Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-99-00265-CV

Ford Motor Company; Freightliner Truck Corporation; Sterling Truck Corporation;

Metro Ford Truck Sales, Inc.; and Daniel H. Foley, Jr./Motor Vehicle Board

of the Texas Department of Transportation, Appellants

v.

Motor Vehicle Board of the Texas Department of Transportation/Metro Ford Truck

Sales, Inc.; Daniel H. Foley, Jr.; Freightliner Truck Corporation; Sterling

Truck Corporation; and Ford Motor Company, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT

NO. 98-07064, HONORABLE F. SCOTT MCCOWN, JUDGE PRESIDING

This is an appeal from a district court judgment affirming in part and reversing and

remanding in part an order of the Motor Vehicle Board of the Texas Department of Transportation

( " Board " ). The order adopted findings of fact, conclusions of law, and recommendations

contained in a Proposal for Decision ( " PFD " ) issued by an administrative law judge ( " ALJ " )

following a contested case hearing involving Ford Motor Company ( " Ford " ), Freightliner Truck

Corporation, Freightliner's wholly-owned subsidiary, Sterling Truck Corporation ( collectively

" Freightliner "), Ford's franchisee Metro Ford Truck Sales, Inc., and Metro's dealer-principal,

Daniel H. Foley, Jr. (collectively " Metro " ). We will affirm in part and reverse in part the district

court judgment.

BACKGROUND

Metro is a Texas corporation licensed to sell heavy, medium, and light duty trucks

manufactured by Ford. Ford opened Metro as a dealer development corporation in Dallas, Texas

in 1971. Daniel Foley, Sr. worked as a paid manager at Metro and received a percentage of the

corporation's profits as a bonus. Within approximately two years of Metro's opening, Foley, Sr.

applied his bonuses to the purchase of the corporation's stock. He operated the Metro dealership

until his retirement in 1987, at which time his son, Daniel Foley, Jr. ( " Foley " ), became the

dealer-principal.

Metro's current dispute with Ford began in 1994. The controversy centers on a

program instituted by Ford to provide discounts on trucks to its dealers. To understand the nature

of the conflict, it is necessary to examine how wholesale prices are established for medium and

heavy duty Ford trucks. Most medium and heavy duty trucks are sold to large commercial

customers who solicit bids from various dealers. Although Ford provides dealers like Metro with

published wholesale prices for medium and heavy duty trucks, the wholesale prices are generally

higher than the estimated retail price, or " street price. " To enable its dealers to remain

competitive with the dealers of other truck manufacturers and to allow its dealers to make a profit,

Ford instituted the Competitive Price Assistance ( " CPA " ) program to reduce wholesale delivered

prices below street prices.

Ford's CPA program works in several ways. If a potential medium or heavy duty

truck customer advises a licensed Ford dealer of a competitor's lower bid on a similar make and

quantity of trucks, the Ford dealer can call a hotline to request a price concession known as " sales

advantage CPA. " In general, sales advantage CPA is stated as a percentage of the wholesale

delivered price for a particular series of Ford trucks and does not differ among dealers. To obtain

this concession, the dealer must provide the CPA operator certain basic information about the

potential sale, including the customer's name and address, size of the customer's fleet, series and

quantity of trucks required, published price of the trucks, and requested options. The dealer must

also specify which competitor's truck the customer has expressed an interest in purchasing. The

hotline operator then provides the dealer with a base CPA amount and a commitment log number,

which tracks the transaction and ensures the dealer price protection for sixty days.

If the sales advantage base CPA amount does not provide a sufficient price

reduction, the dealer may seek " appeal level CPA " by faxing an appeal form to the Ford CPA

processing center in Dearborn, Michigan. To substantiate the need for the additional allowance,

the dealer must supply information describing the competitive situation surrounding the

prospective purchase, including prior bids won or lost to the customer; if lost, to whom and by

how much per unit; the per unit CPA request; the street price of the truck; and the street price

based on the competition's actual or estimated bid. Competitive need may also be established by

including any of the following with the appeal form: a copy of the competitive quotation obtained

from the customer; a statement by the dealer that he has been shown a competitive quotation and

price by the customer, and that CPA in the amount requested is necessary to meet the competitive

quote; a statement by the dealer that he has been advised by the customer of the amount needed

to meet a competitive bid; or a brief history of recent bids to the account, or similar accounts, that

indicate pricing assistance currently offered by the competition.

Ford CPA pricing managers review appeals for completeness and compare the

requested CPA allowance to historical information on similar bids. The managers also review

their records to determine if another Ford dealer is bidding to the same customer in order to

equalize the CPA amounts offered to each dealer. If the CPA managers conclude that the dealer

has substantiated competitive need, appeal CPA is granted and the dealer receives verification of

the amount of appeal CPA and an approval code. When the trucks are sold, the dealer can receive

CPA payment either by means of a credit on the vehicle invoice or through a direct payment from

Ford.

A third component of the CPA program, known as the " CPA package, " is a

standardized CPA allowance above sales advantage CPA that is sometimes granted to large

volume purchasers who purchase vehicles over a defined time period. A CPA package establishes

a specific CPA amount for all trucks ordered by a particular customer during a specified period

of time; thus, Ford dealers bidding for that customer's business are not required to request sales

advantage and appeal CPA each time they bid. Similar to the CPA package is the heavy truck

leasing sales allowance, which provides dealers standardized CPA allowances when bidding to

customers listed on a schedule of large volume purchasers.

In 1993, a Ford heavy duty truck dealership in Fort Worth complained to Ford area

sales representative Don Yegan that it was losing business to Metro because Metro was receiving

larger CPA allowances on its heavy duty trucks and therefore could offer the trucks to consumers

at lower retail prices. The Fort Worth dealer-principal, Ken Nichols, told Yegan that his sales

staff had researched Metro's winning bids and discovered that the vehicles in question were not

registered to the customers for whom Metro had requested CPA allowances. This discrepancy

raised suspicion that Metro, rather than submitting CPA requests in the names of its prospective

truck purchasers, had been applying for CPA in the names of customers to whom Ford typically

granted larger CPA allowances. Yegan brought the complaint to the attention of his supervisor,

regional sales manager Mike Steckler. Steckler compared the data provided by Metro regarding

end-user customers with state registration data and agreed that the customer names did not match.

Steckler reported his findings to his supervisor, Eric Magus, who instructed him

to expand his research to determine if Metro's apparent abuse of the CPA program was more

widespread. Magus also instructed Steckler not to inform Metro its CPA practices were being

investigated. The additional investigation, which took place over a period of two months,

revealed that the impropriety reported by Nichols was not an isolated incident. In October 1993,

Magus recommended to his supervisors that Ford audit Metro.

In March or April 1994, Eric Showgren, a senior auditor for Ford, began a

comprehensive audit of Metro, which included an examination of heavy duty truck sales over the

preceding two years for which Metro had requested and received appeal level CPA. Metro

provided Showgren with its " deal files, " which contained documentation in the names of the

customers for whom appeal CPA had been requested. However, Metro failed to provide

Showgren with its " white files, " which contained documents, such as order forms and title and

financing applications, in the names of the actual end-user customers. Showgren noticed that the

Metro " deal files " did not contain the customary title and financing documentation and asked

whether the missing documents might be located elsewhere. Foley told Showgren that Metro did

not process title or financing applications for heavy duty trucks.

Over the course of the two-week audit, Showgren compared the documents he was

provided to state registration information and confirmed that Metro had been applying for CPA

in the name of one customer while actually selling the truck to another customer. This practice

had allowed Metro to secure higher amounts of appeal level CPA than if it had submitted the

names of the actual customers. Because Showgren could find no legitimate explanation for a

majority of the mismatched CPA customers and actual customers, he recommended to his

supervisors that Ford, pursuant to paragraphs 12(b) and 17(b)(2) of its franchise agreement with

Metro, require Metro to reimburse Ford the difference between the appeal CPA allowances

received by Metro and the amount of CPA Metro would have received had it submitted appeals

in the names of the actual customers. (1)

At the audit closing conference on June 27, 1994, Showgren met with Foley and

his sister, Metro general manager Eileen Beard, and informed them that the estimated

" chargeback " was $3.1 million. (2) Ford regional sales manager Les Brown also informed Foley

that he would recommend the Metro franchise be terminated for fraud. Foley protested, arguing

that Ford representatives had instructed and encouraged his sales staff to apply for appeal CPA

using customer names other than the end-user customers in order to sell more trucks. Brown told

Foley that he had thirty days to provide Ford with any documentation that might reduce the

amount of the proposed chargeback and that Foley could appear before the Ford Dealer Policy

Board (3) to dispute the allegations of fraud.

