Summary of Florida's Motor Vehicle Dealer Protection Act
by John W. Forehand and Walter E. Forehand
INTRODUCTION TO CHAPTER 320,
FLORIDA STATUTES
Registration of Motor Vehicles
Chapter 320, Florida Statutes, regulates the registration of motor vehicles
(as opposed to titling, which is governed by Chapter 319). The Chapter
establishes procedures applicable to motor vehicle registration, including
procedures for tax collection and special programs such as donations to
organizations and specialty plates. It also establishes registration fees,
certain taxes and surcharges related to vehicle registration and use, and
provides for the expenditure of revenues derived from the registration of
motor vehicles in the state.
Section 320.01: Definitions
In general, motor vehicles must be registered. The definitions in § 320.01
establish what constitutes a motor vehicle, and have broad application
because they apply "[a]s used in the Florida Statutes, except as otherwise
provide." Consequently, if, to cite a perverse example, one wished to apply
§ 768.12, which provides that there is no cause of action against a personal
representative for the value of an animal colliding with a motor vehicle if
the driver dies, in a case where the driver of a moped dies after a
collision with a horse, § 320.01 would control whether a moped is a motor
vehicle, and so whether the estate is protected from a claim by the owner of
the horse. There are, however, other definitions specifically applicable to
other parts of the chapter. A "motor vehicle dealer", for example, is one
who deals in motor vehicles as defined in § 320.27(1)(b), a different
definition from that in § 320.01(1).
What is a Motor Vehicle?
In the first instance, a motor vehicle is: "An automobile, motorcycle,
truck, trailer, semi trailer, truck tractor and semi trailer combination, or
any other vehicle operated on the roads of this state, used to transport
persons or property, and propelled by power other than muscular power, but
the term does not include traction engines, road rollers, such vehicles as
run only upon a track, bicycles, or mopeds." § 320.01(1)(a). In the second,
it includes recreational vehicle-type units, self-powered or drawn by
another vehicle. § 320.01(1)(b). Additional definitions exist for all of the
terms used in § 320.01(1)(a) except "automobile" and "bicycle," for which
presumably the common meanings are assumed.
Motor Vehicle Dealer Licensing
Motor vehicle dealers, as defined by § 320.27(1)(c), are required to be
licensed with the Department of Highway Safety and Motor Vehicles
("Department"). § 320.27(2).
For licensing purposes, a motor vehicle dealer is defined as "any person
engaged in the business of buying, selling, or dealing in motor vehicles or
offering or displaying motor vehicles for sale at wholesale or retail, or
who may service and repair motor vehicles pursuant to an agreement as
defined in s. 320.60(1)." § 320.27(1)(c). The special definition of motor
vehicle in § 320.27(1)(b) is "any motor vehicle of the type and kind
required to be registered and titled under Chapter 319 and this chapter,
except a recreational vehicle, moped, motorcycle powered by a motor with a
displacement of 50 cubic centimeters or less, or mobile home." Thus, mobile
home dealers and RV dealers are not licensed pursuant to § 320.27 (they are
licensed pursuant to § 320.77 and § 320.771 respectively), and sellers of
mopeds and small displacement motorcycles are exempted from licensing
altogether, notwithstanding that these vehicles are required to be
registered.
Dealing in three or more vehicles in a 12-month period creates a presumption
that the seller is a dealer, although if it can be shown that the sales were
of personal vehicles the presumption that the seller is in business can be
overcome.
Types of Dealers.
The definitions distinguish franchised motor vehicle dealers, who operate
under a franchise agreement with a manufacturer, distributor, or importer,
and both sell and service motor vehicles; independent motor vehicle dealers,
who sale and may service vehicles, commonly referred to "used car dealers";
wholesale motor vehicle dealers, who deal in vehicles only at wholesale or
at auction and sell only to licensed dealers; motor vehicle auctions, who
can sell only at auction and only to licensed dealers; and salvage motor
vehicle dealers, who deal only in motor vehicles for salvage.
License Requirements.
Section 320.27 establishes requirements for application and licensing. An
applicant must supply a specific location over which the applicant has
possessory control. Any additional location must be licensed in a
supplemental license to the dealer’s main license. The applicant must
provide proof of garage liability insurance, must obtain a bond, and must
submit fingerprints, either of the individual if the application is in
individual name, or of the partners, or officers and directors, of
artificial entities in order that the Department can check for criminal
history.
Section 320.27(9) establishes a rather large list of grounds upon which a
license may be denied or revoked. These include failures to do business as
required by statute, felony conviction, and misrepresentation on an
application. Section 320.27(10) requires the dealer to be bonded at $25,000
(the amount was raised from $20,000 in 1988 and given present day vehicle
selling prices does not provide a great deal of protection for consumers).
More specific procedures and standards for the implementation of these
requirements are found in Rules 15C-7.004 and .005, Florida Administrative
Code.
Regulation of Manufacturers and Manufacturer/Dealer Relations
Sections 320.60-.70 contain regulations of manufacturers, distributors, and
importers of new motor vehicles doing business in the state. Section 320.605
announces the legislature’s intent:
It is the intent of the Legislature to protect the public health, safety,
and welfare of the citizens of the state by regulating the licensing of
motor vehicle dealers and manufacturers, maintaining competition, providing
consumer protection and fair trade and providing minorities with
opportunities for full participation as motor vehicle dealers.
While some regulations directly affect the public, in general this portion
of Chapter 320 is directed toward regulating certain aspects of the
relationship between manufacturers, distributors, and importers (generally
called a "licensee" in the statute, generically referred to as
"manufacturer" here) and their dealers.
Definitions
The definitions of § 320.60 establish the limiting terms for §§ 320.60-.70.
They apply to manufacturers, importers, and distributors who deal in "motor
vehicles," defined as "any new automobile, motorcycle, or truck the
equitable or legal title to which has not been transferred . . . to an
ultimate purchaser." This definition is narrower than that in § 320.27, not
only because it does not apply to used vehicles, but in the scope of
vehicles it covers. A motor vehicle dealer is one who sells motor vehicles,
or services new or used motor vehicles under a franchise agreement as
defined in § 320.60(1). One slight discrepancy created by this statute is
with respect to small displacement motorcycle dealers, selling vehicles of
50cc displacement or less under a franchise agreement. Read literally, these
persons are dealers for the purpose of §§ 320.60-.70, but are not required
to be licensed as motor vehicle dealers.
Licensing of Manufacturers, Importers, and Distributors
Section 320.63 establishes specific requirements for the application and
licensing of a manufacturer, importer, or distributor. These include filing
of the manufacturer’s warranties, franchise agreement, delivery and
preparation obligations of dealers, warranty rates applicable to dealers,
affidavits that nothing in the agreement conflicts with the laws of the
state, and reporting efforts to add minority dealers.
Section 320.64 provides a long list of grounds for denial, suspension, or
revocation of a manufacturer’s application or license. These grounds will be
examined in much greater detail later. In general, they are directed toward
"thou shalt nots" in relationship with dealers, but there are also
limitations on ownership by manufacturers of retail dealerships and one or
two consumer directed prohibitions. In addition to providing grounds for
administrative sanctions against a manufacturer, the section also provides
for a private right of action to a motor vehicle dealer for a manufacturer’s
violation.
