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Jaguar Land Rover North America v. Board of The Texas Department of Motor Vehicles

Court of Appeals of Texas, Third District, Austin

December 21, 2017

Jaguar Land Rover North America, Appellant
Board of the Texas Department of Motor Vehicles; Mr. Raymond Palacios, Jr., in his Official Capacity as Chairman of the Board of the Texas Department of Motor Vehicles; and Autobahn Imports, LP, d/b/a Land Rover of Fort Worth, Appellees


          Before Chief Justice Rose, Justices Pemberton and Goodwin.


          Melissa Goodwin, Justice.

         Jaguar Land Rover North America (Land Rover), seeks direct judicial review in this Court of a final order issued by the Board of the Texas Department of Motor Vehicles (the Department) pursuant to chapter 2301 of the Texas Occupations Code. See Tex. Occ. Code § 2301.751 (providing for judicial review in district court in Travis County or in this Court by party to proceeding affected by final order); see also 43 Tex. Admin. Code § 215.207(8) (2017) (Tex. Dep't of Motor Vehicles, Contested Cases: Final Orders) (same). Autobahn Imports, LP, d/b/a Land Rover of Fort Worth (Autobahn) filed a complaint against Land Rover with the Department regarding chargebacks issued against Autobahn under Land Rover's Incentive Program and export policy. The Department found the chargebacks and export policy invalid. For the reasons that follow, we dismiss the appeal as to the issue of the export policy for want of jurisdiction and affirm the final order of the Department in all other respects.


         Land Rover is the exclusive distributor of Land Rover vehicles in North America and sells Land Rovers through independent retail dealers such as Autobahn. In addition to entering into dealer agreements with retail dealers, Land Rover adopts incentive plans and export policies. The Business Builder Program (Incentive Program) is an incentive program "intended to reward retailers for investing in the franchise, caring for customers, being proactive on future business necessities, and helping [Land Rover] drive success." Export policies, which are designed to address the problem of exporters or brokers purchasing Land Rovers in North America and reselling them to other countries, impose monetary penalties on dealers if they fail to meet certain conditions regarding vehicles that are sold to dealers and subsequently exported. The terms of the Incentive Program and export policies are set out in the Business Builder Program Manual (Manual) and the 2009 Operations Bulletin, Contests and Incentives Standard Eligibility Rules for Retail Programs (Rules). The Manual and the Rules govern the parties' issues in this appeal.[1]

         Under the terms of the Incentive Program, Land Rover agreed to pay Autobahn up to 6% of the manufacturer's suggested retail price for each retail sale made by Autobahn that met certain requirements set forth in the Manual and the Rules. To be eligible for an incentive payment, Autobahn is required to: (1) "conduct the delivery of the vehicle to the end-user customer" and (2) submit the end user's name and address to Land Rover "as the primary driver of the vehicle." "End user" is not defined in the Manual but is defined in the Rules as follows:

An end user is a purchaser/lessee purchasing or leasing a vehicle from an authorized Dealership for retail, commercial or business use, with no intent to resell. An approved leasing company purchasing to lease is considered an end user.

         When there are multiple end users, Autobahn is to "report only one of them" to Land Rover "as the end user, " and program eligibility is "based solely on the qualifications of that reported end user."

         From February 1, 2013, to January 31, 2014, Autobahn made 459 retail sales of Land Rover vehicles. At the time of each sale, Autobahn completed and electronically filed a required Retail Dealer Report (RDR) form, filling in the vehicle information, leasing company information, and primary driver information for each vehicle. In February 2014, Land Rover conducted an audit of Autobahn's sales records for the prior year, selecting 134 sales to leasing companies for review. See Tex. Occ. Code § 2301.475. Of the 134 sales to leasing companies, Land Rover identified 91 sales for which the vehicle was sold to a leasing company, but Autobahn had submitted the name of the lessee as the primary driver. The auditor determined that those sales were not eligible for payment because the leasing contract showed that "the [leasing company] delivered the vehicle to the end user" and therefore "delivery was not made to the vehicle's end-user by an authorized Land Rover retailer representative" as required. Based on the auditor's review, Land Rover made 91 chargebacks to Autobahn in the total amount of $340, 469.80. Autobahn appealed the chargebacks to Land Rover. Land Rover affirmed the chargebacks for all but five sales and charged back $305, 836.80 from incentive payments paid to Autobahn under the Incentive Program. The auditor also noted that 12 vehicles sold by Autobahn had later been exported and noted those sales for "potential" chargebacks for violation of the export policy.

