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Lawsuit Points to Roadblock Ahead for Taking F&I Online

October 20, 2009

A small Rhode Island dealership’s fight to retain the right to sell Honda-backed extended service contracts over the Internet represents more than a dispute between a dealer and a manufacturer; it also symbolizes the roadblocks ahead for getting F&I online.
 
Less than three months after it lost its bid for a preliminary injunction to block Honda’s ban of online sales of its branded service contracts, Saccucci Auto Group, which operates a Honda dealership in Providence, RI., learned in September that it would have to stop selling Honda’s VSCs by Nov. 1. According to court filings, the ban will only be in effect until Honda develops a long-term strategy for Internet sales.

Mary Lisi, chief judge of the U.S. District Court for the District of Rhode Island, ruled that the automaker had a contractual right to temporarily prohibit the practice. The judge also denied the dealership’s charge that the policy was subject to or in violation of the Rhode Island Dealer Act, and rejected Saccucci’s promissory estoppel waiver and breach of implied duty of good faith and fair dealing charges.
 
“This is not a situation where Honda is threatening to curtail Saccucci’s bloodline — its supply of automobiles — a primary consideration of the dealer act,” Lisi wrote in her judgment. “Saccucci does not have the ‘right’ to sell Honda Care VSCs over the Internet and thus no contractual objectives have been denied to Saccucci. Consequently, Honda has not breached the implied duty of good faith and fair dealing.”
 
Geoffrey Millsom, the attorney representing the dealership, said online sales of Honda’s VSCs represented a “significant revenue stream” for the family-owned dealership. He said Honda had been aware of Saccucci online sales since the site, myhondawarranty.com, was launched three years ago, and even encouraged the practice in internal e-mails, according to court filings. The dealership charges that the automaker, however, changed direction after receiving complaints from other dealers.
 
“What my client wants is not a trial or verdict or money from a jury,” noted Millsom, who said the company has filed an appeal against the ruling. “What they want is to sell VSCs online.”
 
Saccucci filed its lawsuit on March 28, 2008, a month after Honda issued its Honda Care VSC Internet Policy and Guidelines. The Rhode Island state court issued a preliminary injunction against Honda’s policy a day later while the lawsuit was pending, a decision that was overturned on Jan. 29, 2009. Honda, however, delayed its decision to implement its policy until September, approximately two months after Judge Lisi’s July 21 ruling in favor of the automaker.
 
Honda argued that the reputation of its brand and its dealers were at stake. The dealership, however, alleged that the idea to set up an e-commerce site originated from a Honda parts and service representative, who first discussed online sales with a Saccucci dealership associate in 2004.
 
Saccucci’s Honda Care VSC Website went live in early 2006. The dealership hoped to reap not only increased sales for selling the contracts, but manufacturer incentives as well.

Complaints from other Honda dealers about being undersold began to mount, some charging that customers were becoming angry because Honda Care VSCs were being sold for less online. In one case involving an Illinois dealer, according to court filings, a customer swore never to return to the dealership or to purchase another Honda vehicle.

In January 2007, Honda’s Dealer Advisory Board advised Honda that the impact of Internet sales on customer satisfaction was a “priority concern,” with some dealers threatening to dump Honda’s VSCs for those offered by other providers. By the fall of that year, the automaker created a committee of in-house and outside attorneys to address the issues the dealers raised. Out of that committee came Honda’s new Internet sales policy, which, according to court filings, was intended to protect "Honda’s brand image and the alignment of sales of VSCs with the authorized locations provided in the dealer agreement.”
 
“This was a practice that Honda knew about and permitted for a very long time,” Millsom said. “If Honda is allowed to do this without offending either the various contracts or the state’s dealer act, there’s a real possibility they or any other manufacturer can curtail business over the Internet.”
 
The case also speaks to the structural issues that could impede F&I functions going online.

“Dealers selling F&I products online will find that they will face issues under state dealership and franchise laws,” said Hudson Cook LLP attorney and F&I columnist Thomas Hudson. “This case illustrates the additional difficulties that might arise from the terms and conditions of a dealer’s agreements with its manufacturer.”

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