Volkswagen of America, Inc. v. Quillian

• Decision Date: 17 September 2002
• Docket Number: Record No. 1947-01-2.
• Parties: VOLKSWAGEN OF AMERICA, INC. v. Asbury W. QUILLIAN, Commissioner of the Virginia Department of Motor Vehicles and Miller Auto Sales, Inc.
• Court: Virginia Court of Appeals

569 S.E.2d 744
39 Va. App. 35

VOLKSWAGEN OF AMERICA, INC.
v.
Asbury W. QUILLIAN, Commissioner of the Virginia Department of Motor Vehicles and Miller Auto Sales, Inc

Record No. 1947-01-2.

Court of Appeals of Virginia, Richmond.

September 17, 2002.

569 S.E.2d 747

James R. Vogler, pro hac vice (Randall L. Oyler; Steven J. Yatvin, Chicago, IL; Douglas M. Palais; Brian L. Buniva; Patricia A. Collins, Richmond; Barack Ferrazzano Kirschbaum Perlman & Nagelberg, Chicago, IL; McCandlish Kaine, P.C., Richmond, on briefs), for appellant

Richard L. Walton, Jr., Senior Assistant Attorney General (Randolph A. Beales, Attorney General; Richard B. Campbell, Deputy Attorney General, on brief) for appellee Asbury W. Quillian, Commissioner of the Department of Motor Vehicles.

Brad D. Weiss, Washington, DC (C. Michael Deese; Michael C. Gartner, Fairfax; Charapp, Deise & Weiss, L.L.P., Washington, DC, on brief), for appellee Miller Auto Sales, Inc.

Present: BENTON and CLEMENTS, JJ., and COLEMAN, Senior Judge.

JEAN HARRISON CLEMENTS, Judge.

This appeal arises from a decree of the Circuit Court of the City of Richmond (circuit court) affirming the ruling by Richard D. Holcomb, former Commissioner of the Virginia Department of Motor Vehicles (commissioner), that the method used by Volkswagen of America, Inc. (Volkswagen) to allocate its newly manufactured motor vehicles to Miller Auto Sales, Inc. (Miller) was in violation of Code § 46.2-1569(7), and finding that the commissioner exceeded his authority in requiring Volkswagen, in remedy of that violation, to implement a new method of vehicle

569 S.E.2d 748

allocation that complied with Code § 46.2-569(7) On appeal, Volkswagen challenges the circuit court's affirmance of the commissioner's determination that Volkswagen violated Code § 46.2-1569(7), contending the circuit court erred in rejecting Volkswagen's claims that (1) Code § 46.2-1569(7) is unconstitutionally vague, (2) Code § 46.2-1569(7) violates the Commerce Clause of the United States Constitution, (3) the commissioner's determination exceeded the scope of his authority under Code § 46.2-1569(7) because it was based on Volkswagen's method of vehicle allocation rather than the specific numbers of vehicles allocated by Volkswagen; and (4) the commissioner failed to provide Volkswagen adequate procedural protections and wrongfully placed the burden of proving compliance with Code § 46.2-1569(7) on Volkswagen. On cross-appeal, Miller contends the circuit court erred in ruling that the remedy imposed by the commissioner exceeded the commissioner's statutory authority. In addition, the commissioner challenges the jurisdiction of this Court to decide this appeal, contending in his motion to dismiss that the decree appealed from was not a final decision of the circuit court, as required by Code § 17.1-405

For the reasons that follow, we deny the commissioner's motion to dismiss the appeal as to the commissioner's determination that Volkswagen violated Code § 46.2-1569(7) and grant it as to the unresolved issue of what remedy the commissioner may impose. Accordingly, we dismiss Miller's cross-appeal regarding the issue of remedy. Additionally, we affirm the circuit court's judgment that the commissioner correctly determined that Volkswagen violated Code § 46.2-1569(7).

I. BACKGROUND

The record reveals that, on February 9, 1998, Miller, a retail dealer of Volkswagenbrand motor vehicles in Winchester, Virginia, filed a complaint with the Department of Motor Vehicles challenging Volkswagen's allocation of newly manufactured vehicles. Miller maintained that Volkswagen's allocation of vehicles violated Code § 46.2-1569(7)¹ to Miller's detriment.

"Following the appointment of a hearing officer to preside over the proceedings on Miller's complaint, Volkswagen, the distributor of Volkswagen-brand motor vehicles in the United States and Canada, filed a motion to dismiss the proceedings on constitutional grounds. The hearing officer overruled the motion and subsequently conducted a formal evidentiary hearing on Volkswagen's alleged failure to provide to Miller an equitable number of vehicles in violation of Code § 46.2-1569(7). The hearing officer received factual and expert evidence, much of which focused on Volkswagen's vehicle allocation system and methodology rather than on the actual number of vehicles shipped by Volkswagen to Miller.

