Petition — 49er Chevrolet and Richard E. Wilmshurst v. Chevrolet Motor Motor Division, General Motors Corporation

Supreme Court brief1984

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‘ JAN 28 @h4

‘

In the Supreme Cotitt © °°“

OF THE

United States

Octoser Term, 1983

49er Cuevrovet and Ricuarp kb. WiLMsuvrst,

Appellants,

vs.

CHEVROLET Motor Division,

GeNeRAL Morors CorporaTIon,

Respondent.

Petition for a Writ of Certiorari to the

Court of Appeal of the State of California,

First Appellate District

Ricuarp E. WiLMsHvrRstT per se

49er CHEVROLET

P.O. Box 49

Angels Camp, CA 95222

Telephone : (209) 736- 2514

BOWNE OF GAN FRANCISCO. INC + 190 NINTH ST + 6.F . CA ©4108 © (415) 864-2900

QUESTIONS PRESENTED

WOULD THIS COURT'S HOLDING IN GIBSON v.

BERRYHILL, FINDING SUBSTANTIAL PECU-

NIARY INTEREST IN A BOARD OF OPTOMETRY

BASED UPON A FACTUAL AND SPECIFIC FIND-

ING OF PECUNIARY INTEREST BY THE TRIAL

COURT SUPPORT AN APPELLATE COURT'S DE

CISION THAT EVERY AUTOMOBILE DEALER

HAS A SUBSTANTIAL PECUNIARY INTEREST

IN ADMINISTRATIVE PROCEEDINGS WHEN AN-

OTHER AUTOMOBILE DEALER AND AUTOMO-

BILE MANUFACTURER ARE PARTIES TO A CON-

FLICT TO BE DECIDED AND THERE ARE NO

FACTS PRESENT LINKING A SUBSTANTIAL

FINANCIAL INTEREST TO ANY OF THE ADJUDI-

CATING DEALERS!

WOULD THE CHALLENGE PROCEDURES IN THE

CALIFORNIA ADMINISTRATIVE CODE PROVIDE

AN ADEQUATE REMEDY FOR ALL PARTIES TO

AN ADMINISTRATIVE HEARING, TO PURGE THE

BOARD OF ANY BIAS ADJUDICATORS SO THAT

A FAIR HEARING WOULD BE AVAILABLE TO

ALL PARTIES AND MEET THE DUE PROCESS

REQUIREMENTS OF THE FOURTEETH AMEND-

MENT?

iil

TABLE OF CONTENTS

Page

Se i

a asasidnmsasisnensonaeastennte 2

Jurisdiction .... Os aii iac cas ecdeeeeenennicutchanues Ee

Statutory provisions involved 220.0000... 2

Ne csc cannotemeepennonannen 3

The questions are substantial ............. ilies deiphetoniep conan 5

There must be specific facts alleged, upon which a

court could reasonably find bias, before one or more

persons on an administrative board can be deter-

mined to be bias and that Board's makeup declared

unconstitutional (and), in violation of the due proc-

ess clause of the Fourteenth Amendment —.................. 5)

The challenge procedure in the California administra-

tive code provides an adequate remedy for all par-

ties to an administrative hearing to purge the board

of any bias adjudicators so that a fair hearing

would be available to all parties and meet the due

process standards of the Fourteenth Amendment ... 10

Conclusion _......... i a ee so Na 13

iii

TABLE OF AUTHORITIES CITED

Cases

Page

American Motors Sales Corp. v. New Motor Vehicle

Bd., (1977) 69 Cal.App.3d 983, 138 Cal.Rptr. 594 ........

<acaciidoinateatnsiiigaliiahibssidaki Lieatabastailaiai ata daciinam 4, 6,7, 8,9, 11

Chevrolet Motor Division v. New Motor Vehicle Board

(1983) 146 Cal. App.3d 533, 194 Cal.Rptr. 270 ............ 2

Friedman vy. Rogers (1979) 440 U.S. 1, 99 S.Ct. 887, 59

EE CHU sitinisicnsas ica cs csnict vinsehicipnngdiantaniditipinadilieninisdiabie 6

Gibson v. Berryhill (1973) 411 U.S. 564 00000... 5, 7,8

Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S.

356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973)... 7,11

Myers v. Bethlehem Shipbuilding Corp. (1938) 303

U.S>41, 58 S.Ct. 459, 82 L.Ed. 688 0000... 11

New Motor Vehicle Board et al. v. Orrin W. Fox Co.

et al. (1978) 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d

ele ciddindactadieaialaiaindede niitensistidoitisiellchniinadeeiiteidaseanddl 7, 8,9

Republic Industries v. Central Pa. Teamsters (1982)

ee PTI sec icutncsssieaeeissdisdeincnedbieaptngnlbatiaditnctnthcishialidadatic. 12

United States Constitution

Due Process Clause of the Fourteenth Amendment of

the Constitution of the United States 0.000000... 1, 2, 4,8

Se a a Ce iciteiciiscccicecndesshitcnvtiinanistannctieesadiaas 4

I i CI III caiccncsicis srcciciemssialechptenmeninsabticaeiesaanaaiioaniads 4

I Se OO ede 2

Tas_e or AuTHorities CrTep

Other Authorities

Page

The California Administrative Code, Title 13, Section

991.1 (“551.1 or challenge”)

California Vehicle Code :

Section 3000

Section 3001

Section 3003

Section 3010 .

Section 3050(d)

Section 3060

Section 3061

Section 3062 ..

Section 3066

Section 3066(b)

Section 3066(d)

Section 3068

Section 3069

10, 11

1, 2,3

In the Supreme Court

OF THE

United States

Ocroser Term, 1983

49er Cuevrovet and Ricuarp bh. Wi_Msuvrst,

Appellants,

vs.

CuevroLtet Motor Division,

GENERAL Motors CorporaTIoN,

Respondent.

Petition for a Writ of Certiorari to the

Court of Appeal of the State of California,

First Appellate District

JURISDICTIONAL STATEMENT

Petitioners, 49ER Chevrolet and Richard E. Wilmshurst,

the named dealer of record (“49ER”) respectfully pray

that a Writ of Certiorari issue to review the judgment and

opinion of the Court of Appeal of the State of California,

First Appellate District entered in this proceeding on Au-

gust 25, 1983 and on which the Supreme Court of the State

of California denied Petitioner's petition for hearing by an

order made and filed on October 20, 1983. The judgment

and opinion rendered in favor of Respondent Chevrolet

Motor Division, General Motors Corporation (“Chevrolet”)

held that a provision of the California Automobile Fran-

chise Act (California Vehicle Code §§ 3000-3069) violated

the Due Process Clause of the Fourteenth Amendment.

Additional parties to this action are the New Motor

Vehicle Board of the State of California (‘“‘Board”) and

the Northern California Motor Car Dealers Association

and Motor Car Dealers Association of Southern California

(“Association”), both of whom seek review of the said

judgment, Petitioners are informed and believe both of

the additional petitioners are filing Petitions for a Writ

of Certiorari in this action with this Court.

OPINION BELOW

The opinion of the Court of Appeal of the State of Cali-

fornia is reported as Chevrolet Motor Division v. New

Motor Vehicle Board (1983) 146 Cal.App.3d 533, 194 Cal.

Rpr. 270 and appears in the appendix hereto as Exhibit A.

JURISDICTION

The judgment of the Court of Appeal of the State of

California, First Appellate District was entered on Au-

gust 25, 1983. The Court of Appeal denied a timely peti-

tion for rehearing on September 23, 1983. Thereafter, on

October 20, 1983, the Supreme Court of California denied

a petition for hearing. This Petition for Certiorari was

filed within 90 days of that date. The jurisdiction of this

Court is invoked under 28 U.S.C. § 1257 (3).

STATUTORY PROVISIONS INVOLVED

The provisions of the California Automobile Franchise

Act that were held to violate the Due Process Clause of the

Fourteenth Amendment in the California Court of Appeal

opinion are California Vehicle Code §§ 3050 (d) and 3066

(d). Those pertinent sections, as well as portions of Cali-

fornia Vehicle Code §§ 3000, 3001, 3003, 3010, 3060 and 3061

are set out verbatim in the Appendix as Exhibit B. (All

sections are of the California Vehicle Code unless other-

wise indicated)

STATEMENT OF THE CASE

Chevrolet notified 49ER Chevrolet and Richard E.

Wilmshurst (“49ER”) its franchised dealer in Angels

Camp, California that 49ER’s existing franchise would not

be renewed when it expired. The Wilmshurst family has

been the Chevrolet dealer in Angels Camp since 1933. Pur-

suant to § 3060, 49ER protested Chevrolet’s refusal to

continue the existing franchise relationship. Under § 3060,

Chevrolet could not lawfully refuse to continue 49ER’s

franchise unt’! 49FR’s protest was heard by the Board in

accordance with § 3066. At the hearing, Chevrolet was

required by §3066(b) to prove that it possessed good

cause for the franchise non-continuance. The Board is

directed by § 3061 to consider a number of pertinent facts

involving the operation of the dealership involved in the

good cause hearing, such as the volume of the dealership’s

business relative to the business available, amount of the

investment by the franchisee and the adequacy of the deal-

ership’s sales and service facilities.

