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Court of Appeal, Second District, Division 3, California.

Clifford L. MERRILL and Harold E. Morris, dba The Merchandiser, Petitioners and Respondents, v. DEPARTMENT OF MOTOR VEHICLES, State of California;  Tom Bright, Director of the Department of Motor Vehicles, State of California, Defendants and Appellants.

Civ. 31981.

Decided: November 27, 1968

Thomas C. Lynch, Atty. Gen., David Gould, Deputy Atty. Gen., for appellants. Young & Young, W. Herbert Young, Los Angeles, for respondents.

Clifford L. Merrill and Harold E. Morris, co-partners doing business as The Merchandiser, made application to the Department of Motor Vehicles for a license as a motor vehicle dealer, as defined by section 285 of the California Vehicle Code.   The application was refused, the petitioners requested a hearing which was held;  the hearing officer made findings and conclusions and a proposed decision which were adopted by the department as grounds for its continued refusal to issue a license.

The present proceeding in mandate was instituted by Merrill and Morris (to be referred to as plaintiffs) against the department and Tom Bright, its director, (to be referred to as defendants) seeking annulment of the decision of the department;  in the trial the court made findings and conclusions and rendered judgment remanding the proceeding to the department and commanding the department to set aside its decision, to reconsider its action in the light of the court's findings and conclusions and to take any further action specially enjoined upon it by law.   The department and Bright, as director, appeal.

The basis of the decision of the defendants was that plaintiffs are not and do not intend to become a bona fide dealer as the term “dealer” is defined by section 285 of the Code.1  The basis of the court's judgment was that plaintiffs are fully qualified to be licensed as a dealer.   We have concluded that the judgment is correct and that it must be affirmed.

There was no disagreement as to the facts, either in the administrative hearing or the trial.   The record of the hearing was before the court and is part of the record on appeal.

Plaintiffs operate what is known as a “Discount House.” Their method of doing business was found to be the following:

“1. (d)(i) Harold E. Morris and Clifford L. Merrill are doing business as the Merchandiser, a copartnership, located at 200 West Florence Avenue in Inglewood, California.   Said business is commonly referred to as a ‘discount house’, and respondents sell furniture and general household merchandise at retail prices.  * * *

“1. (e) Petitioners method of doing business was, generally, as follows:

”They would obtain from their member [customer] a detailed description of the type of automobile and extras the member desired to purchase.   Petitioners would then give said member a [customer's] sealed envelope, containing the wholesale price of the car and the extras, together with the agreed-upon profit to the dealer.   The member then took the envelope to the dealer, who thereupon quoted to the customer the price set forth in the envelope and made all further arrangements to deliver the car.   The member would decide whether or not he would purchase from the dealer.   If the member decided to purchase from the dealer, all contracts to purchase would be signed by the dealer directly with the member and the purchase price for the vehicle would be paid to the dealer.  * * *”

It was stipulated in the hearing that plaintiffs made proper application for a license as is required of bona fide dealers, that they do not have and, if licensed, do not intend to have an inventory of new cars, and that they are compensated by the dealers for their referral services.

The grounds for denial of the application were stated in the decision of the department as follows:


“Reasonable cause for the denial of the application exists in that the respondents' present and intended future activity, with reference to the referral of potential motor vehicle purchasers to dealers, is an activity most akin to that of a motor vehicle salesman as defined by Section 675(a)(1) of the California Vehicle Code, although said activity is not confined to one dealership as required by Section 11806 of said Code.


“Reasonable cause for denial of the application exists in that respondents' present and intended future status, with reference to having no inventory of a stock of motor vehicles for sale to the public, fails to meet the requirements of Section 285 of the Vehicle Code in conjunction with Section 11701 of said Code in that respondents are not now, and will not in the future qualify as a bona fide motor vehicle dealer.


“Reasonable cause for denial of the application exists in that if the motor vehicle dealer's license, as presently applied for, were to issue, cause for the revocation of said license would exist under the provisions of Section 11705 of the Vehicle Code in that without a stock of motor vehicles for sale to the public, respondents would not qualify as a bona fide motor vehicle dealer.


