May 7, 2015 - Franchise Articles by |

Volvo Trucks North America v. Andy Mohr Truck Center, Slip Copy, 2013 WL 2938913 (S.D.Ind. 2013)

This case involves at bottom an incredibly common allegation made in franchise litigation: that a franchisor made an oral misrepresentation to the franchisee in order to entice the franchisee to sign the franchise agreement and then failed to perform on that promise. This case also is a perfect example showing how lopsided franchise law has become over the last 5-10 years. In this case, the court appears to go out of its way to construe even specific, admittedly applicable, “pro-franchise” legislation, which was passed to balance the economic inequities between franchisors and franchisees, to the ultimate advantage of the franchisor. The only reason that a small portion of the franchisee’s case remained in place after this decision is that the state’s law in issue, Indiana, had a couple of esoteric non-franchisee specific consumer statutes that had not yet been definitively interpreted to bar franchise misrepresentation claims.

In this case, the franchisor was Volvo Trucks North America (“Volvo”) which, in order to obtain a prominent position in the Indiana market, sought out an existing truck dealer, Mohr Truck (“Mohr”), to become its dealer in central Indiana. During the negotiations, Mohr bargained for Volvo to also allow it to combine its dealership with a Mack Trucks dealership to allow it to obtain what it viewed to be substantial practical and financial synergies. Volvo agreed to add the Mack dealership to the overall deal and promised to do so in particular after Mohr completed its purchase of the Volvo dealership in a separate transaction. As it turns out, Volvo later refused to grant the Mack dealership, and Mohr sued, claiming, in part, that Volvo executives were aware at the time they falsely represented that they would grant the Mack Trucks franchise that they could not perform on this promise.

First, the court cut Mohr’s legs out from under him by ruling that the “integration clause” of the Volvo Dealer Agreement (which states that “the franchisee agrees that the franchisor has not made any promises or representations that are not in writing in the written Volvo dealership agreement”) barred the franchisee from even ‘referring’ to the franchisor’s promise to grant the separate and distinct Mack Trucks dealership. In Indiana, “where the parties to an agreement have reduced the agreement to a written document and have included an integration clause that the written document embodies the complete agreement between the parties, the parol evidence rule prohibits courts from considering parol or extrinsic evidence for the purpose of varying or adding to the terms of the written contract.” The court then concluded that in the face of the integration clause, the franchisee, Mohr, could not as a matter of law have ‘reasonably relied’ upon the promise to grant the separate and additional Mack Trucks dealership.

The franchisee, Mohr, then attempted to sidestep the negative impact of the integration clause on its case by arguing correctly that under relevant fraud law application of the integration clause would not bar use by the franchisee of fraudulent inducement claims – the very type of claims alleged by Mohr. However, the court then found that an “exception to the exception” nevertheless spelled doom for the franchisee because the misrepresentation regarding the Mack Trucks dealership was not of an ‘existing fact’ but instead of a ‘future fact’ – a promise to do something in the future. Therefore, the promise that the franchisor would also grant a Mack Trucks dealership at some time after signing the Volvo agreement was not actionable.

Mohr also expectedly attempted to shroud himself in the protection of the Indiana Franchise Disclosure Act (the “IFDA”), that specifically made it unlawful for a franchisor:

(1) to employ any device, scheme or artifice to defraud;

(2) to make any untrue statements of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of circumstances under which they are made, not misleading; or

(3) to engage in any act which operates or would operate as a fraud or deceit upon any person.

Here, the court reluctantly recognized that although the common law of fraud prevented a franchisee from suing on a future promise, the IFDA allowed a franchisee to sue on conduct relating to acts in the future. Nevertheless, the court pulled the rug out from under the franchisee on this claim as well when it decided that the IFDA would also require a franchisee to show “reasonable reliance” on the alleged misrepresentation, and that because of the existence of the integration clause, the franchisee could not as a matter of law make such a showing.

The persistent franchisee, Mohr, then grabbed a hold of another Indiana statute, the Indiana Unfair Practices Act, which, when connected with other statutory provisions, provided that it is an unfair practice for a manufacturer or distributor to use deceptive advertising or engage in deceptive acts in connection with the franchise or the franchisor's business in the process of entering into any franchise agreement with a franchisee. The franchisee, Mohr, argued that the Mack Trucks Misrepresentation was deceptive conduct under this statute. Luckily for the franchisee, here, the court was unable or unwilling at that point in the proceedings to interpret that particular statutory provision to require a showing of “reasonable reliance.” Thus, the franchisees Unfair Practices Act claim was not dismissed.