Following a hearing, the Board sustained 49ER’s pro-

test. Thereafter Chevrolet petitioned the San Francisco

Superior Court for a writ of administrative mandamus to

vacate the Board’s decision. Chevrolet claimed the Board

action was improper for many reasons, including the argu-

ment the Board had exceeded its jurisdiction in hearing

the 49ER protestant and that the Board was not an impar-

tial tribunal because the dealer members of the Board had

a substantial pecuniary interest in the proceeding and such

a biased tribunal violated Chevrolet’s right to due process

of law. The Superior Court granted the writ on both of

the grounds urged by Chevrolet, the California Court of

Appeal considered only the biased tribunal argument in

affirming the trial court judgment.

49ER, the Board and the Association petitioned the

Supreme Court of California, in a timely manner, for a

hearing on the decision of the Court of Appeal. The Cali-

fornia Supreme Court, the highest state court in which

a decision could be rendered in this matter, denied the

petitions on October 20, 1983, and 49ER now seeks a writ

of certiorari from this Court within ninety days following

that denial.

In the trial court, Chevrolet specifically alleged in its

petition for a writ of mandate that the participation of

the dealer members of the Board in the 49ER non-continu-

ance hearing violated Chevrolet’s rights under the Due

Process Clause of the Fourteenth ‘Amendment of the Con-

stitution of the United States.

Chevrolet based its argument in the Superior Court on

the rationale of American Motors Sales Corp. v. New

Motor Vehicle Bvard, (1977) 69 Cal.App.3d 983, 138 Cal.

Rpr. 594 (Set forth in appendix C), the holding that dealer

members of the Board had a substantial pecuniary interest

in all protest hearings. The trial court and the Court of

Appeal each referred to the Federal Due Process holding

in American Motors.

Congress preempted the states in the regulation of the

relationship between the automobile manufacturer and

dealers when the Dealer’s Day in Court Act was passed

in 1956. (Title 15 U.S.C. 1221 et seq.) The California Auto-

mobile Franchise Act, along with acts regulating the dealer

manufacturer relationship in forty-eight other states are

authorized by Title 15, U.S.C. 1225.

In an area of interstate commerce, such as the — ‘o-

mobile industry, that is regulated by Federal law and

where permission is given to the states to implement but

not conflict with Federal law, the constitutional standards

applicable to State and Federal regulations should be that

of the United States Constitution so that the same applica-

tion will be had throughout the fifty states

THE QUESTIONS ARE SUBSTANTIAL

THERE MUST BE SPECIFIC FACTS ALLEGED, UPON

WHICH A COURT COULD REASONABLY FIND

BIAS, BEFORE ONE OR MORE PERSONS ON AN

ADMINISTRATIVE BOARD CAN BE DETERMINED

TO BE BIAS AND THAT BOARD’S MAKEUP DE.

CLARED UNCONSTITUTIONAL (AND), IN VIOLA.

TION OF THE DUE PROCESS CLAUSE OF THE

FOURTEENTH AMENDMENT

This Court’s opinion is necessary to establish the proper

procedure and standard to determine whether bias is pres-

ent in a class of adjudicators, when one of the parties to

the adjudication, challenges the class for bias based upon

the allegation of a substantial pecuniary interest.

This Court agreed with the District Court in Gibson v.

Berryhill (1973) 411 U.S. 564 that the Alama Board of

Optometry, made up of only self-employed optometrists

was in a position to and was presently engaged in, attempt

ing to have the licenses of optometrists employed by cor-

porations suspended. If the Alabama Board were success.

ful, then the business done by (corporation) optometrists

would become the business of the sole practitioners. Since

the (corpdration) optometrists amounted to 48% of the

optometrists in Alabama, the pecuniary interest of their

lost business would be substantial.

The court below, did not find evidence of bias, Chevrolet's

Consolidated Responding Brief, filed in the Court of Ap-

peal, admitted at page 35 that the Board was not biased in

this proceeding:

“But Chevrclet does not contend that the dealer mem-

bers were biased due to the particular fact of this case:

it contends that the dealers are biased in all dealer

termination cases and therefore can participate in

none of them. Chevrolet therefore directly challenges

the statutory scheme which says that dealers ‘may’ par-

ticipate in such adjudications and claims they may

not.”

The record in this proceeding does not contain allega-

tions or evidence of bias, much less any substantial pecu-

niary bias held by any of the dealer Board members, that

would support the decision of the Court of Appeal.

The Court of Appeal decision rests solely on the opinion

in American Motors Sales Corp. v. New Motor Vehicle Bd.,

(1977) 69 Cal. App.3d 983, 138 Cal.Rptr. 594.

The Amertcan Motors opinion turns on two points, (1)

that the legislature took sides by requiring four members

of the nine-person Board to be car dealers and (2) (that)

dealer Board members have a substantial pecuniary in-

terest in franchise termination cases.

This Court settled the first American Motors point in

’riedman v. Rogers (1979) 440 U.S. 1, 99 S.Ct. 887, 59

1. d.2d 100. This Court held:

“When local economic regulation is challenged solely as

violating the Equal Protection Clause, this Court con-

sistently defers to legislative determinations as to the

desirability of particular statutory discriminations.

See, e.g., Lehnhausen v. Lake Shore Auto Parts Co., 410

U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973). Unless

a classification trammels fundamental personal rights

or is drawn upon inherently suspect distinctions such

as race, religion, or alienage, our decisions presume

the constitutionality of the statutory discriminations

and require only that the classification challenged be

rationally related to a legitimate state interest.”

This Court settled the second American Motors point,

when it held the California Automobile Franchise Act was

related to a legitimate state interest in New Motor Vehicle

Board et al. v. Orrin W. Fox Co. et al, (1978) 439 U.S. 96,

99 S. Ct. 403, 58 L.Fd.2d 361.

Therefore the decision in For removes the suggestion

that new car dealers are a suspect class per se. In order

to find substantial pecuniary interest there must be evi-

dence upon which a court could reasopably determine that

the class or individuals of the class had a specific financial

interest in the particular proceeding, as this Court found

in Gibson, supra. Mere speculation and conjecture cannot

replace the evidence and specific course of conduct of the

Optometry Board found in Gibson.

The American Motors court speculated as to the dealers

prejudice for dealers and the respondent speculated as to

the dealers prejudice for the manufacturer, The court and

the respondent are both correct; the member or members

of any group, suspet or not could be bias in a particular

situation.

However, to reverse a decision of a Board based upon the

Due Process Clause there must be evidence of an actual

substantial pecuniary bias as this Court found in Gibson,

supra,

There is no evidence in the 49ER record or the American

Motors decision that the Board with dealer members par-

ticipating have been biased against automobile manufac-

turers. However, in the For case supra, this Court at

footnote 14 notes:

“... 117 protests have been filed under § 3062 since the

Act became effective (July 1, 1974). Of these, only 42

have gone to hearing on the merits, and only one has

been sustained by the Board...”

Mr. Justice Stevens, dissenting, at page 121 places these

results in another perspective :

“ .. it [the statute] places the burden of demonstrat-

ing that there is good cause not to permit the new

opening to take place on the objecting dealer. If the

scales are evenly balanced, the presumption will pre-

vail,

The California Board's actual administration of the

statute confirms this analysis. Of the first 117 protests

filed under the law, only 1 was sustained by the Board.

In other words, over 99% of the contested new dealer-

ships or relocations were found to be consistent with

the policy of the statute.”

The speculation and conjecture that dealer members of

the Board would slant decisions toward the dealers’ inter-

est expressed in American Motors becomes totally un-

founded when compared with the facts found in For.

After reviewing the performance of the Board this Court

found at page 107-108:

“Further, the California Legislature had the authority

to protect the conflicting rights of the motor vehicle

franchisees through customary and reasonable proce-

dural safeguards, i.e.. by providing existing dealers

with notice and an opportunity to be heard by an tm-

partial tribunal—the New Motor Vehicle Board—be-

fere their franchisor is permitted to inflict upon them

grievous loss. Such procedural safeguards cannot be

said to deprive the franchisor of due process.” (em-

phasis added)

This Court's decision in Fox overrules the American Mo-

tors case that preceded Fox by a year. There (is) no evi-

dence of bias within the dealer Board members or a showing

of a high percentage of protests decided against the manu-

facturers upon which this Court might change its previous

decision.

American Motors was overruled by For and any decision

based upon the due process holding in American Motors

must be reversed.

THE CHALLENGE PROCEDURE IN THE CALIFOR.-

NIA ADMINISTRATIVE CODE PROVIDES AN ADE.-

QUATE REMEDY FOR ALL PARTIES TO AN AD-

MINISTRATIVE HEARING TO PURGE THE BOARD

OF ANY BIAS ADJUDICATORS 8O THAT A FAIR

HEARING WOULD BE AVAILABLE TO ALL PAR-

TIES AND MEET THE DUE PROCESS STANDARDS

OF THE FOURTEENTH AMENDMENT

The California Administrative Code, Title 13, Section

551.1 (“551.1 or challenge”) provides an adequate remedy

for the parties to a dispute before the Board to have the

issue of Board member bias determined prior to the hear-

ing taking place.

"551.1 Challenge

A hearing officer or board member shall voluntarily

disqualify himself and withdraw from any hearing or

deliberation in which he cannot accord a fair and im-

partial hearing or consideration. Any party may re-

quest the disqualification of any hearing officer or board

member by filing an affidavit, prior to the taking of

evidence at a hearing, stating with particularity the

grounds upon which is claimed that a fair and impartial

hearing cannot be accorded. Where the request con-

cerns a board member, the issue shall be determined

by the other members of the board. Where the request

concerns the hearing officer, the issue shall be deter-

mined by the board, if the board itself hears the case

with the hearing officer, otherwise the issue shall be

determined by the hearing officer.” (emphasis added)

The Challenge procedure not only gives either party the

opportunity to purge the Board of any bias members, but

if the challenge is not upheld, there is evidence of the par-

ticular grounds in the challenging parties affidavit, for re-

view on appeal to the Superior Court."

