Ind. Automobile Wholesalers Assoc., Inc., National Dealer Licence, Llc. v. Carol Mihalik, Comm. of the Ind. Securities Div. of the Ind. Sec. of State

Pursuant to Ind.Appellate Rule 65(D),

this Memorandum Decision shall not

be regarded as precedent or cited

before any court except for the purpose Dec 18 2014, 7:56 am

of establishing the defense of res

judicata, collateral estoppel, or the law

of the case.

ATTORNEY FOR APPELLANTS: ATTORNEYS FOR APPELLEES:

GEORGE SISTEVARIS GREGORY F. ZOELLER

Fort Wayne, Indiana Attorney General of Indiana

KRISTIN GARN

DAVID L. STEINER

Deputy Attorney General

Indianapolis, Indiana

IN THE

COURT OF APPEALS OF INDIANA

INDIANA AUTOMOBILE WHOLESALERS )

ASSOCIATION, INC., NATIONAL DEALER )

LICENSE, LLC and AUTO ACCEPTANCE )

GROUP, LLC, )

)

Appellants-Plaintiffs, )

)

vs. )

) No. 02A03-1404-PL-119

CAROL MIHALIK, COMMISSIONER, )

SECURITIES DIVISION OF THE INDIANA )

SECRETARY OF STATE, ELIZABETH )

MURPHY, DIRECTOR, DEALER SERVICES )

DIVISION OF THE INDIANA SECRETARY OF )

STATE, CONNIE LAWSON, INDIANA SECRE- )

TARY OF STATE, )

)

Appellees-Defendants. )

APPEAL FROM THE ALLEN SUPERIOR COURT

The Honorable Nancy Eshcoff Boyer, Judge

Cause No. 02D01-1402-PL-51

December 18, 2014

MEMORANDUM DECISION – NOT FOR PUBLICATION

BARNES, Judge

Case Summary

Indiana Automobile Wholesalers Association, Inc., (“IAWA”), National Dealer

License, LLC, (“NDL”), and Auto Acceptance Group, LLC, (“AAG”) (collectively, “the

Appellants”) appeal the dismissal of their complaint for declaratory judgment and

injunctive relief against Carol Mihalik, Commissioner of the Securities Division of the

Indiana Secretary of State, Elizabeth Murphy, Director of the Dealer Services Division of

the Indiana Secretary of State, and Connie Lawson, Secretary of State, (collectively,

“Secretary of State”). We affirm.

Issues

The Appellants raise one issue, which we restate as:

I. whether AAG exhausted its administrative remedies;

and

II. whether IAWA and NDL have standing to pursue a

declaratory judgment action.

Facts

IAWA is a trade association that represents more than 200 actively-licensed

automobile wholesale vehicle dealers in Indiana, and it is authorized to sue on behalf of

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its members.1 NDL is in the business of leasing space to licensed wholesale dealers and,

beginning in 2009, rented office space in Fort Wayne and provided administrative

services to approximately 200 Indiana wholesale dealers. As a result of increased

wholesale dealer license revocations by the Secretary of State, who oversees the licensure

and administration of wholesale dealer licenses, a number of NDL’s tenants breached

their contracts with NDL, and NDL stopped operating its rental business. AAG was a

licensed wholesale dealer until September 5, 2013, when its license was revoked by the

Secretary of State for its failure to maintain an established place of business and for

failing to meet minimum sales requirements. AAG did not appeal the revocation of its

license but would like to apply for a new license in the future.

On February 13, 2014, the Appellants filed a complaint against the Secretary of

State seeking a declaratory judgment and injunctive relief. The complaint raised several

constitutional challenges to the administration of Senate Enrolled Act No. 537 (“the

Act”), which created an article regulating dealer services and requiring the Secretary of

State to administer and enforce the new legislation and to adopt emergency rules and

permanent rules to carry out her duties under the article. See Ind. Code §§ 9-32-3-2, 9-

32-3-1. The amended complaint included the following legal claims:2

62. Key provisions of [the Act], the relevant sections of

the administrative code, and the Emergency Order are not in

accordance with law and are void.

