B.A. Wackerli, Co. v. Volkswagen of America, Inc. et al

Filing 26

MEMORANDUM DECISION AND ORDER denying 19 Motion to Remand to State Court; denying 20 Motion to Stay. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

B.A. WACKERLI, CO., a corporation,
Case No. 4:12-cv-00373-BLW
Plaintiff,
MEMORANDUM DECISION AND
ORDER

v.
VOLKSWAGEN OF AMERICA, INC.,
a corporation; and AUDI OF AMERICA,
INC., a corporation,
Defendants.

INTRODUCTION
The Court has before it Plaintiff B.A. Wackerli, Co.’s motion to remand (Dkt. 19)
and motion to stay (Dkt. 20). The motions arise from the effort of Defendants
Volkswagen of America, Inc. and Audi of America, Inc. to terminate their dealer
franchise agreement with Wackerli because, they claim, Wackerli breached its
commitment to build a new dual-brand dealership facility by March 2012. Wackerli asks
the Court to stay the Idaho Transportation Department’s administrative order finding that

MEMORANDUM DECISION AND ORDER - 1

Volkswagen and Audi had good cause to terminate the dealer franchise agreements while
this Court reviews the decision. In the alternative, Wackerli asks the Court to enjoin
Volkswagen and Audi’s termination of the dealer agreements. Wackerli’s motions were
heard on August 3, 2012, the parties were given the opportunity to present evidence, and
post-hearing briefs were submitted. Having reviewed the relevant law and the parties’
submissions, the Court will deny Wackerli’s motion to remand and motion to stay or for
injunctive relief for the reasons set forth below.
BACKGROUND
1. Franchise Relationship and Settlement Agreement
Wackerli is a private dealer group in Idaho Falls, Idaho, where it operates three
separate dealerships: a GMC-Buick-Cadillac dealership, aVolkswagen and Audi
dealership, and a Subaru dealership. Thomas Decl., Ex. A, Dkt. 15. Defendants
Volkswagen of America, Inc. and Audi of America, Inc. are the U.S. distributors for
Volkswagen and Audi vehicles, respectively.
Wackerli’s right to market the Volkswagen and Audi brands arises from separate
dealer agreements with each manufacturer. Those agreements contain various addenda
that are incorporated into the dealer agreements, including ownership addenda and
dealership premises addenda. Id., Exs. B, C. As discussed in more detail below, the
dealer agreements also include facility addenda, which became part of the dealer
agreements through a settlement agreement entered into during Wackerli’s bankruptcy
proceedings. Volkswagen and Audi seek to terminate the dealer agreements because

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Wackerli allegedly breached the facility addenda incorporated through the bankruptcy
settlement agreement.
Before Wackerli filed for bankruptcy, Wackerli operated the Volkswagen, Audi,
and Subaru dealership in a shared facility. Each separate dealer agreement between
Wackerli and Volkswagen, Audi, and Subaru approved the multi-branded dealership
premises and location. Id. The agreements precluded Wackerli from relocating its
dealership operations without prior written consent of the manufacturer and full
compliance with the respective dealer agreements. Id. Specifically, both Volkswagen and
Audi had the right to terminate the dealer agreements if Wackerli changed the location of
the dealership without Volkswagen and Audi’s prior written consent. Id.
In February 2009, Wackerli filed for Chapter 11 bankruptcy protection.
Concerned with Wackerli’s ability to perform its dealer agreement, Subaru sought to
terminate its agreement with Wackerli. Subaru ultimately decided against terminating
Wackerli, and Wackerli and Subaru reached a settlement agreement. Id., Ex. E. Pursuant
to the settlement agreement, Subaru agreed not to terminate Wackerli’s dealer agreement
in exchange for (1) Wackerli agreeing to displace Volkswagen and Audi from the shared
facility, and (2) Wackerli agreeing to renovate the shared facility into an exclusive
Subaru dealership meeting Subaru’s facility and image standards. Id., Ex. F at Ex. A.
Wackerli entered into this agreement with Subaru, including its promise to
displace Volkswagen and Audi from the premises, without first obtaining the consent of
Volkswagen or Audi. Indeed, Wackerli did not even inform Audi or Volkswagen before