As quoted from Chevrolet's Court of Appeal Brief, supra,

Chevrolet did not contend that the dealer members of the

Board were biased due to the facts of this case, however,

the dealer Board members were alleged to be somehow bias

in all dealer termination cases.

If Chevrolet believed this to be true, prior to the hearing

, taking place Chevrolet should have challenged each dealer

member for bias by affidavit establishing the specific

grounds. Chevrolet chose to watve this administrative

remedy.

If Chevrolet had challenged the dealer members of the

Board and the four members had recused, the Board was

still functional, as only three members of the Board are

necessary for a quorum in § 3060 or § 3062 hearings. (See

§ 3010)

It is a “long settled rule of judicial administration that

no one is entitled to judicial relief for a supposed or

threatened injury until the prescribed administrative rem-

edy has been exhausted.” Myers v. Bethlehem Shipbuilding

Corp., (1938) 303 U.S. 41, 50-51, 58 S.Ct. 459, 463-64, 82

L.Ed. 638.

When American Motors, supra, was decided by the

Board in 1974, the Challenge procedure (551.1) was not

in effect. (§ 551.1 became effective on January 28, 1976)

Although Lehnhausen, supra, was the law with regard to

board member classification, the case was neither men-

tioned or distinguished in American Motors.

* §3068 provides that either party may seek judicial review from

a final decision of the Board within 45 days.

An excellent discussion of the purpose of exhausting

administrative remedies is present in Republic Industries

v. Central Pa. Teamsters (1982) 693 F.2d 290 and applies

to this proceeding.

Chevrolet waived its right to have this case decided on

Due Process grounds when it failed to follow the Chal-

lenge procedure available to it in the administrative proc-

ess. The Republic court found:

“. . . fact-finding functions may be particularly im-

portant in the resolution of cases involving consti-

tutional issues.” (P-293)

If there were merit to Chevrolet's allegation of bias

among the dealer Board members, the Challenge procedure

would have provided evidence, upon which the Board

could have acted, prior to the hearing, purging the Board

of bias members and provided a fair hearing. On the other

hand, if the Board did not act upon the evidence of bias

provided by Chevrolet, on review, a lower court could have

ordered a re-hearing before an unbias Board.

The reason for requiring the exhaustion of administra-

tive remedies is directly in point here as the Republic

court stated:

“... even if the court must reach the constitutional

issues, the administrative tribunal will have developed

the factual matrix so vital to constitutional decision-

making. Hodel v. Virginia Surface Mining d Reclama-

tion, Association, 452 U.S. 264, 295-97, 101 S.Ct. 2352,

2370-71, 69 L.Ed.2d 1 (1981)” (P-293)

Over the years, administrative agencies, through the

direction of the courts, have promulgated procedures that

provide for fair and prompt adjudication of disputes. The

failure of a corporation, with the legal expertise of Gen-

eral Motors, to follow the procedure available to purge the

Board of believed bias and thereafter participate in the

hearing process as the legislature intended is inexcusable.

This proceeding should be remanded to the court below

to be decided on grounds other than due process; Chev-

rolet waived its right to review of the constitutional

makeup of the Board by failing to exhaust its administra-

tive remedies.

CONCLUSION

The standard of review for alleged pecuniary bias and

the duty of the party making the allegation to provide the

court with a meaningful record of the alleged bias in

an administrative adjudication are substantial questions

which require this Court’s attention.

Dated: January 18, 1984

Respectfully submitted,

RicHarp KE. WiLMsuurst per se

49er CHEVROLET

Appendix A

In the Court of Appeal

of the

State of California

First Appellate District

Division Three

A015529

(Super. Ct. No. 777974)

Chevrolet Motor Division, General Motors Corporation,

Plaintiff and Respondent,

Vv.

New Motor Vehicle Board, Defendant and Appellant ;

49er Chevrolet, Real Party in Interest and Appellant;

Northern California Motor Car Dealers Association, Inc.,

et al., Interveners and Appellants.

| Filed August 25, 1983}

This appeal is from a judgment granting a peremptory

writ of mandamus, ordering that a decision of the state’s

New Motor Vehicle Board (the Board) be set aside. Appel-

lants are the Board, real party in interest 49er Chevrolet

(49er), and two associations of car dealers, Northern Cali-

fornia Motor Car Dealers Association, Inc. and Motor Car

Dealers of Southern California, Inc. (Associations), who

were granted leave to intervene below. Respondent is Chev-

rolet Motor Division, General Motors Corporation (Chev-

rolet).

A-2

The relevant facts are as follows. Chevrolet notified 49er,

its dealer in Angels Camp, that when their existing fran-

chise agreement expired on October 31, 1980, a new agree-

ment would not be offered. 49er protested to the Board

pursuant to Vehicle Code section 3060,' which provides in

pertinent part that “no franchisor shall terminate or refuse

to continue any existing franchise” for the marketing of

new motor vehicles “unless” the Board “finds . . . good

cause for termination or refusal to continue” the franchise.

The Board consists of nine members, four of whom are

required to be new motor vehicle dealers. (§§ 3000, 3001.)

At a hearing on a dealer-manufacturer dispute, the dealer

members of the Board may participate, hear, and comment

or advise other members, but they may not “decide” the

matter. (§§ 3050, subd. (d), 3066, subd. (d).)

After a hearing, the Board sustained 49er’s protest.

Chevrolet then filed this action, seeking to require the

Board to vacate its decision. The trial court granted the

petition for writ of mandate on two grounds: (1) partici-

pation of dealer board inembers in the deliberative process,

without participation of manufacturers, deprived the man-

ufacturers of an impartial tribunal, violating due process;

and (2) the Board was without jurisdiction to hear 49er’s

protest as the manufacturer neither “terminat[ed] [nJor

refus[ed| to continue any existing franchise” within the

meaning of section 3060. This appeal followed.

‘Unless otherwise indicated, all statutory references are to the

Vehicle Code.

When the Board was originally established in 1967 as

the New Car Dealers Policy and Appeals Board, it func-

tioned much as do other state occupational licensing boards.

Among its duties, for example, was the hearing of appeals

by licensed dealers from decisions of the Department of

Motor Vehicles. (See Stats. 1967, ch. 1397, § 2, p. 3261 et

seq.; see American Motors Sales Corp. v. New Motor

Vehicle Bd. (1977) 69 Cal.App.3d 983, 986.) Four of the

Board’s nine members were required to be “new car deal-

ers.” (Stats. 1967, ch. 1397, § 2, pp. 3261-3262.)

In 1973 the Legislature renamed the Board the New

Motor Vehicle Board, and added sections 3060 to 3069,

which established a series of procedures for the adjudi-

cation of disputes between dealers and new car manufac-

turers. (Stats. 1973, ch. 996, § 16, p. 1967-1971.) Among

other duties, the Board was empowered to determine

whether there is “good cause” to terminate or refuse to

continue a franchise. ({ 3060.) The requirement that four

of the Board’s members be new car dealers was not

changed.

In American Motors Sales Corp. v. New Motor Vehicle

Bd., supra, 69 Cal.App.3d 983, a dealer-franchisee pro-

tested a noticed termination to the Board, which found that

good cause had not been shown. (/d., at p. 985.) As in the

present case, the franchisor challenged the Board’s deci-

sion by petitioning the superior court for relief in adminis-

trative mandamus. The superior court granted relief, con-

cluding that sections 3060 and 3066 of the Act violated

due process “‘hecause four of the nine members of the

A-4

Board are ... new car dealers, who may reasonably be

expected to be antagonistic to franchisors ... .’” (Ibid.)

In a 2-1 decision, the Court of Appeal affirmed, and the

Supreme Court denied a petition for hearing. After taking

note of “a long history of legal warfare between the auto-

mobile manufacturers and their dealers” (American Mo-

tors Sales Corp. v. New Motor Vehicle Bd., supra, 69 Cal.

App.3d at p. 986), the court found it “unavoidable that

dealer-members of the Board have an economic stake in

every franchise termination case that comes before them.

The ability of manufacturers to terminate any dealership,

including that of a Board member, depends entirely upon

the Board’s interpretation of ‘good cause.’ It is to every

dealer’s advantage not to permit termination for low sales

performance, which fact however is to every manufac-

turer’s disadvantage.” (/d., at p. 987.)

The court acknowledged that in some instances a dealer

Board member might be more financially interested in rul-

ing in favor of the manufacturer, i.e., where the franchise

of a competitor was being terminated, or where the dealer

wished to ingratiate itself with its own manufacturer. The

court viewed this not as fairness, but as an equalizing un-

fairness. “Either way, the objectionable feature of dealer-

membership on the Board is the distinct possibility that a

dealer-manufacturer controversy will not be decided on its

merits but on the potential pecuniary interest of the dealer-

members.” (American Motors Sales Corp. v. New Motor

Vehicle Bd., supra, 69 Cal.App.3d at pp. 987-988.)

