TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-04-00373-CV
Motor Vehicle Board and Motor Vehicle Division of the Texas
Department of Transportation, Appellants
v.
Prevost Car (US) Inc., Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. GN303916, HONORABLE PATRICK O. KEEL, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
This case involves a final order issued by the Motor Vehicle Board, finding that
appellee Prevost Car (US), Inc. ("Prevost") violated sections 4.01 and 5.04 of the motor vehicle
commission code by engaging in the business of a dealer in the State of Texas without a license. See
former Tex. Rev. Civ. Stat. Ann. art. 4413(36), §§ 4.01, 5.04 (West Supp. 2002). (1) The district court
reversed the Board's order, finding that it was not supported by substantial evidence and was
affected by error of law. We will affirm the judgment of the district court.
BACKGROUND
The following facts are undisputed and were submitted along with written arguments
to the Administrative Law Judge (ALJ) in lieu of an evidentiary hearing at the State Office of
Administrative Hearings (SOAH). See 7 Tex. Admin. Code § 155.39 (2002).
Prevost is a motor vehicle distributor who was not licensed as a Texas motor vehicle
dealer in 2001. Nova Bus is a division of Prevost that manufactures buses for municipal bus systems
and maintains its manufacturing and sales facility in Roswell, New Mexico.
In 2001, the City of Beaumont wanted to purchase two buses and, thus, solicited bids
from sellers. Nova responded to the City's solicitation, submitting a bid to sell two buses for a
certain price that included delivery charges. The City asked Nova for information about their license
to sell motor vehicles in Texas. Nova replied that the buses in the bid "are delivered FOB [free on
board] Roswell" and that the delivery charges included in the original bid compensated Nova for its
contract with a private company to deliver the buses to Beaumont. However, if the City desired to
pick up the buses in Roswell, it could do so without paying delivery charges.
On February 20, 2002, after resolving unrelated issues regarding the City's bidding
process, the City issued a purchase order for the buses. The purchase order was for the amount
originally bid by Nova and provided for delivery of the buses "FOB Beaumont." On February 22,
the Motor Vehicle Division of the Texas Department of Transportation issued a complaint against
Prevost, docketing the case and scheduling a hearing for April, related to the Board's contention that
Nova's response to the City's solicitation of bids for buses was in violation of sections 4.01 and 5.04
of the motor vehicle commission code. See former Tex. Rev. Civ. Stat. Ann. art. 4413(36), §§ 4.01,
5.04. On April 17, Nova responded to the City's February 20 purchase order, stating that Nova had
"been advised by the Texas DOT [Department of Transportation] that according to their
interpretation of the Texas DOT Dealership law, we cannot deliver buses to the City of Beaumont
FOB Destination without being in violation of said law and subsequently sustaining the fine
associated with the violation." Nova notified the City that the buses must be delivered FOB
Roswell, and that the City would be responsible for delivery of the buses to Beaumont. Nova also
stated that it would credit the City for the delivery costs, and provided the City with contact
information for Bennett Motor Express, Inc., Nova's contractual drive-away service provider. At
the end of the letter, Nova stated that because it was required "to comply with this law by the Texas
DOT, we consider this contract/purchase order changed as stipulated above." The City then issued
another purchase order for the price quoted by Nova for purchase of the buses without delivery to
Beaumont. Nova delivered the buses to the City in Roswell, and the buses were transported from
Roswell to Beaumont by Bennett Motor Express, Inc. On June 26, Nova issued an invoice that
reflected the parties' agreement to the freight term "FOB factory." (2) On July 23, the City paid the
invoice in full.
