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Senator HART. Thank you, sir.

Mr. SLACK. May we next present Professor Macaulay, Mr. Chairman?

Senator FONG. May I ask Mr. Zukerkorn one question? Mr. Zukerkorn, what kinds of practices was the proposed Hawaiian legislation designed to prohibit?

Mr. ZUKERKORN. Coercive practices primarily were written into this bill to prevent the manufacturer from using a dealer as a conduit to sell cars to new drivers and complete sales at prices lower than the dealer could buy himself from the same manufacturer. This was primarily at that time, directed mostly at Chrysler and Ford, who were directly involved in that practice. Now, we have all three in that same business. Senator FONG. Thank you.

Mr. MACAULAY. I am Stewart Macaulay, professor of law, University of Wisconsin Law School, Madison.

I have been asked by the National Automobile Dealers Association to discuss the effectiveness of the Automobile Dealers' Day in Court Act (15 U.S.C. 1221-25), which Congress passed in 1956. First, I will explain why dealers have not been very successful in pressing claims under that statute and than I will consider possible indirect effects of that act.

The automobile dealers, with a few exceptions, have not won suits brought under the Automobile Dealers' Day in Court Act, nor received significant settlements after commencing suit. I have attempted to compile some statistics relying on reported cases and newspaper stories. Undoubtedly, my figures are rough, but I think this is the best one can do without the cooperation of all of the manufacturers. Undoubtedly, the manufacturers could supply the committee with much exact data if it were desirable. Tactically, one could not expect them to give out this information freely.

I found 103 cases brought under the act. I have no information about the results in 34 of these cases. In some instances the cases are still pending; whereas in others I have not been able to find out what happened. That means I know the outcome of 69 cases. In 43 of these 69 the dealer lost. In four of the 69 the dealer won the final judgment. In 23 cases there was some kind of settlement made to end the litigation. What can we say about those cases where the dealer won or received a settlement? First, the four cases won by dealers: In one the dealer sued Willys Motors for $350,000, alleging wrongful termination of his franchise and refusal to take back parts as called for by the selling agreement. He received a verdict of $8,800, or 22 percent of what was asked. It seems likely that this covered only the repurchase of parts. And really was not a good-faith act case at all.

In the Madsen case, the district court found that Chrysler ignored its own requirement for adequate sales by dealers as a matter of practice and then tried to assert it as reason to cancel a franchise when it really wanted to get rid of a dealer so that it could replace it with a larger company-financed dealership. Because of the nature of Chrysler's franchise and practices involved here, the case is unlikely to have too much impact. Moreover, the parties reached a settlement while the case was pending before the seventh circuit, and we cannot be sure what would have happened on appeal. In the third case, a distributor of Volkswagens, who is a manufacturer for purposes of the statute, was

found to have attempted to force a dealer to give the distributor a share of the ownership of the dealer's business, a situation unlikely to arise in a case involving an American manufacturer. Finally, in the fourth case won by a dealer, Semke v. American Motors Sales Corporation, the tenth circuit affirmed an $18,000 judgment for the dealer. Since my statement was written I have had a chance to look at the opinion in the Semke case, and I would like to add to my statement here some comments about it.

I think the Semke case involves another fairly typical situation. There the dealer could not get Rambler Classic models unless he also ordered Rambler Americans. As a result, he terminated the franchise and sued for the profits he would have made had he been able to stay in business. In the court's words:

The record here shows that Semke was considered a good dealer by American Motors and had not failed to live up to the franchise provisions. In any respect, the question presented here is not whether the manufacturer was justified in terminating.

In the majority of cases arising under the act, however, the question is precisely whether or not the dealer failed to live up to the franchise. Moreover, Semke involves a rather clear and blatant case of coercion under the most restrictive definition of that word. This kind of tie-in sale is just clearly out of bounds however you look at it.

