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Mathew Enterprise, Inc. v. Chrysler Group LLC

United States District Court, N.D. California, San Jose Division

July 11, 2014




Before the Court is Defendant Chrysler Group LLC's ("Defendant" or "Chrysler") Motion to Dismiss Plaintiff Mathew Enterprise, Inc.'s ("Plaintiff" or "Stevens Creek") Complaint. (ECF 23) Plaintiff, a franchise automobile dealer that sells cars manufactured by the Chrysler, Jeep, Dodge, and Ram ("CJDR") brands, brings the above-captioned suit against Defendant for violations of the Robinson-Patman Act, 15 U.S.C. § 13, alleging two forms of price discrimination: first, discrimination with regard to sales incentive programs employed by Chrysler, termed "volume growth" incentives, that reward franchise dealers who meet or exceed monthly sales objectives established by Chrysler; and second, "disguised price discounts" related to favorable rent terms offered to competing dealers but not offered to Plaintiff. In addition, Plaintiff alleges violations of California Vehicle Code 11713.3(a) with regard to Defendant's fulfilment of Plaintiff's vehicle orders, and breach of the common law implied covenant of good faith and fair dealing. Defendant moves to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6).

After reviewing the parties' briefing, oral argument, and the relevant case law, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion to Dismiss.


A. Procedural History

Plaintiff filed its Complaint on September 12, 2013, alleging four causes of action and seeking damages, including treble damages, and injunctive relief. (ECF 1) Defendant filed a Motion to Dismiss all counts under Rule 12(b)(6) on November 12, 2013. (ECF 23) Plaintiff responded on December 13, 2013. (ECF 32) Defendant replied on January 10, 2014. (ECF 33)

B. Factual Allegations of the Complaint

Plaintiff is a California corporation that sells new cars and trucks, including vehicles manufactured under the CJDR brands. (Compl., ECF 1 ¶¶ 1, 9) Plaintiff is a franchised CJDR dealer, and purchases new vehicles directly from Defendant, a Delaware corporation with its principal place of business in Michigan. (ECF ¶¶ 2, 11) Defendant sells at least some of these vehicles in interstate commerce to other franchise dealers throughout the United States, ( id. ¶ 10), including to, for purposes of this action, two other dealers located in Northern California. ( Id. ¶ 14)

Plaintiff's relationship with Defendant is fairly straightforward. Plaintiff purchases vehicles directly from Defendant, and pays Defendant an "invoice price" for each vehicle. (ECF 1 ¶ 17) This invoice price is the same price paid by other CJDR dealers. ( Id. ) However, Defendant provides its dealers with the opportunity to earn so-called "volume growth" incentives, which function as a subsidy that amounts to roughly $700 per vehicle sold by a qualifying dealer. ( Id. ¶¶ 18, 27, 33) A franchise dealer qualifies to receive volume growth incentives based on a sales objective established by Defendant. ( Id. ¶ 19) These objectives, as alleged by Plaintiff, are "based largely on that dealer's past sales history." ( Id. )

In December 2010, Defendant established a second CDJR dealer in the San Francisco Bay Area, California Superstores San Leandro CDJR ("San Leandro"), which Plaintiff describes as a "competing dealer." (ECF 1 ¶ 21) Plaintiff alleges that San Leandro draws its customers from the same geographic pool as Plaintiff. ( Id. ) Plaintiff alleges that its sales decreased upon the establishment of San Leandro, ( id. ¶¶ 22-23), and that Defendant failed to adjust its formula by which Plaintiff could qualify for volume growth incentives in recognition of this additional competitor in Plaintiff's market. ( Id. ¶¶ 23-25) Plaintiff's sales objectives continued to be based on its past year's sales without consideration of the reduction of sales expected due to the addition of San Leandro into its geographic market. ( Id. ¶¶ 22-23) This resulted in Plaintiff failing to qualify for volume growth incentives for four months, from December 2010 through March 2011. ( Id. ¶ 25) During the same time period, San Leandro was provided "much lower monthly objectives, " and thus met its sales objectives and received the subsidy. ( Id. ¶ 25)