Special Provision for Distributors
In what is sometimes called the Southeast Toyota exception, § 320.6403
provides distributors with special statutory rights to pass their interests
in distributor’s agreements on to their heirs. In addition, the 2001
legislature created a very narrow exception to prohibitions against
manufacturer ownership of dealerships running only to distributors.
Unfair Cancellation, Modification, or Non-Renewal
Notwithstanding the specific terms of the contractual agreement between
manufacturer and dealer, § 320.641 provides specific requirements that a
manufacturer must follow if it wishes to terminate its agreement with a
dealer, even by decision not to renew at the end of a contractual term, or
wishes to make significant (and adverse) modifications of the franchise. In
short, this provision makes all franchise agreements between manufacturer
and dealer perpetual regardless of the contractual terms unless the
manufacturer has cause to terminate the franchise, provides the dealer with
notice, and supports its decision in the administrative process.
Additional dealer protection requires that changes in distribution practice,
such as a manufacturer changing distributors, cannot be made without giving
equivalent franchise agreements to existing dealers of the prior
distributor. § 320.6415.
Establishment of Additional Dealerships
Section 320.642 regulates the establishment of additional same-line
dealerships by manufacturers. The statute requires notice to same-line
dealers in the county and any contiguous county where a manufacturer
proposes to establish an additional dealer or permit the relocation of an
existing dealer. Notice is sent to the Department, which in turn sends the
notice to all potentially affected dealers. Dealers with standing to
protest, defined in terms of either being within 12.5 miles (or 20 miles in
less populated counties) of the proposed dealership site or having
twenty-five percent (25%) of new vehicle sales registered within 12.5 miles
(or 20 miles in less populated counties) of the proposed dealership site,
may protest the establishment of the additional dealership or relocation of
the existing dealership. The burden then is on the manufacturer to prove
that the "community or territory" (a term not precisely defined) in which it
proposes to place or relocate the dealership is not being adequately
represented by existing dealers. "Adequate representation" is not defined,
although there are eleven non-exclusive factors to be weighed in making a
determination on adequacy. The statute exempts certain relocations from
protest based on distance of the proposed relocation site from the existing
dealership location and those of other dealers. An essential feature of the
regulation is that an additional dealership or relocation of an existing
dealer cannot take place, if there is a protest, until the protest is
resolved.
Changes in Ownership and Management of an Existing Dealer
Notwithstanding prohibitions regarding changes of ownership or management
found in dealership franchise agreements, Chapter 320 establishes processes
by which an existing dealer or its owners may seek manufacturer permission
to transfer or sell a franchise agreement or an ownership interest in a
dealership and to change executive management of a dealership. §§ 320.643 &
..644. Such changes cannot be made without manufacturer approval, but the
statutes establish standards for granting or denying that approval. Approval
may not be unreasonably withheld, and manufacturers are limited in what they
may examine in the approval process. In the case of franchise transfers the
review is based on the moral character, the business experience, and the
financial ability of the proposed transferee. In transfers of an equity
interest, the manufacturer may examine only the moral character of the
proposed transferee (with the proviso, which will be discussed later, that
transfers of control coupled with changes of executive management receive a
different scrutiny). A proposed new executive manager is reviewed based on
business experience and character.
A manufacturer which denies a request for ownership transfer must inform the
dealer or the equity owner within 30 days. Failure to inform is taken as
approval. Upon receipt of notice that the manufacturer will not approve the
request, the dealer or equity owner may request an administrative hearing on
whether the manufacturer’s actions are unreasonable. In the case of a
proposed change of executive management, however, a "rejecting" manufacturer
is required to file a verified complaint with the Department opposing the
proposed change.
Restrictions on Manufacturer Ownership of Dealerships
Section 320.645 places significant restrictions on manufacturers owning
Florida dealerships. In general, a manufacturer may not own a dealership
except for a limited time during a transition, or through a "buy-out"
arrangement with an individual investor. This subject is the focus of much
debate in the industry and will be discussed more fully below.
Warranty Reimbursement
Section 320.696 requires manufacturers to reimburse dealers for work
performed under a manufacturer warranty at a rate not less than amount
charged by the dealer for non-warranty work unless it can be demonstrated
that such an amount is unreasonable.
Mobile Home and Recreational Vehicle Dealers and Manufacturers
This presentation will not deal in depth with the regulations in §§
320.77-.95 regarding mobile home and RV dealers and manufacturers. As with
motor vehicle dealers under § 320.27, both mobile home and RV dealers are
required to be licensed by the Department. §§ 320.77 & .771. The licensing
requirement extends also to mobile home and RV brokers. Manufacturers are
also required to be licensed. § 320.8225. In addition, mobile home
installers must be licensed. § 320.8249. Unlike the regulations of §§
320.60-.70, the mobile home and RV regulatory section is focused upon
regulating the sale and manufacturer of the vehicles and their installation
from the point of view of the consumer and with respect to safety issues. It
does not regulate the relationship between dealers and manufacturers.
Remedies
Chapter 320 provides a variety of remedies for violation of the provisions
by manufacturers or dealers. There are criminal penalties and administrative
fines for violations which may be enforced by the Department through
appropriate proceedings. Of special interest are the private rights of
action provided in the statute. Sections 320.641, § 320.642, and § 320.643
provide specifically for administrative actions by dealers or (in the case
of § 320.643) dealer owners. Section 320.644 provides the manufacturer a
remedy to refuse to grant approval of a requested change of executive
management. Section 320.699 expressly provides for a declaration of rights
for motor vehicle dealers and dealer owners for alleged violations by a
manufacturer of §§ 320.60-.70.
Private judicial rights of action are provided in §§ 320.695 and .697.
Section 320.695 allows an action for injunction for a dealer in the name of
the Department to enjoin violation of the statute, without bond and
regardless of other remedies. Section 320.697 establishes a private right of
action with treble damages and attorney’s fees to persons damaged by a
manufacturer’s statutory violation.
Other Vehicle Sales, Distribution and Franchise Regulation
As a collateral matter, it may be of interest to note that other industries
in which product manufacturers franchise dealers are regulated in Chapter
686 in a manner similar to the regulations in Chapter 320.
Section 686.30 requires manufacturers of repair parts for motor vehicles or
trucks who have contracts with distributors (other than § 320.60(1)
franchises) to terminate such contracts only for good cause. If a contract
is terminated without good cause, the distributor must pay the cost of
inventory held plus shipping. A prevailing party in a suit to establish
whether there was good cause may be allowed attorney’s fees.
Sections 686.401-.418 ("Farm Equipment Manufacturers and Dealers Act")
provides regulation for farm equipment dealers and manufacturers that are
abbreviated versions of the motor vehicle dealer statute, with some other
provisions such as requirements for repurchase of inventory upon termination
of a franchise. The remedies section allows for attorney’s fees to a
prevailing plaintiff and for punitive damages. Sections 686.601-.614
("Outdoor Power Equipment Manufacturers, Distributors, Wholesalers, and
Servicing Dealers Act") provide identical regulations for the lawn and
garden equipment industry.
