Explore a legal battle over an auto dealership franchise sale in Pennsylvania. Get insights into the M&A deal, GM’s actions, the court’s decision, and the importance of legal compliance. This case has implications for entrepreneurs, business owners, and lawyers.
M&A Stories
February 20, 2019
In a legal battle involving an auto dealership franchise, the seller of a GM dealership in Pennsylvania is taking the auto maker to court over alleged violations of state auto dealer laws. Let’s dive into the details of this case, which could have implications for entrepreneurs, business owners, CFOs, lawyers, and others in the business world.
Background:
The seller had owned a GM dealership in Pennsylvania since 1985. In 2016, they began exploring the sale of their assets, eventually negotiating with a buyer who owned multiple GM dealerships in the state.
The Deal:
In November 2016, the seller and buyer entered into an asset purchase agreement, where the buyer would acquire the seller’s assets for the tangible dealership assets and $750,000 for goodwill. The deal hinged on GM’s approval of the sale and the relocation of the GMC Truck franchise.
GM’s Actions:
Over the following months, GM requested additional information, including a background check on the buyer’s owner. All requested information was provided. During this period, the seller informed GM of the negative impact of the pending sale on their business.
GM’s Denial:
On April 19, 2017, GM refused approval of the sale, prompting the seller and buyer to revise the agreement in June 2017. The revised deal removed the relocation aspect and reduced the goodwill value from $750,000 to $600,000. GM approved this revised agreement in September 2017.
Legal Dispute:
Following the sale, the seller sued GM for alleged losses due to GM’s actions. They claimed a $150,000 loss in goodwill value and over $850,000 in direct losses due to GM’s delays.
Court’s Decision:
GM asked the court to dismiss the claims, which the court agreed with. The court stated that the purpose of a motion to dismiss is to streamline litigation, and the seller could amend their complaint with more specific allegations.
Auto Dealer Law:
The seller accused GM of violating Pennsylvania’s auto dealer law, which requires timely response to consent requests for franchise sales. GM should respond within 60 days and request additional information within 15 days if needed, with a total approval time not exceeding 75 days.
Challenges:
The court found that the seller didn’t specify when all required forms were submitted to GM, making it unclear when GM had to respond. Additionally, the $850,000 claim lacked specific factual details.
Conclusion:
This case highlights the importance of legal compliance when dealing with franchise sales. It serves as a reminder for entrepreneurs, business owners, and professionals in the industry to be thorough in their legal processes. The court’s decision allows the seller to amend their complaint and provide more specific information for their claims.
Case Reference:
Brooks Automotive Group, Inc. v. General Motors LLC, No. 2:18-CV-00798-MJH, United States District Court, W.D. Pennsylvania, Pittsburgh, (February 5, 2019). https://scholar.google.com/scholar_case?case=4437674053633974867&q=%22asset+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2017
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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