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General Motors Corp. v. Harry Brown's, LLC: US District Court : CIVIL PROCEDURE | DEALER - preliminary injunction denied; strong claim but lost profits > legal, not equitable

18
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
GENERAL MOTORS CORPORATION,
Plaintiff,
v.
HARRY BROWNS, LLC,
Defendant.
Civil No. 08-5150 (JRT/AJB)
MEMORANDUM OPINION AND
ORDER DENYING PLAINTIFFS
MOTION FOR PRELIMINARY
INJUNCTION
Jeffrey J. Jones, JONES DAY, 525 John H. McConnell Boulevard,
Suite 600, Columbus, OH 43215; and Kerry L. Bundy, FAEGRE &
BENSON LLP, 90 South Seventh Street, Suite 2200, Minneapolis, MN
55402-3901, for plaintiff.
Robert L. DeMay, Curtis D. Ripley, and Mark Jacobson, LEONARD
STREET & DEINARD, PA, 150 South Fifth Street, Suite 2300,
Minneapolis, MN 55402, for defendant.
On September 10, 2008, plaintiff General Motors Corporation (GM) moved for
a preliminary injunction against Harry Browns, LLC (Harry Brown), seeking to enjoin
Harry Brown from consolidating operations from its GM and Chrysler dealerships at a
single GM facility. The parties agreed to a standstill agreement to facilitate settlement
negotiations, but on November 20, 2008, Harry Brown exercised its right to terminate the
agreement and the Court set a hearing on GMs motion for a preliminary injunction. For
the reasons stated in this Memorandum Opinion, GMs motion is denied..
-2-
BACKGROUND
GM is a manufacturer and distributor of new motor vehicles, which it sells to the
public through a network of new motor vehicle dealers. (Docket No. 11 at 3.) Dealer
Sales and Service Agreements (Dealer Agreements) govern the relations between GM
and its dealers, authorizing dealers to sell and service GM vehicles and use GMs
trademarks. (Id.)
Harry Brown entered into five separate Dealer Agreements with GM, which
enable Harry Brown to operate five GM linemakes, GMC, Buick, Chevrolet, Cadillac,
and Pontiac, at facilities at 1747 Grant Street, Faribault, Minnesota. (Id.) Under those
agreements, Harry Brown is not authorized to conduct any other dealership operations at
that location. (Id.) Further, GM must give prior authorization for any changes that Harry
Brown wishes to make to the use of the premises, for example by adding additional
dealership operations or other vehicle lines to the dealership facility. (Dealer
Agreements, Docket No. 2-2.) GM may address any material breach of the Dealer
Agreements by terminating the contract. (Id.)
The Harry Brown GM dealerships are operated by Harry Browns, LLC, which is
a sister company to Faribault Chrysler. Brothers Michael Brown and Steven Brown
operate the Harry Browns GM dealerships and Faribault Chrysler, respectively, and
often collaborate on major business decisions. (Docket No. 34 at 3.) Harry Brown
claims that financial concerns about Faribault Chrysler led the Brown family to conclude
that it was no longer feasible to operate Faribault Chrysler at a separate facility. (Id.) In
order to prevent Faribault Chryslers financial collapse, the Brown family considered
-3-
dualing the non-GM linemakes from Faribault Chrysler with GM linemakes at the GM
facility. (Id.)
On May 20, 2008, Harry Brown submitted a Change Request to GM seeking
approval to add three non-GM linemakes (Chrysler, Dodge, and Jeep) to Harry Browns
GM facilities at 1747 Grant Street (the Chrysler Proposal). (Docket No. 11 at 4.)