The administrative case proceeded for consideration on written submissions by
agreement of the parties. The ALJ issued a Proposal for Decision (PFD), finding that, by (1)
"purposefully seeking a Texas buyer through communication of a definitive offer for sale of two
buses to the City of Beaumont's Texas address," and (2) "communicating an offer to sell a new
motor vehicle to a retail buyer at a Texas address," Prevost had engaged in the business of a motor
vehicle dealer in Texas without a license in violation of Tex. Rev. Civ. Stat. Ann. art. 4413(36),
§§ 4.01, 5.04. The ALJ also recommended that Prevost be subject to a civil penalty of $20,000. (3)
See id. § 6.01 (West Supp. 2002). The Board issued a final order consistent with the PFD and
subsequently overruled Prevost's motion for rehearing. Prevost appealed to the Travis County
district court, which reversed the Board's order, finding that it was not supported by substantial
evidence and that the Board's conclusions were affected by error of law. This appeal followed.
DISCUSSION
This case hinges on whether Prevost acted as an unauthorized motor vehicle dealer
within the state of Texas, and thus violated the motor vehicle commission code. In its sole issue, the
Board contends that its order was supported by substantial evidence and was not affected by error
of law. See Tex. Gov't Code Ann. § 2001.174 (West 2004). We will first consider whether the
Board's findings of fact, which essentially conclude that Prevost acted as an unauthorized motor
vehicle dealer in the State of Texas, were supported by substantial evidence.
When reviewing an agency decision in a contested case, a court shall reverse or
remand the case for further proceedings if substantial rights of the appellant have been prejudiced
because the administrative findings, inferences, conclusions, or decisions are affected by error of law
or not reasonably supported by substantial evidence considering the reliable and probative evidence
in the record as a whole. See id.; Granek v. Texas State Bd. of Med. Exam'rs, 172 S.W.3d 761, 778
(Tex. App.--Austin 2005, no pet.). We may not substitute our judgment for that of the agency and
may only consider the record on which the agency based its decision. Granek, 172 S.W.3d at 778
(citing Stratton v. Austin Indep. Sch. Dist., 8 S.W.3d 26, 30 (Tex. App.--Austin 1999, no pet.)). The
issue before us is not whether the agency reached the correct conclusion, but whether there is some
basis in the record for its action. See City of El Paso v. Public Util. Comm'n, 883 S.W.2d 179, 185
(Tex. 1994). The crux of a substantial evidence analysis is whether the agency's factual findings are
reasonable "in light of the evidence from which they were purportedly inferred." Granek, 172
S.W.3d at 778 (quoting John E. Powers, Agency Adjudications 163 (1990)). Substantial evidence
"does not mean a large or considerable amount of evidence, but rather 'such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion' of fact." Lauderdale v. Texas
Dep't of Agric., 923 S.W.2d 834, 836 (quoting Pierce v. Underwood, 487 U.S. 552, 564-65 (1988)
and Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). We presume that the agency's
findings, inferences, conclusions, and decisions are supported by substantial evidence, and the
burden to prove otherwise is on the party challenging the findings. Texas Health Facilities Comm'n
v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 453 (Tex. 1984); Stratton, 8 S.W.3d at 30.
Section 4.01 of the motor vehicle commission code provided that
Except as provided by this Section, no person shall engage in business as, serve in
the capacity of, or act as a dealer, manufacturer, distributor, convertor, representative,
lessor, or lease facilitator in this State . . . without obtaining a license therefor as
provided in this Act and the rules of the Board.
Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 4.01. Section 5.04 provided, in relevant part, that
No person may engage in the business of buying, selling, or exchanging new motor
vehicles unless that person: (1) holds a valid franchised dealer's license issued by
the Commission for the make or makes of new motor vehicles being bought, sold,
or exchanged.
FOB, shorthand for "free on board," means that title to property passes from the seller
to buyer at the designated FOB point. American Type Culture Collection, Inc. v. Coleman, 83
S.W.3d 801, 807 (Tex. 2002) (citing CSR Ltd. v. Link, 925 S.W.2d 591, 594 (Tex. 1996) and 10
Williston on Contracts, § 1079A, at 94 n.6 (3d ed. 1967)). Moreover, under the circumstances in
this case, the Uniform Commercial Code (UCC) provides that
(b) [u]nless otherwise explicitly agreed title passes to the buyer at the time and place
at which the seller completes his performance with reference to the physical
delivery of the goods . . .
