New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co.

439 U.S. 96, 99 S. Ct. 403, 58 L. Ed. 2d 361, 1978 U.S. LEXIS 142

• Court: Supreme Court of the United States
• Decided: December 5, 1978
• Docket: 77-837
• Status: Published

Opinions

Me. Justice Brennan

delivered the opinion of the Court.

Under the California Automobile Franchise Act, a motor vehicle manufacturer must secure the approval of the California New Motor Vehicle Board before opening a retail motor vehicle dealership within the market area of an existing franchisee, if and only if that existing franchisee protests the establishment of the competing dealership. The Act also directs the Board to notify the manufacturer of this statutory requirement upon the filing of a timely protest by an existing franchisee. The Board is not required to hold a hearing on the merits of the dealer protest before sending the manufacturer the notice of the requirement.¹

A three-judge District Court for the Central District of California entered a judgment declaring that the absence of such a prior-hearing requirement denied manufacturers and their proposed franchisees the procedural due process mandated by the Fourteenth Amendment, 440 F. Supp. 436 (1977). We noted probable jurisdiction of the appeals in both No. 77-837 and No. 77-849,² 434 U. S. 1060 (1978). We now reverse.³

I

The disparity in bargaining power between automobile manufacturers and their dealers prompted Congress ⁴ and some 25 States to enact legislation to protect retail car dealers from perceived abusive and oppressive acts by the manufacturers.⁵ California’s version is its Automobile Franchise Act.⁶ Among its other safeguards, the Act protects the equities of existing dealers by prohibiting automobile manufacturers from adding dealerships to the market areas of its existing franchisees where the effect of such intrabrand competition would be injurious to the existing franchisees and to the public interest.⁷

To enforce this prohibition, the Act requires an automobile manufacturer who proposes to establish a new retail automobile dealership in the State, or to relocate an existing one, first to give notice of such intention to the California New Motor Vehicle Board and to each of its existing franchisees in the same “line-make” of automobile located within the “relevant market area,” defined as “any area within a radius of 10 miles from the site of [the] potential new dealership.” ⁸ If any existing franchisee within the market area protests to the Board within 15 days, the Board is required to convene a hearing within 60 days to determine whether there is good cause for refusing to permit the establishment or relocation of the dealership.⁹ The Board is also required to inform the franchisor, upon the filing of a timely protest,

“that a timely protest has been filed, that a hearing is required . . . , and that the franchisor shall not establish or relocate the proposed dealership until the board has held a hearing . . . , nor thereafter, if the board has determined that there is good cause, for not permitting such dealership.” ¹⁰

Violation of the statutory requirements by a franchisor is a misdemeanor and ground for suspension or revocation of a license to do business.¹¹

Appellee General Motors Corp. manufactures, among other makes, Buick and Chevrolet cars. Appellee Orrin W. Fox Co. signed a franchise agreement with appellee General Motors in May 1975 to establish a new Buick dealership in Pasadena. Appellee Muller Chevrolet agreed with appellee General Motors to transfer its existing Chevrolet franchise from Glendale to La Canada, Cal., in December 1975. The proposed establishment of Fox and relocation of Muller were protested respectively by existing Buick and Chevrolet dealers. The New Motor Vehicle Board responded, as required by the Act, by notifying appellees that the protests had been filed and that therefore they were not to establish or relocate the dealerships until the Board had held the hearings required by the Act, nor thereafter if the Board determined that there was good cause for not permitting such dealerships. Before either protest proceeded to a Board hearing, however, appellees General Motors, Fox, and Muller brought the instant action.

II

At the outset it is important to clarify the nature of the due process challenge before us. Appellees and the dissent characterize the statute as entitling a protesting dealership to a summary administrative adjudication in the-form of a notice having the effect of a temporary injunction restraining appellee General Motors’ exercise of its right to franchise at will. We disagree.