The court distinguished cases holding that a licensing or

regulatory agency may constitutionally be composed in

A-5

whole or in part of members of the business regulated, on

the ground that the members of this Board were no longer

merely regulating members of their own occupation. In-

stead, they were regulating the economic and contractual

relations of others with members of their own occupation,

but “. . . car dealers have no unique or peculiar expertise

appropriate to the regulation of business affairs of car

manufacturers.” (American Motors Sales Corp. v. New

Motor Vehicle Bd., supra, 69 Cal.App.3d at pp. 990-991.)

The court then stated that the Legislature’s “require-

ment that the nine-man Board consist of at least four car

dealers” meant that “[i]n effect it [the Legislature] took

sides in all Board-adjudicated controversies between deal-

ers and manufacturers, making certain that the dealer

interests would at all times be substantially represented

and favored on the adjudicating body. This legislative

partisanship damns the Board.” (American Motors Sales

Corp. v. New Motor Vehicle Bd., supra, 69 Cal.App.3d

at p. 991.) “[T]he objectionable feature of dealer-member-

ship on the Board is the distinct possibility that a dealer-

manufacturer controversy will not be decided on its merits

but on the potential pecuniary interest of the dealer-

members.” (/d., at pp. 987-988.) “Because the challenged

Board members have a ‘substantial pecuniary interest’ in

franchise termination cases [citation], their mandated

presence on the Board potentially prevented a fair and

unbiased examination of the issues before it in this case,

in violation of due process.” (/¢d., at p. 992, original em-

phasis, fn. omitted.)

The court coneluded as follows: “What we hold is that

the combination of (1) the mandated dealer-Board mem

A-6

bers, (2) the lack of any counterbalance in mandated

manufacturer members, (3) the nature of the adversaries

in all cases (dealers v. manufacturers), and (4) the nature

of the controversy in all cases (dispute between dealer and

manufacturer) deprives a manufacturer-litigant of proce-

dural due process, because the state does not furnish an

impartial tribunal.” (American Motors Sales Corp. v. New

Motor Vehicle Bd., supra, 69 Cal.App.3d at p. 992: ef.

General Motors Corp. v. Capitol Chevrolet (Tenn. 1983)

645 S.W.2d 230; Ford Motor Company v. Pace (1960) 206

Tenn. 559 [335 S.W.2d 360]: Gen. GMC Trucks v. Gen.

Motors Corp. (1977) 239 Ga. 373 [237 S.F.2d 194].)

In reaction to the American Motors Sales Corp. decision,

the Legislature amended Section 3050, subdivision (d), and

added subdivision (d) to section 3066 to provide that no

member of the Board who is a new motor vehicle dealer

may participate in, deliberate on, hear or consider. or

decide, any matter involving a dispute between mannfac-

turer and dealer. (See Stats. 1977, ch. 278. §§ 2-3, pp.

1171-1173; Chrysler Corp. v. New Motor Vehicle Bd. ( 1979)

89 Cal. App.3d 1034, 1037.) However, in a 1979 enactment

which took effect as urgency legislation, the Legislature

again amended the statutes, this time providing that dealer

members of the Board “may participate in, hear, and com-

nent or advise other members upon, but may not decide,”

any matter involving a dealer-nanufacturer dispute.

($§ 3050, subd. (d), 3066, subd. (d): State. 1979, ch. 340,

) 1-2, pp. 1206-1207.) According to the Legislature's

declaration of urgeney, the amendment was necessary “{i}n

order that the edueated and needed advice of New Motor

A-7

Vehicle Board members who are themselves new motor

vehicle dealers may be utilized in the decision making

process of the board. . . .” (Stats. 1979, ch. 340, § 3, p.

1207.)

The trial court in this case concluded that the amend-

ments to sections 3050 and 3066 did not “cure the uncon-

stitutionality of the earlier provisions of the statute... .”

The court reasoned that although dealer-Board members

no longer have the right to vote, they have the opportunity

fully to participate otherwise in the adjudicatory process,

whereas the manufacturers are still left unrepresented.

First, appellants 49er and the Board argue that Chevro-

let was not entitled to raise this constitutional question

for the first time in the trial court. The general rule is

that an issue not raised at an administrative tribunal may

not be raised in subsequent judicial proceedings. (See,

e.g., City of Walnut Creek v. County of Contra Costa

(1980) 101 Cal.App.3d 1012, 1019-1020.) However, a

litigant who seeks to challenge the constitutionality of the

statute under which an agency operates need not raise that

issue in proceedings before the agency as a condition of

raising the issue in the courts. (See State of California v.

Supertor Court (1974) 12 Cal.3d 237, 250-951: Chrysler

Corp. v. New Motor Vehicle Bd., supra, 89 Cal.App.3d at

pp. 1038-1039.)

Here Chevrolet was seeking a declaration that the

statutes prescribing the Board's membership were uncon-

stitutional. The Board itself could not have granted this

relief because the Constitution expressly provides that an

“administrative agenev .. . has no power... [t]lo declare

A-S

a statute unconstitutional. ...” (Cal. Const., art. ITT, § 3.5.)

There was no waiver of Chevrolet’s right to raise the

constitutional issue in the trial court in these cireum-

stances.

The Board and 49er also argue that Chevrolet should

have requested that the dealer members “recuse” them-

selves from participating. The dealer members of the

Board constituted almost half of its total membership

(see §¢ 3000-3001), and as members they were authorized

to participate in franchise disputes. (See § 3050, subd. (d).)

If this argument were accepted, predictably automatic

requests for the recusal of dealer members would have

the effect of routinely depriving the Board of participation

by a substantial number of its members in situations

| involving one of its basic functions. Clearly their recusal

was not intended by the Legislature.

Next, appellants contend that American Motors is now

of questionable validity, in light of Andrews v. Agricultural

Labor Relations Bd. (1981) 28 Cal.3d 781. In that case,

the Supreme Court held that an administrative law officer

with expressed or “crystallized” political or legal views

cannot be disqualified on that basis alone, even if those

views result in an appearance of bias. (/d., at pp. 791,

793-794.) Appellants reason that the group antagonism and

economic conflict between dealers and manufacturers mean

that car dealer Board members at most may have “ervystal-

lized views” about policy issues in adjudications between

n«nufacturers and dealers. After Andrews, appellants

urge, absent proof of actual bias, such views are not enough

to support a holding that an adjudicator cannot provide

a fair tribunal.

A-9

However, the American Motors court did not find the

dealer Board members partial because of their views on

issues Of law or policy; rather, that court squarely held

that those Board members had an “economic stake” in

every franchise termination case which came before them.

The Andrews court itself acknowledged that no proof of

actual bias is required for disqualification when a judicial

officer has a financial interest in a case. (Andrews v. Agri-

cultural Labor Relations Bd., supra, 28 Cal.3d at p. 793,

fn. 5.)

Appellants then argue that the Board is not a biased tri-

bunal and its action in this case did not deny Chevrolet due

process because none of the “adjudicator members” of the

Board were biased. Appellants emphasize that there is no

contention made that any factor exists which could lead a

court to find that the five public members of the Board were

or are biased. According to appellants, the dealer members’

participation in these proceedings was solely to provide

expert advice, a function analogous to that provided to

other boards or commissions by agency staff members or

assistants. (See, e.g., Porter County Chapter v. Nuclear

Reg. Com’n (D.C. Cir. 1979) 606 F.2d 1363, 1370-1372.)

We are not persuaded by appellants’ attempts to mini-

mize the dealer Board members’ role in these proceedings.

Unlike agency staff, the dealer Board members have a fi-

nancial stake in every dealer-nanufacturer dispute which

comes before the Board. (American Motors Sales Corp. v.

New Motor Vehicle Bd., supra, 69 Cal.App.3d at p. 987.)

Nevertheless, they are permitted to participate actively in

hearings on dealer-manufacturer disputes, hear the evi-

dence, and comment upon and advise other Board members

A-10)

in such matters. In other words, although they must stop

short of actually voting on a dispute, they may take part

in every other aspect of the decision-making process, de-

spite their financial interest in the outcome of that process.

The Board has numerous powers and duties other than

hearing protests by dealers, and the dealer Board mem-

bers’ participation in.those other tasks is unrestricted. (See

) 3050.) Because of their ongoing working relationship,

public members of the Board may be influenced by argu-

ments or facts suggested by the dealer members but not in-

cluded in the publie record, and the partics themselves may

not have the opportunity to respond.

In short, the presence of biased members on the Board

presents a substantial probability that decisions in dealer-

manufacturer disputes will be made on the basis of inap-

propriate considerations, and the fact that those members

do not technically “decide” the dispute does not alter that

probability. Each of the factors enumerated in American

Motors is still present. The Board is still required by stat-

ute to have four dealer members. (See § 3001.) The statute

neither requires nor authorizes manufacturer members.

(See ibid.) The nature of the adversaries and the contro-

versies between them remains the same. These problems

have not been remedied by the subsequent changes in sec-

tions 3050 and 3066. Accordingly, the trial court did not err

when it concluded that participation of the Board's dealer

members in these proceedings denied Chevrolet an un-

biaxed tribunal.

In light of our conclusion, we need not consider appel-

lant= contention that the court also erred when it concluded

A-1l

that Chevrolet did not terminate or refuse to continue the

franchise within the meaning of section 3060.

Judgment is affirmed.

CERTIFIED FOR PUBLICATION

Scott,J.

We concur:

White, P.J.

Feinberg, J.

