BILL NUMBER: SB 642 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Padilla
FEBRUARY 18, 2011
An act to amend Section 11713.3 of the Vehicle Code, relating to
vehicles.
LEGISLATIVE COUNSEL'S DIGEST
SB 642, as introduced, Padilla. Vehicles: manufacturers and
distributors.
Existing law generally requires a manufacturer branch,
remanufacturer, remanufacturer branch, distributor, distributor
branch, transporter, or dealer of vehicles to be licensed by the
Department of Motor Vehicles. Under existing law, it is unlawful for
a manufacturer, manufacturer branch, distributor, or distributor
branch to engage in specified activity. Violation of this law is
crime.
This bill would provide that it is unlawful for a manufacturer,
manufacturer branch, distributor, or distributor branch, directly or
indirectly through an affiliate, to engage in this specified
activity.
Under existing law, it is unlawful for a manufacturer,
manufacturer branch, distributor, or distributor branch to require a
dealer to prospectively assent to a release, assignment, novation,
waiver, or estoppel that would relieve a person from liability, among
other things.
This bill would delete this prohibition and instead would prohibit
a manufacturer, manufacturer branch, distributor, or distributor
branch from obtaining or enforcing, or attempting to obtain or
enforce, against a dealer an agreement that, among other things,
modifies or disclaims any duty or obligation of a manufacturer,
manufacturer branch, distributor, distributor branch, or
representative, among other things. The bill would also provide that
such an agreement would be unenforceable.
Existing law prohibits a manufacturer, manufacturer branch,
distributor, or distributor branch from competing with a dealer in
the same line-make operating under an agreement or franchise from a
manufacturer or distributor in the relevant market area, with
exceptions in limited circumstances, including those circumstances
where the manufacturer or distributor owns or operates a dealership
for a temporary period, not to exceed one year.
This bill would specify that the above exception applies only at
the location of a former dealership of the same line-make that has
been out of operation for less than 6 months.
Existing law requires a manufacturer, branch, and distributor
branch that owns or operates a dealership for a temporary period, to
give written notice to the New Motor Vehicle Board each time it
acquires or divests itself of an ownership interest.
This bill would also require a manufacturer, branch, and
distributor branch to provide the notice each time it changes an
ownership interest.
Existing law requires a manufacturer, branch, and distributor that
owns an interest in a dealer, as part of a bona fide dealer
development program, to give written notice to the board, annually of
the name and location of each dealer in which it has an ownership
interest.
This bill would also require the manufacturer, branch, and
distributor to give notice regarding the name of the bona fide dealer
development owner or owners, and the ownership interests of each
owner expressed as a percentage.
Existing law prohibits a manufacturer, manufacturer branch,
distributor, or distributor branch from unfairly discriminating in
favor of any dealership owned or controlled, in whole or in part, by
a manufacturer or distributor or an entity that controls or is
controlled by the manufacturer or distributor. Existing law describes
unfair discrimination as, among other things, the furnishing to any
franchisee or dealer that is owned or controlled, in whole or part,
by a manufacturer, branch, or distributor of certain things,
including furnishing a vehicle that is not made available to each
franchisee, as provided.
This bill would also include furnishing sales or service
incentives, among other things, that are not made available to all
California franchisees on an equivalent basis, as unfair
discrimination.
This bill would also prohibit a manufacturer, manufacturer branch,
distributor, or distributor branch from unfairly discriminating
against a franchisee selling a service contract or debt cancellation
agreement, among other things, as provided. The bill would describe
unfair discrimination as express or implied statements that the
dealer is under an obligation to exclusively sell or offer to sell
service contracts, among other things. By creating a new crime, the
bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) The distribution, sale, and service of new motor vehicles in
this state vitally affects the state's general economy and the public
welfare.
(b) The new motor vehicle franchise system, which operates within
a strictly defined and highly regulated statutory scheme, assures
consumers of a well-organized distribution system for the
availability and sale of new motor vehicles throughout the state;
provides a network of quality warranty and repair facilities to
maintain those vehicles; and creates a cost-effective method for the
state to police those systems through the licensing and regulation of
private sector franchisors and franchisees.