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agreeing to displace them with an exclusive Subaru dealership. When Wackerli sought
approval from the bankruptcy court of Wackerli’s assumption of the dealer agreements,
the manufacturers objected. Id., Ex. G. Among the cited concerns was the proposal to
relocate the Audi-Volkswagen dealership to an existing Wackerli used car facility. Id.
According to Volkswagen and Audi, they would have never approved use of the used car
facility as the location for their dealerships, because it is inferior to the facility they
previously shared with Subaru. Id., Ex. A (Tr. 279:6-13).
Volkswagen and Audi, despite their expressed reservations, agreed to Wackerli’s
assuming the dealer agreements and to a temporary relocation to the used car store. In
exchange for Volkswagen and Audi’s agreeing to the temporary relocation and
Wackerli’s assumption of the dealer agreements, Wackerli agreed to construct a new
“Dual-Branded” dealership facility for Volkswagen and Audi that would meet both
brands’ facility standards. Id., Ex. D at 1, E-1, F-1; see also id., Ex. A (Tr. 58:2-59:7,
279:6-281:9). This agreement allowed Wackerli to avoid breaching its settlement with
Subaru.
On April 28, 2010, the parties executed a Settlement Agreement outlining these
terms. Id., Ex. D at 2, ¶ 5. The Settlement Agreement included a provision underscoring
the temporary nature of the relocation to the used car premises: “in no event shall debtor
be permitted to carry out Volkswagen or Audi operations at the Temporary Sales Facility
or the Temporary Service Facility after March 31, 2012.” Wackerli also agreed that

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failing to complete its new Volkswagen and Audi facility by March 31, 2012 would be
good cause for termination. Id.
After signing the settlement agreement with Volkswagen and Audi, Wackerli
made no meaningful progress on the new facility because it was focused on completing
renovations for the Subaru facility. Wackerli then stopped work on its facility project in
the fall of 2010 because, as Steven Wackerli testified in an affidavit filed in bankruptcy
court in May 2011, Wackerli believed that its vehicle inventory “was [in]sufficient to
support the ongoing expenses associated with the new facility development and
construction.” Id. at Ex. J, ¶ 15. Wackerli eventually re-engaged the facility construction
process, but by that time it was too late to complete construction by March 31, 2012, as
promised. In fact, Wackerli had only completed the preliminary design phase by January
2012. See id., Ex. A (Tr. 420:22-422:14). When it became clear Wackerli would not
complete construction of the facility by March 2012, VW and Audi notified Wackerli that
they were going to terminate the franchise. Id., Exs. K, L.
2. Administrative Proceedings
On February 2, 2012 Wackerli filed protest actions with Idaho Transportation
Department, contesting Audi and Volkswagen’s decision to terminate the dealer franchise
agreements. Pursuant to Idaho Code § 49-1617(3), Volkswagen and Audi’s response
papers triggered the Transportation Department’s statutory obligation to decide
Wackerli’s protest actions within 120 days, or by July 5, 2012.

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A. Preliminary Orders
The Department assigned the protest actions to Hearing Officer Stephen Bywater,
who conducted a two-day hearing on April 25-26, 2012, and issued Preliminary Orders
finding in favor of Volkswagen and Audi on June 8, 2012. Volkswagen and Audi point
to several findings and conclusions contained in the Preliminary Orders, which they deem
as important to these proceedings:
“By January 2012 it was not possible for Wackerli to finish its facility
project by March 31, 2012. Wackerli had therefor breached its facility
commitment.” Id., Exs. M & N at FOF 32 (record cite omitted);
“Wackerli’s agreement that good cause would exist in the event of a breach
of its facility commitment constituted a material part of the consideration
that VWoA and AoA 1 bargained for in negotiating the Settlement
Agreement.” Id., Exs. M & N at COL 9;
“Under Idaho law, courts (and thus executive branch agencies acting in a
quasi-judicial role) are not permitted to read bargained-for consideration
out of an agreement.” Id., Exs. M & N at COL 9;
“[VWoA and AoA] ha[ve] met [their] burden of establishing good
cause…for the termination of the dealer franchise agreement with Wackerli
based upon Wackerli’s failure to comply with a provision of the franchise
agreement which is both reasonable and of material significance to the
franchise agreement relationship.” Id., Exs. M & N at COL 12;
“The evidence does not support a finding of lack of good faith on the part
of VWoA or AoA in the vehicle allocation procedures and policies they
followed after the execution of the Settlement Agreement.” Id., Exs. M & N
at COL 19;
“[N]or does the evidence support a finding that VWoA or AoA’s vehicle
allocation policies in performance of the Settlement Agreement inhibited or
1

The Court here refers to VWoA as Volkswagen and AoA as Audi.

