NISSAN NORTH AMERICA, INC., Appellant V. TEXAS DEPARTMENT OF MOTOR VEHICLES, ET AL., Appellees
No. 06-19-00007-CV
In The Court of Appeals Sixth Appellate District of Texas at Texarkana
On Appeal from the 126th District Court Travis County, Texas Trial Court No. D-1-GN-17-004072
Before Morriss, C.J., Burgess and Stevens, JJ. Opinion by Justice Burgess
Nissan North America, Inc., sought to terminate its 1989 Dealer Sales and Service Agreement (Agreement) with Bates Nissan due to Bates’ poor sales performance and violation of accepted accounting practices. After an administrative hearing, the Board of the Texas Department of Motor Vehicles1 adopted the administrative law judge’s proposal for decision, finding that Nissan failed to establish good cause to terminate the agreement. The 126th Judicial District Court of Travis County affirmed the Board’s order.2
On appeal, Nissan contends that (1) the Board erred in concluding that Bates’ sales performance did not amount to a breach of the Agreement, (2) the Board erred in concluding that Bates did not breach the Agreement by willfully falsifying its tax returns and by knowingly submitting false financial statements to Nissan, and (3) the Board erred by considering evidence of the dealer’s performance after Nissan issued its notice of termination. We affirm the trial court’s ruling.3
I. Statutory Structure and Procedure
The TDMV has the exclusive statutory authority to regulate franchise relationships between dealers and motor vehicle manufacturers, including manufacturers of motor homes. See
(1) administer this chapter [of the Occupations Code]; . . . (3) ensure that the distribution, sale, and lease of motor vehicles is conducted as required by [the Occupations Code] and [B]oard rules; . . . and (5) prevent fraud, unfair practices, discrimination, impositions, and other abuses in connection with the distribution and sale of motor vehicles.
Once a manufacturer and dealer have entered into a franchise agreement, certain requirements must be met for an automobile manufacturer to terminate the agreement.
All contested hearings “must be held by an administrative law judge of the State Office of Administrative Hearings” (ALJ).
In determining whether good cause has been established, the Board shall consider “all existing circumstances,” including the following seven factors:
(1) the dealer’s sales in relation to the sales in the market;
(2) the dealer’s investment and obligations;
(3) injury or benefit to the public;
(4) the adequacy of the dealer’s service facilities, equipment, parts, and personnel in relation to those of other dealers of new motor vehicles of the same line-make;
(5) whether warranties are being honored by the dealer;
(6) the parties’ compliance with the franchise, except to the extent that the franchise conflicts with this chapter; and
(7) the enforceability of the franchise from a public policy standpoint, including issues of the reasonableness of the franchise’s terms, oppression, adhesion, and the parties’ relative bargaining power.
A party may seek judicial review of the Board’s final order.
The court is not bound by the reasons stated in the Board’s order. Tex. Health Facilities Comm’n v. Charter Medical-Dallas, 665 S.W.2d 446, 452 (Tex. 1984). The test is not whether the Board reached the correct conclusion, but whether some reasonable basis exists in the record for the Board’s decision. Tex. Dep’t of Pub. Safety v. Latimer, 939 S.W.2d 240, 244 (Tex. App.—Austin 1997, no writ) (citing Tex. Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 452–53 (Tex. 1984)). An order may not be set aside “merely because testimony was conflicting or disputed or because it did not compel the same factual conclusion made by the agency.” Firemen’s & Policemen’s Civil Serv. Comm’n v. Brinkmeyer, 662 S.W.2d 953, 956 (Tex. 1984). The evidence in the record may even preponderate against the Board’s decision, but the reviewing court must uphold the Board’s decision if there is more than a scintilla of evidence to support the final order. Charter Med.-Dallas, Inc., 665 S.W.2d at 452.
“[O]n questions of law, neither the trial court nor the administrative law judge is entitled to deference on appeal.” Tex. Dep’t of Pub. Safety v. Alford, 209 S.W.3d 101, 103 (Tex. 2006). Even under the substantial evidence standard, questions of law are reviewed de novo. El Paso Nat. Gas Co. v. Minco Oil & Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999); Nobles v. Emps. Ret. Sys. of Tex., 53 S.W.3d 483, 490 (Tex. App.—Austin 2001, no pet.). In a de novo review, the reviewing court conducts a review of the record to make its own legal determinations and conclusions. Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998).
Section 2001.174 of the Texas Government Code states, in relevant part, that a reviewing court
shall reverse or remand the case for further proceedings if 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.
See
It is not clear from the code or caselaw when the Board’s error affects a party’s substantial rights.
