February 26, 2026|Franchise Frontlines
February 26, 2026 | New York Supreme Court, Appellate Division, Third Department | Published Opinion
Executive Summary
In a published decision, Justice Clark of the New York Supreme Court, Appellate Division, Third Department, affirmed orders largely favoring Darwish Auto Group, LLC and Darwish General Corp. in an internal dealership governance dispute involving entities formed to acquire and operate ten automobile dealerships in upstate New York. Walid Darwish argued that he retained exclusive authority over the dealerships as the LLC member, corporate shareholder, dealer principal, principal owner, or executive manager identified in manufacturer agreements. Plaintiffs argued that Darwish had signed financing, governance, and employment documents delegating management authority to three-member governing bodies and requiring him to follow those bodies’ decisions. The court enforced the plain language of the borrowing agreement, amended operating agreement, shareholder agreement, and employment agreement, holding that a majority of the governing bodies had authority to manage the plaintiffs and dealerships, including dealership sales, without Darwish’s interference. The court also affirmed summary judgment that Darwish breached fiduciary duties by converting dealership advance funds and breached his employment agreement by refusing to recognize the governing bodies’ authority, while leaving for trial a disputed issue involving alleged misuse of a confidential banking token.
Relevant Background
Darwish Auto Group, LLC and Darwish General Corp. were formed in June 2021 to acquire and operate car dealerships. Darwish was the member of Darwish Auto Group and the sole shareholder of Darwish General Corp. In connection with the planned acquisition of ten dealerships, Darwish also formed separate dealership limited liability companies corresponding to each dealership. To fund the acquisitions, he secured $62 million from an affiliate of the Potamkin Automotive Group.
The financing came with governance conditions. The lender required Darwish to reorganize the plaintiff entities so that they would be controlled by three-member governing bodies consisting of Darwish and two lender-affiliated individuals, Barry Frieder and Mark Manzo. No member would have unilateral authority to act on behalf of the plaintiffs. Under the structure, the plaintiffs would each hold a 50% ownership interest in the dealerships, and Darwish would manage the dealerships under a separate employment agreement.
After the financing structure was implemented, disputes arose over control of dealership bank accounts, dealership operations, and potential dealership sales. Plaintiffs initially alleged that Darwish unilaterally modified access to TD Bank accounts maintained by the dealerships. Plaintiffs later sought declarations that they were managed by majority action of their governing bodies, not by Darwish alone, and that those governing bodies had authority to manage, direct, and control the business, property, and affairs of the plaintiffs and dealerships, including access to TD Bank accounts and authority to sell dealerships.
The dispute escalated when plaintiffs discovered that Darwish had initiated an advance of several million dollars from Ford Motor Credit Company against future profits from certain Ford dealerships. Plaintiffs sought injunctive relief to prevent dissipation of those funds. The trial court enjoined Darwish from dissipating any Ford Advance funds in his possession and later directed him to provide an accounting and monthly statements. Plaintiffs also alleged that Darwish had converted both the Ford Advance and another advance from Nissan Extended Services North America to his personal benefit.
Darwish opposed plaintiffs’ position and asserted counterclaims and third-party claims. He contended that he owned and controlled the dealerships, that he never agreed to the claimed management change, and that plaintiffs and third-party defendants misused his confidential banking token and wrongfully took certain funds. He also sought to block the sale or disposition of dealerships during the litigation. The trial court granted plaintiffs partial summary judgment on liability, denied Darwish’s cross-motion for partial summary judgment, and dissolved the preliminary injunction that had prevented dealership transfers.
Decision
The Appellate Division first upheld the trial court’s order requiring Darwish to account for the Ford Advance funds. Although plaintiffs’ motion had sought to compel return of the funds rather than specifically seeking an accounting, the notice of motion included a general request for further relief as the court deemed just. The appellate court held that an accounting was not too dramatically different from the relief sought because both forms of relief aimed to prevent further dissipation of funds in Darwish’s possession. The court also concluded that the accounting order rested on a sufficient evidentiary basis and did not substantially prejudice Darwish.
The court then dismissed as moot Darwish’s challenge to the undertaking required for the preliminary injunction that had temporarily barred dealership transfers. Darwish had not posted the undertaking, and the later summary judgment order dissolved the preliminary injunction. Because the obligation to post the undertaking no longer existed, the court found no live controversy over its amount.
The core holding concerned governance. The court applied ordinary contract-interpretation principles, emphasizing that clear and unambiguous written agreements must be enforced according to their plain meaning. Plaintiffs submitted the borrowing agreement Darwish signed to secure the $62 million acquisition financing. That agreement stated that Darwish Auto Group and Darwish General Corp. would be governed by amended governing documents and managed by three-member governing bodies with “the right, power and authority to make all decisions” on behalf of the dealership companies, including decisions concerning acquisition, management, operations, financing, accounting, and sale of assets.
The amended governing documents, which bore Darwish’s signature, likewise delegated management to the governing bodies and required majority approval for actions taken on behalf of the plaintiff entities. The documents also granted the governing bodies the right to manage the business, property, and affairs of the dealership companies, so long as the dealership companies remained member-managed and owned directly by the plaintiffs. Darwish also signed documents designating himself, Frieder, and Manzo as members of the governing bodies, and his employment agreement listed him as dealership president who would report to the governing bodies.
Based on those documents, the court held that plaintiffs established as a matter of law that Darwish delegated management authority to the three-member governing bodies, and that those bodies had authority to manage the dealerships, including authorizing their sale. Darwish failed to raise a triable issue of fact. His reliance on earlier governance documents did not help because the amended governing documents contained a merger clause superseding prior agreements. His claim that he had not reviewed the documents before signing them also failed because the record showed he was a sophisticated party represented by counsel.
