Craig Foster Ford, Inc. v. Iowa Dept. of Transp., 95-1802

• Decision Date: 23 April 1997
• Docket Number: No. 95-1802,95-1802
• Citation: 562 N.W.2d 618
• Parties: CRAIG FOSTER FORD, INC., Appellant, v. IOWA DEPARTMENT OF TRANSPORTATION, Appellee, and Ford Motor Company, Intervenor-Appellee.
• Court: Iowa Supreme Court

Page 618

562 N.W.2d 618

CRAIG FOSTER FORD, INC., Appellant, v. IOWA DEPARTMENT OF TRANSPORTATION, Appellee and Ford Motor Company, Intervenor-Appellee.

No. 95-1802.

Supreme Court of Iowa.

April 23, 1997

William D. Scherle of Hansen, McClintock & Riley, Des Moines, for appellant.

Thomas J. Miller, Attorney General, David A. Ferree, Special Assistant Attorney General, and Carolyn J. Olson, Assistant Attorney General, for appellee Iowa Department of Transportation.

Wade R. Hauser III of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, and Howard S. Harris, Dearborn, Michigan, for intervenor-appellee Ford Motor Company.

Considered by McGIVERIN, C.J., and LARSON, LAVORATO, NEUMAN, and ANDREASEN, JJ.

NEUMAN, Justice.

This appeal concerns Iowa's motor vehicle franchise law, Iowa Code chapter 322A (1993). Before a car manufacturer can terminate a franchise in Iowa, the franchiser must establish (1) good cause for termination and (2) proof that "another franchise in the same line-make will become effective in the same community." Iowa Code § 322A.2. The Iowa department of transportation (DOT), affirmed on judicial review by the district court, concluded that the disreputable business practices of plaintiff Craig Foster Ford, Inc., justified Ford Motor Company's termination of its franchise, and that Ford's good-faith intent to secure another franchisee for the community satisfied the statutory replacement requirement. Finding no error, we affirm.

I. Background Facts and Proceedings.

Craig Foster Ford, Inc., owned and operated by Craig Foster, ¹ is the authorized Ford car and truck dealership serving the communities of Tripoli and Readlyn, Iowa. By all accounts it is a thriving small-town dealership. Reports of actual sales at the time this suit commenced exceeded by almost tenfold the estimates Foster and Ford projected when they entered into the franchise agreement in 1984.

As a Ford franchisee, Foster actively participated in marketing programs designed to give dealers cash incentives to move out certain models at certain times and to attract buyers with offers of cash rebates. Standard eligibility rules governed these sale programs. In particular, the rules defined eligible vehicles and buyers, with limits placed on the duration of promotional periods. To facilitate these promotions and reduce paperwork, Ford authorized its dealers to issue universal bank drafts for rebates offered in connection with new-vehicle purchases. While a buyer could convert such drafts to cash, in practice the buyer would endorse the draft over to the dealer, applying the proceeds to the purchase of a vehicle.

An audit for the period August 1989 to August 1991 revealed forty instances in which Foster reported sales falling within eligibility dates when, in fact, the sales were not actually made during the period. In eleven of the incorrectly reported sales, the named "buyers" were actually Foster Ford employees, not bona fide buyers. These false reports resulted in rebate payments by Ford exceeding $25,000.

In twenty out of the twenty-six incorrectly reported sales involving cash rebates, Craig Foster issued universal bank drafts payable to the named "customer" and then endorsed the drafts in the payee's name, depositing the drafts in Foster's own bank account. Moreover, in thirty-four other instances when dates were correctly reported and rebates were authorized, the audit revealed that the customers were unaware of Foster's endorsement of the rebate checks made payable to them. Complaints by these customers led to the audit.

The audit results prompted Ford to notify Foster in writing of its intent to terminate their franchise agreement. The parties' contract authorized termination or nonrenewal of the franchise upon [a]ny submission by the Dealer to the Company of any false or fraudulent application or claim ... for wholesale parts or VEHICLE sales incentives or for any other refund, credit, rebate, incentive, allowance, discount, reimbursement or payment under any Company program....

Foster admitted that he submitted falsified sales information to Ford in order to claim dealer and customer cash incentives. When asked whether he forged endorsements on rebate checks, however, he claimed a Fifth Amendment privilege not to answer. He defended his conduct by claiming that Ford encouraged or condoned deceptive practices in the following ways: Ford zone managers exerted pressure to keep sales high; Foster sometimes received advance notice of sales incentive programs; other dealers discussed "bending the rules"; one Ford representative encouraged him to forward sales cards early because "numbers were needed"; other dealerships sold vehicles contrary to the rules without consequences imposed by Ford.

