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B.A. Wackerli, Co., A Corporation v. Volkswagen of America

August 13, 2012

B.A. WACKERLI, CO., A CORPORATION, PLAINTIFF,
v.
VOLKSWAGEN OF AMERICA, INC., A CORPORATION; AND AUDI OF AMERICA, INC., A CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court

MEMORANDUM DECISION AND ORDER

INTRODUCTION

The Court has before it Plaintiff B.A. Wackerli, Co.'s motion to remand (Dkt. 19) and motion to stay (Dkt. 20). The motions arise from the effort of Defendants Volkswagen of America, Inc. and Audi of America, Inc. to terminate their dealer franchise agreement with Wackerli because, they claim, Wackerli breached its commitment to build a new dual-brand dealership facility by March 2012. Wackerli asks the Court to stay the Idaho Transportation Department's administrative order finding that Volkswagen and Audi had good cause to terminate the dealer franchise agreements while this Court reviews the decision. In the alternative, Wackerli asks the Court to enjoin Volkswagen and Audi's termination of the dealer agreements. Wackerli's motions were heard on August 3, 2012, the parties were given the opportunity to present evidence, and post-hearing briefs were submitted. Having reviewed the relevant law and the parties' submissions, the Court will deny Wackerli's motion to remand and motion to stay or for injunctive relief for the reasons set forth below.

BACKGROUND

1. Franchise Relationship and Settlement Agreement

Wackerli is a private dealer group in Idaho Falls, Idaho, where it operates three separate dealerships: a GMC-Buick-Cadillac dealership, aVolkswagen and Audi dealership, and a Subaru dealership. Thomas Decl., Ex. A, Dkt. 15. Defendants Volkswagen of America, Inc. and Audi of America, Inc. are the U.S. distributors for Volkswagen and Audi vehicles, respectively.

Wackerli's right to market the Volkswagen and Audi brands arises from separate dealer agreements with each manufacturer. Those agreements contain various addenda that are incorporated into the dealer agreements, including ownership addenda and dealership premises addenda. Id., Exs. B, C. As discussed in more detail below, the dealer agreements also include facility addenda, which became part of the dealer agreements through a settlement agreement entered into during Wackerli's bankruptcy proceedings. Volkswagen and Audi seek to terminate the dealer agreements because Wackerli allegedly breached the facility addenda incorporated through the bankruptcy settlement agreement.

Before Wackerli filed for bankruptcy, Wackerli operated the Volkswagen, Audi, and Subaru dealership in a shared facility. Each separate dealer agreement between Wackerli and Volkswagen, Audi, and Subaru approved the multi-branded dealership premises and location. Id. The agreements precluded Wackerli from relocating its dealership operations without prior written consent of the manufacturer and full compliance with the respective dealer agreements. Id. Specifically, both Volkswagen and Audi had the right to terminate the dealer agreements if Wackerli changed the location of the dealership without Volkswagen and Audi's prior written consent. Id.

In February 2009, Wackerli filed for Chapter 11 bankruptcy protection. Concerned with Wackerli's ability to perform its dealer agreement, Subaru sought to terminate its agreement with Wackerli. Subaru ultimately decided against terminating Wackerli, and Wackerli and Subaru reached a settlement agreement. Id., Ex. E. Pursuant to the settlement agreement, Subaru agreed not to terminate Wackerli's dealer agreement in exchange for (1) Wackerli agreeing to displace Volkswagen and Audi from the shared facility, and (2) Wackerli agreeing to renovate the shared facility into an exclusive Subaru dealership meeting Subaru's facility and image standards. Id., Ex. F at Ex. A.

Wackerli entered into this agreement with Subaru, including its promise to displace Volkswagen and Audi from the premises, without first obtaining the consent of Volkswagen or Audi. Indeed, Wackerli did not even inform Audi or Volkswagen before agreeing to displace them with an exclusive Subaru dealership. When Wackerli sought approval from the bankruptcy court of Wackerli's assumption of the dealer agreements, the manufacturers objected. Id., Ex. G. Among the cited concerns was the proposal to relocate the Audi-Volkswagen dealership to an existing Wackerli used car facility. Id. According to Volkswagen and Audi, they would have never approved use of the used car facility as the location for their dealerships, because it is inferior to the facility they previously shared with Subaru. Id., Ex. A (Tr. 279:6-13).

Volkswagen and Audi, despite their expressed reservations, agreed to Wackerli's assuming the dealer agreements and to a temporary relocation to the used car store. In exchange for Volkswagen and Audi's agreeing to the temporary relocation and Wackerli's assumption of the dealer agreements, Wackerli agreed to construct a new "Dual-Branded" dealership facility for Volkswagen and Audi that would meet both brands' facility standards. Id., Ex. D at 1, E-1, F-1; see also id., Ex. A (Tr. 58:2-59:7, 279:6-281:9). This agreement allowed Wackerli to avoid breaching its settlement with Subaru.

