First Substitute S.B. 57

This document includes Senate Committee Amendments incorporated into the bill on Thu, Feb 7, 2008 at 4:24 PM by rday. --> This document includes Senate 2nd Reading Floor Amendments incorporated into the bill on Mon, Feb 18, 2008 at 4:04 PM by rday. -->

Senator Dan R. Eastman proposes the following substitute bill:

1 FRANCHISE LAW AMENDMENTS
2 2008 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: Dan R. Eastman
5 House Sponsor: Stephen H. Urquhart
6
7 LONG TITLE
8 General Description:
9 This bill makes changes to Title 13, Chapter 14, New Automobile Franchise Act.
10 Highlighted Provisions:
11 This bill:
12 . addresses the definition of a franchise agreement;
13 . adds a member to the Utah Motor Vehicle Franchise Advisory Board;
14 . makes the executive director's decision in an adjudication under the chapter publicly
15 available;
16 . addresses a franchisor's control over a franchisee's place of business;
17 . prohibits discrimination by a franchisor against a franchisee under certain
18 circumstances;
19 . prohibits a franchisor from recovering the cost of a warranty repair through a fee or
20 other charge to the franchisee;
21 . requires compensation from a franchisor to a franchisee if a franchisor renders itself
22 incapable of performing a franchise agreement by selling or transferring assets
23 essential to the manufacture or distribution of a line-make;
24 . requires a franchisor to meet a higher burden of proof to terminate or relocate a
25 franchise or to establish an additional franchise;

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- 2 - 26 . requires the advisory board to consider any negative economic effect on an existing
27 franchisee when evaluating a new or relocated franchise;
28 . addresses a franchisor's obligations when a franchise is terminated or not continued;
29 . allows a private right of action for a violation of the chapter; and
30 . makes technical changes.
31 Monies Appropriated in this Bill:
32 None
33 Other Special Clauses:
34 None
35 Utah Code Sections Affected:
36 AMENDS:
37 13-14-102, as last amended by Laws of Utah 2005, Chapters 167 and 249
38 13-14-103, as last amended by Laws of Utah 2005, Chapter 249
39 13-14-104, as last amended by Laws of Utah 2005, Chapter 249
40 13-14-201, as last amended by Laws of Utah 2005, Chapters 167 and 249
41 13-14-304, as last amended by Laws of Utah 2005, Chapter 249
42 13-14-306, as last amended by Laws of Utah 2005, Chapter 249
43 13-14-307, as last amended by Laws of Utah 1997, Chapter 162
44 ENACTS:
45 13-14-308, Utah Code Annotated 1953
46 13-14-309, Utah Code Annotated 1953
47
48 Be it enacted by the Legislature of the state of Utah:
49 Section 1. Section 13-14-102 is amended to read:
50 13-14-102. Definitions.
51 As used in this chapter:
52 (1) "Advisory board" or "board" means the Utah Motor Vehicle Franchise Advisory
53 Board created in Section 13-14-103 .
54 (2) "Affiliate" has the meaning set forth in Section 16-10a-102 .
55 (3) "Aftermarket product" means any product or service not included in the
56 manufacturer's suggested retail price of the new motor vehicle, as that price appears on the

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Senate 2nd Reading Amendments 2-18-2008 rd/crp 57

