The California New Car Dealers Association's lawsuit against Volkswagen and Scout Motors will move forward after Chief Judge Cynthia Bashant of the U.S. District Court for the Southern District of California denied both companies' motions to dismiss.
Driving the news: The judge’s ruling, issued March 30, stated that the CNCDA "properly alleged that Volkswagen Group of America and Scout Motors are violating California law through Scout’s direct-to-consumer reservation program, which bypasses Volkswagen’s franchised dealer network,” according to a CNCDA press release.
The Court accepted CNCDA's understanding of state code “...that the statute's prohibition on manufacturers competing with their franchisees ‘directly or indirectly through an affiliate’ encompasses Volkswagen's corporate relationship with Scout — regardless of whether Volkswagen affirmatively directed Scout's conduct.”
The Court also rejected the argument that the statute only applies after a completed vehicle sale, saying “Scout's $100 reservation program constitutes competition in the sale of new motor vehicles,” the press release said.
The Court also said that Scout's own general counsel admitted that the law could prohibit Scout's direct-to-consumer model in California based on the competition clause specifically included in a 2023 bill.
For context: The CNCDA first filed its lawsuit in April 2024, and the manufacturers filed motions to dismiss.
A group of dealers in Florida also sued the companies and earlier this month, two dealers on behalf of their dealer groups filed a lawsuit seeking class-action status against the manufacturers.
What they’re saying: "This ruling confirms what California law recognizes: manufacturers cannot use affiliate brands to unlawfully compete against their own dealers. Volkswagen dealers would welcome the chance to sell Scout vehicles to their customers, but Volkswagen continues to shut them out," said CNCDA President Brian Maas. "In 2023, the California Legislature strengthened dealer protections for exactly this reason, and we are pleased the Court has applied the statute as written."
Bottom line: Each of the lawsuits approaches the issue a little differently, but if this win is a predictor of how other rulings across the country will go, it could tentatively be great news for dealers who want the opportunity to sell the Scout vehicles.
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