Volkswagen Group of America, Inc. And Audi of America, Inc. v. John Walker III, in His Official Capacity as Chairman of the Texas Department of Motor Vehicles Board The Honorable Michael J. O'Malley, the Honorable Penny A. Wilkov, in Their Official Capacities as Administrative Law Judges for the State Office

ACCEPTED

03-15-00285-CV

6511633

THIRD COURT OF APPEALS

AUSTIN, TEXAS

8/14/2015 4:55:21 PM

JEFFREY D. KYLE

CLERK

NO. 03-15-00285-CV

FILED IN

3rd COURT OF APPEALS

IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS

AUSTIN, TEXAS 8/14/2015 4:55:21 PM

JEFFREY D. KYLE

Clerk

VOLKSWAGEN GROUP OF AMERICA, INC.

AND AUDI OF AMERICA, INC.,

Appellants,

v.

JOHN WALKER III, ET AL.

Appellees.

On Appeal from the 201st Judicial District Court, Travis County, Texas

Honorable Amy Clark Meachum, Presiding Judge

INTERVENORS' BRIEF ON APPEAL

Wm. R. Crocker J. Bruce Bennett

State Bar No. 05091000 State Bar No. 0214550

807 Brazos, Suite 1014 CARDWELL, HART & BENNETT, LLP

Austin, Texas 78767 807 Brazos, Suite 1001

Telephone: (512) 478-5611 Austin, Texas 78701

Facsimile: (512) 474-2540 Telephone: (512) 322-0011

Email: crockerlaw@earthlink.net Facsimile: (512) 322-0808

Email: jbb.chblaw@sbcglobal.net

ATTORNEY FOR ATTORNEY FOR

INTERVENOR/APPELLEE INTERVENORS/APPELLEES

BUDGET LEASING, INC. D/B/A RICARDO M. WEITZ, HI TECH

AUDI NORTH AUSTIN AND AUDI IMPORTS NORTH, LLC, HI TECH

SOUTH AUSTIN IMPORTS SOUTH, LLC, AND HI

TECH IMPORTS, LLC

IDENTITY OF PARTIES AND COUNSEL

Appellants Volkswagen Group of America, Inc. and Audi of

America, Inc. (hereinafter "Audi" Or "Appellants")

Represented By:

S. Shawn Stephens

Texas Bar No. 19160060

James P. Sullivan

Texas Bar No. 24070702

KING & SPALDING

1100 Louisiana, Suite 4000

Houston, Texas 77002

Tel: (713) 751-3200

Fax: (713) 751-3290

Lead Appellate Counsel

Billy M. Donley

Texas Bar No. 05977085

Mark E. Smith

Texas Bar No. 24070639

BAKER & HOSTETLER LLP

811 Main Street, Suite 1100

Houston, Texas 77002

Tel: (713) 751-1600

Fax: (713) 751-1717

bdonley@bakerlaw.com

mesmith@bakerlaw.com

Trial and Appellate Counsel

Appellees/Defendants The Honorable Michael J. O’Malley and Penny A.

Wilkov (the "ALJs")

Represented By:

Kimberly Fuchs

i

Texas Bar No. 24044140

Chief, Open Records Litigation

Administrative Law Division

Office of the Attorney General of Texas

P.O. Box 12548, Capitol Station

Austin, Texas 78711-2548

Tel: (512) 475-4195

Fax: (512) 320-0167

kimberly.fuchs@texasattorneygeneral.gov

Trial and Appellate Counsel

Chairman John H. Walker, III (the "Chairman" or

"Walker")

Represented By:

Dennis McKinney

Texas Bar No. 13719300

Assistant Attorney General

Office of the Attorney General of Texas

Administrative Law Division

P.O. Box 12548, Capitol Station

Austin, Texas 78711-2548

Tel: (512) 475-4020

Fax: (512) 320-0167

dennis.mckinney@texasattorneygeneral.gov

Trial and Appellate Counsel

Appellees/Intervenors Budget Leasing, Inc. d/b/a Audi North Austin and Audi

South Austin ("Budget")

Represented By:

Wm. R. Crocker

Texas Bar No. 05091000

807 Brazos, Suite 1014

Austin, Texas 78767

Tel: (512) 478-5611

ii

Fax: (512) 474-2540

crockerlaw@earthlink.net

Trial and Appellate Counsel

Ricardo M. Weitz ("Weitz"), Hi Tech Imports, LLC

("Imports"), Hi Tech Imports North, LLC ("North"),

and Hi Tech Imports South, LLC ("South" and,

together with Weitz, North, and South, the "Weitz

Group")

Represented By:

J. Bruce Bennett

Texas Bar No. 0214550

Leon V. Komkov

Texas Bar No. 11670500

CARDWELL, HART & BENNETT, LLP

807 Brazos, Suite 1001

Austin, Texas 78701

Tel: (512) 322-0011

Fax: (512) 322-0808

jbb.chblaw@sbcglobal.net

lvk@longroadllc.com

Trial and Appellate Counsel

Joseph W. Letzer

Texas Bar No. 24030763

Dent M. Morton

Texas Bar No. 24056645

BURR & FORMAN, LLP

420 20th Street N, Suite 3400

Birmingham, AL 35203-5210

Tel: (205) 251-3000

Fax: (205) 458-5100

jletzer@burr.com

dmorton@burr.com

Trial and Appellate Counsel

iii

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ........................................................ i

TABLE OF CONTENTS ..................................................................................... iv

INDEX OF AUTHORITIES................................................................................ vi

STATEMENT OF THE CASE ............................................................................ xi

STATEMENT REGARDING ORAL ARGUMENT ....................................... xiii

ISSUES PRESENTED....................................................................................... xiv

STATEMENT OF FACTS ....................................................................................1

I.  Preliminary Matter. ............................................................................1

II.  Parties. ................................................................................................1

III.  The Protest..........................................................................................3

IV.  Post-PFD Board Proceedings. ............................................................5

SUMMARY OF THE ARGUMENT ..................................................................11

ARGUMENT .......................................................................................................16

I.  This Court Should Affirm The District Court's Dismissal

Because Of Audi’s Failure To Exhaust Administrative

Remedies. .........................................................................................16

A.  The Board Has Exclusive Jurisdiction Over The

Protest....................................................................................18

B.  The "Without Jurisdiction" Exception To The

Exhaustion Requirement Is Inapplicable. .............................20

II.  This Court Should Affirm The District Court's Dismissal

Because Defendants Did Not "Exceed Their Powers." ...................25

A.  The Legal Framework Applicable To The Protest. ..............25

B.  Chairman Walker. .................................................................27

iv

i.  The Board had authority to remand the Protest

to SOAH. ....................................................................28

ii.  The Board had the power and authority to order

the ALJs to reopen the record. ....................................32

iii.  The Board did not authorize the consideration of

"untimely" evidence....................................................34

iv.  Nothing about the Remand Order violates the

rules against "influencing" the ALJs. .........................36

a.  The alleged "ex parte" communications

issue has been waived by Audi and had no

effect on the outcome of the remand vote. .......36

b.  The Remand Order does not differ from

Member Slovacek’s motion. ............................38

c. The ALJs have remained fair and impartial. ....40

C.  The ALJs Have Not Acted Ultra Vires. ................................41

III.  This Court Should Affirm The District Court's Dismissal On

The Basis Of Sovereign Immunity...................................................43

IV.  This Court Should Affirm The District Court's Dismissal

Because Audi Failed To Join The Board And/Or The Other

Board Members. ...............................................................................44

CONCLUSION ....................................................................................................47

v

INDEX OF AUTHORITIES

Cases

Appraisal Review Bd. of Harris Cty. Appraisal Dist.

v. O'Connor & Assocs, 267 S.W.3d 413

(Tex. App. – Houston [14th Dist.] 2008, no pet.) ........................ 17, 21, 46

Black v. City of Kileen,

78 S.W.3d 686 (Tex. App. – Austin 2002, pet. denied) ............................36

Buddy Gregg Motor Homes, Inc. v. Motor Vehicle Bd. of the Tex. Dept. of

Transp.,

179 S.W.3d 589 (Tex. App. – Austin 2005, pet. denied) ..........................19

City of El Paso v. Heinrich,

284 S.W.3d 366 (Tex. 2009) ........................................................ 23, 43, 46

City of Houston v. Rhule,

417 S.W.3d 440 (Tex. 2014) ........................................................ 16, 17, 46

City of Houston v. Williams,

99 S.W.3d 709

(Tex. App. – Houston [14th Dist.] 2003, no pet.) ........................ 17, 20, 46

City of Sherman v. Pub. Util. Comm’n of Tex.,

643 S.W.2d 681 (Tex. 1983) ........................................................ 22, 24, 46

Coastal Habitat Alliance v. Pub. Util. Comm’n,

294 S.W.3d 276 (Tex. App. – Austin, 2009, no pet.) ................................44

Edwards v. City of Tomball,

343 S.W.3d 213 (Tex. App. – Houston [14th Dist.] 2011, no pet.) ..........22

Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth.,

96 S.W.3d 519 (Tex. App. – Austin 2002, pet. denied) .................... 20, 22

Gonzalez v. Tex. Educ. Ag.,

882 S.W.2d 526 (Tex. App. – Austin 1994, no pet.) .................... 20, 22, 24

vi

Layton v. City of Fort Worth,

No. 02-14-00084-CV, 2014 WL 6997350, at *6

(Tex. App. – Fort Worth Dec. 11, 2014, no pet.) ......................................44

Liberty Mut. Ins. Co. v. Griesing,

150 S.W.3d 640, 648 (Tex. App. – Austin 2004, pet. dism’d w.o.j.) .......31

Lim v. Hall, D.C.,

No. 03-96-00530-CV, 1997 WL 366803, at *1

(Tex. App. – Austin July 3, 1997, writ denied) .........................................34

Lone Starr Multi Theatres, Inc. v. State,

922 S.W.2d 295 (Tex. App. – Austin 1996, no writ) ................................45

Mag-T, L.P. v. Travis Cent. Appraisal Dist.,

161 S.W.3d 617 (Tex. App. – Austin 2005, pet. denied) ............. 17, 46, 47

Montgomery Indep. Sch. Dist. v. Davis,

34 S.W.3d 559 (Tex. 2000) .......................................................................29

Moreno v. State,

409 S.W.3d 723 (Tex. App. – Houston [1st Dist.] 2013, pet. refused) .....36

N. Alamo Water Supply Corp. v. Tex. Dept. of Health,

839 S.W.2d 455 (Tex. App. – Austin 1992, writ denied) .........................20

Park v. Tex. Dept. of Health,

No. 04-97-00338-CV, 1998 WL 412436, at *1

(Tex. App. – San Antonio July 22, 1998, no pet.)........................ 16, 17, 20

Pearce v. City of Round Rock, 992 S.W.2d 668

(Tex. App. – Austin 1999, pet. denied) .....................................................45

Reynolds v. Haws,

741 S.W.2d 582 (Tex. App. – Fort Worth 1987, writ denied) ..................45

Scott v. Graham,

292 S.W.2d 324 (Tex. 1956) .....................................................................45

Sw. Bell Tel., L.P. v. Emmett,

vii

459 S.W.3d 578 (Tex. 2015) .............................................................. 43, 46

State v. Mid-South Pavers, Inc.,

246 S.W.3d 711 (Tex. App. – Austin 2008, pet. denied) ..........................40

Subaru of Am., Inc. v. David McDavid Nissan, Inc.,

84 S.W.3d 212 (Tex. 2002) .......................................................................19

Tarrant Appraisal Dist. v. Moore,

845 S.W.2d 820 (Tex. 1993) .....................................................................27

Tex. Nat. Res. Conservation Comm’n v. Sierra Club,

70 S.W.3d 809 (Tex. 2002) .......................................................................47

Tex. State Bd. of Pub. Accountancy v. Bass,

366 S.W.3d 751 (Tex. App. – Austin 2012, no pet.) .................................30

Westheimer Independent School District v. Brockette,

567 S.W.2d 780 (Tex. 1978) .....................................................................24

Administrative Decisions

All Points Inspection Servs., Inc. v. Navistar, Inc.,

MVD No. 08-0432 CAF/WI 362638, 2011 WL 1341523, at *1

(Tex. St. Off. Admin. Hgs. Mar. 28, 2011) ...............................................30

Appeal of Paris A. Mims, Jr.,

2004 WL 4172108, at *1

(Tex. St. Off. Admin. Hgs. Sept. 2004) .............................................. 30, 31

In re Belinda Quintero Molina,

SOAH Docket No. XXX-XX-XXXX

(Tex. St. Off. Admin. Hgs. Feb. 28, 2012) ................................................42

In re Taxpayer No.: *** (CPA Hearing No. 107,108),

SOAH Docket No. XXX-XX-XXXX.26, 2014 WL 4694592, at *1

(Tex. St. Off. Admin. Hgs. June 9, 2014) .................................................42

In re Taxpayer No.: *** (CPA Hearing No. 108,005),

SOAH Docket No. XXX-XX-XXXX.26, 2014 WL 4694594, at *1

viii

(Tex. St. Off. Admin. Hgs. June 16, 2014) ...............................................42

In re Taxpayer No.: *** (Type: Motor Vehicle Gross

Rental Receipts Tax/RDT),

Hearing Nos. 30,505, 32,656, 1997 WL 617908, at *1

(Tex. Cptr. Pub. Acct. Sept. 23, 1997) ............................................... 34, 35

In re Taxpayer No.: *** (Type: Sales and Use Tax),

Hearing No. 39,563, 2004 WL 3673564, at *1

(Tex. Cptr. Pub. Acct. 2004) .....................................................................35

Petitioner v. Tax Division, Texas Comptroller of Public Accounts,

SOAH Dkt. XXX-XX-XXXX.26

(Tex. St. Off. Admin. Hgs. June 16, 2014) ...............................................33

Texas Comm’n on Law Enforcement v. Bush,

SOAH Dkt. No. XXX-XX-XXXX

(Tex. St. Off. Admin. Hgs. Feb. 27, 2013) ......................................... 32, 43

Texas Dept. of Ins. v. Mondragon,

SOAH Docket No. XXX-XX-XXXX.C

(Tex. St. Off. Admin. Hgs. Oct. 23, 2014) ................................................42

Tex. Dept. of Licensing and Regulation v. Drobot,

SOAH Dkt. No. XXX-XX-XXXX

(Tex. St. Off. Admin. Hgs. Apr. 11, 2014)................................................33

Texas Dept. of Licensing and Regulation v. Guerra,

SOAH Dkt. No. XXX-XX-XXXX.ACR

(Tex. St. Off. Admin. Hgs. June 5, 2013) .................................................33

Statutes

Tex. Civ. Prac. & Rem. Code § 37.006(a) ...........................................................45

Tex. Gov’t Code § 2001.058......................................................................... 28, 29

Tex. Gov’t Code § 2001.174................................................................................21

Tex. Occ. Code § 2301.001 .......................................................................... 19, 25

ix

Tex. Occ. Code § 2301.004 .......................................................................... 18, 25

Tex. Occ. Code § 2301.151 .................................................................... 18, 19, 28

Tex. Occ. Code § 2301.153 .............................................................. 19, 26, 28, 29

Tex. Occ. Code § 2301.359 .................................................................. 5, 7, 18, 35

Tex. Occ. Code § 2301.360 ......................................................................... passim

Tex. Occ. Code § 2301.458 .................................................................................18

Tex. Occ. Code § 2301.571 .................................................................................27

Tex. Occ. Code § 2301.702 .......................................................................... 26, 29

Tex. Occ. Code § 2301.703 .................................................................................26

Tex. Occ. Code § 2301.704 .......................................................................... 26, 41

Tex. Occ. Code § 2301.709 ......................................................................... passim

Tex. Transp. Code § 1001.021(a) ........................................................................45

Administrative Rules

1 Tex. Admin. Code § 155.153(a)(4)............................................................ 32, 42

43 Tex. Admin. Code § 215.22(b) .......................................................................37

43 Tex. Admin. Code § 215.23(d) .........................................................................4

Rules of Appellate Procedure

Tex. R. App. P. 38.1(g) ..........................................................................................1

x

STATEMENT OF THE CASE

Audi filed a lawsuit in the Travis County district court on March 25, 2015,

seeking temporary, preliminary, and permanent injunctive relief against the

Chairman of the Texas Department of Motor Vehicles Board (the “Board”), John

H. Walker, III (“Chairman Walker”), and two administrative law judges employed

by the State Office of Administrative Hearings (“SOAH”), Judges Michael J.

O’Malley and Penny A. Wilkov (the “ALJs”). (Clerk’s Record (“CR”) at 117-148.)

Audi’s petition alleged that Chairman Walker acted ultra vires in authorizing, on

behalf of the Board, the remand of a contested case proceeding to SOAH and that

the ALJs were engaging in ultra vires acts by conducting the remand. (Id. at 136-

147.)

