Lead Opinion
OPINION
Brett Bray, Director of the Motor Vehicle Division of the Texas Department of Transportation (“the Division”), and Gulf States Toyota, Inc. (“Gulf States”) appeal a trial court judgment reversing the Division’s final order in a motor vehicle franchise dispute and remanding to the agency for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
Gulf States is a licensed Toyota distributor. Tejas, which is located in Humble, Texas, has been a Toyota dealer and Gulf States franchisee since 1975. Gulf States’ business model is based on two-year franchise agreements with its dealers; when the old franchise agreement expires, Gulf States offers a new one. The dispute in this case arose when Gulf States offered Tejas a replacement franchise agreement, which renewed the agreement for an additional two years on substantively identical terms.
Instead of executing the replacement franchise agreement, Tejas filed an administrative complaint pursuant to sectiоn 2801.454 of the Texas Occupations Code concerning seven provisions in the replacement agreement.
Four of the provisions at issue explicitly or implicitly employ a sales-performance standard requiring Tejas to achieve 100% sales efficiency, which Tejas contends is unreasonable as a matter of law.
Although Tejas apparently has never achieved 100% sales efficiency under either its current or former general managers and Tejas had not previously disputed the propriety of the challenged provisions, the change in circumstances that Tejas cites is that Gulf States had communicated its intent to enforce its contractual right to revoke conditional approval of Elrod as Tejas’s general manager even though Te-jas has been considerably mоre profitable under Elrod’s leadership than it has ever been. Under both the prior and replacement franchise agreements, Gulf States conditionally approved Elrod as Tejas’s general manager with final approval contingent on Elrod’s successful completion of Gulf States’ General Manager Evaluation Program (“GME Program”). Although
When it became apparent that Elrod would not successfully complete the GME Program and that he would not be offered any additional opportunities to do so,
It is undisputed that Gulf States did not provide the notice specified in section 2301.454, but Gulf States and the Division contend that notice is not required unless the “replacement [franchise] would adversely affect to a substantial degree the dealer’s sales, investment, оr obligations to provide service to the public” and the notice threshold was not triggered in this case because there was no change between the prior franchise agreement and the replacement franchise agreement. According to Gulf States, there cannot be a substantial adverse effect on the dealer if the provisions of the new franchise agreement are identical or functionally identical to the prior franchise agreement because the pri- or agreement remains in effect until terminated in accordance with statutory requirements, voluntarily terminated by the dealer, modified or replaced by agreement of the parties, or modified or replaced following an unsuccessful protest under section 2301.454, none of which occurred in this case.
The administrative law judge (ALJ) concluded that Gulf States was required to provide statutory notice and failed to establish good cause for the contested provisions in the replacement contract. See id. § 2301.454. According to the ALJ, “a wholesale replacement of the agreement implicates every aspect of the relationship, including the dealer’s sales, investment
The Division adopted the ALJ’s recommendation regarding disposition of the good faith and fair dealing claim, but concluded that Gulf States did not violate section 2301.454’s notice requirement because there was no substantive variance in the terms gоverning the franchise relationship and thus no substantial adverse effect as a matter of law. The Division, therefore, did not consider whether there was good cause for replacing the prior franchise agreement with the proposed agreement.
After exhausting its administrative remedies, Tejas filed a suit for judicial review contesting the Division’s resolution of both the notice claim and the good faith and fair dealing claim. After a hearing, the trial court issued a letter in which it addressed only the portion of the Division’s order concerning the requirement of statutory notice. The court determined that the Division incorrectly interpreted and applied the nоtice requirement in section 2301.454 and held that the statutorily prescribed notice is required whenever a franchise agreement is replaced, regardless of whether there is a change in terms. The court also held that an administrative hearing must be held to determine whether a replacement franchise agreement adversely affects the dealer to a substantial degree, whether good cause exists for the proposed replacement franchise, and whether any provision of the replacement franchise is unlawful. The court directed Tejas to prepare an order reflecting the court’s ruling and remanding the case to the agency for further proceedings. The court did not discuss Tejas’s good faith and fair dealing claim in the letter. In response, Tejas proposed a final judgment that summarized the court’s proposed ruling on the notice issue, but did not refer to the good faith and fair dealing claim. The trial court signed the proposed judgment, with modifications, but did not add an express disposition of the good faith and fair dealing claim. The absence of an express ruling on the good-faith claim was not brought to the trial court’s attention in any manner ascertainable from the record.