         In August 2014, Autobahn filed a complaint against Land Rover with the Department challenging the chargebacks and export policy. Autobahn argued that the chargebacks were unreasonable and unfair in violation of section 2301.467 of the Occupations Code. See id. § 2301.467(a)(1) (providing in relevant part that distributor may not "require adherence to unreasonable sales or service standards").[2] Autobahn also argued that Land Rover's export policy violated section 2301.479 of the Occupations Code because it put the burden of proof for export sales on the dealer. See id. § 2301.479(c) (providing that dealer is presumed to have no actual knowledge that vehicle it sells will be exported).[3]

         The complaint was referred to the State Office of Administrative Hearings (SOAH) and assigned to an administrative law judge (ALJ), Howard S. Seitzman. See id. § 2301.704 (providing that contested case hearing must be held by SOAH ALJ); see also Tex. Gov't Code § 2001.003 (defining "contested case"). Following a preliminary hearing, ALJ Seitzman issued Order No. 2, stating that "the parties agreed to see whether the summary disposition motion to be filed by [Autobahn] narrows the scope of discovery and of the hearing." Autobahn then filed a motion for summary disposition arguing that the chargebacks were unreasonable and unfair and violated section 2301.467 because leasing companies count as end users under the Incentive Program, such that Autobahn satisfied the requirement that it conduct delivery of the vehicles to the end users. Following another prehearing conference, ALJ Seitzman issued Order No. 4, which instructed Land Rover to respond to the motion for summary disposition only as to the issue of whether a leasing company can be an end user under the terms of the Incentive Program and abated all other issues pending further order.

         Land Rover filed its response, arguing that the leasing companies were not end users because Autobahn had not submitted the names of the leasing companies as the primary drivers and that, instead, their lessees-who would actually be using the vehicles-were the end users. Land Rover also contended that only "approved" leasing companies may qualify as end users, and there was no evidence that the leasing companies here were "approved." Finally, Land Rover argued that under the Rules, only leasing companies that intend to use the leased vehicles themselves-such as rental car companies or other so-called "fleet leasing companies"-can be end users. After Autobahn filed a reply brief, the case was transferred to a new ALJ, Paul D. Keeper, who asked the parties to brief the issue of the meaning of "approved leasing company" as used in the definition of end user.

         In a letter brief, Land Rover argued that an "approved" leasing company is one approved by Land Rover because otherwise a dealer could unilaterally approve leasing companies and trigger an obligation by Land Rover to pay the dealer's incentive claims. In its letter brief, Autobahn asserted that the phrase "approved leasing company" was ambiguous, and that leasing companies could therefore be approved by Land Rover, Autobahn, or the Department, which licenses leasing companies. After considering the parties' letter briefs, ALJ Keeper issued Order No. 6, in which he ruled that "a leasing company is considered an end-user under the Program documents."[4]

         The case was then transferred to a third ALJ, Stephanie Frazee, who issued Order No. 7, requesting a joint status report or a joint request for a prehearing conference. At the parties' request, a prehearing conference was held at which the parties did not agree on the effect of Order No. 6. ALJ Frazee issued Order No. 8, which stated that the parties agreed to submit a schedule for "(1) briefing the chargeback issue, including arguments regarding the status of the end-user issue addressed by ALJ Keeper in Order No.6. and (2) filing of [Autobahn's] amended complaint and an amendment to its motion for summary disposition and [Land Rover's] response, as well as any replies that the parties anticipate being necessary." The order lifted the abatement entered in Order No. 4 "to allow the parties to brief all summary disposition issues according to their agreed schedule." The parties submitted an agreed schedule, which ALJ Frazee adopted in Order No. 9. According to the agreed schedule and Order No. 9, Land Rover was to file a letter brief on the present status of the issue of whether a leasing company is an end user under the Incentive Program, and Autobahn was to file a reply. Only if Autobahn's motion for summary disposition on the chargeback claim was denied on the ground that a leasing company is an end user under the Incentive Program would Land Rover file a response on the other three grounds raised in Autobahn's motion.[5]

