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Hyundai Motor America v. New World Car Nissan, Inc.

Court of Appeals of Texas, Third District, Austin

July 3, 2019

Hyundai Motor America, Appellant
New World Car Nissan, Inc. d/b/a World Car Hyundai, World Car Nissan; New World Car Imports San Antonio, Inc. d/b/a World Car Hyundai; Texas Department of Motor Vehicles; Board of The Texas Department of Motor Vehicles; Guillermo "Memo" Trevino[1], in His Official Capacity as Chair of the Board of The Texas Department of Motor Vehicles; and Whitney Brewster, in Her Official Capacity as Executive Director of the Texas Department of Motor Vehicles, Appellees


          Before Justices Goodwin, Baker, and Triana



         Hyundai Motor America filed a petition for judicial review of a final order of the Board of the Texas Department of Motor Vehicles determining that Hyundai violated the Texas Occupations Code in its transactions with its franchised dealers. Before any proceedings occurred in the district court, several defendants removed the case to this Court. See Tex. Occ. Code § 2301.751(b). For the following reasons, we reverse the Board's order and remand this cause to the Board for further proceedings consistent with this opinion


         Hyundai is the wholesale distributor for Hyundai products and services in the United States. New World Car Nissan, Inc. and New World Car Imports San Antonio, Inc. (collectively New World Car) are licensed, franchised Hyundai dealers in San Antonio. In November 2013, New World Car filed a formal complaint against Hyundai with the Department, alleging that between 2010 and 2013 Hyundai violated several provisions of Chapter 2301 of the Occupations Code. See id. §§ 2301.202-.203 (providing for filing and investigation of complaints of violations of Chapter 2301). Specifically, New World Car's complaint alleged that Hyundai violated the following provisions of the Occupations Code: (1) section 2301.467(a)(1) by "requiring [New World Car] to sell more vehicles than [Hyundai] actually provided in order to be considered 100% sales efficient"; (2) section 2301.468 by treating New World Car "unfairly or inequitably in the application of a standard or guideline" and by providing "unfair and inequitable vehicle inventory allocations"; and (3) section 2301.478(b) by providing "unfair allocations of insufficient inventory" and "requiring [New World Car] to sell more inventory than it was provided." See id. §§ 2301.467(a)(1), .468, .478(b).[2]

         The Department referred the case to the State Office of Administrative Hearings (SOAH) for a contested-case hearing before an Administrative Law Judge (ALJ). See id. § 2301.704. After discovery and an evidentiary hearing, the ALJ issued a proposal for decision (PFD) concluding that New World Car had failed to prove that Hyundai violated the Occupations Code. In November 2016, the Board rejected the ALJ's analysis and the Director's recommendation and issued a final order that "overturned" the ALJ's "conclusion." The final order did not include a supporting rationale, fact findings, or legal conclusions.

         In February 2017, the Board granted Hyundai's motion for rehearing. In August 2017, the Board amended the final order with new and modified findings and conclusions to replace those of the ALJ that the Board had rejected. The new conclusions stated that Hyundai violated sections 2301.467(a)(1), 2301.468(2), and 2301.478(b) of the Occupations Code.


         We review the Board's order under the "substantial evidence" rule. See id. § 2301.751(a)(2) ("A party to a proceeding affected by a final order, rule, or decision or other final action of the board with respect to a matter arising under this chapter . . . may seek judicial review of the action under the substantial evidence rule in . . . the court of appeals for the Third Court of Appeals District."); Buddy Gregg Motor Homes, Inc. v. Motor Vehicle Bd. of Tex. Dep't of Transp., 156 S.W.3d 91, 98 (Tex. App.-Austin 2004, pet. denied) (applying substantial-evidence review in case removed from district court). This standard requires that we reverse or remand a case for further proceedings in the following circumstances:

[I]f substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
(A) in violation of a constitutional or statutory provision;
(B) in excess of the agency's statutory authority;
(C) made through unlawful procedure;
(D) affected by other error of law;
(E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or
(F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Tex. Gov't Code § 2001.174(2).


