CCPA Compliance Handbook – Third Edition
August 25, 2020 Update: Page 40 of the Handbook was updated to include new information on authorized agents and updated citation references.
Published in July 2020, the Third Edition of the California Consumer Privacy Act (CCPA) Compliance Handbook includes revisions that reflect the final regulations issued by the California Attorney General (AG) in June 2020.
The following documents may also be downloaded in Word format, so that they may be customized for individual use by dealerships:
New Motor Vehicle Board Resources
The California New Motor Vehicle Board (NMVB) has a very extensive website which is very helpful in explaining how the Board works. The website is at www.nmvb.ca.gov. Below are some of the features of the website.
Guide to the New Motor Vehicle Board. The Board publishes a very detailed Guide to the New Motor Vehicle Board which includes the Board’s organization, jurisdiction, operations, and procedures. This Guide covers all aspects of the Board’s operations and also has sample forms. The Guide is a must for any dealer or dealer attorney desiring information about the Board or who is involved in any proceeding before the Board. It is available at https://www.nmvb.ca.gov/publications/nmvb_guide_2020.pdf.
Informational Guide for Manufacturers and Distributors. The Board publishes an Informational Guide for Manufacturers and Distributions to help them comply with California’s vehicle franchise and manufacturer laws. The publication is for use by manufacturers and distributors in their market representation, dealer development, and legal departments. This publication is available on the NMVB website or by contacting NMVB staff.
Guide for Protests over Export Policies. The Board publishes an Export or Sale-For-Resale Prohibition Policy Protest Guide for help in filing protests under Vehicle Code §§ 3085, et seq.) This publication is available on the NMVB website or by contacting NMVB staff.
Administrative Law Judges Benchbook. The Board publishes an Administrative Law Judges Benchbook which is primarily for use by the administrative law judges or Board members acting as presiding officers in hearings before the Board. This Benchbook can be helpful for those practicing before the Board. It is not available on the Board’s website, but can be obtained by a public records request to the Board. The Board provides Guidelines for Access to Public Records which can be seen by using the Publications tab on the homepage of the Board’s website.
Court Cases Dealing with the Board. The Board’s website has a list of various court cases dealing with the Board in the areas of the Board’s composition, constitutionality, and due process issues; exhaustion of administrative remedies; judicial review, jurisdiction; termination or modification of a franchise; establishment of an additional franchise or franchise relocation; hearing on protests; recovery of damages and injunctive relief; writ of mandamus; ex parte communications; and unlawful acts. This list is available by using the Publications tab on the homepage of the Board’s website.
Legal Program. The Board’s website has a Legal Program section which includes a detailed discussion about filing petitions and protests with the Board. It also contains the text of laws that apply to the Board in the California Vehicle Code and the California Code of Regulations, and a discussion of the Board’s rulemaking authority and process. This information can be found by using the Legal Program tab on the homepage of the Board’s website.
Final Decisions of the Board. The Board’s website allows access to copies of final decisions of the Board regarding petitions, protests, and dispositive motions. These decisions are available by clicking the Final Decisions tab on the homepage of the Board’s website.
New Motor Vehicle Board Forms. The Board publishes many forms for use in Board proceedings which are available by clicking on the Forms tab on the homepage of the Board’s website.
Agenda and Minutes of Board Proceedings. Agenda and minutes of the Board’s meetings are available by clicking on the Meetings tab on the homepage of the Board’s website.
Board Consumer Mediation Services. The Board offer an informal, no-cost, dispute resolution program for consumers with a complaint against new motor vehicle dealers, or vehicle manufacturers or distributors licensed to do business in California. See the Consumer Program tab on the homepage of the Board’s website for more details.
Arbitration Clauses in Franchise Agreements
A federal law enacted in 2002 prohibits manufacturers from forcing dealers in franchise agreements that are entered into, amended, altered, modified or extended after November 2, 2002, to use mandatory binding arbitration as the exclusive means to resolve disputes. The new law allows dealers the option, after the controversy has arisen, to elect either arbitration, or utilize the New Motor Vehicle Board.
It is important for dealers to remember that manufacturers cannot insist on binding arbitration for any franchise agreement. The two exceptions to keep in mind are franchise agreements that have not been amended, altered, modified, renewed, or extended since November 2, 2002 and agreements with manufacturers or their affiliates that are not franchise agreements. For example, captive finance company loan documents are not franchise agreements and are therefore not covered.
Some agreements between the manufacturer itself and a dealer can fall into a true grey area, such as such as facilities assistance agreements. Such agreements exist only to further operation of a franchise, but the argument can be made that such agreements do not, in and of themselves, qualify as franchise agreements and, therefore, are exempt. Dealers therefore should not assume that the federal law limiting arbitration clauses in franchise agreements will automatically nullify all factory-drafted arbitration clauses.
Text of the Law
Section 1226 of Title 15 of the United State Code: (a) Election of arbitration (1) Definitions. For purposes of this subsection-(A) the term “motor vehicle” has the meaning given such term in section 30102(6) of title 49; and (B) the term “motor vehicle franchise contract” means a contract under which a motor vehicle manufacturer, importer, or distributor sells motor vehicles to any other person for resale to an ultimate purchaser and authorizes such other person to repair and service the manufacturer’s motor vehicles. (2) Consent required. Notwithstanding any other provision of law, whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy. (3) Explanation required. Notwithstanding any other provision of law, whenever arbitration is elected to settle a dispute under a motor vehicle franchise contract, the arbitrator shall provide the parties to such contract with a written explanation of the factual and legal basis for the award. (b) Application. Subsection (a) shall apply to contracts entered into, amended, altered, modified, renewed, or extended after November 2, 2002.
California Vehicle Code § 11713.3(g)(1)(D): It is unlawful and a violation of this code for a manufacturer, manufacturer branch, distributor, or distributor branch licensed pursuant to this code to do, directly or indirectly through an affiliate, any of the following: Except as provided in paragraph (3), to obtain from a dealer or enforce against a dealer an agreement, provision, release, assignment, novation, waiver, or estoppel that does any of the following: (D) Requires a controversy between a manufacturer, manufacturer branch, distributor, distributor branch, or representative and a dealer to be referred to a person for a binding determination. However, this subparagraph does not prohibit arbitration before an independent arbitrator, provided that whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of, or relating to, that contract, arbitration may be used to settle the controversy only if, after the controversy arises, all parties to the controversy consent in writing to use arbitration to settle the controversy. For the purpose of this subparagraph, the terms “motor vehicle” and “motor vehicle franchise contract” shall have the same meanings as defined in Section 1226 of Title 15 of the United States Code. If arbitration is elected to settle a dispute under a motor vehicle franchise contract, the arbitrator shall provide the parties to the arbitration with a written explanation of the factual and legal basis for the award.
It is important to recognize that binding arbitration between a dealer and its franchisor can only occur if all parties (the dealer and the manufacturer) agree, after a controversy has arisen, consent in writing to use arbitration to settle the controversy.
Protecting and Asserting Franchise Rights
Dealers enjoy a wealth of protections under the franchise laws. But it is important that dealers protect, preserve, and assert, where appropriate, their rights under these laws.
A critical element in protecting franchise rights is to have a good record retention and recordkeeping system in place with respect to all franchise matters, including agreements, documents, correspondence, email, memoranda, and reports (paper and web-based) issued by or exchanged with the franchisor. With the advent of web-based documents in lieu of paper documents, dealers should conduct a periodic (such as monthly) “data dump” of documents posted on the factory’s dealer reports and dealer documents website. Relying on the documents remaining on the website for years until needed is dangerous; not only can the factory change the documents at any time without notice, the dealer’s ability to access the documents can also change instantly, especially if a dispute between the dealer and factory were to arise.
If a dealer must assert franchise rights in court or before the New Motor Vehicle Board, the fight is almost always based on documents, and on what was done with or after receipt of documents. The better the recordkeeping system, the more credible will be the dealer’s story of their own franchise investment and operational history, and of the dealer’s efforts to “do the right thing” when the franchisor voiced any complaints.
Protests concerning an additional dealership, relocation, termination, or franchise modification all involve determination of good cause, including permanency of the investment. Dealers should have not only accounting records demonstrating their investment, but all other documents reflecting the investment, including agreements, promissory notes, leases, real estate purchase agreements, deeds, construction contracts, minutes discussing and/or approving any investment, etc. These documents help to give life to the dealer’s contention that a large, permanent investment has been made in the franchise. Another important area to have documented is all community benefit/charitable work in which the dealership is involved.
Respond to Factory Communications
Dealers must not ignore any communication from the franchisor alleging any sort of dealer failure or deficiency. The dealer must respond in a documented way to ensure the paper record is clear that the dealer cared about the issue and advised the franchisor of the dealer’s plan to address it, or of the dealer’s careful determination that the alleged failure or deficiency is incorrect or inapplicable to the dealer’s circumstances.
Dealers should also be aware most franchisor representatives complete a “contact report” after each visit. This document goes into the dealer file and purports to memorialize the discussion with the dealer. Dealers finding themselves in litigation will see extensive documentation of every performance, staff, advertising, or facility concern ever raised by manufacturer reps, as well as a few not previously discussed. Dealers can create their own record of events by sending a quick email to their rep thanking them for their visit and recounting the discussion.
Conduct Due Diligence before Signing any Document Requested by the Franchisor
When manufacturers want dealers to sign documents, they can apply relentless pressure, employing not only letters, email, and phone calls, but also personal visits by factory representatives. But dealers must conduct due diligence before signing anything from the factory. It is entirely possible that the document will modify or affect the dealer’s rights.
