SB2490

SECTION 1. The legislature finds that due to Hawaii's remote location, motor vehicle manufacturers must make certain special considerations when creating programs applicable to franchised motor vehicle dealers located in the State. The legislature further finds that certain amendments to Hawaii's motor vehicle industry licensing law are necessary to ensure a level playing field amongst the State's motor vehicle dealers.

Accordingly, the purpose of this Act is to modernize Hawaii's motor vehicle industry licensing laws by:

(1) Authorizing a license holder to engage in business at motor vehicle dealer locations that are affiliated by common ownership under the same license;

(2) Specifying certain recall reimbursement or repair requirements for manufacturers where a stop-sale, or do-not-drive, order has been issued;

(3) Clarifying when certain manufacturer's or dealer's requests or performance standards shall be deemed unreasonable, arbitrary, or unfair; and

(4) Prohibiting a manufacturer or distributor from requiring a dealer to purchase items for a dealership facility in certain circumstances or provide certain information related to customer information, unless certain conditions are met.

SECTION 2. Section 437-2, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) A license issued under this chapter shall authorize the holder to engage in the same business at branch locations in the same county for which the license is issued during the term thereof[;], or other motor vehicle dealer locations located in the same county and affiliated by common ownership with the location for which the license is issued during the term thereof; provided that each branch location of a motor vehicle dealer is approved by the board.

For purposes of this subsection, "common ownership" shall include entities that have the same ownership, whether through individuals, corporations, trusts, or other entities."

SECTION 3. Section 437-28, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) In addition to any other actions authorized by law, the board, after notice and hearing as provided in chapter 91, and subject to appeal to the circuit court of the circuit in which the board has jurisdiction under the procedure and rules prescribed by the laws of the State or the applicable rules of the courts pertaining to appeals to circuit courts, may suspend, revoke, fine, or deny the renewal of any license, or prior to notice and hearing deny the issuance of any license for any cause authorized by law, including but not limited to circumstances where the board finds that the applicant or holder, or any officer, director, general manager, trustee, partner, or stockholder owning more than ten per cent interest of the applicant or holder:

(1) Has intentionally made a false statement of a material fact in the application for a license or in any other statement required by this chapter or has obtained or attempted to obtain a license by fraud or misrepresentation;

(2) Has failed to comply with, observe, or adhere to any provision of this chapter or any other law relating to the sale, taxing, or licensing of motor vehicles or any rule or order made pursuant to this chapter;

(3) Has committed a fraudulent act in selling, purchasing, or otherwise dealing in motor vehicles or has misrepresented the terms and conditions of a sale, purchase, or contract for sale or purchase of a motor vehicle or any interest therein including an option to purchase motor vehicles;

(4) Has engaged in business under a past or present license issued pursuant to this chapter, in a manner as to cause injury to the public or to those with whom one is dealing;

(5) Has failed to comply with, observe, or adhere to any law in any other respect so that the board deems the applicant or holder to be an unfit or improper person to hold a license;

(6) Has failed to meet or maintain the conditions and requirements necessary to qualify for the issuance of a license;

(7) Is insolvent, has filed or is the subject of a petition for bankruptcy, wage earner's plan, or financial reorganization plan, or has made or proposes to make an assignment for benefit of creditors;

(8) Is not at least eighteen years of age, or in the case of a partnership applicant or holder of a license, if any general or limited partner is not at least eighteen years of age;

(9) Has charged more than the legal rate of interest on the sale, purchase, or attempted sale or purchase, or in arranging the sale or purchase of a motor vehicle or any interest therein including an option to purchase;

(10) Has violated any law pertaining to false advertising or to credit sales in the offering, soliciting, selling, purchasing, or arranging to sell or purchase a motor vehicle or any interest therein;

(11) Has wilfully failed or refused to perform any unequivocal and indisputable obligation under any written agreement involving the sale or purchase of a motor vehicle or any interest therein, including an option to purchase;

(12) Has been denied the issuance of a license under this chapter for substantial culpable cause or has had a license issued under this chapter suspended, revoked, or the renewal thereof denied for substantial culpable cause;

