JJM Sunrise Auto., LLC v. Volkswagen Grp. of Am., Inc.

• Decision Date: 06 November 2014
• Docket Number: 601658-14.
• Court: New York Supreme Court
• Parties: JJM SUNRISE AUTOMOTIVE, LLC d/b/a Lynbrook Audi, Plaintiff, v. VOLKSWAGEN GROUP OF AMERICA, INC., d/b/a Audi of America, Inc., Stanley Weinstock and Biener Auto Group, Inc., Defendants.

46 Misc.3d 755
997 N.Y.S.2d 270
2014 N.Y. Slip Op. 24344

JJM SUNRISE AUTOMOTIVE, LLC d/b/a Lynbrook Audi, Plaintiff
v.
VOLKSWAGEN GROUP OF AMERICA, INC., d/b/a Audi of America, Inc., Stanley Weinstock and Biener Auto Group, Inc., Defendants.

601658-14.

Supreme Court, Nassau County, New York.

Nov. 6, 2014.

997 N.Y.S.2d 274

Ruskin Moscou Faltischek, P.C., Uniondale, for Plaintiff's Attorney.

Sahn Ward Coschignano & Baker, PLLC, Uniondale, Attorneys for Defendants (Stanly, Weinstock and Beiner Auto Group, Inc.).

Cullen & Dykman LLP, Garden City, Attorneys for Defendant Audi of America, Inc.

Barrack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL, Attorneys for Defendant Audi of America, Inc.

Opinion

VITO M. DeSTEFANO, J.

46 Misc.3d 757

Motion Sequence No. 1 by the Defendant Volkswagen Group of America, Inc. d/b/a Audi of America Inc. (“Audi”) pursuant to CPLR 3211(a)(1) and (7) for judgment dismissing the instant action insofar as asserted against it is granted to the extent that the complaint is dismissed insofar as asserted against it, except as to the ninth cause of action, with respect to which the motion is denied.

46 Misc.3d 758

Motion Sequence No. 2 by Defendants Stanley Weinstock and Biener Auto Group, Inc. (collectively referred to as the “Biener Defendants”) pursuant to CPLR 3211(a)(1) and (7), and CPLR 3013, for judgment dismissing the seventh, twelfth, thirteenth and fourteenth causes of action asserted against them is granted.

Background

Plaintiff, JJM Sunrise Automotive, LLC d/b/a Lynbrook Audi (“JJM”), is a company founded in April 2013, for the purpose of acquiring the assets of Anchor South Shore, Inc. d/b/a Anchor Audi (“Anchor Audi”) and obtaining the rights to an Audi dealership. Anchor Audi operated an Audi dealership located at 843 Sunrise Highway in Lynbrook, New York. On May 28, 2013, JJM and Audi entered into a Dealer Agreement pursuant to which JJM became an authorized Audi dealer (Ex. “1” to Motion Seq. No. 1).

The Dealer Agreement incorporated the Standard Provisions Agreement (“Standard Provisions”) (Ex. “2” to Motion Seq. No. 1). The Standard Provisions expressly state that Audi does “not give Dealer any

997 N.Y.S.2d 275

exclusive right to sell or service Authorized Products in any area or territory”. The Standard Provisions also provides that it “contains the entire agreement between the parties” (Ex. “2” to Motion Seq. No. 1 at Articles 2[1] & 17[4] ).

Audi and JJM also entered into a Facility Construction Agreement pursuant to which JJM agreed to relocate the “Dealer Premises to a Corporate Identity-compliant Audi Sales Facility” and be bound by the terms of the Construction Agreement and the First Amendment. In the Facility Construction Agreement, JJM acknowledged that Audi “made no representations, promises or warranties that Dealer's Operations will be financially successful in either the short or long term” (Facility Construction Agreement at ¶¶ 1, 8).

At the time JJM acquired the assets of Anchor Audi and became obligated to construct a new Audi dealership, there was only one other Audi dealership in Nassau County, Defendant Biener Auto Group, Inc. (“Biener Auto”). Defendant Stanley Weinstock is the President of Biener Auto. JJM's claims against all of the Defendants arise out of the disclosure by Audi in a letter dated December 19, 2013 that Biener Auto, with the approval of Audi, intends to establish a new Audi dealership at 1038 Brush Hollow Road in Westbury, New York (Ex. “3” to Motion Seq. No. 1).

