VW, Napleton do battle as retailer goes after stores

Volkswagen Group of America is trying to block Napleton Automotive Group from buying Volkswagen and Audi stores in two states — the latest twist in an ongoing legal entanglement between the automaker and the retailer.

Volkswagen on Oct. 30 sued the Napleton group, its three Volkswagen dealerships and company President Ed Napleton Sr. in New Jersey federal court, alleging violations of a 2018 agreement stemming from Volkswagen's diesel emissions scandal. Three days later, Napleton filed counterclaims that alleged Volkswagen was the one to violate terms of the sealed settlement.

The court battle comes amid an apparently long-strained relationship between the dealer and automaker. The two have been embroiled in lawsuits, including a 2016 class-action Napleton led against Volkswagen on behalf of U.S. dealers over claims related to the emissions scandal. As part of the latest dispute, Volkswagen is alleging fraud on the part of the Napleton group, while Napleton accuses the automaker of retaliating for the actions the retailer took during the diesel scandal.

The renewed clash with Volkswagen comes as Napleton navigates other lawsuits, filed by former employees and by Hyundai Motor America, which sued the dealership group last month over alleged warranty fraud.

According to Volkswagen's most recent lawsuit, Napleton, which ranks No. 17 on Automotive News' list of the top 150 dealership groups in the U.S. and has 49 dealerships in eight states, wants to buy Audi stores and a Volkswagen store as part of bigger acquisition deals for the four-store Eitel Dahm Motor Group in Michigan and three Wyoming Valley Motors dealerships in Pennsylvania.

But it appears those deals are on ice — at least for now. Napleton currently has no Audi stores.

Volkswagen in its complaint claims Napleton is barred from buying the Wyoming Valley Audi and Volkswagen stores by a 2017 Pennsylvania federal court consent order — a decision the U.S. Court of Appeals for the 3rd Circuit affirmed in June. The 2017 order said Napleton could buy assets of five other Wyoming Valley brands it sought at the time but in exchange was "agreeing to 'forever quit' its interest in ever owning the Wyoming Valley Audi and Volkswagen dealerships," according to Volks- wagen's October lawsuit.

Volkswagen alleged that Napleton provided inflated values for the Audi store in 2016. Napleton ended up purchasing three of the Wyoming Valley dealerships in Plains, Pa. — representing Subaru, BMW and Porsche — in February 2018.

Volkswagen, in its complaint, says Napleton has a "strong desire" to become an Audi dealer, "so much so that it has engaged in a campaign of outright fraud [and] deception." The automaker said Wyoming Valley Motors in June shared new purchase agreements to sell the Audi and Volkswagen stores to Napleton. Volkswagen said it asked the Pennsylvania federal court to enforce the 2017 order; a judge ruled Aug. 25 in the automaker's favor, deeming the purchase agreements "null and void."

The judge said Napleton's argument that the 2017 order was a preliminary injunction was a "mischaracterization at best and intellectually dishonest, bordering on sanctionable, at worst. This is not appropriate, aggressive advocacy. Rather, it is brazen and wearying gamesmanship that is emblematic of Napleton's conduct throughout this case. This behavior has created a scenario that is the judicial equivalent of whack-a-mole. It is flatly inappropriate and we are compelled to once again stop it."

And in a seven-page Aug. 24 letter, Audi of America's Jun Watanabe, director of network development, denied the transfer of Audi Wyoming Valley to Napleton and said Napleton and its owners had "shown a lack of upstanding character."

The letter, cited in Volkswagen's October lawsuit, referenced the alleged violation of the 2017 order, other past disputes and allegations regarding Hyundai and warranty fraud. It also mentioned criminal charges pending against Ed Napleton Jr., director of operations for Napleton Automotive, on allegations of sexual assault of an employee.

The Napleton group is "under a cloud of scandal and disrepute," Watanabe's letter said. "These credible allegations of misconduct at the highest levels of the Napleton organization are inconsistent with the upstanding character [Audi of America] requires of Audi dealer candidates."

Napleton Automotive has rebutted the warranty fraud allegations by Hyundai. Napleton Jr. has denied the assault allegations.

Napleton is appealing the Pennsylvania federal court's August ruling to the 3rd Circuit.

In a statement to Automotive News, Napleton said Volkswagen filed its lawsuit after the retailer gave notice that it was going to sue the automaker.

"Volkswagen Group continues to retaliate against Napleton for bringing suit over Dieselgate, acting as class plaintiff and opting out of the class settlement," Napleton Automotive said. "Napleton remains uncowed and will continue to defend itself against baseless allegations and despite Volkswagen Group's retaliation for seeking just compensation for itself and other Volkswagen dealers."

Napleton, in a Dec. 7 amendment of its counterclaim, also cited the diesel litigation as the reason Volkswagen and Audi rejected it as a dealership purchaser.

Volkswagen in 2017 agreed to pay U.S. dealers a combined $1.2 billion in a settlement related to the diesel scandal — an average of about $1.85 million per store, according to Reuters. Napleton's three stores opted out, and the retailer struck its own undisclosed settlement in 2018.

A Volkswagen spokesman and Audi spokeswoman declined to comment because of the pending litigation. Dennis George, a Philadelphia lawyer for Wyoming Valley Motors, also declined to comment.
In addition to the Pennsylvania dealerships, Napleton wants to buy an Audi dealership in Michigan.

Volkswagen said in a court filing that Audi received on Oct. 22 a copy of a purchase agreement from Eitel Dahm Motor Group, which operates Audi Rochester Hills in southeast Michigan. Dahm wanted to sell the Audi dealership — plus Porsche, Mini and BMW stores — to Napleton, according to Volkswagen's complaint, and the agreement listed the deal's blue-sky value at $31.5 million, including $15.25 million for the Audi store. Blue sky is the intangible value of a dealership, including goodwill.

Napleton in last week's filing said Audi notified it Nov. 20 that it was rejecting the deal. Eitel Dahm's name is redacted in the filing, but the asset purchase date mentioned matches information for that deal from Volkswagen in earlier case filings.

The retailer said the Dahm rejection is based on "unfounded grounds" cited in Wyoming Valley rejection letters and "unproven claims" from the Hyundai lawsuit. Dahm wrote to Napleton on Dec. 3 and requested the entire transaction be terminated so it could "move forward with another buyer," according to the Dec. 7 filing.

Eitel Dahm COO Chris Consiglio declined to comment.

Napleton is seeking damages to be determined at trial, plus costs and fees, and asked the court to enjoin Volkswagen from using pretextual — or false — reasons and "corporate animus in evaluating Napleton as a proposed dealer," according to the filing.

Volkswagen and Napleton have a litigious relationship dating to at least 2001. Audi sued Napleton in a Cook County, Ill., court, alleging that the retailer did not return six vehicles Audi bought from unsold inventory when Napleton sold an Audi store in 1997. Volkswagen claimed Napleton sold the cars to another dealer, essentially getting paid twice. The parties settled in September 2001.

Napleton has a litigation history with other automakers. In 2014, it sued Jaguar Land Rover, alleging the automaker improperly blocked a sale of five Long Island stores to Napleton. The parties settled, and the stores were sold to another dealer.

And in 2016, Napleton sued FCA US, alleging the automaker incentivized some dealers to report false sales and thereby created an uneven playing field for competing retailers. Napleton and FCA settled in 2019.