On July 19, 1994, Metro sued Ford in state district court in Dallas County alleging

breach of contract and antitrust violations. Metro's breach of contract claim was based on its

contention that Ford violated paragraph 10 of its franchise agreement with Metro by failing to

publish appeal level CPA amounts. (4) Metro's antitrust claim was based on its allegation that by

setting high wholesale prices, Ford required Metro to use CPA for every transaction and thereby

controlled Metro's retail price. Ford filed a counterclaim seeking actual and punitive damages

based on Metro's alleged CPA misrepresentations.

In response to Ford's requests for admissions, Metro admitted that from 1992 until

1994, it had requested CPA discounts on 317 heavy duty trucks in the names of certain customers

and then sold the trucks to other, unrelated customers. Metro manipulated the CPA program in

two ways. First, it misrepresented to Ford that trucks being bid on would be sold to heavy truck

leasing customers listed on Ford's schedule of large volume purchasers. Second, Metro used CPA

packages, which were designed to facilitate sales of a large number of trucks to a single customer,

to order individual trucks for unrelated purchasers. Metro also admitted that for each vehicle

sold, it had prepared two sets of sales invoices--one in the name of the actual customer and one in

the name of the customer used in the CPA request. Metro acknowledged that requesting CPA in

the name of a customer other than the customer to whom the truck was being sold was contrary

to Ford's written policy and directives (5) but asserted that it had engaged in the practice in

accordance with express instructions from Ford representatives.

The Dallas County district court granted Metro a temporary restraining order on

August 2, 1994 to prevent Ford from terminating Metro's franchise agreement and from collecting

any chargeback. The temporary restraining order was extended by agreement on three separate

occasions. On December 6, 1994, the Dallas court rendered an order that dissolved the prior

restraining orders and dismissed Metro's requests for temporary and permanent injunctive relief

to prohibit Ford from issuing a notice of termination of Metro's franchise agreement or initiating

actions designed to terminate the agreement. (6)

On December 14, 1994, Metro filed a complaint and protest and request for an

interlocutory cease and desist order with the Board. Metro argued that Ford's proposed

chargeback and termination violated the Motor Vehicle Commission Code, which prohibits vehicle

manufacturers from terminating a dealer without good cause. See Tex. Rev. Civ. Stat. Ann. art.

4413(36), § 5.02(b)(3) (West Supp. 2000) ("Code"). (7) Metro also argued that the proposed

chargeback was unlawful because it would force Metro to absorb the cost of CPA discounts made

by Ford in favor of Metro's customers and because it would result in unreasonable discrimination

among Ford dealers. See id. §§ 5.02(b)(14), (21).

On December 16, the Board issued a statutory stay pursuant to section 3.08A of

the Code (8) and ordered Ford to cease and desist from terminating Metro's franchise agreement;

assessing chargebacks to Metro; placing Metro on a cash-on-delivery basis for new trucks,

services, or parts; or refusing to grant CPA allowances to Metro on terms identical to the

maximum terms offered to other Ford dealers. See id. § 3.08A. On January 25, 1995, the Board

entered an agreed order removing any reference to termination in the interlocutory cease and

desist order, and Ford initiated termination proceedings against Metro on February 6, 1995,

pursuant to section 5.02(b)(3) of the Code. See id. § 5.02(b)(3)(A).

The contested case hearing on Metro's complaint was originally scheduled to begin

on May 15, 1995. It was reset twice, once to June 1, 1995 and then to July 17, 1995, as a result

of motions for continuance filed by Metro. Ford opposed both motions. The hearing was also

abated for several months on Metro's motion until matters affecting the Dallas County district

court case could be resolved. On June 26, 1996, Foley filed a complaint and protest with the

Board, arguing that Ford had violated section 5.02(b)(8) of the Code by failing to give effect to

the attempted transfer of Metro to his sister, Eileen Beard. See id. § 5.02(b)(8). Metro and

Foley's complaints against Ford were consolidated, and the contested case hearing began on

February 10, 1997.

During the hearing, Ford established that in some instances Metro had substituted

its post office box or the post office box of one of its salesmen for the address of the customer in

whose name Metro requested CPA in order to prevent the customer from receiving

correspondence from Ford on a vehicle it did not purchase. The evidence also showed that Metro

sometimes concealed the amount of profit it made on a transaction from Ford by indicating on

CPA appeal forms and other documentation that it performed installation of equipment or other

work on the trucks that the customer did not order and Metro did not do.

During the second week of the hearing, Ford announced that it intended to sell

certain assets of its heavy duty truck division to Freightliner. The transaction took place in May

1997 and resulted in Ford's withdrawal from the nationwide heavy duty truck market, although

Ford heavy duty truck dealers in good standing could apply to Freightliner for a franchise

agreement. On August 27, 1997, Metro filed a motion to show cause, for production of

documents, for expedited hearing, and for sanctions, arguing that Ford had violated the section

3.08A statutory stay by informing Freightliner that Metro was a dealer "not in good standing,"

thus preventing Metro from receiving a Freightliner franchise.

On September 19, 1997, the ALJ found that Freightliner had become a necessary

party to the administrative proceeding. The ALJ further found that Ford, by informing

Freightliner that Metro was not in good standing with Ford, had violated the statutory stay. The

ALJ ordered Ford to send Freightliner a letter stating, "Metro Ford Truck Sales, Inc. is a

qualified Ford Heavy Truck dealer in good standing as a matter of law. Ford hereby withdraws

any prior communications made to you to the contrary." The ALJ also ordered Freightliner to

cease and desist from not honoring Metro's status as a fully qualified, franchised Ford heavy duty

truck dealer and to offer Metro a Freightliner dealer agreement on the same terms as all other

qualified Ford heavy duty truck dealers.

On October 30, 1997, in response to Freightliner's motion to vacate, modify, or

clarify the September 19 interlocutory cease and desist order, the ALJ modified the order to

require Freightliner to offer Metro a franchise agreement on or before 3:00 p.m. CST on Monday,

November 3, 1997, with the agreement contingent upon the outcome of the pending termination

proceeding between Metro and Ford. The ALJ explained:

If it is determined that Ford has shown good cause [for termination], then Ford can

proceed with termination of Metro's franchise. Since Freightliner HN-80 (9) is

assuming the role of Ford Heavy Truck, the franchise agreement between Metro

and HN-80 will also terminate if Ford is successful in the underlying termination

proceeding. On the other hand, if Ford is unsuccessful in proving good cause for

termination, then the franchise agreements between Ford and Metro and

Freightliner HN-80 and Metro will remain in place unless and until new grounds

for termination are shown.

On November 3, Freightliner informed the ALJ that it had tendered a franchise

agreement to Metro under protest. The agreement contained a special conditions addendum with

requirements different from those contained in Ford's franchise agreement. Metro objected, and

on November 10, the ALJ concluded that Metro was not required to sign the Freightliner

franchise agreement to secure a valid franchise. On November 26, the ALJ determined that

because Freightliner was being substituted for Ford, the rights and obligations in the Ford/Metro

franchise agreement would control the relationship between Freightliner and Metro throughout

the remainder of the administrative proceeding.

On January 16, 1998, the ALJ issued a PFD, in which she concluded that: (1)

Ford had established good cause to terminate Metro's franchise agreement; (2) Ford had

established that the transfer of Metro to Eileen Beard would be detrimental to the public; (3) Ford

was not entitled to recover monies collected by Metro in accordance with Ford's CPA program;

and (4) the termination of Metro's franchise agreement should be conditioned upon the sale of the

Metro dealership to a buyer selected by Ford and Freightliner at a price established by an

independent appraiser. The Board issued an order on March 5, 1998 adopting the PFD in its

entirety.

