Bass Sox Mercer Report

volume 15 | 1st quarter 2011
The BSM
Inside
Report
Leveling the playing field
between motor vehicle dealers
and manufacturers for over 20 years.
Welcome
a newsletter for motor vehicle dealers and associations
News Briefs
Dealer Associations Continue to be
Active in Passing New Franchise
Law Protections
For more, see page 2
BSM Closes Eight Year Fight With
Nissan North America, Infiniti
Division
For more, see page 3
Compliance
New Model Privacy Notice
Requirements–It’s Not Too Late To Act!
For more, see page 3
Technology
Legal Marketing Issues for Today’s
Modern Dealership
Welcome to the fifteenth edition of the BSM
Newsletter. We intend for our newsletter
to be published quarterly for use by motor
vehicle dealers, dealer associations and their
advisors in keeping abreast of challenges
facing dealers across the United States.
In this edition, we are pleased to introduce
two members of our “of counsel” team,
Michael (Mike) Frazier and Mark Ishman.
Mark W. Ishman has over ten years of
experience in providing advice and counsel
in the protection and management of online
reputations, and the development, protection
and exploitation of intellectual property.
Throughout his legal career, Mark has been
involved in business evaluations, corporate
structuring and financing, online commercial
and sales transactions, as well as intellectual
property prosecution and litigation matters.
Michael Lee Frazier (Mike) brings to BSM
nearly 30 years of corporate and private
practice experience. His general areas of
practice have included corporate transactional
work, commercial and residential real estate,
criminal trials and defense as well as general
civil litigation. He has also been a NC DRC
Certified Mediator. 
For more, see page 4
Franchise Litigation
Battle for Mahindra Distribution
Rights Continues
For more, see page 6
Get Smart?
For more, see page 7
F&I Corner
Back End on the Front End
For more, see page 7
News Briefs
BSM Favorably Settles Dealer’s Claim for
Termination Rental Assistance
BSM partner, Richard Sox, has recently settled a claim brought by a dealer client seeking
payment of rental assistance resulting from the termination of the dealer’s franchise. Under
our client’s state franchise law, the manufacturer was to pay the equivalent of 12 month’s
rent to the dealer in the case of a termination of the franchise. Expecting its manufacturer
to honor the various termination benefit requirements under the law, the dealer chose not
to protest the termination of their franchise for various business reasons. After the deadline
to protest the termination had passed, the manufacturer informed the dealer that it
would not pay the requested rental assistance in that the reason for termination was one
CONTACT US:
2822 Remington Green Circle
Tallahassee, Florida 32308
Tel 850.878.6404 | Fax 850.942.4869
Richard N. Sox, Jr.
[email protected]
9104 Falls of Neuse Road, Suite 200
Raleigh, North Carolina 27615
Tel 919.847.8632 | Fax 919.847.8633
Shawn D. Mercer
[email protected]
included in the list of exceptions under the franchise law alleviating the manufacturer’s
obligation to pay rental assistance. BSM filed a protest arguing that the manufacturer
was restricted to the express reasons stated in the termination notice and could not later
argue that it intended one of the reasons which relieved it of its obligation to pay rental
assistance. After several months of prehearing deliberations and discovery, the case
was settled favorably for our dealer client just days before the scheduled final hearing.
The BSM Report | 1st Quarter 2011 | 1
News Briefs
Dealer Associations Continue to be Active in Passing New
Franchise Law Protections
BSM has again this year been retained by a number of Dealer Associations to assist with implementing new franchise law
protections for motor vehicle dealers. BSM is assisting dealers in Colorado, Florida, Hawaii, New York and North Carolina to
negotiate and pass into law new franchise protections. The new franchise provisions include the following:
•C
larification that franchise laws apply to dealer agreements entered into prior to effective date of new
franchise provision;
•R
estriction on forcing dealers to upgrade dealership facilities that have been significantly upgraded within
past several years;
• Additional
clarification on formula and procedure to be used by dealers and manufacturers in paying retail
reimbursement for warranty work;
• Right of dealers to protest modification of dealer agreement including change in area of responsibility; and
• Enhanced notice and protest protections in the case of a proposed termination of the franchise by the manufacturer.