Next, the dealer, Semke, was able to establish damages because he terminated his franchise. The court concluded he was driven to this. But what does the case offer the dealer who wants to keep his franchise and not go out of business? If such a dealer wants to keep his franchise, takes the unwanted Americans, say, to get Classics, his only damages would be a few hundred per car at the most, the loss on selling the Americans hardly worth suing about but certainly obnoxious behavior nonetheless. Finally Semke does not deal with any of the other problems raised by Mr. Slack and all the other witnesses this committee has heard.

I think we can say in any event the 10th circuit decision stands alone in the face of opinion from a number of other circuits that read the statute very narrowly.

In summary, there were 10 cases decided, 2 in favor of the dealers, 8 against.

It is harder to talk about the settlements since we know so little about what is essentially a private matter. However, every indication is that the vast majority of settlements are small payments to end the nuisance of litigation; manufacturers have stated that this was so in several instances where they commented on the settlement in particular

cases.

How can we explain this relative lack of success by the automobile dealers under a statute passed to protect them? At the outset one must acknowledge that it is possible that few dealers have won because few have had anything to complain about. Certainly, some of the cases involve dealers who, on the basis of the facts given the court's opinion, have little claim to our sympathy. Some believe the internal review systems within the manufacturers' organizations filter out many cases where the dealer would have had a good case had the recommendation of the manufacturer's fieldmen been sustained. But there is good reason to doubt that this is the entire answer. Rather there is good cause

to assert that the statute does not work the way Congress expected it to work.

From a practical standpoint, the manufacturers are in a much better position to fight a claim made under this statute than dealers are to press one, quite apart from the merits of the case. Why is this so? First, there are major difficulties in statutory construction. On one hand, this means that the statute can be construed so that it does not apply to any case likely to arise in the real world, and it appears that the statute often has been interpreted this way by the courts. On the other hand, it means that any attorney taking a dealer's case assumes the burden, not only of trying the facts but of writing a persuasive brief on a difficult subject and being ready to battle the case through the courts.

Let us look at the statute itself. The Dealers' Day in Court Act provides that a dealer may recover if a manufacturer fails to act in "good faith." The critical provision (15 U.S.C. 1222) is the definition of good faith. It defines "good faith" as "the duty of each party *** to act in a fair and equitable manner *** so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided, That recommendation, endorsement, exposition, persuasion, urging, or argument shall not be deemed to constitute a lack of good faith." This tells us that a dealer can recover for coercion or intimidation without defining those terms. Then, in a clause the Ford Motor Co. has said it drafted, it tells us that "recommendation, endorsement, exposition, persuasion, urging, or argument" by a manufacturer that holds the power to cancel a dealer's franchise is not coercion. Ford vigorously opposed passage of the statute; when it could not head off enactment it achieved almost the same result by persuading the House committee to tack on the proviso. In effect, it seems to me, the statute says "there shall be no coercion except almost all kinds of coercion short of physical violence, shall be allowed." The moral is that there are many ways to win a legislative battle.

The most common case brought under the act involves a dealer whose franchise was ended because he failed to sell enough cars to keep his manufacturer happy. Manufacturers and dealers often differ about how many sales are enough. How does the statute apply to this kind of case? The manufacturer has the best position. The dealer has to show some coercion under this act. Coercion means some kind of wrongful threat. Usually the dealer has been warned that his franchise will be terminated unless he sells more cars. Is this threat wrongful and hence coercive? It is only if it is a threat to breach the franchise contract. And here is the real difficulty: The dealer's sales requirement under the typical franchise calls for adequate sales as measured by a very complicated objective-looking formula that actually calls for the exercise of a good deal of discretion and judgment by the manufacturer's personnel who apply that formula.1

And contract law is unclear as to what is a breach of this kind of contract. Must that judgment as to adequacy of sales be only in "good faith" or must it go beyond good faith and be "reasonable" as well? If the manufacturer's representative threatened to recommend can

1 One who has read the standard franchise cannot fail to be amused by the manufacturers' demand that any statute affecting them be a model of precision. Clearly they are employing a double standard.

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