Reimbursement for Franchisor Incentive Programs

Statutory Authority

Pursuant to Vehicle Code section 3065.1 or 3076, all claims made by a new motor vehicle or recreational vehicle franchisee for payment under the terms of a franchisor incentive program shall be approved or disapproved within 30 days from the date of receipt of the claim by the franchisor.

Franchisor's Notice

Vehicle Code sections 3065.1(a) and 3076(a) require a franchisor who denies payment under the terms of a franchisor incentive program, to notify the franchisee within 30 days and provide specific grounds upon which the disapproval was based.

Approval/Disapproval of Payments

Any claim not specifically disapproved in writing within 30 days shall be deemed approved on the 30th day. If incentive program compensation claims are approved, they must be paid within 30 days of approval (Veh. Code § 3065.1(a) or 3076(a)). The failure to approve or pay within the above specified time limits, in individual instances beyond the reasonable control of the franchisor, subject to proof, do not constitute a violation of this article.

Audits of Franchisee Incentive Program

Vehicle Code sections 3065.1(b) and 3076(b) allow for a franchisor to audit franchisee incentive program records. Such audits must be reasonable and are allowed for a period of 18 months after a claim is paid or a credit issued. Any chargeback to a franchisee for incentive program compensation shall be made within 90 days of completion of the audit.

If it can be shown that a false claim was submitted by the franchisee with the intent to defraud the franchisor, a longer period for the audit and any resulting chargeback may be permitted if the franchisor obtains an order from the Board.

How to File a Protest

The following are guidelines to consider when filing a protest, however, the applicable Vehicle Code sections (3000 et seq.) and regulations (13 CCR § 550 et seq.) should be consulted as well. The Board's legal staff is also available to provide information concerning the procedural aspects of filing a protest. The staff can be contacted at (916) 445-1888. PLEASE NOTE: THE BOARD'S STAFF IS NOT PERMITTED TO PROVIDE LEGAL ADVICE CONCERNING THE MERITS OF A PARTICULAR MATTER.

Most types of protests have specific statutorily imposed time limits for filing. A protest is deemed to be filed upon its receipt by the Board via regular mail, email, or facsimile, or upon mailing of the protest, if sent by certified or registered mail. In order to ensure your protest is timely received by the Board, it should be personally delivered or sent by certified mail, return receipt requested.

There are three things that must accompany each protest submitted:

1. The protest, either for vehicles other than RVs, or for RVs;

2. A $200.00 filing fee or a request for a fee waiver upon good cause shown; and

3. Proof of service that the manufacturer or distributor was served with a copy of the protest.

If any of the above are not enclosed, the protest may not be processed until any missing items have been received.

Time Frame for Filing a Protest

Following disapproval of a claim, a franchisee has one year from receipt of the notice of disapproval in which to appeal the disapproval and file a protest with the Board.

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Required Elements of a Protest

The required content of a protest under Vehicle Code section 3065.1 or 3076 is described in Section 586 of Title 13 of the California Code of Regulations.

A protest involving franchisor incentive program compensation must:

1. Be in writing and be signed by the franchisee or its attorney;

2. Set forth in clear and concise language the factual contentions of the franchisee with respect to the protest;

3. Set forth the franchisee's mailing address and telephone number and the name, address, and telephone number of its attorney or authorized agent, if any. [All correspondence and notices to the franchisee shall thereafter be addressed to that address, if the dealer principal is presenting its own case, or to the address of the dealer's attorney or agent, if so represented];

4. Indicate either that the franchisee does or does not desire to appear before the Board;

5. Set forth the number of days required to complete the hearing;

6. Indicate that the franchisee requests a pre-hearing conference if one is desired;

7. Be accompanied by a $200 filing fee in the form of a check, money order, or credit card payable to the New Motor Vehicle Board or a request for a fee waiver; and

8. Be accompanied by a completed proof of service signifying that a copy of the protest was served upon the franchisor;

In addition, franchisee may submit as exhibits to the protest any physical evidence relevant to the matter with an adequate description in the protest.

HEARING PROCEDURES

General Considerations

When a protest is filed, the Board begins hearing proceedings that are similar to a formal civil trial. These proceedings may include the scheduling of various pre-hearing conferences, settlement conferences, authorization to engage in discovery, identification of witnesses, and so on. Sanctions may be imposed by the Board if a party fails to comply with discovery orders or fails to participate properly in a settlement conference.