A-12

Appendix B

California Vehicle Code Sections

. . >

§ 3000. Board Created

There is in the Department of Motor Vehicles a New Mo-

tor Vehicle Board, which consists of nine members.

§ 3001. Qualifications of board members

Four of the appointive members of the board shall be new

motor vehicle dealers as defined in Section 426 who have

engaged for a period of not less than five years preceding

their appointment in activities regulated by Article 1 (com-

mencing with Section 11700) of Chapter 4 of Division 5.

These members shall be appointed by the Governor.

Each of the five remaining appointive members shall be a

public member who is not a licentiate under Article 1 * * *

of Chapter 4 of Division 5 or an employee of such licentiate

at the time of such appointment and one of these five ap-

pointive members shall have been admitted to practice law

in the state for at least 10 years immediately preceding his

appointment. One public member shall be appointed by the

Senate Rules Committee, one by the Speaker of the Assem-

bly, and three by the Governor.

Each member shall be of good moral character.

° . °

£3003. Terms of office

Each appointive member of the board shall be appointed

for a term of four years and shall hold office until the ap-

pointment and qualification of his successor or until six

montis shall have elapsed since the expiration of the term

for which he was appointed, whichever first occurs.

§ 3010. Quorum

Five members of the board shall constitute a quorum for

the transaction of business, for the performance of any

duty or the exercise of any power or authority of the board,

except that three members of the board, who are not new

motor vehicle dealers, shall constitute a quorum for the

purposes of Article 4 (commencing with Section 3060) of

this chapter.

§ 3050. Duttes

The board shall do all of the following:

(d) Hear and consider, within the limitations and in accord-

ance with the procedure hereinafter provided, a protest

presented by a franchisee pursuant to Section 3060, 3062,

3064, or 3065. A member of the board who is a new motor

vehicle dealer may participate in, hear, and comment or

advise other members upon, but may not decide, any matter

involving a protest filed pursuant to Article 4 (commencing

with Section 3060).

§ 3060. Termination of Franchtse

Notwithstanding the terms of any franchise, no franchisor

shall terminate or refuse to continue any existing franchise

unless:

(a) The franchisee and the board have received written

notice from the franchisor as follows:

(1) Sixty days before the effective date thereof setting

forth the specific grounds for termination or refusal to

continue.

A-14

(2) Fifteen days before the effective date thereof setting

forth the specific grounds with respect to any of the fol-

lowing:

(i) Transfer of any ownership or interest in the franchise

without the consent of the franchisor, which consent shall

not be unreasonably withheld.

(ii) Misrepresentation by the franchisee in applying for

the franchise.

(iii) Insolvency of the franchisee, or filing of any petition

by or against the franchisee under any bankruptcy or re-

ceivership law.

(iv) Any unfair business practice after written warning

the-eof.

(b) The board finds that there is good cause for termina-

tion or refusal to continue, following a hearing called pur-

suant to Section 3066. The franchisee may file a protest

with the board within 30 days after receiving a 60-day

notice, or within 10 days after receiving a 15-day notice.

When such a protest is filed, the board shall advise the

franchisor that a timely protest has been filed, that a hear-

ing is required pursuant to Section 3066, and that the

franchisor may not terminate or refuse to continue until

the board makes its findings.

franchisee, or the appropriate period for filing a protest

has elapsed.

The franchisor shall not modify or replace a franchise with

a succeeding franchise if such modification or replacement

would substantially affect the franchisees sales or service

A-15

obligations or investment, unless the franchisor shall have

first given the board and each affected franchisee notice

thereof at least 60 days in advance of such modification or

replacement. Within 30 days of receipt of such notice, a

franchisee may file a protest with the board and such modi-

fication or replacement shall not become effective until there

is a finding by the board that there is good cause for such

modification or replacement. If, however, a replacement

franchise is the successor franchise to an expiring or ex-

pired term franchise, such prior franchise shall continue in

effect until resolution of the protest by the board. In the

event of multiple protests, hearings shall be consolidated

to expedite the disposition of the issue.

§ 3061. Good Cause

In determining whether good cause has been established

for modifying, replacing, terminating, or refusing to con-

tinue a franchise, the board shall take into consideration

the existing circumstances, including, but not limited to:

(1) Amount of business transacted by the franchisee, as

compared to the business available to the franchisee.

(2) Investment necessarily made and obligations incurred

by the fanchisee to perform its part of the franchise.

(3) Permanency of the investment.

(4) Whether it is injurious or beneficial to the public

welfare for the franchise to be modified or replaced or the

business of the franchisee disrupted.

(5) Whether the franchisee has adequate motor vehicle

sales and service facilities, equipment, vehicle parts, and

qualified service personnel to reasonably provide for the

A-16

needs of the consumers for the motor vehicles handled by

the franchisee and has been and is rendering adequate

services to the public.

(6) Whether the franchisee fails to fulfill the warranty

obligations of the franchisor to be performed by the

franchisee.

(7) Extent of franchisee’s failure to comply with the terms

of the franchise.

. ° °

§ 3066. Hearings on Protests

(a) Upon receivi a notice of protest pursuant to Section

3060, 3062, 3064, or 3065, the board shall fix a time, which

shall be within 60 days of such order, and place of hearing

and send by registered mail a copy of the order to the

franchisor, the protesting franchisee, and all individuals

and groups which have requested notification by the board

of protests and decisions of the board. The board, or a

hearing officer designated by the board, shall hear and

consider the oral and documented evidence introduced by

the parties and other interested individuals and groups,

and the board shall make its decision solely on the record

so made. Government Code Sections 11507.6, 11507.7,

except subdivision (c), 11510, 11511, 11513, 11514, 11515,

and 11517 shall be applicable to such proceedings.

(b) In any hearing on a protest filed pursuant to Section

3060 or 3062, the franchisor shall have the burden of

proof to establish that there is good cause to modify,

replace, terminate, or refuse to continue a franchise. The

franchisee shall have the burden of proof to establish there

is good cause not to enter into a franchise establishing or

relocating an additional motor vehicle dealership.

A-17

3064 or 3065, the franchisee shall have the burden to estab-

lish that the schedule of compensation or the warranty

reimbursement schedule is not reasonable.

(d) A member of the board who is a new motor vehicle

dealer may participate in, hear, and comment or advise

other members upon, but may not decide, any matter in-

volving a protest filed pursuant to this article. Dealer

participation shall be recorded in the minutes of the

meeting.

A-18

Appendix C

Civ. No. 15971. Third Dist. May 23, 1977

American Motors Sales Corporation,

Plaintiff and Respondent,

New Motor Vehicle Board of the State of California,

Defendant and Appellant;

Ken Collins,

Real Party in Interest.

OPINION

Paras, J.—On April 24, 1974, American Motors Sales

Corporation (hereinafter “American Motors’) notified its

South Lake Tahoe dealer, Ken Collins, that it would ter-

minat sis Jeep franchise in 90 days for “failure to develop

a suffwient sales volume... .” On July 26, 1974, Collins

filed a protest with the New Motor Vehicle Board of the

State of California (hereinafter “Board”) under Vehicle

Code section 3060.'

A hearing was held under section 3066, and the hearing

officer’s proposed decision found “good cause” for termina-

tion, (§ 3060, subd. (b)). But the Board rejected the pro-

posed decision, took additional testimony from the zone

manager of American Motors and from Collins, and con-

cluded that the termination was without good cause. Amer-

ican Motors then suecessfully sought a writ of mandate

from the superior court. The trial judge ruled that seetions

'Unless otherwise noted. all section references are to the Califor-

nia Vehicle Code.

A-19

3060 and 3066 are violative of due process of law under

article I, section 7 of the California Constitution and sec-

tion | of the Fourteenth Amendment to the United States

Constitution, “because four of the nine members of the

Board are, by statute, (Vehicle Code section 3001), new

car dealers, who may reasonably be expected to be antag-

‘

onistie to franchisors such as American Motors.’

The Board appeals, and is supported in this court by

the Northern California Motor Car Dealers Association

and the Motor Car Dealers Association of Southern Cali-

fornia, amici curiae.

There is a long history of legal warfare between the

automobile manufacturers and their dealers, ranging fromm

the “military discipline” of the Ford Motor Company in

the 1920's to litigation under the 1956 federal ‘‘Dealers

Day in Court Act,” (15 U.S.C. §§ 1221-1225)? The act

provides in part that “An automobile dealer may bring suit

against any automobile manufacturer engaged in com-

merce, in any district court of the United States... and

shall recover ... damages ... by reason of the failure

of said automobile manufacturer ... to act in good faith

. in terminating, cancelling, or not renewing the fran-

chise with said dealer.” (15 U.S.C. 6 1222.) (Ttalies added.)

The aet does not however preempt state laws (15 U.S.C.

< 1225).

“An excellent review of this history, from both a legal and socio-

logical perspective, is in Macaulay, Stewart, Law and the Balance of

Power: The Automobile Manufacturers and their Dealers (New

York: Russell Sage Foundation, 1966).

