Lead Opinion
Opinion
On April 24, 1974, American Motors Sales Corporation (hereinafter American Motors) notified its South Lake Tahoe dealer, Ken Collins, that it would terminate his Jeep franchise in 90 days for “failure to develop a sufficient sales volume . . . .” On July 26, 1974, Collins filed a protest with the New Motor Vehicle Board of the State of California (hereinafter Board) under Vehicle Code section 3060.
A hearing was held under section 3066, and the hearing officer’s proposed decision found good cause for termination, (§ 3060, subd. (b)). But the Board rejected the proposed decision, took additional testimony from the zone manager of American Motors and from Collins, and concluded that the termination was without good cause. American Motors then successfully sought a writ of mandate from the superior court. The trial judge ruled that sections 3060 and 3066 are violative of due process of law under article I, section 7 of the California Constitution and section 1 of the Fourteenth Amendment to the United States Constitution, “because four of the nine members of the Board are, by statute, (Vehicle Code § 3001), new car dealers, who may reasonably be expected to be antagonistic to franchisors such as American Motors.”
The Board appeals, and is supported in this court by the Northern California Motor Car Dealers Association and the Motor Car Dealers Association of Southern California, amici curiae.
There is a long history of legal warfare between the automobile manufacturers and their dealers, ranging from the “military discipline” of the Ford Motor Company in the 1920’s to litigation under the 1956 federal Dealers Day in Court Act, (15 U.S.C. §§ 1221-1225).
The Board (originally called the New Car Dealers Policy and Appeals Board) was established in 1967 to hear appeals of new car dealers regarding licensing by the Department of Motor Vehicles. (§§ 3000, 3050.) Its duties at that time
The result is that although under the 1973 legislation the adversaries before the Board invariably derive from two distinct groups, dealers and manufacturers, the Board which resolves their disputes must include four members from the dealer group but need not include any members from the manufacturer group. Does an administrative tribunal so constituted meet the requirements of due process? Is it such “a competent and impartial tribunal in administrative hearings” (Peters v. Kiff (1972)
II
The conclusion is unavoidable that dealer-members of the Board have an economic stake in every franchise termination case that comes before them. The ability of manufacturers to terminate any dealership, including that of a Board member, depends entirely upon the Board’s interpretation of “good cause.” It is to every dealer’s advantage not to permit termination for low sales performance, which fact however is to every manufacturer’s disadvantage. As Professor Macauley puts it: “For example, a Ford dealer might be able to make a hundred dollar profit on the sale of one car or a ten dollar profit on each sale of ten cars. The immediate result of either strategy is the same for the dealer, but clearly the impact on the Ford Motor Company differs greatly, because in one case it sells only one car while in the other it sells ten. And even if our hypothetical Ford dealer sells ten cars at only a ten dollar profit on each one, he has no reason to care whether he sells Mustang sport cars, Falcon station wagons, or Thunderbirds. Yet the Ford Motor Company does. It must sell many units of all of the various models it makes, and it must sell its less popular models to recover its tooling costs on them.”
Amici curiae respond to this financial interest by pointing to instances in which a dealership-board-member may be more financially interested in ruling in favor of the manufacturer; this would occur, for example, where the franchise of a dealer-member’s direct competitor is being terminated, or where the member may wish to ingratiate himself with his own manufacturer. We do not view this as fairness, but rather as an equalizing unfairness. Either way, the objectionable feature of dealer-
The landmark case on due process limitations upon such pecuniary conflicts of interest is Tumey v. Ohio (1927)
“. . . There are doubtless mayors who would not allow such a consideration as $12 costs in each case to affect their judgment in it, but the requirement of due process of law in judicial procedure is not satisfied by the argument that men of the highest honor and the greatest self-sacrifice could carry it on without danger of injustice. Every procedure which would offer a possible temptation to the average man as a judge to forget the burden of proof required to convict the defendant, or which might lead him not to hold the balance nice, clear and true between the state and the accused denies the latter due process of law.” (Italics added.) (273 U.S. atpp. 531-532 [71 L.Ed. at p. 758 ].)