The Board’s notice has none of the attributes of an injunction. It creates no duty, violation of which would constitute contempt. Nor does it restrain appellee General Motors from exercising any right that it had previously enjoyed; General Motors had no interest in franchising that was immune from state regulation. It was the Act, not the Board’s notice, that curtailed General Motors’ right to franchise at will. The California Vehicle Code explicitly conditions a motor vehicle manufacturer’s right to terminate, open, or relocate a dealership upon the manufacturer’s compliance with the procedural requirements enacted in the Automobile Franchise Act and, if necessary, upon the approval of the New Motor Vehicle Board.¹² The Board’s notice served only to inform appellee General Motors of this statutory scheme and to advise it of the status, pending the Board’s determination, of its franchise permit applications.

Moreover, the Board’s notice can hardly be characterized as an administrative order. Issuance of the notice did not involve the exercise of discretion. The notice neither found nor assumed the existence of any adjudicative facts. The notice did not terminate or suspend any right or interest that General Motors was then enjoying. The notice did not deprive General Motors of any personal property, or terminate any of the incidents of its license to do business.

Thus, this is not a case like Fuentes v. Shevin, 407 U. S. 67 (1972), and Bell v. Burson, 402 U. S. 535 (1971), relied upon by appellees, in which a state official summarily finds or assumes the existence of certain adjudicative facts and based thereon suspends the enjoyment of an entitlement. There has not yet been either the determination of adjudicative facts, the exercise of discretion, or a suspension.

Notwithstanding all this, appellees argue that the state scheme deprives them of their liberty to pursue their lawful occupation without due process of law. Appellees contend that absent a prior individualized trial-type hearing they are constitutionally entitled to establish or relocate franchises while their applications for approval of such proposals are awaiting Board determination. Appellees’ argument rests on the assumption that General Motors has a due process protected interest right to franchise at will — which asserted right survived the passage of the California Automobile Franchise Act.

The narrow question before us, then, is whether California may, by rule or statute, temporarily delay the establishment or relocation of automobile dealerships pending the Board’s adjudication of the protests of existing dealers. Or stated conversely, the issue is whether, as the District Court held and the dissent argues, the right to franchise without delay is the sort of interest that may be suspended only on a case-by-case basis through prior individualized trial-type hearings.

We disagree with the District Court and the dissent. Even if the right to franchise had constituted a protected interest when California enacted the Automobile Franchise Act, California’s Legislature was still constitutionally empowered to enact a general scheme of business regulation that imposed reasonable restrictions upon the exercise of the right. “[T]he fact that a liberty cannot be inhibited without due process of law does not mean that it can under no circumstances be inhibited.” Zemel v. Rusk, 381 U. S. 1, 14 (1965). At least since the demise of the concept of “substantive due process” in the area of economic regulation, this Court has recognized that, “[¡legislative bodies have broad scope to experiment with economic problems . . . .” Ferguson v. Skrupa, 372 U. S. 726, 730 (1963). States may, through general ordinances, restrict the commercial use of property, see Euclid v. Ambler Realty Co., 272 U. S. 365 (1926), and the geographical location of commercial enterprises, see Williamson v. Lee Optical Co., 348 U. S. 483, 491 (1955). Moreover, “[c]ertain kinds of business may be prohibited; and the right to conduct a business, or to pursue a calling, may be conditioned. . . . [S]tatutes prescribing the terms upon which those conducting certain businesses may contract, or imposing terms if they do enter into agreements, are within the state’s competency.” Nebbia v. New York, 291 U. S. 502, 528 (1934).

In particular, the California Legislature was empowered to subordinate the franchise rights of automobile manufacturers to the conflicting rights of their franchisees where necessary to prevent unfair or oppressive trade practices. “[Sjtates have power to legislate against what are found to be injurious practices in their internal commercial and business affairs, so long as their laws do not run afoul of some specific federal constitutional prohibition, or of some valid federal law. . . . [T]he due process clause is [not] to be so broadly construed that the Congress and state legislatures are put in a straitjacket when they attempt to suppress business and industrial conditions which they regard as offensive to the public welfare.” Lincoln Union v. Northwestern Co., 335 U. S. 525, 536-537 (1949). See also North Dakota Board of Pharmacy v. Snyder’s Drug Stores, Inc., 414 U. S. 156 (1973); Ferguson v. Skrupa, supra; Williamson v. Lee Optical Co., supra.