(1) if the contract requires or authorizes the seller to send the goods to the
buyer but does not require him to deliver them at destination, title passes
to the buyer at the time and place of shipment; but
(2) if the contract requires delivery at destination, title passes on tender there.
Tex. Bus. & Com. Code Ann. § 2.401 (West Supp. 2005). (4)
Nova originally responded to the City's bid with the term "FOB Beaumont."
However, after the Texas Department of Transportation objected and before the structure of the
transaction was completed, Nova notified the City that it would only sell the buses under the term
"FOB Roswell." The City accepted this change, and even recited that it was changing the purchase
order due to concerns by the Department regarding Texas dealership law. The City then contracted
with a private company to pick up the buses in Roswell and deliver them to Beaumont. There is no
evidence in the record that any Prevost or Nova employee ever physically crossed the New Mexico
border into Texas related to this transaction. We find that the response to a bid solicitation and
discussions regarding terms of a purchase order, standing alone, are insufficient to conclude that the
activity took place within Texas.
When Nova sold the buses "FOB Roswell" and tendered them in Roswell, New
Mexico, legal title to the buses was transferred in New Mexico. See Coleman, 83 S.W.3d at 807;
CSR Ltd., 925 S.W.2d at 594. Furthermore, under the UCC, legal title to the buses passed in New
Mexico because the agreement of the parties required Prevost to deliver the buses in Roswell. See
Tex. Bus. & Com. Code Ann. § 2.401. Therefore, title passed to the City at the time and place of
shipment--in New Mexico. New Mexico was the location where Prevost completed its performance
with reference to the physical delivery of the goods. See id.
The Board acknowledges that the UCC focuses on where the seller completes
performance, but argues that the contract was "initiated and made in Texas." However, the issue
under the UCC is not where the contract was initiated or made. Rather, the unambiguous language
of section 2.401 states that, because it was not otherwise explicitly agreed, legal title passed where
the performance of the contract was completed. See id. Because the contract required delivery at
Roswell, title was transferred upon tender of the goods there--not where the contract was initiated
or accepted. See Texas Dep't of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145
S.W.3d 170, 176-77 (Tex. 2004) (if statutory text is unambiguous, we must adopt interpretation
supported by statute's plain language unless that interpretation would lead to absurd results); see also
Tex. Bus. & Com. Code Ann. § 2.401.
The parties also dispute the application of another Board decision and its relationship
to this case. In In re License of Ford Motor Co., the Board alleged that Ford Motor Company was
violating several sections of the motor vehicle commission code by attempting to market preowned
vehicles in Texas, via their internet site known as "The Showroom," without a Texas dealership
license. See 264 F.3d 493, 498 (5th Cir. 2001); see also Tex. Rev. Civ. Stat. Ann. art. 4413(36),
§§ 4.01, .06(a)(3), (6) & 5.02C(c); Tex. Transp. Code Ann. § 503.021 (West 1999). The federal case
revolved around an interpretation of section 5.02C and whether that section was unconstitutional.
See In re License of Ford Motor Co., 264 F.3d at 498. Although the parties dispute the factual
allegations surrounding the underlying state administrative proceeding in that cause, the facts in Ford
are distinguishable from this case.
In Ford, interested customers could place a refundable deposit and thereby arrange
to have a designated vehicle sent to a local dealer to enable them to test-drive the car. Id. at 499.
Following a test-drive, the customer could then accept or decline to purchase the vehicle at the
"no-haggle" price determined by Ford and listed on the website. Id. Upon payment or financing
approval, Ford would transfer title to the dealer, who, in turn, would transfer title to the customer.
Id. Twenty-two dealers in the Houston metropolitan area joined the program by signing Dealer
Participation Agreements. Id. The facts of Ford are distinguishable because Ford involved the
actual and attempted sales of vehicles that were physically located and test-driven by consumers
within the State of Texas. The vehicles were transferred to a participating Houston-area dealership
where a prospective customer would test-drive the vehicle and could purchase it, transferring title
in the Houston area. These and other activities took place in Texas, and title was transferred in the
State of Texas. Unlike Ford, however, Prevost responded to a solicitation for bids; it did not initiate
contact with the City. Significantly, title to the buses in this case passed in New Mexico.