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rendered impractical or impossible the performance of the Settlement
Agreement by Wackerli.” Id., Exs. M & N at COL 19;
“The evidence does not support a finding of lack of good faith on the part
of VWoA or AoA in their dealings with Wackerli regarding the design or
construction of the new dual-branded dealership facility after Wackerli restarted the process in August of 201.” Id., Exs. M & N at COL 20.
“[N]or does it support a finding that VWoA or AoA’s actions or
requirements in the facility design or construction approval process
inhibited or rendered impractical or impossible the performance of the
Settlement Agreement by Wackerli.” Id., Exs. M & N at COL 20
B. Review of Preliminary Orders
On Friday, June 29, 2012, Wackerli petitioned the Director of ITD for review of
the Preliminary Orders. See id., Ex. R. Wackerli’s petition for review was less than two
pages in length and requested “that the Director review the Hearing Officer’s
conclusions of law, including, but not limited to, Conclusions of Law 17, 18, and 19.”
Id., Ex. R at 2. Wackerli also requested that the Director review the portions of the
Hearing Officer’s Decision on Reconsideration addressing Wackerli’s burden of proof on
certain disputed issues. Id.
On June 25, 2012, the Hearing Officer issued a decision denying Wackerli’s petition
to reconsider. On July 13, 2012, after Wackerli had filed and the Department had granted
an emergency motion to stay termination of the dealer agreements, the Director of the
Transportation issued an Order of Dismissal and Dissolution of Stay. The Director
adopted the Preliminary Orders as the final order of the Department.
3. This Action

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On July 12, 2012, the same day Wackerli filed the emergency motion to stay and
the day before the Department issued its final order, Wackerli filed this case in state
court, alleging breach of the dealer franchise agreement and seeking to enjoin Audi and
Volkswagen’s termination of the franchise agreement. In the original complaint,
Wackerli (1) sought a preliminary injunction prohibiting termination of the dealer
agreements until the Transportation Department issued a final order in the administrative
proceedings, and (2) asserted a claim for breach of the settlement agreement, seeking
damages for Volkswagen and Audi’s alleged failure to allocate a sufficient number of
vehicles to Wackerli to make the facility construction economically viable. The state
court entered a TRO without a hearing.
Almost a week later, on July 16, 2012, Volkswagen and Audi moved to dissolve
the TRO on the grounds that the administrative process had concluded. Wackerli
responded by filing an amended complaint adding a new claim for judicial review of the
Final Order. Shortly after a hearing on the motion to dissolve the TRO, Wackerli filed a
motion for leave to file a Second Amended Complaint, naming the Transportation
Department as a new defendant.
On July 20, 2012, the state court denied the motion to dissolve the TRO, and the
day before the scheduled preliminary injunction hearing, Audi and Volkswagen removed
the case to this Court. On July 24, 2012, this Court, by agreement of the parties, entered
an order extending the TRO until Friday, August 3, 2012.

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Because Audi and Volkswagen removed this action before the state court could
decide the motion to amend, the operative pleading at the time of removal was the
Amended Complaint. After Volkswagen and Audi removed this action, however,
Wackerli attempted to dismiss its petition for review and initiated a new state court action
by filing a one-count complaint against Volkswagen, Audi, and the Transportation
Department, seeking judicial review of the Final Order, as well as a motion for a new
TRO and a stay pursuant to Idaho Code § 67-5274. See Thomas Decl., Ex. V.
Volkswagen and Audi removed this second state court action to this Court. It has been
assigned Case Number 4:12-cv-00391-BLW.
Wackerli now asks this Court to stay the Transportation Department’s
administrative order finding that Audi and Volkswagen had good cause to terminate the
franchise agreement pending judicial review of the decision. In the alternative, Wackerli
asks the Court to enjoin Audi and Volkswagen from terminating the dealer franchise
agreements.
ANALYSIS
1. Jurisdictional Issues
As a threshold issue, the Court must decide whether it has subject-matter
jurisdiction to review a decision of a state administrative agency when the review is onthe-record rather than de novo. Wackerli initially suggested that this Court may not have
jurisdiction to review the Transportation Department decision. Now Wackerli concedes
that jurisdiction likely exists. The Court agrees.

