Star Hous., Inc. v. Volvo Cars of N. Am., LLC

673 S.W.3d 644

STAR HOUSTON, INC., Appellant,

Volvo Cars of North America, LLC n/k/a Volvo Car USA, LLC, Cross-Appellant,

v.VOLVO CARS OF NORTH AMERICA, LLC n/k/a Volvo Car USA, LLC and the Board of the Texas Department of Motor Vehicles, Appellees,Star Houston, Inc. and the Board of the Texas Department of Motor Vehicles, Cross-Appellees,

NO. 03-21-00239-CV

Court of Appeals of Texas, Austin.

Filed: May 25, 2023

Rosalind L. Hunt, Dennis M. McKinney, Austin, for Appellee Board of The Texas Department of Motor Vehicles.

Brit T. Brown, Benjamin A. Escobar Jr., Houston, for Appellee Volvo Cars of North America, LLC n/k/a Volvo Car USA, LLC.

William David Coffey III, Martin Alaniz, Austin, for Appellant.

Before Chief Justice Byrne, Justices Triana and Kelly

OPINION

Chari L. Kelly, Justice

Appellant Star Houston, Inc. and cross-appellant Volvo Car USA, LLC each appeal a Final Order of the Motor Vehicle Board. Star and Volvo had engaged in an administrative proceeding during which Star protested Volvo's termination of Star's Volvo franchise and Star in what it termed "counterclaims" alleged that several Volvo Dealer Incentive Programs each violated several provisions of Occupations Code chapter 2301. Star and Volvo petitioned for judicial review of the Final Order in Travis County district court. See Tex. Occ. Code § 2301.751(a). Star's and Volvo's suits for judicial review were consolidated into one suit, but before trial, Volvo removed the appeal and cross-appeal of the Final Order to this Court. See id. § 2301.751(b). And in both the trial court and this Court, the Motor Vehicle Board—the body that governs the Department of Motor Vehicles, see Tex. Transp. Code §§ 1001.001 –.002, 1001.021, 1001.0221—has appeared as a responding party (either defendant, appellee, or cross-appellee, as the case may be) to defend the Final Order.

In two issues, Volvo maintains that the Board erred by concluding that two of the Dealer Incentive Programs—CSI and SSI—violated each of Occupations Code sections 2301.467(a)(1) and 2301.468. In three issues of its own, Star maintains that all six of the Dealer Incentive Programs violated Occupations Code sections 2301.468, 2301.467(a)(1) and (a)(2), 2301.476(c)(2), 2301.451, 2301.473(2)(C), and 2301.478(b).¹ Also, the Board brings a standing challenge to Volvo's cross-appeal of the Final Order. We conclude that Volvo has standing to bring its cross-appeal and affirm the Final Order.

BACKGROUND

Star had been a Volvo dealer for decades, operating under a 1970 franchise agreement with Volvo Car USA, the brand's U.S. distributor. But for some time, Star's sales of Volvo cars had lagged behind those of virtually every other Volvo dealer in the same region and behind other dealers’ sales in the same region selling cars of similar brands.² Volvo personnel met with Star personnel, including Star's owner, over many years to suggest steps Star could take to improve its sales numbers and overall business to Volvo's satisfaction. But the two sides never settled on a mutually agreed approach.

For both Star and its other franchised dealers, Volvo operates incentive programs under which the dealers can take certain actions in exchange for bonus payments or other boons from Volvo. Six such programs—the Dealer Incentive Programs—are at issue here. Although Star sometimes benefitted from some of the Programs, overall Star usually did not take the actions that the Programs incentivized and so regularly did not receive as much in bonus money as other Volvo dealers received. The six Dealer Incentive Programs are CSI, SSI, the Facility Investment and Support Initiative (FISI), Volvo 360, Retailer Standards, and Factory Options / Package Bonus / Sales Mix.

CSI and SSI

The CSI and SSI programs use customer-survey results to reward dealers. When a customer buys a car from a dealer or takes a car to the dealer for service, the customer is afterward asked to complete a survey. Although the surveys usually include dozens or more questions, for purposes of CSI and SSI bonus payments, only four of the questions matter, and these are the "enabler questions." The enabler questions for customers who bought cars concern the customer's opinion about the dealer's facilities, whether the customer would recommend the dealer to others, whether the customer was satisfied with the features and controls of the car, and whether the dealer has reached out to the customer since the latter took delivery of the car. The enabler questions for customers who brought cars to the dealer for service concern the customer's opinion of the waiting area, whether the customer was satisfied with the explanation of the work done, whether the customer was satisfied with the condition of the car after it was serviced, and whether the customer received any follow-up from the dealer. The questions on the surveys that are not treated as enabler questions cover a host of other topics about the customer's satisfaction, but only the enabler questions are scored for bonus purposes. The customer does not necessarily know which questions are the enabler questions.

