Delaware General Assembly

AN ACT TO AMEND TITLE 6 OF THE DELAWARE CODE RELATING TO MOTOR VEHICLE FRANCHISING PRACTICES.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :

1. Any person, resident or nonresident, who directly or indirectly licenses or otherwise authorizes one or more new motor vehicle dealers to use a trademark or service mark associated with a make of motor vehicle in connection with the retail sale of new motor vehicles bearing such trademark or service mark; or

2. Any person who in the ordinary course of business and on a recurring basis sells such new motor vehicles to a new motor vehicle dealer for resale."

Section 2. Amend §4902, Title 6 of the Delaware Code by deleting subsection (3) and replacing it with the following:

"(3) 'New motor vehicle dealer' or 'dealer' means any person or entity engaged in the business of selling, offering to sell, soliciting or advertising the sale of new motor vehicles and who holds, or held at the time a cause of action under this chapter accrued, a valid sales and service agreement, franchise or contract, granted by the manufacturer or distributor for the retail sale of said manufacturer's or distributor's new motor vehicles. The Term 'new motor vehicle dealer', or 'dealer' shall also include any person who engages exclusively in the repair of motor vehicles, except motor homes, if such repairs are performed pursuant to the terms of a franchise or other agreement with a franchiser or such repairs are performed as part of a manufacturer's or franchiser's warranty. The term 'new motor vehicle dealer' or 'dealer' shall not mean any person engaged solely in the business of selling used motor vehicles.”

Section 3. Amend §4902(8), Title 6 of the Delaware Code by deleting the words "dealer" as found therein and by substituting in lieu thereof the words "dealership".

Section 4. Amend §4903, Title 6 of the Delaware Code by adding the phrase "Sales Incentives," before the word "warranty" in the title of the section and by deleting subsection (d) and replacing it with new subsections (d) and (e) to read as follows:

"(d) All claims made by new motor vehicle dealers pursuant to this section for such labor and parts shall be paid within 30 days following their approval provided; however, that the manufacturer retains the right to audit such claims and to charge back the dealer for claims due to fraud, work done unnecessarily, or work not properly performed for a period of 1 year following payment. All such claims shall be either approved or disapproved within 30 days after their receipt on forms and in the manner specified by the manufacturer, and any claim not specifically disapproved in writing within 30 days after the receipt shall be construed to be approved and payment must follow within 30 days. A manufacturer or distributor shall not deny a claim or reduce the amount to be reimbursed to the dealer as long as the dealer has provided reasonably sufficient documentation that the dealer:

(1) perform the work in compliance with the written policies and procedures of the manufacturer; and

(2) actually performed the work.

(3) The manufacturer or distributor shall not disapprove a reimbursement claim due to an inadvertent administrative error by the dealer, as long as the claim meets the above requirements. The one year limitation on the manufacturer's right to audit a claim shall not be effect in the case of fraudulent claims.

(e) Any audit for sales incentives, service incentives, rebates, or other forms of incentive compensation shall only be for a period of one year following the date of the termination of the sales incentives program, service incentives program, rebate program, or other form of incentive compensation program. These limitations shall not be in effect in the case of fraudulent claims."

Section 5. Amend §4907 (a) and (b), Title 6 of the Delaware Code by deleting those subsections and replacing them with the following:

"(a) Upon the termination, nonrenewal, discontinuance or cancellation of any franchise by the manufacturer, the new motor vehicle dealer shall be allowed fair and reasonable compensation by the manufacturer for:

(1) New and unused current model motor vehicle inventory which has been acquired from the manufacturer or distributor, or new and unused motor vehicle inventory which has been acquired from the manufacturer or distributor within 120 days of the notice of termination and which has not been altered or damaged while in the dealer's possession;

(2) All new, unused, undamaged parts in their original, unbroken packaging, listed in the current price catalog and acquired from the manufacturer or distributor, at the new motor vehicle dealer price listed in the current price catalog, less applicable allowances. If the above parts are not listed in the current price catalog due to the manufacturer's or distributor's renumbering of parts or issuance of a superseding part number within the last two years, said parts shall be repurchased by the manufacturer, provided they are new, unused, undamaged parts in their original, unbroken packaging, and are in salable condition.

(3) Equipment and furnishings, particular to the line make, showroom kiosks and other marketing structures required by the manufacturer for promotional displays, purchased within the last three years, provided the new motor dealer purchased such items from the manufacturer or distributor or its approved sources;

(4) Special tools;"

Section 6. Amend §4908, Title 6 of the Delaware Code by deleting the phrase "1 year's" as it appears therein and substituting the phrase "3 years'" in lieu thereof, and further by deleting the phrase "1 year" and by substituting in lieu thereof the phrase "3 years".

Section 7. Amend §4909, Title 6 of the Delaware Code by deleting subsections (a), (b) and (c), in their entirety and replacing them with the following:

"(a) Any owner of a new motor vehicle may appoint by will, or any other written instrument, a designated family member to succeed in the ownership interest of the said owner in the new motor vehicle dealership.

