PRESENT: Hassell, C.J., Keenan, Koontz, Kinser, Lemons, and
Agee, JJ., and Russell, R.J.
VOLKSWAGEN OF AMERICA, INC.
v. Record No. 022402 OPINION BY JUSTICE BARBARA MILANO KEENAN
October 31, 2003
DEMERST B. SMIT, COMMISSIONER
OF THE VIRGINIA DEPARTMENT OF
MOTOR VEHICLES, ET AL.
FROM THE COURT OF APPEALS OF VIRGINIA
In this appeal, we consider whether the Court of Appeals
erred in affirming a circuit court judgment approving a decision
of the Commissioner of the Department of Motor Vehicles (the
Commissioner) that an automobile distributor violated Code
§ 46.2-1569(7). We primarily consider whether Code § 46.2-
1569(7) requires the Commissioner to find, before holding that a
distributor has violated the statute, that the distributor
failed to ship to a Virginia dealer a quantity of new vehicles
that meets the statute's requirements.
We will state the facts relevant to this appeal.
Volkswagen of America, Inc. (Volkswagen), a New Jersey
corporation, is the distributor of Volkswagen motor vehicles in
the United States and Canada and is a subsidiary of the German
automobile manufacturer, Volkswagen AG. Volkswagen imports a
fixed supply of vehicles from its corporate parent and
distributes these vehicles to about 600 dealers nationwide,
including 17 dealers in the Commonwealth.
Miller Auto Sales, Inc., d/b/a Miller Volkswagen (Miller),
is a retail dealer of Volkswagen motor vehicles in Winchester,
Virginia. Miller is the smallest dealer by volume of Volkswagen
sales in its assigned sales district.
In late 1997, Volkswagen adopted a national program for
allocating and distributing to its dealers vehicle models often
in short supply, such as the Beetle, the Passat, and the Jetta.
This allocation program was designed to take shipments of
vehicles that Volkswagen imported from its corporate parent and
to divide those vehicles among Volkswagen's six national sales
regions in proportion to each region's share of Volkswagen's
national "planning volume," which reflected anticipated annual
unit sales.
Each region's allotment of vehicles was subdivided further
among the region's sales districts, with each district receiving
a number of vehicles in proportion to its share of the region's
annual planning volume. At the district level, an "area
executive" was responsible for allocating vehicles to individual
dealers based on Volkswagen's national allocation methodology.
Although Volkswagen's vehicle allocation methodology
underwent several changes through October 1998, the core of that
methodology consistently had been a "mathematical algorithm"
2
contained in a computer-generated spreadsheet that Volkswagen
distributed electronically to its area executives. Volkswagen's
allocation formula was based on several factors, including the
reported inventories of all dealers within a district,
anticipated unit sales, and actual unit sales for that year.
Each area executive had discretion to adjust the results of the
formula in response to local market conditions.
The results computed from the mathematical algorithm were
further modified by Volkswagen's "Create an Apostle Program"
(CAAP). Under CAAP, Volkswagen used an independent organization
to conduct telephone surveys of recent purchasers of Volkswagen
vehicles to evaluate customer satisfaction. From these surveys,
a customer satisfaction index was created that measured each
individual dealer's performance in sales, service, and customer
relations.
Volkswagen then used each dealer's CAAP score to adjust the
allocation formula's results for that particular dealer.
Volkswagen also imposed a "minimum stocking requirement," which
functioned as a "safety valve" authorizing the area executive to
override the allocation formula to ensure that each dealer would
have in its inventory at least one vehicle of every Volkswagen
model.
In February 1998, Miller sent a letter to Volkswagen, with
a copy to the Commissioner, alleging, among other things, that
3
Volkswagen's use of a customer satisfaction index in its
allocation of vehicles violated Code § 46.2-1569(7). That
statute provides in relevant part:
Notwithstanding the terms of any franchise
agreement, it shall be unlawful for any manufacturer,
factory branch, distributor, or distributor branch, or
any field representative, officer, agent, or their
representatives:
. . . .
7. To fail to ship monthly to any dealer, if ordered
by the dealer, the number of new vehicles of each
make, series, and model needed by the dealer to
receive a percentage of total new vehicle sales of
each make, series, and model equitably related to the
total new vehicle production or importation currently
being achieved nationally by each make, series, and
model covered under the franchise. Upon the written
request of any dealer holding its sales or sales and
service franchise, the manufacturer or distributor
shall disclose to the dealer in writing the basis upon
which new motor vehicles are allocated, scheduled, and
delivered to the dealers of the same line-make. In
the event that allocation is at issue in a request for
a hearing, the dealer may demand the Commissioner to
direct that the manufacturer or distributor provide to
the dealer, within thirty days of such demand, all
records of sales and all records of distribution of
all motor vehicles to the same line-make dealers who
compete with the dealer requesting the hearing.
