SB2338

Report Title:

Motor Vehicle Franchises

Description:

Establishes protections governing the relationship between motor vehicle dealers and motor vehicle manufacturers.

THE SENATE	S.B. NO.	2338
TWENTY-FIRST LEGISLATURE, 2002
STATE OF HAWAII

A BILL FOR AN ACT

relating to motor vehicle franchises.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to provide licensed motor vehicle dealers in the State recourse against unfair methods of competition and unfair or deceptive trade practices by motor vehicle manufacturers through the reinstatement of franchise protections which govern the relationship and conduct between motor vehicle dealers and motor vehicle manufacturers.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

MOTOR VEHICLE FRANCHISES

§ -1 Definitions. As used in this chapter:

"Consumer" means any person who purchases, other than for purposes of resale, a motor vehicle for personal, family, household, or business use, any person to whom such motor vehicle is transferred for the same purposes during the duration of an express warranty applicable to such motor vehicle, and any other person entitled by the terms of such warranty to enforce the obligations of the warranty.

"Dealer" means any person engaged in the business of selling, soliciting, offering, or attempting to negotiate sales, purchases, or exchanges of motor vehicles or any interest therein, including options to purchase motor vehicles.

"Director" means the director of commerce and consumer affairs.

"Distributor" means any person, resident or nonresident, including a manufacturer, who in whole or in part imports, offers for sale, sells, or distributes new motor vehicles to dealers.

"Distributor branch" means any office or establishment maintained by a distributor which is not at the same address as the distributor and is used, either directly or indirectly, for the purpose of selling, offering for sale, promoting the sale of, or distributing new motor vehicles to dealers, or for the purpose of directing or supervising, in whole or in part, factory or distributor representatives.

"Distributor representative" means any representative, employee, agent, contractor, or any person, other than an independent advertising agency, employed by or under a contract with a distributor, directly or indirectly, for the purpose of selling, promoting the sale of, or distributing new motor vehicles or for the purpose of supervising or regulating the business affairs of motor vehicle dealers or prospective dealers.

"Factory branch" means any office or establishment maintained by a manufacturer, directly or indirectly, for the purpose of selling, offering for sale, or promoting the sale of new motor vehicles to a distributor or dealer, or for directing or supervising, in whole or in part, factory or distributor representatives.

"Factory representative" means a representative, employee, agent, contractor, or any person, other than an independent advertising agency, employed by a manufacturer or factory branch for the purpose of selling or promoting the sale of new motor vehicles of such manufacturer or for supervising the franchised dealers or prospective dealers of such manufacturer.

"Franchise" means any contract or agreement between a dealer and a manufacturer or distributor or branches or representatives thereof, which authorizes the dealer to engage in the business of selling or purchasing any particular make of new motor vehicles or parts therefor manufactured or distributed by the manufacturer or distributor.

"Manufacturer" means any person, resident or nonresident, who is engaged in the business of manufacturing or assembling new motor vehicles.

"Motor vehicle" includes any vehicle, motor vehicle, or truck, as defined in sections 249-1 and 249-2, except for tractors, trailers, and amphibious vehicles.

"New motor vehicle" means a motor vehicle which:

(1) Has not previously been sold to any person except a distributor, wholesaler, or dealer for resale, except where the vehicle has not left the dealer's possession after the sale to a consumer;

(2) Has not previously been registered or titled in the name of a consumer except where the vehicle has not left the dealer's possession after the sale to a consumer; and

(3) Has not been driven more than five hundred miles;

provided that where a sale, registration, entitlement, or transfer of title of a motor vehicle, or the accrual of mileage thereon, is primarily for the purpose of evading this provision, the motor vehicle shall be deemed a new motor vehicle for the purposes of this chapter.

"Passenger vehicle" includes any vehicle, motor vehicle, or truck designed for carrying twelve persons or fewer and subject to impact testing conducted pursuant to part 581 of title 49 of the Code of Federal Regulations.