All parties sought judicial review of the Board's order. A Travis County district

court affirmed the Board's order in part but determined that the remedy of a forced sale was

unlawful and reversed and remanded the case to the Board for further proceedings. Ford,

Freightliner, Metro, and the Board appeal the district court judgment. Ford primarily challenges

the portion of the district court judgment remanding the case to the Board to fashion a new remedy

and the Board's finding that Ford was not entitled to recover funds collected by Metro pursuant

to the CPA program. Freightliner argues that the Board had no authority to order it to sell trucks

to Metro or to help Metro find a buyer for its franchise. Metro contends that the Board erred in

finding that Ford had good cause to terminate its franchise agreement with Metro and that Eileen

Beard was not a qualified successor-dealer. Finally, the Board argues that the remedy it imposed

upon the parties was lawful.

DISCUSSION

The purpose of the Motor Vehicle Commission Code is to insure a sound system

of distributing and selling motor vehicles through licensing and regulating manufacturers and

dealers of those vehicles in order "to prevent frauds, unfair practices, discriminations,

impositions, and other abuses" that threaten the public interest, the economy of this State, and the

welfare of this State's citizens. Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 1.02. The Board is

charged with conducting the policy-making and regulatory functions and duties imposed by the

Code. See id. The Board thus regulates the contractual relationship between new vehicle

manufacturers and dealers who sell and service the new vehicles pursuant to the terms of franchise

agreements. See id. §§ 1.03(14), 5.02.

In deciding whether to license a vehicle dealership, the Board considers many

factors, including the competitiveness of the marketplace, the fitness of the applicant's character,

and the public interest. See id. § 4.06. Vehicle manufacturers are prohibited from terminating

or refusing to continue any franchise with a dealer unless certain conditions are met. See id.

§ 5.02(b)(3)(A). A manufacturer seeking to terminate or refuse to continue a franchise must

provide its franchisee dealer with written notice not less than 60 days before the effective date of

termination or noncontinuance setting forth the specific grounds for termination or noncontinuance

and informing the dealer that he may be entitled to file a protest with the Board. See id.

§ 5.02(b)(3)(A)(i)-(iii). If the affected dealer files a timely protest, the Board is charged with

holding a contested case hearing to determine whether the franchisor has established by a

preponderance of the evidence that there is good cause for the proposed termination or

noncontinuance. See id. § 5.02(b)(3)(A)(iv). In determining whether good cause has been

established, the Board must consider all existing circumstances, including:

(A) the dealer's sales in relation to sales in the market;

(B) the dealer's investment and obligations;

(C) injury or benefit to the public;

(D) the adequacy of the dealer's service facilities, equipment, parts and

personnel;

(E) whether warranties are being honored by the dealer;

(F) the parties' compliance with the franchise agreement; and

(G) the enforceability of the franchise agreement from a public policy

standpoint.

Id. § 5.02(b)(5). If the franchise is terminated or not continued, another franchise in the same

line-make must be established within a reasonable time unless the Board determines, by a

preponderance of the evidence, that the community cannot reasonably support such a dealership.

See id. § 5.02(b)(3)(C).

A dealer whose franchise has been terminated by a final order of the Board is

entitled to judicial review of the order in a Travis County district court. See id. § 7.01(a). (10) The

district court reviews final actions of the Board under the substantial evidence rule. See id.

Under the substantial evidence rule, a reviewing court may not substitute its judgment for the

judgment of the agency on the weight of the evidence on questions committed to agency

discretion. See Tex. Gov't Code Ann. § 2001.174 (West 2000). A reviewing court must reverse

or remand the case for further proceedings if the complaining party's substantial rights have been

prejudiced because the agency's findings, inferences, conclusions, or decisions are:

(A) in violation of a constitutional or statutory provision;

(B) in excess of the agency's statutory authority;

(C) made through unlawful procedure;

(D) affected by other error of law;

(E) not reasonably supported by substantial evidence considering the reliable and

probative evidence in the record as a whole; or

(F) arbitrary or capricious or characterized by abuse of discretion or clearly

unwarranted exercise of discretion.

Id. § 2001.174(2)(A)-(F).

Metro's Challenges to the Board's Decision to Terminate

Ford sought termination of Metro's franchise based upon sections 5.02(b)(5)(C) and

(F) of the Code, alleging that Metro's abuse of the CPA program had injured the public and

violated the Ford-Metro franchise agreement. The ALJ agreed and recommended termination.

Metro challenges the Board's order adopting the ALJ's recommendation on three grounds. (11) The

first is that there was no evidence in the record to support the ALJ's finding that Metro's CPA

program abuse resulted in any injury to the public. See id. § 2001.174(2)(E).

The ALJ found in finding of fact 26 that "[t]he submission of false names and

addresses prevented Ford from communicating with the true end-user customer regarding safety

recalls and operational safety issues." In determining whether a finding of fact is reasonably

supported by substantial evidence, we may not substitute our judgment for that of the agency on

the weight of the evidence. See id. § 2001.174. We must, however, test the disputed finding

against the body of evidence to determine whether such relevant evidence exists as a reasonable

mind might accept as adequate to support a finding of fact. See Lauderdale v. Texas Dep't of

Agric. , 923 S.W.2d 834, 835 (Tex. App.--Austin 1996, no writ) (citing Pierce v. Underwood , 487

U.S. 552, 564-65 (1988)).

It is undisputed that in some instances Metro placed its post office box or the post

office box of one of its salesmen on documents submitted to Ford to prevent the customer in

whose name CPA was sought from being alerted to the practice. It is also undisputed that during

the period in which Metro was misrepresenting customer names and addresses, Ford attempted

to send safety recall information to the actual owners of trucks sold by Metro. Both Metro

general sales manager Joel Laxson and Metro salesman Gayle Nelson testified that Metro received

this safety recall information, but neither witness could state definitively that the safety

information was forwarded to the actual truck owners. Laxson testified that the Metro office

manager gave him recall notices that were delivered to Metro post office boxes. Laxson further

testified that he forwarded the recalls to Metro salesmen with instructions to send the information

to the actual customers. Nelson testified that he did not know what happened to mail delivered

to Metro-controlled post office boxes but that he "thought" and "hoped" safety recall information

was transmitted to the actual customers.

We conclude that reasonable minds could infer or find, from the foregoing

evidence, that Metro's systematic interception of recall notices and other correspondence

prevented Ford from communicating directly with the owners of Ford trucks purchased from

Metro. Metro's actions placed the truck owners at risk of not receiving important safety

information. We therefore overrule Metro's issue concerning the lack of evidence to support

finding of fact 26.

In its next ground, Metro argues that its substantial rights have been prejudiced

because the Board abused its discretion by failing to consider Metro's contention that Ford should

be estopped from seeking to terminate Metro's franchise because Ford district and regional

personnel induced Metro's salesmen to violate the franchise agreement by submitting misleading

information to Ford. See Tex. Gov't Code Ann. § 2001.174 (2)(D), (F); see also Texas Health

Facilities Comm'n v. Charter Medical-Dallas, Inc. , 665 S.W.2d 446, 453-54 (Tex. 1984). In

determining whether an agency act or omission is characterized by an abuse of discretion, a

reviewing court must ascertain whether the agency based its decision on legally irrelevant factors

or failed to consider legally relevant factors. See Kawasaki Motors Corp. v. Texas Motor Vehicle

Comm'n , 855 S.W.2d 792, 795 (Tex. App.--Austin 1993, no writ); Consumers Water, Inc. v.

Public Util. Comm'n , 774 S.W.2d 719, 721 (Tex. App.--Austin 1989, no writ).

The PFD details the ample evidence and argument heard by the ALJ concerning

Metro's pattern of submitting inaccurate CPA information to Ford. The PFD includes a summary

of testimony of three instances in which Metro claimed that Ford employees had instructed Metro

salesman Allen Ludwig to apply for CPA discounts in the name of a customer other than the

actual end-user customer. Further, Foley testified that Ford employees must have known about

and approved of Metro's CPA practices, either because he had discussed his concerns regarding

Ford's business practices with the Ford employees or because the Ford employees had worked

closely with the Metro salesmen responsible for requesting CPA discounts.