label required by 15 U.S.C. Sec. 1232(f).
58 (4) "Dealership" means a site or location in this state:
59 (a) at which a franchisee conducts the business of a new motor vehicle dealer; and
60 (b) that is identified as a new motor vehicle dealer's principal place of business for
61 licensing purposes under Section 41-3-204 .
62 (5) "Department" means the Department of Commerce.
63 (6) "Executive director" means the executive director of the Department of Commerce.
64 (7) "Franchise" or "franchise agreement" means a written agreement, or in the absence
65 of a written agreement, then a course of dealing or a practice for a definite or indefinite period,
66 in which:
67 (a) a person grants to another person a license to use a trade name, trademark, service
68 mark, or related characteristic; and
69 (b) a community of interest exists in the marketing of new motor vehicles, new motor
70 vehicle parts, and services related to the sale or lease of new motor vehicles at wholesale or
71 retail.
72 (8) "Franchisee" means a person with whom a franchisor has agreed or permitted, in
73 writing or in practice, to purchase, sell, or offer for sale new motor vehicles manufactured,
74 produced, represented, or distributed by the franchisor.
75 (9) "Franchisor" means a person who has, in writing or in practice, agreed with or
76 permits a franchisee to purchase, sell, or offer for sale new motor vehicles manufactured,
77 produced, represented, or distributed by the franchisor, and includes:
78 (a) the manufacturer or distributor of the new motor vehicles;
79 (b) an intermediate distributor; and
80 (c) an agent, officer, or field or area representative of the franchisor.
81 (10) "Lead" means the referral by a franchisor to a franchisee of a potential customer
82 whose contact information was obtained from a franchisor's program, process, or system
83 designed to generate referrals for the purchase or lease of a new motor vehicle, or for service
84 work related to the franchisor's vehicles.
85 (11) "Line-make" means S. :
85a (a) for other than a recreational vehicle, .S the motor vehicles that are offered for sale, lease, or
86 distribution S. [ :
87 (a) ] .S under a common name, trademark, service mark, or brand name of the franchisor,

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or manufacturer of the motor vehicle[.] S. . .S ; or
89 (b) S. [ that are substantially similar in design and specification ] for a recreational vehicle,
89a a specific series of recreational vehicle product that:
89b (i) is identified by a common series trade name or trademark;
89c (ii) is targeted to a particular market segment, as determined by decor, features, equipment,
89d size, weight, and price range;
89e (iii) has a length and floor plan that distinguish the recreational vehicle from other
89f recreational vehicles with substantially the same decor, features, equipment, size, weight, and
89g price;
89h (iv) belongs to a single, distinct classification of recreational vehicle product type having a
89i substantial degree of commonality in the construction of the chassis, frame, and body; and
89j (v) a franchise agreement authorizes a dealer to sell .S .
90 (12) "Mile" means 5,280 feet.
91 (13) "Motor home" means a self-propelled vehicle, primarily designed as a temporary
92 dwelling for travel, recreational, or vacation use.
93 (14) (a) "Motor vehicle" means:
94 (i) a travel trailer;
95 (ii) a motor vehicle as defined in Section 41-3-102 ;
96 (iii) a semitrailer as defined in Section 41-1a-102 ;
97 (iv) a trailer as defined in Section 41-1a-102 ; and
98 (v) a recreational vehicle.
99 (b) "Motor vehicle" does not include a motorcycle as defined in Section 41-1a-102 .
100 (15) "New motor vehicle" means a motor vehicle as defined in Subsection (14) that has
101 never been titled or registered and has been driven less than 7,500 miles, unless the motor
102 vehicle is a trailer, travel trailer, or semitrailer, in which case the mileage limit does not apply.
103 (16) "New motor vehicle dealer" is a person who is licensed under Subsection
104 41-3-202 (1)(a) to sell new motor vehicles.
105 (17) "Notice" or "notify" includes both traditional written communications and all
106 reliable forms of electronic communication unless expressly prohibited by statute or rule.
107 (18) (a) "Recreational vehicle" means a vehicular unit other than a mobile home,
108 primarily designed as a temporary dwelling for travel, recreational, or vacation use, that is
109 either self-propelled or pulled by another vehicle.
110 (b) "Recreational vehicle" includes:
111 (i) a travel trailer;

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(ii) a camping trailer;
113 (iii) a motor home;
114 (iv) a fifth wheel trailer; and
115 (v) a van.
116 (19) (a) "Relevant market area," except with respect to recreational vehicles, means:
117 (i) the county in which a dealership is to be established or relocated; and
118 (ii) the area within a ten-mile radius from the site of the new or relocated dealership.

