealer.4 PFE Section II
Excellence payment as well. 3 “PFE Section II” refers to “Section II - The Volvo Excellence Program Rules and Regulations” of the Partnering for Excellence documents submitted as Tab 8 in the Appendix (hereinafter “Def.’s App.”) to Volvo’s motion for summary judgment, (Doc. N o . 3 9 ) . 4 Customers also were asked a number of supplemental questions that served “as a diagnostic tool to provide a better understanding of customer expectations.” PFE Section II §§ 3.7, 4.7. Answers to these supplemental questions did not count
-4- §§ 3.6, 4.6. Customers were instructed to select from a range of
acceptable responses such as excellent, very good, good, fair, or
poor. PFE Section II §§ 3.6-.8, 4.6-.8.
A customer’s answer for each survey question was assigned a
numerical rating on a scale of zero to eight. PFE Section II §§
3.8, 4.8. For example, an answer of “excellent” rated an 8 while
an answer of “very good” rated a 4 , a “good” rated a 2 , a “fair”
rated a 1 , and a “poor” rated a 0 . Id. The numerical ratings
for the answers provided by all of the dealer’s customers were
then added together to determine its overall score. Id. Next,
the total number of answers given by all of the dealer’s
customers for each question was determined and multiplied by
eight, the highest score possible for an individual question, to
identify the dealer’s maximum achievable score for that question.
Id. For example, if fifty-four answers were received to a
particular question, fifty-four was multiplied by eight to
determine that the maximum possible score that a dealer could
receive on that question was 432. PFE Section II §3.8 (chart).
The maximum achievable scores for each question were then added
towards the dealer’s CSI rating. Id. -5- together to determine the maximum overall achievable score. PFE
Section II §3.8. Finally, the dealer’s overall score was divided
by the maximum overall achievable score to obtain its showroom or
service CSI rating. Id.
To determine the value of a dealer’s PFE award, showroom and
service CSI ratings were each converted into a dollar value
according to a sliding scale.5 PFE Section II § 5.4. The two
dollar values were then added together and multiplied by the
number of eligible cars sold.6 Id. The higher the scores, the
higher the dealer’s PFE award; a dealer could receive up to
$1,500 for each eligible new car sold. Id.
2. The PFE Program’s Impact on Dealers
Volvo’s decision to tie CSI scores directly to cash
incentives proved to be controversial, in large part because CSI
ratings were based on the results of subjective surveys. As
dealers became dependent on Dealer of Excellence and PFE
5 For example, the threshold service CSI rating of 70 has a dollar value of $100 while a perfect 100 rating has a dollar value of $750. PFE Section II § 5.4. 6 Volvo set forth a number of rules to determine whether a a car sale is eligible to be included in this multiplier. See PFE Section II §§ 5.1-.3.
-6- payments, the temptation to manipulate survey results increased.
Volvo became aware, as early as 1993, that some dealers were
coaching, even bribing, customers to ensure favorable survey
responses to Dealer of Excellence surveys. See Mem. from Franson
to Dealer Principals of 07/02/1993, Ex. 10 to Piekarski Aff.
Other dealers falsified customer information to ensure that
disgruntled customers would never be surveyed. While Volvo
informed its dealers that such practices were impermissible, it
did little else to remedy the problem.
Volvo did not require its dealers to participate in the PFE
program. Nevertheless, the prospect of receiving PFE payments in
addition to Dealer of Excellence payments was too enticing for
dealers to pass up. Participating dealers obtained a significant
competitive advantage: they could simultaneously upgrade their
facilities and staff while charging lower prices in anticipation
of PFE award money.
3. Colonial Enters the PFE Program
Colonial entered the PFE program in January 1996, and agreed
to comply with the rules for the program established by Volvo.