Id.
In the letter, Miller requested that Volkswagen disclose
"in writing the basis upon which new motor vehicles are
allocated, scheduled, and delivered to the dealers of the same
line-make." In April 1998, Miller's counsel sent the
Commissioner another letter requesting a hearing under the
statute. The Commissioner referred the case to a hearing
4
officer to conduct the hearing and to make recommended findings
and rulings.
Before the hearing, Volkswagen moved to dismiss the
proceedings on the grounds that Code § 46.2-1569(7) was
unconstitutionally vague and violated the Commerce Clause of the
United States Constitution. The hearing officer denied
Volkswagen's motion. At the hearing, much of the factual
evidence and expert testimony received by the hearing officer
focused on Volkswagen's vehicle allocation methodology rather
than on the actual number of vehicles that Volkswagen had
shipped to Miller.
After the hearing, the hearing officer issued a proposed
decision in which he found that Volkswagen's allocation
methodology was "flawed in its design and deficient in its
operation." The hearing officer recommended that the
Commissioner declare that Volkswagen's vehicle allocation
methodology was unlawful and in violation of Code § 46.2-
1569(7).
The hearing officer found that there were two mathematical
calculations in Volkswagen's allocation formula that worked to
Miller's detriment. First, the hearing officer observed that
the "algorithm truncated fractional allocations in certain
circumstances due to peculiarities of the computerized
spreadsheet program." Second, he noted that "the algorithm did
5
not accumulate 'fractional vehicles' so that a small volume
dealer, like Miller . . . was effectively frozen out on a
repeated basis from acquiring vehicles in short supply."
The hearing officer further found that the results of
Volkswagen's allocation program were monitored solely on an "ad
hoc" basis and that "[o]nly when a dealer, such as Miller,
complained, was there any apparent effort to verify whether or
not allocations were fair." The hearing officer stated that
statistical measurements were not used in such circumstances and
that "the notion of fairness would seem to rest strictly on
achieving quietude from the dealerships."
The hearing officer also found that the flaws in
Volkswagen's allocation formula were exacerbated by Volkswagen's
use of the CAAP program to modify the algorithm results, thus
making the allocation of new vehicles "hostage to CAAP
performance." In explaining this conclusion, the hearing
officer stated:
[O]ne could reasonably conclude from some of the
statistical evidence presented, both by fact witnesses
and by expert witnesses, that the restriction of
allocations itself created a vicious cycle of lower
CAAP scores, as customers who were delayed in
receiving ordered vehicles, or who could not get
vehicles precisely as specified, might well be less
satisfied with Miller.
The hearing officer further found that while Volkswagen
presented some testimony that its minimum stocking requirement
6
was a "hallowed and longstanding 'unwritten rule' for
allocation," it appeared that this requirement was not applied
in allocating vehicles to Miller until after Miller had
requested a hearing. The hearing officer concluded that the
evidence failed to show that the minimum stocking requirement
functioned as an adequate "safety valve" to remedy the
deficiencies of Volkswagen's allocation formula.
The Commissioner issued a "Hearing Decision" in which he
adopted the findings of the hearing officer. The Commissioner
determined, in relevant part, that Volkswagen's vehicle
allocation methodology was unlawful and in violation of Code
§ 46.2-1569(7).
Volkswagen appealed from the Commissioner's ruling to the
Circuit Court of the City of Richmond. Volkswagen argued that
Code § 46.2-1569(7) violated the Commerce Clause of the United
States Constitution and was unconstitutionally vague.
Volkswagen also asserted that the Commissioner misinterpreted
Code § 46.2-1569(7) because that statute merely "regulates the
number of vehicles that a motor vehicle manufacturer or
distributor must ship to each of its Virginia dealers, not the
mechanisms that a manufacturer or distributor must use to
calculate or determine that number."
The circuit court affirmed the Commissioner's determination
that Volkswagen's vehicle allocation methodology violated Code
7
§ 46.2-1569(7), and held that the Commissioner did not exceed
his authority in reaching this conclusion. The court stated
that the purpose of the statute is to "ensure that Virginia
dealers get a fair percentage of vehicles" in comparison to
national distributions. The court concluded that, therefore,
"the administrative body charged with the statute's enforcement
would necessarily have to examine the allocation methodology to
determine whether a Virginia dealer is getting its fair share."
