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CMS Volkswagen Holdings, LLC v. Volkswagen Group of Am., Inc.

United States District Court, S.D. New York

June 6, 2014


Page 433

For CMS Volkswagen Holdings, LLC, Hudson Valley Volkswagen, LLC, Plaintiffs: Russell Pries McRory, Robinson Brog Leinwand Greene Genovese & Gluck, New York, NY.

For Volkswagen Group of America, Inc., Defendant: Barry Werbin, LEAD ATTORNEY, Herrick, Feinstein LLP, New York, NY; Randall L. Oyler, Steven J. Yatvin, LEAD ATTORNEYS, PRO HAC VICE, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL; Anna Michelle Hershenberg, Herrick Feinstein LLP, New York, NY; Larah Kent Tannenbaum, PRO HAC VICE, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL.

Page 434


NELSON S. ROMÁ N, United States District Judge.

Hudson Valley Volkswagen, LLC (" Hudson Valley" ) and CMS Volkswagen Holdings LLC, doing business as Palisades Volkswagen (" Palisades" ) (together, " Plaintiffs" ), brought this action against Volkswagen Group of America (" Defendant" )[1] for violations of the New York Franchised Motor Vehicle Dealer Act (" Dealer Act" ), N.Y. Veh. & Traf. L. § 460 et seq. Before the Court is Defendant's motion to dismiss each claim of the Complaint and Plaintiffs' motion to amend its Complaint. For the following reasons, Defendant's motion and Plaintiffs' motion are both GRANTED in part and DENIED in part.

I. Background[2]

Hudson Valley is a Volkswagen dealership operating in Wappingers Falls, New York. Palisades is a Volkswagen dealership operating in Nyack, New York. Through its operating unit, Volkswagen of America, Inc. (" VWoA" ), Defendant is the U.S. importer and distributor of Volkswagen brand motor vehicles. VWoA is a " franchisor" under the Dealer Act and enters into a Dealer Agreement with each of its U.S. dealerships, including both Hudson

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Valley and Palisades. Hudson Valley entered into a Dealer Agreement with VWoA in 1999 and Palisades entered into a Dealer Agreement in 2001.

The Dealer Agreement supplies the parameter by which VWoA 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 (" PAI" ). A dealer's PAI is a geographic area " corresponding to U.S. census tract information." Steven J. Yatvin Dec. Ex. C Art 16(6). Plaintiffs explain the calculation of DSI as follows: if there are 100,000 new vehicle registrations within a dealer's PAI and Volkswagen has a market share of 5%, that dealer must sell 500 new Volkswagens to be in compliance with the Dealer Agreement. This is a simplified version of the formula because in reality, VWoA only counts registrations of vehicles in segments in which Volkswagen competes (i.e., small sedans, large SUVs, etc.). This calculation is applied to all dealers when determining each individual dealer's DSI.

The DSI, in addition to being the benchmark by which sales performance is measured, is also used to set objectives for dealers in a program that Volkswagen calls the Variable Bonus Program (" VBP" ). The VBP was initiated by VWoA in January 2011 and in relevant part, it pays dealers a bonus of 2% of the Manufacturers Sales Retail Price (" MSRP" ) of each new vehicle sold if a dealer meets certain sales objectives.

The Dealer Agreement also contains certain provisions regarding the ownership and management of the dealership. In Hudson Valley's Dealer Agreement, four individuals were listed as having an ownership interest in the dealership: Thomas Coughlin (70%), Richard Stavridis (10%), Sean Coughlin (10%), and John Matteson (10%). The same four individuals were listed as owners in Palisades' Dealer Agreement, entered into approximately two years later. In 2001, the ownership interests were transferred to Premier, a holding company, in which each owner had the same percentage interest as for the dealerships. In addition to the two Volkswagen dealerships, Premier also owns Audi, BMW, Jaguar, Land Rover, and Volvo dealerships. Since 2001, Thomas Coughlin has made a number of transfers of ownership shares to members of his family, for estate and gift tax planning purposes. These transfers include: an additional 6% interest to Sean Coughlin, Thomas Coughlin's son; a 2.5% interest to Patricia, Thomas Coughlin's daughter; 16% interest to CIC, LLC; and 3% interest to CICGR, LLC. CIC, LLC is an entity created for the purpose of giving gifts to Thomas Coughlin's children. Similarly, CICGR, LLC is an entity created for the purpose of giving gifts to Thomas Coughlin's grandchildren. Thomas Coughlin controls both CIC, LLC and CICGR, LLC.

Hudson Valley and Palisades informed VWoA of the changes to the ownership structure in December 2012 and January 2013. VWoA requested additional documentation regarding the change in structure, which Plaintiffs provided. Although VWoA consented in principle to the ownership changes, VWoA is also " demanding" that Plaintiffs sign new dealer agreements that contain additional agreements, including corporate guarantees, hold harmless agreements, covenants not to sue, and dealer subordination agreements as a condition to consenting to the ownership changes.

Plaintiffs' Complaint asserts five causes of action. The first three causes of action are brought on behalf of Palisades and seek: (1) injunctive relief on the basis that

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the VBP violates section 463(2)(g) of the Dealer Act; (2) declaratory relief that the DSI violates Dealer Act Section 463(2)(gg) and permanent injunctive relief preventing VWoA from using that DSI as a benchmark for dealer performance; and (3) damages against VWoA on the basis that the VBP violates section 463(2)(g) of the Dealer Act. The Fourth and Fifth causes of action are brought on behalf of Hudson Valley and Palisades and seek declaratory and permanent injunctive relief that (4) VWoA has unreasonably withheld its consent to the transfer of ownership interests, in violation of section 463(2)(k) of the Dealer Act and (5) VWoA has made unreasonable modifications to the Dealer Agreements, in violation of section 463(2)(ff) of the Dealer Act. Finally, the Sixth cause of action seeks attorneys' fees, costs, and disbursements. Plaintiffs seek leave to amend the Complaint and provided the Court with a Proposed Amended Complaint (" PAC" ) which asserts additional factual allegations and additional statutory bases for its alleged causes of action.

II. Legal Standard

a. Motion to Dismiss

On a motion to dismiss for " failure to state a claim upon which relief can be granted," Fed.R.Civ.P. 12(b)(6), dismissal is proper unless the complaint " contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); accord Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 2010). " Although for the purposes of a motion to dismiss [a court] must take all of the factual allegations in the complaint as true, [it is] 'not bound to accept as true a legal conclusion couched as a factual allegation.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). When there are well-pleaded factual allegations in the complaint, " a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. A claim is facially plausible when the factual content pleaded allows a court " to draw a reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678. Determining whether a complaint states a facially plausible claim upon which relief may be granted is " a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.

b. Motion to Amend

Under Fed.R.Civ.P. 15(a), a party may amend its pleading after a responsive pleading has been served " only by leave of court or by written consent of the adverse party." Fed.R.Civ.P. 15(a). " [T]he court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). The court should grant leave to amend the complaint " '[i]n the absence of any apparent or declared reason--such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.'" In re Alcon Shareholder Litigation, 719 F.Supp.2d 280, 281-82 (S.D.N.Y. 2010) (quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). " A proposed amendment is futile if the proposed claim could not withstand a 12(b)(6) ...

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