Dep. of Wilfrid Piekarski (hereinafter “Piekarski Dep.”), Def.’s
App. Tab 2 , at 94-96. Colonial decided to use its anticipated
-7- PFE awards to help finance the relocation of its Volvo franchise
to a new location on the Daniel Webster Highway in Nashua, New
Hampshire (the “New Facility”). Piekarski, in his own name,
signed a purchase and sale agreement for the New Facility on
April 2 8 , 1996, at a cost of $2,600,000. The closing was set for
June 2 8 , 1996, and Piekarski put down a $25,000 non-refundable
deposit. Colonial planned to spend an additional $400,000 to
renovate the New Facility.
Colonial also operated a Toyota dealership at a different
site in Nashua. At the same time that it was negotiating to
purchase the New Facility, Colonial made a commitment to Toyota
that it would convert its existing Volvo site into a Toyota truck
dealership.
B. Colonial’s CSI Ratings Fall Below PFE Minimums
Prior to either of these negotiations, Colonial began to
consider a significant personnel decision. Piekarski had become
increasingly disenchanted with the performance of his general
manager and son-in-law, Richard Lovering. During Lovering’s
December 1995 performance review, Piekarski informed him of the
possibility that he might be replaced as general manager.
Piekarski ultimately placed Lovering on a leave of absence in
-8- March 1996. Lovering resigned shortly thereafter.
Lovering subsequently purchased a dealership in Concord, New
Hampshire, that carried both Isuzu and Volvo vehicles. He began
operations in Concord in May 1996 and proceeded to hire six
experienced Colonial employees, including his father and brother.
Piekarski Dep. at 167-72.
On June 2 8 , 1996, the Purchase and Sale Agreement for the
New Facility expired and Piekarski forfeited his deposit.7 Two
days later, the first period for the 1996 Dealer of Excellence
and PFE programs ended. Colonial received approximately $189,000
in payments under these programs for this period. Def.’s Stmt.
of Undisputed Material Facts (hereinafter “Def.’s Stmt.”),
submitted with Def.’s Mot. for Summ. J., (Doc. N o . 3 9 ) , ¶ 4 5 ;
Pl.’s O b j . to Def.’s Stmt., (Doc. N o . 4 3 ) , ¶ 4 5 .
7 Volvo asserts that Piekarski decided not to purchase the New Facility and knowingly forfeited the $25,000 deposit. Colonial contends that Piekarski’s relationship with the seller was such that he did not ask for a formal extension but checked periodically on the availability of the property after June 2 8 , 1996. Piekarski Dep. at 106, 291-92. In essence, Piekarski suggests that he had an informal understanding with the seller that effectively gave him a right of first refusal or an ongoing option to purchase the New Facility. See id. Colonial further asserts that its decision not to purchase the New Facility was the result of Volvo’s “bad faith conduct” towards Colonial.
-9- The departure of Lovering, and the other key employees who
went to work for him, caused Colonial’s CSI ratings to drop
during the second half of 1996. Showroom satisfaction dropped to
the upper 70's, below the threshold score of 8 3 , beginning in
July. Letter from W . Piekarski to Butterfield of 01/21/1997
(hereinafter the “Appeal Letter”), Ex. 19 to Piekarski Aff.
Service satisfaction dipped to 69.6 for the month of September,
just below the threshold of 7 0 . Id. Volvo sales representatives
warned Colonial in the summer of 1996 that it was in danger of
not receiving any PFE payments because of the drop in its CSI
ratings. Piekarski Dep. at 291. Circumstances did not improve
during the remainder of the year. Thus, Colonial did not qualify
for any PFE money during the second half of 1996.
C. Colonial’s Appeal
The PFE program provided for appeals by dealers who
“require[d] a variance on a rule or contest[ed] a judgment or
violations.” PFE Section II § 1.7. The PFE manual states that
before preparing an appeal, a dealer should ask the following
four questions:
(1) “Does the issue being raised have a material effect on the results of the [PFE] award?”
-10- (2) “Does the issue pertain to the rules of the program? (If the issue concerns the design or methodology of [the PFE program], it is not suitable for appeal.)” (3) “Have the rules been applied unfairly? (If rules of the program have been administered fairly, the issue is not suitable for appeal.)” (4) “Has a situation occurred which places the [dealer] in an unfair disadvantage? (i.e. natural disasters.)”