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“Wholesale dealer” is defined as “a person who is engaged in the business of buying or selling motor

vehicles for resale to other dealers, wholesale dealers, transfer dealers, or persons other than the general

public.” Ind. Code § 9-32-2-28.

2

During the proceedings, the Appellants filed two amended complaints.

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63. The Office of the Secretary of State, in enacting the

Emergency Order, ostensibly effective as of September 13,

2013, failed to follow the dictates of I.C. 9-32-3-1, and I.C. 4-

22-37.1, in that it failed to give proper notice and solicitation

of public comments prior to enactment of the law. The

Emergency Rules were not properly promulgated and are

void ab initio.

64. The application and enforcement of [the Act], the

relevant sections of the administrative code, and the

Emergency Order, in relation to wholesale dealers, by the

Secretary, the Commissioner and the Director are arbitrary,

capricious and an abuse of discretion.

65. Key provisions of [the Act], the relevant sections of the

administrative code, and Emergency order, and the

administration and enforcement of the laws and regulations

by the Secretary, Commissioner and Director violate the

constitutional rights of due process for wholesale dealers

under the Fifth Amendment to the United States Constitution.

In particular, and not by way of limitation, the Secretary,

Commissioner and Director immediately, and without the

opportunity to be heard, deny applications pending an appeal,

and shut down the operations of a going concern, causing

financial loss, personal hardship and extreme burden on

wholesale dealers.

66. Key provisions of [the Act], the relevant sections of the

administrative code, and Emergency order, and the

administration and enforcement of the laws and regulations

by the Secretary, Commissioner and Director, violate the

prohibition of ex post facto laws, which prohibitions are

enumerated in Article I, Section 24, of the Indiana

Constitution, and clause 3 of Article I, Section 9 of the United

States Constitution. . . .

67. Key provisions of [the Act], the relevant sections of

the administrative code, and Emergency order, and the

administration and enforcement of the laws and regulations

by the Secretary, Commissioner and Director, violate the

contract clause of the Indiana Constitution, Art. 1, Sect. 14,

which prohibits laws impairing contracts.

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68. Key provisions of [the Act], the relevant sections of

the administrative code, and Emergency order, and the

administration and enforcement of the laws and regulations

by the Secretary, Commissioner and Director, violate the

equal protection clause of the U.S. Constitution, Amnd. XIV,

Sect. 1, and the Indiana Constitution Art. 1, Sect. 23, which

prohibit state governments from creating unreasonable,

artificial, and arbitrary legislative classifications. Both the

U.S. and Indiana Constitutions guarantee that all persons

subjected to state legislation must be treated alike, under like

circumstances and conditions, both in privileges conferred

and in liabilities imposed[.]

69. Key provisions of [the Act], the relevant sections of

the administrative code, and Emergency order, and the

administration and enforcement of the laws and regulations

by the Secretary, Commissioner and Director, violate

Indiana’s Equal Privileges Clause, and the laws and

regulations in question fail to demonstrate a legitimate

government interest in their enactment or enforcement.

70. Key provisions of [the Act], the relevant sections of

the administrative code, and Emergency Order are

constitutionally void for vagueness under the Fifth and

Fourteenth Amendments to the United States Constitution,

because they do not give fair notice of what is punishable and

they give arbitrary enforcement powers to the government.

App. pp. 27-28.

On February 26, 2013, the Secretary of State filed a motion to dismiss for lack of

subject matter jurisdiction, arguing that the Appellants had failed to exhaust their

administrative remedies and lacked standing.3 Following a hearing, the Appellants filed a

supplemental memorandum in opposition to the Secretary of State’s motion to dismiss.

3

In its motion to dismiss, the Secretary of State conceded that IAWA might have associational standing

but that discovery would have to be conducted before determining such.

5

On March 13, 2014, the trial court granted the Secretary of State’s motion to dismiss.

The trial court concluded:

[The Administrative Orders and Procedures Act (“AOPA”)]

provides the vehicle for Plaintiffs to raise their constitutional

questions. AOPA provides an available administrative

procedure to address all of the Plaintiffs’ claims. The

administrative procedures must be exhausted. Failure to

exhaust administrative remedies deprives this court of subject

matter jurisdiction.

