NEW MOTOR VEHICLE BOARD

1. NEW MOTOR VEHICLE BOARD ATTORNEY ROUNDTABLEJanuary 10, 2014

2. Protests, Petitions, and Appeals • The Board is empowered to hear and resolve three (3) classes of disputes. • These areprotests, petitions, and appeals.

3. Petitions • The Board also has jurisdiction to consider any matter concerning the activities or practices of any person licensed as a new motor vehicle dealer, manufacturer, distributor or representative submitted by any person alleging violations of the Vehicle Code. These matters are referred to as petitions.

4. The relief sought by a petition could be: • An investigative report by the Department of Motor Vehicle [Veh. Code § 3050 (c)(1)]; • A hearing to adjudicate the dispute [Veh. Code § 3050 (c)(2)] and/or, • An order by the Board to the Department of Motor Vehicle to exercise its authority or power with regards to the issuance, renewal, refusal to renew, suspension, or revocation of the license of any new motor vehicle dealer, manufacturer, distributor or representative [Veh. Code § 3050 (c)(3)].

5. Car Buyers Protection Act • The Consumers for Auto Reliability and Safety (“CARS”) has a ballot initiative entitled the “Car Buyers Protection Act” that proposes to eliminate dealers’ and manufacturers’ right to appeal to the Board DMV’s enforcement decisions that fine, penalize, or otherwise discipline a licensee (new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative) for violations of any statute or regulation intended to protect car buyers, lessees, or the public. The licensees would only be allowed to seek review of these disciplinary decisions in a court of competent jurisdiction.

6. Appeals • An applicant for, or holder of, a license as a new motor vehicle dealer, manufacturer, distributor or representative can file an appeal with the Board after any final decision of the Director of the Department of Motor Vehicles (“DMV”) that adversely affects the occupational license of the appellant, such as the suspension or revocation of the license.

7. Protests • A franchisee who is a new motor vehicle dealer or recreational vehicle dealer may file a protest if the franchisor (manufacturer or distributor) intends to: 1. Terminate the franchise (Veh. Code, §§ 3060(a) or 3070(a)); 2. Modify or replace the terms of the franchise if the modification or replacement would substantially affect the franchisee’s sales or service obligations or investment (Veh. Code, §§ 3060(b) or 3070(b)); 3. Establish a new, or relocate an existing, dealer (or allow an off-site sale) of the “same line-make” if the current franchisee is within a 10 mile radius of the proposed location (Veh. Code, §§ 3062 or 3072); 4. Take other actions involving warranty reimbursement or payment under a franchisor incentive program (Veh. Code, §§ 3065, 3065.1, 3075 or 3076).

8. Licensees within the Board’s Jurisdiction • The Board could have jurisdiction over dealers, manufacturers, or distributors of the following products: • Motor vehicle • On-road motorcycle and motor driven cycle • Off-highway motorcycles subject to identification • All-terrain vehicles • Recreational Vehicles (excluding truck campers and park trailers) • Low-speed vehicle • Buses • Ambulances, hearses, limousines • Refuse trucks

9. Statutorily Required Notices • Other Notices: • Delivery and Preparation Obligations/Schedule of Compensation (Veh. Code §§3064 and 3074). Pre-delivery inspection and pre-delivery reimbursement schedules are commonly called PDI. • The statute requires that every franchisor shall file a copy of their delivery and preparation obligations [first requirement], as well as a schedule of compensation [second requirement], with the New Motor Vehicle Board.

10. Other Notices: • Warranty Reimbursement Schedule or Formula (Veh. Code §§ 3065 and 3075) • Each franchisor shall file a copy of its warranty reimbursement schedule or formula with the Board.

11. Other Notices: • Factory Ownership of Dealership within Relevant Market Area of Same Line-Make Dealerships (Veh. Code § 11713.3(o)(3)(A)) • Every manufacturer, branch and distributor that temporarily owns or operates a dealership within the relevant market area of an independent, franchised dealer of the same line-make is required to give written notice to the Board, within 10 days, each time it commences or terminates operation of a dealership and each time it acquires of divests itself of an ownership interest.

