California Vehicle Code can protect dealer incentive bonus when franchise ends

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In a recent case successfully prosecuted by Scali Rasmussen, a vehicle dealer sought recovery of amounts improperly withheld by the vehicle manufacturer, following the termination of the dealership franchise at the dealer’s election. The action was based on California Vehicle Code Section 11713.13. Pursuant to Section 11713.13, the manufacturer was obligated to repurchase certain of the remaining dealer inventory at dealer cost. Following the termination, a dispute arose regarding the amounts withheld by the manufacturer from the repurchase amount for that inventory owed to the dealer.

During the dealer’s last 18 months of operation, it participated in the manufacturer’s wholesale quantitative bonus program. This incentive program was designed to increase the wholesale purchase of vehicles by the dealer, consistent with the manufacturer’s desire to flood the market with its products. The terms of the incentive program did not require the dealer to sell the purchased quantities of vehicles to receive quarterly and annual incentive bonuses. The manufacturer’s purchase invoices for vehicles bought through the incentive program did not describe any discounts or specific bonus amounts invoiced to a specific vehicle.

Over the course of the manufacturer’s quantitative incentive program, the incentive bonuses earned by the dealer’s participation in the program were paid to the dealer, without any amounts invoiced against a particular vehicle. When the dealer met the program criteria by purchasing a certain quota of vehicles quarterly and annually pursuant to terms set by the manufacturer, the manufacturer merely issued quarterly and annual credit notes against the invoices previously issued to purchase the vehicles. The credit notes referenced the amount of the incentive bonus paid to the dealer but did not allocate any amount to any particular vehicle.

Neither the bonus incentive program terms nor the dealer/manufacturer agreement provided for any other method for amounts to be “invoiced against the vehicle”. The incentive program, which encouraged the dealer’s wholesale purchase of a specific quantity of vehicles from the manufacturer, also did not restrict receipt of bonuses solely for vehicles purchased pursuant to the incentive program, which were sold at retail. The manufacturer’s quarterly and annual credit notes also did not state any amounts of incentive bonuses which were invoiced against a unique vehicle VIN.

When the dealer gave notice the franchise would be terminated, the manufacturer claimed it would comply with the statute and repurchase qualified vehicles. However, the manufacturer instead retained an amount equal to previously earned incentive bonuses for the vehicles purchased under the wholesale quantitative sales program which were not yet sold. The dealer sued to recover those amounts.

Pursuant California Vehicle Code Section 11713.13, when the franchise is terminated, the manufacturer is obligated to repurchase certain of the existing dealer inventory. California Vehicle Code (CVC) Section 11713.13(d)(A) provides in part (with emphasis added):

It is unlawful and a violation of this code for any manufacturer, …licensed under this code to …:

(d)(1) Fail to pay to a dealer, within 90 days of termination…of a franchise, all of the following:

(A) The dealer cost, plus any charges made by the manufacturer or distributor for vehicle distribution or delivery and the cost of any dealer-installed original equipment accessories, less any amount invoiced to the vehicle and paid by the manufacturer or distributor to the dealer...

Simply stated, in the event of termination of the franchise, the manufacturer is obligated to (1) pay the dealer’s cost for each vehicle, less any amount invoiced to the vehicle which was paid by the manufacturer for remaining inventory (2) within 90 days of termination. The repurchase obligation generally applies to remaining dealer inventory of new and undamaged vehicles with less than 500 miles, acquired from the manufacturer within 18 months prior to termination of the franchise. CVC § 11713.13(d)(1)(A).

The facts of this case allowed the dealer to successfully argue to the court that it was entitled to recover the amounts improperly withheld by the manufacturer, because no incentive bonus was invoiced to any particular vehicle being repurchased. Nor did any term of the bonus program require the sale of the purchased vehicles to earn or retain the incentive bonus. As a result, the manufacturer could not deduct any amounts from the dealer’s cost. In doing so, the manufacturer failed to pay the dealer’s cost for each vehicle for remaining inventory within 90 days of termination.

Significantly, this violation of Section 11713.13 can result in the manufacturer’s liability for attorney fees and costs. California Vehicle Code §11726, allows “any licensee suffering pecuniary loss because of any willful failure by any other licensee” to comply with certain sections of the Vehicle Code, including section 11713.13, to “recover damages and reasonable attorney fees therefor in any court of competent jurisdiction.” As explained above, CVC §11713.13(d)(1)(A) requires the manufacturer to pay the dealer the dealer cost, less any amount invoiced to the vehicle and paid by the manufacturer, within 90 days of termination. Plain reading of the statute allows only an “amount invoiced to the vehicle” to be deducted. The manufacturer’s deduction of incentive amounts previously paid to the dealer but not invoiced to a vehicle, is a pecuniary loss. In particular, in this case the ‘pecuniary loss’ resulting from the deduction is also a failure to comply with Section 11713.13. The dealer is denied the full dealer cost shown on the invoices, and the manufacturer failed to pay the full dealer cost within 90 days of termination of the franchise. As a result, after obtaining a judgment in favor of the plaintiff on the merits of the claims, in addition to the amount withheld by the defendant, the plaintiff will be able to pursue a motion to recover the attorney fees and costs incurred in prosecuting his claim.