Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Chrysler dealer’s price discrimination claims based on sales incentives allowed to proceed, (Jul 14, 2014)

By Linda O’Brien, J.D., LL.M.

An automobile dealer’s Robinson-Patman Act claims against automobile manufacturer, Chrysler, that were based on the application of a volume sales incentive program were allowed to proceed by the federal district court in San Jose, California. The dealer’s claims that rent subsidies were disguised discounts for purchased vehicles, however, were dismissed (Mathew Enterprise, Inc. v. Chrysler Group LLC, July 11, 2014, Freeman, B.).

Mathew Enterprise, Inc. is a franchise automobile dealer that sells vehicles manufactured by Chrysler, Jeep, Dodge, and Ram brands. Mathew 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, which is a subsidy based on the dealer’s past sales history.

In 2010, Chrysler established a second Chrysler dealer, San Leandro, in the same geographic area as Mathew. Mathew’s sales decreased upon the establishment of the new dealer and it failed to qualify for the sales incentives for several months. Mathew filed suit against Chrysler for violations of the Robinson-Patman Act. Mathew alleged 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. Chrysler moved for dismissal.

Vehicle subsidies. The court found that Mathew sufficiently pleaded claims that the vehicle incentives were functionally unavailable to it. The Robinson-Patman Act generally prohibits a seller from discriminating in price between different purchasers of similar commodities. Mathew contended that the volume growth incentive program was not available to it because Chrysler failed to adjust Mathew’s sales formula in recognition of new competition in its geographic region. Mathew also contended that the program was not applied in an even-handed manner because the formula was based on prior year sales and new dealers qualified for the program despite having lower sales. Thus, Chrysler set up newly opened dealers as a favored class of purchasers while pre-existing dealers were disfavored purchasers. These allegations were sufficient to show that the incentives were functionally unavailable to it during the time Mathew did not qualify for the incentives, the court noted.

Mathew also showed there was a significant price reduction over a substantial period of time. Mathew asserted that its sales decreased significantly after San Leandro opened, such that it did not qualify for the incentives and presented evidence of the effect on sales with and without the benefit of the sales incentive program. Mathew demonstrated that while its sales declined, San Leandro’s sales increased during the same period. Thus, Mathew met its burden to show diversion of sales due to price discrimination.

Below market rent. However, the court dismissed Mathew’s claim that Chrysler provided favorable rent concessions to its competitor, San Leandro, with leave to amend. Mathew did not allege facts that San Leandro’s rental agreement was based on the volume of cars sold by the dealership as to be a disguised discount in prices San Leandro paid for vehicles bought from Chrysler. Moreover, Mathew made no allegations regarding the nature of the rental agreement other than it was below market. Accordingly, there were insufficient facts for the court to reasonably infer that Chrysler was liable for the alleged misconduct.

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 Mathew Enterprise, Inc. Colin Kass (Proskauer Rose LLP), and Robert Edmund Davies (Donahue Davies LLP) for Chrysler Group LLC.

Companies: Mathew Enterprise, Inc.; Chrysler Group LLC

Cases: Antitrust FranchisingDistribution CaliforniaNews