(c) It is the intent of the Legislature, in acting this act to
prohibit franchisors from avoiding state franchise protection laws,
to ensure fair competition among new motor vehicle dealer franchisees
that are independently owned and those owned by their franchisors,
and to clarify that the existing prohibition against franchisor
ownership of a dealership located within a 10-mile radius of a
nonfranchisor-owned dealership of the same line-make is subject only
to certain limited exceptions that may not be used to justify any
improper purpose, including the operation of a dealership by a
sophisticated investor or operator posing as a dealer development
candidate.
SEC. 2. Section 11713.3 of the Vehicle Code is amended to read:
11713.3. It is unlawful and a violation of this code for
any a manufacturer, manufacturer branch,
distributor, or distributor branch licensed under
pursuant to this code to do , directly or indirectly
through an affiliate, any of the following:
(a) To refuse or fail to deliver in reasonable quantities and
within a reasonable time after receipt of an order from a dealer
having a franchise for the retail sale of any
a new vehicle sold or distributed by the manufacturer or
distributor, any a new vehicle or parts
or accessories to new vehicles as are covered by the franchise, if
the vehicle, parts, or accessories are publicly advertised as being
available for delivery or actually being delivered. This subdivision
is not violated, however, if the failure is caused by acts or causes
beyond the control of the manufacturer, manufacturer branch,
distributor, or distributor branch.
(b) To prevent or require, or attempt to prevent or require, by
contract or otherwise, any a change in
the capital structure of a dealership or the means by or through
which the dealer finances the operation of the dealership, if the
dealer at all times meets any reasonable capital
standards agreed to by the dealer and the manufacturer or
distributor, and if a change in capital structure does not cause a
change in the principal management or have the effect of a sale of
the franchise without the consent of the manufacturer or distributor.
(c) To prevent or require, or attempt to prevent or require, a
dealer to change the executive management of a dealership, other than
the principal dealership operator or operators, if the franchise was
granted to the dealer in reliance upon the personal qualifications
of that person.
(d) (1) Except as provided in subdivision (t), to prevent or
require, or attempt to prevent or require, by contract or otherwise,
any a dealer, or any
an officer, partner, or stockholder of any
a dealership, the sale or transfer of
any a part of the interest of any of them to
any other another person. No
A dealer, officer, partner, or stockholder shall
not , however, have the right to sell, transfer, or
assign the franchise, or any a right
thereunder, without the consent of the manufacturer or distributor
except that the consent shall not be unreasonably withheld.
(2) (A) For the transferring franchisee to fail, prior to the
sale, transfer, or assignment of a franchisee or the sale,
assignment, or transfer of all, or substantially all, of the assets
of the franchised business or a controlling interest in the
franchised business to another person, to notify the manufacturer or
distributor of the franchisee's decision to sell, transfer, or assign
the franchise. The notice shall be in writing and shall include all
of the following:
(i) The proposed transferee's name and address.
(ii) A copy of all of the agreements relating to the sale,
assignment, or transfer of the franchised business or its assets.
(iii) The proposed transferee's application for approval to become
the successor franchisee. The application shall include forms and
related information generally utilized by the manufacturer or
distributor in reviewing prospective franchisees, if those forms are
readily made available to existing franchisees. As soon as
practicable after receipt of the proposed transferee's application,
the manufacturer or distributor shall notify the franchisee and the
proposed transferee of any information needed to
make the application complete.
(B) For the manufacturer or distributor, to fail, on or before 60
days after the receipt of all of the information required pursuant to
subparagraph (A), or as extended by a written agreement between the
manufacturer or distributor and the franchisee, to notify the
franchisee of the approval or the disapproval of the sale, transfer,
or assignment of the franchise. The notice shall be in writing and
shall be personally served or sent by certified mail, return receipt
requested, or by guaranteed overnight delivery service that provides
verification of delivery and shall be directed to the franchisee.
Any A proposed sale, assignment, or
transfer shall be deemed approved, unless disapproved by the
franchisor in the manner provided by this subdivision. If the
proposed sale, assignment, or transfer is disapproved, the franchisor
shall include in the notice of disapproval a statement setting forth
the reasons for the disapproval.