(13) Has entered, has attempted to enter, or proposes to enter into any contract or agreement contrary to this chapter or any rule adopted thereunder;

(14) Has been, is engaged, or proposes to engage in the business of selling new motor vehicles as a dealer or auction without a proper franchise therefor;

(15) Has at any time employed, utilized, or attempted or proposed to employ or utilize any person not licensed under this chapter who is required to be so licensed;

(16) Has entered or attempted to enter any one-payment contract where the contract is required to be signed by the purchaser prior to removal of the motor vehicle for test driving from the seller's premises;

(17) Is a salesperson or dealer and:

(A) Has required a purchaser of a motor vehicle as a condition of sale and delivery, to purchase special features, appliances, accessories, or equipment not desired or requested by the purchaser; provided that this prohibition shall not apply as to special features, appliances, accessories, or equipment which are ordinarily installed on the vehicle when received or acquired by the dealer;

(B) Has represented and sold as an unused motor vehicle any motor vehicle which has been leased or operated as a demonstrator or U-drive motor vehicle;

(C) Has sold a new motor vehicle without providing or securing for the purchaser the standard factory new car warranty for the vehicle unless the dealer or salesperson clearly notes in writing on the sales contract that the new motor vehicle is sold without the standard factory warranty;

(D) Has sold a new motor vehicle covered by a standard factory warranty without informing the purchaser in writing that any repairs or other work necessary on any accessories which were not installed by the manufacturer of the vehicle may not be obtainable in a geographic location other than where the purchase occurred; provided that the notice required by this section shall conform to the plain language requirements of section 487A-1, regardless of the dollar amount of the transaction;

(E) Has engaged in any improper business conduct, including but not limited to employing, contracting with, or compensating consumer consultants; or

(F) Has sold or leased a new or used motor vehicle, other than at auction, without written documentation upon which the salesperson or dealer shall appropriately indicate the type of sale, which both the customer and salesperson or dealer shall place their initials in the designated spaces prior to the signing of the contract of sale or lease and that contains the following provision printed legibly in at least fourteen point bold typeface:

"This (IS) (IS NOT) a door-to-door sale. There (IS A) (IS NO) 3-DAY RIGHT TO CANCEL on this purchase.

____ Customer's Initials ____ Salesperson's

or Dealer's Initials";

(18) Is an applicant or holder of a dealer's license and:

(A) Has sold or proposed to sell new motor vehicles without providing for the maintenance of a reasonable inventory of parts for new vehicles or without providing and maintaining adequate repair facilities and personnel for new vehicles at either the main licensed premises or at any branch location;

(B) Has employed or proposed to employ any salesperson who is not duly licensed under this chapter; or

(19) Is an applicant or holder of an auction's license and has sold or proposed to sell new motor vehicles without being franchised therefor; [or]

(20) Is an applicant for a salesperson's license and:

(A) Does not intend to be employed as a salesperson for a licensed motor vehicle dealer; or

(B) Intends to be employed as a salesperson for more than one dealer;

(21) Being a manufacturer or distributor:

(A) Has required any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to perform any act not required by or to refrain from performing any act not contrary to the reasonable requirements of the franchise agreement with the dealer, by threatening to cancel the franchise agreement or by threatening to refuse, at the expiration of the current franchise agreement, to enter into a new franchise agreement with the dealer;

(B) Has required any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to perform any act not required by or to refrain from performing any act not contrary to the reasonable requirements of the franchise agreement with the dealer, by awarding or threatening to award a franchise to another person for the sale of the same make of any motor vehicle in the relevant market area of a dealer;

(C) Has canceled or failed to renew the franchise agreement of any dealer in the State without good faith, as defined herein. As used in this subparagraph, "good faith" means the duty of each party to any franchise agreement to fully comply with that agreement, or to act in a fair and equitable manner towards each other;

