Aero Motors, Inc. v. Administrator, Motor Vehicle Administration

• Citation: 337 A.2d 685,274 Md. 567
• Decision Date: 06 May 1975
• Docket Number: No. 105,105
• Parties: AREO MOTORS, INC., et al. v. ADMINISTRATOR, MOTOR VEHICLE ADMINSTRATION et al.
• Court: Maryland Court of Appeals

Page 567

274 Md. 567

337 A.2d 685

AREO MOTORS, INC., et al. v. ADMINISTRATOR, MOTOR VEHICLE ADMINSTRATION et al.

No. 105.

Court of Appeals of Maryland.

May 6, 1975.

Ronald J. Kearns, Baltimore (Ginsberg & Ginsberg, Baltimore, on the Brief), for appellants.

Joseph P. Carroll, Sp. Asst. Atty. Gen. (Francis B. Burch, Atty. Gen., J. Michael McWilliams, Asst. Atty. Gen., Baltimore, on the brief), for Administrator, Motor Vehicle Administration.

Stephen C. Winter, Towson, (White, Mindel, Clarke & Hill, Towson, on the brief), for Auto. Trade Ass'n of Md.

Argued before MURPHY, C. J., and SINGLEY, SMITH, LEVINE, ELDRIDGE and O'DONNELL, JJ.

O'DONNELL, Judge.

The appellants, Aero Motors, Inc., and seven other Maryland licensed used car dealers joined forces and filed a bill of complaint in the Circuit Court for Baltimore County, pursuant to the provisions of Maryland Code (1957, 1971 Repl.Vol.) Art. 31A (Uniform Declaratory Judgments Act), ¹ joining as defendant the Administrator of the Motor Vehicle Administration and the Automobile Trade Association of Maryland and sought a decree declaring Code (1957, 1970 Repl.Vol.) Art. 66 1/2, § 3-113.1, to be unconstitutional and enjoining the defendants from applying and enforcing the statute.

The statute reads as follows:

' § 3-113.1. Manufactures' certificate of origin; dealer to hold franchise.

(a) Any manufacturer transferring a new vehicle to a dealer shall supply the dealer, at the time of the transfer, with a manufacturer's certificate of origin. Any dealer transferring a new vehicle to another dealer, at the time of the transfer, shall give the transferee the proper manufacturer's certificate of origin assigned to the transferee, and each dealer shall hold an unexpired franchise in this State for the particular make of vehicle.

(b) Every dealer who holds a new vehicle for sale shall hold an unexpired franchise in this State for the particular make of vehicle held.'

At the commencement of the trial before Judge H. Kemp MacDaniel the parties stipulated that: the Maryland Legislature (a) has authority to enact regulatory measures governing the sale of new and used automobiles, (b) has authority under its police power to regulate the sale of motor vehicles for the protection and general welfare of the public, (c) that the production, transportation and marketing of automobiles is a proper subject for regulation by the legislature under its police power, and (d) that the right of a manufacturer of automobiles to choose its dealers is the right of the freedom of contract.

As the centrum of the appellants' assault upon the statute is the fact that under it new car dealers holding unexpired franchises from manufactures are permitted to transfer new vehicles for which they hold a franchise to another dealer having a franchise from the same manufacturer by the use of the manufacturer's 'certificate of origin,' and that such transfers are thus exempt from the 4 percent excise tax imposed under Art. 66 1/2, § 3-831(a), which is collected upon the issuance of every original certificate of title for a motor vehicle, as well as the certificate of title fee prescribed in § 3-830, whereas they, as used car dealers, must in connection with the purchase of such a new motor vehicle, like the purchasing public, obtain a certificate of title as required by Art. 66 1/2, § 3-101, and in accordance with the procedure specified in § 3-104(b) and § 3-113(c), which such transaction is subject to both the payment of the certificate of title fee ($2) and the excise tax computed on the 'fair market value' of the vehicle.

The appellants established by testimony that although the same criteria is used, under § 5-102 and § 5-103, for the issuance of dealers' licenses-whether for new or used cars-the issuance of such a license for new cars is predicated upon no other requirement under § 5-105 than the possession by the applicant of an unexpired franchise from a motor vehicle manufacturer-each establishing its own standards for the granting of franchises, which standards may differ between manufactures and by the same manufacturer in different locales.