Audi’s Application for Temporary Restraining Order was denied on March

26, 2015. (CR 713-714, 729-730.) On March 27, 2015, the parties adverse to Audi

in the underlying contested case proceeding (the “Intervenors” in the district court)

intervened in the lawsuit in support of Chairman Walker and the ALJs. (CR 665-

703.) In April 2015, Intervenors, Chairman Walker, and the ALJs each filed a plea

to the jurisdiction, seeking dismissal of Audi’s claims against Chairman Walker

and the ALJs for lack of subject matter jurisdiction. (CR 731-774, CR 821-829, CR

836-843.)

xi

On April 30, 2015, District Judge Meachum sustained Chairman Walker and

the ALJs’ pleas to the jurisdiction and dismissed Audi’s case. (CR 2030-2031.) On

May 8, 2015, Audi appealed to this Court. (CR 2030.) On June 15, 2015, Audi

filed a Motion for Temporary Relief, which this Court denied on July 8, 2015.

xii

STATEMENT REGARDING ORAL ARGUMENT

Intervenors do not request oral argument. If, however, the Court decides to

hear oral argument, then Intervenors request the opportunity to participate.

xiii

ISSUES PRESENTED

I. Whether Chairman Walker and/or the ALJs acted (or are

acting) “without jurisdiction” or “wholly outside their jurisdiction” in

authorizing and conducting, respectively, a limited remand of the

contested case proceeding over which the Board has exclusive

original jurisdiction such that Audi was excused from exhausting its

administrative remedies.

II. Whether Chairman Walker and/or the ALJs exceeded (or are

exceeding) the powers or statutory authority provided to them by

Chapter 2301 of the Transportation Code, Chapter 2001 of the Texas

Government Code, and the administrative rules applicable to the

Board and SOAH in authorizing and conducting, respectively, the

limited remand of the contested case proceeding over which the Board

has exclusive original jurisdiction.

III. Whether Chairman Walker and/or the ALJs acted (or are

acting) within their jurisdiction and within the scope of discretion

afforded to them under the laws such that they are entitled to

immunity from suit under well-recognized principles of governmental

immunity.

IV. Whether either the Board or the other Board members are

indispensable parties to Audi’s lawsuit because Audi is challenging an

order entered by the Board, not just Chairman Walker, and the order

being challenged was agreed upon by seven of the Board’s members.

xiv

STATEMENT OF FACTS

I. PRELIMINARY MATTER.

Audi’s Statement of Facts, (Appellants’ Brief (hereinafter "Audi’s Br.") at

pp. 1-7), is incomplete, argumentative, mischaracterizes events, and is otherwise

not in compliance with the standards set forth in Tex. R. App. P. 38.1(g).1

Intervenors do not accept (and urge the Court not to accept) any statement in

Audi’s factual statement as being true and correct unless corroborated by an

accurate citation to admitted evidence.

II. PARTIES.

Audi of America, Inc. is a division of Volkswagen Group of America, Inc.

(CR 119 at ¶ 6.) The plaintiff in the underlying lawsuit is Appellant Volkswagen

Group of America, Inc. d/b/a Audi of America, Inc. ("Audi"). (Id.)

Appellee/Intervenor Budget Leasing, Inc. d/b/a Audi North Austin and Audi

South Austin ("Budget") is the owner of, inter alia, two Audi dealerships, a

Porsche dealership, and a Maserati dealership in Austin, Texas. (CR 1276 at

Finding of Fact (“FOF”) No. 11.)

In December 2012, Appellee/Intervenor Ricardo M. Weitz ("Weitz"), on

behalf of himself and his assigns, entered into a Dealership Purchase Contract to

1

(See, e.g., Audi's Br. at p. 4 n.4 (arguing that Intervenors are not proper parties to the

contested case); 5 (arguing that the Board granted rehearing due to an ex parte communication);

7 (arguing that “[t]he court below erroneously dismissed the lawsuit….”).)

1

buy Budget’s Audi, Porsche, and Maserati dealerships. (CR 1276 at FOF Nos. 12,

13.)

Weitz formed Appellees/Intervenors Hi Tech Imports, LLC ("Imports"), Hi

Tech Imports North, LLC ("North"), and Hi Tech Imports South, LLC ("South") to

own the Porsche, Audi North, and Audi South dealerships, respectively. (CR 1276

at FOF Nos. 26, 27.) (Weitz, Imports, North, and South are hereinafter referred to

as the "Weitz Group.")

After Audi rejected the Weitz Group’s initial applications to buy Budget’s

Audi dealerships, Budget and the Weitz Group filed a statutorily authorized protest

(the "Protest") with the Board.2 (Reporter’s Record (“RR”) at Pl.’s Ex. 3.) The

Board docketed the Protest as a contested case and referred the case to SOAH and

the ALJs conducted the contested case proceeding. (See generally CR 1275 at FOF

Nos. 3-10.)

Audi filed the lawsuit underlying this appeal on March 25, 2015, in response

to a decision the Board made at its February 13, 2015 meeting. (CR 136-142.)

Audi named Chairman Walker and the ALJs as defendants to the lawsuit. (CR 120

at ¶¶ 7-9.) Audi did not include as defendants any of the other Board members,

2

The Protest was filed pursuant to Section 2301.360(a) of the Texas Occupations Code

(sometimes referred to hereinafter as the “Code”).

2

Budget, or any members of the Weitz Group. (Id.) Budget and the Weitz Group

subsequently intervened in the lawsuit. (CR 665-703.)

III. THE PROTEST.

On December 20, 2012, Budget notified Audi that it had entered into a

Dealership Purchase Contract with Mr. Weitz. (CR 487 at FOF No. 17.)

Thereafter, Weitz and his business partners, either personally or through their

representatives, submitted a host of information to Audi required by Audi as part

of the transfer application process. (CR 487-489 at FOF Nos. 18-19, 22-23, 38.)

On April 16, 2013, after stating that a "complete" application package had

been received as of April 4, 2013, Audi rejected the Weitz Group’s applications to

approve transfer of the Audi dealer agreements for Audi North Austin and Audi

South Austin. (See generally CR 489 at FOF Nos. 39-40; CR 1886 at ¶ 2.) Audi

included a list of its alleged "material reasons for rejection" of the proposed

transfer. (Id.)

Weitz sent a letter to Audi, dated April 30, 2013, stating that the proposed

buyer agreed to be bound by the terms of the Audi franchise (hereinafter the "April

30th Letter"). (CR at 655.) On May 1, 2013, Weitz submitted two more packages

of information to Audi (one from North and one from South). (CR 490 at FOF

Nos. 41.)

3

On May 14, 2013, Budget and the Weitz Group filed a Protest of Rejection

of Applications for Franchises, protesting the rejection of Budget’s transfer of its

Audi and Porsche dealerships to Weitz. (RR at Pl.’s Ex. 3; CR 1884-1887.) The

Board referred the matter to SOAH for a contested case hearing. (CR 1879-1883.)

After Audi objected to the Weitz Group’s participation in the Protest as

"protestants," the members of the Weitz Group were permitted to realign

themselves as "Intervenors." (RR at Pl.’s Ex. 4; CR 371-385.)3

In late February and early March, 2014, Audi, Budget, and the Weitz Group

participated in a nine day hearing before the ALJs. (CR 486 at FOF No. 9.)

On July 16, 2014, the ALJs issued a proposal for decision (the "July 2014

PFD"). (RR at Pl.’s Ex. 8; CR 396-502.) In the July 2014 PFD, the ALJs found

that Weitz, the buyer and intended manager of the dealerships, is "overly-

qualified" to own Budget's Audi and Porsche dealerships, but that Weitz's primary

business partner (anticipated to be the second largest owner of the dealerships'

holding company) is "under-qualified." (CR 499.) Pursuant to Section 2301.360(d)

3

In one of the many legal arguments in its Statement of Facts, Audi contends that the

members of the Weitz Group were not “proper parties” to the Protest. (Audi’s Br. at p. 4 n.4.)

Judge O’Malley expressly found otherwise. (RR at Pl.’s Ex. 4.) In Order No. 3, noting that

Weitz’s interest in the Protest, which involves the denial or approval of his multi-million dollar

transaction, is “great,” Judge O’Malley held that the Weitz Group was entitled to intervene under

Board Rule 215.23(d), which permits “any person” having an “interest in a proceeding” to

“intervene and present any relevant and proper evidence, data, or argument bearing upon the

issues involved in the particular proceeding.” (Id. at p. 12.)

4

of the Code, the ALJs recommended conditions that would render the prospective

transferees qualified under Section 2301.359 of the Code. (Id.)

The ALJs also found: 1) "[t]he DMV has jurisdiction...over the parties and

the subject matter of this case"; and, 2) the Weitz Group had substantially

complied with § 2301.359(c)(3) of the Code. (CR 413-415; CR 490 at FOF Nos.

43-46; CR 499 at Conclusion of Law (“COL”) No. 1; CR 501 at COL Nos. 22-23.)

IV. POST-PFD BOARD PROCEEDINGS.

After the July 2014 PFD was provided to the Board, the Weitz Group filed a

Motion to Find the Prospective Transferees Qualified, asking the Board to

determine that the Weitz Group had met the recommended conditions. (See

generally RR at Pl.’s Ex. 16 (directing ALJs to consider said motion).)

The Protest came before the Board on September 12, 2014. At that time, the

Board, in a 3 to 2 vote, voted to dismiss the Protest for "want of jurisdiction." (RR

at Pl.’s Ex. 9; CR 972-973.) The Board found that the Code’s notice provision,

Tex. Occ. Code § 2301.359(c)(3), was "jurisdictional" and recommended dismissal

because it could not find “the prospective transferee's written agreement to comply

with the franchise” in the SOAH record. (Id.)

On October 2, 2014, Budget and the Weitz Group filed a Motion for

Rehearing. (RR at Pl.’s Ex. 10.) The Texas Automobile Dealers' Association filed

5

an amicus brief in support of the Motion for Rehearing. (RR at Pl.’s Ex. 15 (noting

that TADA filed an amicus brief).)

On October 13, 2014, Audi filed its opposition to the Motion for Rehearing.

(RR at Pl.’s Ex. 11.)

On October 15, 2014, Budget and the Weitz Group filed a response in

support of their Motion for Rehearing. (RR at Pl.’s Ex. 12.) Budget and the Weitz

Group attached to the response the April 30th Letter from Weitz to Audi wherein

Weitz, on behalf of himself and in his capacity as manager of North and South,

agreed in writing to be bound by the terms of the Audi franchise. (CR at 655.)

While the rehearing briefing was ongoing, on October 10, 2014, Corbin

Robertson III, a principal of one of Mr. Weitz’s silent partners,4 contacted a Board

member, Laura Ryan, regarding the motion for rehearing. (RR at Pl.’s Ex. 13; CR

874.) On October 21, 2014, the Board’s General Counsel, David Duncan, sent a

letter to counsel for all parties disclosing (and providing a copy of) the exchange

between Mr. Robertson and Ms. Ryan. (Id.)

On December 10, 2014, the Board voted to grant the Motion for Rehearing

and entered an order stating: "[S]ubstantial controversies continue to exist and

4

(CR 497 at FOF 30-31, 33, 128.)

6

[those] controversies require further adjudication within the contested case

process." (RR at Pl.’s Ex. 15; CR 1120-1121.)5

The Board considered the Protest again on February 13, 2015. (See generally

CR 910-926.) The Board’s staff recommended that the Board remand the case to

SOAH so that SOAH could make findings of fact and conclusions of law

concerning Weitz’s April 30th Letter and its effect on the issue of compliance with

Tex. Occ. Code § 2301.359(c)(3). (Id.)

At the Board’s hearing, the Board’s general counsel, David Duncan,

explained to the Board that, after it had dismissed the Protest, "the staff…received

a copy of a document, [the April 30th Letter], that may satisfy the statutory

requirement that was discussed in the September board meeting. Because that item

is clearly missing from the SOAH record, it’s the staff’s position that the most

appropriate outcome is to remand the matter to SOAH so that the document can be

considered by the SOAH judges." (CR 914.) 6

After Mr. Duncan finished speaking, the following exchange occurred:

Mr. Slovacek: What is the staff’s recommendation?

Mr. Duncan: To remand to SOAH to consider the document that we

received in the period between the board’s last action and today.

5

Laura Ryan, the Board member contacted by Mr. Robertson, abstained from voting on

the Motion for Rehearing.

6

The Board acknowledged at the February 13th meeting that the Board has "always had

jurisdiction over this matter." (RR at Pl.’s Ex. 18, p. 12; CR 913.)

7

Mr. Slovacek: Mr. Chairman, I make a motion that we remand to

SOAH, for the reasons outlined by Mr. Duncan, this entire case, for

all the reasons set forth, to determine whether the intervenors have, in

fact, satisfied the conditions of the proposal for decision.

Mr. Palacios: I second the motion.

(CR 915.)

Before the Board voted on the motion, the Board allowed counsel for the

parties to the Protest to speak on the subject. (CR 915-923.) Audi’s counsel argued,

inter alia, that it would be improper to remand the case to SOAH because SOAH

could not reopen the record to consider the April 30th Letter and that the Board

lacked the authority to consider the April 30th Letter because it was not "timely"

submitted. (Id.) Audi’s counsel did not argue that the alleged ex parte

communication had affected the vote on the Motion for Rehearing or was a reason

not to remand the matter to SOAH. (Id.)

The seven Board members present then voted,7 unanimously, to remand the

Protest to SOAH. (RR at Pl.’s Ex. 16; CR 7-38.) The Board's "Interim Remand

Order" stated:

The Board remands this matter to [SOAH] for supplemental

proceedings, limited to the following:

Did Audi receive the letter dated April 30, 2013, from Ricardo M.

Weitz to Sally Grimes, and should this letter be added to the record? If

so, what effect, if any, does the letter have on the issue of compliance

7

Laura Ryan was not present at the February 13th meeting and did not participate in the

vote recommending the Remand.

8

with Texas Occupations Code § 2301.359 in light of the prior decision

in Gordon Rountree Motors, Ltd. v. Mazda Motors of America, MVD

Docket No. 07-0038 (May 4, 2010)?

While adjudicating this case on remand, SOAH is also directed to

review the qualifying conditions set forth in Findings of Fact Nos.

154-158, Intervenors' Motion to Find the Prospective Transferees

Qualified, and Volkswagen Group of America, Inc. & Audi of

America, Inc.'s Response to Intervenors' Motion to Find the

Prospective Transferees Qualified. At the conclusion of this review,

SOAH is directed to provide a specific finding that the prospective

transferees either are qualified or are not qualified.

(RR at Pl.’s Ex. 16.)

On February 20, 2015, Audi filed a motion with the ALJs asking them to

send the Protest back to the Board. (CR 172-182.) Audi challenged the Board's

authority to remand the Protest to SOAH, the ALJs' authority to reopen the record,

and the ALJs' authority to issue a proposal for decision on remand. (Id. See also

RR at Pl.'s Ex. 19.) The ALJs denied that motion on March 4, 2015. (RR at Pl.'s

Ex. 29.)

On March 16, 2015, Audi filed an Emergency Motion to Vacate or Modify

Statutory Stay and to Stay Further Proceedings (the "Emergency Motion to Stay")

with the ALJs. (RR at Pl.'s Ex. 2; CR 1868-1878.) Audi reasserted its belief that

the Board's remand and the reopening of the record were acts outside the Board's

and the ALJs' statutory authority. (Id.) Audi sought a stay of the remand

proceedings so that it could "expeditiously file a petition in the Travis County

district court" to address the purported ultra vires acts of the Board and SOAH.

9

(Id.) Audi attached a draft of its district court petition as an exhibit to its

Emergency Motion to Stay. (CR 1909-1939.) On March 19, 2015, the ALJs

denied the Emergency Motion to Stay. (RR at Pl.'s Ex. 25; CR 1943-1945.)

On March 25, 2015, Audi filed the lawsuit underlying this appeal. (CR 117-

151.) Chairman Walker, the ALJs, and Budget and the Weitz Group filed pleas to

the jurisdiction, seeking dismissal of Audi’s claims for lack of subject matter

jurisdiction. (CR 731-774.) On April 30, 2013, District Judge Meachum sustained

Chairman Walker and the ALJs’ pleas to the jurisdiction and dismissed Audi’s

case. (CR 2030-2031.) This appeal arises from that dismissal. (CR 2030.)

In the meantime, beginning April 16, 2015, the ALJs held a two-day hearing

on the remanded issues. (CR 1980.) Audi participated in the hearing, cross-

examining the witnesses called by Budget and the Weitz Group, calling three

witnesses of its own, introducing exhibits into evidence, and presenting argument

on evidentiary and other legal issues. Audi subsequently filed both a post-hearing

brief and a reply to the Weitz Group’s post-hearing brief. The ALJs closed the

record on Remand on June 16, 2015 and, on August 13, 2015, issued their second

proposal for decision.8

8

Pursuant to Tex. R. Evid. 201(b)(2), Intervenors request the Court to take

judicial notice of the ALJs’ second proposal for decision, which is attached to

Intervenors’ Appendix at Tab 1 and can be found on SOAH’s public website:

https://cis.soah.state.tx.us/dmwebbasic?WCI=API&J3G0nF1LfcOS0QXdMTy6vhVx1B8nLm2+

FlDSScMeKoN0rZ3HrCVdArVTCR2G/AN8lX8Dn0GqhYoInSRd1k32Kg== (last accessed

10

SUMMARY OF THE ARGUMENT

The essence of Audi’s lawsuit is that the Board did not have the authority to

order a limited purpose remand of a contested case proceeding to SOAH and that

the ALJs do not have the authority to conduct a limited purpose remand ordered by

the Board. The Travis County District Court properly dismissed Audi’s lawsuit and

its judgment is due to be affirmed for at least four reasons.

