Abstract
In Rhode Island Truck Center, LLC v. Daimler Trucks North America, LLC, the U.S. District Court for the District of Rhode Island granted summary judgment in favor of Daimler, rejecting a franchised truck dealer’s claims of breach of contract and breach of the implied covenant of good faith and fair dealing. The dispute arose after Daimler authorized a new Freightliner dealership, Advantage Truck Group Raynham, within the plaintiff’s designated Area of Responsibility (AOR). The court found that the franchise agreement’s “Appointment Clause” unambiguously granted Daimler “sole discretion” to determine whether additional dealers were “warranted” in or near the plaintiff’s AOR. Because the clause was clear and the franchisee held only “nonexclusive” rights, Daimler’s decision to establish a new dealer—regardless of whether it conducted a market study or disclosed its reasoning—did not breach the agreement or the duty of good faith. Emphasizing that courts should not second-guess legitimate business decisions expressly reserved to franchisors, the court concluded that Daimler’s actions were consistent with the contract’s objectives and dismissed the dealer’s claims in their entirety.
- Facts and Background
Rhode Island Truck Center, LLC v. Daimler Trucks North America, LLC involved a dispute between a long-standing Freightliner truck dealer and its franchisor, Daimler Trucks North America (“Daimler”), over Daimler’s decision to approve a new Freightliner dealership within the plaintiff’s market area. Rhode Island Truck Center (“RITC”) operated as an authorized Freightliner dealer under a Truck Sales and Service Agreement granting it a designated Area of Responsibility (AOR) in Rhode Island and southeastern Massachusetts. The agreement identified RITC as a “nonexclusive” dealer within its AOR and provided that Daimler, “in its sole discretion,” could determine whether additional Freightliner dealers were “warranted” in or near that territory.
In 2020, Daimler approved Advantage Truck Group Raynham (ATG) as a new Freightliner dealer located approximately 20 miles from RITC’s primary facility. RITC objected, arguing that the new location would encroach on its customer base and dilute its investment and goodwill. RITC contended that Daimler had long assured it that no other Freightliner dealerships would be placed within its area, and that the company had made significant capital expenditures—such as facility improvements and equipment purchases—based on that understanding. RITC also alleged that Daimler had failed to conduct a fair or transparent market analysis before approving ATG and had concealed its decision-making process, violating both the contract and the duty of good faith and fair dealing.
Daimler countered that its actions were expressly authorized by the franchise agreement. The company emphasized that the Appointment Clause granted it unilateral discretion to decide whether to establish or approve new dealerships and made clear that the dealer’s AOR did not grant territorial exclusivity. Daimler also maintained that its business rationale was sound: ATG’s Raynham location would enhance Freightliner’s regional service coverage and customer convenience without eliminating or restricting RITC’s ability to compete.
The relationship between the parties had otherwise remained stable for years. RITC had been a Freightliner dealer since the early 1990s and enjoyed consistent sales performance and manufacturer support. However, after learning of the Raynham appointment, RITC filed suit in federal court, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. It argued that Daimler’s invocation of “sole discretion” was a pretext for arbitrary decision-making that undermined the purpose of the franchise relationship—mutual profitability and trust. RITC contended that Daimler owed a duty to exercise its discretion reasonably and in good faith, particularly when introducing competition into an existing dealer’s AOR.
The case turned largely on the interpretation of the Appointment Clause and whether Daimler’s exercise of discretion was constrained by any implied obligation. The court reviewed the language of the franchise agreement, the parties’ course of dealing, and analogous dealership statutes in other jurisdictions. It ultimately found that the contract’s plain text granted Daimler broad authority to determine dealership placement, that RITC’s AOR was nonexclusive by definition, and that Daimler’s decision—even if economically harmful to RITC—did not constitute bad faith or breach of contract.