12. Other Notices: • Annual Notice Regarding Dealer Development Stores (Veh. Code § 11713.3(o)(3)(B) • The Vehicle Code requires that every manufacturer, branch, and distributor that owns an interest in dealer as part of a bona fide dealer development program give written notice to the Board, annually of the name and location of each dealer in which it has an ownership interest, the name of the bona fide dealer development owner or owners, and the ownership interests of each owner expressed as a percentage.

13. Sample Notice of Termination 60-Day Notice of Termination or Refusal to Continue (Veh. Code §§ 3060(a) or 3070(a)) NOTICE TO DEALER: You have the right to file a protest with the NEW MOTOR VEHICLE BOARD in Sacramento and have a hearing in which you may protest the termination of your franchise under provisions of the California Vehicle Code. You must file your protest with the board within 30 calendar days after receiving this notice or within 30 days after the end of any appeal procedure provided by the franchisor or your protest right will be waived.

14. Notices • The purpose of the notice is to start the statutory time period in which an aggrieved franchisee has to protest its franchisor’s intended action. The time period to file a protest is very short, anywhere from 10, 20, or 30 days, depending on the type of notice. • The requirements are that the notice be “received” and that it be “received” by the “franchisee” as well as the Board. In the above example, the time to file the protest is 30 days from the dealer’s and Board’s receipt of the notice. • “Received” is not the same as “sent” or “given”.

15. Problems with notices: • Statutory language does not comply – use the website or consult Board legal staff for procedural assistance.   • A 15-day notice of termination is issued when the statutory grounds for issuing a shorter notice do not apply. • Not enclosing copies of the notices to the dealer(s) with the cover letter to the Board. • Notices that combine separate franchises. • A separate notice shall be issued to each franchisee. • A separate notice shall be issued for each line-make represented by a franchisee. • Notices shall not be combined to include more than one franchisee nor combined to include more than one line-make. • 13 CCR § 593.1 operative 3-17-11

16. Procedural Guidance and Training Provided by the Board Legal Staff

17. Overview and Role of The Board Staff BOARD MEMBERS Ramon Alvarez C. (Dealer) Anthony A. Batarse, Jr. (Dealer) Ryan Brooks (Public) Kathryn E. Doi (Public) Rahim Hassanally (Dealer) David Lizárraga (Public) Bismarck Obando (Public) Victoria Rusnak (Dealer) Glenn Stevens (Public) NEW MOTOR VEHICLE BOARD EXECUTIVE Executive Director William Brennan Legal Division Senior Staff Counsel Robin Parker Staff Counsel Dana Winterrowd Administrative Hearing Division Hearing Officers (Administrative Law Judges) Anthony Skrocki (Law and Motion) Diana Hagle (Settlement and Merits) Merilyn Wong (Settlement) Kymberly Pipkin (Settlement and Merits) Lonnie Carlson (Settlement and Merits) Victor Ryerson (Settlement and Merits) • Administrative Services Division • Staff Services Manager I Dawn Kindel Administrative Support Administrative Assistant Suzanne Luke Legal Support Legal Analyst (training) Nicole Angulo Legal Assistant Eugene Ohta Consumer Mediation Program Staff Services Analyst Jacquelyn Grassinger Staff Services Analyst Kathleen Tomono

18. Board Composition • The Board is comprised of nine (9) appointed members all of whom serve four (4) year terms. Their appointments are staggered to allow for continuity. Four (4) are dealer members and five (5) are public members.

19. R O S T E R NEW MOTOR VEHICLE BOARD 1507 - 21st Street, Suite 330 Sacramento, California 95811 NAMEAPPOINTING AUTHORITYSTATUS Ramon Alvarez C. Term expires 1-15-14 Governor’s Office Dealer Member Anthony A. Batarse, Jr. Term expires 1-15-15 Governor’s Office Dealer Member Ryan L. Brooks Term expires 1-15-18 Senate Rules Committee Public Member Kathryn Ellen Doi Term expires 1-15-17 Governor’s Office Public Member Rahim Hassanally Term expires 1-15-17 Governor’s Office Dealer Member David C. Lizárraga Term expires 1-15-15 Speaker of the Assembly Public Member Bismarck Obando Term expires 1-15-14 Governor’s Office Public Member Victoria Rusnak Term expires 1-15-15 Governor’s Office Dealer Member Glenn E. Stevens Term expires 1-15-15 Governor’s Office Public Member

20. Dealer Board Member Participation –Motor Vehicle Protests • Dealer Board Member participation in case management is limited by statute. (Veh. Code §§ 3050(d) and 3066(d)) • Dealer Members cannot participate in the consideration of a proposed decision, ruling or order pertaining to the protest of a motor vehicle dealer unless the parties stipulate to allow dealer members to do so.

