Untitled Texas Attorney General Opinion ( 1981 )

The Attorney General of Texas
hly 14, 1981
MARK WHITE
Attorney General
Honorable Russell Harding Opinion No. ~~-356
Executive Director
Texas Motor Vehicle Commission Re: Constitutionality of article
P. 0. Box 2293 4413(36), section 5.03, V.T.C.S.,
Austin, Texas 78768 prohibiting automobile brokers
Dear Mr. Harding:
You request our opinion advising you whether section 5.03 of the Texas
Motor Vehicle Commission Code is a valid exercise of the police power of
the State of Texas, or whether such a prohibition violates the Texas
Constitution or the Constitution of the United States.
The Texas Motor Vehicle Commission Code, V.T.C.S. article 4413(36),
section LO3(10) defines a “Broker” as follows:
‘Broker’ means a person who, for a fee, com-
mission, or other valuable consideration, arranges or
offers to arrange a transaction involving the sale, for
purpcees other than resale, of a new motor vehicle,
and who is not:
(A) a dealer or a bona fide egent or employee of
a dealer;
(B) a representative or a bona fide egent cr
employee of a representative;
(C) a distributor or bona fide agent or employee
of a distributor; or
(D) at any point in the transaction the bona fide
owner of the vehicle involved in the trans-
action.
Section 5.03 of the code prohibits people from acting as brokers in
Texas after September l, 1979. Since any contracts entered into prior to
September 1, 1979 would now almost certainly be filled, we need not address
any effect the statute might have on contracts executed before the
effective date of the statute.
We are given to understand that a new car broker acts as a purchasing
agent for consumers. We are told that in the usual brokered transaction, the
p. 1183
Honorable Russell Harding - Page Two (Mu-356)
broker first obtains the exact specifications of the car the customer wishes to buy,
takes a deposit, and then contacts - either directly or through a brokerage service - a
franchised dealer of the type automobile desired who has previously agreed to sell his
car through the broker at a discount. When the ordered vehicle arrives at the dealer’s
place of business from the manufacturer or distributor, the broker is notified, and the
broker’s client then picks tq~ the car at the dealership, purchasing it directly from the
franchised dealer at the discounted price. From that point, the transaction is like any
other new car purchase, with the same manufacturer’s warranty and service obligations
obtaining that apply to non-brokered transactions. The consumer purchases at a
discount; the broker gets a commission; and the dealer makes a reduced profit. At no
time &es the broker own, or take title to, the automobile made the subject of the
transaction.
It appears that before the new law, brokers, their firms, and dealers had to
cooperate to sell a consumer a new car, but until the time of delivery to the
dealership, the consumer only dealt with the broker or his firm. This necessarily
limited the consumer’s recourse in the case of dissatisfaction. Presumably the brokers
and dealers cooperated because it was economically advantageous for both of them. If
dealers ever wanted to do away with the competition of brokers they could refuse to
deal with them. None of this is changed by the new law. If it is economically
advantageous to deal with brokers, dealers can hire the brokers as employees for the
same type of transactions as transpired in the past. Only now dealers will be involved
as employers from the beginning of the transaction, and consumers will have the added
protection of dealing with the employee of a dealer. If it is not economically
advantageous to deal with brokers, they will not be hired; just as in the past they would
not lave been used. Brokers cannot exist without the “hiring” by someone in the
distributor - representative - dealer chain. Whether this hiring be for a term, payable
per transaction, or simply per transaction, the only effect of the new law is to aid and
protect the consumer by involving the dealer, and consequently his statutory and
financial obligations, throughout the transaction.
Generally, the police power is regarded es a grant of authority from the people
to their government agents for the protection of the health, safety, comfort and
welfare of the public. Obviously this power must include the authority to regulate the
conduct of any business that affects the welfare of the public. See generally Ferguson
v. Skrupa, 372 U.S. 762 (1963). The sale of new cars affects the welfare of the public,
and the regulation of these sales is a valid exercise of the police power if it &es not
deprive people of dre process or equal protection under the federal or state
constitutions. Since the new law &es not change the ability of people to act as
brokers, in concert with those who manufacture and distribute cars, it should not
deprive anyone of due process or equal protection.
A presumption of constitutionality attaches to every state enactment. Alaska
Packers Association v. Industrial Accident Commission, 294 U.S. 532 (1935).
The party claiming legislation to be invalid as constituting a
deprivation of property without due process carries a heavy
p. 1184
Honorable Russell Harding - Page Three (MW-356)
burden., He must establish such invalidity ‘clearly or beyond a
reasonable doubt, and must overcome, by facts judiciallv known
or proved, not only the evidence s&t&ning &nstituti-onality
but any state of facts which can be reasonably conceived ti
sustain it.’ (Emphasis added) 16 C.J.S. Constitutional Law 599,
at p. 407.
State ex rel. Pan Am. Production Co. v.
Galveston 19561, aff’d, 303 S.W.2d 780 (Tex
(1958). Where an economic regulat :ion is challenged under the Fourteen)th Amendment
on shstantive due process grounds, the regulation will not be overturned as long as
“there is an evil at hand for correction, and... it might be thought that the particular
legislative measure was a rational way to correct it:” Williams& v. Lee Odtical Co.,
348 U.S. 483, 488 (1955). Even if no complaints had been filed wainst the brokers. the
legislation would not necessarily be inialid The state may “legitimately leg&l;&
against problems which have yet to manifest themselves as long as the problem is at
least rationally conceivable. Olsen v. Nebraska, 313 U.S. 236, 246-47 (1941). If the
economic regulation & challenged on equal protection grounds, i.e., unaffiliated.
brokers may not sell new cars but affiliated brokers may, it still enjoys a presumption
of constitutionality. ~‘Unless a classification trammels fundamental personal rights or
is drawn lpon inherently suspect distinctions such as race, religion, or alienage, our
decisions presume the constitutionality of the statutory discriminations and require
only that the classification challenged be rationally related to a legitimate state
interest.” City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976). Besides, all brokers
must be affiliated with a manufacturer, representative or dealer to obtain new cars.
