Merrill v. Department of Motor Vehicles

CourtUnited States State Supreme Court (California)
Citation80 Cal.Rptr. 89,71 Cal.2d 907,458 P.2d 33
Decision Date03 September 1969
Docket NumberNo. L,L
Parties, 458 P.2d 33 Clifford L. MERRILL et al., Plaintiffs and Respondents, v. DEPARTMENT OF MOTOR VEHICLES et al., Defendants and Appellants. A. 29627.

Thomas C. Lynch, Atty. Gen., Warren H. Deering and David Gould, Deputy Attys. Gen., for defendants and appellants.

Young & Young and W. Herbert Young, Los Angeles, for plaintiffs and respondents.

SULLIVAN, Justice.

The Department of Motor Vehicles (Department) appeals from a judgment granting a writ of mandate commanding it to set aside a decision denying an application for a motor vehicle dealer's license.

Clifford L. Merrill and Harold E. Morris, dba The Merchandiser, a copartnership (Merchandiser), operate what is commonly known as a membership discount house. In addition to selling furniture, appliances and household goods, Merchandiser offers new automobiles to its members by means of an arrangement with several franchised automobile dealers whereby the dealers sell automobiles to customers referred by Merchandiser for less than the normal retail price.

The record shows that Merchandiser's method of doing business was substantially as follows. It would obtain from its member-customer upon a printed form a detailed description of the type of automobile and accessories which the member desired to purchase. Its salesman would then fill in the wholesale price of the car and the accessories, adding a markup which had been agreed upon between Merchandiser and the dealer. The salesman would give one copy of the form to the customer in a sealed envelope, send one copy to the dealer and keep one copy. The customer would then take the envelope to the dealer who would quote to the customer the price contained therein. If the customer found the price satisfactory and decided to purchase the car, he would sign all contracts with, and pay the purchase price to, the dealer directly. The latter would pay Merchandiser a commission.

On March 3, 1965, the Department wrote a letter to Merchandiser which informed it that it had been engaged in activity which rendered it a motor vehicle dealer within the provisions of section 285 of the Vehicle Code 1 and advised it that it must desist from such activity unless it obtained a license. (§ 11700.) Merchandiser thereupon filed with the Department an application for a license--which application was proper in form and included all information required by law. (§ 11704.) With the application Merchandiser filed a bond as required by law. (§ 11710.) The Department informed Merchandiser that the application would be denied and, at Merchandiser's request, scheduled a hearing in the matter. (§ 11708.) On February 11, 1966, a hearing was held in conformity with the Administrative Procedure Act (Gov.Code, § 11500 et seq.; see Veh.Code, § 11708, subd. (b)), and the matter was submitted on stipulated facts together with certain testimony.

On April 11, 1966, the hearing officer issued a proposed decision recommending denial of the application, and this decision was subsequently adopted by the Department. Six grounds for denial of the application were stated in the decision, each of which was declared to constitute reasonable cause for such denial. (§ 11702.) 2 Three of these, however, were essentially restatements of the three basic grounds, which were these: (1) that Merchandiser's activity was 'most akin' to that of a motor vehicle salesman as that term is defined by section 675, subdivision (a)(1), and 'issuance of a dealer's license would permit (Merchandiser), by said referrals to many dealers, to gain an unfair economic advantage over those licensed motor vehicle salesmen whose activities are confined to one licensed dealership pursuant to the provisions of section 11806 of the Vehicle Code'; 3 (2) that Merchandiser's '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 4 in that (it does) not now, and will not in the future qualify as a bona fide motor vehicle dealer'; and (3) that the issuance of a license to Merchandiser would be beyond the jurisdiction of the Department because the Legislature has not 'authorized a type of license for the type of activity respondents now practice or intend to practice in the future.'

Merchandiser filed a petition for a writ of mandate in the superior court to review the determination of the Department. (Code Civ.Proc. § 1094.5; see Gov.Code, § 11523.) After reviewing the record of the administrative hearing, considering extensive briefs submitted by both parties, and hearing oral argument, the court issued a writ of mandate commanding the Department to set aside its decision and reconsider the application in light of the court's findings of fact and conclusions of law. The judgment further expressly stated that it was not intended to 'limit or control in any way the discretion legally vested in the Department of Motor Vehicles.' (See Code Civ.Proc., § 1094.5, subd. (e).)

