Arent Fox Advises Beck Chevrolet Co, Inc. in Performance Dispute Win

In Beck Chevrolet Co., Inc. v General Motors LLC, the Second Circuit asked the New York Court of Appeals to interpret two provisions of New York’s Franchised Motor Vehicle Dealer Act involving sales performance standards and franchise modifications. The Arent Fox team representing Beck was led by New York Automotive partner Russell P. McRory, who was assisted by counsel James M. Westerlind and associate Michael P. McMahan.

“Beck Chevrolet’s success will help stop manufacturers from implementing unfair and unreasonable sales standards that are selectively and arbitrarily applied, particularly when broad state or regional averages are applied to dealers located in markets bearing little resemblance to the state or regional benchmarks” said Mr. McRory. “This precedent could help set a new standard that will be referenced in performance disputes across the country.”

“This precedent setting case in New York goes well beyond GM and will help national clients fight back against the unfair application of state versus local metrics for OEM brands,” said Automotive leader Aaron H. Jacoby. “We are quite proud of the work of our AF team led by Russ McRory and expect this will give us another tool in our manufacturer litigation matters.”

The dispute started in 2011 when Beck, which has sold Chevrolet vehicles since 1966, challenged GM’s sales performance standard tied to state average market share adjusted only for segment popularity. The federal district court in the Southern District of New York held that GM’s sales performance standard was fair and reasonable and that GM’s change to Beck’s assigned market territory was not a modification of Beck’s franchise. Beck appealed to the Second Circuit.

While that case was pending, in 2013, GM notified Beck that it failed to reach the company’s sales performance standard for New York State and, as a result, would lose its franchise. In a separate suit, Beck challenged the attempted termination and Arent Fox successfully argued before an administrative law judge with New York’s Department of Motor Vehicles that GM’s benchmark was unreasonable, pointing out that many other Chevrolet dealers in New York — particularly in the New York City metropolitan area — failed to meet the company’s sales obligations but were not facing termination. The administrative law judge rejected GM’s attempt to terminate Beck’s franchise, holding that GM’s sales performance standard was unfair, unreasonable and arbitrarily applied.

In light of the administrative decision, the Second Circuit certified questions to the New York Court of Appeals. First, the New York Court of Appeals ruled that GM’s state-wide sales performance standard violated the New York Dealer Act because it failed to take into account local market conditions and consumer preferences faced by metropolitan Chevrolet dealers like Beck. Second, the New York Court of Appeals ruled that a manufacturer’s unilateral change to a dealer’s assigned market territory was a franchise modification under the Dealer Act. Whether such a change is an unfair modification prohibited by the Dealer Act must be determined on a case by case basis.

Mr. McRory joined Arent Fox in 2014 as part of the firm’s expansion of its Automotive practice. He represents automobile dealerships in all aspects of litigation, tax, and general corporate matters. He successfully litigated the first case based on the New York Franchised Motor Vehicle Dealer Act’s prohibition against price discrimination. And now, he has successfully litigated the first case based on the Dealer Act’s prohibition against unfair, unreasonable or arbitrary sales performance standards.

Arent Fox’s Automotive practice — recognized as a national leader by Chambers USA — provides the roadmap that clients need to navigate an industry in flux. Noted as a firm that is “thinking outside the box,” Arent Fox lawyers vigorously prosecute litigation that cannot be avoided, engage in every form of transaction, and guide companies through the industry’s complex framework.