Id. Volvo’s Retail Audit Appeal Committee (the “Appeal
Committee”), comprised of Volvo representatives and dealers,
considered dealer appeals and then forwarded its decision, along
with an explanation, to the dealer. PFE Section II §§ 1.7, 7.1.
The PFE manual states that “[i]n all appeals and other matters
relating to the interpretation and application of any rule or
aspect of the [PFE] Program, the decision of Volvo shall be
final.” PFE Section II § 1.7.
Colonial requested an exception to the minimum CSI standards
because it felt that the departure of Lovering, and the key
employees who subsequently went to work for him, put Colonial at
an unfair disadvantage. See Appeal Letter. The Appeal Committee
considered Colonial’s appeal and ultimately denied i t , without
explanation, by letter dated April 1 6 , 1997.8
8 Volvo asserts that the Appeal Committee denied Colonial’s appeal “after concluding that retailers are responsible for management during personnel changes.” Aff. of Peter Butterfield
-11- Two months before the Appeal Committee rejected the appeal,
Colonial formally requested that Toyota approve the proposed
relocation of its Toyota truck franchise to the current Volvo
site. In its letter to Toyota, Colonial stated that it intended
to either sell or terminate the Volvo franchise by April 17th.
Letter from W . Piekarski to Norton of 02/11/1997, Def.’s App. Tab
13. In the interim, Colonial was in somewhat of a bind. It had
promised Toyota that it would use its existing Volvo site
exclusively for Toyota trucks but, since Piekarski had not
purchased the New Facility, it had no other location for the
Volvo dealership.
Colonial initially attempted to balance the competing needs
of both dealerships by combining them at its current site. It
soon began, however, to refuse some shipments of Volvo inventory
it had previously ordered. After Volvo denied Colonial’s appeal,
Colonial decided to stop accepting all shipments of new Volvos,
but offered to continue servicing existing customers. Piekarski
Dep. at 265.
(“Butterfield Aff.”), submitted with Def.’s Mot. for Summ. J., (Doc. N o . 3 9 ) , ¶ 1 2 .
-12- On March 6, 1997, Colonial told Volvo that it had Colonial’s
consent to “discuss and present to us potential buyers” for their
Volvo dealership. Letter from W . Piekarski to Hauge of
03/06/1997, Def.’s App. Tab 1 4 . Colonial explained, however,
that “[n]ew facilities will be required as we intend to operate
our Toyota Truck Center in the present Volvo facility.” Id. On
April 4 , Toyota approved the relocation of the franchise to the
Volvo site on the condition that the Volvo franchise would be
moved to a different location.
On April 1 8 , 1997, two days after Volvo denied Colonial’s
appeal, it informed Colonial that it was in default under the
Sales Agreement for refusing delivery of its allocation of new
Volvos. Letter from Butterfield to W . Piekarski of 04/18/1997,
Def.’s App. Tab 1 6 . Volvo requested that Colonial cure these
defaults by June 26th, but Colonial did nothing. By letter dated
June 3 0 , 1997, Volvo notified Colonial that it was terminating
the Sales Agreement, effective October 3 , 1997. Letter from
Butterfield to W . Piekarski of 06/30/1997, Def.’s App. Tab 1 7 .
D. The Grace Period
On June 5 , 1997, Volvo notified all dealers that it was
modifying the PFE program to include a “grace period.” Under
-13- this modification, dealers with a proven track record in
satisfying customers would receive PFE payments even if their
scores fell below the threshold for one period. On June 2 6 ,
1997, Volvo sent Colonial a check in the amount of $142,100.
Letter from Hauge to W . Piekarski of 06/26/1997, Ex. 22 to
Piekarski Aff. Volvo’s letter to Colonial described the enclosed
check as payment in satisfaction of Colonial’s second-half 1996
PFE awards, in accordance with the newly instituted grace period.
