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Cms Volkswagen Holdings, LLC v. Volkswagen Group of America, Inc.

United States District Court, Second Circuit

December 6, 2013



NELSON S. ROMN, District Judge.

Plaintiffs, CMS Volkswagen Holdings, LLC ("Palisades") and Hudson Valley Volkswagen, LLC ("Hudson Valley") (collectively, "Plaintiffs") commenced this action against Defendant Volkswagen Group of America, Inc. ("Defendant") and Lash Auto Group, LLC ("Lash Auto Group") in the Supreme Court of the State of New York, County of Rockland, alleging violations of New York's Franchised Motor Vehicle Dealer Act (the "Dealer Ace), N.Y. VEH. & TRAF. L. §§ 460 et seq.[1] Defendant Volkswagen Group of America removed the action to this court on the basis of diversity jurisdiction by Notice of Removal on June 7, 2013.

Before the court is Plaintiffs' motion to remand this case to state court for adjudication on the basis that the parties are not completely diverse. For the reasons set forth below, Plaintiffs' motion is DENIED.

I. Backgyound[2]

Plaintiffs Palisades and Hudson Valley are New York limited liability companies that share common ownership and are "franchised motor vehicle dealers" as defined in § 462(7) of the Dealer Act. Both entities are parties to franchise agreements to sell and service Volkswagen motor vehicles. Palisades is a Volkswagen dealer located in Palisades, New York, in Rockland County, and Hudson Valley is a Volkswagen dealer located in Hudson Valley, New York. Volkswagen Group is a New Jersey corporation with its principal place of business in Virginia. Lash Auto Group is a New York limited liability company that operates a Volkswagen dealership in White Plains, New York.

Volkswagen Group, though its operating unit Volkswagen of America (VWoA"), is the United States importer and distributor of Volkswagen motor vehicles. VoWA sells vehicles through approximately 625 dealers throughout the Unites States. VoWA measures a dealer's sales performance (called Dealer Sales Index, or "DSI") by applying a regional segment-adjusted market share to a particular dealer's market area (called Primary Area of Influence, or "PAP') to determine if a dealer is "sales effective" and in compliance with the franchise agreement. The sane formula is applied to every dealer, but because of the market potential in a given area and the historical number of sales made by the dealer, each dealer has a different sales objective. Plaintiffs allege that this system of calculating a dealer's compliance with a franchise agreement violates section 463(2)(gg) of the Dealer Act because it "fails to consider the unique consumer characteristics of Rockland County that impact Palisades' ability to meet Volkswagen Group's sales performance objectives." Pl. Compl. ¶22. Plaintiffs claim that all German car brands have lower market shares in Rockland County compared to Westchester County, which is caused by consumer preferences, and that by not taking this factor into consideration, Volkswagen Group violates 463(2)(gg), which prohibits a franchisor from "us[ing] an unreasonable, arbitrary or unfair sales or other performance standard in determining a franchised motor vehicle dealer's compliance with a franchise agreement." N.Y. VEH. &TRAF. L. §463(2)(gg).

This same type of formula is used in Volkswagen's Variable Bonus Program ("VBP"). Through the VBP, a dealer may receive a rebate of up to 2% of the manufacturer's suggested retail price of each new vehicle sold if the dealer rneets certain qualifying criteria and sells a certain number of new vehicles sufficient to satisfy the new vehicle sales objective established for that dealer, as explained above. Plaintiffs allege that the VBP violates section 463(2)(g) of the Dealer Act, which prohibits a franchisor from offering vehicles at different prices to different dealers, and includes a safe harbor provision for incentive programs that are "reasonably available to all franchised motor vehicle dealers in this state on a proportionately equal basis." N.Y. VEH. &TRAF. L. § 463(2)(g) (McKinney).

Lash Auto Group opened a Volkswagen dealership in June 2010 in Elmsford, New York, which is located in Westchester County, eight miles from Palisades' dealership. Plaintiffs claim that since Lash opened, Palisades' ability to sell into Westchester County - where Volkswagen's sales exceed regional average - has diminished. As a result, Palisades is no longer able to attain a DSI that meets the franchise agreement requirements or qualify for the VBP. Plaintiffs allege that this gives Lash an unfair competitive advantage over Palisades and has resulted in lost profits for Palisades.

II. Procedural History

Plaintiffs filed a summons and complaint in the Supreme Court of the State of New York, County of Rockland on May 10, 2013. On June 7, 2013, Defendant Volkswagen Group filed a Notice of Removal alleging that Lash Auto Group, the diversity-destroying defendant, should not be considered a real party to the action. Therefore, Defendant claimed, there is federal subject matter jurisdiction because there is diversity of citizenship and the amount in controversy exceeds $75, 000. Volkswagen also submitted Lash Auto Group's Consent to Notice of Removal, in which Lash states, "Lash recognizes that it is a non-diverse defendant, but states that it has no interest in this action, should not be considered for purposes of diversity jurisdiction, and should be dismissed from this action." Del Notice of Removal Ex. E. Following the notice of removal, Plaintiffs and Lash entered into a settlement agreement and a Stipulated Order of Partial Dismissal was So Ordered on September 5, 2013. Plaintiffs filed a Notice of Voluntary Dismissal dismissing Lash from this action without prejudice on September 6, 2013. On October 31, 2013, Defendant filed this Motion to Remand the case to state court.

III. Discussion

A. Legal Standard

A defendant may remove "any civil action brought in a State court of which the district courts of the United States have original jurisdiction to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § M41(a). The removal jurisdiction of the federal courts is limited and should be "scrupulously confined." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941)" Noel v. J.P. Morgan Chase Bank NA, 918 F.Supp.2d 123, 125 (E.D.N.Y. 2013). "Removal jurisdiction must be strictly construed, both because the federal courts are courts of limited jurisdiction and because removal of a case implicates significant federalism concerns.'" James v. Gardner, 2004 WL 2624004, at *1 (E.D.N.Y. Nov. 10, 2004) (quoting In re NASDAQ Mkt Makers Antitrust 929 F.Supp. 174, 178 (S.D.N.Y. 1996)).

Section 1447(c) states, in relevant part, that "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). "[A]ny party or the court sua sponte, at any stage of the proceedings, may raise the question of whether the court has subject matter jurisdiction.'" United Food & Commercial Workers Union, Local 919, AFL-CIO v. Centermark Props. Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994) (quoting Manway Constr. Co. v. Housing Audi. of Hartford, 711 F.2d 501, 503 (2d Cir. 1983)). In a case where removal of the action is based on diversity, the court "measures all challenges to subject-matter jurisdiction premised upon diversity of citizenship against the state of facts that existed at the time of filing - whether the challenge be brought shortly after filing, after the trial, or even for the first time on appeal." Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 571 (2004); see also ...

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