         Jurisdiction over State appellees other than the Board

         Before we reach the merits of Hyundai's issues, we address the Board's contention that the Court does not have subject-matter jurisdiction over any of the State appellees except the Board. The Board contends that because Hyundai seeks only judicial review of an order of the Board and asserts no other claim against any of the State defendants, those other defendant-appellees-the Department, the Chair of the Board, and the Department's Executive Director-should be dismissed from the case with prejudice.

         The Occupations Code authorizes judicial review of "final action[s] of the [Department's] board" in matters arising under Chapter 2301. Tex. Occ. Code § 2301.751(a); Keystone RV Co. v. Texas Dep't of Motor Vehicles, 507 S.W.3d 829, 831 (Tex. App.-Austin 2016, no pet.). Chapter 2301's use of the term "board" refers to the nine-member governing board of the Department. Keystone RV, 507 S.W.3d at 834-35 & n.22 (citing Tex. Transp. Code § 1001.021, which creates Department's nine-member board). The Department, a statutorily created state agency responsible for administering and enforcing various statutory provisions, including Chapter 2301, see Tex. Transp. Code § 1001.002(a), (b)(3), "is composed of an executive director appointed by the board and other employees required to efficiently implement" applicable laws, id. § 1001.003.

         The Board "has the exclusive original jurisdiction to regulate those aspects of the distribution, sale, or lease of motor vehicles that are governed by" Chapter 2301. Tex. Occ. Code § 2301.151(a). Among other duties, the Board "shall" "administer th[e] chapter; . . . ensure that the distribution, sale, and lease of motor vehicles is conducted as required by th[e] chapter and board rules; . . . [and] prevent fraud, unfair practices, discrimination, impositions, and other abuses in connection with the distribution and sale of motor vehicles." Id. § 2301.152(a); see also id. § 2301.153(a) (listing powers and duties of Board). The Board is the entity charged with receiving, investigating, and resolving complaints of alleged violations of Chapter 2301, as it did here with respect to New World Car's complaint. See generally id. §§ 2301.201-.205 (providing for Board's receipt, investigation, and resolution of complaints).

         Hyundai does not cite any authority supporting our jurisdiction over any of the State appellees other than the Board, and the only authority we have found leads us to conclude that besides the Board only the Executive Director is a proper State defendant. See id. § 2301.752(b) ("Citation for an appeal [of an order of the Board] must be served on the executive director or the executive director's designee and each party of record in the matter."); see Texas Nat. Res. Conservation Comm'n v. Sierra Club, 70 S.W.3d 809, 813-14 (Tex. 2002) (holding that in suit for judicial review, only agency "whose ruling is to be appealed" was "proper defendant to the district court proceeding" when neither APA nor enabling statute required service of citation on any other party). Accordingly, we conclude that we do not have subject-matter jurisdiction over the Department or the Chair of the Board, and we dismiss those parties from this suit.

         Hyundai's issues on appeal

         In several issues, Hyundai raises three basic contentions: (1) the Board "usurped the ALJ's role in the contested case process by acting as the finder of basic and adjudicative facts"; (2) the Board "failed to articulate a rational connection between an underlying agency policy and [its] altered findings of fact and conclusions of law"; and (3) the Board "engaged in improper, retroactive ad hoc rule-making." Hyundai specifically takes issue with the Board's following findings and conclusions that modified or reversed the ALJ's findings and conclusions:

• The Board's Findings of Fact 30 and 30A and Conclusion of Law 8 (the allocation findings and conclusion), which pertain to whether Hyundai's discretionary allocation[3]of vehicles to its San Antonio dealers during the relevant time period constituted "unreasonable discrimination," see Act of May 22, 2001, 77th Leg., R.S., ch. 1421, §5, 2001 Tex. Gen. Laws 4920, 4952 (codified at Tex. Occ. Code § 2301.468) (Former Section 2301.468);
• The Board's Finding of Fact 52 and Conclusion of Law 6 (the sales-standard finding and conclusion), which pertain to whether Hyundai's use of a particular sales-efficiency metric[4] "required adherence to an unreasonable sales ...

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