Furthermore, our holding is not based on a finding that Prevost was not engaging in
business as a dealer, but that it was not engaging in such business "in this State." Tex. Rev. Civ.
Stat. Ann. art. 4413(36), § 4.01. (5) In a factually similar situation, the supreme court has found that
courts lack specific jurisdiction over claims such as these on the basis that the transaction did not
constitute doing business in the State. See Michiana Easy Livin' Country, Inc. v. Holten, 168
S.W.3d 777, 781 (Tex. 2005). Admittedly, Michiana discusses personal jurisdiction, which is not
at issue in this case because Prevost does not contest that it is subject to general jurisdiction in Texas.
However, we find a discussion of Michiana helpful to our review because the facts in this
case--regarding whether Prevost engaged in the business of a motor vehicle dealer in this State--are
unusually similar to those in Michiana--regarding whether Michiana did business in this State by
selling a motor vehicle to a Texas resident. See id.
In Michiana, James Holten, a Texas resident, purchased a recreational vehicle from
an outlet store in Indiana. Id. at 781. Holten called Michiana in Indiana, sent payment to Indiana,
paid for delivery to Texas from Indiana, and agreed to resolve every dispute in Indiana. Id. When
a dispute arose, he filed suit in Texas. Here, the City sent a solicitation for bids to Prevost in New
Mexico, sent payment to New Mexico, and paid an independent contractor for delivery to Texas
from New Mexico. The supreme court held that Michiana's actions did not constitute sufficient
evidence of doing business in this State, see id., and, likewise, we conclude that there is not
substantial evidence to show that Prevost engaged in business as a dealer in this State.
Contrary to the dissent's claim that we improperly rely on Michiana based on a
confusion between our analysis and one of personal jurisdiction, we have expressly recognized the
legal distinction between the two cases. Yet, while the legal analysis may be different, the factual
theme is consistent: the action of responding to a solicitation for information or bids and a discussion
of price regarding the bid, standing alone, is not sufficient to find that an entity has done business
in the State of Texas. See id. at 794 ("Because Michiana's only contact with Texas was Holten's
decision to place his order from there, we reverse the court of appeals' judgment and render
judgment dismissing the claims against Michiana for want of jurisdiction."). We cannot uphold the
Board's decision that responding to a solicitation for the purchase of a vehicle qualifies as "engaging
in the business of a dealership" within the State when the supreme court has held that it does not
subject one to specific personal jurisdiction in the State.
Therefore, assuming without deciding that the response to a bid solicitation qualifies
as "engaging in the business as a dealer," we hold that under the facts in this case, Prevost did not
engage in the business as a dealer in this State without obtaining a license required by state law. See
Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 4.01. The dissent criticizes our assumption on this point.
In doing so, however, the dissent fails to understand that the issue here presents two distinct
elements. First, whether Prevost "engaged in the business as a dealer," and second whether such
business took place "in this State." It is only logical that, without any evidence to support the latter
element, discussion of the first becomes unnecessary. It does not matter for purposes of this opinion
whether Prevost's actions can be defined as "engaging in business as a dealer" because none of its
relevant actions occurred "in Texas."
