California auto dealers, after failing to stop Scout Motors from selling directly to consumers, sued the startup for what they claim is a breach of California franchise law. 

The California New Car Dealers Association filed the suit in San Diego County Superior Court Tuesday, following Florida Audi and Volkswagen dealers, which sued Scout in February.

The trade group, which represents about 85% of California’s franchised dealers, tried to stop Scout’s direct-sales plans just before the winter holidays with a cease-and-desist letter, but the automaker refused to abandon the sales structure. 

CNCDA claims Volkswagen is illegally competing with its VW dealers through Scout, though VW and Scout say Scout operates independently of VW as a sister company, according to Automotive News.

The trade group said it has 45 VW dealers in its membership but that the lawsuit “sends a message to every automaker.”

Its president, Brian Maas, said in a press release announcing the lawsuit that “VW dealers would welcome the opportunity to sell Scout trucks and SUVs, but their manufacturer business partner is denying them that opportunity, in direct violation of California law. 

“Volkswagen can’t pick and choose which vehicles to sell on its own or through its franchised dealer network, reserving the most profitable or desirable vehicles for itself. Illegal competition will harm not only dealers but also the communities and car buyers that they serve. That is why the Legislature unanimously approved this important law.” 

CNCDA alleges both unfair competition and false advertising and, along with stopping direct Scout sales, seeks civil penalties it said could surpass $35 million.

Kjell Gruner, CEO of VW’s American arm, told Automotive News at the New York Auto Forum this month preceding the city’s annual auto show that he understands franchised VW dealers’ perspective about Scout’s sales plans, though he said VW has no control over Scout’s business decisions.

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