Volkswagen of America, Inc. v. Smit

667 S.E.2d 817, 52 Va. App. 751, 2008 Va. App. LEXIS 480
CourtCourt of Appeals of Virginia
DecidedOctober 28, 2008
Docket2961072
StatusPublished
Cited by2 cases

This text of 667 S.E.2d 817 (Volkswagen of America, Inc. v. Smit) is published on Counsel Stack Legal Research, covering Court of Appeals of Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Volkswagen of America, Inc. v. Smit, 667 S.E.2d 817, 52 Va. App. 751, 2008 Va. App. LEXIS 480 (Va. Ct. App. 2008).

Opinion

JEAN HARRISON CLEMENTS, Judge.

This appeal arises from an order of the Circuit Court of the City of Richmond (circuit court) affirming the decision by Demerst B. Smit, Commissioner of the Virginia Department of Motor Vehicles (commissioner), that, during the period October 1997 through March 1998, Volkswagen of America, Inc. (Volkswagen) violated Code § 46.2-1569(7) when it failed to ship any newly introduced Passats or New Beetles to Miller Auto Sales, Inc. (Miller). On appeal, Volkswagen contends the circuit court erred in affirming the commissioner’s decision because (1) the commissioner failed to perform the requisite analysis under Code § 46.2-1569(7), (2) the record contains no evidence to support the commissioner’s decision, (3) the commissioner failed to observe required procedures, (4) the statute violates the dormant Commerce Clause, and (5) the statute is unconstitutionally vague. For the reasons that follow, we affirm the circuit court’s affirmance of the commissioner’s decision.

I. BACKGROUND

Volkswagen, a New Jersey corporation, imports a fixed number of vehicles from its German parent corporation and distributes them to its approximately 600 dealers in the Unit *760 ed States, including its 17 dealers in Virginia. Miller is a Volkswagen dealer located in Winchester. In January 1998, Miller was the smallest dealer by volume in its assigned sales district. 1

In late 1997 and early 1998, Volkswagen began importing a number of new models of vehicles, including the 1998 Passat and the New Beetle, both of which were in short supply. 2 Volkswagen used a national allocation methodology to distribute those new models to its dealers. That methodology was based on a “mathematical algorithm” designed to distribute vehicles in short supply where they were most likely to be sold and where they were most needed because of low inventory. Volkswagen then adjusted the algorithm results for each dealer based on the dealer’s customer satisfaction survey scores. Dealers, like Miller, that generally failed to achieve a certain level of customer satisfaction scores had their algorithm results reduced and received fewer vehicles as a result. Volkswagen also permitted its “area executives,” who were responsible for allocating the new vehicles to the individual dealers, to modify the algorithm results in response to local market conditions. Additionally, Volkswagen utilized a “minimum stocking requirement,” which allowed the area executives to override the algorithm results to ensure that each dealer had at least one vehicle of every Volkswagen model in its inventory.

In February 1998, Miller sent a letter to Volkswagen, with a copy to the commissioner, complaining that Volkswagen’s allo *761 cation of vehicles to Miller violated Code § 46.2-1569(7). 3 Specifically, Miller asserted that “allocating Volkswagens based on Customer Satisfaction Index” was contrary to the statute. Miller also requested that Volkswagen give Miller “the number of new vehicles of each make, series, and model needed by the dealer to receive a percentage of total new vehicles production or importation currently being achieved nationally by each make, series, and model covered under the warranty.”

After a failed attempt by the parties at mediation, the hearing officer conducted an evidentiary hearing to determine whether Volkswagen failed to provide Miller with “an equitable number of vehicles in short supply.” Based on the evidence presented by the parties, the hearing officer found that Volkswagen’s vehicle allocation methodology in effect since October 1997 did not conform to the provisions of Code § 46.2-1569(7) because it unfairly penalized small-volume dealers like Miller. In reaching that decision, the hearing officer found that the algorithm Volkswagen used to allocate vehicles in short supply effectively prevented Miller from acquiring *762 such vehicles because it “truncated fractional allocations” and “did not accumulate ‘fractional vehicles.’ ” The hearing officer further found that the deficiencies in Volkswagen’s algorithm were compounded by Volkswagen’s use of customer satisfaction scores to adjust the algorithm results. That practice, the hearing officer found, inequitably punished Miller because “the restriction of allocations itself created a vicious cycle of lower [customer satisfaction] scores.” The hearing officer also found that Volkswagen’s “minimum stocking requirement” failed to overcome the inequities in the allocation methodology in this case, because it was applied only after Miller requested a hearing.

Adopting the hearing officer’s findings, the commissioner concluded that the allocation methodology utilized by Volkswagen since October 1997 violated Code § 46.2-1569(7).

Volkswagen appealed to the circuit court, arguing that the commissioner erred in basing his determination whether Volkswagen was in compliance with Code § 46.2-1569(7) on the allocation methodology used by Volkswagen rather than on the actual number of vehicles Miller received from Volkswagen [Volkswagen allocated to Miller] in relation to the number of vehicles Volkswagen imported nationally. Volkswagen also argued that Code § 46.2-1569(7) is unconstitutionally vague and violates the Commerce Clause of the United States Constitution. Rejecting Volkswagen’s arguments, the circuit court affirmed the commissioner’s decision that Volkswagen’s vehicle allocation methodology violated Code § 46.2-1569(7).

On appeal to this Court, we affirmed the circuit court’s judgment, holding that Code § 46.2-1569(7) was neither unconstitutionally vague nor in violation of the Commerce Clause and that the commissioner’s determination that Volkswagen’s vehicle allocation methodology violated Code § 46.2-1569(7) was consistent with the plain meaning of the statute and supported by the record. See Volkswagen of Am., Inc. v. Quillian, 39 Va.App. 35, 55, 62, 64-65, 69, 569 S.E.2d 744, 754, 757-58, 759, 761 (2002), reversed in part and vacated in part *763 sub nom. Volkswagen of Am., Inc. v. Smit, 266 Va. 444, 454, 587 S.E.2d 526, 582 (2003).

The Supreme Court of Virginia awarded Volkswagen an appeal and, by opinion dated October 31, 2003, reversed this Court’s judgment that the commissioner properly based his determination that Volkswagen violated Code § 46.2-1569(7) on Volkswagen’s vehicle allocation methodology rather than the specific number of vehicles Volkswagen allocated to Miller. Volkswagen, 266 Va. at 454, 587 S.E.2d at 532. The Court held that the “plain and unambiguous” language of Code § 46.2-1569(7)

required the [cjommissioner to consider the actual monthly shipments that Volkswagen made to Miller in relation to the number of new vehicles imported by Volkswagen on a national level in the particular vehicle categories covered under Miller’s franchise agreement.

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Related

Volkswagen of America, Inc. v. Smit
689 S.E.2d 679 (Supreme Court of Virginia, 2010)
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667 S.E.2d 817, 52 Va. App. 751, 2008 Va. App. LEXIS 480, Counsel Stack Legal Research, https://law.counselstack.com/opinion/volkswagen-of-america-inc-v-smit-vactapp-2008.