Franchise Termination. H. C. Blackwell Co was a truck dealership owned by the Blackwell family. In 1961 they purchased a franchise from Kenworth Truck Co to sell Kenworth trucks. The franchise agreement had been renewed several times. In November 1975

Question

the Blackwells began negotiations with Kenworth to renew the recently expired franchise, and disagreements arose concerning the franchise. On February 4, 1976, Kenworth wrote to Blackwell that the franchise would be terminated in ninety days unless Blackwell met twelve specific demands made by Kenworth. In trying to meet these demands—which included increased sales, a better method of keeping business records, and capital improvements at its dealership—Blackwell spent approximately $90,000. By the end of the ninety-day period, however, the demands had not been met, so Kenworth terminated the franchise. Blackwell sued Kenworth for damages on the grounds that Kenworth had wrongfully terminated the franchise agreement and, in so doing, had violated the Automobile Dealers' Franchise Act. During the trial, Kenworth's own regional sales manager stated that the demands imposed by Kenworth on Blackwell would have taken at least a year to meet. Has Kenworth wrongfully terminated the franchise under the Automobile Dealers' Franchise Act? Discuss fully.

Answer 1

Franchise termination
Yes. The trial court jury returned a verdict for Blackwell, but the district court set the verdict aside and Blackwell appealed the case. The U.S. Court of Appeals for the Fifth Circuit, however, reversed the district court's judgment on the grounds that a jury might reasonably have found that the February 4, 1976, letter was coercive and violated the Automobile Dealers' Franchise Act of 1956. That act, enacted to "balance the power now heavily weighed in favor of the automobile manufacturers," gives to an automobile dealer a federal cause of action against any automobile manufacturer who fails to act in good faith in terminating a franchise. By statutory definition, "good faith" means the manufacturer and dealer will act in "a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party." The court concluded that the ninety-day period within which Blackwell was to meet all of Kenworth's demands was an unreasonable time frame, especially given the testimony of Kenworth's regional sales manager that the demands imposed by Kenworth would take a year to meet. The letter of February 4 was thus held to be coercive and in violation of the Automobile Dealers' Franchise Act.