Plaintiff alleges that it once again began to qualify for volume growth incentives in July 2011, after Defendant "adjusted Plaintiff's monthly objectives... to account for the addition of San Leandro CJDR to Plaintiff's market." (ECF 1 ¶ 27) Plaintiff claims that it qualified for volume growth incentives for every month between July 2011 and June 2012, excepting April 2012, following Defendant's readjustment of its sales objectives. ( Id. ) During this time period, Plaintiff received over $1.1 million in vehicle sales incentives. ( Id. ) However, in July 2012, a third CDJR franchise dealer was established in Plaintiff's geographic region, Fremont CDJR ("Fremont"), which Plaintiff alleges caused its sales to again "significantly decrease" due to Fremont's close proximity - roughly fourteen miles - to Plaintiff. ( Id. ¶¶ 29-30) Plaintiff alleges that Defendant again made no alterations to Plaintiff's monthly sales objectives to account for the additional regional competition, which caused Plaintiff to fail to qualify for vehicle growth incentives for twelve months, from July 2012 through June 2013. ( Id. ¶¶ 33-34) During that period, Plaintiff's sales and subsidies declined as compared to its sales and subsidies during the preceding year when it obtained the adjusted objectives. ( Id. ¶ 34) Plaintiff further details the effect of alleged unlawful conduct during the relevant time period (July 2012 to June 2013) as follows: During the twelve months preceding the relevant time period, when both Plaintiff and San Leandro received sales incentives, Plaintiff averaged 131 vehicle sales per month while San Leandro averaged 71. ( Id. ¶¶ 57-58) During the relevant time period, when Plaintiff no longer qualified for the incentive payments, its sales declined to 88 per month while San Leandro's increased to 93. ( Id. ¶¶ 57-59) In both periods for which Plaintiff failed to qualify for subsidies, Plaintiff alleges that the subsidies were "functionally unavailable" to it. ( Id. ¶¶ 25, 32)

In addition to its allegations with regard to volume growth incentives, Plaintiff further alleges that Defendant provided "disguised reductions in the net prices [of vehicles]" to San Leandro in the form of below-market rent subsidies, which were not also provided to Plaintiff. (ECF 1 ¶¶ 45-46) Plaintiff also claims that Defendant failed to provide it vehicles in "reasonable quantities... [of] the appropriate mix or models" necessary to hit its sales targets. ( Id. ¶¶ 81-82)

Based on these facts, Plaintiff asserts four causes of action: (1) violations of Section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), for price discrimination based on the provision of vehicle subsidies and below-market rental subsidies; (2) violations of Sections 2(d) and 2(e) of the Robinson-Patman Act for price discrimination; (3) violations of California Vehicle Code § 11713.3(a) for the willful failure to deliver Plaintiff vehicles in "reasonable quantities"; and (4) breach of the implied duty of good fair and fair dealing. Plaintiff seeks relief in the form of damages, including treble damages, injunctive relief, and reasonable attorneys' fees. (ECF 1 at 21)


A. Rule 12(b)(6)

Defendant brings its Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Such a motion tests the legal sufficiency of the claims alleged in a complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). Dismissal under Rule 12(b)(6) may be based either "on the lack of a cognizable legal theory or the absence of sufficient facts alleged." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988)

To survive a motion to dismiss, a complaint must plead sufficient "factual matter, accepted as true" to "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The emphasis is on factual pleadings, as a pleading that offers "labels and conclusions, " "a formulaic recitation of the elements of a cause of action, " or "naked assertions devoid of further factual enhancement" will not do. Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)).

In assessing the sufficiency of a plaintiff's pleadings, "the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). The plausibility standard "asks for more than a sheer possibility that a defendant has acted unlawfully, " and a complaint that pleads facts that are "merely consistent with" a defendant's liability "stops short of the line between possibility and plausibility." Iqbal, 556 U.S. 662, 678 (internal quotations omitted).

Under Rule 8(a)(2) of the Federal Rules, a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Any complaint that fails to meet this standard can be dismissed pursuant to Rule 12(b)(6) for "failure to state a claim upon which relief can be granted."

In the Ninth Circuit, when a Court is faced with "two alternative explanations" for a cause of action, "one advanced by defendant and the other advanced by plaintiff, both of which are plausible, plaintiff's complaint survives a motion to dismiss under Rule 12(b)(6)." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011) (emphasis added). It is not sufficient for a defendant to argue that its explanation of events is more likely than that proffered by plaintiff; rather, "[p]laintiff's complaint may be dismissed only when defendant's plausible alternative explanation is so convincing that plaintiff's explanation is im ...

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