, No. 13-cv-0520, 2013 U.S. Dist. LEXIS 67795 (May 10,
2013)
Many state motor vehicle dealer statutes require that franchisors
provide dealers with an opportunity to cure contractual breaches
prior to implementing terminations. The question of whether such a
statutorily-mandated cure provision required a motor vehicle
franchisor to provide a dealer with an opportunity to cure a breach
that, absent the statute, would be incurable was recently decided
by the United States District Court for the Eastern District of New
York in Giuffre Hyundai, LTD v. Hyundai Motor America, No.
13-cv-0520, 2013 U.S. Dist. LEXIS 67795, at *4-5 (May 2, 2013). The
New York Franchised Motor Vehicle Act (the "Dealer Act")
requires that a franchisor provide a dealer with a "reasonable
time" to cure a material breach of contract that forms the
basis for a termination. N.Y. Veh. & Traf. Law §
463(2)(e)(2). The Dealer Act does not, however, expressly address
the interplay of the statutory cure period with common law
principles applicable to incurable breaches. In Giuffre,
the court concluded that the Dealer Act does not require a motor
vehicle franchisor to provide a dealer with an opportunity to cure
breaches that were incurable under New York common law.
Termination of the Franchise and the Prior
Lawsuit
Hyundai Motor America ("Hyundai") and Giuffre Hyundai,
LTD (the "Dealer") had a longstanding franchise
relationship. The parties' franchise agreement contained a
termination provision that permitted Hyundai to terminate the
Dealer upon a finding by any court or government agency that the
Dealer engaged in, among other bad acts, any misrepresentations or
unfair or deceptive trade practices. In a prior civil lawsuit
brought by the Attorney General of the State of New York against
the Dealer, a state trial court found that the Dealer had engaged
in widespread deceptive business practices that violated several
state and federal consumer protection laws. Relying on this
finding, Hyundai terminated the Dealer's franchise for
"material and incurable breach of its obligations" under
the franchise agreement. Hyundai provided the Dealer with the
statutorily-mandated ninety days written notice of termination, but
did not provide the Dealer an opportunity to cure the breach.
The Dealer filed an action against Hyundai seeking reinstatement of
its dealership. On cross-motions for summary judgment, the Dealer
challenged Hyundai's notice of termination, contending, among
other things, that Hyundai failed to provide the Dealer with an
opportunity to cure the breach in violation of Section 463(2)(e)(2)
of the Dealer Act. Hyundai contended that no opportunity to cure
was required because the breach was incurable.
New York Common Law Principles Relating to Incurable
Breaches Are Not Modified by Statutory Opportunity to
Cure
Under the Dealer Act, "due cause" is required before a
franchisor may terminate a dealer, regardless of the terms of the
franchise agreement. N.Y. Veh. & Traf. Law § 463(2)(d)(1).
A franchisor terminating under this provision must give the dealer
ninety days written notice of its intent to terminate. Id.
At issue in this case was Section 463(2)(e)(2) of the Dealer Act,
which mandates that such written notice of termination must be
issued with "due cause" and in "good faith."
N.Y. Veh. & Traf. Law § 463(2)(e)(2). This provision
provides that "due cause" exists when there is "a
material breach by a new motor vehicle dealer of a reasonable and
necessary provision of the franchise if the breach is not cured
within a reasonable time after written notice of the breach
has been received . . ." Id. (emphasis added).
The court found that a provision of the franchise agreement
explicitly required the Dealer to "maintain a high standard of
ethical care in the operation of the franchise," and concluded
that the Dealer's widespread deceptive business practices were
"egregious violation[s]" of that provision. Id.
at *10. The court concluded that the breach was material and
incurable because it went to the essence of the franchise agreement
and "fundamentally damaged the parties' business
relationship." Id. at 10. The "reputational
poisoning" of the public's trust in Hyundai caused by the
Dealer's breach and bad conduct, the court reasoned, could not
be cured without "turning back the clock." Id.
at *10-11.
The court recognized that Section 463(2)(e)(2) of the Dealer Act
prescribes a cure period, but rejected the Dealer's argument
that Hyundai was required to provide the Dealer with a right to
cure its breach. The Dealer Act, the court concluded, does not
abrogate the New York common law principle that a party to a
contract commits a material breach when it violates a provision
that goes to the "root of the agreement" between the
parties. Id. at *7-8. New York law permits a party to
"terminate an agreement immediately and without notice and an
opportunity to cure when the misfeasance is incurable and when the
cure is unfeasible." Id. at *9-10. The court found
that Hyundai had ample basis for terminating the Dealer and did so
with due cause and in good faith, as the statute required.
Id. at *12. Finding that no opportunity to cure was
required, the court granted summary judgment in favor of Hyundai
and dismissed the case.
Ordinarily, where statutory law conflicts with a common law
principle or claim, the statutory law controls. See, e.g.,
Israel v. Chabra, 537 F.3d 86, 100 (2d Cir. 2008). However,
under New York common law, there is a presumption that statutory
law does not override the common law unless "a clear and
specific legislative intent" is found. Id. (citing
Hechter v. N.Y. Life Ins. Co., 46 N.Y.2d 34, 39 (1978)).
Although the court in Giuffre did not perform a
"clear and specific legislative intent" analysis, it
appeared to apply this presumption when it found that the Dealer
Act did not modify common law concepts applicable to incurable
breaches. See Giuffre, 2013 U.S. Dist. LEXIS, at
*10.
This decision highlights a potentially useful argument for motor
vehicle franchisors when addressing the cure periods that are
frequently mandated by state motor vehicle dealer statutes. Such
statutes rarely, if ever, expressly address whether a right to cure
is required for breaches that are incurable. Indeed, given the
prevalence of special statutory provisions providing for immediate
or expedited terminations for certain forms of inherently incurable
breaches, such as convictions of felonies that impact on the
franchised business or insolvency, see, e.g., N.Y. Veh.
& Traf. Law § 463(2)(d)(3), motor vehicle franchisors can
argue that the legislatures in most states have recognized that not
all breaches are capable of being cured. In Giuffe, the
court took that analysis one step further by recognizing that the
Dealer Act does not require a right to cure where the breach is
incurable as a matter of common law.
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