The trial court found and concluded in substance that the Department had jurisdiction to issue a dealer's license and certificate to Merchandiser and that it was a prejudicial abuse of discretion within the meaning of section 1094.5, subdivision (b), of the Code of Civil Procedure 5 to refuse to issue such a license and certificate because the grounds stated in the decision of the Department were not legal grounds for the denial of Merchandiser's application and did not constitute reasonable cause for refusal to issue a license (§ 11702). It determined that the ground of undue economic advantage over salesmen was not reasonable cause for refusal because all dealers have such an adantage over salesmen. It determined that the ground of lack of bona fides (§ 11701) because of failure to maintain an inventory was not reasonable cause for refusal because the presence of an inventory was not a requisite of bona fide dealership, and no statute required that an applicant maintain an inventory in order to qualify as a dealer. Finally, the court made findings relative to two grounds not stated in the Department's decision and apparently raised for the first time in the mandate proceeding. It concluded that Merchandiser's lack of a manufacturer's franchise to sell new cars 6 was not reasonable cause to refuse a license because the presence of a franchise was not a requisite of bona fide dealership and no statute required such a franchise of a dealer. It also concluded 'That no cause for refusal to issue petitioners a dealer's license was proved on the ground that petitioners did not have an established place of business.' 7

We first summarize the rules governing the trial court's scope of review. Section 1094.5 of the Code of Civil Procedure furnishes the basic framework in subdivisions (b) and (c), which provide: '(b) The inquiry in such a case (i.e., one involving review of an administrative decision by writ of mandate) shall extend to the questions whether the respondent has proceeded without, or in excess of jurisdiction; whether there was a fair trial; and whether there was any prejudicial abuse of discretion. Abuse of discretion is established if the respondent has not proceeded in the manner required by law, the order or decision is not supported by the findings, or the findings are not supported by the evidence.

'(c) Where it is claimed that the findings are not supported by the evidence, in cases in which the court is authorized by law to exercise its independent judgment on the evidence, abuse of discretion is established if the court determines that the findings are not supported by the Weight of the evidence; and in all other cases abuse of discretion is established if the court determines that the findings are not supported by Substantial evidence in the light of the whole record.' (Italics added.)

The statute does not indicate those cases 'in which the court is authorized by law to exercise its independent judgment on the evidence,' but this has been accomplished by means of judicial decision. Generally speaking, such determination depends on whether the right or interest affected by the administrative decision 8 is a 'vested' one. If the right affected is 'vested' the decision is reviewed by means of a limited trial de novo 9 in which the trial court not only examines the record for errors of law but also exercises its independent judgment upon the Weight of the evidence produced before the administrative agency together with any further evidence properly admitted by the court. 10 (Dare v. Bd. of Medical Examiners (1943) 21 Cal.2d 790, 795, 136 P.2d 304; Laisne v. California State Bd. of Optometry (1942) 19 Cal.2d 831, 123 P.2d 457; cf. Southern California Jockey Club v. California, etc., Racing Bd. (1950) 36 Cal.2d 167, 173--175, 223 P.2d 1; McDonough v. Goodcell (1939) 13 Cal.2d 741, 91 P.2d 1035, 123 A.L.R. 1205.) 11 If, on the other hand, the right is not 'vested' the trial court's scope of review extends only to matters of law appearing on the record of the administrative proceeding, and accordingly its review of the evidence produced below is limited to a determination of whether it is legally sufficient to sustain the decision. (Southern California Jockey Club v. California etc., Racing Bd., Supra, 36 Cal.2d 167, 175, 223 P.2d 1; McDonough v. Goodcell, Supra, 13 Cal.2d 741, 748--749, 752--753, 91 P.2d 1035.) 12

The question whether or not the right affected is 'vested' is decided by the courts on a case-by-case basis (compare Thomas v. California Emp. Stab. Comm. (1952) 39 Cal.2d 501, 247 P.2d 561 with Bertch v. Social Welfare Dept. (1955) 45 Cal.2d 524, 289 P.2d 485). It has been held that the denial of a license to a previously unlicensed person does not affect a 'vested' right, whereas the suspension or...

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