"Premises" or "licensed premises" means the premises in connection with which a license has been, or is proposed to be, issued, including branch locations. The term "premises" or "licensed premises" is substituted for the term "place of business" wherever found in this chapter.

"Retail", "sale at retail", "retail sale", and equivalent expressions, mean the act or attempted act of selling a motor vehicle to a person for use as a consumer.

"Sale", "selling", and equivalent expressions, mean the act or attempted act, either as principal or an agent or in any capacity whatsoever, of selling, bartering, exchanging, or otherwise disposing of, or negotiating, or offering, or attempting to negotiate the sale, purchase, or exchange of, or interest in, a motor vehicle, including an option to purchase a motor vehicle.

"Salesperson" means any person who for gain or compensation of any kind, directly or indirectly, by any form of agreement or arrangement, sells, solicits, offers for sale, exchanges, or otherwise deals in, motor vehicles or any interest therein on behalf of any motor vehicle dealer.

"Used motor vehicle" means a motor vehicle other than a new motor vehicle.

"Wholesale", "sale at wholesale", "wholesale sale" and equivalent expressions, mean any sale other than a retail sale.

§ -2 Persons subject to this chapter; jurisdiction of courts; service of process. Any person who engages directly or indirectly in purposeful contacts within this State in connection with the offering or advertising for sale, or has business dealings with respect to, a motor vehicle within this State shall be subject to this chapter and shall be subject to the jurisdiction of the courts of this State upon service of process in accordance with chapter 634.

§ -3 Unfair methods of competition and unfair or deceptive acts or practices declared unlawful. (a) Unfair methods of competition and unfair or deceptive acts or practices as defined in this chapter shall be violations of section 480-2 and are unlawful.

(b) In construing paragraph (a) the courts may be guided by the definitions in the Federal Trade Commission Act (15 U.S.C. 45).

§ -4 Specific acts deemed unfair methods of competition and unfair or deceptive acts or practices. It shall be deemed a violation of this chapter for any manufacturer, factory branch, representative, division, distributor, distributor branch, wholesaler, branch, or division, officer, agent, or other representative thereof, to:

(1) Engage in any action which is arbitrary, in bad faith, or unconscionable and which causes damage to any licensed motor vehicle dealer or to the public;

(2) Coerce, or attempt to coerce, any licensed motor vehicle dealer:

(A) To order or accept delivery of any motor vehicle or vehicles, appliances, equipment, parts or accessories therefor, or any other commodity or commodities that the motor vehicle dealer has not voluntarily ordered;

(B) To order or accept delivery of any motor vehicle with special features, appliances, accessories, or equipment not included in the list price of the motor vehicles as publicly advertised by the manufacturer thereof;

(C) To order for any person any parts, accessories, equipment, machinery, tools, appliances or any commodity whatsoever; or

(D) To do any other act prejudicial to a licensed motor vehicle dealer by threatening to cancel any existing franchise or any contractual agreement;

provided that notice in good faith to any motor vehicle dealer of the dealer’s violation of any terms or provisions of a franchise or contractual agreement shall not constitute a violation of this chapter;

(3) Refuse to deliver in reasonable quantities and within a reasonable time after receipt of a dealer’s order, to any motor vehicle dealer having a franchise or contractual arrangement for the retail sale of new motor vehicles sold or distributed by such manufacturer, distributor branch or division, factory branch or division or wholesale branch or division, any motor vehicles that are covered by the franchise or contract specifically publicly advertised by such manufacturer, distributor, wholesaler, distributor branch or division, factory branch or division, or wholesale branch or division to be available for immediate delivery; provided that the failure to deliver any motor vehicle shall not be considered a violation of this chapter if such failure is due to an act of God, work stoppage or delay due to a strike or labor difficulty, shortage of materials, freight embargo, or other cause over which the manufacturer, distributor, or wholesaler, or any agent thereof, has no control;

