United States District Court, D. Arizona
NEIL V. WAKE, District Judge.
Before the Court is Defendant Chrysler Group, LLC's Motion to Dismiss (Doc. 21), Plaintiff Alfonzo Smith's Response (Doc. 22), and the Reply (Doc. 23). For the following reasons, Chrysler Group's Motion to Dismiss (Doc. 21) will be denied in part and granted in part.
For the purpose of this Motion to Dismiss under Rule 12(b)(6), all allegations of material fact are assumed to be true and construed in the light most favorable to the non-moving party. Cousins v. Lockyer , 568 F.3d 1063, 1067 (9th Cir. 2009). In 1999, Plaintiff Alfonzo Smith voluntarily sold his ownership interest in a Virginia-based Chrysler dealership as part of a Chrysler plan to consolidate dealerships. In exchange for selling his ownership interest in the Virginia dealership, Smith was given a first right of refusal on purchasing a new dealership. He exercised that right by entering into a contract purchase the Superstition Springs Chrysler Dealership (the "Dealership") that Chrysler was constructing in Superstition Springs, Arizona. To finance his purchase, Smith opted into Chrysler's Marketing Investment Program which allowed him to finance the purchase of the dealership with minimal initial capital outlay.
In 2001, the Dealership submitted an application to transact business in Arizona to the Arizona Corporation Commission. The Dealership's application was approved, but Smith was not listed as a director or officer. The application listed all officers and directors as located at "1000 Chrysler Drive, Auburn Hills, MI 48326." (Doc. 21, Exb. A). After gaining approval to transact business in Arizona, Chrysler and the Dealership executed a Sales and Service Agreement which outlined Chrysler's requirements of the franchise Dealership, including the minimum working capital. (Doc. 21, Exb. B). The agreement listed Smith as the Dealership's General Manager and awarded him 100% of the Dealership's non-voting stock. Chrysler's predecessor is listed as owning 100% of the voting stock, and Richard Bridenstine is listed as the Dealership's president. Chrysler asserts the Sales and Service Agreement was executed by Bridenstine on behalf of the dealership, but Smith asserts he was the one to sign on behalf of the dealership. The signature on the document filed with this Motion suggests Smith may have signed the agreement because although the signature is illegible, the title of the signee is described as "Director/GM, " which suggests it was signed by the General Manager, Smith. A second Sales and Service Agreement was executed in 2009 with what appears to be the same signature. (Doc. 21, Exb. E).
In 2003, Smith and Chrysler executed the Stock Agreement which outlined the terms under which Smith and Chrysler could purchase and sell their respective stock holdings. Under the agreement, Smith owned 100% of the Dealership's common, non-voting stock while Chrysler owned 100% of the preferred, voting stock. It was contemplated that Smith would eventually purchase all of Chrysler's preferred stock and obtain complete ownership of the Dealership. The Stock Agreement gave Smith the right to ask the Dealership's Directors to redeem all shares of preferred stock, but Chrysler was permitted to decline the request if the Dealership lacked the minimum working capital outlined in the Dealership's Sales and Service Agreement. The Stock Agreement also provided that until Smith had purchased all of the preferred, voting stock, Chrysler owed all shares of voting stock and could use that voting power to remove Smith as Director or General Manager.
At the same time he executed the Stock Agreement, Smith entered into a Bonus Agreement with the Dealership which provided that, in addition to his salary, the Dealership would pay him a bonus of 25% of the operating profit, at least half of which Smith was required to use to purchase preferred stock from Chrysler. In the Bonus Agreement, Smith signed his initials next to the paragraph describing how he was an at-will employee, subject to the absolute right of the Dealership or Chrysler to remove him. (Doc. 21, Exb. C). If Smith ceased to be General Manager before acquiring all of Chrysler's preferred stock, Smith would be forced to surrender his stock to Chrysler at a value determined by the Dealership's auditor. ( Id. ).
In his role as General Manager, Smith undertook many of the responsibilities of any other franchised dealer, including negotiating financing arrangements with lenders to stock the Dealership and abiding by Chrysler's franchise terms and conditions. (Docs. 22). By 2012, Smith was a majority owner in the Dealership, holding 68.5% of the outstanding stock. (Doc. 19, ¶ 52). Financials as of August 2012 suggest Smith would have been able to use his year end bonus to purchase Chrysler's remaining preferred stock. ( Id. at ¶ 66).