Automobile Dealers Industry Advisory Board
The 2001 legislature created a new § 320.275, which establishes an
Automobile Dealers Industry Advisory Board within the Department. Its
membership will come from an array of interest groups in and out of
government appointed by the Executive Director of the Department or
recommended by governmental and trade agencies. The purpose of the Board is
to make recommendations on proposed legislation, present industry issues to
the Department, and to consider matters presented to it by the Department.
It is too early to assess the impact this Board may have on the motor
vehicle industry in Florida, or whether it will have a continuing existence.
The Governor’s message on signing the new legislation asks that the Board be
addressed in the next session. In the Governor’s view, "giving formal status
within the DHSMV to what would essentially be a private interest lobbying
group makes it more difficult for the agency to maintain impartial
administration."
DEALER LICENSING
Who Must Be Licensed?
Anyone engaged in the business of or acting as a motor vehicle dealer must
be licensed by the Department. In addition, a dealer may not advertise a
vehicle owned by someone else for sale, excepting sales by estates or under
court sanction, and except for transactions with motor vehicle auctions. An
individual, of course, is not prevented from selling his or her own vehicle.
In addition to being a violation of Chapter 320, failure to have a required
license is also a violation of part II of Chapter 501, and a second degree
misdemeanor. §§ 320.27(2) & .27(8). There are, however, no reported criminal
cases decided under § 320.27(8).
Another regulation, § 320.28, relating specifically to the sale of used
vehicles requires that a nonresident without a permanent place of business
in the state, who has not qualified under § 320.27, § 320.77, or § 320.771,
and who brings used vehicles into the state to sell to other than a licensed
dealer must file an application for certificate of title at least ten days
before offering the vehicles for sale or advertising them. Violation of this
provision constitutes a second degree misdemeanor, but perhaps of greater
significance, the vehicles are subject to seizure and forfeiture by law
enforcement. § 320.30. Some version of this provision has been in the
statutes since 1935. State ex rel. Leathers v. Coleman, 123 Fla. 23, 166 So.
226 (1935), found that the provision does not violate the Commerce Clause,
and denied a write of habeas corpus to Mr. Leathers, who had been arrested
for violating the statute.
What is a Motor Vehicle Dealer?
Motor vehicle dealers are ultimately defined by activity and product:
A motor vehicle dealer is "a person engaged in the business of buying,
selling, or dealing in motor vehicles or offering or displaying motor
vehicles for sale at wholesale or retail, or who may service and repair
motor vehicles pursuant to an agreement as defined in § 320.60(1)." §
320.27(1)(c). Engaging in such activity with respect to three or more
vehicles in a 12-month period creates a presumption that the person is
engaged in business and must be licensed. Those who dispose of vehicles for
their own use or that of their businesses are not considered dealers. There
are various exceptions to the licensing requirement, including rental car
companies which sell to motor vehicle dealers and financial institutions
selling repossessed vehicles. A motor vehicle dealer who does not also hold
an RV dealer license may nonetheless sell an RV if it is acquired (by
trade-in for example) incidental to its licensed business activities.
A motor vehicle as defined by § 320.27 is somewhat different from that
outlined in the general definition in § 320.01. Section 320.27 defines a
motor vehicle as any vehicle required to be registered and titled under
Chapter 319 or Chapter 320, with the exception of RVs and mobile homes (RV
and mobile home dealers are licensed in a different section of Chapter 320),
mopeds, and motorcycles with displacement of 50 cc or less. This definition
allows moped and small engine scooter dealers to operate without being
licensed as motor vehicle dealers, even though these vehicles must be titled
and registered.
Types of Motor Vehicle Dealers
Section 320.27 provides for the licensing of five categories of motor
vehicle dealers, depending on the type of business activity of the dealer
and whether the dealer is franchised by a manufacturer.
A "franchised motor vehicle dealer" operates under a franchise with a
manufacturer as defined in § 320.60(1). This category is defined in such a
way as to cover persons doing only service business under a franchise
agreement, an issue of some importance in view of the recurring
announcements by certain manufacturers of plans to franchise service only
facilities. This question came up in Meteor Motors, Inc. d/b/a Palm Beach
Hyundai v. Hyundai Motor America Corp., 1999 WL 1800074 (S.D. Fla.), in the
context of § 320.642 (the additional dealer statute). The plaintiff had
alleged that Hyundai created an additional motor vehicle dealer without
following the requirements of § 320.642 when it entered into a franchise
with Dollar Rent-a-Car to allow Dollar to do warranty service on the Hyundai
vehicles Dollar bought from Hyundai for its rental fleet. While the case
turned on definitions in § 320.60(11), the definitions are virtually the
same as that in § 320.27, including the rental company exception. In that
case, the court reasoned that the rental company exception extended to
service as well as sales, so that even though Dollar and Hyundai were in a
franchise relationship, Dollar was not a motor vehicle dealer for purposes
of the statute.
An "independent motor vehicle dealer" is one who is not a franchised or
wholesale dealer, but is nonetheless engaged in "buying, selling, or dealing
in motor vehicles" and who may service and repair vehicles. The difference
in definition between franchised and independent dealers turns on the
franchise relationship, but it also is written in such a way that
independent service shops are not motor vehicle dealers.
A "wholesale motor vehicle dealer" is one exclusively engaged in dealing at
wholesale or with motor vehicle auctions. Bona fide employees of licensed
motor vehicle dealers may, however, deal at wholesale with auctions on
behalf of the dealer without being licensed as a wholesale dealer. Unlike
franchised and independent dealers, wholesale dealers do not have to
maintain a facility to display vehicles, but must have an office for
records.
A "motor vehicle auction" is a dealer which sells to the highest bidder, but
may do business only with a licensed dealer. A "salvage motor vehicle
dealer" is one who acquires salvaged or wrecked vehicles for resale or
resale of parts.
Interestingly, the licensing provisions of § 320.27 do not include motor
vehicle brokers. The term is defined in § 320.27(d) as one who is in the
business of procuring vehicles for the general public but does not store,
display, or take ownership of the vehicles. Once defined, the term is not
again used in § 320.27. However, both § 320.77 and § 320.771 have similar
definitions of a broker, and expressly define mobile home dealer and
recreational vehicle dealer as including brokers.
Requirements for Licensing
The requirements for an application and by extension for licensing are
contained in § 320.27(3) and amplified by Fla. Admin. Code 15C-7.003 and
15C-7.004. Applications are made under oath. The application may be in the
name of an individual or of an entity. Rule 15C-7.003 spells out the
information required: proof of ownership or lease for a business facility;
dealership name; if corporate, corporate documents, including minutes
designating officers (note that the law has not caught up with limited
liability companies which may operate without officers); if a partnership, a
copy of the agreement (what about partnerships without an agreement?); a
surety bond in the amount of $25,000 or an irrevocable letter of credit;
statement regarding garage liability; declaration (and documentation if
necessary) concerning felony convictions or any violation of motor vehicle
law (other than traffic laws) by the applicant or corporate officers (§
320.27(3) requires submission of fingerprints for applicants or their
officers and directors); for franchised dealers a statement of compliance
with Rule 15C-7.004; verification of attendance at dealer school; and photos
of the proposed facility.
