Author Question: Franchise Termination. Ormsby Motors, Inc (OMI), was a General Motors Corp (GM) dealership. Their ... (Read 202 times)

pane00 · **on:** Jun 24, 2018

Franchise Termination. Ormsby Motors, Inc (OMI), was a General Motors Corp (GM) dealership. Their agreement provided for termination if OMI submitted false . . . claims for any payment. Larry Kain was in charge of OMI's warranty claims. After several years of excessive claims, GM complained to OMI. When nothing changed, GM conducted a dealer audit. The audit uncovered, among other things, over eighty claims in one ten-day period for paint repair work that was never done. OMI denied knowledge of Kain's activities. GM terminated its dealership agreement with OMI. OMI asked a federal district court to stop the termination, arguing in part that GM did not have good cause. Did GM have good cause? Explain.

Question 2

Principals are presumed at common law to have no duties to their agents.
a. True
b. False
Indicate whether the statement is true or false

jlaineee · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

Franchise termination
The court explained that good cause exists for terminating the franchise where a franchisee fails to substantially comply with the franchise agreement. The court pointed out that the evidence overwhelmingly shows that OMI breached a material term of the franchise agreement that gave GM the right to terminate the agreement. Such a breach constitutes a failure to substantially comply with the franchise agreement; hence, good cause is shown. The court stated that this is especially true where, as here, the violations occurred repeatedly and over a substantial period of time. The court reasoned that an isolated incident by a rogue employee' might in some circumstances not provide good cause for termination of a franchise agreement, but here the evidence demonstrates that what occurred was more than an isolated incident and that OMI officials took no corrective action even after repeated reports by GM of claims problems. Thus, OMI has failed to demonstrate any likelihood of succeeding on the merits of its argument that the termination of the franchise agreement was without good cause.

Answer to Question 2

FALSE