McLAUGHLIN FORD, INC. v. FORD MOTOR CO

The plaintiff M Co., an automobile dealership, brought an action against the defendant F Co., an automobile manufacturer, claiming that F Co., by appointing another dealer within seven and one-half miles of M Co., had breached the franchise agreement between it and F Co. and had violated the Connecticut Unfair Trade Practices Act (CUTPA). The trial court rendered judgment for F Co., from which M Co. appealed. It claimed that the trial court erred both in denying its motion to amend its complaint made within thirty days of the return date but after both parties had presented their cases, and in failing to apply the proper test for determining whether a party has committed unfair trade practices. Held: 1. The right provided by statute ( 52-128) and by rule of practice (175) to amend a complaint within thirty days of the return date without court approval applies only when the amendment is offered prior to the commencement of the trial; here, the disallowance of the proffered amendment did not constitute an abuse of the trial court's discretion. 2. Although the broad coverage of CUTPA has application beyond instances involving consumer injury, the unchallenged facts found by the trial court did not establish unfair trade practices, actionable under CUTPA by F Co. against M Co. Criteria for determining whether there has been a violation of CUTPA, discussed.

SHEA, J.

This appeal concerns a franchise agreement entered into by the plaintiff, McLaughlin Ford, Inc. (McLaughlin), and the defendant, Ford Motor Company (Ford).

The principal issues presented involve the applicability of the Connecticut Unfair Trade Practices Act (CUTPA); General Statutes 42-110a through 42-110g; to nonconsumers, such as automobile manufacturers and dealers. The first count of the complaint alleged that Ford had breached the franchise agreement in several respects by the appointment of another Lincoln-Mercury dealer at a location seven and one-half miles from the plaintiff. The second count repeated the allegations of the first count and added a paragraph claiming that Ford had committed unfair trade practices in violation of CUTPA. On the first count the trial court found a breach only of a procedural requirement of the franchise agreement requiring a hearing before the dealer policy board established by Ford and issued an injunction to secure compliance therewith. The injunction was dissolved after this procedural deficiency had been rectified. On the second count judgment was rendered for the defendant, the court finding that no unfair trade practices had been proved against Ford. Although the plaintiff's appeal encompasses both counts, it has briefed no issues related to the first count and any claims of error in the judgment on that count must be treated as abandoned. Czarnecki v. Plastics Liquidating Co., 179 Conn. 261, 262 n. 1, 425 A.2d 1289 (1979); Sachem's Head Assn. v. Lufkin, 168 Conn. 365, 366, 362 A.2d 519 (1975). With respect to the second count the plaintiff claims that the court erred (1) in denying a motion to amend in the complaint after both parties had rested and (2) in failing to apply the proper test for determining whether a party has committed unfair trade practices. We find no error.

The facts found by the trial court are as follows: On June 1, 1972, Ron Kelly Ford, Inc., (Kelly) of New Milford entered into a sales and service agreement with Ford designating Kelly as the dealer for Mercury products in the New Milford locality. The rights under this agreement were transferred to McLaughlin on August 6, 1973, and from that date McLaughlin has been the dealer of Ford-Mercury products in the New Milford locality.

In the sales and service agreement governing Ford's relationship with McLaughlin, Ford retained the right to determine "the numbers, locations and sizes of authorized dealers necessary for proper and satisfactory sales and service representation for [Ford's products] within and without the DEALER'S LOCALITY." Ford also retained the right to "appoint additional dealers in VEHICLES within or without the DEALER'S LOCALITY except that, if an additional dealer [would] be within the DEALER'S LOCALITY and within ten (10) miles driving distance of the Dealer's principal place of business, (Ford would] not appoint the additional dealer unless a study made pursuant to subparagraph 9(a) reasonably demonstrate[d], in [Ford's] opinion, that such appointment [was] necessary to provide VEHICLES with proper sales and service representation in such locality." Under the same provision McLaughlin was given thirty days to review the study and file objections with Ford. In turn, Ford was obligated to consider the objections prior to entering into negotiations with "any dealer prospect." If McLaughlin's protestations were unsuccessful, McLaughlin had the right to appeal to the dealer policy board, a tribunal designed to resolve disputes between Ford and its dealers.

The procedural protections provided McLaughlin were subject to one exception: "Nothing in this paragraph 9 shall restrict the right of the Company to appoint a dealer in VEHICLES as a replacement for a dealer in VEHICLES, or to fill an established open point for a dealer in VEHICLES, at or near a location previously approved by the Company."

In July, 1979, Bragg Motors, a dealer of Lincoln-Mercury products in the Danbury locality, ceased doing business. Thereafter, Ford began to search for a dealer to replace Bragg Motors, and eventually entered into an agreement of representation with Greentree Toyota (Greentree). Greentree's place of business is located in Brookfield, approximately seven and one-half miles from McLaughlin's place of business.

Upon learning that Greentree was the most likely candidate to replace Bragg Motors, McLaughlin mailed two letters to the dealer policy board objecting to the appointment of Greentree. The board responded to both letters, informing McLaughlin that it believed McLaughlin's objections were premature because no recommendation for such an appointment had yet been made.