All hearings on protests filed pursuant to Vehicle Code section 3065.1 or 3076 may be considered by the entire Board or may, at its discretion be conducted by one of the Board's Administrative Law Judges. (For limitations on Board Member participation, see Board Member Participation in the Protest Process, below.) At the hearing, oral argument is heard, evidence is admitted, testimony is received, and a written decision is rendered. Vehicle Code section 3066 describes the hearing procedures in detail.

Notice of Appearance

Respondents in Board proceedings are required to file a written notice of appearance within 15 days of receipt of the protest (13 CCR § 585.1). Failure to timely file a notice of appearance will result in all proceedings in the matter being suspended until the notice is filed.

Application Pro Hac Vice

Pursuant to Rule 9.47 of the California Rules of Court, an attorney who is licensed to practice in another state and is not a member of the California State Bar must file an application to appear as counsel pro hac vice and have an active member of the State Bar of California associated as attorney of record.

Interested Individuals

Vehicle Code section 3066 permits any interested individual to submit an application to the Board for permission to appear at the hearing on any protest for the purpose of submitting direct evidence concerning the issues raised in the protest.

Request for a Fee Waiver

Any Protestant or Respondent may submit a request for a fee waiver, requesting that the Executive Director, upon a showing of good cause, waive the filing fee (13 CCR § 553.40).

PRE-HEARING PROCEDURES

Telephonic Pre-Hearing Conference

Once a protest has been filed and processed, a notice of telephonic pre-hearing conference is sent to the parties or counsel thereof. During the initial pre-hearing conference, the parties may address any preliminary motions, and establish a discovery schedule, a settlement conference date, and/or a hearing date. Generally, the parties do not proceed with discovery until all preliminary motions have been resolved.

Preliminary Motions

All issues concerning timeliness and jurisdiction are resolved prior to addressing the merits of a protest. If the respondent contends the protest was not timely submitted or the Board lacks jurisdiction, it will file a Motion to Dismiss the Protest. After the motion has been received, a briefing schedule is established and a telephonic hearing is scheduled. In the event of live testimony, the hearing will be conducted in-person (13 CCR § 551.19). If the Motion is dispositive, i.e., granted, the matter is submitted to the Board and will be considered at the next Board meeting. If the matter is not dispositive, i.e., denied, a pre-hearing conference will be scheduled for the parties to establish a discovery schedule, a settlement conference date, and/or a hearing date.

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Discovery

The Board or its Executive Director may authorize the parties to engage in discovery procedures as set forth for civil actions in the Code of Civil Procedure Title 4 (commencing with Section 2016.010) of Part 4. The provisions of Chapter 13 (commencing with Section 2030.010) of that title, providing for written interrogatories, do not apply to Board proceedings. The Board can issue subpoenas for the attendance at deposition or hearing of non-parties, or a subpoena duces tecum for the production of papers, records, and books by a witness or deponent (13 CCR § 551.2).

During the initial pre-hearing conference, the parties generally establish a discovery schedule for the production of documents, exchange of witness lists, and deposition cut-off. Discovery must be completed no later than 15 days prior to the commencement of the hearing. Once a discovery schedule is established, it can be modified by stipulation of the parties.

Mandatory Settlement Conference

In any protest, the Board or its Executive Director may order a mandatory settlement conference. The failure of a party to appear, to be prepared, or to have authority to settle the matter may result in any or all of the following:

1. The Board, its Executive Director, or an Administrative Law Judge designated by the Board or its Executive Director may suspend all proceedings before the Board in the matter until compliance;

2. The Board, its Executive Director, or an Administrative Law Judge designated by the Board or its Executive Director may dismiss the proceedings or any part thereof before the Board with or without prejudice;

3. The Board, its Executive Director, or an Administrative Law Judge designated by the Board or its Executive Director may require all the Board's costs be paid by the party at fault;

4. The Board, its Executive Director, or an Administrative Law Judge designated by the Board or its Executive Director may deem that the party at fault has abandoned the matter (Veh. Code § 3050.4).

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HEARINGS ON THE MERITS

Good Cause

Franchisee claims for incentive program compensation may only be disapproved for "good cause." Examples of good cause include ineligibility under the terms of the incentive program, lack of material documentation, and fraud.

