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Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corp., U.S.A.

California Court of Appeals, Second District, Sixth Division

November 26, 2013

POWERHOUSE MOTORSPORTS GROUP, INC., et al., Plaintiffs and Appellants,
YAMAHA MOTOR CORPORATION, U.S.A., Defendant and Appellant.

[As Modified on December 24, 2013.]

Superior Court of San Luis Obispo County, No. CV098090 Martin J. Tangeman, Judge.

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Diane M. Matsinger; Andre, Morris & Buttery, Dennis D. Law, Collette A. Hillier for Plaintiffs and Appellants.

Baker & Hostetler, Maurice Sanchez; Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Marjorie Ehrich Lewis, Blaine H. Evanson, Bradley J. Hamburger for Defendant and Appellant



For over a decade, Powerhouse Motorsports Group, Inc. (Powerhouse) operated a successful retail motorcycle dealership under a dealer/franchise agreement (Franchise Agreement) with Yamaha Motor Corporation U.S.A. (Yamaha). In 2008, Powerhouse suffered a reversal of fortune and its owner Timothy Pilg closed the dealership in June of that year. With the apparent agreement and support of Yamaha, Pilg entered negotiations to sell the dealership and franchise to MDK Motorsports (MDK).

Without informing either Pilg or MDK and contrary to its stated position, Yamaha initiated procedures to terminate the Franchise Agreement pursuant

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to Vehicle Code section 3060.[1] Before Yamaha served Powerhouse with statutory notice of the termination, Powerhouse notified Yamaha it had reached an agreement to sell the dealership and franchise to MDK and asked Yamaha to approve the sale. Powerhouse filed a protest to the notice of termination (§ 3060, subd. (b)(2)), and the New Motor Vehicle Board (the Board) subsequently granted Yamaha's motion to dismiss the protest as untimely. The Franchise Agreement was accordingly terminated, which led MDK to cancel its purchase of Powerhouse.

Powerhouse and Pilg[2] then filed this lawsuit alleging that Yamaha unreasonably withheld its consent to the sale of the dealership and franchise in violation of section 11713.3. The complaint also includes common law claims for breach of contract, intentional interference with contractual relations, and breach of the implied covenant of good faith and fair dealing. Powerhouse prevailed in a jury trial and recovered a total of $1, 336, 080 in compensatory and punitive damages. Yamaha appeals, contending that the Franchise Agreement was terminated by virtue of the section 3060 procedure and that such termination precludes Powerhouse from recovery on any of its claims. Yamaha also claims the compensatory damages are excessive, the punitive damages are improper, and that attorney fees were erroneously awarded. Powerhouse cross-appeals, contending the court erred in granting nonsuit on Pilg's section 11713.3 claim, and in failing to award the attorney fees it incurred in the administrative proceedings before the Board and Powerhouse's subsequent request for writ relief from the Board's decision.

We conclude that Powerhouse's right to seek and recover damages for Yamaha's unreasonable refusal to approve the sale of Powerhouse's dealership and franchise is not affected by Powerhouse's failure to comply with the section 3060 procedure for challenging Yamaha's termination of the Franchise Agreement (§§ 3050, subd. (e), 11713.3, subd. (d)(1)), nor by the Board's decision regarding the timeliness of Powerhouse's protest to the notice of termination. We further conclude that the jury's verdict is supported by substantial evidence and that the parties' remaining claims lack merit. Accordingly, we affirm the judgment.


For several years, Timothy Pilg operated a motorcycle and sport vehicle dealership under the Powerhouse name. In 1998, Pilg became a franchisee of Yamaha. The dealership grew and Powerhouse was incorporated in

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2007. After incorporation Powerhouse entered into a new Franchise Agreement with Yamaha. Business, however, declined and Powerhouse closed its dealership on or about June 16, 2008. It never reopened.

After closing the dealership, Powerhouse began negotiations for the sale of the closed dealership, including the Yamaha franchise, to MDK. On June 19, 2008, Pilg contacted Rod Stout, a Yamaha division manager, and asked if Powerhouse could sell the franchise even though it had closed. Stout told Pilg that such a sale was possible.