(4) Terminate or cancel the franchise or selling agreement of any dealer without due cause. The nonrenewal of a franchise or selling agreement, without due cause, shall constitute an unfair termination or cancellation, regardless of the terms or provisions of the franchise or selling agreement. The manufacturer, distributor, wholesaler, distributor branch or division, factory branch or division, or wholesale branch or division, or officer, agent or other representatives thereof shall notify a motor vehicle dealer in writing of the termination or cancellation of the franchise or selling agreement of the dealer at least sixty days before the effective date thereof, stating the specific grounds for the termination or cancellation; and the manufacturer, distributor, wholesaler, distributor branch or division, factory branch or division, or wholesale branch or division, or officer, agent, or other representative thereof shall notify a motor vehicle dealer in writing at least sixty days before the contractual term of the franchise or selling agreement expires that the agreement will not be renewed, stating the specific grounds for nonrenewal in those cases where there is no intention to renew, and in no event shall the contractual term of the such franchise or selling agreement expire, without the written consent of the motor vehicle dealer involved, prior to the expiration of at least sixty days following the written notice. During the sixty day period, either party, in appropriate circumstances, may petition a court to modify the sixty day stay or to extend it pending a final determination of the proceedings on the merits. The court may grant preliminary and final injunctive relief;

(5) Resort to or use any false or misleading advertisement in connection with its business;

(6) Offer to sell or to sell any new motor vehicle to a motor vehicle dealer at a lower actual price than the actual price offered to any other motor vehicle dealer in this State for the same model vehicle similarly equipped, or to utilize any device including sales promotion plans or programs which result in a lesser actual price; provided that this paragraph shall not apply:

(A) To sales to a motor vehicle dealer for resale to any unit of the United States government, the State or any of its political subdivisions; and

(B) To sales to a motor vehicle dealer of any motor vehicle ultimately sold, donated, or used by such dealer in a driver education program;

(C) So long as a manufacturer, distributor, or wholesaler, or any agent thereof, offers to sell or sells new motor vehicles to all motor vehicle dealers at an equal price; and

(D) To sales by a manufacturer, distributor, or wholesaler to the United States government or any agency thereof;

(7) Wilfully discriminate, either directly or indirectly, in price between different purchasers of a commodity of like grade or quality where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly or to injure or destroy the business of a competitor;

(8) Offer to sell or to sell parts or accessories to any new motor vehicle dealer for use in the dealer's own business for the purpose of repairing or replacing the same on a comparable part or accessory, at a lower actual price therefor than the actual price charged to any other new motor vehicle dealer for similar parts or accessories for use in the dealer's own business; provided that in those cases where motor vehicle dealers operate and serve as wholesalers of parts and accessories to retail outlets or other dealers, whether or not the dealer is regularly designated as a wholesaler, nothing herein shall be construed to prevent a manufacturer, distributor, or wholesaler, or any agent thereof, from selling to any motor vehicle dealer who operates and serves as a wholesaler of parts and accessories, such parts and accessories as may be ordered by the motor vehicle dealer for resale to retail outlets, at a lower actual price than the actual price charged a motor vehicle dealer who does not operate or serve as a wholesaler of parts and accessories;

(9) Prevent or attempt to prevent by contract or otherwise, any licensed motor vehicle dealer from changing the capital structure of its dealership or the means by or through which it finances the operation of its dealership; provided that the dealer at all times meets any reasonable capital standards agreed to between the dealership and the manufacturer, distributor or wholesaler; provided further that such change by the dealer does not result in a change in the executive management of the dealership;

(10) Prevent or attempt to prevent by contract or otherwise, any motor vehicle dealer or any officer, partner, or stockholder of any motor vehicle dealer from selling or transferring any part of the interest of any of them to any other person or persons or party or parties; provided that no dealer, officer, partner or stockholder shall have the right to sell, transfer, or assign the franchise or power of management or control thereunder without the consent of the manufacturer, distributor, or wholesaler except that such consent shall not be unreasonably withheld;

(11) Obtain money, goods, services, anything of value, or any other benefit from any other person with whom the motor vehicle dealer does business, on account of or in relation to the transactions between the dealer and such other person, unless such benefit is promptly accounted for and transmitted to the motor vehicle dealer; or