When submitting the request, Harry Brown was also required to submit a Submission
Acknowledgement, which stated, Requestor acknowledges the addition of a non-GM
line to the existing Dealer Company, dealership operations, and/or dealership premises is
a violation of GM Policy and subject to rejection by GM. (Docket No. 34 at 6.) On
July 28, 2008, GM responded in writing, informing Harry Brown that GM would not
approve the Change Request. (Id. at 5.) GM reasoned that GMs policy is that non-GM
products should not be sold or serviced from GM dealerships, noting that the
combination with competing brands is detrimental to the sale and service of GM
products. (Id.) Further, GM noted that [s]uch combinations dilute the image of a GM
dealership portrayed to the community, reduce the space and capital available for
inventorying and marketing GM products, and divert the single minded focus of sales and
service management and staff . . . [i]n an increasingly competitive automotive business
environment. (Id.)
Disregarding GMs rejection of the Chrysler Proposal, Harry Brown announced
that it intended to add the non-GM linemakes to the GM facility on September 15, 2008.
(Docket No. 11 at 9.) GM responded by claiming that Harry Browns actions would
-4-
constitute a material breach of the Dealer Agreements and noting its intent to pursue any
relief available under the Dealer Agreement and applicable law. (Docket No. 34 at 8.)
On September 10, 2008, GM commenced this action and moved for a temporary
restraining order and preliminary injunction enjoining Harry Brown from moving any of
the non-GM linemake operations to the 1747 Grant Street facility. (Docket No. 1.)
GMs complaint seeks (1) declaratory judgment that GM properly declined to approve
the Chrysler Proposal; (2) specific enforcement of the Dealer Agreement; (3) declaratory
judgment that Minn. Stat. 80E(12)(h) is inapplicable to the current case; (4) temporary
and permanent injunctive relief; and (5) declaratory judgment that GM has a contractual
right to terminate Harry Browns GM Dealer Agreements. (Id.) After the complaint was
filed, the parties negotiated a standstill agreement to provide time to negotiate a
settlement. (Docket No. 34 at 10.) Citing serious imminent financial difficulties, Harry
Brown exercised its right to terminate the standstill agreement effective November 20,
2008. (Id.) GM now renews its motion for a temporary restraining order and preliminary
injunction and seeks to enjoin Harry Brown from adding Dodge, Chrysler, or Jeep
operations at Harry Browns GM facility. (Id.)
DISCUSSION
I. STANDARD OF REVIEW
In determining whether a party is entitled to a preliminary injunction, the Court
considers (1) the threat of irreparable harm to the movant; (2) the state of the balance
between this harm and the injury that granting the injunction will inflict on other parties
-5-
litigant; (3) the probability that [the] movant will succeed on the merits; and (4) the
public interest. Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
The question is whether the balance of equities so favors the movant that justice requires
the court to intervene to preserve the status quo until the merits are determined. Id. It
frequently is observed that a preliminary injunction is an extraordinary and drastic
remedy, one that should not be granted unless the movant, by a clear showing, carries the
burden of persuasion. Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (citing 11A
C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure 2948, pp. 129-30 (2d.
ed. 1995)).
II. THE THREAT OF IRREPARABLE HARM
The irreparable harm factor focuses on the harm or potential harm to the plaintiff
of defendants conduct or threatened conduct. Dataphase, 640 F.2d at 114. A plaintiff
seeking preliminary injunction must establish that it is likely to suffer irreparable harm
in the absence of preliminary relief. Winter v. Natural Res. Def. Council, Inc., 129
S. Ct. 365, 374 (2008). Failure to show irreparable harm is an independently sufficient
ground upon which to deny a preliminary injunction. Watkins Inc. v. Lewis, 346 F.3d
841, 844 (8th Cir. 2003); see also Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 506-
07 (1959) (The basis of injunctive relief in the federal courts has always been
irreparable harm and inadequacy of legal remedies.).
