Opinion
No. 602591–14.
09-21-2015
LUXURY AUTOS OF HUNTINGTON, INC. d/b/a Audi of Huntington, Plaintiff, v. VOLKSWAGEN GROUP OF AMERICA, INC. d/b/a Audi of America, Inc. and Biener Auto Group, Inc., Defendants.
Russel P. McRory, Esq., James M. Westerlind, Esq., Mark A. Bloom, Esq., Lee Andrew Pepper, Esq., New York, Arent Fox, LLP, Attorneys for Plaintiff (Luxury Auto). Peter J. Mastaglio, Esq., Thomas Baylis, Esq., Garden City, Cullen and Dykman, LLP, Attorneys for Defendant (Volkswagon). Jon A. Ward, Esq., Andrew Michael Roth, Esq., Uniondale, Sahn Ward Coschignano & Baker, PLLC, Attorneys for Defendant (Beiner Audi).
Russel P. McRory, Esq., James M. Westerlind, Esq., Mark A. Bloom, Esq., Lee Andrew Pepper, Esq., New York, Arent Fox, LLP, Attorneys for Plaintiff (Luxury Auto).
Peter J. Mastaglio, Esq., Thomas Baylis, Esq., Garden City, Cullen and Dykman, LLP, Attorneys for Defendant (Volkswagon).
Jon A. Ward, Esq., Andrew Michael Roth, Esq., Uniondale, Sahn Ward Coschignano & Baker, PLLC, Attorneys for Defendant (Beiner Audi).
VITO M. DESTEFANO, J.
The following papers and the attachments and exhibits thereto have been read on this motion:
| Notice of Motion | 1 |
| Memorandum of Law in Support | 2 |
| Affirmation in Support (McRory) | 3 |
| Affidavit in Support (Burns) | 4 |
| Memorandum of Law in Opposition | 5 |
| Affidavit in Opposition (Weinstock) | 6 |
| Affirmation in Opposition (Ward) | 7 |
| Memorandum of Law in Opposition | 8 |
| Affidavit in Opposition (Vogler) | 9 |
| Affidavit in Opposition (Del Rosso) | 10 |
| Affidavit in Opposition (Stolle) | 11 |
| Affidavit in Opposition (Meyer) | 12 |
| Affidavit in Opposition (Tolerico) | 13 |
| Memorandum of Law in Reply | 14 |
| Affirmation in Reply | 15 |
Luxury Autos of Huntington, Inc. d/b/a Audi of Huntington ("Huntington") moves for an order pursuant to CPLR 6301 preliminarily enjoining Defendants Volkswagen Group of America, Inc. d/b/a Audi of America, Inc ("Audi") and Biener Auto Group, Inc. ("Biener") from entering into a dealer agreement and establishing an Audi dealership add-point in Westbury, New York until a final judgment has been entered in this action.
Factual Background
Since 1993, Huntington has operated an Audi dealership located on East Jericho Turnpike in Huntington Station, New York.
In March 2009, Audi and Huntington entered into a Dealer Agreement which incorporated the Audi Dealer Agreement Standard Provisions ("Standard Provisions"). The Standard Provisions expressly state that Audi does "not give Dealer any exclusive right to sell or service Authorized Products in any area or territory".
In February 2013, Audi and Huntington entered into an Audi Exclusive Facility Construction Agreement ("Facility Construction Agreement") pursuant to which Huntington agreed to "construct and/or substantially renovate an Exclusive Audi facility" in exchange for Huntington's receipt of "Exclusive Standards Bonus Payments" (incentives for dealers who are compliant with Audi's standards for exclusive facilities).
In a letter dated December 19, 2013, Audi advised Huntington that Biener (an Audi franchise in Great Neck, New York), with the approval of Audi, intended to establish a new Audi dealership at 1038 Brush Hollow Road in Westbury, New York (the "Westbury dealership"). The Westbury dealership is approximately ten miles from Huntington's dealership.
