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 Sale). The Forced Sale
provision was triggered either by: (1) the seventh anniversary of the effective date of the First
Amended Motorcars' Agreement; or (2) the occurrence of a material default. Audi estimated
that a Forced Sale would be initiated on March 8, 2020, unless a material default was declared
earlier, and that the Forced Sale section was a planned exit strategy for Headwater Hi Tech to
receive its investment and a return. Thus, Audi argued that Headwater Hi Tech's investment
"looked" and "felt" like a loan, and therefore the entire $15.7 million investment was debt and
not equity for the debHo-equity requirement.
The AUs agreed with Audi, and found that the operational acumen requirement could
only be resolved if Headwater Hi Tech completely and fully removed the Written Consent and
Forced Sale provisions, and instead, proceeded as a silent investment partner. As explained
below, the ALJs are persuaded that the conditions in FOF Nos. 155 and 156 are satisfied and the
prospective transferees are qualified on these matters.
2. The Post-PFD Revised Company Agreement
On July l, 2014, Motorcars' members drafted Hi Tech Motorcars, LLC Second Amended
and Restated Company Agreement (Revised Agreement/ 5 and submitted the Revised Agreement
to the DMV Board on August 28, 2014, in connection with the Motion and Response. The
Revised Agreement was signed and approved by Mr. Bartley and Mr. Turner, 56 but will not be
signed by Headwater Hi Tech until the DMV Board approves the transfer.
In support of the qualification finding, Intervenors presented the testimony of
Mr. Robertson, co-managing partner of Headwater Investments, a well~ funded private
55
Intervenors Ex. No. 259.
56
intervenors Ex. Nos. 266 and 267.
SOAH DOCKET NO. 608·13·4599.LIC REMAND PROPOSAL FOR DECJSION PAGE 19
investment partnership. 57 Mr. Robet1son testified that the four-member investment committee of
Headwater Investments met and voted to remove the Written Consent and Forced Sale in the
Revised Agreement and to fund the entire Headwater Hi Tech investment in cash if the transfer
is approved. 58 In return for the removal of the Written Consent and Forced Sale sections,
Mr. Robertson testified that he asked Mr. Weitz if he would sign an "Unconditional Personal
Guaranty," 59 a written contract that ensures that the initial equity investment made by Headwater
Hi Tech would be repaid in the event of a default. 60 If the Board approves the Revised
Agreement, Headwater Hi Tech will sign this agreement, according to Mr. Robertson. 61
As to Audi's concern that the Written Consent and Forced Sale provisions would be
restored in a newly revised company agreement after the Remand proceedings, Mr. Robertson
testified that no amendment would occur. He also pointed out that Mr. Weitz would not agree to
any revision giving up control and Headwater Hi Tech would have no leverage over his
decision. 62 Mr. Robertson stated, however, that if Mr. Weitz's personal guaranty is an
impediment to transfer, then it will not be required. 63
Mr. Weitz confirmed that he agreed to the personal guaranty of Headwater Hi Tech's
investment. 64 But, he only agreed to guarantee Headwater Hi Tech's equity investment on the
occurrence of an Event of Default, defined as: (1) bankruptcy of Motorcars; (2) liquidation of
Motorcars; or (3) sale of all or substantially all of the assets of Motorcars or merger of Motorcars
57
Mr. Robertson testified in the original hearing that Headwater Investments has $220 million in capital available
for investments. See PFD at 54.
58
Tr.at250·51.
59
Intervenors Ex. No. 245.
60
Intervenors Ex. No. 245. Tr. at 251·52; 245.
61
Tr. at 256.
62
Tr. at 296.
6
" Tr. at 299, 300.
64
Tr. at 332.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE20
with or into another person or entity. 65 Moreover, even those events do not constitute events of
default if they are "proximately caused by" Headwater Hi Tech. 66
To show that the operational acumen requirement has not been satisfied by the removal
of the Written Consent and Forced Sale sections, Audi presented the expert testimony of Robert
A. Ragazzo, a law professor at the University of Houston Law School. 67 Mr. Ragazzo testified
that for the removal of the controversial sections, Mr. Weitz had to agree to a personal guaranty
that gives Headwater Hi Tech "substantial influence" over the operations of the dealership. 68 For
instance, in the event of a possible default, Headwater Hi Tech may choose not to enforce the
guaranty so that it may exercise substantial leverage over the dealership. 69 In this event,
Mr. Weitz would want to cooperate to prevent the default to the detriment of Audi, according to
Mr. Ragazzo.
Concerning Audi's concern that the Revised Agreement would be amended after the
transfer is approved, Mr. Ragazzo pointed out that the agreement could be amended "by written
consent of Members holding 60% of the LLC interests." 70 So, if Mr. Weitz and Headwater Hi
Tech agreed to reinstate the Written Consent and Forced Sale sections, these obligations could be
put back in at any time. 71 Mr. Ragazzo conceded, however, that the controversial provisions
were removed from the Revised Agreement, and there are no provisions that require Mr. Weitz
to give Headwater Hi Tech any greater control. 72
65
Intervenors Ex. No. 245.
66
Intervenors Ex. No. 245 at 002.
67
Tr. at 686.
63
Tr. at 686-87.
69
Tr. at 687.
70
Intervenors Ex. No. 259.
71
Tr. at 69\.
72
Tr. at 698-99.
SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE21
3. ALJs Analysis of FOF Nos. 155 and 156
Audi has raised two key issues concerning whether the operational acumen requirement
can be resolved between the overly-qualified majority owner, Mr. Weitz, and the under-qualified
minority owner, Headwater Hi Tech, by the removal of its Written Consent and Forced Sale
contractual operational control sections. First, Audi contends that the Revised Agreement is an
unsigned and unexecuted "draft" that can be easily amended to revise the two sections; and
second, Audi refutes that Headwater Hi Tech has relinquished its contractual operational control
due to the personal guaranty.
Audi maintains that, because the Revised Agreement is unsigned by all Motorcar
members, it remains a "draft" and the former agreement is the operative agreement. Further,
Audi cannot ensure that the Revised Agreement is signed after approval. The ALJs reject this
argument, however, based on the credible testimony of Mr. Robertson that the investment
committee has approved and will sign the Revised Agreement, the testimony of Mr. Weitz that
he intends to sign the Revised Agreement, and the signature pages of Mr. Turner and Mr. Bartley
indicating that they have already signed it. There is simply no evidence in the record that the
Revised Agreement will not be the operative document in this transaction, or that it will remain
an unexecuted draft.
Audi further argues for disqualification of the prospective transferees because the
Revised Agreement can easily be amended by 60% of the Motorcars' members. The ALJs are
persuaded by the testimony that Headwater Hi Tech and Mr. Weitz have no intention, or
nefarious motives, to amend the agreement to add the Written Consent and Forced Sale sections
back into the agreement after approval by the Board. Further, Texas Occupations Code
§ 2301.478(b) imposes a requirement of good faith and fair dealing on every party to a franchise
agreement. ("Each party to a franchise owes to the other party a duty of good faith and fair
dealing that is actionable in tort."). Therefore, the ALJs do not find the unlikely possibility that
the prospective transferees will put these two sections back into the Revised Agreement, after
two contentious hearings regarding these sections and after Board approval, as grounds for a
finding that FOF Nos. 155 and 156 have not been satisfied.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE22
As to whether the Personal Guaranty by Mr. Weitz provides Headwater Hi Tech
disqualifying contractual operational control, the AL.Ts conclude that it does not. First, the
evidence shows that the guaranty was requested by Mr. Robertson but not required as a condition
for investment, as confirmed by the two parties familiar with the circumstances. Instead, the
personal guaranty indicates that Headwater Hi Tech is giving up contractual operational control
of the dealership by seeking to protect its investment only in the event of default (Motorcars
bankruptcy, liquidation, or sale or merger). Headwater Hi Tech has now assumed the role as
silent investor with no contractual operational control.
Second, Mr. Ragazzo offered speculative testimony that if there was a possible default,
Headwater Hi Tech could use forbearance (i.e. delayed right to collect on the debt) on the
guaranty to ''take over" the dealership. However, an examination of the Revised Agreement and
Personal Guaranty does not show any contractual provision that would allow Headwater Hi Tech
to assume control nor was there testimony that Headwater Hi Tech intended to use the Personal
Guaranty as a leverage device. Instead, it is unlikely that a series of events-a possible default, an
agreement for forbearance by Headwater Hi Tech, and an agreement by Mr. Weitz to give up
control-would result in a takeover of the dealership. Mr. Robertson's repeatedly stated intention
to give up all control to Mr. Weitz indicates Headwater Hi Tech's objectives in this business
venture. If an expert has offered nothing to suggest that what he believes could happen has
actually happened, the opinions are little more than subjective belief or unsupported
speculation. 73 The ALJs, therefore decline to find that the prospective transferees are
disqualified based on the unlikely possibility that the Revised Agreement would be unsigned, or
revised to include the two provocative sections, or that guaranty in the event of possible default
could be used as leverage for control.
In sum, Intervenors have demonstrated full compliance with the conditions contained in
FOF Nos. 155 & 156, and as such, are now qualified.
73
U.S Renal Care, Inc. v, Jaafar, 345 S.W. 3d 600,607 (Tex. App.-San Antonio, 2011, pet. denied).
SOAH DOCKET NO. 608-13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE 23
C. Review of FOF No. 157: Bridge Loan
FOF 157: The debt-to-equity requirement can only be satisfied under the following
circumstances: if a bridge loan will be used at closing, then this loan must be
disclosed within 30 days of the closing to Audi, and the debt-to-equity ratio must be
evaluated with the bridge loan included as debt.
FINDING: The Prospective Transferees have complied with this requirement.
In the original 2014 hearing, this controversy was rooted in Headwater Hi Tech's
retention of the option to use a 90-day short-term loan, referred to as a "bridge loan" (bridge
loan) to fund its $15.7 million investment. 74 The bridge loan might have been necessary in the
event that the limited partners' capital calls, or contractual monetary obligations, were not
received in time for the closing, according to Mr. Robertson.
In the PFD, the ALJs agreed that use of the bridge loan for Headwater Hi Tech's
$15.7 million investment must be included in the debt-to-equity ratio as debt rather than as
equity, and must be disclosed to Audi within 30 days of the closing if a bridge loan would be
used. As explained below, the ALJs are persuaded that the condition in FOF No. 157 is satisfied,
that Headwater Hi Tech will use cash and not debt to fund this transaction, and that the
prospective transferees are qualified on this matter.
Mr. Robertson testified that Headwater Hi Tech will not use a bridge loan or any other
debt to close this transaction but instead, will call equity capital from the partners before the
closing to fund Headwater Hi Tech's portion of the transaction. 75 In particular, according to
Mr. Robertson, Headwater Hi Tech will fund the real estate down payment and its portion of the
purchase of the dealerships with $18.5 million in cash that it will have in the Headwater I
14
SeePFDat41.
15
Tr. at 259-60, 270, 277, 282, 288, and 317.
SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE 24
account to close the transaction. 76 Mr. Robertson explained that once a capital call is made, the
limited partners must fund the call within ten business days. 77
Mr. Robertson also pointed out that he submitted a letter to the Director of the MVD with
the following statement as evidence of Headwater Hi Tech's commitment not to use a bridge
loan: 78
Further, Headwater [Hi Tech] ... would be willing to issue capital calls to its
limited partners such that the purchase price for the transactions involving the
purchase of the dealerships and the related real estate will be funded at closing
with limited partner equity capital contributions, and not a bridge loan or other
borrowed funds.
Mr. Weitz also testified that a bridge loan would not be used for this transaction. 79
Herbert E. Walter, Audi's expert on financial and management models and analysis,
testified that, on this issue, not enough detail was given in the letter submitted by Mr. Robertson
to judge the veracity of the claim. For instance, no information was provided about who the
parties are to the capital call, what their percentages are, or their ability to fund the transaction,
Mr. Walter pointed out. 80
Based on the evidence and testimony, the ALJs conclude that a bridge loan will not be
used to fund Headwater Hi Tech's contribution to the real estate down payment and the
dealership purchase. No witness contradicted Mr. Robertson's oral and written commitment to
fund the contribution with $18.5 million in the Headwater I account at the time of closing.
Although Mr. Walter noted that the letter from Mr. Robertson lacked detail, the ALJs find that
this presents insufficient reason to nullify Mr. Robertson's representations. Thus, the ALJs are
76
Tr. at 277.
77
Tr. at 277-78.
78
Intervenor Ex. No. 243.
79
Tr. at 64.
80
Tr. at471.
SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECJSJON PAGE 25
persuaded that the condition in FOF No. 157 is satisfied, that Headwater Hi Tech will use cash to
fund this transaction, and that the prospective transferees are qualified on this matter.
D. Review ofFOF No.158: Cross-Collateralization Requirement
FOF 158: The debt-to-equity requirement can also only be satisfied under the
following circumstances: no cross-collateralization provisions will be permitted such
that a default on one aspect of any loan causes a default on all other loans.
FINDING: With the removal of the provision that all four dealerships must
guaranty the loans of the other dealerships, the Prospective Transferees have
complied with this requirement.
l. Background
In the PFD, the ALJs made a recommendation that the debt-to-equity ratio should be
adopted, explaining the financial structure of this transaction: 81
Debt Equity
Ally Bank $17,500,000 Hi Tech Partners $16,958,850
Real Estate $20,000,000 Headwater Hi Tech $15,691,150
Turner Trust $200,000
Turner Partnership $200,000
Bartley IRA $100,000
Down-Payment $5,000,000
Total Debt: $37,500,000 Total Equity: $38,150,000
The ALJs found that the debt-to-equity should be calculated as: 37 500 000 ~ 0.98.