First, the district court’s dismissal should be affirmed because Audi failed to

exhaust its administrative remedies before the Board and, therefore, the district

court lacked subject matter jurisdiction. The Board has exclusive original

jurisdiction over protests filed pursuant to Tex. Occ. Code § 2301.360, which

means that Audi was required to exhaust its administrative remedies before the

Board prior to seeking relief from the state court. Because of the Board’s

undisputed exclusive original jurisdiction over the underlying contested case

proceeding and the undisputed fact that Audi has not exhausted its remedies before

the Board, this case falls squarely within those cases that are dismissed due to lack

of subject matter jurisdiction.

Aug. 13, 2015). Judicial notice of another court’s records may properly be taken for the first time

on appeal as long as the appellate court is provided with proof of the record. Office of Pub. Util.

Counsel v. Pub. Util. Comm’n of Tex., 878 S.W.2d 598 (Tex. 1994) (holding appellate court

erred in failing to take judicial notice of agency order relevant to appeal); Healthtronics, Inc. v.

Lisa Laser USA, Inc., 382 S.W.3d 567, 576 n.2 (Tex. App. Austin 2012) (taking judicial notice

of verdict form, final judgment, and post-trial order in related California case); In re Anthony

Sheridan, 2014 WL 6140078, at *2 n.2 (Tex. App. – Austin Nov. 14, 2014) (taking judicial

notice of record in prior, related appeal and drawing facts from that record where record in

current proceeding “provide[d] a less-than-complete procedural background”).

11

Relying on a fundamental misconception of one of the exceptions to the

exhaustion requirement, Audi tries to salvage its lawsuit by arguing that Chairman

Walker and the ALJs are acting ultra vires and, therefore, Audi is excused from

exhausting its administrative remedies before the Board. The exception that Audi

seeks to take advantage of applies when an administrative agency acts “without

jurisdiction,” not when a party to an administrative proceeding contends that the

agency made a wrong decision about the law or failed to comply with the

administrative process. If Audi’s interpretation of the narrow exception were

correct, then every frustrated party to an administrative proceeding would be

excused from exhausting its administrative remedies and the exception would

swallow the rule.

Because Audi has never disputed (and cannot dispute) that the Board has

exclusive original jurisdiction over the underlying protest and the “without

jurisdiction” exception is inapplicable, Audi is required to exhaust its

administrative remedies before seeking judicial review and relief from the state

courts. Audi’s lawsuit was properly dismissed.

Second, although the first argument is dispositive of this appeal and the

Court need go no further in analyzing the issues on appeal, the dismissal is also

due to be affirmed because neither Chairman Walker nor either of the ALJs has

exceeded his or her powers or authority. There are few, if any, administrative

12

agencies within the State of Texas that are given the broad powers, authority, and

jurisdiction given to the Board. “Notwithstanding any other provision of the law,”

the Board has “all powers necessary, incidental, or convenient to” the discharge of

the duties given to it in Chapter 2301 of the Texas Occupations Code, including its

duty to decide disputes between franchised dealers and manufacturers. Further,

when reviewing cases arising under Chapter 2301, the Board is authorized to take

“any further action” conducive to the issuance of a final order. Chapter 2301

bestows upon the ALJs all of the Board’s powers with the exception of the

authority to issue a final order.

Despite the Board’s extensive powers, Audi contends that the Board does

not have authority to remand a case to SOAH for further fact finding and that the

ALJs do not have the authority to issue an amended proposal for decision (even if

ordered to do so by the referring agency). Significantly, Audi cites no case, statute

or authoritative source for the general proposition that a remand is unauthorized in

the absence of express “remand” language in an agency’s enabling statute or for

the specific proposition that the Board cannot remand a case to SOAH for further

fact finding. Audi also does not cite any cases, statutes, or authoritative sources for

the contention that an ALJ cannot reopen evidence and issue a new proposal for

decision if ordered to do so by a referring agency. In fact, ALJs frequently

entertain remands from referring agencies.

13

Audi is incorrect that the Administrative Procedure Act is the “sole source”

of the Board’s authority when reviewing a proposal for decision. The Texas

Occupations Code plainly grants the Board the power to take “any further action”

conducive to the issuance of a final order; that power, which does not appear in

any other agency’s enabling statute, allows the Board to remand a contested case

proceeding to SOAH for the consideration of new evidence and additional fact

finding. The Texas Occupations Code also states that, in the event of a conflict

between the APA and Chapter 2301 of the Code, Chapter 2301 controls.

Audi’s “hail Mary” argument that Chairman Walker interfered with the

neutral decision-making process in authorizing a limited remand is a scurrilous

argument unsupported by any evidence. The argument is premised on an alleged ex

parte communication (not made to Chairman Walker) that occurred four months

before the Board voted on the rehearing. That communication was fully disclosed

to all counsel of record which, under the applicable Board rule, cured any

purported effect of the communication, and the Board member who received the

communication was not even at the meeting where the Board authorized the

remand. More importantly, there is no evidence that any Board member was

influenced by the communication in any way.

The argument is also based on the insupportable contention that the Board

has tried to influence the ALJs. That contention is completely unsupported by the

14

record. There is no evidence that any of the Board members, including Chairman

Walker, has communicated with either of the ALJs and the Board’s remand order

contains no suggestive language or recommendations for how the Board thinks the

ALJs should find. It merely asks the ALJs to consider and decide certain issues.

Audi perceives the Board’s authorization of a remand to be unfavorable and,

in an effort to halt it, Audi has concocted any argument it can conceive of to defeat

actions taken in the proper exercise of the Board’s discretion. None of those

arguments is persuasive or factually supported and this Court should affirm the

district court’s dismissal.

Third, the district court properly dismissed Audi’s lawsuit because

Chairman Walker and the ALJs are protected by the doctrine of governmental

immunity. Agency officials performing discretionary acts within the scope of their

statutory or constitutional authority are immune from suit for those actions. Audi’s

argument that Chairman Walker and the ALJs are acting ultra vires and are not

immune from suit is unavailing. The Board has broad and extensive powers and

the ALJs have all of the Board’s powers except the power to issue a final order.

Nothing that the Board has done or is doing was ultra vires and, therefore, nothing

that the ALJs have done or are doing is ultra vires.

Fourth, the district court’s dismissal should be affirmed because of Audi’s

failure to join the Board and/or the seven other Board members who voted in favor

15

of the remand. Chairman Walker is not the Board; he is one of nine members of the

Board. Audi is seeking premature judicial review of an action of the Board and,

therefore, the Board is a necessary and indispensable party to Audi’s lawsuit.

Assuming, arguendo, that the Board is not an indispensable party because Audi

has alleged that certain actions were taken ultra vires, then the other Board

members who voted for the remand are indispensable parties. Either way, Audi’s

lawsuit properly was dismissed.

ARGUMENT

I. THIS COURT SHOULD AFFIRM THE DISTRICT COURT'S

DISMISSAL BECAUSE OF AUDI’S FAILURE TO EXHAUST

ADMINISTRATIVE REMEDIES.

"When the Legislature grants an administrative agency sole authority to

make an initial determination in a dispute, agency jurisdiction is exclusive. A party

then must exhaust its administrative remedies before seeking recourse through

judicial review." City of Houston v. Rhule, 417 S.W.3d 440, 442 (Tex. 2014).

"[T]h[e exhaustion] doctrine prevents parties from seeking redress from courts

before an administrative process runs its statutorily-created course." Park v. Tex.

Dept. of Health, 1998 WL 412436, at *1 (Tex. App. – San Antonio 1998, no pet.).

"Absent exhaustion of administrative remedies, a trial court must dismiss the

case." Rhule, 417 S.W.3d at 443 (emphasis added) (dismissing case due to

plaintiff’s failure to first exhaust administrative remedies).

16

This Court routinely affirms or orders the dismissal of cases in which it is

apparent from the face of the pleadings that a plaintiff has not exhausted his or her

administrative remedies. See, e.g., Mag-T, L.P. v. Travis Cent. Appraisal Dist., 161

S.W.3d 617 (Tex. App. – Austin 2005, pet. denied) (affirming dismissal for lack of

jurisdiction). See also Rhule, 417 S.W.3d 440 (reversing judgment for claimant

and rendering dismissal for city where claimant failed to exhaust administrative

remedies); Appraisal Review Bd. of Harris Cty. Appraisal Dist. v. O'Connor &

Assocs., 267 S.W.3d 413 (Tex. App. – Houston [14th Dist.] 2008, no pet.)

(reversing denial of plea to the jurisdiction where taxpayers failed to exhaust

administrative remedies); City of Houston v. Williams, 99 S.W.3d 709 (Tex. App. –

Houston [14th Dist.] 2003, no pet.) (reversing denial of City of Houston’s plea to

the jurisdiction and holding that firefighter was required to exhaust administrative

remedies prior to judicial review); Park, 1998 WL 412436, at *1 (affirming trial

court’s dismissal).

The Board’s jurisdiction over the underlying Protest is "exclusive." None of

the narrow exceptions to the exhaustion requirement applies in this case. Audi’s

failure to exhaust its administrative remedies before seeking judicial review of an

interlocutory order with the district court required the district court to dismiss

Audi’s case.

17

A. The Board Has Exclusive Jurisdiction Over The Protest.

Tex. Occ. Code § 2301.151 sets forth the jurisdiction and the authority of the

Board:

(a) The board has the exclusive original jurisdiction to regulate those

aspects of the distribution, sale, or lease of motor vehicles that are

governed by this chapter, including the original jurisdiction to

determine its own jurisdiction.

(b) The board may take any action that is specifically designated or

implied under this chapter or that is necessary or convenient to the

exercise of the power and jurisdiction granted under Subsection (a).

(emphasis added).

One matter falling squarely within that grant of exclusive original

jurisdiction is the regulation of a franchised dealer’s right and ability to sell its

dealerships to a person or persons of its own choosing. See Tex. Occ. Code §§

2301.004, 2301.359, 2301.360, 2301.458. If a manufacturer or distributor rejects a

selling dealer’s proposed buyer, the dealer may "protest" the rejection with the

Board. Id. at § 2301.360. In the event of a protest, Tex. Occ. Code § 2301.360(b)

charges the Board with determining “whether the rejection was reasonable” under

criteria described in Tex. Occ. Code § 2301.359.

Not only does the Board have "exclusive original jurisdiction" over such

matters, but the legislature also provided the Board with the power to determine its

own jurisdiction in the first instance and the power to take any action –

specifically designated, implied, necessary, or convenient – to the Board’s exercise

18

of its jurisdiction. Tex. Occ. Code § 2301.151(b). Where, as here, the Board is

discharging a duty expressly set forth in Chapter 2301, the legislature went further,

giving the Board “all powers necessary, incidental, or convenient to” the discharge

of that duty, “[n]otwithstanding any other provision of law.” Id. at §

2301.153(a). The clear language of Chapter 2301, especially when coupled with

the legislative mandate that the Chapter "shall be liberally construed," id. at §

2301.001, shows the legislature’s intent for the Board’s jurisdiction over motor

vehicle issues to be plenary and broad.

This Court has so held, stating that "the Board has broad and exclusive

jurisdiction to regulate the distribution, sale, or lease of motor vehicles." Buddy

Gregg Motor Homes, Inc. v. Motor Vehicle Bd. of the Tex. Dept. of Transp., 179

S.W.3d 589 (Tex. App. – Austin 2005, pet. denied). The Supreme Court agrees.

See Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 223 (Tex.

2002) (holding that the Board has "exclusive jurisdiction over claims and issues the

[Texas Occupations] Code governs.").

Audi does not (and cannot) contend that the Board lacks exclusive original

jurisdiction over the Protest. Nor does Audi argue it has exhausted its

administrative remedies with the Board. Instead, Audi argues, incorrectly, that it

should be exempted from exhausting its remedies because of the "without

jurisdiction" or ultra vires exception to the exhaustion doctrine.

19

B. The "Without Jurisdiction" Exception To The Exhaustion

Requirement Is Inapplicable.

One recognized exception to the exhaustion requirement is when an

administrative agency acts "without jurisdiction." Park, 1998 WL 412436, at *2.

However, "the mere claim that an administrative agency acted ‘ultra vires’ does not

authorize litigation before administrative remedies are exhausted…." Park at *2.

See also Williams, 99 S.W.3d at 717. Instead, a litigant seeking to avoid the

exhaustion requirement must allege that the administrative agency "acted wholly

outside its jurisdiction." Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River

Auth., 96 S.W.3d 519, 528 (Tex. App. – Austin 2002, pet. denied) (emphasis

added) (litigant’s contention that the administrative agency "exercised authority

beyond that conferred by the legislature" was insufficient to avoid exhaustion

doctrine).

A litigant is not excused from exhausting administrative remedies merely

because an agency "may have made an incorrect decision about the law" or

"exceeded its statutory authority by acting wrongfully in some fashion." Gonzalez

v. Tex. Educ. Ag., 882 S.W.2d 526 (Tex. App. – Austin 1994, no pet.). See N.

Alamo Water Supply Corp. v. Tex. Dept. of Health, 839 S.W.2d 455, 459 (Tex.

App. – Austin 1992, writ denied) ("The fact that the [agency] may decide

‘wrongly’ in the eyes of an opposing party does not vitiate the agency’s decision to

make an initial decision."). Further, a claim that an administrative agency or actor

20

"fail[ed] to perfectly comply with all of the intricacies of the administrative process

[does not] necessarily constitute extra-judicial action by an agency." O’Connor &

Assocs., 267 S.W.3d at 419.

The Administrative Procedure Act ("APA") specifically provides that, on

judicial review, a court "shall reverse or remand a case" if the appellant’s rights are

prejudiced by "findings, inferences, conclusions, or decisions" of an administrative

agency that are "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;…or (F) arbitrary or capricious or characterized by

abuse of discretion or clearly unwarranted exercise of discretion." Tex. Gov’t Code

§ 2001.174. That language demonstrates that claims that an agency exceeded its

authority or discretion or did not follow proper procedures are to be heard during

the statutorily authorized judicial review process - not during the pendency of an

ongoing contested case proceeding.

Here, Audi is not complaining that Chairman Walker and the ALJs acted

"without" or "wholly outside" their jurisdiction. Audi never has disputed the

Board’s subject matter jurisdiction over the Protest. Instead, Audi contends only

that Chairman Walker and the ALJs "exceeded their authority," (Audi’s Br. at p.

15), and acted "beyond [their] statutorily conferred powers." (Id. at p. 16.) Those

allegations are insufficient, as a matter of law, to permit Audi to avoid exhausting

21

its administrative remedies with the Board before seeking judicial review.

Compare City of Sherman v. Pub. Util. Comm’n of Tex., 643 S.W.2d 681, 685

(Tex. 1983) (municipally-owned utility not required to exhaust remedies before the

Public Utilities Commission because agency "ha[d] no statutory authority to

regulate the operations or services of ‘municipally-owned utilities’") with Friends

of Canyon Lake, Inc., 96 S.W.3d at 528 (contention that the administrative agency

"exercised authority beyond that conferred by the legislature" was insufficient to

avoid exhaustion doctrine). See also Edwards v. City of Tomball, 343 S.W.3d 213

(Tex. App. – Houston [14th Dist.] 2011, no pet.) (agency’s actions allegedly taken

in violation of statute did not excuse plaintiff from exhausting administrative

remedies).

If a litigant could avoid the exhaustion doctrine to seek immediate judicial

review of an interlocutory agency ruling, order, or decision every time the litigant

contended that the agency exceeded its authority, acted wrongfully, or violated a

statutory provision, "the exception would swallow the rule because the legislature

has never statutorily authorized state agencies to act inconsistent[ly] with the law."

Gonzalez, 882 S.W.2d at 528. Every error (or alleged error) committed by an

agency in interpreting the scope of its statutory authority – even those errors

committed in dealing with a matter clearly within its jurisdiction – would result in

a void act. Agency members and administrative law judges would be exposed to

22

individual and official liability and agency orders would be subject to immediate

judicial review without awaiting the issuance of a final order and exhaustion of

administrative remedies. Texas courts and Travis County district courts would be

swamped with declaratory judgment and injunction actions against state agency

officials and SOAH judges.

Audi relies upon City of El Paso v. Heinrich, 284 S.W.3d 366 (Tex. 2009).

