You Auto Know! - WHEN IS A FRANCHISE CLOSED?

Although it doesn’t happen often, every once in a while a new automobile dealership will go dark and, under Ohio law, if the dealership ceases operations for 45 days, then it is deemed a closed franchisee point. Surprisingly, until recently, there has been no judicial definition of what “going dark” means.

This author was recently involved in a case of first impression specifically determining what it means when an existing motor vehicle dealer ceases operations for 45 days. The specific statute in question is O.R.C. §4517.01(GG) which defines “operating as a new motor vehicle dealership” as follows, “engages in activity such as displaying, offering for sale and selling new motor vehicles at retail, operating a service facility to perform repairs and maintenance on motor vehicles, offering for sale and selling motor vehicle parts at retail, and conducting all other acts that are usual and customary to the operation of a new motor vehicle dealership. For the purposes of this chapter only, possession of either a valid new motor vehicle franchise agreement or a new motor vehicle dealer’s license, or both of these items, is not evidence that a person is operating as a new motor vehicle dealership.”

It would appear from the definition of “operating as a new motor vehicle dealership” that the decision would be simple enough. However, the issue in the case that I was involved in created a question as to what “operating” means. The dealership in question had a very small skeleton staff of two to three people which in essence kept the lights on but did little else to maintain the franchise. The court determined that the “caretakers” did not order any new vehicles and were not authorized to sell or service the franchisor’s products. The caretakers did not consummate any sales or leases nor did they perform any service work or sell any parts at retail. There was testimony that the alleged operations did not comply with the franchisor’s dealer sales and service agreement (DSSA). Although the showroom was open and there was new vehicle inventory on the ground, the service and parts were closed. Further, other than a highway billboard and a presence on some internet web pages, there was no advertising. Further, the two or three employees were not licensed by the State of Ohio to sell motor vehicles at that location. Although the caretaker was holding itself out to the general public as being open for business, the caretakers were not performing any and all other acts that were customary to operate a new motor vehicle dealership.

In fact, the court stated that in order to ensure a sound system for the distribution of selling and servicing new motor vehicles, the court needed to enforce a thorough and uniform framework for licensing and regulating motor vehicle dealers, manufacturers and distributors; allowing consumers the right to post-sale service and parts; to make sure that manufacturers are fulfilling their warranty obligations and not perpetrating a fraud or unfair practices or other abuses; maintaining thorough and fair intrabrand and interbrand competition; and maintaining strong and sound dealerships in order to provide good and reliable service to the consuming public.

This is an important decision for all new motor vehicle dealers in the State of Ohio. It prohibits the unlawful operations of an entity by merely turning on the lights and having a warm body in the establishment to claim that it is operating as a new motor vehicle dealership in the State of Ohio. This certainly does protect the millions of dollars of investment that legitimate new vehicle dealers have invested in their operations.

CONTACT INFORMATION

Robert A. Poklar, Esq.

Weston Hurd LLP

The Tower at Erieview

 1301 East 9th Street, Suite 1900
Cleveland, Ohio 44114-1862

p: 216.687.3243; f: 216.621.8369

rpoklar@westonhurd.com