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Georgia Franchise Law

GEORGIA FRANCHISE LAW:  WHAT AUTO DEALERS SHOULD KNOW ABOUT THEIR STATUTORY RIGHTS AND REMEDIES

The Georgia Motor Vehicle Franchise Practices Act (the “Act”), O.C.G.A. § 10-1-620 et seq., is designed to protect motor vehicle dealers from abusive practices by manufacturers (also referred to as franchisors).  Most states have a similar set of franchise laws, though the content varies from state to state.

The Georgia Act provides significant rights and remedies to dealers that apply in many different aspects of the franchise relationship. This article will highlight some of the key provisions of the Act that may be of benefit to dealers.  Knowledge of these concepts can empower dealers in their interactions with the franchisor and its representatives.

The Good Faith Requirement

The Act states that it is unlawful for any franchisor to fail to observe good faith in any aspect of its dealings with the dealer.  Another section of the Act states that it is a violation of law for franchisors to fail to act in good faith with any dealer in connection with the sale, transfer, termination or succession of a franchise or in connection with the operation of the dealer’s business.  “Good faith” is defined in the Act as honesty in fact and observation of reasonable commercial standards of fair dealing.  A franchisor’s breach of this duty in virtually any context can be the basis for a claim by a dealer for violation of the Act.

Unlawful Activities by Franchisors

The Act includes a list of specifically enumerated unlawful activities by franchisors, most notably the following:

  • To make a false or intentionally deceptive statement to induce any dealer to enter into any agreement or franchise;
  • To require dealers to release claims before potential claims occur, or to resolve franchise disputes by any means other than the courts;
  • To cancel a  franchise or take adverse action for failure to meet performance goals when the failure is due to the lack of new motor vehicles ordered by or allocated to the dealer;
  • To sell any new vehicle to any dealer at a lower price than that offered to any other dealer for the same vehicle through whatever means including an incentive, sales promotion or program;
  • To charge a dealer’s account for money owed from an audit or investigation unless 30 days advance notice is given for the dealer to contest the amount; and

  • To delay payment or bill back claims to a dealer unless it is the result of a material defect in the claim which affects its validity. 

Coercive Activities by Franchisors Are Prohibited

In addition to unlawful acts, the Act also contains provisions indicating that no franchisor shall require, attempt to require, coerce, or attempt to coerce any dealer:

  • To order or accept delivery of vehicles or parts not voluntarily ordered by the dealer;
  • To order or accept delivery of vehicles with special features not included in the list price;
  • To refrain from participation in any line make of new motor vehicle, or to give up any line make;
  • To expand or modify facilities without assurances that the franchisor will provide a reasonable supply of new motor vehicles so as to justify the expansion;
  • To assign retail installment sales contracts to a specified finance company, and;
  • To participate in an advertising campaign or purchase promotional or other materials at the expense of the dealer.

The Act defines other coercive activities by franchisors that are prohibited:

  • To discriminate unfairly among its dealers with respect to any aspect of operating a dealership;
  • To establish unreasonable non-competition covenants or site control restrictions;
  • To establish an option to purchase the dealership or its assets, and;
  • To unreasonably change the market area of a dealer.

Protection of the Dealer’s Relevant Market Area

Each dealership in Georgia has a “relevant market area” defined as the territory within an eight mile radius of the dealership.  Franchisors are prohibited from placing a new point, or relocating an existing point, into a dealer’s relevant market area unless the franchisor can satisfy its burden of proving that the existing dealer is not providing adequate representation and that the new dealership is necessary to provide the public with reliable and convenient sales and service. This is a difficult standard for the franchisor to satisfy and, in the event that the evidence does not incline significantly towards either party, the dealer is entitled to prevail.

Warranty Work

A section of the Act is devoted to manufacturer obligations for pre-delivery preparation, warranty service and recall work obligations.  The Act requires the franchisor to provide the dealer with a schedule of compensation to be paid for parts, work and service, with a schedule of time allowances for such activity.  The time allowances and compensation must be reasonable.  In determining what is reasonable, the Act includes a striking statement: in no event shall parts reimbursement be less than the retail price paid by non-warranty customers and in no event shall the hourly rate for warranty work be less than the rate charged by the dealer for non-warranty work.

The ability of dealers to insist on reimbursement at retail rates may be blunted, however, by the Act’s tolerance of uniform warranty reimbursement policies.  The Act allows franchisors to establish uniform reimbursement rates for parts and time standards – but not labor rates – if a majority of its dealers of the same line make agree to do so in a written contract not to exceed three years duration.  Dealers can accept the uniform rates or insist on retail rates.  Dealers who insist on retail rates can be taxed by the franchisor in the form of increased prices on new vehicles for the premium being paid by the franchisor for warranty work.  Thus, there is little to be gained by insisting on retail rates if a uniform policy is in effect.  Why a majority of dealers would ever agree to a uniform policy is an interesting question.  Some dealers in Georgia have agreed to a uniform reimbursement policy.

Termination: The Good Cause Requirement

A franchisor is not generally permitted to terminate or fail to renew a franchise unless it has given the dealer 180 days advance notice and has good cause to do so.  Good cause is defined as a failure by the dealer to comply with a provision of the franchise agreement that is both reasonable and of material significance.  The dealer must be notified of such failure and be given a reasonable opportunity to correct such failure for a period of not less than 180 days.

There are exceptions to the above rule that permit termination more quickly for serious offenses by the dealer, such as insolvency, criminal convictions and similar matters.

When franchises are terminated, the Act requires the franchisor to repurchase new vehicles, parts, certain supplies and special tools.

Succession of Franchise Upon Death

A Franchisor cannot refuse to honor a transfer of the franchise upon the death of a franchisee unless it has good cause to do so.  The franchisor has the burden of proving that good cause exists.  The recipient of the franchise must satisfy customary financial requirements and agree to be bound by the franchise agreement. 

Sale of The Dealership

Franchisors cannot withhold approval of a sale of dealership or its assets unless the franchisor can prove that its decision is not arbitrary and that the new owner is unfit or unqualified. 

Franchisor’s Right of First Refusal

Unlike some states, the Act gives the franchisor a right of first refusal to purchase a dealership’s assets on the same terms as a proposed transfer to a third party.

Remedies for Violation of the Act

The Act provides that dealers may file a petition with the Department of Revenue for a violation of the Act, or a traditional lawsuit can be filed in any court of competent jurisdiction.  The Act creates a right of action in which a dealer may seek to recover damages or obtain equitable relief or both.  Equitable relief means a non-monetary remedy such as an injunction to prohibit certain conduct.  The Act indicates that recoverable damages for violations include the greater of the actual loss or three times the actual loss, not to exceed $750,000.  In addition, a prevailing dealer may recover attorney’s fees and expenses of litigation.  Punitive damages can be recovered if the franchisor engages in aggravated or multiple intentional violations of the Act.

Conclusion

Franchise motor vehicle dealers in Georgia have significant statutory protection from abusive practices by franchisors.  When the Act has been violated, dealers have express legal remedies to enforce the Act.  Dealers can pursue remedies through traditional proceedings in the courts, or, alternatively, the Act provides for administrative complaints that can be quickly and efficiently resolved in proceedings before an administrative law judge.

This article is for informational purposes only and is not intended to be legal advice.  Dealers are advised to seek legal advice from counsel of their choosing in order to obtain specific advice concerning their particular situation.