Audi cites Heinrich for the proposition that the exhaustion of remedies doctrine

does not apply when government officials’ actions are "ultra vires," (Audi’s Br. at

p. 9), and for the proposition that, in Heinrich, the Texas Supreme Court

authorized the use of lawsuits such as this one "to prevent harm when individual

actors exceed their statutorily authorized powers in an underlying administrative

proceeding." (Id. at p. 15.)9 Heinrich does not support either of those propositions.

In Heinrich, a policeman’s widow filed a state court lawsuit against the City

of El Paso and other state agencies and officials. The case did not involve an

underlying administrative proceeding, the doctrine of exhaustion of remedies, or

9

Audi also cites Heinrich for the principle that, “[w]here the evidence raises a fact issue,

the court must send the dispute to the fact finder.” (Audi’s Br. at p. 9.) In Heinrich, however,

there was a factual dispute – created by affidavits and documentary evidence – regarding

whether or not the plaintiff was entitled to 100% of her husband’s pension or a lesser amount.

284 S.W.3d at 379-380. The plaintiff contended that the pension board had voted to award her

100% of the pension notwithstanding the board’s bylaws (as the board was allowed to do in

certain circumstances). In support of that contention, the plaintiff submitted affidavit and

documentary evidence. The court could not resolve the plaintiff’s ultra vires claims as a matter

of law because the resolution of those claims depended on which version of the facts was true. In

this case, there are no disputed factual issues (and Audi has not pointed the Court to any).

23

any exceptions to the exhaustion doctrine. The entire case centered on sovereign

immunity and the "ultra vires" exception to the immunity doctrine. Case law

regarding the "ultra vires" exception to the doctrine of sovereign immunity does

not support Audi’s plea to be excused from exhausting its administrative remedies

in this case.

None of the courts in the myriad of cases Audi cites held that a litigant was

excused from exhausting its administrative remedies because an agency or agency

official "exceeded its authority" or "acted beyond its statutory powers."10 The

undersigned has not found a single Texas case so holding.

Audi’s lawsuit properly was dismissed because, as in Gonzalez, "[t]his . . . is

not a case in which the agency is acting wholly outside its jurisdiction, but rather a

case in which [Audi] seeks to prove the [agency] may have made an incorrect

decision about the law." 882 S.W.2d 526. Audi’s only recourse is judicial review

10

Audi cites only two cases in which the plaintiff was not required to exhaust its

administrative remedies before filing a state court lawsuit; both cases turned on the fact that the

administrative agency at issue was “without jurisdiction” to preside over the dispute in question.

In City of Sherman, 643 S.W.2d at 685, the Texas Supreme Court held that the Public Utilities

Commission had “no statutory authority” over a municipally-owned public utility and, as such,

the utility was not required to exhaust its remedies before the PUC. In Westheimer Independent

School District v. Brockette, 567 S.W.2d 780, 786-787 (Tex. 1978), the Supreme Court held that

the Commissioner of Education had “no jurisdiction to review a valid and final order” of the

State Board of Education and “no jurisdiction to rescind, countermand or change” a final order of

the Board of Education even if the order was void ab initio. Accordingly, the independent school

district was not required to await the Commissioner’s review of the order before seeking judicial

relief. Obviously, those cases are distinguishable from this case because the Protest is

indisputably within the Board’s exclusive original jurisdiction.

24

following completion of the administrative process, and the district court properly

dismissed Audi’s premature lawsuit seeking to interrupt that process.

II. THIS COURT SHOULD AFFIRM THE DISTRICT COURT'S

DISMISSAL BECAUSE DEFENDANTS DID NOT "EXCEED THEIR

POWERS."

Because the Board and the ALJs acted (and are acting) within their

"jurisdiction," the inquiry into the propriety of this appeal should end, and the

district court’s dismissal should be affirmed.

Nonetheless, Intervenors respond to the various ways in which Audi

contends that Chairman Walker and the ALJs allegedly "exceeded their powers."

First, however, the challenged actions must be considered in light of the law

applicable to the Protest.

A. The Legal Framework Applicable To The Protest.

Chapter 2301 of the Texas Occupations Code concerns the distribution, sale,

and lease of motor vehicles. See generally Tex. Occ. Code §§ 2301.001-2301.853.

The provisions of Chapter 2301 are "liberally construed" and they exclusively

govern "all aspects of the distribution and sale of motor vehicles" (unless otherwise

specifically provided by law not in conflict with Chapter 2301). Id. at § 2301.004.

As discussed above, (see supra § I.A.), the Board’s powers to regulate the

distribution, sale, and lease of motor vehicles are extensive. "Notwithstanding

any other provision of law, the board has all powers necessary, incidental, or

25

convenient to perform a power or duty expressly granted under [Chapter 2301]."

Id. at § 2301.153(a) (emphasis added). Those powers include, but are by no means

limited to, the power to "initiate and conduct proceedings, investigations, or

hearings; . . . (3) receive evidence and pleadings; . . . (6) make findings of fact on

all factual issues arising out of a proceeding initiated under [Chapter 2301]; [and]

(7) specify and govern appearance, practice, and procedures before the board . . . "

Id.

A franchised dealer whose sale to a proposed transferee is rejected by the

manufacturer may file a protest with the board. Tex. Occ. Code § 2301.360(a). "A

protest filed under [Section 2301.360] is a contested case." Id.

Subchapter O of Chapter 2301 governs "HEARING PROCEDURES."

Hearings arising under Chapter 2301 "must be conducted in accordance with

[Chapter 2301], any order, decision, or rule of the board, and Chapter 2001,

Government Code." Tex. Occ. Code § 2301.703. However, "[t]o the extent of a

conflict between [Chapter 2301] and Chapter 2001, Government Code, [Chapter

2301] controls." Id. at § 2301.702 (emphasis added).

Chapter 2301 provides that an administrative law judge of SOAH must hold

contested case hearings. Id. at § 2301.704(a). SOAH’s administrative law judges

have "all" of the Board’s power and authority provided under Chapter 2301, id. at

(b) (emphasis added), except the power to issue a final order.

26

Review of a proposal for decision by the Board is governed by Section

2301.709. In reviewing a contested case, "the board…shall take any further

action conducive to the issuance of a final order and shall issue a written final

decision or order." Id. at (c) (emphasis added). A party to a contested case

proceeding affected by a Board’s final order may seek judicial review in the

district court of Travis County or this Court. Id. at § 2301.571(a). Judicial review is

governed by Chapter 2001 of the APA.

Chapter 2301’s plain language makes it clear that the legislature intends for

the Board to have extensive power and jurisdiction over contested cases arising

under Chapter 2301. Those powers are applicable to the Protest currently pending

before SOAH on remand from the Board. Furthermore, the Board’s construction of

its powers under Chapter 2301 "is entitled to serious consideration, as long as the

construction is reasonable and does not contradict the plain language of the statute

itself." Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993). Any

doubts concerning the extent of the Board’s power are to be resolved in the

Board’s favor if its construction is reasonable and consistent with the language of

Chapter 2301.

B. Chairman Walker.

Audi contends that Chairman Walker exceeded his powers or authority in

the following ways: 1) signing the Remand Order which remanded the case back to

27

SOAH after the ALJs issued the first proposal for decision (Audi’s Br. at pp. 20-

24); 2) "commanding" the ALJs to commit an act that exceeded their statutory

power by ordering them to reopen the record after issuance of a proposal for

decision (id. at p. 24-25); 3) ordering the ALJs to consider alleged "untimely"

evidence (id. at pp. 25-28); and 4) "attempting to influence the neutral ALJs

through the use of improper evidence." (Id. at pp. 28-39.)

i. The Board had authority to remand the Protest to SOAH.

Section 2301.709 of Subchapter O of Chapter 2301 gives the Board the

power to take "any further action conducive to the issuance of a final order." Id. at

(c) (emphasis added). Nothing in Chapter 2301 or Subchapter O limits what the

Board may or may not do when reviewing a proposal for decision and "any further

action" certainly includes the authority to enter an interim order remanding a case

to SOAH to consider matters that the Board believes will assist it in rendering a

final decision. That is especially true in light of the enormously broad powers

granted the Board in Tex. Occ. Code §§ 2301.151 & 2301.153.

Audi argues that Section 2001.058 of the APA is "the sole source of the

Board’s power when considering a PFD.” (Audi’s Br. at p. 20-21 (emphasis

added).)11 Audi is wrong. The legislature has the power to modify the applicability

of the APA to certain agency cases (or to exempt contested cases from the

11

Audi cites no law in support of that statement other than Tex. Gov’t Code § 2001.058.

Nothing about that Code section supports Audi’s broad statement.

28

provisions of the APA altogether). See, e.g., Montgomery Indep. Sch. Dist. v.

Davis, 34 S.W.3d 559, 565 (Tex. 2000) (noting that the administrative scheme in

the Tex. Educ. Code is "different from" and "not subject" to the APA).

Here, the Legislature has specifically supplemented the Board’s power to

consider a proposal for decision under § 2001.058 of the APA with § 2301.709(c)

of the Code.12 Moreover, in remanding the Protest to SOAH, the Board exercised

its power under Section 2301.709(c) of the Code without violating Section

2001.058 of the APA. The Board did not reject any of the ALJs’ proposed

findings of fact or conclusions of law, but remanded for further analysis and

findings. Finally, if one assumes for purposes of argument that a conflict exists

between Section 2301.709(c) of the Code and Section 2001.058 of the APA,

Section 2301.709(c) controls. Tex. Occ. Code § 2301.702.

Audi then argues that an agency can remand a contested case to an

administrative law judge only if the agency has been given "statutory authority" to

do so and, Audi contends, the Board has not been given such authority. (Audi’s Br.

at p. 22.) That argument is incorrect and ignores Tex. Occ. Code § 2301.709(c),

which authorizes the Board, in reviewing a contested case, to take "any further

action conducive to the issuance of a final order," and Tex. Occ. Code § 2301.153,

12

That is in addition to the powers the legislature granted to the Board under Tex. Occ.

Code § 2301.153(a), which apply “[n]otwithstanding any other provision of law.”

29

which grants the Board “all powers necessary, incidental, or convenient to”

performing its duty to decide protests, “[n]otwithstanding any other provision of

law….” Those sections plainly provide the Board with the power and ability to

remand a contested case to SOAH for clarification or further findings before taking

final action on a proposal for decision.

Audi cites no case, statute, or other authoritative source in support of its

argument.13 In fact, state agencies – including the Texas Department of Motor

Vehicles, the Employees Retirement System of Texas, and the Texas State Board

of Public Accountancy – all have remanded contested cases to SOAH despite the

word "remand" not appearing in their enabling statutes. See Tex. State Bd. of Pub.

Accountancy v. Bass, 366 S.W.3d 751, 763 n.11 (Tex. App. – Austin 2012, no pet.)

(referencing that the agency remanded the case to SOAH for consideration of new

evidence after issuance of the PFD); All Points Inspection Servs., Inc. v. Navistar,

Inc., 2011 WL 1341523, at *1 (Tex. St. Off. Admin. Hgs. Mar. 28, 2011) ("On

February 8, 2011, the Texas Department of Motor Vehicles (TxDMV) issued an

order rejecting the PFD [issued by the ALJ the prior year] and remanding the case

back to the ALJ for further consideration."); Appeal of Paris A. Mims, Jr., 2004

13

Audi cites as authority eight pages of a Texas Tech Administrative Law Journal article

entitled “From Proposal For Decision To Final Decision: What Happens In Between?” (Id.) The

word “remand” does not appear in those eight pages and they offer no support for the proposition

that a remand can “only” occur if an agency has been given specific statutory authority to do so.

30

WL 4172108, at *1 (Tex. St. Off. Admin. Hgs. Sept. 2004) (noting that ERS Board

"remanded the matter back [to] SOAH" for consideration of additional records).

Audi’s citations to specific rules governing the Texas Commission on

Environmental Quality and the Texas Public Utility Commission’s ability to

remand cases to SOAH are inapposite. The Board’s review power – to take "any

further action conducive to issuance of a final order" (derived from a statute and

not an administrative rule) – is broader than those entities' review power and

certainly broad enough to encompass the remand such as the one ordered here.14

Audi’s effort to "explain away" § 2301.709 by arguing that it is a "general

provision" that must give way to the more "specific provisions" contained in the

APA, (Audi’s Br. at pp. 33-36), fails.15

First, Section 2301.709’s title – "Review by Board" – and its placement in

Subchapter O, "HEARING PROCEDURES" – after "Conduct of Hearing" and

before "Rehearing" – belies any contention that this section was not meant to

specifically apply to the Board’s review of proposals for decision issued by SOAH

14

A Westlaw search of the Texas statutes shows that the Legislature has not given any

other administrative agency the power to take “any further action” conducive to issuance of a

final order.

15

Audi suggests that SOAH’s procedural rules trump Section 2301.709. (Audi’s Br. at p.

36.) That suggestion is frivolous, since it is well-settled that rules of administrative agencies are

void if they conflict with statutes. Liberty Mut. Ins. Co. v. Griesing, 150 S.W.3d 640, 648 (Tex.

App. – Austin 2004, pet. dism’d w.o.j.) (citing Employees Ret. Sys. of Tex. v. Jones, 58 S.W.3d

148, 154 (Tex. App. – Austin 2001, no pet.)).

31

judges. Further, Chapter 2301 specifically provides that, if there is a conflict with

the APA, Chapter 2301 controls. The legislature has crafted for the Board a

specific provision applicable to the review of contested cases that supplements the

Board’s powers under Section 2001.058 of the APA. Here, without acting on the

PFD or on any proposed findings of fact and conclusions of law, the Board

properly used its power under Tex. Occ. Code § 2301.709(c) to seek further

findings from the SOAH ALJs.

ii. The Board had the power and authority to order the ALJs

to reopen the record.

Audi argues that SOAH Rule 155.153(a)(4) prohibits an ALJ from

reopening a record after issuance of a proposal for decision, even if ordered to do

so by the referring agency. (Audi’s Br. at pp. 24-25.) Audi cites no cases for that

proposition (and the undersigned has found none).

However, numerous decisions exist in which ALJs expressly recognize that

they can reopen the record in a contested case if directed to do so in a remand order

from the agency in question. For example, in Texas Commission on Law

Enforcement v. Bush, SOAH Dkt. No. XXX-XX-XXXX (Feb. 27, 2013),16 Appellee

Judge Wilkov, presented with the Respondent's attempt to submit additional

evidence after she had issued a PFD and submitted it to the Commission, stated

16

For the Court’s convenience, the SOAH decisions cited by Intervenors are attached to

Intervenors’ Appendix at Tab 2.

32

that "[t]he Commission may remand the case for consideration of new

evidence, but without such order, the record established at the hearing is the sole

basis for the recommendations found in the PFD." (emphasis added). See also Tex.

Dept. of Licensing and Regulation v. Drobot, SOAH Dkt. No. XXX-XX-XXXX (April

11, 2014) (emphasis added) ("SOAH’s rules do not contemplate that a judge re-

open the evidentiary record of a case after the PFD has issued, in the absence of

an order by the governing body of the referring agency remanding the case to

SOAH for further fact finding."). The ALJ in Petitioner v. Tax Division, Texas

Comptroller of Public Accounts, SOAH Dkt. XXX-XX-XXXX.26 (June 16, 2014),

recognized that "[i]f Petitioner has additional evidence that can fill in the

evidentiary gaps, then it can consider including the additional evidence with a

Motion for Remand or a Motion for Rehearing filed with the Comptroller’s

office.").17

Read properly and in context, the rule is intended to clarify that, in the

absence of further orders from the referring agency, an ALJ’s authority over a

contested case ends with the ALJ’s issuance of a dismissal, a proposal for decision,

or a final decision. Its purpose is obvious: to avoid having an agency working

17

ALJs sometimes urge referring agencies to remand cases for further proceedings when

a perceived need to reopen the record exists. See, e.g., Texas Dept. of Licensing and Regulation

v. Guerra, SOAH Dkt. No. XXX-XX-XXXX.ACR (June 5, 2013), (“[T]he Department has the

discretion to remand this case for additional evidence consistent with Respondent’s exceptions . .

. I urge the Department to adopt this course.”).

33

with one version of a proposal for decision while, unbeknownst to the agency, the

ALJ is generating another proposal for decision. That purpose is not served by

preventing the agency from remanding the case for further proceedings, and

nothing in the rule prevents an agency from doing so. Neither SOAH nor any court

has ever given the rule a contrary interpretation.

iii. The Board did not authorize the consideration of

"untimely" evidence.

Audi argues that Chairman Walker lacked the authority to order the ALJs to

consider the April 30th Letter because it was not submitted in a timely manner,

citing § 2301.709(a) of Chapter 2301. (Audi’s Br. at pp. 25-27.) That statute states

that the Board "may consider only materials that are submitted timely." Without

citing to any legislative history, case law, canon of statutory construction, or other

authority concerning the meaning of the word "timely," Audi summarily concludes

that the April 30th Letter was not "timely."