(D) Has delayed delivery of or refused to deliver without cause, any new motor vehicle to a dealer, franchised to sell the new motor vehicle, within a reasonable time after receipt of a written order for the vehicle from the dealer. The delivery to another dealer of a motor vehicle of the same model and similarly equipped as the vehicle ordered by a dealer who has not received delivery thereof, but who had placed the written order for the vehicle prior to the order of the dealer receiving the vehicle, shall be prima facie evidence of a delayed delivery of, or refusal to deliver, a new motor vehicle without cause. The nondelivery of a new motor vehicle to a dealer within sixty days after receipt of a written order for the vehicle from a dealer shall also be prima facie evidence of delayed delivery of, or refusal to deliver, a new motor vehicle without cause; provided that the delayed delivery of, or refusal to deliver, a motor vehicle shall be deemed with cause if the manufacturer establishes that the delay or refusal to deliver is due to a shortage or curtailment of material, labor, transportation, utility service, labor or production difficulty, or other similar cause beyond the reasonable control of the manufacturer;

(E) Has discriminated against any of their franchised dealers in the State by directly or indirectly charging the dealer more for a new motor vehicle or services, parts, or accessories or a higher rate of transportation for transporting the vehicle from the manufacturing or assembly plant to the dealer or any portion of the distance, than is charged to any other of their franchised dealers in the State for the same make, model, and year of a new motor vehicle or for the same devices, parts, or accessories for the similar transportation for the vehicle during the same period. A manufacturer or distributor who provides or causes to be provided greater transportation benefits for a new motor vehicle as aforesaid to any of their franchised dealers in the State than is provided to any of their competing franchised dealers in the State for the same or lesser price or charge than that imposed upon the franchised dealer in the State during the same period is deemed to have so discriminated against the competing franchised dealer in the State. Evidence of similar discriminatory practice against franchised dealers in other states shall not constitute a defense to or justification of the commission of the discriminatory act against the franchised dealer in the State. The intent and purpose of this subparagraph is to eliminate inequitable pricing policies set by manufacturers or distributors which result in higher prices of new motor vehicles to the consumer in the State. This subparagraph shall be liberally interpreted to effect its intent and purpose and in the application thereof, the substance and effect and not the form of the acts and transactions shall be primarily considered in determining whether a discriminatory act has been committed. Nothing contained in this subparagraph shall prohibit establishing delivered prices or destination charges to dealers in the State which reasonably reflect the seller's total transportation costs incurred in the manufacture or delivery of products to the dealers, including costs that are related to the geographical distances and modes of transportation involved in shipments to this State, or which meet those lower prices established by competitors;

(F) Has required a dealer of new motor vehicles in the State as a condition of sale and delivery of new motor vehicles to purchase special features, appliances, accessories, or equipment not desired or requested by the dealer; provided that this prohibition shall not apply to special features, appliances, accessories, or equipment, except heaters, that are regularly installed on that particular model or new motor vehicles as "standard" equipment or to special features, appliances, accessories, or equipment that are an integral part of the new motor vehicles and cannot be removed therefrom without substantial expense. Nothing in this subparagraph shall make it unlawful for a dealer to sell a vehicle that includes a heater that has been installed as standard equipment;

(G) Has failed to adequately and fairly compensate its dealers for labor incurred by the dealer to perform under and comply with manufacturer's warranty agreements. In no event shall any manufacturer or distributor 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 the dealers for compensation for delivery, preparation, and warranty work shall be paid within thirty days after approval and shall be approved or disapproved within thirty days after receipt. When any claim is disapproved, the dealer shall be notified in writing of the grounds for disapproval;

(H) Has wilfully failed to affix the vehicle bumper impact notice pursuant to section 437-4.5(a), or wilfully misstated any information in the notice. Each failure or misstatement is a separate offense;

(I) Has wilfully defaced, or removed the vehicle bumper impact notice required by section 437-4.5(a) prior to delivery of the vehicle to which the notice is required to be affixed to the registered owner or lessee. Each wilful defacement, alteration, or removal is a separate offense; or

(J) Has required a dealer to refrain from participation in the management of, investment in, or the acquisition of, any other line of new motor vehicle or related products; provided that the new motor vehicle dealer maintains a reasonable line of credit consistent with the requirements of section 437-7(d)(1) for each make or line of new motor vehicle, remains in compliance with reasonable facilities and other franchise requirements of the manufacturer or distributor, and makes no unauthorized change in the principal management of the dealer[.]; or

