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You have negotiated a deal to sell your dealership to a qualified buyer and you have executed a Buy-Sell agreement contingent only upon the manufacturer's approval of the prospective Buyer. You submit the Buy-Sell agreement to the manufacturer, expecting no problems. However, your contract with the manufacturer includes a clause giving the manufacturer the right of first refusal of any proposed sale. To your surprise, the manufacturer opts to exercise its right of first refusal and assigns its rights to one of your competitors. You object to the manufacturer's decision and decide to file a protest under R.C. 4517.56 against the manufacturer's failure to approve your proposed sale of the dealership. The manufacturer argues that R.C. 4517.56 does not apply because its contractual right of first refusal supersedes the requirements of R.C. 4517.56. Is it the end of your proposed sale? Not necessarily.
The Ohio Motor Vehicle Dealers Board, in a recent decision, has ruled that a manufacturer's contractual right of first refusal does not "trump" R.C. 4517.56. Therefore, if faced with a manufacturer's decision to deny a proposed sale, a dealer or prospective buyer can still file a protest under R.C. 4517.56 even if its contract with the manufacturer includes a right of first refusal clause. R.C. 4517.56(D) provides that "[a] franchisor shall not fail or refuse to approve the sale or transfer of the business and assets or all or a controlling interest of a new motor vehicle dealer to, or refuse to continue the franchise relationship with, the prospective transferee after the holding of a hearing on any protest if the board determines that good cause does not exist for the franchisor to fail or refuse to approve such a sale or transfer." Accordingly, a manufacturer may not arbitrarily deny a proposed sale, but must show there is "good cause" for such denial. The Board's decision followed the Tenth District Court of Appeals decision in Nissan Motor Corporation, U.S.A. v. Michael Dever (March 28, 2000), Franklin App. No. 99AP-596 in which the court held that "one of the purposes of [R.C. 4517.56] is to provide protection to franchisees and proposed transferees from arbitrary decisions of franchisors." If a proposed sale is denied, a franchisor must notify the franchisee and the proposed transferee of "the objective criteria used to evaluate the prospective transferee and the criteria which the transferee failed to meet." R.C. 4517.56(B) Such notice is required regardless of whether there exists a right of first refusal clause in a Dealer Sales and Service Agreement.
The statute provides that the Motor Vehicle Dealers Board may consider various factors in determining whether a manufacturer has good cause to deny a proposed sale. These factors include, but are not limited to (1) whether the prospective buyer or any prospective management personnel reside within the dealership's relevant market area, (2) whether the prospective buyer intends to be employed full time in the dealership operation, (3) whether the prospective buyer has an investment in, participates in the management of, or holds a license to sell another make or line of new motor vehicles at another location, (4) whether the manufacturer has previously determined to discontinue a franchise relationship with the prospective buyer, or (5) whether the prospective buyer proposes to relocate the business, provided the relocation facility meets the manufacturer's facility standards. R.C. 4517.56(E) The decision about whether good cause exists is not based upon the presence or absence of any one factor, but depends on the Board's evaluation of all the listed factors as well as other relevant facts and circumstances surrounding the proposed sale.
In short, the manufacturer does not have unbridled discretion to reject a proposed sale. Once a proposed sale is denied, either the dealership or the prospective buyer can protest the decision by filing a protest under R.C. 4517.56 within ninety (90) days after the denial. The filing of a protest forces the manufacturer to provide evidence at a hearing before the Motor Vehicle Dealers Board to prove that there exist valid reasons for the denial. If the manufacturer is unable to do so, the sale must be approved. R.C. 4517(D). |