The rule gives specifics as to the minimum size requirements for facilities,
requiring space for display and record keeping, as well as requiring that
dealer operations be clearly separated from any other business. The rule
also establishes a number of operation and reporting requirements.
The portion of Rule 15C-7.004 which relates to franchised dealers has
special requirements meant to insure compliance with § 320.642 and will be
discussed in greater detail in connection with that provision.
Supplemental Licensing
A dealer license is site specific. Consequently, if a dealer wishes to sell,
even on a temporary basis, from another location, the dealer is required to
apply for a supplemental license. Off-premises sales may be held under a
temporary license at no charge to the dealer, although franchised dealers
must notify their manufacturers. Permanent supplemental licenses are also
available upon application. For franchised dealers such a supplemental
license is treated as an additional dealership for the purpose of § 320.642.
Denials, Suspensions, and Revocations
Section 320.27(9) contains a long list of violations which can be the basis
for denial of an application or suspension or revocation of an existing
license. A survey of some cases shows the range of the Department’s use of
this section.
Operational Irregularities
In DHSMV v. Antolick d/b/a C. Antolick Car and Truck Sales, DOAH Case No.
96-5149, HSMV-97-0873-FOF-DMV, the Department modified a recommended order
of dismissal. In that case, a dealer’s employee bought inventory for the
dealer at vehicle auctions. With respect to two individuals, the employee
bought vehicles at auction in the dealer’s name and took money directly from
the individuals. He never passed the transaction through the dealership and
so the titles were never applied for. The Administrative Law Judge ("ALJ")
found that the employee was not authorized by the dealer to sell at retail,
and that his actions did not constitute a pattern sufficient to satisfy the
clear and convincing requirement of Ferris v. Turlington, 510 So. 2d 292
(Fla. 1987), for license revocation. The Department, however, concluded that
the employee’s actions were attributable to the dealer; that the dealer had
violated an administrative rule (§ 320.27(9)(a)) and had failed to apply for
a title (§ 320.27(9)(n)); and that the two violations were sufficient to
establish a pattern. Hence, the Department revoked the dealer’s license.
Disqualified Persons
A dealer’s association with "disqualified" persons, usually individuals who
have been found guilty of a felony, has been found to be sufficient grounds
to revoke the dealer’s license. In DHSMV v. Platinum Motorcars, Inc., DOAH
Case No. 92-7153, the Department gave notice of intent to deny the license
application of Platinum Motorcars on grounds that it believed the listed
officers were "strawmen" for individuals who had previously surrendered the
license for a dealership they had owned. Platinum’s president responded with
an affidavit that the individuals would not be associated with the
dealership. The Department then granted the license. After discovering that
one of the individuals was indeed working for Platinum, the Department moved
to revoke the license. The ALJ found that the affidavit constituted fraud in
obtaining a license in violation of § 320.27(9)(b)(fraud or willful
misrepresentation in application) and § 320.27(9)(q)(failure to continue to
meet requirements of licensure law).
In Rinier d/b/a Yesterdays and Todays Auto Sales v. DHSMV, DOAH No. 96-4454,
the Department’s denial of a license was upheld. Here an applicant without
experience in the operation of motor vehicle dealerships admittedly wished
to hire an individual with an out-of-state felony conviction to manage the
dealership on his behalf. The Department had previously denied the potential
manager a license. The ALJ relied on § 320.27(r) to uphold the denial. He
summarized the situation this way: "It is clear from a reading of the
pertinent statute that the intent of the legislature was to preclude
individuals with disqualification such as that demonstrated by Mr. Blocker
from participating in the motor vehicle business. While Section 320.27(9)(s)
[now (r)], Florida Statutes, does not specifically state that an applicant
for a license may be denied for hiring, or showing clear intent to hire, an
otherwise disqualified individual, that is the only reasonable
interpretation of the provision."
In Bell v. DHSMV, DOAH Case No. 99-2507, the ALJ overruled the Department’s
denial of license and the Department acquiesced. In that case, the applicant
intended to rely on an individual to run the dealership who had previously
paid fines and eventually lost two dealer licenses for operational failures.
The individual had also pled guilty to a worthless check charge, although
adjudication was withheld. The ALJ found that none of these activities fell
under on of the statutory grounds for denial, including § 320.27(9)(r),
which requires an actual conviction. Consequently, he found that there was
no basis on which to deny the license.
Failure to Control Facilities Site
In TNT Auto Sales v. DHSMV, DOAH Case No. 91-4050, a license was denied
based on the requirement in § 320.27(3) that the applicant provide the exact
location of the proposed place of business. The applicant leased the
location listed on his application, and had a lease at the time the
application was submitted, but subsequently the lease was lost and the
property was leased to another dealer, who obtained a license for that
location. The Department originally noticed its intent to deny the license
on other grounds, but amended to include the fact that the applicant did not
control the licensed location. On this ground, the ALJ found that the
license should be denied.
Felony Conviction
Felony conviction per se is not a basis for denial of a license. The
Department uses rules of thumb in evaluating the underlying nature of the
crime and the amount of time that has passed since the conviction. Crimes
involving the motor vehicle industry are scrutinized more closely than, for
example, youthful drug convictions. The Department has been willing to
modify recommended orders where questions of criminality are present.
The Department modified the recommended order in DHSMV v. Dick’s Auto Sales,
Inc., DOAH Case No. 90-0175, Amended Final Order Aug. 29, 1990. The owner of
the dealership pleaded guilty to aiding and abetting in the transportation
of stolen parts (in addition to the dealership, the owner ran a parts store
which was implicated in the "chop shop" operation). The owner did not
disclose his legal problems, which had not yet ripened to a guilty plea, in
the dealership’s renewal application. The ALJ found that the dealer had not
misrepresented its renewal application and that the owner’s wrongdoing did
not constitute a pattern worthy of denying license renewal. The Department
disagreed, finding that there was a violation of § 320.27(9)(p), the owner’s
violation being attributed to the dealer, and concluded: "When the
applicable provisions of Chapter 320 are read in pari materia [concerning
revocation of driver’s licenses], it is evident that the legislature
authorized the Department to deny, suspend or revoke a license based upon
one felony conviction under the circumstances presented by this case."
The Department reiterated this position in DHSMV v. Reddick d/b/a Reddick
Enterprises, DOAH Case No. 93-6817, HSMV-94-0615-S-DMV. The ALJ had
distinguished Dick’s Auto Sales on grounds that the offense in that case was
related to the motor vehicle business, whereas in Reddick, there was no
evidence submitted as to the facts of the offense. The Department, however,
reiterated its Dick’s Auto position.
Failure to disclose a conviction in an application is sufficient basis to
revoke a license which has been granted before the fingerprint check has
been returned. This situation creates a violation of §§ 320.27(9)(b) and (p)
concerning misrepresentation on an application and felony convictions, as
the ALJ found in DHSMV v. Columbia Motor Sales, DOAH Case No. 92-1788.