A-20

The Board (originally called the “New Car Dealers

Poliey and Appeals Board”) was established in 1967 to

hear appeals of new car «lealers regarding licensing by

the Department of Motor Vehieles. (4§ 3000, 3050.) Its

duties at that time* were substantially the same as those

of many other state occupational licensing boards: and as

with other boards,’ the Legislature mandated that certain

of the Board members (four of the nine) be new car deal-

ers (§ 3001). In 1973, the Legislature renamed the Board

the “New Motor Vehicle Board,” and added sections 3060

to 3069 which became operative July 1, 4974. These statutes

established a series of procedures for the adjudication of

disputes between two distinct classes of litigants, new car

dealers and new car manufacturers. They empower the

Board to resolve controversies relating to: (1) whether

there is “good cause” to terminate or to refuse to continue

a franchise (4 3060): (2) whether there is “good cause”

not to establish or relocate a motor vehicle dealership in

‘Originally the Board’s functions were:

1. To prescribe rules and regulations relating to the licens-

ing of new car dealers;

2. To hear and consider, within certain limitations, an ap-

peal by an applicant for or the holder of a license as a new

car dealer from an action or decision by the Department of

Motor Vehicles; and

3. To consider any other matter concerning the activities

or practices of applicants for or holders of licenses as new car

dealers. ( § 3050.)

‘In its opening brief the Board lists 21 instances of other occupa-

tional licensing boards a majority of whose members must be li-

censees. Examples are the Board of Governors of the State Bar (15

of 21, Bus. & Prof. Code, §§ 6013, 6013.5). State Board of Cos-

metology (3 of 5, Bus. & Prof. Code, § 7301), State Board of Ac-

countancy (6 of 8, Bus. & Prof. Code, § 5000), and Board of Dental

Examiners (7 of 8, Bus. & Prof. Code, § 1601).

A-21

a “relevant market area” (4 3062); (3) delivery and prep-

aration obligations (§ 3064): and (4) warranty reimburse-

ment (§ 3065).

The result is that although under the 1973 legislation the

adversaries before the Board invariably derive from two

distinct groups, dealers and manufacturers, the Board

which resolves their disputes must include four members

from the dealer group but need not include any members

from the manufacturer group. Does an administrative

tribunal so constituted meet the requirements of due proc-

ess? Is it such “ta competent and impartial tribunal in ad-

ministrative hearings” (Peters rv. Kiff (1972) 407 U.S. 493

(33 L.Ed.2d 83, 92 S.Ct. 2163]) as to comport with due

process? We agree with the trial judge’s negative answer

to these questions.

The conclusion is unavoidable that dealer-members of the

Board have an economic stake in every franchise termina-

tion case that comes before them. The ability of manufac-

turers to terminate any dealership, including that of a

Board member, depends entirely upon the Board's inter-

pretation of “good cause.” It is to every dealer’s advan-

tage not to permit termination for low sales performance,

which fact however is to every manufacturer’s disadvan-

tage. As Professor Macauley puts it: “For example, a Ford

dealer might be able to make a hundred dollar profit on

the sale of one car or a ten dollar profit on each sale of ten

cars. The immediate result of either strategy is the same

for the dealer, but clearly the impact on the Ford Motor

Company differs greatly, because in one case it sells only

one car while in the other it sells ten. And even if our

hypothetical Ford dealer sells ten cars at only a ten dollar

profit on each one, he has no reason to care whether he

sells Mustang sport cars, Falcon station wagons, or Thun-

derbirds. Yet the Ford Motor Company does. It must sell

many units of all of the various models it makes, and it

must sell its less popular models to recover its tooling costs

on them.”

Amici curiae respond to this financial interest by point-

ing to instances in which a dealership-board-member may

be more financially interested in ruling in favor of the man-

ufacturer: this would occur, for example, where the fran-

chise of a dealer-nember’s direct competitor is being termi-

nated, or where the member may wish to ingratiate himself

with his own manufacturer. We do not view this a fairness,

but rather as an equalizing unfairness. Kither way, the

objectionable feature of dealer-nemberhip on the Board

is the distinet possibility that a dealer-manufacturer con-

troversy will not be decided on its merits but on the poten-

tial pecuniary interest of the dealer-members.

The landmark case on due process limitations upon such

pecuniary conflicts of interest is Tumey v. Ohto (1927) 273

U.S. 510 [71 L.Ed. 749, 47 S.Ct. 487, 50 A.L.R. 1243). There

a mayor-judge, in addition to his regular salary, was paid

a certain sum per case in liquor law violation cases in

which he found the defendant guilty. The United States

Supreme Court found this a denial of due process, saying:

“The mayor received for his fees and costs in the present

case $12, and from such costs under the prohibition act

for seven months he made about $100 a month, in addition

‘Macaulay, Stewart, Law and the Balance of Power: The Auto-

inobile Manufacturers and their Dealers (New York: Russell Sage

Foundation, 1966) page 58.

A-23

to his salary. We can not regard the prospect of receipt or

loss of such an emolument in each case as a minute, remote,

trifling or insignificant interest. It is certainly not fair to

each defendant brought before the mayor for the careful

and judicial consideration of his guilt or innocence that the

prospect of such a prospective loss by the mayor should

weight against his acquittal.

“. .. There are doubtless mayors who would not allow

such a consideration as $12 costs in each case to affect their

judgment in it, but the requirement of due process of law

in judicial procedure is not satisfied by the argument that

men of the highest honor and the greatest self-sacrifice

could carry it on without danger of injustice. Every proce-

dure which would offer a possible temptation to the average

man as a judge to forget the burden of proof required to

convict the defendant, or which might lead him not to hold

the balance nice, clear and true between the state and the

accused denies the latter due process of law.” Italies added.)

(273 U.S. at pp. 531-532 [71 L.Ed. at p. 758).)

The Tumey doctrine has been extended recently. In Ward

v. Village of Monroeville (1972) 409 U.S. 57 [34 L.Ed.2d

207, 93 S.Ct. 80], the mayor-judge had no direct pecuniary

interest in convicting the accused, but the fines he levied

constituted somewhere between 40 and 50 percent of the

Village revenues. Again finding a violation of due process,

the Supreme Court stated (409 U.S. at p. 60 [34 L.Ed.2d at

p. 270)) that the mayor-judge’s interest as chief executive

officer of the village, responsible to account for village

finances to the counsel, presented a “possible temptation”

by which “the mayor's executive responsibilities for village

finances may make him partisan to maintain the high level

———————EEEEEE———EeEeEeEoEO

A-24

of contribution from the mayor's court.” (See also [’eople

v. Superior Court (Greer) (1977) 19 Cal.3d 255, 266 [137

Cal. Rptr. 476, 561 P.2d 1164].)

While the foregoing cases involved due process in a

criminal law context, Gibson v. Berryhill (1973) 411 U.S.

364 [36 L.Ed.2d 488, 93 S.Ct. 1689], is more directly in

point. The issue there was whether the Alabama Board of

Optometry was a fair tribunal to determine that it did or

did not constitute “unprofessional conduct” for an optom-

etrist to practice in Alabama as a salaried employee of a

business corporation. The Board of Optometry consisted

exclusively of privately practicing optometrists and in-

cluded none who were either salaried or employed by busi-

ness corporations. Only privately practicing optometrists

were eligible to become members of the Alabama Opto-

metric Association, and by statute only such members could

sit on the Board of Optometry. The Association filed

charges of unprofessional conduct with the Board of

Optometry against nine optometrists who were employed

on a salaried basis by Lee Optical Co., a business corpora-

tion. Upon the lodging of the charges, the Board of Optom-

etry defered hearing thereon and filed its own lawsuit in an

Alabama state court against Lee Optical Co. and its optom-

etrist-employees, charging them with “unlawful practice

of optometry.” After prevailing in the trial court, the

Board of Optometry then undertook to hear and decide the

Association's charges. Lee Optical Co.’s optometrists then

sued in federal district court under the Civil Rights Act of

1871 (42 U.S.C. § 1983) and obtained an injunction.

”

“Sec Note The “Right” to a Neutral and Competent Judge in

Ohio's Mayor's Courts (1975) 36 Ohio St.L.J. 889.

A-29

Affirming the district court's decision, the Supreme Court

ruled that the Board of Optometry was not a fair tribunal

for the determination of the “unprofessional conduct”

charges. It stated: “First [the district court determined

that], the Board had filed a complaint in state court alleg-

ing that appellees had aided and abetted Lee Optical Co. in

the unlawful practice of optometry and also that they had

engaged in other forms of ‘unprofess .nal conduct’ which,

if proved, would justify revocation of their licenses. These

charges were substantially similar to those pending against

appellees before the Board and concerning which the Board

had noticed hearings following its successful prosecution of

Lee Optical in the state trial court.

“Secondly, the District Court determined that the aim of

the Board was to revoke the licenses of all optometrists in

the State who were employed by business corporations

such as Lee Optical, and that these optometrists accounted

for nearly half of all the optometrists practicing in Ala-

bama. Because the Board of Optometry was composed

solely of optometrists in private practice for their own ac-

count, the District Court concluded that success in the

Board’s efforts would possibly redound to the personal ben-

efit of members of the Board, sufficiently so that in the

opinion of the District Court the Board was constitution-

ally disqualified from hearing the charges filed against the

appellees.” (411 U.S. at p. 578 [36 L.Ed.2d at pp. 499-500].)

“. .. Arguably, the District Court was right on both

scores, but we need reach, and we affirm, only on the latter

ground of possible personal interest.

A-26

“It is sufficiently clear from our cases that those with

substantial pecuniary interest in legal proceedings should

' not adjudicate these disputes. Tumey v. Ohio, 273 U.S. 510

(1927). And Ward vy. Village of Monroeville, 409 U.S. 57

(1972), indicates that the financial stake need not be as

direct or positive as it appeared to be in Tumey. It has

also come to be the prevailing view that ‘[mJost of the law

concerning disqualification because of interest applies with

equal force to . . . administrative adjudicators.’ K. Davis,

Administrative Law Text § 12.04, p. 250 (1972), and cases

cited.” (Italics added.) (411 U.S. at pp. 578-579 [36 L.Ed.