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- 5 - 119 (b) "Relevant market area," with respect to recreational vehicles, means:
120 (i) the county in which the dealership is to be established or relocated; and
121 (ii) the area within a 35-mile radius from the site of the new or relocated dealership.
122 (20) "Sale, transfer, or assignment" means any disposition of a franchise or an interest
123 in a franchise, with or without consideration, including a bequest, inheritance, gift, exchange,
124 lease, or license.
125 (21) "Serve" or "served," unless expressly indicated otherwise by statute or rule,
126 includes any reliable form of communication.
127 (22) "Travel trailer," "camping trailer," or "fifth wheel trailer" means a portable vehicle
128 without motive power, designed as a temporary dwelling for travel, recreational, or vacation
129 use that does not require a special highway movement permit when drawn by a self-propelled
130 motor vehicle.
131 (23) "Written," "write," "in writing," or other variations of those terms shall include all
132 reliable forms of electronic communication.
133 Section 2. Section 13-14-103 is amended to read:
134 13-14-103. Utah Motor Vehicle Franchise Advisory Board -- Creation --
135 Appointment of members -- Alternate members -- Chair -- Quorum -- Conflict of interest.
136 (1) There is created within the department the Utah Motor Vehicle Franchise Advisory
137 Board that consists of:
138 (a) the executive director or the executive director's designee;
139 (b) [six] seven members appointed by the executive director, with the concurrence of
140 the governor as follows:
141 (i) one recreational motor vehicle franchisee;
142 (ii) [two] three new motor vehicle franchisees from different congressional districts in
143 the state; and
144 (iii) (A) three members representing motor vehicle franchisors registered by the
145 department pursuant to Section 13-14-105 ;
146 (B) three members of the general public, none of whom shall be related to any
147 franchisee; or
148 (C) three members consisting of any combination of these representatives under this
149 Subsection (1)(b)(iii).

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- 6 - 150 (2) (a) The executive director shall appoint, with the concurrence of the governor, three
151 alternate members, with one alternate from each of the designations set forth in Subsections
152 (1)(b)(i), (1)(b)(ii), and (1)(b)(iii), except that the new motor vehicle franchisee alternate or
153 alternates for the designation under Subsection (1)(b)(ii) may be from any congressional
154 district.
155 (b) An alternate shall take the place of a regular advisory board member from the same
156 designation at a meeting of the advisory board where that regular advisory board member is
157 absent or otherwise disqualified from participating in the advisory board meeting.
158 (3) (a) (i) Members of the advisory board appointed under Subsections (1)(b) and (2)
159 [shall be] are appointed for a term of four years.
160 (ii) No specific term [shall apply] applies to the executive director or the executive
161 director's designee.
162 (b) The executive director may adjust the term of members who were appointed to the
163 advisory board prior to July 1, 2001, by extending the unexpired term of a member for up to
164 two additional years in order to insure that approximately half of the members are appointed
165 every two years.
166 (c) In the event of a vacancy on the advisory board of a member appointed under
167 Subsection (1)(b) or (2), the executive director with the concurrence of the governor, shall
168 appoint an individual to complete the unexpired term of the member whose office is vacant.
169 (d) A member may not be appointed to more than two consecutive terms.
170 (4) (a) The executive director or the executive director's designee [shall be] is the chair
171 of the advisory board.
172 (b) The department shall keep a record of all hearings, proceedings, transactions,
173 communications, and recommendations of the advisory board.
174 (5) (a) Four or more members of the advisory board constitute a quorum for the
175 transaction of business.
176 (b) The action of a majority of a quorum present is considered the action of the
177 advisory board.
178 (6) (a) A member of the advisory board may not participate as a board member in a
179 proceeding or hearing:
180 (i) involving the member's licensed business or employer; or