46 Misc.3d 759

On January 9, 2014, approximately three weeks after Audi's letter, JJM advised Audi that it proposed to relocate its Lynbrook dealership to North Franklin Street in Hempstead, New York (Ex. “4” to Motion Seq. No. 1). By letter dated March 11, 2014, Audi refused to consent to JJM's proposed relocation to Hempstead (Ex. “5” to Motion Seq. No. 1).

On April 15, 2014, JJM commenced the instant action against Audi and the Biener Defendants alleging seventeen causes of action.

Audi moves for an order pursuant to CPLR 3211(a)(1) and (7) dismissing the complaint insofar as asserted against it. The Biener Defendants also move for an order pursuant to CPLR 3211(a)(1) and (7), and CPLR 3013 dismissing the seventh, twelfth, thirteenth and fourteenth causes of action asserted against them.

For the reasons that follow, Audi's motion is granted in part and denied in part and the Biener Defendants' motion is granted.

Audi's Motion to Dismiss the Statutory Violations Alleged in the Complaint

The first seven, as well as seventeenth, causes of action in JJM's complaint allege claims under the New York Franchised Motor Vehicle Dealer Act (“the Dealer Act”), codified in Article 17–A of the New York Vehicle and Traffic Law. A franchisee, such as JJM, aggrieved by an alleged violation of the Dealer Act, may sue the franchisor, here Audi, for injunctive relief and damages (Vehicle & Traffic Law § 469[1] ).¹

First Cause of Action

In the first cause of action, JJM seeks a judgment declaring that the approval of a new Audi franchise in Westbury, New York is a modification of JJM's franchise contract that will substantially and adversely affect JJM's investment in violation of VTL 463(2)(ff) of the Dealer Act. In the complaint, JJM specifically alleges that Audi's “planned action in (a) awarding a new open point Audi dealership in Nassau County, (b) awarding this new open point

997 N.Y.S.2d 276

Audi dealership to Biener Auto-the only other competing Audi dealer in Nassau County, and (c) locating the new, open point Audi

46 Misc.3d 760

dealership in the Westbury, New York market area would result in a legal or de facto modification of JJM's Audi Franchise”; the actions of Audi will “materially degrade” JJM's sales and service operations; the actions of Audi will “ adversely affect JJM Audi's rights, obligations, investment or return on investment,' within the meaning of section 463(2)(ff)” of the Dealer Act; and that an actual and justiciable controversy exists between JJM and Audi concerning the proposed award of a new open point Audi dealership in Westbury (Ex. “A” to Motion Seq. No. 2 at ¶¶ 97–101).

Pursuant to VTL 463(2)(ff) :

It shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract ... [t]o modify the franchise of any franchised motor vehicle dealer unless the franchisor notifies the franchised motor vehicle dealer, in writing, of its intention to modify the franchise of such dealer at least ninety days before the effective date thereof, stating the specific grounds for such modification.

A cause of action under this provision requires the franchisor to prove that the modification is fair and not prohibited (VTL 463[2][ff][3] ).² The statute defines “modify” or “modification” as “any change or replacement of any franchise if such change or replacement may substantially and adversely affect the new motor vehicle dealer's rights, obligations, investment or return on investment” (VTL 463[2][ff][2] ). JJM alleges that “the opening of a third Nassau County Audi dealership in Westbury would instantly degrade JJM Audi's sales, service, lease and parts revenues by twenty percent (20%) or more” (Ex. “A” to Motion Seq. No. 2 at ¶ 80).³

46 Misc.3d 761

Second Cause of Action

In the second cause of action, JJM alleges that Audi's “bad faith conduct and wrongful acts” violated section 466(2) of the Dealer Act which provides:

It shall be deemed an unreasonable restriction upon the sale or transfer of a dealership for a franchisor (i) directly or indirectly to prevent or attempt to prevent a franchised motor vehicle dealer from obtaining the fair value of the franchise or the fair value of the dealership business as a going concern....

Third Cause of Action

Pursuant to VTL 463(2)(d)(1), it shall be unlawful for any franchisor to “terminate, cancel or refuse to renew the franchise of any franchised motor vehicle dealer except for due cause, regardless of the terms of the franchise”. JJM alleges in the third cause of action that Audi violated VTL 463(2)(d)(1) because Audi's actions toward JJM “will result in significant and substantial damages to JJM Audi, including the destabilization and potential destruction of JJM Audi's business”; that Audi's actions are “restrictions upon JJM Audi's right to own and operate an Audi America franchised

997 N.Y.S.2d 277

dealership and will seriously impair JJM Audi's parts, leasing, service and sales business”; and that Audi's actions toward JJM are “tantamount to a constructive termination of...