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In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation

United States District Court, N.D. California

March 30, 2018

IN RE VOLKSWAGEN “CLEAN DIESEL” MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION This Order Relates To: Dkt. No. 4048 Napleton
v.
Volkswagen Group of America, Inc. Case No. 16-02086

          ORDER RE: VOLKSWAGEN GROUP OF AMERICA'S MOTION TO ENFORCE THE VOLKSWAGEN BRANDED FRANCHISE DEALER CLASS ACTION SETTLEMENT AGREEMENT

          CHARLES R. BREYER United States District Judge

         After learning that Volkswagen had installed a defeat device in its TDI “clean diesel” vehicles to cheat on emissions tests, a group of Volkswagen-branded franchise dealers filed a class action against Volkswagen Group of America, Inc. (“VWGoA”) in this Court. The franchise dealers and VWGoA subsequently agreed to the terms a settlement, which this Court approved. (Dkt. No. 2807 (final approval order); Dkt. No. 1970 (settlement agreement).) In the settlement agreement, class members and other “Releasing Parties” agreed to a broad release of claims against VWGoA. The release covers not only “all claims related in any way to the TDI matter, ” but also “all claims for monetary damages arising before the Effective Date of this Franchise Dealer Class Agreement that relate in any way to allocation complaints or irregularities.” (Dkt. No. 1970 § 9.3.)

         In a pending motion, VWGoA asks the Court to enforce the settlement agreement by enjoining what it characterizes as three allocation-related claims and one TDI-related claim. Each of these claims has been filed in New Jersey state court by either a class member or certain parties related to that class member. For the reasons that follow, the Court grants the motion with respect to the TDI-related claim, but denies the motion with respect to the three allocation-related claims.

         BACKGROUND

         I. The State Court Complaints

         Altomare Auto Group LLC (“AAG”) opened the Volkswagen Union Dealership in Union, New Jersey in 2010 and is a member of the franchise dealer settlement class. In a civil action pending in New Jersey state court, AAG alleges that its former owner, Mr. Altomare, was fraudulently induced to open the dealership by VWGoA. VWGoA allegedly did so by, among other things, promising Mr. Altomare that it would provide the Union Dealership with a mix and quantity of new-vehicle inventory that was sufficient for the dealership to operate successfully, but then providing the dealership with only 40 new vehicles when it opened-far below the number of vehicles that VWGoA supplied to similar dealerships-and supplementing this initial inventory with an unpopular and slow-selling model. (See Dkt. No. 4048-3, Hogberg Decl., Ex. B, AAG Am. Compl. ¶¶ 1, 31-32, 39-44.) AAG also alleges that VWGoA breached the parties' franchise agreement by failing to provide the Union Dealership with the level of inventory it needed to operate successfully. (See Id. ¶¶ 176-78.)

         Mr. Altomare and two other entities owned by him-Altomare 22 Union LLC and Altomare Realty LLC-have joined AAG's New Jersey action by way of an intervenor complaint. As alleged, Altomare 22 owned the property and improvements that comprised the premises of the Union Dealership and leased those premises to AAG; Altomare Realty loaned approximately $700, 000 to Altomare 22 so that Altomare 22 could purchase and make improvements to the Union Dealership premises; and Mr. Altomare loaned approximately $1.1 million to AAG to support the Union Dealership's operations. (See Dkt. No. 4048-4, Hogberg Decl., Ex. C, Intervenor Pls.' Compl. ¶¶ 2, 4, 83-87, 91.) The Court refers to these three intervenors collectively as the “Intervenor Plaintiffs.”

         Mirroring AAG's complaint, the Intervenor Plaintiffs allege that VWGoA fraudulently induced them to financially support the Union Dealership by promising to provide the dealership with sufficient vehicle inventory to support profitable operations. When VWGoA failed to honor that promise, the Intervenor Plaintiffs contend that their property and investments declined in value and their loans could not be repaid. (See Id. ¶¶ 26-29, 123-129.)

         The Intervenor Plaintiffs also bring a separate fraud claim in which they allege that VWGoA made various fraudulent misrepresentations to them about the emissions levels of its “clean diesel” vehicles. (See Id. ¶¶ 74, 131.) They assert that VWGoA promised them that these vehicles were environmentally friendly, which led them to make “significant loans and investments” in the Union Dealership. (Id. ¶ 74.) When it came to light that Volkswagen had equipped these vehicles with a defeat device, and that the vehicles emitted pollutants at a level that exceeded regulatory limits, the Intervenor Plaintiffs allege that the Union Dealership was unable to sell these vehicles and that the their property and investments declined in value and their loans could not be repaid. (Id. ¶¶ 77-82.)