There was no further correspondence between the board and McLaughlin until the latter part of July, 1981, when McLaughlin was informed by letter that "the Board [was] constrained to support the Lincoln-Mercury Division's appointment of the Brookfield Toyota dealer." The board offered to discuss the matter further, but because of business exigencies, required the discussion to be held within the following week. McLaughlin again objected to the proposal, and requested an opportunity to review the market study referred to in the franchise agreement and also a hearing before the board. McLaughlin was informed on August 7 by wire, and in a letter dated August 10, that there was no market study and that a hearing was scheduled for August 12. McLaughlin declined to appear at the hearing, opting to institute on August 28 the civil suit that is the subject of this appeal.

Both parties agreed to expedite the disposition of the case and then proceeded to trial on September 16, 1981.

The first claim of error concerns the denial of McLaughlin's motion to amend its complaint. McLaughlin contends that General Statutes 52-128 and Practice Book 175 granted it an absolute right to amend its complaint within thirty days from the return date and that such time had not expired when the amendment was offered even though both parties had finished presenting evidence. The plaintiff further maintains that, even if it did not have an absolute right to amend its complaint, the court, nonetheless, abused its discretion in denying the motion.

We have frequently held that "[w]hether an amendment should be granted at the close of the plaintiffs' case lies within the sound discretion of the court." Corcoran v. Jacovino, 161 Conn. 462, 471, 290 A.2d 225 (1971); Antonofsky v. Goldberg, 144 Conn. 594, 598, 136 A.2d 338 (1957); Yavis v. Sullivan, 137 Conn. 253, 263, 76 A.2d 99 (1950). Here, the amendment was sought after the defendant had rested. It is inconceivable that either the statute or the rule was intended to restrict the discretion of judges in allowing amendments after commencement of trial and thus upset orderly procedures simply because of the circumstance that, due to expedition of a case by counsel and the court, the trial has been virtually completed within thirty days of the return date. We hold that the right to amend without court approval as provided by 52-128 and Practice Book 175 is applicable only when the amendment is offered prior to commencement of trial.

Nor do we agree that the court abused its discretion in disallowing the amendment made at this late stage of trial. "The trial court has wide discretion in granting or denying amendments before, during, or after trial." Lawson v. Godfried, 181 Conn. 214, 216, 435 A.2d 15 (1980); see also Citizens National Bank v. Hubney, 182 Conn. 310, 312, 438 A.2d 430 (1980).

It would be most exceptional to find an abuse of discretion in refusing an amendment offered, as here, at the close of evidence. Freccia v. Martin, 163 Conn. 160, 164-65, 302 A.2d 280 (1972); Johnson v. Toscano, 144 Conn. 582, 588-89, 136 A.2d 341 (1957). The proposed amendment was in the form of a substitute complaint which primarily elaborated upon the original allegations by referring to and reciting some additional provisions of the franchise agreement. Some new paragraphs were included which detailed the circumstances relating to the initial denial by the policy board of the existence of a market study and its failure to conduct a hearing. The trial court found virtually all of these facts as alleged by the plaintiff in rendering judgment in its favor on the first count. The legal claims of the plaintiff that the sequence of events demonstrated deception on the part of Ford or that the franchise agreement was unconscionable appear to have been considered on the basis of the evidence presented and were rejected. These CUTPA claims were within the scope of the original complaint which alleged "unfair or deceptive trade practices" generally. The only reference in the memorandum of decision to any deficiencies in the complaint is to the absence of any allegation of consumer deception or that "Ford's conduct is substantially injurious to consumers." The amended complaint did not seek to' remedy this deficiency. The absence of demonstrable prejudice is a factor which strongly supports the conclusion that there was no error in the trial court' 8 disallowance of the plaintiff's proffered amendment.

The plaintiff's remaining claim of error concerns the trial court's ruling on the alleged CUTPA violations. In the memorandum of decision the court stated:"'A trade practice is unfair when it offends established public policy and is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.' Covenant Radio Corp. v. Ten Eighty Corp., 35 Conn. Sup. 1 [ 390 A.2d 249 (1977)], quoting Spiegel, Inc. v. Federal Trade Commission, 540 F.2d 287, 293 (7th Cir. 1976). The plaintiff has not alleged, and there has been no evidence, that the challenged conduct of Ford Motor Company is immoral, unethical, oppressive or unscrupulous. Likewise, there is no claim that Ford's conduct is substantially injurious to consumers. For a trade practice to be deceptive, it must have a tendency and capacity to deceive the consumer.' Covenant Radio Corp. v. Ten Eighty Corp., supra. As there is no element of deception of consumers present or alleged, the plaintiff's allegation that Ford has committed a deceptive trade practice must fail."

In this appeal, the plaintiff maintains that the trial court erroneously limited CUTPA's protection to conduct involving consumer injury. McLaughlin further maintains that, although Ford's conduct may not have been oppressive or unethical, it was against public policy and was substantially injurious to McLaughlin. Any one of these factors alone, McLaughlin maintains, is sufficient to state a cause of action under CUTPA. McLaughlin maintains, therefore, that the court erred in denying its requested relief on the second count.