38,150,000
To summanze the issue from the original hearing and PFD, on April 1, 2012,
Candido Pagan, the controller for the various Weitz entities, provided Audi with a copy of loan
commitment letter (commitment letter) from Ally Financial (Ally), a division of Ally Bank, to
verify that Ally intended to make a $17.5 million loan as part of the total purchase price of
$75,650,000 for the four dealerships.
81
See PFD at 61.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE 26
The commitment letter revealed, however, that Ally would also hold a real estate
purchase loan for $20,000,000 by Hi Tech Realty, a realty company owned 50.1% by Hi Tech
Partners and 49.9% by Headwater Hi Tech. Hi Tech Realty intended to enter into lease
agreements with each of the four Dealership Entities.
In particular, the commitment letter confirmed Ally's willingness to extend the loan
subject to terms and conditions, but provided that additional security was needed. On
April2013, Ally provided a Cross-Collateral, Cross-Default, Cross-Guaranty Agreement (CCG
Agreement) agreement between Ally and the "Dealers" (Hi Tech Realty, Motorcars, the four
dealerships, and Mr. Weitz). The CCG Agreement contained a "cross-collateralization"
provision that provided as follows: "To secure payment and performance of all Obligations,
each Dealer grants to each of the Ally Parties a continuing security interest in all collateral in
which one of the Ally Parties now has a security interest."82 The CCG Agreement also contained
a "cross-default" provision, in pertinent part: "It is agreed that any default or breach by any
Dealer will, at the option of the Ally Parties, constitute a default under each Security Agreement
and Obligation and any or all promissory notes arising therefrom." 83
The CCG Agreement also contained a guaranty agreement. That provision stated, in
relevant part: "All Dealers, jointly and severally, unconditionally guarantee[d) the performance
and payment of all Obligations owing by any Dealer to any of the Ally Parties ...." 84
Audi pointed out that all of the real estate loans were collateralized not only by the real
estate, but by the physical assets of all of the dealerships. The letter committed funds only if all
dealership entities, along with Mr. Weitz personally, guaranteed the Ally Bank loans. Thus, a
default by one entity was a default by all entities of all loans.
82
See Respondents Ex. 257 from first hearing.
8J Jd.
84 !d.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE27
In the PFD, the ALJs agreed with Audi that the $20 million real estate loan by Hi Tech
Realty, although technically a separate entity, must be characterized as debt and included in the
debt-to-equity ratio, along with the $17.5 million loan committed by Ally bank. The ALJs
determined that Audi properly concluded that the related entities were "in a sense one company,"
and the common O\VIJ.ership and intertwined debt obligations made the real estate loan a debt of
all of the entities. The ALJs concluded that the debt of Hi Tech Realty was tied to the collateral
of all the dealerships and that each of these separate legal entities would be responsible for the
debts of the others.
The ALJs, therefore, concluded that Intervenors would be qualified as prospective
transferees under the following circumstances: "no cross-co!lateralization provisions will be
permitted such that a default on one aspect of any Joan causes a default on all other loans."
2. The Post-PFD Loan Documents
After the PFD was issued, new loan documents were drawn up by Ally to remove the
CCG Agreement. Now there are four separate sets of loan documents, one for each of the
dealership locations, rather than one set of loan documents for alllocations. 85 Specifically, there
are four Commercial Loan and Security Agreements between Ally and Motorcars; four
Commercial Real Estate Loan and Security Agreements between Ally and Hi Tech Realty; and
four Inventory Financing and Security Agreements between Ally and each dealership. There is
no dispute that there are no CCG Agreements contained in any of the documents.
To explain the documents, Intervenors presented the testimony of Anita Bhama, who
drafted the documents and who serves as Ally's in-house counsel for commercial lending
operations. 86 She testified that Ally has extensive experience in car dealership financing and a
large dealership portfolio. She explained that she used a "standard set" of loan documents, used
85
Intervenors Ex. Nos. 260-63.
86
Tr. at 141-43.
SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE 28
nationwide, for the four dealerships. a7 The documents are labeled "draft," and are proposed as a
method to remove the cross-collateralization provision, according to Ms. Bhama. 88 She
explained that cross~collateralization occurs when the property of one borrower is collateral for
another borrower's loans or different loans of that same borrower; here, however, none of the
individual dealerships has placed its assets for the debts of another of the dealerships. 89
Ms. Bhama pointed out that, for instance, the Commercial Real Estate Loan for Hi Tech
North is secured by a Deed of Trust on the land occupied by Hi Tech North only. 90 Hi Tech
Realty's failure to pay or perform would trigger the default provision on this loan only. Ally has
also agreed to make an inventory loan, or "floor plan loan" to Hi Tech North, as well as to the
other three dealerships. 91 Each dealership is the borrower on its own floor plan loan, with its
assets as the sole security in the event of default, according to Ms. Bhama.n
Ms. Bhama testified that the automotive credit and automotive risk committees,
composed of eight to twelve Ally employees, must approve the form and content of the loans.
She testified that the meeting occurred and the documents were approved, but conceded that she
did not personally participate in the meeting. 93 She testified that these documents will be signed
by Ally, if the dealership transfer is approved. 94
Ally continues to require, however, that certain entities execute a guaranty agreement
guaranteeing the payment and performance by the borrower. 95 Specifically, the bank has
required six guaranty agreements: (1) all four dealerships and Motorcars guaranty the loan
87 Tr. at 143.
ss Tr.at2\2-13.
89
Tr. at 160.
90
Intervenors Ex. No. 260, Tr. at 163-65.
91
Intervenors Ex. No. 260 at 6028.
92
Tr. at 177-78.
93
Tr. at 193,211.
94
Tr. at 215.
95
Intervenors Ex. No. 264.
SOAH DOCKET NO. XXX-XX-XXXX.LJC REMAND PROPOSAL FOR DEClSJON PAGE 29
repayment of Hi Tech Realty; (2) all four dealerships and Hi Tech Realty guaranty Motorcars;
(3) Hi Tech Realty guaranties the four dealerships; (4) all four dealerships guaranty the other
dealerships; (5) Motorcars guaranties all four dealerships; (6) Mr. Weitz, personally, guaranties
the loan repayment of the four dealerships, Motorcars, and Hi Tech Realty. 96
Ms. Bhama testified that each Guaranty states that "[a]lthough executed as a single
document by the guarantors, a breach of the guaranty by one guarantor is not a breach by any of
the other guarantors, but the liability of all parties signing this guaranty is joint and several."97
She explained that a breach by one co-guarantor is not a breach by any other co-guarantor, but
that Ally can pursue any of the guarantors, all of the guarantors, or a combination under the
guaranty agreement for repayment. As to the joint and several liability clause in the guaranty,
Ms. Bhama testified that it means that Ally can pursue Hi Tech Imports, Hi Tech Italian, Hi Tech
North, Hi Tech South, either individually or some combination or all of them under this
guaranty. 98
The financial expert witnesses, Robert C. Davis, III, (on behalf of Intervenors) and
Charles L. Williams (on behalf of Audi) differed on their opinions on whether the financial
structure proposed violated FOF 158. Mr. Davis focused on the requirement in FOF 158 that the
loans not contain cross-collateralization (i.e. no cross-collateralization provisions will be
pennitted such that a default on one aspect of any loan causes a default on all other loans).
Mr. Williams, however, focused on the guaranties and whether a default on a loan causes a
cascade of defaults such that cross-collateralization occurs.
Mr. Davis, who is a C.P.A. with a master's degree in professional accountancy from UT
Austin, testified that the proposed loan docwnents comply with FOF No. 158. 99 For example, he
pointed out that if Hi Tech Realty defaulted on its commercial real estate loan involving the
96
Intervenors Ex. Nos. 264-65, Tr. at 384.
97
Tr. at 180.
98
Tr. at 236.
99
Tr. at372.
SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE30
property where Italian Imports dealership is located, then no other dealership location would be
affected by the default because it is not cross-collateralized with any other loan to any other Hi
100
Tech entity.
Mr. Davis explained that under generally accepted accounting principles (GAAP), a
guaranty is not a loan because loan proceeds go to the borrower, and not to the guarantor. 101
Therefore, under GAAP, the borrower is primarily responsible for the payment of the loan, and
the guarantor has a contingent obligation only. That is why there are separate documents and
separate obligations, he explained, and they are not considered part of the loan. He testified that
if there is a default under any one of the guaranty agreement there is not a default under all the
loan agreements. 102 For instance, if Motorcars is asked to pay under a guaranty and it defaults in
payment of its guaranty, no other loans, other than the loan where Motorcars is a borrower,
would be in default. With the dealerships guaranteeing other dealerships, Mr. Davis testified that
if a dealership defaults on a floor plan, for instance, the bank could ask another dealership to pay
off the floor plan loan of the other dealership. 103
Audi pointed out, however, that Mr. Davis did not take into account what occurs in the
event there is a breach on one of the guaranties, but rather was looking at defaults in the loans.
However, Mr. Davis pointed out that there would need to be a default in the loan and then a
separate default in the guaranty before a bank could begin looking at the assets of a dealership. 104
Mr. Williams, who has a BBA in finance and who has worked extensively in the banking
industry since 1966, testified that the proposed loan documents do not meet the requirement of
FOF 158. 105 Mr. Williams based his conclusion on the provision that "each of the four
dealership entities would jointly and severally guarantee the Commercial Loan." The guaranty
100
Tr. at 383.
101
Tr. at 378-79.
102
Tr. at 384~85.
101
Intervenors Ex. No 265, Tr. at 402-03.
104
Tr. at426, 438~39.
10
' Respondents Ex. No. 445 at 13.
SOAH DOCKET NO. 608~J3-4599.LfC REMAND PROPOSAL FOR DECISION PAGE Jt
contains boxes that specified that "[Ally] was going to take collateral assignments of all of the
106
assets of the four dealerships to secure the Commercial Loan." According to Mr. Williams,
the guaranty operates to effectively cross-collateralize the obligations in the event of default.
Mr. Williams explained that the loan structure of loans and guaranties means that the
assets of the two Audi dealerships were pledged to not only secure the Audi dealerships debt to
Ally, but also pledged to secure the debt of the other two different automobile manufacturers. 107
Thus, the Audi dealerships' assets would be at risk for the potential unsuccessful operation of the
other two non-Audi dealerships over which Audi has no control.
Another issue raised by Audi as an impediment to qualification of the prospective
transferees on FOF No. 158 is whether the $17.5 million loan from Ally can be used to purchase
the dealerships, In this regard, Audi's financial expert, Mr, Walter, stated that the $175 million
working capital loan is typically not used to fund the purchase of other companies; rather,
working capital is used to fund daily operations including paying expenses and carrying a cash
"float" 108 Mr. Walter testified (hat use of the proceeds for the purpose of acquiring the
dealership is a breach of the loan agreement because it can only be used for working capital. 109
Therefore, if the funds related to the working capital are constrained to the use of those funds for
purposes of working capital, ultimately the transaction as structured does not have adequate
funding to purchase the dealerships, according to Me Walter. 110
Mr. Weitz disagreed, however, and testified that the capital Joan could be used for the
closing of the dealership because it was for purchase of the working capital of the dealerships. 111
Intervenors also pointed out that Ms, Bhama testified that the capital loan could be used for the
106
Respondents Ex. No, 445 at 8~9,
107
Respondents Ex. No. 445 at 13.
tos Respondents Ex, No. 445, Tr, at 512-\3,
109
TL at 5!8,
110
TL at 536,
ill Tr. at 357.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE32
purchase of the dealerships. 112 Further, Intervenors argue that Ally's commitment letter for the
$17.5 million loan to Motorcars stated that one of the purposes of the loan was to partially fund
113
the initial capitalization of Motorcars.
Lastly, Audi objects to the numerous blank spaces on the Ally loan forms and maintains
that it cannot evaluate the terms of the loans. Mr. Weitz, however, testified that the amounts on
the loans must be calculated by Mr. Pagan, but would not be filled in until closing. 114
Intervenors argue that the blanks are not filled in until closing, as is typical with any loan.
3. ALJs' Analysis
Several issues have been raised by Audi concerning the financing structure proposed by
Intervenors and Ally: (1) does the structure as proposed, with the various loans and guaranties,
satisfy the ALJs' cross-collateralization and cross-default prohibition; (2) does the use of the
commercial loan, which by its te1ms is for the use of "working capital," impact the equity-to-
debt ratio; and (3) does the submission of proposed "draft" documents make it impossible for
Audi to assess the viability of the loans or guaranties?
As to FOF No. 158: "no cross-collateralization provisions will be permitted such that a
default on one aspect of any loan causes a default on all other loans," the ALJs concur with
Intervenors that the present proposed loan documents 115 comply with FOF No. 158. The ALJs
also agree, however, with Audi that in requiring that all four dealerships (two Audi dealerships,
one Porsche dealership, and one Maserati dealership) to guarantee each other's dealerships, Ally
!ll Tr. at 174.
113
Respondents Ex. No 304 at VWG 00307.
114
Tr.at2l5
115
The loan documents consist of four Commercial Loan and Security Agreements between Ally and Motorcars;
four Commercia! Rea! Estate Loan and Security Agreements between Ally and Hi Tech Realty; and four Inventory
Financing and Security Agreements between AHy and each dealership.
SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE33
has overreached. 116 By requiring that one manufacturer's dealership (i.e. Audi dealership)
guaranty the financial performance of another's manufacturer's dealership (i.e. Porsche or
Maserati dealership), Audi is correct in asserting that the assets of the two Audi dealerships are
subject to the potential unsuccessful operation of the other two non~Audi dealerships over which
Audi has no franchise control. The requirement that all four dealerships, regardless of the
particular manufacturer's product represented in the dealership, guaranty the performance of all
other dealerships does not comply with FOF 158 and must be removed. In their exceptions to
the PFD, the Intervenors mus·t provide proof to the ALJs and the Board that the dealership
guaranty of other dealerships provision has been removed to meet the requirement ofFOF 158.
Regarding the loan documents, the evidence shows that each type of loan-commercial
loan, commercial real estate loan, and floor plan loan-is solely tied to a particular dealership and
thus, does not demonstrate cross-collateralization. Cross-collateralization is defined as, "an
installment-contract provision allowing the seller, if the buyer defaults, to repossess not only the
particular item sold but also every other item bought from the seller on which a balance remained
due when the last purchase was made." 117 Here the loans are structured so that cross-
collateralization does not occur across dealerships or across particular types of loans. For
instance, if Hi Tech Italian, the Maserati dealership, fails to pay its floor plan loan then that
would not cause a default of any other dealership's floor plan loan, such as the Audi dealership,
nor does it result in a default on the real estate loan or commercial loan of any other dealership.
No other dealership is affected by Hi Tech Italian's default on the floor plan loan.
Likewise, if Motorcars (a holding company composed of Headwater Hi Tech, Hi Tech
Partners, and Mr. Turner and Mr. Bartley, individually or through entities) fails to pay its
commercial loan to Ally, then no other loan of any other dealership would go into default. The
evidence shows that the property of any other dealership does not serve as the collateral for
116
The six guaranty agreements are: (I) all four dealerships and Motorcars guaranty the loan repayment of Hi Tech
Realty; (2) all four dealerships and Hi Tech Realty guaranty Motorcars; (3) Hi Tech Realty guaranties the four
dealerships; (4) a\! four dealerships guaranty the other dealerships; (5) Motorcars guaranties all four dealerships;
(6) Mr. Weitz, personally, guaranties the loan repayment of the four dealerships, Motorcars, and Hi Tech Realty.
117
Blanco Nat'l Bank v. Gonzalez, 04-12-00079~CV, 2013 WL 1760604, at *5 (Tex. App.~San Antonio
Apr. 24, 2013, no pet.) (mem. op.).
SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE34
Motorcars' commercial loan. The only property pledged as security for the loans to Motorcars is
its own property and not the property of the four dealerships. The evidence also shows that with
the real estate loans, there are four deeds of trusts, one for each property. Thus, after considering
all evidence and testimony, the ALJs conclude that the proposed loan docwnents comply with
FOF No. 158.
A guaranty creates a secondary obligation whereby the guarantor promises to answer for
the debt of another; and a creditor may call upon the guarantor to perform once the primary
obligor has failed to perform. 118 The principal must default or be unable to perform the contract
before the party can move against the guarantor. 119 Here, all the entities-Motorcars, Hi Tech
Realty, and the dealerships-have agreed to a guaranty of the loans of each other. In this
situation, if Motorcars defaults on one of the four loans, then the guaranties of all of the loans
would be in default but it would not affect Hi Tech Realty's four loans, nor would it affect the
four dealerships' floor plan loans. Similarly, Hi Tech Realty's loans, which are secured by the
land where the dealerships are located, would not affect the commercial or floor plan loans of the
dealerships if the Hi Tech Realty's loans were to go into default.
Where the guaranties become troubling to the ALJs is the requirement that dealerships
must agree to the guaranty of the loans of the other dealerships. This presents a particularly
unenviable situation where the Audi dealerships are required to directly guaranty the loans for
their competitors, Maserati and Porsche. The dealership guaranties, which are secondary
obligations to the loans, grant a collateral assignment of all vehicles, other inventory, equipment,
etc. in all other dealerships. For instance, if Hi Tech Italian, the Maserati dealership, defaults on
its loan, then under the guaranty, Ally has the right to move against the other three dealerships.
These provisions put the Audi dealerships directly at risk for the performance of the other
manufacturer's dealerships. The ALJs agree with Audi's banking expert, Mr. Williams, who
pointed out that the Audi dealerships' assets would be at risk as to the potential unsuccessful
operation of the other two non-Audi dealerships over which Audi has no franchise controL
118 Byrdv. Estate of Nelms, 154 S.W.3d 149, 157 (Tex. App.~Waco 2004, no pet.).
119
Ray v. Spencer, 208 S.W.2d 103, 104 (Tex. Civ. App.~Texarkana 1947, writ refused).
SOAH DOCKET NO. XXX-XX-XXXX.LJC REMAND PROPOSAL FOR DECISION PAGE35
Thus, the requirement of all dealerships guaranteeing each other dealership's perfonnance,
regardless of the manufacturer, is overreaching by Ally and does not meet the requirement of
FOF No. 158. In their exceptions to the PFD, the Intervenors must 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 No. 158.
Therefore, the ALJs conclude that the following guaranty agreements meet the
requirements of FOF No. 158: (1) all four dealerships and Motorcars guaranty the loan
repayment of Hi Tech Realty, which has the real estate and Deed of Trust as separate security;
(2) all four dealerships and Hi Tech Realty guaranty Motorcars, which has the property of
Motorcars as separate security; (3) Hi Tech Realty guaranties the four dealerships; (4) Motorcars
guaranties all four dealerships; and (5) Mr. Weitz, personally, guaranties the loan repayment of
the four dealerships, Motorcars, and Hi Tech Realty. The ALJs conclude, however, that the
guaranty agreement that all four dealerships guaranty the other dealerships, which is only
secured by the inventory and assets of the other dealerships, does not meet the requirement of
FOF No. 158 and must be removed. In their exceptions to the PFD, the Intervenors must provide
proof to the ALJs and the Board that the dealership guaranty of other dealerships provision has
been removed to meet the requirement ofFOF 158.
Audi has challenged. Intervenors' proposed use of the $17.5 million commerciaJ loan,
which provides by its tenns that the funds are to be used for working capital, as a method to
partially fund the initial capitalization of Motorcars. Audi argues that working capital is used
solely to fund the daily operations of the company and provide a float between earning and
collecting accounts receivable and should not be considered in the debt-to-equity ratio. Audi has
suggested that the debt-to-equity ratio confirmed in the PFD should be revisited and revised to
account for the source and use of funds, such that the $17.5 million commercial Joan should be
removed from the equity-side of the ratio. Intervenors, however, presented testimony from
Ms. Bhama, the primary drafter of the loans, that it would be proper for Motorcars to use the
commercial loan to close the purchase transaction.
SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE36
The ALJ s considered this issue at the remand hearing, and declined to expand and re~
litigate the debt-to-equity issue because this argument was fully vetted and considered in the
original hearing (which began on February 26, 2014, and concluded on March II, 2014) and
thoroughly discussed in the PFD. The ALJs find the testimony of Ms. Bhama, as the drafter of
the loan documents, credible that the $17.5 million loan may be used for the purchase of the
assets of the dealership, which confirms that this amount is included in the debHo-equity
calculation. Further, the ALJs determine this issue was only referred in the remand in the
context of the cross~collateralization and thus, was not within the limited remand scope.
Therefore, the ALJs decline to revise the debt-to-equity ratio determined in the PFD, and hereby
confirm the debt-to-equity ratio as roughly $37,500,000 debt and $38,150,000 equity for a debt-
to~equity ratio of 0.98, which is within Audi 's policy requirement of debHo-equity ratio of no
higher that I: I.
Lastly, Audi has also challenged the draft nature of the documents because there is no
signed commitment letter from the banl<. The ALJs agree with Intervenors that loan documents
are not normally signed until closing and the documents provide the terms under which Ally will
provide funds for this transaction. The ALJs, therefore, conclude that the draft documents
provided by Ally provide sufficient information to Audi and to the ALJs to analyze the remand
issues with regards to FOF No. 158.
VL CONCLUSION
The AUs recommend approval of the Budget~Weitz buy-sell agreement, with the
removal of the guaranty agreement that all four dealerships guaranty the other dealerships. Upon
removal of this provision, the ALJs find that the prospective transferees are qualified in all
regards.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE37
VII. FINDINGS OF FACT
Procedural History
1. Respondents Volkswagen Group of America, Inc. and Audi of America, Inc.
(collectively, Audi 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.
2. Budget and Mr. Weitz submitted the Dealership Purchase Contract (the DPC) to Audi on
December 20, 2012, seeking approval of Mr. Weitz as transferee of two Audi dealerships
owned by Budget in Austin, Texas.
3. Mr. Weitz proposed that the individual franchises would be held by Hi Tech Imports
North (Hi Tech North or Audi North Austin). Hi Tech Imports South (Hi Tech South or
Audi South Austin), Hi Tech Italian Imports LLC (Hi Tech Italian or Maserati\ and Hi
Tech Imports LLC (Hi Tech Imports or Porsche). Those entities, in turn, would be
wholly owned by Hi Tech Motorcars, LLC (Motorcars). Motorcars would be owned:
a. 50.1% by Hi Tech Partners, LLC (Hi Tech Partners), controlled by Mr. Weitz;
b. 46.36% by Headwater Hi Tech Partners, LLC (Headwater Hi Tech), owned by
LKCM Headwater Investments I, LP (Headwater LP or Headwater Investments),
co-managed by partner Corbin Robertson III, and
c. 3.54% by Charles Ross Bartley, Charles Ross Bartley IRA, K. Rick Turner
Revocable Trust (Turner Trust), and Turner Family Partnership (Turner
Partnership).
4. On May 14, 2013, Mr. Weitz, Audi North Austin, Audi South Austin, Porsche, and
Budget protested Audi's and Porsche's buy-sell turndown to the Texas Department of
Motor Vehicles, Motor Vehicle Division (the Department or DMV). Audi filed its reply
on June 14. 2013.
5. Audi subsequently filed a Motion to Dismiss, in part, on the basis that Mr. Weitz, Hi
Tech North, Hi Tech South, and Hi Tech Imports (collectively, Intervenors) lacked
standing.
6. In response to Audi's Motion to Dismiss, Intervenors filed a Motion to Intervene.
7. The Administrative Law Judges (ALJs) denied Audi's Motion to Dismiss and granted the
Motion to Intervene.
8. The ALJs conducted a nine-day hearing and issued their proposal for decision (PFD) on
July 16, 20!4.
SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE38
9. After the ALJs issued their PFD, the Department Board (Board) assumed jurisdiction of
the case and, on August 28, 2014, Audi filed a motion to dismiss with the Board.
10. On August 29, 2014, Intervenors filed a Motion to Find the Prospective Transferees
Qualified.
II. On September 12, 2014, with four Board members absent, the Board voted 3 to 2 to
dismiss the Protest for lack of subject matter jurisdiction.
12. 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.
13. On February 13, 2015, the Board voted to remand the Protest to the State Office of
Administrative Hearings (SOAH).
14. On February 20,2015, Audi filed a motion to dismiss the case at SOAH and send the
case back to the Board, challenging the Board's authority to remand this contested case to
SOAR 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.
15. 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
and responses.
16. The Board remanded the case to SOAH to consider three questions regarding Mr. Weitz's
April 30, 2013 letter to Sally Grimes. 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' compliance with Texas Occupations Code (Code)
§ 2301.359(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 ofAmerica, MVD Docket No. 07-0038 (May 4, 2010).
17. 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, Intervenors' Motion to Find the
Prospective Transferees Qualified (Motion), and Audi's Response (Response) to the
Motion.
18. The Remand Order also directed the ALJs to provide specific findings that the
prospective transferees either are qualified or are not qualified.
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE39
Background Facts During the Application Process
19. Budget (through David Stein) and Mr. Weitz submitted the DPC to Audi on
December 20, 2012.
20. Mr. Weitz, primarily through Candido Pagan, and Mr. Weitz's business investors
(Mr. Robertson, Mr. Turner, and Mr. Bartley), either personally or through their
representatives, submitted documentation and information to Audi.
21. Most of the documentation and information was sent to Sally Grimes, the Network
Improvement Manager in Audi's Southern Region office, who was Mr. Weitz and
Mr. Pagan's primary contact at Audi.
22. The DPC is the asset purchase agreement between Budget and Mr. Weitz, and/or his
assigns, for Budget's Austin, Texas Audi, Porsche, and Maserati dealerships.
23. On December 21, 2012, Audi sent a standard email to Mr. Stein and Mr. Weitz. This
email acknowledged receipt of the DPC and identified a list of documents required by
Audi.
24. On January 12,2013, Mr. Weitz submitted two Audi Dealer Applications, one for Audi
North Austin and one for Audi South Austin.
25. In the applications, Mr. Weitz represented that Headwater LP, a private equity investment
fund, would have an ownership interest in the dealerships.
26. The general partner of Headwater LP is Headwater GP.
27. On January 25, 2013, Audi received Headwater LP's dealer application.
28. In February 2013, Audi received several documents from Mr. Weitz in support of the
buy-sell applications.
29. During February, March, and early April 2013, Mr. Weitz submitted to Audi several
letters, certificates of legal entity, source of funds documents, and other information
pertaining to the purchase of the two Audi dealerships in Austin, Texas.
30. 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 by Audi.
31. 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.
32. Audi rejected the proposed transaction for three basic reasons, The first reason was
financial. The highly leveraged capitalization structure caused concerns about the
SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE40
dealerships' solvency and ability to remain adequately capitalized. The second reason
was related to Headwater Hi Tech's lack of automotive experience. The last reason was
that the proposed ownership and capitalization structure was inconsistent with Audi's
interest in having a long~term relationship with its dealerships' owners.
33. The rejection letter did not reference non~compliance with Texas Occupations Code
(Code)§ 2301.359(c)(3) or any notice violations.