The Ford employees alleged to have instructed Metro salesmen to violate the

written provisions of the franchise agreement testified before the ALJ that their instructions had

been misunderstood and that they never suspected the widespread CPA abuse that was occurring

at Metro. Ford argued that even if its employees had instructed Metro salesmen to subvert the

CPA program, the franchise agreement signed by Ford and Metro provided that those particular

employees had no authority to verbally modify the terms of the franchise agreement. Ford further

argued, and Metro admitted, that Ford employees did not instruct Metro salesmen to create a

" dummy " set of files or to conceal the files containing the names of the actual end-user customers

from the Ford auditor.

The ALJ was the sole judge of the credibility of the witnesses and was free to

accept the testimony of any witness or even accept " part of the testimony of one witness and

disregard the remainder. " Southern Union Gas Co. v. Railroad Comm'n , 692 S.W.2d 137, 141-42 (Tex. App.--Austin 1985, writ ref'd n.r.e.). Presented with conflicting accounts of the

involvement of Ford employees in Metro's CPA program abuse, the ALJ made several findings

of fact. First, the ALJ found that although " Ford district and regional personnel were aware of

the so-called abuses of the CPA program at Metro and at other dealerships, " "Metro personnel,

including Mr. Foley, knew that their actions in applying for CPA were contrary to Ford policy."

She further found that " Mr. Foley was aware of Metro's CPA practices and authorized and

approved of their use, as well as the concealment of these practices from Ford. " The ALJ

concluded that by "applying for CPA in the names of someone other than its actual customer, not

providing all dealership files to the Ford auditor, and providing Ford with false mailing addresses

for its customers , " Metro failed to comply with its franchise agreement with Ford.

Metro has not contended that no substantial evidence existed in the agency record

to support the ALJ's findings that Metro violated the franchise agreement; thus, we presume that

the findings are supported by substantial evidence. See City of El Paso v. Public Util. Comm'n ,

883 S.W.2d 179, 185 (Tex. 1994). Based upon these findings, the Board concluded that Ford

established good cause for the termination of Metro's franchise in accordance with sections

5.02(b)(3) and 5.02(b)(5) of the Code. Metro contends that this conclusion was an abuse of

discretion because the Board failed to consider Metro's estoppel argument, a legally relevant

factor.

To establish a claim for equitable estoppel, a party must show that it was without

knowledge, or means of acquiring knowledge, of facts that the party sought to be estopped is

alleged to have misrepresented by acts, conduct, or silence. See Schroeder v. Texas Iron Works ,

813 S.W.2d 483, 489 (Tex. 1991); Simpson v. MBank Dallas, N.A. , 724 S.W.2d 102, 107 (Tex.

App.--Dallas 1987, writ ref'd n.r.e.) (citing Barfield v. Howard M. Smith Co. , 426 S.W.2d 834,

838 (Tex. 1968)). The ALJ found that Metro knew that its actions in applying for CPA were

contrary to Ford policy and actively sought to conceal the extent of its misconduct from Ford. (12)

Metro has not challenged these findings; therefore, Metro cannot claim that it reasonably or

justifiably relied on statements by Ford employees that it was acceptable to provide Ford with a

customer name other than the end-user customer for purposes of requesting CPA discounts. See

Douglas v. Aztec Petroleum Corp. , 695 S.W.2d 312, 317 (Tex. App.--Tyler 1985, no writ).

Because Metro does not possess the "clean hands" the law demands of those seeking to invoke

the doctrine of estoppel, (13) we hold that the Board did not abuse its discretion by concluding that

Ford could seek termination of Metro's franchise. See Texas Workers' Compensation Ins. Facility

v. Personnel Servs., Inc. , 895 S.W.2d 889, 894 (Tex. App.--Austin 1995, no writ). We overrule

Metro's estoppel issue.

Finally, Metro contends that the Board abused its discretion by ordering termination

for good cause in the absence of evidence that Metro may not perform well as a dealer in the

future. Metro argues that franchise termination, as authorized by section 5.02(b)(3) of the Code,

is a prophylactic remedy. Metro finds support for its contention in the seven factors listed in

section 5.02(b)(5) that the Board must consider to determine whether good cause for termination

has been established. Metro contends that these factors demonstrate that termination is designed

to "cancel any future dealings between the parties based on indications or fears that the dealer will

not perform well in the future." Metro argues that the evidence shows that it ceased applying for

CPA in the name of a customer other than the actual customer when instructed by Ford to change

its practices in April 1994. Metro contends that there is no evidence to show that it has violated

Ford policy since that time; therefore, Metro argues that the Board abused its discretion by

ordering termination based on past wrongs.

We find Metro's argument to be without merit. Section 5.02(b)(5) mandates a

consideration of "existing circumstances," not a speculative evaluation of what kind of

relationship a manufacturer and dealer might have in the future. See Tex. Rev. Civ. Stat. Ann.

art. 4413(36), § 5.02(b)(5). The Board is authorized to evaluate the dealer's past and current

performance with regard to sales, service, warranties, and compliance with franchise agreements.

See id. Nothing in section 5.02(b)(5) supports Metro's interpretation. Even assuming the section

does contain an element of prognostication, Metro's argument still fails because its pattern of CPA

program abuse and admitted efforts to deceive Ford violate basic and fundamental precepts of the

relationship between a manufacturer and a dealer and reasonably support a conclusion that Metro

will probably not perform according to the terms of its franchise agreement if allowed to remain

a dealer. The undisputed facts alone justify Ford's actions in terminating Metro. We overrule

Metro's final issue concerning termination.

Transfer of Metro Dealership to Eileen Beard

Metro next argues that the ALJ's findings concerning Eileen Beard are not

reasonably supported by substantial evidence. In finding of fact 40, the ALJ found "Ms. Beard

knew or should have known about the CPA practices at Metro." In finding of fact 41, the ALJ

found that "[a]lthough she has ample experience in all areas of Metro's operations, Ms. Beard is

not qualified, in terms of character and capacity, to become the dealer-principal at Metro." The

ALJ concluded that "Ford has established that the transfer of Metro to Eileen Beard will be

detrimental to the public and/or Ford's representation in accordance with § 5.02(b)(8) of the

Code." (14) The Board adopted the ALJ's findings and conclusions and ordered that Metro's

franchise be sold to a buyer acceptable to both Ford and Freightliner at a price established by an

independent appraiser.

We must determine whether the evidence as a whole is such that reasonable minds

could have reached the conclusion that the Board must have reached to justify the action. See

Texas State Bd. of Dental Examiners v. Sizemore , 759 S.W.2d 114, 116 (Tex. 1988); Southwest-Tex Leasing Co. v. Bomer , 943 S.W.2d 954, 957 (Tex. App.--Austin 1997, no writ). The test is

not whether the Board reached the correct conclusion, but whether some reasonable basis exists

in the record for the Board's action. See City of El Paso , 883 S.W.2d at 186 .

At the contested case hearing, Ford had the burden of proving that the transfer of

Metro to Beard would be detrimental to the public or the representation of Ford. Ford submitted

as an exhibit the deposition testimony of Joan Dupree, the Metro business manager at the time

Ford audited Metro. Dupree testified that the Ford auditor met with her and Beard and asked

them to produce paperwork relating to numerous truck sales. Dupree testified that Foley and

Beard decided to provide the auditor with the "deal files," which contained documents bearing

the names of the customers for whom appeal CPA had been requested, but not the "white files,"

which contained documents bearing the names of the actual end-user customers. Dupree testified

that she understood it was important to Metro that the Ford auditor not see the white files

"[b]ecause it would show who the unit actually was sold to and it would jeopardize how much

CPA money we got." Dupree further testified that she and Beard gathered the deal files for the

Ford auditor to review. Finally, Dupree testified that the decision to conceal the amount of profit

Metro made on a transaction by misrepresenting that it was performing installation of equipment

on trucks was made by her, Foley, sales manager Joel Laxson, and Beard.