21. Dealer Board Member Participation – Recreational Vehicle Protests • Dealer members of the Board will participate in, hear, comment, or advise other members upon, or decide protests between RV dealers and franchisors, unless a Dealer Member also has an interest in an RV dealership in which case the dealer member will recuse himself or herself from participation in the matter, unless the parties stipulate to such participation.

22. New Motor Vehicle BoardMission and Vision Statement MISSION • It is the mission of the New Motor Vehicle Board to enhance relations between dealers and manufacturers throughout the state by resolving disputes in the new motor vehicle industry in an efficient, fair and cost-effective manner. VISION • Safeguard for the Board’s constituency, a fair, expeditious and efficient forum for resolving new motor vehicle industry disputes, which ultimately improves industry relations and reduces the need for costly litigation, and thereby further reducing the burden on California taxpayers.  Assist consumers in mediating concerns with dealers, manufacturers, and distributors licensed by the California Department of Motor Vehicles.  • Develop methods that further improve the delivery of Board services in a timely and cost-effective manner.  Educate Board members concerning industry matters, which further improve the Board’s ability to equitably resolve industry disputes.

23. Discussion Concerning the Trends In Case Management • Discussion concerning trends in case management including: • Types and number of notices of termination being filed; • Types of protests being filed; • Number of cases going to a merits hearing; and • The number being resolved prior to hearing.

24. What are the types and number of notices of termination being filed? Notices of Termination 2007-2013

25. What are the types of protests being filed? The following summarizes the number and type of protests filed from 2006 through 2013: T – Termination M – Modification E – Establishment R – Relocation *Scooter protest was erroneously filed under Vehicle Code section 3070. ** A 3060 termination protest was filed for an RV protest against Winnebago; it should have been a 3070

26. Overview of Notices of Termination and Protests by Vehicle Type Overview of Notices of Termination and Protests by Vehicle Type Cars include heavy duty trucks and buses Motorcycles include scooters and ATVs Trailers and commercial vehicles (other than heavy duty trucks) are not reflected * In 2010, there were 77 notices of termination for the discontinuation of the Mercury line that are not reflected.

27. The number of cases going to a merits hearing?

28. The number of protests being resolved prior to a merits hearing? • The Board resolves approximately 90% of all cases without the need of a merits hearing. This saves the litigants the cost of proceeding through a merits hearing, eliminates any costs in the court system, and maintains relations in this vital industry.

29. Topic 2:Warranty Reimbursement and Franchisor Incentive Program Protests in light of Senate Bill 155 (Chaptered October 3, 2013) Robin Parker, Senior Staff Counsel, New Motor Vehicle Board • Warranty Reimbursement Protests (Veh. Code § 3065) • Type of New Protests. • Written Notice to the Dealer and Board. • Time to File Protest. • Burden of Proof. • Franchisor Incentive Program Compensation Protests (Veh. Code § 3065.1) • Type of New Protests. • Written Notice to the Dealer and Board. • Time to File Protest. • Burden of Proof. • Recreational Vehicle Protests (Veh. Code §§ 3075 and 3076)

30. Non-substantive amendments Non-Substantive Amendments: Senate Bill 155

31. PRE-REPAIRReasonableness of Warranty Reimbursement Schedule or Formula(Sections 3065(a) and (b)) • Franchisor Filing Requirement with the Board: • Every franchisor is required to properly fulfill every warranty agreement made by it and adequately and fairly compensate each of its franchisees for labor and parts used to fulfill that warranty when the franchisee has fulfilled warranty obligations of diagnostics, repair and servicing and shall file a copy of its warranty reimbursement schedule or formula with the board. (Veh. Code § 3065(a))