Acknowledging that used vehicles may be transferred under the provisions of § 3-113(b) from one registered dealer to another registered dealer without applying for a new certificate of title-nor any payment of the excise tax-by merely executing an assignment of the title outstanding for such vehicle, appellants complain that although a dealer possessing a license to deal in new vehicles may sell not only new cars obtained from another franchised dealer without the payment of the excise tax, and used cars as well, the used car dealer cannot sell new cars without the issuance of a certificate of title and the payment of the tax.

The used car dealers all testified that they did not perform warranty work and, indeed, in the case of a car still in warranty, could not be reimbursed by the manufacturer for any such services performed. None of them possessed the facilities for performing 'heavy' mechanical work on automobiles although several of them employed one or two mechanics for performing 'light' service work in preparing vehicles for sale and in connection with warranties issued by them as dealers.

By way of counter thrust the appellees elicited testimony that the modern automobile, an extremely complex and mechanical device, becomes more sophisticated with each model-year and that the average individual possesses little or no mechanical knowledge concerning its intricacies; that the new car warranty issued by and binding upon the manufacturer-a copy of which is filed with the Motor Vehicle Administration-is transferable during the period of its applicability and in the mind of the public has become one of the most essential ingredients in connection with the sale of new automobiles. Since new car dealerships are the only service facilities authorized by the manufacturer to perform such warranty work-often to correct mistakes and maladjustments by the manufacturer-and for which such dealerships are reimbursed, the purchasing public must rely on the facilities and expertise of such dealerships to service their new cars. Such franchise dealers must equip themselves not only with the regular tools, but such special tools and devices as may be needed for a particular make of automobile, including those for compliance with antipollution requirements, some of which cost between $5,000 and $6,000. The manufacturers require not only that their dealers maintain a certain inventory of parts and accessories, but that a certain number of their mechanical personnel be trained in factory operated schools and from time to time attend retraining sessions in order that they may be continually apprised of mechanical changes as new models are marketed. By way of contrast, used car dealers are not only unauthorized to perform such warranty work, but generally are ill-equipped by way of personnel, tools, equipment and facilities to perform the specialized mechanical services needed on new automobiles.

It was uncontradicted that franchises are not easy to come by; that one seeking such a franchise must first have a location where a manufacturer feels the need for a dealership. The applicant must demonstrate the possession of sufficient financial resources to meet the manufacturer's capital requirements and maintain a certain 'net worth' which is designed primarily for the benefit and protection of the consuming public, but permits, as well, the acquisition and maintenance by the new car dealers of the latest necessary equipment with which to service new vehicles.

Although the manufacturers exercise no control whatsoever as to whom a dealer may sell a new car, they insist upon the maintenance of certain standards for dealer operation and conduct which they generally supervise. From time to time it may be necessary for such franchise dealers to move to a new location, to build larger physical facilities or to install additional service 'bays.'

It was additionally developed in the testimony that if a licensed new car dealer purchased a new vehicle from a dealer operating under a franchise of a different manufacturer be-just as the used car dealers-would be required to have a certificate of title issued and to pay the excise tax due thereon.

It was upon these facts that the appellants in the trial court contended-as they do here-that Art. 66 1/2, § 3-113.1, (1) violates the 'equal protection clause' of the Fourteenth Amendment to the United States Constitution in that it is: (i) class legislation, (ii) an arbitrary exercise of the police power, and (iii) tends to create a monopoly, an invalid basis for classification; (2) violates the 'due process clause' of the Fourteenth Amendment of the United States Constitution, and is in violation of Article 23 of the Maryland Declaration of Rights; and (3) constitutes an improper and unlawful delegation of the legislative power of the state to the manufacturers of motor vehicles and their franchise dealers.

From an order declaring the statute to be constitutional and denying the injunctive relief sought, the appellants entered an appeal to the Court of Special Appeals. Since at the time of the entry of the appeal the subject matter was not within the jurisdiction of that court, see Code (1974) Courts and Judicial Proceedings Article, § 12-308, we ordered the case transferred to the docket of this Court in accordance with Maryland Rule 814.

(1)

'There is no question, of course, that a classification made by a Legislature is presumed to be reasonable in the absence of clear and convincing indications to the contrary, and the person who assails it has the burden of showing that it does not rest upon any reasonable basis but is essentially arbitrary.' Tatelbaum v. Pantex Mfg. Corp., 204 Md. 360, 370-71, 104 A.2d 813, 820 (1954), citing Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 31 S.Ct. 337, 55 L.Ed. 369 (1...