Upon Foster's protest, Ford sought approval of the termination by the DOT in accordance with Iowa Code section 322A.6. Following a contested hearing before an administrative law judge (ALJ), the division of inspections and appeals granted Ford's application. See Iowa Code § 322A.7. Foster appealed to the DOT, where the ALJ's decision was adopted in full.

Foster then sought judicial review in accordance with Iowa Code section 322A.17. ² Ford intervened. The district court affirmed the DOT's decision to permit termination of the franchise. Foster appealed. Further facts will be detailed as they pertain to the issues raised on appeal.

II. Scope of Review.

When reviewing final agency decisions, the district court acts in an appellate capacity to correct errors of law. Harrington Trucking, Inc. v. Iowa Dep't of Transp., 526 N.W.2d 528, 529 (Iowa 1995); see Iowa Code § 17A.19. Our task on appeal is, likewise, to correct errors of law. Harrington Trucking, 526 N.W.2d at 529.

On matters of statutory interpretation, we give only limited deference to agency rulings. Civil Serv. Comm'n v. Iowa Civil Rights Comm'n, 522 N.W.2d 82, 86 (Iowa 1994); see also McCormick v. North Star Foods, Inc., 533 N.W.2d 196, 198 (Iowa 1995) ("Issues of law are determined by the court, and we give only limited deference to the interpretation of an administrative agency.").

On factual matters, we are obliged to uphold the agency's findings if supported "by substantial evidence in the record made before the agency when that record is reviewed as a whole." Iowa Code § 17A.19(8)(f); accord Pointer v. Iowa Dep't of Transp., 546 N.W.2d 623, 625 (Iowa 1996). Evidence is substantial if a reasonable mind could accept it as adequate to reach the same findings made by the agency. Pointer, 546 N.W.2d at 625; Reed v. Iowa Dep't of Transp., 478 N.W.2d 844, 846 (Iowa 1991).

To the extent constitutional issues are raised on appeal, our review is de novo. Soo Line R.R. v. Iowa Dep't of Transp., 521 N.W.2d 685, 688 (Iowa 1994).

III. Issues on Appeal.

Foster's appeal urges two principal grounds for reversal. It first contends the agency (and district court) misinterpreted Iowa Code section 322A.15--the guidelines for determining "good cause" for termination under section 322A.2--by failing to accord equal weight to the eight statutory factors. Second, Foster claims Ford furnished insufficient proof that another Ford franchise "will become effective in the same community" as required by Iowa Code section 322A.2.

A. Guidelines. We note at the outset that Ford's dispute with Craig Foster involves more than a simple breach of their franchise agreement. The preamble to Iowa's motor vehicle franchise Act plainly states that "proper motor service is important to highway safety." 1970 Iowa Acts ch. 1160. Thus chapter 322A was enacted "to assure the public that motor vehicle franchisers would not, without good cause, terminate or discontinue dealerships or open additional dealerships in any Iowa community." Beckman v. Carson, 372 N.W.2d 203, 207 (Iowa 1985). In other words, if a franchiser introduces its new vehicles to an Iowa market, it must ensure that consumers retain continued access to dealer service.

So it is that, under the Act, a franchiser cannot terminate a franchise based on contract principles alone. Two criteria must be established in order to secure agency approval for the termination. Section 322A.2 states the requirements:

322A.2 Discontinuing Franchise.

Notwithstanding the terms, provisions or conditions of any agreement or franchise, no franchiser shall terminate or refuse to continue any franchise unless the franchiser has first established in a hearing held under the provisions of this chapter, that:

1. The franchiser has good cause for termination or noncontinuance, and

2. Upon termination or noncontinuance, another franchise in the same line-make will become effective in the same community, without diminution of the motor vehicle service formerly provided ....

Iowa Code § 322A.2 (emphasis added). The franchiser carries the burden of proof in establishing these two provisions. Id. § 322A.9.

The controversy before us centers on the agency's application of the statutory guidelines in determining whether good cause has been established for terminating the franchise. Section 322A.15 sets forth factors the agency must consider:

322A.15 Guidelines.

In determining whether good cause has been established for terminating or not continuing a franchise, the department of inspections and appeals shall take into consideration the existing circumstances, including, but not limited to:

1. Amount of business transacted by the franchisee.

2. Investment necessarily made and obligations incurred by the franchisee in the performance of the franchisee's part of the franchise.

3. Permanency of the investment.

4. Whether it is injurious to the public welfare for the business of the franchisee to be disrupted.

5. Whether the franchisee has adequate [facilities and personnel to service vehicles].

6. Whether the franchisee refuses to honor warranties of the franchiser to be performed by the franchisee, provided that the franchiser reimburses the...