The Georgia Court of Appeals has once again rejected an attempt by consumers to recover damages from a motor vehicle manufacturer based on the acts of one of its franchised dealers. In Kia Motors America, Inc. v. Clark, No. A09A0105, slip op. July 10, 2009, the Court held that a manufacturer cannot be held liable for the tortious conduct of one of its dealers based on the franchise relationship between the manufacturer and the dealer.
Clark involved claims by consumers against Kia Motors on the grounds that one of Kia Motors’ dealers failed to pay off outstanding liens on vehicles consumers traded in at the time they purchased a vehicle and also failed to procure gap insurance, extended warranties and life insurance purchased by consumers as part of their transactions.
The consumers asserted their claims against Kia Motors under theories of both direct and vicarious liability. The trial court denied Kia Motors’ motion for summary judgment. The Court of Appeals reversed, holding Kia Motors was entitled to summary judgment on all claims brought by the consumers.
First, the Court of Appeals rejected the argument that Kia Motors could be directly liable for the dealer’s actions based on a conspiracy between the dealer and Kia Motors to defraud the consumers, holding the consumers failed to present any evidence of the existence of a conspiracy. The Court, moreover, rejected the consumers’ arguments that a conspiracy could be inferred based upon provisions in the dealer agreement between Kia Motors and the dealer requiring the dealer to submit its business and operating plans to Kia Motors for final review and approval, and providing for periodic performance evaluations by Kia Motors. The Court held these provisions “merely provided general standards for dealership operations, but did not give Kia Motors authority to control [the dealer’s] operations or give Kia involvement in the process of accepting trade-in vehicles or paying the liens on those vehicles.” The Court, likewise, rejected the consumers’ argument that Kia Motors could be presumed to have engaged in a conspiracy with the dealer based upon the dealer relationship, in general. Citing to its recent holding in DaimlerChrysler Motors Co. LLC v. Clemente, 294 Ga. App. 38 (2008), the Court reaffirmed long-standing Georgia law that a franchisor does not become liable for the acts of a franchisee merely because of the franchise relationship between the parties.
Second, the Court of Appeals rejected the consumers’ arguments that Kia Motors could be held vicariously liable for the dealer’s actions, again reaffirming long-standing precedent that, in Georgia, a franchisor is not liable for the acts or obligations of its franchisee absent the franchisor’s affirmative commitment to be so obligated or facts showing the franchisee was in fact acting as the franchisor’s agent or alter ego. The Court held it was undisputed that Kia Motors had not obligated itself to be responsible for the dealer’s acts or liabilities and also held there was no evidence to support the claim that the dealer was acting as Kia Motors’ agent when it engaged in the alleged misconduct. The consumers had provided no evidence that Kia Motors controlled the time and manner by which the dealer conducted its business, the litmus test for agency under Georgia law. The Court rejected the consumers’ argument that the provisions in the franchise agreement setting forth standards and giving Kia Motors the right to evaluate the dealer’s compliance with the agreement conferred such control to Kia Motors over the dealer that the dealer was acting as Kia Motors’ agent. The Court noted that a franchisor “may exercise sufficient control over its franchisee to protect the franchisor’s national identity and professional reputation, while foregoing such a degree of control that would make it vicariously liable for the acts of the franchisee.”
The Court also rejected the argument that Kia Motors had ratified the dealer’s conduct, as there was no evidence that Kia Motors benefitted from the dealer’s conduct and a provision in the dealer agreement requiring the dealer to “vigorously and aggressively sell and promote Kia products” did not amount to Kia Motors authorizing the dealer to commit fraud.
On the whole, the Court’s holding in Clark reinforces the precedent it explicitly established in Clemente, that motor vehicle manufacturers are not liable for the misconduct of their dealers, notwithstanding the rights and controls conferred to manufacturers in their dealer agreements. Clark also follows the long line of Georgia precedent that a franchisor/franchisee relationship is not sufficient to create any type of relationship that would make the franchisor liable for the acts or omissions of its franchisee.