- Ruling on Ambiguity in the Appointment Clause
RITC argued that the Appointment Clause was unclear and should be interpreted to require Daimler to exercise its discretion reasonably and in good faith before authorizing a competing dealer. Daimler contended that the clause unambiguously granted it sole discretion to determine when additional dealerships were warranted, leaving no contractual limitation on its decision-making authority.
The clause at issue provided that RITC’s appointment as a Freightliner dealer was “nonexclusive” and that Daimler, “in its sole discretion, shall determine whether additional dealers are warranted within or near Dealer’s Area of Responsibility.” RITC argued this language was ambiguous because it did not specify the criteria Daimler would use to make such determinations, and because the reference to “Dealer’s Area of Responsibility” implied some protection against encroachment. RITC urged the court to construe the ambiguity in its favor, contending that a reasonable dealer would expect Daimler to act consistently with the purpose of the franchise relationship and not undermine a long-established dealer’s territory without cause.
The court rejected this argument, holding that the clause was clear and unambiguous when read in its entirety and in the context of the full agreement. The court emphasized three textual features: (1) the express designation of RITC’s AOR as nonexclusive, which by definition permitted the appointment of additional dealers; (2) the inclusion of the phrase “in its sole discretion,” which granted Daimler unilateral authority to determine the need for new dealers; and (3) the absence of any qualifying language requiring Daimler to consult with, notify, or justify its decisions to existing dealers. Together, these elements indicated the parties’ intent to vest Daimler with complete control over network development decisions.
The court also rejected RITC’s attempt to create ambiguity by appealing to external factors such as past practices or alleged oral assurances. Citing Rhode Island contract law, the court noted that extrinsic evidence cannot create ambiguity where the contract language is otherwise clear. The court found no conflicting provisions elsewhere in the agreement that limited Daimler’s discretion or promised territorial exclusivity. Furthermore, the AOR section explicitly stated that RITC’s responsibility was to promote sales and service within that region, not to exclude competition.
In rejecting RITC’s claim of ambiguity, the court drew parallels to other dealership and franchise cases—particularly Hughes v. Chrysler Motors Corp. and General Motors LLC v. Royal Motors Corp.—where similar language granting “sole discretion” to a manufacturer was found to be unambiguous and enforceable. The court reasoned that the phrase “sole discretion” conveys the highest level of contractual autonomy and cannot reasonably be interpreted as requiring reasonableness review or good-cause justification.
Ultimately, the court concluded that the Appointment Clause was unambiguous and that Daimler’s decision to appoint a new dealer in Raynham fell squarely within its contractual rights. Any economic disadvantage to RITC, the court held, was a foreseeable risk of a nonexclusive franchise arrangement and not evidence of bad faith or contractual ambiguity.
III. Ruling on RITC’s Claim of Breach of Good Faith and Fair Dealing
RITC alleged that Daimler breached the implied covenant of good faith and fair dealing by exercising its contractual discretion to appoint a new Freightliner dealership—Advantage Truck Group Raynham (“ATG”)—within RITC’s market area in a way that undermined RITC’s investment, profitability, and reliance interests. RITC argued that even if the franchise agreement granted Daimler “sole discretion” to determine whether additional dealerships were warranted, that discretion had to be exercised honestly, reasonably, and consistently with the purpose of the agreement. RITC maintained that Daimler’s approval of ATG was arbitrary, retaliatory, and inconsistent with the spirit of mutual trust underlying the long-term dealer relationship.
The court acknowledged that Rhode Island law implies a covenant of good faith and fair dealing in every contract, which prevents a party from acting in a way that destroys or injures the other party’s right to receive the benefits of the agreement. However, the court emphasized that the covenant cannot override or rewrite the contract’s express terms, nor can it be used to impose obligations inconsistent with those terms. The court thus framed the issue narrowly: whether Daimler’s conduct in approving a new dealership constituted an abuse of discretion that deprived RITC of its bargained-for benefits under the agreement.