2d at pp. 499-500].)

In Withrow vy. Larkin (1975) 421 U.S. 35, 47 [43 L.led.2d

712, 723, 95 S.Ct. 1456), the United States Supreme Court

additionally notes: “Not only is a biased decisionmaker

constitutionally unacceptable but ‘our system of law has

always endeavored to prevent even the probability of un-

fairness.’ ” (See also Jn re Murchison (1955) 349 U.S. 133,

136 [99 L.Ed. 942, 946, 75 S.Ct. 623].)

The Board erroneously equates the issue before us with

that involved in cases which hold that a licensing or regu-

latory agency may constitutionally be composed in whole

or in part of members of the business or profession regu-

lated. (Ex Parte McManus (1907) 151 Cal. 331 [90 P. 702);

Rite Aid Corp. v. Bd. of Pharmacy of the State of N.J.

(D.N.J. 1976) 421 F.Supp. 1161; Hortonville Dist. v. Hor-

tonville Ed. Assn. (1976) 426 U.S. 482 [49 L.Fd.2d 1,

% S.Ct. —].) We have no quarrel with such holdings.

Indeed who can better judge the qualifications to practice

of a doctor of medicine (as one example), or his adherence

to ethical standards of the medical profession, than other

A-27

doctors of medicine? Whatever incidental economic benefit

doctors may gain by disciplining other doctors is not of

constitutional proportion; their training, technical knowl-

edge, and experience give them the necassary expertise

to make such judgments, while prima facie these are lack-

ing in lay persons.

Accordingly, given its functions prior to the 1973 legis-

lation, the Board was legally constituted. But as noted,

matters were then substantially altered. No longer did the

Board solely sit in judgment upon new car dealers in such

matters as eligibility and qualification for a license, regula-

tion of practices, discipline for rule violations, and the like.

It was given the added power to intrude upon the con-

tractual rights and obligations of dealers and their product

suppliers, entities whose respective economic interests are

in no way identical or coextensive, frequently not even

harmonious. No longer did members of a trade or oceupa-

tion (dealer-Board-members) regulate only their own kind;

they began to regulate the economic and contractual rela-

tions of others with their own kind. The considerations

which support and dictate the rule of Ex Parte McManus

no longer prevail, for car dealers have no unique or pecu-

liar expertise appropriate to the regulation of business

affairs of car manufacturers.

Despite this reality, the Legisiature retained the require-

‘ ment that the nine-man Board consist of at least four car

dealers. In cffect it took sides in all Board-adjudicated

controversies between dealers and manufacturers, making

certain that the dealer interests would at all times be

substantially represented and favored on the adjudicating

body. This legislative partisanship damns the Board. (2)

A-2sS

The State may not establish an adjudicatory tribunal so

constituted as to slant its judicial attitude in favor of one

class of litigants over another. (1b) By doing so in this

instance, the Legislature violated its obligation to assure

evenhandedness in the adjudicatory process.

The Tumey, Ward, and Berryhill cases above cited differ

from the present case in one substantial particular. There

the entire adjudicatory body (a single judge in Tumey

and Ward and all the board members in Berryhill) was in-

fected by pecuniary interest, while here a minority of the

full Board is so infected. Thus we do not read those cases

as authority for a rule that every multiple-person adminis-

trative agency or board ipse diazit runs afoul of due process

whenever one or more of its members is possessed of the

condemned pecuniary interest. Nonetheless they serve as

a springboard for our holding that in the context of this

case there has been a denial of due process of law.

The Board argues that antagonism or bias of a judge

toward a class (rather than toward an individual litigant)

is not constitutionally disqualifying (N.L.R.B. v. Dennison

Manufacturing Company (1st Cir. 1969) 419 F.2d 1080,

1085; Tele-Trip Company v. N.L.R.B. (4th Cir. 1965) 340

F.2d 575, 581), and that a disqualifying bias may not be

inferred from the mere circumstance of the adjudicator's

private life, ic., “the bare circumstance that four Board

members are new car dealers.” (Parker Precision Products

Co. v. Metropolitan Life Ins, Co, (3d Cir. 1969) 407 F.2d

1070, 1077-1078; Commonwealth of Pa. v. Local U. 542,

Int. U. Of Op. Eng. (E.D.Pa. 1974) 388 F.Supp. 155, 159;

Central Sav. Bank of Oakland v. Lake (1927) 201 Cal. 438

A-29

{257 P. 521); Mehayw v. Supertor Court (1950) 98 Cal.

App.2d 770 [220 P.2d 945].) As we elsewhere more specifi-

cally point out however, we do not rest our holding upon

simple status. Because the challenged Board members have

a “substantial pecuniary interest” in franchise termination

cases (ef, Gibson v. Berryhill, supra), their mandated pres-

ence on the Board potentially prevented a fair and unbiased

examination of the issues before it in this case, in viola-

tion of Jue process.’

For any who might yet have difficulty comprehending

the reason why the guaranteed minimum of four car deal-

ers on the Board is both unfair and unconstitutional, the

American Motors’ brief offers one final telling argument.

If the Legislature in 1973 had deleted the requirement that

car dealers sit on the Board and had made it mandatory

that four officers of car manufacturer corporations sit

thereon, would the car dealers have found this acceptable?

Of course not.

In summary, we do not hold, as might be argued by the

Board, that car dealers are biased solely because they are

members of the dealer-class of litigants and are thus per

se constitutionally ineligible to sit on the Board. What we

"A seemingly contrary holding in Ford Motor Company v. Pace

(1960) 206 Tenn. 559 [335 S.W.2d 360], appeal dismissed ( 1960)

364 U.S. 444 [5 L.Ed.2d 192, 81 S.Ct. 235] rehearing denied (1961)

364 U.S. 939 [5 L.Ed.2d 371, 81 S.Ct. 377], does not impress us.

The Tennessee court did not address the specific issue directly but

disposed of it under the doctrine that generally a licensing and

regulatory agency may constitutionally be composed of members of

the business or profession regulated. (335 $.W.2d at p. 367; cf. Ex

Parte McManus (1907) 151 Cal. 331 [90 P. 702].) We do not find

it persuasive.

A390

hold is that the combination of (1) the mandated dealer-

Board members, (2) the lack of any counterbalance in man-

dated manufacturer members, (3) the nature of the adver-

saries in all cases (dealers v. manufacturers), and (4) the

nature of the controversy in all cases (dispute between

dealer and manufacturer) deprives a manufacturer-litigant

of procedural due process, because the state does not fur-

nish an impartial tribunal.

We next consider what is in effect a harmless error argu-

ment. Because a majority of the Board (the five remaining

members) is composed of disinterested persons, amici

curiae argue that the Board as a whole must be considered

impartial, citing a number of cases dealing with delegation

of legislative power to fix prices and make rules. (State

Board v. Thrift-D-Lux Cleaners (1953) 40 Cal.2d 486 [254

P.2d 29}; Allen v. California Board of Barber Exainers

(1972) 25 Cal.App.3d 1014 [102 Cal. Rptr. 368, 54 A.L.R.3d

910]; Bayside Timber Co. v. Board of Supervisors (1971)

20 Cal. App.3d 1 [97 Cal.Rptr. 431].) Sinee we are not con-

cerned with the right to an impartial lawmaker but with an

undisputed right to an impartial adjudicator, the cases cited

do not apply.

The argument in any case has no merit. We reiterate that

a new car dealer as such is not per se biased to a degree

that he cannot or should not under any circumstances serve

on the Board. (3) Simple presence of a biased member does

not deprive a board of jurisdiction in a particular case.

(Winning v. Board of Dental Examiners (1931) 114 Cal.

App. 658 [300 P. 866]; Dyment v. Board of Medical Exam-

imers (1928) 93 Cal. App. 65 [268 P, 1073]; Butler v. Schole-

field (1921) 54 Cal.App. 217 [201 P. 625].) The evil here

A-31

lies in the state’s insistence that under all circumstances the

adjudicatory deck of cards be stacked in favor of car deal-

ers. That evil is not eliminated by stacking the deck 4/9ths

of the way rather than all the way.

Insofar as the Board is given the power to adjudicate

disputes between dealers and manufacturers, it is invalidly

constituted. Its decision herein is a nullity reached in viola-

tion of due process.

The judgment is affirmed.

Friedman, Acting P. J., concurred.

REGAN, J.—I dissent. In the proceeding in mandate the

trial court ruled sections 3060 and 3066 of the Vehicle

Code are violative of due process of law “because four of

the nine members of the Board are, by statute,.... new car

dealers, who may reasonably be expected to be antagonistic

to franchisors such as American Motors.” The majority, in

sustaining the trial court, asserts “the objectionable feature

of dealer-membership on the Board is the distinct possibil-

ity that a dealer-manufacturer controversy will not be de-

cided on its merits but on the potential pecuniary interest

of the dealer-members.” Further, the majority states : “The

State may not establish an adjudicatory tribunal so con-

stituted as to slant its judicial attitude in favor of one class

of litigants over another.” Following this observation to its

logical conclusion the presence on the board of one dealer

would be violative of due process of law. This conclusion

is flawed in a number of respects. It is sheer speculation to

conclude, absent a finding of actual bias, that a dealer-

member has a pecuniary interest antagonistic to the man-

ufacturer in disputes between dealer and manufacturer. It

eee

A-32

is more reasonable to conclude that a dealer-member would

“slant its judicial attitude” against a competitive dealer.