As manufacturers begin to recover from the economic downturn of the last couple of years, they have wasted little time in
creating new, coercive incentive and facility programs as well as increasing the pressure on dealers to sell more cars no
matter the profit margin or inventory availability. Dealer Associations across the country are working hard to protect against
the manufacturers’ latest threats to dealers’ investment in their franchise. It is more critical than ever that dealers support
their Associations with their time and financial resources. Dealers must be actively involved in communicating with their state
legislators if they are to overcome the lobbyists hired by the manufacturers. n
Bass Sox Mercer Dealership Seminar Opportunities
contact us today to schedule or modify one of these seminars for your organization
Dealership Mergers &
Acquisitions/ Succession Issues___
Dealership Mergers and
Acquisitions/Succession
Duration: 1.5 to 2.5 hours
Content: Discussion of issues surrounding
Letters of Intent, Asset & Stock
Purchase Agreements, manufacturer
franchise application process, and
proper succession planning.
A Walk Through the Manufacturer
Franchise Application Process
Duration: 1 hour
Content:Detailed, step-by-step, walk through
of the manufacturer application
process involved in buying and selling
a dealership. Includes examples of
various manufacturer applications
and the particular items certain
manufacturers look for.
Franchise Law Issues________________
Major Topic Review
Duration: 2 to 3 hours
Content:Review major issues impacting
franchises including points of sale,
terminations, ownership transfers,
management changes, incentive
programs, audits, dealership
succession, mergers and acquisitions.
The BSM Report | 1st Quarter 2011 | 2
Franchise by Franchise Review
Duration: 1 to 2 hours
Content:Covers latest franchise trends
as well as issues covered in
MAJOR TOPICS REVIEW as they
apply to particular line makes.
Audience:Most commonly presented to 20
Group meetings.
Legislative Review
Duration: 1 to 2 hours
Content: Reviews a specific State’s motor
vehicle franchise law provisions.
Covers both the important provisions
which should be taken advantage of
by the motor vehicle dealers within
the State as well as areas in which the
franchise laws could be updated.
Audience:Motor Vehicle Dealer Association
directors and board members.
State of the Industry
Duration: 1.5 to 2.5 hours
Content:Covers the latest trends in the
industry – topic by topic. Focuses on
the latest trends in sales incentive
programs, facility/image programs and
dealer body consolidation programs,
etc. Includes recommendations to
avoid participation in unreasonable
programs and protect the dealer’s
investment in the franchise.
Finance and Insurance Issues_ _____
Intro to Key F&I Concepts
Duration: 1 to 2 hours
Content:Overview of current industry
developments and legal compliance
requirements facing dealership F&I
departments. Question and answer is
an integral part of this presentation.
Continuing Education for F&I
(Intermediate/Advanced Level)
Duration: 2 to 3 hours
Content:Overview of key elements of
dealership forms as well as a detailed
discussion of state and federal laws
covering F&I dealership operations.
Includes suggestions on improving
F&I performance while reducing
liability.
comprehensive on-site F&I review
Duration: 7 to 8 hours
Content:On-site comprehensive review of
dealership policies and procedures.
Sampling review of dealership deal
files. Update forms and training for
management and staff. Conduct
exit meeting with Dealer/Principal to
discuss results of review.
News Briefs
BSM Closes Eight Year Fight With Nissan North America, Infiniti Division
An eight year saga between Nissan North America’s Infiniti
Greenwich market. Eighteen months later, Infiniti placed
Division and a Fairfield County Connecticut dealer has come
a new dealership in Greenwich, with a candidate preselected
to a close. Eight years after purchasing an Infiniti dealership,
in 2002, and took away customers Devan purchased from
six years after filing a lawsuit and three years after a jury
New Country. The new Greenwich dealership substantially
found that Infiniti committed an unfair trade practice, Devan
impacted Devan’s sales performance and profits. Faced
Infiniti has settled with Nissan and foreclosed an appeal.
with the loss of a significant portion of the benefit of the
purchase of the dealership, Devan sued Infiniti.