On June 21, 2008, Powerhouse reached a verbal agreement with MDK for the sale of its assets and, on June 25, Powerhouse and MDK signed a written "term sheet" for the sale.[3] MDK was an existing and approved Yamaha franchisee operating at another location. On June 27, 2008, Pilg informed Luke Dawson, a Yamaha district manager, of the terms of the sale. When he informed Regional Sales Manager Rocky Aiello of the sale, Dawson obtained information regarding MDK and Yamaha began the process of approving MDK as a new franchisee. Stout informed Powerhouse that it remained a Yamaha dealer and that Yamaha would consider an application from MDK to transfer the franchise to MDK.

On July 10, 2008, Powerhouse, Yamaha and MDK representatives attended a meeting to discuss and expedite the sale. Dawson was Yamaha's representative. Pilg and the CEO of MDK attended the meeting along with other Powerhouse and MDK personnel. Dawson represented that he would expedite Yamaha's review and approval of the sale and transfer of the franchise. The possibility of entering into an agreement under which Powerhouse would reopen its dealership was discussed but not acted upon.

On July 18, 2008, Yamaha manager Stout stated that Yamaha would expedite the paperwork and that an interim reopening of the Powerhouse dealership was not necessary because MDK was an existing Yamaha franchisee in another location. On the same day, Powerhouse and MDK executed a formal agreement for the sale of the dealership to MDK.

At the same time as these negotiations were ongoing, and unbeknownst to Powerhouse or MDK, Yamaha began the section 3060 procedure for terminating the Franchise Agreement. The Franchise Agreement gives Yamaha the right to terminate if Powerhouse closed its operations for a period of seven consecutive days. (See also § 3060, subd. (a)(1)(B)(v).) On July 11, 2008, when Powerhouse had been closed for almost a month, Rocky Aiello signed an

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internal dealer cancellation request which was followed by a notice of termination of the Franchise Agreement as required by section 3060. The notice was misaddressed and not received by Powerhouse. Another notice of termination was sent on July 24, 2008, after the finalization of the Powerhouse/MDK sale agreement. Powerhouse received this notice on July 26, 2008.

The notice of termination complied with the requirements of section 3060. The notice triggered a statutory obligation on the part of Powerhouse to file a protest with the Board, a state agency created to enforce the Vehicle Code provisions. Section 3060, subdivision (b)(2) provides that, upon a timely protest by a dealer, a franchise may not be terminated without the approval of the Board.

On July 28, 2008, Pilg telephoned Richard Tilly, Yamaha's Senior Legal Counsel, regarding the notice of termination. Tilly was not aware of the pending sale to MDK and declined to discuss the termination notice. Tilly advised Pilg to contact an attorney. Tilly followed up with a letter to Powerhouse stating that Yamaha was not withdrawing or delaying the effectiveness of its notice of termination. Pilg e-mailed Dawson for an explanation but received no reply. Aiello was aware that Pilg did not understand the effect of the notice of termination and was seeking information from Yamaha.

MDK sent its franchise application package to Yamaha on August 5, 2008. The package was forwarded to Aiello and other Yamaha executives for review, but was never fully processed. On August 8, 2008, Yamaha attorney Tilly wrote to Pilg stating that submission of the Powerhouse/MDK agreement did not prevent application of the termination notice, and informed Pilg that the Franchise Agreement would terminate on August 9, 2008, because Powerhouse had failed to file a timely section 3060 protest.

Powerhouse filed a late protest to the notice of termination on August 15. Yamaha moved to dismiss the protest as untimely. The Board conducted a hearing on Yamaha's motion to dismiss and granted the motion, finding that the protest was untimely. The opinion of the administrative law judge recited the facts concerning the closure of the Powerhouse dealership, the sale of the dealership to MDK, and the conduct of Yamaha during the negotiation of the sale. The opinion concluded that Yamaha had the burden of establishing it had a good faith belief that Powerhouse had gone out of business, and that Powerhouse would not reopen the business even if the dealership were sold to ...

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