Following the hearing, the hearing officer issued a proposed decision dated May 25, 1999. In that decision, the hearing officer stated that, throughout the period of time covered by Miller's complaint, starting in 1997, Volkswagen's vehicle allocation system was based on a mathematical formula that calculated the allocation of new vehicles to the dealers in Miller's sales area on the basis of the inventory of those dealers and their anticipated and actual vehicle sales. The

569 S.E.2d 749

hearing officer found that, while equitably "designed with the logic that vehicles should be allocated where they were likely to be sold [and] where they were needed because of low inventory," Volkswagen's allocation formula unfairly penalized small-volume dealers like Miller in practice. The hearing officer stated that, because it truncated, i.e., rounded down, fractional vehicle allocations and did not allow fractional vehicle allocations to accumulate, the allocation formula used by Volkswagen effectively prevented Miller, which was the smallest-volume dealer in its sales area, from acquiring vehicles in short supply, such as the newly released Passat and Beetle models

The hearing officer also observed that the inequities in the allocation formula were compounded by Volkswagen's adoption of the practice of adjusting vehicle allocations to its dealers based on customer satisfaction survey scores. That practice, the hearing officer found, inequitably punished Miller, "whose scores were generally lower than those of other dealers in Miller's [sales] area." The hearing officer stated that "one could reasonably conclude from some of the statistical evidence presented . . . that the restriction of allocations itself created a vicious cycle of lower [customer satisfaction] scores, as customers who were delayed in receiving ordered vehicles, or who could not get vehicles precisely as specified, might well be less satisfied with Miller." The hearing officer added that Volkswagen's "own witnesses seemed to recognize that [the practice of using customer satisfaction scores as a basis of allocating vehicles] was punitive and inequitable." Accordingly, the hearing officer found that Volkswagen failed to "show that utilization of [customer satisfaction scores] as a governor on the allocation system was fair and equitable."

The hearing officer also found that Volkswagen failed to show that its purported policy of overriding the allocation formula to assure that each dealer had at least one vehicle in stock of each model was adequate to remedy the inequities in the allocation methodology and make it compliant with Code § 46.2-1569(7). The hearing officer added that, despite Volkswagen's testimony that this policy was a "hallowed and long-standing 'unwritten rule' for allocation," it appeared to be a rule that was honored in this case only after Miller requested a hearing before the Department of Motor Vehicles.

Finding Volkswagen's allocation methodology "flawed in its design and deficient in its operation," the hearing officer concluded that Volkswagen was in violation of Code § 46.2-1569(7) and recommended, inter alia, that the commissioner require Volkswagen to replace its vehicle allocation methodology with a new, compliant one and prohibit Volkswagen from "utilizing allocations or vehicle supply as an incentive or disincentive in support of any [Volkswagen] program, unless explicitly permitted under [an] . . . approved Franchise Agreement."

On July 12, 1999, the commissioner issued a "Hearing Decision," adopting the hearing officer's findings and most of his recommendations. The commissioner concluded that Volkswagen's "allocation methodology [did] not conform to and [was] in violation of Code § 46.2-1569(7)." The commissioner ordered Volkswagen to replace its "current vehicle allocation methodology with a new methodology that complies with the provisions of .. . Code § 46.2-1569(7)" and prohibited Volkswagen from "utilizing allocations or vehicle supply as an incentive or disincentive in support of any [Volkswagen] program, unless explicitly permitted under a[n] . . . approved Franchise Agreement."

Volkswagen appealed the commissioner's decision to the circuit court, contending that the commissioner erred in finding Volkswagen had violated Code § 46.2-1569(7) and that the commissioner lacked the authority to order Volkswagen to change its allocation system. In its letter opinion dated March 15, 2001, the circuit court concluded that the commissioner's determination that Volkswagen's vehicle allocation system violated Code § 46.2-1569(7) was consistent with law and supported by the record. The court also determined, however, that the commissioner exceeded his authority in ordering Volkswagen to adopt a new vehicle allocation system because such a remedy was not expressly authorized by the motor vehicle code. The

569 S.E.2d 750

only remedies available to the commissioner in this case, the court observed, were to declare Volkswagen in violation of the statute and to revoke Volkswagen's license to do business in Virginia.

The circuit court entered a "Final Decree and Order of Dismissal" on June 29, 2001. In that decree, which incorporated the court's letter opinion, the court concluded that there was "a sufficient basis in the administrative record to support the . . . [c]ommissioner's determination that [Volkswagen's] vehicle allocation system in effect at the time of the proceedings below violated. . . Code § 46.2-1569(7)." The court also concluded that "the [c]ommissioner exceeded his statutory...