CHICAGO (CN) — Volkswagen Group of America, the stateside subsidiary of German auto giant Volkswagen, lost its year-and-a-half old lawsuit against the Illinois state government on Monday after a federal judge in Chicago decided it failed to properly state some of its claims and lacked standing to pursue others.
Volkswagen challenged the constitutionality of a 2022 amendment to Illinois' 1979 Motor Vehicle Franchise Act, known as the "Multiplier Act," meant to bolster the pay of Illinois auto mechanics working at independent car dealerships.
U.S. District Judge John Tharp Jr. found Volkswagen's constitutionality claims lacking in a 31-page-order.
Deflating Volkswagen's equal protection claim, he concluded newer electric vehicle manufacturers like Tesla, Lucid and Rivian are not bound by the Motor Vehicle Franchise Act or Multiplier Act amendment in the same way as the older company — in part because the younger businesses don't make use of a traditional network of franchise dealerships like Volkswagen has for decades.
"As far as the court can surmise, if the newer electric vehicle entrants elected to use independent dealer networks, then they would be subject to the same treatment about which Volkswagen complains," Tharp wrote.
The Motor Vehicle Franchise Act mandates a number of protections for privately-owned auto franchises in Illinois, allowing them to operate independently of the manufacturers whose vehicles they sell. It also prohibits most vehicle manufacturers from directly operating their own franchises.
This means independent dealerships often perform repairs and other services for customers. And as new and certified pre-owned Volkswagen vehicles come with manufacturer warranties, Volkswagen must reimburse the franchises for any work they do on a vehicle under warranty.
The Multiplier Act abolished a prior compensation scheme in which mechanics took home below-market pay for repair work covered by manufacturer warranty, and makes it so that in the absence of an agreement between a manufacturer and a dealership on how long a certain extended warranty repair job should take, the dealer can use the manufacturer's time estimate multiplied by 1.5.
"Time allowances for the diagnosis and performance of warranty work and service shall be no less than charged to retail customers for the same work to be performed," the amendment states.
But Volkswagen argued in its initial complaint from December 2022 that the change would result in it paying franchises for dead time.
"The amendment ... requires motor vehicle manufacturers to compensate dealers for time that the dealers never actually spend performing warranty work," Volkswagen argued. "It replaces the Motor Vehicle Franchise Act’s market-based guidelines for warranty compensation with an arbitrary and confiscatory rule: manufacturers must pay dealers for 50 percent more time than necessary to complete warranty repairs, whether or not they actually work any of that additional time."
The company lodged a slew of constitutional objections to the Multiplier Act, including for violation of its due process and equal protection rights under the Fifth and Fourteenth Amendments. It also claimed the Multiplier Act violated the Illinois constitution and alleged a possible breach of the First Amendment.
Volkswagen pointed out that several electric vehicle manufacturers like Tesla, Lucid and Rivian sell directly to Illinois customers, despite the Motor Vehicle Franchise Act's general prohibition on manufacturers operating their own franchises.
In December 2022, the Circuit Court of Cook County struck down another lawsuit against Lucid and Rivian by the Illinois Automobile Dealers Association over that issue, though the case remains pending on appeal.
The company argued those electric vehicle manufacturers were free from the same warranty obligations it faces under the Multiplier Act, in a seeming violation of equal protection law.
It also claimed the Multiplier Act robbed it of a property interest in its contracts with Illinois franchise owners without due process of law. Citing a portion of the Multiplier Act which bars manufacturers from "imposing any form of cost recovery fees or surcharges against a franchised auto dealership" for its increased warranty repair obligations, Volkswagen further argued that the law burdens its protected speech to consumers.
"If the [Multiplier Act] prohibits Volkswagen Group of America from charging a fee or surcharge directed at recovering the Multiplier payments, but does not prohibit Volkswagen Group of America from indirectly recovering those payments by raising the wholesale prices of its vehicles, then it is prohibiting Volkswagen Group of America from communicating to consumers that the price of its cars has increased due to the Multiplier Act," the company claimed.
Tharp ruled that Volkswagen lacks standing to bring its First Amendment claims. He found the Multiplier Act doesn't prohibit the company from raising prices in Illinois to cover its new expenses, nor does the law bar Volkswagen from telling customers that the Multiplier Act is the reason for the increased prices.
Tharp's dismissal was without prejudice, leaving the door open for Volkswagen to re-plead their case.
Follow @djbyrnes1
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
