Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—ArkSupCt: Order Requiring Repurchase of Vehicles from Terminated Franchise Failed to Make Findings on “Current Model Year”, (Oct 30, 2012)

By John W. Arden, J.D., LLM.

An order of the Arkansas Motor Vehicle Commission, requiring a motor vehicle franchisor to repurchase six 2008 electric vehicles from a terminated franchise, failed to include sufficient findings of fact on the issues of the franchise termination date and the vehicles’ model year regarding the statutory inventory “buy-back” requirement, the Arkansas Supreme Court has held (Voltage Vehicles v. Arkansas Motor Vehicle Commission, October 11, 2012, Brown, R.). Accordingly, the dispute was remanded to the Motor Vehicle Commission to make findings on current model years based on the correct termination date.

In 2008, Arkansas motor vehicle dealer Rainbow Cycle & Marine entered into a licensing agreement with Voltage Vehicles to carry its three-wheel electric vehicles. It paid $8,750 and $800 in freight charges for each vehicle. The vehicles were delivered in November and December 2008.

In September 2009, Rainbow was notified about a safety recall by Voltage because of a problem with the braking system. It was told to stop selling the vehicles until defective parts could be repaired or replaced. On October 27, Rainbow sent a letter notifying Voltage and the Commission of its desire to terminate the licensing agreement. On November 12, 2009, the Commission sent a letter to Voltage, acknowledging the receipt of the termination letter on November 2, 2010 and setting January 1, 2010 as the effective date of the termination, 60 days after it received the letter on November 2, 2009.

After Voltage did not repurchase the six vehicles, as required by the Arkansas Motor Vehicle Commission Act, Rainbow filed a complaint with the Commission on April 5, 2010. At a hearing before the Commission, the president of Rainbow testified that the franchisee had purchased six 2008-model-year vehicles from Voltage on October 10, 2008 and placed them on the sales floor. He also testified that, after the recall, Rainbow never received replacement parts that Voltage promised to ship and that Rainbow never received any information about Voltage providing 2009 or 2010 replacement models.

On January 27, 2011, the Commission issued a written order, finding that (1) the Commission received a termination letter from Rainbow on November 2, 2009; (2) the Commission forwarded the termination letter to Voltage on November 12, 2009; (3) the Commission had received a complaint from Rainbow on April 5, 2010, alleging that Voltage had not met its repurchase obligation; (4) Voltage had not repurchased any inventory as of the hearing date; (5) Voltage was required under Arkansas Motor Vehicle Commission Act to repurchase the six 2008 vehicles in Rainbow’s inventory; and (6) Voltage was required to pay transportation costs and interest accrued on the six vehicles.

Voltage filed a petition for judicial review, and the Pulaski County Circuit Court affirmed the Commission’s decision. Voltage appealed this judgment to the Supreme Court of Arkansas. Its review was limited to whether the agency decision was supported by substantial evidence and was not arbitrary, capricious, or an abuse of discretion.

The Arkansas Administrative Procedure Act required administrative adjudications to be accompanied by findings of fact and conclusions of law so as to enable the reviewing court to determine whether the administrative decision was correct. Voltage claimed that the Commission made errors of law and fact that required reversal of its order.

While admitting that the buy-back provision of the Arkansas Motor Vehicle Commission Act required it to repurchase inventory for the “current model year and one year prior model year,” Voltage claimed that the vehicles were not eligible for repurchase. Because the franchise termination date was January 1, 2010, the 2008 vehicles were not within the definition of current model year or one year prior model year, it argued.

The Commission contended that there was substantial evidence to support its findings and that, in the absence of a statutory definition, it was within its province to define the term. It further maintained that “current model year” was a term of art in the motor vehicle industry that did not necessarily coincide with the calendar year. Since Voltage failed to produce any evidence of its model year, the only evidence was that the 2008 model year had not ended in the fourth quarter of 2008, the Commission alleged. The current model year when the parties entered their franchise agreement in November 2008 was the 2008 model. Under these facts, the Commission concluded that it was correct to order Voltage to buy back the six 2008 model vehicles.

Thus, the date used by the Commission for the termination of the franchise was critical to the decision of what constitutes a “current model year and one year prior model year” under the Act, the court held. However, the Commission “neglected to make any reference to the date it fixed as the effective date of termination, January 1, 2010, or to make any finding as to what was the current model year at the time of that effective date of termination.” There was no evidence regarding when Voltage began offering or ceased offering the 2008 model vehicles or when it started offering 2009 models.

“In short, because the Commission failed to make sufficient findings of fact relevant to the contested issue of what constituted the current model year, this court cannot determine whether the Commission had resolved that issue in conformity with the law,” the Supreme Court found. Thus, it reversed and remanded the matter with directions for the Commission to make further findings.

The decision is No. 12-211.

Frank H. Falkner (Rose Law Firm) for Voltage Vehicles. Arnold M. Jochums (Assistant Attorney General) for Arkansas Motor Vehicle Commission.

Cases: FranchisingDistribution ArkansasNews