On April 28, 2010, the parties executed a Settlement Agreement outlining these terms. Id., Ex. D at 2, ¶ 5. The Settlement Agreement included a provision underscoring the temporary nature of the relocation to the used car premises: "in no event shall debtor be permitted to carry out Volkswagen or Audi operations at the Temporary Sales Facility or the Temporary Service Facility after March 31, 2012." Wackerli also agreed that failing to complete its new Volkswagen and Audi facility by March 31, 2012 would be good cause for termination. Id.

After signing the settlement agreement with Volkswagen and Audi, Wackerli made no meaningful progress on the new facility because it was focused on completing renovations for the Subaru facility. Wackerli then stopped work on its facility project in the fall of 2010 because, as Steven Wackerli testified in an affidavit filed in bankruptcy court in May 2011, Wackerli believed that its vehicle inventory "was [in]sufficient to support the ongoing expenses associated with the new facility development and construction." Id. at Ex. J, ¶ 15. Wackerli eventually re-engaged the facility construction process, but by that time it was too late to complete construction by March 31, 2012, as promised. In fact, Wackerli had only completed the preliminary design phase by January 2012. See id., Ex. A (Tr. 420:22-422:14). When it became clear Wackerli would not complete construction of the facility by March 2012, VW and Audi notified Wackerli that they were going to terminate the franchise. Id., Exs. K, L.

2. Administrative Proceedings

On February 2, 2012 Wackerli filed protest actions with Idaho Transportation Department, contesting Audi and Volkswagen's decision to terminate the dealer franchise agreements. Pursuant to Idaho Code § 49-1617(3), Volkswagen and Audi's response papers triggered the Transportation Department's statutory obligation to decide Wackerli's protest actions within 120 days, or by July 5, 2012.

A. Preliminary Orders

The Department assigned the protest actions to Hearing Officer Stephen Bywater, who conducted a two-day hearing on April 25-26, 2012, and issued Preliminary Orders finding in favor of Volkswagen and Audi on June 8, 2012. Volkswagen and Audi point to several findings and conclusions contained in the Preliminary Orders, which they deem as important to these proceedings: x "By January 2012 it was not possible for Wackerli to finish its facility project by March 31, 2012. Wackerli had therefor breached its facility commitment." Id., Exs. M & N at FOF 32 (record cite omitted); x "Wackerli's agreement that good cause would exist in the event of a breach of its facility commitment constituted a material part of the consideration that VWoA and AoA*fn1 bargained for in negotiating the Settlement Agreement." Id., Exs. M & N at COL 9; x "Under Idaho law, courts (and thus executive branch agencies acting in a quasi-judicial role) are not permitted to read bargained-for consideration out of an agreement." Id., Exs. M & N at COL 9; x "[VWoA and AoA] ha[ve] met [their] burden of establishing good cause.for the termination of the dealer franchise agreement with Wackerli based upon Wackerli's failure to comply with a provision of the franchise agreement which is both reasonable and of material significance to the franchise agreement relationship." Id., Exs. M & N at COL 12; x "The evidence does not support a finding of lack of good faith on the part of VWoA or AoA in the vehicle allocation procedures and policies they followed after the execution of the Settlement Agreement." Id., Exs. M & N at COL 19; x "[N]or does the evidence support a finding that VWoA or AoA's vehicle allocation policies in performance of the Settlement Agreement inhibited or rendered impractical or impossible the performance of the Settlement Agreement by Wackerli." Id., Exs. M & N at COL 19; x "The evidence does not support a finding of lack of good faith on the part of VWoA or AoA in their dealings with Wackerli regarding the design or construction of the new dual-branded dealership facility after Wackerli restarted the process in August of 201." Id., Exs. M & N at COL 20. x "[N]or does it support a finding that VWoA or AoA's actions or requirements in the facility design or construction approval process inhibited or rendered impractical or impossible the performance of the Settlement Agreement by Wackerli." Id., Exs. M & N at COL 20

B. Review of Preliminary Orders

On Friday, June 29, 2012, Wackerli petitioned the Director of ITD for review of the Preliminary Orders. See id., Ex. R. Wackerli's petition for review was less than two pages in length and requested "that the Director review the Hearing Officer's conclusions of law, including, but not limited to, Conclusions of Law 17, 18, and 19."

Id., Ex. R at 2. Wackerli also requested that the Director review the portions of the Hearing Officer's Decision on Reconsideration addressing Wackerli's burden of proof on certain disputed issues. Id.

On June 25, 2012, the Hearing Officer issued a decision denying Wackerli's petition to reconsider. On July 13, 2012, after Wackerli had filed and the Department had granted an emergency motion to stay termination of the dealer agreements, the Director of the Transportation issued an Order of Dismissal and Dissolution of Stay. The Director adopted the Preliminary Orders as the final order of the Department.

3. This Action

On July 12, 2012, the same day Wackerli filed the emergency motion to stay and the day before the Department issued its final order, Wackerli filed this case in state court, alleging breach of the dealer franchise agreement and seeking to enjoin Audi and Volkswagen's termination of the franchise agreement. In the original complaint, Wackerli (1) sought a preliminary injunction prohibiting termination of the dealer agreements until the Transportation Department issued a final order in the administrative proceedings, and (2) asserted a claim for breach of the settlement agreement, seeking damages for Volkswagen and Audi's alleged ...


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