Offered April 18, 1996.

Senate Substitute #2 adopted, April 18, 1996.

Taken up for Perfection April 18, 1996. Bill declared Perfected and Ordered Printed, as amended.

TERRY L. SPIELER, Secretary.

S3057.16P

To repeal sections 407.815, 407.825 and 407.835, RSMo 1994, relating to motor vehicle franchise practices, and to enact in lieu thereof eight new sections relating to the same subject.

Be it enacted by the General Assembly of the State of Missouri, as follows:

Section A. Sections 407.815, 407.825 and 407.835, RSMo 1994, are repealed and eight new sections enacted in lieu thereof to be known as sections 407.815, 407.822, 407.825, 407.835, 621.053, 1, 2 and 3, to read as follows:

407.815. As used in sections 407.810 to 407.835, unless the context otherwise requires:

(1) "Administrative hearing commission", the body established in chapter 621, RSMo, to conduct administrative hearings;

[(1)] (2) "Coerce" shall mean to force a person to act in a given manner or to compel by pressure or threat but shall not be construed to include the following:

(a) Good faith recommendations, exposition, argument, persuasion or attempts at persuasion;

(b) Notice given in good faith to any franchisee of said franchisee's violation of terms or provisions of such franchise or contractual agreement;

(c) Any other conduct set forth in section 407.830 as a defense to an action brought under sections 407.810 to 407.835; or

(d) Any other conduct set forth in sections 407.810 to 407.835 that is permitted of the franchisor or is expressly excluded from coercion or a violation of sections 407.810 to 407.835;

[(2)] (3) "Franchise" means a written arrangement or contract for a definite or indefinite period, in which a person grants to another person a license to use, or the right to grant to others a license to use, a trade name, trademark, service mark, or related characteristics, in which there is a community of interest in the marketing of goods or services, or both, at wholesale or retail, by agreement, lease or otherwise, and in which the operation of the franchisee's business with respect to such franchise is substantially reliant on the franchisor for the continued supply of franchised new motor vehicles, parts and accessories for sale at wholesale or retail;

[(3)] (4) "Franchisee" means a person to whom a franchise is granted;

[(4)] (5) "Franchisor" means a person who grants a franchise to another person;

[(5)] (6) "Motor vehicle" means any motor driven vehicle, including recreational motor vehicles as defined in section 301.010, RSMo, required to be registered under the provisions of chapter 301, RSMo, except for motorcycles as defined in section 301.010, RSMo;

[(6)] (7) "New", when referring to motor vehicles or parts, means those motor vehicles or parts which have not been held except as inventory, as that term is defined in subdivision (4) of section 400.9-109, RSMo;

[(7)] (8) "Person" means a sole proprietor, partnership, corporation, or any other form of business organization.

407.822. 1. Any party seeking relief under the provisions of sections 407.810 to 407.835 may file an application for hearing with the administrative hearing commission within the time periods specified in this chapter. The application for hearing shall comply with the requirements for a request for agency action set forth in chapter 536, RSMo. Simultaneously with the filing of the application for hearing with the administrative hearing commission, the applicant shall send by certified mail, return receipt requested, a copy of the application to the party or parties against whom relief is sought. Within ten days of receiving a timely application for hearing, the administrative hearing commission shall enter an order fixing a date, time and place for a hearing on the record. Such hearing shall be within forty-five days of the date of the order but the administrative hearing commission may continue the hearing date up to forty-five additional days by agreement of the parties or upon a finding of good cause. The administrative hearing commission shall send by certified mail, return receipt requested, a copy of the order to the party seeking relief and to the party or parties against whom relief is sought. The order shall also state that the party against whom relief is sought shall not proceed with the initiation of its activity or activities until the administrative hearing commission issues its final decision or order.