34. On April IS, 2013, Mr. Weitz sought to provide clarification of the ownership and capital
structure involved in the proposed transaction.
35. 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."
36. Audi's April 25th letter said 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.
37. After April25, 2013, Mr. Weitz, on behalf of Hi Tech Partners, and the other members of
Motorcars ~ Headwater, Turner, and Bartley ~ renegotiated the Motorcars' company
agreement. The renegotiation culminated in the Hi Tech Motorcars, LLC, Amended &
Restated Company Agreement (First Amended Motorcars Agreement). The First
Amended Motorcars Agreement was signed by every member of Motorcars.
38. On May 1, 2013, Mr. Weitz submitted two more application packages, replacing the
initial Motorcars company agreement with the First Amended Motorcars Agreement.
The submissions were accompanied by two cover letters, one on Hi Tech North
letterhead and one on Hi Tech South letterhead.
39. In the May 1, 2013 packages from Audi North Austin and Audi South Austin, Mr. Weitz
included two letters dated April 30, 2013 (April 30th Letters). One letter was from
Mr. Stein to Ms. Grimes, notifying Audi of the proposed transfer. The other letter was
from Mr. Weitz to Ms. Grimes.
40. Audi received the April 30th Letters on approximately May 2, 2013. There is no dispute
that Audi received the April 30th Letters.
41. 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 that Audi had
rejected on April 16, 2013. Therefore, Audi did not consider the DPC or the materials
received by Audi on May 2.
SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE 41
Background_ of Notice Issue While at SOAH
42. Budget filed its protest on May 14,2013. In the protest, Budget and Mr. Weitz indicated
that they submitted the applications for the franchises in accordance with Code
§ 2301.359.
43. Audi replied to the protest on June 14, 2013, and admitted that the applications had been
submitted in accordance with Code§ 2301.359.
44. 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.
45. Audi never raised lack of notice issues, or Code § 2301.359 issues, in its reply to the
protest, in its initial motion to dismiss, or in its initial responses to Intervenors' request
for disclosures.
46. Audi raised the notice issue on January 3, 2014, in its response to Intervenors' motion for
summary disposition. The ALJs denied the motions for summary disposition.
47. Following the hearing on the merits, Audi addressed the notice issue in its post-hearing
briefs.
48. The ALJs rejected Audi's arguments and found that Intervenors had substantially
complied with the notice provisions of Code§ 2301.359(c).
49. The ALJs found that Mr. Weitz signed and submitted an application for an Audi
dealership, which strongly suggested and intended to convey an agreement to comply
with the franchise.
50. On April 18, 2013, Mr. Weitz notified Audi in writing that he intended to comply with
Audi's requirements.
5l. Given Mr. Weitz's clear intent to purchase the Audi dealerships and his willingness to
adhere to any and all of Audi's requirements necessary to obtain the dealerships, the
ALJs found that Mr. Weitz satisfied the requirement of Code§ 2301.359(c)(3).
52. Audi did not file any exceptions to the ALJs' findings in the PFD that Mr. Weitz had
substantially complied with the notice provisions of Code§ 2301.359.
Substantial Compliance with Code§ 2301.359(c)(3)
53. Audi admits it received the April30, 2013 letter from Mr. Weitz to Ms. Grimes.
54. The April 30, 2013 letter is another document showing Intervenors substantially
complied with the notice provisions of Code§ 2301.359(c)(3).
SOAR DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE42
55. There is no harm in admitting the letter and, since Audi received the letter, Audi is not
unfairly prejudiced by its admission.
56. During the application process in early 2013, Audi never complained that Intervenors had
failed to comply with Code§ 2301.359(c)(3).
57. Code § 2301.359 governs the transfer of an auto 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.
58. 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.
59. Nothing in Audi's Apri116, 2013 rejection letter suggested notice was insufficient or that
Audi was rejecting the application based on a failure to agree to the franchise.
60. It was not until January 2014 (in a response to a summary disposition motion) that Audi
asserted notice was insufficient under Code§ 2301.359.
61. Audi's inaction on the notice issue indicates its belief that Intervenors had complied with
Code§ 2301.359(c)(3).
62. Once Audi more thoroughly raised the notice issue in its post~hearing briefs, the ALJs
rejected Audi's arguments, and Audi did not file any exceptions to the ALJs' findings of
fact or conclusions of law finding that Intervenors had complied with Code
§ 2301.359(c)(3).
63. Substantial compliance of Code § 2301.359(c)(3) is the proper standard to apply in this
case, particularly where the evidence shows that Audi had notice of Intervenors intent to
comply with Audi's franchise agreement.
Facts Relating to FOF Nos. 154-156: Operational Acumen Requirements
64. In the PFD, the ALJs categorized Audi's rejection reasons into three broad categories:
(1) 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 I: I debt~to~equity ratio requirement
(debt~to-equity requirement).
65. 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 in the First Amended Motorcars' Agreement.
66. Headwater Hi Tech had excessive operational control in the form of a contractual right in
the First Amended Motorcars' Agreement to give written consent (Written Consent) on
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE43
major dealership management decisions and the ability to have a "Forced Sale" (Forced
Sale).
67, The Forced Sale provision was triggered either by: (1) the seventh anniversary of the
effective date of the First Amended Motorcars' Company Agreement; or (2) the
occurrence of a material default.
68. Audi estimated that a Forced Sale would be initiated on March 8, 2020, unless a material
default was declared earlier, and that the Forced Sale section was a pla!Uled exit strategy
for Headwater Hi Tech to receive its investment and a return.
69. In FOF 154, the ALJs found that the prospective transferees were not qualified but would
be qualified under the specific conditions set out FOFs 155-158.
70. In FOF 155, the ALJs found that the operational acumen requirement could only be
resolved if Headwater Hi Tech completely and fully removed the Written Consent
provision from the Motorcars' Company Agreement, and instead, proceeded as a silent
investment partner.
71. In FOF 156, the ALJs found that the operational acumen requirement could only be
resolved if Headwater Hi Tech completely and fully removed the Forced Sale provision
from the Motorcars' Company Agreement, and instead, proceeded as a silent investment
partner.
72. The conditions in FOF Nos. 155 and 156 are satisfied and the prospective transferees are
qualified on these matters.
73. After the PFD, on July 1, 2014, Motorcars' members drafted Hi Tech Motorcars, LLC
Second Amended and Restated Company Agreement (Revised Agreement) and
submitted the Revised Agreement to the DMV Board on August 28, 2014, in connection
with the Motion and Response.
74. The Revised Agreement was signed and approved by Mr. Bartley and Mr. Turner, but
will not be signed by Headwater Hi Tech and Mr. Weitz until the DMV Board approves
the transfer.
75. The Revised Agreement does not contain a Forced Sale or similar provision that gives
Headwater Hi Tech any right or power to force a sale of any of the dealerships.
76. The Revised Agreement does not contain a Written Consent or similar provision that
gives Headwater Hi Tech any right or power to have written consent on any management
decisions.
77. Mr. Weitz agreed to sign an "Unconditional Personal Guaranty," a written contract that
ensures that the initial equity investment made by Headwater Hi Tech would be repaid in
the Event of Default, which is defined as: (1) bankruptcy of Motorcars; (2) liquidation of
SOAH DOCKET NO. 608~13-4599.LIC REMAND PROPOSAL FOR DECISION PAGE44
Motorcars; or (3) sale of all or substantially all of the assets of Motorcars or merger of
Motorcars with or into another person or entity.
78. The Event of Default events in the Unconditional Personal Guaranty do not constitute a
default if they are "proximately caused by" Headwater Hi Tech.
79. The personal guaranty indicates that Headwater Hi Tech is gtvmg up contractual
operational control of the dealership by seeking to protect its investment only in the event
of default (Motorcars bankruptcy, liquidation, or sale or merger).
80. Headwater Hi Tech has now assumed the role as silent investor with no contractual
operational control.
81. The Revised Agreement will be signed by Motorcars' members and become the operative
docwnent in this transaction.
82. Headwater Hi Tech and Mr. Weitz have not expressed an intention, nor should they
attempt in the future, to amend the agreement to add the Written Consent and Forced Sale
sections back into the agreement after approval by the Board.
Facts Relating to FOF No. 157: Bridge Loan
83. In the 2014 hearing, Headwater Hi Tech retained the option to use a 90~day short-term
loan, referred to as a "bridge loan" (bridge loan) to fund its $15.7 capital investment.
84. The bridge loan would have been necessary in the event that the limited partners' capital
calls, or contractual monetary obligations, were not received in time for the closing.
85. In FOF No. 157, the ALJs found that use of the bridge loan for Headwater Hi Tech's
$15.7 million investment must be included in the debt~to-equity ratio as debt rather than
as equity, and must be disclosed to Audi within 30 days of the closing if a bridge loan
would be used.
86. The condition in FOF No. 157 is now satisfied because Headwater Hi Tech will use cash
and not debt to fund this transaction, and therefore, the prospective transferee is qualified
on this matter.
87. Headwater Hi Tech will fund the real estate down payment and its portion of the
purchase of the dealerships with $18.5 million in cash that it will have in the Headwater I
account to close the transaction and not with borrowed funds.
88. Headwater Hi Tech's $18.5 million capital contribution remains in the debt-to-equity
ratio as equity.
SOAH DOCKET NO. 608-l3-4599.LIC REMAND PROPOSAL FOR DECISION PAGE45
Facts Relating to FOF No. 158: Cross-Collateralization Requirement
89. In FOF No. 158, the ALJs found that Intervenors would be qualified as prospective
transferees tu1der the following circumstances: no cross-collateralization provisions will
be permitted such that a default on one aspect of any loan causes a default on all other
loans.
90. The condition in FOF No. 158 is now satisfied, with the exception ofthe requirement that
all four dealerships must guaranty the other dealerships. During the exceptions period, if
the dealership guaranty of other dealerships is removed, then the prospective transferees
are qualified on this matter unconditionally.
91. In the PFD, the ALJs made a recommendation that the debt-to-equity ratio should be
adopted, explaining the financial structure of this transaction:
Debt Equity
Ally Bank $17,500,000 Hi Tech Partners $16,958,850
Real Estate $20,000,000 Headwater Hi Tech $15,691,150
,
Turner Trust $200,000
Turner Partnership $200,000
Bartley IRA $100,000
Down-Payment $5,000,000
Total Debt: $37,500,000 Total Equity: $38,150,000
The ALJs found that the debt-to-equity should be calculated as: 37,500,000 ~ 0.98.
38,150,000
The Pre-PFD Loan Documents
92. On April I, 2012, Candido Pagan, the controller for the various Weitz entities, provided
Audi with a copy of loan commitment letter (commitment letter) from Ally Financial
(A1ly), a division of Ally Bank, to verify that Ally intended to make a $17.5 million loan
as part of the total purchase price of $75,650,000 for the four dealerships.
93. The commitment letter confirmed Ally's willingness to extend the loan subject to terms
and conditions, but provided that additional security was required.
94. In April 2013, Ally provided a Cross~Collateral, Cross-Default, Cross-Guaranty
Agreement (CCG Agreement) agreement between Ally and the "Dealers" (Hi Tech
Realty, Motorcars, the four dealerships, and Mr. Weitz). The CCG Agreement contained
a "cross-collateralization" provision that provided as follows: To secure payment and
performance of all Obligations, each Dealer grants to each of the Ally Parties a
continuing security interest in all collateral in which one of the Ally Parties now has a
security interest
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE 46
95. The CCG Agreement also contained a "cross-default" provision, in pertinent part: It is
agreed that any default or breach by any Dealer will, at the option of the Ally Parties,
constitute a default under each Security Agreement and Obligation and any or all
promissory notes arising therefrom.
96. The CCG Agreement also contained a guaranty agreement. That provision stated, in
relevant part: All Dealers, jointly and severally, unconditionally guarantee the
performance and payment of all Obligations owing by any Dealer to any of the Ally
Parties.
97. The real estate loans were collateralized not only by the real estate, but by the physical
assets of all of the dealerships and therefore, a default by one entity was a default by all
entities of all loans.
98. In the PFD, the ALJs concluded that the debt of Hi Tech Realty was tied to the collateral
of all the dealerships and that each of these separate legal entities would be responsible
for the debts of the others.
The Post-PFD Loan Documents
99. After the PFD was issued, new loan documents were drawn up by Ally to remove the
CCG Agreement.
100. There are now four separate sets of loan documents, one for each of the dealership
locations, rather than one set ofloan documents for all locations.
101, There are four Commercial Loan and Security Agreements between Ally and Motorcars;
four Commercial Real Estate Loan and Security Agreements between Ally and Hi Tech
Realty; and four Inventory Financing and Security Agreements between Ally and each
dealership.
102. There are no CCG Agreements contained in any of the documents.
103. Anita Bhama, who drafted the documents and who serves as Ally's in-house counsel for
commercial lending operations, used a "standard set" of loan documents, used
nationwide, for the four dealerships.
104. Cross-collateralization occurs when the property of one borrower is collateral for another
borrower's loans or different loans of that same borrower; here, however, none of the
individual dealerships has placed its assets for the debts of another of the dealerships.
105. The Commercial Real Estate Loan for Hi Tech North is secured by a Deed of Trust on
the land occupied by Hi Tech North only. Hi Tech Realty's failme to pay or perform
would trigger the default provision on this loan only. Ally has also agreed to make an
inventory loan, or "floor plan loan" to Hi Tech North, as well as to the other three
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE47
dealerships. Each dealership is the borrower on its om1 floor plan loan, with its assets as
the sole security in the event of default on the Joan.
