§ 5 — Franchise agreement; renewal; termination; notice; good cause; hearing; burden of proof

Massachusetts § 5

• Jurisdiction: Massachusetts
• Part I: ADMINISTRATION OF THE GOVERNMENT
• Title XV: REGULATION OF TRADE
• Ch. 93B: REGULATION OF BUSINESS PRACTICES BETWEEN MOTOR VEHICLE MANUFACTURERS, DISTRIBUTORS AND DEALERS

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Section 5. (a) It shall be a violation of subsection (a) of section 3 for a manufacturer, distributor or franchisor representative without good cause, in bad faith or in an arbitrary or unconscionable manner: (1) to terminate the franchise agreement of a motor vehicle dealer; (2) to fail or refuse to extend or renew the franchise agreement of a motor vehicle dealer upon its expiration; (3) to offer a renewal, replacement or succeeding franchise agreement containing terms and conditions the effect of which is to substantially change the sales and service obligations, capital requirements or facilities requirements of a motor vehicle dealer; or (4) to amend, add or delete any other material term or condition set forth in a motor vehicle dealer's franchise agreement.(b) A manufacturer, distributor or franchisor representative shall send notice to a motor vehicle dealer in writing of the termination of the franchise agreement of the dealer at least 60 days before the effective date thereof, stating the specific grounds for such termination; and a manufacturer, distributor or franchisor representative shall send notice to a motor vehicle dealer in writing at least 60 days before the contractual term of its franchise agreement expires when the same will not be renewed stating the specific grounds for the nonrenewal, or when the same will be renewed but with changes, amendments, additions or deletions of the type described in subsection (a).(c) If the basis for the termination of or refusal to renew the franchise agreement of a motor vehicle dealer is due to a failure to comply with the manufacturer's or distributor's reasonable sales performance criteria, the manufacturer, distributor or franchisor representative shall, at least 180 days before sending any notice of termination or nonrenewal described in subsection (b) inform said motor vehicle dealer in writing of the sales performance deficiency and shall include a specific statement as to what the dealer must achieve in terms of sales performance in order to cure the deficiency. The writing shall explicitly state that a notice of termination or nonrenewal shall follow should the sales performance deficiency not be cured within the 180 day cure period. If the basis for the termination of or refusal to renew the franchise agreement of a powersport vehicle dealer is due to a failure to comply with the manufacturer's or distributor's reasonable sales performance criteria, the manufacturer, distributor or franchisor representative shall, at least 135 days prior to sending any notice of termination or nonrenewal described in subsection (b), inform the powersport vehicle dealer in writing of the sales performance deficiency and shall include a specific statement as to what the dealer must achieve in terms of performance in order to cure the deficiency. The writing shall explicitly state that a notice of termination or nonrenewal shall follow should the sales performance deficiency not be cured within the 135 day cure period.(d) Notwithstanding subsection (b), only 15 days notice before an effective termination date shall be required if:(1) a motor vehicle dealer's facilities have been abandoned or closed for more than 7 consecutive business days;(2) a motor vehicle dealer or any dealer principal named in the franchise agreement has pleaded no contest, pleaded guilty to or has been convicted of a felony, whether or not related to the motor vehicle dealer's operation of its dealership;(3) a motor vehicle dealer becomes insolvent, or any petition is filed by or against a motor vehicle dealer under any bankruptcy or receivership law; or(4) any license that a motor vehicle dealer is required to have to operate its dealership is revoked, suspended or not renewed.(e) In no event shall any franchise agreement expire, without the written consent of the motor vehicle dealer involved, before the expiration of the applicable notice period set forth in subsection (b) or (d), as applicable.(f) Within the applicable notice period set forth in subsections (b) or (d), either the motor vehicle dealer or the manufacturer or distributor may file a complaint in the superior court, or if applicable in the federal district court for the district of Massachusetts, to enforce or enjoin a termination, nonrenewal or renewal upon changes, amendments, additions or deletions of the type described in subsection (a); but nothing contained in this subsection shall relieve a party from the requirements of subsection (b) of section 15. Unless otherwise agreed to in writing by the parties, trial shall be held within 120 days of the expiration of the applicable notice period but not sooner than 90 days after the expiration of the applicable notice period, notwithstanding any standing orders, presumptive time standards, or administrative directives issued or established by the superior court or the federal district court providing for either an earlier or later time for trial. Failure of either party to file a complaint within the time period set forth in subsections (b) and (d) shall bar the filing of a complaint on such grounds at any time in the future. If no protest is filed by any party having received proper notice, or if no injunction is issued during protest litigation, or if the injunction is vacated or dissolved, the termination, nonrenewal or modification may proceed.