H.B. 47 Enrolled

NEW AUTOMOBILE FRANCHISE ACT
AMENDMENTS
2005 GENERAL SESSION
STATE OF UTAH
Chief Sponsor: Stephen H. Urquhart
Senate Sponsor: Dan R. Eastman

LONG TITLE
General Description:
This bill adds to the list of prohibited acts in the New Automobile Franchise Act.
Highlighted Provisions:
This bill:
. defines terms;
. addresses requirements for a franchisor's taking or controlling of a franchisee's
funds;
. prohibits a franchisor from conditioning preferential status on the sale of certain
products if the franchisor receives a financial benefit from the franchisee's sale of
that product; and
. makes technical changes.
Monies Appropriated in this Bill:
None
Other Special Clauses:
None
Utah Code Sections Affected:
AMENDS:
13-14-102, as last amended by Chapter 123, Laws of Utah 2004
13-14-201, as last amended by Chapter 68, Laws of Utah 2002

Be it enacted by the Legislature of the state of Utah:

Section 1. Section 13-14-102 is amended to read:
13-14-102. Definitions.
As used in this chapter:
(1) "Affiliate" has the meaning set forth in Section 16-10a-102 .
(2) "Aftermarket product" means any product or service not included in the
manufacturer's suggested retail price of the new motor vehicle, as that price appears on the label
required by 15 U.S.C. Sec. 1232(f).
[(2)] (3) "Board" means the Utah Motor Vehicle Franchise Advisory Board created in
Section 13-14-103 .
[(3)] (4) "Dealership" means a site or location in this state:
(a) at which a franchisee conducts the business of a new motor vehicle dealer; and
(b) that is identified as a new motor vehicle dealer's principal place of business for
licensing purposes under Section 41-3-204 .
[(4)] (5) "Department" means the Department of Commerce.
[(5)] (6) "Executive director" means the executive director of the Department of
Commerce.
[(6)] (7) "Franchise" or "franchise agreement" means a written agreement, for a definite
or indefinite period, in which:
(a) a person grants to another person a license to use a trade name, trademark, service
mark, or related characteristic; and
(b) a community of interest exists in the marketing of new motor vehicles, new motor
vehicle parts, and services related to the sale or lease of new motor vehicles at wholesale or
retail.
[(7)] (8) "Franchisee" means a person with whom a franchisor has agreed or permitted, in
writing or in practice, to purchase, sell, or offer for sale new motor vehicles manufactured,
produced, represented, or distributed by the franchisor.
[(8)] (9) "Franchisor" means a person who has, in writing or in practice, agreed with or
permits a franchisee to purchase, sell, or offer for sale new motor vehicles manufactured,

produced, represented, or distributed by the franchisor, and includes:
(a) the manufacturer or distributor of the new motor vehicles;
(b) an intermediate distributor; and
(c) an agent, officer, or field or area representative of the franchisor.
[(9)] (10) "Lead" means the referral by a franchisor to a franchisee of a potential
customer whose contact information was obtained from a franchisor's program, process, or
system designed to generate referrals for the purchase or lease of a new motor vehicle, or for
service work related to the franchisor's vehicles.
[(10)] (11) "Line-make" means the motor vehicles that are offered for sale, lease, or
distribution under a common name, trademark, service mark, or brand name of the franchisor, or
manufacturer of the motor vehicle.
[(11)] (12) "Mile" means 5,280 feet.
[(12)] (13) "Motor home" means a self-propelled vehicle, primarily designed as a
temporary dwelling for travel, recreational, or vacation use.
[(13)] (14) (a) "Motor vehicle" means:
(i) a travel trailer;
(ii) a motor vehicle as defined in Section 41-3-102 ;
(iii) a semitrailer as defined in Section 41-1a-102 ;
(iv) a trailer as defined in Section 41-1a-102 ; and
(v) a recreational vehicle.
(b) "Motor vehicle" does not include a motorcycle as defined in Section 41-1a-102 .
[(14)] (15) "New motor vehicle" means a motor vehicle as defined in Subsection [(13)]
(14) that has never been titled or registered and has been driven less than 7,500 miles, unless the
motor vehicle is a trailer, travel trailer, or semitrailer, in which case the mileage limit does not
apply.
[(15)] (16) "New motor vehicle dealer" is a person who is licensed under Subsection
41-3-202 (1)(a) to sell new motor vehicles.
[(16)] (17) "Notice" or "notify" includes both traditional written communications and all

