The Georgia Court of Appeals has soundly rejected a consumer’s attempt to impose vicarious and direct liability on a motor vehicle manufacturer for the conduct of a failing Georgia dealer. In DaimlerChrysler Motors Co., LLC v. Clemente, No. A08A0870, slip op. (Sept. 25, 2008), the court held that neither a dealer agreement giving a motor vehicle manufacturer the right to terminate its relationship with a dealer under certain circumstances, nor the Georgia Motor Vehicle Franchise Practices Act (O.C.G.A. §§ 10-1-620 to 10-1-670), created any type of relationship or duty that would justify the imposition of liability on the manufacturer for the acts of the independent dealer. To view the court’s opinion, click here.

Clemente involved claims by a consumer against Chrysler based on a financially struggling dealer’s failure to pay off the outstanding lien on the vehicle the consumer had traded in at the time she purchased a vehicle. The dealership was eventually shut down by the State of Georgia for failure to pay taxes, and Chrysler terminated the dealer agreement. The consumer originally filed suit against the dealer and later added both Chrysler and Chrysler Financial, which had provided the dealer’s floor plan financing.1

The consumer asserted a number of claims against Chrysler based on vicarious and direct liability theories. Several claims were rejected in the trial court on summary judgment, including the consumer’s claims for conversion, Georgia RICO violations, and recovery for emotional distress.2 However, the trial court threatened to up-end longstanding Georgia agency law by denying the remaining portion of Chrysler’s motion for summary judgment and holding that a motor vehicle manufacturer could be vicariously liable to a consumer for the acts of an independent dealer. Moreover, the trial court created new law by holding that the Georgia Motor Vehicle Franchise Practices Act and the dealer agreement each imposed a duty on a motor vehicle manufacturer on behalf of consumers to police and terminate dealers when they failed to comply with terms of the agreement between the manufacturer and dealer. Based on the duty it found, the trial court held that a motor vehicle manufacturer could be liable to a consumer for failing to terminate the dealership agreement, thereby giving the dealer an opportunity to cause harm to the consumer.

The Court of Appeals reversed, holding that Chrysler was entitled to summary judgment on all claims brought by the consumer. First, as to the consumer’s claims based on vicarious liability, the Court of Appeals held that notwithstanding certain provisions in the dealer agreement setting standards and permitting the manufacturer to terminate the agreement if these standards were not met, the consumer failed to establish that the manufacturer controlled the time, manner, and method of the dealer’s day-to-day activities, essential elements of an agency under Georgia law. By reversing the trial court, the Court of Appeals followed long-standing precedent that a franchisee does not act as an agent of its franchisor, despite provisions in a franchise agreement permitting a franchisor to impose certain standards to protect its reputation and trademark.

The Court of Appeals likewise rejected the trial court’s ruling that the standards imposed on the dealer in the dealer agreement created a duty by the manufacturer to police the dealer and protect consumers from harm that could result if the dealer failed to adhere to those standards, holding the agreement “does not impose an affirmative, nondiscretionary obligation upon [the manufacturer] to terminate [the agreement], the breach of which can serve as the basis for liability. Consequently, the Dealer Agreement poses no affirmative duty upon [the manufacturer] to police [the dealer’s] business practices and terminate the Agreement upon learning of [the dealer’s] default.” Slip op. at 22-23.

The Court of Appeals also rejected the trial court’s finding that the Georgia Motor Vehicle Franchise Practices Act created a duty on motor vehicle manufacturers to protect consumers from dealer misconduct, explaining that “the purpose of the Franchise Practices Act is to regulate the relationship between motor vehicle franchisors and their franchise dealers in the state of Georgia.” Id. at 20. The court explicitly held “[g]iven its statutory structure, it is clear that the Act does not create any duties running to an automobile consumer from a franchisor either explicitly or implicitly.” Id. at 20-21.

This is the first time the Court of Appeals has addressed Georgia agency law in the context of a motor vehicle manufacturer/dealer relationship, as well as addressed whether duties run from motor vehicle manufacturers to consumers under dealer agreements and the Georgia Motor Vehicle Franchise Practices Act.

The court also addressed for the first time in Georgia the question of whether programs implemented by a motor vehicle manufacturer to encourage independent dealers to take steps to improve customer satisfaction, such as by allowing a dealer to display certain licensed trademarks indicating the dealer has met program standards, could support consumer claims of fraud or negligent misrepresentation against the manufacturer when the dealer engages in misconduct toward the consumer. The court reversed the trial court’s ruling that the dealer’s continued display of Chrysler’s Five Star trademark pursuant to a licensing agreement after Chrysler had notice of the dealer’s default of various terms of the dealer agreement, could be construed as a misrepresentation to the public by Chrysler that the dealer offered superior products and service that could support a fraud or negligent misrepresentation claim. The court held, “[b]y certifying [the dealer] as a Five Star dealership, [the manufacturer] was not guaranteeing or insuring that a customer would be fully satisfied with [the dealer] or that [the dealer] would fulfill all of its own contractual duties owed to the customer. Yet, such a guarantee would be the practical result if we were to hold that representations that [the dealer] offered ‘superior products and service to the public’ and provided ‘superior performance’ were actionable.” Id. at 27.

Other highlights of the court’s decision include the following:

  • The court reversed the trial court’s ruling that Chrysler could be found to have ratified the dealer’s failure to pay off the lien on the consumer’s trade-in vehicle, holding that the consumer presented no evidence that Chrysler benefited in any way from the dealer’s failure to pay off the consumer’s trade-in.
  • Reiterating its holding that a motor vehicle manufacturer owes no duty to consumers to police dealers and terminate dealers in default of their dealer agreements, the court reversed the trial court’s ruling that Chrysler’s failure to terminate its dealer agreement with the dealer earlier could be found to have tortiously interfered with the consumer’s contract with the dealer regarding the pay-off of the lien on her trade-in vehicle.
  • The court upheld the trial court’s exclusion of the consumer’s expert witness Robert Dilmore, albeit on different grounds than relied on by the trial court. While the trial court excluded the expert on the grounds that he had been untimely disclosed, the Court of Appeals affirmed the exclusion on the grounds that the expert’s opinions were merely legal conclusions that a jury could have reached on its own. Based on a review of the pleadings, contracts, correspondence between the parties, and other business records, these opinions had included that Chrysler and Chrysler Financial were “inextricably intertwined” and that Chrysler had “absolutely held the purse strings” of the dealership and thus became responsible for the dealer’s actions. Id. at 40.