Id.
Prior to the scheduled termination date of the Sales
Agreement, Colonial transferred whatever interest it had in the
Volvo franchise to M r . Piekarski’s daughter, Linda Lovering.
Volvo ultimately approved Mrs. Lovering, the wife of Colonial’s
former general manager, as the new dealer. She began operating
from the New Facility in March, 1998.
II. STANDARD OF REVIEW
Summary judgment is appropriate if the record, viewed in the
light most favorable to the non-moving party, shows that no
genuine issues of material fact exist and that the moving party
-14- is entitled to judgment as a matter of law. See Fed. R. Civ. P.
56(c); Ayala-Gerena v . Bristol Myers-Squibb Co., 95 F.3d 8 6 , 94-
95 (1st Cir. 1996). A material fact is one “that might affect
the outcome of the suit under the governing law.” Anderson v .
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine factual
issue exists if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Id.
The party moving for summary judgment “bears the initial
responsibility of informing the district court of the basis for
its motion, and identifying those portions of [the record] . . .
which it believes demonstrate the absence of a genuine issue of
material fact.” Celotex Corp. v . Catrett, 477 U.S. 317, 323
(1986). Once the moving party has properly supported its motion,
the burden shifts to the nonmoving party to “produce evidence on
which a reasonable finder of fact, under the appropriate proof
burden, could base a verdict for i t ; if that party cannot produce
such evidence, the motion must be granted.” Ayala-Gerena, 95
F.3d at 94 (citing Celotex, 477 U.S. at 323; Anderson, 477 U.S.
at 2 4 9 ) . I apply this standard in ruling on Volvo’s motion for
summary judgment.
-15- III. DISCUSSION
Colonial asserts claims for (1) violation of the Motor
Vehicle Franchise Act, N.H. Rev. Stat. Ann. 357-C:1 et seq.; (2)
breach of the covenant of good faith and fair dealing implied by
law in the Sales Agreement between Volvo and Colonial; (3)
violation of the New Hampshire Consumer Protection Act, N.H. Rev.
Stat. Ann. 358-A:1 et seq.; (4) tortious interference with
prospective business relations; (5) negligent misrepresentation;
and (6) intentional misrepresentation. I examine Volvo’s
challenges to these claims in the sections that follow.
A. The Motor Vehicle Franchise Act
New Hampshire’s Motor Vehicle Franchise Act provides that it
is unlawful for any
manufacturer, factory branch, factory representative, distributor, distributor branch, distributor representative, or motor vehicle dealer to engage in any action which is arbitrary, in bad faith, or unconscionable and which causes damage to any such parties or to the public.
N.H. Rev. Stat. Ann. § 357-C:3, I (2000). An action is arbitrary
under the Act if it is “selected at random and without reason.”
Schott Motorcycle Supply, Inc. v . Am. Honda Motor Co., 976 F.2d
5 8 , 63 (1st Cir. 1992) (construing Maine’s Motor Vehicle
-16- Franchise Act) (internal citations and quotations omitted); see
also Appeal of Bd. of Trustees of Univ. Sys. of N.H. for Keene
State College, 129 N.H. 632, 636 (1987) (“[t]he common meaning of
arbitrary is a decision based on random or convenient selection
or choice rather than on reason”) (internal citations and
quotations omitted).
Colonial argues that Volvo violated the Motor Vehicle
Franchise Act by arbitrarily: (1) using subjective surveys to
determine a dealer’s eligibility for PFE awards; (2) hiring an
unqualified contractor to conduct the surveys; and (3) un-
reasonably denying Colonial’s appeal.9
1. The CSI Scores
I reject Colonial’s claim that Volvo arbitrarily used
subjective and manipulable customer satisfaction surveys to
determine a dealer’s eligibility for PFE awards. Many automobile
manufacturers and distributors use surveys to measure customer
9 Colonial has failed to produce any evidence to support its contentions that Volvo’s actions were “unconscionable” or that it acted in “bad faith.” Nor does it contend that Volvo terminated it without “good cause” in violation of N.H. Rev. Stat. Ann. § 357-C:3, III ( c ) . See Transcript (hereinafter “Tr.”) of Oral Argument on 11/16/2000 (Doc. N o . 4 9 ) , 57-58.