Audi’s argues that the April 30th Letter was untimely because it was

submitted with an "improperly filed" response brief. Nothing in Chapter 2301, the

APA, SOAH’s rules, or the Board’s rules makes the filing of a response to a reply

to a motion for rehearing improper. See, e.g., Lim v. Hall, D.C., 1997 WL 366803,

at *1 (Tex. App. – Austin 1997, writ denied) (ruling on motion for rehearing,

noting the filing of the motion, a reply, and a response to the reply); In re Taxpayer

No.: *** (Type: Motor Vehicle Gross Rental Receipts Tax/RDT), Hearing Nos.

34

30,505, 32,656, 1997 WL 617908, at *1 (Tex. Cptr. Pub. Acct. Sept. 23, 1997)

(setting deadline for petitioners to file response to reply to supplemental motion for

rehearing); In re Taxpayer No.: *** (Type: Sales and Use Tax), Hearing No.

39,563, 2004 WL 3673564, at *1 (Tex. Cptr. Pub. Acct. 2004) (noting petitioner's

filing of a reply to the Comptroller's response to petitioner's motion for rehearing).

While the undersigned has not located any cases or materials discussing or

construing the meaning of "timely," as used in § 2301.709(a), the logical meaning

of "timely" in the context of the statute is that material is "timely" when it becomes

relevant18 and as long as the Board receives the material with sufficient opportunity

for the Board and the parties to the contested case to study the material and to

consider how it may affect the Board's final order or decision. Moreover, the

Board did not consider the April 30th Letter in deciding whether or not to adopt the

PFD. Rather, it remanded the case to the ALJs to determine whether the

document should be considered and, if so, what effect it would have, in an

evidentiary hearing in which Audi participated. Surely a document admitted in

such a proceeding is “timely.”

18

The April 30th Letter did not become relevant until after the July 2014 PFD issued and

the Board decided that strict compliance with Tex. Occ. Code § 2301.359(c) would be required

(rather than substantial compliance, which is what the ALJs decided).

35

iv. Nothing about the Remand Order violates the rules against

"influencing" the ALJs.

a. The alleged "ex parte" communications issue has

been waived by Audi and had no effect on the

outcome of the remand vote.

Audi suggests that an alleged ex parte communication from Mr. Robertson

(a principal of one of the entities involved in the buy/sell) in early October 2014

somehow tainted the Board’s February 13, 2015 vote on the Remand Order,

rendering the entire remand "unauthorized."

The Court should disregard that contention. First, Audi did not allege in its

petition in the district court and never argued to the district court that the Remand

was unauthorized because it was "influenced by" an ex parte communication.19

Arguments not asserted below are waived on appeal. Black v. City of Kileen, 78

S.W.3d 686, 691 n.4 (Tex. App. – Austin 2002, pet. denied). See also Moreno v.

State, 409 S.W.3d 723, 728-29 (Tex. App. – Houston [1st Dist.] 2013, pet. refused)

(arguments not asserted before the trial court are not preserved for review).

Second, Audi acknowledged to the Board that neither the Board nor its staff acted

“improperly” or “w[ould] be influenced by” the alleged communication.20 In its

19

In its brief in support of its motion for a preliminary injunction, Audi argued that Mr.

Robertson “very clear[ly] attempt[ed] to improperly influence” a Board member prior to the

Motion for Rehearing vote. However, Audi never argued that the Remand Order was

influenced or that Mr. Robertson “attempted to” influence the Board regarding the remand.

20

Before the Board’s vote on the Motion for Rehearing, Audi filed a written opposition

to the staff’s recommendation that the Motion be granted. In that pleading, Audi argued that,

36

desperation to keep alive this action, Audi now contends the communication

corrupted state officials. Audi’s efforts are transparent and completely unsupported

by any evidence.

Audi’s attempt to "poison the well" also leaves out critical points. The

alleged ex parte communication occurred two months before the Board voted on

the Motion for Rehearing and four months before the Board voted to remand the

case to SOAH.21 Further, pursuant to Board Rule 215.22(b), which provides that,

in the event of an alleged ex parte communication, “a copy or summary thereof

shall be filed with the record of such proceeding and a copy forwarded to all

parties of record….”, the Board’s general counsel disclosed the existence and

substance of the alleged ex parte communication to all parties shortly after it

occurred. That disclosure – which “cured” any effect of the communication22 –

occurred a month and a half before the Board voted on the Motion for Rehearing

and almost four months before the Board voted for the Remand. Finally, the Board

“[a]lthough Audi is not suggesting that the Board or its Staff acted improperly or will be

influenced by these inappropriate actions, the efforts by Robertson to impermissibly taint the

Board proceedings are grounds to deny the motion for rehearing.” (Audi’s Response to Staff’s

Executive Summary and Proposed Order at p. 2.) Intervenors request the Court to take judicial

notice of that pleading, which is attached to Intervenors’ Appendix at Tab 3. (See supra n.8.)

21

Audi also improperly suggests that the alleged ex parte communication related to the

remand. It did not; the communication occurred during the Motion for Rehearing briefing.

22

The legislative history of Board Rule 215.22 states that it “allows the Board to cure an

ex parte communication by reporting it and providing the communication or a summary to all

parties to a proceeding.” 35 Tex. Reg. 884.

37

member who received alleged the ex parte communication, Laura Ryan, abstained

from voting on the Motion for Rehearing and did not participate in the meeting

during which the Board voted to remand the case to SOAH.

The alleged ex parte communication was disclosed and cured per the

Board’s own rules, and had no effect on the Board’s vote. Audi’s overt suggestion

that the communication caused the Board’s general counsel to “retreat[] from his

prior recommendation” (Audi’s Br. at p. 30), and that the remand occurred "at the

improper ex parte urging of a witness" (id. at p. 36), is unsupported and absurd.

b. The Remand Order does not differ from Member

Slovacek’s motion.

Audi’s argument that the remand was unauthorized because the language of

the Remand Order did not match exactly the language of Member Slovacek’s

motion to remand the Protest is specious.

To begin with, Audi cites to no statute, rule, or other authority providing that

an agency’s oral motion to take an action must match, verbatim, the agency’s later

written order.

Second, Audi is wrong that Member Slovacek’s motion did not encompass

the April 30th Letter. Before the meeting, the Board received the agency staff’s

written recommendation of a remand so that SOAH could consider the

admissibility and effect of the April 30th Letter. During the hearing, the Board’s

general counsel reiterated that recommendation.

38

After the Board’s general counsel finished speaking, the following exchange

occurred:

Mr. Slovacek: What is the staff’s recommendation?

Mr. Duncan: To remand to SOAH to consider the document, [the

April 30th Letter], that we received in the period between the board’s

last action and today.

Mr. Slovacek: Mr. Chairman, I make a motion that we remand to

SOAH, for the reasons outlined by Mr. Duncan, this entire case, for

all the reasons set forth, to determine whether the intervenors have,

in fact, satisfied the conditions of the proposal for decision.

Mr. Palacios: I second the motion.

Before the Board voted on the motion, it allowed counsel to speak on the

subject. Audi’s counsel, aware that the staff was recommending a remand to

consider the admissibility and effect of the April 30th Letter, argued, inter alia,

that it would be improper to remand the case because SOAH could not reopen the

record to consider the April 30th Letter and that the Board lacked the authority to

consider the April 30th Letter because it was not "timely" submitted.

Audi itself interpreted the motion to include consideration of the April 30th

letter and vociferously argued against such consideration.23 Audi’s post-hoc effort

23

Audi did not, however, argue that a remand to consider whether the Weitz Group met

the conditions in the July 2014 PFD was improper, or even mention the conditions.

Consequently, Audi is now arguing for a construction of Member Slovacek’s motion that is

diametrically opposed to what its counsel understood the motion to mean when it was made at

the Board meeting.

39

to argue that the Board did not know that it was voting to remand the case for

consideration of the April 30th Letter is meritless.

c. The ALJs have remained fair and impartial.

Audi argues that Chairman Walker has subverted the neutral fact finding

process and rendered the contested case proceeding unfair. (Audi's Br. at pp. 36-

42.) That argument is frivolous.

First, it is based on the faulty legal assumptions that the Board has

"disregarded the rules" and does not have the right to remand cases to SOAH for

further fact finding. As shown above, Audi is wrong. The Board has remanded

cases to SOAH in the past and has the clear power to do so. See, e.g., All Points

Inspection Servs., Inc., 2011 WL 1341523, at *1 (noting that the TxDMV rejected

the ALJ’s PFD and remanded the case back to the ALJ for further consideration).

Audi’s "neutrality" argument is also based on assumptions that are

unsupported by evidence. No evidence exists of any inappropriate interaction

between Chairman Walker and/or the Board and the ALJs. No evidence exists that

Chairman Walker tried to usurp the ALJs' fact finding duties or tried to influence

the ALJs' neutrality.24 Nothing about the Remand Order directs the ALJs to find

24

State v. Mid-South Pavers, Inc., 246 S.W.3d 711, 722-23 (Tex. App. – Austin 2008,

pet. denied), cited by Audi, is distinguishable. There, the court found that the executive director’s

changes to findings and conclusions suggested that he was "acting as TxDOT’s own factfinder";

the changes were not supported by substantial evidence and not explained with a written

statement.

40

one way or another (or implies or suggests that they should). Rather, it directs them

to determine if Audi received the April 30th Letter, if the letter should be received

into evidence, and, if so, “what affect, if any,” it had on compliance with the Code,

and to determine whether or not the Weitz Group had met the conditions in the

July 2014 PFD. Audi’s assertion that the Remand rendered the Protest "unfair" is

another unfounded, specious argument.

C. The ALJs Have Not Acted Ultra Vires.

For the reasons discussed above, (see supra §§ II.A. and II.B.), Audi's

arguments that the ALJs acted "ultra vires" in reopening the record and receiving

additional evidence after being ordered to do so by the Board are meritless.25

Section 2301.704(b) of the Code gives the ALJs "all of the board's power

and authority as provided in [Chapter 2301] to conduct hearings…." The ALJs

powers are coextensive with the Board's powers. Because the Board has not

exceeded its authority in ordering the remand, the ALJs are not exceeding their

authority in executing that order.

25

Audi's contention that Judge O'Malley "encouraged" Audi to seek relief from the

district court, (Audi's Br. at p. 41), is silly. Judge O'Malley merely stated to Audi that, as a matter

of procedure, the ALJs would halt the Remand if ordered to do so by a district court. He also

clearly stated that the ALJs did have the authority to entertain the Remand. (Id.) And, in the

proposal for decision on remand, (see Intervenors’ Appx. at Tab 1, p. 48), the ALJs included

conclusions of law stating that “[t]he Department properly referred this case to SOAH, (id. at

COL 3), and “SOAH has jurisdiction over all matters relating to the conduct of the hearing in

this matter.” (Id. at COL 4.)

41

Audi cites several cases for the proposition that SOAH ALJs are aware of

the limitations imposed by Rule 155.153(a)(4). Those cases are distinguishable

from this case because in none of those cases did the referring agency remand the

contested case to SOAH or ask it to reopen the agency record. In Texas

Department of Insurance v. Mondragon, SOAH Docket No. XXX-XX-XXXX.C (Tex.

St. Off. Admin. Hgs. Oct. 23, 2014), the Department of Insurance's staff – not the

Commissioner of Insurance – sought to have the ALJ reopen the record after

issuance of the proposal for decision and in the absence of a remand order from the

Department of Insurance. See also In re Taxpayer No.: *** (CPA Hearing No.

108,005), SOAH Docket No. XXX-XX-XXXX.26, 2014 WL 4694594, (Tex. St. Off.

Admin. Hgs. June 16, 2014) (recognizing, on consideration of the parties'

exceptions to the PFD, that ALJ could not reopen the record to receive new

evidence to modify the PFD; not speaking to reopening of record if ordered to do

so); In re Taxpayer No.: *** (CPA Hearing No. 107,108), SOAH Docket No. 304-

13-5388.26, 2014 WL 4694592, at *1 (Tex. St. Off. Admin. Hgs. June 9, 2014)

(same); In re Belinda Quintero Molina, SOAH Docket No. XXX-XX-XXXX (Tex. St.

Off. Admin. Hgs. Feb. 28, 2012) (recognizing that ALJ could not rule on motion

filed after issuance of the proposal for decision; not speaking to ability to rule on

motion if ordered to do so by referring agency).

42

These cases stand in stark contrast to the cases discussed above in which the

referring agencies remanded contested cases to SOAH for further proceedings,

including the taking of new or additional evidence. See e.g., Bush, 2013 WL

1087536, at *1 (in which Judge Wilkov stated: "Respondent's communications

indicate that he may have new evidence that was not offered or admitted at the

hearing. New evidence cannot be offered through any exception, and the

consideration of new evidence is relief that I cannot grant. The Commission may

remand the case for consideration of new evidence…." (emphasis added).

III. THIS COURT SHOULD AFFIRM THE DISTRICT COURT'S

DISMISSAL ON THE BASIS OF SOVEREIGN IMMUNITY.

"Governmental immunity implicates a court’s jurisdiction and serves to

protect political subdivisions of the state from both suit and liability." Sw. Bell Tel.,

L.P. v. Emmett, 459 S.W.3d 578, 587 (Tex. 2015). "To fall within th[e] ultra vires

exception [to the immunity doctrine], a suit must not complain of a government

officer’s exercise of discretion, but rather must allege, and ultimately prove, that

the officer acted without legal authority or failed to perform a purely ministerial

act." Heinrich, 284 S.W.3d at 372. "Ministerial acts are those where the law

prescribes and defines the duties to be performed with such precision and certainty

as to leave nothing to the exercise of discretion or judgment." Emmett, 459 S.W.3d

at 587 (citation omitted). "Discretionary acts on the other hand require the exercise

of judgment and personal deliberation." Id.

43

"[A] suit that seeks to control a state official's exercise of discretion within

his legal authority is a suit to control state action" and is barred by sovereign

immunity. Coastal Habitat Alliance v. Pub. Util. Comm’n, 294 S.W.3d 276, 285

(Tex. App. – Austin, 2009, no pet.). An official is not acting ultra vires if that

official is performing a discretionary act that is within his statutory or

constitutional authority. See, e.g., Layton v. City of Fort Worth, 2014 WL 6997350,

at *6 (Tex. App. – Fort Worth 2014, no pet.) (affirming dismissal of claim against

government officials based on lack of subject matter jurisdiction, stating: "[C]laims

that seek to control the State or its officials in the exercise of discretionary

statutory or constitutional authority are barred by sovereign immunity.").

As shown above, (see supra §§ II.B & II.C.), all of the actions taken by

Chairman Walker and the ALJs were within their jurisdiction and did not exceed

their powers or authority. The fact that Audi disagrees with the Board and the

ALJs’ decisions or with the way the Board interprets statutes it is charged with

enforcing does not mean that any of the Board or ALJs’ actions were ultra vires

acts.

IV. THIS COURT SHOULD AFFIRM THE DISTRICT COURT'S

DISMISSAL BECAUSE AUDI FAILED TO JOIN THE BOARD

AND/OR THE OTHER BOARD MEMBERS.

Audi’s lawsuit asked the district court to declare the Board’s remand order

void and sought injunctive relief barring enforcement of that order. The Board was

44

a necessary and indispensable party to that lawsuit. See Tex. Civ. Prac. & Rem.

Code § 37.006(a) ("When declaratory relief is sought, all persons who have or

claim any interest that would be affected by the declaration must be made

parties."); Reynolds v. Haws, 741 S.W.2d 582, 587-588 (Tex. App. – Fort Worth

1987, writ denied) (affirming dismissal of case for failure to join board of

adjustment when the validity of the board’s action was the suit’s focus).26 See also

Scott v. Graham, 292 S.W.2d 324, 327 (Tex. 1956) (those whose rights will be

directly affected by the writ of injunction are indispensable parties to the injunction

proceeding); Lone Starr Multi Theatres, Inc. v. State, 922 S.W.2d 295, 298 (Tex.

App. – Austin 1996, no writ) ("[A]ll parties against whom an injunction must run

in order to be effective should be named in a suit for injunctive relief.").

Audi sued only Chairman Walker and did not include the Board or any of

the other six Board members who voted in favor of the Remand Order.27 Chairman

Walker alone is not the Board. See Pearce v. City of Round Rock, 992 S.W.2d

668, 671 (Tex. App. – Austin 1999, pet. denied) ("A county is more than its

commissioners; a city is more than its mayor."). Audi’s failure to join the Board as

a party is fatal to its claims.

26

“[I]t is not proper for a court to render a decision affecting the action of the Board,

without the Board as a party to the lawsuit.” Id. at 588.

27

The Board is comprised of 9 members. See Tex. Transp. Code § 1001.021(a).

45

In the district court, Audi contended that it was not required to name the

Board as a party to the suit because it was asserting claims for ultra vires acts and,

therefore, needed to name only the agency officials who allegedly were acting

without authority. Audi cited, among other cases, Emmett, 459 S.W.3d 578, and

Heinrich, 284 S.W.3d 366. The problem with that argument is two-fold.