32. PRE-REPAIRReasonableness of Warranty Reimbursement Schedule or Formula(Sections 3065(a) and (b)) • Franchisor Filing Requirement with the Board: • The warranty reimbursement schedule or formula shall be reasonable with respect to the time and compensation allowed the franchisee for the warranty diagnostics, repair and servicing and all other conditions of the obligation. (Veh. Code § 3065(a)) • The reasonableness of the warranty reimbursement schedule or formula shall be determined by the board if a franchisee files a protest with the board. (Veh. Code § 3065(a)) • In determining the adequacy and fairness of the compensation, the franchisee’s effective labor rate charged to its various retail customers is to be considered together with other relevant criteria. (Veh. Code § 3065(b))

33. Reasonableness of Warranty Reimbursement Schedule or Formula(Sections 3065(a) and (b)) Franchisee Protest Right: • A franchisee still has the right to file a protest concerning the reasonableness of the warranty reimbursement schedule or formula. • The time period to file the protest is not contained in the statute. • The burden is on the franchisee pursuant to Section 3066(a).

34. Reasonableness of Warranty Reimbursement Schedule or Formula(Sections 3065(a) and (b)) Franchisee Protest Right: • If a protest concerning the reasonableness of the warranty reimbursement schedule or formula is filed and the Board determines that: • The warranty reimbursement schedule or formula fails to provide adequate and fair compensation or fails to conform with the other requirements of Section 3065, within 30 days after receipt of the Board’s order, the franchisor is required to: • Correct the failure by amending or replacing the warranty reimbursement schedule or formula, AND • Implement the correction as to all California franchisees

35. Reduction in Time and Compensation Applicable to Specific Parts or Labor Operations(Section 3065(a)) New Limitations on Franchisors and Notice Requirement: • Franchisors are prohibited from replacing, modifying, or supplementing the warranty reimbursement schedule to impose a fixed percentage or other reduction in the time and compensation allowed to the franchisee for warranty repairs not attributable to a specific repair. • A franchisor may reduce the allowed time and compensation applicable to a specific warranty repaironly upon 15 days’ prior written notice to the franchisee.

36. Franchisee Protest Right – Reduction in Time and Compensation (Specific Parts or Labor Operation): • A new type of 3065 protest is permissible to challenge the reduction in time and compensation applicable to specific parts or labor operations. • The protest needs to be filed within 6 months “following the franchisee’s receipt of the notice of the reduction.” • The burden is placed on the franchisor of “establishing the reasonableness of the reduction and adequacy and fairness of the resulting compensation.”

37. Franchisee Protest Right – Reduction in Time and Compensation (Specific Parts or Labor Operation): • If a protest concerning the reduction in time and compensation is filed and the Board determines that: • The warranty reimbursement schedule or formula fails to provide adequate and fair compensation or fails to conform with the other requirements of Section 3065, within 30 days after receipt of the Board’s order, the franchisor is required to: • Correct the failure by amending or replacing the warranty reimbursement schedule or formula, AND • Implement the correction as to all California franchisees

38. Vehicle Code section 3065(c): • Subdivision (c) remains unchanged and provides that if any franchisor disallows a franchisee’s claim for a defective part, alleging that the part, in fact, is not defective, the franchisor shall return the part alleged not to be defective to the franchisee at the expense of the franchisor, or the franchisee shall be reimbursed for the franchisee’s cost of the part, at the franchisor’s option.

39. POST-REPAIRFranchisor’s Duty to Approve or Disapprove Warranty Claims (Section 3065(d)(1)) • Warranty claims are to be approved or disapproved within 30 days after their receipt by the franchisor. • Any claims not specifically disapproved in writing within 30 days from receipt by the franchisor are deemed approved on the 30th day. • Franchisee claims for labor and parts under Sections 3064 and 3065 shall be paid within 30 days after approval.

40. Franchisor Disapproval of a Warranty Claim (Section 3065(d)(2)): • A franchisor shall not disapprove a warranty claim unless: • The claim is false or fraudulent; • Repairs were not properly made; • Repairs were inappropriate to correct a nonconformity with the written warranty due to an improper act or omission of the franchisee; or • Material noncompliance with reasonable and nondiscriminatory documentation and administrative claims submission requirements.