In the event of a hearing, the franchisee has the burden of proof. The franchisor has the burden of proof to establish that a franchisee acted with intent to defraud the franchisor when that issue is material to the protest (Veh. Code § 3066(c))

Changes to a Hearing Date

Except in cases of a franchisee who deals exclusively in motorcycles, the Board or its Executive Director may accelerate or postpone the date initially established for the hearing.

For the purpose of accelerating or postponing a hearing date, good cause must be shown. The hearing may not be rescheduled for a date more than 90 days from the date of the Board's original order. Good cause includes, but is not limited to, the effects upon, and any irreparable harm to the parties or interested persons or groups, if the request for a change in the hearing date is not granted.

Application for a continuance of the hearing date must be in writing, and filed with the Executive Director at least 10 days prior to the start of the hearing. Otherwise, a continuance will not be granted except in cases of extreme emergency such as serious accident or death.

Peremptory Challenges

A party in a Board proceeding is entitled to one disqualification of an assigned Administrative Law Judge without cause (13 CCR § 551.12). Such a challenge must be made by written declaration by a party that he or she believes that he or she cannot have a fair and impartial hearing before the Administrative Law Judge (13 CCR § 551.12). Parties are not entitled to a peremptory challenge in any proceeding relating to applications for temporary relief or interim orders. Except for the convenience of the Board, or for good cause shown, the filing of a peremptory challenge will not result in a continuance of the hearing.

Intervention

Any person, including a Board Member, may file a motion to intervene in a pending protest (13 CCR § 551.13).

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Amicus curiae Briefs

The Board, its Executive Director, or an Administrative Law Judge designated by the Board or its Executive Director may, in his or her discretion, allow the filing of amicus curiae briefs (13 CCR § 551.13).

Venue

A party to a Board proceeding, by means of a motion may request a change in venue (the location of the hearing, 13 CCR § 551.10).

DECISIONS OF THE BOARD

Administrative Procedure Act

Decisions of the Board, i.e., Proposed Decisions, Proposed Orders, or Proposed Rulings, are determined after the consideration of evidence introduced in a Board proceeding, conducted in accordance with the Administrative Procedure Act (Gov. Code § 11500 et seq.).

Stipulations of Fact

A hearing initiated by the filing of a protest may be held in whole or in part on a stipulation of fact, in which the parties define matters not in dispute, and other parts of the dispute which have been resolved. Such stipulations are of value as they tend to facilitate and expedite conflict resolution. (See 13 CCR § 587 for procedural details for stipulation of fact before the Board.)

Stipulated Decisions

The Board may adopt stipulated decisions and orders without a hearing, pursuant to Vehicle Code section 3066, to resolve one or more issues raised by a Protestant (Veh. Code § 3050.7(b).)

Failure to Appear at a Hearing

Any party who fails to appear at a hearing may not be entitled to a further opportunity to be heard except in cases where good cause for such failure is shown to the Board or to the Administrative Law Judge within 5 days thereafter. The lack of such a showing may, in the discretion of the Board or the Administrative Law Judge, be interpreted as an abandonment of interest by the party in the subject matter of the proceeding (13 CCR § 589).

Board Member Participation in the Protest Process

In Article 4 protests, Dealer members of the Board are prohibited from hearing, commenting, advising public members upon, or deciding any matter that involves a dispute between a franchisee and a franchisor, unless all parties stipulate otherwise (Veh. Code § 3066(d)).

In Article 5 RV protests, Dealer members may participate. Dealer members may also participate in matters which do not involve a dispute between a franchisee and a franchisor, such as a petition filed by a member of the public or an appeal from a Department decision.

Proposed Decisions

Matters submitted to the Board for decision are presented at open, public meetings. The Board deliberates in closed Executive Session before reporting its decision publicly. The deliberations of the Board are in private and are not reported.

All decisions of the Board are issued in writing, and contain findings of fact and a determination for each issue presented. The Board has the option to sustain, conditionally sustain, overrule, or conditionally overrule the protest. Board decisions become final when delivered to the parties.

If the Board fails to act within 30 days after the close of a hearing, within 30 days after the Board receives a proposed decision from the Administrative Law Judge, or within a period which may be mutually agreed upon by the parties, then the proposed action of the franchisor is deemed to be approved. (Veh. Code § 3067.)

Determination of Protest

If the dealer is unable to establish that it was entitled to payment under the terms of a franchisor incentive program, then the protest will be overruled.

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