REED AUTO OF OVERLAND PARK, LLC, Plaintiff,
v.
LANDERS MCLARTY OLATHE KS, LLC, Defendant.
No. 2:19-cv-02510-HLT
United States District Court, D. Kansas
November 9, 2021
MEMORANDUM AND ORDER
HOLLY L. TEETER, UNITED STATES DISTRICT JUDGE
This is a dispute between two competing car dealerships. Plaintiff Reed Auto of Overland Park alleges that Defendant Landers McLarty breached a contract it entered in 2007 with another dealership that later sold its assets to Reed. Part of that agreement was a promise by Landers McLarty not to protest the relocation of certain vehicle lines in the Overland Park sales area for 15 years. About 12 years into that agreement, Landers McLarty filed a protest against Reed's proposed dealership relocation. Reed, asserting itself as a successor to one of the parties to the contract, sued for breach of contract and malicious prosecution.[1]
On September 14-15, 2021, the Court held a bench trial on these claims. The parties submitted additional briefs following trial, Docs. 149-150, and presented closing arguments on October 25, 2021. The Court took the matter under advisement. The Court now makes the following findings of fact and conclusions of law and, for the reasons discussed below, enters judgment for Landers McLarty on both claims.
I. FINDINGS OF FACT[2]
On July 24, 2007, Overland Park, Jeep, Inc. (“OPJ”), [3] Landers McLarty, and DaimlerChrysler Motors Company LLC executed a settlement agreement (“2007 Settlement Agreement”). Plaintiff's Ex. 3. These three entities are defined by the 2007 Settlement Agreement as “the Parties” collectively, or as a “Party” individually. The 2007 Settlement Agreement reflects that “a dispute has arisen between the Parties, ” namely a protest by OPJ and other dealers challenging the relocation of one of Landers McLarty's dealerships. The purpose of the 2007 Settlement Agreement was to resolve the protest.
Paragraph 1 of the 2007 Settlement Agreement states:
Landers McLarty agrees not to protest or otherwise challenge any relocation or establishment of any DaimlerChrysler vehicle lines[4] into the Overland Park Sales Area as defined in Attachment 1 hereto for a period of fifteen (15) years from the date of the execution of this Agreement
Paragraph 16 addresses successors and assigns:
This Agreement shall inure to the benefit of and be binding on the successors, assigns, heirs, and legal representatives of the Parties to this Agreement. In the event Landers McLarty enters into any agreement to sell or transfer all or any portion of its stock or assets, then Landers McLarty is required to include in the terms of any such agreement the terms of this Agreement and that the buyer is bound by the terms of this Agreement. Landers McLarty acknowledges that DaimlerChrysler has the right to reject any potential buyer on the sole grounds that Landers McLarty has failed to include a provision in its sale or transfer agreement consistent with this paragraph and that such rejection will constitute good cause to reject the buyer as prospective transferee of Landers McLarty under the then applicable
Kansas statute regulating the relations between new vehicle manufacturers and their dealers or any other Kansas statute or common law.
The 2007 Settlement Agreement also includes a provision that entitles the prevailing party to recover reasonable attorneys' fees and costs in connection with any dispute about the agreement. Michigan law governs the 2007 Settlement Agreement.
Norman Vialle was one of the owners of OPJ in 2007. Vialle testified that OPJ protested a proposed relocation of the Olathe Dodge dealership by Landers McLarty. OPJ and Landers McLarty resolved the dispute by entering into the 2007 Settlement Agreement, under which Landers McLarty agreed to not protest in the future if OPJ decided to move its dealership to a location along I-35. Vialle testified that he didn't remember being involved in negotiating the 2007 Settlement Agreement, though it designates him as a representative of OPJ. Vialle testified that the 2007 Settlement Agreement gave OPJ the right to relocate without protest. He also testified that OPJ intended the 2007 Settlement Agreement to benefit anyone to whom OPJ would later sell its dealership.
Randy Reed is employed by Reed Auto Group and is the manager of Reed Auto of Overland Park.[5] In 2017, Vialle contacted Randy and asked if he'd be interested in purchasing the OPJ dealership. At the time of the initial discussions and sale, OPJ was located at 87th and Metcalf in Overland Park, on property leased by OPJ. Randy thought the facility was in decline and was not in a good location. Randy testified that he nevertheless was still interested in purchasing OPJ because it was the franchise for Chrysler, Dodge, Jeep, and Ram vehicle lines in the Overland Park sales area, and he assumed the dealership could be relocated. Vialle had previously investigated
relocating the dealership from the 87th and Metcalf location to a location off I-35. The manufacturer was supportive of the move.
