Pub. 58 2017-2018 Issue 3

24  TEXAS FRANCHISE LAWS — CONTINUED FROM PAGE 22 The Court of Appeals reviewed and rejected Ford’s argu- ments. Of import for this discussion is the Court’s delibera- tion regarding Ford’s attack on the statute for “vagueness” argument. The Court found that the statute is not unconsti- tutionally vague as it “provides a comprehensible standard of the proscribed conduct – acting in the capacity of a dealer. The phrase ‘in the capacity of a dealer’ is naturally read to include those activities performed by a licensed dealer.” 42 The Court quotes that portion of the statute which deals with the facts at issue, i.e., Ford’s buying and selling mo- tor vehicles; however, the statute also includes servicing or repairing motor vehicles under a manufacturer’s war- ranty. 43 Since the case-at-hand did not concern itself with the activities of servicing or repairs, that portion of the statute is not discussed by the parties or by the Court. The Court states that in the capacity a dealer includes activities performed by a dealer and as legislatively described since 1995, a franchised dealer is defined as buying, selling, or exchanging new motor vehicles and servicing or repairing under a manufacturer’s warranty. 44 In 2004, the United States Court of Appeals for the Fifth Circuit re-visited § 2301.476(c) when the Director of theMo- tor Vehicle Division, TxDOT, refused to renew the license of International Truck&Engine Corporation (“International”) to operate used truck centers. The United States District Court for the Western District of Texas entered summary judgment for the Motor Vehicle Division and the manufac- turer sought review. 45 The Court of Appeals stated that the District Court cor- rectly granted summary judgment for the agency as § 2301.476(c) prohibits International from operating as a dealer of used trucks. The Court affirmed that in Ford, the declared statutory purpose “to prevent vertically integrated companies from taking advantage of their market position’ and ‘to prevent frauds, unfair practices, discrimination, im- positions, and other abuses of [its] citizens’ - are legitimate state interests” 46 and that a reasonable legislator could believe the predecessor statute furthers those legitimate interests. 47 Amanufacturer and a distributor are prohibited from “acting in the capacity of a dealer.” This prohibition includes but is not limited to buying, selling, exchanging new and used motor vehicles, and servicing or repairing motor vehicles under a manufacturer’s warranty. Included within these enu- merated dealer actions are a myriad of sub-category dealer functions to effectuate these stated dealer-described actions. The cases cited above concern a sales specific fact pattern. Neither the Ford “Showroom” nor the International used truck sales involve a repair or service concern. Since the repair or service of a motor vehicle was not a consequence of the Ford or International causes of action, there was not a need for a court to address the entire enumerated franchised dealer-defined statutory actions. Just as it is a legitimate exercise of the State’s police power to determine how motor vehicles are sold, it is a legitimate exercise of the State’s police power to determine how vehicles are serviced and repaired and compliance with a given war- ranty.The intra-brand competition regarding the sale of motor vehicles also holds for the warranty repair of motor vehicles. The same concerns expressed by the ALJ in Ford as to motor vehicles apply equally to parts and warranty payments. As the manufacturer or distributor is also the supplier and the dealer is entirely dependent on the manufacturer or distribu- tor for supplying new motor vehicles as well as parts. In ad- dition, the franchised dealer is entirely dependent upon the manufacturer or distributor for paying for warranty repairs, reconditioning, as well as recall repairs. Maintaining the defined roles of each allows for intra-brand competition; blurring the lines brings harm caused by vertical integration. "LEMON LAW" Adopted in 1983, the State looked at the various remedies available to a consumer who purchases a new motor vehicle and the responsibilities and duties imposed on a manufac- turer who gives a warranty to the product purchaser. The Legislature determined it is in the State’s interest to adopt a state motor vehicle “lemon law.” The duties imposed upon a manufacturer or distributor regarding their product warranty are not in conflict with the statutory prohibition disallowing a manufacturer or distributor from acting in the capacity of a dealer. 48 The warrantor is responsible for their warranty and that respon- sibility devolves onto the franchised dealer as the repairer through the sales and service agreement 49 as well as the State’s licensing requirements. By definition, an express warranty becomes a part of the consumer’s purchase and requires that the goods conform to the promises made in the warranty. If non-conforming goods are delivered to a purchaser, a breach of warranty occurs. 50 A franchised dealer is required to perform pre-delivery inspection and repairs on each new vehicle in accordance with the manufacturer’s or distributor’s sales and service agreement ( See Footnote 19) as well as in accordance with the state’s licensing statute requiring a manufacturer to disclose the preparation and delivery obligations it imposes on its franchised dealers. 51 The federal statute, the “Magnuson-Moss Warranty Act, 52 defines a “written warranty” 53 and the State’s “lemon law” harmonizes with the federal statute; however, the State’s  TEXAS FRANCHISE LAWS — CONTINUED ON PAGE 26