         In its letter brief on the status of the end user issue, Land Rover argued that Order No. 6 did not state that it was granting summary disposition, did not specify the facts about which there was no genuine dispute, did not specify the issues for which summary disposition was granted, and did not explain how the fact that a leasing company may be an end user established as a matter of law that the chargebacks were invalid under Texas law. Land Rover also argued that fact issues remained. In its letter brief, Autobahn argued that a leasing company is an end user; that delivery to a leasing company satisfies Land Rover's delivery requirements under the Incentive Program; that, consequently, there was no basis for the chargebacks; and that there were no fact issues remaining. ALJ Frazee then issued Order No. 10, in which she stated:

Having reviewed the briefs as well as Order No. 6, the ALJ determined that Order No. 6 establishes that there are no genuine issues of material fact as to the end-user issue, and the effect and intent of Order No. 6 is to grant summary disposition on the end-user issue and corresponding chargebacks issue in favor of Autobahn Imports, L.P. Therefore, summary disposition is GRANTED to Autobahn Imports, L.P. as to the end-user issue and corresponding chargebacks issue.

         The parties subsequently briefed the export policy issue, and Land Rover filed a motion to dismiss Autobahn's export policy claim. Land Rover argued that Autobahn lacked standing to assert the export policy claim, that the claim was not ripe, and that it also failed on the merits and also disputed the payment claim. ALJ Frazee found that the export policy claim was ripe and granted summary disposition in favor of Autobahn on that claim. Autobahn then filed a motion to dismiss and motion to submit, asking ALJ Frazee to sever and dismiss its payment claim and to prepare and present to the Department a proposal for decision that the chargebacks and export policy were invalid. ALJ Frazee granted the motions and closed the administrative record.

         ALJ Frazee issued a proposal for decision (PFD) concluding that sales to leasing companies are qualified sales under the Incentive Program according to the Manual and Rules, that Land Rover's export policies violated Texas Occupations Code section 2301.479, and that Autobahn was entitled to summary disposition on its chargeback and export policy claims. Land Rover filed exceptions to the PFD, and Autobahn filed a reply. See 1 Tex. Admin. Code § 155.507(c) (2017) (Tex. Office of Admin. Hearings, Proposal for Decision) (providing that parties may submit exceptions and replies to PFD).[6] In a letter explaining her response to the exceptions, ALJ Frazee stated that there was "no basis for substantively amending the PFD, " but that she recommended amending the PFD to correct "typographical errors" noted by Autobahn. The recommended amendments included changing Conclusion of Law No. 19, which originally stated, "Sales to leasing companies are qualified sales under [the Incentive Program] according to program documents, " to read:

Sales to leasing companies are qualified sales under [the Incentive Program] according to Program Documents. Land Rover's charge-backs to Autobahn for sales to leasing companies under [the Incentive Program] are invalid under Texas Occupations Code §2301.467(a)(1) for requiring adherence to unreasonable sales or service standards . . . .

         In December 2015, the director of the Motor Vehicle Division of the Department issued a "Final Order" holding Land Rover's chargebacks invalid and improper and its export policies invalid under the Texas Occupations Code. Land Rover filed a motion for rehearing arguing, among other things, that the director lacked authority to issue the order. The Department staff subsequently presented the PFD to the board, which issued a Final Order in September 2016, stating the same holdings as the prior "Final Order" issued by the director. Land Rover filed a second motion for rehearing, which the Department denied. This appeal followed.

         STANDARD ...

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