Kings Auto. Holdings, LLC v. Westbury Jeep Chrysler Dodge, Inc., INDEX NO. 507892/2014
| Decision Date | 29 June 2015 |
| Docket Number | INDEX NO. 507892/2014 |
| Citation | 2015 NY Slip Op 31116 (U) |
| Court | New York Supreme Court |
| Parties | KINGS AUTOMOTIVE HOLDINGS, LLC, Plaintiff, v. WESTBURY JEEP CHRYSLER DODGE, INC., SECURITY AUTO SALES, INC., B&Z AUTO ENTERPRISES, LLC, GARDEN CITY JEEP CHRYSLER DODGE, LLC, MUSSELMAN'S DODGE, INC., FRANKLIN SUSSEX AUTO MALL, INC., EAST HILLS CHRYSLER JEEP DODGE, AND MERRICK DODGE CHRYSLER JEEP OF WANTAGH, Defendants. |
At an IAS Term, Part Comm-1 of the Supreme Court of the State of New York, held in and for the County of Kings, at the Courthouse, at Civic Center, Brooklyn, New York, on the 29th day of June, 2015.
PRESENT: HON. CAROLYN E. DEMAREST, Justice.
The following e-filed papers read herein: Papers Numbered Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed 23-29 Opposing Affidavits (Affirmations)
45-47 Reply Affidavits (Affirmations)
48-52 Affidavit (Affirmation)
Memoranda of Law 30. 40. 53
In this action by plaintiff Kings Automotive Holdings, LLC against defendants Westbury Jeep Chrysler Dodge, Inc. (defendant), Security Auto Sales, Inc., B&Z Auto Enterprises, LLC, Franklin Sussex Auto Mall Inc., East Hills Chrysler Jeep Dodge, andMerrick Dodge Chrysler Jeep of Wantagh (collectively, the defendant dealers)1 to permanently enjoin the defendant dealers from restraining competition and engaging in deceptive practices and to recover monetary damages of $12.8 million, defendant moves, under motion sequence number one, for an order dismissing plaintiff's action as against it, pursuant to CPLR 3211 (a) (1) and (7), based upon a defense founded upon the documentary evidence and that plaintiff's complaint fails to state a cause of action.
Plaintiff owns and operates an authorized Chrysler, Dodge, Jeep, RAM (CDJR) motor vehicle dealership at 2286 Flatbush Avenue, in Brooklyn, New York. Defendant and each of the other named defendant dealers in this action are CDJR dealers located outside of Brooklyn. Defendant owns and operates its authorized CDJR motor vehicle dealership at 100 Jericho Turnpike, in Westbury, New York. Both plaintiff and each of these defendant dealers entered into a Sales and Service Agreement (the Dealer Agreement) with Chrysler Group, LLC (CG), which is the manufacturer of Chrysler, Jeep, Dodge, and RAM cars and light trucks. These Dealer Agreements are all virtually identical to each other except for the dealerships involved and their locations. The Dealer Agreement's stated purpose for the relationship established with CG "is to provide a means for the sale and service of specified[CG] vehicles and the sale of CG vehicle parts and accessories in a manner that will maximize customer satisfaction and be of benefit to [the] dealer and CG."
Paragraph 4 of the Dealer Agreement, entitled "Sales Locality," gives each dealer the "non-exclusive right . . . to purchase from CG those new specified CG vehicles that are manufactured for sale within the United States for sale to customers located within the United States and vehicle parts, accessories and other CG products for sale at the dealer's facilities and location described in the Dealership Facilities and Location Addendum," which is incorporated into the Dealer Agreement by reference (emphasis added). Paragraph 4 of the Dealer Agreement further provides that the dealer is to "actively and effectively sell and promote the retail sale of CG vehicles, vehicle parts and accessories in [that] dealer's Sales Locality." The Dealer Agreement defines "Sales Locality" as "the area designated in writing to Dealer by CG from time to time as the territory of Dealer's responsibility for the sale of CG vehicles, . . . vehicle parts and accessories although Dealer is free to sell said vehicle to customers located within the United States wherever they may be located within the United States and vehicle parts and accessories to customers wherever they may be located" (emphasis added). It further provides that the Sales Locality "may be shared with other CG dealers of the same line-make as CG determines to be appropriate."