On appeal to this Court, the Division and Gulf States reassert that there must be an actual change between the existing franchise agreement and the replacement franchise agreement in order for the provisions of section 2301.454 to apply and that the trial court erred in concluding otherwise. In a cross-appeal, Tejas complains that the trial court “neglected” to rule on its point of error complaining that the Division evaluated its good faith and fair dealing claim under an erroneous legal standard. Tejas therefore brings that point of error forward for disposition by this Court.
DISCUSSION
Standard of Review
The issues in this case principally concern matters of statutory construction, which is a question of law that we review de novo. First Am. Title Ins. Co. v. Combs,
Statutory Notice Requirement
For the reasons that follow, we conclude that section 2301.454 of the Texas Occupations Code does not require that notice of a right to protest be given to a franchisee, nor good cause established, unless a modification to a franchise agreement or a replacement agreement would adversely affect to a substantial degree the dealer’s sales, investment, or obligations to provide service to the public. We conclude that if there is no substantive difference between the replacement contract and the replaсed contract, there is no substantial adverse effect as a matter of law.
Section 2301.454 provides:
(a) Notwithstanding the terms of any franchise, a manufacturer, distributor, or representative may not modify or replace a franchise if the modification or replacement would adversely affect to a substantial degree the dealer’s sales, investment, or obligations to provide service to the public, unless:
(1) the manufacturer, distributor, or representative provides written notice by registered or certified mail to each affected dealer and the department of the modification or replacement; and
(2) if a protest is filed under this section, the board approves the modification or replacement.
(b) The notice required by Subsection (a)(1) must:
(1) be given not later than the 60th day before the date of the modification or replacement; and
(2) contain on its first page a conspicuous statement that reads: “NOTICE TO DEALER: YOU MAY BE ENTITLED TO FILE A PROTEST WITH THE TEXAS MOTOR VEHICLE BOARD IN AUSTIN, TEXAS, AND HAVE A HEARING IN WHICH YOU MAY PROTEST THE PROPOSED MODIFICATION OR REPLACEMENT OF YOUR FRANCHISE UNDER THE TERMS OF CHAPTER 2301, OCCUPATIONS CODE, IF YOU OPPOSE THIS ACTION.”
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(d) After a protest is filed, the board shall determine whether the manufacturer, distributor, or representative has established by a preponderance of the evidence that there is good cause for the proposed modification or replacement. The prior franchise continues in effect until the board resolves the protest.
Tex. Occ.Code Ann. § 2301.454 (emphasis added). It is undisputed that this case involves a replacement franchise agreement and not a modification to a franchise agreement. It is further undisputed that there is no substantive difference between the prior franchise agreement and the replacement agreement and that Gulf States did not give the notice specified in section 2301.454(b). The ALJ concluded that, unlike a modification, a replacement fran-
Following the grammatical structure of the statute, the “if’ clause introduces a condition to or limitation on a distributor’s ability to replace or modify an existing franchise and the “unless” clause provides an exception to the condition. The exсeption provided in the “unless” clause — notice required and successful outcome to any protest — is not triggered unless the condition stated in the “if’ clause applies. Under the trial court’s and ALJ’s interpretation, however, the exception provided in the “unless” clause becomes the rule in all cases, thus rendering the “if’ clause meaningless. A cardinal rule of statutory construction is that the legislature is never presumed to do a useless or meaningless act. Hunter v. Fort Worth Capital Corp.,
Tejas contends, and the trial court agreed, that notice is made mandatory by the “must” language in subsection (b) of the statute. We disagree. Subsection (b) is mandatory and directory, but it is expressly implicated only if notice is required under subsection (a)(1). As previously explained, however, subsection (a)(1) is only triggered if the condition stated in the preceding “if’ clause is satisfied, and in this case it is not.
The trial court and the ALJ seemed concerned that mischief could occur if distributors were given discretion to subjectively determine whether a modification or replacement would have a substantial adverse effect before giving statutory notice and triggering a good cause inquiry. But the plain language of the statute necessarily contemplates such discretion, and the discretionary nature of the triggering determination is even more evident when the language in section 2301.454 is compared to the language in section 2301.453, which governs termination or discontinua
Moreover, the term “franchise” is broadly defined, and, given that breadth, it is unlikely that the legislature intended to invite challenges to a franchise, in whole or part, every time a word or punctuation is changed in the governing documents.