For the enabler questions, the customer is asked to give the dealer a score from one to ten (or sometimes one to five), with the highest number reflecting highest customer satisfaction. But not all scores are included in the bonus-computation process. Volvo uses a method called "top-box scoring"—only the highest scores (nines or tens out of ten or fives out of five) are credited to the dealer receiving such scores; any score that is not a top-box score counts as a zero. High-scoring dealers receive CSI or SSI bonuses, but Star's non-top-box scores on the CSI and SSI surveys—particularly because of Star's dated facilities—meant that it only rarely achieved CSI or SSI bonus payments.

FISI

For dealers who conform their facilities to Volvo's specifications for brand image and exclusivity, Volvo would pay the dealers a bonus under the FISI program. Volvo capped FISI bonus payments at 50% of the costs that the dealer spent on the facilities improvements that earned them the FISI bonuses.

Volvo 360

The Volvo 360 program was used to recycle the fleet of formerly leased Volvos into used-car sales. To receive Volvo 360 bonuses, dealers needed to buy a certain number of Volvos that had been returned after their leases had ended, certify a certain percentage of those cars as "certified pre-owned," and sell all of the certified cars. Volvo 360 used an auction system under which the dealer who had originated the lease had the right to bid first to buy the formerly leased car at a certain price. If that dealer refused, other Volvo dealers could bid to buy the car.

Retailer Standards

Retailer Standards represented Volvo's effort to incentivize certain business practices in its dealer community. To earn these bonuses, dealers needed to submit a yearly business plan and monthly financial statements, achieve quarterly training-certification goals, use and adhere to the Dealer.com website and communication standard, use an approved lead-management system, subscribe to a particular online scheduling platform, and display pricing for basic services online.

Factory Options / Package Bonus / Sales Mix

Star frequently received this category of bonuses. It did so by selling Volvo-brand options as part of sales of new cars.

History of this dispute

In 2016, Volvo notified Star that it was terminating their franchise relationship. Star initiated the underlying proceeding before the Department of Motor Vehicles, the state agency charged with regulating vehicle-dealer franchises, see generally Tex. Occ. Code §§ 2301.001 –.853, to contest the termination of its Volvo franchise. The Department referred Star and Volvo to the State Office of Administrative Hearings for a contested-case hearing. See id. § 2301.704. Star's live pleading for the contested-case hearing not only sought relief under Star's protest of the termination of its franchise but also pleaded "counterclaims" against Volvo that the six Dealer Incentive Programs each violated six different statutes.

Two administrative-law judges (ALJs) conducted a six-day contested-case hearing and then issued a Proposal for Decision (PFD) resolving the parties’ claims and defenses. The ALJs in the PFD rejected Star's protest to the termination of its franchise and rejected most of Star's counterclaims that the Dealer Incentive Programs were unlawful under the six statutes that Star raised. However, the ALJs in the PFD concluded that the CSI and SSI programs violated Occupations Code sections 2301.467(a)(1) and 2301.468. Despite so concluding, the ALJs in the PFD also ruled that "[s]anctions, penalties, and further orders are not appropriate in this case, and further declaratory decision or orders are not required." Thus, Star was awarded no relief for the unlawfulness of the CSI and SSI programs.

The PFD has a two-part structure—(1) a lengthy background recitation of the facts, legal framework, and procedural history relevant to the contested case, all followed by (2) findings of fact numbered 1 through 243 and conclusions of law numbered 1 through 24. After both sides filed exceptions to the PFD, the ALJs made small changes to two of the PFD's numbered findings of fact, neither of which are at issue here. The administrative proceeding and the PFD, as amended, were then presented to the Motor Vehicle Board. The Board issued its Final Order, in which it said that after "having considered the record" of the contested case, it adopted "Conclusions of Law 1-24 and Findings of Fact ... 1-243" from the PFD, as amended, and denied "all remaining motions, exceptions, or objections, of any party." (The Final Order does not say that the Board adopted all or any part of the PFD's lengthy background section.)

Star and Volvo then filed their petitions for review of the Final Order in Travis County district court. They answered each other's petitions, and the Board appeared as a defendant to answer each petition as...