Id. at 9. Following the dismissal, upon the Appellants’ motion, the trial court clarified

that it had considered the second amended complaint in ruling on the motion to dismiss.

The Appellants now appeal.

Analysis

As an initial matter we must determine the appropriate standard of review. The

parties framed the issue and the trial court addressed it as a motion to dismiss for lack of

subject matter jurisdiction pursuant to Indiana Trial Rule 12(B)(1). However, our

supreme court has recently clarified that the failure to exhaust administrative remedies is

not a question of subject matter jurisdiction but a question of procedural error. See First

Am. Title Ins. Co. v. Robertson, No. 49S04-1311-PL-732, 2014, slip op. 3-4 (Ind. Nov.

13, 2014) (summarily affirming the “portion of the Court of Appeals opinion holding that

the exhaustion of administrative remedies under AOPA is a procedural error and does not

implicate the trial court’s subject matter jurisdiction.”). Likewise, “A claim of lack of

standing is properly treated as a motion to dismiss under Indiana Trial Rule 12(B)(6) for

failure to state a claim upon which relief can be granted.” McPeek v. McCardle, 888

N.E.2d 171, 173 (Ind. 2008). Thus, the Secretary of State’s motion is more appropriately

6

viewed as a motion to dismiss for failure to state a claim upon which relief can be granted

pursuant to Trial Rule 12(B)(6).

A Trial Rule 12(B)(6) motion tests the legal sufficiency of a claim, not the facts

supporting it. Id. We review a trial court’s dismissal pursuant to Trial Rule 12(B)(6) de

novo. Id. We view the complaint in the light most favorable to the non-moving party

and must determine whether the complaint states any facts on which the trial court could

have granted relief. Id. at 173-74. “If a complaint states a set of facts that, even if true,

would not support the relief requested, we will affirm the dismissal.” Id. at 174. We may

affirm the granting of a motion to dismiss if it is sustainable on any theory. Id.

We also note that the Appellants claim that the trial court erroneously dismissed

their complaint and directed them to pursue administrative remedies. The Appellants

contend, “Because there is no case or controversy surrounding any specific action,

violation or remedy relating to any of [the Appellants] before an administrative body,

there is no administrative remedy available to them.” Appellants’ Br. p. 30. Because the

Appellants are situated differently, we address the dismissal of each Appellant separately.

I. Exhaustion of Administrative Remedies

“It has long been Indiana law that a claimant with an available administrative

remedy must pursue that remedy before being allowed access to the judicial power.”

Advantage Home Health Care, Inc. v. Indiana State Dep’t of Health, 829 N.E.2d 499, 503

(Ind. 2005).

Chapter 5 of AOPA “establishes the exclusive means for

judicial review of an agency action,” and provides that a

person aggrieved by agency action may seek judicial review

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“only after exhausting all administrative remedies available

within the agency whose action is being challenged and

within any other agency authorized to exercise administrative

review.”

Woodruff v. Indiana Family & Soc. Servs. Admin., 964 N.E.2d 784, 790 (Ind. 2012)

(quoting Ind. Code §§ 4-21.5-5-1,-4(a)), cert. denied. Our supreme court has explained

that by requiring the exhaustion of administrative remedies:

(1) premature litigation may be avoided; (2) an adequate

record for judicial review may be compiled; and (3) agencies

retain the opportunity and autonomy to correct their own

errors. Even if the ground of the complaint is the

unconstitutionality of the statute, which may be beyond the

agency’s power to resolve, exhaustion of administrative

remedies may still be required because administrative action

may resolve the case on other grounds without confronting

broader legal issues.

Indiana Dep’t of Envtl. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839, 844 (Ind. 2003).

AAG, a formerly licensed wholesale dealer, did not seek judicial review when its

license was revoked and argues that it is not challenging that decision. Instead, AAG

contends that it would like to apply for a new license and is first seeking “to remove

uncertainty and to clarify or remove laws which are specious and open to abuse.”

Appellants’ Reply Br. p. 5. AAG, however, has not pursued available administrative

remedies by actually applying for a license. Its failure to apply for a license, for whatever

reason, does not permit it to do an end-run around AOPA and pursue judicial remedies

such as a declaratory judgment action. Because AAG did not challenge the September

2013 revocation or apply for new a license, we must conclude that AAG failed to exhaust

its administrative remedies.