(12) Require a motor vehicle dealer to assent to a release, assignment, novation, waiver, or estoppel which would relieve any person from liability imposed by this chapter

§ -5 Ownership, operation, or control of competing dealerships by manufacturer or franchisor; unfair competition against franchisee; preferential treatment defined; sales or leases to federal government or employees; sales of leased vehicles; manufacturer’s e-commerce websites. (a) It is unlawful for a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor to own, operate, or control or to participate in the ownership, operation, or control of a new motor vehicle dealer in this State, to establish in this State an additional dealer or dealership in which that person or entity has an interest, or to own, operate, or control, directly or indirectly, an interest in a dealer or dealership in this State, excluding a passive interest in a publicly traded corporation held for investment purposes. This subsection does not prohibit the ownership, operation, or control of a new motor vehicle dealer by a manufacturer or franchisor:

(1) For a temporary period, not to exceed one year, during the transition from one owner or operator to another, except that on a showing by a manufacturer or franchisor of good cause, a court of competent jurisdiction may extend this time limit for periods up to an additional twelve months;

(2) During a period in which the new motor vehicle dealer is being sold pursuant to a bona fide contract, shareholder agreement, or purchase option to the operator of the dealership; or

(3) At the same location at which the manufacturer or franchisor has been engaged in the retail sale of new motor vehicles as the owner, operator, or controller of the dealership for a continuous two year period of time immediately before the effective date of this chapter, where there is no prospective new motor vehicle dealer available to own or operate the dealership in a manner consistent with the public interest.

(b) It is unlawful for a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor to compete unfairly with a new motor vehicle dealer of the same line make operating pursuant to a franchise in this State. Except as otherwise provided in this subsection, the mere ownership, operation, or control of a new motor vehicle dealer by a manufacturer or franchisor pursuant to the conditions set forth this section is not a violation of this subsection. For purposes of this subsection, a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor is conclusively presumed to be competing unfairly if it gives preferential treatment to a dealer or dealership in which an interest is directly or indirectly owned, operated, or controlled by the manufacturer or franchisor or any partner, affiliate, wholly or partially owned subsidiary, officer, or representative of the manufacturer or franchisor, including preferential treatment regarding the direct or indirect cost of motor vehicles or parts, the availability or allocation of motor vehicles or parts, the availability or allocation of special or program motor vehicles, the provision of service and service support, the availability of or participation in special programs, the administration of warranty policy, the availability or allocation of factory rebates, or the availability and use of after warranty adjustments, advertising, floor planning, or financing or financing programs.

(c) It is unlawful for a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor to own a facility that engages primarily in the repair of motor vehicles, except motor homes, if the repairs are performed pursuant to the terms of a franchise or other agreement or the repairs are performed as part of a manufacturer’s or franchisor’s warranty. Nothing in this subsection prohibits a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor from owning a facility to perform warranty or other repairs on motor vehicles owned and operated by the manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor.

(d) Except as may be provided otherwise in this section, a manufacturer or franchisor may not sell, directly or indirectly, a motor vehicle to a consumer in this State, except through a new motor vehicle dealer holding a franchise for the line make that includes the motor vehicle. This subsection does not apply to manufacturer or franchisor sales of new motor vehicles to the federal government, nor to manufacturer or franchisor leases of new motor vehicles to employees of the manufacturer or franchisor. Nothing in this subsection prohibits a manufacturer or franchisor or any parent, affiliate, wholly or partially owned subsidiary, officer, or representative of a manufacturer or franchisor operating as a motor vehicle lessor from selling a motor vehicle to the lessee at the conclusion of a lease agreement between the two parties. Nothing in this subsection prevents a manufacturer or franchisor from establishing an e-commerce website for the purpose of referring prospective customers to motor vehicle dealers holding a franchise for the same line make of the manufacturer or franchisor.