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- 7 - 181 (ii) when a member, a member's business or family, or employer has a pecuniary
182 interest in the outcome or other conflict of interest concerning an issue before the advisory
183 board.
184 (b) If a member of the advisory board is disqualified under Subsection (6)(a), the
185 executive director shall select the appropriate alternate member to act on the issue before the
186 advisory board as provided in Subsection (2).
187 (7) Except for the executive director or the executive director's designee, an individual
188 may not be appointed or serve on the advisory board while holding any other elective or
189 appointive state or federal office.
190 (8) (a) (i) A member of the advisory board who is not a government employee shall
191 receive no compensation or benefits for the member's services, but may receive per diem and
192 expenses incurred in the performance of the member's official duties at the rates established by
193 the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
194 (ii) A member may decline to receive per diem and expenses for the member's services.
195 (b) (i) A state government officer and employee member who does not receive salary,
196 per diem, or expenses from the member's agency for the member's service may receive per
197 diem and expenses incurred in the performance of the member's official duties at the rates
198 established by the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
199 (ii) A state government officer and employee member may decline to receive per diem
200 and expenses for the member's service.
201 (9) The department shall provide necessary staff support to the advisory board.
202 Section 3. Section 13-14-104 is amended to read:
203 13-14-104. Powers and duties of the advisory board and the executive director.
204 (1) (a) Except as provided in Subsection 13-14-106 (3), the advisory board shall make
205 recommendations to the executive director on the administration and enforcement of this
206 chapter, including adjudicative and rulemaking proceedings.
207 (b) The executive director shall:
208 (i) consider the advisory board's recommendations; and
209 (ii) issue any final decision by the department.
210 (2) The executive director, in consultation with the advisory board, shall make rules for
211 the administration of this chapter in accordance with Title 63, Chapter 46a, Utah

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213 (3) (a) An adjudicative proceeding under this chapter shall be conducted in accordance
214 with Title 63, Chapter 46b, Administrative Procedures Act.
215 (b) In an adjudicative proceeding under this chapter, any order issued by the executive
216 director:
217 (i) shall comply with Section 63-46b-10 , whether the proceeding is a formal or an
218 informal adjudicative proceeding under Title 63, Chapter 46b, Administrative Procedures Act;
219 and
220 (ii) if the order modifies or rejects a finding of fact in a recommendation from the
221 advisory board, shall be made on the basis of information learned from the executive director's:
222 (A) personal attendance at the hearing; or
223 (B) review of the record developed at the hearing.
224 (4) The executive director's decision under this section shall be made available to the
225 public.
226 Section 4. Section 13-14-201 is amended to read:
227 13-14-201. Prohibited acts by franchisors -- Affiliates -- Disclosures.
228 (1) A franchisor may not in this state:
229 (a) except as provided in Subsection (3), require a franchisee to order or accept
230 delivery of any new motor vehicle, part, accessory, equipment, or other item not otherwise
231 required by law that is not voluntarily ordered by the franchisee;
232 (b) require a franchisee to:
233 (i) participate monetarily in any advertising campaign; or
234 (ii) contest, or purchase any promotional materials, display devices, or display
235 decorations or materials;
236 (c) require a franchisee to change the capital structure of the franchisee's dealership or
237 the means by or through which the franchisee finances the operation of the franchisee's
238 dealership, if the dealership at all times meets reasonable capital standards determined by and
239 applied in a nondiscriminatory manner by the franchisor;
240 (d) require a franchisee to refrain from participating in the management of, investment
241 in, or acquisition of any other line of new motor vehicles or related products, if the franchisee:
242 (i) maintains a reasonable line of credit for each make or line of vehicles; and