(3) In any an action in which the
manufacturer's or distributor's withholding of consent under this
subdivision or subdivision (e) is an issue, whether the withholding
of consent was unreasonable is a question of fact requiring
consideration of all the existing circumstances.
(e) To prevent, or attempt to prevent, a dealer from receiving
fair and reasonable compensation for the value of the franchised
business. There shall not be no a
transfer or assignment of the dealer's franchise without the
consent of the manufacturer or distributor, which consent shall not
be unreasonably withheld or conditioned upon the release, assignment,
novation, waiver, estoppel, or modification of any
a claim or defense by the dealer.
(f) To obtain money, goods, services, or any other
another benefit from any other
a person with whom the dealer does business, on
account of, or in relation to, the transaction between the dealer and
that other person, other than for compensation for services
rendered, unless the benefit is promptly accounted for, and
transmitted to, the dealer.
(g) To require a dealer to prospectively assent to a release,
assignment, novation, waiver, or estoppel that would relieve any
person from liability to be imposed by this article or to require any
controversy between a dealer and a manufacturer, distributor, or
representative, to be referred to any person other than the board, if
the referral would be binding on the dealer. This subdivision does
not, however, prohibit arbitration before an independent arbitrator.
(g) (1) To obtain or attempt to obtain from a dealer or enforce or
attempt to enforce against a dealer an agreement, provision,
release, assignment, novation, waiver, or estoppel that does any of
the following:
(A) Modifies or disclaims a duty or obligation of a manufacturer,
manufacturer branch, distributor, distributor branch, or
representative, or a right or privilege of a dealer, pursuant to
Chapter 4 (commencing with Section 11700) of Division 5 or Chapter 6
(commencing with Section 3000) of Division 2.
(B) Limits or constrains the right of a dealer to file, pursue, or
submit evidence in connection with a protest before the board.
(C) Provides for the termination of a franchise by a dealer.
(D) Requires a controversy between a manufacturer, manufacturer
branch, distributor, distributor branch, or representative and a
dealer to be referred to a person for a binding determination.
(2) An agreement, provision, release, assignment, novation,
waiver, or estoppel prohibited by this subdivision shall be
unenforceable and void whether entered into before or during the term
of a franchise. This subdivision shall not limit or restrict the
terms upon which parties to a protest before the board, civil action,
or other proceeding can settle or resolve the protest or other
claim, or stipulate to evidentiary or procedural matters during the
course of a protest, civil action, or other proceeding.
(h) To increase prices of motor vehicles that the dealer had
ordered for private retail consumers prior to the dealer's receipt of
the written official price increase notification. A sales contract
signed by a private retail consumer is evidence of each such
the order. In the event of manufacturer price
reductions, the amount of the reduction received by a dealer shall be
passed on to the private retail consumer by the dealer if the retail
price was negotiated on the basis of the previous higher price to
the dealer. Price reductions apply to all vehicles in the dealer's
inventory that were subject to the price reduction. Price differences
applicable to new model or series motor vehicles at the time of the
introduction of new models or series shall not be considered a price
increase or price decrease. This subdivision does not apply to price
changes caused by either of the following:
(1) The addition to a motor vehicle of required or optional
equipment pursuant to state or federal law.
(2) Revaluation of the United States dollar in the case of a
foreign-make vehicle.
(i) To fail to pay to a dealer, within a reasonable time following
receipt of a valid claim by a dealer thereof, any
a payment agreed to be made by the manufacturer or
distributor to the dealer by reason of the fact that a new vehicle of
a prior year model is in the dealer's inventory at the time of
introduction of new model vehicles.
(j) To deny the widow or heirs designated by a deceased owner of a
dealership, the opportunity to participate in the ownership of the
dealership or successor dealership under a valid franchise for a
reasonable time after the death of the owner.
(k) To offer any refunds or other types of
inducements to any a person for the
purchase of new motor vehicles of a certain line-make to be sold to
the state or any a political
subdivision thereof of the state
without making the same offer to all other dealers in the same
line-make within the relevant market area.
