Vehicle Code sections 3060(a)(1) and 3070(a)(1) give a new motor vehicle dealer or a recreational vehicle dealer the right to protest before the Board an attempt by a manufacturer or distributor to terminate an existing franchise agreement.
Under the provisions of Vehicle Code sections 3060(a)(1) or 3070(a)(1), a franchisor (manufacturer or distributor) cannot terminate or refuse to continue a franchise (sales and service agreement) unless written notice of the franchisor's intent to terminate has been received by both the franchisee (dealer) and the Board. The franchisor's notice must set forth the specific grounds for the termination and must contain, on the first page, in at least 12-point bold type and circumscribed by a line, one of the following statements.
(When the manufacturer or distributor provides a 15-day notice of termination, the following language is used.)
(When the manufacturer or distributor provides a 60-day notice of termination, the following language is used.)
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 facsmile, or upon mailing of the protest, if sent by certified or registered mail. In order to ensure your protest is timely filed 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:
- The protest either for vehicles other than RVs in response to a 15-day notice (DOC) or in response to a 60-day notice (DOC), or for RVs in response to a 15-day notice (DOC) or in response to a 60-day notice (DOC);
- A $200.00 filing fee or a request for a fee waiver (DOC) upon good cause shown; and
- Proof of service (DOC) 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
It is essential to not confuse the time within which to file a protest with the time at which a termination of the franchise becomes effective. The time at which a termination will become effective is governed by the reason(s) for the termination.
The reasons for termination with their corresponding protest filing periods and effective dates of termination are described in detail below.
If the notice of termination contains any of the following specific grounds,(Veh. Code § 3060(a)(1)(B), the protest must be filed within 10 days of the franchisee's receipt of the notice of termination or 10 days after the end of any appeal procedure provided by the distributor or manufacturer. If no protest is filed, the termination becomes effective 15 days after the franchisee's receipt of the notice.
- Transfer of any ownership or interest in the franchise without the consent of the franchisor, which consent shall not be unreasonably withheld;
- Misrepresentation by the franchisee in applying for the franchise;
- Insolvency of the franchisee, or filing of any petition by or against the franchisee under any bankruptcy or receivership law;
- Any unfair business practice after written warning thereof; or
- Failure of the motor vehicle dealer to conduct its customary sales and service operations during its customary hours of business for 7 consecutive business days, giving rise to a good faith belief on the part of the franchisor that the dealer is in fact going out of business, except for circumstances beyond the direct control of the motor vehicle dealer or by order of the Department.
(The specific grounds for issuance of a 15-day notice of termination in an Article 5 RV protest are similar (Veh. Code § 3070(a)(1)(B)
All other termination protests must be filed within 30 days of the dealer's receipt of the notice of termination or 30 days after the end of any appeal procedure provided by the distributor or manufacturer. If no protest is filed, the termination becomes effective 60 days after the dealer's receipt of the notice.
The protst is deemed filed on the date of its receipt by the Board via regular mail, email, or facsmile, or upon mailing of the protest, if sent by certified or registered mail.
Required Elements of a Protest
The time of filing and content of protests pursuant to Vehicle Code sections 3060(a)(1) and 3070(a)(1) are set forth in detail in Section 585 of Title 13 of the California Code of Regulations.
A protest of a termination or refusal to continue an existing franchise must:
- Be in writing and be signed by the franchisee or its attorney;
- Be responsive to the specific grounds for the termination or refusal to continue contained in the franchisor's notice and set forth clearly and concisely the factual contentions of the franchisee with respect to the matter referred to in the notice;
- 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];
- Indicate either that the franchisee does or does not desire to appear before the Board;
- Set forth the number of days required to complete the hearing;
- Indicate that the franchisee requests a pre-hearing conference if one is desired;
- 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 (DOC); and
- Be accompanied by a completed proof of service (DOC) signifying that a copy of the protest was served upon the franchisor.
In addition, the franchisee may submit as exhibits to the protest any physical evidence relevant to the matter with an adequate description in the protest.
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 3060(a)(1) or 3070(a)(1), 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 or 3080 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.
Vehicle Code section 3066 or 3080 permits any interested individual to submit an application (DOC) 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
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.
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 filed, 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.
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:
- 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;
- 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;
- 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;
- 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).
HEARINGS ON THE MERITS
If a timely protest is filed, the manufacturer or distributor cannot terminate the franchise until a hearing has been held by the Board or a designated Administrative Law Judge and the Board issues a decision to permit the termination. At the hearing, the manufacturer or distributor will have the burden of proving "good cause" for termination.
In making a determination of good cause pursuant to Vehicle Code section 3061, the Board shall take into consideration the existing circumstances including, but not limited to, all of the following:
- Amount of business transacted by the franchisee, as compared to the business available to the franchisee;
- Investment necessarily made and obligations incurred by the franchisee to perform its part of the franchise;
- Permanency of the investment;
- Whether it is injurious or beneficial to the public welfare for the franchise to be modified or replaced or the business of the franchisee disrupted;
- Whether the franchisee has adequate motor vehicle sales and service facilities, equipment, vehicle parts, and qualified service personnel to reasonably provide for the needs of the consumers for the motor vehicles handled by the franchisee and has been and is rendering adequate services to the public;
- Whether the franchisee fails to fulfill the warranty obligations of the franchisor to be performed by the franchisee; and
- Extent of the franchisee's failure to comply with the terms of the franchise.
The good cause factors for Article 5 RV protests are similar to Vehicle Code section 3061 but contain subtle differences (Veh. Code § 3071).
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.
A party in a Board proceeding is entitled to one disqualification of the assigned merits Administrative Law Judge without cause (13 CCR § 551.12). Parties are not entitled to a peremptory challenge for law and motion hearings, settlement conferences, and rulings on discovery disputes. 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 merits hearing.
Any person, including a Board Member, may file a motion to intervene in a pending protest (13 CCR § 551.13).
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).
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 Order, 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 [only Article 4 not Article 5 RV protests]
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.
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 or 3081.)
Determination of Protest
If a manufacturer or distributor is unable to prove good cause to allow the termination, it will not be permitted to proceed with its intended action.