reliable forms of electronic communication unless expressly prohibited by statute or rule.
[(17)] (18) "Recreational vehicle" means a vehicular unit other than a mobile home,
primarily designed as a temporary dwelling for travel, recreational, or vacation use, which is
either self-propelled or pulled by another vehicle. "Recreational vehicle" includes a travel trailer,
a camping trailer, a motor home, a fifth wheel trailer, and a van.
[(18)] (19) (a) "Relevant market area," except with respect to recreational vehicles,
means:
(i) the county in which a dealership is to be established or relocated; and
(ii) the area within a ten-mile radius from the site of the new or relocated dealership.
(b) "Relevant market area," with respect to recreational vehicles, means:
(i) the county in which the dealership is to be established or relocated; and
(ii) the area within a 35-mile radius from the site of the new or relocated dealership.
[(19)] (20) "Sale, transfer, or assignment" means any disposition of a franchise or an
interest in a franchise, with or without consideration, including a bequest, inheritance, gift,
exchange, lease, or license.
[(20)] (21) "Serve" or "served," unless expressly indicated otherwise by statute or rule,
includes any reliable form of communication.
[(21)] (22) "Travel trailer," "camping trailer," or "fifth wheel trailer" means a portable
vehicle without motive power, designed as a temporary dwelling for travel, recreational, or
vacation use that does not require a special highway movement permit when drawn by a
self-propelled motor vehicle.
[(22)] (23) "Written," "write," "in writing," or other variations of those terms shall
include all reliable forms of electronic communication.
Section 2. Section 13-14-201 is amended to read:
13-14-201. Prohibited acts by franchisors -- Affiliates -- Disclosures.
(1) A franchisor may not in this state:
(a) except as provided in Subsection (3), require a franchisee to order or accept delivery
of any new motor vehicle, part, accessory, equipment, or other item not otherwise required by

law that is not voluntarily ordered by the franchisee;
(b) require a franchisee to participate monetarily in any advertising campaign or contest,
or purchase any promotional materials, display devices, or display decorations or materials;
(c) require a franchisee to change the capital structure of the franchisee's dealership or
the means by or through which the franchisee finances the operation of the franchisee's
dealership, if the dealership at all times meets reasonable capital standards determined by and
applied in a nondiscriminatory manner by the franchisor;
(d) require a franchisee to refrain from participating in the management of, investment
in, or acquisition of any other line of new motor vehicles or related products, if the franchisee:
(i) [the franchisee] maintains a reasonable line of credit for each make or line of vehicles;
and
(ii) complies with reasonable capital and facilities requirements of the franchisor;
(e) require a franchisee to prospectively agree to a release, assignment, novation, waiver,
or estoppel that would:
(i) relieve a franchisor from any liability imposed by this chapter; or
(ii) require any controversy between the franchisee and a franchisor to be referred to a
third party if the decision by the third party would be binding;
(f) require a franchisee to change the location of the principal place of business of the
franchisee's dealership or make any substantial alterations to the dealership premises, if the
change or alterations would be unreasonable;
(g) coerce or attempt to coerce a franchisee to join, contribute to, or affiliate with an
advertising association;
(h) require, coerce, or attempt to coerce a franchisee to enter into an agreement with the
franchisor or do any other act that is unfair or prejudicial to the franchisee, by threatening to
cancel a franchise agreement or other contractual agreement or understanding existing between
the franchisor and franchisee;
(i) adopt, change, establish, modify, or implement a plan or system for the allocation,
scheduling, or delivery of new motor vehicles, parts, or accessories to its franchisees so that the