The court also rejected Darwish’s reliance on manufacturer agreements. Those agreements listed him as “Dealer Principal,” “Principal Owner,” or “Executive Manager” and gave him varying degrees of management authority, while generally requiring manufacturer consent before someone else could serve in that role. But the court held that the manufacturer agreements did not govern the internal management structure of the plaintiffs and did not override the plain language of the amended governing documents. The court further observed that Darwish’s management role under the manufacturer agreements was consistent with his employment agreement, which contemplated that he would play an active and substantial management role while reporting to the governing bodies.
The court next affirmed summary judgment for plaintiffs on breach of fiduciary duty. Darwish did not dispute that, as a manager and director of the plaintiff entities, he owed fiduciary duties to act in good faith and refrain from converting corporate funds for his own benefit. The evidence showed that the Ford and Nissan advance agreements stated the funds were being paid to the dealerships, but Darwish admitted that the funds were placed directly into his personal bank account, were not recorded in dealership financial records, and that he spent all but $200,000 on personal debts, a home for his parents, and an investment in a relative’s business. The court held that this record supported summary judgment for breach of fiduciary duty.
The court also affirmed summary judgment on plaintiffs’ breach of contract claim. Darwish’s employment agreement required him to follow the policies and procedures of the governing bodies and provided that his duties and responsibilities could be expanded or curtailed at their discretion. The court found overwhelming evidence that Darwish failed to recognize the governing bodies’ authority and refused to follow majority decisions, including by refusing to cooperate with dealership-sale efforts and by cutting off administrative access to certain TD Bank accounts.
Finally, the court affirmed denial of Darwish’s cross-motion for summary judgment. It found a direct factual dispute over whether Darwish authorized plaintiffs’ chief financial officer to use his confidential banking token, which required trial on that issue. It also found unresolved factual issues on some of Darwish’s fiduciary-duty theories and concluded that he failed to satisfy his prima facie burden on other counterclaims and third-party claims.
Looking Forward
This decision is useful for dealership groups, franchisors, multi-unit franchisees, investors, lenders, and operators structuring acquisitions in regulated franchise systems. The main lesson is that dealer-principal status does not necessarily equal unilateral control. Manufacturer approval documents may define who serves as the approved dealer principal, principal owner, or executive manager for manufacturer-facing purposes. But those documents may not determine the internal governance rights among owners, lenders, managers, holding companies, and operating entities.
The court’s treatment of the manufacturer agreements is especially important. Darwish argued that documents identifying him as dealer principal or principal owner supported his exclusive control position. The court disagreed because the manufacturer agreements did not override the internal governance documents he signed. For franchisors and manufacturers, that distinction matters. Approval of a dealer principal or operating principal should not be confused with adjudicating private governance rights among investors, members, shareholders, and managers unless the franchise or dealer documents expressly do so.
For franchisees and dealership groups, the decision underscores the need to align acquisition financing documents, operating agreements, shareholder agreements, employment agreements, manufacturer approval documents, and dealership operating agreements. If those documents use different titles, allocate authority differently, or fail to explain how manufacturer-approved roles interact with internal governance, later disputes may become more likely. The better practice is to make clear who has authority to sell assets, control bank accounts, bind operating companies, approve advances, manage day-to-day operations, and resolve deadlocks.
The decision also illustrates how lender-required governance structures can affect franchise operations. Here, the acquisition financing required a three-member governance structure with majority control over major dealership decisions. The court enforced that structure. Franchisees accepting acquisition capital, private equity investment, seller financing, or lender oversight should understand that governance changes tied to financing may be enforceable even if one operator remains the manufacturer-approved dealer principal or public face of the business.
The fiduciary-duty holding offers a separate caution. Advances against dealership profits, floorplan-related payments, manufacturer credits, incentive payments, rebates, and other dealership funds should be routed through the appropriate entity accounts and reflected in the dealership books. When funds payable to dealership companies instead move into a principal’s personal account and are used for personal purposes, courts may treat the conduct as conversion and a breach of fiduciary duty.
For franchisors and manufacturers, the case also highlights why transfer approvals and ownership-structure reviews should account for internal control rights. A franchisor may approve a principal owner, operating principal, or manager, but the approved individual may be operating within a broader investor or lender governance framework. Understanding that structure can help franchisors evaluate who has authority to give notices, request approvals, sign amendments, approve sales, access systems, and bind franchisee entities.
For multi-unit franchisees and dealership groups, the safest approach is to document authority clearly and then follow the documents. Darwish’s position was weakened by signed agreements that delegated authority to the governing bodies, merger clauses that superseded earlier documents, and an employment agreement requiring him to follow governing-body decisions. Courts may enforce those documents even where the individual later claims not to have reviewed them or points to other documents using titles that sound like control.
This case should not be read as a broad rule that manufacturer or franchisor documents never matter in governance disputes. They can matter, particularly where franchise rights, transfer restrictions, operating approval, default rights, or required-manager provisions are at issue. But Darwish Auto Group shows that courts may distinguish external manufacturer-facing authority from internal owner governance. That distinction is critical in franchise acquisitions, especially where the parties combine franchise approval requirements with layered financing, investor oversight, management committees, and employment agreements.
Taken together, the decision reinforces a practical franchise-governance principle: titles matter less than the integrated contractual structure. Dealer principal, principal owner, and executive manager language may define a person’s approved role in the franchise system, but the operating agreements, shareholder agreements, financing documents, and employment agreements may determine who actually controls the business, who may authorize sales, and who may direct management decisions.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