The franchisee also reached out for a Crime Victims’ statute that existed in Indiana. This statute provided for liability against “[a] person who knowingly or intentionally exerts unauthorized control over property of another person, with intent to deprive the other person of any part of its value or use, commits theft.” Volvo defended by arguing again that the statute was unavailable to Mohr on the Mack Trucks Representation because the misrepresentation was unreasonable as a matter of law. The court surprisingly rejected Volvo’s argument and held that “[i]n order to prove theft by creating a false impression, the claimant must establish that he relied on the false impression, but he is not required to show that his reliance was reasonable.” The court then quickly seemed to reverse itself when it pointed out that representations under the Crime Victims’ Act must be of a past or existing fact, and that “[t]he Mack Trucks Misrepresentation, a statement regarding future conduct, therefore cannot be the basis of the claim of theft by false impression.”

However, incredibly, the franchisee, Mohr, then argued that, even if it could not base a case on the theft aspect of the CVA, it could nevertheless succeed on a different but related provision of the CVA, that prohibited promises that the promisor “knew would not be performed.” The court found no way to rebut this argument, and reluctantly concluded that “[t]his provision clearly contemplates statements regarding future acts and is not subject to judgment on the pleadings on that basis.”

S.D.Ind., 2013.

Volvo Trucks North America v. Andy Mohr Truck Center

Slip Copy, 2013 WL 2938913 (S.D.Ind. 2013)

Excerpts of Case

 ENTRY ON MOTION FOR JUDGMENT ON THE PLEADINGS

WILLIAM T. LAWRENCE, District Judge.

This cause comes before the Court on Volvo's motion for judgment on the pleadings. Dkt. No. 51.The motion is fully briefed, and the Court rules as follows.

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II.

BACKGROUND

An abbreviated version of the facts as alleged in Mohr's Amended Complaint FN1are as follow. After its long-time dealer in central Indiana surrendered its dealership in 2010, Plaintiff Volvo Trucks North America (“Volvo”) needed a prominent dealership presence in central Indiana. Volvo encouraged Defendant Mohr Truck to open a Volvo Trucks dealership under the Mohr name, seeking to benefit from the goodwill and sales and service reputation of president and owner Defendant Andy Mohr (collectively with Mohr Truck, “Mohr”) and his automobile dealerships, which have operated with great success in the central Indiana region for years. During the course of Mohr's negotiations with Volvo, Mohr came to believe that combining a Volvo trucks franchise with a Mack trucks franchise under one dealership would yield substantial practical and financial synergies for Mohr that would be unavailable from either franchise standing alone. Sam Johnston, Vice President of Dealer Development for both Mack Trucks and Volvo Trucks, indicated that putting the franchises together under one dealership would be possible.

In early March 2010, Mohr traveled to Greensboro, North Carolina, and met with various executives of Volvo Trucks and Mack Trucks. During the course of these meetings, Volvo, through its executives, represented that it would grant Mohr a Mack Trucks franchise in a separate transaction and authorize Mohr to operate a Mack Trucks franchise if Mohr first entered into a separate agreement to become a Volvo Trucks dealer (the “Mack Trucks Misrepresentation”). Based on Mohr's conversation with these executives, Mohr later accepted its appointment as a Volvo Trucks dealer on the understanding that Volvo would also grant it a Mack Trucks franchise in a separate transaction. Thereafter Mohr entered into a Dealership Agreement (the “Agreement”) with Volvo.

However, according to Mohr, Volvo executives were aware at the time each of them represented that they would award Mohr the Mack Trucks franchise that Volvo could not perform this promise. Volvo has since failed to award Mohr the Mack Trucks franchise and has refused to honor its agreement. Mohr now seeks relief in this Court.

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In Indiana, “where the parties to an agreement have reduced the agreement to a written document and have included an integration clause that the written document embodies the complete agreement between the parties, the parol evidence rule prohibits courts from considering parol or extrinsic evidence for the purpose of varying or adding to the terms of the written contract.” Truck City of Gary, Inc. v. Schneider Nat'l Leasing,814 N.E.2d 273, 278 (Ind.Ct.App.2004). Here, the Dealer Agreement contains an integration clause, which provides: “This document and attachments, addenda, and the Portfolio of Criteria represent the entire Agreement between the Company and the Dealer, superseding all prior oral or written agreements or other communications.”Dealer Agreement, Art. 11. 1, No. 16–2.This integration clause applies with just as much force to Mohr as it does to Volvo: as a matter of law, there are no effective promises by Volvo that differ from the terms of the Dealer Agreement and any promises that Volvo made were superseded by the Dealer Agreement. Any reliance by Mohr on such promises is unreasonable as a matter of law.FN3

FN3.Mohr does not argue that the attachments, addenda, or Portfolio of Criteria incorporate a Mack Trucks franchise term.