( l ) To modify, replace, enter into, relocate,
terminate or refuse to renew a franchise in violation of Article 4
(commencing with Section 3060) of Chapter 6 of Division 2.
(m) To employ a person as a representative who has not been
licensed pursuant to Article 3 (commencing with Section 11900) of
Chapter 4 of Division 5.
(n) To deny any a dealer the right of
free association with any other another
dealer for any a lawful purpose.
(o) (1) To compete with a dealer in the same line-make operating
under an agreement or franchise from a manufacturer or distributor in
the relevant market area.
(2) A manufacturer, branch, or distributor or any
an entity that controls or is controlled by, a
manufacturer, branch, or distributor, shall not, however, be deemed
to be competing in the following limited circumstances:
(A) Owning or operating a dealership for a temporary period, not
to exceed one year at the location of a former
dealership of the same line-make that has been out of operation for
less than six months . However, after a showing of good cause
by a manufacturer, branch, or distributor that it needs additional
time to operate a dealership in preparation for sale to a successor
independent franchisee, the board may extend the time period.
The board shall extend the time period until December 31,
2002, for any manufacturer that meets all of the following
requirements:
(i) The manufacturer has no more than 25 franchisees in the state
and those franchisees collectively operate dealership facilities in
at least 15 counties of the state.
(ii) All of the dealership facilities operated by the manufacturer'
s franchisees in the state trade exclusively in the manufacturer's
line-make.
(iii) No fewer than one-half of the manufacturer's franchisees in
the state own and operate two or more dealership facilities in their
assigned areas of responsibility.
(iv) The manufacturer holds a temporary ownership interest in no
more than two dealerships in the state that are located in the
relevant market area of any other franchisee of the same line-make
not owned, in whole or part, by the manufacturer.
(B) Owning an interest in a dealer as part of a bona fide dealer
development program that satisfies all of the following requirements:
(i) The sole purpose of the program is to make franchises
available to persons lacking capital, training, business experience,
or other qualities ordinarily required of prospective franchisees and
the dealer development candidate is an individual who is unable to
acquire the franchise without assistance of the program.
(ii) The dealer development candidate has made a significant
investment subject to loss in the franchised business of the dealer.
(iii) The program requires the dealer development candidate to
manage the day-to-day operations and business affairs of the dealer
and to acquire, within a reasonable time and on reasonable terms and
conditions, beneficial ownership and control of a majority interest
in the dealer and disassociation of any direct or indirect ownership
or control by the manufacturer, branch, or distributor.
(C) Owning a wholly owned subsidiary corporation of a distributor
that sells motor vehicles at retail, if, for at least three years
prior to January 1, 1973, the subsidiary corporation has been a
wholly owned subsidiary of the distributor and engaged in the sale of
vehicles at retail.
(3) (A) Every A manufacturer,
branch, and distributor that owns or operates a dealership in the
manner described in subparagraph (A) of paragraph (2) shall give
written notice to the board, within 10 days, each time it commences
or terminates operation of a dealership and each time it acquires
, changes, or divests itself of an ownership interest.
(B) Every A manufacturer, branch,
and distributor that owns an interest in a dealer in the manner
described in subparagraph (B) of paragraph (2) shall give written
notice to the board, annually, of the name and location of each
dealer in which it has an ownership interest , the name of the
bona fide dealer development owner or owners, and the ownership
interests of each owner expressed as a percentage .
(p) To unfairly discriminate among its franchisees with respect to
warranty reimbursement or authority granted to its franchisees to
make warranty adjustments with retail customers.
(q) To sell vehicles to persons a person
not licensed under pursuant to
this chapter for resale.
(r) To fail to affix an identification number to any
a park trailer, as described in Section 18009.3
of the Health and Safety Code, that is manufactured on or after
January 1, 1987, and that does not clearly identify the unit as a
park trailer to the department. The configuration of the
identification number shall be approved by the department.
(s) To dishonor a warranty, rebate, or other incentive offered to
the public or a dealer in connection with the retail sale of a new
motor vehicle, based solely upon the fact that an autobroker arranged
or negotiated the sale. This subdivision shall not prohibit the
disallowance of that rebate or incentive if the purchaser or dealer
is ineligible to receive the rebate or incentive pursuant to any
other term or condition of a rebate or incentive program.
