Reed Auto of Overland Park, LLC v. Landers McLarty Olathe KS, LLC

REED AUTO OF OVERLAND PARK, LLC, et al., Plaintiffs, v. LANDERS MCLARTY OLATHE KS, LLC, Defendant.

Case No. 2:19-cv-02510-HLT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

March 26, 2021

MEMORANDUM AND ORDER

This is a dispute between two competing car dealerships. Plaintiffs Reed Auto of Overland Park and Reed Auto Group allege that Defendant Landers McLarty breached a contract it entered into in 2007 with another dealership that later sold its assets to Plaintiffs. Part of that agreement was a promise by Defendant not to protest the relocation of certain vehicle lines in the Overland Park area for 15 years. Approximately 12 years into that agreement, Defendant filed a protest against Plaintiffs' proposed dealership relocation, which Plaintiffs now contend violated the 2007 contract, Michigan consumer protection law, and Kansas law against malicious prosecution.

Defendant moves for summary judgment on all claims, alleging that the contract is not enforceable by Plaintiffs because they were not parties to it, and that Plaintiffs are not entitled to relief on their other claims. Plaintiffs also move for partial summary judgment on whether they are successors or third-party beneficiaries under the contract. As discussed below, the Court finds there is a genuine question of fact as to whether at least one Plaintiff is a successor under the contract, and whether Defendant's protest amounts to malicious prosecution. Summary judgment is granted to Defendant on all other claims.

I. BACKGROUND¹

Plaintiffs are Reed Auto of Overland Park ("RAOP") and Reed Auto Group ("RAG"). RAOP is a vehicle dealer under Kansas law; it was created in 2017. RAG is a holding company for various vehicle dealerships, including RAOP. Defendant Landers McLarty is also a vehicle dealer under Kansas law. Both RAOP and Defendant are authorized FCA US LLC dealers. RAOP has never contracted with DaimlerChrysler to sell the DaimlerChrysler vehicle line.

A. 2007 Agreement Between Defendant, DaimlerChrysler, and Overland Park Jeep

In 2006, Defendant was an authorized franchisee of DaimlerChrysler. It was authorized to sell Dodge, Chrysler, and Jeep vehicles. It owned and operated two separate dealerships in Olathe, Kansas. At the time, Defendant was interested in combining two of its DaimlerChrysler dealerships into one location. To effectuate this, DaimlerChrysler filed a Notice of Relocation on behalf of Defendant with the state of Kansas. Another dealer in the area, Overland Park Jeep, filed a protest to stop Defendant from combining its dealerships. At the time, Overland Park Jeep operated a dealership at 8775 Metcalf Avenue in Overland Park, Kansas.

On July 24, 2007, Defendant, DaimlerChrysler, and Overland Park Jeep entered into a settlement agreement ("2007 Agreement"). The 2007 Agreement recited that a dispute had arisen among the parties surrounding Defendant's proposed relocation. Paragraph 1 of that agreement states:

1. NO FUTURE PROTEST. Landers McLarty agrees not to protest or otherwise challenge any relocation or establishment of any DaimlerChrysler vehicle lines 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 11 of the 2007 Agreement states, in relevant part: "In the event of any dispute arising under or concerning this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing party in connection with any litigation regarding such dispute." Paragraph 16 states that the 2007 Agreement "shall inure to the benefit of and be binding on the successors, assigns, heirs, and legal representatives of the Parties to this Agreement." The 2007 Agreement is governed by Michigan law. The 2007 Agreement does not mention RAG, RAOP, or any "third-party beneficiary."

B. 2017 Asset Purchase Agreement Between Overland Park Ventures and RAG/RAOP.

Overland Park Jeep subsequently changed its business name to Overland Park Ventures ("OPV"). Overland Park Jeep and OPV are owned and managed by Normal Vialle. RAOP is owned by RAG and managed by Randy Reed and Tyler Reed.

In 2017, RAG entered into an Asset Purchase Agreement ("2017 APA") with OPV.² OPV was the seller and RAG was the purchaser. The purpose of the 2017 APA was for RAG "to acquire substantially all of the assets of [OPV] for the purpose of succeeding [OPV] as the authorized Chrysler, Jeep, Dodge, and Ram dealer at the Dealership Location."

In paragraph 1.1 of the 2017 APA, OPV agreed to sell certain assets, including those listed in subparagraph 1.1(h), which stated:

(h) Subject to Section 2.4 below, all of Seller'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 include the 2007 Agreement.