         II. The Volkswagen-Branded Franchise Dealers' Class Action

         A. The Complaint

         After learning in the fall of 2015 about Volkswagen's emissions fraud, a group of Volkswagen-branded franchise dealers filed a class action against VWGoA and other defendants in this Court. One hundred and ninety two paragraphs in the franchise dealers' complaint detail the “clean diesel” emissions fraud. (See Dkt. No. 1969, FD FAC ¶¶ 45-236.) Eleven paragraphs instead relate to what the named plaintiffs alleged was an independently actionable fraudulent scheme by VWGoA to establish tiered pricing and manipulate “DSI Sales Metrics, ” which had an effect on the franchise dealers' sales, margins, and vehicle allocation. (See Id. ¶¶ 251-61.)

         With respect to this separate fraudulent scheme, the named plaintiffs alleged that each VW-branded franchise dealer was assigned a Primary Area of Influence (“PAI”), and that each franchise dealer's success was based on sales penetration within the PAI. (Id. ¶ 252.) The named plaintiffs alleged that VWGoA wrongfully manipulated the size of these PAIs by disproportionately decreasing the size of certain franchise dealers' PAIs. (Id. ¶¶ 253-61.) This enabled dealers with smaller PAIs to “operate on an unlevel playing field, getting preferential allocations and more desirable vehicle inventory due to the fact that they [were] more easily able to achieve their performance objectives.” (Id. ¶ 259.)

         B. The Settlement

         In or around September 2016, the franchise dealers, VWGoA, and other defendants agreed to the terms of a settlement. (Dkt. No. 1970, amended by Dkt. No. 2802.) As part of the settlement, Volkswagen agreed to make payments to each franchise dealer that did not opt out of the settlement, and each of these franchise dealers and other “Releasing Parties” agreed to release certain claims against VWGoA and the other defendants. The definitions of Released Claims and Releasing Parties are found in Section 9.3 of the agreement.

9.3. Dealer Settlement Class Members, for and on behalf of themselves and their agents, heirs, executors, and administrators, successors, assigns, insurers, attorneys, representatives, shareholders, owners, owner associations, and any other legal or natural persons who may claim by, through, or under them (the “Releasing Parties”) hereby fully and completely release, acquit, acknowledge as satisfied, and forever discharge the Released Parties, of and from the following claims (the “Released Claims”): (1) all claims related in any way to the TDI Matter; . . . [and] (3) all claims for monetary damages arising before the Effective Date of this Franchise Dealer Class Agreement that relate in any way to allocation complaints or irregularities . . . .

(Dkt. No. 1970 § 9.3.)

         In January 2017, this Court approved the settlement agreement. (Dkt. No. 2807.) In the Court's final approval order, it ordered that “Class Members who have not properly opted out and any person purportedly acting on behalf of any Class Member(s) are ENJOINED from commencing, filing, initiating, instituting, pursuing, maintaining, enforcing or prosecuting, either directly or indirectly, any Released Claims . . . .” (Dkt. No. 2807 at 26 ¶ 5.)

         III. Litigation in the New Jersey State Court

         When AAG and the Intervenor Plaintiffs filed their vehicle inventory and emissions fraud claims in New Jersey state court, respectively by way of a motion to amend an earlier complaint and by way of a motion to intervene, VWGoA objected.[1] In briefs opposing the motions to amend and to intervene, VWGoA argued that the vehicle inventory and emissions fraud claims were released by the franchise dealers' settlement agreement. (See Dkt. No. 4283-1, Danhi Decl., Ex. O; Dkt. No. 4294-1, Stone Decl., Ex. C.) In September 2017, the New Jersey state court granted AAG's motion for leave to amend and the Intervenor Plaintiffs' motion to intervene. With respect to AAG's motion, the New Jersey court reasoned that:

Motions for leave to amend are required by rule to be liberally granted and without consideration for the ultimate merits of the amendment. Plaintiff's claims do not appear to have been released by the Volkswagen Branded Dealer Class Action Settlement. Plaintiff is hereby granted leave to file its amended complaint.

(Dkt. No. 4048-5 at 3, Hogberg Decl., Ex. D at 2.)

         With respect to the Intervenor Plaintiffs' motion, the New Jersey court concluded that the allegations were “factually intertwined” with those in AAG's complaint, and that permissive intervention and intervention as of right were appropriate under New Jersey law. (Dkt. No. 4048-6 at 3, Hogberg Decl., Ex. E at 2.) The New Jersey court also reasoned that the ...


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