§ -6 Notice of intent to establish or relocate competing dealership; injunction. (a) A franchisor that intends to establish a new dealership or to relocate a current dealership for a particular line make motor vehicle within a ten mile radius of an existing dealership of the same line make motor vehicle shall give written notice of that intent by certified mail to the existing dealership. The notice shall include the:

(1) Specific location of the additional or relocated dealership;

(2) Date of commencement of operation of the additional or relocated dealership at the new location;

(3) Identities of all existing dealerships located in the market area of the new or relocated dealership; and

(4) Names and addresses of the dealer and principals in the new or relocated dealership.

(b) If a franchisor intends to establish a new dealership or to relocate a current dealership within a ten mile radius of an existing dealership, then that existing dealership may petition the court, within sixty days of the receipt of the notice, to enjoin or prohibit the establishment of the new or relocated dealership within a ten mile radius of the existing dealership. The court shall enjoin or prohibit the establishment of the new or relocated dealership within a ten mile radius of the protesting dealership unless the franchisor shows by a preponderance of the evidence that the existing dealership is not providing adequate representation of the line make motor vehicle and that the new or relocated dealership is necessary to provide the public with reliable and convenient sales and service within that area. The burden of proof in establishing adequate representation is on the franchisor. In determining if the existing dealership is providing adequate representation and if the new or relocated dealership is necessary, the court may consider:

(1) The impact the establishment of the new or relocated dealership will have on consumers, the public interest, and the protesting dealership, except that financial impact may be considered only with respect to the protesting dealership;

(2) The size and permanency of investment reasonably made and the reasonable obligations incurred by the protesting dealership to perform its obligation pursuant to the dealership’s franchise agreement;

(3) The reasonably expected market penetration of the line make motor vehicle, after consideration of all factors which may affect the penetration including demographic factors such as age, income, education, size class preference, product popularity, retail lease transactions, and other factors affecting sales to consumers;

(4) Actions by the franchisor in denying its existing dealership of the same line make the opportunity for reasonable growth, market expansion, or relocation, including the availability of line make motor vehicles in keeping with reasonable expectations of the franchisor in providing an adequate number of dealerships;

(5) Attempts by the franchisor to coerce the protesting dealership into consenting to an additional or relocated dealership of the same line or make within a ten mile radius of the protesting dealership;

(6) Distance, travel time, traffic patterns, and accessibility between the protesting dealership of the same line make and the location of the proposed new or relocated dealership;

(7) The likelihood of benefits to consumers from the establishment or relocation of the dealership, which benefits may not be obtained by other geographic or demographic changes or other expected changes within a ten mile radius of the protesting dealership;

(8) If the protesting dealership is in substantial compliance with its franchise agreement;

(9) If there is adequate interbrand and intrabrand competition with respect to the line make motor vehicles, including the adequacy of sales and service facilities;

(10) If the establishment or relocation of the proposed dealership appears to be warranted and justified based on economic and market conditions pertinent to dealerships competing within a ten mile radius of the protesting dealership, including anticipated changes; and

(11) The volume of registrations and service business transacted by the protesting dealership.

(1) Addition of a new dealership at a location that is within a three mile radius of a former dealership of the same line make and that has been closed for less than two years;

(2) Relocation of an existing dealership to a new location that is further away from the protesting dealer’s location than the relocated dealer’s previous location; or

(3) Relocation of an existing dealership to a new location that is within a three mile radius of the dealership’s current location, when it has been at the current location at least ten years.

§ -7 Specification of delivery and preparation obligations of dealers; filing of copy of obligations and schedule of compensation. Every manufacturer shall specify to the dealer the delivery and preparation obligations of its motor vehicle dealers prior to delivery of new motor vehicles to retail buyers.