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In BNSF Railway Company v. O’Dea, the Ninth Circuit held that the district court
had diversity jurisdiction over an action involving on-the-record review of a Montana
state administrative agency decision. 572 F.3d 785, 787 (9th Cir. 2009). In this case, no
one disputes that diversity jurisdiction existed at the time of removal. Therefore, under
BNSF Railway, this Court’s diversity jurisdiction extends to review of the Idaho
Transportation Department decision.
Wackerli, however, filed a motion to amend in state court seeking to add the
Transportation Department as a party, and Wackerli contends that the addition of the
Department as a party would destroy diversity. This argument is unavailing for two
reasons. First, the motion to amend has not been granted, so the Department is not yet a
party. Second, even if the Transportation Department were joined as party, this would
not destroy diversity because the Department is not a “real party in interest.”
A court's analysis of “real party in interest” should focus on the “essential nature
and effect of the proceeding.” Ford Motor Co. v. Dept. of Treasury, 323 U.S. 459, 464
(1945). The essential nature of this proceeding is the termination of dealer franchise
agreements between an in-state dealer and two out-of-state car manufacturers. If
Wackerli wins, it may be entitled to an injunction preventing Audi and Volkswagen from
terminating the dealer franchise agreement or monetary damages stemming from
Defendants’ breach of the parties’ agreements. If Defendants prevail, they will be
allowed to terminate the dealer franchise agreement and will not have to pay Wackerli
any damages. Either way the Transportation Department will not be affected by the

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judgment. The Department is a neutral party that will not win or lose anything; thus it
does not have a stake in the outcome.
Wackerli also contends that this Court should apply abstention principles and
remand the case to state court. The Court acknowledges that “obligations of comity, and
respect for the appropriate balance between state and federal interests” are important
principles that may counsel a federal court to abstain from deciding an important state
law issue. Quakenbush v. Allstate Ins., 517 U.S. 706, 716 (1996). But “[a]bstention from
the exercise of federal jurisdiction is the exception, not the rule.” Colo. River Water
Conserv. Dist. v. U.S., 424 U.S. 800 (1976). Indeed, “federal courts have a strict duty to
exercise the jurisdiction that is conferred upon them by Congress.” Quakenbush v.
Allstate Ins., 517 U.S. 706, 716 (1996).
In this case, beyond citing general abstention principles, Wackerli does not specify
which abstention doctrine should apply. Volkswagen and Audi suggest that Wackerli
implicitly relies on Burford abstention. Burford v. Sun Oil Co., 319 U.S. 315 (1943).
Even if so, however, the circumstances of this case do not justify applying the
“extraordinary and narrow exception to the duty of the District Court to adjudicate a
controversy properly before it,” which Burford represents. City of Tuscon v. U.S. West
Commc’ns, Inc., 284 F.3d 1128, 1133 (9th Cir. 2002).
A federal district court may only apply the Burford abstention doctrine if: (i) the
state chose to concentrate suits challenging the actions of the agency involved in a
particular court; (ii) federal issues cannot be separated easily from complex state law

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issues with respect to which state courts might have special competence; and (iii) federal
review might disrupt state efforts to establish a coherent policy. Id. Those elements
cannot be met here.
First, the state has not consolidated review of Transportation Department decision
in a particular court. Second, the issues in this case do not involve complex state law
issues that cannot be easily separated from federal issues – this is essentially a
straightforward breach of contract case. And, third, there is nothing to indicate that this
Court’s review of the agency decision would disrupt state efforts to establish a coherent
policy. This breach of contract case does not involve a complicated regulatory scheme
like the scheme the Supreme Court sought to avoid in Buford. Because none of the
Buford requirements are met here, the Court will not apply Buford abstention.
Nor does the Court believe any other abstention principles apply here. As noted
above, Wackerli fails to discuss any abstention principle in particular and the facts here
do not appear to fit into any of the exceptional circumstances making abstention the
prudent path to follow. Neither applying the proper deference to a government agency
decision nor applying Idaho law in a diversity case is an unfamiliar or burdensome task.
Therefore, the Court finds that dismissal or remand is not appropriate based on abstention
principles.
Finally, the Court agrees with the parties that the fact the settlement agreement
between Wackerli and Audi and Volkswagen arose out of bankruptcy proceedings has no
bearing on whether the Court has jurisdiction to hear this case.