plan or system is not fair, reasonable, and equitable;
(j) increase the price of any new motor vehicle that the franchisee has ordered from the
franchisor and for which there exists at the time of the order a bona fide sale to a retail purchaser
if the order was made prior to the franchisee's receipt of an official written price increase
notification;
(k) fail to indemnify and hold harmless its franchisee against any judgment for damages
or settlement approved in writing by the franchisor:
(i) including court costs and attorneys' fees arising out of actions, claims, or proceedings
including those based on:
(A) strict liability;
(B) negligence;
(C) misrepresentation;
(D) express or implied warranty;
(E) revocation as described in Section 70A-2-608 ; or
(F) rejection as described in Section 70A-2-602 ; and
(ii) to the extent the judgment or settlement relates to alleged defective or negligent
actions by the franchisor;
(l) threaten or coerce a franchisee to waive or forbear its right to protest the
establishment or relocation of a same line-make franchisee in the relevant market area of the
affected franchisee;
(m) fail to ship monthly to a franchisee, if ordered by the franchisee, the number of new
motor vehicles of each make, series, and model needed by the franchisee to achieve a percentage
of total new vehicle sales of each make, series, and model equitably related to the total new
vehicle production or importation being achieved nationally at the time of the order by each
make, series, and model covered under the franchise agreement;
(n) require or otherwise coerce a franchisee to under-utilize the franchisee's existing
facilities;
(o) fail to include in any franchise agreement the following language or language to the

effect that: "If any provision in this agreement contravenes the laws or regulations of any state or
other jurisdiction where this agreement is to be performed, or provided for by such laws or
regulations, the provision is considered to be modified to conform to such laws or regulations,
and all other terms and provisions shall remain in full force.";
(p) engage in the distribution, sale, offer for sale, or lease of a new motor vehicle to
purchasers who acquire the vehicle in this state except through a franchisee with whom the
franchisor has established a written franchise agreement, if the franchisor's trade name,
trademark, service mark, or related characteristic is an integral element in the distribution, sale,
offer for sale, or lease;
(q) engage in the distribution or sale of a recreational vehicle [which] that is
manufactured, rented, sold, or offered for sale in this state without being constructed in
accordance with the standards set by the American National Standards Institute for recreational
vehicles and evidenced by a seal or plate attached to the vehicle;
(r) except as provided in Subsection (2), authorize or permit a person to perform
warranty service repairs on motor vehicles, except warranty service repairs:
(i) by a franchisee with whom the franchisor has entered into a franchise agreement for
the sale and service of the franchisor's motor vehicles; or
(ii) on owned motor vehicles by a person or government entity who has purchased new
motor vehicles pursuant to a franchisor's or manufacturer's fleet discount program;
(s) fail to provide a franchisee with a written franchise agreement;
(t) (i) except as provided in Subsection (1)(t)(ii) and notwithstanding any other
provisions of this chapter[,]:
(A) unreasonably fail or refuse to offer to its same line-make franchised dealers all
models manufactured for that line-make[, or];
(B) unreasonably require a dealer to:
(I) pay any extra fee, remodel, renovate, recondition the dealer's existing facilities[,]; or
(II) purchase unreasonable advertising displays or other materials as a prerequisite to
receiving a model or series of vehicles[, except that];

(ii) notwithstanding Subsection (1)(t)(i), a recreational vehicle manufacturer may split a
line-make between motor home and travel trailer products;
(u) except as provided in Subsection (6), directly or indirectly:
(i) own an interest in a new motor vehicle dealer or dealership;
(ii) operate or control a new motor vehicle dealer or dealership;
(iii) act in the capacity of a new motor vehicle dealer, as defined in Section 13-14-102 ; or
(iv) operate a motor vehicle service facility;
(v) fail to timely pay for all reimbursements to a franchisee for incentives and other
payments made by the franchisor;
(w) directly or indirectly influence or direct potential customers to franchisees in an
inequitable manner, including:
(i) charging a franchisee a fee for a referral regarding a potential sale or lease of any of
the franchisee's products or services in an amount exceeding the actual cost of the referral;
(ii) giving a customer referral to a franchisee on the condition that the franchisee agree to
sell the vehicle at a price fixed by the franchisor; or
(iii) advising a potential customer as to the amount that the potential customer should
pay for a particular product;
(x) fail to provide comparable delivery terms to each franchisee for a product of the
franchisor, including the time of delivery after the placement of an order by the franchisee;
(y) if personnel training is provided by the franchisor to its franchisees, unreasonably fail
to make that training available to each franchisee on proportionally equal terms;
(z) condition a franchisee's eligibility to participate in a sales incentive program on the
requirement that a franchisee use the financing services of the franchisor or a subsidiary or
affiliate of the franchisor for inventory financing;
(aa) make available for public disclosure, except with the franchisee's permission or
under subpoena or in any administrative or judicial proceeding in which the franchisee or the
franchisor is a party, any confidential financial information regarding a franchisee, including:
(i) monthly financial statements provided by the franchisee;