Nevertheless, an error is not prejudicial if a remand would amount to “nothing more than ‘a postponement of the inevitable.’” Id. at 15 (quoting 1 Frank Edward Cooper, State Administrative Law, at 403–04 (1965)). This results-focused standard parallels that of Rule 44.1(a) of the Texas Rules of Appellate Procedure, which states, “No judgment may be reversed on appeal on the ground that the trial court made an error of law unless the court of appeals concludes that the error complained of: (1) probably caused the rendition of an improper judgment; or (2) probably prevented the appellant from properly presenting the case to the court of appeals.” TEX. R. APP. P. 44.1(a).5
A. Procedural History
Bates Nissan is the only franchised Nissan dealer in the greater area of Killeen, Texas. Bates has been a franchised dealer for Nissan and its predecessor for more than forty years. At the time of this case, Bates and Nissan were operating under the Agreement and its subsequently incorporated amendments and addendums.
In July 2010, Nissan issued a notice of default stating that Bates had failed to meet its sales obligation under the Agreement. In order to give Bates an opportunity to improve its sales performance, Nissan granted Bates several extensions over the next three years. When Bates’ sales performance did not improve to Nissan’s satisfaction, Nissan issued a notice of termination to Bates on December 23, 2013, informing Bates that Nissan intended to terminate Bates’ franchise because, under Nissan’s Regional Sales Effectiveness (RSE) metric, Bates had breached the Agreement by failing to meet its sales obligations. A year later, Nissan issued a supplemental notice of termination alleging an additional ground that Bates had also willingly falsified its tax returns to the Internal Revenue Service (IRS) and knowingly submitting false financial statements to Nissan. In response, Bates filed protests with the Board.
Bates’ protests were consolidated, and the Board referred the matter to the State Office of Administrative Hearings (SOAH) for a contested hearing. The matter was heard before Administrative Law Judge Craig R. Bennett in Austin, Texas. The administrative hearing concluded on September 24, 2015, and the record was closed on February 8, 2016. The ALJ issued a proposal for decision that recommended that Nissan’s petition for termination be denied because
The Board considered the ALJ’s proposal for decision, Nissan’s exceptions to the proposal, Bates’ response to the exceptions, and the ALJ’s letter in response to the exceptions. The Board issued a final order on June 1, 2017, adopting the ALJ’s findings of fact and conclusions of law, granting Bates’ protests, and denying Nissan’s proposed termination. After Nissan’s motion for rehearing was denied, it petitioned for judicial review. The 126th Judicial District Court of Travis County affirmed the Board’s final order.
B. Issues on Appeal
On appeal, Nissan raises three points of error challenging only the sixth good-cause factor, “the parties’ compliance with the franchise” agreement.
III. Did the Board Err in Concluding that Bates’ Sales Performance Did Not Breach the Dealer Agreement?
In its first point of error, Nissan contends that the Board erred as a matter of law in finding that Bates did not fail to fulfill its sales obligations under the Agreement. Specifically, Nissan argues that the Board erred by failing to use RSE to measure Bates’ compliance with its contractual sales obligations under the Agreement.
A. Bates’ Obligations Under the Agreement
1. The Contract’s Terms
Section 12.B.1 of the Agreement allows Nissan to terminate “[i]f, based upon evaluations thereof made by [Nissan], Dealer shall fail to substantially fulfill its responsibilities with respect to: a. Sales of New Nissan Vehicles and the other responsibilities set forth in Section 3 of this Agreement.” Section 3 governs the dealer’s sales responsibilities. Section 3.A, entitled “General Obligations of Dealer,” provides:
Dealer shall actively and effectively promote through its own advertising and sales promotion activities the sale at retail (and if Dealer elect, the leasing and rental) of Nissan Vehicles to customers located within Dealer’s Primary Market Area. Dealer’s Primary Market Area is a geographic area which Seller uses as a tool to evaluate Dealer’s performance of its sales obligations hereunder.
3.B.1. Achievement of reasonable sales objectives which may be established from time to time by Seller for Dealer as standards for performance;
3.B.2. Dealer’s sales of Nissan Cars and Nissan Trucks in Dealer’s Primary Market Area and/or the metropolitan area in which Dealer is located, as applicable, or Dealer’s sales as a percentage of:
3.B.2.(i) registrations of Nissan Cars and Nissan Trucks;
3.B.2.(ii) registrations of Competitive Vehicles;
3.B.2.(iii) registrations of Industry Cars;
3.B.2.(iv) registrations of vehicles in the Competitive Truck Segment;
3.B.3. A comparison of Dealer’s sales and/or registrations to sales and/or registrations of all other Authorized Nissan Dealers combined in Seller’s Sales Region and District in which Dealer is located and, where Section 3.C applies, for all other Authorized Nissan Dealers combined in the metropolitan area in which Dealer is located; and
3.B.4. A comparison of sales and/or registrations achieved by Dealer to the sales or registrations of Dealer’s competitors.