-17- satisfaction. See Ford Motor C o . v . West Seneca Ford, Inc., N o .
91-CV-0784E(F), 1996 WL 685723, at *5 (W.D.N.Y. Jan. 3 0 , 1997);
In r e : Van Ness Auto Plaza, Inc., 120 B.R. 545, 550 (Bankr. N.D.
Cal. 1990). Customer satisfaction is ultimately a subjective
opinion, not an objective fact, because only the customer knows
whether she truly feels satisfied. See generally Susan J.
Becker, Public Opinion Polls and Surveys as Evidence: Suggestions
for Resolving Confusing and Conflicting Standards Governing
Weight and Admissibility, 70 O r . L. Rev. 463, 516-17 (1991).
This subjectivity does not, however, lead inevitably to the
conclusion that the use of customer satisfaction surveys is
arbitrary. Cf. West Seneca Ford, Inc., 1996 WL 685723, at *5
(stating that distributor was justified in terminating dealer who
failed to “achieve a sufficient level of customer satisfaction
and service”); In r e : Van Ness Auto Plaza, Inc., 120 B.R. at 550
(stating that “it is not beyond the realm of reasonable
decisions” for a manufacturer to refuse to accept a dealer with
below average C S I ) . Given the inherently subjective nature of
customer satisfaction and its importance to any commercial
endeavor, it was not unreasonable for Volvo to base dealer
incentives on the results of surveys that attempted to measure
-18- customer satisfaction.
I am also unpersuaded by Colonial’s claim that Volvo’s use
of CSI scores was arbitrary because other dealers manipulated
their customers’ responses to the surveys or acted in cahoots
with Volvo to do s o . See Pl.’s Stmt. of Disputed Material Facts,
(Doc. N o . 4 2 ) , ¶¶ 21-31. Colonial has failed to identify any
evidence to support its assertion that the manipulation of CSI
data by other dealers led to its own failure to achieve the
requisite CSI ratings for the second half of 1996.10 Thus, even
if such manipulation occurred, Colonial cannot prove that it
produced the injury on which it bases its claim.
2. Selection of an Unqualified Survey Firm
Colonial has also produced insufficient evidence to support
its contention that the PFE program was flawed because Volvo
10 At oral argument, I suggested that perhaps Volvo set the CSI thresholds for the PFE program at an unreasonably high level because of the manipulation of customers’ survey responses by other dealers. See Tr. at 26-27. Colonial, however, cannot point to any evidence that reasonably supports that inference. See Tr. at 73-74. I also note that while CSI thresholds for the Dealer of Excellence program changed over time, the record suggests that CSI thresholds for the PFE program remained constant from January 1996, when Colonial entered the program, through at least the end of 1996. See PFE Rules, Section I , Def.’s App. Tab 8 , at 1298 (stating that award entry level will be kept constant).
-19- hired an unqualified survey firm to conduct the surveys. While
Volvo’s survey firm had little or no experience with the
automobile industry, it had a long history of measuring and
supplying customer satisfaction data to clients in other
industries. See Report of Fred Winkel, Senior V.P. of Audits &
Surveys, Ex. 6 to Piekarski Aff., ¶¶ 3-5. I cannot accept
Colonial’s contention that Volvo acted arbitrarily merely because
it selected a contractor that had not previously worked in the
automobile industry.
3. The Appeal
Colonial also argues that Volvo acted arbitrarily by denying
Colonial’s appeal.11 To support this claim, it points to Section
1.7 of the PFE rules, which states that a dealer should ask the
following question before preparing an appeal: “[h]as a situation
occurred which places the [dealer] in an unfair disadvantage?