At the hearing, Beard testified that she had been aware of the existence of two sets

of files at Metro. She testified that Foley had instructed her to produce the deal files for the Ford

auditor and that had Foley asked her to produce the white files, she would have done so. Beard

further testified that she did not learn of the fictitious installation and repair claims made to hide

profits until the audit.

Beard was asked if, as a prospective Ford dealer, "it would ever be permissible to

make a misrepresentation of fact in order to obtain money from Ford under any circumstances."

Beard first testified that if a Ford employee told her to submit false information to Ford, she

would do her best to verify that the employee was authorized to give such an instruction. She then

acknowledged that she would be willing to misrepresent facts if it seemed reasonable for her to

do so.

With regard to Beard's testimony, Metro argues that the questions Beard was asked

by Ford's counsel were "purely speculative and argumentative in the extreme" and contends that

her answers do not support the conclusion that she lacks the character and capacity to serve as the

Metro successor dealer. Metro also contends that Dupree's testimony does not establish that

Beard knew of Metro's CPA practices before the audit. Metro further argues that because new

truck sales were not part of Beard's responsibilities, the appropriate inference for the ALJ to make

was that Beard was not aware of Metro's CPA practices. Finally, with regard to Beard's

involvement with the audit, Metro argues that the Ford auditor only asked for the deal files, so

Beard cannot be faulted for producing exactly what was requested. (15)

Having reviewed the relevant evidence relating to Beard's involvement in the events

in question, and giving due deference to the ALJ's assessment of the credibility of witness

testimony, we conclude that relevant evidence exists from which reasonable minds could conclude

that as Metro's general manager, Beard knew, or should have known, of Metro's deception and

abuse of the Ford CPA program. See Sizemore , 759 S.W.2d at 116 . The evidence relating to her

role in Metro's misconduct calls into question her ability to abide by the terms of the franchise

agreement as a dealer-principal. Because some reasonable basis exists in the record for the

Board's conclusion that the transfer of Metro to Beard would be detrimental to the public or Ford,

we overrule Metro's issue concerning the transfer.

Ford ' s Complaint Concerning Chargeback

Paragraph 12(b) of the Ford/Metro franchise agreement requires that Metro allow

Ford:

to check and instruct [Metro] in the proper handling of warranty and other repairs

and claims based thereon and to examine, copy and audit any and all of [Metro's]

records and documents. [Ford] may charge back to [Metro] all payments or credits

made by [Ford] to [Metro] pursuant to such claims or otherwise which were

improperly claimed or paid.

Paragraph 17(b)(2) provides that the submission of false information relating to heavy duty truck

sales discounts may result in the termination or nonrenewal of Metro's franchise.

At the contested case hearing, Ford argued that taken together, these paragraphs

authorize recovery of funds obtained by Metro as a result of CPA program misrepresentations.

Metro responded that neither provision specifically provides for chargeback of CPA overpayment.

Metro further argued that Ford's proposed chargeback violated section 5.02(b)(14) of the Code,

which provides that notwithstanding the terms of any franchise agreement, vehicle manufacturers

may not require dealers to pay or assume "any part of any refund, rebate, discount, or other

financial adjustment made by the manufacturer . . . to, or in favor of, any customer of a dealer,

unless voluntarily agreed to by such dealer." Tex. Rev. Civ. Stat. Ann. art. 4413(36),

§ 5.02(b)(14).

At the conclusion of the hearing, the ALJ found that CPA discounts, although paid

directly to dealers by Ford, are granted to dealers in favor of retail customers. Based upon this

finding, the ALJ concluded, "Ford is prohibited from charging back monies received by Metro

in conjunction with Ford's CPA program on the 317 trucks at issue in this proceeding in

accordance with § 5.02(b)(14) of the TMVC Code." The district court affirmed the Board's

conclusion.

On appeal, Ford argues that section 5.02(b)(14) of the Code does not apply to the

CPA program. Ford contends that because CPA funds are paid directly to dealers, not to the end-user customers, the funds cannot be considered discounts or financial adjustments made to or "in

favor of" a dealer's customer. See id. Instead, Ford argues that CPA discounts are actually

discounts or financial adjustments made to or in favor of Ford dealers to assist them in selling

trucks and remaining competitive in the marketplace. Ford contends that the Board's

interpretation of section 5.02(b)(14) impermissibly shields dealers from fraud liability when they

fraudulently induce manufacturers into granting CPA discounts. Metro responds that CPA

discounts are made in favor of its customers and thus fall squarely within the protection of section

5.02(b)(14). (16)

To address Ford's arguments, we first must determine whether the ALJ's finding

that CPA discounts are made in favor of a dealer's retail customers is supported by substantial

evidence. As previously stated, substantial evidence is that which reasonable minds could have

viewed as supporting the finding. See Sizemore , 759 S.W.2d at 116 . Because we may not

substitute our judgment for that of the Board on the weight of the evidence, we are concerned only

with the reasonableness of the findings, not their correctness. See id. at 117 . The complaining

party has the burden to demonstrate an absence of substantial evidence. See id. at 116 .

In general, the evidence presented at the contested case hearing indicated that Ford

provides CPA discounts to its dealers to enable them to reduce wholesale truck prices below street

prices. The amount of CPA granted depends upon many factors, including the identity of the end-user customer. Upon receiving a CPA discount, Ford dealers are free to decide if and in what

amount the discount will be passed on to the retail customer. Foley testified that Metro, rather

than retaining CPA funds received from Ford, passed the discount on to retail customers in the

form of lower retail prices. Metro heavy truck salesman Allen Ludwig testified that CPA

discounts were "always" passed on to the end-user customer. (17)

Ford regional sales manager Mike Steckler testified on cross-examination that "in

most normal situations" Ford dealers pass on CPA discounts to their retail customers in the form

of lower prices. Finally, John Merrifield, the general sales and marketing manager for Ford

heavy truck, testified on cross-examination that CPA discounts were granted to Ford dealers to

increase competitiveness by enabling Ford dealers to reduce the retail prices of their trucks. We

hold that substantial evidence exists to support the ALJ's finding that CPA discounts were granted

by Ford to Metro in favor of Metro's retail customers.

Ford next contends that the Board's interpretation of section 5.02(b)(14)

impermissibly prohibits Ford from collecting monies received by Metro in conjunction with the

CPA on the 317 trucks at issue. Ford argues that the legislature did not intend for section

5.02(b)(14) to shield dealers who fraudulently obtain CPA discounts from liability.

Statutory construction is a question of law. See Johnson v. City of Fort Worth , 774

S.W.2d 653, 656 (Tex. 1989). Our objective when we construe a statute is to determine and give

effect to the legislature's intent. See Liberty Mut. Ins. Co. v. Garrison Contractors, Inc. , 966

S.W.2d 482, 484 (Tex. 1998). The resolution of an issue of statutory construction must begin

with an analysis of the statute. See Cail v. Service Motors, Inc. , 660 S.W.2d 814, 815 (Tex.

1983). The legislature's intent is determined from the plain and common meaning of the words

used. See St. Luke's Episcopal Hosp. v. Agbor , 952 S.W.2d 503, 505 (Tex. 1997).

Construction of a statute by the administrative agency charged with its enforcement

is entitled to deference, so long as the construction is reasonable and does not contradict the plain

language of the statute. See Tarrant Appraisal Dist. v. Moore , 845 S.W.2d 820, 823 (Tex.

1993); Texas Utils. Elec. Co. v. Sharp , 962 S.W.2d 723, 726 (Tex. App.--Austin 1998, pet.

denied). This is particularly true where the statute is ambiguous due to the complexity of the

subject matter. See Texas Ass'n of Long Distance Tel. Co. v. Public Util. Comm'n , 798 S.W.2d

875, 884 (Tex. App.--Austin 1990, writ denied).

The Board does not interpret section 5.02(b)(14) to allow a manufacturer to assess

chargebacks to a dealer if the manufacturer determines that the dealer has committed fraud with

respect to the CPA program. We conclude that the Board's interpretation is not unreasonable.

The plain language of section 5.02(b)(14) extends broad protection to dealers with regard to "any

refund, rebate, discount or other financial incentive" made by the manufacturer "to, or in favor

of, any customer of a dealer." Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 5.02(b)(14). No

reference is made to excluding from this protection dealers who obtain customer discounts through

the misrepresentation of customer names. See id. The absence of any reference to dealer

misconduct is meaningful, as we must presume that every word in the section has been used for

a purpose and that every word excluded was excluded for a purpose. See Southwestern Bell Tel.