On July 1, 2014, Huntington commenced an action against Audi and Biener based upon the opening of the Westbury dealership. An amended complaint was filed and served on October 17, 2014 asserting the following five causes of action: breach of contract (the Dealer Agreement); breach of the implied covenant of good faith and fair dealing; tortious interference with contract; violation of Vehicle and Traffic Law ("VTL")§ 463(2)(ff)(3) ; and breach of contract and violation of the VTL 463(2)(jj).
The applicable sections of the VTL are also referred to herein as the "Dealer Act".
Huntington alleges in its fourth cause of action that the Westbury dealership would result in a reassignment of a portion of Huntington's market territory to the Westbury dealership; and that the opening of the Westbury dealership and the resulting reassignment of market territory violates VTL 463(2)(ff)(3) inasmuch as it "is not being undertaken in good faith, is not being undertaken by Audi for good cause, and would adversely and substantially alter the rights, obligations, investments and return on investments of Huntington" (Amended Complaint at ¶¶ 128–129). In the fifth cause of action, Huntington asserts that, pursuant to the Dealer Agreement, Audi is required to "fairly allocate new units of car inventory to Huntington"; that the Dealer Act prohibits a manufacturer from utilizing a discriminatory, unreasonable, arbitrary or unfair system of allocation of new motor vehicle inventory; and that Audi has breached the allocation provisions of the Dealer Agreement and Dealer Act by not allocating the proper number of additional new units of car inventory to Huntington as required (Amended Complaint at ¶¶ 132–137).
On November 25, 2014, Audi moved (Motion Sequence No. 5) for an order dismissing the first, second and fourth causes of action asserted in the amended complaint. On January 23, 2015, Biener moved (Motion Sequence No. 6) for an order dismissing the third cause of action asserted against it. In an order dated September 21, 2015, this court (DeStefano, J.) dismissed the fourth cause of action asserted in Huntington's amended complaint.
The fifth cause of action in the amended complaint has not been the subject of any motion practice to date.
The Court's Determination
On a motion for a preliminary injunction, the moving party must demonstrate by clear and convincing evidence, a likelihood of ultimate success on the merits, irreparable injury if the injunction were not granted, and a balancing of equities in favor of granting the injunction (Family–Friendly Media, Inc. v. Recorder Television Network, 74 AD3d 738 [2d Dept 2010] ). An injunction is a provisional remedy to maintain the status quo and prevent the dissipation of property that could render a judgment ineffectual, not to determine the ultimate rights of the parties. As such, absent extraordinary circumstances, a preliminary injunction will not issue where to do so would grant the movant the ultimate relief sought in the complaint (Reichman v. Reichman, 88 AD3d 680 [2d Dept 2011] ; SHS Baisley, LLC v. Res Land, Inc., 18 AD3d 727 [2d Dept 2005] ). In addition, mandatory preliminary injunctions should not be granted absent extraordinary or unique circumstances or where the final judgment may otherwise fail to afford complete relief (SHS Baisley, LLC v. Res Land, Inc., 18 AD3d at 727, supra ). The decision whether to grant or deny a preliminary injunction is within the sound discretion of the court (Family–Friendly Media, Inc. v. Recorder Television Network, 74 AD3d at 738, supra; Masjid Usman, Inc. v. Beech 140, LLC, 68 AD3d 942 [2d Dept 2009] ).
Likelihood of Success on the Merits
a. Breach of the Dealer Agreement
Huntington argues that it will likely succeed on its claim that Audi breached provisions of the Dealer Agreement, requiring that Audi "actively assist Dealer in all aspects of Dealer's Operations" and that Audi will "[a]void all discourteous, deceptive, misleading, unprofessional or unethical practices". Huntington relies on Legend Autorama, Ltd. v. Audi of America, Inc. (100 AD3d 714 [2d Dept 2012] ) ("Legend ") to support its argument that "Audi failed to comply with these provisions and also inexplicably departed from following its established practice of creating an add-point only as a drastic' remedy" (Memorandum of Law in Support at p 4). According to Huntington, Audi implemented the Westbury site "without any discussion with the existing dealers and without giving its existing dealers an opportunity to improve any perceived performance shortfalls or implement an action plan. In short, Audi's creation of the Westbury Add–Point without consulting with, or offering assistance to, Huntington or any of the other Long Island dealers, and by failing to follow internal procedures prior to establishing the Westbury Add–Point, breached the Dealer Agreement's Standard Provisions, Arts. 1(2) and 1(3)" (Memorandum of Law in Support at pp 8–9).