Further, the California Legislature had the authority to protect the conflicting rights of the motor vehicle franchisees through customary and reasonable procedural safeguards, i. e., by providing existing dealers with notice and an opportunity to be heard by an impartial tribunal — the New Motor Vehicle Board — before their franchisor is permitted to inflict upon them grievous loss. Such procedural safeguards cannot be said to deprive the franchisor of due process. States may, as California has done here, require businesses to secure regulatory approval before engaging in specified practices. See, e. g., North Dakota Board of Pharmacy v. Snyder’s Drug Stores, supra (pharmacy-operating permit); St. Louis Poster Adv. Co. v. St. Louis, 249 U. S. 269 (1919) (billboard permits) ; Hall v. Geiger-Jones Co., 242 U. S. 539 (1917) (securities registration); Adams v. Milwaukee, 228 U. S. 572 (1913) (milk inspection); Gundling v. Chicago, 177 U. S. 183 (1900) (cigarette sales license).

These precedents compel the conclusion that the District Court erred in holding that the California Legislature was powerless temporarily to delay appellees’ exercise of the right to grant or undertake a Buick or Chevrolet dealership and the right to move one’s business facilities from one location to another without providing a prior individualized trial-type hearing. Once having enacted a reasonable general scheme of business regulation, California was not required to provide for a prior individualized hearing each and every time the provisions of the Act had the effect of delaying consummation of the business plans of particular individuals. In the area of business regulation “[g]eneral statutes within the state power are passed that affect the person or property of individuals, sometimes to the point of ruin, without giving them a chance to be heard. Their rights are protected in the only way that they can be in a complex society, by their power, immediate or remote, over those who make the rule.” Bi-Metallic Investment Co. v. Colorado, 239 U. S. 441, 445 (1915).

Ill

Appellees and the dissent argue that the California scheme constitutes an impermissible delegation of state power to private citizens because the Franchise Act requires the Board to delay franchise establishments and relocations only when protested by existing franchisees who have unfettered discretion whether or not to protest.

The argument has no merit. Almost any system of private or quasi-private law could be subject to the same objection. Court approval of an eviction, for example, becomes necessary only when the tenant protests his eviction, and he alone decides whether he will protest. An otherwise valid regulation is not rendered invalid simply because those whom the regulation is designed to safeguard may elect to forgo its protection. See Cusack Co. v. Chicago, 242 U. S. 526 (1917).

IV

Appellees next contend that the Automobile Franchise Act conflicts with the Sherman Act, 15 U. S. C. § 1 et seq.13 They argue that by delaying the establishment of automobile dealerships whenever competing dealers protest, the state scheme gives effect to privately initiated restraints on trade, and thus is invalid under Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384 (1951).

The dispositive answer is that the Automobile Franchise Act’s regulatory scheme is a system of regulation, clearly articulated and afflrmatively expressed, designed to displace unfettered business freedom in the matter of the establishment and relocation of automobile dealerships. The regulation is therefore outside the reach of the antitrust laws under the “state action” exemption. Parker v. Brown, 317 U. S. 341 (1943); Bates v. State Bar of Arizona, 433 U. S. 350 (1977). See also City of Lafayette v. Louisiana Power & Light Co., 435 U. S. 389 (1978).

The Act does not lose this exemption simply because, as part of its regulatory framework, it accords existing dealers notice and an opportunity to be heard before their franchisor is permitted to locate a dealership likely to subject them to injurious and possibly illegal competition. Protests serve only to trigger Board action.¹⁴ They do not mandate significant delay. On the contrary, the Board has the authority to order an immediate hearing on a dealer protest if it concludes that the public interest so requires. The duration of interim restraint is subject to ongoing regulatory supervision.

Appellees’ reliance upon Schwegmann Bros. v. Calvert Distillers Corp., supra, is misplaced. In Schwegmann, the State attempted to authorize and immunize private conduct viola-tive of the antitrust laws. California has not done that here. Protesting dealers who invoke in good faith their statutory right to governmental action in the form of a Board determination that there is good cause for not permitting a proposed dealership do not violate the Sherman Act, Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U. S. 127 (1961), and Mine Workers v. Pennington, 381 U. S. 657, 670 (1965)¹⁵

Appellees also argue conflict with the Sherman Act because the Automobile Franchise Act permits auto dealers to invoke state power for the purpose of restraining intrabrand competition. “This is merely another way of stating that the . . . statute will have an anticompetitive effect. In this sense, there is a conflict between the statute and the central policy of the Sherman Act — ‘our charter of economic liberty.’ . . . Nevertheless, this sort of conflict cannot itself constitute a sufficient reason for invalidating the . . . statute. For if an adverse effect on competition were, in and of itself, enough to render a state statute invalid, the States’ power to engage in economic regulation would be effectively destroyed.” Exxon Corp. v. Governor of Maryland, 437 U. S. 117, 133 (1978).