GM claims that it will suffer immediate, irreparable harm from the commingling
of GM and non-GM brands if Harry Brown implements the Chrysler Proposal. (Docket
-6-
No. 11 at 21.) GM first argues that consolidating operations for GM and non-GM
linemakes at a single facility will decrease GM sales effectiveness. (Docket No. 6 at 3,
5-6; Docket No. 55.) Essentially, GM alleges that Harry Browns commingling of GM
and non-GM linemakes will result in lost profits. The law is clear, however, that [a]
dollar loss invokes the Court's legal powers, as opposed to its equitable powers. Halikas
v. Univ. of Minn., 856 F. Supp. 1331, 1334 (D. Minn. 1994) (citing Franklin v. Gwinnett
Cty. Pub. Sch., 503 U.S. 60, 75-76 (1992)). Indeed, the Farhat affidavits, which are
offered in support of GMs motion, seek to quantify a decrease in sales effectiveness that
results from dualing at GM dealerships. (See generally Docket Nos. 6, 55.) An award of
damages would provide GM with an adequate legal remedy1 for lost profits and
preliminary injunctive relief is therefore not appropriate. See Watkins, 346 F.3d at 844.
GM also argues that it would be impossible to quantify the harm in dollars of loss
of customer satisfaction, diversion of customer relationships, the loss of goodwill, the
dilution of its trademarks, the destruction of its branding strategy, and the commingling
of confidential and proprietary information. (Docket No. 11 at 21.) The record
indicates, however, that there are approximately thirty dealerships in Minnesota that
currently dual GM and non-GM linemakes with GMs approval. (Docket No. 34 at 30.)
At argument, GM contended that these dualing dealerships are not similar to Harry
Browns proposed dealership: either the non-GM linemakes are operated in separate
1 At the hearing, the parties conceded that termination of the GM Dealer Agreements
solely for dualing is impermissible under Minnesota law. Because the analysis in this section
renders further conclusions as to legal remedies unnecessary, the Court does not address whether
termination would be available here on some other grounds.
-7-
facilities at the same location as GM linemakes or the dealerships that dual at a single
facility were grandfathered in under older GM policies that did not discourage dualing.
(Docket No. 54 at 5.)
The Court, however, does not find from the record an appreciable distinction
between the dealerships that dual in a single facility as opposed to those that dual in
multiple facilities at the same location. Moreover, GMs supporting affidavits of Berger,
Nevin, Puff, and Tamar, offer no more than mere speculation on this issue. Those
affidavits opine that customer goodwill and GM trademarks will be irreparably damaged
merely because non-GM linemakes are sold and serviced from the same facility. (E.g.,
Docket No. 5 at 15-16.) The affidavits cite general principles of business, but fail to
sufficiently establish that any of the already-dualing Minnesota GM dealerships have
irreparably harmed GM in the manner averred here. Further, the affidavits fail to show
that dualing at this dealership, approximately the thirty-first dualing dealership in
Minnesota, will have an irreparable negative impact on GM customer goodwill, branding
strategies, trademark dilution, or identification by customers.
GMs failure to demonstrate irreparable harm is sufficient to end the Courts
Dataphase analysis. Watkins, 346 F.3d at 844. The Court notes, however, that the
balance of harms and the public interest further tip the balance against granting GMs
motion.
-8-
III. THE BALANCE OF HARMS AND THE PUBLIC INTEREST
The Court next balances the harm to the movant against the injury that granting
the injunction will inflict on other parties litigant. Dataphase, 640 F.2d at 113. What
must be weighed is the threat to each of the parties rights and economic interests that
would result from either granting or denying the preliminary injunction. Pro Edge, L.P.
v. Gue, 374 F. Supp. 2d 711, 751 (N.D. Iowa 2005).
As noted above, GMs allegation of potential lost sales can be remedied through
an award of monetary damages and GMs other alleged harm is little more than
speculation. GM also argues that the balance of harms does not tip in favor of Harry
Brown because Harry Brown cannot claim to be hurt by an injunction requiring
compliance with its contract. (Docket No. 11 at 22.) GMs contractual compliance
argument fails, as well, however, because it assumes the fact that it attempts to prove:
that Harry Brown is not fulfilling its contractual obligations under the Dealer
Agreements. Harry Brown disputes this assertion. As to the harm to Harry Brown, Harry
Brown risks losing a significant part of its family business and has provided affidavits
from dealership management indicating that injunctive relief would increase this risk.