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2. Judicial Stay or Injunction
A. Standard of Review for Judicial Stay
Wackerli asks the Court to stay the Transportation Department’s final order
pending resolution of Wackerli’s petition for review of the Department’s order. Under
the Idaho Administrative Procedure Act, the filing of a petition of review does not
automatically stay the effectiveness or enforcement of the agency action. I.C. § 67-5274.
The reviewing court, however, may order “a stay upon appropriate terms.” Id.
Wackerli argues that “appropriate terms” is not synonymous with irreparable
harm, likelihood of success, or any other standard gleaned from Federal Rule of Civil
Procedure 65. But Wackerli provides no legal authority for this position. And to the
Court’s knowledge, no Idaho authority providing standards for determining when a stay
is appropriate exists.
In cases when no clear Idaho authority exists, courts may look to other state and
federal courts for guidance. See J.R. Simplot Co., Inc. v. Idaho State Tax Comm’n, 820
P.2d 1206, 1212-1219 (Idaho 1991). Federal courts, when deciding to issue a stay
pursuant to a similar provision under the federal Administrative Procedures Act, 5 U.S.C.
§ 705, apply the basic preliminary injunction standard. See Humane Soc’y of the U.S. v.
Gutierrez, 558 F.3d 896, 896 (9th Cir. 2009). Audi and Volkswagen urges that the fourpart test for granting a preliminary injunction should likewise apply in this case.
The provisions of the federal stay statute, however, differ from the Idaho statute in
one key respect: under the federal statute the stay must be “necessary to prevent

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irreparable injury.” Given this key difference, the Court believes that the federal test
should not be imposed to control absolutely the determination of a stay motion in Idaho.
Public Employment Relations Bd. v. Stohr, 279 N.W.2d 286, 291 (Iowa 1979). On the
other hand, the preliminary injunction standard lends itself as a logical starting point that
district courts and agencies may use in determining when a stay is appropriate. Id.
The preliminary injunction standard includes the following prerequisites: (1) that
the party seeking injunctive relief is likely to succeed on the merits; (2) that they are
likely to suffer irreparable harm if an injunction is not issued; (3) that the balance of
equities tips in their favor; and (4) that an injunction is in the public interest. Center for
Food Safety v. Vilsack, 636 F.3d 1166, 1172 (9th Cir. 2011).
In this case, the Court would likely find that Wackerli has met three of these four
perquisites. Although Wackerli has multiple dealerships, the closing of the
Volkswagen/Audi dealership would cause irreparable harm to that dealership, and
Wackerli presented credible evidence that the closing of the Volkswagen/Audi dealership
would also harm his other dealerships. Idaho Falls is a small community where
relationships matter.
Second, although Audi and Volkswagen undoubtedly have shown that they have
an interest in their representative dealerships maintaining certain facility standards, the
likely harm to Wackerli if a stay is not granted substantially outweighs any potential
harm to Audi and Volkswagen arising from the Wackerli Audi/Volkswagen dealership
remaining open at its temporary location for a few more months.

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Third, the granting of an injunction would serve the public interest. If the
Wackerli Audi/Volkswagen dealership closes, Audi and Volkswagen customers will have
to drive or have their cars towed hundreds of miles to obtain warranty service.
Having decided three of the four perquisites in Wackeri’s favor, the granting of
Wackerli’s request for a stay turns on whether Wackerli is likely to succeed on the merits
of its petition for judicial review.
B. Likelihood of Success on the Merits
The Idaho Administrative Procedures Act (IDAPA) governs the review of local
administrative decisions. Comer v. County of Twin Falls, 942 P.2d 557, 561 (1997).
Under the IDAPA, judicial review of a final agency order is both narrow in scope and
deferential in application. A reviewing court “must affirm the Department’s action . . .
unless the court determines that the agency’s findings, inferences, conclusions or
decisions are: (a) in violation of constitutional or statutory provisions; (b) in excess of the
statutory authority of the agency; (c) made upon unlawful procedure; (d) not supported
by substantial evidence on the record as a whole; or (e) arbitrary, capricious, or an abuse
of discretion.” Wheeler v. Dep’t of Health & Welfare, 207 P.3d 988, 991 (Idaho 2009)
(quoting Idaho Code § 67-5279(3)). Moreover, “[i]t is the burden of the party contesting
the Department's decision to show how the Department erred in a manner specified under
I.C. § 67–5279, and to establish that a substantial right has been prejudiced.” Id.
Wackerli, in this case, argues that the Department’s decision finding that
Volkswagen and Audi had good cause to terminate the dealer agreements with Wackerli