With respect to the Department’s position, it is important in the case of
convictions that civil rights be restored if the applicant is to be
licensed. On appeal of a declaratory statement that had indicated that
rights must be restored pursuant to Florida law, the First District Court of
Appeal vacated the Department’s statement noting that the Department
essentially confessed error and admitted that Florida gives Full Faith and
Credit to restorations by other states. Staluppi v. DHSMV, 688 So. 2d 432
(Fla. 1st DCA 1997).
ETHICAL CONSIDERATIONS
While some dealers, principally independents, do function as sole
proprietorships, predominantly dealers are legal entities. Since the lawyer
is usually representing the entity, ethical considerations embodied in Rule
4.-1.13 of the Rules of Professional Conduct come into play. Those entities
operating as dealers are usually closely held, but they often have more than
one owner, and not infrequently the lawyer’s dealings on a specific matter
are with a minority owner serving as general manager, or even with a general
manager who is not an owner. It is appropriate then to review the
requirements of Rule 4-1.13 in the context of problems which may arise in
representing dealers.
The Rule states:
(a) Representation of Organization. A lawyer employed or retained by an
organization represents the organization acting through its duly authorized
constituents.
(b) Violations by Officers or Employees of Organization. If a lawyer for an
organization knows that an officer, employee, or other person associated
with the organization is engaged in action, intends to act, or refuses to
act in a matter related to the representation that is a violation of a legal
obligation to the organization or a violation of law that reasonably might
be imputed to the organization and is likely to result in substantial injury
to the organization, the lawyer shall proceed as is reasonably necessary in
the best interest of the organization. In determining how to proceed, the
lawyer shall give due consideration to the seriousness of the violation and
its consequences, the scope and nature of the lawyer’s representation, the
responsibility in the organization and the apparent motivation of the person
involved, the policies of the organization concerning such matters, and any
other relevant considerations. Any measures taken shall be designed to
minimize disruption of the organization and the risk of revealing
information relating to the representation to persons outside the
organization. Such measures may include among others:
(1) asking reconsideration of the matter;
(2) advising that a separate legal opinion on the matter be sought for
presentation to appropriate authority in the organization; and
(3) referring the matter to higher authority in the organization,
including, if warranted by the seriousness of the matter, referral to the
highest authority that can act in behalf of the organization as determined
by applicable law.
(c) Resignation as Counsel for Organization. If, despite the lawyer’s
efforts in accordance with subdivision (b), the highest authority that can
act on behalf of the organization insists upon action, or a refusal to act,
that is clearly a violation of law and is likely to result in substantial
injury to the organization, the lawyer may resign in accordance with rule
4-1.16.
(d) Identification of Client. In dealing with an organization’s directors,
officers, employees, members, shareholders, or other constituents, a lawyer
shall explain the identity of the client when it is apparent that the
organization’s interests are adverse to those of the constituents with whom
the lawyer is dealing.
(e) Representing Directors, Officers, Employees, Members, Shareholders, or
Other Constituents of Organization. A lawyer representing an organization
may also represent any of its directors, officers, employees, members,
shareholders, or other constituents, subject to the provisions of rule
4-1.7. If the organization’s consent to the dual representation is required
by rule 4-1.7, the consent shall be given by the individual who is to be
represented, or by the shareholders.
To explore the implications of the rule in this context, some hypotheticals
will be helpful. This is not to suggest that any proposed "solution" to a
particular hypothetical is correct. The proposed solutions simply represent
the interpretation of the presenter, and not the official position of the
Florida Bar. Primarily, this exercise is intended to focus on potential
problems, not to offer a blueprint for solutions.
Hypothetical One:
You represent a small independent dealer operated as a corporation owned by
a mother, who acquired her stock from the father’s estate, is the majority
shareholder, and has never been involved in the dealership operations, and a
daughter, who worked with the father before his death, is the corporate
president, and conducts all the day-to-day business of the dealership. The
daughter wishes you to evaluate a lease. Under its terms, the lease seems
ill-advised, but the daughter persists, asking you to make only cosmetic
changes to the lease and to inform the other side that she is ready to
execute. What is your ethical obligation?
>From a strict interpretation prospective, the Comments advise: "When
constituents of the organization make decisions for it, the decisions
ordinarily must be accepted by the lawyer even if their utility or prudence
is doubtful. Decisions concerning policy and operations, including ones
entailing serious risk, are not as such in the lawyer’s province." Thus,
there being no reason to believe that the daughter is not the proper person
to act for the company, there is no ethical problem in proceeding as she
requests.
Hypothetical Two:
Same ownership and operations structure, but the daughter insists that you
draft a sales contract for immediate use that obligates customers to finance
purchases with the dealer’s subsidiary finance company and to contract with
the dealer for physical damage insurance (see §§ 320.27(9)(h) & (k)). What
is your course of action?
If the daughter persists in using the sales contract, the dealership may be
subject to license revocation by the Department. The rule requires you to
consult with "the highest authority." Since the mother is the majority
stockholder, she must be consulted. If she says "I don’t know anything about
business, you’ll just have to ask my daughter," then the problem posed by
Rule 4-1.13 becomes quite real.
Hypothetical Three:
You represent as an established client a large franchised dealer, the
principal owner of which lives out-of-state and also owns several other
dealerships. He regularly turns the operation of the dealerships over to his
on-site managers. You have always worked with the dealer-operator and
executive manager on-site, who is also president of the dealer corporation,
and owns 20% of the shares, and have spoken to the majority shareholder only
once or twice in the five years you have represented the dealer. Now the
operator comes to you with a personal matter-he needs a DUI lawyer. What is
your position?
Rule 1-1.13 allows you to represent members of the corporation in their
individual capacity as long as the conflict provisions of Rule 4-1.7 are
satisfied. First, do you need to get corporate approval? In this instance,
probably not because DUI is not a felony (see § 320.27(9)(q)) so possible
revocation of the dealer license by the Department is not an issue, nor is
the offense so serious as to potentially result in termination by the
manufacturer. A more ticklish issue, however, is whether the representation
would cause difficulty with respect to Rule 4-1.6. As lawyer for the
dealer-operator, representation with respect to the DUI will likely create
confidential information. What, however, will be your position if in the
course of that representation you discover that your client has a serious
drinking problem that may be affecting his work performance and hence the
well-being of the corporation?
Hypothetical Four:
Same facts except the dealer-operator is seeking representation in a tax
matter which may lead to defending him against charges of criminal tax
fraud. If he is convicted, the manufacturer will have grounds to terminate
the franchise agreement. The state may also bring an action to revoke the
dealer license (see DHSMV v. Dick’s Auto Sales, Inc. (DOAH 90-0175, Final
Order, Sept. 13, 1990). This representation, and indeed the knowledge of the
underlying problem, creates several dilemmas. Must you inform the
"corporation," or, conversely, are you prevented from doing so under Rule
4-1.6? Would this representation be adverse to the corporation? After all,
the corporation will not be hurt by his being found not guilty. Obviously,
the safest approach would be to get consent letters. On the other hand, the
corporation might be best advised to take preemptive measures to protect the
dealer franchise by firing the manager and coming to the manufacturer and
the Department with "cleaned" hands. However, if your communications with
the dealer-operator have already placed you in an attorney-client
relationship, are you bound by Rule 4-1.6 and prohibited from revealing what
you know to the majority owner? Can you avoid this by immediately telling
the dealer-operator that you represent the corporation? Is this a situation
in which resignation is the only appropriate action?
