On the Dash:
- A federal judge rejected Volkswagen and Scout Motors’ latest attempts to end the California New Car Dealers Association’s lawsuit challenging direct vehicle sales.
- The ruling upholds the court’s interpretation of California law that prohibits manufacturers from competing with their franchised dealers, including through affiliates.
- The lawsuit continues alongside protests filed by 14 California Volkswagen dealers, with potential implications for how automakers structure direct-sales models in the state.
On October 22, Chief Judge Cynthia Bashant of the U.S. District Court for the Southern District of California denied motions for judgment on the pleadings that Volkswagen Group of America and Scout Motors filed in June, allowing the California New Car Dealers Association (CNCDA) to continue its claims against both companies through discovery.
The court found that the companies asked it to revisit issues it had already addressed, including its interpretation of California Vehicle Code Section 11713.3 and the validity of CNCDA’s claims under the Unfair Competition Law. The judge found no new authority, evidence, or clear error to justify reconsidering those earlier rulings.
The court also reaffirmed its reading of the phrase “indirectly through an affiliate,” which anchors CNCDA’s argument that Volkswagen cannot use a subsidiary to carry out sales activities the law bars the manufacturer from conducting directly. The order follows the court’s March 30 decision denying the companies’ motions to dismiss CNCDA’s core claims, and CNCDA Chief Legal Officer Anthony Bento said the court has now rejected the companies’ arguments twice and the case will continue through discovery.
CNCDA’s lawsuit seeks to enforce Assembly Bill 473, a 2023 law the association sponsored that bars manufacturers from competing with their own franchised dealers, and it challenges Volkswagen and Scout’s plan to sell Scout vehicles directly to California consumers. The association contends that the affiliate structure doesn’t exempt the companies from California’s restrictions on manufacturer competition with franchised dealers.
Dealer protests add to the challenge
The lawsuit is moving forward alongside protests filed by 14 Volkswagen dealers in California with the state’s New Motor Vehicle Board, which CNCDA announced May 1. CNCDA President Brian Maas said the association is challenging California law, noting in the association’s media release, “There are nearly 650 franchised dealer owners in California, and every one of them has a stake in whether manufacturers can compete against their own business partners. Dealers will continue to fight for their right to offer all models to their customers.”
The latest order addresses the companies’ procedural attempt to end the case early rather than a final judgment on the underlying claims, so CNCDA’s claims remain active as discovery proceeds, and the litigation will continue to test how California’s restrictions on manufacturer sales apply to Volkswagen’s relationship with Scout Motors and its proposed direct sales model.