For example, a dealer who had asserted that the factory’s reassignment of the dealer’s PMA (primary market area) zip codes was ineffectual because it was done without giving the dealer notice and the right to protest the change was later asked to sign a dealer contract that was identical to the previous contract, with only the dates updated. The dealer was told that the factory was simply renewing the existing dealer agreement. But by signing that contract, the dealer became bound to a clause in the terms and conditions incorporated into it that provided that the dealer accepts the PMA as last announced by the manufacturer. Dealers should consider having all agreements that require a signature received from the factory reviewed by legal counsel prior to signing.
Keep Track of Deadlines
As summarized in this manual, several deadlines exist with respect to the assertion of dealer rights, including, for example, the time to rebut an incentive audit chargeback, the time to protest a reduction in warranty compensation, a time to file an add-point protest. Any communication from a manufacturer that states certain action by the factory is coming up should be carefully checked against any possible upcoming deadline by which the dealer’s rights must be asserted.
Under Vehicle Code § 3050(b), which prior to 2020 was § 3050(c), any person may petition the New Motor Vehicle Board to consider any matter concerning the activities of any person applying for or holding a license as a new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative.
Text of the Law
California Vehicle Code § 3050(b): The board shall do all of the following:
(b) Consider any matter concerning the activities or practices of any person applying for or holding a license as a new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative pursuant to Chapter 4 (commencing with Section 11700) of Division 5 submitted by any person. A member of the board who is a new motor vehicle dealer may not participate in, hear, comment, advise other members upon, or decide any matter considered by the board pursuant to this subdivision that involves a dispute between a franchisee and franchisor. After that consideration, the board may do any one or any combination of the following:
(1) Direct the department to conduct investigation of matters that the board deems reasonable, and make a written report on the results of the investigation to the board within the time specified by the board.
(2) (A) Undertake to mediate, arbitrate, or otherwise resolve any honest difference of opinion or viewpoint existing between any member of the public and any new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative.
(B) The board does not have jurisdiction over a dispute pursuant to this paragraph involving any member of the public, including a consumer or other person who is not applying for or holding a license as a new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative pursuant to Chapter 4 (commencing with Section 11700) of Division 5, unless that person has filed the dispute with the board or consents to jurisdiction by the board.
(3) Order the department to exercise any and all authority or power that the department may have with respect to the issuance, renewal, refusal to renew, suspension, or revocation of the license of any new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative as that license is required under Chapter 4 (commencing with Section 11700) of Division 5.
California Vehicle Code § 512: A “representative” is any person regularly employed by a manufacturer or distributor for the purpose of negotiating or promoting the sale of the manufacturer’s or distributer’s vehicles to their franchisees or for regularly supervising or contacting franchisees or prospective franchisees in this state for any purpose.
Jurisdiction for Common Law and Statutory Claims Originally Cognizable in the Courts
Vehicle Code § 3050(e) states: Notwithstanding subdivisions (b)[Petitions], (c) [Franchisee Protests], and (d) [Association Protests over Factory Export Policies], the courts have jurisdiction over all common law and statutory claims originally cognizable in the courts. For those claims, a party may initiate an action directly in any court of competent jurisdiction.
Vehicle Code § 3050(e) was effective on January 1, 1998. Before that date there were a series of appellate court cases in the 1990s wrestling with whether parties to lawsuits should have first exhausted their administrative remedies by going to the New Motor Vehicle Board first before filing an action in court. Many of the 1990 cases had ruled that for common law and non-protest cases, the parties did not have to go to the Board first. Vehicle Code § 3050(e) codified those decisions. Citations to court cases dealing with these issues can be found in the Exhaustion of Administrative Remedies and Jurisdiction sections in Chapter 46, New Motor Vehicle Board Resources.
Jurisdiction of the Board for Petitions under Vehicle Code § 3050(b)
There was a time when the Board accepted petitions to resolved controversies between dealers and factories. That all changed in 2003 with the court opinion of the California Court of Appeal in the case of Mazda of America, Inc. v. New Motor Vehicle Board and David J. Phillips Buick-Pontiac, Inc. (2003) 110 Cal.App.4th 1451. In that case a dealer, by a petition to the Board under Vehicle Code § 3050(c) (now § 3050(b)), asked the Board to resolve the legality of the factory’s turndown of a purchaser with whom the dealer had entered into an agreement to sell it business. The court decided that Vehicle Code § 3050(c) did not give the Board the authority to resolve and adjudicate a dispute between a dealer and a factory. The court in effect said that for purposes of the statute the dealer would not be considered to be a “member of the public” entitled to file a petition to resolve dealer-factory disputes. As a result the only persons who can petition the Board for an adjudication by the Board under Vehicle Code §3050(b)(2) are members of the public and not Vehicle Code licensees.
In the Mazda case, however, the court stated that a dealer could file a petition with the Board and have the Board consider the activities of the factory or any other licensee. After the Board’s consideration the Board may (1) direct the DMV to conduct an investigation of the matter the Board deems reasonable and make a written report to the Board, and/or (2) order the DMV to exercise all power it has with respect the license held by the factory, another dealer, or any other person or entity licensed under Chapter 4 (commencing with Section 11700) of Division 5 of the Vehicle Code. For example, if a dealer believed another dealer was competing unfairly with illegal advertising, such a dealer could file a petition with the Board and ask the Board to take the action noted above, especially if the filing dealer was not receiving any response to a complaint that had been made to the DMV. Vehicle Code § 3050(b) might also be interpreted as allowing a petition for the Board to consider other activities or practices not covered by Vehicle Code §§ 11700-11762.
Process for Filing Petition with the Board; Contents of Petition; Answer to Petitions
The petition process begins with the filing by any person of a petition with the Board and requesting that the Board consider the matter and take action on it.
There is a $200 filing fee.
Section 555 of Title 13 of the California Code of Regulations provides for the content of the petition as follows:
The petition shall set forth in clear and concise language the nature of the matter which the petitioner wishes the Board to consider. The petition shall comply substantially with the following requirements:
(a) Include the name, mailing address and telephone number of the petitioner; the name, mailing address and telephone number of his or her attorney or authorized agent if any, and the name and address of the licensee or applicant for license (hereinafter referred to as “respondent”) whose activities or practices are in question. All correspondence with petitioner and notices to petitioner shall be addressed to petitioner’s said address, if he or she appears in person, or to the address of his or her attorney or agent, if he or she is represented by an attorney or agent. Petitioner shall promptly give the executive director and respondent written notice by mail of all subsequent changes of address or telephone number.
(b) Insofar as is known to petitioner, include the names, residence addresses and business addresses of persons and the dates, places and specific actions or practices involved in the matter.
(c) If the actions or practices described in the petition are believed to be in violation of law, a concise recitation of applicable law and citation to the applicable statutes or other authorities.
(d) If the petitioner desires that the board mediate, arbitrate or resolve a difference between the petitioner and respondent, recite that fact and describe the relief or disposition of the matter which petitioner would consider acceptable.
(e) The petitioner may submit, as exhibits to the petition, photographic, documentary or similar physical evidence relevant to the matter referred to in the petition, in which event an appropriate description of the exhibits shall be set forth in the petition sufficient to identify them and to explain their relevancy.
(f) The petitioner shall set forth in the petition an estimate of the number of days required to complete the hearing.
(g) The petitioner shall set forth in the petition a request for a prehearing conference if one is desired.
Section 558 of the California Code of Regulation provides that the responding party must file an answer to the petition within 30 days of the date of service of the petition and provides the form and content of the answer.
Notice to Respondent; Board’s First Consideration
Section 557 of the California Code of Regulations provides: (a) Upon the filing of a petition with the board, a copy of the petition shall be transmitted by the executive director of the board to each member of the board for consideration. Unless, within 10 days of receipt of a copy of the petition, any member of the board notifies the executive director of an objection, the executive director shall set the matter for a hearing before an administrative law judge designated by the board.
(b) If any member of the board gives notice of objection within 10 days of receipt of a copy of a petition, the petition shall be first considered by the board at its next meeting to determine what action shall be taken in regard to the petition. Upon receipt by the executive director of a notice of objection, the executive director shall notify the parties named in the petition that there has been an objection and that the matter will be considered by the board at its next meeting. The parties shall also be given a minimum of 10 days prior notice of the time, date, and location of the board meeting at which the petition will be considered.
Board resolution of Petitions under Vehicle Code §§ 3050(b)(1) and (3) without a Hearing
The New Motor Vehicle Board’s Guide to the New Motor Vehicle Board states the following with regard petitions under Vehicle Code §§ 3050(b)(1) and (3) which are discussed above.
“If the petitioner is a licensee or member of the public seeking relief under Vehicle Code section 3050(c)(1) and/or (3), these petitions would not be submitted to the Board for first consideration (13 CCR 557), as the authority for first consideration,
limits first consideration to matters in which a hearing is sought, i.e., Vehicle Code section 3050(c)(2) petitions. These petitions would be agendized for consideration of the relief requested by the Petitioner at the next regularly scheduled meeting. Such petitions are not assigned to an ALJ and are not subject to the normal evidentiary hearing process. The Board members, at a noticed meeting, would hear from the parties by way of written and oral arguments, and consider granting the relief requested. After consideration, the public members of the Board shall take final action and issue a written decision that either grants the appropriate relief pursuant to Vehicle Code section 3050(c)(1) or (c)(3), or orders the petition dismissed.
The public members of the Board may also request further briefing and/or the submission of further evidence and continue the matter to a later open meeting for consideration and final action.”
For petitions seeking adjudication by the Board between a member of the public and a licensee under Vehicle Code § 3050(b)(2) the Board retains the authority to mediate the matter or appoint an administrative law judge to hear the matter.
Processes for Board Adjudication under Vehicle Code § 3050(b)(2)
The processes for Board Adjudication under Vehicle Code § 3050(b)(2) between a member of the public and a licensee are very similar to the processes for protests set forth in Chapters 41 and 42. Here is a list of some of the important ones. Some of the items on this list may also apply to petitions under Vehicle Code § 3050(b)(1) and (3).
