CNCDA’s Service Department Compliance Manual outlines key compliance requirements for dealership service departments. Topics include initial and revised estimates, customer authorization, invoices, and special requirements for unique service operations.
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. The Guide is available at https://nmvb.ca.gov/publications/2023/Guide_to_the_New_Motor_Vehicle_Board.pdf and is periodically updated.
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 by using the Publications tab on the homepage of the Board’s website.
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 by using the Publications tab on the homepage of the Board’s website.
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 using 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 using 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 using the Meetings tab on the homepage of the Board’s website.
Board Consumer Mediation Services. The Board offers 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.
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 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.
Section 1226 of Title 15 of the United States 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.
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.
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.
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.
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.
Protests at the New Motor Vehicle Board are not the exclusive pathway to enforce California’s franchise law. Additional legal theories to enforce franchise laws include licensee actions under the Vehicle Code as well as various other legal theories.
Vehicle Code § 11726: Any licensee suffering pecuniary loss because of any willful failure by any other licensee to comply with any provision of Article 1 (commencing with Section 11700) or 3 (commencing with Section 11900) of Chapter 4 of Division 5 or with any regulation adopted by the department or any rule adopted or decision rendered by the board under authority vested in them may recover damages and reasonable attorney fees therefor in any court of competent jurisdiction. Any such licensee may also have appropriate injunctive relief in any such court.
Although New Motor Vehicle Board protests can be an effective way to resolve disputes between dealers and manufacturers, the Board does not have the authority to hear protests involving violations of all franchise laws, nor can it adjudicate claims involving illegal actions outside of California’s franchise laws (such as contract disputes). The Board’s authority is also limited in other important ways, and it cannot provide a prevailing dealer with attorney’s fees.
For these reasons, a dealer may wish to consider alternative legal pathways to prosecute his or her claim against a manufacturer. One such pathway involves an action in Superior Court through Vehicle Code section 11726. An action based on this code section can be brought to enforce various franchise laws that cannot be prosecuted as protests at the New Motor Vehicle Board. For example, a dealer does not have the authority to file a protest to seek statutory indemnification (see Chapter 23), but the dealer would have the authority to prosecute an action to enforce this right via section 11726. Section 11726 also can provide a prevailing dealer with attorney’s fees.
Finally, dealers should consult their counsel to explore additional options for relief, which could take various forms depending on the nature of the manufacturer’s illegal action. For example, claims under California’s Unfair Competition Law (Business and Professions Code sections 17200 et. seq.) may provide an additional pathway to secure relief.
Under Vehicle Code section 3050(b), which prior to 2020 was section 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.
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.
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 section 3050(e) codified those decisions. Citations to court cases dealing with these issues can be found by using the Publications tab on the homepage of the Board’s website and finding the Exhaustion of Administrative Remedies and Jurisdiction sections under Court Cases, Chapter 49, New Motor Vehicle Board Resources.
There was a time when the Board accepted petitions to resolve 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.
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.
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.
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.
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).
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.
Vehicle Code sections 11713.3 and 11713.13 prohibit dozens of specific actions by manufacturers. The Vehicle Code contemplates that such actions may be prosecuted by dealers in Superior Court pursuant Vehicle Code section 11726 (see Chapter 46 on such legal actions in Superior Court).
Various specific subdivisions within Vehicle Code section 11713.3 and 11713.13 are also prosecutable as protests at the New Motor Vehicle Board, and in such protests the manufacturer has the burden of proof to establish that their conduct was lawful. These include protests involving performance standards, vehicle and parts allocation, facility and equipment policies, DC fast charging requirements, and unlawful manufacturer competition.
California Vehicle Code § 3065.3: (a) No franchisor shall establish or maintain a performance standard, sales objective, or program for measuring a dealer’s sales, service, or customer service performance that is inconsistent with the standards set forth in subdivision (g) of Section 11713.13.
(b) No franchisor shall allocate vehicles or parts in a manner inconsistent with the standards set forth in subdivision (a) of Section 11713.3.
(c) No franchisor shall impose a facility or equipment policy inconsistent with the standards set forth in subdivision (a), (b), (c), or (k) of Section 11713.13.
(d) No franchisor shall compete with a dealer in violation of subdivision (o) of Section 11713.3.
(e) A franchisee may file a protest with the board for determination of whether a franchisor has complied with this section and in that proceeding the franchisor shall have the burden of proof.
Vehicle Code section 3065.3 was created by AB 179 (2019) and subsequently amended by AB 473 (2023). Originally, the statute only established a protest right for unlawful manufacturer performance standards. However, the 2023 amendments expanded the statute to authorize dealer protests involving vehicle and parts allocation, facility and equipment policies, DC fast charging requirements, and unlawful competition.
In any protest filed under section 3065.3 the manufacturer has the burden of proof to establish that its conduct was lawful. This “burden shifting” requirement is valuable for dealers. To put it simply, in the event of a “tie” the party with the burden of proof should lose. Ordinarily, the party filing a legal action has the burden of proof, but in some cases where the legislature has determined there is an asymmetric power relationship between the parties (e.g., employee/employer, franchisee/franchisor) the defendant may have the burden of proof to establish their contact is lawful.
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.
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 42, 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.
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.
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.
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 Doctrine is subject to strict scrutiny by the court and the conduct must meet a good faith standard. For example, the Noerr 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 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.
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 42, 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.
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 42, Franchise Termination or Modification.
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.
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 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.
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 42, Franchise Termination or Modification.
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:
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.”
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.”
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.
A Vehicle Code section 3060 protest should contain the following:
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.
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:
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 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:
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.
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.
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.
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:
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.
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.
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:
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):
Protests
| Veh. Code Section | Type of Protest | Protest Deadline |
| 3060(a) | 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 |
| 3060(b) | Modification of terms and conditions of franchise or issuance of successor franchise | Within 30 days after receipt of the notice of modification |
| 3062 | Establishment of new dealership or relocation within the relevant market area (10-mile radius) | Within 20 days after receipt of notice |
| 3064 | Adequacy of preparation and delivery compensation | At any time |
| 3065(a) | Reduction in warranty reimbursement | Within 6 months after notice |
| 3065(d) | Improper disapproval of warranty claim | Within 6 months of final determination of disapproval |
| 3065(e) | Improper charge back of warranty claim after audit | Within 6 months of final determination of disapproval |
| 3065.1(e) | Improper disapproval of incentive claim | Within 6 months of final determination of disapproval |
| 3065.1(g) | Improper chargeback of sales incentive claims after audit | Within 6 months of final determination of disapproval |
| 3065.3(a) | Performance standards that are inconsistent with Vehicle Code § 11713.13 (g) | No statutory time. Confer with a knowledgeable attorney for filing timing. |
| 3065.3(b) | Vehicle or parts allocation inconsistent with Vehicle Code § 11713.13 (a) | No statutory time. Confer with a knowledgeable attorney for filing timing. |
| 3065.3(c) | Facility or equipment policy inconsistent with Vehicle Code § 11713.13 (a), (b), (c), or (k) | No statutory time. Confer with a knowledgeable attorney for filing timing. |
| 3065.3(d) | Competition with franchisee in violation of Vehicle Code § 11713.13 (o) | No statutory time. Confer with a knowledgeable attorney for filing timing. |
| 3065.4 | 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. |
| 3085 | Dealer association challenge to manufacturer’s export policy | No statutory time. Dealers should contact CNCDA to discuss, where appropriate. |