Huntington's reliance on Legend is unpersuasive. Although the Legend court denied the branch of Audi's motion seeking dismissal of plaintiffs' claim that Audi breached the Standard Provision in which it agreed to "actively assist Dealer in all aspects of Dealer's Operations through such means as Audi considers appropriate" (Id. at 716–717 ), the testimony before the court demonstrated that Audi did not follow its normal approach to underperformance issues-which was to discuss such issues with the existing dealers and then give time to implement action plans prior to opening a newly franchised dealership (Id. at 717 ).
In the case at bar, however, Audi submitted evidence that the basis for its adding a new dealership in Westbury had nothing to do with Huntington's deficient operations or underperformance but, rather, "everything to do with the fact that Audi is out-represented by its competition" in the Westbury area "where Mercedes and BMW dominate in physical presence and sales volume" (see Audi Memorandum of Law in Opposition at pp 15–16; Meyer Affidavit in Opposition at ¶ 11; Stolle Affidavit in Opposition).
Moreover, the court in Legend denied Audi's motion for summary judgment dismissing the breach of contract claim. This denial of summary judgment is not tantamount to establishing, by clear and convincing evidence, a likelihood of success on the merits of the claim.
b. Breach of the Implied Covenant of Good Faith and Fair Dealing
"Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance.... This embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract....' " (Lonner v. Simon Property Group, Inc., 57 AD3d 100, 108 [2d Dept 2008], quoting Dalton v. Educational Testing Serv., 87 N.Y.2d 384,389 [1995] ). Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion" (Dalton v. Educational Testing Serv., 87 N.Y.2d at 389, supra ). Thus, "even an explicitly discretionary contractual right may not be exercised in bad faith so as to frustrate the other party's right to benefit under the agreement" (Richbell Information Services. Inc v. Jupiter Partners, LP, 309 A.D.2d 288, 302 [1st Dept 2003] ). In other words, "even where one has an apparently unlimited right under a contract, that right may not be exercised solely for personal gain in such a way as to deprive the other party of the fruits of the contract" (Id.; 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 [2002] [covenant of good faith and fair dealing is breached when a party acts in a manner that deprives the other party of the right to receive benefits under their agreement] ). In order to establish a breach of the covenant of good faith and fair dealing, a plaintiff must prove facts tending to show that the defendant sought to prevent performance of the contract or to withhold its benefit from the plaintiff (Aventine Inv. Mgt., Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513 [2d Dept 1999] [internal citations omitted] [duty of good faith and fair dealing "is not without limits, and no obligation can be implied that would be inconsistent with other terms of the contractual relationship"] ).
In support of its motion, and with respect to the Facility Construction Agreement, Huntington argues that it relied on Audi's representation regarding its need for new facilities based on its market area, and that Huntington "acted pursuant to that understanding, and now is being stripped of the fruits of that promise by Audi's modification of Huntington's PAI" (Memorandum of Law in Support at pp 10–14).
The "PAI" is an Audi dealer's "primary area of influence".
In opposition to Huntington's motion, Audi argues, inter alia, that the implied covenant "only encompasses promises that a reasonable person would understand to be included in the agreement" and, because the parties entered into the Dealer Agreement and the Facility Construction Agreement after the enactment of VTL 463(2)(cc) -the relevant market area provision-Huntington could not reasonably believe that it had any implied contractual right to challenge a new dealership outside of its relevant market area of six miles.
Pursuant to VTL 463(2)(cc), "It shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract ... [t]o enter into a franchise establishing an additional new motor vehicle dealer or relocating an existing new motor vehicle dealer into the relevant market area [six miles] of an existing franchise motor vehicle dealer of the same line make unless the franchisor provides notice pursuant to the terms of this subdivision.