Tejas also complains, and the trial court agreed, that thе Division’s construction of section 2301.454 was inconsistent with its decision in Texas Department of Transportation (Motor Vehicle Division), Star Houston, Inc. d/b/a Star Motor Cars, Inc. v. Mercedes-Benz USA, LLC, Docket No. 02-0028-LIC (July 10, 2008). We conclude, however, that the Star case is distinguishable on its facts because it involved significant substantive changes to the ex
Because there is no substantive difference between the existing franchise agreement and the replacement agreement, we hold that as a matter of law the replacement agreement does not substantially adversely affect Tejas and that Gulf States therefore did not violate section 2301.454. In reaching this conclusion, we also note that franchisees are not without remedies if a distributor proposes a change and fails to give statutory notice after erroneously determining that there would be no substantial adverse effect on the dealer. In such a case, the statute of limitations for challenging a modificatiоn or replacement would be extended from sixty days to four years. See Tex. Occ.Code Ann. §§ 2301.454(c), .7025(b) (West 2004). Furthermore, if a distributor attempted to enforce terms of a franchise that violated statutory provisions, the dealer could file an administrative complaint challenging that distributor’s actions. Among the provisions that may be relevant in this case, but which have not been asserted, are prohibitions against requiring adherence to unreasonable sales or service standards, id. § 2301.467 (West Supp.2011), and discrimination based on the use of a formula used to gauge dealership performance. Id. § 2301.468 (West Supp.2011). Both of these provisions expressly apply regardless of what thе franchise agreement may otherwise allow.
Breach of the Duty of Good Faith and Fair Dealing
By cross-appeal, Tejas complains in a single issue that the Division applied an erroneous standard in evaluating its claim that Gulf States breached the statutory duty of good faith and fair dealing. Section 2301.478 of the occupations code states that “[ejach party to a franchise owes to the other party a duty of good faith and fair dealing that is actionable in tort.” Id. § 2301.478. Tejas claims that Gulf States violated section 2301.478 as a matter of law by proposing franchise terms that rely on sales-performance standards it contends are unreasonable or unfair as a matter of law. In denying Tejas’s сlaim under section 2301.478, the Division adopted the ALJ’s determination that “bad faith is not simply bad judgment or negligence, but the conscious doing of a wrong for a dishonest, discriminatory or malicious purposed and] [t]he record is devoid of evidence that would justify the conclusion that [Gulf States] acted in such a manner.” (Citation omitted.) Tejas contends that, in doing so, the Division ignored relevant Texas Supreme Court precedent establishing the common-law definition of good faith and fair dealing and improperly limited the scope of inquiry to “bad faith” without considering any aspect of “fair dealing.”
The trial court did not expressly rule on Tejas’s good faith and fair dealing claim. Insteаd, the trial court signed a final judgment that stated it disposed of all claims and all parties, but only expressly ruled on the notice issue. See Lehmann v. Har-Con Corp.,
Tejas’s sole issue on cross-appeal is overruled.
CONCLUSION
For the reasons stated, we reversе the trial court’s judgment and affirm the Division’s order in all respects.
Concurring opinion by Justice HENSON.
Notes
.Although the Division issued the administrative order on appeal in this cause, the legislature transferred the Division’s functions to the newly created Texas Department of Motor Vehicles ("the Department”), effective November 1, 2009. See Act of May 18, 2009, 81st Leg., R.S., ch. 933, § 6.01(a), 2009 Tex. Gen. Laws 2485, 2519; see also Tex. Occ. Code Ann. § 2301.005 (West Supp.2011). The trial court therefore remanded the case to the Department. For convenience, and to avoid confusion, references to "the Division” or "the agency” shall also include the Department and vice versa.
. In this opinion, we cite to the current versions of the statutes for convenienсe because there have been no intervening amendments that are material to our disposition of this appeal.
. Tejas originally challenged eight provisions in the replacement agreement, but abandoned its challenge to one provision with which it was already complying.
. Tejas concedes that five of the provisions are verbatim replicas of provisions in the pri- or agreement, one provision has minor changes, and another provision is substantively indistinguishable from the predecessor provision.