Mohr attempts to avoid application of the integration clause in two ways. First, he argues—correctly—that an integration clause does not bar introduction of evidence regarding fraudulent inducement. E.g.,  Wind Wire, LLC v. Finney,977 N.E.2d 401, 405 (Ind.Ct.App.2012). However, as this Court has already held—and as Mohr has previously argued—fraudulent inducement requires a material misrepresentation of past or existing fact. E.g.,  Siegel v. Williams,818 N.E.2d 510, 515 (Ind.Ct.App.2004). The Mack Trucks Misrepresentation is not a statement of past or existing fact. Cf.  Wind Wire,977 N.E.2d at 403–04(defendant told plaintiffs that he was “highly qualified;” electric company purchased excess energy produced by wind turbines; and installation of wind turbine entitled them to a tax credit, all of which the district court explained were false). This argument is therefore unavailing.

Mohr's second attempt to avoid application of the integration clause relates to his breach of oral contract claim and is addressed in that context.

1. Breach of Oral Contract (Claim V)

Mohr argues that the Mack Trucks Misrepresentation constitutes a separate oral agreement to which the integration clause in the Volvo agreement is irrelevant. With respect to this alleged separate Mack Trucks agreement, the Court denied Volvo's motion to dismiss insofar as Volvo raised only whether Mohr had adequately pled the elements of offer and mutual assent. Entry on Mot. to Dismiss at 5–6, No. 1: 12–cv–701–WTL–DKL, ECF No. 31. In reply to Mohr's argument here, Volvo now takes a different—and more successful—tack. Volvo points out that what Mohr alleges in substance is a promise that he claims was part of the consideration provided by Volvo under the Volvo agreement. Mohr repeatedly argues that the Mack Trucks Misrepresentation constitutes a separate oral agreement, but Mohr's own factual allegations, taken at this stage as true, belie this argument. For example, in the “breach of oral contract” section of the Complaint, Mohr alleges that “Volvo Trucks agreed to provide Mohr Truck a Mack Trucks franchise in a separate transaction in exchange for Mohr Truck agreeing to operate a Volvo Trucks dealership.”Am. Compl. at ¶ 80, 1:12–cv–701–WTL–DKL, ECF No. 17. If, as Mohr implies, Mohr entering into the Volvo Agreement was both necessary and sufficient to compel Volvo to award him a Mack Trucks franchise, that term should have been in the Volvo Agreement as it is part of the bargain he struck with Volvo regarding the Volvo dealership. That consideration is not recited anywhere in the agreement and any argument that this term should be read into the Volvo agreement is barred by the integration clause. In casting the Mack Trucks dealership as consideration for entering into a Volvo dealership, Mohr has pleaded himself out of court on this breach of oral contract claim. Volvo is therefore entitled to judgment on the pleadings on this claim. The Court turns now to Mohr's remaining claims against Volvo.

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3. Indiana Franchise Disclosure Act (Claim I)

Mohr alleges that Volvo's conduct violates the Indiana Franchise Disclosure Act (the “IFDA”), specifically Indiana Code 23–2–2.5–27.FN5Under that section, it is unlawful for any person in connection with the offer, sale, or purchase of any franchise directly or indirectly:

FN5.The IFDA creates a private right of action only for acts which constitute fraud, deceit, or misrepresentation. Cont'l  Basketball Ass'n v. Ellenstein Enters., Inc.,669 N.E.2d 134, 137 (Ind.1996).

(1) to employ any device, scheme or artifice to defraud;

(2) to make any untrue statements of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of circumstances under which they are made, not misleading; or

(3) to engage in any act which operates or would operate as a fraud or deceit upon any person.