(22) Being a manufacturer: has reduced the amount of compensation otherwise owed to a new motor vehicle dealer, whether through a chargeback, removal from an incentive program, reduction in amount owed under an incentive program, or any other means, because the new motor vehicle dealer has submitted a claim for reimbursement under this paragraph or was otherwise compensated for a vehicle subject to a recall where a stop-sale, or do-not-drive, order has been issued. For purposes of this paragraph:

(A) A manufacturer shall compensate its new motor vehicle dealers for all labor and parts required by the manufacturer to perform recall repairs. Compensation for recall repairs shall be reasonable. If parts or a remedy is not reasonably available to perform a recall service or repair on a used vehicle held for sale by a dealer authorized to sell new vehicles of the same line make within fifteen days of the manufacturer issuing the initial notice of recall, and the manufacturer has issued a stop-sale, or do-not-drive, order on the vehicle, the manufacturer shall compensate the dealer at a rate of at least 1.75 per cent of the value of the vehicle per month, or portion of a month, while the recall or remedy parts are unavailable and the stop-sale, or do-not-drive, order remains in effect;

(B) The value of a used vehicle shall be the average trade-in value for used vehicles as indicated in an independent third party guide for the year, make, model, and mileage of the recalled vehicle;

(C) All reimbursement claims made by new motor vehicle dealers pursuant to this paragraph for recall remedies or repairs, or for compensation where no part or repair is reasonably available and the vehicle is subject to a stop-sale, or do-not-drive, order shall be subject to the same limitations and requirements as a warranty reimbursement claim made under chapter 481J. Claims shall be either approved or disapproved within thirty days after the claims are submitted to the manufacturer in the manner and on the forms as the manufacturer may reasonably prescribe. All claims shall be paid within thirty days of approval of the claim by the manufacturer. Any claim not specifically disapproved in writing within thirty days after the manufacturer receives a properly submitted claim shall be deemed approved. In the alternative, a manufacturer may compensate its franchised dealers under a national recall compensation program; provided that the compensation under the program is equal to or greater than that provided under subparagraph (A) or the manufacturer and dealer otherwise agree;

(D) A new or used motor vehicle dealer shall disclose in writing to used vehicle purchasers the existence of any open, un-remedied recalls. A dealer shall be deemed to have complied with this subparagraph if the dealer provides a report to the used vehicle purchaser that is obtained from safercar.gov and based on a vehicle identification number search;

(E) This paragraph shall only apply to:

(i) Used vehicles subject to safety or emissions recalls pursuant to and recalled in accordance with federal law and regulations adopted pursuant to federal law and where a stop-sale, or do-not-drive, order has been issued; and

(ii) New motor vehicle dealers holding used vehicles for sale that are a line make that the dealer is franchised to sell or on which the dealer is authorized to perform recall repairs; and

(F) A "stop-sale order" means a notification issued by a vehicle manufacturer to its franchised dealerships stating that certain used vehicles in inventory should not be sold or leased, at retail or wholesale, due to a federal safety recall for a defect or a noncompliance, or a federal or California emissions recall."

SECTION 4. Section 437-52, Hawaii Revised Statutes, is amended to read as follows:

"[[]§437-52[]] Reciprocal rights and obligations among dealers, manufacturers, and distributors of motor vehicles. A manufacturer or distributor shall not:

(1) Require any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party that requires the law of another jurisdiction to apply to any dispute between the dealer and manufacturer or distributor, or requires that the dealer bring an action against the manufacturer or distributor in a venue outside of Hawaii, or requires the dealer to agree to arbitration or waive its rights to bring a cause of action against the manufacturer or distributor, unless done in connection with a settlement agreement to resolve a matter or pending dispute between a manufacturer or distributor, or officer, agent, or other representative thereof, and the dealer; provided[~~, however,~~] that such agreement has been entered voluntarily for adequate and valuable consideration; and provided further that the renewal or continuation of a franchise agreement shall not by itself constitute adequate and valuable consideration;