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AAG contends that it should not be required to exhaust administrative remedies

because it would have been futile given the Secretary of State’s bias against wholesale

dealers. Although exhaustion of remedies may be excused if the exercise would be futile,

the exhaustion requirement should not be dispensed with lightly on those grounds.

Johnson v. Celebration Fireworks, Inc., 829 N.E.2d 979, 984 (Ind. 2005). To prevail on a

claim of futility, “‘one must show that the administrative agency was powerless to effect

a remedy or that it would have been impossible or fruitless and of no value under the

circumstances.’” Id. (quoting M-Plan, Inc. v. Indiana Comprehensive Health Ins. Ass’n,

809 N.E.2d 834, 840 (Ind. 2004)).

AAG relies on Scheub v. Van Kalker Family Ltd. P’ship, 991 N.E.2d 952, 960

(Ind. Ct. App. 2013), in which a panel of this court held that exhaustion of administrative

remedies was excused where the record established that a board member interfered with

an applicant’s rezoning procedure by actively organizing against the rezoning petition

and attempting to make the project so expensive that it would not be feasible. The

Appellants contend that the Secretary of State is similarly biased because applications are

being denied at a rate of 70%, out-of-state parties are being targeted, and the Director of

the Dealer Services Division appeared before an Indiana House of Representatives

committee arguing in favor of the elimination of wholesale dealer licenses.

Even taking these assertions at face value, we are not convinced this purported

bias excuses AAG from exhausting administrative remedies. First, there is no record of

the kind of personal interference in the application process that was clearly established in

Scheub. Moreover, our supreme court observed in Celebration that “the mere fact that an

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administrative agency might refuse to provide the relief requested does not amount to

futility.” Celebration, 829 N.E.2d at 984. The Celebration court reasoned that, even if

Celebration is unsuccessful in an administrative challenge, the Commission may produce

a reasoned explanation of the underlying positions, which in itself would be of value

before resorting to the courts to resolve such an issue. Id. Likewise, even if it is

inevitable that the Secretary of State will ultimately deny AAG’s application, the

exhaustion of administrative remedies allows for the creation of a record for judicial

review. Thus, AAG has not established that the Secretary of the State’s purported bias

renders exhaustion of administrative remedies futile.

Further, we reject AAG’s claim that it should be excused from exhausting its

administrative remedies because it raises constitutional challenges. It is well settled that,

even if the ground of the complaint is the unconstitutionality of the statute, exhaustion of

administrative remedies may still be required because administrative action may resolve

the case on other grounds without confronting broader legal issues. Twin Eagle, 798

N.E.2d at 844; see also I.C. § 4-21.5-5-14(d)(2) (providing for judicial review of an

agency action that is “contrary to constitutional right, power, privilege, or immunity[.]”).

The heart of the complaint is whether the Secretary of State’s application and

enforcement of the statutes and the emergency rules violate various constitutional rights.

In this regard, we are not faced with a pure question of law that might allow AAG to

circumvent the administrative process. See, e.g., Twin Eagle, 798 N.E.2d at 844

(agreeing with Twin Eagle that its challenge to IDEM’s authority does not require

exhaustion of remedies because at least the first two issues turn on issues of law and

10

remanding the remaining “fact sensitive issue” for administrative proceedings); Outboard

Boating Club of Evansville, Inc. v. Indiana State Dep’t of Health, 952 N.E.2d 340, 346

(Ind. Ct. App. 2011) (“[A]lthough the Clubs challenge the ISDH’s regulation of their

facilities as ultra vires and void, because resolution of the issue turns on factual

determinations rather than statutory interpretation, the question must first be addressed

through the administrative process.”), trans. denied. Thus, because AAG was required to

pursue available administrative relief and did not, the trial court properly dismissed its

allegations against the Secretary of State.