The sales and registration data referred to in this Section 3 shall be those utilized in Seller’s records or in reports furnished to Seller by independent sources selected by it and generally available for such purpose in the automotive industry. If such reports of registration and/or sales are not generally available, Seller may rely on such other registration and/or sales data as can be reasonably obtained by Seller.
Section 3.A of the Agreement does not directly require Bates to sell cars. Instead, it requires Bates to “actively and effectively promote . . . the sale at retail . . . of Nissan Vehicles to customers located within [Bates’] Primary Market Area” “through its own advertising and sales promotion activities.” Logically, however, effective sales promotions should result in sales. And Section 3.B is entitled “Sales of Nissan Cars and Nissan Trucks.” Therefore, while Section 3.A does not directly require Bates to sell cars, Section 3.B assumes that cars will be sold as a result of Bates’ “advertising and sales promotions.” Accordingly, Sections 3.A and 3.B together indirectly require Bates to sell Nissan vehicles.
Yet, nowhere in the Agreement is there any specific number or percentage of sales that Bates is obligated to achieve.7 Rather, Section 3.B merely provides that Nissan will evaluate “[Bates’] performance of its sales responsibility . . . on the basis of reasonable criteria as [Nissan] may develop from time to time.” Although it provides examples of “reasonable criteria,” Section 3.B leaves room for the existence of other reasonable criteria not named therein.
RSE is not listed as an example in Section 3.B. Nevertheless, Nissan argues that it could use RSE to evaluate Bates’ sales performance because RSE is a “reasonable criteria” under the agreement. Consequently, Nissan argues that the Board erred by failing to use RSE to evaluate
B. Regional Sales Effectiveness (RSE)
RSE8 is a ratio of the regional9 Nissan’s dealers’ average sales penetration and the expected number of Nissan registrations in the dealer’s primary market area (PMA).10 Determining a dealer’s RSE is a multi-step process.11
1. Calculation of RSE
The first step in determining RSE is to determine the regional sales penetration, also referred to as the regional sales average, of Nissan dealers within the region. Penetration is a measure of the total number of sales by Nissan dealers within a particular vehicle segment (small cars, light trucks, etc.) in the region as a percentage of the total number of competitive sales within that same vehicle segment in the region.12 For example, if Nissan dealers are obtaining 15% of all competitive sales within the region, then 15% is the target “sales penetration” factor of the RSE equation.
In the third step of determining RSE, a dealer’s total sales in that segment, regardless of whether they were registered inside or outside of the dealer’s PMA, are compared to the number of expected sales for that segment in order to reach the dealer’s RSE score. For example, if the dealer sold 150 vehicles, then its RSE score would be 100%. An RSE score of 100% means that the dealer performed at the level of an average dealer in that region. Although not specified in the dealer agreement, Nissan “required its dealers to achieve 100% RSE on a rolling twelve-month basis to comply with the Sales Obligation pursuant to Section 3 of the Dealer Agreement,” and Nissan “ranked dealers based on their RSE scores within a particular state, which allowed [Nissan] to assess how a dealer was performing on a relative basis against an even more localized group of peers.”
Here, Bates never reached a cumulative RSE score of 100% at any point from 2007 through August 30, 2013. Bates’ RSE scores from 2007 through August 30, 2013, follow:
| YEAR | RSE SCORE |
|---|---|
| 2007 | 87.1% |
| 2008 | 74.5% |
| 2009 | 81.0% |
| 2010 | 85.2% |
| 2011 | 90.0% |
| 2012 | 79.8% |
| 2013 | 75.0% |
Throughout this time period, Bates’ RSE scores were consistently near the bottom of all Nissan dealerships in Texas. From 2007 through 2012, Bates ranked anywhere from 52nd to 60th out of sixty-three dealerships, and, as of January 2013, Bates was ranked 63rd out of sixty-six Nissan dealers. In fact, “Bates was the lowest-scoring dealer in Texas, based on cumulative RSE percentage, for the time period from 2009 through September 2013.” Based on that poor sales record, Nissan’s notice of termination alleged that Bates had failed to meet its sales obligations under the Agreement.