First, the case law cited by Audi is inapplicable to this case. Emmett and

Heinrich involved lawsuits filed directly against officials who were allegedly

acting unlawfully.28 They did not involve underlying administrative proceedings or

efforts to enjoin ongoing administrative proceedings.

By contrast, in every case that Audi cites concerning an underlying and

ongoing administrative action, the state agencies in question were named parties to

the lawsuit. See Davis, 34 S.W.3d 559 (naming school district as defendant);

O’Connor & Assocs., 267 S.W.3d 413 (naming county appraisal district, chief

appraiser, appraisal review board, and board’s former chairman); Rhule, 417

S.W.3d 440 (naming City of Houston as defendant); Williams, 99 S.W.3d 709

(naming City of Houston as defendant); City of Sherman, 643 S.W.2d 681 (naming

Public Utility Commission of Texas as defendant); Mag-T, L.P., 161 S.W.3d 617

(naming appraisal district, appraisal review board, and tax assessor-collector as

28

Again, Audi confuses the “ultra vires” exception to the exhaustion of administrative

remedies doctrine with the “ultra vires” exception to the governmental immunity doctrine.

46

defendants). That is because, when seeking judicial review of an administrative

agency’s ruling, decision, or order, the agency itself (and not any of its members),

is the proper defendant. See, e.g., Tex. Nat. Res. Conservation Comm’n v. Sierra

Club, 70 S.W.3d 809, 813 (Tex. 2002) (holding that Texas Natural Resource

Conservation Commission was the "proper defendant" when plaintiff sought

judicial review of agency’s order).

Second, even if Audi was correct that it did not need to name the Board,

Audi’s claims still must be dismissed because Audi failed to join any of the other

six Board members who allegedly committed the ultra vires acts. Chairman

Walker did not act alone; nor is he the Board. Moreover, Audi sought to enjoin "all

persons acting in concert" with Chairman Walker, which would include the other

Board members. Enjoining Walker alone would not prevent the other Board

members from considering the supplemental proposal for decision that the ALJs

have issued.

CONCLUSION

WHEREFORE, Budget and the Weitz Group pray that the Court affirm the

Travis County District Court’s dismissal of Audi’s lawsuit for lack of subject

matter jurisdiction. They also pray for such other, further, and different relief that

may be just and proper.

47

Respectfully submitted,

/s/ Wm. R. Crocker

Wm. R. Crocker

State Bar No. 05091000

807 Brazos, Suite 1014

Austin, Texas 78767

Telephone: (512) 478-5611

Facsimile: (512) 474-2540

Email: crockerlaw@earthlink.net

Attorney for Intervenor/Appellee

Budget Leasing, Inc. d/b/a Audi

North Austin and Audi South Austin

/s/ J. Bruce Bennett

J. Bruce Bennett

State Bar No. 0214550

Leon V. Komkov

State Bar No.11670500

CARDWELL, HART & BENNETT,

LLP

807 Brazos, Suite 1001

Austin, Texas 78701

Telephone: (512) 322-0011

Facsimile: (512) 322-0808

Email: jbb.chblaw@sbcglobal.net

Email: lvk@longroadllc.com

/s/ Joseph W. Letzer

Joseph W. Letzer

Tx. State Bar No. 24030763

Dent M. Morton

Tx. State Bar No. 24056645

BURR & FORMAN, LLP

420 20th Street N, Suite 3400

Birmingham, AL 35203-5210

Telephone: (205) 251-3000

Facsimile: (205) 458-5100

Email: jletzer@burr.com

48

Email: dmorton@burr.com

Attorneys for Intervenors/Appellees

Ricardo M. Weitz, Hi Tech Imports,

LLC, Hi Tech Imports North, LLC,

and Hi Tech Imports South, LLC

CERTIFICATE OF COMPLIANCE WITH RULE 9.4

Pursuant to Tex. R. App. P. 9.4(i)(2)(B), the undersigned certifies this

response complies with the type-volume limitations of Tex. R. App. P. 9.4. The

brief was prepared using Microsoft Word 2011. According to that program's word

count, the brief contains 11,810 words, exclusive of the exempted portions in Tex.

R. App. P. 9.4(i)(1).

s/ Joseph W. Letzer

Joseph W. Letzer

CERTIFICATE OF SERVICE

I hereby certify that on August 14, 2015, I used the Court's electronic case

filing system to file the foregoing document and to serve this document on the

following persons:

Billy M. Donley

Mark E. Smith

BAKER & HOSTETLER, LLP

1000 Louisiana, Suite 2000

Houston, Texas 77002

Tel: (713) 646-1382

Fax: (713) 751-1717

bdonley@bakerlaw.com

mesmith@bakerlaw.com

49

S. Shawn Stephens

James P. Sullivan

KING & SPALDING, LLP

1100 Louisiana, Suite 4000

Houston, Texas 77002

Tel: (713) 751-3200

Fax: (713) 751-3290

Attorneys for Volkswagen Group of America, Inc. and

Audi of America, Inc.

Kimberly Fuchs

Texas Attorney General's Office

P.O. Box 12548

Austin, Texas 78711

Tel: (512) 475-4195

Fax: (512) 320-0167

kimberly.fuchs@texasattorneygeneral.gov

Attorney for the Honorable Michael J. O'Malley

and Penny A. Wilkov

Dennis McKinney

Texas Attorney General's Office

P.O. Box 12548

Austin, Texas 78711

Tel: (512) 475-4020

Fax: (512) 320-0167

dennis.mckinney@texasattorneygenreal.gov

Attorney for Chairman John H. Walker

This the 14th day of August, 2015.

s/ Joseph W. Letzer

Joseph W. Letzer

50

NO. 03-15-00285-CV

IN THE THIRD COURT OF APPEALS

AUSTIN, TEXAS

VOLKSWAGEN GROUP OF AMERICA, INC.

AND AUDI OF AMERICA, INC.,

Appellants,

v.

JOHN WALKER III, ET AL.

Appellees.

On Appeal from the 201st Judicial District Court, Travis County, Texas

Honorable Amy Clark Meachum, Presiding Judge

INTERVENORS' APPENDIX

Wm. R. Crocker J. Bruce Bennett

State Bar No. 05091000 State Bar No. 0214550

807 Brazos, Suite 1014 CARDWELL, HART & BENNETT, LLP

Austin, Texas 78767 807 Brazos, Suite 1001

Telephone: (512) 478-5611 Austin, Texas 78701

Facsimile: (512) 474-2540 Telephone: (512) 322-0011

Email: crockerlaw@earthlink.net Facsimile: (512) 322-0808

Email: jbb.chblaw@sbcglobal.net

ATTORNEY FOR ATTORNEY FOR

INTERVENOR/APPELLEE INTERVENORS/APPELLEES

BUDGET LEASING, INC. D/B/A RICARDO M. WEITZ, HI TECH

AUDI NORTH AUSTIN AND AUDI IMPORTS NORTH, LLC, HI TECH

SOUTH AUSTIN IMPORTS SOUTH, LLC, AND HI

TECH IMPORTS, LLC

INTERVENORS’ APPENDIX

TAB 1

Cathleen Parsley

Chief Administrative Law Judge

August 13, 2015

Daniel Avitia, Director VIA INTERAGENCY MAIL

Motor Vehicle Division

Texas Department of Motor Vehicles

4000 Jackson Avenue

Austin, TX 78731

RE: Docket No. XXX-XX-XXXX.LIC; Budget Leasing Inc., dlbla Audi North

Austin and Audi South Austin and Ricardo M. Weitz, Hi Tech

Imports North, LLC, Hi Tech Imports South, LLC, Hi Tech Imports,

LLC v. Volkswagen Group of America, Inc. and Porsche Cars North

America, Inc.

Dear Mr. Avitia:

Please find enclosed a Remand Proposal for Decision in this case. It contains our

recommendation and underlying rationale.

Exceptions and replies may be filed by any party in accordance with 1 Tex.

Admin. Code§ 155.507(c). a SOAH rule which may be found at ~mVw.soab.state.tx.us.

Sincerely,

1UVAd, /

Michael J. O'Malley

Administrative Law Judge

~nyA eikffJWt-l

Admi · trative Law Judge

MJO/PAW/ap

Enclosure

cc: Per attached service list- VIA REGULAR MAIL

Alice Carmona, Docket Clerk, Texas Department of Motor Vehicles, 4000 Jackson Avenue,

Austin, Texas 78731 -VIA INTERAGENCY MAIL

300 W. J5t11 Street Suite 502, Austin, Texas 78701/ P.O. Box 13025, Austin, Texas 78711-3025

512.475.4993 (Main) 512.475.3445 (Docketing) 512.322.2061 (Fax)

www.soah.state.tx. us

STATE OFFICE OF ADMINISTRATIVE HEARINGS

AUSTIN OFFICE

300 West 15th Street Suite 502

Austin, Texas 78701

Phone: (512) 475-4993

Fax: (512) 322-2061

SERVICE LIST

AGENCY: Motor Vehicles, Texas Department of(TDMV)

STYLE/CASE: Hi TECH IMPORTS NORTH, LLC

SOAH DOCKET NUMBER: XXX-XX-XXXX.LI C

REFERRING AGENCY CASE: 13-0008 LIC

STATE OFFICE OF ADMINISTRATIVE ADMINISTRATIVE LAW JUDGE

HEARINGS ALJ MICHAEL J. OMALLEY

REPRESENTATIVE I ADDRESS PARTIES

J. BRUCE BENNETT

CARDWELL, HART & BENNETT, L.L.P.

807 BRAZOS, STE 1001

AUSTIN, TX 7870 I

(512) 322-0011 (PH)

(512) J22-D808 (FAX)

jbb.chblaw@sbcglobal.net

WEITZ GROUP

HI TECH IMPORTS, LLC

BILLY M. DONLEY

ATTORNEY

BAKER & HOSTETLER, LLP

811 MAIN STREET, SUITE 1100

HOUSTON, TX 77002-5009

(713) 751-1600 (PH)

(713) 751-1717 (FAX)

bdonley@bakerlaw .com

VOLKSWAGEN GROUP OF AMERJCA. INC.

BUDDY FERGUSON

ATTORNEY AT LAW

STRASBURGER & PRICE LLP

720 BRAZOS ST., STE. 700

AUSTIN, TX 78701-3251

(512) 499-3641 (PH)

(512) 536-5705 (FAX)

buddy.ferguson@strasburger.com

PORSCHE CARS NORTH AMERICA, INC.

Page 1 of3

ALICE S. CARMONA

LEGAL ASSIST ANT

TEXAS DEPARTMENT OF MOTOR VEHICLES

MOTOR VEHICLE DIVISION

4000 JACKSON AVENUE

AUSTIN, TX 7873I

(512) 465-7354 (PH)

(512) 465-3666 (FAX)

Alice.Cannona@txdmv.gov

MOTOR VEHICLE DIVISION

WILLIAM R. CROCKER

ATTORNEY AT LAW

807 BRAZOS, SUITE 1014 P.O. BOX 1418

AUSTIN, TX 78767

(512)478-5611 (PH)

(512) 474-2540 (FAX)

crockerlaw@earthlink.net

BUDGET LEASING, INC

JOSEPH LETZER

BURR & FORMAN, LLP

420 20TH ST. N.

BIRMINGHAM, AL 35203-5210

(205) 251-3000 (PH)

(205) 244-5671 (FAX)

HJTECHIMPORTS,LLC

ELIZABETH A. MCNELLIE

BAKER & HOSTETLER

65 EAST STATE STREET, STE. 2100

COLUMBUS, OH 432 I 5

(614) 462-2651 (PH)

(614) 462-2616 (FAX)

emcnellie@bakerlaw.com

VOLKSWAGEN GROUP OF AMERICA, INC.

ELIZABETH B. SHIRLEY

BURR & FORMAN, LLP

420 20TH ST. N.

BIRMINGHAM, AL 35203-5210

(205) 251-3000 (PH)

(205) 244-5671 (FAX)

HI TECH IMPORTS, LLC

WEITZ GROUP

Page2of3

ELLEN T. MATHEWS

BURR & FORMAN, LLP

420 20TH ST. N.

BIRMINGHAM, AL 3 5203-5210

(205) 458-5410 (PH)

emathews@burr.com

HI TECH IMPORTS, LLC

WEITZ GROUP

xc: Docket Clerk, State Office of Administrative Hearings

Docket Clerk TDMV, Fax No. 512-465-3666

Page 3 of3

SOAH DOCKET NO. XXX-XX-XXXX.LIC

BUDGET LEASING INC. D/B/A AUDI § BEFORE THE STATE OFFICE

NORTH AUSTIN AND AUDI SOUTH §

AUSTIN §

Protestant §

§

RICARDO M. WEITZ, HI TECH §

IMPORTS NORTH, LLC, HI TECH §

IMPORTSSOUTH,LLC,HITECH §

IMPORTS, LLC § OF

Intervenors §

§

v. §

§

VOLKSWAGEN GROUP OF §

AMERICA, INC. AND PORSCHE CARS §

NORTH AMERICA, INC. §

Respondents § ADMINISTRATIVE HEARINGS

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................... 1

II. PROCEDURAL HISTORY ................................................................................................... 3

Ill. REMAND NOTICE ISSUE ................................................................................................. 4

A. Applicable Law .......................................................................................................... 4

B. Background During the Application Process .......................................................... 5

C. Background of the Notice Issue While the Case was at SOAH ............................. 7

IV. ANALYSIS OF REMAND NOTICE ISSUE ...................................................................... 8

A. Did Audi Receive the Letter Dated April30, 2013? ............................................... 8

B. Should the Apri130, 2013 Letter be Added to the Record? ................................... 8

C. If the Apri130, 2013 Letter is Admitted, What Effect, if Any, Does the Letter

Have on the Issue of Compliance with Tex. Occ. Code § 2301.359 in Light of the

Agency's Prior Decision in Gordon Rountree, Ltd. v. Mazda Motors Cars of

America, MVD Docket No. 07-0038.LIC? ............................................................. 10

SOAH DOCKET NO. XXX-XX-XXXX.LIC TABLE OF CONTENTS PAGE2

V. REVIEW OF QUALIFYING CONDITIONS IN FINDINGS OF FACT ......................• IS

A. The Remand Order.................................................................................................. 15

B. Review ofFOF Nos. 155 and 156: Operational Acumen Requirements ........... 15

1. Background ................................................................................................ 16

2. The Post-PFD Revised Company Agreement.......................................... 18

3. ALJs Analysis of FOF Nos. !55 and 156 .................................................. 21

C. Review of FOF No. 1.57: Bridge Loan ................................................................... 23

D. Review of FOF No. 1.58: Cross-Collateralization Requirement ......................... 25

1. Background ................................................................................................ 25

2. The Post-PFD Loan Documents ............................................................... 27

3. AWs' Analysis ............................................................................................ 32

VI. CONCLUSION .................................................................................................................... 36

VII. :FINDINGS OF FACT ....................................................................................................... 37

VIII. CONCLUSIONS OF LAW •............................................................................................ 48

SOAR DOCKET NO. XXX-XX-XXXX.LIC

BUDGET LEASING INC. D/BIA AUDI § BEFORE THE STATE OFFICE

NORTH AUSTIN AND AUDI SOUTH §

AUSTIN §

Protestant §

§

RICARDO M. WEITZ, HI TECH §

IMPORTS NORTH, LLC, HI TECH §

IMPORTSSOUTH,LLC,HITECH §

IMPORTS, LLC § OF

Intervenors §

§

v. §

§

VOLKSWAGEN GROUP OF §

AMERICA, INC. AND PORSCHE CARS §

NORTH AMERICA, INC. §

Respondents § ADMINISTRATIVE HEARINGS

REMAND PROPOSAL FOR DECISION

I. INTRODUCTION

This is a turndown case in which Respondents Volkswagen Group of America, Inc. and

Audi of America, Inc. (collectively, Audi 1 or Respondents) rejected the proposed transfer of the

only two Audi dealerships in Austin, Texas, from Budget Leasing, Inc. d/b/a Audi North Austin

and Audi South Austin (collectively, Budget or Protestant) to Ricardo M. Weitz? Mr. Weitz was

not the sole prospective transferee. Mr. Weitz partnered with a private equity ftmd to purchase

and operate the dealerships.

After the Administrative Law Judges (ALJs) issued their proposal for decision (PFD) on

July 16, 2014, and the Board (Board) of the Texas Department of Motor Vehicles (the

Department or DMV) considered the PFD and motions for rehearing, the Board issued an

1

Although Volkswagen Group of America and Porsche were named parties, Audi was the active participant at the

bearing and the ALJs will refer to the collective parties as Audi.

2

The transaction also involved the proposed sale of Budget's Porsche and Maserati dealerships.