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should be reversed because it was “made upon unlawful procedure” and was “not
supported by substantial evidence on the record as a whole.” But Wackerli fails to show
that he is likely to prevail on any of these asserted grounds for reversal.
(1) Unlawful Procedure
At oral argument, Wackerli asserted that the Department’s decision should be
reversed because the Director for the Transportation Department merely “rubber
stamped” the hearing officer’s findings and conclusions. But the evidence shows the
Transportation Department, in issuing its final order, fully complied with its own
procedures and with the basic requirements of due process. The hearing officer
conducted a two-day hearing, and then after full briefing, rendered a thorough and
reasoned decision. The Director then adopted the hearing officer’s preliminary orders on
July 13, 2012, after recognizing that the 120-day deadline for rendering a final decision
on Wackerli’s protests had passed. Moreover, Wackerli has had the opportunity to
present evidence to this Court through written submissions and live testimony. Under
these circumstances, the Court cannot find that the Transportation Department violated
any procedure set forth in the Dealer Act or the Idaho Administrative Procedures Act.
(2) No Substantial Evidence
In his petition for review before the Transportation Department, Wackerli objected
to several conclusions made by the hearing officer. He renews those objections in his
petition for review here. This Court, however, does not engage in a free review of the
Department’s decision. As noted above, the Court must afford deference to the agency

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decision. See, e.g., Stevenson v. Blaine Cnty., 9 P.3d 1222 (Idaho 2000). The Court does
not substitute its judgment for that of the agency as to the weight of the evidence
presented. I.C. § 67–5279(1). The Court instead defers to the agency's findings of fact
unless they are clearly erroneous. Castaneda v. Brighton Corp., 950 P.2d 1262, 1265
(1998). In other words, the agency's factual determinations are binding on the reviewing
court, even where there is conflicting evidence before the agency, so long as the
determinations are supported by competent evidence in the record. Id. Keeping these
standards in mind, the Court will consider Wackerli’s objection to the hearing officer’s
conclusions.
Wackerli first asserts that the “most egregious error committed by [the hearing
officer] is his bare and conclusory finding that Idaho Code §§ 49-1613(2)(i) & (j) do not
apply in this case.” According to Wackerli, the hearing officer’s conclusion that those
provisions did not apply precluded Wackerli from asserting “the affirmative defenses of
excuse from performance and lack of good faith and fair dealing vis-a-vis the Settlement
Agreement by VW/Audi.” Pl.’s Opening Br. at 9, Dkt. 13
Idaho Code § 49-1613(2)(i) makes it unlawful for a manufacturer “to require,
attempt to require, coerce, or attempt to coerce, any new vehicle dealer in this state
to…[e]xpand facilities without a written guarantee of a sufficient supply of new vehicles
so as to justify an expansion, in light of the market and economic conditions.” Similarly,
Idaho Code § 49-1613(2)(j) prohibits a manufacturer from requiring or coercing a dealer
to “[m]ake significant modifications to an existing dealership or to construct a new

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vehicle dealership facility without providing a written guarantee of a sufficient supply of
new vehicles so as to justify modification or construction, in light of the market and
economic conditions.”
The hearing office found neither of these provisions applied to this case because
the evidence did not support a finding that Volkswagen or Audi “required” or “coerced”
Wackerli into building a new facility. The Court views this as a factual finding and
therefore affords it great deference. But even if the Court were to construe it as a legal
conclusion, it would reach the same result.
A manufacturer must only provide “a written guarantee of a sufficient supply of
new vehicles so as to justify an expansion” if it “requires” or “coerces” a dealer to expand
or build a new facility. I.C. § 49-1613(2)(i)&(j). Here, however, Audi and Volkswagen
did not require Wackerli to build the new facility. It was Wackerli that made the new
facilities agreement necessary because of its agreement with Subaru. So, the genesis of
the requirement came from Wackerli’s needs, not Volkswagen or Audi’s demands.
Negotiation of a contract to build new facilities under these circumstances does not
equate to “requiring” or “coercing” Wackerli to build a new facility.
Courts interpreting similar statutory provisions have found a contract term,
negotiated at arms-length, does not amount to a “requirement” or “coercion” as meant in
Idaho Code § 49-1613(2)(j). See, e.g., Empire Volkswagen, Inc. v. World–Wide
Volkswagen Corp., 814 F.2d 90, 96–97 (2d Cir.1987) (collecting cases holding that
threats to take action authorized by parties' contract do not constitute coercion). In