In September 2012, a Chrysler Area Sales Manager visited Smith at the Dealership to go over the June 2012 sales numbers, specifically the Minimum Sales Responsibility, a metric designed by Chrysler to establish threshold sales quotas for dealerships. (Doc. 19, ¶¶ 54-56). The Dealership was meeting the Minimum Sales Responsibility for certain vehicles but falling below the Minimum Sales Responsibility on others. ( Id. at ¶ 54). A "Dealer Minimum Sales Responsibility Action Plan" was developed to address various ways Chrysler and Smith could improve the Minimum Sales Responsibility metric. ( Id. at ¶ 55). Less than a month later, a Chrysler employee, Mitch Mitchel emailed Smith a spreadsheet covering the Dealership's August 2012 financials. ( Id. at ¶ 56). Mr. Mitchell stated that because the dealership was only at 71.2% of the Minimum Sales Responsibility, and needed to be at 100% Minimum Sales Responsibility for Smith to complete his acquisition of the Dealership, it seemed unlikely Chrysler would allow Smith to purchase all outstanding stock by the March 2013 deadline. ( Id. at ¶¶ 57-58). Up until that point, Smith was unaware of any preferred stock acquisition deadline, but he was unconcerned because it was his understanding that Chrysler rarely took adverse action against dealerships that fell behind the Minimum Sales Responsibility, and he was confident he would be able to purchase the outstanding stock by that date. ( Id. , Doc. 22).
On October 29, 2012, Smith was terminated as General Manager and as a member of the Dealership's Board of Directors. (Doc. 19, ¶ 62). Chrysler notified neither Smith nor the Director of the Arizona Department of Transportation of its actions. ( Id. at ¶ 63). Smith asserts that Mr. Mitchell informed him that the reason for his termination was that one of his employees may have had a conflict of interest with an outside company the Dealership did business with. ( Id. ). Smith now asserts that Chrysler has either terminated or is about to terminate the Dealership franchise in bad faith and has moved forward with its plan by registering the trade name "Superstition Springs Chrysler Jeep Dodge Ram, " which is owned by Superstition Springs Mid LLC, a Chrysler-controlled entity. (Doc. 22).
Chrysler asserts it was entitled to fire Smith because he was an at-will employee of the Dealership, as defined in the Bonus Agreement. (Doc. 21, Exb. D). Smith, however, argues he was a Chrysler franchisee and his termination was in violation of federal laws which require a franchisor to act in good faith when terminating a dealership, 15 U.S.C. § 1222, and in violation of Arizona law, which requires a franchisor to provide notice to the Arizona Department of Transportation and show good cause for terminating the franchise, A.R.S. §§ 28-4453(D); 28-4457.
To challenge his termination, Smith first lodged a petition with the Arizona Department of Transportation, entitled "Petition to Enforce Dealer Franchise Laws and Request for Hearing." (Doc. 21, Exb. G). The Arizona Department of Transportation responded by saying it lacked authority to preside over an administrative hearing in the matter. (Doc. 21, Exb. H). Smith next submitted a petition for reconsideration, which was denied, as the Administrative Law Judge concluded the dispute appeared "to be a wrongful termination suit as opposed to [one for] franchise or dealer violations" and that the Arizona Department of Transportation did not have jurisdiction over Smith's claims. (Doc. 21, Exb. J). Smith then filed this action.
In his First Amended Complaint (Doc. 19), Smith alleges Chrysler violated the Automobile Dealers' Day in Court Act (Count I), he is entitled to seek a declaratory judgment as to his franchisee status under Arizona and federal law (Count II), he is entitled to seek a declaratory judgment that he was a person in a "bona fide relationship" with Chrysler under Arizona law (Count III), he is owed civil damages pursuant to A.R.S. § 28-4307 due to Chrysler's alleged illegal ownership interest in the Dealership (Count IV), he is owed civil damages pursuant to A.R.S. § 28-4307 for Chrysler's failure to provide notice and show good cause for his terminations (Count V), Chrysler tortuously interfered with his contract and business expectancy with the Dealership (Count VI), and Chrysler committed breach of contract and breach of the implied covenant of good faith and fair dealing (Count VII). Chrysler moves to dismiss Counts I, II, III, IV, VI, and VII under Rule 12(b)(6), Federal Rules of Civil Procedure. (Doc. 21).
II. RULE 12(b)(6), FEDERAL RULES OF CIVIL PROCEDURE
A motion to dismiss challenges the legal sufficiency of the plaintiff's pleadings. Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure can be based on "the lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). To avoid dismissal, a complaint need include "only enough facts to state a claim for relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
On a motion to dismiss under Rule 12(b)(6), all allegations of material fact are assumed to be true and construed in the light most favorable to the non-moving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 566 U.S. 662, 678 (2009). Id. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. To show that the plaintiff is ...