Overview
On December 1, 2022, an Illinois appellate court ruled that a motor vehicle manufacturer, Vanderhall Motor Works, Inc. ("Vanderhall"), could allow an agreement with one of its Illinois-based dealers, iMotorsports, Inc. ("IMI"), to expire without violating Illinois law.[1] The expiration did not mean that the business relationship ended. However, the expiration of the agreement did thwart the dealer’s claim that the manufacturer violated a territorial provision of the expired agreement, which provided a broader territorial restriction than provided by Illinois’ dealer law.
Vanderhall is a Utah-based manufacturer of three-wheeled roadsters and four-wheeled off-road vehicles. It had a sales and service agreement with an Illinois dealer that, by its express terms, expired on October 31, 2019. Notwithstanding that expiration date, Vanderhall continued to provide new vehicles to the dealer for retail sale, reimburse the dealer for warranty service, provide the dealer with trademarked material and signage, and list the dealer on its website. The parties never executed a new written agreement after the expiration date.
Nearly a year-and-a-half after the agreement expired, Vanderhall approved a new, unrelated dealership about 16 miles from IMI’s location. IMI claimed that Vanderhall breached the expired dealer agreement, which provided that Vanderhall had agreed not to authorize any other dealer within 75 miles of IMI’s location. IMI also claimed that, if the expired agreement was unenforceable, Vanderhall still breached an “implied-in-fact” contract containing the exact same terms as the expired agreement. Finally, the dealer claimed that Vanderhall violated section 4(b) of Illinois’ Motor Vehicle Franchise Act (the “Act”), which prohibits manufacturers from “engag[ing] in any action with respect to a franchise which is arbitrary, in bad faith or unconscionable and which causes damage to any of the parties or to the public.”[2] The appellate court rejected all three of IMI’s claims, affirming the trial court’s dismissal of the dealer’s complaint.
The court’s most significant ruling was with respect to the dealer’s first claim for breach of contract. The dealer argued that the Act rendered the dealer agreement’s expiration date unenforceable, such that Vanderhall was still obligated to observe the 75-mile restriction. Similar to other states’ dealer statutes, section 4(d)(6) of the Act provides that manufacturers may not “cancel,” “terminate,” fail to “extend,” or fail to “renew” a dealer agreement without giving 60 days’ written notice,[3] which Vanderhall did not give. Although the Act does not define the terms “cancel,” “terminate,” “extend,” or “renew,” IMI argued that allowing the dealer agreement to expire without 60 days’ written notice constituted an unlawful cancellation, termination, non-extension, or non-renewal.
The court, however, rejected IMI’s argument, explaining that allowing the agreement to expire did not fall within the scope of the Act’s statutory language. It reasoned, based on the commonplace definitions of “cancel,” “terminate,” “extend,” or “renew,” that Vanderhall did not intend to terminate or cancel (or to fail to extend/renew) the agreement, since (i) it had continued its business relationship with IMI after the expiration date, and (ii) the parties had expressly “contracted to have the Agreement automatically expire on October 31, 2019.”[4] The Court also similarly rejected IMI’s other two claims, because its ruling on the breach of contract claim destroyed the basis of those two claims.[5]
The court’s ruling reaffirms the importance of the text of a dealer agreement, as well as the importance of including expiration dates. Manufacturers should continually review their dealer agreements’ language to ensure that the text matches its business needs, especially in a motor vehicle industry that is experiencing rapid change. Dealers often argue that state dealer laws should be construed broadly as “remedial” statutory schemes, to prohibit manufacturers from taking actions that the parties’ agreements permit. However, when the statutes do not contemplate those actions, courts can and will enforce the agreements as they are written.
[1] See iMotorsports, Inc. v. Vanderhall Motor Works, Inc., No. 2-21-0785, 2022 IL App (2d) 210785 (Ill. App. Ct. Dec. 1, 2022).
[2] 815 ILCS 710/4(b).
[3] 815 ILCS 710/4(d)(6)(A).
[4] Vanderhall Motorworks, Inc., 2022 IL App (2d) 210785 at ¶¶ 22–23, 27. The court also acknowledged that section 4(d)(6) required manufacturers to give 60 days’ notice before the expiration of an agreement if it “intends to change substantially or modify the sales and service obligations or capital requirements of a motor vehicle dealer as a condition to extending or renewing the existing franchise . . .” Id. at ¶ 24 (discussing 815 ILCS 710/4(d)(6)(B)). However, it held that establishing a new dealer 16 miles away was not a “substantial” modification, since the Act gave the dealer the right to challenge such establishments only within a 10-mile range. Id.
[5] Id. at ¶¶ 33, 35.
Motor Vehicle Group
BFKN’s Motor Vehicle Group works with automotive, truck, and motorcycle manufacturers across the country and around the world to implement market representation and development initiatives, litigate protests and lawsuits, and develop effective dealer agreements, standards, and policies. Our attorneys are knowledgeable and creative strategic partners. Whether litigating, counseling, or negotiating transactions on behalf of our clients, we bring to the table extensive in-depth knowledge of the motor vehicle industry and exceptional legal ability, a combination that uniquely positions us to help our clients efficiently and effectively solve difficult problems and achieve their business objectives.