Co. v. Public Util. Comm'n , 888 S.W.2d 921, 926 (Tex. App.--Austin 1994, writ denied) (citing

Cameron v. Terrell & Garrett, Inc. , 618 S.W.2d 535, 540 (Tex. 1981)). We must take the statute

as we find it, and we are not responsible for legislative omissions. See Continental Casualty Ins.

Co. v. Functional Restoration Assocs. , 43 Tex. Sup. Ct. J. 573 , 580 (April 6, 2000).

Our conclusion that the Board's interpretation of section 5.02(b)(14) is not

unreasonable is bolstered by a recent amendment to the Code that left that section intact but added

a new section 5.02B entitled "Manufacturer or distributor incentive programs; procedures." See

Act of May 19, 1999, 76th Leg., R.S., ch. 1047, § 14, 1999 Tex. Gen. Laws 3873 , 3875

(codified at Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 5.02B (West Supp. 2000)). Section

5.02B(b) provides that manufacturers "may make charge-backs to a dealer if after audit the

manufacturer . . . has reasonable grounds to conclude that the dealer committed fraud with respect

to the incentive program." Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 5.02B(b).

When the legislature enacts an amendment, we may presume that it thereby

intended to change the original act by creating a new right. See Durish v. Channelview Bank , 809

S.W.2d 273, 277 (Tex. App.--Austin 1991, writ denied) (citing 1A Singer, Sutherland Statutory

Construction § 22.30, at 265 (4th ed. 1985)); Adams v. Board of Chiropractic Examiners , 744

S.W.2d 648, 656 (Tex. App.--Austin 1988, no writ). This presumption is especially applicable

here, where the amendment fills an apparent void in the statutory scheme and does not merely

reiterate long-standing interpretations that the Board and the courts have given the statute. See

Adams , 744 S.W.2d at 656 . Thus, the Board's conclusion that section 5.02(b)(14) does not permit

Ford to collect chargeback from Metro is consistent with the notion that the legislature, in

enacting section 5.02B, granted manufacturers a new right to collect chargeback from dealers who

commit fraud with respect to incentive programs. We reject Ford's contention that the Board

erred by not awarding chargeback.

Conditional Termination

Metro filed its original complaint and protest with the Board in December 1994.

In February 1995, Ford initiated termination proceedings against Metro. During the February

1997 contested case hearing, Ford announced its intent to sell its heavy duty truck assets to

Freightliner. Later that year, the ALJ joined Freightliner as a party and ordered it to provide

trucks to Metro pursuant to the terms of the Ford/Metro franchise agreement throughout the

pendency of the administrative proceeding.

In the PFD, the ALJ concluded that "a reasonable resolution to Ford's request for

termination of Metro's franchise agreement is for Metro to be require [sic] to sell the dealership

to a buyer of Ford and Freightliner's choosing at a price established by an independent appraiser."

The Board accepted this recommendation and ordered that two appraisers selected by

Ford/Freightliner and Metro choose a third appraiser to determine the fair market value of Metro

"without any devaluation for the proposed termination or other matters at issue in this

proceeding." The Board further ordered Ford and Freightliner to make all reasonable efforts to

find a buyer acceptable to both entities to purchase Metro at the appraised value; that Metro enter

in good faith into a buy-sell agreement with that buyer at the established price; and that upon

closure of the buy-sell agreement, Metro's franchise agreement with Ford be terminated.

Upon review, the district court concluded that although the Board had the power

to impose a remedy short of complete termination, the remedy imposed in this case was unlawful.

The court reversed the order and remanded the case to the Board to fashion a new remedy

consistent with the ruling.

Freightliner argues that the Board had no power to compel it either to treat Metro

as a franchised dealer pending the outcome of the administrative proceeding or to condition the

franchise termination on the finding of a buyer. Freightliner requests we reverse the district court

judgment in part to allow the district court to render judgment consistent with this opinion. Ford

contends the Board had no authority to place conditions on the termination of Metro's franchise

once Ford established good cause for termination. Ford therefore requests we reverse the district

court judgment in part and render judgment unconditionally terminating the franchise.

Metro and the Board argue that the Board had authority both to join Freightliner

as a party and to fashion a remedy short of termination. The Board requests we reverse the

portion of the district court judgment that declares the Board's remedy unlawful and render a

judgment affirming the Board's order. Metro requests we reverse the district court judgment and

remand for entry of an order instructing Freightliner to deal with Metro until Freightliner shows

good cause under the Code to cease such dealings. We will first consider the question whether

the Board had the power to join Freightliner as a party to the administrative proceeding upon

learning that Freightliner and Ford had entered into an agreement by which Freightliner would

purchase Ford's heavy truck assets.

Administrative agencies are created by statute and have no inherent authority. See

Public Util. Comm'n v. GTE-Southwest, Inc. , 901 S.W.2d 401, 406 (Tex. 1995); Sexton v. Mount

Olivet Cemetery Ass'n , 720 S.W.2d 129, 137 (Tex. App.--Austin 1986, writ ref'd n.r.e.).

Therefore, they may only exercise those specific powers the law confers upon them in clear and

express language. See Kawasaki Motors Corp. , 855 S.W.2d at 797 . An agency may also exercise

powers necessarily implied from the statutory authority granted or the duties expressly given or

imposed. See Sexton , 729 S.W.2d at 137. However, the agency may not, on a theory of

necessary implication from a specific power, function, or duty expressly delegated, erect and

exercise a new or additional power or a power that contradicts the statute. See id. at 137-38. Nor

may it exercise a new power solely for administrative purposes of expediency. See id. at 138.

Section 3.01(a) of the Code vests the Board with the power "to regulate all aspects

of the distribution, sale, and leasing of motor vehicles and to do all things, whether specifically

designated in this Act or implied herein, or necessary or convenient to the exercise of this power

and jurisdiction, including the original jurisdiction to determine questions of its own jurisdiction."

Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 3.01(a). Section 3.08A(a) delegates to the Board the

power to impose a statutory stay to preserve the status quo until the administrative proceeding is

concluded by a final order. See id. § 3.08A(a). Persons receiving notice from the Board of the

stay may not allow or commit any act or omission that would (1) constitute a violation of the

Code; (2) constitute a violation of any rule, order, or decision of the Board; (3) affect the legal

rights, duties, or privileges of any party before the Board; or (4) tend to render ineffectual a

Board order in any pending proceeding. See id.

The Board is expressly authorized to levy civil penalties against parties found to

have violated the Code or any rule or order of the Board issued pursuant to the Code. See id.

§ 6.01(a). The Board also has the power to issue cease and desist orders and injunctions to

manufacturers and dealers and to revoke or suspend their licenses for violations of the Code or

Board rules or orders promulgated under the Code. See id. §§ 4.06(a), 6.01A , 6.02.

Freightliner argues these provisions do not expressly authorize the Board to order

a manufacturer to enter into an involuntary franchise agreement with a dealer with whom the

manufacturer had no previous relationship. Freightliner further argues that it was not necessary

for the Board to involve Freightliner in the administrative proceeding because the Board could

have maintained the status quo by exercising its enforcement powers against Ford. The Board

responds that under the unique circumstances of this case, it was justified in adding Freightliner

as a party and enforcing the statutory stay against it. We agree.

The status quo to be maintained in this case involved Metro receiving and selling

trucks pursuant to the terms of its franchise agreement with Ford. Once Ford sold its heavy duty

truck assets to Freightliner in May 1997, it was no longer in a position to supply Metro with

trucks and parts; thus, administrative penalties imposed against Ford would not have resulted in

the maintenance of the status quo. Only the addition of Freightliner to the proceeding and the

imposition of the statutory stay against it ensured that Metro would be allowed to function as a

franchised dealer throughout the pendency of the hearing. Had the Board failed to join

Freightliner as a party, in light of the pendency of the proceeding, Ford would have been allowed

to stop supplying Metro with trucks without first establishing that good cause for termination

existed. Manufacturers are prohibited by the Code from altering their business structure in a

manner that results in termination of a franchise without good cause. See id. § 5.02(b)(17).