- The Board may allow discovery by processes similar to those in civil litigation in California See Vehicle Code § 3050.1.
- A party may disqualify a Board member or administrative law judge. See 13 California Code of Regulations §§ 551.7 and 551.2(b).
- A party may file a motion to intervene in the petition proceeding. See 13 California Code of Regulations § 551.13.
- The Board may order a mandatory settlement conference. See Vehicle Code § 3050.4.
- The Board may adopt stipulated orders and decisions. See Vehicle Code § 3057.1.
- Three members of the Board constitute a quorum. See Vehicle Code § 3050.1 for disputes between licensees.
- See 13 California Code of Regulations § 556 for the form and filing of the petition.
- Additional evidence and argument may be submitted in support of the petition. See 13 California Code of Regulations § 556.
- See 13 California Code of Regulations § 556 for actions that may be taken by the Board over petitions.
- The Board decision must be in writing and served on the parties. See 13 California Code of Regulations § 556.
- The Board may dismiss the petitions. See 13 California Code of Regulations § 551.8.
- See 13 California Code of Regulations § 580 for the procedure at hearings.
- The Board may allow amicus curiae briefs. See 13 California Code of Regulations §551.13.
Informal Mediation for Vehicle Code § 3050(b)(2) Petitions
Prior to initiating a petition to the Board for adjudication of a controversy between a member of the public and a licensee, either party may request that the Board mediate the controversy. See 13 California Code of Regulations §§ 551.14-551.17 for the mediation process and the right to convert the mediation to a petition.
Protests against Establishment or Relocation of a Dealership
Almost nothing rivals the interest and very often the confusion generated in dealers when provoked by a rumor, or receipt of notice, that a new dealer of the same line-make is going to be established in the dealer’s area, or an existing dealer of the same line-make is going to be relocated in the area. Immediate questions arise as to what is meant by relevant market area; how is the distance measured; how far does an existing dealer have to move to constitute a relocation; when is the reopening of a point the addition of a new dealer; what can be done to prevent the addition, relocation or reopening; how much time there is to file a protest; how long a protest will take to be decided; and inevitably, of course, how much a protest will cost and what the chances are of prevailing?
These cases are extremely complicated, time consuming and usually very expensive. The protesting dealer or dealers have the burden of proof to show that good cause exists for not allowing the establishment or relocation in question. Statistically, dealers who have filed protests in this area have had considerable difficulty in sustaining this burden of proof. This is not to say, however, that you should not file a protest. Dealers do prevail in some of the cases and in other cases the dealer’s case is strong enough to support a reasonable settlement at the time of the mandatory settlement conference.
Duty of Manufacturer or Distributor to Give Notice
A franchisor intending to establish an additional franchise of the same line-make, or relocating an existing franchise within a relevant market area where the same line-make is then represented, is required to give written notice of such intention to the New Motor Vehicle Board and to each dealer of the same line-make located within the relevant market area.
The written notice shall contain on the first page, in at least 12-point bold type and circumscribed by a line to segregate it from the rest of the text, the following statement:
“NOTICE TO DEALER: You have the right to file a protest with the NEW MOTOR VEHICLE BOARD in Sacramento and have a hearing on your protest under the terms of the California Vehicle Code if you oppose this action. You must file your protest with the Board within 20 days of your receipt of this notice, or within 20 days after the end of any appeal procedure that is provided by us to you. If within this time you file with the Board a request for additional time to file a protest, the Board or its executive director, upon a showing of good cause, may grant you an additional 10 days to file the protest.”
The relevant market area is as any area within a radius of 10 miles from the site of the proposed new dealership.
The distance is 10 miles as the crow flies from the proposed new site and not the actual driving distance. If a dealer of the same line-make is outside this 10-mile radius, the dealer has no right to file a protest. If a dealer is outside this 10 mile radius, but nevertheless contends that his or her franchise will be substantially affected by the addition or relocation, consideration should immediately be given upon learning of the proposed addition (being outside the 10 mile radius, no written notice will be received) as to whether such addition or relocation would constitute a modification of the dealer’s franchise under Vehicle Code section 3060 as explained in Chapter 41, Franchise Termination or Modification. A dealer not within the 10-mile relevant market area, but who claims that the new point or relocation will have an adverse effect on the dealer, may file a motion to intervene in any pending Board proceeding to present issues affecting that dealer.
With respect to relocations, a franchisor is not required to give any notice, and no protest is allowed, where the relocation is less than 1 mile from the existing location of the dealership and also is to a location within the same city where the existing dealership is located.
The reopening of a dealership in a relevant market area that has not been in operation for 1 year or more is deemed to be the establishment of an additional dealership and a notice of intent to reopen must be given, and a protest is available to dealers of the same line-make in the relevant market area.
Conversely, if the dealership has only been out of operation for less than a year, it may be reopened without notice and no protest is available.
No protest is available for the establishment of a dealership that is both within the same city, and within one-quarter mile from, the location of a dealership of the same line-make that has been out of operation for less than 90 days.
Vehicle Code section 3062(c) exempts from the notice requirements any display of vehicles at a fair, exposition, or similar exhibit if no actual sales are made at the event and the display does not exceed 30 days. The statute further provides that a new vehicle dealer is not prohibited from establishing a branch office for the purpose of selling vehicles at a fair, exposition, or similar exhibit, even where the event is sponsored by a financial institution such as a credit union, or by a dealer and a financial institution; however, the establishment of such a branch office must be in accordance with the provisions of Vehicle Code section 3062. In other words, to open such a branch office, the manufacturer must give the notice required by section 3062 to the Board and to any dealers of the same line-make within the 10 mile relevant market area, and any such dealer of the same line-make in the relevant market area has a right to file a protest with the Board.
Upon giving the notice, the franchisor cannot proceed to establish the new franchise or relocate an existing one until the time expires for the filing of a protest, and in the event a protest is filed, until such time as the protest is finally determined.
If a manufacturer or distributor gives a dealer approval to conduct an off-site sale where there is an existing dealership of the same line-make within a radius of 10 miles of the location proposed for the off-site sale, this action is subject to protest by the dealer whose franchise is located in that area.
Satellite Warranty Facilities
If a franchisor seeks to enter into a franchise that authorizes a satellite warranty facility to be established at, or relocated to, a proposed location which is within two miles of any dealership of the same line-make, the franchisor must first give notice in writing of the franchisor’s intention to establish or relocate a satellite warranty facility at the proposed location to the Board and each franchisee operating a dealership of the same line-make within two miles of the proposed location. Within 20 days of receiving the notice, or within 20 days after the end of any appeal procedure provided by the franchisor, any franchisee required to be given the notice may file with the Board a protest to the establishing or relocating of the satellite warranty facility. When such a protest is filed, the Board shall inform the franchisor that a timely protest has been filed, that a hearing is required, and that the franchisor shall not establish or relocate the proposed satellite warranty facility until the Board has held a hearing if the Board has determined that there is good cause for not permitting the establishment or relocation of a satellite warranty facility. In the event of multiple protests, hearings may be consolidated to expedite the disposition of the issue.
“Satellite warranty facility” means any facility operated by a franchisee where authorized warranty repairs and service are performed and the offer for sale or lease, the display for sale or lease, or the sale or lease of new motor vehicles is not authorized to take place.
Right to File Protest and Time within Which to File
Just as in termination cases, a dealer or dealers objecting to the proposed establishment or relocation of a dealership of the same line-make within the relevant market area may by the filing of a protest automatically stay the action contemplated by the franchisor until the protest is determined.
The protest must be filed within 20 days of a dealer’s receipt of the franchisor’s notice of intent, and must be accompanied by the $200 filing fee made payable to the Board. The statute also permits the executive director or the Board upon request and a showing of good cause therefore to extend the time to file a protest an additional 10 days. In the event the franchisor has an available appeal procedure for contesting its decision to add or relocate a dealer and this procedure is utilized by the dealer, the 20-day period to file a protest does not begin until the end of the franchisor’s appeal procedure.
Any dealer relying on the manufacturer’s appeal procedure to extend the filing date should consult with an attorney to make sure this is handled properly. To be on the safe side, you can file your protest within 20 days from receipt of the factory notice and then ask the Board to put the proceedings on hold while you utilize the franchisor’s appeal process.
Upon receiving a notice from a franchisor of its intent to establish or relocate a dealership of the same line-make in the relevant market area, it is important that a dealer act immediately in obtaining an attorney. There are many issues to consider on whether to file a protest and your attorney will need all the time he or she can get.
Joint Actions to Exclude Competitors Usually Illegal
The law is clear that joint action among competitors to exclude another competitor from a market is per se illegal, i.e., regardless of proper motives, good excuses or any other considerations, such conduct is always illegal. At first glance, this principle of law would appear to prohibit any joint action between similarly situated dealers in connection with a protest over the establishment of an additional dealership. However, there is a very narrow exception to the illegality of joint conduct when petitioning a government agency, whether it be the executive, legislative or judicial branches. The exception is known as the Noerr-Pennington Doctrine (“Noerr Doctrine”) and it provides that the antitrust laws do not apply to the petitioning of government for some sort of governmental action. The Noerr-Pennington Doctrine is subject to strict scrutiny by the court and the conduct must meet a good faith standard. For example, the Noerr-Pennington Doctrine will not apply if it is found that the action was brought with improper intent and for a sham purpose (i.e., the protesting party was not really looking for government action at all, but used the protest process as a mere cover or camouflage for a program to harm competitors).
There is no clear-cut rule as to when or under what circumstances the Noerr-Pennington Doctrine will be applicable, or what, if any, particular action could be subject to challenge under the sham purpose exception. Nor is there any stock answer for how much leeway a dealer has, or what areas may safely be discussed, in discussions with other dealers concerning the issues involved in the protest. It would appear to be permissible for a dealer to ask other similarly situated dealers whether they will be filing a protest and what attorney, if any, will be representing them in the protest action. It would also appear to be permissible to remind other dealers of the deadline date for initiating the protest action. Joint consultation and action extending beyond routine inquiries could be risky, and you should have the advice of legal counsel in these situations.