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- 9 - 243 (ii) complies with reasonable capital and facilities requirements of the franchisor;
244 (e) require a franchisee to prospectively agree to a release, assignment, novation,
245 waiver, or estoppel that would:
246 (i) relieve a franchisor from any liability, including notice and hearing rights imposed
247 on the franchisor by this chapter; or
248 (ii) require any controversy between the franchisee and a franchisor to be referred to a
249 third party if the decision by the third party would be binding;
250 (f) require a franchisee to change the location of the principal place of business of the
251 franchisee's dealership or make any substantial alterations to the dealership premises, if the
252 change or alterations would be unreasonable or cause the franchisee to lose control of the
253 premises or impose any other unreasonable requirement related to the facilities or premises;
254 (g) coerce or attempt to coerce a franchisee to join, contribute to, or affiliate with an
255 advertising association;
256 (h) require, coerce, or attempt to coerce a franchisee to enter into an agreement with the
257 franchisor or do any other act that is unfair or prejudicial to the franchisee, by threatening to
258 cancel a franchise agreement or other contractual agreement or understanding existing between
259 the franchisor and franchisee;
260 (i) adopt, change, establish, modify, or implement a plan or system for the allocation,
261 scheduling, or delivery of new motor vehicles, parts, or accessories to its franchisees so that the
262 plan or system is not fair, reasonable, and equitable;
263 (j) increase the price of any new motor vehicle that the franchisee has ordered from the
264 franchisor and for which there exists at the time of the order a bona fide sale to a retail
265 purchaser if the order was made prior to the franchisee's receipt of an official written price
266 increase notification;
267 (k) fail to indemnify and hold harmless its franchisee against any judgment for
268 damages or settlement approved in writing by the franchisor:
269 (i) including court costs and attorneys' fees arising out of actions, claims, or
270 proceedings including those based on:
271 (A) strict liability;
272 (B) negligence;
273 (C) misrepresentation;

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- 10 - 274 (D) express or implied warranty;
275 (E) revocation as described in Section 70A-2-608 ; or
276 (F) rejection as described in Section 70A-2-602 ; and
277 (ii) to the extent the judgment or settlement relates to alleged defective or negligent
278 actions by the franchisor;
279 (l) threaten or coerce a franchisee to waive or forbear its right to protest the
280 establishment or relocation of a same line-make franchisee in the relevant market area of the
281 affected franchisee;
282 (m) fail to ship monthly to a franchisee, if ordered by the franchisee, the number of
283 new motor vehicles of each make, series, and model needed by the franchisee to achieve a
284 percentage of total new vehicle sales of each make, series, and model equitably related to the
285 total new vehicle production or importation being achieved nationally at the time of the order
286 by each make, series, and model covered under the franchise agreement;
287 (n) require or otherwise coerce a franchisee to under-utilize the franchisee's existing
288 facilities;
289 (o) fail to include in any franchise agreement the following language or language to the
290 effect that: "If any provision in this agreement contravenes the laws or regulations of any state
291 or other jurisdiction where this agreement is to be performed, or provided for by such laws or
292 regulations, the provision is considered to be modified to conform to such laws or regulations,
293 and all other terms and provisions shall remain in full force.";
294 (p) engage in the distribution, sale, offer for sale, or lease of a new motor vehicle to
295 purchasers who acquire the vehicle in this state except through a franchisee with whom the
296 franchisor has established a written franchise agreement, if the franchisor's trade name,
297 trademark, service mark, or related characteristic is an integral element in the distribution, sale,
298 offer for sale, or lease;
299 (q) engage in the distribution or sale of a recreational vehicle that is manufactured,
300 rented, sold, or offered for sale in this state without being constructed in accordance with the
301 standards set by the American National Standards Institute for recreational vehicles and
302 evidenced by a seal or plate attached to the vehicle;
303 (r) except as provided in Subsection (2), authorize or permit a person to perform
304 warranty service repairs on motor vehicles, except warranty service repairs:

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- 11 - 305 (i) by a franchisee with whom the franchisor has entered into a franchise agreement for
306 the sale and service of the franchisor's motor vehicles; or
307 (ii) on owned motor vehicles by a person or government entity who has purchased new
308 motor vehicles pursuant to a franchisor's or manufacturer's fleet discount program;
309 (s) fail to provide a franchisee with a written franchise agreement;
310 (t) (i) except as provided in Subsection (1)(t)(ii) and notwithstanding any other
311 provisions of this chapter:
312 (A) unreasonably fail or refuse to offer to its same line-make franchised dealers all
313 models manufactured for that line-make;
314 (B) unreasonably require a dealer to:
315 (I) pay any extra fee, remodel, renovate, recondition the dealer's existing facilities; or
316 (II) purchase unreasonable advertising displays or other materials as a prerequisite to
317 receiving a model or series of vehicles;
318 (ii) notwithstanding Subsection (1)(t)(i), a recreational vehicle manufacturer may split
319 a line-make between motor home and travel trailer products;
320 (u) except as provided in Subsection (6), directly or indirectly:
321 (i) own an interest in a new motor vehicle dealer or dealership;
322 (ii) operate or control a new motor vehicle dealer or dealership;
323 (iii) act in the capacity of a new motor vehicle dealer, as defined in Section 13-14-102 ;
324 or
325 (iv) operate a motor vehicle service facility;
326 (v) fail to timely pay for all reimbursements to a franchisee for incentives and other
327 payments made by the franchisor;
328 (w) directly or indirectly influence or direct potential customers to franchisees in an
329 inequitable manner, including:
330 (i) charging a franchisee a fee for a referral regarding a potential sale or lease of any of
331 the franchisee's products or services in an amount exceeding the actual cost of the referral;
332 (ii) giving a customer referral to a franchisee on the condition that the franchisee agree
333 to sell the vehicle at a price fixed by the franchisor; or
334 (iii) advising a potential customer as to the amount that the potential customer should
335 pay for a particular product;

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- 12 - 336 (x) fail to provide comparable delivery terms to each franchisee for a product of the
337 franchisor, including the time of delivery after the placement of an order by the franchisee;
338 (y) if personnel training is provided by the franchisor to its franchisees, unreasonably
339 fail to make that training available to each franchisee on proportionally equal terms;
340 (z) condition a franchisee's eligibility to participate in a sales incentive program on the
341 requirement that a franchisee use the financing services of the franchisor or a subsidiary or
342 affiliate of the franchisor for inventory financing;
343 (aa) make available for public disclosure, except with the franchisee's permission or
344 under subpoena or in any administrative or judicial proceeding in which the franchisee or the
345 franchisor is a party, any confidential financial information regarding a franchisee, including:
346 (i) monthly financial statements provided by the franchisee;
347 (ii) the profitability of a franchisee; or
348 (iii) the status of a franchisee's inventory of products;
349 (bb) use any performance standard, incentive program, or similar method to measure
350 the performance of franchisees unless the standard or program:
351 (i) is designed and administered in a fair, reasonable, and equitable manner;
352 (ii) if based upon a survey, utilizes an actuarially generally acceptable, valid sample;
353 and
354 (iii) is, upon request by a franchisee, disclosed and explained in writing to the
355 franchisee, including:
356 (A) how the standard or program is designed;
357 (B) how the standard or program will be administered; and
358 (C) the types of data that will be collected and used in the application of the standard or
359 program;
360 (cc) other than sales to the federal government, directly or indirectly, sell, lease, offer
361 to sell, or offer to lease, a new motor vehicle or any motor vehicle owned by the franchisor,
362 except through a franchised new motor vehicle dealer;
363 (dd) compel a franchisee, through a finance subsidiary, to agree to unreasonable
364 operating requirements, except that this Subsection (1)(dd) may not be construed to limit the
365 right of a financing subsidiary to engage in business practices in accordance with the usage of
366 trade in retail and wholesale motor vehicle financing;

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(ee) condition the franchisor's participation in co-op advertising for a product category
368 on the franchisee's participation in any program related to another product category or on the
369