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Dealer Group Files Class Action Lawsuit Against Volkswagen

April 7, 2016

CHICAGO — On Wednesday, Ed Napleton, president of the Napleton Auto Group, filed a class action lawsuit against Volkswagen in the U.S. District Court for the Northern District of Illinois on behalf of three of his Volkswagen dealerships. The lawsuit stated that the manufacturer intentionally defrauded dealers by installing “defeat devices” in its diesel cars.

In addition, the lawsuit further claims that Volkswagen separately carried out a systematic, illegal pricing and allocation scheme that favored some dealers over others and illegally channeled financing business to one of its affiliates, Volkswagen Credit Inc., according to Hagens Berman, a consumer-rights law firm.

“What is really discouraging and led me to file this lawsuit is that Volkswagen has wholly failed to respond to dealer concerns in a substantive manner. It has talked for months about multiple plans, but done nothing and left us dealers in the red, and in limbo,” Napleton said.

The suit also accuses Volkswagen of engaging in a criminal racketeering enterprise, violating federal law designed to protect car dealers from unfair practices by vehicle manufacturers, breaching state franchisee protection laws, and breaching its franchise dealer agreements.

The manufacturer’s deception, the suit charged, has resulted in a drop in the value of the Volkswagen brand. The damage the scandal has caused to the brand, as well as the cease of diesel-vehicle sales, has both negatively hurt dealer profits and the value of their franchises, the suit alleges.

“Plaintiffs and the Franchise Dealer Class have invested millions, collectively hundreds of millions of dollars in the Volkswagen brand,” the suit states. “But now the brand value has plummeted, sales of VW diesels have completely halted, and sales of all VW cars have plummeted.”

Additionally, the complaint states that Volkswagen “purposely and fraudulently induced its dealers to continue to invest in their dealership facilities and to otherwise benefit VW.” It also told dealers that it would replace stair-step programs it had abandoned with new programs with equal or greater financial benefit to dealers.

This move, the suit claims, “was calculated to quell poor publicity as well as dealer outrage at VGoA’s (Volkswagen Group of America) conduct and was otherwise calculated to fraudulently induce its dealers and prospective dealers to continue to invest in the Volkswagen brand.”

As a result, according to the complaint, franchised dealers built new showrooms and purchased new facilities and also heavily stocked their lots with CleanDiesel vehicles, based on the manufacturer’s false marketing.

“Franchise owners are now left with lots full of CleanDiesel vehicles they are unable to sell, and these cars have suffered tremendous loss of value and take up inventory space and carrying costs,” Steve Berman, managing partner of Hagens Berman added. “VW dealerships large and small have been at the mercy of an unethical corporation, much like the hundreds of thousands of owners across the country, and we believe it’s time to take a stand for their rights.

“In a sickening display of VW’s disregard for its dealer franchisees, Napleton Automotive of Urbana was purchased after VW admitted its fraud to regulators, just three days before the Dieselgate scandal made headlines. Yet Volkswagen withheld the truth and pushed the sale through, knowing well that Ed Napleton was purchasing a dealership that would almost immediately plummet in value,” Berman said.

According to the suit, Volkswagen’s U.S. affiliate in charge of its dealer network was aware of the emissions-cheating software since as early as 2014 but withheld information from current and prospective dealers. Volkswagen has admitted that during that time, it installed emissions cheating software in more than 550,000 U.S. diesel vehicles.

“For VW dealers  — many of which are small, family-owned franchises  — Dieselgate amounts to a classic ‘pump and dump’ operation, in which VW exploited the CleanDiesel eco-friendly market that it helped create, boosting the price of entry and continuation in the market for VW franchises,” Berman said. “All the while, VW withheld information about the impending Dieselgate fiasco, and left dealers to fend for themselves as the scandal unfolded.”

Napleton and his family have been in the automotive dealership business in the Chicago area for three generations. Today, the Napleton family operates more than 50 dealerships in five states.  

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