Often the franchisor will have solicited waivers from the dealers eligible to file protests prior to sending the notice. See Chapter 4, Franchise Laws–Waivers Illegal, for rules applicable to establishment or relocation waivers. When this occurs, it is important that you get as much information as possible from the representative of the franchisor who seeks such a waiver, making an inquiry about the reasons and facts upon which the franchisor intends to rely. A summary of any meeting or phone calls in this regard should immediately be prepared and retained for transmittal to your attorney upon receiving the franchisor’s notice of intent.
Unlike termination cases where it is usually strictly between the franchisor and dealer, the party seeking to become the new dealer or seeking to relocate within the relevant market area occasionally files an appearance in the proceedings and is denominated “the interested party.”
The interested party may be represented by counsel and is entitled to introduce evidence at the hearing in support of the establishment or relocation. It is the usual practice not to permit the interested party to initiate discovery, and it is also the usual practice not to permit the interested party or his or her attorney to cross-examine witnesses at the hearing. However, the interested party or his or her attorney may attend depositions and the restriction on cross-examination at the hearing is sometimes waived; and if not, is relatively meaningless because it can be done through the attorney representing the franchisor.
Form and Content of Section 3062 Protest
The form, mailing and service requirements except as to time, are the same as those for a protest under Vehicle Code section 3060 explained in Chapter 41, Franchise Termination or Modification, and that chapter should be reviewed in connection with this chapter. The content is also similar except for that portion of the protest strictly relating to the issues relative to why the establishment of the new dealership or relocation of an existing dealership of the same line-make should not be allowed.
Board’s Procedures upon Receiving a Protest
The Board’s procedures upon receipt of a termination protest under Vehicle Code section 3060, including the holding of a pre-hearing conference by tele-phone with all parties, the holding of a mandatory settlement conference, the entering into of a stipulated decision, and the setting of the protest for hearing as set forth earlier in this chapter are equally applicable to protests under Vehicle Code section 3062. See Chapter 41, Franchise Termination or Modification.
Special Significance of Mandatory Settlement Conference in Establishment or Relocation Cases
Trials of Vehicle Code section 3062 cases can be extremely long, and it is not unusual for hearings on these protests to take three or more weeks of actual trial time. Frequently the hearing or trial dates are spread out over a month to two-month period. In addition to the time and legal expense involved, expert testimony is usually required and this involves substantial additional expense.
Because of the time, expense and uncertainty involved in litigation, coupled with the tendency of the decisions in these cases to favor increased competition as being good for the automobile consuming public, serious consideration should always be given to some form of settlement.
There are in many cases legitimate concerns and reasons to support a protest, and in these instances many of these concerns can be realistically addressed and dealt with at a settlement conference. The executive director and Board are authorized to order a mandatory settlement conference and one is routinely held in these cases.
There are a variety of forms a settlement might take, examples of which are straight cash settlements, an agreed delay of the establishment or relocation for a specified period of time, promotional advertising money, special allocations of cars, and other forms of special assistance.
Burden of Proof and Issues to Be Determined
In Vehicle Code section 3062 cases, the burden of proof is on the dealer to establish that there is good cause not to permit the establishment of an additional or relocation of an existing dealership. The Board has sustained very few relocation protests in its history.
In determining whether good cause has been established by the protesting dealer, the Board shall take into consideration the existing circumstances, including, but not limited to, all of the following:
- The permanency of the investment. The Board is unlikely to find a dealer’s investment to not be permanent. The number of years in business, investment or commitment in property, and investment in the facility are typically determined to be permanent.
However, the Board may determine an investment that is minimal, temporary, or speculative is not permanent.
- The effect on the retail motor vehicle business and the consuming public in the relevant market area: This good cause factor requires the Board consider what would be the likely impact of the proposed establishment or relocation to existing dealers. In the case of a proposed establishment, the likely impact will be to increase customer convenience and competition. In a relocation protest, this increase will be far less significant because a new consumer option is not being added to the market. The Board’s analysis is limited to the Relevant Market Area (“RMA”) The RMA is a statutorily created ten (10) mile radius from the location of the proposed new dealership or site of the proposed relocation.
- Whether it is injurious to the public welfare for an additional franchise to be established: This good cause factor goes to the heart of the Board’s determination of whether there exists good cause to prevent to proposed establishment or relocation. Here, the Board will not be swayed by adverse financial impact to existing dealers alone. It must be established the increased competition would threaten the continued viability of the protesting dealer or dealers. Any increase in competition and consumer convenience would be short-lived if it can be shown the proposed market action would eliminate the continued viability of the existing dealer(s).
- Whether the existing dealers of the same line-make in the relevant market area are providing adequate competition and convenient consumer care in the market area, including the adequacy of motor vehicle sales and service facilities, equipment, supply of parts, and qualified service personnel: Again, it is difficult to establish consumer convenience and competition would not increase from the addition of a second point. Nevertheless, the goal here is to develop evidence demonstrating the market is adequately served by the existing dealer network. This good cause factor fits hand in glove with the Board’s consideration of the likely impact to the public welfare. Evidence for this factor may include brand registration performance, customer satisfaction scores, adequately of facilities in the existing dealer network, and customer convenience based on drive time or distance. This factor is again limited to the RMA, but the Board will consider the effect of dealers located just outside the RMA.
- Whether the establishment of an additional dealer would increase competition and therefore be in the public interest. This is at least the third occasion where the Board must make findings concerning the likely increase in competition. Increased competition generally benefits the public welfare. Nevertheless, increased competition that rises to the level of ruinous competition will adversely impact the public welfare. The failure of established business is detrimental to consumers with existing relationships. Moreover, ruinous competition can cause dealers to engage in aggressive business practices that adversely impact consumers.
The Board is required to issue proposed findings on each of the good cause factors. However, no single finding is determinative of the ultimate question of whether good cause has been established to prevent the proposed market action. The Board will balance the interests of the dealer(s) in maintaining viable business(es), the manufacturer’s interest in promoting sales, and the public’s interest in adequate competition and convenient service.
There comes some point in time when and where “overdealering” begins and beneficial competition ends. The evidence which may be presented on this issue can get extremely intricate. To establish that the addition or relocation of a dealership will so tip the scales that it would be better for the public to have one, two or three (or whatever the number depending on the particular market area) healthy dealers as opposed to adding an additional dealer which renders one or more of the existing dealers less healthy involves consideration of a wide spectrum of demographic, marketing, economic, sales and service detail.
This chapter cannot cover all of the intricacies and varieties of evidence which are typically introduced in section 3062 hearings, but some examples are provided to give you some appreciation of what is frequently involved.
Based upon registrations and similar data, manufacturers and distributors regularly compile a wealth of statistics comparing the sale and penetration of their product with total industry sales and/or with their leading competitors. Polk registrations, for example, are supplied according to census tracts nationally.
At any given time, a particular relevant market area, primary market area, metro area, region or zone can be analyzed by zip code, or census tract, to reveal total sales, percentage of total sales of each line-make, and a given dealer’s percentage of sales. These sales may be plotted on a zip code map, or by census tract, and various overlays may be placed on the map to show, for example, the boundaries of each dealer’s primary or relevant market area, or the population of the particular area, or the demographic makeup of the area. Further overlays may be placed on the overlay depicting a particular dealer’s primary market area which will pinpoint all of the dealerships of the same line-make and the dealerships of the leading competitors. Cross/sell data can then be depicted showing, for ex-ample, the percentage of sales a dealer makes in the dealer’s primary market area versus the dealers of the same line-make or versus competing dealers, the percentage of sales the dealer makes in adjoining market areas, the percentage of sales each dealer of the same line-make makes in the dealer’s primary market area, and so forth, depending upon the particular point a party is seeking to establish. The same comparisons as well as many more can be made for the metro area, zone, region or nation.
The evidence can get more complicated when you factor in such things as availability of product, population and economic trends, drive times between dealerships, the relative importance of location near a freeway or shopping center, the buying habits of the public, and profit per new car sold and per each particular model sold (compared to other dealers of the same line-make in the same market area, metro area, zone or region and compared to zone, regional or national averages). Obviously, if a protesting dealer’s gross profit and average grosses per unit and per model are extremely high, or even higher than other dealers of the same line-make in the dealer’s market area, metro area, zone or region, the protesting dealer is going to have an extremely difficult time explaining, let alone sustaining the burden of proof, that increased competition would be harmful to the public.
On the issue of adequacy of service provided in the relevant market area, many comparisons of charges among dealers of the same line-make for various types of repairs are frequently introduced into evidence. This gets more involved when taking into consideration comparisons of the dealer’s flat rate, warranty rate and hourly rate with other dealers of the same line-make. Frequently, a variety of statistics are introduced based on the units in operation of a given line-make in a dealer’s primary market area and the relevant market area, and based on the number of units in operation, the percentage of these which are being serviced by the protesting dealer, and what percentage are being serviced by the surrounding competing dealers.
Finally, at these hearings, expert witnesses frequently can come up with conflicting opinions based on the same evidence and statistics.
The foregoing was designed to show some of the evidence that is considered relevant to the issues in establishment and relocation cases, and give better appreciation of what to look for when contemplating a protest.
Conduct of Hearing and Decision of the Board
The conduct of the hearing, decision by the Board and the right of appeal from the Board’s decision is exactly the same as discussed in Chapter 41, Franchise Termination or Modification.
Protests against Franchise Termination or Modification
Notice Requirement – Termination
The manufacturer cannot terminate an existing dealer’s franchise without first giving written notice to both the dealer and the New Motor Vehicle Board.
