Volkswagen of America, Inc. v. GPB Capital Holdings, LLC

Background

Volkswagen of America, referred to as VWoA in the opinion, authorizes dealerships to sell its vehicles under franchise agreements. Those agreements require VWoA’s approval for certain events, including ownership changes. After disputes involving GPB-related entities’ investments in Volkswagen dealerships, VWoA and GPB entered into a Business Relationship and Settlement Agreement, referred to as the BRA, in October 2017. The BRA was amended in 2018.

The BRA required certain managers and operators to remain in place, prohibited GPB Group and its owners from exercising operational control over the dealerships, and gave VWoA review and approval rights over certain ownership or voting-rights changes. Under Paragraph 12, VWoA could require GPB Group either to transfer dealership interests to bona fide transferees or to cause associated dealership agreements to be voluntarily terminated.

After GPB replaced an approved manager and removed three people from the board of Automile Holdings, LLC, VWoA notified GPB that it was invoking the BRA’s transfer provision. GPB did not transfer the interests. The dealerships—Prime in Maine, Caprara in New York, and Norwood in Massachusetts—then filed an arbitration demand against VWoA, arguing that the BRA violated state franchise laws. VWoA filed this action seeking declaratory relief, specific performance of the BRA, enforcement of its rights, termination of the dealership agreements, dismissal of the arbitration proceeding, and attorneys’ fees.

Motion to Dismiss for Failure to State a Claim

GPB moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally plausible claim. The court accepted the complaint’s factual allegations as true for purposes of the motion and denied this part of GPB’s motion.

The court first held that the BRA was ambiguous about whether the contested dealerships were parties to the agreement. The agreement defined the “Parties” as VWoA and GPB, but also stated that GPB and its automotive subsidiaries and affiliates entered into the BRA. Other provisions imposed obligations on “GPB Group,” a term that included GPB’s affiliates and subsidiaries, while still referring to the dealerships as separate entities. Because the agreement did not clearly identify which entities were bound, the court considered evidence outside the agreement and found that VWoA had plausibly alleged that the dealerships were covered by the BRA but were not parties to it.

The court also found the BRA ambiguous about whether Paragraph 12 covered Norwood, which was acquired after the BRA was signed and was not listed in the agreement’s exhibit. The court concluded that VWoA plausibly alleged that Paragraph 12 applied to all dealerships owned by GPB, including Norwood.

The court then addressed the state franchise laws. For Massachusetts, the court held that the Massachusetts motor vehicle franchise law did not govern the dispute because GPB conceded it was not a dealer under that law and the BRA was not an agreement between VWoA and a dealer. The court also held that VWoA’s demand that GPB require Norwood to terminate its franchise was not an unlawful indirect action because GPB was not affiliated with VWoA.

For New York, the court held that the cited law prohibited involuntary franchise termination without required protections but did not cover a voluntary termination contemplated by the BRA. The court also noted that the BRA was between VWoA and the dealers’ parent company, rather than between VWoA and the dealers themselves.

For Maine, the court likewise held that the state franchise law did not govern because the BRA was not an agreement between a distributor and a motor vehicle dealer. It further held that the Maine law did not cover the voluntary termination contemplated by the BRA.

Based on these conclusions, the court held that VWoA had plausibly alleged that the contested dealerships were not parties to the BRA and that the proposed termination was not governed by the cited state franchise laws. The court therefore DENIED GPB’s motion to dismiss for failure to state a claim.

Motion to Dismiss for Failure to Join Necessary Parties

GPB also moved under Rule 12(b)(7), which permits dismissal for failure to join a party required under Federal Rule of Civil Procedure 19. GPB argued that the contested dealerships were necessary because a judgment favoring VWoA could lead to termination of their franchise agreements without their participation.

The court held that the dealerships were not necessary parties. Although they had a strong interest in the case, VWoA was challenging the BRA—not the validity of the separate dealership agreements—and was not asking the court to set those agreements aside. Any effect on the dealerships would result from enforcement of the BRA against GPB, not from a direct adjudication of the dealership agreements.

The court also found that GPB could adequately represent the dealerships’ interests because their interests were aligned, including their shared interest in continuing and improving the dealerships’ businesses. The court therefore concluded that the dealerships were not necessary parties and did not decide whether they could be joined or were indispensable.

The court DENIED GPB’s motion to dismiss for failure to join a necessary party. In the conclusion, the court stated that Defendant’s motion to dismiss was DENIED and directed the Clerk to terminate the motion.