This is Part 1 of a two-part series.

The California New Motor Vehicle Board (the “Board”) was originally established in 1967 as the New Car Dealers Policy and Appeals Board to hear appeals of new car dealer licensing decisions made by the Department of Motor Vehicles. Initially, its duties were similar to other occupational licensing boards. In 1973, the Legislature renamed the Board the New Motor Vehicle Board and expanded its authority by adding Vehicle Code sections 3060 to 3069, which became operative on July 1, 1974. These sections empowered the Board to adjudicate disputes between new car dealers and manufacturers.  

In enacting the 1973 legislation, the Legislature found that the distribution and sale of new motor vehicles were vital to the California economy and public welfare, and that empowering the Board to adjudicate disputes was necessary to address the power imbalance between manufacturers and independent new motor vehicle dealers. It would also ensure that said dealers fulfill their obligations as franchisees and provide adequate and sufficient service to consumers. Protests before the Board are a crucial tool for dealers to protect their rights and prevent manufacturer overreach.

This article is Part 1 of a two-part series. Part 1 provides the many protest rights dealers can file with the Board to resolve disputes with their manufacturer-franchisors. Part 2 will focus on when dealers can file lawsuits to resolve franchisor disputes without first seeking arbitration or mediation through the Board for such disputes. Part 2 will also discuss the petition process that can be filed with the Board and when petitions are applicable.

The following is a description of the various protests that franchisees can file with the Board, showing in each instance which party has the burden of proof. The allocation of the burden of proof in Board proceedings is significant, because when a party has the burden of proof, it means that party must convince the administrative law judge that the evidence it has produced outweighs the evidence presented by the opposing party. The party with the burden of proof usually presents its case first in the Board proceeding.

Termination

When a dealer receives a written notice of termination (or a refusal to continue an existing franchise agreement), filing a termination protest automatically stays the termination, allowing the dealer to continue operating while the protest is pending. Most termination protests need to be filed within 30 days of the dealer’s receipt of the notice of termination, but some need to be filed within 10 days (e.g., insolvency, failure to operate during regular hours or transfer of ownership interest without consent). It is essential to promptly consult with competent counsel upon receipt of a notice of termination. The franchisor has the burden of proof to establish good cause for the termination. If the franchisor cannot do so, the Board will not permit the termination.

Modification of Franchise

This protest allows dealers to halt and challenge a proposed modification or replacement of a franchise agreement if it would substantially affect the franchisee’s sales, service obligations, or investment. This protest must be filed within 30 days from the dealer’s receipt of notice, or 30 days after the end of any appeal procedure provided by the franchisor. The dealer has the burden of proving a modification to the franchise agreement. Once it does, the burden shifts to the franchisor to show good cause for the proposed change. The franchisor cannot enact the change unless and until the protest is resolved in its favor.

Additional or Relocated Franchise Within a 10-Mile Radius

Dealers can challenge the establishment of a new dealership or the relocation of an existing dealership of the same line-make within a 10-mile radius. The manufacturer or distributor must first give written notice to the Board and to dealerships of the same line-make within the relevant marketing area of the proposed new or relocating dealership. This protest must be filed within 20 days of the dealer’s receipt of notice, or 20 days after the end of any appeal procedure provided by the franchisor. The protesting dealer has the burden of proving that there is reasonable cause to prevent the establishment of the additional dealer or relocation.

Additional or Relocated Satellite Warranty Facility Within a Two-Mile Radius

Dealers can challenge the establishment of an additional satellite warranty facility or the relocation of an existing satellite warranty facility within two miles of any dealership of the same line-make. The manufacturer or distributor must first give written notice to the Board and to dealerships of the same line-make within two miles of the proposed location. This also must be filed within 20 days from the dealer’s receipt of notice or after the end of any appeal procedure with the franchisor. The protesting dealer has the burden of proving that there is reasonable cause to prevent the establishment of the additional or relocated satellite warranty facility.

Retail Warranty Compensation Law Compliance

This protest allows a dealer to establish or modify their retail labor rate and/or retail parts rate by Board declaration if the franchisor fails to comply with the statutory methodology or if the dealer disputes the manufacturer’s proposed adjusted rates. If successful, the Board determines the correct rates, and the dealer may be entitled to retroactive payment. The franchisor has the burden of proof.

Reduction in Warranty Reimbursement

This protest allows the dealer to challenge a reduction in time or compensation applicable to specific parts or labor operations. The protest needs to be filed within six months following the franchisee’s receipt of notice of the reduction. The franchisor has the burden of proof to establish the reasonableness, adequacy and fairness of the reduction.