I am in agreement with the holding in Rite Atd Corp. v.

Bd. of Pharmacy of State of N.J. (D.N.J. 1976) 421 F.

Supp. 1161. There a pharmacy chain store system sought

to declare unconstitutional and to enjoin the enforcement

of certain New Jersey statutes regulating the practice of

pharmacy. The pertinent state law provides memberships

in the Board of Pharmacy shall consist of five members

who shall be registered pharmacists actually engaged in

conducting a pharmacy and who shall continue in the prac-

tice of pharmacy during the term of his office.

Rite Aid contended the statute facially unconstitutional

because it requires that pharmacists regulate their business

competitors and is unconstitutional as applied to Rite Aid

and chain stores in general as independent pharmacists

are required to regulate chain store pharmacies. (The court

found Rite Aid's constitutional claims to be without merit.)

Thus, argued Rite Aid, the board members are necessar-

ily biased and can neither be impartial in their regulatory

functions nor in adjudicating alleged violations of the

Pharmacy Act by Rite Aid and other non Board-member

pharmacists.

| The court took notice of Tumey v. Ohio (1927) 273 U.S.

510 [71 L.Ed. 749, 47 S.Ct. 437, 50 A.L.R. 1243], relied upon

| by the majority here as a “landmark case on due process

limitations upon such pecuniary conflicts of interest,” and

noted in Rite Aid, supra, 421 F.Supp. pages 1169-1170:

“It is fundamental that one accused of violating the law

is entitled to a fair trial in a fair tribunal. Tumey v. Ohio,

ahve

273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927); In re Mur-

chison, 349 U.S. 133, 75 S.Ct. 623, 99 L.Ed. 942 (1955).

In achieving that standard we have sought to prevent not

only actual bias, but also the appearance of bias. In re Mur-

chison, supra at 136, 75 S.Ct. 623. To this end, the Supreme

Court has stated that ‘every procedure which would offer a

possible temptation to the average man as a judge . . . not

to hold the balance nice, clear, and true between the state

and the aecused, deprives the latter due process of law.’

Tumey v Ohio, supra, 273 U.S. at 532, 47 S.Ct. at 444. It is

clear that where the adjudicator has a substantial peeuni-

ary interest in the outeome, the probability of actual bias

is too high to be constitutionally tolerable. Withrow v. Lar-

kin, 421 U.S. 35, 46-47, 95 S.Ct. 1456, 43 L.Ed.2d 712 (1975) ;

(ribson v. Berryhill, 411 U.S. 564, 579, 93 S.Ct. 1689, 36 L.

Ed.2d 488 (1973).

“We do not believe that the Board, consisting as it does

of five pharmacists and two lay persons as required by

N.J.S.A, 45:141, creates a situation of probable bias in the

regulation of pharmacists. The claim made by Rite Aid is

similar to the argument advanced by the plaintiff in Ka-

chian v. Optometry Examining Board, 44 Wis.2d 1, 170

N.W.2d 743, 747-48 (1969). In this argument Rite Aid is

not claiming actual bias but rather contends that‘. . . there

is an inbuilt, inescapable even if indirect, financial interest

involved when [a pharmacist] board member sits in judg-

ment on a fellow-|pharmacist].’ Kachian, 170 N.W.2d at

747-48,

“Admittedly, the practice and conduct of a retail phar-

macy prumarily involves commercial aetivity in which var-

ious retail pharmacies compete for customers. ('f. Virginia

A-d4

State Board of Pharmacy v. Virginia Citizens Consumer

Couned, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Bd.2d 346

(1976). However, mere theoretical competition alone lias

never been a sufficient predicate for an inductive conclu-

sion of probable economic bias. A potan v, State, 235 N.W.

2d 641 (S.D. 1975); Blanehard v. Michigan State Bd. of

Exam. iw Optometry, 40 Mich.App. 320, 198 N.W.2d 804

(1972); Kachian +. Optometry Examining Board, supra.

“Rite Aid, however, argues that Gibson v. Berryhill,

supra, and Wall v, American Optometric Association, Inc.,

379 F.Supp. 175 (N.D.Ga.) (3 judge dist. ct.) aff'd mem.

419 U.S. 888, 95 S.Ct. 166, 42 L.Kd.2d 134 (1974), support

its facial attack on the N.J.S.A. 45:14-1. We cannot agree.

“Gibson v. Berrylall involved a disciplinary proceeding

against a non-self-emploved optometrist who was not, and

could not become a member of the Alabama Optometric

Association. The disciplinary proceeding was conducted by

the Alabama Board of Optometry whose members were

limited by statute to members of the Association, which

itself, limited its members to self employed optometrists.

Thus, out of Alabama's 192 practicing optometrists, only

the 100 Association members were eligible for appointment

to the Board. On that record, the Supreme Court agreed

‘that the pecuniary interest of the members of the Board

of Optometry had sufficient substance to disqualify them,

given the context in which |the} case arose.’ 411 U.S. at

979, 93 S.Ct. at 1698,

“In Wall v. American Optometric Association, Inc.,

supra, the members of the Georgia State Board of Ex-

umniners in Optometry were traditionally chosen by the

A-39

governor trom among the members of the Georgia Op-

tometric Association, a private organization which was

composed of ‘dispensing’ as contrasted with ‘preseribing

optometrists. Thus, out of Georgia's 300 optometrists, only

the 200 members of the Association were eligible for ap-

pointment to the Board whieh regulated the practice of

optometry, In this circumstance, the district court found

that the board members had a substantial pecuniary inter-

est and hence could not be ‘called disinterested in the out-

come of plaintiffs’ license revocating proceedings.’ 379

F.Supp. at 189.

“It is clear that both Gibson and Wall involve constitu-

tional uttacks addressed not to the face of the statutes

involved, but rather to the manner in which they were ap-

plied. In neither case did the courts rest their holdings

on the fact that mere board membership of individuals in

the identical profession as those to be regulated, created

a temptation to be biased.

“There is nothing that appears on the face of N.J.S.A.

45:14-1 to indicate the presence of that kind of substantial

pecuniary interest which was found to (disqualify board

members in Gibson and Wall. As in Gibson and Wall, to

determine if such an interest exists, we must look to more

than the mere words of the statute. Evidence is required.

Recognizing that the plaintiffs here attack the statute on

both facial and ‘as applied’ grounds, we therefore ordered

the taking of evidence to afford the plaintiffs an oppor-

tunity to prove, if they could, the existence of the required

substantial pecuniary interest. We treat with that argu-

ment infra,

A-36

“In connection with the instant facial attack, however,

we have been shown no basis for us to require the dis-

qualification of board members just by reason of their

sharing the same profession as plaintiffs. Nor have we

been shown any authority which holds that, as a matter of

law, mere self regulation of a profession without more,

violates due process. We decline to so hold and therefore

reject Rite Aid's facial argument.” (Fins. omitted.)

In Hortonville Dist. v. Hortonville Ed. Assn. (1976) 426

U.S. 482, 491 (49 L.Ed.2d 1, 8, 96 S.Ct. —], the Supreme

(‘ourt has recently reiterated general language about due

process and disqualifying bias in one case cannot reliably

be applied to another case without further analysis: “We

iiust foeus more clearly on first, the nature of the bias

respondents attribute to the Board, and second, the na-

ture of the interest at stake in this case.”

The board contends in its closing brief that: “As ex-

pressed in a recent law review article; ‘An analysis of the

circumstances which permit conclusive presumptions of

invalidity | beeause of the possibility of bias on the part of

the decision-maker} indicates that it is the degree of

monetary benefit accruing to the decision maker, or the

degree of prejudgment, or the degree of previously form-

ulated hostility or animosity which determines whether the

decision is to be disregarded because of bias.’ /. Davis,

Withrow v. Larkin and the ‘Separation of Functions’ Con-

cept in State Administrative Proceedings, 27 Ad.l.Rev.

407, 409 (1975). Emphasis in original; footnotes deleted,

brackets supplied.”

In commenting upon the situation where there is a dealer

und manufacturer dispute the majority points to the man-

dated dealer-board members, and the lack of counter

AST

\alanee in tnandated manufacturer members. We must note

on this point the appendix A to appellant’s opening brief,

a declaration concerning the drafting, negotiations and

movement of the legislation creating the board. It declares:

("| “One of the major issues .. . before successful passage

was the question of adding manufacturer's representatives

on the... Board.” This was declined by their representa-

tives allegedly because it would create potential antitrust

liabilities. Thus the majority's claim that “The evil here

lies in the state’s insistence that under all circumstances

the adjudicatory deck of cards be stacked in favor of car

dealers” is negated. In this dissent I stress the importance

of having members on the board with the expertise to un-

derstand all aspects of each case before it. Sans such mem-

bers a board can become an ineffectual group directed in

its deliberations and decisions by an executive officer or

consultant,

I cannot accept the judgment of the majority which is

predicated on an unfounded assumption of “antagonism”

by the board toward manufacturers. The dealer-members

have not been shown to possess a pecuniary interest which

would bias them under any judicially accepted test. It has

not been established that the board is not an impartial

tribunal for franchise termination protests.

| would reverse the judgment.

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