Analyzing the record, the court found no evidence of bad faith. The Truck Sales and Service Agreement explicitly identified RITC’s AOR as “nonexclusive” and vested Daimler with “sole discretion” over dealer network development. Because Daimler had a clear contractual right to authorize new dealers, exercising that right—even if it adversely affected RITC’s business—could not constitute bad faith. The court reasoned that RITC’s claimed expectation of protection from encroachment was inconsistent with the express language of the contract, which anticipated competition and disclaimed territorial exclusivity.
The court further observed that Daimler’s decision to approve ATG was commercially rational. The record showed Daimler sought to enhance Freightliner’s market presence and customer service coverage in southeastern Massachusetts—a legitimate business justification consistent with the agreement’s objectives. RITC offered no credible evidence that Daimler acted with animus, discrimination, or retaliatory motive. Without such evidence, mere dissatisfaction with Daimler’s business judgment was insufficient to establish bad faith.
In reaching its conclusion, the court cited analogous dealership cases holding that an implied covenant cannot be used to convert a discretionary right into a mandatory one. It emphasized that the duty of good faith is a shield against opportunistic conduct, not a sword for rewriting clear contractual provisions. Daimler’s actions, while detrimental to RITC’s economic interests, were entirely consistent with its contractual authority and the competitive nature of nonexclusive franchise relationships.
Accordingly, the court held that Daimler did not breach the implied covenant of good faith and fair dealing, granted summary judgment in Daimler’s favor, and reaffirmed that where a contract explicitly reserves discretion to one party, the exercise of that discretion in pursuit of legitimate business goals does not amount to bad faith.
- Conclusion
In Rhode Island Truck Center, LLC v. Daimler Trucks North America, LLC, the U.S. District Court for the District of Rhode Island granted summary judgment for Daimler, rejecting a franchised truck dealer’s claims of breach of contract and breach of the implied covenant of good faith and fair dealing. The dispute arose when Daimler approved a new Freightliner dealership, Advantage Truck Group Raynham, within Rhode Island Truck Center’s (RITC) designated Area of Responsibility (AOR). RITC argued this encroached on its territory, violated prior assurances, and disregarded market analysis, while Daimler maintained that its Appointment Clause gave it “sole discretion” to determine the need for additional dealers. The court found the clause unambiguous, noting RITC held only nonexclusive rights and that Daimler’s discretion was expressly broad, leaving no contractual duty to justify or consult on new dealership appointments. The court further held that approving ATG did not breach the implied covenant of good faith, as Daimler acted within its contractual authority and for legitimate business purposes, and that mere economic harm to RITC did not demonstrate bad faith. Consequently, all of RITC’s claims were dismissed, reaffirming that franchisors may exercise reserved discretion without judicial second-guessing when clearly authorized by contract.
- Policy and Practical Implications
Policy Implications: The Rhode Island Truck Center decision reinforces the principle that franchisors retain broad contractual discretion in managing their dealer networks, emphasizing that courts will not second-guess legitimate business judgments when authority is clearly reserved. By upholding the enforceability of “sole discretion” clauses and limiting the reach of the implied covenant of good faith and fair dealing, the ruling promotes contractual certainty, predictability, and uniformity across franchise agreements. It highlights a policy preference for allowing franchisors flexibility to expand or restructure their networks efficiently, even if doing so economically disadvantages existing dealers, while clarifying that the covenant of good faith cannot be used to rewrite explicit contractual terms or impose territorial protections where none were granted.
Practical Implications: For franchisees, the decision underscores the importance of understanding the scope of nonexclusive franchise agreements and managing expectations regarding territorial protections and competitive encroachment. Dealers must anticipate that franchisors may authorize additional locations within their AOR and plan capital investments, marketing strategies, and customer relations accordingly. From a risk management perspective, franchisors benefit from including clear Appointment Clauses granting unilateral discretion, reducing litigation risk and protecting the ability to make strategic business decisions without needing to justify or consult with existing dealers. The case also signals that franchisees seeking to challenge such decisions must present concrete evidence of bad faith or contractual violation, rather than relying on economic harm or informal assurances.
