Federal Court Upholds Dealers' Right to State Forum in Franchise Dispute Against Volkswagen

In a significant decision for Illinois auto dealers, on July 16, 2025, the U.S. District Court for the Northern District of Illinois granted a motion to remand a motor vehicle franchise protest filed by 33 Illinois Volkswagen and Audi dealers against franchiser, Volkswagen Group of America, Inc., sending the case back to the Illinois Motor Vehicle Review Board, where it was initially filed. Burke, Warren, MacKay & Serritella attorneys represent the dealers in the protest and in the federal proceedings.

The protest had initially been filed before the Board last fall, after Volkswagen Group announced plans to recover the cost of complying with Illinois warranty reimbursement laws by imposing a “surcharge” on dealers based on the number of vehicles they sold. The dealers argue that Volkswagen’s “surcharge” violates Section 6 of the Illinois Motor Vehicle Franchise Act (815 ILCS 710/6), which prohibits manufacturers from seeking to recover their own warranty costs by imposing fees or surcharges on dealers. The dealers also argue that Volkswagen Group’s purported cost recovery “surcharge” is simply an attempt to pass Volkswagen’s own consumer warranty costs on to Illinois dealers, who do not make the vehicles or issue the warranty to customers.

In 2022, Volkswagen Group filed a lawsuit in federal court to declare portions of Section 6 of the Illinois Franchise Act unconstitutional, but that claim was dismissed last year (Volkswagen Group v. Giannoulias (732 F. Supp. 3d 914 (N.D. Ill. 2024)). Based on the prior Giannoulias decision, Volkswagen attempted to remove the dealers' protest from the Board to the federal court, arguing that the protest raised the same federal issues that had been considered in the Giannoulias case. However, the federal court (the same District Judge that had heard the Giannoulias case) rejected that argument, holding that the dealers’ claims were rooted squarely in state law, and that no federal question jurisdiction existed. The federal court also found that the Illinois Motor Vehicle Review Board is not a “state court” within the meaning of the federal removal statute, and that the state’s strong interest in enforcing its own franchise laws outweighed any federal interest in adjudicating the case.

This ruling is a major affirmation of Illinois dealers’ right to challenge unlawful conduct by manufacturers in an expedient and specialized forum intended to address disputes regarding the state’s franchised dealerships. For more information or questions about this case or the Illinois Motor Vehicle Franchise Act, please contact Burke Warren attorneys Ira Levin (ilevin@burkelaw.com) or Eric VanderPloeg (evanderploeg@burkelaw.com).