In 2002 Devan Motors of Fairfield bought the Greenwich
Infiniti Franchise and, with Infiniti’s approval, moved
The lawsuit initially sought damages for the misrepresentations
the dealership to Fairfield. Infiniti told Devan that Devan
and deceit under the Connecticut Unfair Trade Practice Act
replaced the Greenwich dealership, that the Greenwich
and an injunction under the Connecticut Franchise Act. In
dealership was no more, it was closed, and that as Devan
2005, in an effort to resolve the matter, Devan proposed to
was moving the Greenwich dealership to Fairfield, Devan
relocate from Fairfield to Wilton. Infiniti declined to approve
was responsible for Southern Fairfield county, except
the move and Devan revised the claims in the lawsuit.
for the town of Greenwich itself, which they temporarily
assigned to the nearby White Plains Infiniti dealer. Infiniti
Two years ago Bass Sox & Mercer’s Robert Byerts led a
also told the Connecticut DMV that Devan replaced the
team during a two week trial that substantiated Devan’s
Greenwich dealership. Infiniti misrepresented to Devan that
Unfair Trade Practice Act claim against Infiniti and provided
Greenwich would not be maintained for a future dealer.
almost $1 million in damages, attorneys fees and costs.
Although Infiniti appealed the verdict, the parties thereafter
Even as Infiniti was evaluating Devan’s relocation request,
reached a settlement to put the matter to rest.
Infiniti’s people were out soliciting a new dealer for the
Compliance
New Model Privacy Requirements - It’s Not too Late to Act!
By Shawn D. Mercer, Esq.
All dealerships were required to create and begin using new privacy notices in order to enjoy a safe harbor and to meet the
form requirements set out by federal law. You should have begun using a new privacy notice on January 1. It is imperative
that your dealership immediately begins using the new privacy notice if it has not already done so.
The Federal Trade Commission and Federal Reserve Board regulations set forth very specific page layout, content, format,
style, pagination and shading requirements. Each notice must be customized to the information collection and sharing
practices of an individual dealership. The new form, which is now two pages long, is intended to replace the generic privacy
notice your dealership has likely been using for a number of years.
BSM has prepared new privacy notices for a large number of dealerships and is available to prepare your notice(s)
for only $150 per rooftop. You will receive the notice in electronic format. Send an email to [email protected] if
you wish to complete a Privacy Notice Information Sheet and have BSM prepare your privacy notice.
The BSM Report | 1st Quarter 2011 | 3
Technology
Legal Marketing Issues for Today’s Modern Dealership
It is safe to say that most, if not all, vehicle buyers
utilize the Internet during their shopping process.
This includes locating dealerships, their vehicle
inventory and customer reviews on the Internet after
watching, hearing or viewing dealerships’ targeted
advertisements.
In targeting vehicle buyers, today’s modern dealerships
have invested heavily in their individual websites and
virtual billboard advertisements such as pay-per-click
and banner advertisements. Today’s dealerships have
also used Internet-based communications such as
e-mails, instant messaging and Tweets™ to advertise
their vehicles and services, and have paid particular
attention to the way Internet users locate the vehicles
in which they are interested.
With today’s new marketing opportunities come new
risks as the changing law adapts to the evolving use
of technology for commercial transactions. This article
is intended as an overview of the many legal marketing
issues the Internet raises for the modern dealerships, and
identifies new areas of law where Bass Sox Mercer can
provide advice and counseling.
Advertisement in the New and Evolving Media
As a modern dealership, you are spending hundreds of
thousands of dollars in your print, radio, television and
online advertisements. Additionally, your investment in
advertising naturally has developed your “branded”
identity. As a result, all forms of your advertisements,
website content and brands are your intellectual
property, and they can be protected by obtaining
federal copyright and trademark registrations. Not
only do such Intellectual Property registrations
add value to your dealership’s net worth, but they
also can prevent, or quickly resolve, unfair and
deceptive practices by a competing dealership that
utilizes your copyrighted ad content or trademarks to
compete against you. If you are spending hundreds
of thousands of dollars in television, radio, Internet or
print advertisements, Bass Sox Mercer can assist you
in securing your intellectual property rights in order
to add value to your dealership’s net worth and deter
your competitors from unlawfully using it to compete
against you.
