Jun 23, 2019 - Judge’s Distribution and Franchise Rulings from the Front Lines by |

AUTOBAHN IMPORTS, L.P., Doing Business as Land Rover of Fort Worth v. JAGUAR LAND ROVER NORTH AMERICA, L.L.C., 896 F.3d 340 (United States Court of Appeals, Fifth Circuit) (July 13, 2018)

Auto Manufacturer’s incentive and chargeback programs were shown to be an unenforceable and unreasonable sales standard that failed to legally justify the chargeback of the car franchisee by the franchisor of $317,000 of auto manufacturer’s holdbacks.

After franchisee, a car dealer, successfully complained to Board of Texas Department of Motor Vehicles, asserting that franchisor’s charges of $317,000 back to franchisee for violation of rules of sales incentive program was an unreasonable sales standard, and during pendency of franchisor’s appeal of the Board’s order to the Texas Court of Appeals, franchisee brought action in state court against franchisor, seeking damages based on Board’s ruling, and claiming breach of contract and violations of the Texas Deceptive Trade Practices Act (DTPA). Franchisor removed to federal court, and the United States District Court for the Northern District of Texas, John McBryde, District Judge, 2017 WL 2684055, granted franchisee’s summary judgment motion. Franchisor appealed, and in the interim the Texas Court of Appeals affirmed the Board’s order.

The genesis of the lengthy dispute, spanning across many years, courts, and court systems, hinged on incentive programs offered by Jaguar. First, Jaguar offered an incentive known as the “Business Builder Program,” which provides dealers a percentage of the retail price of every vehicle sold if certain conditions are met. The relevant terms are set out in the Business Builder Program Manual (“Manual”) and the Operations Bulletin (“Rules”), collectively referred to as the Business Builder Contracts. According to Jaguar, dealerships are entitled to incentive payments if they (1) deliver each new vehicle to the “end-user”; (2) submit the end-user’s name and address to Jaguar; and (3) maintain the necessary documentation to support that address. The Rules define an “end user” as “a purchaser/lessee purchasing or leasing a vehicle from an authorized Dealership for retail, commercial or business use, with no intent to resell. An approved leasing company purchasing to lease is considered an end user.” The Rules offer no definition of an “approved leasing company.”

A dispute about this program resulted in a settlement agreement which outlined certain “Handover Policies” that Autobahn would follow. That agreement required Autobahn to extend to “[e]very retail purchaser … an invitation to visit Autobahn’s dealership personally” to receive the vehicle, or to conduct the handover “at the residence/office of the purchaser or end-user.” The agreement stated that “[a]ll deliveries … will be conducted by trained Autobahn personnel.”

A new dispute regarding the 2013 Business Builder Program forms the principal basis for the current action. Jaguar conducted an audit of Autobahn’s sales from February 2013 through January 2014. The auditor looked at 134 sales files, “all of which involved sales to leasing companies,” and claimed that in 90 cases, Autobahn was not entitled to an incentive payment because “[d]elivery was not made to the vehicle’s end-user by an authorized Land Rover retailer representative.” Instead, the leasing agency delivered the vehicle to the lessee. The auditor initiated 91 chargebacks for incentive payments. Autobahn appealed, and Jaguar affirmed all but 5, resulting in $317,204.80 in chargebacks.

In May 2014, Autobahn filed a complaint with the Board, alleging that the chargeback violated Section 2301.467(a)(1) of the Texas Occupations Code, which prohibits a manufacturer, distributor, or representative from “requir[ing] adherence to unreasonable sales or service standards.”3 Autobahn sought “a declaration from the Board that [Jaguar’s] interpretation of ‘end-user’ to exclude a leasing company purchasing a vehicle from Autobahn” violated that prohibition.

The Board referred Autobahn’s complaint to an administrative law judge (“ALJ”) at the State Office of Administrative Hearings. In August 2015, the ALJ issued a Proposal for Decision, concluding that the chargebacks violated Section 2301.467(a)(1). The ALJ noted that the dispute ultimately turned on the question “whether a leasing company is an end-user under the terms of the Business Builder documents.” The ALJ thought yes. While noting that neither the Manual nor the Rules define “an approved leasing company,” she still found that “[s]ales to leasing companies are qualified sales under Business Builder according to the Program documents.” She concluded that Jaguar’s “chargebacks to Autobahn for sales to leasing companies … [were] invalid under … § 2301.467(a)(1) for requiring adherence to unreasonable sales or service standards.”4

The Board adopted the ALJ’s findings of fact and conclusions of law and issued a final order stating that Jaguar “improperly charged back against [Autobahn] certain incentive payments for sales to leasing companies and that those chargebacks are invalid and rescinded.”

Autobahn Imports LP v Jaguar Land Rover North America LLC

Autobahn Imports LP v Jaguar Land Rover North America LLC

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