Reversed.

1 The pertinent provisions of the Automobile Franchise Act are as follows:

“3062. Establishing or relocating dealerships

“(a) Except as otherwise provided in subdivision (b), in the event that a franchisor seeks to enter into a franchise establishing an additional motor vehicle dealership within a relevant market area where the same line-make is then represented, or relocating an existing motor vehicle dealership the franchisor shall in writing first notify the Board and each franchisee in such line-make in the relevant market area of his intention to establish an additional dealership or to relocate an existing dealership within or into that market area. Within 15 days of receiving such notice or within 15 days after the end of any appeal procedure provided by the franchisor, any such franchisee may file with the board a protest to the establishing or relocating of the dealership. When such a protest is filed, the board shall inform the franchisor that a timely protest has been filed, that a hearing is required pursuant to Section 3066, and that the franchisor shall not establish or relocate the proposed dealership until the board has held a hearing as provided in Section 3066, nor thereafter, if the board has determined that there is good cause for not permitting such dealership. In the event of multiple protests, hearings may be consolidated to expedite the disposition of the issue.

“For the purposes of this section, the reopening in a relevant market area of a dealership that has not been in operation for one year or more shall be deemed the establishment of an additional motor vehicle dealership.

“3063. Good cause

“In determining whether good cause has been established for not entering into or relocating an additional franchise for the same line-make, the board shall take into consideration the existing circumstances, including, but not limited to:

“(1) Permanency of the investment.

“(2) Effect on the retail motor vehicle business and the consuming public in the relevant market area.

“(3) Whether it is injurious to the public welfare for an additional franchise to be established.

“(4) Whether the franchisees of the same line-make in that relevant market area are providing adequate competition and convenient consumer care for the motor vehicles of the line-make in the market area which shall include the adequacy of motor vehicle sales and service facilities, equipment, supply of vehicle parts, and qualified service personnel.

“(5) Whether the establishment of an additional franchise would increase competition and therefore be in the public interest.” Cal. Veh. Code Ann. §§ 3062, 3063 (West Supp. 1978).

2 Appellants in No. 77-849 were made defendants in intervention by uneontested order of the District Court.

3 On application of appellants in No. 77-837, Mr. Justice RehNQüist stayed the District Court judgment, 434 U. S. 1345, (1977) (in chambers).

Appellants in No. 77-837 argue that the District Court should have abstained under the rule of Railroad Comm’n v. Pullman Co., 312 U. S. 496 (1941), arguing that the state courts might have construed the Automobile Franchise Act so as to limit or avoid the federal constitutional question. The District Court correctly refused to abstain. Abstention may appropriately be denied where, as here, there is no ambiguity in the challenged state statute. See Wisconsin v. Constantineau, 400 U. S. 433, 439 (1971).

4 A congressional Committee reported in 1956:

“Automobile production is one of the most highly concentrated industries in the United States, a matter of grave concern to officers of the Government charged with enforcement of the antitrust laws. Today there exist only 5 passenger-ear manufacturers, 3 of which produce in excess of 95 percent of all passenger cars sold in the United States. There are approximately 40,000 franchised automobile dealers distributing to the public cars produced by these manufacturers. Dealers have an average investment of about $100,000. This vast disparity in economic power and bargaining strength has enabled the factory to determine arbitrarily the rules by which the two parties conduct their business affairs. These rules are incorporated in the sales agreement or franchise which the manufacturer has prepared for the dealer’s signature.