The BSM Report | 1st Quarter 2011 | 4
By Mark Ishman
Keyword Advertisements
As a modern dealership, you are also targeting your
vehicle buyers by using the same search engines
those buyers use to find information about their
desired vehicles and your dealership on the Internet.
Internet search engines, such as Google®, bing™ and
Yahoo!®, assist vehicle buyers in locating specific
websites that have information about their desired
vehicles and dealerships by displaying a list of sites
that contain search terms or “keywords” entered
by the vehicle buyer. The order in which the listed
websites appear takes on particular importance in
light of the view that only the top few sites on the first
page of the search results will be visited by a vehicle
buyer. As a result, today’s modern dealerships are
utilizing online search marketing techniques that
focus on increasing the likelihood that their specific
websites will appear near the top of generated
search results.
Used properly, online search marketing techniques
can directly increase the number of visitors to, and
sales by, your dealership. However, when these
techniques are used improperly, they can cause your
dealership to lose sales or impose liability upon it.
This occurs when a dealership, or competing dealerships,
utilizes another trademark, slogan or “catch phrase” as a
keyword in its online search marketing techniques. Such
unclean online search marketing techniques can result in
liability for trademark and copyright infringement, unfair and
deceptive business practices, fraudulent misrepresentation
and intentional interference with contractual and business
relations.
This unlawful activity typically happens in pay-per-click
advertisements where one of your competitors pays
Google® a fee each time their ad is displayed as a
search result when the potential vehicle buyer was
searching for your dealership. If you believe that you
are a victim of this type of activity, or similar unfair and
deceptive practice, Bass Sox Mercer can assist you in
stopping it and address the damages that you suffered as a
result of such unlawful activity.
continued next page
Technology
continued
E-Mail Marketing
Today’s modern dealership is also sending emails
to their existing and potential vehicle buyers. Both
federal and state law prohibit dealerships from
sending “unsolicited” advertisement emails that have
deceptive header information, or sending such emails
to recipients who have “opted out” of receiving such
communications from the dealership. Such laws also
require dealerships’ ad emails to disclose certain
information to their recipients. If your dealership fails to
comply with both federal and state email laws, then it may
face both criminal and civil liability. Before sending your next
email marketing campaign, contact Bass Sox Mercer for a
CAN SPAM compliance audit.
Reputation Management
After spending hundreds of thousands of dollars in
marketing and advertising, some dealerships lose sales
as a result of negative online reviews. These online
reviews about your dealership are usually posted
by a past unhappy customer or disgruntled former
employee, and sometimes these reviews are posted by
an anonymous author. When vehicle buyers discover such
negative online reviews about your dealership, they often will
look elsewhere. If this occurs to your dealership, Bass
Sox Mercer can assist you in analyzing negative online
comments about your automobile dealership as well
as explore various options in how you can effectively
address negative online comments including (i) quietly
and quickly removing negative online comments from
the website; (ii) post a proactive reply that discloses
how you addressed the situation and prevented it from
reoccurring; (iii) reveal the identity of an anonymous
poster(s) of the comments; and (iv) recover damages
suffered as a result of negative online comments. If you
are interested in receiving a free article on what to do if you
need assistance with your online reputation management,
please contact Bass Sox Mercer.
Security of Data Collected Online
Today’s modern dealerships must also establish and maintain
reasonable procedures to protect the confidentiality, security,
and integrity of personal and financial information they collect
and maintain from their clients and prospects. This begins
with adopting and implementing a privacy policy, as
well as an internal security policy with supporting
procedures. Without such policies and procedures,
dealerships may be violating both federal and state
law, risking criminal and civil liability that can easily be
prevented with sound analysis and planning. To ensure
that your dealership is complying with both federal and state
privacy and financial protection laws, or if your dealership
needs assistance as a result of a security breach, please
contact Bass Sox Mercer to assist you through these legal
landmines that your dealership must avoid.