Hypothetical Five:
You represent a franchised motor vehicle dealer. The manufacturer is
"charging back" your client a large sum of money for warranty reimbursements
which the manufacturer’s audit finds to have been improper. The dealer asks
you to investigate in the hope of establishing that the manufacturer’s
auditor is incorrect. In the course of your investigations, you must
interview high ranking employees in the service department and in
bookkeeping. During these interviews, it becomes clear that the employees
think that you are all "on the same team," but you begin to suspect that a
bit more probing will uncover criminal wrongdoing on the part of some
employees which involved not only getting improper warranty reimbursements
from the manufacturer, but defrauding customers as well. However, it is also
not clear that the employees knew that what they were involved in was
criminal. How do you proceed?
Rule 4-1.13(d) requires the lawyer to inform employees as to the identify of
the client "when it is apparent that the organization’s interests are
adverse to those of the constituents." Should you have made this disclosure
before beginning to talk with the employees? Must you do so before
continuing? Obviously, there is a distinct chance that such a formal
disclosure will cause the information to dry up. On the other hand,
depending on the level of the employees and the circumstances, the
communications may not be privileged (see Earhardt, Florida Evidence (2001
Edition), 291 et seq.). The employees may in fact be confessing to a crime
while believing that they are talking to their lawyer. Remember Rule 4-4.3:
"When the lawyer knows or reasonably should know that the unrepresented
person misunderstands the lawyer’s role in the matter, the lawyer shall make
reasonable efforts to correct the misunderstanding."
Hypothetical Six:
Same facts except you suspect that the employees have not finished with
their scheme and are continuing to submit false information and to defraud
the public. What additional issues does this raise?
Rule 4-1.6 requires a lawyer to reveal confidential information "to the
extent the lawyer reasonably believes necessary . . . to prevent a client
from committing a crime." Is your reasonable suspicion enough to require you
to go to the police? Will going to the dealer and suggesting that the
employees be fired handle the problem? What if the dealer management takes
the "ostrich" approach? Going back a step, do you want to find out the whole
story before reacting?
MANUFACTURERS AND FRANCHISED DEALERS
Legislative Intent
Section 320.605 states the legislative intent for the regulation of
manufacturers and manufacturer/dealer relationships:
It is the intent of the Legislature to protect the public health, safety,
and welfare of the citizens of the state by regulating the licensing of
motor vehicles dealers and manufacturers, maintaining competition, providing
consumer protection and fair trade and providing minorities with
opportunities for full participation as motor vehicle dealers.
This provision has been cited by Courts as support for decisions based in
part on public policy, for example, in establishing that terms of a
franchise cannot be used to evade statutory provisions (Bayview Buick-GMC
Truck, Inc. v. General Motors Corp., 597 So. 2d 887 (Fla. 1st DCA 1992)), or
to support the notion that favoring one dealership over another through
special arrangements offered to new dealers would violate the competition,
consumer protection, and fair trade provisions of the statute (Superior
Imports of Tampa, Inc. v. Stacy David, Inc., 617 So. 2d 795 (Fla. 1st DCA
1993)).
The "minorities" provision of § 320.605 is consistent with the requirement
of § 320.63(3) that licensed manufacturers must provide the Department with
an annual report on their efforts to add new minority dealers.
Manufacturer Licensing
Manufacturers, factory branches, distributors, and importers (referred to in
the statutes as "licensee") are required to be licensed by § 320.61. Section
320.63 details the requirements of an application. Applicants, or those
renewing licenses, must file any documents applying to all dealers, such as
uniform franchise agreements, warranty rate information, and delivery and
preparation obligations. Manufacturers are also required to submit
affidavits stating that they will pay for delivery and preparation expenses
advanced by dealers and that the provisions of the franchise agreement are
not prohibited by or contrary to the provisions of §§ 320.60-.70. Any
provisions in conflict are without force and effect.
Whereas the relationship to the dealer is treated the same for any class of
licensee, distributors who have agreements with manufacturers and importers
have specific protection in § 320.6403 with respect to succession in
interest to such agreements by heirs.
Licensee as Dealer
There has been considerable activity nationwide with respect to restriction
on manufacturers as owners of dealerships. Dealers generally have deep
concerns about being in competition with their manufacturers, fearing such
problems as favoritism in the allocation of motor vehicle inventory when
certain vehicles are in short supply and unequal access to "insider"
information that would give the manufacturer-owned dealerships unfair
competitive advantages. On the other hand, manufacturers have
long-established programs in which individuals are "partnered" with
manufacturer subsidiaries in dealerships under plans that allow the
individual to buy-out the manufacturer over time. Manufacturers want further
leeway to own dealerships in their own right or through subsidiaries, and to
explore the possibilities of e-commerce ventures that sell vehicles, parts,
or services directly to the public. The states have generally responded to
dealer concerns with respect to these issues by adopting statutes that limit
the circumstances under which a manufacturer may directly or indirectly own
a dealership to short periods of time or in relationships with individuals.
Florida has also addressed other issues, such as direct sales of products
and services outside the franchise system, in a number of additions to §
320.64, discussed below.
Florida’s ownership restrictions are found in § 320.645, which was first
enacted in 1984. The 2001 legislature modified this section significantly in
response to concerns that manufacturer’s might evade the intent of the
statute by entering into specious relationships in which the "partner"
individual was little more than a paid manager.
In Florida, neither a licensee nor an affiliate may be licensed as a motor
vehicle dealer, except for the limited period of up to one year if ownership
of a dealership is in transition and the dealership is being made available
for sale. There is one exception for distributors, not owned by a
manufacturer, which has owned a dealership prior to July 1, 1996. Those
distributors may be licensed as dealers for the sale of a line-make of
vehicles not of the type distributed by the distributor. The statute also
exempts dealings between manufacturers and short-term rental companies,
including the servicing of manufacturer warranties by those companies (see
Meteor Motors, Inc. v. Hyundai Motor America Corp.).
The recent statutory amendment clarifies what constitutes being in business
with an individual. The "independent person" in this relationship must have
a significant investment subject to loss in the dealership’s first year of
operation, must be chosen to enhance diversity or as a qualified person
without individual resources to buy a dealership, and the individual must
have the contractual right to acquire full ownership within ten years.
Denial, Suspension, or Revocation of Manufacturer’s License: Prohibited Acts
Analogous to the provisions of § 320.27 concerning denial, suspension, and
revocation of dealer licenses, § 320.64 contains a large number of
prohibited acts which can lead to a manufacturer’s license being revoked or
suspended. However, whereas the violations in § 320.27, which relate largely
to consumer protection, actually lead from time to time to license
applications being denied, licenses being revoked, or the levying of fines
by the Department, the majority of prohibitions in § 320.64 concern the
manufacturer-dealer relationship and are enforced through legal actions
brought by dealers. The section contemplates two types of remedies. The
Department may deny an application, suspend, or revoke a license based on an
established pattern of violations, and a dealer may seek remedies for
violations under § 320.695 (injunction) and § 320.697 (damages).