This notice must be received by the Board and the dealer at least 60 days before the effective date of the termination and set forth the specific grounds for termination or refusal to continue, unless the reason specified in the notice is one or more of the following, in which case the notice is due 15 days before termination or failure to renew:
- Transfer of any ownership or interest in the franchise without the written consent of the manufacturer;
- Misrepresentation by the dealer in applying for the franchise;
- Insolvency of the dealer or the filing of any petition by or against the dealer under any bankruptcy or receivership law;
- Any unfair business practice after written notice thereof; and
- Cessation of customary sales and service operations for 7 consecutive business days, except for circumstances beyond the control of the dealer or by order of the DMV.
The notice shall contain on the first page in at least 12-point bold type and circumscribed by a line to segregate it from the rest of the text, one of the following statements, whichever is applicable:
(To be inserted when a 60-day notice of termination is given.)
“NOTICE TO DEALER: You have the right to file a protest with the NEW MOTOR VEHICLE BOARD in Sacramento and have a hearing in which you may protest the termination of your franchise under the provisions of the California Vehicle Code. You must file your protest with the Board within 30 calendar days after receiving this notice or within 30 days after the end of any appeal procedure provided by the franchisor or your protest right will be waived.”
(To be inserted when a 15-day notice of termination is given.)
“NOTICE TO DEALER: You have the right to file a protest with the NEW MOTOR VEHICLE BOARD in Sacramento and have a hearing in which you may protest the termination of your franchise under provisions of the California Vehicle Code. You must file your protest with the Board within 10 calendar days after receiving this notice or within 10 days after the end of any appeal procedure provided by the franchisor or your protest right will be waived.”
Notice Requirement – Modification
The manufacturer may not modify or replace a franchise agreement with a succeeding agreement without notice if such modification or replacement would substantially affect the franchisee’s sales or service obligations or investment.
If the modification or replacement would substantially affect a franchisee’s sales or service obligations or investment, the franchisor must give the Board and each affected franchisee written notice at least 60 days in advance of the modification or replacement. The written notice shall contain on the first page in at least 12-point bold type and circumscribed by a line to segregate it from the rest of the text the following statement:
“NOTICE TO DEALER: Your franchise agreement is being modified or replaced. If the modification or replacement will substantially affect your sales or service obligations or investment, you have the right to file a protest with the NEW MOTOR VEHICLE BOARD in Sacramento and have a hearing in which you may protest the proposed modification or replacement of your franchise under provisions of the California Vehicle Code. You must file your protest with the Board within 30 calendar days after receiving this notice or within 30 days after the end of any appeal procedure provided by the franchisor or your protest right will be waived.”
The question of what constitutes a franchise modification can be difficult to answer. Moreover, there are often times where the franchisor will fail to provide statutory notice for actions that should properly be considered franchise modifications. The creation of per vehicle incentive programs based on branding or exclusive facility requirements tend to reduce historically available margins for dealers unable or unwilling to make the required facility investment. The Board has been unwilling to exercise jurisdiction over this type of alleged franchise modification unless it can be demonstrated a specific franchise right is being modified. This typically requires the protesting dealer show the explicit right to margin percentage existing within the franchise as opposed to a newly created incentive available through a voluntary program. See Asian Pacific Industries, Inc., dba Jaguar Land Rover Stevens Creek et al. v. Jaguar Land Rover North America, LLC.
However other jurisdictions have determined the introduction of incentives in place of the existing holdback available on new motor vehicle sales is a modification of a franchise. For example, in Wide World of Cars, LLC dba Wide World Maserati v. Maserati North America, Inc. (“WW Maserati”), the New York administrative agency considered a change to the trading margin and holdback on new vehicles which was reduced and in part replaced by an incentive program (the “Bonus Program”).
The agency determined Maserati’s proposed modification was unfair and not undertaken in good faith and without good cause.
“In sum the Bonus Program is a misnomer unless it is applied to MNA [Maserati] as it is getting the Bonus as a part of this new Commercial Policy Program.”
Rights and Responsibilities Upon Receiving Notice to Terminate, Modify or Replace the Franchise
If timely filed, the dealer has an absolute right to a hearing before the New Motor Vehicle Board before any further action may be taken by the manufacturer to terminate, modify or replace the franchise. Further, pending the hearing, the manufacturer cannot interfere in any way with the dealership’s operation. In the event the dealer received a 15-day notice, the dealer has only 10 days from the date of receipt to file his or her protest with the Board. In the event a 60-day notice to terminate or modify is received, the dealer has 30 days from the date of receipt to file a protest with the Board. These time periods, as noted above, may be extended if the franchisor has an appeal procedure.
The Court of Appeal has held that these time limits must be complied with, and there can be absolutely no “good cause” exception permitting a late filing of a protest.
A $200 filing fee is due with the filing of a protest or petition with the Board.
The Board, in its discretion, may refuse to accept for filing any pleading subject to the fee requirements that is not accompanied by the filing fee. The Board can also waive the filing fee on the basis of hardship. Since the Board could refuse to accept for filing a protest not accompanied by the fee leaving a dealer with insufficient time to meet the filing deadline, it is essential to make sure the fee is paid at the time of the filing of a protest. Finally, proof of service of the protest upon the franchisor must also accompany the protest at the time of its filing.
Form and Content of a Section 3060 Protest
A Vehicle Code section 3060 protest should contain the following:
- The name, address, telephone number, fax number, and e-mail address of both the dealer and his or her attorney, with the attorney’s state bar number;
- The name of the manufacturer or distributor (franchisor) that caused the notice of termination or modification of the dealer’s franchise to be served upon the dealer;
- The date the dealer was served with the notice;
- A description of the contents of the notice specifying the type of notice and the reasons stated for the notice (attaching a copy of the notice as an exhibit would be sufficient); and
- A statement responding to the contentions contained in the notice. This may consist of a denial of the contentions and/or a statement of the dealer’s contentions as to why his or her franchise should not be terminated or modified as the case may be. This statement need not be lengthy but should be sufficient to put the Board and the opposition on notice as to your position;
- Any photographic, documentary or similar relevant evidence in support of the protest included as exhibits to the protest with an appropriate description to explain their relevancy;
- An indication that the dealer either does or does not desire to appear before the Board; however, this request is satisfied by requesting a hearing;
- A request and time estimate for a hearing; and
- A request for a pre-hearing conference if one is desired. However, the Board routinely holds a pre-hearing conference.
A sample form of a protest under Vehicle Code section 3060 is in the Guide to the New Motor Vehicle Board and on the Board’s website. Click on “Forms” for a list of all sample forms provided by the Board.
Board’s Procedures upon Receiving Protests
Upon the filing of a protest, the Board moves rather rapidly to set the protest for hearing.
Since the very filing of the protest operates as an automatic stay without a hearing against the contemplated action on the part of the franchisor, due process dictates that the franchisor be entitled to a hearing within a reasonable period of time.
Within 15 days from the date the protest is filed, the executive director of the Board issues a notice of a telephonic pre-hearing conference. A Board staff attorney or other designated staff conducts the pre-hearing conference, which is designed to facilitate the scheduling and management of the case. The pre-hearing conference is conducted by telephone and participation is mandatory. The parties are required to telephone a toll-free number which is listed in the Board’s notice.
During the pre-hearing conference, participants will discuss and select dates for the following:
- Any law and motion matters, including dates for submission of the motion, opposition, reply, and telephonic hearing;
- The information needed for the issuance of the pre-hearing conference order which permits the parties to engage in discovery, including in part scheduling the dates for filing requests for and objections to identification and production of documents; ruling on objections to requested discovery; actual production of documents; filing preliminary, final, and expert witness lists; and the deposition cutoff date;
- Hearing on the merits of the protest and the estimated length of hearing;
- A mandatory settlement conference; and
- Any other matters relevant to case processing.
Termination of Satellite Warranty Facilities
A “franchise” is a written agreement establishing a commercial relationship whereby the franchisee is granted the right to sell or lease new motor vehicles or the right to perform authorized warranty repair and service, “or the right to perform any combination of these activities.”
However, the Board and courts may be inclined to also require the dealer operate a full sales and service franchise at another location in order for the Satellite Warranty Facility to qualify as a separate franchise. (Vehicle Code § 331(1)(b)) A standalone warranty repair facility is unlikely to be considered a franchise unless the operator also operates a sales and service franchise for the same brand.
“Satellite warranty facility” means any facility operated by a franchisee where authorized warranty repairs and service are performed and the offer for sale or lease, the display for sale or lease, or the sale or lease of new motor vehicles is not authorized to take place.
While this issue is not common and the law is somewhat unsettled, there is statutory support to challenge the proposed termination of a Satellite Warranty Facility.
Motions to Dismiss Protests
Motions to dismiss are heard by the Board’s designated law and motion administrative law judge. There are three primary instances where the franchisor will file a motion to dismiss a protest. The first in when a Protest is believed to have not been timely filed. The second is when the franchisor challenges the Board’s jurisdiction over the relief requested. The third is where the franchisor claims the Board is unable to grant the relief requested.
As discussed above, the Board strictly construes its jurisdiction regarding the timeliness of a Protest. This is true even where there exists evidence the franchisor induced the dealer to refrain from filing a protest.
However, the time to file a protest does not begin to run until the notice is received by the dealer as well as the Board. Most statutory notices are copied to the Board, which is shown on the notice itself. Nevertheless, it is not uncommon for franchisors to neglect providing the Board a copy of the statutory notice. If the protest filing deadline is missed, dealers are advised to contact the Board to confirm receipt of the notice.
Some, but not all, franchisors will provide a statutory notice of franchise modification regarding the proposed change of a dealer’s assigned territory. A franchisor may provide a notice “out of an abundance of caution,” but may still challenge the Board’s jurisdiction over the Section 3060 franchise modification protest filed in response. These challenges have recently been rejected.
The BMW and Ri-Joyce cases are distinguishable because they involved attempts by the dealer to prevent a proposed establishment, despite being located outside the RMA, by arguing the reduction in assigned territory would constitute a franchise modification.