IF YOUR DEALERSHIP IS FACING ANY OF THE ABOVE
IDENTIFIED LEGAL ISSUES, OR IF YOUR DEALERSHIP
DESIRES TO BE PROACTIVE AND IMPLEMENT STEPS
TO AVOID AND/OR MINIMIZE FUTURE RISKS, PLEASE
CONTACT BASS SOX MERCER.
summary
• Trademark and copyright registrations of your advertisements
add value to your dealership’s net worth
• When you obtain copyright and trademark registrations, they can
prevent, or quickly resolve, unfair and deceptive practices by a
competitor that utilizes your copyrighted ad content or trademarks
to compete against you
• It is unlawful for a competitor dealership to use your content,
copyrights or trademarks in its advertisements to compete
against you
• Your e-mail marketing practices must comply with both federal
and state spamming laws
• You need to develop a means in which you are actively monitoring
your online reputation, and acting quickly to address negative
comments about your dealership
• Dealerships must comply with both federal and state privacy and
financial protection laws in securing the personal and financial
information they collect and maintain from their clients and
prospects
The BSM Report | 1st Quarter 2011 | 5
Franchise Litigation
Battle For Mahindra Distribution Rights Continues
The dispute between Global Vehicles and Mahindra &
Mahindra continues to drag on. Global Vehicles and
Mahindra were apparently in active negotiations for
Mahindra to purchase Global Vehicles last year, but the
transaction was never consummated. Mahindra claims it
terminated Global Vehicle’s distributor agreement and there
have since been three separate litigation actions initiated.
It appears the matter will be decided in the arbitration
proceeding which is pending in London, England.
Global Vehicles just filed a revised statement of claim in the
arbitration proceeding on January 31, 2011 and the final
hearing is currently scheduled to commence on August
18, 2011. In its latest arbitration filings, Global Vehicles
claims that Mahindra breached the distributor agreement
by refusing to honor orders for vehicles and by purporting
to cancel the agreement. The amended arbitration demand
also includes claims under the Georgia Motor Vehicle
Franchise Practices Act and also alleges the purported
termination of the distributorship agreement in bad faith, in
violation of federal law.
We have also learned that Global Vehicles is in need of
financial assistance from dealers in order to fully prosecute
its claim through final arbitration hearing in August. An
informal “dealer advisory board” has sent letters to all
dealers requesting financial assistance for Global Vehicle’s
defense. The request for financial assistance is an attempt
to raise one million dollars to offset Global Vehicles’
litigation expenses.
The likelihood of Global Vehicles succeeding on the merits
of the arbitration proceeding is unclear as we do not
represent Global Vehicles and the arbitration proceedings
are designed to remain confidential. However, it appears
that based upon the information we have received to date,
both Global Vehicles and Mahindra are in agreement that
Mahindra products will come to the United States in the
future. Mahindra has acquired an electric car company
and is expected to acquire South Korean automaker
Ssangyong Motor Co. An expanded product offering for
the U.S. market is thus anticipated.
The ultimate question that may be decided by the arbitration
panel in London late this summer is which entity will
ultimately be allowed to distribute Mahindra vehicles in the
United States. We have been told that Mahindra would
The BSM Report | 1st Quarter 2011 | 6
By Shawn D. Mercer
expect many, but not necessarily all, Global Vehicles’
dealers to be retained by Mahindra, if it is ultimately
allowed to directly distribute its products. Global Vehicles
has vowed to keep its dealer network in place in the
event it prevails in arbitration. If Global Vehicles loses
the arbitration, it appears it lacks the funds to refund the
franchise fees it charged to dealers.
Finally, we have confirmed that Mahindra has in fact
secured required EPA approvals, though with worse than
expected fuel efficiency. Safety testing is ongoing. A
representative of Mahindra has assured us that Mahindra
is actively seeking to clear this last major hurdle before
being prepared to enter the U.S. market, subject also to
resolution of the arbitration dispute with Global Vehicles.
We will continue to update our Mahindra dealer clients as
more information becomes available.
summary
• Mahindra vehicles still expected to be imported to U.S.