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Empire Volkswagen, the Second Circuit held that the franchisor could enforce the terms
of its agreement with the dealer to construct a separate facility without violating the
dealer statute so long as the contract terms were valid and reasonable. Id. Indeed, “[i]t is
generally accepted that a distributor's enforcement of the terms of its bargained-for
agreement with a dealer is not ‘coercion.’” Jaguar Land Rover N.A., LLC v. Manhattan
Imported Cars, Inc., 738 F. Supp.2d 640, 652-53 (D. Md. 2010).
Likewise, in Scuncio Motors, Inc. v. Subaru of New England, Inc., the court
rejected a dealer’s argument that the manufacturer had violated the dealer statute by
attempting to enforce a valid agreement with the dealer to construct a new facility. 555
F.Supp. 1121, 1128 (D.C.R.I. 1982).555 F.Supp. 1121, 1128. The dealer argued that the
proposed termination of the dealer franchise agreement violated a provision of Rhode
Island’s Dealers’ Law, which limited a manufacturer or agent from requiring dealers to
expand their facilities unless the manufacturer guaranteed a sufficient supply of new cars
to justify the expansion. Id. at 1125. Interpreting the statute, the court concluded that
the verb “to require” implied something mandatory. Id. It then found that the defendant
did not impose on the dealer a mandatory obligation to relocate its facilities but instead
the parties negotiated the agreement concerning relocation. Id. Based on this finding, the
court refused to find that the defendant “required” the dealer to relocate and expand its
facilities, as meant by the dealer statute. Id.

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The Court agrees with the reasoning in Empire Volkswagen and Scunio. More
importantly, it defers to the hearing officer’s conclusion that Idaho Code §§ 491613(2)(i)&(j) do not apply to the circumstances of this case.
The Court also is not persuaded the hearing office erred in concluding that
Wackerli bore the burden to prove Volkswagen and Audi failed to act in good faith.
Wackerli makes a somewhat convincing argument that Volkswagen and Audi – as the
parties challenging the status quo – should be required to prove that they have acted in
good faith in seeking to terminate the dealer agreements. But assigning the burden to
prove good faith on Volkswagen and Audi is not consistent with either the statutory
language or the common law.
Idaho Code § 49-1617 expressly places the burden of proving good cause to
terminate a dealer agreement on the manufacturer when a dealer files a protest with the
Transportation Department. However, the statute is silent as to which party must prove
lack of good faith. The Idaho legislature could have easily stated that the manufacturer
should have the burden of proving good cause and good faith; but it did not. Principles
of statutory construction therefore counsel that the burden of proving a lack of good faith
should lie with the dealer: “where the legislature expressly states one thing it is deemed
to have excluded another, expressio unis est exclusio alterius.” See Nebeker v. Piper
Aircraft Corp., 747 P.2d 18, 23 (1987).
Placing the burden of proving good cause on the manufacturer and the burden of
proving lack of good faith on the dealer also accords with the common law. To illustrate,

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in this case, Volkswagen and Audi seek to terminate the dealer agreements on the
grounds that Wackerli breached a material and reasonable provision of those agreements.
Under Idaho law, a party asserting a breach of contract carries the burden of proving that
claim. See, e.g., Idaho Power Co. v. Cogeneration, Inc., 9 P.3d 1204, 1213 (Idaho 2000).
Thus, even absent the dealer statute provision expressly assigning the burden of proving
good cause on the manufacturer, Volkswagen and Audi would be assigned this burden
under the common law because they claim that Wackerli breached the dealer agreement
and that is why good cause to terminate exists.
Likewise, under the common law, Wackerli would be assigned the burden of
proving Audi and Volkswagen’s alleged lack of good faith. Wackerli contends that
Volkswagen and Audi breached the settlement agreement first and therefore Wackerli’s
obligation to construct the new facility should be excused because (1) Audi and
Volkswagen acted in bad faith by failing to allocate to Wackerli a sufficient number of
vehicles to make the facility construction economically viable, and (2) Volkswagen and
Audi’s bad faith vehicle allocation policies in performance of the Settlement Agreement
inhibited or rendered impractical or impossible the performance of the Settlement
Agreement by Wackerli. Wackerli, as the party claiming breach of the dealer agreements
or, alternatively, excuse for non-performance of the dealer agreements, based on Audi
and Volkswagen’s alleged bad faith, would be assigned the burden of proof on these
claims under the common law. Cogeneration, 9 P.3d at 1213.