Improper Disapproval of Warranty Claim 

The Board determines if the franchisor followed proper timelines and limited disapproval reasons (e.g., false claim, improper repair or material noncompliance), offering the dealer a path to overturn wrongful denials. The franchisor has the burden of proof. The dealer must file the protest within six months after receiving the written disapproval, and the franchisor bears the burden of proof.

Improper Chargeback of Warranty Claim After Audit

This is one of the most common protests. The franchisor may conduct audits of dealer warranty records on a reasonable basis and for a period of nine months following the payment of a claim. If the franchisor disapproves of a previously approved claim following an audit, within 30 days after the audit, the franchisor shall provide the dealer with a written notice of disapproval stating the specific grounds upon which the claim is disapproved. The dealer shall have at least 30 days thereafter to appeal and respond to any disapproval with additional supporting documentation or information that rebuts the disapproval. If, after the appeal process, the franchisor issues a final denial of a warranty claim, it must provide the dealer with a written notification of the final denial, and cannot charge the dealer back for 45 days after.

If the dealer files a protest before the 45-day period expires, the franchisor is prohibited from charging the dealer until the Board issues a final order on the protest. The Board determines whether the franchisor followed timelines and limited claim disapproval reasons (false claim, ineligible under communicated terms or material noncompliance). The franchisor has the burden of proof.

Improper Chargeback of Sales Incentive Claims After Audit

Dealers can challenge chargebacks following sales incentive audits to confirm the franchisor acted lawfully and did not violate audit limitations (e.g., adherence to the nine-month period or proper extrapolation methods). A dealer must initiate the protest within six months of receiving the chargeback notice from the franchisor. The franchisor has the burden of proof.

Unreasonable Performance Standards

A dealer can challenge any performance standard, sales objective or measuring program that materially affects them (e.g., affecting incentive payment eligibility or working capital) if it is inconsistent with standards outlined in Vehicle Code § 11713.13(g). The Board determines whether the standard is reasonable based on local demographics, market characteristics, vehicle allocation, economic circumstances, and historical sales and service records. No specific time limit is set for the dealer to file the protest, but it must be filed within a “reasonable time.” The franchisor has the burden of proof.

Improper Vehicle or Parts Allocation

A dealer can challenge the franchisor’s failure to deliver vehicles or parts in reasonable quantities and within a reasonable time after an order, or the failure to disclose the basis of the allocation system upon written request (VC § 11713.3(a)). No specific time limit is prescribed for filing, but it should be done within a reasonable time. The franchisor has the burden of proof.

Franchisor Competing With Dealer

Dealers can challenge a manufacturer or its affiliate that is unfairly competing in the sale, lease, or warranty service of new motor vehicles, except in cases where specifically permitted exceptions apply (e.g., temporary ownership or dealer development programs). Again, no specific time is prescribed, but the protest should be filed within a reasonable time. The franchisor has the burden of proof to show it is not competing with dealers.

Requirement to Maintain Exclusive Facilities/Refusal to Allow Another Line Make

So long as a dealer complies with the reasonable facilities and capital requirements of the franchisor, a dealer can protest its franchisor’s insistence to maintain exclusive facilities, and/or the refusal to authorize adding a sales or service operation of another line-make.  The franchisor bears the burden of proof in such protests to demonstrate that its position is reasonable, considering all existing circumstances.

Requirement to Make Facility Upgrades

Dealers can protest manufacturer requirements for a facility upgrade. The franchisor has the burden of proof to show that the requirement is reasonable considering all existing circumstances.

Requirement to Install Fast Charging Stations

Dealers can protest a manufacturer’s fast charging station requirements. The franchisor has the burden of proof to show that all the statutory requirements of Vehicle Code § 11713.13(k) are met.

Preparation and Delivery Compensation

If a dealer believes the compensation specified by the franchisor for fulfilling delivery and preparation obligations is unreasonable, it can file a protest with the Board. The dealer has the burden of proof to demonstrate that the compensation is unreasonable, considering all relevant circumstances.

Association Challenging Export Policy Legality

A dealer association may file this protest on behalf of two or more dealers to obtain a Board declaration regarding whether a manufacturer’s export or sale-for-resale prohibition policy violates dealer protections. The association has the burden of proof.

For detailed information about these protest rights, review the California New Car Dealers Association (CNCDA) Franchise Law Manual authored by our firm. It can be found in the Comply section at www.cncda.org.