Reasonable cause for denial of the application exists in that if the Department were to issue a license, or purport to sanction respondents' activities with reference to motor vehicles, the same would be beyond its jurisdiction;  the legislature not having authorized a type of license for the type of activity respondents now practice or intend to practice in the future.


“Reasonable cause for denial of the application exists pursuant to the provisions of Section 11701 of the Vehicle Code in that respondents do not intend to become a bona fide motor vehicle dealer.


“Reasonable cause for denial of the application exists in that issuance of a dealer's license would permit respondents, by said referrals to many dealers, to gain an unfair economic advantage over those license motor vehicle salesmen whose activities are confined to one licensed dealership pursuant to the provisions of Section 11806 of the Vehicle Code.”

It was alleged in the petition that the real reason for denial of the application was that plaintiffs do not hold a franchise from a distributor or manufacturer.   This allegation was denied in the return, but there was before the court, in plaintiffs' points and authorities, a copy of the California Motor Vehicles Registration Procedural Manual, Chapter 17, 17.0003(6), which requires as follows:  “Dealers in new vehicles must also submit a distributor or manufacturer appointment covering all makes of vehicles the dealer is enfranchised to sell.”

The material grounds upon which the application was denied were that plaintiffs do not have an inventory of new cars and that their operations are unfair to motor vehicle salesmen.

Although the department did not expressly determine that a dealer must be enfranchised, such a holding must be inferred from the decision that a dealer must maintain an inventory of new vehicles.   The referral business of plaintiffs is not confined to a single dealer;  the decision of the department that plaintiffs would have to maintain an inventory of new vehicles would require plaintiffs to go into a conventional new vehicle business with a franchise from a distributor or manufacturer.   There is nothing in the Vehicle Code or regulations that requires a dealer to have an inventory of new motor vehicles.   To say that a dealer must have an inventory is but another way of saying he must be enfranchised.   That it is the policy of the department to refuse to license an unenfranchised dealer appears from the quoted regulations.   It is consistent with the provisions of section 11704 of the Code, a section that is not mentioned in the briefs.   A requirement of that section reads:  “* * * the department may require, a statement of the following facts:  * * *

“(c) If the application be for a dealer's license, the name or names of the new motor vehicle or vehicles that the applicant has been enfranchised to sell or exchange and the name or names and address of the manufacturer or distributor who has enfranchised the applicant.”

It is apparent from the points and authorities filed in the trial court, which are included in the clerk's transcript, that the legal issues in the trial were whether a dealer must maintain an inventory of new cars and whether he must have a franchise from a distributor or manufacturer.

Determinative findings of the court were the following:

“10. (c) It is prejudicial abuse of discretion for the respondent to require an applicant to maintain or acquire an inventory or stock of motor vehicles in order to qualify as a bona fide motor vehicle dealer, or to require petitioners to have a franchise whereby they would acquire an inventory of new motor vehicles.

“11. That petitioners' method of doing business as determined by the findings of fact qualifies them as a bona fide motor vehicle dealer.”

Plaintiffs contend that under the Code provisions and the regulations they are deprived of the right to carry on their referral business by the requirement that they must be enfranchised and that this is an illegal condition imposed upon discount houses such as their own.   This is true.