In addition, the circuit court rejected Volkswagen's
constitutional arguments.
Volkswagen appealed to the Court of Appeals, which affirmed
the circuit court's judgment. Volkswagen of Amer., Inc. v.
Quillian, 39 Va. App. 35, 42, 69, 569 S.E.2d 744, 748, 761
(2002). After rejecting Volkswagen's constitutional arguments,
the Court of Appeals concluded, in relevant part, that the plain
meaning of Code § 46.2-1569(7) "reflects the intention of the
legislature to give the [C]ommissioner the flexibility necessary
to accurately determine whether a dealer has received its fair
share of vehicles from a distributor." Id. at 63, 569 S.E.2d at
758. The Court further held that "in determining whether a
distributor is in compliance with Code § 46.2-1569(7), the
[C]ommissioner may consider and base his determination on that
distributor's vehicle allocation methodology" and that "the
[C]ommissioner is not confined to examining only the actual
8
number of vehicles allocated." Id. at 64, 569 S.E.2d at 759.
We awarded Volkswagen an appeal pursuant to Code § 17.1-410(B).
Volkswagen argues that the Commissioner exceeded his
authority under the plain language of Code § 46.2-1569(7).
Volkswagen contends that the Commissioner improperly determined
that Volkswagen violated the statute without considering whether
Volkswagen failed to comply with the statute's requirement that
Miller receive from its distributor new vehicles in a number
"equitably related" to national importation figures.
In response, Miller contends that Volkswagen has waived
this argument by failing to object to the hearing officer's
statement in a pre-hearing telephone conference that "the issue
is this case appear[s] to be whether or not the allocation
methodology adopted by [Volkswagen] was equitable in accord with
the Statute." In addressing the merits of Volkswagen's
argument, Miller argues that the statute contemplates regulation
of a distributor's vehicle allocation methodology because the
only way to determine whether an equitable number of vehicles
has been allocated to a dealer is to evaluate the method by
which that number was determined. Miller also asserts that the
Commissioner's task was compounded by Volkswagen's failure to
maintain adequate records concerning the number of vehicles it
allocated to Miller before Miller's complaint. We disagree with
Miller's arguments.
9
Initially, we find no merit in Miller's contention that
Volkswagen's failure to object to the hearing officer's pre-
hearing characterization of the controversy results in a waiver
of the argument that Volkswagen advances in this appeal. The
hearing officer's statement indicated that he would consider
whether Volkswagen's allocation methodology complied with the
terms of the statute. In view of the statute's requirements,
such a determination could not be made without considering
national importation figures and their relationship to the
number of new vehicles being shipped to Miller. Thus,
Volkswagen has not waived the argument that it advances here.
We resolve the substance of Volkswagen's argument by
examining the language of Code § 46.2-1569(7). Under basic
rules of statutory construction, we determine the General
Assembly's intent from the words contained in the statute.
Woods v. Mendez, 265 Va. 68, 74, 574 S.E.2d 263, 266 (2003);
Vaughn, Inc. v. Beck, 262 Va. 673, 677, 554 S.E.2d 88, 90
(2001); Cummings v. Fulghum, 261 Va. 73, 77, 540 S.E.2d 494, 496
(2001). When the language of a statute is plain and
unambiguous, courts are bound by the plain meaning of that
language. Woods, 265 Va. at 74-75, 574 S.E.2d at 266;
Industrial Dev. Auth. v. Board of Supervisors, 263 Va. 349, 353,
559 S.E.2d 621, 623 (2002); Cummings, 261 Va. at 77, 540 S.E.2d
at 496. Thus, when a statute's language is unambiguous, courts
10
cannot give that language a construction that amounts to holding
that the General Assembly did not mean what it actually has
stated. Mozley v. Prestwould Bd. of Dirs., 264 Va. 549, 554,
570 S.E.2d 817, 820 (2002); Lee County v. Town of St. Charles,
264 Va. 344, 348, 568 S.E.2d 680, 682 (2002); Vaughn, Inc., 262
Va. at 677, 554 S.E.2d at 90.
We conclude that the language of Code § 46.2-1569(7) is
plain and unambiguous. This language required the Commissioner
to consider the actual monthly shipments that Volkswagen made to
Miller in relation to the number of new vehicles imported by
Volkswagen on a national level in the particular vehicle
categories covered under Miller's franchise agreement. The
statute further required that the Commissioner, in conducting
this examination, determine whether Miller obtained the number
of such vehicles needed to receive a percentage of new vehicle
sales "equitably related" to the number of these types of
vehicles imported by Volkswagen nationally.
