Ohio Motor Vehicle Dealer's & Salesmen's Licensing Bd. v. Memphis Auto Sales

• Decision Date: 08 May 1957
• Parties: , 3 O.O.2d 377 The OHIO MOTOR VEHICLE DEALER'S & SALESMEN'S LICENSING BOARD, Appellee-Appellant, v. MEMPHIS AUTO SALES, Appellant-Appellee.
• Court: Ohio Court of Appeals

Page 347

103 Ohio App. 347

142 N.E.2d 268, 3 O.O.2d 377

The OHIO MOTOR VEHICLE DEALER'S & SALESMEN'S LICENSING BOARD, Appellee-Appellant, v. MEMPHIS AUTO SALES, Appellant-Appellee.

Court of Appeals of Ohio, Cuyahoga County.

May 8, 1957.

William Saxbe, Atty. Gen. of Ohio, Hugh E. Kirkwood, Jr., C. V. Thomas, Asst. Attys. Gen., for appellee-appellant.

S. A. Terrell, Terrell Williams & Salim, Cleveland, for appellant-appellee.

HURD, Judge.

These proceedings originated before the Ohio Motor Vehicles Dealers' and Salesmen's Licensing Board, hereinafter referred to as the Board, when the Memphis Auto Sales a dealer licensed to sell International Trucks and Used Cars, hereinafter referred to as the Dealer, was charged on three counts with violating the Ohio Auto Dealer's and Salesmen's Liability Act. The Dealer was cited to appear before the Board on November 21, 1955, for a hearing on the charges. Upon hearing, the Board made a finding that the Dealer had violated the Act and imposed an order of suspension from business of thirty days to run consecutively as to each of said three counts.

Thereupon the Dealer appealed to the Court of Common Pleas where the order of suspension of thirty days was affirmed as to one count and reversed as to two counts and the orders of suspension in respect thereto set saide.

The case now comes to this court appealed on questions of law both by the Dealer and by the Board. We shall discuss the separate issues raised as to each count.

The most important question raised involves Count No. 3 because it relates to the constitutionality of Rule 9 of the Board promulgated under subdivision (D) of Section 4517.06 of the Revised Code. As to this court, the Dealer was cited to appear before the Board to determine whether it had violated Rule No. 9 of the Board in the following respect:

'That you are displaying for sale 1955 Ford cars, with the Manufacturer's Statements of Origin, without having a franchise from said manufacturer.'

By decision dated January 15, 1956, the Board found that the Dealer had so violated Rule No. 9 and it was the opinion of the Board:

'That the displaying for sale of 1955 Ford cars, with Manufacturer's Statement of Origin, without having a franchise from the said manufacturer by the Memphis Auto Sales was in violation of the Dealer's and Salesmen's Licensing Act of Ohio. Section 4517.02, 4517.06 and 4517.18 Revised Code of Ohio.'

As a result of its finding, the Board ordered that the Dealer's license be suspended for a period of thirty days. The Court of Common Pleas held this order to be invalid, the basis of the decision being that the statute under which the rule was promulgated was unconstitutional.

Section 4517.02, Revised Code, provides that no person other than a salesman or dealer licensed according to Sections 4715.01 to 4517.18, inclusive, shall engage in the business of selling motor vehicles at retail.

Section 4517.06, Revised Code, provides that an application of any person for a license as a motor vehicle dealer shall be refused or denied if the applicant:

'* * * (D) Is engaged or will engage in the business of selling at retail any new motor vehicles without having authority of a contract with a manufacturer or distributor thereof:'

Section 4517.18, Revised Code, merely recites that no person shall engage in the business of selling, displaying, etc., for sale at retail any motor vehicles without having a license as required by Sections 4517.01 to 4517.18, inclusive, of the Revised Code.

Under Section 4517.12 of the Revised Code, the Board has the power to make rules and regulations and the power to suspend or revoke a license if any ground is found to exist upon which such license might have been initially denied or refused. In order to clarify what was a 'new notor vehicle' within the purview of subdivision (D) of Section 4517.06, revised Code, the Board adopted Rule No. 9, which provided that any dealer that has a manufacturer's statement of origin for a car is selling a new car. The Dealer did not have a contract with a manufacturer or distributor of Ford cars and consequently did not have a manufacturer's statement of origin for the 1955 Ford cars that it displayed for sale.