2. Unless otherwise expressly provided under the provisions of sections 407.810 to 407.835, the provisions of chapter 536, RSMo, shall govern hearings and prehearing procedures conducted under the authority of this chapter. The administrative hearing commission shall issue final decisions or orders, in proceedings arising under the provisions of sections 407.810 to 407.835, within one hundred twenty days from the filing of an application for hearing. Any final decisions shall be subject to review pursuant to a petition for review to be filed in the court of appeals in the district in which the hearing, or any part of the hearing, is held and by delivery of copies of the petition to each party of record, within thirty days after the mailing or delivery of the final decision and notice of the final decision in such a case. Review under this section shall be exclusive, and decisions of the administrative hearing commission reviewable under this section shall not be reviewable in any other proceeding, and no other official or court shall have power to review any such decision by an action in the nature of mandamus or otherwise except pursuant to the provisions of this section. The party seeking review shall be responsible for the filing of the transcript and record of all proceedings before the administrative hearing commission with the appropriate court of appeals.

3. Any franchise receiving a notice from a franchisor pursuant to the provisions of sections 407.810 to 407.835, or any franchisee adversely affected by a franchisor's acts or proposed acts described in the provisions of sections 407.810 to 407.835, shall be entitled to file an application for hearing before the administrative hearing commission for a determination as to whether the franchisor has good cause for its acts or proposed acts.

4. Not less than sixty days before the effective date of the initiation of any enumerated act pursuant to subdivisions (5), (6), (7) and (14) of subsection 1 of section 407.825, a franchisor shall give written notice to the affected franchisee or franchisees, by certified mail, return receipt requested, except as follows:

(1) Upon the initiation of an act pursuant to subdivision (5) of subsection 1 of section 407.825, such notice shall be given not less than fifteen days before the effective date of such act only if the grounds for the notice include the following:

(a) Transfer of any ownership or interest in the franchised dealership without the consent of the motor vehicle franchisor;

(b) Material misrepresentation by the motor vehicle franchisee in applying for the franchise;

(c) Insolvency of the motor vehicle franchisee or the filing of any petition by or against the motor vehicle franchisee under any bankruptcy or receivership law;

(d) Any unfair business practice by the motor vehicle franchisee after the motor vehicle franchisor has issued a written warning to the motor vehicle franchisee to desist from that practice;

(e) Conviction of the motor vehicle franchisee for a felony;

(f) Failure of the motor vehicle franchisee to conduct customary sales and service operations during customary business hours for at least seven consecutive business days unless such closing is due to an act of God, strike or labor difficulty or other cause over which the motor vehicle franchisee has no control;

(g) Revocation of the motor vehicle franchisee's license.

(2) Upon initiation of an act pursuant to subdivision (7) of subsection 1 of section 407.825, such notice shall be given within thirty days of the franchisor's receipt of a written proposal to consummate such sale or transfer and the receipt of all necessary information and documents generally used by the franchisor to conduct its review. A franchisee's application for hearing shall be filed with the administrative hearing commission within twenty days from receipt of such franchisor's notice;

(3) Pursuant to paragraphs (a) and (b) of subdivision (14) of subsection 1 of section 407.825, such notice shall be given within sixty days of the franchisor's receipt of a deceased or incapacitated franchisee's designated family member's intention to succeed to the franchise or franchises or of the franchisor's receipt of the personal and financial data of the designated family member.

5. A franchisor's notice to a franchisee or franchisees pursuant to subdivisions (5), (6), (7) and (14) of subsection 1 of section 407.825 shall contain a statement of the particular grounds supporting the intended action or activity which shall include any reasonable standards which were not satisfied. The notice shall also contain, on the first page thereof, a conspicuous statement which reads as follows: "NOTICE TO FRANCHISEE; YOU MAY BE ENTITLED TO FILE A PROTEST WITH THE MISSOURI ADMINISTRATIVE HEARING COMMISSION IN JEFFERSON CITY, MISSOURI, AND HAVE A HEARING IN WHICH YOU MAY PROTEST THE CONTENTS OF THIS NOTICE."

6. When more than one application for hearing is filed with the administrative hearing commission, the administrative hearing commission may consolidate the applications into one proceeding to expedite the disposition of all relevant issues.