(g) The court shall have authority, applying customary standards governing the issuance of injunctive relief in accordance with Massachusetts or Federal Rules of Civil Procedure, as applicable, to enjoin the effective date of the termination or nonrenewal or to enjoin the implementation of a renewal franchise agreement, pending a determination by the trial court of the issues raised by a complaint filed pursuant to subsection (f). Pending a decision by the court on any motion for an injunction, the manufacturer or distributor and motor vehicle dealer shall in good faith perform all obligations incumbent upon them under the franchise agreement and applicable law.(h) For purposes of this section, good cause may be found if the motor vehicle dealer failed to comply with or observe a provision of the franchise agreement that is material to the franchise relationship, including without limitation, reasonable sales and service performance criteria and capital, personnel, and facility requirements, which were communicated in writing to the motor vehicle dealer within a reasonable period before the effective date of the termination or nonrenewal, such that a reasonable opportunity to cure was afforded.(i) For purposes of this section, the following conditions shall not constitute good cause:(1) the motor vehicle dealer's refusal to purchase or accept delivery of any parts, accessories or any other goods, products or services provided or supplied by the manufacturer or distributor which were not ordered or requested;(2) a manufacturer or distributor requiring, as a term or condition to entering into a renewal franchise agreement, that a motor vehicle dealer or dealer principal relinquish or diminish the extent of any right that exists under an expiring franchise agreement to dual; but if the expiring franchise agreement states that the motor vehicle dealer or dealer principal may not dual, the manufacturer or distributor may require the continuation of the provision as a condition to entering into a renewal franchise agreement.(j) In determining whether good cause has been established for terminating, refusing to extend or renew or changing or modifying the obligations of the motor vehicle dealer as a condition to offering a renewal, replacement or succeeding franchise agreement, the court shall consider all pertinent circumstances, that may include, but shall not be limited to:(1) the amount of business transacted by the affected motor vehicle dealer during the 3 year period immediately preceding such notice as compared to the business available to it;(2) the investment necessarily made and obligations incurred by the affected motor vehicle dealer to perform its obligations under the existing franchise agreement;(3) the permanency of the investment of the affected motor vehicle dealer;(4) whether it is injurious or beneficial to the public welfare for the franchise agreement of the affected motor vehicle dealer to expire, to be modified, or to be terminated, or for the affected motor vehicle dealer to be replaced;(5) whether the affected motor vehicle dealer has adequate motor vehicle sales and service facilities, equipment, vehicle parts and qualified personnel to reasonably provide for the needs of the consumers for motor vehicles handled by the affected motor vehicle dealer;(6) whether the affected motor vehicle dealer has been and is rendering adequate services to the public; and(7) the existence and materiality of any breaches, defaults or violations by the affected motor vehicle dealer of the terms or provisions of the existing franchise agreement or of applicable law.(k) In the event of a termination of a franchise agreement or cessation of a line make, regardless of cause, the manufacturer or distributor shall:(1) within 90 days from the effective date of the termination, repurchase all new, unused, undamaged and unaltered motor vehicles of the current model year that it sold to the dealer and any other such vehicles that it sold to the dealer within 180 days before the notice of termination, at a price equal to the amount paid by the motor vehicle dealer including, but not limited to, transportation charges, less all incentives and allowances received by the dealer; provided, however, that the motor vehicles which are recreational vehicles of the current model year and any other recreational vehicles sold to the dealer within 180 days before the