In September 2013, Bates’ RSE score fell to 70.5%. Bates then hired Kevin Adams to be the new general sales manager. In November 2013, after Adams took over Bates’ sales management, Bates’ RSE rose to 96.7%, and then it rose to 125% in December. “For the rolling 12-month period ending in November 2014, Bates’ RSE score was 102.2%,” and between September 2014 and June 2015, Bates maintained an average RSE score of over 100%. Bates argued that its improved RSE scores ameliorated its prior poor RSE performance. Nevertheless,
C. Administrative Findings and Conclusions
The ALJ ultimately found that Bates did not fail to perform under the Agreement notwithstanding its poor performance under the RSE metric. The ALJ reached this conclusion because he found that RSE was not a reasonable criterion for evaluating Bates’ sales performance as required by Section 3.B of the Agreement.13 The ALJ explained that while the RSE metric was a “reasonable tool to measure and compare [Nissan’s] dealers in regard to their sales,” it was “not an appropriate measurement of Bates’ contractual obligations under Section 3.A of the Dealer Agreement.” The ALJ noted that the sales penetration factor (regional sales average) portion of the RSE equation was “based on all sales (both inside and outside dealers’ PMAs) and the RSE method allow[ed] dealers to achieve their RSE goals by sales outside of their PMA.” And, Nissan acknowledged that approximately one-half of all new Nissan vehicles sold by Nissan dealers were registered outside the selling dealer’s PMA. The ALJ concluded that because the RSE target score was “based on data that include[d] sales outside of their PMAs,” RSE was “not reasonably designed to measure Bates’ sales obligations in Section 3.A and, thus, [would] not establish a violation of such sales obligation.”
The ALJ reasoned that the dealer agreement required “only that Bates focus on customers in its own PMA.” Yet, the ALJ found that a dealer’s RSE target score was “not really tied to sales
Finally, the ALJ noted that in 2012, Bates obtained almost 69% of its RSE target score through sales within its PMA, which was better than the overall weighted average of Texas Nissan dealer’s PMA sales percentage, 65.42%, and higher than the median. For the twelve-month period from October 2012, through September 2013, Bates’ percentage of its target RSE obtained from within its PMA was equal or superior to the two nearest Nissan dealerships, Temple and Waco, and was slightly below the overall weighted average, “but still in the top half of all Nissan dealers in Texas.” Over the same time period, only seven of twenty-six single-point Texas Nissan dealers reached 100% of their target RSE through sales in their PMAs, with Bates being one of the nineteen such dealerships that failed to do so. Based on these findings, the Board ultimately found that “Bates did not fail to fulfill its Sales Obligation under the Dealer Agreement” and concluded that Nissan failed to establish that Bates had “materially breached any of its obligations under the . . . agreement.”
To begin with, we highlight four principles of the Board’s ruling that are pertinent to Nissan’s argument. First, Nissan bears the burden of establishing good cause to terminate the dealer agreement. Second, in determining whether good cause has been established, the Board considers the seven statutory factors set forth in Section 2301.455, subsections (a)(1)–(7).
With these principles in mind, Nissan argues that the Board erred in finding that Bates did not fail to comply with the Agreement. Nissan argues that the unambiguous contract allowed it to use RSE to evaluate Bates’ performance and, because Bates failed to perform under that metric, Bates failed to comply with the Agreement. Nissan further argues that the question of whether Bates complied with the Agreement is a question of law, that the Board’s error is therefore an error of law, and that it was substantially prejudiced by the Board’s error of law. Accordingly, Nissan asks this Court to (1) find that the Board erred as a matter of law in finding that Bates did not fail to comply with the Agreement, (2) reverse the Board’s determination on that statutory factor and hold as a matter of law that Bates failed to comply with the Agreement, and (3) remand the case to the Board with instructions to reweigh the statutory factors in light of our holding that Bates failed to comply with the Agreement as a matter of law. See
1. The Issue of Whether RSE Is a Reasonable Criterion Under Section 3.B Is a Fact Question
Because RSE is not listed as an example in Section 3.B of the Agreement, and because Nissan based its notice of termination on the undisputed fact that Bates failed to meet RSE target scores, resolution of Nissan’s argument turns on whether RSE is a reasonable criterion under Section 3.B for evaluating Bates’ compliance with its obligations under Section 3.A. However, because it determines the standard of review we are to apply in this case, we must first address whether this issue is a question of law or a question of fact.
Nissan argues that the issue before us is a question of law because it involves the interpretation of an unambiguous contract. Specifically, Nissan argues that “under the plain language” of Section 3.B, “the legal question presented to the Board—and that is now presented to this Court on de novo review—is narrow and straightforward: does RSE constitute ‘reasonable criteria’ that Nissan may use to evaluate a dealer’s sales performance under the Dealer Agreement?” Because it believes this is a legal question, Nissan argues that we are to review the Board’s decision de novo, which means we are to give no deference to either the Board’s or the trial court’s decision.