(ii) the profitability of a franchisee; or
(iii) the status of a franchisee's inventory of products;
(bb) use any performance standard, incentive program, or similar method to measure the
performance of franchisees unless the standard or program:
(i) is designed and administered in a fair, reasonable, and equitable manner;
(ii) if based upon a survey, utilizes an actuarially generally acceptable, valid sample; and
(iii) is, upon request by a franchisee, disclosed and explained in writing to the franchisee,
including:
(A) how the standard or program is designed[,];
(B) how [it] the standard or program will be administered[,]; and
(C) the types of data that will be collected and used in [its] the application of the standard
or program;
(cc) other than sales to the federal government, directly or indirectly, sell, lease, offer to
sell, or offer to lease, a new motor vehicle or any motor vehicle owned by the franchisor, except
through a franchised new motor vehicle dealer;
(dd) compel a franchisee, through a finance subsidiary, to agree to unreasonable
operating requirements, except that this Subsection (1)(dd) shall not be construed to limit the
right of a financing subsidiary to engage in business practices in accordance with the usage of
trade in retail and wholesale motor vehicle financing;
(ee) condition the franchisor's participation in co-op advertising for a product category on
the franchisee's participation in any program related to another product category or on the
franchisee's achievement of any level of sales in a product category other than that which is the
subject of the co-op advertising;
(ff) except as provided in Subsections (7) through (9), discriminate against a franchisee
in the state in favor of another franchisee of the same line-make in the state by:
(i) selling or offering to sell a new motor vehicle to one franchisee at a higher actual
price, including the price for vehicle transportation, than the actual price at which the same
model similarly equipped is offered to or is made available by the franchisor to another

franchisee in the state during a similar time period;
(ii) except as provided in Subsection (8), using a promotional program or device or an
incentive, payment, or other benefit, whether paid at the time of the sale of the new motor vehicle
to the franchisee or later, that results in the sale of or offer to sell a new motor vehicle to one
franchisee in the state at a higher price, including the price for vehicle transportation, than the
price at which the same model similarly equipped is offered or is made available by the
franchisor to another franchisee in the state during a similar time period; or
(iii) except as provided in Subsection (9), failing to provide or direct a lead in a fair,
equitable, and timely manner; [or]
[(gg) through an affiliate, take any action that would otherwise be prohibited under this
chapter.]
(gg) (i) take control over funds owned or under the control of a franchisee based on the
findings of a warranty audit or sales incentive audit unless the following conditions are satisfied:
(A) the franchisor fully identifies in writing the basis for the franchisor's claim or charge
back arising from the audit, including notifying the franchisee that the franchisee has 20 days
from the day on which the franchisee receives the franchisor's claim or charge back to assert a
protest in writing to the franchisor identifying the basis for the protest;
(B) the franchisee's protest shall inform the franchisor that the protest shall be submitted
to a mediator in the state who is identified by name and address in the franchisee's notice to the
franchisor;
(C) if mediation is requested under Subsection (gg)(i)(B), mediation shall occur no later
than 30 days after the day on which the franchisor receives the franchisee's protest of a claim or
charge back;
(D) if mediation does not lead to a resolution of the protest, the protest shall be set for
binding arbitration in the same venue in which the mediation occurred;
(E) binding arbitration under Subsection (gg)(i)(D) shall be conducted:
(I) by an arbitrator mutually agreed upon by the franchisor and the franchisee; and
(II) on a date mutually agreed upon by the franchisor and the franchisee, but shall be held