Paragraph 1.4(c) of the 2017 APA further clarifies that the purchased assets under the 2017 APA do not include rights under contracts or agreements that are not assumed liabilities under the agreement. Paragraph 1.2 of the 2017 APA addresses assumption of liabilities. That paragraph states:

1.2 Assumption of Liabilities. Commencing from and after the Closing Date, Purchaser will assume and agree to pay, perform, and discharge, promptly when due only those liabilities, obligations, and duties of Seller arising on and after the Closing Date with respect to the Assumed Contracts and the liabilities and obligations under unfilled retail orders being purchased by Purchaser pursuant to Section 1.1(k) above (collectively, the "Assumed Liabilities"). In no event, however, will Purchaser assume or incur any liability or obligation under this Section or otherwise in respect of any liabilities other than the Assumed Liabilities, including, but not limited to, the following (collectively the "Excluded Liabilities"): [listing excluded liabilities].

Paragraph 6.7 deals with "Assumed Contracts," and states that Schedule 6.7 lists all contracts and agreements not being assumed, including that "[l]iabilities under all agreements other than 'Assumed Contracts' are considered Excluded Liabilities." The 2007 Agreement is not specifically listed as an excluded liability on Schedule 6.7, nor is it listed on the list of assumed contracts.

The 2017 APA also lists some "Conditions Precedent to Obligations of Purchaser." These include RAG being approved for a new sales and service agreement for Chrysler, Jeep, Dodge, and Ram lines; RAG's obtaining all appropriate licenses for operation of a dealership with the state of Kansas; and receipt of floorplan financing from a third-party lending institution.

RAG did not obtain any right or interest from OPV in a sales and service agreement with FCA US LLC. A sales and service agreement is what makes a dealer an authorized dealer of new vehicles from a particular line and able to perform service and warranty work. RAG also obtained its dealer license from the state of Kansas, not OPV. Without approval and licensing from the stateof Kansas, a business cannot sell new or used vehicles in the state as a vehicle dealer. RAG also did not obtain any right or interest in floorplan financing from OPV. To be an authorized dealer, FCA requires a dealership to obtain floorplan financing from a third-party lender; without such financing, a dealer may not be able to obtain any new or used vehicles to sell.

On January 31, 2018, RAG assigned its rights under the 2017 APA to RAOP. On February 1, 2018, the deal memorialized in the 2017 APA between OPV and, now, RAOP closed. This included an assignment of all interests in the "Assumed Contracts." But when OPV sold its assets to RAG/RAOP, it did not assign its interest in the 2007 Agreement. RAG and RAOP were not even aware the 2007 Agreement existed until July 2019.

After the 2017 APA closed, RAOP continued to operate a dealership at 8775 Metcalf Avenue—where Overland Park Jeep (OPV's predecessor) formerly operated its dealership—selling Chrysler, Dodge, and Jeep vehicles. RAOP never conducted business as "Overland Park Jeep"—it operated as Reed Jeep, Chrysler, Dodge, Ram. Although RAOP initially planned to do business at the 8775 Metcalf Avenue location, it always intended to relocate the dealership to a more suitable location. RAOP retained all of OPV's employees except one, and used the same assets OPV used to operate its dealership, including inventory. OPV subsequently dissolved its business entity. RAOP subsequently became an FCA US LLC authorized dealer.

C. Protest by Defendant of Relocation of RAOP's Dealership

On January 15, 2019, FCA US LLC filed a notice on behalf of RAOP to relocate its dealership from 8775 Metcalf Avenue in Overland Park, Kansas, to 7050 West Frontage Road in Merriam, Kansas. The new location would be more profitable for RAOP. The proposed relocation address is within the Overland Park Sales Area, as defined by the 2007 Agreement. RAG was not involved in the notice to relocate.

On April 25, 2019, Defendant filed a Notice of Protest under K.S.A. § 8-2430 contesting the relocation of RAOP's dealership. Defendant did not file any protest having to do with RAG.

RAOP and Defendant exchanged written discovery during the protest. But Defendant did not produce a copy of the 2007 Agreement. RAOP only discovered the agreement after the owner of Overland Park Jeep/OPV brought it to RAOP's attention in July 2019. FCA US LLC never objected to Defendant's protest, never indicated it had any authority to enforce the 2007 Agreement, never claimed that Defendant had breached the agreement, and never indicated that Defendant did anything wrong in protesting RAOP's relocation request.

On July 9, 2019, OPV assigned its rights and interest in the 2007 Agreement to RAG, who subsequently assigned its interest to RAOP ("2019 Assignment"). The actual 2019 Assignment from OPV to RAG is longer and more detailed, while the...