notice of termination shall be repurchased; provided, further, that this clause shall not apply to a recreational vehicle manufacturer if the termination was initiated by the dealer for reasons other than the manufacturer's material breach of contract; and provided, further, that the dealer shall have transferred to the manufacturer or distributor full right and legal title to the vehicles before their repurchase;(2) if requested by the dealer within the same 90–day period, repurchase all genuine new and unused motor vehicle parts and accessories that it sold to the motor vehicle dealer so long as the parts and accessories are undamaged, in their original packaging and listed in the current parts and accessories price list of the manufacturer or distributor, at a price equal to the wholesale price stated in the current parts and accessories price list of the manufacturer or distributor including, but not limited to, transportation charges, less all incentives and allowances received by the dealer and without reduction for such repurchase or for processing or handling the repurchase; provided, however, that the dealer shall have transferred to the manufacturer or distributor full right and legal title to the equipment before their repurchase;(3) if requested by the dealer within the same 90–day period, repurchase the new and used equipment that it sold to the motor vehicle dealer within 3 years from the effective date of termination at its then fair market value including, but not limited to, signs, special tools and manuals, which the manufacturer or distributor required the motor vehicle dealer to purchase, the repurchase amount shall include transportation charges assessed on the dealer; provided, however, that the dealer shall have transferred to the manufacturer or distributor full right and legal title to the equipment before their repurchase; and(4) in the event of a termination that is the result of the cessation of a line make, if requested by the dealer within the same 90–day period, pay: (i) the fair market value of the goodwill of the franchise as of the date immediately preceding the manufacturer or distributor's announcement of a termination or announcement that a line make is being discontinued; and (ii) if the dealer leases the facility from an unrelated and unaffiliated person or entity, the cost of the lease for the facilities used for the franchise or line make for the unexpired term of the lease not to exceed 1 year; provided, however, that if a facility is used for the operation of more than 1 franchise, the reasonable rent owed by the manufacturer shall be based on the portion of the facility utilized by the terminated franchise; provided, further, that the dealer shall attempt in good faith to mitigate the expense by attempting to terminate its lease obligations or to sublease or assign the lease, reimbursing or crediting the manufacturer or distributor for any money received in connection with the termination, sublease or assignment of the lease; provided, further, that the dealer shall provide the manufacturer or distributor with documentation indicating that it has made a good faith effort to terminate its lease obligations and to assign the lease or sublease the space including, but not limited to, a copy of an agreement with a commercial real estate broker to obtain such an assignment or sublease; and (iii) if requested by the manufacturer or distributor, the dealer shall make the facility available to the manufacturer or distributor for use by it or its nominee for a time period equivalent to the time period covered by any such payment from the manufacturer or distributor to the dealer; provided, further, that this clause shall not apply to a termination of a recreational vehicle or a powersport vehicle franchise or a termination of a recreational vehicle or powersport vehicle line make; provided, further, that this clause shall only apply to a manufacturer or distributor that made the decision to terminate or discontinue the line make and shall not impose any obligations on a manufacturer or distributor that was not the decision maker.(5) This subsection shall not apply in the event of a sale of the assets or stock of a motor vehicle dealership.(l) In the event that a termination or nonrenewal becomes effective, the former motor vehicle dealer shall immediately cease all use of, and remove from public display, all identifying marks or logotypes which it formerly was permitted to use under the franchise agreement, including but not limited to the prompt removal of signage from the dealership premises.(m) The burden to establish that a termination, nonrenewal or renewal upon changes, amendments, additions or deletions of the type described in subsection (a) was for good cause shall be upon the manufacturer or distributor. The burden to establish that a termination, nonrenewal or renewal upon changes, amendments, additions or deletions of the type described in subsection (a) was in bad faith, or was in an arbitrary or unconscionable manner, shall be upon the motor vehicle dealer.