Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Va.: Sale of commercial-truck dealerships enjoined pending determination of Volvo’s rights of first refusal, (Apr 15, 2016)

By: Michael Menzhuber, J.D., LL.M.

The sale of seven commercial-truck dealerships was preliminary enjoined by the federal district court in Roanoke, Virginia, until the scope of Volvo Group North America, LLC’s rights of first refusal could be determined. However, the court found that it was premature to require the owners of the dealerships to provide value information for the Volvo portion of the sale (Volvo Group North America, LLC v. Truck Enterprises, Inc., April 14, 2016, Dillon, E.).

Truck Enterprises, Inc. and other dealers operated seven commercial-truck dealerships. Four of the dealerships sell both Volvo and Kenilworth trucks, two of the dealerships sell both Isuzu and Kenilworth trucks, and one dealership sells only Kenilworth trucks. The dealerships that sell two brands are known as “dualed dealerships”

The dealers entered into a stock purchase agreement with Transportation Equipment Company, Inc. (TEC) for the sale of all seven dealerships. The agreement provided only the total purchase price for all of the outstanding shares of the dealerships and did not provide a valuation of any one dealership or of any one dealership’s assets. The sale was scheduled to close on June 1, 2016.

Volvo desired to exercise its contractual and statutory rights of first refusal and to purchase just the Volvo portions of the dualed dealerships. The dealers did not dispute Volvo’s rights of first refusal. However, they insisted that if Volvo desired to exercise those rights, Virginia law required that it “stand in the shoes” of TEC and buy all of the dealerships for at least the price set forth in the stock purchase agreement.

Volvo filed a complaint against the dealers for breach of their dealer agreements and for violating Virginia law by entering into the stock purchase agreement. Volvo also filed a motion for both (1) prohibitory preliminary injunctive relief to enjoin the proposed sale of the dealerships until the scope of its rights of first refusal would be determined; and (2) mandatory preliminary injunctive relief to require the Dealers to provide Volvo with the terms of the sale that would be specific to the Volvo portions of the dualed dealerships.

The court granted Volvo’s request for prohibitory preliminary injunctive relief. It found that Volvo was likely to succeed on the merits of its claims because the dealership agreements provided that a bona fide offer giving rise to the right of first refusal may not contain “proposed sale terms that are co-mingled with other assets” of the dealer.

It also found that Volvo would likely suffer irreparable harm if the proposed sale of the dealerships to TEC was permitted because Volvo would either lose its rights of first refusal or be forced to purchase, along with the Volvo portion, the Kenilworth and Izusu portions of the dealerships, which it did not appear to have contractual or statutory right to do.

The balance of equities favored Volvo because it would suffer irreparable harm if the proposed sale of the dealerships to TEC was completed and the dealers would not face such harm because they would continue to benefit from the ownership and operation of the dealership.

Finally, the court found that the preliminary injunction was in the public interest because the public has an interest in seeing contractual and statutory rights and obligations enforced.

The court denied Volvo’s request for a mandatory preliminary injunction to require the dealers to provide the value information for the Volvo portion of the stock agreement. The court determined that it was not necessary, at this time, to require the Dealers to do so because the sale of the dealerships to TEC had been enjoined, pending the outcome of the litigation, and there was no risk that the sale would go forward and deprive Volvo of its rights of first refusal.

The case is No. 7:16-cv-00025.

Attorneys: Billy Martin Donley (Baker & Hostetler LLP) for Volvo Group North America, LLC. Brad Darin Weiss (Charapp & Weiss, LLP) for Truck Enterprises, Inc., Truck Enterprises Roanoke, Inc. and Truck Enterprises Lynchburg, Inc.

Companies: Volvo Group North America, LLC; Truck Enterprises, Inc.; Truck Enterprises Roanoke, Inc.; Truck Enterprises Lynchburg, Inc.

Cases: FranchisingDistribution VirginiaNews