Savannah Motorcars, LLC v. Volkswagen Grp. of Am.

• Decision Date: 22 March 2022
• Docket Number: Civil Action 4:20-cv-37
• Parties: SAVANNAH MOTORCARS, LLC; and PEACOCK RE, LLC, Plaintiffs, v. VOLKSWAGEN GROUP OF AMERICA, INC., Defendant.
• Court: U.S. District Court — Southern District of Georgia

SAVANNAH MOTORCARS, LLC; and PEACOCK RE, LLC, Plaintiffs, v. VOLKSWAGEN GROUP OF AMERICA, INC., Defendant.

Civil Action No. 4:20-cv-37

United States District Court, S.D. Georgia, Savannah Division

March 22, 2022

ORDER

R STAN BAKER, UNITED STATES DISTRICT JUDGE

This action arises from Defendant Volkswagen Group of America Inc.'s failure to consent to Plaintiff Savannah Motorcars, LLC and Plaintiff Peacock RE, LLC's proposed sale of a Volkswagen dealership to non-party Step One Automotive Group, LLC. (Doc. 1 (Complaint); (doc. 70 (Amended Complaint).) Plaintiffs filed suit against Defendant asserting a claim under Georgia's Motor Vehicle Franchise Practices Act, O.C.G.A. § 10-1-620, et seq., and a claim for breach of contract. (Doc. 70, pp. 6-7.) Presently before the Court are Defendant's Motion for Summary Judgment, (doc. 43), and Plaintiffs' Motion for Partial Summary Judgment, (doc. 50). Defendant filed a Response to Plaintiffs' Motion, (doc. 59), and Plaintiffs filed a Reply, (doc. 62). For the following reasons, the Court DENIES Defendant's Motion for Summary Judgment, (doc. 43), and DENIES Plaintiffs' Motion for Partial Summary Judgment, (doc. 50). The Court DIRECTS the Clerk of Court to file this Order IN A RESTRICTED MANNER on the record of the case whereby only the parties and the Court have access to it. Further, the Court DIRECTS the Clerk of Court to attach a redacted version of this Order that is accessible on the public record of the case.^[1]

BACKGROUND

I. Factual Background

A. The Parties

Defendant Volkswagen Group of America, Inc. (“Volkswagen”) is a distributor of new Volkswagen vehicles that utilizes a network of authorized car dealerships to distribute its vehicles in Georgia. (Doc. 43-2, p. 5; doc. 50-2, p. 3.) Plaintiff Savannah Motorcars, LLC (“Savannah Motorcars”) is an independently owned and operated motor vehicle dealer that operated an authorized Volkswagen dealership located at 50 Eisenhower Drive, Savannah, Georgia (the “Dealership”). (Doc. 43-2, p. 5; doc. 50-2, p. 3.) Though disputed by Volkswagen, Plaintiff Peacock RE, LLC (“Peacock RE”) is, according to Plaintiffs, the owner of the real property on which the Dealership sits (the “Dealership Land”). (Doc. 50-2, p. 33; doc. 60, pp. 22-25; see also doc. 43-3, pp. 164-65.)

B. The Dealer Agreement

To operate the Dealership for the sale and service of Volkswagen vehicles, Savannah Motorcars entered into a Volkswagen Dealer Agreement (the “Dealer Agreement”) with Volkswagen, which governs the “franchisor-dealer” relationship between the two entities.^[2] (See doc. 43-2, p. 5; doc. 50-2, p. 3.) The Dealer Agreement incorporates the Dealer Agreement Standard Provisions (the “Standard Provisions”) as part of the agreement. (Doc. 43-2, p. 5; doc. 50-2, pp. 3-4.) Article 12 of the Standard Provisions (entitled “Succeeding Dealers”) contemplates the procedures and respective rights of Volkswagen and Savannah Motorcars in the event Savannah Motorcars seeks to sell the Dealership to another party. (See doc. 43-3, pp. 108-10.) Among these rights is Volkswagen's contractual right of approval over any proposed transfer of the Dealership. (Id. at p. 108.) Specifically, Volkswagen “has the right to approve [a] proposed transferee[]” but must “consider in good faith any such proposal [Savannah Motorcars] may submit to it during the term of th[e] [Dealership] Agreement.” (Id.; see also doc. 43-2, p. 7; doc. 50-2, p. 4.) In determining whether to approve a proposed transfer, Volkswagen must consider “the personal, business, and financial qualifications of the proposed new owners and executives as well as the proposal's effect on competition. In such evaluation, [Volkswagen] may consult with the proposed new owners and executives on any aspect of the transaction.” (Doc. 43-3, p. 108; see also doc. 43-2, p. 7; doc. 50-2, p. 4.) Volkswagen must notify Savannah Motorcars in writing of its approval or disapproval of a proposed transfer within 45 business days after Savannah Motorcars has “furnished to [Volkswagen] all applications and information reasonably requested by [Volkswagen] to evaluat[e]” the proposal. (Doc. 43-3, p. 108; see also doc. 43-2, p. 7; doc. 50-2, p. 5.)

