Federal Court Allows CNCDA Lawsuit Against Volkswagen and Scout Motors to Proceed
Court Holds that California Franchise Law Prohibits Manufacturers from Using Affiliates to Compete with Dealer Partners
FOR IMMEDIATE RELEASE | Contact: Autumn Heacox | Phone: 916-441-2599 x105 | Email: aheacox@cncda.org
SACRAMENTO, CA —The California New Car Dealers Association (CNCDA) announced today that a federal court has denied motions to dismiss the core claims in CNCDA’s lawsuit challenging Volkswagen’s use of Scout Motors to unlawfully compete against its VW dealers.
In a ruling issued yesterday in CNCDA v. Volkswagen of America, Inc., et al., Chief Judge Cynthia Bashant of the United States District Court for the Southern District of California held that CNCDA properly alleged that Volkswagen Group of America and Scout Motors are violating California law through Scout’s direct-to-consumer reservation program, which bypasses Volkswagen’s franchised dealer network.
The Court adopted CNCDA’s reading of California Vehicle Code § 11713.3(o), finding that the statute’s prohibition on manufacturers competing with their franchisees “directly or indirectly through an affiliate” encompasses Volkswagen’s corporate relationship with Scout — regardless of whether Volkswagen affirmatively directed Scout’s conduct. The Court also rejected the argument that the statute only applies after a completed vehicle sale, holding that Scout’s $100 reservation program constitutes competition in the sale of new motor vehicles. Dealer testimony cited in CNCDA’s complaint outlined how Scout is currently competing against VW dealers.
The Court noted that Scout’s own general counsel admitted during the legislative process for AB 473 (the 2023 bill that amended the law at issue in the case) that the law could prohibit Scout’s direct-to-consumer model in California based on the competition clause specifically included in the bill.
The Court further rejected Scout’s arguments that its DMV licenses shielded it from liability, that its conduct fell within a statutory safe harbor, and that the case represented an impermissible challenge to DMV authority. The Court also dismissed certain secondary claims on procedural grounds unrelated to the merits of CNCDA’s core case. The central claims against both Volkswagen Group of America and Scout Motors will proceed.
“This ruling confirms what California law recognizes: manufacturers cannot use affiliate brands to unlawfully compete against their own dealers. Volkswagen dealers would welcome the chance to sell Scout vehicles to their customers, but Volkswagen continues to shut them out,” said CNCDA President Brian Maas. “In 2023, the California Legislature strengthened dealer protections for exactly this reason, and we are pleased the Court has applied the statute as written.”
A copy of the court opinion can be downloaded here.
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About CNCDA
For over 100 years, CNCDA has protected and promoted the interests of California’s franchised new car and truck dealers. In 2025, California’s franchised new car dealers sold more than 1.8 million new cars and trucks, employed almost 138,000 people, paid $9.16 billion in state sales tax, and donated $72.09 million to charitable and civic organizations. CNCDA is the nation’s largest state association of franchised automotive dealers, with nearly 1,200 members. We provide dealer advocacy, as well as legal, compliance, and regulatory support.