106. The Ally automotive credit and automotive risk committees, composed of eight to twelve
Ally employees, approved the form and content of the loans and will be signed by Ally, if
the dealership transfer is approved.
107. Ally continues to require that certain entities execute a guaranty agreement guaranteeing
the payment and performance by the borrower.
108. Ally requires six guaranty agreements: (1) all four dealerships and Motorcars guaranty
the loan repayment of Hi Tech Realty; (2) all four dealerships and Hi Tech Realty
guaranty Motorcars; (3) Hi Tech Realty guaranties the four dealerships; (4) all four
dealerships guaranty the other dealerships; (5) Motorcars guaranties all four dealerships;
(6) Mr. Weitz, personally, guaranties the loan repayment of the four dealerships,
Motorcars, and Hi Tech Realty.
109. Each Guaranty provides that although executed as a single document by the guarantors, a
breach of the guaranty by one guarantor is riot a breach by any of the guarantors, but the
liability of ali parties signing this guaranty is joint and severaL
110. Under generally accepted accounting principles (GAAP), a guaranty is not a loan because
loan proceeds go to the borrower, and not to the guarantor.
111. Under GAAP, the borrower is primarily responsible for the payment of the Joan, and the
guarantor has a contingent obligation only.
112. In requiring that all four dealerships (two Audi dealerships, one Porsche dealership, and
one Maserati dealership) guarantee each other's dealerships, Ally has overreached.
113. By requiring that one manufacturer's dealership (i.e. Audi dealership) guaranty the
financial performance of another's manufacturer's dealership (i.e. Porsche or Maserati
dealership), the two Audi dealerships are subject to the potential unsuccessful operation
of the other two non-Audi dealerships over which Audi has no franchise control.
114. The requirement that all four dealerships, regardless of the particular manufacturer's
product represented in the dealership, guaranty the performance of all other dealerships
does not comply with FOF 158 and must be removed.
115. The $17.5 million capita1loan from Ally can be used for the purchase of the dealerships.
116. The loan document blanks will be filled in at closing, as is typical with any loan.
117. Relitigation of the debt-to-equity issue is not necessary because this issue was fully
vetted and considered in the original hearing and thoroughly discussed in the PFD.
SOAH DOCKET NO. 608-13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE48
1I 8. The debt-to-equity ratio is roughly $37,500,000 debt and $38,150,000 equity for a debt-
to-equity ratio of 0.98, which is within Audi's policy requirement of debt-to-equity ratio
of no higher that 1: l.
VIII. CONCLUSIONS OF LAW
1. The Department has jurisdiction and authority over the parties and the subject matter of
this case under Texas Occupations Code § 2301.151.
2. Notice of this protest and of the hearing on the merits was provided in accordance with
Texas Government Code§§ 2001.051, 2001.052; Texas Occupations Code§ 2301.705.
3. The Department properly referred this case to SOAH under Texas Occupations Code
§ 2301.704 to be conducted in accordance with Texas Administrative Code§§ 155.1 et
seq.
4. SOAH has jurisdiction over all matters relating to the Conduct of the hearing in this
matter, including the preparation of a proposal for decision with findings of fact and
conclusions oflaw. Texas Occupations Code§ 2301.704.
5. In order to sell a dealership, a dealer must notify the manufacturer of the dealer's intent to
sell by providing a completed application for transfer, which includes the transferee's
name, address, tinancial qualifications, and business experience. Texas Occupations
Code§ 2301.359(a)(b) and (c)(2).
6. The application must also supply pertinent agreements regarding the sale; contain any
forms or related information generally used by manufacturers; and provide a
transferee's agreement to comply with the franchise agreement. Texas Occupations Code
§ 2301.359(c)(l), (c)(2), and (c)(3).
7. Not later than the 60th day after the date of receipt of a notice and application, a
manufacturer must determine whether a prospective transferee is qualified and notify the
dealer by letter of approval or rejection of the transferee. Texas Occupations Code
§ 2301.359(d).
8. If the transferee is rejected, the manufacturer must include a statement setting forth the
material reasons for the rejection. Texas Occupations Code§ 2301.359(d).
9. If a dealer's application is rejected, the dealer may file a protest and the Board shall refer
the petition to SOAH. Texas Occupations Code§ 2301.360(a).
10. At the hearing, the manufacturer has the burden of proof to prove that the transferee is
not qualified. Texas Occupations Code § 2301 .360(b), .704.
SOAR DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE49
11. A determination may be made as to whether the transferee is qualified, not qualified, or
not qualified but with specific conditions given under which the prospective transferee
would be qualified. Texas Occupations Code§ 230!.360(c), (d)(!) and (2).
12. If specific conditions are given under which the prospective transferee would be
qualitled, the Board retains jurisdiction of the dispute for a time certain to allow the
dealer and prospective transferees to meet the conditions. Texas Occupations Code
§ 2301.360(e).
13. The notice and application for approval of Budget's sale and transfer of its Audi
dealerships to the prospective transferees complied with Texas Occupations Code
§ 2301.359.
14. 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. Texas Occupations Code
§ 2301.359(c)(3).
15. By completing application forms, the prospective transferees signaled their agreement to
be bound by the terms of the Audi Dealer Agreement, as required by Texas Occupations
Code§ 2301.359.
16. Case law supports substantial compliance with a statutory provisiOn by requmng
substantial compliance with the essential elements of the statute. J. C. Evans Canst. Co.,
Inc. v. Travis Cent. Appraisal Dist., 4 S.W.3d 447,451 (Tex. Civ. App.-Austin 1999, no
pet.).
17. 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.
J.C. Evans Const. Co., Inc. v. Travis Cent. Appraisal Dist., 4 S.W.3d 447,451 (Tex. Civ.
App.-Austin 1999, no pet.).
18. In Ford Motor Co. v. Motor Vehicle Bd. ofTexas Dept. ofTransp., No. 03-05-00290-CV,
2008 WL 1912102, at' 3-4 (Tex. App.-Austin May 1, 2008, pet. denied) (mem. op.),
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, but the Board retained jurisdiction to hear the seller's protest.
19. Inadequacies in a notice of a proposed sale and supporting materials sent to a
manufacturer may make rejection of the sale more reasonable, but such inadequacies do
not deprive the Board of the power to consider the protest. 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.).
20. In Ultimate Ford v. Motor Vehicle Div. of Texas Dept. of Tramp., No. 03-09-00548-CV,
2010 WL 3370683, at *4-5 (Tex. App.-Austin Aug. 27,2010, pet. denied) (mem. op.),
SOAH DOCKET NO. 608~13~4599.LIC REMAND PROPOSAL FOR DECISION PAGE SO
Ultimate Ford's notice had not strictly followed the language of the statute, nonetheless,
only substantial compliance was required when sending termination notice to dealership.
21. The purpose of notice 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.
Ultimate Fordv. Motor Vehicle Div., 2010 WL 3370683, at *5.
22. Ultimate Ford had not strictly followed the notice requirement under Code
§ 2301.453(c)(2), however, its notice to the dealerships had satisfied the purpose of the
statute. Ultimate Fordv. Motor Vehicle Div., 2010 WL 3370683, at *5.
23. Waiver is established by a party's express renunciation of a known right, or by silence or
inaction for so long a period as to show an intention to yield the known right. Tenneco
Inc. v. Enter. Prods. Co., 925 S.W.2d 640,643 (Tex. !996).
24. A party can waive a certain notice requirements, suggesting that substantial compliance is
the appropriate standard. Gordon Rountree Motors, Ltd. v. Mazda Motors of America,
MVD Docket No. 07-0038.LIC (May 3, 20!0).
25. 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. Gordon Rountree Motors, Ltd. v. Mazda Motors of America, MVD Docket
No. 07-0038.LIC (May 3, 2010).
26. Given Intervenor's substantial compliance with the notice provtston under Texas
Occupations Code§ 2301.359(c)(3), their clear intent to purchase the Audi dealerships,
and their willingness to adhere to any of Audi's requirements necessary to obtain the
dealerships, Intervenors satisfied the requirement of Code§ 2301.359(c)(3).
27. Cross~collateralization is defined as, "an installment-contract provision allowing the
seller, if the buyer defaults, to repossess not only the particular item sold but also every
other item bought from the seller on which a balance remained due when the last
purchase was made." Blanco Nat'! Bank v. Gonzalez, 04~12-00079-CV, 2013 WL
!760604, at *5 (Tex. App.-San Antonio Apr. 24, 20!3, no pet.) (mem. op.).
28. The principal must default or be unable to perfonn the contract before the party can move
against the guarantor. Byrdv. Estate of Nelms, !54 S.W. 3d !49, !57 (Tex. App.-Waco
2004, no pet.).
29. The principal must default or be Wlable to perform the contract before the party can move
against the guarantor. Ray v. Spencer, 208 S.W.2d 103, 104 (Tex. Civ. App.-Texarkana
!947, writrefused).
SOAH DOCKET NO. XXX-XX-XXXX.LIC REMAND PROPOSAL FOR DECISION PAGE 51
30. Pursuant to Texas Occupations Code § 2301.360(d), the proposed sale and transfer of
Budget's Audi dealerships to the prospective transferees should be approved with the
conditions set forth in this Remand Proposal for Decision.
SIGNED August 13, 2015.
M CHAEL J. O'MAL Y p ov
ADMINISTRATIVE LAW JUDGE ADMINISTRA JVE LAW .JUDGE
STATE OFFICE OF ADMINISTRATIVE HEARING STATE OFFICE OF ADMINISTRATIVE HEARINGS
INTERVENORS’ APPENDIX
TAB 2
BEFORE THE TEXAS DEPARTMENT OF MOTOR VEHICLES
MOTOR VEHICLE DIVISION
BUDGET LEASING, INC. d/b/a AUDI §
NORTH AUSTIN and AUDI SOUTH §
AUSTIN, §
§
Protestant, §
§
RICARDO M. WEITZ, §
HI TECH IMPORTS NORTH, § SOAH Docket No. XXX-XX-XXXX.LIC
LLC, HI TECH IMPORTS SOUTH, LLC, and § MVD Docket No. 13-0008 LIC
HI TECH IMPORTS, LLC, §
§
Intervenors, §
V. §
§
VOLKSWAGEN GROUP OF AMERICA, §
INC. and PORSCHE CARS NORTH §
AMERICA, INC., §
§
Respondents. §
RESPONDENTS VOLKSWAGEN GROUP OF AMERICA. INC.'S AND AUDI OF
AMERICA, INC.'S RESPONSE TO STAFF'S EXECUTIVE SUMMARY AND
PROPOSED ORDER
Respondents Volkswagen Group of America, Inc. and Audi of America, Inc. (collectively
"Audi") hereby file this Response To Staffs Executive Summary And Proposed Order. The
Executive Summary refers to a document that was recently presented by Protestant and
Intervenors as potentially satisfying the notice requirement and creating a controversy about
which additional facts must be adjudicated. This document, however, is irrelevant to the issue of
the Board's jurisdiction, and does not justify any further proceedings before SOAH.
In addition, on October 21, 2014, attorneys for the parties were informed by David
Duncan, General Counsel for the Board, that a Board member was contacted in writing by a
party with an interest in this protest regarding the member's vote on the pending motion. A third
party has also attempted to make contact with Board members regarding this protest. These
contacts are blatantly improper, and should result in denial of the motion for rehearing.
l. IMPROPER CONTACTS WITH THE BOARD WARRANT DENIAL OF THE MOTION FOR
REHEARING.
On October 10, 2014, a Board member was contacted in writing by Corbin Robertson in
an attempt to discuss the merits of the case with this Board member. (copy of David Duncan
letter to counsel enclosing Robertson message attached hereto as Exhibit A). Audi subsequently
was informed that Stacy Gillman, a dealership owner and daughter of a former Board member,
also made efforts to contact members of the Board about the merits of this case. (copy of
October 24, 2014 letter from David Duncan to counsel attached hereto as Exhibit B). Although
Audi is not suggesting that the Board or its Staff has 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.
In the written communication, Robe1tson (who identifies himself as "Corby" and Ricardo
Weitz's partner) suggests that the fact that his family's name is on a football stadium, among
others, are reasons that this Board member should vote in favor of the Protestant and Intervenors'
pending motion for rehearing. (Exh. A). Robertson's communication, and potentially other
contacts with Board members, violates the Administrative Code prohibition against discussions
of the merits of the case with a hearing officer outside of the presence of all of parties. 1 MVD
Rule§ 215.43 provides, in relevant part, as follows:
Every party, witness, attorney, or other representative shall
comport himself in all proceedings with proper dignity, courtesy,
and respect for the Board, the heming officer, and all other parties ..
. . No party to a pending case, and no representative or witness of
such a party, shall discuss the merits of such case with the hearing
1
A "hearing officer" includes the Board as the entity that "issue[ s] final orders." MVD Rule §
215.2(b)(l5).
2
officer outside of the presence of all other parties, or their
representatives. Upon violation of this section, any party, witness,
attorney, or other representative may be excluded from any hearing
for such period and upon such conditions as are just; or may be
subject to such other just, reasonable, and lawful disciplinary
action as the hearing officer or department may prescribe.
Robertson was a witness in the proceedings before SOAH and identified himself as a Weitz's
partner. Robertson's conduct is governed by this Rule and his actions are an undeniable
violation of its terms that should not be tolerated by the Board. This Rule grants the Board broad
discretion to impose disciplinary action in response to a violation. Given Robertson's deliberate
attempt to impermissibly influence the outcome of the motion for rehearing, denial of the motion
for rehearing would be appropriate.
Robertson also submitted an application to be an Audi dealer. (Respondents Ex. 163).
