Volkswagen of America, Inc. v. Smit

Decision Date25 February 2010
Docket NumberRecord No. 082305.
Citation689 S.E.2d 679
PartiesVOLKSWAGEN OF AMERICA, INC. v. Demerst B. SMIT, Commissioner of the Virginia Department of Motor Vehicles, et al.
CourtVirginia Supreme Court

Randall L. Oyler; Brian L. Buniva (James R. Vogler; Matthew A. Jackson; Douglas M. Palais; Corey B. Simpson, Richmond; Barack Ferrazzano Kirschbaum & Nagelberg; LeClairRyan, on brief), for appellant.

Stephen R. McCullough, State Solicitor General; Brad D. Weiss, McLean (William C. Mims, Attorney General; Martin L. Kent, Chief Deputy Attorney General; Eric K.G. Fiske, Senior Assistant Attorney General; Robert D.H. Floyd; Charapp & Weiss, on briefs), for appellees.



In a prior appeal, this Court reversed a decision of the Commissioner of the Virginia Department of Motor Vehicles ("DMV") finding that, during the period of October 1997 through March 1998, Volkswagen of America, Inc. ("Volkswagen") violated Code § 46.2-1569(7) when it failed to supply certain high-demand models of vehicles imported by Volkswagen for distribution to its franchise dealers in the United States to Miller Auto Sales, Inc. ("Miller Auto"), a Volkswagen franchise dealer in Winchester. Volkswagen of America, Inc. v. Smit, 266 Va. 444, 453-54, 587 S.E.2d 526, 531-32 (2003) (hereinafter, "Volkswagen II"). That appeal arose from a judgment of the Court of Appeals of Virginia, which had affirmed an order of the Circuit Court of the City of Richmond upholding the Commissioner's decision. Volkswagen of America, Inc. v. Quillian, 39 Va.App. 35, 69, 569 S.E.2d 744, 761 (2002) (hereinafter, "Volkswagen I"). In reversing the judgment of the Court of Appeals, we held that the Commissioner had erroneously interpreted Code § 46.2-1569(7) and consequently improperly focused on the business judgment of Volkswagen, rather than limiting the inquiry to the relevant factors prescribed by the statute. Volkswagen II, 266 Va. at 453-54, 587 S.E.2d at 531-32. We also vacated that portion of the Court of Appeals' decision in Volkswagen I that addressed Volkswagen's challenge to Code § 46.2-1569(7) alleging both that the statute violates principles of the dormant Commerce Clause of the United States Constitution and is unconstitutionally vague in violation of the Due Process Clauses of the United States and Virginia Constitutions. Id. at 454, 587 S.E.2d at 532 (citing the established principle of constitutional law that a court will not rule upon the constitutionality of a statute unless such a determination is absolutely necessary to decide the merits of the case); see Klarfeld v. Salsbury, 233 Va. 277, 286, 355 S.E.2d 319, 324 (1987).

Following the remand to the DMV and further proceedings before the Commissioner, Volkswagen was again found to have violated Code § 46.2-1569(7). This decision was appealed again through the circuit court and the Court of Appeals, with Volkswagen renewing its constitutional challenges to the statute, as well as contesting the Commissioner's decision on the merits. Upon appeal from the decision of the circuit court, the Court of Appeals, Volkswagen of America, Inc. v. Smit, 52 Va.App. 751, 799, 667 S.E.2d 817, 841 (2008) (hereinafter, "Volkswagen III"), affirmed the Commissioner's decision. In doing so, the Court of Appeals affirmed the circuit court's holding that Code § 46.2-1569(7) was neither void for vagueness nor violative of dormant Commerce Clause principles. Id. at 795, 799, 667 S.E.2d at 839, 841.

Volkswagen appealed the judgment of the Court of Appeals by petition to this Court, challenging both the decision upholding the Commissioner's finding that its actions violated Code § 46.2-1569(7) and the determination that the statute was not constitutionally infirm. By an order dated April 14, 2009, we awarded Volkswagen this appeal limited to the dormant Commerce Clause and due process issues.


Because we have previously given extensive recitation to the factual and procedural background of this case in Volkswagen II, 266 Va. at 447-51, 587 S.E.2d at 528-30, and the issues in this appeal address only the Commerce Clause and due process challenges to the statute at issue, we will limit our recitation of the facts to those necessary to resolve the appeal upon the issues presented.