SOAH DOCKET NO. 60S..I3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE2

Interim Order Remanding the Case (Remand Order) to the State Office of Administrative

Hearings (SOAH) to consider three questions regarding Mr. Weitz's April30, 2013 letter to

Sally Grimes, Audi's network improvement manager for its southern region. First, did Audi

receive the letter? Second, should the letter be added to the record? Finally, if the letter is

admitted in evidence, what effect does the letter have on Intervenors' 3 compliance with Texas

Occupations Code (Code) § 230l.359(c)(3)? Specifically, the Board directed the ALJs to

consider Intervenors' compliance in light of the Executive Director's decision in Gordon

Rountree Motors, Ltd. v. Mazda Motors of America, Docket No. 07-0038.LIC (May 4, 2010). 4

The Board also directed the ALJs to review the conditions set forth in the July 16, 2014

PFD, specifically Findings of Fact (FOF) Nos. 154-158, and to determine whether Intervenors

had met the conditions such that they are now qualified to become Audi dealers.

Audi received the letter dated April 30, 2013, and the ALJs admitted it into evidence.

The ALJs also find that Intervenors substantially complied with the notice provision und~r Code

§ 2301.359(c)(3), and that the Rountree decision and other case law do not require strict

compliance with Code § 2301.359(c)(3). In addition, Intervenors have met the conditions of

FOF Nos. 154-157 and are qualified on these FOFs to become Audi dealers. 5 On FOF 158,

however, the ALJs recommend that the Intervenors provide proof to the ALJs and the Board that

the dealership guaranty of other dealerships provision has been removed to meet the requirement

of FOF 158. Once the dealership guaranty of other dealerships provision has been removed,

Intervenors have met the condition ofFOF 158 and are qualified to become Audi dealers.

3

Intervenors include Mr. Weitz, Hi Tech Imports North, LLC, Hi Tech Imports South, LLC, and Hi Tech Imports,

LLC.

4

When Rountree was decided, the Director of the Motor Vehicle Division, rather than the Board, issued final orders

on protests tiled under Tex. Occ. Code§ 2301.360. The ALJ in the Rountree case issued a PFD on July 14, 2009.

On February 1, 2010, the Director issued a Final Order, adopting the Rountree PFD except for certain parts rejected

in an accompanying letter opinion. On May 3, 20 !0, the Director entered a Decision and Order of Division Director

Denying Respondent's Motion for Rehearing and Denying Protestant's Motion for Rehearing. On May 4, 2010, the

Director entered a Nunc Pro Tunc Decision and Order of Division Director Denying Respondent's Motion for

Rehearing and Denying Protestant's Motion for Rehearing.

5

The ALJs have reviewed all documents, evidence, and relevant testimony, as well as the closing arguments and

briefs advanced by the parties, in reaching their decisions on notice and the financial structure issues as set forth in

the Board's remand order.

SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE3

II. PROCEDURAL HISTORY'

On May 14, 2013, Mr. Weitz, Hi Tech Imports North, LLC (Hi Tech North), Hi Tech

Imports South, LLC (Hi Tech South), Hi Tech Imports, LLC (Hi Tech Imports) (collectively,

Intervenors), and Budget protested Audi's and Porsche's buy-sell turndown to Department. Audi

filed its reply on June 14,2013. In Audi's reply to the protest, Audi admitted that Budget and

Mr. Weitz submitted notice and an application "in accordance with the provisions of Tex. Occ.

Code, Title 14, 2301.359."7 After the first hearing, the ALJs issued their PFD on July 16, 2014.

After the ALJs issued their PFD, the Board assumed jurisdiction of the case and, on

August 28,2014, Audi filed a motion to dismiss with the Board. On August 29, 2014,

Intervenors filed a Motion to Find the Prospective Transferees Qualified. On

September 12,2014, with 4 Board members absent, the Board voted 3 to 2 to dismiss the Protest

for lack of subject matter jurisdiction. On October 2, 2014, Protestant and Intervenors filed a

Motion for Rehearing. On October 13, 2014, Audi filed a response in opposition to the Motion

for Rehearing and, on October 15, 2014, Protestant and Intervenors filed a reply in support of

their Motion for Rehearing. The Board's staff recommended that the Motion for Rehearing be

granted. On December 10,2014, the Board voted to grant the Motion for Rehearing.

On February 13, 2015, the Board voted to remand the Protest to SOAH. On

February 20,2015, Audi filed a motion to send this case back to the Board, challenging the

Board's authority to remand this contested case to SOAH. Protestant and Intervenors responded

to that motion on February 27, 2015, and Audi filed a reply in support of that motion on

March 2, 2015. The ALJs denied Audi's motion. 8

6

To avoid repetition and to focus on the remand issues, the ALJs incorporate the procedural history and

background from the July 16,2014 PFD into the Remand PFD, although certain facts are repeated as background for

the remand issues.

7

Audi's June 14,2013 Reply to Protest~ 2.

s Although Audi challenged the Board's remand to SOAH, the AUs denied any relief to dismiss the remand case at

SOAH based on jurisdictional grounds. The ALJs proceeded as directed by the Board, and this PFD will not address

the issue of whether the Board has the authority to remand cases to SO AH.

SOAH DOCKET NO. 608·13·4599.LIC REMAND PROPOSAL FOR DECISION PAGE4

The hearing on the merits began on April 16, 2015, and concluded on April 17, 2015.

The ALJs closed the record on June 16,2015, after the parties filed post-hearing briefs.

III. REMAND NOTICE ISSUE

A. Applicable Law

Subsections (a). (b), and (c) of § 2301.359 of the Code relate to notice to the

manufacturer of the proposed transfer and provide as follows:

(a) A dealer must notify the manufacturer or distributor of a vehicle the dealer

is franchised to sell of the dealer's decision to assign, sell, or otherwise

transfer a franchise or a controlling interest in the dealership to another

person. The notice is the application by the dealer for approval by the

manufacturer or distributor of the transfer.

(b) Notice under Subsection (a) must:

(l) be in writing and include the prospective transferee's name,

address, financial qualifications, and business experience;

and

(2) be sent by certified mail, return receipt requested.

(c) The notice must be accompanied by:

(1) a copy of pertinent agreements regarding the proposed

assignment, sale, or transfer;

(2) completed application forms and related information

generally used by the manufacturer or distributor in

reviewing prospective dealers, if the forms are on file with

the board; and

(3) the prospective transferee's written agreement to comply

with the franchise to the extent that the franchise is not in

conflict with this chapter.

SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECISION PAGES

B. Background During the Application Process

Budget and Mr. Weitz submitted the Dealership Purchase Contract (DPC) to Audi on

December 20, 2012. Thereafter, Mr. Weitz, primarily through Candido Pagan, and Mr. Weitz's

business partners Corbin Robertson, K. Rick Turner, C. Ross Bartley, either personally or

through their representatives, submitted an array of documentation and information to Audi. The

majority of that documentation and information was sent to Ms. Grimes, who was Mr. Weitz and

Mr. Pagan's primary contact at Audi.

In early April2013, Ms. Grimes informed Mr. Weitz that Audi had received all materials

needed to evaluate the transfer proposal and that no additional information was being requested

9

by Audi. In a letter dated April 16, 2013, Audi rejected the applications to be granted Audi

dealer agreements for Audi North Austin and Audi South Austin. 10 Audi stated that it was not

approving Budget's proposed transfer and included a list of material reasons for rejection of the

proposed transfer. 11 The rejection letter did not reference non-compliance with Code

§ 2301.359(c)(3) or any notice violations.

On April 18, 2013, Mr. Weitz sought to provide clarification of the ownership and capital

structure involved in the proposed transaction because that appeared to be Audi's primary

concernY In a response letter to Mr. Weitz dated April25, 2013, Audi stated that its "primary

concern with the buy-sell was the ownership and capitalization structure of the purported buyer.

While your letter provides some additional details, we are still of the opinion that the paperwork

as submitted does not meet our requirements." 13 Audi's April 16th letter and its April 25th letter

mentioned nothing about the prospective transferees' purported non-compliance with

§ 2301.359(c)(3) of the Code, nor did Audi indicate its concern that Mr. Weitz would not comply

with the terms of the franchise agreement.

9

Intervenors Ex. No. 35.

10

Respondents Ex. No. 186.

11

Respondents Ex. No. 186.

12

Respondents Ex. No. 189.

13

Respondents Ex. No. 197.

SOAJ-1 DOCKET NO. 608¥13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE6

After April25, 2013, Mr. Weitz, on behalf of Hi Tech Partners, LLC (Hi Tech Partners),

and the other members of Hi Tech Motorcars, LLC (Motorcars) - Headwater, Turner, and

Bartley- renegotiated the Motorcars' company agreement. The renegotiation culminated in the

Hi Tech Motorcars, LLC, Amended & Restated Company Agreement (Revised Motorcars

Agreement). 14 The Revised Motorcars Agreement was signed by every member of Motorcars. 15

On May 1, 2013, Mr. Weitz submitted two more application packages, replacing the

initial Motorcars company agreement with the Revised Motorcars Agreement. 16 The

submissions were accompanied by two cover letters, one on Hi Tech North letterhead and one on

Hi Tech South Jetterhead. 17

In the May I, 2013 packages from Hi Tech North and Hi Tech South, Mr. Weitz included

two letters dated April 30, 2013 (April 30th Letters) 18 One letter was from David Stein

(principal of Budget) to Ms. Grimes, notifying Audi of the proposed transfer. The other letter

was from Mr. Weitz to Ms. Grimes. 19

Audi received the April 30th Letters on approximately May 2, 2013. 20 There is no

dispute that Audi received the April 30th Letters. On May 8, 2013, Brian Pellock sent a letter to

Mr. Stein. In the letter, Audi took the position that the materials submitted by Mr. Weitz on

May 1 (including the April 30th Letters) and received by Ms. Grimes on May 2nd were part of

the DPC (submitted on December 14, 2012, and amended on February 9, 2013) that Audi had

14

Intervenors Ex. No.9.

15

Intervenors Ex. No.9 at 021 (executed signature page for Hi Tech Partners; Headwater; Charles Ross Bartley

IRA; K. Rick Tumer, as trustee; C. Ross Bartley, individually; and Tumer Family Partnership).

16

Intervenors Ex. Nos. 275, 276. Respondents Ex. Nos. 202, 203.

11

Intervenors Ex. Nos. 275, 276. Respondents Ex. Nos. 202, 203.

18

Intervenors Ex. No. 242. Tr. at 42·44.

19

Intervenors Ex. No. 242.

20

Intervenors Ex. No. 274 at274-002, 003.

SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE7

rejected on April 16, 2013. Therefore, Audi did not consider the DPC or the materials received

by Audi on May 2nd. 21

C. Background of the Notice Issue While the Case was at SOAH

Budget filed its protest on May 14,2013. Tn the protest, Budget and Mr. Weitz indicated

that they submitted the applications for the franchises in accordance with Code § 2301.359.

Audi replied to the protest on June 14, 2013, and admitted that the applications had been

submitted in accordance with Code § 2301.359. In its reply to the protest, Audi only raised the

affirmative defense that Intervenors lacked standing to participate in the protest proceeding.

Audi followed its reply with a motion to dismiss for lack of standing. The ALJs denied Audi's

motion to dismiss. Audi, therefore, did not raise lack of notice issues in its reply to the protest,

in its initial motion to dismiss, or in its initial responses to Intervenors' request for disclosures.

Audi raised the notice issue for the first time on January 3, 2014, in its response to

Intervenors' motion for summary disposition. The ALJs denied the motions for summary

disposition. Following the hearing on the merits, Audi addressed the notice issue in its post-

hearing briefs.

In their PFD, the ALJs rejected Audi's arguments and found that fntervenors had

substantially complied with the notice provisions of Code § 2301.359(c)(3). In summary, the

ALJs foW1d that Mr. Weitz signed and submitted an application for an Audi dealership, which

strongly suggested an agreement to comply with the franchise. On April 18, 2013, Mr. Weitz

notified Audi, in writing that he intended to comply with Audi's requirements. 22 Given

Mr. Weitz's clear intent to purchase the Audi dealerships and his willingness to adhere to any of

Audi's requirements necessary to obtain the dealerships, the ALJs found that Mr. Weitz satisfied

the requirement of Code § 2301.359(c)(3). Audi did not file any exceptions to the ALJs'

21

Intervenors Ex. No. 277.

22

Respondents Ex. 189.

SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGES

findings that Mr. Weitz had substantially complied with the notice provisions of Code

§ 2301.359(c)(3) 23

IV. ANALYSIS OF REMAND NOTICE ISSUE

A. Did Audi Receive the Letter Dated Apri130, 2013?

The Board's first question asks whether Audi received the letter dated April 30, 2013,

from Mr. Weitz to Ms. Grimes? The answer is yes. Audi admits that it received that letter. 24

This issue is not in dispute; therefore, no further discussion is necessary.

B. Should the April 30, 2013 Letter be Added to the Record?

The Board's second question asks whether the letter should be added to the record, which

the ALJs assume means admitted into evidence? The answer is yes.

Intervenors contend that the April 30th letter should be admitted into evidence because

the Rountree and other decisions require substantial compliance with Code§ 2301.359(c)(3), and

the letter is one other document that shows Intervenors substantially complied with Code

§ 2301.359(c)(3). Respondents argue that the Rountree decision requires strict compliance;

therefore, the April 30th letter is irrelevant and cannot be admitted into evidence because the

letter was sent two weeks after Audi rejected the dealership applications and not all prospective

transferees signed the letter.

23

The ALJs emphasize that Audi barely addressed the notice issue during the 14 months this case was pending at

SOAH. If notice was a primary, preliminary reason for Audi's rejection of the dealership agreements or basis for

objecting to the protest, it seems very likely that Audi would have raised this issue early on in the proceeding. It did

not. Furthermore, once the ALJs fully analyzed the notice issue in their PFD and made findings on substantial

compliance, Audi did not file exceptions. The notice issue appears to have become a concern for Audi only after the

Board assumed jurisdiction of this case.

24

Intervenors Ex. No. 274 at 274~002, 003.

SOAH DOCKET NO. 608·13·4599.LIC REMAND PROPOSAL FOR DECISION PAGE9

The ALJs admitted the April 30th letter into evidence during the remand hearing on the

merits? 5 Given that the ALJs find that the appropriate standard is substantial compliance (as

further discussed below), the letter is one other document showing Intervenors substantially

complied with the notice provisions of Code§ 2301.359(c)(3). Moreover, the ALJs find there is

no harm in admitting the letter and, since Audi received the letter, it is not unfairly prejudiced by

its admission. Audi clearly is not harmed by admission of the letter because it never complained

that Intervenors had failed to comply with Code § 230l.359(c)(3). In fact, Audi stated that

Mr. Weitz's application was "complete." In Audi's reply to the protest, Audi confirmed that

Budget and Mr. Weitz submitted notice and an application "in accordance with the provisions of

Tex. Occ. Code, Title 14, 2301.359."26 Next, Audi moved to dismiss the protest, but did not

raise non·compliance with the Code or Intervenors' purported lack of agreement to be bound by

the terms of the Audi dealer agreement as a ground for dismissal. Audi also did not raise those

arguments in its initial responses to Intervenors' request for disclosures and, in fact, Audi did not

raise the arguments until the summary disposition stage (at least eight months into this contested

case). The ALJs denied the motions for summary disposition.

After the first evidentiary hearing, in post-hearing briefs, Audi argued that Intervenors

had not complied with the Code's requirement to comply with the terms of Audi's dealer

agreement. In their PFD, the ALJs found that Intervenors had substantially complied with Code

§ 230l.359(c)(3). 27 Audi did not file exceptions to these findings.

Now, as part of the remand proceeding, Respondents argue that Intervenors' (and the

Headwater entities') failure to submit a statement of compliance before April16, 2013, precludes

its admission. The ALJs disagree. Before April 16, 2013, Mr. Weitz (and Intervenors)

repeatedly submitted documentation as Audi requested certain documentation and updated

infonnation to complete the application. For example, Mr. Weitz notified Audi of his intent to

purchase the Audi dealerships on December 20, 2012, when he introduced himself as a

25

The ALJs overruled Respondents' relevance objection.

26

See Protest at~ I and Audi's June 14,2013 Reply to Protest~ 2.

27

See PFD at 12-14.

SOAR DOCKET NO. XXX-XX-XXXX.L1C REMAND PROPOSAL FOR DECISION PAGE 10

"candidate to be an Audi dealer" and sought a dealer application from Audi. 28 Mr. Weitz also

completed, signed, and submitted two copies of Audi's form document entitled "Application For

an Audi Dealer Agreement," one for each Audi location. On both applications, Mr. Weitz

indicated that the purpose of his application was "to be granted an Audi dealer agreement!'29 In

addition, on April 18, 2013, Mr. Weitz notified Audi, in writing, that he "want[s] to comply

100% with Audi's requirements."30 At the hearing, on March 10, 2014, Mr. Weitz testified that

he is "absolutely" willing to sign a dealer agreement and is committed to doing anything

requested by Audi with respect to a dealer agreement. 31 From January through April 2013,

Mr. Weitz submitted vast amounts of documentation at Audi's request, and Audi never requested

a "written agreement to comply with the franchise." The admission of the April 30th letter is one

more document indicating that Intervenors intend to comply with Audi's franchise agreement.