(b) Unless there exists good cause for refusal to honor succession on the part of the franchiser, any designated successor of a deceased or incapacitated owner may succeed to the ownership interest of the owner if:

(1) The designated successor gives the franchiser written notice of his or her intention to succeed to the ownership interest within 120 days of the owner's death or incapacity or within a longer period if so provided in the franchise agreement; and

(2) The designated successor agrees to be bound by all the terms and conditions of the franchise.

(c) The franchiser may request the designated successor to complete a standard dealer application and the designated successor shall provide promptly upon said request, personal and financial data that is customarily required by the franchiser to determine whether the succession should be honored.

(d) If a franchiser believes that good cause exists for refusing to honor the succession to the ownership interest of an owner by a designated successor of a deceased or incapacitated owner, the franchiser may, within 60 days following receipt of: (1) Notice of the designated successor's intent to succeed to the ownership interest of the owner, or (2) any personal or financial data which it has requested, serve upon the designated successor notice of its refusal to honor the succession and of its intent to discontinue the existing franchise with the dealer no sooner than 90 days from the date such notice is served. However, if the franchiser shall enter into one or more interim or trial agreements with the designated successor, which interim or trial agreements may not extend more than two years from the owner's death or disability, then and in such event notice shall be deemed timely if sent within 60 days of the termination of such interim or trial agreement.

(e) The notice must state the specific grounds for the refusal to honor the succession and of its intent to discontinue the existing franchise with the dealer.

(f) If a franchiser refuses to honor the succession to the ownership interest of a deceased or incapacitated owner, then and in such event:

(1) The franchiser shall allow the designated successor a reasonable period of time which shall not be less than 6 months in which to negotiate a sale of the dealership.

(2) Upon termination of the franchise pursuant to such refusal, the provisions of section 4906 shall apply.

(g) If notice of refusal and discontinuance is not timely served upon the designated successor, the franchise shall continue in effect subject to termination only as otherwise permitted by this Chapter.

(h) No franchiser shall terminate, cancel, or fail to renew any franchise solely because of the death or incapacity of an owner who is not listed in the franchise as one on whose expertise and abilities the franchiser relied in the granting of the franchise."

Section 8. Amend §4910, Title 6 of the Delaware Code by deleting said section in its entirety and replacing it with the following:

"§4910. Sale of dealership franchise, notice to franchiser, and right of first refusal.

(a) If a new motor vehicle dealer desires to make a change in its executive management or ownership or to sell its principal assets, the new motor vehicle dealer will give the franchiser written notice of the proposed change or sale. The franchiser shall not arbitrarily refuse to agree to such proposed change or sale and may not disapprove or withhold approval of such change or sale unless the franchiser can prove:

(1) that its decision is not arbitrary; and

(2) that the new management, owner, or transferee is unfit or unqualified to be a dealer based on the franchiser's prior written, reasonable, objective, standards or qualifications which directly relate to the prospective transferee's business experience, moral character, and financial qualifications.

(b) Where the franchiser rejects a proposed change or sale, the franchiser shall give written notice of his reasons to the new motor vehicle dealer within 60 days. If no such notice is given to the new motor vehicle dealer, the change or sale shall be deemed approved.

(c) It shall be a violation of the Delaware Franchise Statute for a motor vehicle franchiser to exercise a right of first refusal or other right to acquire a motor vehicle franchise from a motor vehicle franchisee as a means to influence the consideration or other terms offered by a person in connection with the acquisition of the motor vehicle franchise or to influence a person to refrain from entering into or to withdraw from, negotiations for the acquisition of the motor vehicle franchise.

(d) In the event of a proposed sale or transfer of a dealership and if the franchise agreement has a right of first refusal in favor of the manufacturer or distributor, then notwithstanding the terms of the franchise agreement, the manufacturer, distributor, or franchiser shall be permitted to exercise a right of first refusal to acquire the motor vehicle dealer's assets or ownership if all of the following requirements are met:

(1) In order to exercise his right of first refusal, the manufacturer or distributor shall notify the motor vehicle dealer in writing within 60 days of his receipt of the completed proposal for the proposed sale or transfer and all related agreements.

(2) The exercise of the right of first refusal will result in the dealer receiving the same or greater consideration as he has contracted to receive in connection with the proposed change of ownership or transfer.

(3) The proposed sale or transfer of the dealership's assets does not involve the transfer or sale to a member or members of the family of one or more dealers, or to a qualified manager with at least two years management experience at the dealership or to a partnership or corporation controlled by such persons.

(4) The manufacturer or distributor agrees to pay the reasonable expenses, including attorney fees which do not exceed the usual, customary, and reasonable fees charged for similar work done for other clients, incurred by the proposed owner or transferee prior to the manufacturer's or distributor's exercise of its right of first refusal in negotiating and implementing the contract for the proposed sale or transfer of the dealership or dealership assets.

a. Such expenses and attorney fees shall be paid to the proposed new owner or transferee at the time of closing of the sale or transfer for which the manufacturer or distributor exercised its right of first refusal.

b. No payment of such expenses and attorney fees shall be required if the new owner or transferee has not submitted or caused to be submitted an accounting of those expenses within 30 days of the dealer's receipt of the manufacturer's or distributor's written request for such an accounting.

c. A manufacturer or distributor may request such accounting before exercising his right of first refusal."