(See generally Docket No. 44.) Thus, the balance of harms, in particular the economic
threats to the parties, disfavors GMs motion.
GM contends that considering Faribault Chryslers financial condition is irrelevant
to the present litigation. GM argues that because Chrysler and GM sell competing
products, it is ironic to argue that GM must sell Chrysler products to save Chrysler.
(Docket No. 49 at 19.) Although the Court agrees that it cannot force GM to sell
-9-
Chrysler products to save Chrysler, GM mischaracterizes what is at issue. First, the
Court is not requiring GM to sell anything: GM is the movant in this case, and the Court
is considering whether to bar action by Harry Brown. Second, the parties in this case are
not two manufacturers, like Chrysler and GM. Rather, this is a conflict between a
manufacturer and a dealer and the legal issues center on the parties contractual rights
under the Dealer Agreements.
Assuming, without deciding, that Faribault Chrysler is not a party litigant for the
purposes of the second prong of the Dataphase test, the public interest also supports
denial of GMs motion. The affidavits submitted by Harry Brown suggest that Faribault
Chrysler is in a precarious financial condition. (Docket No. 44.) Harry Brown also
introduces information that consolidating the dealership operations may enable Faribault
Chryslers non-GM linemakes to remain viable. In light of the potential loss of nineteen
jobs, the public interest weighs against the extraordinary and drastic injunctive relief
requested by GM. See Mazurek, 520 U.S. at 972.
Although GMs likelihood of success on the merits cannot tip the balance of
equities in favor of granting GMs motion, the Court briefly considers this Dataphase
factor.
IV. THE LIKELIHOOD OF SUCCESS ON THE MERITS
The Eighth Circuit recently clarified the success on the merits prong of the
Dataphase test, noting that where a preliminary injunction is sought to enjoin . . . [a]
government action based on presumptively reasoned democratic processes . . . courts
-10-
must make a threshold finding that a party is likely to prevail on the merits. Planned
Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, 732-33 (8th Cir. 2008). In
circumstances that do not fall under this category, such as those at issue here, courts
merely determine whether the plaintiff has a fair chance of prevailing. Id. at 732.
GM argues that it is likely to prevail in the litigation based on its valid exercise of
its business judgment to decline to approve the Chrysler Proposal. GM cites to the
Dealer Agreements, which state, No change in location or in the use of the Premises,
including addition of any other vehicle lines, will be made without General Motors prior
written authorization pursuant to its business judgment. (Dealer Agreements, Docket
No. 2-2, 4.42.) Harry Brown responds that GMs authority to approve these types of
changes must be couched in the context of dealer network planning considerations.
(Docket No. 34 at 13.) Section 4.1 of the Dealer Agreements, Dealer Network
Planning, states that [b]ecause General Motors distributes its [sic] products through a
network of authorized dealers operating from approved locations, those dealers must be
appropriate in number, located properly, and have proper facilities to represent and
service General Motors Products competitively. (Docket No. 2, Ex. 2, 4.1.)
Section 4, which is entitled Authorized Locations, addresses Dealer Network
Planning ( 4.1), Area of Primary Responsibility ( 4.2), Establishment of Additional
Dealers ( 4.3), and Facilities ( 4.4); which includes Location ( 4.4.1), Change in
Location or Use of Premises ( 4.4.2), Size ( 4.4.3), Dealership Image and Design
( 4.4.4), and Dealership Equipment ( 4.4.5). Thus from the context of Section 4, it
-11-
would appear that Dealer Network Planning exists separately and distinctly from other
provisions addressing the location or use of dealerships.
Section 4.4.2 does mention dealer network planning considerations: If Dealer
wants to make any change in location(s) or Premises, or in the uses previously approved
for those premises, Dealer will give General Motors written notice of the proposed
change, together with the reasons for the proposal, for General Motors evaluation and
final decision in light of dealer network planning considerations. (Docket No. 2, Ex. 2,
4.4.2 (emphasis added).) As repeated from the Dealer Agreements, above, however,
GM specifically conditions changes to the premises on its business judgment review of
the proposed changes. (Id.) The plain language of the contract merely indicates that
dealer network planning is one, albeit an important one, of the criteria that GM will use to
evaluate a Change Request pursuant to that business judgment.