Our research has yielded no Texas case on point. However, Section 3.B of the Agreement provides that Nissan “will evaluate [Bates’] performance of its sales responsibility . . . on the basis of reasonable criteria as [Nissan] may develop from time to time.” The definition of the word reasonable suggests that this provision creates a fact question because it requires a comparison to
It is true that Texas courts have held that when the facts are undisputed and “only one reasonable inference can be drawn from the evidence,” the issue becomes a question of law. State
In this case, the language of the Agreement, the method by which RSE is calculated, Bates’ performance under RSE, and Bates’ sales performance within the PMA are undisputed. On the other hand, even though the conditions upon which reasonableness must be compared are undisputed, we do not find that every objectively reasonable seller in Nissan‘s position would always use RSE under the undisputed circumstances in this case. Therefore, we find that this issue
2. Analysis
The substantial-evidence standard is a limited standard of review requiring only more than a mere scintilla to support an agency‘s finding or determination. Montgomery Indep. Sch. Dist. v. Davis, 34 S.W.3d 559, 566 (Tex. 2000) (citing R.R. Comm‘n of Tex. v. Torch Operating Co., 912 S.W.2d 790, 792–93 (Tex. 1995)). More than a scintilla of evidence to support a finding exists if
The Board found that Section 3.A did not obligate Bates to sell outside of its PMA, a fact supported by the testimony of Nissan‘s own corporate representative. The ALJ determined that RSE was not “reasonably designed to measure Bates‘s sales obligations in Section 3.A,” noting that it was undisputed that the RSE target scores were based on data that included sales outside of the dealer‘s PMA. In light of these findings and the agreement‘s language, the Board evaluated Bates’ sales performance based on its sales within its PMA, a methodology “based on the evidence presented during the hearing process.”18 The Board found that Bates’ sales within its PMA were average among Texas Nissan dealers. Based on those findings, the Board determined that Bates did not fail to fulfill its obligations under Section 3.A of the agreement. Nissan does not challenge these findings, and “when a court‘s findings of fact go unchallenged, such findings become undisputed facts binding on all parties.” Des Champ v. Featherston, 886 S.W.2d 536, 541–42 (Tex. App.—Austin 1994, no writ). Therefore, the Board‘s conclusion that Bates did not violate the Agreement is supported by substantial evidence.19
3. The Agreement Requires More Than a Failure to Perform Under Section 3.B‘s Reasonable Criteria in Order to Allow for Termination of the Dealer Agreement.
Finally, we note that even if it could be said that the issue before us was a question of law and that the Board erroneously concluded that RSE was not a reasonable criterion under Section 3.B, as a matter of law—and even though it is undisputed that for the years 2007–2013, Bates performed poorly under the RSE metric—nothing in the dealer agreement provides that the failure to adequately perform under Section 3.B‘s reasonable criteria is, by itself, grounds for termination of the contract. Rather, Section 12.B.1.a states,
Termination by Seller for Non-Performance by Dealer. (1) If, based upon the evaluations therefor made by Seller, Dealer shall fail to substantially fulfill its responsibilities with respect to: (a) Sales of new Nissan Vehicles and the other responsibilities of Dealer set forth in Section 3 of this Agreement . . . Seller will notify Dealer of such failure and will review with Dealer the nature and extent of such failure and the reasons which, in Seller‘s or Dealer‘s opinion, account for such failure. Thereafter, Seller will provide Dealer with a reasonable opportunity to correct the failure. If Dealer fails to make substantial progress towards remedying such failure before the expiration of such period, Seller may terminate this Agreement by giving Dealer notice of termination . . . .
(emphasis added).
The sale of new cars is but one of the responsibilities of Section 3. Section 3 also requires Bates to (1) “engage in used motor vehicle operations as and to the extent reasonably required for Dealer to effectively perform its responsibilities for the sale of Nissan Vehicles,” (2) “organize
In its second point of error, Nissan contends (1) that the Board erred as a matter of law in concluding that Bates’ accounting practices did not breach Sections 12.A.9 and 12.A.10 of the Agreement because Bates willfully falsified its tax returns and knowingly submitted false financial statements to Nissan and (2) that those errors of law impacted the Board‘s analysis of the sixth good-cause factor. See
A. Did Bates Knowingly File Falsified Tax Returns to the IRS?
1. Background
Bobby Bates, seeking to lower Bates’ annual taxable income to $75,000.00, asked the company‘s tax preparer if the company could adjust, or “write-down,” the value of its vehicle inventory based on the Lower of Cost or Market (LCM) accounting methodology. The preparer told him that he did not know of any reason why Bates could not do so. Thus, between 2009 and 2013, Bates annually adjusted the value of its vehicle inventory on its thirteenth-month financial statements, creating the appearance of a loss on the vehicles and lowering Bates’ taxable income. The next year, when the vehicles were sold, Bates would recapture the write-down as additional profit.