Although the dissent disagrees with this conclusion, it is important to note that, in
reaching its opposite conclusion, the dissent relies on the same facts addressed in our opinion. First,
we acknowledge that the original purchase order reflected that the buses were to be delivered to
Beaumont, but are cognizant of the fact that such a delivery never actually occurred. A
determination of whether or not business occurred in this State cannot be based on some possible
action contemplated by the parties during the course of their dealings. Rather, the focus must remain
on what actually occurred--delivery of the buses to Roswell, New Mexico. We also note that
Prevost declined to deliver the buses in Texas for the stated purpose of not wanting to violate a
Texas statute. Contrary to the dissent's claim that our opinion will encourage out-of-state businesses
to violate our laws, we do not believe that a party should be punished for shaping its actions in an
attempt to comply with our laws. Second, we acknowledge that Prevost responded to a solicitation
issued from Beaumont and that the City accepted Prevost's bid--facts which are amplified by the
dissent. Yet, as the dissent recognizes, these facts are nothing more than the underpinnings of the
contract's formation. We have already clarified that the relevant fact for determining where Prevost
engaged in business is the location of the title transfer, not the location of the contact's initiation or
acceptance. Third, although the dissent correctly notes that the record demonstrates other, unrelated
transactions by Prevost, we do not believe that such transactions provide evidence to support a
finding that Prevost's actions in the instant case occurred within this State. Importantly, the Board
did not scrutinize Prevost's business practices on the basis of any of the outside transactions
discussed by the dissent.
The undisputed facts here are that, in response to the City's solicitation, Prevost sold
and delivered two buses to the City in New Mexico. From there, the City paid for the buses to be
brought into Texas. Accordingly, without substituting our opinion on matters committed to the
Board's discretion, we affirm the district court's conclusion that the Board's findings of fact (that
Prevost engaged in business as a dealer in the State of Texas) were not supported by substantial
evidence and that its conclusions of law (that Prevost violated the motor vehicle commission code)
were affected by error of law. (6)
Because we have decided this case on other grounds, we need not reach Prevost's
claim that the statutes were unconstitutional as applied by the Board. See City of San Antonio v.
Schautteet, 706 S.W.2d 103, 105 (Tex. 1986) (citing San Antonio Gen. Drivers v. Thornton, 299
S.W.2d 911, 915 (Tex. 1957) (court will not pass on constitutionality of statute if particular case
before it may be decided without doing so)).
We overrule the Board's sole issue.
CONCLUSION
Having overruled the Board's sole issue, we affirm the judgment of the district court.
__________________________________________
W. Kenneth Law, Chief Justice
Before Chief Justice Law, Justices Patterson and Puryear: Opinion by Chief Justice Law;
Dissenting Opinion by Justice Patterson
Affirmed
Filed: September 26, 2006
1. The motor vehicle commission code was originally located in article 4413(36) of the Texas
Revised Civil Statutes. After this case was decided, it was incorporated into chapter 2301 of the
Texas Occupations Code. See Tex. Occ. Code Ann. §§ 2301.001-.806 (West 2004 & Supp. 2005).
We will cite to the former code as it existed at the relevant time.
2. There is no evidence in the record that Nova had a factory anywhere other than Roswell, New
Mexico.
3. Although the Board notes in its brief that motor vehicle manufacturers are prohibited from
directly or indirectly owning an interest, operating, controlling, or acting in the capacity of a
dealership, see Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 5.02C (West Supp. 2002), this issue was
not the subject of the contested case and is not before us.
4. Section 2.401 was amended effective September 1, 2005. See Tex. Bus. & Com. Code Ann.
§ 2.401 (West Supp. 2005). Because the relevant subsection did not change, we will cite to the
amended version for convenience.
5. The Board contends that its position is supported by section 1.02, which states that the
legislative purpose behind enacting the chapter was related to the fact that the "distribution and sale
of motor vehicles in this State vitally affects the general economy of the State and the public interest
and welfare of its citizens." Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 1.02 (West Supp. 2002).
However, section 1.02 acknowledges that the regulation of the sale of motor vehicles is limited to
sales which occur in this State, and thus is consistent with our analysis in this case.
6. An appellate court does not "substitute its opinion" for that of an agency simply by reversing
the agency's decision, so long as that reversal is based on a legally permitted ground, such as a lack
of substantial evidence to support a finding or the fact that a conclusion is affected by error of law.
See Tex. Gov't Code Ann. § 2001.174 (West 2004). Otherwise, there would be no purpose of
appellate review in administrative cases.