"(10) To adhere to unreasonable sales, service, or facility standards, arrived at through policies, surveys or programs.

(11) To purchase non-line make specific goods, services, or design elements from the manufacturer or its designated sources if the desired results can be produced through alternative means except for parts or when necessary to protect the manufacturer’s trademark or brand name."

Section 12. Amend § 4913(a)(8), Title 6, Delaware Code by adding a new sentence at the end of said paragraph to read as follows:

‘The burden of proof for this subsection shall be on the manufacturer."

Section 13. Amend §4913 (b), Title 6, Delaware Code by deleting paragraphs (9) through (15), and by substituting in lieu thereof new paragraphs (9) through (16) to read as follows:

"(9) To prevent or attempt to prevent the new motor vehicle dealer by written instrument or otherwise from either receiving the fair market value of the dealership in a sale transaction or from transferring the new motor vehicle dealership to a spouse or legal heir as specified in this chapter

(10) To offer to sell or lease or to sell or lease, any new motor vehicle to any new motor vehicle dealer at a lower actual invoice price than the actual invoice price offered to another for the same model vehicle, not withstanding the availability of incentive programs or sales promotion plans or other similar programs available to new motor vehicle dealers at the time of consumer purchase.

(11) To use a promotional program or device or an incentive, payment, or other benefit, whether paid at the time of sale of the new motor vehicle to the dealer or later, that results in the sale or offer to sell a new motor vehicle at a lower price, including the price for vehicle transportation, than the price at which the same model similarly equipped is offered or is available to another dealer in the State during a similar time period. This subdivision shall not prohibit a promotional or incentive program that is functionally available to competing dealers of the same line-make in the State of Delaware.

(12) To engage in any predatory practice or discrimination against any new motor vehicle dealer or unreasonably discriminate between or among dealers in the sale of a motor vehicle owned by the manufacturer or distributor.

(13) To resort to or to use any fraudulent or intentionally misleading advertisement in connection with his business as a distributor or manufacturer licensed in this State; or for any agent of a distributor or manufacturer or distributor to make any fraudulent or intentionally misleading statements to new motor vehicle dealers as inducements to enter into any agreement or franchise.

(14) To directly or indirectly own an interest in a dealer or dealership; or operate or control a dealer or dealership; or act in the capacity of a dealer except as provided by this section.

a. A manufacturer or distributor may own an interest in a franchised dealer, or otherwise control a dealership for a period not to exceed 24 months from the date the manufacturer or distributor acquires the dealership if the dealership is for sale by the manufacturer or distributor at a reasonable price and on reasonable terms and conditions.

b. A manufacturer or distributor may temporarily own an interest in a dealership if the manufacturer’s or distributor’s participation in the dealership is a bona fide relationship with a franchised dealer who:

1. is required to make a significant investment in the dealership, subject to loss;

2. has an ownership interest in the dealership; and

3. operates the dealership under a plan to acquire full ownership of the dealership within a reasonable time and under reasonable terms and conditions.

(15) To engage in business as a dealer or to manage, control, or operate, or own any interest in a dealership either directly or indirectly, if the primary business of such dealer or dealership is to perform repair services on motor vehicles, except motor homes, pursuant to a manufacturer's or franchiser's warranty."

Section 14. Amend §4914, Title 6, Delaware Code by adding a new subsection (c) to read as follows:

“It shall be unlawful to sell a new motor vehicle to a consumer, except for the federal government, in the State of Delaware, unless that person, persons, partnership, or corporation has a valid franchise agreement from a franchiser for that make or line and is in compliance with all Delaware Motor Vehicle licensing requirements. This subsection shall not preclude a franchiser from providing information to consumers for the purposes of marketing or facilitating the sale of a new motor vehicle or from establishing programs to sell or offer to sell new motor vehicles through participating franchisees.”.

Section 15. Amend §4916, Title 6, Delaware Code by deleting subsection (a), and by substituting a new subsection (a) to read as follows:

"(a) Notwithstanding the terms, provisions, or conditions of any agreement or franchise or other terms or provisions of any novation, waiver, or other written instrument, any person who is or may be injured by a violation of a provision of this Chapter or any party to a franchise who is so injured in his business or property by a violation of a provision of this Chapter relating to that franchise, or any person so injured because he refuses to accede to a proposal for an arrangement which, if consummated, would be in violation of this Chapter may bring an action in any court of competent jurisdiction for damages and equitable relief including injunctive relief. Said person may recover damages in the amount equal to the actual pecuniary loss. In addition, said person may recover costs and reasonable attorney's fees as damages. Upon a prima-facie showing by the person filing the petition or cause of action that a violation of this Chapter has occurred, the burden of proof shall then be upon the opposing party to prove that such violation did not occur."

"(e) If any provision of this Act is declared to be invalid or unenforceable by a court or authority of competent jurisdiction, the remaining provisions of this Act shall continue in full force and effect."

Approved June 30, 2001