Gain insights into a case involving the denial of a Buick GMC dealership sale by GM. Learn about the legal actions, expert testimony, and the importance of expertise in such complex M&A situations.
M&A Stories
October 20, 2020
Introduction:
When you want to sell your franchise business, such as a Subway or auto dealership, the franchisor’s approval is usually required. However, the franchisor must act reasonably during this approval process according to state laws.
The Situation:
A case involved the sale of a Buick GMC dealership located about 50 miles outside of Pittsburgh. The agreement set a purchase price of $750,000 for goodwill and plus payment for various assets. The buyer intended to move GMC operations to their existing dealership closer to Pittsburgh, discontinuing Buick Operations at the seller’s site.
Franchisor Denial:
The seller’s agreement with GM stated that the franchise couldn’t be transferred without GM’s approval. The seller asked for approval, but GM declined. GM’s reasons included concerns about existing dealerships, declining population, and potential harm to the network.
Legal Action:
The deal fell through, and the seller sued GM in a Pittsburgh federal district court, claiming violations of the Pennsylvania Board of Vehicles Act. The seller hired an expert who criticized GM’s denial. The expert argued GM’s reasons were inadequate and inconsistent with past decisions.
Expert Testimony:
GM tried to prevent the expert from testifying, arguing inadequate disclosure of the facts supporting his opinion. The court disagreed, stating the expert’s report clearly outlined the flaws in GM’s reasoning and its contradictions in past cases. The court emphasized the importance of experts in complex cases like this involving the automotive industry.
Importance of Expertise:
The court noted that specialized knowledge was crucial to assess GM’s decision-making process. The seller’s expert didn’t need to perform a new analysis; their role was to critique GM’s conduct and decision-making. This assistance would help the jury evaluate the reasonableness of GM’s actions.
This case is referred to as Brooks Automotive Group, Inc. v. General Motors LLC, No. 2:18-CV-00798-MJH, United States District Court, W.D. Pennsylvania, Pittsburgh, (May 8, 2020) https://scholar.google.com/scholar_case?case=15805139854672892254&q=%22asset+purchase+agreement%22&hl=en&as_sdt=2006&as_ylo=2020
Comment:
This case highlights the risks of selling a franchise. Challenging a franchisor’s denial with legal action can be costly and time-consuming due to the involvement of skilled lawyers on both sides.
By John McCauley: I help people manage M&A risks involving privately held companies.
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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