Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D.N.Y.: Dealers unable to salvage claims against Volkswagen, (Oct 7, 2014)

By Greg Hammond, J.D.

Two Volkswagen dealerships failed to point to controlling decisions or data that the federal district court in White Plains, New York overlooked when it dismissed claims regarding an incentive or discount program and conditions placed on the transfer of dealerships under the New York Franchised Motor Vehicle Dealer Act (the Dealer Act). Consequently, the court denied the dealerships’ motion for reconsideration and reargument (CMS Volkswagen Holdings, LLC v. Volkswagen Group of America, Inc., October 3, 2014, Román, N.).

Background. CMS Volkswagen Holdings, LLC and Hudson Valley Volkswagen, LLC are Volkswagen dealerships operating in the state of New York. Volkswagen Group of America’s dealer agreement outlines how it evaluates each dealer’s sales performance, called the Dealer Sales Index (DSI). The DSI is calculated by applying Volkswagen’s regional segment-adjusted market share to a dealer’s primary area of influence. The DSI is also used to set objectives for dealers, through the Variable Bonus Program. After the dealerships informed Volkswagen of changes to their ownership structure, Volkswagen requested additional documentation regarding the change in structure and demanded that the dealerships sign new dealer agreements that contained additional provisions. The dealerships sought injunctions and declaratory relief under the Dealer Act. However, the court dismissed the dealerships’ claims under sections 463(2)(g), 463(2)(ff), and 463(2)(k) of the Dealer Act, and the dealerships moved for reconsideration and reargument.

Subdivision (g) claim. The central issue with the subdivision (g) claim is whether the Variable Bonus Program falls within the “safe harbor” of Dealer Act section 463(2)(g), which permits only those incentives or discounts that “are reasonably available to all franchised motor vehicle dealers in [Texas] on a proportionately equal basis.” The court first noted that the dealerships’ arguments regarding their subdivision (g) claim were mostly raised, fully considered, and disposed of when the motion to dismiss was decided, and that a motion for reconsideration is not an opportunity to press more strenuously the same arguments made in the original motion.

The dealerships argued that the court overlooked 16 CFR sec. 240.10(a) (1) when interpreting the “functional availability” jurisprudence, and that the provision contemplates those sellers should offer “alternate means of earning price discounts, not one-size-fits-all.” However, the court rejected this argument, finding that the Variable Bonus Program was functionally available, as Volkswagen evenhandedly applied the program, offering all dealers the same qualification terms.

Lastly, the dealerships contended that the previous order dismissing their claim was inconsistent, because it dismissed the subdivision (g) claim, but not the challenge to the DSI. Specifically, the dealerships argued that, because the DSI and Variable Bonus Program were challenged on the same basis, they must stand or fall together. The court disagreed, noting that the DSI claim was raised under a different standard—the “proportionately equal basis” standard. Consequently, the court concluded that it did not commit clear error in dismissing the subdivision (g) claim.

Subdivision (k) and (ff) claims. The court previously dismissed the subdivision (k) claim because (1) the framework of the Dealer Act implies that a request for consent to ownership transfers must be made before the dealer implements a transfer, which did not occur in this case, and (2) Volkswagen did not withhold consent to the transfer, but rather conditioned its consent on the dealerships’ signing certain documents. The dealerships’ first argument—that the statute does not impose an express requirement that requests for consent must be made before the transfers are completed—was deemed a red herring, as the court never held that there was any such express requirement. In addition, the dealerships’ second argument was also unavailing, as it was fully raised, considered, and disposed of when the court decided the original motion to dismiss.

Finally, the subdivision (ff) claim was originally dismissed, because the Dealer Act prohibits only unilateral modifications to franchise agreements that are made without 90 days’ written notice. According to the court, the subdivision does not prohibit Volkswagen from seeking to negotiate the terms of its consent to the dealerships’ ownership changes. In support of their motion for reconsideration, the dealerships argued that the subdivision makes “unfair” franchise modifications unlawful, regardless of whether those modifications are bargained for or imposed unilaterally. However, the court rejected this argument, noting that under the dealerships’ reading “no franchisor could ever negotiate substantial changes to a franchise, even in exchange for adequate consideration and with the franchisee’s genuine agreement.” Consequently, the motion for reconsideration and reargument was denied.

The case number is 13-cv-03929 (NSR).

Attorneys: Russell Pries McRory (Arent Fox LLP) for CMS Volkswagen Holdings, LLC and Hudson Valley Volkswagen, LLC. Barry Werbin (Herrick, Feinstein LLP) and Randall L. Oyler (Barack Ferrazzano Kirschbaum & Nagelberg LLP) for Volkswagen Group of America, Inc.

Companies: CMS Volkswagen Holdings, LLC; Hudson Valley Volkswagen, LLC; Volkswagen Group of America, Inc.

Cases: FranchisingDistribution NewYorkNews