Within the Kansas City metro area “sales locality, ” there are smaller “sales areas” that each have one dealership assigned to sell new vehicles and perform warranty service work. Sales areas are designated by the manufacturer. Franchise rights from a manufacturer entitle a dealer to be the exclusive dealer in a certain sales area for certain vehicle lines. Reed was interested in being the exclusive dealer in the Overland Park sales area for the Chrysler, Dodge, Jeep, and Ram vehicle lines. By this time, FCA was the manufacturer of the Chrysler, Dodge, Jeep, and Ram vehicle lines, having succeeded DaimlerChrysler. The Overland Park sales area consists primarily of eastern and northern areas of Johnson County, Kansas. Although a dealer can sell a vehicle to anyone, regardless of where they reside, the dealership can only be physically located in its designated sales area.
In 2017, Reed and OPJ entered into an asset purchase agreement (“2017 APA”). See Plaintiff's Ex. 23. The 2017 APA states that Reed “wishes to acquire substantially all of the assets of [OPJ] for the purpose of succeeding [OPJ] as the authorized Chrysler, Jeep, Dodge, and Ram dealer at the Dealership Location.” In executing the 2017 APA, Reed was not agreeing to purchase any ownership interest in OPJ itself and has never had an ownership stake in OPJ. Rather, Reed was purchasing certain assets owned by OPJ.
The largest asset purchased by Reed in the 2017 APA was the dealership franchise rights, though franchise rights actually come from FCA as the manufacturer of the vehicle lines at issue. In other words, the authority to sell the Chrysler, Dodge, Jeep, and Ram vehicle lines had to come from FCA and not OPJ. But OPJ was essentially selling Reed the ability to become the exclusive dealer of those vehicle lines in the Overland Park sales area.
The 2017 APA also set forth the other assets and liabilities being transferred from OPJ to Reed. Section 1.1(h) of the 2017 APA relates to “Assumed Contracts” and states that Reed agrees to assume OPJ's “rights and obligations arising from and after the Closing Date under only the agreements and contracts listed on the attached Schedule 1.1. (h) (the “Assumed Contracts”).” Schedule 1.1(h) does not list the 2007 Settlement Agreement. Schedule 6.7 of the 2017 APA lists “all currently existing contracts and agreements relating to [OPJ] or [OPJ]'s business which are not being assumed by [Reed] and which are considered Excluded Liabilities.” Schedule 6.7 does not list the 2007 Settlement Agreement and also states that “Liabilities under all agreements other than ‘Assumed Contracts' are considered Excluded Liabilities.” Assets not specifically listed as “Purchased Assets” were retained by OPJ.
Closing on the 2017 APA was contingent on FCA awarding the Overland Park sales area to Reed. FCA conditionally approved the deal between Reed and OPJ, which allowed the deal to close. Reed executed separate sales and service agreements with FCA to sell the designated vehicle lines. Reed also had to separately obtain certain permissions from the state to operate a dealership, including a license and bond, which could not be transferred from OPJ to Reed. Additionally, Reed had to obtain its own financing from financial institutions, obtain utilities in Reed's name from the utility companies, and obtain its own insurance and employee-benefit policies. Reed also obtained its own federal tax and employer numbers.
After completion of the conditional items in the 2017 APA, the deal closed in February 2018, and Reed became the authorized dealer for the Overland Park sales area for the Chrysler, Dodge, Jeep, and Ram vehicle lines. The deal closed on a Thursday, and the next day the dealership looked essentially the same except the sign on the building changed from “Overland Park Jeep” to “Reed Jeep.” Reed kept all OPJ's employees except for Vialle, who signed a non-compete
agreement, and an IT manager. Reed purchased all the vehicles that had been on OPJ's lot. A few months after the sale, OPJ dissolved and Vialle retired.
Shortly after signing the 2017 APA, Reed began discussing relocation of the dealership with FCA, who encouraged it. The lease on the dealership building at 87th and Metcalf was going to expire approximately two and a half years after closing, and Reed began exploring different locations. Reed eventually purchased a lot off I-35. FCA thought the new location was a good site, and Vialle had also recommended it as an option. The proposed new location was further away from Landers McLarty's dealership in Olathe than the Metcalf location had been.
Under Kansas law, a dealer can protest another dealer's relocation within a ten-mile radius of its own dealership. Landers McLarty's Olathe Dodge dealership is in the Olathe sales area, which is adjacent...
