Ark. dealer sues VW of America, says VW store 20 miles away infringes on turf

Crain Volkswagen of Fayetteville in Arkansas has filed a lawsuit against Volkswagen Group of America, alleging that the licensing of a nearby VW dealership violates its franchise agreement and infringes on Crain VW's retail territory.

The suit was filed in the circuit court of Pulaski, Ark., in December and named VW of America as the defendant. Crain VW claims to have the right, under its franchise agreement with VW of America and state law, to solely serve Washington and Benton counties in northwest Arkansas.

The licensing of Everett Volkswagen in Rogers, Ark., which is 20 miles away, encroaches upon its territory and violates the "good faith" agreement to "act in a fair and equitable manner toward each other" established by a franchise contract, the lawsuit alleges.

Click here for a map of the dealership locations.

The suit also alleges that VW of America has been unable to achieve "the industry standard of 600,000 units per year to support its existing dealer network" and as a result would likely not be adequately able to support and supply both dealerships, a failure the complaint claims would be in violation of state franchise law.

Crain VW is suing VW of America for breach of contract, violation of state dealership protection law and breach of common law duty.

VW of America "is violating its contractual, common law and statutory duty of good faith and fair dealing with its dealership," the suit says. The automaker "does not have adequate market penetration in the United States in order to support any additional dealerships."

In the suit, Crain VW outlines the investments it and its affiliates put into the current facilities, which moved from Springdale, Ark., in 2017. The investment, the suit claims, was undertaken in consideration of "forecasts for future economic and market conditions and dealer's retail territory" — language cited directly from Crain VW's dealer agreement with VW of America.

Crain VW alleges $5 million in damages for each count and asks the court to prohibit VW of America from distributing inventory to Everett VW.

VW of America responded to the filing of the suit with a motion to dismiss the complaint. In a memo written in support of this motion, representatives of VW of America document that Everett VW was established in May 2021 and legally obtained a licensing agreement with the Arkansas Motor Vehicle Commission. The memo alleges that this took place despite objections to the commission from Crain VW.

VW of America wants the complaint dismissed on the basis that it misleads the court by suggesting that Everett VW has not yet been established and because it is the jurisdiction of the commission to make decisions on these matters.

Crain VW's "claims in this case represent a blatant attempt to avoid the established and exclusive procedures and remedies provided in the Arkansas Motor Vehicle Commission Act," VW of America's representatives argue in the memo.

In the original complaint, Crain VW alleges that VW of America failed to properly file the dealership agreement and to identify the "licensed location" with the commission.

As a final point, the memo argues that under its franchise agreement with Everett VW and state law, VW of America is legally obligated to provide inventory to the dealership, which the complaint seeks to halt. As the complaint fails "to state a claim upon which relief can be granted," it should be dismissed, the memo argues.

A spokesperson for VW of America wrote in an email that the company does not comment on pending litigation. Everett VW, owned by Everett Automotive Group, declined to comment.

Crain VW did not immediately respond to requests for comment.

Crain Imports of Fayetteville ranks No. 113 on the Automotive News list of the top 150 dealership groups based in the U.S., with retail sales of 8,758 new vehicles in 2022.

Crain Imports has no affiliation with Crain Communications, publisher of Automotive News.