"Revocation" Offenses
A few prohibitions aimed at manufacturers, importers, and distributors
affect not only their relations with a specific dealer, but are also
designed to protect consumers. These include a general inability to carry
out contractual obligations (§ 320.64(1)); knowing misrepresentation of the
license application (§ 320.64(2)); willful failure to comply with law or
rule (§ 320.64(3)); engaging in illegal business practices (§ 320.64(4));
deceptive advertising (§ 320.64(12)); intentional sale of motorcycles to
persons with a restricted driver’s license (§ 320.64(13); and past behavior
which would lead to revocation if committed after licensing (§ 320.64(14).
One such prohibition also has an impact on the licensing of franchised
dealers. Pursuant to § 320.64(10) a manufacturer may not enter into or
attempt to enter into a franchise agreement with a dealer which does not
have proper facilities to provide warranty services to consumers. In Ed
Morse Chevrolet of Seminole, Inc. v. DHSMV, DOAH Case No. 91-4315, Final
Order, Mar. 31, 1992, the Department denied an application for a franchised
dealer license because of concerns about the sufficiency of the facility the
dealer was providing and noted, "Adequate service facilities are required by
s. 320.64(10), Fla. Stat., and the Department’s concerns over their
insufficiency in connection with the temporary facility are justified."
Coercive Activities
A large number of the prohibitions concern coercive activities in which a
manufacturer might engage. "Coercion" is not defined in the statutes. The
sparse case law interpreting coercion in the context of § 320.64, however,
suggests that an improper threat is a key element. In discussing generally
agency review of alleged violations of §§ 320.64(6),(7), and (8) (
concerning coercion to enter into an agreement, threatening improper
termination, and improper termination), the First District Court of Appeal
said in International Harvester Co. v. Calvin, 353 So. 2d 144 (Fla. 1st DCA
1978), that one purpose of agency review was as a bulwark against a
manufacturer coercing a dealer to accept unwanted inventory on threat of
termination. However, the court observed that it was not coercion for a
manufacturer "to attempt to enforce the valid contractual obligations of
another party."
It is likely that in the absence of a Florida definition of coercion, courts
will be influenced by the jurisprudence concerning "good faith" in the
federal Automobile Dealers Day in Court Act (15 U.S.C. §§ 1221 et seq.),
which requires coercion to establish bad faith. Cabriolet Porsche Audi, Inc.
v. American Honda Motor Co., Inc., 773 F.2d 1193 (11th Cir. 1985), provides
an example. The relevant portion of the case involved a claim that Honda
used threats of consequences to a dealer’s allocation of inventory to force
the dealer to build an exclusive facility for its Honda operations. The
court observed that § 320.64(6) prohibited coercing or attempting to coerce
dealers into such agreements. Without interpreting coercion directly, but in
discussing the state claim in the same context as the federal Automobile
Dealers Day in Court claim, the court held as a matter of law that the Honda
’s conduct was not "coercion" and not a violation of § 320.64(6). "We have
little doubt," said the court, "that had Honda threatened to deny Cabriolet
all cars, or any cars to which it was entitled, unless Cabriolet provided an
exclusive facility, this would be evidence of coercion." Because, however,
Honda only refused to provide additional vehicles and never "shorted" the
dealer when it did not build an exclusive facility, and because building the
facility would have benefited both parties, the court found that Honda’s
actions were the sort of urging that expressly did not constitute lack of
good faith under the Automobile Dealers Day in Court Act.
Other § 320.64 prohibitions against "coercion" or attempted coercion make
illegal efforts to foist unwanted inventory on dealers (§ 320.64(5)); to
force an agreement on the dealer (§ 320.64(6)); to threaten discontinuation
(§ 320.64(7)) or to illegally discontinue a franchise (§ 320.64(8)); to
threaten modification of an agreement to a dealer’s detriment (§ 320.64(9));
to coerce specific installment financing arrangements on to dealers (§
320.64(11)); to coerce a dealer to give up the right to protest an
additional dealership (§ 320.64(21)); or to coerce a dealer to give up other
statutory rights by threatened audit (§ 320.64(30)). These provisions are
seldom litigated except in combination with some other statutory violation.
Nonetheless, their presence provides a statutory deterrent to manufacturer
activities that dealers have traditionally feared.
Unfair Business Practices
An equally large number of prohibitions are directed toward perceived unfair
practices which manufacturers may be willing to utilize in their relations
with their dealers.
Delivery and allocation of vehicles
Dealers rely upon manufacturers for their new vehicle inventories. Thus,
several of the § 320.64 prohibitions address the manufacturer’s obligation
to supply its individual dealers with vehicles and parts in reasonable
quantities and within reasonable time frames. Prior to 2001, three
provisions covered this ground in somewhat different ways: §
320.64(13)(refusal to deliver vehicles and parts timely); §
320.64(20)(unreasonable system of allocation); and § 320.64(21)(similar to §
320.64(13)). There have been a few allocation cases arising in Florida (see,
e.g., Cabriolet Porsche) which have produced published decisions.
Practitioners know of other cases which have been settled. The same is true
for such cases across the country. In general, these cases have turned on
specific facts and may present significant proof problems for plaintiffs
seeking to establish that a system of allocation is unfair, or that a dealer
is not being delivered sufficient vehicles. In 2001, the legislature
abolished § 320.64(13), modified § 320.64(20)(renumber as 18), renumbered §
320.64(21) as (19), and created § 320.64(22). These amendments address two
issues. One is the proof problem. The amendment of subsection 20 (now 18)
requires manufacturers to keep allocation and distribution records for three
years, a requirement which will make discovery of allocation data by
plaintiffs more straightforward. The newly created § 320.64(22) reiterates
the requirement to deliver vehicles and parts timely and in reasonable
quantities, but includes a provision extending the requirement to all models
of the line-make which the manufacturer builds and prohibiting a requirement
by the manufacturer that dealers execute a separate agreement to receive new
models or add facilities or incur excessive additional expenses to receive
new models. Attempts by manufacturers to separately franchise new models, or
to require facilities which some existing dealers do not have as a
prerequisite to receiving new models is the motivation for this amendment.
This is Florida’s version of the so-called "Navigator" bill which several
states passed in the wake of Ford’s initial effort to franchise the Lincoln
Navigator separately from other Lincoln models. Whether the addition will
have the desired effect is yet to be seen. BMW is fighting, so far
unsuccessfully, as similar statute in Texas where it is trying to impose a
separate franchise for the X15 sports activity vehicle.
A theoretical question raised by this provision is whether the manufacturer
will be required to extend cars to truck only dealers. For example,
historically Lincoln, Mercury, and Ford have been treated as distinct
line-makes. There are many Ford dealers which are not franchised to sell
Lincoln or Mercury and some Mercury dealers not franchised to sell Lincoln.
Ford car dealers, however, have two franchises, one covering cars, the other
light duty trucks. The reverse is not the case. There are some dealers which
are franchised to sell only light duty trucks. A strict reading of the new
provision, coupled with the traditional treatment of line-make, could well
create the argument that those "truck only" dealers are now entitled to
receive cars.
