New York Court Stays Ford’s Implementation of EV Sales Requirements Pending Resolution of Dealers’ Challenge

On September 20, 2023, a New York state court ordered a stay preventing Ford from implementing its new electric vehicle (“EV”) certification programs for dealers pending the outcome of an action challenging the programs as an unlawful franchise “modification.”  See Premier Ford New York Inc. v. Ford Motor Co., No. 206893/2022 (N.Y. Sup. Ct. Sept. 20, 2023).  The contested programs—Ford’s “Model e Program” and the Lincoln EV Certification 2.0 Program (the “Programs”)—establish various requirements for Ford dealers who choose to sell and service Ford EVs after December 31, 2023 and Lincoln dealers who wish to sell and service Lincoln EVs after December 31, 2024.  Both Programs require Ford and Lincoln dealers to invest approximately $500,000 - $1 million to install publicly accessible EV charging stations, invest in employee training, and satisfy other program conditions.  Participating dealers must also, inter alia, use the Ford.com e-commerce platform for all EV transactions, engage in transparent, “no-haggle” pricing, and provide remote delivery of all vehicle purchases.

In response to Ford’s new EV sales and service requirements, four New York Ford and Lincoln dealers filed suit in New York state court to challenge the legality of the Programs.  The dealers allege that the Programs constitute unlawful modifications of their franchises in violation of N.Y. Vehicle & Traffic Law § 463(2)(ff).  They further allege that Ford is attempting to impose unfair pricing requirements, profit margin reductions, and require unlawful allocations of resources.  Section 463(2)(ff) prohibits franchisors from modifying a dealer’s “franchise” without providing the dealer written notice of and an opportunity to protest such “modification.”  N.Y. Veh. & Traf. Law §§ 463(2)(ff)(1) & (3).  If challenged, a modification will be “deemed unfair if it is not undertaken in good faith; is not undertaken for good cause; or would adversely and substantially alter the rights, obligations, investment or return on investment of the franchised motor vehicle dealer under an existing franchise agreement.”  N.Y. Veh. & Traf. Law § 463(2)(ff)(3).  A modification “is not limited to a change in the franchise contract because other documents may be constituent parts of the parties’ written arrangement, reflecting their shared interest in the sales and servicing of vehicles and other franchisor products.”  Premier Ford New York Inc., No. 206893/2022, at 4.

In May 2023, the dealers moved the court to enforce an “automatic stay” to prevent Ford’s implementation of the Programs, which they argue is required under N.Y. Vehicle & Traffic Law § 463(2)(ff) until the court adjudicates the dealers’ claim.  Section 463(2)(ff)(3) provides that a dealer’s filing of an action shall “serve to stay, without bond, the challenged modification until a final judgment has been rendered.”  Ford argued that the Programs do not constitute statutory “modifications” of the dealers’ franchises because (1) they are voluntary and (2) they impose the type of “reasonable facility, capital, training” and other requirements that N.Y. Vehicle & Traffic Law § 463(2)(w) allows a franchisor to impose as a condition for permitting the dealer to sell its “new motor vehicle products.”  In its September 20 decision, however, the court rejected Ford’s arguments as not directly relevant to the question of whether Ford’s EV Programs “modify” the dealers’ “franchise business relationship.”  Instead, the Court concluded that the Programs "may" substantially and adversely affect the dealer’s “rights obligations, investment or return of investment” within the meaning of Section 463(2)(ff)(2), and that this was sufficient to invoke the automatic stay of their application, implementation, and enforcement pending final judgment in the action, pursuant to section 463(2)(ff)(3).  Premier Ford New York Inc., No. 206893/2022, at 4-5.

The Court based its conclusion on its findings that “[a]t present and in the past, the Plaintiff Dealers sell and have sold and serviced” certain Ford EVs.  Id. at 5.  Under Ford’s new certification programs, however, “a Dealer which declines participation will not be permitted to sell or service new Ford/Lincoln EVs.”  Id.  Additionally, the programs impose new restrictions that “require Dealer investment in electric charging station infrastructure and change the profit margin formulae and pricing structure. …  A refusal to participate in the Programs arguably will affect a Dealer’s competitive position and ability to comply with its obligation under its franchise agreement to sell and service Ford [ ] products.” Id.

The New York court’s stay order creates a significant obstacle to Ford’s efforts to move forward with its national EV sales strategy, which is also subject to ongoing legal challenges in Florida, Illinois, North Carolina, and Arkansas.