In BMW of N. Am., LLC v. MacLean, the Court of Appeals of Ohio addressed the standard for good cause in determining whether a franchisor should deny a franchise transfer. BMW of N.Am., LLC v. MacLean, 2021-Ohio-2388 (Ohio Ct. App. July 13, 2021). Kirtlund Frye wanted to transfer his BMW dealership to the dealership’s general manager, Colin MacLean (Plaintiff). However, BMW denied the transfer. In response, MacLean and Frye filed a protest with the Ohio Motor Vehicle Dealer’s Board, which evaluated the protest under the statutory requirement that a franchisor shall not deny a franchise transfer if the Board determined that good cause did not exist for such denial.
The Board determined that BMW had not met its burden of persuasion in showing good cause and that the transfer should be approved. BMW subsequently appealed to the common pleas court, which affirmed the Board’s decision, noting that the decision fulfilled statutory requirements and was supported by evidence that was reliable (“it can be depended on to state what is true”), probative (“it has the tendency to establish the truth of relevant facts”), and substantial (“it has importance and value”), which in turn statutorily empowered the common pleas court to affirm.
BMW then appealed to the Court of Appeals of Ohio and presented two assignments of error: (1) the common pleas court erred as a matter of law by concluding that BMW did not have good cause to deny the transfer and (2) the common pleas court abused its discretion when it found that the Board’s decision was supported by reliable, probative, and substantial evidence.
The Appeals Court first addressed the second assignment of error. The Court highlighted testimony by an expert witness for MacLean, who asserted that MacLean’s tenure as general manager saw “more than adequate sales performance by industry standards.” The witness criticized certain benchmarks and standards put forward by BMW to assess the transfer as misleading or “failed to be an objective and reasonable standard” (e.g., a standard that consistently fails the majority of dealerships). The Appeals Court also highlighted evidence from the Board that BMW failed to establish that poor local market conditions were attributed to MacLean’s performance. The Appeals Court further noted BMW’s ongoing negotiation with another dealership aimed at consolidating the Cleveland market, which undermined its stated reasons for denying the transfer.
The Appeals Court then turned to the franchise agreement, which required BMW to evaluate MacLean’s qualifications and ability to comply with the requirements of the franchise regarding a transfer. Specifically, the Appeals Court quoted the hearing examiner, stating that “the franchise agreement provided that BMW . . . selected its dealers based on their character, reputation, automotive experience, . . . capital, . . . or financial qualifications,” yet BMW did not mention any such criteria in its denial of the transfer to MacLean. Therefore, the Appeals Court noted that BMW’s focus on the benchmarks as the sole evaluation criteria did not meet its burden of persuasion to establish that certain bad performance outcomes were the result of MacLean’s qualifications or his inability to comply with the requirements of the franchise.
On such a record, the Appeals Court found that the common pleas court did not abuse its discretion in determining that the Board’s determination of lack of good cause was supported by reliable, probative, and substantial evidence.
Lastly, the Appeals Court addressed BMW’s assignment of error, asserting that the common pleas court had erred when it concluded that BMW lacked good cause to deny the transfer. The Appeals Court made clear that although the parties agreed that BMW’s national benchmarks “were reasonable for measuring the performance of a dealership,” agreement on such was “not the same as saying that those dealership benchmarks were reasonable and objective for use as the sole criteria in evaluating . . . MacLean as a transferee, or that they were applied fairly and objectively.” The Appeals Court also made clear that, despite BMW’s contentions, the common pleas court’s decision did not relate to a review of BMW’s business judgment; rather, it was reviewing the Board’s decision pursuant to statutory requirement. The Appeals Court also addressed BMW’s confusion of the administrative appeal’s posture. BMW argued that the common pleas court had made a determination of good cause when, in fact, it was the Board that had made this determination. Based on the foregoing reasons, the Appeals Court affirmed the judgment of the common pleas court.
The principle established from this case was that franchisors must have substantial, reliable, and probative evidence to deny a franchise transfer and cannot rely solely on subjective or potentially misleading benchmarks. Furthermore, franchisors must evaluate the qualifications of the proposed transferee in accordance with the criteria set forth in the franchise agreement. This case demonstrated the importance of a fair and thorough evaluation process and highlighted that franchisors cannot deny a transfer based on reasons that were not supported by evidence or were inconsistent with their contractual obligations.