Initially, the court notes the express language of the Facility Construction Agreement wherein Huntington acknowledged that it and its "legal counsel have reviewed the laws applying to dealer/manufacturer relations" and, further, it agreed that its facility requirements as expressed in the Facility Construction Agreement are reasonable and necessary in view of the economic condition in Huntington's "relevant market area". In this vein, Huntington has failed to demonstrate, by clear and convincing evidence, that Audi breached the implied covenant of good faith and fair dealing associated with the Facility Construction Agreement by allowing the establishment of the Westbury dealership-outside Huntington's relevant market area.
With respect to the Dealer Agreement, Huntington argues that it "assume[d] the responsibility in Dealer's Area for the promotion and sale of Authorized [Audi] products and for the supply of Genuine Parts and customer service for Authorized Products". In furtherance of this provision, Huntington constructed sales and service facilities to serve its assigned market area and hired and trained sales and service personnel to serve the customers in its assigned market area, all at significant expense and effort, and that the creation of the Westbury dealership will reduce Huntington's market area and, as such, will frustrate, destroy, injure and deprive Huntington's right to receive the fruits of the Dealer Agreement and Huntington's investment in the dealership (Huntington Memorandum of Law in Support at pp 10–14; Burns Affidavit in Support at ¶¶ 8, 25).
Notwithstanding that in the Dealer Agreement Huntington assumed the responsibility in its area for the promotion and sale of authorized products, and for the supply of genuine parts and customer service for authorized products, the Dealer Agreement also expressly states that it "does not give [Huntington] any exclusive right to sell or service Authorized Products in any area or territory " (Standard Provisions article 2[1] ) [emphasis added] ). Such contractual language strongly undermines any conclusion that Huntington has demonstrated, with clear and convincing evidence, that the establishment of a new Audi dealership, outside Huntington's relevant market area but within Huntington's "area or territory" was a breach of the Dealer Agreement.
Audi further argues that it had contractual discretion to establish a new dealership and that its decision to establish the Westbury dealership was neither arbitrary nor irrational. In this regard, the affidavits submitted by Jeremy Meyer and Mark Del Rosso indicate that a new dealership in Westbury was warranted "in view of the representation gap in northern Nassau County, the growth of the Audi brand, and the need to serve customers through a dealer network structured to compete effectively with Audi's key competitors" (Audi Memorandum of Law in Opposition at pp 19–20).
However, in an affidavit submitted by Huntington, John Burns, the President of Huntington, stated the following:
Notwithstanding that Audi is already unable to supply Huntington with sufficient new vehicle inventory, Audi is nevertheless attempting to add another dealership right on Huntington's doorstep. Audi is acting without any legitimate business justification and in bad faith.
Audi never told the existing dealers that the Audi brand was underperforming in the Westbury area; Audi never offered the existing dealers the opportunity to implement any action plans to address any performance issues in their market area; nor did Audi offer any assistance to the existing dealers prior to informing them of its intention to establish the Westbury Add–Point. Again, Huntington was and is performing very well.
Audi does not have, nor can it show, a sales performance shortfall in the Westbury/Jericho area; rather, Audi's sales shortfalls are located in Queens and Brooklyn (Burns Affidavit in Support at ¶¶ 36, 39, 44).
In sum, according to Huntington, Audi failed to properly analyze the impact that the loss of high income customers would have on Huntington if Westbury opens, and "wrongfully concluded without any supporting analysis that a new dealership in Westbury would help the Audi brand ... despite Audi's inability to satisfy the existing needs of its dealers" (Huntington Reply Memorandum of Law at p 13).
While the "mere existence of an issue of fact will not itself be grounds for the denial of the motion" (Arcamone—Makinano v. Britton Prop., Inc., 83 AD3d 623, 625 [2d Dept 2011] ), where, as here, "central facts are in dispute, it is more difficult to ascertain whether the movant has shown likelihood of success on the merits" and, thus, where the "facts are in sharp dispute, a temporary injunction will not be granted" (County of Westchester v. United Waste New Rochelle, 32 AD3d 979 [2d Dept 2006] ; Pearlgreen Corp. v. Yau Chi Chu (8 AD3d 460 [2d Dept 2004] [given the sharply disputed issues of fact, plaintiff was not entitled to a preliminary injunction]; Blueberries Gourmet v. Aris Realty Corp., 255 A.D.2d 348 [2d Dept 1998] [in demonstrating its success on the merits, movant must show a "clear right to relief which is plain from the undisputed facts' "] ).