II. Standing4

A. IAWA

IAWA contends that it represents the interests of wholesale dealers and alleges

injury and imminent injury to all wholesale dealers resulting from the unconstitutional

laws and the actions of the Secretary of State. We have recently observed:

The doctrine of standing focuses on whether the complaining

party is the proper person to invoke the Court’s power. The

standing requirement restrains the judiciary to resolving only

those controversies in which the complaining party has a

demonstrable injury. In order to establish standing, a plaintiff

must show that he or she has sustained, or was in immediate

4

The Appellants collectively claim to have standing under the public standing doctrine, “which applies in

cases where public rather than private rights are at issue and in cases which involve the enforcement of a

public rather than a private right . . . .” State ex rel. Cittadine v. Indiana Dep’t of Transp., 790 N.E.2d

978, 983 (Ind. 2003). They, however, fail to acknowledge that “persons availing themselves of the public

standing doctrine nevertheless remain subject to various limitations.” Id. For example, the doctrine does

not prevent the requirement of exhaustion of administrative remedies and, “to the extent that persons

claiming public standing may be seeking only declaratory relief, they must be persons ‘whose rights,

status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise[.]’” Id.

at 984 (quoting I.C. § 34-14-1-2). Thus, the Appellants may not use the public standing doctrine to avoid

the exhaustion of remedies requirement or seek declaratory relief for an injury they have not suffered.

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danger of sustaining, some direct injury as a result of the

conduct at issue.

Barnette v. U.S. Architects, LLP, 15 N.E.3d 1, 11 (Ind. Ct. App. 2014) (citations

omitted). Any injury to IAWA is derivative of that suffered by individual dealers who

have sought licenses or could otherwise sue in their own right. See id. at 12; see also

Allen Cnty. Bd. of Comm’rs v. Ne. Indiana Bldg. Trades Council, 954 N.E.2d 937, 941

(Ind. Ct. App. 2011) (acknowledging that an association has standing on behalf of its

members if it can establish “1) the association’s members would otherwise have standing

to sue in their own right; 2) the interests the association seeks to protect are germane to

its purpose; and 3) neither the claim asserted nor the relief requested requires

participation of individual members in the lawsuit.”), trans. denied. As we have

discussed, those member-dealers are required to exhaust their administrative remedies

and seek judicial review pursuant to AOPA, not circumvent the administrative process by

filing a declaratory judgment action. Thus, the trial court properly dismissed IAWA’s

allegations against the Secretary of State.

B. NDL

NDL leases space to wholesale dealers and claims that its contracts have been

impaired by the laws and the administration of the laws. In arguing that NDL does not

have standing to seek judicial review under AOPA, the Secretary of State contends that

NDL’s interest in not losing tenants is not a cognizable interest under AOPA. See I.C. §

4-21.5-5-3(a) (defining who has standing to obtain judicial review of an agency action).

NDL claims that it is entitled to pursue a declaratory judgment action because it does not

12

hold or intend to hold a dealer’s license, is not subject to licensure by the Secretary of

State, and is not required to exhaust administrative remedies. We agree that no

administrative remedy is available to NDL. Nevertheless, we are not convinced that

NDL has standing to pursue a declaratory judgment action.

To obtain declaratory relief, “the person bringing the action must have a

substantial present interest in the relief sought.” Midwest Psychological Ctr., Inc. v.

Indiana Dep’t of Admin., 959 N.E.2d 896, 903 (Ind. Ct. App. 2011) (quotation omitted),

trans. denied. Jurisdiction under the Declaratory Judgment Act is based on a justiciable

controversy or question that is clearly defined and affects the legal right, the legal status,

or the legal relationship of parties having adverse interests. Id.

Although NDL might be indirectly affected by the wholesale dealers’ license

revocations, NDL does not point to any action by the Secretary of State that directly

impacts its right to contract with the dealers. To the extent NDL is affected by the

Secretary of State’s regulation of wholesale dealers, its injuries are too remote to give it

standing to sue the Secretary of State. NDL’s recourse for the dealers’ inability to

perform their obligations pursuant to the terms of their contracts is a breach of contract

claim, not a declaratory judgment action against the Secretary of State.

Conclusion

Because AAG did not exhaust its administrative remedies and IAWA and NDL do

not have standing, the trial court properly granted the Secretary of State’s motion to

dismiss. We affirm.

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Affirmed.

BRADFORD, J., and BROWN, J., concur.

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