By Robert B. Barnett Jr., J.D.
No standing existed because a majority of the Mazda dealership members would be harmed if the suit were successful.
A suit filed by a trade association of car dealer franchisees alleging that Mazda violated the New Jersey Franchise Practices Act by implementing sales incentives that created illegal price differentials among dealerships was dismissed in its entirety because the trade association, the New Jersey Coalition of Automotive Retailers, lacked standing to pursue the claim given that a serious conflict of interest existed among trade association members, the federal district court in Trenton, New Jersey, has ruled. The trade association lacked standing because it failed the second prong of the Supreme Court’s Hunt test, which requires, for a trade association to be able to sue on behalf of its members, that the trade association be seeking relief that is not contrary to the interests of a majority of its members. In this case, however, a majority of the Mazda dealer members would be harmed, because they would lose their incentives, if the suit were successful (New Jersey Coalition of Automotive Retailers, Inc. v. Mazda Motor of America, Inc., July 30, 2019, Martinotti, B.).
Background. The New Jersey Coalition of Automotive Retailers (NJ CAR) is a trade association consisting of franchised new motor vehicle dealers in New Jersey. It filed suit on behalf of its members against Mazda, alleging that Mazda’s incentive program violated the New Jersey Franchise Practices Act. The Mazda program, called the Mazda Brand Experience Program 2.0, which went into effect on July 3, 2018, provides discounts or bonuses for each vehicle a Mazda dealer sells based on the dealer’s compliance with the program’s requirements. For example, dealers that sell only Mazda cars are eligible for incentives that are greater than those available to dealers that do not. And those dealers that employ a dedicated Mazda General Manager are eligible for higher incentives than those that do not.
NJ CAR’s complaint alleged that the incentive program violated the franchise law by (1) creating price differentials among dealers, (2) denying the incentives to dealers that sold more than just Mazda vehicles, and (3) denying the incentives to those dealers that did not provide a "image compliant facility" even though no evidence existed that the costs of creating such a facility can be financially justified. Mazda filed a motion to dismiss, and NJ CAR filed a motion for summary judgment.
Standing generally. Trade associations have standing to sue on members’ behalf, but only if they satisfy the three-prong test that the U.S. Supreme Court established in Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343 (1977)). A trade association has standing when (1) its members would otherwise have standing to sue in their own right, (2) the interests it seeks to protect are germane to the organization’s purpose, and (3) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.
Members’ standing. This first Hunt factor requires that the trade association demonstrate that at least one of its members would have standing to sue on its own. In the Third Circuit, whether a member has an injury-in-fact is often the key determinant (Toll Bros. v. Twp. of Readington, 555 F.3d 131, 138 (3d Cir. 2009)). As a result, the trade association’s complaint must make specific allegations establishing that at least one identified member has suffered or would suffer harm caused by the challenged action. Disclosing the identity of members is not a prerequisite to associational standing in all cases. In this case, however, NJ CAR identified 16 franchised Mazda dealerships as members, and it named all 16. The complaint contained declarations from two of its Mazda dealer members describing the harm that had befallen them as a result of the incentive program. That combination of naming specific members and identifying the harm that had befallen at least two of them satisfied the requirements for meeting the first Hunt prong.
Germaneness. As for the second Hunt prong, Mazda argued that the suit was not germane to NJ CAR’s purpose because two conflicts existed among its members: (1) the conflict between Mazda dealer members that were eligible for the incentives and those that were not and (2) the conflict between NJ CAR’s Mazda dealer members who receive the incentives and non-Mazda dealer members who compete with the Mazda dealers for new car sales. NJ CAR, on the other hand, argued that the suit was germane to its purpose because it was seeking to protect fair competition.
The court noted that associational standing has never been granted when serious conflicts of interest exist among the members or between the association and its members. In the Third Circuit, associational standing can exist, on the other hand, if the litigation is not contrary to the interests of a majority of its members and the association follows its own internal rules before joining the litigation (Contractors Ass’n of E. Pa. v. City of Philadelphia, 945 F.2d 1260, 1266 (3d Cir. 1992)). Mazda argued that it met the second prong because no evidence existed that the majority of Mazda dealers or NJ CAR members opposed enforcing the New Jersey law. The court, however, wanted to look closer at the Mazda dealer members.
Of the 16 Mazda dealer members, three were eligible for the highest level of incentives, and another eight signed agreements to meet that standard. Thus, at least 11 of the 16 Mazda dealer members would suffer if the NJ CAR suit were successful. Consequently, a serious conflict of interest existed, in which a majority of NJ CAR’s Mazda dealer members had an interest that was directly contrary to the lawsuit’s aims. The interests that NJ CAR was seeking to protect were therefore not germane to its purpose, and, NJ CAR failed the second prong of the Hunt test.
Participation by members. The court declined to examine the third prong in light of its decision that the second prong was not satisfied.
The court, as a result, granted Mazda’s motion to dismiss without prejudice, and it denied NJ CAR’s motion for summary judgment as moot.
The case is No. 3:18-cv-14563-BRM-DEA.
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