On February 13, 2015, after having received Nissan‘s amended notice of termination alleging that Bates’ accounting practices violated the agreement, Bates notified the IRS that it had improperly used the LCM accounting practice and proposed to correct the improperly taken write-downs and pay, over the ensuing four tax periods, the appropriate back taxes that would have been due had the LCM accounting method been applied properly. The IRS accepted Bates’ proposal,
2. Nissan‘s Argument
Section 12.A.9 of the Agreement provides that Nissan may terminate the agreement for
any willful failure of Dealer to comply with the provisions of any laws, ordinances, rules, regulations, or orders relating to the conduct of its Dealership Operations including, without limitation, the sales and servicing of Nissan Products.
Nissan argues that the Board erred as a matter of law in concluding that Bates did not breach Section 12.A.9 of the Agreement because Bates willfully submitted falsified tax returns. Specifically, Nissan contends that by arbitrarily writing down the value of its vehicle inventory, Bates‘s tax returns violated
Specifically, Nissan notes that section 17.F of the Agreement provides that “[A]ll questions concerning the interpretation . . . of any of [the Agreement‘s] terms or provisions . . . shall be governed by . . . the . . . laws of the State of California.” Nissan then notes that under California civil law, “willful”
does not necessarily imply anything blamable, or any malice or wrong toward the other party, or perverseness or moral delinquency, but merely that the thing done or omitted to be done was done or omitted intentionally. It amounts to nothing more than this: That the person knows what he is doing, intends to do what he is doing, and is a free agent.
Ibrahim v. Ford Motor Co., 263 Cal. Rptr. 64, 74 (Cal. Ct. App. 1989) (internal quotation marks omitted) (citations omitted); Baker v. Am. Horticulture Supply, Inc., 186 Cal.App.4th 1059, 1074–75 (2010). Using the California interpretation of “willful,” Nissan argues that Bates violated
Nevertheless, the ALJ and the Board found that Texas law applied to this case, and under Texas law, the term “willfully” required proof that Bates acted “with evil intent or legal malice or without reasonable ground believing the act to be lawful.” See Pretzer v. Motor Vehicle Bd., 125 S.W.3d 23, 33 (Tex. App.—Austin 2003), overruled in part on other grounds by Pretzer v. Motor Vehicle Bd., 138 S.W.3d 908 (Tex. 2004); see also City of Baird v. W. Tex. Utils. Co., 145 S.W.2d 965, 968 (Tex. App.—Eastland 1940), writ dism‘d, 148 S.W.2d 392 (Tex. 1941) (holding that willful in penalty statute means “with evil intent“); Moore v. Moore, 142 S.W.2d 270, 272 (Tex. App.—Beaumont 1940, no writ) (holding that willful means “not only with an evil intent and malice but . . . a set purpose and design“). Nissan contends that the Board made an error of law by applying the Texas definition of willful. We disagree.
3. Analysis
B. Did Bates Provide False or Fraudulent Financial Information to Nissan?
1. Nissan‘s Argument
Bates prepared a thirteenth-month financial statement that reflected the vehicle write-downs. The ALJ‘s proposal for decision provided the following example of how the adjustments were made using the thirteenth-month financial statement:
Nissan argues that the Board erred as a matter of law in concluding that Bates did not breach section 12.A.10 of the Agreement because Bates knowingly submitted fraudulent and/or false financial statements to Nissan. Section 12 of the agreement provides that Nissan may terminate the agreement in the event of a “[k]nowing submission by Dealer to Seller of: (i) a false or fraudulent report or statement; . . . (iii) false financial information; [or] (iv) false sales reporting data . . .” Accordingly, Nissan contends that because the thirteenth-month statements were not submitted to Nissan, it did not know of the write-down adjustments and, therefore, “all subsequent financial statement[s] submitted by Bates to Nissan failed to reflect Bates‘s true financial condition.”
2. Analysis
The unchallenged findings of fact defeat Nissan‘s arguments. Nissan‘s claim that Bates sent it false statements fails because the Board found that there was “no evidence that any financial statements submitted by Bates to [Nissan] were actually false.”21 Nissan‘s fraud claim also fails. Fraud requires the making of a false statement with intent to induce detrimental reliance resulting
V. Did the Board Err in Considering Evidence of Bates’ Sales Performance After the Notice of Termination Was Sent?
The Board‘s findings of fact also included the following findings regarding Bates’ sales performance after the notice of termination was issued:
- Beginning in November 2013, Bates’ sales performance dramatically improved when it hired Kevin Adams to be the new general sales manager.
- In September 2013, immediately prior to hiring Mr. Adams, Bates had been at 70.5% RSE.
- After hiring Mr. Adams, Bates went to 96.7% RSE in November 2013, and then to 125% RSE in December 2013, the same month the [notice of termination] was issued.
- For the rolling 12-month period ending in November 2014, Bates’ RSE score was 102.2%.