He, therefore, is one of the Prospective Transferees whose qualifications were at issue. His
attempt to improperly influence the outcome of this proceeding is overwhelming evidence that
he (and potentially others who also did or attempted to make contact with the Board, as set forth
in Duncan's letters) lacks the moral character necessary to satisfy the requirements of Section
2301.359(g)(2). Therefore, the Board should deny the motion for rehearing as a disciplinary
action under Rule 215.43.
II. No CONTROVERSY EXISTS REGARDING THE BOARD'S JURlSDICTION.
A. The April 30th Letter Post-Dates Audi's Rejection and Does Not Reflect The
Agreement of all of the Proposed Transferees.
Staff's Recommendation refers to "specific documentation" that may satisfy the
jurisdictional requirements of Section 2301.359. This document is an April 30, 2013 letter from
Ricardo Weitz to Audi that Protestant and Intervenors attached to a Reply brief to Audi's
Opposition to the Motion for Rehearing. In the April 30th letter, Weitz belatedly agrees to be
3
bound by the Audi Dealer Agreement. This letter, however, is irrelevant to the issue of
jurisdiction.
First, the April 30, 2013 came after Audi's rejection letter by two weeks. (Respondents
Ex. 186 (Audi's rejection letter dated April 16, 2013)). The April 30 letter, therefore, cannot be
evidence of compliance with Section 2301.359(c)(3) for purposes of this protest. ''[T]he denial
of an application by the manufacturer constitutes the end of that application process." Gordon
Rountree Motors, Ltd. v. Mazda Motor of Am., Inc., dba Mazda N Am. Operations, MVD Dkt.
No. 07-0038 LIC (Proposal for Decision, dated July 14, 2009), at 8 (attached as Exhibit C).
Therefore, the April 3Oth letter cannot have met the notice requirements to establish the Board's
jurisdiction over this protest.
Second, the April 30th letter does not demonstrate an agreement by all of the proposed
transferees to be bound by the terms of the Audi Dealer Agreement. As a result, even if it were
timely, it alone cannot be evidence of compliance with the requirement of Section
2301.359(c)(3). The letter is signed only by Ricardo Weitz in his individual capacity. This
transaction, however, involved multiple proposed transferees: Weitz 1998 Trust, NICPA Austin
Motorcars LLC, Hi Tech Motorcars, LLC, Hi Tech Partners, LLC, Headwater HiTech Partners,
LLC, LKCM Headwater Investments I, LP, LKCM Headwater Investments GP, LP, Charles
Ross Bartley, Equity Trust Company FBO Charles Ross Bartley IRA, Turner Family
Partnership, K. Rick Turner Revocable Trust. No evidence exists that any of these persons or
entities agreed to be bound by the Aucli Dealer Agreement at any time.
Protestant and Intervenors, in their Reply in Support of their Motion for Rehearing,
describe the Prospective Transferees as only "potential investors" who should not be subject to
the requirements of Section 2301.359(c)(3). But, the Prospective Transferees are not "potential
4
investors." The Proposal for Decision. extensively discussed the significant amount of
operational control over the dealerships that Headwater HiTech Partners, LLC ("Headwater
HiTech") would have had. (Proposal for Decision at 19, 25-34 (rejecting argument that
Headwater HiTech Partners, LLC was a "mere investor"), Finding of Fact ~ 84 ("Headwater
HiTech was more than a mere investor; rather it was a proposed owner with a controlling
interest.")).
In addition, these parties beyond Weitz, would have been owners of the dealerships, had
the proposed transaction been approved. (See Respondents Ex. 5 (proposed ownership chart);
Respondents Ex. 127 at 3010 (identifying ownership of Hi Tech Motorcars, LLC); Respondents
Exs. 52, 312 (Weitz Dealer Applications); Respondents Ex. 69 (LKCM Headwater Investments
I, LP Dealer Application); Respondents Ex. 109 (Bartley Dealer Application); Respondents Ex.
124 (Turner Dealer Application); Respondents Exs, 163, 164 (Headwater HiTech Dealer
Application and Robertson Dealer Application on behalf of Headwater HiTech); Respondents
Ex. 70 at Weitz0003241 (identifying LKCM Headwater Investments GP, LP as the 100% owner
of Headwater HiTech)).
Furthermore, the argument that Section 2301.359(c)(3) should only apply to Weitz, the
party named on the asset purchase agreement, and not the remaining Prospective Transferees, the
persons and/or entities to whom Weitz would assign his interests and who would hold an
ownership interest in the dealerships (whether called "potential investors" or not), makes no
sense. If the assignees will own the dealerships if the proposed ownership change is approved, it
is the assignees' agreement to be bound by the terms of the dealer agreement that is critical. Any
suggestion that a person or entity does not have to comply with Section 2301.359(c)(3) merely
because they are not individually listed on the asset purchase agreement, but will have
5
ownership, is incorrect. Therefore, the April 30th letter cannot change the Board's prior Order
that it lacks jurisdiction over this protest.
Protestant and Intervenors cite to the April 30th letter solely for purposes of creating
confusion; their own actions belie any belief that this letter somehow satisfies the jurisdictional
requirements. Protestant and Intervenors did not offer the letter as evidence during the
evidentiary hearing before SOAH. 2 They did not refer to this letter when the issue of jurisdiction
was argued to the Board. They did not include it in any of the briefmg to the Board on the
jurisdictional issue prior to the Board's Order. And, they did not include it until the very last
section in a procedurally improper reply brief filed in support of their Motion for Rehearing. 3
Neither of the statutes cited by Protestant and Intervenors in that Reply brief allows the
Board to accept new evidence after the record has been closed, and certainly not in the context of
an improperly filed reply brief associated with a motion for rehearing on a final order. 4 The
April 30th letter should not be the basis for additional evidentiary proceedings before SOAH.
2
Protestant and Intervenors have attempted to introduce new evidence in a reply brief before. During
post-hearing briefing before SOAH, Protestant and Intervenors attached materials not submitted at
hearing to their reply brief, seeking to include factual matters not presented at hearing and to prejudice
Audi by presenting the evidence when Audi had no opportunity to respond. SOAH agreed that
Protestant's and Intervenors' actions were improper and granted Audi's motion to strike the factual
matters not in evidence and arguments referring to those facts, as the record was closed. (Order No. 34).
3
Protestant's and Intervenors' reply filed on October 15, 2014 was improper because it does not comply
with the procedures on rehearing. See Gov't Code§ 2001.146. The Administrative Procedure Act only
contemplates a motion for rehearing, Section 2001.146(a), and a response to that motion. Gov't Code
§ 200l.l46(b).
4
Texas Occupations Code§ 230l.l51 reads as follows:
(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).
Texas Occupations Code§ 2301.153(a)(3}--improperly cited as§ 230.153(a)(3), which does not exist-
reads as follows:
6
B. Weitz's Deposition Testimony Is Misleading And Does Not Show Compliance
With Section 2301.359(c)(3).
Protestant and Intervenors are also less than candid in their new argument in their Reply
brief relating to the deposition testimony of Weitz with regard to whether Weitz provided a
written agreement to be bound by the Audi Dealer Agreement.
The question asked at deposition was not limited as to timing; the question asked if the
written agreement had been provided "at some point." (Weitz Desig. Vol. 1 at 10:9). The lack
of a time frame in that question is significant. Weitz and the other prospective transferees
attempted on at least three different occasions to have Audi to consider a proposed transfer. (See
Intervenors Ex. 22 (December 20 submission); Respondents Exs. 202, 203 (May 1 submission);
Respondents Exs. 226, 227 (May 10 submission)). Only one of those proposed transfers was at
issue in the protest-the proposal initiated on December 20, 2012 and rejected by Audi on April
16,2013.
Weitz's deposition testimony that he "at some point" agreed to be bound by the Audi
Dealer Agreement does not mean that the written agreement was provided in conjunction with
the transaction that was at issue in this protest. Rather, his testimony at the evidentiary hearing
confirms the irrefutable fact that the Prospective Transferees did not provide a written agreement
to be bound by the Audi Dealer Agreement with regard to the relevant application:
Q. . .. Do you recall that during the course of the application
process up until the turndown on April16, 2013 that you never
and no one on your behalf ever provided Audi with a statement
that you or any of your entities would indeed comply with the Audi
dealer agreement to the extent it was not in conflict with Texas
law?
A. No, we did not indicate that.
Notwithstanding any other provision of law, the board has all powers necessary,
incidental, or convenient to perform a power or duty expressly granted under this chapter,
including the power to: ... receive evidence and pleadings.
7
(Tr. at 1899:5-20 (Weitz) (emphasis added)). And by "we," he meant all of the Prospective
Transferees.
III. CONCLUSION AND PRAYER,
The improper attempts of Corbin Robertson and others to influence the decision of the
Board is a sufficient basis to deny the motion for rehearing. Furthermore, the April 30th letter,
because it post-dates Audi's rejection of the proposed transfer and was not signed by all of the
proposed transferees, is irrelevant to the Board's jurisdiction. The motion for rehearing should
be denied.
Respectfully submitted,
B ·~~~7&~~-b~~~~
illy
Stat
Mark . Smith
State Bar No. 24070639
811 Main Street, Suite 1100
Houston, Texas 77002-6111
Telephone: (713) 751-1600
Facsimile: (713) 751-1717
bdonley@bakerlaw.com
mesmith@bakerlaw.com
Elizabeth A. McNellie
Admitted Pro Hac Vice
65 East State Street, Suite 2100
Columbus, Ohio 43215
Telephone: (614) 462-2651
Facsimile: (614) 462-2616
emcnellie@bakerlaw.com
ATTORNEYS FOR RESPONDENTS
VOLKSWAGEN GROUP OF AMERICA, INC.
AND AUDI OF AMERICA, INC.
8
CERTIFICATE OF SERVICE
I ce1tify that a true copy of this document was served on the following according to 43
T.A.C. § 215.30 and by email pursuant to the parties' Rule 11 agreement on December 1_~14.
Filing Via Facsimile- (512) 465-3666 William R. Crocker
Original and three copies via 1014 Vaughn Building
Next-Day Commercial Delivery Service 807 Brazos
Motor Vehicle Division, Docket Clerk Austin, Texas 78701
Texas Department of Motor Vehicles Email: crockerlaw@earthlink.net
4000 Jackson A venue Email: tcasteel@earthlink.net
Austin, Texas 78731
Attorney for Protestant Budget Leasing, LLC
Texas Department of Motor Vehicles d/b/a Audi North Austin and Audi South Austin
Motor Vehicle Division
Mr. Daniel Avitia, Director
4000 Jackson Ave.
Austin, Texas 78731
Via Email-- J. Bruce Bennett
Cardwell, Hart & Bennett, LLP
David Duncan 807 Brazos, Suite 1001
Email: David.Duncan@txdmv.gov Austin, Texas 78701
Kenneth Herring Email: jbb.chblaw@sbcglobal.net
Email: Ken.Herring@txdmv.gov Email: cardwellhartbennett@gmail.com
Michelle Lingo
Email: Michelle.Lingo@txdmv.gov Joseph Letzer
Dent M. Morton
Attorneys for Motor Vehicle Division Burr & Forman LLP
420 20'h Street N.
Lloyd E. "Buddy" Ferguson 3400 Wells Fargo Tower
Merritt N. Spencer Birmingham, Alabama 3 5203
Strasburger & Price, LLP Email: jletzer@burr.com
720 Brazos St., Suite 700 Email: dmorton@burr.com
Austin, Texas 78701
Email: Buddy. F erguson@stras burger. com Attorneys for Intervenors Ricardo M Weitz, Hi
Email: Kathi.Alexander@strasburger.com Tech Imports North, LLC, Hi Tech Imports
South, LLC and Hi Tech Imports, LLC
Attorneys for Porsche Cars North
America, Inc.
9
Thomas R. Phillips
Matt C. Wood
Baker Botts L.L.P.
98 San Jacinto Boulevard, Suite 1500
Austin, Texas 78701-4078
Email: tom.phillips@bakerbotts.com
Email: matt.wood@bakerbotts.com
Attorneys for Amicus Curiae
Texas Automobile Dealers Association
10
INTERVENORS’ APPENDIX
TAB 3
Kim Vickers, 2013 WL 1087536 (2013)
2013 WL 1087536 (TX.St.Off.Admin.Hgs.)
State of Texas
Office of Administrative Hearings
Kim Vickers
Docket No. XXX-XX-XXXX
Februa1y 27, 2013
*1 Kim Vickers
Executive Dit·ector
Texas Commission on Law Enforcement
Officer Standards and Education
6330 U.S. Hwy. 290 East, Suite 200
Austin, Texas 78723
RE: Texas Commission on Law Enforcement Officer Standards and Education v. James W. Bush
Dear Mr. Vickers:
On February 6, 2013, I issued a Proposal for Decision (PFD) in this case. On February 20, 21, and 23,2013, I received the
attached e-mail communications from James W. Bush (Respondent). Because I have issued a PFD, and returned the matter to
the Texas Commission on Law Enforcement Officer Standards and Education (Commission), jurisdiction is now solely
before the Commission. The Executive Director (ED) did not file exceptions.
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 an exception, and the consideration of new evidence is relief that I cannot grant. The
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.
Therefore, the PFD is ready for your consideration.
Sincerely,
Penny A. Wilkov
Administrative Law Judge
2013 WL 1087536 (TX.St.Off.Admin.Hgs.)
End of Document 't-J 2015 Thomson Reuters. No claim to original U.S. Government Works.
:·. ·H ·:Nexr © 2015 Thomson Reuters. No claim to original U.S. Government Works.