“Dealers are with few exceptions completely dependent on the manufacturer for their supply of cars. When the dealer has invested to the extent required to secure a franchise, he becomes in a real sense the economic captive of his manufacturer. The substantial investment of his own personal funds by the dealer in the business, the inability to convert easily the facilities to other uses, the dependence upon a single manufacturer for supply of automobiles, and the difficulty of obtaining a franchise from another manufacturer all contribute toward making the dealer an easy prey for domination by the factory. On the other hand, from the standpoint of the automobile manufacturer, any single dealer is expendable. The faults of the factory-dealer system are directly attributable to the superior market position of the manufacturer.” S. Rep. No. 2073, 84th Cong., 2d Sess., 2 (1956). See also S. Macaulay, Law and the Balance of Power: The Automobile Manufacturers and Their Dealers (1966).

5 See Automobile Dealers’ Day in Court Act, 15 U. S. C. §§ 1221-1225; Ariz. Rev. Stat. Ann. §28-1304.02 (1976); Cal. Veh. Code Ann. §3060 et seq. (West Supp. 1978); Colo. Rev. Stat. § 12-6-120 (1973); Fla. Stat. §320.641 (1977); Ga. Code § 84-6610 (f) (Supp. 1977); Haw. Rev. Stat. §437-33 (1976); Idaho Code §49-1901 et seq. (1967); Iowa Code § 322A.2 (1977); Md. Transp. Code Ann. § 15-207 (1977); Mass. Gen. Laws Ann., ch. 93B, § 4 (3) (West Supp. 1978-1979); Neb. Rev. Stat. § 60-1422 (1974); N. H. Rev. Stat. Ann. § 357-B:4 III (c) (Supp. 1977); N. M. Stat. Ann. § 64-37-5 (Supp. 1975); N. C. Gen. Stat. § 20-305 (5) (1978); N. D. Cent. Code §51-07-01.1 (Supp. 1977); Ohio Rev. Code Ann. §4517.41 (Supp. 1977); Okla. Stat., Tit. 47, §565 (j) (Supp. 1978); Pa. Stat. Ann., Tit. 63, § 805 (Purdon Supp. 1978-1979); R. I. Gen. Laws §31-5.1-4 (Supp. 1977); S. C. Code § 56-15-40 (3) (c) (1977); S. D. Comp. Laws Ann. § 32-6A-5 (1976); Tenn. Code Ann. § 59-1714 (c) (Supp. 1978); Vt. Stat. Ann., Tit. 9, § 4074 (Supp. 1977-1978); Va. Code § 46.1-547 (Supp. 1978); W. Va. Code § 47-17-5 (Supp. 1978); Wis. Stat. Ann. §218.01 (1957 and Supp. 1978-1979).

6 California first adopted special regulations applicable to dealers and manufacturers of automobiles in 1923. 1923 Cal. Stats., ch. 266, §§ 46 (a), (b). These required dealers and manufacturers to apply for certification and special identifying license plates as a condition of exemption from generally applicable registration requirements. In 1957 the former certification procedure became a licensing provision, and all automobile dealers were required to apply for licenses to qualify for and continue to hold the registration exemption. 1957 Cal. Stats., ch. 1319, § 7. In addition, it became unlawful on and after October 1, 1957, to act as a dealer without having procured a license. Ibid. The prohibition on unlicensed activity was extended to manufacturers and motor vehicle transporters by 1967 Cal. Stats., ch. 557, § 1. That statute made it unlawful for any person to act as a dealer, manufacturer, or transporter of motor vehicles without a valid license and certificate issued by the Department of Motor Vehicles. §2. The 1967 statute also created the New Motor Vehicle Board, originally empowered to handle licensing of new automobile retail dealerships and to review decisions of the Department of Motor Vehicles disciplining dealers. Its powers were expanded in 1973 by the Automobile Franchise Act to empower the Board to deal with the establishment of new franchises and the relocation of existing franchises. The California Legislature expressly stated that this Act was passed “in order to avoid undue control of the independent new motor vehicle dealer by the vehicle manufacturer or distributor and to insure that dealers fulfill their obligations under their franchises and provide adequate and sufficient service to consumers generally.” 1973 Cal. Stats., ch. 996, § 1. The Act also sets forth rules and procedures governing franchise cancellations, delivery and preparation obligations and warranty reimbursement. See Cal. Veh. Code Ann. §§ 3060, 3061, 3064, and 3065 (West Supp. 1978).