Article 12 also grants to Volkswagen a right of first refusal over any proposed sale of the Dealership. (Doc. 43-3, pp. 108-09.) Specifically, “[w]henever [Savannah Motorcars] proposes to transfer its principal assets or change owners of a majority interest, [Volkswagen] shall have the right to purchase such assets or ownership interest.” (Id. at p. 108; see also doc. 43-2, p. 7; doc. 50-2, p. 5.) To exercise the right of first refusal, Volkswagen must notify Savannah Motorcars in writing within thirty calendars days after Savannah Motorcars has furnished “all applications and information reasonably requested” by Volkswagen. (Doc. 43-3, p. 108.)

C. Volkswagen's Candidate Selection Criteria

To guide its decisions on whether to approve prospective Volkswagen dealers, Volkswagen maintains internal Dealer Candidate Selection Policies and Procedures (the “Dealer Candidate Policies”). (See doc. 43-3, pp. 122-23; see also doc. 43-2, p. 8; doc. 50-2, pp. 5-6.) Pursuant to the Dealer Candidate Policies, “[a]ll proposed owners of greater than 10% of the beneficial ownership of a Dealership require approval from Volkswagen.” (Doc. 43-3, p. 122.) To determine whether to approve a new owner, Volkswagen examines seven criteria: (1) operational acumen; (2) financial capacity; (3) location; (4) facility; (5) character; (6) management capacity; and (7) prior terminations. (Id. at pp. 122-23; see also doc. 43-2, p. 8; doc. 50-2, p. 6.) Concerning the “operational acumen” criterion (the “Operational Acumen Standard”), Volkswagen examines “2 years plus the latest available year-to-date data regarding [a] candidate's performance operating a retail automotive outlet.” (Doc. 43-3, p. 122; see also doc. 43-2, p. 8; doc. 50-2, p. 6.) Volkswagen examines whether a proposed candidate has demonstrated (1) the “ability to exceed expected level of sales in a market area, as measured by sales index, sales effectiveness, market share, or similar metric”; (2) the “ability to exceed customer needs, as measured by customer satisfaction index (CSI) scores or similar metric”; (3) the ability “to profitably operate a retail automotive outlet as evidenced by past and most current financial statements”; and (4) the ability “to obtain a license to operate a retail automotive outlet.” (Doc. 43-3, p. 122; see also doc. 43-2, p. 8; doc. 50-2, p. 6.) Concerning the “financial capacity” criterion (the “Financial Capacity Standard”), Volkswagen examines a candidate's “ability to meet or exceed capitalization requirements for the planning volume of the proposed Dealership.” (Doc. 43-3, p. 122; see also doc. 43-2, p. 9; doc. 50-2, p. 6.) The Financial Capacity Standard also mandates that “the operating investment for any application package consists of a maximum one-to-one ratio of borrowed-to-owned capital.” (Doc. 43-3, p. 122.)

In addition to the Dealer Candidate Policies, Volkswagen has a Dealership Capitalization Policy (the “Capitalization Policy”). (Id. at pp. 124-28; see also doc. 43-2, p. 9; doc. 50-2, p. 6.) According to the Capitalization Policy, “[i]n order to support a successful business model and sustain a robust dealer network, it is imperative that dealership operations remain properly capitalized. All Network actions are to be reviewed to ensure proper capitalization.” (Doc. 43-3, p. 124.) The Capitalization Policy provides that the “[i]nvestment of unencumbered personal capital should be adequately verified” and that the “Dealership must maintain a debt-to-equity ratio of 1:1; or, at least 50% of working capital must be in the form of encumbered funds.” (Id. at pp. 124-25; see also doc. 43-2, p. 9; doc. 50-2, p. 6.) Finally, the Capitalization Policy restricts the types of fund sources prospective purchasers may use. (See doc. 43-3, pp. 124-25.) Pertinent to this case, the Capitalization Policy permits “[c]apital loans” as a funds source but prohibits “[b]alloon payment loans and lines of credits such as ‘revolving credit lines'” because “these lines can be terminated at any time by the finance source.” (Id. at pp. 124, 128)

D. Volkswagen's Procedures for Processing Proposed Sales

Brian Kelly, Volkswagen's vice president of network operations testified about the “general” process Volkswagen follows when it receives notice of a proposed transfer of a dealership.^[3] (Doc. 43-18, p. 4; see doc. 43-2, pp. 9-10; doc. 50-2, p. 7; see also doc. 50-5, p. 10.) According to Kelly, once Volkswagen receives notice of a proposed transfer, the proposed asset purchase agreement is distributed to all relevant parties. (Doc. 43-18, p. 4.) Next, Volkswagen conducts a “buy-sell launch call, ” during which Volkswagen's regional, corporate, and legal offices discuss their respective reviews of the proposed purchase agreement. (Id.) After the call, Volkswagen sends the buyer and seller a “buy-sell launch letter” that requests information so that Volkswagen can review the proposed transfer. (Id.) Volkswagen's regional office then prepares a binder of all the required information and disseminates the contents of the binder to the corporate and legal offices for review. (Id.) Once the relevant parties at Volkswagen discuss the “merits” of the proposed purchase agreement, Volkswagen issues a “conditional letter of approval . . . if all issues have been resolved and [there] is a clear pathway moving forward.” (Id.) If there is not a “clear pathway moving forward, ” Volkswagen will communicate its concerns to the dealer and attempt to “mitigate those concerns.” (Id.) If the concerns are mitigated, then Volkswagen issues a...