 Contracts and practices of manufacturers and their enfranchised dealers in new vehicles, under which the dealers refuse to sell motor vehicles to or through discount houses, constitute an unlawful restraint of trade and conspiracy in violation of section 1 of the Sherman Act.   (United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415.)   Other cases which hold that legislation or rules which require that a motor vehicle dealer must have a franchise from a manufacturer or distributor in order to engage in the business of selling new motor vehicles are violative of the Fourteenth Amendment and invalid, are Killingsworth v. West Way Motors, Inc., 87 Ariz. 74, 347 P.2d 1098;  Joyner v. Centre Motor Company, INc., 192 Va. 627, 66 S.E.2d 469;  Nelsen v. Tilley, 137 Neb. 327, 289 N.W. 388, 126 A.L.R. 729, and Signore v. Rizzolo, 9 N.J.Super. 539, 75 A.2d 757.   The rule is aptly stated in Nelsen v. Tilley, as follows:  “The sale of new motor vehicles is a lawful business which any person has the right to pursue, subject to reasonable legislative regulation.   No person, who complies with such reasonable regulations as the legislature may prescribe, may be arbitrarily deprived of that right.   We agree that the limitation contained in subdivision (a) (dealer's license shall be limited to such new motor vehicle as the licensee discloses in his application he is enfranchised to sell) creates a monopoly in the persons enfranchised by the manufacturers of motor vehicles and thereby contravenes the Fourteenth Amendment to the Constitution of the United States.”

 The judgment of the trial court in declaring invalid any requirement that plaintiffs, in order to be licensed, must maintain or acquire an inventory or stock of new motor vehicles and must have a franchise from a manufacturer or distributor is based upon well established legal principles.


Strange as it may seem, the brief does not enlighten us as to any reason for the statement that the trial court erred.   It is not questioned that the application of plaintiffs was denied because they held no franchise and carried no inventory.   It is not contended nor even suggested that a license could legally be denied for either of those reasons.   It is said that section 11701 of the Code gives the department discretion to determine what qualifies one as a “bona fide dealer,” and that department properly exercised its discretion.   Reference is made to irrelevant provisions of the Code, and it is argued that they are proper regulatory measures.   The applicant must post a bond of $5,000 and appoint the director of the department his agent for the service of certain process (section 11710);  he must have an ‘'established place of business” (section 11712) and display an identifying sign (section 11709).   The court did not hold these sections to be invalid.   Reference is also made to a provision of section 320 that a dealer must have a “display area” adjacent to his place of business, but it is not argued that this would be a valid regulation of a referral business.

We are at a loss to know what this court is expected to decide.   The contentions of plaintiffs which were upheld by the trial court are ignored by the defendants.   The provisions of the regulations and the Code which are defended by defendants in their brief have not been questioned by plaintiffs or the trial court.

The department decided that the referral business of plaintiffs would enable plaintiffs to gain an unfair economic advantage over licensed salesmen of motor vehicles because the plaintiffs' business is not confined to referrals to a single dealer while the salesmen can work for only one employer who must be a dealer (section 11806 of the Code).   The trial court found that plaintiffs would gain no such advantage.   Appellants do not contend that the judgment is in error in this particular, and we can see no error.

 We have not been made aware of any reason for this appeal by the defendants.   They have been commanded to discontinue certain specific illegal practices.   They do not defend those practices and yet they appeal from the judgment.   A judgment of a trial court within its jurisdiction, is unmodified and unreversed, is just as good authorization for the department to render compliance as would be the same judgment of this court or the Supreme Court.

The judgment is affirmed.



1.   “Dealer“285. ‘Dealer’ is a person not otherwise expressly excluded by Section 286 who:“(a) For commission, money, or other thing of value, sells, exchanges, buys, or offers for sale, negotiates or attempts to negotiate, a sale or exchange of an interest in, a vehicle subject to registration under this code, or induces or attempts to induce any person to buy or exchange an interest in a vehicle and, who receives or expects to receive a commission, money, brokerage fees, profit, or any other thing of value, from either the seller or purchaser of said vehicle, or“(b) Is engaged wholly or in part in the business of selling vehicles or buying or taking in trade, vehicles for the purpose of resale, selling, or offering the sale, or consigned to be sold, or otherwise dealing in vehicles, whether or not such vehicles are owned by such person.“Amended Ch. 1996, Stats. 1959, superseding an amendment in Ch. 173, Stats. 1959.“Amended Ch. 58, Stats. 1961.   Effective Sept. 15, 1961.”

SHINN, Associate Justice.* FN* Retired Presiding Justice of the Court of Appeal sitting under assignment by the Chairman of the Judicial Council.

FORD, P.J., and MOSS, J., concur.