7. In all proceedings before the administrative hearing commission pursuant to this section, section 407.825 and section 621.053 where the franchisor is required to give notice pursuant to subsection 4 of this section, the franchisor shall have the burden of proving by a preponderance of the evidence that good cause exists for its actions. In all other actions, the franchisee shall have the burden of proof. In determining whether good cause exists, the administrative hearing commission shall take into consideration the existing circumstances, including but not limited to the following factors:

(1) The franchisee's sales in relation to sales in the market;

(2) The franchisee's investment and obligations;

(3) Injury to the public welfare;

(4) The adequacy of the franchisee's service facilities, equipment, parts and personnel in relation to those of other franchisees of the same line- make;

(5) Whether warranties are being honored by the franchisee;

(6) The parties' compliance with their franchise agreement; and

(7) The enforceability of the franchise agreement from a public policy standpoint including, but not limited to, the reasonableness of the franchise agreement's terms, and the relative bargaining power of the parties. The desire of a franchisor for market penetration or a market study prepared by the franchisor supporting any proposed act whether enumerated in section 407.825 or not, shall not, standing alone, satisfy good cause required by this section.

407.825. 1. Notwithstanding the terms of any franchise agreement, the performance, whether by act or omission, by a motor vehicle franchisor of any or all of the following [activities] acts enumerated in this section are hereby defined as unlawful practices, the remedies for which are set forth in section 407.835:

(1) To engage in any conduct which is capricious, in bad faith, or unconscionable and which causes damage to a motor vehicle franchisee or to the public; provided, that good faith conduct engaged in by motor vehicle franchisors as sellers of new motor vehicles or parts or as holders of security interest therein, in pursuit of rights or remedies accorded to sellers of goods or to holders of security interests under the provisions of chapter 400, RSMo, uniform commercial code, shall not constitute unfair practices under sections 407.810 to 407.835;

(2) To coerce any motor vehicle franchisee to accept delivery of any new motor vehicle or vehicles, equipment, parts or accessories therefor, or any other commodity or commodities which such motor vehicle franchisee has not ordered after such motor vehicle franchisee has rejected such commodity or commodities. It shall not be deemed a violation of this section for a motor vehicle franchisor to require a motor vehicle franchisee to have an inventory of parts, tools, and equipment reasonably necessary to service the motor vehicles sold by a motor vehicle franchisor; or new motor vehicles reasonably necessary to meet the demands of dealers or the public or to display to the public the full line of a motor vehicle franchisor's product line;

(3) To unreasonably refuse to deliver in reasonable quantities and within a reasonable time after receipt of orders for new motor vehicles, such motor vehicles as are so ordered and as are covered by such franchise and as are specifically publicly advertised by such motor vehicle franchisor to be available for immediate delivery; provided, however, the failure to deliver any motor vehicle shall not be considered a violation of sections 407.810 to 407.835 if such failure be due to an act of God, work stoppage, or delay due to a strike or labor difficulty, shortage of products or materials, freight delays, embargo or other cause of which such motor vehicle franchisor shall have no control;

(4) To coerce any motor vehicle franchisee to enter into any agreement with such motor vehicle franchisor or to do any other act prejudicial to such motor vehicle franchisee, by threatening to cancel any franchise or any contractual agreement existing between such motor vehicle franchisor and motor vehicle franchisee; provided, however, that notice in good faith to any motor vehicle franchisee of such motor vehicle franchisee's violation of any provisions of such franchise or contractual agreement shall not constitute a violation of sections 407.810 to 407.835;

[(5) To terminate or cancel the franchise or selling agreement of any motor vehicle franchisee except a termination or cancellation made by reason of a substantial default by such franchisee in the performance of such motor vehicle franchisee's reasonable and lawful obligations to such motor vehicle franchisor under the franchise. The nonrenewal of a motor vehicle franchise or selling agreement shall constitute an unfair termination or cancellation, regardless of the terms or provisions of such franchise or selling agreement unless it is not renewed by reason of

(a) A substantial default by such motor vehicle franchisee in the performance of such motor vehicle franchisee's reasonable and lawful obligations to such motor vehicle franchisor under the nonrenewed franchise or selling agreement, or

(b) The discontinuance of the sale in the state of Missouri of such motor vehicle franchisor's products which are the subject of the franchise;]