The court notes that the cases relied upon by Huntington to support a preliminary injunction are inapposite inasmuch as those cases involved motions to dismiss and analysis that turned on a more lenient standard than the clear and convincing standard relevant to a preliminary injunction motion (e.g., Legend Autorama, Ltd. v. Audi of America, Inc. (100 AD3d 714 [2d Dept 2012] ), Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A. (244 FRD 204 [SDNY 2007] ), Franklin Park Lincoln–Mercury, Inc. v. Ford Motor Co . (530 FedAppx 542 [6th Cir2013] ), Aston Martin Lagonda of North America, Inc. v. Lotus Motorsports, Inc. (2014 WL 1092864 [D. Mass 2014] ).
Irreparable Harm
Where the movant can be fully compensated by a monetary award, an injunction will not be granted because no irreparable harm will be sustained in the absence of injunctive relief (306 Rutledge, LLC v.. City of New York, 90 AD3d 1026 [2d Dept 2011] ).
Huntington argues that without the injunctive relief requested, it will "suffer a severe, if not fatal, impact to its business". According to Huntington, the Westbury dealership will "devastate Huntington's business and render its ongoing $5 million facilities expansion meaningless" because the Westbury location "is literally on the border of the market territories currently assigned to Huntington" inasmuch as 16 zip codes, including those of high income households, currently assigned to Huntington's PAI would be closer to the new Westbury location. "Huntington would be left with a lower allocation of vehicles; reduced sales of new and used Audi vehicles; reduced service of Audio vehicles; a departure of its most seasoned and productive employees; all resulting in a devastating loss of revenue that would likely put it out of business" and "obliterate Huntington's profitability" (Huntington Memorandum of Law in Support at pp 14–17).
In the Burns' affidavit, Huntington asserts that the opening of the Westbury dealership would: reduce Huntington's PAI and "render Huntington's investment for naught and substantially increase the likelihood that Huntington would be rendered economically unviable and go out of business"; "devastate Huntington" inasmuch as its "facility investment would be lost; it would lose precious allocation of new vehicle inventory; and it would lose high-income customers that bring the most profit to an Audi dealership's bottom line and make it economically viable". According to Burns, "Huntington would also be left without its most experienced employees; reduced sales of Audi vehicles; reduced service of Audi vehicles; and a devastating loss of revenue, at the very time that it is spending (and borrowing) millions of dollars to expand and renovate its facilities at Audi's insistence to serve market territory and satisfy capacity needs, the core of which would be transferred to Biener" (Burns Affidavit in Support at ¶¶ 50, 54, 60).
Notwithstanding Huntington's arguments and assertions, given that the new Westbury dealership does not have a completion date until 2017 and that the dealer agreement between Biener and Audi will not be executed until 2017, Huntington has failed to show that irreparable injury will result if the injunction were not granted as it has not shown that its injury, if any, is definite and imminent (Golden v. Steam Heat, Inc., 216 A.D.2d 440 [2d Dept 1995] ).
According to Biener, construction of the facility in Westbury has not even begun and, further, construction of the facility has an estimated completion date of 2017. "Simultaneous with Biener's completion of construction of the new dealership facility in 2017, Biener anticipates entering into a dealer agreement with [Audi] pursuant to which [Audi] will authorize Biener to sell and service new and used Audi vehicles from the facility" (Weinstock Affidavit in Opposition at ¶¶ 72–73).
For an injury to be irreparable and justify the grant of a preliminary injunction, it must at least be threatened and imminent. The irreparable injury required generally means harm that is immediate, specific, nonspeculative and nonconclusory. That is, the conduct sought to be enjoined must be either in progress or threatened and fairly certain to occur, so that actual danger is presently apparent, and not merely a matter of speculation, surmise, or apprehension. A preliminary injunction will issue only upon a showing that the defendant's wrongful acts are occurring or are threatened and reasonably likely to occur (67A NYJur 2d Injunctions § 19 ).