The purpose of the Texas Motor Vehicle Commission Code is to “insure a sound
system of distributing and selling new [cars] . . . and to prevent frauds, unfair practices,
discriminations, impositions, and other abuses of our citizens.” V.T.C.S. art. 4413(36),
r;;.OasI’his is p valid purpcee for invoking the police power. Detroit Automotive
ng Services, Inc. v. Lee, 463 F. Supp. 954, 968 (D. Md. 1978). If the, prohibition
of unaffiliated new car brokers rationally relates to this purpose, the legislation will
withstand constitutional attacks based on tie process rights and equal protection
rights. It seems unquestionable that requiring new cars to be sold by licensed dealers
or their agents or employees relates to the protection of the car buying public. If it is
“rationally conceivable” that this legislation will protect automobile consumers, then it
is within the police power to so legislate. Olsen v. Nebraska, m at 246-247. The
judiciary will not sit as a swer legislature to judge the wisdom or desirability of this
legislative policy determination. City of New Orleans v. Dukes, a, at 303.
The Texas Constitution also classifies the right to earn a living as a property
right of which one cannot be deprived without due process of law. Smith v. Decker,
312 S.W.2d 632 (Tex. 1958); See Falfurrias Creamery Company v. City of Laredo, 276
S.W.2d 351 (Tex. Civ. Appxan Antonio 1955, writ rePd n.r.e.). If the new code,
purporting to “insure a sound system of distributing and selling new [cars]... and to
prevent frauds, unfair practices, discriminations, impositions, and other abuses of our
citizens,” bears no stistantial relationship to these objects, the statute violates the
p. 1185
Honorable Russell Harding - Page Four (Mu-3561
due process clause of the Texas Constitution, article I, section 19. Texas State Board
of Pharmacy v. Gibson’s Discount Center, Inc., 541 S.W.2d 884, 887 (Tex. Civ. App. -
Austin 1976, writ ref’d n.r.e.1. Texas courts have been willing to consider the wisdom
of legislation; however, in this situation, it appears as though the formalizing of the
contractual relationship between dealers and brokers will bear a substantial relation-
ship to the prevention of fraud and abuses of Texas citizens.
Article I, section 3 of the Texas Constitution also guarantees equality of rights
to all persons, but the mere fact that the new motor vehicle code might appear to
descriminate against certain people who want to sell new cars &es not render it
unconstitutional, San Antonio Retail Grocers v. Lafferty, 297 S.W.2d 813 (Tex. 1957).
Generally, the legislature is empowered to make classifications and exemptions which
are not arbitrary and unreasonable. Watts v. Mann, 187 S.W.2d 917 (Tex. Civ. App. -
Austin 1945, writ rePd). In determining whether a classification is arbitrary and
unreasonable, the Texas Supreme Court has held that the test is “whether there is any
basis for the classification which could have seemed reasonable” to the legislature in
making such a distinction. Lafferty, se, at 815. As the broker is not precluded from
engaging in his occupation, it &es not seem unreasonable to protect the consumer by
tying the broker to the dealer contractually.
You have also requested our opinion advising you whether a new car becomes
“used” if a person purchases a new car ordered by a broker, registers and tjtles the
vehicle in its own name in the State of Missouri, and then drives the car to Texas for
delivery end transfer of title to the broker. The broker would then deliver the
automobile and title to the buyer.
The Texas Motor Vehicle Commission Code defines a new motor vehicle as one
“which has not been the stiject of a ‘retail sale’ as &fined in Article 6.03(B), Title
122A, Taxation-General, Revised Civil Statutes of Texas, 1925, as amended.” V.T.C.S.
art. 4413(36X §LO3(2). Article 6.03(B) &fines a retail sale as including “all sales of
motor vehicles except those whereby the purchaser acquires a motor vehicle for the
exclusive purpose of resale and not for use.” It does not appear that either of the first
two “sales” contemplated in the above method of operation would constitute a retail
sale; therefore, for purposes of the Texas Motor Vehicle Commission, the motor
vehicle would still be a new motor vehicle when transferred to the buyer.
There is, of course, an exception for persons who are bona fide owners of the
vehicles involved in the transaction. V.T.C.S. art. 4413(36), Sl.O3(10D). While there
may be instances where a person who otherwise would be a broker except for the fact
that he falls under this exception, we believe that when the broker acts as the agent of
the ultimate purchaser, the broker cannot be classified as a bona fide owner within the
meaning of section 1.03(10X
SUMMARY
The State of Texas hes a legitimate interest in protecting
automobile consumers and in regulating the sale of new motor
p. 1186
Honorable Russell Harding - Page Five (MW-356)
vehicles. The Texas Motor Vehicle Commission Code rationally
implements this protection and regulation without invidious
discrimination, and is therefore constitutionally permissible.
The sale of a new motor vehicle for the exclusive purpose of
resale &es not change the classification of the vehicle from a
new motor vehicle for the purposes of the Texas Motor Vehicle
Commission Code. One who is not an agent for the ultimate
purchaser, but a bona fide owner of a new car, will not be
classified es a broker under the Texas Motor Vehicle Com-
mission Code.
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Peter Nolan
Assistant Attorney General
APPROVED:
OPINION COMMlTTEE
Susan Garrison, Acting Chairman
Jon Bible
Peter Nolan
p. 1187