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Len Stoler, Inc. v. Volkswagen Group of America, Inc.

United States District Court, E.D. Virginia, Alexandria Division

January 25, 2017

LEN STOLER, INC., d/b/a LEN STOLER AUDI, Plaintiff,
v.
VOLKSWAGEN GROUP OF AMERICA, INC., d/b/a AUDI OF AMERICA, INC., Defendant.

          MEMORANDUM OPINION

          T. S. Ellis, III United States District Judge

         This diversity action is a dispute between plaintiff, Len Stoler, Inc., d/b/a Len Stoler Audi (“Stoler”), a former car dealership, and defendant, Volkswagen Group of America, Inc., d/b/a Audi of America (“AoA”), Stoler's former distributor. Stoler contends that AoA violated several provisions of Maryland Transportation Code (“MTC”) § 15-207 in the course of their business relationship.

         Following full discovery, the parties filed cross motions for summary judgment. As those motions have been fully briefed and twice argued orally, the matter is now ripe for disposition.

         I.

         The following are the undisputed material facts derived from the parties' statements of undisputed facts, including a joint stipulation of undisputed facts (“JS”).

• Stoler is a corporation organized and existing under the laws of Maryland, with a principal place of business in Owings Mills, Maryland.
• From 1982 until May 2, 2016, Stoler was a licensed and authorized Audi franchisee in the business of buying and selling Audi vehicles. Stoler sold its Audi-related assets in May 2016.
• AoA is a corporation organized and existing under the laws of New Jersey, with its principal place of business in Virginia.
• AoA purchases Audi vehicles from corporate affiliates in Germany and then imports and sells these vehicles to franchised Audi dealers throughout the United States.
• AoA and Stoler signed their operative franchise agreement (the “Dealer Agreement”) in 1997.
• The Dealer Agreement incorporated several other provisions, including, but not limited to, “[t]he Dealer Agreement Standard Provisions (the “Standard Provisions”), the Dealer Operating Plan (the “Operating Plan”), [and] the Audi Retail Capacity Guide (the “Retail Capacity Guide”)[.]” JS ¶ 45.
• Beginning in 2008, the Retail Capacity Guide implemented a Market Opportunity Guide (“MOG”), which is a projection of Audi sales for that dealer as calculated by AoA.
• The Standard Provisions, which were incorporated by reference into the Dealer Agreement, state that Stoler's dealership premises “will conform to the requirements of this Agreement, the Operating Standards and such other standards as [AoA] may prescribe from time to time, taking into consideration the number of Authorized Automobiles in operation in [Stoler]'s Area and reasonably foreseeable future requirements.” JS ¶ 46.
• AoA maintains a Margin and Bonus Program, which includes dealer incentives. Such incentives include cash bonuses, provided that the dealer meets certain criteria.
• The Margin and Bonus Program applies to all Maryland dealers.
• One of the bonuses in the Margin and Bonus Program is the “Standards Bonus.” • The Standards Bonus is paid as a percentage of Adjusted MSRP[1] of each new car the dealer sells.
• Eligible Audi dealers are paid a Standards Bonus on the following basis:
o “Universal” Audi dealers meet minimum requirements and qualify for a Standards Bonus worth 1% of a vehicle's adjusted MSRP.
o “Brand Dedicated” Audi dealers meet additional criteria and standards, yet may share facilities with other franchises. Brand Dedicated Audi dealers qualify for a Standards Bonus worth 2.35% of adjusted MSRP.
o “Exclusive” Audi dealers meet the same standards as a “Brand Dedicated” dealer, but also have exclusive Audi facilities and staff. “Exclusive” Audi dealers qualify for a Standards Bonus worth 3.75% of adjusted MSRP.
• To receive any Standards Bonus, a dealer must meet the following minimum qualifying criteria: (i) the dealer must have a facility that complies with that dealer's MOG, (ii) the dealer must achieve a score of 85% at the annual evaluation based on the Audi Dealer Operating Standards Checklist, and (iii) the dealer must maintain monthly compliance with the Dealer Operating Standards Scorecard, which sets forth additional criteria.
• If a dealer's MOG exceeds 400 units, that dealer must operate out of an exclusive facility to qualify for a Standards Bonus.
• AoA updates each dealer's MOG every three to four years.
• In calculating a dealer's MOG, AoA uses two separate formulas. The formula yielding the higher sales projection provides the dealer's MOG.
• By the beginning of 2014, all Maryland dealers' MOGs exceeded 400, and thus the dealer agreements and incorporated obligations of every Maryland Audi dealer called for each dealer to operate out of exclusive facilities.
• During all times relevant to this case, the only Standards Bonus Stoler has ever received is the Brand Dedicated bonus, worth 2.35% of adjusted MSRP. Stoler has never received the Exclusive Standards Bonus because Stoler has never had an exclusive Audi facility, nor had Stoler ever commenced construction of one.