The Tumey doctrine has been extended recently. In Ward v. Village of Monroeville (1972)
While the foregoing cases involved due process in a criminal law context, Gibson v. Berryhill (1973)
Affirming the district court’s decision, the Supreme Court ruled that the board of optometry was not a fair tribunal for the determination of the “unprofessional conduct” charges. It stated: “First [the district court determined that], the Board had filed a complaint in state court alleging that appellees had aided and abetted Lee Optical Co. in the unlawful practice of optometry and also that they had engaged in other forms of ‘unprofessional conduct’ which, if proved, would justify revocation of their licenses. These charges were substantially similar to those pending against appellees before the Board and concerning which the Board had noticed hearings following its successful prosecution of Lee Optical in the state trial court.
“Secondly, the District Court determined that the aim of the Board was to revoke the licenses of all optometrists in the State who were employed by business corporations such as Lee Optical, and that these optometrists accounted for nearly half of all the optometrists practicing
“. . . Arguably, the District Court was right on both scores, but we need reach, and we affirm, only on the latter ground of possible personal interest.
“It is sufficiently clear from our cases that those with substantial pecuniary interest in legal proceedings should not adjudicate these disputes. Tumey v. Ohio,
In Withrow v. Larkin (1975)
The Board erroneously equates the issue before us with that involved in cases which hold that a licensing or regulatory agency may constitutionally be composed in whole or in part of members of the business or profession regulated. (Ex Parte McManus (1907)
Accordingly, given its functions prior to the 1973 legislation, the Board was legally constituted. But as noted, matters were then substantially altered. No longer did the Board solely sit in judgment upon new car dealers in such matters as eligibility and qualification for a license, regulation of practices, discipline for rule violations, and the like. It was given the added power to intrude upon the contractual rights and obligations of dealers and their product suppliers, entities whose respective economic interests are in no way identical or coextensive, frequently not even harmonious. No longer did members of a trade or occupation (dealer-Board-members) regulate only their own kind; they began to regulate the economic and contractual relations of others with their own kind. The considerations which support and dictate the rule of Ex Parte McManus no longer prevail, for car dealers have no unique or peculiar expertise appropriate to the regulation of business affairs of car manufacturers.
Despite this reality, the Legislature retained the requirement that the nine-man Board consist of at least four car dealers. In effect it took sides in all Board-adjudicated controversies between dealers and manufacturers, making certain that the dealer interests would at all times be substantially represented and favored on the adjudicating body. This legislative partisanship damns the Board. The state may not establish an adjudicatory tribunal so constituted as to slant its judicial attitude in favor of one class of litigants over another, By doing so in this instance, the Legislature violated its obligation to assure evenhandedness in the adjudicatory process.
The Tumey, Ward, and Berryhill cases above cited differ from the present case in one substantial particular. There the entire adjudicatory body (a single judge in Tumey and Ward and all the board members in Berryhill) was infected by pecuniary interest, while here a minority of the full Board is so infected. Thus we do not read those cases as authority for a rule that every multiple-person administrative agency or board ipse dixit runs afoul of due process whenever one or more of its members is possessed of the condemned pecuniary interest. Nonetheless they serve as a springboard for our holding that in the context of this case there has been a denial of due process of law.
The Board argues that antagonism or bias of a judge toward a class (rather than toward an individual litigant) is not constitutionally
For any who might yet have difficulty comprehending the reason why the guaranteed minimum of four car dealers on the Board is both unfair and unconstitutional, the American Motors’ brief offers one final telling argument. If the Legislature in 1973 had deleted the requirement that car dealers sit on the Board and had made it mandatory that four officers of car manufacturer corporations sit thereon, would the car dealers have found this acceptable? Of course not.