William H. Kuntz, 2014 WL 1911318 (2014)
2014 WL 1911318 (TX.St.Off.Admin.Hgs.)
State of Texas
Office of Administrative Hearings
William H. Kuntz
Docket No. XXX-XX-XXXX.ACR
Apriln, 2014
*1 William H. Kuntz
Executive Director
Texas Department of Licensing and Regulation
920 Colorado, 4" Floor
Austin, TX 78701
RE: Texas Department of Licensing and Regulation v. Dusan Drobot
Dear Mr. Kuntz:
I issued the Proposal for Decision (PFD) in this case on March I 0, 2014. On April 4, 2014, the State Office of Administrative
Hearings (SOAH) received exceptions to the PFD fi·om the respondent, Dusan Drobot.
Mr. Drobot's exceptions were not timely filed. The PFD was issued on March 10 and sent to Mr. Drobot that day by regular
mail. SOAH's rules provide that exceptions shall be filed within fifteen days after the date of service of the PFD.' SOAH's
rules further provide that, if a document was sent by regular mail, the judge shall presume that it was received no later than
three business days after mailing'-in this case, March 13, Mr. Drobot has offered no statement or evidence that he received
the PFD later than March 13. Exceptions from Mr. Drobot were therefore due to be filed at SOAH no later than March 28,
2014. Even if Mr. Drobot received the PFD as late as March 19, the exceptions received at SOAH on April4 were late.
I would note that Mr. Drobot's exceptions include an attachmeilt consisting of a copy of a Texas apprentice electrician
license bearing his name (and an expiration date of December 31, 2013). No evidence of such a license was admitted in the
hearing. The PFD concludes, in pati, that Mr. Drobot violated Texas Occupations Code§ 1305.151 on May 22 and 25,2011,
by offering to perform electrical work without holding an appropriate license. If the license attached to Mr. Drobot's
exceptions was in effect during the period of time relevant to this case, that fact might well have a bearing on the issues.
However, SOAH's rules do not contemplate that a judge re-open the evidentiaty 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 remainder of the exceptions-including another document and additional assertions of fact outside the record in this
case, as well as argument-would not warrant any change to the PFD even if they were considered, despite their lack of
timeliness.
The PFD is therefore ready for consideration unless the Commission of Licensing and Regulation remands the matter to
SOAH for the purpose of re-opening the hearing.
Sincerely,
Shannon Kilgore
Administrative Law Judge
Cathleen Parsley
Chief Administrative Law Judge
'ii .11 ··•Next © 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
William H. Kuntz, 2014 WL 1911318 (2014)
Footnotes
I Tex. Admin. Code§ 155.507(c)(l).
I Tex. Admin. Code§§ 155.7(d), 155.103(c)(3).
2014 WL 1911318 (TX.St.Off.Admin.Hgs.)
End of Document :D 2015 Thomson Renters. No claim to original U.S. Government Works.
'N .11 ,.;.Next © 2015 Thomson Reuters. No claim to original U.S. Government Worl2013 WL 3367155 (2013)
2013 WL 3367155 (TX.St.Off.Admin.Hgs.)
State of Texas
Office of Administrative Hearings
William H. Kuntz
Docket No. XXX-XX-XXXX.ACR
Junes, 2013
*1 William H. Kuntz
Executive Director
Texas Department of Licensing and Regulation
920 Colorado, 4• Floor
Austin, TX 78701
RE: Texas Department of Licensing and Regulation v. Manuel Guerra
Dear Mr. Kuntz:
On April25, 2013, I submitted to you my Amended Proposal for Decision in the above-referenced case and sent copies to the
parties. Manuel Guerra (Respondent) filed exceptions. The Texas Department of Licensing and Regulation (Department) did
not file a response.
The Amended Proposal for Decision is supported by the evidence developed in the evidentiary hearing and, as such, would
stand unchanged. Having said that, Respondent made an impassioned plea in his exceptions. I have no doubt that had the
matters raised in Respondent's exceptions been presented at hearing, they would have become a part of the evidentiary record
and would likely have changed my decision regarding Respondent's fitness to hold a license. Respondent began his
exceptions with a detailed personal history that demonstrates his willingness to work and, more importantly, the importance
of his family. It also includes the absolute statement that he should not have engaged in the sale of counterfeit inspection
stickers and would never do such a thing in the future. With respect to the falsehood on his application, Respondent states
that he misunderstood the nature of a deferred adjudication; he thought that it did not count against him. This is an
understandable mistake and, while Respondent did not fill out the application correctly, if that is the only wrong he
committed, it should not be sufficient to revoke his license. Respondent discusses the path he has followed while on deferred
adjudication and the fact that he is up to date on all fees, performs community service, and has no violations. He suggests
calling his probation officer to verify, but, of course, that is not permissible. He again mentions his responsibility in his work
history. Finally, he again states that he should not have gotten involved in the sale of counterfeit inspection stickers. He states
that he has learned his lesson, and concludes with the following:
Without the money from this work, I cannot be a man for my wife and a good provider for my children.
They deserve better. This is why I will never take such risks again. I will never put myself in a situation
in which crime is committed. If you have mercy and allow me to keep my license, I know that it will be
an opportunity that will not come again. Please give me a chance.
As a consequence, as I stated at the outset, under the present evidentiary record my recommendation remains unchanged and
the Amended Proposal for Decision is ready for your consideration. However, the Depat1ment has the discretion to remand
this case for additional evidence consistent with Respondent's exceptions. Such an action would not only permit Respondent
to fully present his case, but also allow the Staff to test his presentation through the crucible of cross-examination, thereby
allowing both parties full and complete due process rights. I urge the Department to adopt this course.
*2 Sincerely,
'N" ,;; >',',Next© 2015 Thomson Reulers, No claim to original U,S, Government Works,
William H. Kuntz, 2013 WL 3367155 (2013)
Steven D. Arnold
Administrative Law Judge
Cathleen Parsley
Chief Administrative Law Judge
2013 WL 3367155 (TX.St.Off.Admin.Hgs.)
End of Doeument \0 2015 Thomson Reuters. No claim to original U.S. Government Works.
"'·' · ·.'iYi.Nexl © 2015 Thomson Heuters. No claim to original U.S. Government Works. 2
Appeal of Paris A. Mlms, Jr. from Denial of Application ... , 2004 WL 4172108 ...
2004 WL 4172108 (TX.St.Off.Admin.Hgs.)
Office of Administrative Hearings
Appeal of Paris A. Mims, Jr. from Denial of Application Retirement Disability Benefits S.S. No. XXX-XX-
XXXX-S
Docket No. XXX-XX-XXXX
September 2004
AMENDED PROPOSAL FOR DECISION
*1 Paris A. Mims, Jr. (Appellant) appealed the decisimLof the Executive Director of the Employees Retirement System of
Texas (ERS) denying Appellant's application for occupational disability benefits. The Executive Director found that
Appellant's disability was caused by the aggravation of a preexisting condition in Appellant's spine. Consequently,
Appellant's disability did not meet the definition of an occupational disability as defined in TEX. GOV'T CODE ANN., §
811.001 (12). This amended proposal recommends Appellant's appeal be denied because Appellant's disability would not
have occurred but for the degeneration of Appellant's spine caused by prior back surgeries.
I. JURISDICTION, NOTICE, AND PROCEDURAL HISTORY
There are no contested issues of jurisdiction or notice in the proceeding. Therefore, those matters are set out in the proposed
findings of fact and conclusions oflaw without further discussion here.
On December 8, 1995, Catherine C. Egan, Administrative Law Judge {ALJ) for the State Office of Administrative Hearings
(SOAH) presided over the hearing in this matter. Appellant represented himself. The Staff of the ERS (the Staff) was
represented by David R. Gavia, Assistant General Counsel to ERS. At the request of the Staff, the record remained open so
the Staff could submit additional medical documentation to the ERS Medical Board for consideration. On Janumy 3, 1996,
the Staff filed a letter with SOAH, advising the ALJ that the ERS Medical Board had reviewed Appellant's additional
documentation and had not changed its findings. The record was closed on Janumy 3, 1996, and a proposal for decision was
issued on February29, 1996.
On October 16, 1996, the ALJ presented the proposal for decision to the ERS Board during a public meeting; the proposal
recommended Appellant's appeal be granted. Appellant asked the ERS Board to review additional medical records before
making a decision. The ERS Board wanted the additional medical records considered by the ALJ, and remanded the matter
back the SOAH. The Staff asked the ERS Board to allow the ERS Medical Board to review the additional medical records
before the ALJ. The ERS Board granted the Staffs request.
On April 4, 1997, the Staff filed a letter with SOAH requesting Appellant's additional medical records be marked and
admitted as Exhibits 4 and 5, and the amended certification ofthe ERS Medical Board be marked and admitted as Exhibit 6.
Appellant filed no objection to the Staffs request. Consequently, Exhibits 4, 5 and 6 were admitted into the record, and the
record was closed on Aprill4, 1997.
II. INTRODUCTION
A. An Overview of the Case.
*2 ERS stipulated that the ERS Medical Board (the Medical Board) certified Appellant as likely to be permanently disabled
and that the injury was caused by an inherent risk or hazard of the job. The only issue to decide in this appeal is whether the
Appellant's disability is due to an aggravation of a preexisting condition. The evidence consisted of Appellant's testimony
and documentary evidence.
The Texas Department of Criminal Justice employed Appellant, a 49-year-old male, as a heavy-equipment supervisor I,
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Appeal of Paris A. Mims, Jr. from Denial of Application ... , 2004 WL 4172108 ...
supervising and directing inmate work crews in the maintenance, repair, and operation of heavy equipment and machinery.
On January 4, 1994, a boom truck Appellant was riding in hit a large rock, whipping Appellant around in his seat and
injuring his neck. On Janumy II, 1994, Appellant was riding in a dump truck over rough terrain with an inmate hauling sand
when Appellant experienced "some lower pain@ different times .... " Appellant had injured the lumbar area of his spine. This
was Appellant's last day at work.
The Staff argued Appellant's two prior back surgeries compromised his spine, and that the January 4 and II, 1994, injuries
alone would not have caused Appellant's disability. Appellant argued that because he had no back problems between 1988,
the date of his last spinal surgery and 1994 his disability directly resulted from the injuries he sustained in the 1994 incidents.
B. Statutory Criteria.
A member is ineligible for occupational disability retirement annuity unless the circumstances surrounding the member's
disability meet the definition of occupational disability in Section 811.001(12), TEX. GOV'T CODE ANN., which provides
in pertinent part:
[O]ccupational disability mean ... disability from an injury or disease that directly results from a specific
act or occurrence determinable by a definite time and place, and directly results from an inherent risk or
hazard peculiar to a duty that arises from and in the course of State employment.
Additionally, the member must meet the following requirement as specified in TEX. GOV'T CODE ANN.§ 814.202(c):
A member otherwise eligible may not receive a disability retirement annuity unless the member is the
subject of a cettification issued as provided by Section 814.203.
A member must also establish that the member is mentally or physically incapacitated from the further performance of duty,
the incapacity is likely to be permanent, and the member should be retired. TEX. GOV'T CODE ANN.§ 814.203.
III. EVIDENCE PRESENTED
A. Appellant's Testimony.
Appellant testified that although he had back surgery for a herniated disk in I 988, he had experienced no back problems from
1988 until Januaty I 994 when he was injured on the job. Appellant had to ride in the trucks with the prisoners working the
rock pits. Appellant stated that the truck seats were not suitable for the rough terrain. He complained to his supervisor that he
was constantly bouncing around in his seat when the trucks hit bumps common in the area. When Appellant brought his
concerns about the seats to the attention of his supervisor, the supervisor responded by asking, "Are you refusing to your
job?" Appellant testified that the operation in 1988 involved disks C6 and 7, and that the injuries to his back in January 1994
occurred at disks L3-4 and L4-5, previously undamaged disks.
B. Medical Opinions.
I. ERS Medical Board.
*3 On August 8, 1995, the Medical Board certified that Appellant was physically incapacitated for the further performance of
his duty and that the incapacity was likely to be permanent. The Board found Appellant's incapacity was "an aggravation of
cervical and lumbar diskogenic' disease" caused by a 'jolting injury to neck and lower back on the job."' The Board found
Appellant's disability resulted from the aggravation of a preexisting condition: the two previous spinal operations-one in the
cervical area in 1987 and the other in the lumbar region in 1988. The Medical Board concluded the January 4 and 11, 1994,
incidents would not have caused permanent disability to a normal spine.
On March 5, 1997, the ERS Medical Board was provided with Appellant's additional medical records, marked as Exhibits 4
and 5. After reviewing Appellant's additional medical records, the ERS Medical Board found:
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Appeal of Paris A. Mlms, Jr. from Denial of Application ... , 2004 WL 4172108 ...
and lumbar laminectomy' at L5-Sl on the left. The injmy described would not result in a permanently
disabling incapacity in a normal spine.~
2. Statement of Attending Physician.
A. L. Mendelow, M.D., a board certified orthopedic surgeon, treated Appellant for his back pain on January 12, 1994. Dr.
Mendelow diagnosed Appellant's condition as "cervical disk syndrome, back strain." Dr. Mendelow stated Appellant hurt his
neck in a whiplash type injury from the boom truck and injured his lower back while riding a dump truck over rough terrain.
Dr. Mendelow found that Appellant's condition was likely to be permanent.
Dr. Mendelow noted Appellant had an anterior cervical discectomy and fusion in 1987 and a lumbar laminectomy and
discectomy in 1988. In a letter dated December 6, 1995, Dr. Mendelow stated that the January 1994 injuries to Appellant's
spine were not related to Appellant's previous back injuries. Dr. Mendelow did not provide further explanation for this
conclusory statement.