Without deciding whether Ford altered its business structure, (18) we conclude that the addition of

Freightliner as a party was necessary to preserve the status quo and to prevent Ford from selling

its heavy duty truck assets unimpeded by regulatory requirements.

We now must consider whether the Board was authorized to condition termination

of Metro's franchise on Ford and Freightliner finding a buyer willing to pay the appraised value.

We reiterate that the Board has only such powers as are delegated to it by the legislature in clear

and express statutory language, together with any implied power that may be necessary for the

Board to perform a function or duty that the legislature has required of the agency in express

terms. See GTE Southwest Inc. v. Public Util. Comm'n , 10 S.W.3d 7, 12 (Tex. App.--Austin

1999, no pet. h.). The Board has referred us to two Code provisions it argues provide a statutory

basis for its remedy of conditional termination.

First, the Board points to section 5.02(b)(5)(B), which requires a consideration of

"all the existing circumstances" in determining whether good cause has been established for

termination, including the dealer's investment and obligations. See Tex. Rev. Civ. Stat. Ann. art.

4413(36), § 5.02(b)(5)(B). The Board argues that it balanced Metro's admitted abuse of the CPA

program with Ford's role in contributing to the misconduct and crafted a remedy that ensured

Metro would recoup its twenty-five year investment in the franchise by receiving appraised value.

Next, the Board relies on section 5.02(b)(3)(C), which mandates that upon termination, a

manufacturer must establish another franchise in the trade area within a reasonable time unless

it is shown to the Board by a preponderance of the evidence that the area cannot reasonably

support such a dealership. See id. § 5.02(b)(3)(C). The Board contends that there was no

indication that Ford or Freightliner had prepared to honor this provision; thus, the Board argues

that by conditioning termination on the sale of the franchise to another dealer, it was merely

ordering Ford and Freightliner to do something they were already required to do by law.

We find the Board's arguments unpersuasive. Section 5.02(b)(5)(B) merely lists

factors the Board must consider in determining whether good cause for termination has been

established; it does not address termination remedies. Section 5.02(b)(3)(C) contemplates post-termination events but does not authorize the Board to condition termination on the manufacturer

finding a third party to purchase the terminated franchise at appraised value. To the contrary, the

provision envisions a termination followed by the establishment of a new franchise within a

reasonable time. The Board's reliance on these provisions to support conditional termination is

unwarranted. Moreover, the Code expressly provides for a "winding up" procedure upon

termination to ensure that the manufacturer reimburses the dealer for various assets, such as new

motor vehicles in the dealer's inventory with mileage of 6,000 or less; new, unused, undamaged,

and unsold parts and accessories; undamaged signs bearing the manufacturer's trademark; special

tools, data processing equipment, and automotive service equipment; and the cost of transporting,

handling, packing, storing, and loading any property subject to repurchase. See id. § 5.02(b)(16).

Regardless of how perplexing the problem an agency seeks to address, it may not

exercise its authority in a manner that is inconsistent with the administrative structure that the

legislature enacted. In light of express statutory language allowing the terminated dealer to

receive reimbursement for its investment in specific assets and requiring the terminating

manufacturer to establish another franchise within a reasonable time, we conclude that the remedy

imposed by the Board in this case is inconsistent with the legislative intent expressed in the Code's

overall regulatory scheme. A power to condition franchise termination on a sale of the entire

franchise at a price to be determined by an appraiser may not be implied on the ground of

necessity from either the Board's general powers or the two specific provisions relied on by the

Board. Having concluded that good cause for termination exists and that the Board's remedy of

conditional termination is unlawful, we reverse the portion of the district court judgment relating

to the remedy and remand the case to the Board for further proceedings consistent with this

opinion.

Findings of Fact 46 and 47

In its final issue on appeal, Ford argues that the district court erred in affirming two

findings regarding Ford's ability to control retail prices and dealer profits. Finding of fact 46

states, "In requests for appeal level CPA, Ford is able to determine at what retail price a dealer

can sell a truck before Ford must determine what amount of CPA will be granted on the

transaction." Finding of fact 47 states, "In requests for appeal level CPA, Ford is able to

determine and control the amount of profit a dealer is attempting to make on a particular

transaction." Ford argues that because these findings were incorrect and irrelevant to the Board's

decision, we should strike them from the Board's final order.

We agree with Ford that the Board could have decided the issues before it without

making the disputed findings; however, the prejudice requirement of Government Code section

2001.174(2) prevents us from reversing the district court unless Ford's substantial rights have

been prejudiced by the findings. See Tex. Gov't Code Ann. § 2001.174 (2). As the challenged

findings are not directly connected to any specific grant or denial of relief in the Board's final

order, the findings are merely extraneous statements unnecessary to the order and therefore could

not have prejudiced any substantial right of Ford. Furthermore, courts generally may disregard

immaterial findings. See Charter Medical-Dallas, Inc. , 664 S.W.2d at 453. We overrule Ford's

final issue.

CONCLUSION

We affirm the termination of the Metro franchise for good cause, the refusal to

transfer the dealership to Eileen Beard, and the denial of Ford's requested chargeback expenses.

We reverse the portion of the district court judgment concluding that the Board may impose a

remedy short of complete termination and instead remand the case to the Board for further

proceedings consistent with this opinion.

Jan P. Patterson, Justice

Before Justices Jones, Kidd and Patterson

Affirmed in Part; Reversed and Remanded in Part

Filed: April 27, 2000

Do Not Publish

1. Paragraph 12(b) of the standard provisions of the Ford Heavy Duty Truck Sales and

Service Agreement provides:

The Dealer shall allow persons designated by [Ford], at reasonable times and

intervals and during normal business hours, to examine the DEALERSHIP

FACILITIES and OPERATIONS, the Dealer's stocks of COMPANY

PRODUCTS and used vehicles and vehicles at the DEALERSHIP

FACILITIES for service or repair, to test the Dealer's equipment, to check

and instruct the Dealer and his employees in the proper handling of warranty

and other repairs and claims based thereon, and to examine, copy and audit

any and all of the Dealer's records and documents. [Ford] may charge back

to the Dealer all payments or credits made by [Ford] to the Dealer pursuant

to such claims or otherwise which were improperly claimed or paid.

(Emphasis added.)

Paragraph 17(b)(2) provides the "submission by the Dealer to [Ford] of any false or fraudulent

application or claim" relating to heavy duty truck sales incentives, allowances, or discounts may

result in the termination or nonrenewal of the sales and service agreement.

2. Showgren later reduced the chargeback amount to $1.3 million based on his review of

industry data and documents provided to Ford by Metro during the course of litigation. During

the contested case hearing, Ford'

s expert witness, Dr. Thomas Saving, testified that Metro

received $290,975 in appeal level CPA that it would not have received had it not misrepresented

to Ford the names of its customers.

3. The Ford Dealer Policy Board reviews dealer complaints regarding actions by Ford.

The Board is composed of Ford employees who serve on the Board for life and cannot work

anywhere else within Ford. The Board members report to a Ford executive vice president for

company relations. Board decisions are binding on Ford but not on the complaining dealer; thus,

if the Board concludes that Ford's actions were justified, the complaining dealer may still exercise

its legal rights against Ford.

4. Paragraph 10 provides:

Sales of COMPANY PRODUCTS by [Ford] to the Dealer hereunder will be

made in accordance with the prices, charges, discounts and other terms of

sales set forth in price schedules or other notices published by [Ford] to the

Dealer from time to time in accordance with the applicable HEAVY DUTY

TRUCK TERMS OF SALE BULLETIN or PARTS AND ACCESSORIES

TERMS OF SALE BULLETIN.

5. The Ford Heavy Duty Truck Sales and Service Agreement prohibits CPA

misrepresentations in paragraph 17(b)(2), see supra note 1, and several bulletins sent by Ford to

its dealers since the time Foley, Jr. became the dealer-principal at Metro reiterated the importance

of complying with that paragraph.

