Investing in an automobile dealership involves millions of dollars and a long-term commitment to the manufacturer. All businesses have their ups and downs, but what are a dealer’s options if there is long-term damage to the brand caused by the intentional actions of the manufacturer?
In late September, news erupted about the Volkswagen clean diesel scandal. Millions of cars with falsified emissions data were sold worldwide, resulting in an immediate plunge in Volkswagen’s share price, furious customers, a fired CEO, possible criminal charges, and potentially catastrophic damages to a storied 78 year old company.
What are the options for Canadian Volkswagen dealers? A 2015 Quebec court decision about donuts offers insight about these issues.
Dunkin’ Donuts was a leading brand in Quebec for many years. It opened its first store in 1961. By the mid-1990s, there were upwards of 200 stores in the province. However, Dunkin’s brand in Quebec began to decline in the mid-1990s, largely due to Tim Horton’s growing popularity. Numerous meetings were called between store owners and Dunkin’, in which the worsening results were discussed and debated. The Dunkin’ decline in Quebec persisted, leading to the eventual termination of the brand altogether in the province.
The remaining store owners brought a class action claim against Dunkin’ Donuts, alleging it was liable for failing to defend, protect and promote the brand in Quebec. The store owners alleged liability for lost investments, lost profits, and damages for breach of contract, among other things.
The trial judge agreed with the store owners’ claims, awarding over $16 million in aggregate damages against Dunkin’. The Quebec Court of Appeal confirmed the trial judge’s decision in April 2015 in a decision that some believe could have impact on franchise law in other provinces too.
Dealership agreements frequently require the manufacturer and the dealer to comply with ethical standards and to promote the reputation of the brand. What if the manufacturer refuses or fails to do so, through no fault of a dealer? Although the long-term impact on the Volkswagen brand arising from the diesel scandal has yet to be seen, the Dunkin’ Donuts decision provides real remedial options for Volkswagen dealers, who could suffer the most out of the different affected groups.