Mohr alleges that the Mohr Trucks Misrepresentation violates each of these three sections.FN6Unlike fraudulent inducement, “fraud” and deceit” under the IFDA include “any promise or representation or prediction as to the future not made honestly or in good faith.”Ind.Code 23–2–2.5–1. Contra  Hardee's of Maumelle, Ark., Inc. v. Hardee's Food Sys., Inc.,31 F.3d 573, 578 (7th Cir.1994)(citing  Master Abrasives Corp. v. Williams,469 N.E.2d 1196, 1201 (Ind.Ct.App.1984)and  Enservco, Inc. v. Indiana Sec. Div.,605 N.E.2d 256, 265 (Ind.App.Ct.1992), rev'd, 623 N.E.2d 416, 423 (Ind.1993)) (“At the time of the district court's decision, private recovery actions under § 27 required a showing of material misrepresentation of a past or existing fact.”). Therefore, at least insofar as they relate to an act in the future, Mohr's allegations regarding the Mohr Trucks Misrepresentation are sufficient under the IFDA. Nevertheless, Volvo is entitled to judgment on the pleadings as to this claim. The core elements of a claim under the IFDA are “a statement or omission, materiality, and falsity,” Enservco, Inc.,623 N.E.2d at 423,and the lower Indiana courts have also read a “reasonable reliance” element into fraud under the IFDA.  Hardee's,31 F.3d at 579(citing  Master Abrasives Corp.,469 N.E.2d at 1201,disapproved of on other grounds byEnservco,623 N.E.2d at 425).For the reasons already explained, the integration clause renders Mohr's reliance on the Mack Trucks Misrepresentation unreasonable as a matter of law. Volvo is therefore entitled to judgment on the pleadings as to Mohr's IFDA claim.

FN6.With respect to the IFDA and the Indiana Unfair Practices Act, neither Mohr nor Volvo argues that these sections are wholly inapplicable to them. SeeInd.Code 23–2–2.5–1; 23–2–2.5–2;  Ford Motor Credit Co. v. Garner,688 F.Supp. 435 (N.D.Ind.1988)(construing “manufacturer” and “dealer”).

4. Unfair Practices (Claim II)

Mohr also alleges a violation of the Indiana Unfair Practices Act, which provides that “[i]t is an unfair practice for a manufacturer or distributor to violate IC 23–2–2.7.”Ind.Code 9–23–3–7. The referenced section of the Indiana Code makes it unlawful for a franchisor to use deceptive advertising or engage in deceptive acts in connection with the franchise or the franchisor's business in the process of entering into any franchise agreement with a franchisee. Ind.Code 23–2–2.7–2(8). Mohr alleges that the Mack Trucks Misrepresentation is deceptive conduct under this section. According to Volvo, it is entitled to judgment on the pleadings as to this claim because Mohr was not legally entitled to rely on the Mack Trucks Misrepresentation. However, at least on its face, the statute does not require reliance, and Volvo has not pointed to any statutory section or case to the contrary. Mohr's claim is therefore not subject to judgment on the pleadings on that basis. Because Volvo has articulated no other legal basis for judgment, its motion as to this claim must be denied.

5. Indiana Crime Victims' Act (Claim III)

Mohr's third claim for relief alleges a violation of Indiana's Crime Victims' Act (the “CVA”). The CVA provides that a person who suffers a pecuniary loss as a result of a violation of Indiana Code 35–43 may bring a civil action against the person who caused the loss. Ind.Code 34–24–3–1. In pertinent part, Indiana Code 35–43–4–2provides that “[a] person who knowingly or intentionally exerts unauthorized control over property of another person, with intent to deprive the other person of any part of its value or use, commits theft.”Control is “unauthorized” for purposes of the statute if it is exerted by, inter alia, creating, confirming, or failing to correct a false impression in another person, or promising performance that the promisor knows will not be performed. Ind.Code 35–43–4–1(b)(4)-(6). Volvo contends that because any reliance by Mohr on the Mack Trucks Representation was unreasonable, it is entitled to judgment on the pleadings as to this claim.

In order to prove theft by creating a false impression, the claimant must establish that he relied on the false impression, but he is not required to show that his reliance was reasonable.  Ruse v. Bleeke,914 N.E.2d 1, 9 (Ind.Ct.App.2009). However, the representations creating the false impression must be of a past or existing fact. Id. The Mack Trucks Misrepresentation, a statement regarding future conduct, therefore cannot be the basis of the claim of theft by false impression.

Mohr argues in the alternative that Volvo is liable under the CVA for promising performance that Volvo knew would not be performed. Ind.Code 35–43–4–1(b)(6). This provision clearly contemplates statements regarding future acts and is not subject to judgment on the pleadings on that basis. Volvo has articulated no other reason why this part of Mohr's CVA claim is subject to dismissal, and Volvo's motion on this part of the claim is therefore denied.

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S.D.Ind.,2013.

Volvo Trucks North America v. Andy Mohr Truck Center

Slip Copy, 2013 WL 2938913 (S.D.Ind. 2013)

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