The Board is generally receptive of arguments pertaining to the Board’s jurisdiction over the proposed expansion of a dealer’s territory because it directly affects the dealer’s sales performance measurement under the terms of the franchise.
Franchisors may also argue a protest should be dismissed if the Board cannot grant the requested relief. An example of this occurs where a dealer shuts down operations while in the process of attempting to complete a sale of the franchise. Here, a franchisor will argue the Board cannot issue a final decision ordering the franchise remain in existence because it is closed to the public. The Board accepted this argument in a recent Board decision.
Both sides to a protest are entitled to request information from the other side relevant to the merits of the protest. Specifically, the parties may ask for:
- The names of all witnesses (whether such side intends to call such witnesses or not), and to designate the witnesses such party intends to call as witnesses;
- Documents to be relied upon, as well as any other documents relevant to the issues; and
- Depositions testimony of the parties and witnesses.
If the parties disagree on matters related to discovery, motions supported by a good cause showing directed to the executive director of the Board or the designated law and motion administrative law judge, for orders compelling the requested discovery may be made and applications for subpoenas and subpoenas duces tecum may be applied for and issued by the executive director or the administrative law judge assigned to hear the matter.
It is extremely helpful to have a fairly detailed plan for discovery worked out prior to the pre-hearing conference, so that a discovery schedule can be worked out during the conference and which can be approved and made part of an order by the Board. Because of the stringent limitations on time for discovery, as many potential problems as possible relating to discovery should be worked out at the pre-hearing conference. Discovery is required to be completed no later than 15 days prior to the hearing date, although the parties may agree to waive this restriction.
Both parties to a protest must comply with discovery procedures and the consequences of failing to comply may be serious. The executive director may, at the discretion of the Board, upon a showing of failure to comply with authorized discovery without substantial justification for that failure, dismiss the protest or petition or suspend the proceedings pending compliance.
The executive director may also, at the direction of the Board, upon a failure to comply with authorized discovery without substantial justification for that failure, require payment of costs incurred by the Board, as well as attorneys’ fees and costs of the party who successfully makes or opposes a motion to compel enforcement of discovery.
Mandatory Settlement Conference
The Board has the authority to compel the attendance of the parties at a mandatory settlement conference and sanctions may be imposed upon any party failing to attend a scheduled settlement conference without a valid excuse.
Such sanctions may include the imposition of the Board’s costs on the party in default, suspension of all proceedings before the Board until compliance, and may even result in a dismissal of a protest or the granting of the protest. The settlement conferences are normally handled by an experienced administrative law judge designated by the executive director, and because they are very successful and knowledgeable in working out settlements, this is an extremely important function of the Board. In addition to bringing the parties to an amicable as well as practical or reasonable resolution of their differences, a settlement also spares the parties from what would otherwise be an extremely expensive and frequently very time-consuming trial. Sanctions will be imposed when the parties appearing are not prepared, or do not have authority to settle the matter.
Despite its name, the Board’s mandatory settlement conference procedure is voluntary. The Board will not issue an order compelling attendance at the mandatory settlement conference if either party objects to participation.
Stipulated Decision and Proposed Order of the Board
If the parties do reach a settlement it can be formalized in the form of a stipulated decision and proposed order of the Board and is transmitted by the executive director of the Board to each member of the Board. The proposed stipulated decision will be deemed adopted by the Board unless any member of the Board within 10 days of his or her receipt of the proposed stipulated decision notifies the executive director of an objection.
Caution: In termination protests, franchisors will propose terms providing for the automatic termination of a franchise based upon the occurrence of a certain event or a failure of the dealer to perform pursuant to the terms of the stipulated decision and order. The stipulation would be to the existence of good cause to terminate. Dealers must exercise extreme caution when entering into a stipulated decision and order of the Board when resolving termination protests. Dealers will forfeit their right to a good-cause merits hearing before the Board. Instead, the Board’s continuing jurisdiction will be limited to determining compliance with the terms of the stipulated decision and order.
For example, a dealer may file a protest against the proposed termination of a franchise. The parties may resolve the protest by the dealer’s agreement to build a new facility or sell the franchise by a date certain. In this instance, the OEM is likely to seek a stipulated decision and order that would provide the Board continuing jurisdiction over compliance with the terms of the settlement agreement. If the dealer is unable to timely complete the construction project or complete a timely sale, the OEM may seek an order form the Board terminating dealer’s franchise pursuant to the terms of the stipulated decision—the OEM would not be required to meet its burden of demonstrating good cause for termination because the parties would have already stipulated to the existence of good cause for termination.
The preferred alternative to resolving termination protests is a standalone settlement agreement that does not provide for automatic termination. There is no requirement the parties use a stipulated decision and order to memorialize settlement. Termination protests can be resolved pursuant to the terms of a settlement agreement with the franchisor submitting notice of withdrawal of the Notice of Termination (“NOT”) to the Board. Under these circumstances, dealers must ensure the Board receives the written withdrawal before the Protest is dismissed. This requirement must be included in the terms of the settlement agreement.
Burden of Proof and Issues to Be Determined
In cases involving a termination, modification or refusal to continue a franchise, the burden of proof is on the franchisor to establish good cause for modifying, replacing, terminating or refusing to continue a franchise.
The ‘good cause” factors to be considered by the Board include, but are not limited to:
- The amount of business transacted by the dealer as compared to the business available to the dealer. This factor is heavily dependent on expert testimony concerning the standard applied to show performance. The focus of this good cause factor is typically on new vehicle sales, however, parts and fleet business should also be considered, depending on the evidence presented at hearing.
- The dealer’s investment and obligations incurred by the dealer to perform his or her part of the franchise. This good cause factor considerers the dealer’s investment in staff, training, equipment, existing leases, signage, special tools, and advertising. This factor is usually not in dispute where an established dealer is operating from an adequately staffed and well-equipped facility.
- The permanency of the dealer’s investment. Similarly, the Board is unlikely to find a dealer’s investment to not be permanent.
The number of years in business and investment or commitment in property are typically determined to be permanent. In the alternative, dealer investment that is minimal, temporary, or speculative may lead to a determination the investment is not permanent.
- Whether it is injurious or beneficial to the public for the franchise to be modified or replaced. This good cause factor requires the Board consider what impact would result from the proposed termination or modifications. With a proposed termination, the Board will consider such factors as potential loss to the tax base, impact to existing customers dependent on protestant for authorized sales, service, and warranty, and the loss of employment opportunities. It is difficult for the Board to find no impact to the public welfare where consumer choice and convenience are reduced, tax revenues reduced, and jobs are eliminated. The franchisor may offer evidence that a superior replacement dealer would be established to counter these arguments.
- The adequacy of the dealer’s motor vehicle sales and service facilities, equipment, vehicle parts, and qualified service personnel to reasonably provide for the needs of the consumers for the motor vehicles handled by the dealer, and the adequacy of the service being rendered by the dealer. Here the Board will consider evidence pertaining to the adequacy of the facility, staff, and equipment. Franchisors will rely heavily on low customer satisfaction scores as support for a claim that customers are inadequately served. Franchisors will also rely on facility size relative to planning volumes and corresponding guides to argue the facility is of inadequate size to properly serve customers. In most protests, the hearing ALJ will conduct a site visit to view the adequacy of the facility and the surrounding dealer network.
- The dealer’s performance of warranty obligations. This good cause factor is rarely at issue unless there is evidence of the dealer’s failure to properly and timely complete warranty work. This can also be a significant issue where there exists substantial evidence of warranty fraud by the dealership. Dealer fraud is a compelling basis for termination and can impact the Board’s consideration of all good cause factors.
- The extent of the dealer’s failure to comply with the terms of the franchise. This good cause factor presumes some level of breach. The extent of the alleged breach must rise to a level of significance that would support finding good cause for termination. Evidence on this good cause factor commonly includes the dealer’s alleged failure to provide an adequate facility, failure to provide adequate staff, failure to meet sales obligations, and failure to report accurate financial statements.
From reviewing the above criteria, it is apparent that how well the dealer is treating the public and fulfilling its needs both for sales and service is an extremely important consideration. If a dealer is doing a reasonably satisfactory job in supplying the public’s needs and has made a permanent investment and/or incurred substantial obligations in connection with the dealership operation and thus stands to suffer economically in the event of a termination, the Board is not likely to find good cause for termination even though the dealer has failed to comply with the terms of the dealer’s sales agreement in some respects and/or has some problems with respect to sales performance or the adequacy of his or her facilities. The Board is unlikely to permit the termination of a franchise absent fraud or insolvency. Breach of the franchise alone typically does not provide sufficient good cause for termination. In fact, the wording of Section 3061(g) presumes some level of breach will not amount to good cause through the express language requiring the Board determine and consider the “extent of the dealer’s failure to comply with the terms of the franchise.”
Most franchise investment is considered permanent because the location and facility is often best utilized for dealership operations and cannot be easily repurposed. Moreover, the number of years in business also speaks to a dealer’s permanency of investment through the accumulation of good will value, which does not show on a balance sheet.
In addition, the stated reasons for termination must be included in the four corners of the NOT. While the Board is required to consider and make findings in regard to the statutory good-cause factors, the Board cannot base its decision for termination based upon reasons not included in the NOT. “The Vehicle Code unambiguously requires that notice be given of the specific grounds for termination of a franchise.”
Regarding protests against proposed franchise modifications, the Board will bifurcate the hearing. The first part of the hearing is for the purpose of determining whether the proposed modification will “substantially affect” the dealer’s sales or service obligations or investment. The second portion of the proceedings will determine whether the franchisor can meet its burden to show good cause for the proposed modification.
