Federal regulators not only are suing Volkswagen; now members of its franchised dealer network are taking action.

Three family-owned Volkswagen dealers filed a class action against the automaker on Wednesday stating that the OEM intentionally defrauded dealers by installing so-called “defeat devices” in its diesel vehicles, and separately carried out a systematic, illegal pricing and allocation scheme that favored some dealers over others and illegally channeled financing business to the captive finance arm VW Credit.

Hagens Berman is representing three Volkswagen dealerships owned by Ed Napleton, who with his family have been involved in the business in the Chicago area for three generations.

The lawsuit, filed in the U.S. District Court for the Northern District of Illinois, stated that in the midst of VW’s “Dieselgate” scandal, in which it admitted to installing an illegal “defeat device” emissions-cheating software in more than 550,000 U.S. diesel vehicles, the automaker’s affiliate in charge of its dealer network withheld all information about the scandal from current and prospective dealers, even though it was aware of the issue since at least as early as 2014.

The suit goes on to say that VW’s deception, coupled with the drop in value of diesel vehicles, the inability of franchise dealers to sell diesel vehicles and the loss in value of the VW brand delivered a “devastating” blow to dealers’ profits and the value of their franchises.

“What is really discouraging and led me to file this lawsuit is that Volkswagen has wholly failed to respond to dealer concerns in a substantive manner,” Ed Napleton said. “It has talked for months about multiple plans, but done nothing and left us dealers in the red, and in limbo.”

In a message to Auto Remarketing, VW said, “Volkswagen is reviewing the complaint. The company is committed to resolving the U.S. regulatory investigation into the diesel emissions matter as quickly as possible and to implementing a solution for affected vehicles, as we work to earn back the trust of our customers and dealers and the public.”

Wednesday’s developments arrived only about a week after the Federal Trade Commission charged that Volkswagen deceived consumers with the advertising campaign it used to promote its “clean diesel” VWs and Audis, which the regulator said Volkswagen fitted with illegal emission defeat devices designed to mask high emissions during government tests.

The FTC is seeking a court order requiring Volkswagen to compensate American consumers who bought or leased an affected vehicle between late 2008 and late 2015, as well as an injunction to prevent Volkswagen from engaging in this type of conduct again.

“The challenges facing VW now include legal action initiated by its own dealers,” Kelley Blue Book senior analyst Karl Brauer told Auto Remarketing when learning of the latest suit. “The scope of the issue hasn’t yet stabilized even as VW works to finalize a solution.

“With multiple deadlines looming in the next few weeks, a resolution should surface soon, but it’s apparently too late to satisfy dealers who feel they’ve suffered excessively as a result of the ongoing diesel stop-sale order,” Brauer added.

During the same span mentioned in the FTC matter, this dealership lawsuit stated Volkswagen also allegedly forced franchise dealers into a floorplan financing discount system conducted by VW Credit — a company wholly owned by the OEM — in what the suit called an “incestuous relationship” that put dealers that declined to use the captive at a “competitive disadvantage.”

“For VW dealers — many of which are small, family owned franchises — ‘Dieselgate’ amounts to a classic ‘pump and dump’ operation, in which VW exploited the CleanDiesel eco-friendly market that it helped create, boosting the price of entry and continuation in the market for VW franchises,” said Steve Berman, managing partner of Hagens Berman.

“All the while, VW withheld information about the impending Dieselgate fiasco, and left dealers to fend for themselves as the scandal unfolded,” Berman continued.

The Napleton family is certainly no small company in the franchised dealership segment.

Ed Napleton’s father's and grandfather's business grew from a single Buick service station to several franchises in and around Chicago.

Five of Francis Napleton’s eight children have worked their entire lives in the industry, and today the Napleton family operates more than 50 dealerships in five states.

“In a sickening display of VW’s disregard for its dealer franchisees, Napleton Automotive of Urbana was purchased after VW admitted its fraud to regulators, just three days before the ‘Dieselgate’ scandal made headlines. Yet Volkswagen withheld the truth and pushed the sale through, knowing well that Ed Napleton was purchasing a dealership that would almost immediately plummet in value,” Berman said.

In addition, the dealership suit accuses Volkswagen of abandoning its long standing “stair-step” programs to provide financial assistance to its dealers. While the automaker touted to dealers that it would replace them with new programs with equal or greater benefit, the suit indicated that VW’s abandonment of these programs, “was calculated to quell poor publicity as well as dealer outrage at Volkswagen Group of America conduct and was otherwise calculated to fraudulently induce its dealers and prospective dealers to continue to invest in the Volkswagen brand.”

The suit explained that just as consumers readily purchased what they thought were reliable environmentally friendly vehicles, franchised dealers built new showrooms and purchased new facilities, while heavily stocking lots with CleanDiesel vehicles, based on VW’s false marketing. In VW’s push of its CleanDiesel vehicles, the complaint states that it also “purposely and fraudulently induced its dealers to continue to invest in their dealership facilities and to otherwise benefit VW.”

Berman added, “Franchise owners are now left with lots full of CleanDiesel vehicles they are unable to sell, and these cars have suffered tremendous loss of value and take up inventory space and carrying costs.

“VW dealerships large and small have been at the mercy of an unethical corporation, much like the hundreds of thousands of owners across the country, and we believe it’s time to take a stand for their rights,” he went on to say.

The suit accused VW of engaging in a criminal racketeering enterprise with respect to the ‘Dieselgate’ scandal and violating federal law designed to protect dealers from unfair practices by vehicle manufacturers. It also accused VW of breaching state franchisee protection laws, breaching its franchise dealer agreements and defrauding its franchise dealers.

“Plaintiffs and the franchise dealer class have invested millions, collectively hundreds of millions of dollars in the Volkswagen brand,” the suit said. “But now the brand value has plummeted, sales of VW diesels have completely halted, and sales of all VW cars have plummeted.”