7 For a helpful discussion of the purpose served by such laws — the promotion of fair dealing and the protection of small business — see Forest Home Dodge, Inc. v. Karns, 29 Wis. 2d 78, 138 N. W. 2d 214 (1965). This concern has prompted at least 18 other States to enact statutes which, like the Automobile Franchise Act, prescribe conditions under which new or additional dealerships may be permitted in the territory of the existing dealership. See Ariz. Rev. Stat. Ann. § 28-1304.02 (1976); Colo. Rev. Stat. § 12-6-120 (1973); Fla. Stat. §320.642 (1977); Ga. Code §§84-6610 (f)(8), (10) (Supp. 1977); Haw. Rev. Stat. §§437-28 (a), (b) (22) (1976); Iowa Code § 322A.4 (1977); Mass. Gen. Laws Ann., ch. 93B, § 4 (3) (e) (1) (West Supp. 1978-1979); Neb. Rev. Stat. § 60-1422 (1974); N. H. Rev. Stat. Ann. §357-B:4 III (c) (Supp. 1977); N. M. Stat. Ann. § 64-37-5 (Supp. 1975); N. C. Gen. Stat. § 20-305 (5) (1978) ; R. I. Gen. Laws § 31-5.1-4 (C) (11) (Supp. 1977); S. D. Comp.'Laws Ann. §§ 32-6A-3 to 32-6A-4 (1976); Tenn. Code Ann. § 59-1714 (Supp. 1978); Vt. Stat. Ann., Tit. 9, § 4074 (c) (9) (Supp. 1977-1978); Va. Code § 46.1-547 (d) (Supp. 1978); W. Va. Code § 47-17-5 (i) (Supp. 1978); Wis. Stat. Ann. §§218.01 (3), (8) (1957 and Supp. 1978-1979).

8 See Cal. Veh. Code Ann. § 507 (West Supp. 1978).

9 Within 30 days after the hearing, or of a decision of a hearing officer, the Board must render its decision, or the establishment or relocation of the proposed franchise is deemed approved. See Cal. Veh. Code Ann. §3067 (West Supp. 1978).

10 See n. 1, supra.

11 California Veh. Code Ann. § 11713.2 (West Supp. 1978) provides:

“It shall be unlawful and a violation of this code for any manufacturer, manufacturer branch, distributor, or distributor branch licensed under this code:

“(1) To modify, replace, enter into, relocate, terminate or refuse to renew a franchise in violation of Article 4 (commencing with Section 3060) of Chapter 6 of Division 2.”

12 The California Legislature expressly identified the state interests being served by the Franchise Act as “the general economy of the state and the public welfare . . which made it “necessary to regulate and to license vehicle dealers [and] manufacturers . . . .” The statute states:

“[T]he distribution and sale of new motor vehicles in the State of California vitally affects the general economy of the state and the public welfare and ... in order to promote the public welfare and in the exercise of its police power, it is necessary to regulate and to license vehicle dealers, manufacturers, manufacturer branches, distributors, distributor branches, and representatives of vehicle manufacturers and distributors doing business in California in order to avoid undue control of the independent new motor vehicle dealer by the vehicle manufacturer or distributor and to insure that dealers fulfill their obligations under their franchises and provide adequate and sufficient service to consumers generally.” 1973 Cal. Stats., ch. 996, § 1.

13 The District Court did not pass upon this contention. We choose to address it because the underlying facts are undisputed and the question presented is purely one of law.

14 Appellees state, without challenge by appellants: “117 protests have been filed under § 3062 since the Act became effective (July 1, 1974). Of these, only 42 have gone to a hearing on the merits, and only one has been sustained by the Board .... Thus, of 117 automatic temporary injunctions issued by the Board, only one ever matured into a permanent injunction.” Brief for Appellees 10 n. 13.

15 Dealers who press sham protests before the New Motor Vehicle Board for the sole purpose of delaying the establishment of competing dealerships may be vulnerable to suits under the federal antitrust laws. See California Motor Transport Co. v. Trucking Unlimited, 404 U. S. 508 (1972).