In a franchise modification protest, protesting dealers must demonstrate an explicit right under the franchise that is proposed to be modified. Separate agreements outside the franchise will not be considered a part of the franchise, unless these written agreements expressly state they are incorporated into the franchise. For example, most franchisors use per vehicle incentive programs that require facility upgrades and/or exclusivity for eligibility. These separate “voluntary” agreements are arguably not a part of the franchise agreement because they are offered to dealers as an optional program and are memorialized in a separate agreement.
Conduct of Hearing, Disqualification of Judge, and Decision by the Board
The Board typically does not hear the case; the hearing is assigned to an administrative law judge (“ALJ”). The administrative law judge presides in much the same way as a judge presides at a trial, although the proceedings are less formal than a court trial. Every effort is made by the Board to schedule hearings in a locality convenient for witnesses, and it is not at all unusual on lengthier hearings to move the hearing to different cities as needed. The Board has hired a number of administrative law judges and sometimes the hearings are held in the locality where the administrative law judge practices. Parties may request a change of the location of the hearing. Costs can be assessed against the requesting party if the requesting party cancels the proceedings at the new location without good cause or without sufficient notice to the Board to allow the Board to avoid costs incurred in changing the location.
An administrative law judge may be disqualified for cause.
A party has one ability to disqualify a judge for no cause.
However, a party may not utilize a peremptory challenge for the administrative law judge assigned for law and motion hearings, settlement conferences, or rulings on discovery disputes.
The Board has amended its policy to prohibit intervening parties from exercising a peremptory challenge. The Board has a limited number of available merits hearing ALJs. The ALJ presiding over any settlement proceedings is prohibited from acting as the merits hearing ALJ, absent a stipulation of all counsel. The use of peremptory challenges by intervening parties was recently demonstrated to potentially disqualify all Board trained ALJs from hearing a protest. The Board amended Title 13 of the California Code of Regulations section 551.12 in 2019 to exclude an intervening party from the right to file a peremptory challenge. The Office of Administrative Law approved the amendment on December 17, 2019. The amendment is effective as of April 1, 2020. All rulemaking notices, text, and other information can be found on the Board’s website under “Regulatory Actions”.
The hearings are conducted according to technical rules relating to evidence and witnesses that are for the most part similar to rules for courts of law. A notable exception is that any relevant evidence is admissible if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule, such as the hearsay rule, which might make improper the admission of such evidence over objection in civil actions. Witnesses are called and sworn, and are examined by the respective attorneys and the administrative law judge much like at a court trial. The proceedings are transcribed by a court reporter, and thereafter a typewritten transcript of the proceedings is prepared. Documentary evidence as well as oral testimony is received into evidence, and frequently documents and statistics introduced at trial become voluminous.
The purpose of the Board merits hearing is to develop evidence for use in the extensive post-hearing briefing that follows. Typically, the parties submit simultaneous post-hearing briefs followed by simultaneous reply briefs. Some Board ALJs will also require separate proposed findings of fact, subject to the assigned ALJs discretion and preference.
Following the conclusion of a hearing and the submission of post-hearing briefs, the administrative law judge makes proposed findings of fact and determinations of the legal issues presented by the protest, and based thereon, the administrative law judge makes a proposed decision to be submitted to the Board. The proposed decision is submitted to the Board within 30 days after the case is deemed submitted to the Merits Hearing ALJ.
Unless the parties stipulate otherwise, the case is deemed submitted when the reply brief is submitted.
The Board has final say as to the outcome of the protest. The Board is provided summaries of the evidence together with the administrative law judge’s findings of fact, determination of issues and proposed decision, and copies of the transcripts and exhibits are also made available to the Board members and at the meeting of the Board in closed executive session held to decide the case. The Board will also consider oral argument from the parties as well as public comment. The Board in granting or denying protests submitted to it has authority to impose conditions upon its decisions. For example, if the decision was to deny a termination, the Board might impose a condition that the denial was conditional upon the dealer making certain improvements to the dealership facilities or increasing the capital of the dealership within a certain designated time. Another example would be if the decision was to deny a protest seeking to prevent the establishment of an additional dealer within the protesting dealer’s relevant market area, the denial could be made upon the condition that the establishment not take place for a designated period of time or on the condition that the franchisor provide the protesting dealer with, for example, some type of market assistance.
Appeal from Decisions of the Board – Administrative Mandamus
Either party may seek judicial review of a final decision of the Board regarding protests within 45 days from the date on which the final order of the Board is made public and delivered to the parties personally or is sent by registered or certified mail.
The first avenue of appeal is a petition for a writ to the Superior Court either in Sacramento or in the county in which the dealer has its principal place of business seeking an order commanding the Board to set aside its decision.
If a dealer is seeking judicial review of a decision of the Board on a Petition, the dealer should consult with counsel on the time periods to file. The party seeking the appeal has the burden of proof. With rare exceptions, no evidence is taken by the Superior Court and the case is decided strictly upon the record of the proceedings before the Board consisting of the papers filed by the parties with the Board, the findings of fact, determination of issues and decision of the Board, the transcript of the oral proceedings and exhibits introduced at trial.
There are three grounds for setting a decision aside:
- The Board exceeded its jurisdiction;
- There was not a fair trial; and
- There was a prejudicial abuse of discretion, which may be established by a showing that the decision is not supported by the findings or the findings are not supported by the evidence, or that the Board did not proceed in a manner required by law.
On appeal to the Superior Court from decisions of the Board, the Superior Court will usually not exercise its independent judgment to see if the evidence supports the decision. Rather, the court will determine whether the decision is supported by substantial evidence in the light of the whole record. The only time a court may exercise its independent judgment is when a vested and fundamental right is involved. There are several Court of Appeal cases which say that a party to an automobile franchise does not have a fundamental vested right in that franchise. See Automotive Management Group v. New Motor Vehicle Board (1993) 20 Cal.App.4th 1002, where the court stated: “No case has held that an automobile franchise is a fundamental vested right.”
Upon the filing of a petition for a writ with the Superior Court, the court upon application may stay the effect of the Board’s decision pending its decision and pending the time to appeal from its decision. When the Superior Court finally renders its decision, an appeal may be taken to the California Court of Appeal.
The New Motor Vehicle Board is authorized by statute to hear and decide the following protests for automobile dealers (excluding protests related to recreational vehicles franchises):
Veh. Code Section
Type of Protest
Termination or non-renewal of franchise
Within 30 days after receipt of termination notice or 10 days in certain cases such as a closed dealership
Modification of terms and conditions of franchise or issuance of successor franchise
Within 30 days after receipt of the notice of modification
Establishment of new dealership or relocation within the relevant market area (10-mile radius)
Within 20 days after receipt of notice
Adequacy of preparation and delivery compensation
At any time
Reduction in warranty reimbursement
Within 6 months after notice
Improper disapproval of warranty claim
Within 6 months of final determination of disapproval
Improper charge back of warranty claim after audit
Within 6 months of final determination of disapproval
Improper disapproval of incentive claim
Within 6 months of final determination of disapproval
Improper chargeback of sales incentive claims after audit
Within 6 months of final determination of disapproval
Performance standards that are inconsistent with Vehicle Code § 11713.13 (g)
No statutory time. Confer with a knowledgeable attorney for filing timing.
Manufacturer failure to comply with retail warranty compensation law, or non-acceptance of manufacturer proposed retail labor or parts rate
No statutory time, but filing recommended as soon as facts allowing the protest are known.
Dealer association challenge to manufacturer’s export policy
No statutory time. Dealers should contact CNCDA to discuss, where appropriate.
Delivery and Preparation Obligations
Franchisors must let franchisees know what their delivery and preparation obligations are prior to delivery of new vehicles. A copy of these obligations, together with the amount of the franchisor’s reasonable compensation to franchisees for work and services to fulfill those obligation must be filed with the New Motor Vehicle Board.
Text of the Law
California Vehicle Code § 3064: (a) Every franchisor shall specify to its franchisees the delivery and preparation obligations of the franchisees prior to delivery of new motor vehicles to retail buyers. A copy of the delivery and preparation obligations, which shall constitute the franchisee’s only responsibility for product liability between the franchisee and the franchisor but shall not in any way affect the franchisee’s responsibility for product liability between the purchaser and either the franchisee or the franchisor, and a schedule of compensation to be paid to franchisees for the work and services they shall be required to perform in connection with those delivery and preparation obligations shall be filed with the board by franchisors, and shall constitute the compensation as set forth on the schedule. The schedule of compensation shall be reasonable, with the reasonableness thereof being subject to the approval of the board, if a franchisee files a notice of protest with the board. In determining the reasonableness of the schedules, the board shall consider all relevant circumstances, including, but not limited to, the time required to perform each function that the dealer is obligated to perform and the appropriate labor rate.
(b) Upon delivery of the vehicle, the franchisee shall give a copy of the delivery and preparation obligations to the purchaser and a written certification that the franchisee has fulfilled these obligations.
The franchisee’s delivery and preparation charges are specified by the franchisor who must file them with the New Motor Vehicle Board. Franchisors must also file with the Board the compensation the franchisors pay to its franchisees for the work and services needed to fulfill those obligations. The compensation must be reasonable. If a franchisee believes the amount paid for preparation and delivery obligations is not reasonable, then the franchisee may file a protest with the New Motor Vehicle Board and the Board will determine the reasonableness of the compensation. When delivering the vehicle franchisors must give the purchaser a copy of the delivery and preparation obligations with a written certification that the franchisee has fulfilled those obligations.
Warranty Compensation Tips and Strategies
The text of the law and discussion of the rules for the process of obtaining the retail rate for parts and labor compensation to dealers for warranty repairs and a discussion of those rules are in Chapter 37, Compensation to Dealers for Warranty Repairs. That chapter should be read in conjunction with this chapter. In this chapter Armatus, a CNCDA-licensed vendor which assists dealers in submissions to franchisors to obtain retail warranty compensation rates, has provided the following tips and strategies:
For years most dealers have submitted requests to their manufacturer for annual increases to their warranty labor rate but have been stuck with an artificially low parts mark-up stipulated in their dealer agreements. This mark-up is typically 40% over cost, although some manufacturers will pay list or MSRP. Please note that if you are being reimbursed at MSRP, you are not collecting 67% on all warranty parts, which is anecdotally perceived to be the industry standard – you are most likely being paid a blended mark-up in the low to mid 50s, well below true retail.