6. On May 30, 1995, Ford removed the Dallas County district court case to the United

States District Court for the Northern District of Texas. On October 20, 1997, the federal district

court found that Ford's CPA program was "pro-competitive" and issued an order granting Ford's

motion for summary judgment on Metro's federal antitrust claims. Metro's remaining state law

claims, which included breach of contract, promissory estoppel, unjust enrichment, negligent

misrepresentation, violation of the Texas Deceptive Trade Practices Act, and violation of the

Texas Free Enterprise and Antitrust Act of 1983, were remanded to state court, as were Foley's

affirmative claim of intentional infliction of emotional distress and Ford's affirmative claims of

fraud, breach of contract, breach of a duty of good faith and fair dealing, and RICO violations.

The United States Court of Appeals for the Fifth Circuit affirmed the judgment of the federal

district court in Metro Ford Truck Sales, Inc. v. Ford Motor Co. , 145 F.3d 320 (5th Cir. 1998),

cert. denied , 119 S. Ct. 798 (1999).

On February 7, 1998, the Dallas County district court granted partial summary

judgment (1) finding Ford liable on Metro's claims for breach of contract and antitrust violations

and (2) dismissing Ford's affirmative claims. A jury trial was held on the issues of Metro's

damages and attorney's fees. The jury awarded zero damages on Metro's breach of contract and

antitrust claims but awarded Metro $800,000 in attorney's fees. On appeal, the Fifth Court of

Appeals affirmed the trial court's judgment that Metro recover zero damages on its breach of

contract claim, reversed the trial court's judgment and rendered judgment that Metro take nothing

on its state antitrust claim and its claim for attorney's fees, and reversed and remanded for further

proceedings Ford's claims for breach of contract, fraud, and RICO violations due to Metro's

failure, as a summary judgment movant, to conclusively prove that Ford's chargeback damages

were unrecoverable as a matter of law. See Ford Motor Co. v. Metro Ford Truck Sales, Inc. , No.

5-99-031-CV (Tex. App.--Dallas Dec. 9, 1999, pet. filed) (not designated for publication). The

appellate court also concluded that Ford waived any complaint that the trial court erred in

dismissing Ford's claim for breach of a duty of good faith and fair dealing.

7. We will cite to the current version of the Code unless inconsistent with provisions of the

Code in effect during these proceedings.

8. Section 3.08A(a) provides:

Upon the initiation of any [Board] proceeding, whether by complaint, protest,

or otherwise, no person who receives notice from the [Board] of a statutory

stay imposed by this Act may allow or commit any act or omission which

would constitute a violation of this Act or any rule, order, or decision of the

[Board] or which would affect the legal rights, duties, or privileges of any

party before the [Board] or which would tend to render ineffectual a [Board]

order in any pending proceeding. A statutory stay imposed by this Act

remains in effect until vacated or until the proceeding is concluded by final

order or decision.

Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 3.08A(a) (West Supp. 2000).

9. Freightliner formed a wholly-owned corporate subsidiary, originally known as HN-80

Corporation and now known as Sterling Truck Corporation, to produce and distribute its line of

heavy duty trucks.

10. Section 7.01(a) provides that appeals initiated in district court may be removed to this

Court upon notice of removal to the district court by any party at any time prior to trial in the

district court. See Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 7.01(a). Section 7.01(a) also

permits any party affected by a final order of the Board to initiate judicial review of the order in

this Court. See id.

Freightliner, Sterling, and Ford filed petitions for judicial review of the Board' s final

order in this Court. Metro and Foley filed petitions for review in Travis County district court.

On July 15, 1998, Ford filed a notice of removal of Metro ' s action to this Court pursuant to

section 7.01(a). Metro and Foley's actions were removed to this Court. On August 31, 1998,

this Court remanded all petitions related to the Board ' s final order to Travis County district court

pursuant to section 7.01(d) of the Code, which provides that "[a]ppeals in which evidence outside

the board ' s record is to be taken under Chapter 2001, Government Code, or otherwise, shall be

initiated in a Travis County District Court, or having been initiated in the Court of Appeals, shall

be subject to remand to a Travis County District Court for proceedings in accordance with

instructions from the Court of Appeals." Id . § 7.01(d). No additional evidence was ever offered.

11. Metro does not challenge the factual findings of the Board with respect to "the

termination portion of the Board's order."

12. Metro produced no evidence that Ford did anything to lead Metro to believe that field-level employees had any authority to permit abuses or that anyone above field-level employees

induced Metro to commit the abuses.

13. In 1982, Ford recommended a $3.2 million chargeback and termination of Metro's

franchise due to Metro's alleged abuse of the Used Truck Allowance program. Metro sued Ford

to prevent the chargeback and proposed termination. The case was settled, and the settlement

terms included a payment by Metro to Ford of $518,082, the removal of Foley, Sr. as dealer-principal, and the appointment of Foley, Jr. as the new dealer-principal. Foley, Jr. signed a

document at that time assuring Ford that "all reasonable steps" would be taken to prevent any

future misrepresentations or wrongful receipt of monies. In 1990, Ford revoked a CPA package

for Equipment Southwest, a company owned by Foley, Jr.'s brother, after complaints by other

Ford dealers that Equipment Southwest was not complying with CPA program guidelines.

Thereafter, Ford required Metro to utilize the CPA appeal process for sales to Equipment

Southwest. We refer to these episodes only to show that Metro was on notice that Ford

management would not countenance misrepresentations.

14. The version of section 5.02(b)(8) in effect at the time of the contested case hearing

provided, "Notwithstanding the terms of any franchise agreement, [it is unlawful for a

manufacturer to] fail to give effect to or attempt to prevent any sale or transfer of a dealer,

dealership or franchise or interest therein or management thereof unless, after a complaint or

protest, it is demonstrated to the Commission after hearing that the result of any such sale or

transfer will be detrimental to the public or the representation of the manufacturer or distributor."

Act of April 19, 1993, 73d Leg., R.S., ch. 61, sec. 7, § 5.02(8), 1993 Tex. Gen. Laws 139 , 141.

15. The Ford auditor, Eric Showgren, testified that before he began the audit, he asked

Foley to provide him with Metro's deal files, which Showgren believed would contain buyer's

order forms and financing information. The evidence shows that the deal files provided to

Showgren contained those documents bearing the names of the "dummy" customers, while the

white files contained those documents bearing the names of the actual truck purchasers.

16. Metro also argues in two footnotes that the Board lacks jurisdiction to award money

damages to Ford based upon Metro's abuse of the CPA program. We regard Metro's argument

as a challenge to the Board's statutory and constitutional authority to adjudicate Ford's chargeback

claim. See, e.g., Kawasaki Motors Corp. v. Texas Motor Vehicle Comm'n , 855 S.W.2d 792, 797-99 (Tex. App.--Austin 1993, no writ) (agency not empowered to adjudicate contract claim between

private individuals arising out of franchise agreement because such power not implied in statute

making certain acts unlawful). Because Metro failed to raise this argument before either the

Board or the Travis County district court that reviewed the Board's final order, we have no

jurisdiction to consider it. See Yamaha Motor Corp. v. Motor Vehicle Div. , 860 S.W.2d 223,

229-30 (Tex. App.--Austin 1993, writ denied); see also Dreyer v. Greene , 871 S.W.2d 697, 698

(Tex. 1993) (generally, a party may not raise an issue, even a constitutional claim, for the first

time on appeal).

17. Metro general sales manager Joel Laxson acknowledged that at times Metro passed on

less than the full amount of the discount to its customers.

18. Both Ford and Freightliner argue at length that the district court erred in affirming the

ALJ's finding that "Freightliner acquired the Ford heavy duty truck body when it purchased the

assets of Ford Heavy Truck." (emphasis added.) Ford and Freightliner contend the only

evidence admitted during the contested case hearing concerning the transaction confirmed that the

deal was structured strictly as an asset purchase and that Freightliner did not acquire Ford's

obligations to its dealers; thus, they argue the Board could not compel Freightliner to deal with

Metro. While we acknowledge that the evidence shows Ford's relationships with its dealers were

neither transferred to nor acquired by Freightliner, we conclude nonetheless that the Board had

the power to join Freightliner as a party and subject it to the statutory stay in order to carry out

the requirements of the Code.