The question presented, therefore, is whether Paragraph (D) of Section 4517.06 and Rule No. 9, adopted thereunder, contravenes any constitutional provision of our state or federal constitutions. This appears to be, insofar as it relates to the section in question, a case of first impression in this state. However, the question has been decided in other jurisdictions.

In the case of Nelsen v. Tilley, 137 Neb. 327, 289 N.W. 388, 389, 126 A.L.R. 729, the court held as appears by paragraph seven of the syllabus:

'7. Constitutional Law. A provision in a regulatory statute limiting the issuance of a motor vehicle dealer's license for the sale of new cars to persons enfranchised by the manufacturers of new motor vehicles is an unlawful restriction upon the right of a person to adopt and follow a lawful industrial pursuit.'

In that case, an original action for a declaratory judgment was instituted in the Supreme Court of Nebraska by the Nelsen Auto Sales who had a dealer's license which authorized it to sell new Nash automobiles. It did not have a license to sell any other make of car. However, it had purchased and sold new automobiles other than those manufactured by Nash and unless it violated subdivision (a) of Section 60-906, Comp.St.Supp.1937, it intended to continue to do so. Central Credit Corp., owned by Nelsen Auto Sales, was also a party plaintiff to the suit. Central did not deal directly in automobiles but made loans secured by chattel mortgages on new and used cars and repossessed the cars when there was a default. It also purchased new cars at chattel mortgage, bankrupt and execution sales for the purpose of resale. Central had no license to sell new cars. The suit was instituted for the purpose of determining whether Nelsen and Central could continue to sell new automobiles in contravention of Subdivision (a) of Section 60-906. This Section provided:

'Motor Vehicle Dealer's License: This license shall permit the licensee to engage in the business of selling or exchanging new and used motor vehicles or both: Provided, such license as it pertains to the sale or exchange of new motor vehicles shall be limited to such new motor vehicles as the licensee discloses in his application he is enfranchised to sell. * * *'

In the course of its opinion, the court said that while it was clear that the state cannot prohibit the ordinary business of buying and selling new or used automobiles, it may regulate a business to promote the health, safety, morals or general welfare of the public. It may also regulate a business, however honest in itself, if it may become a medium of fraud and that a state may, to some extent, compel honesty by imposing a license fee if widespread frauds upon and losses by its people are thereby prevented. The liberty guaranteed to us by the Constitution implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community. Chicago, B. & Q. R. Co. v. McGuire, 219 U.S. 549, 31 S.Ct. 259, 55 L.Ed. 328. The court then noted the huge growth of the motor vehicle industry; that motor vehicles were no longer luxuries but necessities; the growing complexity of the business and the consequent possibility that fraud had thereby been correspondingly increased; and that the elimination of harmful trade practices and dishonest dealings resulting in injury to the purchasing public may have been, and undoubtedly was a factor in passage of the act. The court then cited the similar legislative enactments which had been sustained, including the 'Blue Sky Laws' of Ohio and other states, which require dealers in corporate stocks and other securities to be licensed.

The court continued by saying that whatever its personal view might be as to the necessity of such legislation, the fact remained that the legislature of the state concluded that a reasonable basis existed for its enactment, and, there being some foundation in fact to justify legislative action, it was powerless to substitute its judgment for that of the legislature even if it cared to do so. The court concluded that the legislature had the authority under the police power to regulate the purchase and sale of motor vehicles for the protection and general welfare of the public.

However, the court said, the legislature may not, under the guise of regulation, indulge in the destruction of lawful competition, or the creation of trade restraints tending to establish a monopoly. The opinion of the court then set forth plaintiff's contention that the limitation of a license to sell or exchange new motor vehicles to those which the applicant is enfranchised to sell creates a monopoly in those persons enfranchised by the manufacturers to sell new automobiles; that the sale of new motor vehicles is a lawful business which any person has the right to pursue, subject to such reasonable regulations as the legislature may prescribe, and that no person, who complies with such reasonable regulations, may be arbitrarily deprived of that right. The court then went on to say that it agreed that the limitation contained in Subdivision (a) created a monopoly in the persons enfranchised by the manufacturers of motor vehicles and thereby contravened the Fourteenth Amendment to the Constitution of the United States and of the Constitution of Nebraska, art. 1, §§ 1, 3, 16, 25.

The court based its holding in part on the case of Hall v. State, 100 Neb. 84, 158 N.W. 362, L.R.A.1916F, 136, wherein the court said that an attempt on the part of the legislature to limit the sale of anticholera serum to persons holding a United States Government veterinary license is a restriction upon the right of a person to adopt and follow a lawful industrial...