(5) To terminate, cancel, or refuse to continue any franchise, directly or indirectly through the actions of the franchisor, or force or attempt to force any franchisee, directly or indirectly, to discontinue a line-make or parts or products related to that line-make unless such new motor vehicle franchisee substantially defaults in the performance of such franchisee's reasonable and lawful obligations under such franchisee's franchise, or such new motor vehicle franchisee discontinues the sale in the state of Missouri of such franchisor's products which are the subject of the franchise;

(6) To prevent by contract or otherwise, any motor vehicle franchisee from changing the capital structure of his franchise of such motor vehicle franchisee or the means by or through which he finances the operation of his franchise, provided the motor vehicle franchisee at all times meets any reasonable capital standards agreed to between the motor vehicle franchisee and the motor vehicle franchisor and grants to the motor vehicle franchisor a purchase money security interest in the new motor vehicles, new parts and accessories purchased from the motor vehicle franchisor;

[(7) To prevent by contract or otherwise any motor vehicle franchisee or any officer, partner or stockholder of any motor vehicle franchisee from selling or transferring any part of the interest of any of them to any other person or persons or party or parties; provided, if the franchise specifically permits the franchisor to approve or disapprove of any such proposed sale or transfer, a franchisor shall only be allowed to disapprove of a proposed sale or transfer if the interest being sold or transferred when added to any other interest owned by the transferee constitutes fifty percent or more of the ownership interest in the franchise and if the proposed transferee fails to satisfy any standards of the franchisor which are in fact normally relied upon by the franchisor prior to its entering into a franchise, and which relate to the proposed management or ownership of the franchise operations or to the qualification, capitalization, integrity, or character of the proposed transferee and which are reasonable. In order to exercise a franchisor's right of disapproval as set forth herein the franchisor shall:

(a) Notify, in writing, the franchisee of the franchisor's disapproval within thirty working days of the franchisor's receipt of a written proposal to consummate such sale or transfer; provided, however, that franchisee and the prospective franchisee shall cooperate fully with the franchisor in providing information relating to the prospective transferee's capitalization, integrity and character;

(b) Specify in said written notice the reasonable standard(s) which franchisor contends are not satisfied and the reason(s) franchisor contends such standard(s) are not satisfied. Failure on the part of the franchisor to fully comply with either (a) or (b) shall be conclusively deemed an approval by the franchisor of the proposed sale or transfer to the proposed transferee;]

(7) (a) Prevent, by contract or otherwise, any sale or transfer of a franchisee's franchise or franchises or interest or management thereof; provided, if the franchise specifically permits the franchisor to approve or disapprove of any such proposed sale or transfer, a franchisor shall only be allowed to disapprove of a proposed sale or transfer if the interest being sold or transferred when added to any other interest owned by the transferee constitutes fifty percent or more of the ownership interest in the franchise and if the proposed transferee fails to satisfy any standards of the franchisor which are in fact normally relied upon by the franchisor prior to its entering into a franchise, and which relate to the proposed management or ownership of the franchise operations or to the qualification, capitalization, integrity or character of the proposed transferee and which are reasonable. A franchisee may request, at any time, that the franchisor provide a copy of the standards which are normally relied upon by the franchisor to evaluate a proposed sale or transfer and a proposed transferee.

(b) The franchisee and the prospective franchisee shall cooperate fully with the franchisor in providing information relating to the prospective transferee's qualifications, capitalization, integrity and character.

(c) In the event of a proposed sale or transfer of a franchise, the franchisor shall be permitted to exercise a right of first refusal to acquire the franchisee's assets or ownership if:

a. The franchise agreement permits the franchisor to exercise a right of first refusal to acquire the franchisee's assets or ownership in the event of a proposed sale or transfer;

b. Such sale or transfer is conditioned upon the franchisor or franchisee entering a franchise agreement with the proposed transferee;

c. The exercise of the right of first refusal will result in the franchisee and the franchisee's owners receiving the same or greater consideration and the same terms and conditions as contracted to receive in connection with the proposed sale or transfer;

d. The sale or transfer does not involve the sale or transfer to an immediate member or members of the family of one or more franchisee owners, defined as a spouse, child, grandchild, spouse of a child or grandchild, brother, sister or parent of the franchisee owner, or to a qualified manager, defined as an individual who has been employed by the franchisee for at least two years and who otherwise qualifies as a franchisee operator, or a partnership or corporation controlled by such persons; and