Additional Terms and Provisions of the Dealer Agreement, in paragraph 11 (a), requires the dealer to "use its best efforts to promote energetically and sell (which includes leasing) aggressively and effectively at retail . . . [CG motor vehicles] . . . to retail customerslocated within the United States in Dealer's Sales Locality and CG vehicle parts accessories and other CG products and services to customers wherever they may be located." Paragraph 11 (d) (i) of the Additional Terms and Provisions of the Dealer Agreement, entitled "Dealer's Responsibilities," provides that the "Dealer shall conduct its Dealership Operations only from the dealership location and dealership facilities [which are provided for the sale and service of CG products in its Sales Location] and in the manner and at least during the hours usual in the trade in Dealer's Sales Locality." It further provides that the "Dealer shall not . . . either directly or indirectly, establish any place or places of business for the conduct of its Dealership Operations other than at the Dealership Facilities and Dealership Operations located as set forth in the Dealership Facilities and Location Addendum."
Paragraph 11 (a) of the Additional Terms and Provisions of the Dealer Agreement obligates the dealer to "sell at retail the number of new [CG] vehicles necessary to fulfill Dealer's Minimum Sales Responsibility [MSR] for each passenger car line or truck line" that the dealer is authorized to sell. Although a complex formula is set forth in the Dealer Agreement, a dealer's MSR is based upon the ratio of CG vehicles sold to the total number of vehicles in a particular category sold by CG dealers and their competitors in a specified period in the Dealer's Sales Locality, i.e., CG's historical market share in the Sales Locality. If a Sales Locality is shared by more than one dealer, each dealer is assigned a "fair share" of the MSR for that Sales Locality, and has its own "Trade Zone" within the Sales Locality. Plaintiff is assigned the Brooklyn Sales Locality, which it shares with Bay Ridge CDJR; theBrooklyn Sales Locality is thus divided into two Trade Zones, with the Bay Ridge Trade Zone assigned to Bay Ridge CDJR and the Flatlands Trade Zone assigned to plaintiff. Paragraph 28 of the Dealer Agreement sets forth that if a dealer fails to meet its sales obligations, including meeting the MSR, CG may terminate the Dealer Agreement on 60 days' notice, following a 180-day opportunity to cure period, following CG's notification of the dealer's failure to perform.
CG has implemented several incentive programs, including the Volume Growth Program (VGP), that pay dealers on a per-vehicle basis retroactively after a vehicle is sold or leased to a consumer. The VGP pays a qualifying dealer up to $1,150 per vehicle for meeting monthly sales objectives set by CG, which are calculated using formulas based on projected growth over historical sales levels. VGP payments give qualifying dealers a substantial price advantage.
Plaintiff claims that in order to gain a competitive advantage and inflate their sales volumes so as to achieve the VGP sales objectives, thus qualifying for VGP incentive payments, the defendant dealers have engaged in a conspiracy with brokers to sell or lease CDJR vehicles in large volume at cut-rate prices to consumers in the Brooklyn Sales Locality assigned to plaintiff. Plaintiff asserts that in furtherance of this alleged scheme, the defendant dealers consign inventory at cost, or even at a loss, to these brokers, who are then able to sell or lease these vehicles to consumers at a lower price than they would otherwise be able to obtain if they purchased or leased these vehicles directly from plaintiff, as anauthorized dealer in this Sales Locality. According to plaintiff, the defendant dealers are willing to lose money on their brokered sales because the resulting sales volumes allow them to obtain the highest price discounts under the VGP and other CG incentive programs. Plaintiff characterizes the use of brokers by the authorized non-Brooklyn dealer defendants as "unlawful grey market brokering activity" and such discount pricing by them as "predatory pricing." Plaintiff alleges that the defendant dealers charge higher prices to their local customers in their respective Trade Zones and Sales Localities that purchase or lease directly from them and that these customers do not receive the advantageous pricing that the customers in Brooklyn who purchase or lease via brokers receive. Plaintiff asserts that the brokers undercut the prices of local authorized dealers, such as plaintiff, who are unable to fairly compete for customers in their own market.
Plaintiff acknowledges that, under the Dealer Agreement, it is expected that dealers will sell to customers outside of their assigned market areas and that it and Bay Ridge CDJR naturally sell into each other's Trade Zones, but that CDJR dealers in Nassau, Suffolk, and the Bronx are being credited with an unusually large number of sales to customers in its Flatlands Trade Zone as a result of using brokers. Specifically, it alleges that in the first four months of 2014, it sold 135 new CDJR vehicles to customers in its Flatlands Trade Zone, and Bay Ridge sold 64 new CDJR vehicles in this Flatlands Trade Zone, whereas defendant sold 88 vehicles in the Flatlands Trade Zone. Plaintiff claims that such sales volume in its Flatlands Trade Zone by defendant, which is a significant distance away (as well as the salesvolume in this Trade Zone by the other defendant dealers), could only have come about through "predatory pricing and unfair competition generated by unlawful grey market brokering activity."
Plaintiff further claims that the brokers, who are not identified and are not parties, are misrepresenting to customers that they are licensed dealers through...
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