(i.e. natural disasters).” PFE Section II § 1.7. It then argues
that Volvo should have granted its appeal because the departure
11 That decision was final according to the PFE rules: “[i]n all appeals and other matters relating to the interpre- tation and application of any rule or aspect of the [PFE] Program, the decision of Volvo shall be final.” PFE Section II § 1.7.
-20- of Lovering and other key employees put Colonial at an unfair
disadvantage.
Colonial’s argument fails for two reasons. First, it
depends upon the flawed premise that Section 1.7 obligates Volvo
to grant an appeal whenever a dealer is unable to earn a PFE
award because it has been placed at an “unfair disadvantage.”
Notwithstanding Colonial’s contrary assertions, this section of
the PFE rules merely lists a series of questions that a dealer
must ask itself before preparing an appeal. It does not restrict
Volvo’s discretion to deny unjustified appeals. Second, even if
Colonial had a contractual right to receive PFE payments for the
period in question if it could demonstrate that it had been
placed at an “unfair disadvantage,” it is not entitled to relief
because the circumstances it cites to support its appeal do not
qualify as an “unfair disadvantage.” In an effort to explain
what it meant by “unfair disadvantage,” Volvo gave as an example
“natural disasters.” Colonial, in contrast, cited only the loss
of several key employees to a competitor as the basis for its
appeal. This is hardly the kind of serious unforeseeable
difficulty that is akin to a natural disaster. Accordingly,
Volvo did not act arbitrarily in denying Colonial’s appeal.
-21- 4. Conclusion
Construing the evidence in the light most favorable to
Colonial, I conclude that no reasonable person could find that
Volvo violated the Motor Vehicle Franchise Act. Accordingly, I
grant Volvo’s motion for summary judgment with respect to Count
II of Colonial’s complaint.
B. Good Faith and Fair Dealing
Colonial argues that the same conduct discussed above also
violated the implied covenant of good faith and fair dealing
inherent in the Sales Agreement between Colonial and Volvo.12 I
analyze this claim using New Hampshire law.13
12 Colonial also alleges that Volvo violated its obligation under the Preamble of the Sales Agreement to “deal fairly” with Colonial and to conduct its business “ethically and equitably”. See Sales Agreement, Def.’s App. Tab 6, Preamble. I construe the terms of the Preamble as simply an explicit statement of the covenant of good faith and fair dealing implied by law. 13 The Sales Agreement provides that it is to be interpreted in accordance with New Jersey law. My research, however, reveals no material conflict between the law of New Jersey or New Hampshire with regard to the implied covenant of good faith and fair dealing. Compare Sons of Thunder, Inc. v . Borden, Inc., 690 A.2d 575, 587 (N.J. 1997) with Centronics Corp. v . Genicom Corp., 132 N.H. 133, 143 (1989). Accordingly, I need not reach the issue of whether the Sales Agreement’s choice-of-law provision governs Colonial’s good faith and fair dealing claim. See Fratus v . Republic Western Insur. Co., 147 F.3d 2 5 , 28 (1st Cir. 1998); Fashion House, Inc. v . Kmart Corp.,
-22- In Centronics v . Genicom Corp., the New Hampshire Supreme
Court held:
[U]nder an agreement that appears by word or silence to invest one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement’s value, the parties’ intent to be bound by an enforceable contract raises an implied obligation of good faith to observe reasonable limits in exercising that discretion, consistent with the parties’ purpose or purposes in contracting.
132 N.H. at 143 (emphasis added).
I assume, for purposes of analysis, both that the rules of
the PFE gave Volvo discretion sufficient to deprive Colonial of a
substantial portion of the contract's value and that the Sales
Agreement, and by extension, the PFE, created a legally
enforceable contract. See id. at 144. Therefore, in determining
whether Volvo violated an implied covenant of good faith and fair
dealing, I need only consider whether Volvo's actions “exceeded
the limits of reasonableness.” Id. at 144. The answer to this
question, according to the New Hampshire Supreme Court,
depends on identifying the common purpose or purposes of the contract, against which the reasonableness of the complaining party’s expectations may be measured, and in furtherance of which community standards of honesty, decency and reasonableness can be applied.