C. If the April30, 2013 Letter is Admitted, What Effect, if Any, Does the Letter Have

on the Issue of Compliance with Tex. Occ. Code§ 2301.359 in Light of the Agency's

Prior Decision in Gordon Rountree, Ltd. v. Mazda Motors Cars of America, MVD

Docket No. 07-0038.LIC?

The Board's third question asks, if the April 30th letter is admitted, what effect does it

have on compliance with Code § 2301.359 and the Rountree decision? Code § 2301.359

governs the transfer of an automobile dealership's ownership between the dealership's proprietor

and a prospective buyer. Specifically, it governs the notice that a transferee/buyer must provide

to the manufacturer regarding the sale of a franchise. As part of the notice requirements, a

prospective transferee/buyer must provide a written statement of its intent to abide by the

manufacturer's franchise agreement. As discussed below, the ALJs find the Code requires

substantial compliance with notice provisions under Code§ 2301.359(c)(3).

28

Intervenors Ex. 22.

29

Respondents Exs. 52, 312.

30

Respondents Ex. 189.

31

Tr. at 1907-09 (initial hearing on the merits, March 10, 2014).

SOAH DOCKET NO. XXX-XX-XXXX.LlC REMAND PROPOSAL FOR DECISION PAGE 11

Generally, case Jaw supports substantial compliance with a statutory provtswn by

requiring substantial compliance with the essential elements of the statute. 32 The concept of

substantial compliance works to excuse deviations from a statutory requirement if such

deviations do not hinder the legislative intent behind the requirement. 33 Thus, substantial

compliance with Code§ 2301.359 is the proper standard to apply in this case, particularly where

the evidence shows that Audi had proper notice of Mr. Weitz's (and Intervenors') intent to

comply with Audi's franchise agreement and did not reject the applications based on lack of

notice.

The legislative history for Code § 2301.359 does not indicate whether substantial or strict

compliance is the standard under Code§ 2301.359. However, the courts have addressed Code

§ 2301.359, and the decisions illustrate substantial compliance as the appropriate standard for

notice of application to a manufacturer. For instance, in Ford Motor Co. v. Motor Vehicle Bd. of

Texas Dept. ofTransp., 34 numerous deficiencies existed in the seller's notice to Ford under Code

§ 2301.359, including an incomplete application from the proposed transferee and no final sales

agreement. The Third Court of Appeals nevertheless rejected Ford's assertion that the Board had

no jurisdiction to hear the seller's protest of Ford's rejection, stating that the Board had such

jurisdiction. The Court held that "[i]nadequacies in a notice of a proposed sale and supporting

materials sent to a manufacturer may make rejection of the sale more reasonable and, thus, may

affect the assessment of the merits of the protest of the rejection, but we are not persuaded that

such inadequacies deprive the Board of the power to consider the protest."35

The Court reached a similar result in Ultimate Ford v. Motor Vehicle Div. of Texas Dept.

of Transp. 36 In this case, the dealerships claim that their rights were prejudiced because the

32

J.C. Evans Canst. Co., Inc. v. Travis Cent. Appraisal Dist., 4 S, W.3d 447, 45 I (Tex. Civ. App.-Austin 1999, no

pet.)

33 !d.

34

Ford Motor Co. v. Motor Vehicle Bd. of Texas Dept. ofTransp., No. 03-05-00290-CV, 2008 WL 1912102, at* 3-

4 (Tex. App.-Austin May 1, 2008, pet. denied) (mem. op.).

35

!d. at 4.

36

Ultimate Ford v. Motor Vehicle Div. of Texas Dept. ofTransp., No. 03-09-00548-CV, 2010 WL 3370683, at *4-5

(Tex. App.-Austin Aug. 27,2010, pet. denied) (mem. op.).

SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE 12

termination notice provided by the manufacturer, Ultimate Ford, did not track the notice

language under Code § 2301.453(c)(2). Although the Court recognized that Ultimate Ford's

notice had not strictly followed the language of the statute, it, nonetheless, held that only

substantial compliance was required when sending termination notice to dealership. The Court

specifically stated that "[t]he evident purposes of this requirement is to ensure that a dealer

facing termination is notified of its statutory rights to protest the termination and obtain a

hearing, and how to do so. "37 And, although Ultimate Ford had not strictly followed the notice

requirement under Code § 2301.453(c)(2), the Court found that its notice to the dealerships had

satisfied the purpose of the statute. 38

The ALJs find that the Rountree decision 39 also suggests substantial compliance as the

appropriate standard. 4 ° Furthermore, the Rountree decision recognizes that a party can waive

notice requirements. 41 Respondents argue that Rountree requires strict compliance. The ALJs

do not interpret Rountree as requiring strict compliance with the notice provisions under Code

§ 2301.359(c)(3). In Rountree, the Board faced an issue dealing with waiver of the Code's

certified mail notice requirement and an incomplete application. Specifically, the Board found

that Mazda waived the certified mail requirement because Mazda treated certain communications

as the notice of transfer, responded to the seller and buyer, requested other materials, and

referenced the 60-day timeframe for evaluation. Although Rountree addressed waiver of the

certified mail requirement, the decision suggests that other notice requirements can also be

37

Jdat5.

38

!d. at 5. See also, Meu·o Ford Truck Sales, Inc. v. Ford Motor Co., Docket No. OJ-0040.LIC (July \6, 2004)

(ALI finding that strict compliance with Code's notice provisions is not required); and Houston Mack Sales &

Service, Inc. v. Hayes Leasing Co .. Inc., MVD Docket No. 10-0042.LIC (Jan. 13, 2011) (reversing AU's holding of

dismissal based on strict compliance, stating: "[N]otice should not be deemed defective because it does not contain

'magic words;' rather, notice should be considered defective if it does not substantially comply with the notice

requirements or does not function to provide the recipient with adequate information. A notice requirement. .. is not

intended as a hurdle or stumbling block to participation.").

39

Gordon Rountree Motors, Ltd. v. Mazda Motors of America, Docket No. 07-0038.LIC (May 4, 2010).

40

The Rountree decision never discusses notice in terms of strict versus substantial compliance, so it is not entirely

clear what standard was applied. Furthermore, the conclusions of law state that the notice and application did not

comply with Code § 2301.359. Other than the certified mail notice requirement, no other notice provision was

discussed, and Rountree was decided primarily because of the seller's deficient application.

41

Waiver is established by a party's express renunciation of a known right, or by silence or inac.tion for so long a

period as to show an intention to yield the known right. Tenneco fnr.:. v. Enter. l'ruds. Co., 925 S.W.2d 640, 643

(Tex. 1996).

SOAH DOCKET NO, XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE13

waived. In other words, Rountree states that a manufacturer can waive specific objections to

notice by moving forward with application process and essentially failing to object in a timely

manner to notice deficiencies. It is also important to note that, although the Rountree decision

discusses notice, the decision primarily discusses the piecemeal/incomplete application. In this

case, Audi did not reject the application based on incomplete or deficient applications. In fact,

Audi had sufficient information from the applications to deny them based on financing, lack of

automobile experience, and ownership structure.

Here, Mr. Weitz submitted an application to Audi on December 20,2012. During February

and March 2013, Mr. Weitz provided additional information to Audi, primarily concerning

finances and ownership structure. On April 16, 2013, Audi rejected the application on the

following grounds: (I) financing concerns: (2) Headwater had limited expenence m the

automobile industry; and (3) Audi did not approve of the capitalization structure. Nothing in the

April 16,2013 rejection letter suggested notice was insufficient or that Audi was rejecting the

application based on a failure to agree to the franchise. It was not until January 2014 (in a

response to a summary disposition motion) that Audi asserted notice was insufficient under Code

§ 2301.359. Thus, Audi's actions fit within the definition of waiver, which states," ... silence or

inaction for so long a period as to show an intention to yield the known right .. , ."42 For eight

months, Audi failed to assert any notice problem that would impact the applications. Not only

did Audi fail to address a notice deficiency during the application process, it also failed to

address the issue until eight months after the case had been referred to SOAH. 43 Although Audi

revived the issue in post-hearing brief's, the ALJs rejected its argument and held that Mr. Weitz

had substantially complied with the notice provisions of Code § 2301.359(c)(3). Audi did not

file any exceptions to the ALJs' findings of fact or conclusions of law that Mr. Weitz had

substantially complied with Code § 2301.359(c)(3), further indicating that Audi waived this

• 44

lSSUe.

42

Tenneco Inc. v. Emer. Prods. Co., 925 S.W.2d 640,643 (Tex. 1996).

H By moving forward with the proceeding and not complaining about notice, Audi, as explained in the Rountree

decision, waived its right to complain about notice.

44

Although Audi relies on the Rountree decision to support its strict compliance argument, the ALJs point out that

Audi never mentioned the Rountree decision during the original hearing or in any briefs or motions.

SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE 14

Even without the Ap1il 30, 2013 letter from Mr. Weitz to Ms. Grimes, the ALJs find that

Intervenors substantially complied with Code § 2301.359 notice provisions. The April 30th

letter is one more document and piece of information that supports substantial compliance with

Code § 2301.359. The April 30th letter, however, does not show that Mr. Weitz (and

Intervenors) strictly complied with Code§ 2301.359(c)(3). Although the ALJs find the case law

strongly supports substantial compliance as the standard, if the Board finds that the Rountree

decision controls and requires strict compliance, the evidence does not necessarily show that

Intervenors strictly complied with Code§ 2301.359(c)(3) because they did not provide a written

statement to comply with the franchise with their initial application. 45 Although the notice to

comply with the franchise wa~ not sent with the initial application or amended application, the

evidence shows that Mr. Weitz intended for the April 30th letter (although sent later in the

application process and after the April 16, 2013 rejection letter) to be part of the original

application because Mr. Weitz references the December 14,2012 DPC and the February 9, 2014

amended DPC.46 Furthermore, Mr. Weitz sent the April 30th letter on behalf of himself, Hi Tech

North, and Hi Tech South, the prospective transferees. 47

Because Audi failed to raise the notice issue as a preliminary matter and, in fact, did not

raise the issue until eight months after the case had been referred to SOAH, Audi waived the

notice requirement under Code § 2301.359(c)(3), whether the Board finds the standard to be

strict or substantial compliance. The case law, however, supports substantial compliance as the

appropriate standard for the notice requirements under Code§ 230L359(c)(3). Furthermore, the

evidence shows that Intervenors substantially complied with Code § 2301.359(c)(3). Finally,

Audi admitted in its reply to the protest that Intervenors had complied with Code

§ 2301.359(c)(3).

45

The ALJs find that the Rountree decision focuses more on waiver of notice requirements as opposed to a

discussion of strict versus substantial compliance of notice requirements. The Rountree decision finds that a party

can waive notice requirements, which strongly suggests substantial compliance as the appropriate standard.

46

Intervenors Ex. No. 242. Attached to the April 30th letter were the original and amended applications for each

dealership.

47

Tr. at 56-60.

SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE IS

V. REVIEW OF QUALIFYING CONDITIONS IN FINDINGS OF FACT

A. The Remand Order

In the Remand Order, the Board requested that the ALJs review the qualifying conditions

set forth in FOF Nos. 154~ 158, 48 Intervenors' Motion to Find the Prospective Transferees

Qualified (Motion), and Audi's Response (Response) to the Motion. The Remand Order also

directed the ALJs to provide a specific finding that prospective transferees either are qualified or

are not qualified. The following constitutes the FOFs under review and specific findings of the

ALJs concerning the qualifications of the prospective transferees.

B. Review ofFOF Nos. 155 and 156: Operational Acumen Requirements

FOF 155: The operational acumen requirement can be resolved between the overly~

qualified majority owner (Mr. Weitz and Hi Tech Partners) and the under~qualified

minority owner (Headwater Hi Tech) only if Headwater Hi Tech completely and

fully relinquishes its contractual operational control to give written consent on any

and all dealership management decisions whatsoever, including, but not limited to,

indebtedness, expenditures, or employee pay, and instead, occupies the role of a

"silent" investment partner.

FINDING: The Prospective Transferees have complied with this requirement.

FOF 156: The operational acumen requirement can be resolved if Headwater Hi

Tech completely and fully relinquishes its contractual operational control to a Forced

Sale, or any provision that resembles a Forced Sale section, and instead, proceeds as

a "silent" investment partner.

FINDING: The Prospective Transferees have complied with this requirement.

48

The section where Findings of Fact (FOF) Nos. l54v] 58 are found is entitled "Retention of Jurisdiction" The

first FOF under that section, FOF 154, states "[t]he Intervenors, as the prospective transferees, are not qualified but

would be qualified under the specific conditions set forth in the Findings of Fact below." Thus, FOF 154 will not be

reviewed separately, except in the context of the other FOFs.

SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE 16

1. Background

To better understand the issues, it is essential to examine the complex ownership

structure of the four proposed dealerships at issue in this case. 49 At the dealership level, each of

the four dealerships being purchased will be owned by a separate limited liability company

"doing business as" Porsche of Austin, Maserati of Austin, Audi South Austin, and Audi North

Austin (the Dealership Entities). The four Dealership Entities, respectively, are Hi Tech Italian

Imports, LLC (Hi Tech Italian); Hi Tech Imports; Hi Tech South; and Hi Tech North. Each of

the Dealership Entities is wholly owned by a holding company, Motorcars.

Hi Tech Partners, LLC owns 50.1% of Motorcars. Mr. Weitz is the manager of Hi Tech

Partners. Through NICPA Austin Motorcars, LLC (NICPA) 50 and the Weitz 1998 Trust,

Mr. Weitz is the sole owner of Hi Tech Partners.

The second largest owner of Motorcars, with a share of 46.36%, is Headwater Hi Tech

Partners, LLC (Headwater Hi Tech). Headwater Hi Tech was created specifically for this

transaction, and is an investment mechanism through which Headwater LP will provide its

investment into Motorcars. At present, Headwater Hi Tech is wholly owned by Headwater GP.

Once Headwater LP funds Headwater Hi Tech by infusing capital into Headwater Hi Tech,

Headwater LP will become the 100% owner of Headwater Hi Tech, and Headwater GP will

relinquish all of its ownership interest in that company.

The remainder of Motorcars, 3.54%, ts owned by Charles Ross Bartley and

K. Rick Tumer, either individually or through entities controlled by them. Mr. Bartley,

individually, owns 1.034% of Motorcars. Equity Trust Company FBO Charles Ross Bartley

Individual Retirement Account (Bartley IRA) owns .295% of Motorcars. The K. Rick Turner

Revocable Trust (Turner Trust) owns 1.625% of Motorcars and the Turner Family Partnership

(Turner Partnership) owns .591% of Motorcars.

49

See Proposal for Decision at 4-5.

50

NICPA was created specifically for this transaction. It is named after Mr. Weitz's two children, Nicole and Paul.

Mr. Weitz is the Manager ofNICPA.

SOAH DOCKET NO. 608-J3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE 17

In sum, the four dealerships are l 00% owned by Motorcars, which is composed of:

• 50.1% Hi Tech Partners (Mr. Weitz and his family trusts);

• 46.36% Headwater Hi Tech (Corbin Robertson III, co-managing partner); and

• 3.54% by Charles Ross Bartley and K. Rick Turner, either individually or

through entities.

To put the operational acumen requirement controversy in context, Code § 2301.359

provides the factors that a manufacturer may consider in determining whether to approve or

reject an application: (I) the transferee's.financial and operational performance as a dealer, if the

transferee is or has been a franchised dealer; (2) the transferee's moral character; or (3) the extent

to which a transferee satisfies any criteria developed by the manufacturer and made available to

the transferee, specifically to determine the business experience and financial qualifications of a

transferee. 5 1 As to the criteria, the manufacturer may only consider criteria developed by the

manufacturer if they are in writing, reasonable, and uniformly applied in similar situations. 52 A

manufacturer may not reject a transferee who is of good moral character and who satisfies the

criteria developed by the manufacturer. 53

In the PFD, the ALJs categorized Audi's rejection reasons into three broad categories:

(l) the control of the Audi dealerships would have been placed at risk (operational control);

(2) the proposed owners lacked sufficient operational acumen (operational acumen); and (3) the

transaction did not meet Audi's 1:1 debt-to-equity ratio requirement (debt-to-equity

54

requirement).

As relevant to the Remand Order and FOFs 155 and 156, in the Turndown Letter, Audi

rejected the transaction because Headwater Hi Tech's ownership share, via its $15.7 million

investment, was contingent upon excessive operational control conditions contained in a written

51

Code§ 2301.359(g)(l), (2), and (3).

52

Code§ 230 1.359(h).

53

Code§ 2301.359(i).

54

See PFD at 24.

SOAH DOCKET NO. 608-l3-4599.LlC REMAND PROPOSAL FOR DECISION PAGE 18

agreement. In particular, as alleged by Audi in the original hearing in March 2014, Headwater

Hi Tech had excessive operational control in the form of a contractual right in the First Amended

Motorcars' Agreement to give vvritten consent (Written Consent) on major dealership

management decisions and the ability to have a "Forced Sale" (Forced Sal

This text is long and has been trimmed here. Open the source document for the complete record.