In its final point of error, Nissan contends that the Board erred in considering evidence of events that occurred after Nissan issued its notice of termination in December 2013 and that reversal is necessary even if the Board properly considered the post-notice evidence.
Initially, Bates and the Board contend that Nissan failed to preserve this point of error because it failed to specifically challenge the findings of fact relating to Bates’ sales performance after Nissan issued the notice of termination. We disagree.
In order to appeal from the Board‘s decision, Nissan was required to file a motion for rehearing.
Here, Nissan‘s motion for rehearing did not challenge the four findings of fact, but it did challenge the Board‘s legal conclusion that it could consider Bates’ post-notice sales performance. The motion argued that the proposal for decision “incorrectly conclude[d] that all existing circumstances [under Section 2301.455(a)] include[d] all information available to the Board at the time it ma[de] it[s] decision.” The motion cited the appropriate pages from the ALJ‘s proposal where the conclusion was made as well as supporting legal argument. Because Nissan is challenging a conclusion of law that was raised in its motion for rehearing, this point of error was preserved for our review.
B. Did the Board Err in Construing the Statute?
[T]he Board should make its determination based on all of the evidence in the record, and this includes any information that bears on the dealership‘s performance at any time, including after the notice of termination has issued . . . . The statute does not set out a specific time period to consider, but requires the Board to consider “all existing circumstances.” Given this language, the ALJ does not find the inquiry is limited to the information available to [Nissan] or to the time period prior to the notice of termination. Rather, the inquiry should include all information available to the Board at the time it makes a final decision . . . ,[thereby] giving the Board a better factual basis from which to make a decision.
Because
While most issues in the judicial review of an administrative agency‘s decision are reviewed under the substantial evidence standard, statutory construction is generally a question of law that is reviewed de novo. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 357 (Tex. 2000); El Paso Nat. Gas Co. v. Cinco Oil & Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999). “[I]t is cardinal law in Texas that a court construes a statute, first, by looking to the plain and common meaning of the statute‘s words.” Houston Mun. Emp. Pension Sys. v. Abbott, 192 S.W.3d 862, 864 (Tex. App.—Texarkana 2006, pet. denied). “If the meaning of the statutory language is
An “agency‘s construction of a statute that it is charged with enforcing is entitled ‘to serious consideration by reviewing courts, so long as that construction is reasonable and does not contradict the plain language of the statute.‘” Tex. Orthopaedic Ass‘n v. Tex. State Bd. of Podiatric Med. Exam‘rs, 254 S.W.3d 714, 719 (Tex. App.—Austin 2008, pet. denied) (quoting Emps. Ret. Sys. v. Jones, 58 S.W.3d 148, 151 (Tex. App.—Austin 2001, no pet.)). An agency‘s reasonable construction “is entitled to great weight.” Osterberg v. Peca, 12 S.W.3d 31, 51 (Tex. 2000). However, courts may give less deference to an agency‘s reading of a statute when legislative intent is at issue rather than the application of technical or regulatory matters within the agency‘s expertise. Flores v. Emps. Ret. Sys. of Tex., 74 S.W.3d 532, 545–46 (Tex. App.—Austin 2002, pet. denied).
Nissan contends that the Board should have only considered the “circumstances that existed at the time Nissan issued its Notices of Termination in this Case.” Nissan argues that the phrase “all existing circumstances” must be read in conjunction with
In Ford Motor Co. v. Motor Vehicle Board, the Board found, in part, that the manufacturer had shown good cause to terminate the franchise agreement with the dealer, and the dealer sought judicial review, arguing, in part, that the Board “abused its discretion by ordering termination for good cause in the absence of evidence that [the dealer] may not perform well as a dealer in the future.” Ford Motor Co. v. Motor Vehicle Bd., 21 S.W.3d 744, 758 (Tex. App.—Austin 2000, pet. denied). The Austin Court of Appeals affirmed the termination, finding that a consideration of “existing circumstances” included an evaluation of “the dealer‘s past and current performance with regard to sales, service, warranties, and compliance with franchise agreements,” but did not include “a speculative evaluation of what kind of relationship a manufacturer and dealer might have in the future.” Id. at 759 (emphasis added) (interpreting “existing circumstances” under
In Sweeten Truck Center, L.C. v. Volvo Trucks, North America, the agreement between Volvo and its dealer, Sweeten, designated twenty-four counties as Sweeten‘s geographic area of
On appeal, Sweeten argued, in part, that the phrase “all existing circumstances” meant that the Board had to give greater weight to “currently existing circumstances” and that the Board prejudiced its substantial rights by placing greater weight on its past sales and service performance from the pre-notice years 2009 through 2013, as opposed to its most recent, post-notice performance evidence from 2014. Id. at *2. The Austin Court of Appeals noted that the consideration of several of the good-cause factors, including sales in relation to sales in the market, would necessarily require a compilation of data likely spanning years and that the Board had properly considered both the historical data and the most recent data. Id. The court stated that if it were to adopt Sweeten‘s interpretation, a dealer could nearly always avoid a franchise modification by making improvements only after receiving notice from the manufacturer. Id. at *3.
