Can a dealer be liable for commitments made in the Dealer Application?

By Jerry Meek

When a potential dealer submits an application for a dealer franchise, can the dealer be liable for failing to fulfill the commitments made in the application?  Perhaps not, one court recently said in Volvo Trucks North America v. Andy Mohr Truck Center, No. 1:12-cv-448 (S.D.Ind. October 9, 2012).

In 2009, Andrew Mohr and his company applied for a Volvo trucks dealer franchise.  In the process, he submitted a Dealer Application to Volvo, in which – according to Volvo – he made “several promises, representations and unqualified guarantees.”  In the application, for example, Mohr indicated that he would:  “promote and lead Volvo to a dominant market share position”; secure certain accounts; move into a new facility; “commit the resources necessary to create a strong dealer image with proactive prospecting”; build a new long-term facility for its operations; and place an initial parts order of $1 million.

His application was approved, resulting in a Dealer Agreement.  But, as the Court noted, “things have since gone south.”  Volvo sued Mohr and his company, alleging – among other things – that he fraudulently induced them to enter into the Dealer Agreement, that he engaged in “constructive fraud” and that he was liable to Volvo under a theory of promissory estoppel.  Mohr sued Volvo back, alleging several claims, including breach of the Dealer Agreement.

The Court threw out Volvo’s claims of fraudulent inducement, constructive fraud, and promissory estoppel.  For there to be fraudulent inducement, the defendant must make a false representation about past or existing facts.  All of the representations made by Mohr, according to the Court, were about what Mohr planned to do in the future.  Thus, there was no basis for Volvo’s fraudulent inducement claim.

Constructive fraud generally requires the existence of a confidential or fiduciary relationship between the parties.  In some very limited circumstances, the relationship between a buyer and seller can give rise to a constructive fraud claim.  But here, the Court ruled, no such relationship existed between the parties.

Finally, a promissory estoppel claim can arise when a defendant makes promises, which the plaintiff reasonably relies upon to the plaintiff’s detriment.  Here again, the Court rejected Volvo’s position.  Like most Dealer Agreements, the Dealer Agreement between Volvo and Mohr contained an “integration clause,” providing that the written agreement superseded any other prior agreements or communications between the parties.  Thus, “as a matter of law,” any promises made by Mohr in the Dealer Application were superseded by the Dealer Agreement.  In addition, said the Court, “any reliance by Volvo on the Defendants’ promises was legally unreasonable (not to mention colloquially unreasonable, given that it is Volvo’s own contract that includes the integration clause).”

Despite these victories, Mohr and his company are not out of the woods yet and this lawsuit may not end soon.  Volvo still has three claims left standing, and Mohr has six counterclaims yet to be resolved.