California’s new Retail Warranty Reimbursement law entitles you to collect “retail” from your manufacturer for parts and labor used in warranty claims. Retail is NOT list price or MSRP; it is clearly defined in the law. Basically, retail is what your customers pay you for a warranty-like repair. In a store with typical pricing and discounting practices, the mark-up normally falls in the 75% to 85% range. For dealers utilizing a list pricing model, you should expect something in the 60% range. So even in a conservative pricing environment, a dealer should expect to improve its warranty gross profit by 50%. However, something on the order of doubling the gross is very realistic. This is a one-time process, and does not need to be repeated unless you materially change your parts pricing strategy. Since labor is a fixed amount, a submission should be performed annually.
The California statute is not self-effectuating, meaning the manufacturer will not simply grant you a 100% improvement in your gross. The law mandates a submission, and details what is required of the dealer in order to achieve retail.
Several things need to be considered in order to ensure the best possible result.
Thorough understanding of the law – The California law is the most comprehensive retail warranty reimbursement statute in the country, and consequently it is very complex. Unless you have a complete understanding of the numerous nuances, you may not get what you are entitled to.
Manufacturers’ interpretation of the law – Rest assured certain manufacturers will read the statute differently than you. Sometimes the positions they take are rather shocking, including those that will simply refuse to follow the law, or others that will attempt to include non-warranty-like repairs in a deliberate attempt to lower your mark-up.
Following the manufacturer’s protocol – It’s critical to understand the factory’s guidelines for the inclusion or exclusion of various aspects of the submission. Each of them have different rules, and they typically won’t disclose all of them to you. If you can determine what they are, you should follow them within reason. Do not be combative, unless the manufacturer is being unreasonable.
Optimization – Since your parts mark-up is tantamount to an annuity, it is imperative that you utilize the best available technology in order to achieve an optimal result, to ensure the proper selection of your submission sample – this is something that should not be left to chance. Missing your mark-up by even a few points can cost you thousands every year, perpetually. You should explore this aspect of your submission with some attention to detail – it will be worth it to you in the long run.
Warranty Auditors – Beyond technology, however, is the need for a thorough audit process. Your declaration will be scrutinized by factory auditors that know every nook and cranny of countering retail warranty submissions, and you should have someone familiar with their techniques in order to preempt or refute their sometimes-questionable positions. Here again, it is better to get along with them, and in many cases this is not a problem; however, some manufacturers are very difficult.
Factory Responses – In some cases your approval may not be smooth, and the manufacturer may rebut your calculations, or in some instances, summarily reject your submission. Responding in the proper manner is critically important since it could be the difference between achieving a substantial increase in your warranty parts gross, or obtaining nothing at all. There are many dealers that have re-submitted two, three or four times over the course of a year or two, costing themselves multiple six figures in lost profit.
The bottom line is that you have an extraordinary opportunity to receive a fair reimbursement for both parts and labor utilized in the warranty work you perform. If this process is approached in a judicious and professional manner, you can quite possibly double your warranty parts gross profit. There are many pitfalls for the uninformed, but tremendous upside for those that perform the submission process properly.
Some Common Questions
How does a dealer pick the best set of repair orders to provide the highest rates?
The answer is, by doing a thorough analysis of your data. Obviously picking repair orders randomly is the worst possible approach, but even using inferior technologies, such as spreadsheets, rarely yield the best results. A note of caution: the 100 repair order sample must be sequential, and include all qualifying, as well as non-qualifying repair orders.
Should a dealer submit the same set of repair orders for both parts and labor?
In almost all cases this is not the best technique. The best parts mark-ups and labor rates almost always run opposite of one another. Dealers tend to charge the least mark-up on high-dollar parts, and the highest labor rate on those same repairs.
What are exclusions, and how do they apply to a submission?
Over the years some manufacturers have included non-warranty-like repairs in dealers’ submissions in order to lower the rate. The California law cites 15 exclusions intended to specifically identify repairs that may not be included in the calculation.
What type of strategy might a manufacturer employ upon a dealer’s submission?
In most cases, the manufacturers will handle your submission in a straight-forward and honest manner; however, some may not. The most important thing a dealer can do is perform an accurate submission in accordance with the law. The better the precision, the less there is to rebut. When there is unacceptable behavior, it is imperative to consult a professional with a track record of responding to these specific circumstances.
If a dealer is in a CPI term agreement for a warranty labor rate, is a submission allowed under the law prior to expiration?
Other than in the case of General Motors, manufacturers will not allow a submission until such time that the CPI agreement has expired. The California law stipulates that a dealer may submit once per calendar year; however, this has not been tested in California previously. Conversely, GM will remove a dealer from Option C, as soon as a retail parts submission is approved.
Can parts and labor submissions be performed at different times?
Yes, a dealer will typically submit for a parts mark-up increase only one time, unless a pricing or discounting methodology has changed, in which case a second submission may be performed. Since the mark-up is applied to the cost of the part, as the cost increases, the margin remains constant. With labor, however, the approval is a fixed dollar amount which will need to be submitted each year.
What does the zero cost provision in the law entitle a dealer to?
If the manufacturer provides a part at no cost, the dealer is entitled to the gross profit on that part as if it had been purchased. There are special claims submission procedures for these claims, and those will have to be obtained from the manufacturer.
When will a manufacturer approve or rebut my submission?
Under the California law, a manufacturer must respond within 30 days, or a submission is deemed approved. However, if a manufacturer chooses to do so, it may request all ROs within 30 days preceding or following submission. All time periods will be suspended until provided. The manufacturer may then calculate an adjusted rate.
Is a dealer stuck with the adjusted rate calculated by the manufacturer?
No, if the dealer disagrees, there are remedies provided in the law. The manufacturer must pay the franchisor’s calculated rate, pending any decision, and if successful, the dealer will be entitled to retroactive payment of the increased rate.
What repairs will the increased rates apply to?
The increased rate obligations include new vehicle warranty, certified preowned warranty, repair pursuant to a technical service bulletin on a vehicle covered under period of warranty, repair pursuant to a customer service campaign on vehicle covered under period of warranty, and recalls.
What about manufacturer retribution?
Historically the manufacturers have not treated submitting dealers adversely. The California law prohibits any form of retribution, and specifically spells out prohibited actions, including warranty audits, vehicle allocations, and a host of others.
With this process being so complex, should an experienced outside vendor be considered?
In order to achieve an optimal result, and with the added layer of complexity levied by the manufacturers, it may make sense to employ an outside company. The following is a list of questions that should be asked of any prospective vendor:
- How much does the service cost, and when will you owe the vendor?
- How will any factory resistance be handled?
- Can they guarantee optimal results? If so, how?
- How much and what kind of information do you need to provide?
- Will you have to reimburse expenses or pay additional, unforeseen fees?
- Do they outsource the auditing process?
- How long does the submission process take?
- What happens if you decide not to submit? Do you still pay?
- How many of their submissions have been accepted and rejected?
- How will your business’ personal information be kept safe?
- Do they have a formal Data Governance plan?
- How long have they been doing retail warranty submissions?
- If you’re not happy with the outcome, how will they make it right?
- Are they a “factory fighter”?
- Are they endorsed by any auto dealer associations? If so, which ones?
The new CA Retail Warranty Reimbursement law is a great opportunity for dealers to achieve fair and reasonable reimbursement for their warranty claims. If properly performed, a dealer should be able to collect true market pricing from their manufacturer. The law is complex, the manufacturers can be challenging, and the best results can be elusive, but with the proper approach, the benefit of the new law can provide additional profits year-in and year-out.
AB 179’s methodology allows a dealer to establish or modify its retail labor rate and/or retail parts rate by submitting a specified number of qualified repair orders (either 100 consecutive qualifying repair orders, including the non-qualified repair orders in the range of the 100 qualified ones, or all repair orders in a 90-consecutive day period) to the automaker no more than once per calendar year.
To ensure that automakers cannot unreasonably reject dealers’ submissions, AB 179 sets forth a detailed process for manufacturer responses, including a 30-day response deadline and limits on the timing and number of supplemental repair orders the manufacturer may request. The bill further limits the ability of a manufacturer to contest the retail rate to once per dealer submission and requires that the manufacturer detail the specific reasons why it is contesting the dealer’s submitted rate.
As part of the manufacturer’s rate contest, it must submit the adjusted retail rate(s). If the dealer agrees with the proposed adjustment, that becomes the new retail rate. If the dealer disagrees, then the dealer may file a protest with the New Motor Vehicle Board, and while the protest is considered, the manufacturer must pay the dealer the manufacturer’s proposed adjusted retail rate or retail parts rate, effective 30 days after the original submission, until a decision is rendered by the Board.
The manufacturer has the burden of proof that its rate is compliant with the statute and the dealer’s submitted rate is inaccurate or fraudulent.
To further protect dealers against automaker manipulation, AB 179 enacts a number of restrictions on automakers from taking adverse action against dealers who make warranty rate submissions (such as increased audits, limiting vehicle or parts allocations, imposed surcharges, etc.). So-called “zero cost parts” and “reduced cost parts” are also addressed by ensuring dealers are paid a parts rate even though the automaker reduces or eliminates the wholesale value of the part.
To reduce automaker efforts to adjust the time needed for warranty recall repairs, AB 179 sets up a process for dealers to appeal any modification as unreasonable. The bill makes clear that all hazardous materials costs cover all warranty repairs and finally the measure ensures that warranty includes not just warranties and recalls, but also technical service bulletins and customer service campaign repairs.