Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Auto dealer’s price discrimination claims based on manufacturer sales incentives dismissed, (Jan 14, 2015)

By Linda O’Brien, J.D., LL.M.

An automobile dealer’s Robinson-Patman Act price discrimination claims against automobile manufacturer Chrysler, based on the application of a volume sales incentive program and rent assistance provided to a nearby newly established dealership, were dismissed by the federal district court in San Jose, California (Matthew Enterprise, Inc. v. Chrysler Group LLC, July 11, 2014, Freeman, B.).

Matthew Enterprise, Inc. is a franchise automobile dealer that sells vehicles manufactured by Chrysler, Jeep, Dodge, and Ram brands. Matthew buys new vehicles directly from Chrysler Group and pays an invoice price for each vehicle. The invoice price is the same price paid by other Chrysler dealers. Chrysler provides dealers with volume growth incentives, a subsidy based on the dealer’s past sales history. In 2010, Chrysler established a second Chrysler dealership, San Leandro, in the same geographic area as Matthew. Matthew’s sales decreased upon the establishment of the new dealership and Matthew failed to qualify for the sales incentives for several months. Matthew filed suit against Chrysler for violations of the Robinson-Patman Act, alleging two forms of price discrimination: discrimination regarding the sales incentive programs and disguised price discounts related to below cost rent terms for dealers who leased property from Chrysler. The court dismissed the disguised price discount claim with leave to amend. After the plaintiff amended the complaint, Chrysler again moved for dismissal.

Vehicle subsidies. The Robinson-Patman Act generally prohibits a seller from discriminating in price between different purchasers of similar commodities. For purposes of the Act, a sale involving commodities must be a “sale of goods, wares, or merchandise” and a rental agreement itself cannot be considered a “commodity,” in the court’s view. However, Matthew argued that the transaction between Chrysler and San Leandro involved both the leasing of the land and disguised vehicle discounts and, although the lease was not commodity, a vehicle was a “tangible product of trade.”

Adopting the “dominant nature” test in Innomed Labs LLC v. Alza Corporation, 2004-1 Trade Cases ¶74,410, 368 F.3d 148 (2004), the court noted that Matthew failed to allege sufficient facts to plausibly show that the dominant nature of San Leandro’s dealership agreement with Chrysler was disguised vehicle price reductions. In the court’s view, Chrysler plausibly contended that, due to the high cost and risk of establishing new dealers, certain incentives were needed for dealers leasing land from Chrysler to ensure the land was only being leased by viable dealers. Moreover, Matthew failed to allege facts to show that the rent assistance payments were actually per vehicle discounts. In light of the lack of factual allegations to contest the plain language of the dealership agreement, Chrysler’s motion to dismiss was granted.

Rent assistance. The court also dismissed Matthew’s claim that the rent assistance paid by Chrysler was actually payment for promotional services in connection with vehicle sales. To state a claim under the Robinson-Patman Act, the plaintiff was required to plead sufficient facts that the payments were actually promotional payments and not rent assistance as outlined in San Leandro’s dealership agreement. Since Matthew did not identify any “services or facilities” for which compensation was provided to San Leandro and not proportionally provided to Matthew, the plaintiff’s claim was “simply implausible,” the court concluded.

The case is No. 13-cv-04236-BLF.

Attorneys: Ali Kamarei (InHouse Co. Law Firm), Gavin Michael Hughes (Law Office of Michael J. Flanagan), and Paul R. Norman (Boardman and Clark LLP) for Matthew Enterprise, Inc. Colin Kass (Proskauer Rose LLP), and Robert Edmund Davies (Donahue Davies LLP) for Chrysler Group LLC.

Companies: Matthew Enterprise, Inc.; Chrysler Group LLC

Cases: Antitrust CaliforniaNews