Arent Fox Secures Victory on Behalf of New York Maserati Dealers
Arent Fox Partner Russell P. McRory and Counsel James M. Westerlind challenged the implementation of Maserati’s new dealer agreement and incentive program, proving at trial that they would fundamentally alter the relationship between dealer and manufacturer and are both unfair and prohibited franchise modifications under the New York Dealer Act.
The new dealer agreement would have removed electric and hybrid vehicles from the franchise, allowed Maserati to sell genuine Maserati parts directly or to non-dealers, and resulted in a broad release of all claims by the dealers.
With respect to the new incentive program, Maserati’s new Commercial Policy Bonus Program would have drastically changed the margin structure that previously existed for over 12 years, and put onerous conditions on a substantial portion of Maserati dealers’ income. Under the new program, the dealers’ cost of goods would be increased by 2 percent through a reduction in trading margin and the 4 percent guaranteed holdback under the old program would be reduced to 2 percent. In exchange for losing 4 percent of total margin, the new program merely allowed dealers to earn back 3.5 percent by meeting various subjective and ever-changing objectives set unilaterally by Maserati. It would have cost the dealers a significant amount of money in order to earn the bonus. In addition, if the dealers did not meet one or more of the objectives, the percentage they previously received guaranteed would have reverted to Maserati as revenue and income.
The criteria to earn back the 3.5 percent included, image and facility requirements, training requirements, CPO sales and off-lease purchase objectives, and parts purchase objectives that would increase substantially each successive quarter.
In August, the firm secured a precedent-setting victory when Judge Zulkoski granted the dealers’ motion for partial summary judgment, holding that the new Commercial Policy Bonus Program was a “modification” under the New York statute. The October trial was set to determine whether the modifications to the dealer agreement and the margin structure were “unfair”, and therefore prohibited by the New York Dealer Act. After the trial in October, Judge Zulkoski held that both the new dealer agreement and the new incentive program were unfair and prohibited franchise modifications because they substantially and adversely affected the dealers’ rights, obligations, investment, and return on investment.
“We are very pleased that the New York Department of Motor Vehicles ruled the incentive program and new dealer agreement introduced by Maserati are in violation of the law,” said Aaron H. Jacoby, leader of the firm’s Automotive group. “This decision will require manufactures to consider how their incentive programs affect a dealer and their franchise. More importantly, it will ultimately change how those manufactures offer and alter incentive programs to dealers.”
The Arent Fox team representing the Maserati dealers was led by Mr. McRory. The trial team included Mr. Westerlind, associate Michael P. McMahan and paralegal Denice Sosnoski. Arent Fox was pleased to be assisted by co-counsel in this matter by the Jonathan P. Harvey Law Firm Law Firm PLLC of Albany New York, and by the Law Firm of Elias C. Schwartz, PLLC, of Great Neck New York.
Arent Fox’s Automotive practice — recognized as a national leader by Chambers USA — provides the roadmap that clients need to navigate an industry in flux. Noted as a firm that is “thinking outside the box,” Arent Fox lawyers vigorously prosecute litigation that cannot be avoided, engage in every form of transaction, and guide companies through the industry’s complex framework.