As relevant to the time at which its dispute with Miller Auto arose, Volkswagen imported vehicles from Volkswagen AG, its German parent corporation, and distributed them to approximately 600 franchise dealers in the United States, including its dealers in Virginia. For vehicle models for which demand exceeded supply, Volkswagen used a national allocation procedure to distribute vehicles to its dealers based on a mathematical algorithm to determine a "Dealer Allocation Percentage" designed to deliver vehicles where they were most likely to be sold and where they were most needed because of low inventory. Volkswagen's "Area Executives" were given the authority to adjust the algorithm's results for each dealer within the executive's geographic region based on various factors, including a dealer's customer satisfaction survey scores, local market conditions, and minimum stocking requirements of the dealer's franchise agreement.

Miller Auto was the lowest volume dealer among Volkswagen's dealers in its dealer sales district, which included seven Volkswagen dealers in northern Virginia as well as four dealers in Maryland and one in Washington, D.C. During 1997, for example, Miller Auto sold 47 new Volkswagens of all models, while during the same period the two largest Volkswagen dealers in Virginia each sold over 1000 new Volkswagens of all models. Miller Auto, which had franchise agreements for several other automobile lines, concedes that sales of all models supplied by Volkswagen accounted for only approximately ten percent of its sales volume.

In the period immediately preceding the dispute between Volkswagen and Miller Auto, the supply of all the models in Volkswagen's line of vehicles available for distribution to dealers generally exceeded demand and, thus, it was not necessary for Volkswagen to use the dealer allocation percentage to determine how many vehicles a particular dealer was entitled to receive. However, in the fall of 1997, Volkswagen introduced a new 1998 model of the Passat and in early 1998 introduced the New Beetle model. Because demand for these vehicles initially far exceeded supply, Volkswagen used the national allocation procedure to determine how many of these vehicles its dealers were entitled to receive.

It is not disputed that during the period of October 1997 to March 1998 Volkswagen imported 18,454 Passats, and during the period of February to March 1998 Volkswagen imported 5,637 New Beetles. Miller Auto requested delivery from Volkswagen of one or more 1998 Passats and New Beetles during those respective timeframes, but received no shipments of either vehicle until after March 1998.1 While it is also not disputed by Miller Auto that the demand for Passats and New Beetles during the relevant timeframes exceeded the available supply, there is no conclusive evidence in the record as to actual level of national dealership demand, either as to the number of dealers requesting delivery of the two vehicle models or of the total number of vehicles requested by all dealers.

On February 9, 1998, John C. Miller, Vice President of Miller Auto, advised Volkswagen by letter that Miller Auto was dissatisfied with the manner in which new vehicles were being allocated to it. Miller expressly stated his belief that Volkswagen's allocation procedure violated Code § 46.2-1569(7). Miller sent a copy of this letter to the DMV.

As relevant to Miller's compliant, Code § 46.2-1569(7) provides that:

Notwithstanding the terms of any franchise agreement, it shall be unlawful for any [motor vehicle] manufacturer, factory branch, distributor, or distributor branch, or any field representative, officer, agent, or their representatives:

. . . .

7. To fail to ship monthly to any dealer, if ordered by the dealer, the number of new vehicles of each make, series, and model needed by the dealer to receive a percentage of total new vehicle sales of each make, series, and model equitably related to the total new vehicle production or importation currently being achieved nationally by each make, series, and model covered under the franchise.

(Emphasis added.)2

After mediation of the dispute between Miller Auto and Volkswagen pursuant to Code § 46.2-1572.2 proved fruitless, the Commissioner instituted formal proceedings against Volkswagen. As indicated above, those proceedings resulted in a determination by the Commissioner that Volkswagen had violated Code § 46.2-1569(7), but that this Court overturned that determination in Volkswagen II.

Upon remand, the record was not substantially enlarged as to any relevant factor. The Commissioner again determined, based upon his interpretation of what level of distribution of the two vehicle models at issue would be "equitably related to the total new vehicle production or importation currently being achieved nationally," that Volkswagen had violated Code § 46.2-1569(7) with respect to its dealings with Miller Auto. Specifically, the Commissioner found that regardless of the methodology used to allocate vehicles among dealers, the "allocation[] of zero vehicles [to a dealer] of a certain make, series, or model for one or more months would not be equitable." The Commissioner expressly limited his finding to the facts of this case where the requested vehicle was a new model and "where no meaningful history of dealer or national sales exist for the new vehicle." However, the Commissioner concluded that there was no specific statutory sanction provided for such violation and, that in any case, given the length of time since the violation, and because Volkswagen was no longer...

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