We agree with the plaintiff that CUTPA is not limited to conduct involving consumer injury. General Statutes 42-110g (a) provides in part: "Any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action . . . to recover actual damages." Person, as defined by the statute, includes: "a natural person, corporation, trust, partnership, incorporated or unincorporated association, and any other legal entity." General Statutes 42-110a (3). The statute's coverage is broad and its purpose remedial. Hinchliffe v. American Motors Corporation, 184 Conn. 607, 616, 440 A.2d 810 (1981). The General Assembly has not seen fit to limit expressly the statute's coverage to instances involving consumer injury, and we decline to insert that limitation. We agree with the plaintiff that a competitor or other business person can maintain a CUTPA cause of action without showing consumer injury. See Murphy v. McNamara, 36 Conn. Sup. 183, 188, 416 A.2d 170 (1979); see generally Langer Ormstedt, "The Connecticut Unfair Trade Practices Act," 54 Conn. B.J. 388 (1980).

In order to prevail in a cause of action under CUTPA, the facts proved by the evidence must establish either "unfair methods of competition [or] unfair or deceptive acts or practices," which "have a potential effect on the general consuming public." Ivey, Barnum O'Mara v. Indian Harbor Properties, Inc., 190 Conn. 528, 533, 540, 461 A.2d 1369 (1983); see also Conaway v. Prestia, 191 Conn. 484, 491-93, 464 A.2d 847 (1983). The plaintiff maintains that the facts as found by the trial court, which are unchallenged, establish such unfair trade practices." We disagree.

The legislature has directed that "courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act ( 15 U.S.C. § 45 (a)(1))." General Statutes 42-110b (b). We followed this mandate recently, and adopted the criteria set out in the "cigarette rule" by the federal trade commission for determining when a practice is unfair: "(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers [(competitors or other businessmen)]." Conaway v. Prestia, supra, 492-93, quoting FTC v. Sperry Hutchinson Co., 405 U.S. 233, 244-45 n. 5, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972); see footnote 10, supra.

At the time McLaughlin initiated suit, there was no public policy, expressed by statute 15 or otherwise, prohibiting a manufacturer from exercising a right reserved in a contract to grant an automobile dealership to a competitor who was in close proximity to a preexisting dealer of the same brand. In fact, the public policy existing at that time favored robust competition. See General Statutes (Rev. to 1981) 35-24 et seq. (The Connecticut Anti-Trust Act); Elida, Inc. v. Harmor Realty Corporation, 177 Conn. 218, 413 A.2d 1226 (1979). Ford's decision to grant Greentree a dealership did not contravene any public policy existing at that time.

McLaughlin has not disputed the finding of the court that Ford's conduct was not unethical or immoral and, therefore, it cannot satisfy the second criterion set out in the "cigarette rule." Nevertheless, McLaughlin maintains that the third criterion, substantial injury, has been met here, and that it alone is sufficient to establish an unfair trade practice.

In discussing the third criterion, the federal trade commission has stated: "The independent nature of the consumer injury criterion does not mean that every consumer injury is legally `unfair,' however. To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided."<sup>16</sup> Letter from Federal Trade Commission to Senators Ford and Danforth (Dec. 17, 1980) (reprinted in Averitt, "The Meaning of `Unfair Acts or Practices' in 5 of the Federal Trade Commission Act," 70 Geo. L.J. 225, 291 [1981]). Although the commission was focusing upon substantial injury to consumers, one commentator has claimed that the test is equally applicable when a business person or competitor claims substantial injury. See Averitt, supra, 281-87. We agree. The substantial injury test, as set out by the federal trade commission, strikes the proper balance between the public need for vigorous competition, and the countervailing demand that the method of competition be fair. See Murphy v. McNamara, 36 Conn. Sup. 183, 188, 416 A.2d 170 (1979); see generally Costas, "Unfair Competition and Unfair Trade Practices — Transplants to the Unfair Trade Practices Act," 54 Conn. B.J. 405 (1980); note, "The Attack on Trading Stamps — An Expanded Use of 5 of the Federal Trade Commission Act," 57 Geo. L.J. 1082 (1969).

In this case it is clear from the facts as found by the trial court that McLaughlin cannot meet the second prong of this three-prong test, because the court could reasonably have concluded that its loss was outweighed by continuing benefits to consumers arising from competition. The injury¹⁷ McLaughlin will suffer is a loss of sales due to an increase in competition from an intra-brand competitor. This type of injury has traditionally been considered insignificant when compared to the benefit to consumers and for that reason statutes and common law permit only limited restriction of methods of competition. See Elida, Inc. v. Harmor Realty Corporation, supra, 231; see also Scott v. General Iron Welding Co., 171 Conn. 132, 368 A.2d 111 (1976); Domurat v. Mazzaccoli, 138 Conn. 327, 84 A.2d 271 (1951); Brodigan, "The Connecticut Antitrust Act," 47 Conn. B.J. 12 (1973). Increased competition alone, resulting from a practice containing none of the hallmarks of traditionally unfair practices, does not constitute a cause of action under CUTPA. McLaughlin has proven no more. It follows, therefore, that there was no error in denying relief on the second count.