(2) Require any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to prospectively assent to a release, assignment, novation, waiver, or estoppel, which instrument or document operates, or is intended by the applicant or licensee to operate, to relieve any person from any liability or obligation of this chapter, unless done in connection with a settlement agreement to resolve a matter or pending dispute between a manufacturer or distributor, or officer, agent, or other representative thereof, and the dealer; provided[~~, however,~~] that such agreement has been entered voluntarily for adequate and valuable consideration; and provided further that the renewal or continuation of a franchise agreement shall not by itself constitute adequate and valuable consideration;

(3) Cancel or fail to renew the franchise agreement of any dealer in the State without providing notice, and without good cause and good faith, as provided in section 437-58;

(4) Refuse or fail to offer an incentive program, bonus payment, holdback margin, or any other mechanism that effectively lowers the net cost of a vehicle to any franchised dealer in the State if the incentive, bonus, or holdback is made to one or more same line make dealers in the State;

(5) Unreasonably prevent or refuse to approve the relocation of a dealership to another site within the dealer's relevant market area. The dealer shall provide the manufacturer or distributor with notice of the proposed address and a reasonable site plan of the proposed location. The manufacturer or distributor shall approve or deny the request in writing no later than sixty days after receipt of the request. Failure to deny the request within sixty days constitutes approval;

(6) Require a dealer to construct, renovate, or make substantial alterations to the dealer's facilities unless the manufacturer or distributor can demonstrate that such construction, renovation, or alteration requirements are reasonable and justifiable based on reasonable business consideration, including current and reasonably foreseeable projections of economic conditions existing in the automotive industry at the time such action would be required of the dealer, and agrees to make a good faith effort to make available, at the dealer's option, a reasonable quantity and mix of new motor vehicles, which, after a reasonable analysis of market conditions, are projected to meet the sales level necessary to support the increased overhead incurred by the dealer as a result of the required construction, renovation, or alteration; provided[~~, however,~~] that a dealer may be required by a manufacturer or distributor to make reasonable facility improvements and technological upgrades necessary to support the technology of the manufacturer's or distributor's vehicles. If the dealer chooses not to make such facility improvements or technological upgrades, the manufacturer or distributor shall not be obligated to provide the dealer with the vehicles which require the improvements or upgrades[;]. Facility construction, renovation, or substantial alteration shall be deemed unreasonable if it is within a ten-year period following the dealer's completion of facility construction, renovation, or substantial alteration. A dealer that has completed facility construction, renovation, or substantial alteration shall be deemed to be in compliance with any facility component of a manufacturer or distributor incentive program during the ten-year period following the completion of the upgrade and shall be eligible for all facility-related incentives or benefits during the ten-year period following the upgrade's completion; provided that no changes have been made to the facility since the manufacturer or distributor approval that would render the facility non-compliant, regardless of whether the manufacturer's or distributor's image program has changed. Eligibility for facility-related incentives under this paragraph shall not apply to lump sum payments so long as the compensation relates to the cost of the facility upgrade and is not paid on a per vehicle basis;

(7) Require the dealer to establish or maintain an exclusive showroom or facility unless justified by current and reasonably expected future economic conditions existing in the dealer's market and the automobile industry at the time the request for an exclusive showroom or facility is made; provided that the foregoing shall not restrict the terms and conditions of any agreement for which the dealer has voluntarily accepted separate and valuable consideration;

(8) Condition the award of an additional franchise on the dealer entering a site control agreement or the dealer waiving its rights to protest the manufacturer's or distributor's award of an additional franchise within the dealer's relevant market area; provided that the foregoing shall not restrict the terms and conditions of any agreement for which the dealer has voluntarily accepted separate and valuable consideration;

(9) Require a dealer or the dealer's employees to attend a training program that does not relate directly to the sales or service of a new motor vehicle in the line make of that sold or serviced, or both, by the dealer;

(10) Require a dealer to pay all or part of the cost of an advertising campaign or contest, or purchase any promotional materials, showroom, or other display decorations or materials at the expense of the dealer without the consent of the dealer, which consent shall not be unreasonably withheld;