The Commissioner did not undertake this required analysis.
Instead of addressing the actual number of vehicles Miller
received from Volkswagen in relation to national importation
numbers, the Commissioner merely examined the component parts of
Volkswagen's vehicle allocation methodology, and adjustments
made to that process, to determine whether they were "fair" in
their application to small dealers such as Miller. Thus, in
11
basing his determination on Volkswagen's vehicle allocation
methodology, the Commissioner wholly failed to consider the
national importation numbers for the types of vehicles covered
under Miller's franchise agreement. This omission was followed
by the Commissioner's failure to address whether Miller received
the number of vehicles needed to receive a percentage of new
vehicle sales "equitably related" to the quantity of these types
of vehicles imported on a national level. 1
"An erroneous interpretation of a statute by those charged
with its enforcement cannot be permitted to override [the
statute's] clear meaning. Amendments of statutes can only be
made by the legislature and not by the courts or administrative
officers charged with their enforcement." Hampton Roads
Sanitation Dist. Comm'n v. City of Chesapeake, 218 Va. 696, 702,
240 S.E.2d 819, 823 (1978); see also Hurt v. Caldwell, 222 Va.
91, 97, 279 S.E.2d 138, 142 (1981); City of Richmond v. County
of Henrico, 185 Va. 176, 189, 37 S.E.2d 873, 879-80 (1946).
1
We find no merit in Miller's contention that the
Commissioner was limited to examining Volkswagen's vehicle
allocation methodology because Volkswagen's records were
inadequate to undertake an actual shipment analysis and Miller
received an artificially high number of vehicles after filing
its complaint. If the information available to the Commissioner
was inadequate to make the required statutory determination, he
was required to obtain the necessary information, rather than
undertake an analysis that did not comport with the terms of the
statute.
12
The Commissioner's erroneous statutory interpretation
resulted in Volkswagen improperly being found in violation of
the statute absent any analysis of the actual shipments received
by Miller in relation to the relevant national importation
numbers achieved by Volkswagen. Thus, because the
administrative agency charged with enforcement of the statute
failed to undertake the analysis and make the predicate finding
required by the statute, the agency's resulting determination
must be set aside. See Browning-Ferris Indus. of S. Atl., Inc.
v. Residents Involved in Saving the Env't, Inc., 254 Va. 278,
284-85, 492 S.E.2d 431, 435 (1997).
We also observe that the Court of Appeals, in its analysis
of the Commissioner's decision, incorrectly held that the
Commissioner may base his determination whether a distributor
violated Code § 46.2-1569(7) on the distributor's vehicle
allocation methodology. This holding was incorrect because it
improperly focused on the business judgment of Volkswagen,
rather than on the actual shipments to Miller, the relevant
national importation figures, and whether there was an
"equitable" relationship between those numbers as mandated by
the statute. Accordingly, we hold that the Court of Appeals
erred in affirming that portion of the circuit court judgment
13
upholding the Commissioner's determination that Volkswagen
violated Code § 46.2-1569(7). 2
Because our conclusion regarding the Commissioner's
erroneous application of the statute decides the merits of this
appeal, we do not reach the constitutional issues raised by
Volkswagen. Our decision in this regard reflects the
established principle of constitutional law that a court will
not rule upon the constitutionality of a statute unless such a
determination is absolutely necessary to decide the merits of
the case. Klarfeld v. Salsbury, 233 Va. 277, 286, 355 S.E.2d
319, 324 (1987); Keller v. Denny, 232 Va. 512, 516, 352 S.E.2d
327, 329 (1987); see also Tran v. Gwinn, 262 Va. 572, 583, 554
S.E.2d 63, 69 (2001). The fact that the present case will be
remanded and that the constitutional issues may arise again does
not affect our obligation to adhere strictly to this principle.
Klarfeld, 233 Va. at 286, 355 S.E.2d at 324. Therefore, we will
vacate that portion of the Court of Appeals' judgment holding
that Code § 46.2-1569(7) does not violate the Commerce Clause of
the United States Constitution and is not unconstitutionally
vague.
For these reasons, we will reverse in part, and vacate in
part, the judgment of the Court of Appeals and remand the case
2
Based on our resolution of the merits of this appeal, we
need not consider the various procedural issues raised by
14
to the Court of Appeals for ultimate remand to the Commissioner
for further proceedings consistent with the principles expressed
in this opinion.
Reversed in part,
vacated in part,
and remanded.
Volkswagen.
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