§ -8 Fulfillment of warranty agreements; dealers’ claims for compensation. (a) Every manufacturer, distributor, wholesaler, distributor branch or division, factory branch or division, or wholesale branch or division shall fulfill properly a warranty agreement and compensate adequately and fairly each of its motor vehicle dealers for labor and parts, including reimbursement for any or all taxes imposed upon dealers pursuant to chapters 237 and 238 with respect to such compensation. In no event shall any manufacturer, factory branch, factory representative, distributor, distributor branch, or distributor representative pay its dealers a labor rate per hour for warranty work that is less than that charged by the dealer to the retail customers of the dealer, nor shall the rates be more than the retail rates. All claims made by motor vehicle dealers pursuant to this section and section 437-49 for labor and parts shall be paid within thirty days following their approval. All claims shall be either approved or disapproved within thirty days after their receipt. Any motor vehicle dealer who submits a disapproved claim shall be notified in writing of its disapproval within that period, and the notice shall state the specific grounds upon which the disapproval is based. Any special handling of claims required by the manufacturer, distributor, wholesaler, distributor branch or division, factory branch or division, or wholesale branch or division, but not uniformly required of all dealers of that make, may be enforced only after thirty days notice in writing of good and sufficient reason.

(b) An audit for sales incentives, service incentives, rebates, or other forms of incentive compensation may include only the twelve month period immediately following the date of the termination of the incentive compensation program. This limitation is not effective in the case of fraudulent claims.

(c) If an audit or other authorized means of review by the manufacturer or franchisor discloses a material defect in the claim, the manufacturer or franchisor may demand reimbursement for funds previously paid to a dealer for warranty service, provided the audit is completed within twelve months of filing a claim.

§ -9 Certain unreasonable restrictions on dealers or franchisees unlawful. It shall be unlawful directly or indirectly to impose unreasonable restrictions on the motor vehicle dealer or franchisee relative to transfer, sale, right to renew, termination, discipline, noncompetition covenants, site control (whether by sublease, collateral pledge of lease, or otherwise), option to purchase, compliance with subjective standards, and assertion of legal or equitable rights.

§ -10 Agreements to which chapter applies. This chapter shall apply to the extent allowed by the United States or Hawaii state constitution to all existing and prospective written or oral agreements between a manufacturer, wholesaler or distributor with a motor vehicle dealer, including the franchise offering, the franchise agreement, sales of goods, services or advertising, leases or mortgages of real or personal property, promises to pay, security interests, pledges, insurance contracts, advertising contracts, construction or installation contracts, servicing contracts, and all other such agreements in which the manufacturer, wholesaler, or distributor has any direct or indirect interest.

§ -11 Unlawful failure to renew, termination or restriction of transfer of franchise. Any law to the contrary notwithstanding, it shall be unlawful for the manufacturer, wholesaler, distributor, or franchisor without due cause to fail to renew on terms then equally available to all its motor vehicle dealers, to terminate a franchise or to restrict the transfer of a franchise unless the franchise shall receive fair and reasonable compensation for the value of the business.

§ -12 Discounts, refunds, and other inducements to dealers. In connection with a sale of a motor vehicle to the State or to any political subdivision thereof, no manufacturer, distributor, or wholesaler shall offer any discounts, refunds, or any other similar type of inducement to any dealer without making the same offer to all other of its dealers within the relevant market area, and if such inducements are made, the manufacturer, distributor, or wholesaler shall give simultaneous notice thereof to all of its dealers within the relevant market area who have requested such notice.

§ -13 Suits for damages. (a) In addition to temporary or permanent injunctive relief as provided in chapter 480, any person who is injured in the person's business or property by reason of anything forbidden in this chapter may maintain a suit in the courts of this State and shall recover treble the amount of the actual damages sustained, and the cost of suit, including reasonable attorneys fees.

(b) When such action is one of common or general interest to many persons or when the parties are numerous and it is impracticable to bring them all before the court, one or more injured persons may sue for the benefit of the whole, including actions for injunctive relief, and the director may bring actions, including actions for injunctive relief, in the circuit courts of this State.

§ -14 Contracts in violation of this chapter shall be void. Any contract, provision thereof, or practice thereunder in violation of this chapter shall be deemed against public policy and shall be void.

§ -15 Venue. In an action brought pursuant to this chapter, venue is in this State. Any provision of a franchise or other agreement to the contrary is void."

SECTION 3. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________