(11) Implement or establish a customer satisfaction index or other system measuring a customer's degree of satisfaction with a dealer as a sale or service provider unless any such system is designed and implemented in such a way that is fair and equitable to both the manufacturer and the dealer. In any dispute between a manufacturer, distributor, and a dealer, the party claiming the benefit of the system as justification for acts in relation to the franchise shall have the burden of demonstrating the fairness and equity of the system both in design and implementation in relation to the pending dispute. Upon request of any dealer, a manufacturer or distributor shall disclose in writing to such dealer a description of how that system is designed and applied to such dealer;

(12) Implement or establish an unreasonable, arbitrary, or unfair sales or other performance standard in determining a dealer's compliance with a franchise agreement[~~; or~~]. A performance standard shall be deemed unreasonable, arbitrary, or unfair if the standard does not include all relevant local market factors, including but not limited to market demographics, change in population, product popularity, number of competitor dealers, and consumer travel patterns;

(13) Implement or establish a system of motor vehicle allocation or distribution to one or more of its dealers that is unfair, inequitable, or unreasonably discriminatory. As used in this paragraph, "unfair" includes without limitation, requiring a dealer to accept new vehicles not ordered by the dealer or the refusal or failure to offer to any dealer all models offered to its other same line make dealers in the State. The failure to deliver any motor vehicle shall not be considered a violation of this section if such failure is due to an act of God, work stoppage, or delay caused by a strike or labor difficulty, shortage of products or materials, freight delays, embargo, or other causes of which the motor vehicle franchisor shall have no control. Notwithstanding the foregoing, a dealer may be required by a manufacturer or distributor to make reasonable facility improvements and technological upgrades necessary to support the technology of the manufacturer's or distributor's vehicles. If the dealer chooses not to make such facility improvements or technological upgrades, the manufacturer or distributor shall not be obligated to provide the dealer with the vehicles which require the improvements or upgrades[.];

(14) Require a dealer that is constructing, renovating, or substantially altering its dealership facility to purchase goods, building materials, or services for the dealership facility, including but not limited to office furniture, design features, flooring, and wall coverings, from a manufacturer or distributor if: goods, building materials, or services of a substantially similar appearance, function, design, and quality are available from other sources; and the franchised motor vehicle dealer has received the manufacturer's or distributor's approval; provided that this approval may not be unreasonably withheld. In the event that a manufacturer or distributor does not approve the dealer's use of substantially similar goods, building materials, or services, the manufacturer or distributor shall provide the dealer, in writing at the time of disapproval, a detailed list of reasons why the proposed substantially similar items are not acceptable. Nothing in this paragraph shall be construed to allow a franchised motor vehicle dealer to impair or eliminate a manufacturer's or distributor's intellectual property or trademark rights and trade dress usage guidelines or impair other intellectual property interests owned or controlled by the manufacturer or distributor, including the design and use of signs; or

(15) Require a dealer to: provide its customer and prospective customer information, customer lists, service files, transaction data or other proprietary business information; access the dealer's data management system; or, for the sale and delivery of a new motor vehicle to a consumer, validate and pay consumer or dealer incentives, for evaluation of dealer performance, analytics, or the submission to the manufacturer for any services supplied by the dealer for any claim for warranty parts or repairs, unless written consent is provided by the dealer. Nothing in this paragraph shall limit the manufacturer's ability to require or use customer information to satisfy any safety or recall notice obligation or other legal obligation; provided that a manufacturer or distributor shall not release or cause to be released a dealer's nonpublic customer information to another dealer or any other third party, unless the franchise has been terminated, unless the manufacturer or distributor provides the dealer with written notice in advance of the third party that the manufacturer or distributor intends to distribute the information and the dealer provides written consent for the release of such information. A manufacturer or distributor may not condition participation or eligibility in an incentive or bonus program upon the dealer providing this customer and prospective customer information, customer lists, service files, transaction data, or other proprietary business information."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2490
TWENTY-NINTH LEGISLATURE, 2018
STATE OF HAWAII