e. The franchisor agrees to pay the reasonable expenses, including attorney's fees which do not exceed the usual, customary and reasonable fees charged for similar work done for other clients, incurred by the proposed transferee prior to the franchisor's exercise of its right of first refusal in negotiating and implementing the contract for the proposed sale or transfer of the franchise or the franchisee's assets. Notwithstanding the foregoing, no payment of such expenses and attorney's fees shall be required if the franchisee has not submitted or caused to be submitted an accounting of those expenses within fourteen days of the franchisee's receipt of the franchisor's written request for such an accounting. Such accounting may be requested by a franchisor before exercising its right of first refusal;

(8) To prevent by contract or otherwise any motor vehicle franchisee from changing the executive management of motor vehicle franchisee's business, except that any attempt by a motor vehicle franchisor to demonstrate by giving reasons that such change in executive management will be detrimental to the distribution of the motor vehicle franchisor's motor vehicles shall not constitute a violation of this subdivision;

(9) To impose unreasonable standards of performance upon a motor vehicle franchisee;

(10) To require a motor vehicle franchisee at the time of entering into a franchise arrangement to assent to a release, assignment, novation, waiver or estoppel which would relieve any person from liability imposed by sections 407.810 to 407.835;

(11) To prohibit directly or indirectly the right of free association among motor vehicle franchisees for any lawful purpose;

(12) To provide any term or condition in any lease or other agreement ancillary or collateral to a franchise, which term or condition directly or indirectly violates the provisions of sections 407.810 to 407.835[.];

(13) Upon any termination, cancellation, or refusal to continue any franchise, or any discontinuation of any line-make or parts or products related to that line-make by a franchisor fail to pay reasonable compensation to a franchisee as follows:

(a) The franchisee's cost of each new motor vehicle in the franchisee's inventory with mileage of 3,000 miles or less, reduced by the net discount value of each, where "net discount value" is determined according to the following formula: net cost multiplied by total mileage, divided by one hundred thousand, and where "net cost" equals the franchisee's cost plus any charges by the franchisor for distribution, delivery and taxes, less all allowances paid to the franchisee by the franchisor for new, unsold, undamaged and complete motor vehicles of the current model year or one year prior to the current model year in the franchisee's inventory, except that if a vehicle cannot be reduced by the net discount value, the franchisor shall pay the franchisee the net cost of the vehicle;

(b) The franchisee's cost of each new, unused, undamaged and unsold part or accessory if the part or accessory is in the current parts catalogue and is still in the original, resalable merchandising package and in unbroken lots, except that in the case of sheet metal a comparable substitute for the original package may be used, and if the part or accessory was purchased by the franchisee either directly from the franchisor or from an outgoing authorized franchisee as part of the franchisee's initial inventory;

(c) The fair market value of each undamaged sign owned by the franchisee which bears a trademark or trade name used or claimed by the franchisor if the sign was purchased from or purchased at the request of the franchisor;

(d) The fair market value of all special tools, data processing equipment and automotive service equipment owned by the franchisee which were recommended in writing and designated as special tools and equipment and purchased from or purchased at the request of the franchisor if the tools and equipment are in usable and good condition except for reasonable wear and tear;

(e) The cost of transporting, handling, packing, storing and loading of any property subject to repurchase under this section; and

(f) Except as provided by this paragraph, any sums due as provided by paragraph (a) of this subdivision shall be paid within sixty days after any termination, cancellation or refusal to continue any franchise, or any discontinuation of any line-make or parts or products related to that line-make and any sums due as provided by paragraphs (a) through (d) of this subdivision shall be paid within ninety days after any termination, cancellation or refusal to continue any franchise, or any discontinuation of any line-make or parts or products related to that line-make. As a condition of payment, the franchisee is to comply with reasonable requirements with respect to the return of inventory as are set out in the terms of the franchise agreement. A franchisor shall reimburse a franchisee for the franchisee's cost of storing any property covered by this subdivision before the expiration of ninety days from the date of any termination, cancellation or refusal to continue any franchise, or any discontinuation of any line-make or parts or products related to that line-make if the franchisee notifies the franchisor of the commencement of storage charges within that period. On receipt of notice of the commencement of storage charges, a franchisor may immediately take possession of the property in question by repurchasing the property as provided by this subsection. A franchisor who fails to pay those sums within the prescribed time or at such time as the franchisee and lien holder, if any, proffer good title prior to the prescribed time for payment, is liable to the franchisee for: the greatest of franchisee's cost, fair market value or current price of the inventory, interest on the amount due calculated at the rate applicable to a judgment of a court, and reasonable attorney's fees and costs;

