Termination of Car Dealership Franchise Agreement In Texas

The purpose of the Motor Vehicle Commission Code is to insure a sound system of distributing and selling motor vehicles through licensing and regulating manufacturers and dealers of those vehicles in order "to prevent frauds, unfair practices, discriminations, impositions, and other abuses" that threaten the public interest, the economy of this State, and the welfare of this State's citizens. Tex. Rev. Civ. Stat. Ann. art. 4413(36), 1.02. The Board is charged with conducting the policy-making and regulatory functions and duties imposed by the Code. See id. The Board thus regulates the contractual relationship between new vehicle manufacturers and dealers who sell and service the new vehicles pursuant to the terms of franchise agreements. See id. 1.03(14), 5.02. In deciding whether to license a vehicle dealership, the Board considers many factors, including the competitiveness of the marketplace, the fitness of the applicant's character, and the public interest. See id. 4.06. Vehicle manufacturers are prohibited from terminating or refusing to continue any franchise with a dealer unless certain conditions are met. See id. 5.02(b)(3)(A). A manufacturer seeking to terminate or refuse to continue a franchise must provide its franchisee dealer with written notice not less than 60 days before the effective date of termination or noncontinuance setting forth the specific grounds for termination or noncontinuance and informing the dealer that he may be entitled to file a protest with the Board. See Tex. Rev. Civ. Stat. Ann. art. 4413(36), 5.02(b)(3)(A)(i)-(iii). If the affected dealer files a timely protest, the Board is charged with holding a contested case hearing to determine whether the franchisor has established by a preponderance of the evidence that there is good cause for the proposed termination or noncontinuance. See id. 5.02(b)(3)(A)(iv). In determining whether good cause has been established for "modifying, replacing, terminating, or refusing to continue a franchise, or for forcing or attempting to force a dealer to relocate or discontinue a line-make or parts or products related to that line-make," the Board must consider "all the existing circumstances," including: (A) the dealer's sales in relation to sales in the market; (B) the dealer's investment and obligations; (C) injury or benefit to the public; (D) the adequacy of the dealer's service facilities, equipment, parts and personnel; (E) whether warranties are being honored by the dealer; (F) the parties' compliance with the franchise agreement; and (G) the enforceability of the franchise agreement from a public policy standpoint. Id. 5.02(b)(5). If the franchise is terminated or not continued, another franchise in the same line-make must be established within a reasonable time unless the Board determines, by a preponderance of the evidence, that the community cannot reasonably support such a dealership. See id. 5.02(b)(3)(C).