Dealer Beware - Review Your Contracts
Automotive Dealership Law on September 29, 2014
Some of the contracts entered into by dealers include agreements with vendors, DMS providers, lenders and the like. These contracts provide for several provisions that may affect how you do business. The contracts entered into by the dealership cover a range of issues including, but not limited to, the following:
- Indemnification Advertising
- Dealer Responsibilities
- Dispute Resolution
- Prohibited Practices
- Choice of Law
- Proprietary Information Amendments
You have most likely read provisions that parallel the following:
- “We shall have the right to unilaterally amend, modify or change this contract…which might materially affect the relationship between Vendor and Dealer.”
- “We may terminate this contract automatically and without further notice for any reason.”
- “We reserve the right to change the terms and conditions of this contract at any time without notice.”
- “This contract will be automatically renewed at the end of its term without further notice to you.”
These phrases may not stand out as red flags to you, however, there are several instances where these phrases may cause problems for your dealership. Complications we have encountered over the years are set forth below.
Document Production. It is common for a dealership to provide documents to a third party in response to a Subpoena Duces Tecum which typically requests the production of certain documents pertaining to either an employee or a vehicle transaction. Dealerships must be careful when producing certain print outs from DMS systems due to the “confidentiality” and “proprietary” provisions in vendor agreements or you may be in breach of the agreement.
Marketing and Advertising. If your marketing and advertising vendors (online and print) are not following State and Federal laws regarding marketing/advertising, the dealership is liable. Be sure you understand the indemnification provisions of your vendor contracts.
Safeguarding Private and Confidential Information. The dealership is responsible for any vendor that has access to the private and confidential information of customers and employees. Be sure to know how vendors are safeguarding this information.
Changes in the Contract. Many times vendors will update contracts online and not provides hard copies to dealerships. Make it a practice to review updated contracts.
What Can You Do?
- Review and READ the contracts the dealership enters into.
- Make sure you know who at the dealership is entering into contracts for the dealership.
- Designate someone to be authorized to enter into contracts on behalf of the dealership.
- Update your records by contacting each party and requesting updated contracts or save updated versions from online.
- Do not disclose any information in the possession, custody or control of the dealership to a third party (someone other than the dealership attorney) until you understand the restrictions set forth by the contracts entered into by the dealership.
- Review renewal provisions and make note of contract end dates. You may not want a contract renewed and you need to be aware of cancellation guidelines.
- Have your attorney review the contracts if you are unsure of your responsibilities and liabilities.
- There is no such thing as a stupid question. If you don’t understand the limitations set forth by a provision or agreement, ask.
Review your dealership’s insurance coverage. You can negotiate with your insurance carrier to provide for a “choice of counsel” provision to allow you to choose your attorney.