In summary, we do not hold, as might be argued by the Board, that car dealers are biased solely because they are members of the dealer-class of litigants and are thus per se constitutionally ineligible to sit on the Board. What we hold is that the combination of (1) the mandated dealer-Board members, (2) the lack of any counterbalance in mandated manufacturer members, (3) the nature of the adversaries in all cases (dealers v. manufacturers), and (4) the nature of the controversy in all cases (dispute between dealer and manufacturer) deprives a manufacturer-litigant of procedural due process, because the state does not furnish an impartial tribunal.
We next consider what is in effect a harmless error argument. Because a majority of the Board (the five remaining members) is composed of disinterested persons, amici curiae argue that the Board as a whole must be considered impartial, citing a number of cases dealing with delegation of legislative power to fix prices and make rules. (State Board v. Thrift-D-Lux Cleaners (1953)
The argument in any case has no merit. We reiterate that a new car dealer as such is not per se biased to a degree that he cannot or should not under any circumstances serve on the Board. Simple presence of a biased member does not deprive a board of jurisdiction in a particular case. (Winning v. Board of Dental Examiners (1931)
Insofar as the Board is given the power to adjudicate disputes between dealers and manufacturers, it is invalidly constituted. Its decision herein is a nullity because reached in violation of due process.
The judgment is affirmed.
Friedman, Acting P. J., concurred.
Notes
Unless otherwise noted, all section references are to the California Vehicle Code.
An excellent review of this history, from both a legal and sociological perspective, is in Macaulay and Stewart, Law and the Balance of Power: The Automobile Manufacturers and their Dealers (New York: Russell Sage Foundation, 1966).
Originally the Board’s functions were:
1. To prescribe rules and regulations relating to the licensing of new car dealers;
2. To hear and consider, within certain limitations, an appeal by an applicant for or the holder of a license as a new car dealer from an action or decision by the Department of Motor Vehicles; and
3. To consider any other matter concerning the activities or practices of applicants for or holders of licenses as new car dealers. (§ 3050.)
In its opening brief the Board lists 21 instances of other occupational licensing boards a majority of whose members must be licensees. Examples are the Board of Governors of the State Bar (15 of 21, Bus. & Prof. Code. §§ 6013, 6013.5), State Board of Cosmetology (3 of 5, Bus. & Prof. Code, § 7301). State Board of Accountancy (6 of 8, Bus. & Prof. Code, § 5000), and Board of Dental Examiners (7 of 8, Bus. & Prof. Code, § 1601).
Macaulay and Stewart, Law and the Balance of Power: The Automobile Manufacturers and their Dealers, supra page 8.
See Note The “Right” to a Neutral and Competent Judge in Ohio’s Mayor’s Courts (1975) 36 Ohio St.L.J. 889.
A seemingly contrary holding in Ford Motor Company v. Pace (1960)
Dissenting Opinion
I dissent. In the proceeding in mandate the trial court ruled sections 3060 and 3066 of the Vehicle Code are violative of due process
I am in agreement with the holding in Rite Aid Corp. v. Bd. of Pharmacy of State of N.J. (D.N.J. 1976)
Rite Aid contended the statute facially unconstitutional because it requires that pharmacists regulate their business competitors and is unconstitutional as applied to Rite Aid and chain stores in general as independent pharmacists are required to regulate chain store pharmacies. (The court found Rite Aid’s constitutional claims to be without merit.)
Thus, argued Rite Aid, the board members are necessarily biased and can neither be impartial in their regulatory functions nor in adjudicating alleged violations of the pharmacy act by Rite Aid and other non Board-member pharmacists.