The Austin court stated, “In addition, even if we were to accept Sweeten‘s statutory construction, Sweeten has not shown that the Board failed to consider the recent data, only that the
Nissan argues that if the Board is permitted to consider a dealer‘s post-notice performance, it would invoke the very statutory interpretation rejected by the court in Sweeten. However, Nissan misunderstands the holding in Sweeten. See Sweeten, 2016 WL 4979826, at *2–3. In Sweeten, the court rejected the statutory interpretation that the most recent evidence had to be given greater or conclusive weight, an argument that is not present in this case. Id. Here, as in Sweeten, the Board considered evidence of the dealer‘s post-notice performance, and it was entirely up to the Board how much weight to give that evidence. Id. at *1.
In this case, the Board‘s interpretation of the phrase “all existing circumstances” comports with the plain language of the statute and does not contradict the legislative intent. See
Nissan contends that even if the Board properly considered Bates’ post-notice sales performance, the Board‘s decision must be reversed because the ALJ‘s proposal for decision “makes clear that any ‘improved’ performance by Bates cannot excuse its years of poor performance.” Specifically, Nissan argues that the following two sentences in the proposal require this Court to reverse the Board‘s decision:
That a dealership may have improved its performance and met standards after being given notice of intended termination should not excuse many years of past poor performance by the dealership.
. . . .
[T]he ALJ disagrees that Bates’ improved performance, beginning in November 2013, ameliorated its prior poor RSE performance.
However, when the sentences are read in context, it is clear that they do not mean what Nissan argues they mean.
The first sentence, italicized below, was made in a discussion of “the relevant time period“—whether the ALJ would consider evidence of Bates’ post-notice sales performance:
In considering all relevant information, though, the ALJ does not believe that more recent performance information is necessarily entitled to more weight. Instead, it is simply additional information for the Board to consider when evaluating all circumstances. That a dealership may have improved its performance and met standards after being given notice of intended termination should not excuse many years of past poor performance by the dealership. While the Board may consider such improved performance, such consideration would not necessarily preclude good cause for termination or modification of the franchise. Rather, all existing circumstances should be considered—and those existing circumstances include the dealership‘s sales and service history before any recent performance improvements. Therefore, the ALJ makes his recommendation based upon all of the existing information and circumstances as demonstrated in the evidentiary record.
The second statement, italicized below, occurred near the end of the ALJ‘s analysis of RSE and states, in full:
As a final note in this section, the ALJ disagrees that Bates’ improved performance, beginning in November 2013, ameliorated its prior poor RSE performance. NNA had given it numerous chances to improve its performance and, at the time NNA issued the NOT in December 2013, the most updated information available showed Bates to still be poorly performing under the RSE methodology. Thus, Bates had not cured its poor RSE performance at the time the NOT issued in December 2013. Although the ALJ concludes that RSE performance is not an appropriate measurement of Bates’ contractual obligations under Section 3.A of the Dealer Agreement and thus Bates’ improved performance is inconsequential in this section--the RSE performance (including Bates’ improvement) is a factor the Board may consider in determining all existing circumstances in this case. But, the ALJ finds it is not a basis for concluding that Bates either violated or cured a contractual violation of Section 3.A of the Dealer Agreement. Now, the ALJ turns to the other justification for termination proffered by NNA.
The sentence was a response to Bates’ argument to the ALJ that its “improved performance, which began before the [notice of termination] was issued, cured any deficiencies in its prior performance and should prevent the franchise from being terminated.” Furthermore, the context of the sentence makes clear that, while the Board could consider the improved sales, Bates’ improved RSE scores were irrelevant because RSE was not an appropriate measure of whether
VI. Conclusion
For all of the foregoing reasons, we affirm the trial court‘s judgment.
Ralph K. Burgess
Justice
Date Submitted: September 6, 2019
Date Decided: November 22, 2019
Notes
Nissan also cites to cases from Wisconsin, Florida, Ohio, Michigan, New Hampshire, and California, arguing that other jurisdictions have held that the agreement permits the use of RSE as a reasonable criterion for evaluating a dealer‘s performance. Though we can look to other jurisdictions for guidance, the courts of Texas are not bound by a foreign court‘s construction of a contract or factual findings. See Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 295–97 (Tex. 1993) (holding that Texas courts are only obligated to follow decisions by higher Texas courts and the United States Supreme Court).