(t) To exercise a right of first refusal or any
other right requiring a franchisee or any an
owner thereof of the franchise
to sell, transfer, or assign to the franchisor, or to any
a nominee of the franchisor, all or any
a material part of the franchised business or
of the assets thereof of the franchised
business unless all of the following requirements are met:
(1) The franchise authorizes the franchisor to exercise a right of
first refusal to acquire the franchised business or assets
thereof of the franchised business in the event
of a proposed sale, transfer, or assignment.
(2) The franchisor gives written notice of its exercise of the
right of first refusal no later than 45 days after the franchisor
receives all of the information required pursuant to subparagraph (A)
of paragraph (2) of subdivision (d).
(3) The sale, transfer, or assignment being proposed relates to
not less than all or substantially all of the assets of the
franchised business or to a controlling interest in the franchised
business.
(4) The proposed transferee is neither a family member of an owner
of the franchised business, nor a managerial employee of the
franchisee owning 15 percent or more of the franchised business, nor
a corporation, partnership, or other legal entity owned by the
existing owners of the franchised business. For purposes of this
paragraph, a "family member" means the spouse of an owner of the
franchised business, the child, grandchild, brother, sister, or
parent of an owner, or a spouse of one of those family members.
Nothing contained in this This
paragraph limits does not limit the
rights of the franchisor to disapprove a proposed transferee as
provided in subdivision (d).
(5) Upon the franchisor's exercise of the right of first refusal,
the consideration paid by the franchisor to the franchisee and owners
of the franchised business shall equal or exceed all consideration
that each of them were to have received under the terms of, or in
connection with, the proposed sale, assignment, or transfer, and the
franchisor shall comply with all the terms and conditions of the
agreement or agreements to sell, transfer, or assign the franchised
business.
(6) The franchisor shall reimburse the proposed transferee for
any expenses paid or incurred by the proposed
transferee in evaluating, investigating, and negotiating the proposed
transfer to the extent those expenses do not exceed the usual,
customary, and reasonable fees charged for similar work done in the
area in which the franchised business is located. These expenses
include, but are not limited to, legal and accounting expenses, and
expenses incurred for title reports and environmental or other
investigations of any real property on which the
franchisee's operations are conducted. The proposed transferee shall
provide the franchisor a written itemization of those expenses, and a
copy of all nonprivileged reports and studies for which expenses
were incurred, if any, within 30 days of the proposed transferee's
receipt of a written request from the franchisor for that accounting.
The franchisor shall make payment within 30 days of exercising the
right of first refusal.
(u) (1) To unfairly discriminate in favor of any
a dealership owned or controlled, in whole or
part, by a manufacturer or distributor or an entity that controls or
is controlled by the manufacturer or distributor. Unfair
discrimination includes, but is not limited to, the following:
(A) The furnishing to any a
franchisee or dealer that is owned or controlled, in whole or part,
by a manufacturer, branch, or distributor of any of the following:
(i) Any A vehicle that is not made
available to each franchisee pursuant to a reasonable allocation
formula that is applied uniformly, and any a
part or accessory that is not made available to all franchisees
on an equal basis when there is no reasonable allocation formula
that is applied uniformly.
(ii) Any A vehicle, part, or
accessory that is not made available to each franchisee on comparable
delivery terms, including the time of delivery after the placement
of an order. Differences in delivery terms due to geographic
distances or other factors beyond the control of the manufacturer,
branch, or distributor shall not constitute unfair competition.
(iii) Any information Information
obtained from a franchisee by the manufacturer, branch, or
distributor concerning the business affairs or operations of
any a franchisee in which the manufacturer,
branch, or distributor does not have an ownership interest. The
information includes, but is not limited to, information contained in
financial statements and operating reports, the name, address, or
other personal information or buying, leasing, or service behavior of
any a dealer customer, and
any other information which that
, if provided to a franchisee or dealer owned or controlled by
a manufacturer or distributor, would give that franchisee or dealer a
competitive advantage. This clause does not apply if the information
is provided pursuant to a subpoena or court order, or to aggregated
information made available to all franchisees.