892 F.2d 1076, 1092 (1st Cir. 1989). -23- Id. at 144.
Since I have previously concluded that Volvo did not act
arbitrarily or in bad faith in implementing the PFE program and
applying it to Colonial, I have little difficulty in determining
that Volvo’s actions in adopting and administering the PFE
program were a reasonable attempt to measure and improve customer
satisfaction that fell well within the bounds of community
standards of honesty, decency, and reasonableness. See
Centronics, 132 N.H. at 144. Therefore, I reject Colonial’s
claim that Volvo breached its duty of good faith and fair
dealing.
C. The Consumer Protection Act
In Count III of its complaint, Colonial alleges that Volvo’s
conduct violated the New Hampshire Consumer Protection Act, N.H.
Rev. Stat. Ann. § 358-A:1 et seq. Volvo argues that this claim
is barred by § 358-A:3, I , which exempts from the scope of the
Consumer Protection Act all “[t]rade or commerce otherwise
permitted under laws as administered by any regulatory board or
officer acting under [the] statutory authority of [New Hampshire]
or of the United States.” N.H. Rev. Stat. Ann. § 358-A:3, I
(2000).
-24- Relying on Gilmore v . Bradgate Assocs., Inc., 135 N.H. 234,
238-40 (1992), I previously have held that § 358-A:3, I does not
preclude an automobile dealer from bringing a Consumer Protection
Act claim against an automobile distributor or manufacturer. See
Ford Motor C o . v . Meredith Motor Co., Inc., 2000 DNH 187, 23-28
(D.N.H. Aug. 2 4 , 2000); see also Nault’s Auto. Sales, Inc. v .
American Honda Motor Co., Inc., 148 F.R.D. 2 5 , 47-48 (D.N.H.
1993). Given the New Hampshire Supreme Court’s recent decision
overruling Gilmore, see Averill v . Cox, 761 A.2d 1083 (N.H.
2000), I now reassess this conclusion.
In Averill, the New Hampshire Supreme Court reaffirmed its
previous holding that the practice of law falls within the scope
of the exemption provided by § 358-A:3, I . 761 A.2d at 1087
(reaffirming Rousseau v . Eshleman, 128 N.H. 564, 567 (1986)). In
reaching its holding, the Court: (1) expressly overruled its
holding in Gilmore that had limited the reach of § 358-A:3, I to
actions that are expressly permitted by a regulatory board or
officer; and (2) outlined a new, broader interpretation of § 358-
A:3, I . See id. at 1087-89.
According to Averill, in order for specific trade or
commerce to be exempt under § 358-A:3, I , it must b e : (1)
-25- subject to regulation that is “comprehensive . . . [involving]
more than ‘mere licensing requirements, approval of plans or
declarations, limited trade provisions, and consumer protection
prohibitions,’” Averill, 761 A.2d at 1088 (quoting Gilmore, 135
N.H. at 241-42 (Horton, J., concurring)); and (2) “governed by a
statutorily authorized regulatory regime that protects consumers
from the same deception, fraud, and unfair trade practices as
intended by” the Consumer Protection Act. Id. The remedies
“available to aggrieved consumers under qualifying regulatory
schemes” need not be identical to those provided by the Consumer
Protection Act. Id. at 1089. “Rather, it is sufficient that the
regulatory scheme protects consumers from fraud and deception in
the marketplace ‘in a manner calculated to avoid the same ills’”
as the Consumer Protection Act. Id. at 1089 (quoting Gilmore,
135 N.H. at 241-42 (Horton, J., concurring)).
The commercial relationship of motor vehicle dealers to
distributors, or manufacturers, clearly fits under the first
prong of the Averill test. The Motor Vehicle Franchise Act
governs all written or oral agreements between motor vehicle
distributors, or manufacturers, and dealers. N.H. Rev. Stat.