The court took notice of Turney v. Ohio (1927)
“It is fundamental that one accused of violating the law is entitled to a fair trial in a fair tribunal. Tumey v. Ohio,
“We do not believe that the Board, consisting as it does of five pharmacists and two lay persons as required by N.J.S.A. 45:14-1, creates a situation of probable bias in the regulation of pharmacists. The claim made by Rite Aid is similar to the argument advanced by the plaintiff in Kachian v. Optometry Examining Board, 44 Wis.2d 1,
“Admittedly, the practice and conduct of a retail pharmacy primarily involves commercial activity in which various retail pharmacies compete for customers. Cf. Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc.,
“Rite Aid, however, argues that Gibson v. Berryhill, supra, and Wall v. American Optometric Association, Inc.,
“In Wall v. American Optometric Association, Inc., supra, the members of the Georgia State Board of Examiners in Optometry were traditionally chosen by the governor from among the members of the Georgia Optometric Association, a private organization which was composed of ‘dispensing’ as contrasted with ‘prescribing’ optometrists. Thus, out of Georgia’s 300 optometrists, only the 200 members of the Association were eligible for appointment to the Board which regulated the practice of optometry. In this circumstance, the district court found that the board members had a substantial pecuniary interest and hence could not be ‘called disinterested in the outcome of plaintiffs’ license revoca ting proceedings.’
“It is clear that both Gibson and Wall involve constitutional attacks addressed not to the face of the statutes involved, but rather to the manner in which they were applied. In neither case did the courts rest their holdings on the fact that mere board membership of individuals in the identical profession as those to be regulated, created a temptation to be biased.
“There is nothing that appears on the face of N.J.S.A. 45:14-1 to indicate the presence of that kind of substantial pecuniary interest which was found to disqualify board members in Gibson and Wall. As in Gibson and Wall, to determine if such an interest exists, we must look to more than the mere words of the statute. Evidence is required. Recognizing that the plaintiffs here attack the statute on both facial and ‘as applied’ grounds, we therefore ordered the taking of evidence to afford the plaintiffs an opportunity to prove, if they could, the existence of the required substantial pecuniary interest. We treat with that argument infra.
*997 “In connection with the instant facial attack, however, we have been shown no basis for us to require the disqualification of board members just by reason of their sharing the same profession as plaintiffs. Nor have we been shown any authority which holds that, as a matter of law, mere self regulation of a profession without more, violates due process. We decline to so hold and therefore reject Rite Aid’s facial argument.” (Fns. omitted.)
In Hortonville Dist. v. Hortonville Ed. Assn. (1976)
The board contends in its closing brief that: “As expressed in a recent law review article: ‘An analysis of the circumstances which permit conclusive presumptions of invalidity [because of the possibility of bias on the part of the decision-maker] indicates that it is the degree of monetary benefit accruing to the decision maker, or the degree of prejudgment, or the degree of previously formulated hostility or animosity which determines whether the decision is to be disregarded because of bias.’ F. Davis, Withrow v. Larkin and the ‘Separation of Functions’ Concept in State Administrative Proceedings, 27 Ad.L.Rev. 407, 409 (1975). Emphasis in original; footnotes deleted, brackets supplied.”
In commenting upon the situation where there is a dealer and manufacturer dispute the majority points to the mandated dealer-board members, and the lack of counter balance in mandated manufacturer members. We must note on this point the appendix A to appellant’s opening brief, a declaration concerning the drafting, negotiations and movement of the legislation creating the board. It declares: [1] “One of the major issues . . . before successful passage was the question of adding manufacturer’s representatives on the . . . Board.” This was declined by their representatives allegedly because it would create potential antitrust liabilities. Thus the majority’s claim that “The evil here lies in the state’s insistence that under all circumstances the adjudicatory deck of cards be stacked in favor of car dealers” is negated. In this dissent I stress the importance of having members on the board with the expertise to understand all aspects of each case before it. Sans such members a board can become an ineffectual group directed in its deliberations and decisions by an executive officer or consultant.
I would reverse the judgment.
Á petition for a rehearing was denied June 15, 1977. Regan, J., was of the opinion that the petition should be granted. Appellant’s petition for a hearing by the Supreme Court was denied August 4, 1977. Bird, C. J., was of the opinion that the petition should be granted.