In this regard, the court notes that in 2007 a new Audi dealership was created in West Islip, which bordered Huntington's market area and was located approximately nine miles away from the Huntington dealership. As such, portions of Huntington's market area were reassigned to the West Islip dealership (Legend Autorama, Ltd. v. Audi of America, Inc., 32 Misc.3d 1216(A) [Sup Ct Suffolk County 2011] ). Notwithstanding Huntington's decreased PAI and loss of some market area to the West Islip dealership, Huntington has nevertheless exceeded Audi's sales expectations, continued to realize high net profits, and continues to have one of Audi's best turn rates in the area (Exs. "S" and "T" to Reply Affirmation in Support). Huntington's President stated as much in his affidavit, "consistently month after month, Huntington has one of the highest turn rates among all of the Audi dealers in the metro New York area. Thus, Huntington has historically sold new Audi vehicles faster than other Audi dealers in the area" (Burns Affidavit in Support at ¶ 3).
In 2007, at the time of the opening of the West Islip dealership, Huntington realized approximately $650,000 in net profits. By 2014, Huntington showed a net profit of approximately 1 .6 million (Audi Memorandum of Law in Opposition at p 10). In this regard, Audi submits the report of Mark D. Schmitz, PH.D., President of MDS & Associates of Park City, Utah, who specializes in valuation and financial analysis of automobile, truck, boat and motorcycle dealerships. In his preliminary expert report, Schmitz stated:
Roesner [Huntington's market expert] assumes that, instead of creating incremental sales for the Audi brand (i.e., increasing market share), the addition of a dealership in Westbury will have the effect of taking away sales for those customers closer to the new dealership on a one-for-one basis. In effect, Roesner assumes that the market is a proverbial fixed pie, i.e.,—Audi will sell X vehicles on Long Island with or without Westbury. Therefore, a new dealership will not increase Audi new vehicle market share or increase any type of Audi sales in the market. The new dealership is simply assumed to take sales away from existing Audi dealerships including dealerships outside of Long Island. This assumption is highly unrealistic and based on information presented in the Preliminary Report of Sharif Farhat, contrary to experience with other dealership establishments (Schmitz Preliminary Expert Report annexed to Vogler Affidavit in Opposition).
Balance of Equities
When considering the equities, the court must weigh the harm each side will suffer in the absence or in the face of injunctive relief (Washington Deluxe Bus, Inc. v. Sharmash Bus Corp., 47 AD3d 806 [2d Dept 2008] ). Specifically, to obtain an injunction, the movant is required to show that irreparable injury to be sustained is more burdensome to him than the harm that would be caused to the party opposing the injunction if the injunction were granted (Lombard v. Station Square Inn Apartments Corp., 94 AD3d 717 [2d Dept 2012] ).
In support of its motion, Huntington argues that it is only seeking to maintain the status quo. While Huntington is a successful business in the process of reconstructing its facility, the Westbury dealership does not yet exist and, "unlike Huntington, neither Audi nor Biener face the prospect of going belly-up if an injunction is not issued" (Memorandum of Law in Support at pp 18–19).
In opposition, Biener argues that because Huntington delayed in seeking injunctive relief, Biener has changed its position and expended significant monies to establish the Westbury dealership. A preliminary injunction will enjoin construction and delay the opening of the Westbury dealership. This delay in Biener's plans will cost Biener "millions of dollars in additional, unnecessary expenses, as well as lost business opportunities and revenue" (Biener Memorandum of Law in Opposition at pp 16–20). On these facts, Biener has demonstrated that the harm to it is greater if the injunction were granted than the harm, if any, flowing to Huntington if the injunction were not granted.
Audi also argues that the delay in opening the Westbury dealership will harm Audi, Biener, and the general public far more than it benefits Huntington (Audi Memorandum of Law in Opposition at p 22).
Conclusion
Based on the foregoing, it is hereby
Ordered that the motion of the Plaintiff for an order pursuant to CPLR 6301 is denied.
This constitutes the decision and order of the court.