July 6, 2017 – MLG Automotive Law’s team of lawyers have successfully expanded the protections afforded to all California dealerships by creating a new, expansive law that holds manufacturers liable for their violations of the California Vehicle Code. On May 2, 2017, the California Court of Appeal, decided the matter of Guarantee Forklift, Inc., dba GFL, Inc. v. Capacity of Texas, Inc., Case No. A147954, holding that dealerships do not have to be licensed by the California DMV to have standing to sue manufacturers for their violations of the Vehicle Code.

In the action, MLG represented GFL, a family-owned tractor-trailer business in Alameda County.  GFL had been a long-standing dealer of Capacity, the manufacturer of tractors. When Capacity abruptly terminated GFL as a dealer, GFL filed a protest before the New Motor Vehicle Board.

Under Vehicle Code § 3066, when a protest is filed, the manufacturer’s termination notice is stayed until the Board determines whether good cause exists to terminate the dealer. After being served with the NMVB protest (and being informed of the stay), Capacity proceeded with termination proceedings anyway, and refused to recognize GFL as a dealer. Capacity refused to ship GLF parts or vehicles during any portion of the protest proceedings.

When Capacity refused to honor the automatic stay of the termination proceedings, GFL sued Capacity in Superior Court, seeking monetary damages for the lost profits it sustained from the forced closure. Capacity defended the Superior Court action, claiming that because GFL did not have an occupational dealer license by the DMV, it was not a “licensee” under the Vehicle Code. As Capacity argued, because GFL was not a licensee, it was not entitled to sue for monetary damages.

On summary judgment, the Superior Court accepted Capacity’s argument, and dismissed the case. MLG filed an appeal on behalf of its client, arguing that the legislative intent in enacting the Vehicle Code was to hold manufacturers to a standard of performance, not to provide a shield against dealers who failed to maintain occupational DMV licensing.

Noting that the issue had never been decided by California’s judiciary, and that the case was one of first impression, the First District Court of Appeal agreed with MLG’s position, and held that in California an unlicensed dealer does have standing to bring a claim in civil court for damages against a manufacturer, for alleged violations of the Vehicle Code.

The ruling of GFL v. Capacity is a watershed moment for the automotive community. In situations where a dealer has lost its license, or failed to yet obtain one, a claim may still lie against a manufacturer for Vehicle Code violations. The situation could commonly arise in dealer termination proceedings if, for instance, the dealer failed to maintain its licensing throughout the proceedings, and wanted to assert a claim against the manufacturer for coercive conduct. In a case where a dealer was wrongfully terminated, such a claim could have significant value.

Also significant is the fact that unlicensed dealers would also get to enjoy the benefits of Vehicle Code § 11726, which entitles a prevailing dealer (but not a prevailing manufacturer) to recover its reasonable attorneys’ fees, in addition to other relief provided by the trial court. For dealers sitting outside the state, the decision may be instructive to other courts who visit with the issue, as developed case law is extraordinarily thin on the topic. For dealers everywhere, this is one victory that will not be soon forgotten.