• In addition to offering dealer incentives such as the Standards Bonus program, AoA makes several benefits available to all Maryland Audi dealers, regardless of the type of facility any such dealer operates, including:
o a “goodwill fund, ” from which dealers can take up to $5, 000 per repair to pay for service costs not covered by a warranty;
o a “service-mailers” program whereby AoA splits with dealers the cost of mailing service advertisements to customers;
o free, next-day delivery on parts;
o access to “iAudi, ” AoA's suite of web-tools providing information, support, and applications to help dealers sell and service vehicles; and
o several training-related benefits.
• On September 21, 2011, Audi dealers, including Stoler, received a memorandum from AoA, explaining AoA's newly announced “Grandfather Policy” and “Cure Policy.”
• The Grandfather Policy and Cure Policy allowed non-exclusive dealers whose MOGs exceeded 400-and thus needed exclusive facilities to qualify for a Standards Bonus-to continue receiving Standards Bonuses so long as those dealers took certain steps to operate from exclusive facilities.
• The Grandfather and Cure Policies gave dealers three years to bring their facilities back into compliance with their MOGs and brand standards and to continue receiving Standards Bonus payments.
• On January 10, 2014, Stoler received a letter from AoA explaining that, based upon AoA's MOG projections for 2014-2016, Stoler's MOG now exceeded 400.
• Given that Stoler's MOG was above the 400-unit threshold, AoA's Retail Capacity Guide provided that Stoler must operate from an exclusive Audi facility.
• Because Stoler's Audi facility was not exclusive-and thus not compliant with the terms of Stoler's MOG or Retail Capacity Guide-Stoler would not have been entitled to receive any Standards Bonuses in 2014 without the Grandfather and Cure Policies.
• On April 25, 2014, Stoler received a letter from AoA summarizing Stoler's scores on AoA's evaluation criteria for the Standards Bonus. The letter indicated that Stoler was eligible to receive Standards Bonuses, but noted that the eligibility was based in part on the Grandfather Policy and Cure Policy. The letter also stated that Stoler would remain eligible for Standards Bonuses in accordance with AoA's Cure Policy, advising that “[a]s your dealership is affected by the Cure Policy, your [area general manager] will be contacting you regarding your facility deficiencies and Cure Policy timelines.” JS ¶ 18.
• On October 16, 2014, Stoler received a letter from AoA reviewing the previous communications between the parties regarding the Grandfather Policy and Cure Policy. The letter stated that “in order to maintain Standards Bonus eligibility beyond 2014, Len Stoler Audi is required to enter a Facility Letter of Intent (LOI) by December 31, 2014.” JS ¶ 19.
• It was impracticable to convert Stoler's existing facility into an exclusive Audi facility.
• In mid-January 2015, AoA and Stoler entered into a “Facility Agreement, ” in which Stoler agreed to construct an exclusive Audi facility, and AoA agreed to pay Stoler the Exclusive Standards Bonus once construction on the new facility commenced.
• Negotiations of the Facility Agreement spanned approximately one month. Stoler's counsel negotiated the Facility Agreement on Stoler's behalf. Some of the changes that Stoler's counsel requested were incorporated into the final draft of the contract.
• The Facility Agreement provides, “[Stoler] and its legal counsel have reviewed the laws applying to dealer/manufacturer relations. [Stoler] agrees that the Facility requirements as expressed in this Agreement are reasonable and necessary in view of the need to service the public and further that the economic conditions in the industry and specifically in [Stoler]'s relevant market area support this action.” JS ¶ 47.
• The Facility Agreement also represents that “[b]oth parties have had legal counsel of their choice review this Agreement and are fully advised as to the legal and binding nature of this Agreement.” JS ¶ 48.
• In signing the Facility Agreement, Stoler “agree[d] and covenant[ed] not to sue AoA with respect to any alleged damages [Stoler] may suffer as a result of [Stoler]'s loss of the right to receive any Standards Bonus . . . arising out of [Stoler]'s failure to perform its obligations under this Agreement.” JS ¶ 49.
• The Facility Agreement further contemplates that Stoler would remain eligible to receive Standards Bonus payments at a Brand Dedicated level, worth 2.35% of adjusted MSRP; but AoA would cease paying Stoler any Standards Bonus payments if Stoler had not begun constructing an exclusive facility by December 31, 2015.
• If Stoler had not signed a letter of intent to build an exclusive facility in accordance with the Grandfather and Cure Policies, AoA would have ceased paying Stoler ...

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