41. Franchisee Protest Right - Warranty Claim Disapproval (Section 3065(d)(3)): • A franchisor who disapproves a claim is required to notify the franchisee in writing of the disapproval 30 days after receipt by the franchisor and each notice shall state the specific grounds upon which the disapproval is based; this requirement remains unchanged. • Franchisee can file a warranty claim disapproval protest within 6 months after receipt of the written notice. • The franchisor has the burden of proof (Section 3065(d)(6))

42. Franchisor Provided “Reasonable” Appeal Process (Section 3065(d)(3)): • Allow the franchisee at least 30 days after receipt of the written disapproval notice to provide additional supporting documentation or information rebutting the disapproval. • If disapproval is based upon noncompliance with documentation or administrative claims submission requirements, the franchisor shall allow the franchisee at least 30 days from the date of receipt of the notice to cure any material noncompliance. • If the disapproval is rebutted and material noncompliance is cured before the applicable deadline, the franchisor shall approve the claim.

43. Franchisor Notice Requirement – Final Denial of Warranty Claim (Section 3065(d)(4)): • If the franchisee provides additional supporting documentation or information purporting to rebut the disapproval, attempts to cure noncompliance relating to the claim, or otherwise appeals denial of the claim and the franchisor continues to deny the claim, the franchisor shall provide the franchisee with a written notification of the final denial within 30 days of completion of the appeal process, which shall conspicuously state “Final Denial” on the first page.

44. Franchisee Protest Right – Final Denial of Warranty Claim following Franchisor’s Appeal Process (Section 3065(d)(4)): • Franchisee can file a protest for the final denial of a warranty claim following a franchisor’s appeal process within 6 months after receipt of the written notice. • The franchisor has the burden of proof (Section 3065(d)(6))

45. Vehicle Code section 3065(d)(5) • Subdivision (d)(5) has been renumbered and moved from Section 3065(d). It provides that failure to approve or pay within the above specified time limits, in individual instances for reasons beyond the reasonable control of the franchisor, shall not constitute a violation of this article.

46. AUDITS OF FRANCHISEE WARRANTY RECORDS (Section 3065(e) Franchisor’s Ability to Conduct an Audit of Warranty Records (Section 3065(e)(1)): • The time period a franchisor has to conduct an audit of franchisee warranty records is reduced from 12 to 9 months after a claim is paid or credit issued. • A franchisor shall not select a franchisee for an audit, or perform an audit, in a punitive, retaliatory, or unfairly discriminatory manner. • A franchisor may conduct no more than one random audit of a franchisee in a nine-month period. • The franchisor’s notification to the franchisee of any additional audit within a nine-month period shall be accompanied by written disclosure of the basis for that additional audit.

47. Franchisor Disapproval or Charge back of a Previously Approved Warranty Claim Following an Audit (Section 3065(e)(2)): • Following an audit, previously approved claims shall not be disapproved or charged back to the franchisee unless: • The claim is false or fraudulent, • Repairs were not properly made, • Repairs were inappropriate to correct a nonconformity with the written warranty due to an improper act or omission of the franchisee, or • For material noncompliance with reasonable and nondiscriminatory documentation and administrative claims submission requirements. • A franchisor shall not disapprove or chargeback a claim based upon an extrapolation from a sample of claims, unless the sample of claims is selected randomly and the extrapolation is performed in a reasonable and statistically valid manner.

48. Franchisor Written Disapproval Notice of a Previously Approved Warranty Claim Following an Audit (Section 3065(e)(3)): • If the franchisor disapproves of a previously approved claim following an audit, within 30 days after the audit, the franchisor shall provide to the franchisee a written disapproval notice stating the specific grounds upon which the claim is disapproved.

49. Franchisor Provided “Reasonable” Appeal Process (Section 3065(e)(3)): • Allow the franchisee a reasonable period not less than 30 days after receipt of the written disapproval notice to respond to any disapproval with additional supporting documentation or information rebutting the disapproval and to cure noncompliance, with the period commensurate with the volume of claims under consideration. • If the franchisee rebuts any disapproval and cures any material noncompliance relating to a claim before the applicable deadline, the franchisor shall not chargeback the franchisee for that claim.

50. Franchisee Protest Right - Warranty Claim Disapproval of a Previously Approved Claim Following an Audit (Section 3065(e)(3)): • A franchisor who disapproves of a previously approved claim following an audit is required to notify the franchisee in writing of the disapproval within 30 days after the audit; the notice shall state the specific grounds upon which the claim is disapproved. • Franchisee can file a warranty claim disapproval of a previously approved claim following an audit protest within 6 months after receipt of the written notice. • The franchisor has the burden of proof (Section 3065(e)(6))