-26- Ann. § 357-C:6 (2000). It prohibits a broad array of conduct,
and goes well beyond mere licensing requirements. See, e.g.,
N.H. Rev. Stat. Ann. §§ 357-C:3 (prohibited conduct), 358-C:4
(delivery and preparation obligations), 357-C:5 (warranty
obligations), 357-C:9 (limitations on establishing or relocating
dealerships); see also N.H. Rev. Stat. Ann. § 357-C:12 (creating
New Hampshire Motor Vehicle Industry Board to enforce the statute
and to adopt rules as necessary).
As for the second prong of Averill, I note that the Motor
Vehicle Franchise Act prevents manufacturers or dealers from
engaging in “any action which is arbitrary, in bad faith, or
unconscionable and which causes damage to [automobile dealers or
manufacturers] or to the public.” N.H. Rev. Stat. Ann. § 357-
C:3. This prohibition encompasses the same “unfair or deceptive
act[s] or practice[s]” prohibited by the Consumer Protection Act.
See N.H. Rev. Stat. Ann. § 358-A:2.
Accordingly, I conclude that the commercial relationship of
motor vehicle dealers to distributors, or manufacturers, falls
within the exemption to the Consumer Protection Act provided by §
358-A:3, I . Colonial’s Consumer Protection Act claim is
-27- therefore barred; and I grant Volvo’s motion for summary judgment
with regard to Count III.
D. Tortious Interference
In Count IV of its complaint, Colonial alleges that Volvo’s
withholding of PFE payments damaged Colonial’s relationship with
present and potential customers. I assume for purposes of
analysis that this allegation could potentially give rise to a
claim of tortious interference with prospective business
relations, but cf. Lawton v . Great Southwest Fire Ins. Co., 118
N.H. 607, 613 (1978) (“a breach of contract standing alone does
not give rise to a tort action”).
Colonial nevertheless cannot prevail on its tortious
interference claim because, as discussed above with regard to
Colonial’s other claims, no reasonable person could conclude that
Volvo acted “wrongfully” in refusing to pay Colonial any PFE
awards, either initially or on appeal. See Montrone v . Maxfield,
122 N.H. 7 2 4 , 726 (1982) (to prevail on a tortious interference
claim, plaintiff must show that defendant “wrongfully”
interfered). Accordingly, I grant Volvo’s motion for summary
judgment with respect to Count IV of Colonial’s complaint.
-28- E. Misrepresentation
Lastly, Colonial alleges that Volvo negligently and/or
intentionally misrepresented its intent to honor its contractual
obligations toward Colonial under the PFE program.
Under New Hampshire law, a contractual promise can give rise
to a claim of misrepresentation only in those extremely rare
circumstances where: (1) the promisor breached the contract; and
(2) the promisee can show that the promisor had no intent, or no
ability, to fulfill the contract at the time that the promisor
entered into the contract. See Hydraform Prods. Corp. v .
American Steel & Aluminum Corp., 127 N.H. 187, 200 (1985); Malone
v . Cemetary Street Dev., Inc., Civ. N o . 94-339-B, 1995 WL 85288,
at *2 (D.N.H. Feb. 1 7 , 1995); see also Thompson v . H.W.G. Group,
Inc., 139 N.H. 698, 701 (1995). As I have concluded that Volvo
did not breach the contract at issue here, I must also conclude
that Colonial fails to state a claim for either negligent or
intentional misrepresentation. Accordingly, I grant Volvo’s
motion for summary judgment as to Counts V and VI of the
complaint.
-29- IV. CONCLUSION
When the evidentiary record is taken in the light most
favorable to Colonial it cannot support the claims asserted in
Colonial’s complaint. Therefore, I grant Volvo’s motion for
summary judgment, (Doc. N o . 3 9 ) , and direct the clerk to enter
judgment accordingly.
SO ORDERED.
Paul Barbadoro Chief Judge
January 9, 2001
cc: Richard B . McNamara, Esq. Irvin D. Gordon, Esq. James C . McGrath, Esq.
-30-