(iv) Sales or service incentives, discounts, or promotional
programs that are not made available to all California franchises on
an equivalent basis.
(B) Referring a prospective purchaser or lessee to a dealer in
which a manufacturer, branch, or distributor has an ownership
interest, unless the prospective purchaser or lessee resides in the
area of responsibility assigned to that dealer or the prospective
purchaser or lessee requests to be referred to that dealer.
(2) Nothing in this This subdivision
shall be interpreted to does not
prohibit a franchisor from granting a franchise to prospective
franchisees or assisting those franchisees during the course of the
franchise relationship as part of a program or programs to make
franchises available to persons lacking capital, training, business
experience, or other qualifications ordinarily required of
prospective franchisees.
(v) (1) To access, modify, or extract information from a
confidential dealer computer record, as defined in Section 11713.25,
without obtaining the prior written consent of the dealer and without
maintaining administrative, technical, and physical safeguards to
protect the security, confidentiality, and integrity of the
information.
(2) Paragraph (1) does not limit a duty that a dealer may have to
safeguard the security and privacy of records maintained by the
dealer.
(w) (1) To use electronic, contractual, or other means to prevent
or interfere with any of the following:
(A) The lawful efforts of a dealer to comply with federal and
state data security and privacy laws.
(B) The ability of a dealer to do either of the following:
(i) Ensure that specific data accessed from the dealer's computer
system is within the scope of consent specified in subdivision (v).
(ii) Monitor specific data accessed from or written to the dealer'
s computer system.
(2) Paragraph (1) does not limit a duty that a dealer may have to
safeguard the security and privacy of records maintained by the
dealer.
(x) (1) To unfairly discriminate against a franchisee selling a
service contract, debt cancellation agreement, maintenance agreement,
or similar product not approved, endorsed, sponsored, or offered by
the manufacturer, manufacturer branch, distributor, or distributor
branch or affiliate. For purposes of this subdivision, unfair
discrimination includes, but is not limited to, any of the following:
(A) Express or implied statements that the dealer is under an
obligation to exclusively sell or offer to sell service contracts,
debt cancellation agreements, or similar products approved, endorsed,
sponsored, or offered by the manufacturer, manufacturer branch,
distributor, or distributor branch or affiliate.
(B) Express or implied statements that selling or offering to sell
service contracts, debt cancellation agreements, maintenance
agreements, or similar products not approved, endorsed, sponsored, or
offered by the manufacturer, manufacturer branch, distributor, or
distributor branch or affiliate, or the failure to sell or offer to
sell service contracts, debt cancellation agreements, maintenance
agreements, or similar products approved, endorsed, sponsored, or
offered by the manufacturer, manufacturer branch, distributor, or
distributor branch or affiliate will have any negative consequences
for the dealer.
(C) Measuring a dealer's performance under a franchise agreement
based upon the sale of service contracts, debt cancellation
agreements, or similar products approved, endorsed, sponsored, or
offered by the manufacturer, manufacturer branch, distributor, or
distributor branch or affiliate.
(D) Requiring a dealer to actively promote the sale of service
contracts, debt cancellation agreements, or similar products
approved, endorsed, sponsored, or offered by the manufacturer,
manufacturer branch, distributor, or distributor branch or affiliate.
(E) Conditioning access to vehicles or parts, or vehicle sales or
service incentives upon the sale of service contracts, debt
cancellation agreements, or similar products approved, endorsed,
sponsored, or offered by the manufacturer, manufacturer branch,
distributor, or distributor branch or affiliate.
(2) Unfair discrimination does not include, and nothing shall
prohibit a manufacturer from, offering an incentive program to
vehicle dealers who
voluntarily sell or offer to sell service contracts, debt
cancellation agreements, or similar products approved, endorsed,
sponsored, or offered by the manufacturer, manufacturer branch,
distributor, or distributor branch or affiliate, if the program does
not provide vehicle sales or service incentives.
(x)
(y) As used in this section, "area of responsibility"
is a geographic area specified in a franchise that is used by the
franchisor for the purpose of evaluating the franchisee's performance
of its sales and service obligations.
SEC. 3. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.