Harry Brown challenges this discretionary review by claiming that GM cannot
enforce prohibitions on non-dualing that are not delineated in the Dealership
Agreements.2 (Docket No. 34 at 18.) It does not appear from the present record,
however, that GM is attempting to add a new dualing prohibition to the Dealer
2 Harry Brown claims that the Submission Acknowledgement that GM required Harry
Brown to submit with their Change Request violates statutory and common law. (Docket No. 34
at 19.) In effect, Harry Brown claims that the Submission Agreement permits GM to acquire
rights not provided for in the Dealer Agreements. (Id. at 21.) The Submission
Acknowledgement states: Requestor acknowledges that the addition of a non-GM line to the
existing Dealer Company, dealership operations, and/or dealership premises is a violation of GM
Policy and subject to rejection by GM. (Docket No. 11 at 11 (emphasis added).) Here, it seems
that GM is merely referencing its current policy against non-dualing, which could be construed
as an exercise of its reasonable business judgment. Further, GM states that such a request is
subject to rejection, but it does not state, categorically, that all such requests will be rejected.
-12-
Agreements. Rather, it appears that GM is exercising its business judgment, in light of
the present economic and business conditions, to preserve GMs competitive position in
the market. If GM implements a policy in which they decline to approve dualing
dealerships, that decision is within their province as a business to make. See, e.g., Ernie
Haire Ford, Inc. v. Ford Motor Co., 260 F.3d 1285, 1291 (11th Cir. 2001) (Under the
[Dealership] Agreement, it is [Ford Motor Companys] own judgment that controls, not
[the dealers] judgment, not a jurys judgment and not a reasonable persons judgment.
(second and third alterations added)).
Nonetheless, [t]he likelihood that plaintiff ultimately will prevail is meaningless
in isolation. Dataphase, 640 F.2d at 113. Rather, that likelihood must be examined in
the context of the relative injuries to the parties and the public. Id. Although at this
stage of the litigation GM has demonstrated a strong chance of success on the merits, GM
failed to demonstrate that it will be irreparably harmed if the Court does not grant
injunctive relief. In addition, the potential harm that will fall on other parties strongly
weighs against ordering injunctive relief. Accordingly, the Court denies GMs motion.
CONCLUSION
This analysis militates against granting GMs instant motion, but the Court
emphasizes that it does not conclude here that GM may not enforce a policy of nondualing
under its Dealer Agreements. Instead, the Court merely finds that GM has not
demonstrated, in this case, that it would be irreparably harmed such that preliminary
injunctive relief should issue. Indeed, it appears that GM has made a strong case at this
-13-
stage of the litigation that it is entitled to exercise its business judgment in denying a
dealers request to dual GM and non-GM linemakes. The Court further notes that it
would not be impossible to reverse Harry Browns apparently imminent implementation
of the Chrysler Proposal. If GM succeeds on the merits of its claims, however, the
ultimate financial burden of such a reversal, including any expenditures made to prepare
for consolidation of non-GM linemakes, could well fall on Harry Brown.
Additionally, after receipt of GMs reply memorandum, Harry Brown filed a
motion to strike the affidavit of Richard F. Bero, which supported GMs reply. Upon
review of the motion by the Court, Harry Browns motion is denied.
ORDER
Based on the foregoing, all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that
1. Plaintiff General Motors Corporations Motion for Preliminary Injunction
against defendants [Docket No. 9] is DENIED.
2. Defendant Harry Browns, LLCs Motion to Strike the Affidavit of Richard
F. Bero [Docket No. 58] is DENIED.
DATED: December 16, 2008 ____s/ ____
at Minneapolis, Minnesota. JOHN R. TUNHEIM
United States District Judge
 

 
 
 

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