(14) To prevent or refuse to honor the succession to a franchise or franchises by any legal heir or devisee under the will of a franchisee, under any written instrument filed with the franchisor designating any person as his successor franchisee, or under the laws of descent and distribution of this state; provided:

(a) Any designated family member of a deceased or incapacitated franchisee shall become the succeeding franchisee of such deceased or incapacitated franchisee if such designated family member gives the franchisor written notice of his or her intention to succeed to the franchise or franchises within one hundred twenty days after the death or incapacity of the franchisee, and agrees to be bound by all of the terms and conditions of the current franchise agreement, and the designated family member meets the current reasonable criteria generally applied by the franchisor in qualifying franchisees. A franchisee may request, at any time, that the franchisor provide a copy of such criteria generally applied by the franchisor in qualifying franchisees.

(b) The franchisor may request from a designated family member such personal and financial data as is reasonably necessary to determine whether the existing franchise agreement should be honored. The designated family member shall supply the personal and financial data promptly upon the request.

(c) If the designated family member does not meet the reasonable criteria generally applied by the franchisor in qualifying franchisees, the discontinuance of the current franchise agreement shall take effect not less than ninety days after the date the franchisor serves the required notice to the designated family member pursuant to subsection 4 of section 407.822.

(d) This subdivision does not preclude a franchisee from designating any person as his or her successor by written instrument filed with the franchisor, and if such an instrument is filed, it alone shall determine the succession rights to the management and operation of the franchise;

(15) To coerce, threaten, intimidate or require a franchisee under any condition effecting or related to a franchise agreement, or to waive, limit or disclaim a right that the franchisee may have under the provisions of section 407.810 to 407.835;

(16) To initiate any act enumerated in this section on the grounds that it has advised a franchisee of its intention to discontinue representation at the time of a franchisee change or require any franchisee to enter into a site control agreement as a condition to initiating any act enumerated in this section. This condition shall not be construed to nullify an existing site control agreement for a franchisee's property.

2. The provisions of this section shall not apply to recreational motor vehicles, as defined in subdivision (44) of section 301.010, RSMo, or recreational motor vehicle franchisors or franchisees.

407.835. In addition to the administrative relief set out in sections 407.810 to 407.835, any motor vehicle franchisee may bring an action against a motor vehicle franchisor with whom he has a franchise, for an act or omission which constitutes an unlawful practice as defined in section 407.825 to recover damages sustained by reason thereof, and, where appropriate, such motor vehicle franchisee shall be entitled to injunctive relief, but the remedies set forth in this section shall not be deemed exclusive and shall be in addition to any other remedies permitted by law. Each franchisor and franchisee licensed in this state owes a duty of good faith and fair dealings to the other.

621.053. Any person authorized to protest any action taken by a manufacturer, distributor or representative pursuant to a franchise agreement may file a protest with the administrative hearing commission as specified in sections 407.810 to 407.835, RSMo.

Section 1. When a franchised dealer or manufacturer proposes to establish or relocate a motor vehicle dealership within any city not within a county, the dealer or manufacturer shall make reasonable efforts to establish or relocate such dealership in an area within such city not within a county that improves the equitable distribution of dealerships within such city not within a county and is conveniently located to serve minorities who reside in such city not within a county.

Section 2. The Missouri motor vehicle commission, in approving licenses for dealer franchises in any metropolitan statistical area with a population of more than one million inhabitants as defined by the federal Office of Management and Budget or its successor agency shall ensure that the community of dealer franchises shall reflect an adequate fraction of minority-owned businesses.

Section 3. No franchisee shall use any false, deceptive or misleading advertising.