Manufacturer competition
In addition to the manufacturer ownership provisions of § 320.645, §
320.64(23), and § 320.64(24), created in 2001, prohibit a manufacturer from
competing with its dealers in "any activity covered by the franchise
agreement," and from selling a vehicle to a retail customer except through a
dealer (certain sales excepted). These provisions are presumably aimed at
preventing manufacturers from selling products and services, notably parts,
vehicles, and financing, directly to consumers. It is likely that exactly
what is prohibited will be fleshed out when, or if, there is litigation by
dealers in this area.
Audits and programs
Audits of various dealer reimbursement claims have been the source of
disagreements between dealers and manufacturers throughout the nation.
Typically, the issue involves funds that have been paid to a dealer, and now
repayment is sought by the manufacturer based on an audit. The
reimbursements may result from warranty work performed by the dealer, or be
for monetary credits accruing to the dealer under incentive programs for
vehicle sales. Also of growing concern to dealers are the types of
information made available to the public concerning dealer profits on
vehicle sales. The 2001 legislature established several new prohibitions
addressing both auditing and the auditing and public information issues.
In the area of audits, warranty audits are limited to one year following the
payment of a dealer’s warranty claim. Incentive audits, that is moneys paid
to dealers from programs designed to encourage dealers to sell certain
models of vehicles, are limited to 18 months. Refusal to pay a claim
requires a showing of dealer fraud or a substantial failure to follow
procedures. § 320.64(25).
Regarding public information, new § 320.64(28) prohibits manufacturers from
making available sales prices or profit information in any form, and limits
disclosure of financial information to only composite forms, unless required
by administrative or judicial order. This provision addresses two concerns,
one the availability of financial information to competitors, and the other
the effect of publishing price and profit information to the public,
especially over the internet, a practice that may affect the sales price the
individual dealer can obtain.
Section 320.64 also addresses "export" disputes. Manufacturers usually
prohibit domestic dealers from selling vehicles overseas. Nonetheless, with
or without the cooperation of dealers, new vehicles are purchased from
dealers and end up in overseas markets. The manufactures usually seek to
recoup from the dealer any incentive payments made for the sale of these
vehicles. The dispute is usually resolved against the dealer by the
manufacturer on "strict liability" grounds, that is, regardless of the
dealer’s knowledge of the buyer’s intentions, the vehicle did leave the
country. New § 320.64(26) prohibits the manufacturer from disallowing a sale
from an incentive program if the vehicle was sold to a customer at the
dealership and without knowledge by the dealer of the customer’s intent to
export. Moreover, if the vehicle is titled in the United States, it is
presumed that the dealer could not reasonably know that the customer
actually intended to export the vehicle.
Finally, new § 320.64(29) requires manufacturers to reimburse dealers for
loaner vehicles required by the manufacturer as part of a customer service
plan.
Dispute Procedures
Dealers have long been concerned that manufacturers may force a waiver of
statutory rights through the franchise agreement. Section 320.61 requires a
manufacturer to give an affidavit that its franchise agreement does not
conflict with Florida statutes. New § 320.64(31) addresses limitations in
franchise agreements on dealers’ access to the remedies provided by Florida
law for violations of §§ 320.60-.70.
There is a growing body of case law holding that states may not prevent the
inclusion and enforcement of arbitration clauses in contracts which fall
under the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.). See Saturn
Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir. 1990). The new
section does not prohibit arbitration clauses (as is the case in some state
statutes, which are probably not enforceable), but prospectively forbids a
venue clause requiring administrative, arbitration, or legal action to be
conducted outside Florida, or requiring the law of any other state to be
applied in a legal proceeding. The provision is expressly applicable only to
future franchise agreements. Many existing franchise agreements include
various of these now prohibited provisions. Most provide for the law of a
state other than Florida to be applied to franchise disputes. Some have
venue clauses, especially the franchise agreements of the California-based
manufacturers, requiring cases to be brought in another state, or
arbitration to be held in another state. Many of these agreements are
periodically renewed so that on renewal the prohibitions of the new
statutory provision will presumably apply. Moreover, new dealers are
enfranchised using the existing version of a manufacturer’s contract. The
new prohibitions will apply to such contracts, even though the form contract
with other dealers predates the passage of this act. Whether the provisions
will be enforceable in light of the many pro-arbitration decisions remains
to be seen. The issue will be whether they place an unacceptable burden on
arbitration clauses.
Successors
Section 320.64(16) prohibits manufacturers from refusing to accept a
qualified heir as successor to a franchise agreement. The provision
envisions a Chapter 120 hearing with notice if the manufacturer does not
wish to accept an heir, without, however, establishing any fixed procedure.
The language concerning qualifications, "written, reasonable, and uniformly
applied minimum qualifications," is very like the language of § 320.643(1)
relating to transfer of the franchise agreement. The statute may seem odd
without an understanding of the typical manufacturer franchise agreement
which on its terms recites that the agreement terminates upon the death of
the dealer owner listed in the agreement. This statute is meant to override
such a provision. It also acknowledges the practice of allowing dealerships
to designate and pre-qualify successors through an addendum to the franchise
contract as another method of establishing succession.
Discontinuations, Cancellations, Non-renewable, Modifications, and
Replacements
Florida, as does virtually every state, has a specific statute relating to
the cancellation of franchise agreements. In general, § 320.641 provides
that regardless of the provisions of the franchise agreement, a manufacturer
may not discontinue, cancel, fail to renew, (generically referred to here as
"terminate") or adversely modify or replace a franchise agreement without
following the procedures established in the statute. Statutes of this sort
are intended to protect dealers from term contracts (manufacturers vary from
one year contracts with no express obligation for renewal to perpetual
contracts); from a manufacturer’s decision simply to end the contractual
relationship; from termination of contracts on grounds placed in the
franchise agreement which grant the manufacturer wide discretion; and from
enforced modifications to contracts, generally when a renewal is
contemplated or a new form contract is envisioned, which are adverse to a
dealer’s interests.
Manufacturers must notice both the Department and the dealer at least ninety
(90) days before a proposed termination or franchise modification is to take
place. Notice in the case of a dealer which has abandoned the dealership by
failing to keep the dealership open for business is, however, 15 days. The
notice must give an effective date and give specific grounds for the action.
In the case of a modification, the manufacturer must indicate the proposed
changes in the agreement. After notice, a dealer may file a "petition or
complaint" contesting the termination or modification. The petition on
notice of abandonment, despite a 15-day notice period, may also be filed
within the 90-day period. The 90-day period is, however, jurisdictional.
General Motors Corp. v. Gus Machado Buick-GMC, Inc., 581 So. 2d 637 (Fla.
1st DCA 1991).
With respect to the "modification" section of § 320.641, the statute has
been challenged as an unconstitutional delegation of authority without
appropriate standards and, as a result, violative of Art. II, § 3 of the
Florida Constitution. This issue remains to be settled, though the one
reported case (concerned primarily with the proper forum in which to bring
the constitutional questions, whether in a request for declaratory statement
from the Department or in circuit court) indicates that the circuit judge
who considered the challenge was inclined to find the statute
constitutional. See Chrysler Corp. v. DHSMV, 720 So. 2d 563 (Fla. 1st DCA
1998). Indeed, there are unanswered questions in interpreting this portion
of the statute. The modification language applies to modificati