. Sales efficiency is a function of expected sales of Toyota vehicles in the dealer's Primary Market Area ("PMA”) compared to a dealer's actual sales. In determining sales efficiency, the dealer’s actual sales, regardless of whether the vehicles are ultimately registered to owners in the dealer’s PMA or sold for use elsewhere, make up the numerator of the sales efficiency ratio. The denominator is determined by multiplying all new vehicle registrations in the PMA (regardless of vehicle brand) by Toyota’s five-state regional market share. Thus, if Toyota has a 20% regional market share and 1,000 cars of any brand are sold into Tejas’s PMA, Tejas’s expected sales would be 200 cars, and for Tejas to satisfy its sales performance objectives, it would have to sell at least 200 cars (200 actual sales / 200 expected sales = 100% sales efficiency). In a PMA with more vehicle registrations, a dealer servicing that area would have to sell more cars to achieve sales efficiency, and in a PMA with fewer registrations, the sales objective could be met with fewer sales. The regional market share, however, is determined without regard to differences in local markets.
. Although not argued in this case, it is uncertain whether it would be permissible for Gulf States to revoke conditional approval of Elrod under the terms of the replacement agreement, which if executed renews conditional approval of Elrod, givеs him until the end of the new two-year contract term to successfully complete the GME Program, and gives Tejas until the end of the agreement to achieve 100% sales efficiency. Gulf States' indication that Elrod will be given no further opportunities to complete the program could be inconsistent with the express terms of the new agreement.
. The occupations code has additional provisions expressly directed to unreasonable or discriminatory use of sales standards, but those provisions are not at issue in this case. See Tex. Occ.Code Ann. §§ 2301.467 (prohibiting distributors from requiring adherence to unreasonable sales or service standards), .468 (prohibiting distributors from treating dealers differently based on formula, computation, or process intended to gauge dealership performance) (West Supp.2011).
. See Tex. Occ.Code Ann. §§ 2301.453 (West 2004) (providing that, notwithstanding any contract provisions to contrary, franchise agreement cannot be terminated absent nonce and good cause); .454 (West 2011) (providing that prior franchise continues in effect until protest to modification or replacement contract is resolved).
. " ‘Franchise’ means one or more contracts between a franchised dealer as franchisee and a manufacturer or a distributor as franchisor, including a written communication from a franchisor tо a franchisee in which a duty is imposed on the franchisee, under which:
(A) the franchisee is granted the right to sell and service new motor vehicles manufactured or distributed by the franchisor or only to service motor vehicles under the contract and a manufacturer’s warranty;
IB) the franchisee is a component of the franchisor’s distribution system as an independent business;
(C) the franchisee is substantially associated with the franchisor’s trademark, trade-name, and commercial symbol;
(D) the franchisee’s business substantially relies on the franchisor for a continued supply of motor vehicles, parts, and accessories; or
(E) any right, duty, or obligation granted or imposed by this chapter is affected.” Tex. Occ.Code Ann. § 2301.002(15) (West Supp. 2011).
. In its briefing to this Court, Tejas conceded that the trial court’s judgment impliedly denied its good-faith claim.
. In any event, it is questionable whether the statutory duty of good faith and fair dealing would extend to acts of contract formation like those at issue in this case. See Ronald J. Scalise Jr., Why No "Efficient Breach” in the Civil Law?: A Comparative Assessment of the Doctrine of Efficient Breach of Contract, 55 Am. J. Comp. L. 721, 723 n. 13 (2007) ("Unlike the European conception of good faith in contracts, the American idea does not apply to the contract formation stage.”) (citing the Restatement (Second) of Contracts § 205, cmt. c and Uniform Commercial Code § 1-203). In accordance with the statute, thе duty is owed to "[ejach party to a franchise.” Tex. Occ.Code Ann. § 2301.478 (West 2009). A "franchise” is "one or more contracts between a franchised dealer as franchisee and a manufacturer or a distributor as franchisor....” Id. § 2301.002(15) (West Supp. 2011). Therefore, the duty, by its terms, appears to apply only to the performance and enforcement of an existing contract. Construing the statute in this way would be consistent with the Uniform Commercial Code, which similarly governs commercial business transactions and imposes a duty of good faith and fair dealing in the performance and enforcement of a contract or a statutory duty. See Tex. Bus. & Comm.Code Ann. §§ 1.201 (definition of "good faith”), .304 (duty of goоd faith) (West 2009); accord Restatement (Second) of Contracts § 205 (1981) ("Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”).
Concurrence Opinion
concurring.
I concur in the judgment and reasoning of the majority opinion, with the exception of the discussion of the statutory duty of