Henry Friendly

“ Ford makes no claim that Semmes has not adequately represented it in the lucrative Scarsdale market, and the record indicates that the submission of false claims has been greatly reduced, if not eliminated. Ford urges it is irreparably injured "by forcing it to continue to be represented in an important vehicle market by a dealer which it has discovered to be unworthy of trust and by preventing it for years from making or implementing decisions affecting the Scarsdale area." ”

“ However, these factors must be weighed in the setting created by Semmes' having initiated litigation in New Jersey and the likelihood that failure to stay the New York action will result in litigation in two courts [8] -- a danger the judge recognized when he made his "denial of the stay subject to further developments in the two actions and further order of the Court." We thus see little force in his observation that the New Jersey action had been pending only a short time; the potential of future waste and conflict exists nonetheless unless Ford consents to dismissal. ”

“ Ford. [1] Semmes considers Ford's termination of his dealership to be a retaliation for these activities and an endeavor to supplant him with a dealership in which Ford would have a financial stake; Ford rejoins that activities on behalf of dealers, however proper, cannot protect against the consequences of what it characterizes as fraud. We affirm, with a modification stated in section IV of this opinion, the temporary injunction issued by Judge Ryan as being within the discretion afforded him, but order that further proceedings be stayed pending termination of the New Jersey litigation. ”

“ I. Commencing with the 1965 vehicles, introduced by Ford in the fall of 1964, the manufacturer has made its warranty directly to the retail purchaser as well as to the dealer. When a purchaser of a Ford car finds a defect which he claims to be within the warranty, he returns the car to the dealer who repairs it and submits a Warranty Refund Claim to Ford. The company reimburses the dealer for replacement parts at cost plus a profit and for labor in an amount determined by multiplying the installation time specified in a Ford schedule by the dealer's then approved labor rate. ”

“ While Ford's counsel might have been able to clear up the matter with greater persistence, we think the order should be modified to make clear that Ford is not to be limited to those customers whose cars were a subject of the August, 1969, audit. Ford's contention of large-scale submission of false and fraudulent Warranty Refund Claims by Semmes is serious and substantially supported. ”

“ But whether Semmes is in fact "unworthy of trust" is one of the very points at issue, and there need be no delay of "years" unless Ford wills it so. Ford points out also that the Automotive News has characterized the district court's decision as severely restricting "factory auditing procedures and the circumstances under which the factory may cancel due to warranty overclaims," and argues that this will make Ford an easy mark for fraudulent dealers throughout the land. We read the opinion as strictly limited to the facts of this case ”

“ An affidavit of one of Semmes' attorneys alleges that Semmes requested an opportunity for an independent appraisal, to which the Ford representatives did not object, and access to certain materials used by the auditors, which was refused. Meanwhile Ford had arranged with its New York attorneys to interview the owners contacted by the auditors and for teams comprised of an attorney, a Ford service representative and an independent expert to conduct further physical inspection of vehicles on which Semmes had submitted Warranty Refund Claims. ”

“ On the same day, Ford moved, with elaborate affidavits and exhibits, to vacate the injunction and again to stay proceedings during the pendency of the New Jersey suit. In addition to more material relating to the extent of Semmes' alleged fraud based on further investigation between October 7 and November 5, and an expert statistician's appraisal of its significance, there was an affidavit by George Charney, Semmes' service manager since January 20, 1969, attesting to the regular submission of false claims with William Semmes' knowledge until just prior to the audit. ”

“ The sequence of events here affords some indication that Semmes might have been attempting to do just that, see fn. 5. The defendant is then put to the Hobson's choice of either going along with this ploy by agreeing to dismissal of the first action if the plaintiff is willing or having to defend two lawsuits at the same time. If he makes the latter election, as is his right, not only the parties but the courts pay a heavy price. "Courts already heavily burdened with litigation with which they must of necessity deal should . ”

“ Since the action was equitable in nature, the denial of the stay would not itself by be appealable under 28 U.S.C. § 1292 (a) (1) as the denial of an injunction. City of Morgantown v. Royal Ins. Co., Ltd., 337 U.S. 254, 93 L. Ed. 1347, 69 S.C.t. 1067 (1949) ; Baltimore Contractors, Inc. ”

“ P. 45 (e) . Insofar as Semmes relies on the Federal Dealer Act, 15 U.S.C. § 1222, a New Jersey federal court is as well equipped to decide the issues as one in New York. See Clayton v. Warlick, 232 F.2d 699 (4 Cir. 1956) . So far as the New York statute is concerned, see fn. 13, infra, it can scarcely be doubted that a dealer's purposeful submission of false warranty refund claims would constitute "cause" for termination to the extent that this is consistent with the governing contract. ”

“ III. Our recital has already demonstrated that scant heed was paid to our observations in SEC v. Frank, 388 F.2d 486, 490-92 (2 Cir. 1968) ; see also SEC v. Great American Industries, Inc., 407 F.2d 453, 455 (2 Cir. 1968, in banc) , cert. ”