• Global Vehicles has revised its claims against Mahindra
• Final hearing is scheduled to begin August 18, 2011
• Global Vehicles lacks the resources to refund franchise fees
if it loses arbitration
F & I Corner
Back End on the Front End
By Jason T. Allen
As you well know, the dealership’s back end business is
often more profitable than the front end. However, one
area where back end profitability can take a hit is warranty
work, which is often reimbursed by the manufacturer at
rates that can be a little as one-half to one-third of the
dealer’s retail customer rate. Many state dealer associations
have made a successful case to their respective legislatures
as to the need for increased compensation for warranty
work. In response, several states have passed provisions
requiring manufacturers to compensate dealers at a rate
no less than the rate that the dealer charges to its retail
customers.
Bass Sox Mercer has performed numerous requests for
dealers around the country and obtained rate increases
that, in many instances, more than double the dealer’s
previous reimbursement rate. Taking the time to submit
a parts and/or labor markup request and obtain the rate
increase on the front end can significantly improve the
dealership’s performance on the back end.
Declaring and obtaining the increased parts markup
and labor rates often requires the submission of certain
documentation to the manufacturer to verify the retail rate.
• Warranty parts/labor rate increases can significantly increase
a dealer’s profitability
summary
• Many states require manufacturer’s to reimburse dealer’s
at retail for warranty parts and labor
Franchise Litigation
Get Smart?
By Jason T. Allen
Would you believe that another line-make shake up is pending? Smart USA recently announced that Mercedes-Benz would take over the
Smart USA distribution network from Penske Automotive Group. It is uncertain when the transition will officially take place, but the decision
has been made. The decision has also been made to retain the Smart dealers that are also Mercedes-Benz dealers, but to not go forward
with Smart dealers that lack a Mercedes-Benz franchise.
The mechanics of the transition are largely unknown currently. However, discontinued Smart dealers have varying options depending on
the dealer’s location and the dealer’s desire to maintain its franchise, receive simple re-purchase payments, or seek fair market value for
the franchise. For example, several states have franchise law provisions that provide a franchise is ongoing despite the change in
distributor. Other states require that the dealer be paid the fair market value of its franchise if it is cancelled due to the change in a distributor.
Finally, almost all states provide dealers with basic repurchase rights and some sort of facility assistance.
It is important for a Smart dealer in this circumstance to evaluate its options, its Smart operation, and what it desires to seek in return for
the Smart franchise cancellation. The termination of a franchise is subject to state franchise law, and in most states the requirement is on
the manufacturer to possess “good cause” in order to terminate a franchise. A
terminated dealer, in most states, is entitled to seek appropriate compensation
as a result of the termination. A Smart dealer desiring to seek any of the options
stated above should consult experienced dealer franchise counsel regarding
what options are available and the timing requirements to seek them.
summary
• Many states require manufacturer’s to reimburse dealer’s
at retail for warranty parts and labor
• Warranty parts/labor rate increases can significantly increase
a dealer’s profitability
The BSM Report | 1st Quarter 2011 | 7
PRSRT STD
US POSTAGE
PAID
TALLAHASSEE FL
PERMIT NO. 8
2822 Remington Green Circle
Tallahassee, Florida 32308
www.dealerlawyer.com
Nothing contained is this newsletter is to be considered as the rendering of legal advice. Readers are responsible for obtaining such
advice from their own legal counsel. The content of this newsletter is intended for educational and informational purposes only.
“Leveling the playing field
between automobile
dealers and manufacturers
for over 20 years.”
Jason T. Allen*
Robert A. Bass*
Robert C. Byerts*
- Automobile/Truck/Motorcycle Franchise Law
- Dealership Successions
- Dealership Mergers & Acquisitions
- Terminations
Shawn D. Mercer**^
- Transfer of Ownership/
- Franchise and Consumer Related Litigation
Change of Management
Richard N. Sox, Jr.*
- Finance and Insurance Compliance
- Add Points
- Warranty and Incentive Audits/Chargebacks
Of Counsel:
Michael L. Frazier **
Mark W. Ishman **
Frank P. Rainer *
* Admitted in Florida
** Admitted in North Carolina
^ Certified Mediator
2822 Remington Green Circle | Tallahassee, Florida 32308 | Tel 850.878.6404 | Fax 850.942.4869
9104 Falls of Neuse Road, Suite 200 | Raleigh, North Carolina 27615 | Tel 919.847.8632 | Fax 919.847.8633
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