no later than 90 days after the franchisor's receipt of the franchisee's notice of protest;
(F) this Subsection (1)(gg)(i) applies exclusively to warranty audits and sales incentive
audits;
(G) Subsections (1)(gg)(i)(A) through (E) do not apply if the franchisor reasonably
believes that the amount of the claim or charge back is related to a fraudulent act by the
franchisee; and
(H) The costs of the mediator or arbitrator instituted under this Subsection (1)(gg) shall
be shared equally by the franchisor and the franchisee.
(ii) A franchisor may not require a franchisee to execute a written waiver of the
requirements of Subsection (gg)(i);
(hh) coerce, or attempt to coerce a franchisee to purchase or sell an aftermarket product
manufactured by the franchisor, or obtained by the franchisor for resale from a third-party
supplier and the franchisor or its affiliate derives a financial benefit from the franchisee's sale or
purchase of the aftermarket product as a condition to obtaining preferential status from the
franchisor; or
(ii) through an affiliate, take any action that would otherwise be prohibited under this
chapter.
(2) Notwithstanding Subsection (1)(r), a franchisor may authorize or permit a person to
perform warranty service repairs on motor vehicles if the warranty services is for a franchisor of
recreational vehicles.
(3) Subsection (1)(a) does not prevent the franchisor from requiring that a franchisee
carry a reasonable inventory of:
(a) new motor vehicle models offered for sale by the franchisor; and
(b) parts to service the repair of the new motor vehicles.
(4) Subsection (1)(d) does not prevent a franchisor from:
(a) requiring that a franchisee maintain separate sales personnel or display space; or
(b) refusing to permit a combination of new motor vehicle lines, if justified by
reasonable business considerations.

(5) Upon the written request of any franchisee, a franchisor shall disclose in writing to
the franchisee the basis on which new motor vehicles, parts, and accessories are allocated,
scheduled, and delivered among the franchisor's dealers of the same line-make.
(6) (a) A franchisor may engage in any of the activities listed in Subsection (1)(u), for a
period not to exceed 12 months if:
(i) (A) the person from whom the franchisor acquired the interest in or control of the new
motor vehicle dealership was a franchised new motor vehicle dealer; and
(B) the franchisor's interest in the new motor vehicle dealership is for sale at a reasonable
price and on reasonable terms and conditions; or
(ii) the franchisor is engaging in the activity listed in Subsection (1)(u) for the purpose of
broadening the diversity of its dealer body and facilitating the ownership of a new motor vehicle
dealership by a person who:
(A) is part of a group that has been historically underrepresented in the franchisor's
dealer body;
(B) would not otherwise be able to purchase a new motor vehicle dealership;
(C) has made a significant investment in the new motor vehicle dealership which is
subject to loss;
(D) has an ownership interest in the new motor vehicle dealership; and
(E) operates the new motor vehicle dealership under a plan to acquire full ownership of
the dealership within a reasonable period of time and under reasonable terms and conditions.
(b) The board may, for good cause shown, extend the time limit set forth in Subsection
(6)(a) for an additional period not to exceed 12 months.
(c) A franchisor who was engaged in any of the activities listed in Subsection (1)(u) in
this state prior to May 1, 2000, may continue to engage in that activity, but shall not expand that
activity to acquire an interest in any other new motor vehicle dealerships or motor vehicle service
facilities after May 1, 2000.
(d) Notwithstanding [the provisions of] Subsection (1)(u), a franchisor may own, operate,
or control a new motor vehicle dealership trading in a line-make of motor vehicle if:

(i) as to that line-make of motor vehicle, there are no more than four franchised new
motor vehicle dealerships licensed and in operation within the state as of January 1, 2000;
(ii) the franchisor does not own directly or indirectly, more than a 45% interest in the
dealership;
(iii) at the time the franchisor first acquires ownership or assumes operation or control of
the dealership, the distance between the dealership thus owned, operated, or controlled and the
nearest unaffiliated new motor vehicle dealership trading in the same line-make is not less than
150 miles;
(iv) all the franchisor's franchise agreements confer rights on the franchisee to develop
and operate as many dealership facilities as the franchisee and franchisor shall agree are
appropriate within a defined geographic territory or area; and
(v) as of January 1, 2000, no fewer than half of the franchisees of the line-make within
the state own and operate two or more dealership facilities in the geographic area covered by the
franchise agreement.
(7) Subsection (1)(ff) does not apply to recreational vehicles.
(8) Subsection (1)(ff)(ii) does not prohibit a promotional or incentive program that is
functionally available to all competing franchisees of the same line-make in the state on
substantially comparable terms.
(9) Subsection (1)(ff)(iii) may not be construed to:
(a) permit provision of or access to customer information that is otherwise protected
from disclosure by law or by contract between a franchisor and a franchisee; or
(b) require a franchisor to disregard the preference volunteered by a potential customer in
providing or directing a lead.
(10) Subsection (1)[(gg)](ii) does not limit the right of an affiliate to engage in business
practices in accordance with the usage of trade in which the affiliate is engaged.