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In sum, the Court agrees with Volkswagen and Audi: “Had the Idaho Legislature
intended to abrogate the common law presumption that Wackerli has the burden of proof
concerning the issue of good faith or the common law rule that wrongdoing is never
presumed, it would have had to do so by express statutory language.” Defs’
Supplemental Br. at 4, Dkt. 25. The Court therefore concludes that the hearing officer
correctly assigned the burden of proving lack of good faith on Wackerli.
Moreover, the Transportation Department’s interpretation of the statute is entitled
to substantial deference. The Idaho Supreme Court has adopted a four prong framework
to determine the correct level of deference to give to agency statutory construction: 1)
whether “the agency has been entrusted with the responsibility to administer the statute at
issue”; 2) whether “the agency’s statutory construction [is] reasonable”; 3) whether “the
statutory language at issue []expressly treat[s] the precise question at issue”; and 4)
“whether any of the rationales underlying the rule of deference are present.” Simplot Co.,
820 P.2d at 1219.
Here, the Transportation Department has been entrusted to administer the Idaho
motor vehicle statute, in particular issues related to dealer protests. Second, as already
discussed, the Court believes the Department’s construction of the statute was reasonable.
Third, the statutory language does not expressly treat the precise question here: while it
addresses which party carries the burden of proving good cause, it is silent on which
party carries the burden of proving good faith. Finally, the Court finds that at least one of
the rationales for agency deference are present – i.e., the Transportation Department’s

MEMORANDUM DECISION AND ORDER - 22

interpretation of the statue is the most practical, and no cogent reasons exist for denying
the Department deference in this case. Fundamental common law principles and
statutory construction principles support the Department’s construction of Idaho Code
§1614(6).
Finally, the Court questions whether it would have made any difference if the
hearing officer had assigned the burden of proving good faith to Audi and Volkswagen.
The Court’s own review of the record supports the view that Volkswagen and Audi
proved that the proposed termination of the dealer agreements is based on good cause and
good faith. See, e.g.,Wagner v. Land Rover North America, Inc., 539 F.Supp.2d 461 (D.
Mass 2008) (holding that franchisor's demands that the dealer comply with the facility
obligations from its letter of intent did not constitute coercive conduct under the dealer
statute).
Indeed, the Court does not see how good cause to terminate can exist without good
faith. Logic dictates that a manufacturer that has proved good cause to terminate, by
implication, has also shown that it acted in good faith. As already discussed, the
requirement that Wackerli build a new facility after displacing Volkswagen and Audi
from the approved facility is a reasonable contract term to which Wackerli assented.
Accordingly, Volkswagen and Audi’s attempt to enforce this term – even without
providing a written guarantee to supply inventory Wackerli did not bargain for when
negotiating the contract – does not constitute bad faith.

MEMORANDUM DECISION AND ORDER - 23

In this same vein, the Court finds no fault with the hearing officer’s conclusion
that Wackerli should have negotiated an allocation guaranty in connection with the
facility commitment if that is what it needed to perform its end of the bargain. This
conclusion accords with the law on impracticability, which makes performance of a
contract impracticable only if “a party’s performance is made impracticable without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption
on which the contract was made.” City of Boise v. Bench Sewer Dist., 773 P.2d 642, 646
(1989).
Given the narrow and deferential standard of review, and the hearing officer’s
thorough decision finding good cause for termination, the Court concludes that Wackerli
has not met its burden of demonstrating a likelihood of success on the merits. It therefore
fails to meet the threshold for a stay pending appeal. Accordingly, Wackerli’s motion is
denied.
ORDER
IT IS ORDERED:
1.

Plaintiff B.A. Wackerli, Co.’s motion to remand (Dkt. 19) is DENIED.

2.

Plaintiff B.A. Wackerli, Co.’s motion to stay (Dkt. 20) is DENIED.
DATED: August 13, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

MEMORANDUM DECISION AND ORDER - 24
RDE