Category Archives: dealership agreement

When is a Franchisor Required to Provide a 180-Day Notice of Termination of a Dealership Agreement Under the New York Franchised Motor Vehicle Dealer Act?

Compass Motors, Inc. (“Plaintiff”) was a franchised motor vehicle dealer for Volkswagen Group of America, Inc., (“Defendant”).  As a part of the dealership agreement, Plaintiff agreed to renovate its facilities pursuant to a Facility Renovation Agreement (the “Agreement”). The Agreement required Plaintiff to renovate its facilities in order to incorporate a Volkswagen-only showroom with a minimum of 1800 square feet and three offices. According to the Defendant, the Plaintiff failed to implement those required facility renovations. Id. at 284-285 As a result, the Defendant sent Plaintiff a 90-day notice of termination. The notice explained that if Plaintiff failed to cure the alleged breach within 90 days Defendant would terminate the dealership agreement between them.  Id.

Plaintiff commenced an action in the Supreme Court of New York (the “Court”), seeking a declaration that the notice of termination was invalid. Compass Motors, Inc. v. Volkswagen Group of America, Inc., 944 N.Y.S. 2d 845 (2012). Plaintiff argued that under the New York Franchised Motor Vehicle Dealer Act (the “Act”), particularly §463(2)(e)(3), Defendant was required to give it a 180-day, as oppose to a 90-day, notice to cure. In its analysis, the Court cited the relevant portions of the Act as follows:
¶463(2):
        (d) 

(1)  To terminate, cancel or refuse to renew the franchise of any franchised motor vehicle dealer except for due cause, regardless of the terms of the franchise. A franchisor shall notify a franchised motor vehicle dealer, in writing, of its intention to terminate, cancel or refuse to renew the franchise of such dealer at least ninety days before the effective date thereof, stating the specific grounds for such termination, cancellation or refusal to renew. In no event shall the term of any such franchise expire without the written consent of the franchised motor vehicle dealer involved prior to the expiration of at least ninety days following such written notice except as hereinafter provided.    

(e)
(3) The franchisor shall provide notification in writing to the dealer that the dealer has one hundred eighty days to correct dealer sales and service performance deficiencies or breaches and that the franchise is subject to termination under this section if the dealer does not correct those deficiencies or breaches. If the termination is based upon performance of the dealer in sales and services then there shall be no due cause if the dealer substantially complies with reasonable performance provisions of the franchise during such cure period and, no due cause if the failure to demonstrate such substantial compliance was due to factors which were beyond the control of such dealer.

Vehicle and Traffic Law, article 17-A §463 (emphasis added) 
The Court stated that subsection (2)(e)(3) which affords a breaching party notice that he or she has 180 days to cure prior to termination of the dealership agreement, by its plain terms, applies  only to notices to correct a dealer’s sales and service performance deficiencies or breaches. The Court explained that since Defendant’s notice of termination was based upon Plaintiff’s failure to properly renovate its facility in accordance with the Agreement, it had nothing to do with sales and service performance deficiencies or breaches. Therefore, the Court held that the 180-day notice requirement encompassed within §463(2)(e)(3) was not applicable. On this basis, the Court  concluded that the 90-day notice to cure was sufficient under the Act. Id. at 294-295.