3. Other Documentary Evidence,
On February 2, 1994, the Accident Review Board at the Texas Department of Criminal Justice met to review the January 4
and 11, 1994, incidents concerning Appellant. During the meeting, Appellant stated he was in a car accident in 1983. As a
result of the accident, he was off from work from 1985-1988 and ultimately had the disks in his neck fused. The Accident
Review Board's record of this meeting showed that Appellant was involved in seven accidents since his employment in 1992.
4. Additional Documentary Evidence Submitted by Appellant at the ERS Board Meeting and Admitted as Exhibits 4
and 5.
Appellant submitted additional medical records at the public hearing before the ERS Board on October 16, 1996. Most of the
records were reports pertaining to Appellant's workers' compensation claim. The reports added a significant insight into
Appellant's condition and provided additional medical information for consideration by the ALJ.
a. Functional Capacity Evaluation.
*4 On March 9, 1995, an occupational therapist, a physical therapist, and an exercise physiologist, all working at Work
Ready (the Work Ready team), evaluated Appellant's condition and prepared a Functional Capacity Evaluation' (the repmt).
The Work Ready team found Appellant exhibited five positive Waddell signs. Waddell's test measures whether there are
nonorganic reasons for low-back pain. The presence of three or more positive Waddell signs suggests the patient has
nonorganic reasons for the low-back pain. \Vaddell's test does not determine what the nonorganic reasons are.
According to the report, the Appellant could lift more than the 25 pounds indicated by Dr. Mendelow. The Work Ready team
recommended Appellant return to work on light-duty status and avoid activities requiring pushing, pulling, crawling,
climbing, and squatting. The Work Ready team wrote in the report:
CONSISTENCY & VALIDITY OF PERFORMANCE:
Mr. Mims exhibited increased preoccupation with pain as exhibited with positive Waddell signs for
nonorganic symptoms. It is felt that Mr. Mims can lift more than the specified 25-pound weight limitation
assigned by physician. He showed minimal heart rate change and lacked weight shift during the lift test
Mr. Mims exhibited submaximal effort during the lift test, and therefore it is difficult to assess the
maximal weight that he can lift.'
b. Independent Physicians' Evaluations.
The Texas Workers' Compensation Commission (TWCC) retained Eduardo R. Elizondo, M.D. to perform an independent
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Appeal of Paris A. Mims, Jr. from Denial of Application ... , 2004 WL 4172108 ...
evaluation of Appellant's neck injury. Dr. Elizondo is board certified in physical medicine and rehabilitation. Dr. Elizondo
found Appellant's past medical histmy remarkable because Appellant had a C6-7 fusion done in 1988 by Dr. Mendelow. The
MRI of Appellant's cervical spine confirmed the C6-7 fusion, but provided no evidence of disk bulges or herniations. Dr.
Elizondodiagnosed Appellant's condition as "Probable cervical disk degenerative disease and diskogenic pain without
evidence of a bulge or herniated nucleus pulposus.'' 8
TWCC hired Aaron L. Combs, M.D., a board certified orthopedic surgeon, to perform an independent evaluation of
Appellant's lower back on May 19, 1995. Dr. Combs found Appellant suffered from lumbar spondylosis' of the L5-S1 caused
by the previous L5-S1 discectomy, and gave Appellant a zero impairment rating.
According to Dr. Combs, the MRJ of Appellant's lumbar spine taken on February 16, 1994, evidenced postoperative scarring
and degenerative changes at the L5-S1 level of Appellant's spine, around the lumbar laminectomy. Dr. Combs found no
evidence of an acute spine injury or other "significant" disk injury, and no evidence of neurologic impingement. Dr. Combs
documented that while he performed the physical examination, Appellant guarded both the cervical and lumbar spine in his
gait and posture. But, when Appellant was distracted, Dr. Combs noted Appellant attained a "more unrestricted posture" in
the cervical and lumbar areas of his spine. Dr. Combs commented that there was "significant grimacing and sighing
throughout the examination and interview process, however, again, this resolves when distracted." 10
*5 Dr. Combs saw no evidence of a fi·ank neurological deficit to Appellant's gait. During the range of motion test, Appellant
responded differently on a seated straight leg test when compared to a supine straight leg test. There should have been no
difference between the two tests. Dr. Combs found Appellant's condition was caused by nonorganic problems unrelated to
his lumbar spine.
IV. ANALYSIS AND RECOMMENDATION
Little evidence was presented at the hearing to explain the relationship between Appellant's previous back surgeries and the
injuries Appellant suffered in Januaty 1994. Both the Medical Board's statement of position and Dr. Mendelow's physician
statement and letter provided little explanation for why each took diametrically opposed positions as to whether Appellant's
condition was caused by an aggravation of a preexisting condition. However, the reports from the independent doctors hired
by TWCC to evaluate Appellant's cervical and lumbar spine were extremely helpful.
To prevail in this appeal, Appellant had the burden of proving he had sustained an occupational disability. According to Dr.
Combs, Appellant had scarring and degenerative changes in Appellant's lower back where the laminectomy was performed.
Dr. Combs found nothing organic to explain Appellant's symptoms, and noted Appellant's complaints of pain diminished
when he was distracted.
Similarly, Dr. Elizondo found nothing wrong with Appellant's cervical spine except normal degeneration around the area
upon which Dr. Mendelow had previously operated. The Work Ready team also found Appellant's condition was aggravated
by nonorganic causes. Appellant received five positive responses to the Waddell test, suggesting nonorganic causes for
Appellant's symptoms.
Although Appellant experienced no medical problems with his back from 1988 until the incidents on January 4 and 11, 1994,
Appellant's disability is due in patt to the degeneration around the areas of Appellant's spine operated on in 1987 and 1988,
and in part to nonorganic reasons. Dr. Mendelow's representation that there was no correlation between Appellant's previous
back injuries and the injuries to his cervical and lumbar spine in January 1994 lacks credibility in light of the medical reports
of Dr. Combs and Dr. Elizondo. The ALJ finds Appellant's disability is due primarily to the aggravation of Appellant's
preexisting conditions, and recommends Appellant's appeal be denied.
PROPOSED FINDINGS OF FACT
I. Paris A. Mims, Jr. (Appellant) filed a claim for occupational disability retirement benefits with the Employees Retirement
System of Texas (ERS), which was denied by Charles D. Travis, Executive Director, in a letter dated September 22, 1995.
Appellant timely appealed the decision.
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Appeal of Paris A. Mims, Jr. from Denial of Application ... , 2004 WL 4172108 ...
2. Notice of a hearing on Appellant's appeal was issued to all parties on November 9, 1995.
3. The hearing on the merits was held on December 8, 1995. Appellant and ERS appeared and participated in the hearing.
Counsel for ERS requested the record remain open so the additional medical records presented at the hearing by Appellant
could be reviewed by the Medical Board. The record closed on January 3, 1996, following notification from ERS counsel that
the Medical Board had not changed its position after reviewing the additional medical information.
*6 4. On Februa1y 29, I 996, the Adm inistrative Law Judge issued a proposal for decision, which was presented to the ERS
Board on October I 6, I 996, in a public meeting. During the presentation, Appellant offered additional medical records and
asked that they be considered.
5. The ERS Board remanded the matter to SOAR and directed that the additional medical records be reviewed and
considered by the ERS Medical Board and by the Administrative Law Judge.
6. On April 4, I 997, the Staff filed a letter with SOAR requesting Appellant's additional medical records be marked and
admitted as Exhibits 4 and 5, and the amended certification of the ERS Medical Board be marked and admitted as Exhibit 6.
Appellant filed no objection to the Staffs request. On April 14, 1997, Exhibits 4, Sand 6 were admitted into the record, and
the record was closed.
7. On Janumy 4 and I I, I 994, Appellant was employed by the Texas Department of Criminal Justice as a heavy-equipment
supervisor I, supervising and directing inmate work crews in the maintenance, repair, and operation of heavy equipment and
machinery. Appellant's position required that he ride with inmates in large trucks over some rough terrain.
8. While at work on January 4, 1994, Appellant rode in the passenger seat of a boom truck driven by an inmate. When the
truck hit a large rock, Appellant's seat gave way and he was thrown back and forth, causing a whiplash type injury to his
neck.
9. While at work on January I I, I 994, Appellant was riding in a dump truck when the truck drove over some rough terrain,
jarring Appellant's lower back and causing it to hurt.
10. On January 12, 1994, Appellant went to his physician, A. L. Mendelow, M.D., and was diagnosed as having cervical disk
syndrome and back strain.
I I. Appellant was in a car accident in 1983. As a result of the injuries he sustained in the car accident, he was out of work
from I 985-1988. Appellant underwent an anterior cervical discectomy to C6-7 and a lumbar laminectomy and discectomy to
L5-SI in 1987 and 1988.
I 2. After the 1988 operation on his back, Appellant recovered and returned to work full-time. Appellant did not experience
any back pain until the incidents in Janumy
13. On August 8, 1995, the ERS Medical Board cmtified Appellant as likely to be permanently disabled.
14. The parties stipulated that Appellant's disability directly resulted from an inherent risk or hazard peculiar to a duty that
arose from Appellant's course of State employment.
I 5. Appellant's disability directly resulted from degeneration of Appellant's spine around the areas operated on in 1987 and
I 988 and from other non organic problems.
16. The injury that occurred on January 4, 1994, hurting Appellant's neck, and the injury that occurred on January II, 1994,
hurting Appellant's lower back, would not have caused Appellant's disability but for his preexisting condition.
PROPOSED CONCLUSIONS OF LAW
I. The Board of Trustees of the Employees Retirement System has jurisdiction over this appeal pursuant to TEX. GOY 'T
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Appeal of Paris A. Mims, Jr. from Denial of Application ..., 2004 WL 4172108 ...
CODE ANN.§§ 810.001-815.507.
*7 2. The State Office of Administrative Hearings has authority to hear this matter and issue a proposal for decision with
proposed findings of fact and conclusions of law, under TEX. GOV'T CODE ANN. ch. 2003.001.
3. Proper and timely notice of hearing, as noted in Findings of Fact I -3, was effected upon the parties according to the
provisions of TEX. GOV'T CODE ANN.§§ 2001.051 and 2001.052.
4. As reflected in Finding of Fact No. I, Appellant timely appealed a claim for occupational disability retirement benefits
which was denied by the ERS Executive Director, as contemplated in 34 TEX. ADMIN. CODE§ 67.5.
5. Based on Findings of Fact No. 7-16, Appellant failed to prove that his disability directly resulted from a specific act or
occurrence determinable by a definite time and place, as required by TEX. GOV'T CODE ANN.§ 811.001 (12).
6. As reflected in Findings of Fact No. 7-16 and Conclusion of Law No.5, the appeal of Paris A. Mims, Bedias, Texas,
should be denied.
Catherine C. Egan
Administrative Law Judge
Footnotes
Discogenic: caused by derangement of an inten•ertebral disk. Dorland's Illustrated .Medical Dictionary, (28th cd. \V.B. Saunders
Company 1994).
Exhibit I, page 16-17.
Discectomy: excision of an intervertebral disk; called also discectomy. Dorland's Illustrated Afedical Dictionary, (28th ed. W. B.
Saunders Company 1994).
4
Laminectomy is defined as the excision of the posture arch of a vertebra. Dorland's Illustrated Afedical Dictionary, (28th ed. W.
B. Saunders Company 1994).
Exhibit 6.
6
Exhibit 4.
Exhibit 4.
8
Exhibit 4.
Spondylosis is defined as ankylosis (immobility and consolidation of a joint due to disease, injury or surgical procedure) of a
vertebral joint, or a general term of degenerative changes due to osteoarthritis. (28th ed. W. B. Saunders Company 1994).
10
Exhibit 5.
2004 WL 4172108 (TX.St.Off.Admin.Hgs.)
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State of Texas, 2014 WL 4694594 (2014)
2014 WL 4694594 (Tex.Cptr.Pub.Acct.)
Comptroller of Public Accounts
State of Texas
Soah Docket No. XXX-XX-XXXX.26
CPA Hearing No. 108,005
June 16, 2014
*1 Type: Sales and Use Tax/RDT
TAXPAYER NO.:***
AUDIT OFFICE: ***
AUDIT PERIOD: July 1, 2007 THROUGH March 31,2011
Texas Comptroller of Public Accounts: SUSAN COMBS
Representing Tax Division: KATHY PICKUP
Representing Petitioner: ***
COMPTROLLER'S DECISION
***. (Petitioner) was audited for sales and use tax compliance by the Tax Division of the Texas Comptroller of Public Accounts
(Staff). Petitioner contests the resulting assessment on the grounds that Staff has incorrectly disallowed resale certificates and
that the sale of certain items was exempt because they were shipped out of state. Staff agreed to accept certain resale certificates
and the documentation establishing certain items were shipped out of state, but continued to reject the remaining contentions.
In the Amended Proposal for Decision, the Administrative Law Judge (ALI) finds that no further adjustments to the audit
assessment are warranted and recommends that the assessment should be affirmed subject to the agreed adjustments
I. PROCEDURAL HISTORY, NOTICE & JURISDICTION
On April 4, 2013, Staff referred this matter to the State Office of Administrative Hearings for a hearing based on the parties'
written submissions. Petitioner was represented by *** of COMPANY A, while Staff was represented by Assistant General
Counsel Jenny Burleson. The record closed on September 30, 2013. The ALI issued a Proposal for Decision (PFD) on October
17,2013. Petitioner filed its exceptions on December 16, 2013, while Staff filed its Reply to Petitioner's Exceptions on January
13, 2014. This Amended PFD constitutes the ALI's consideration and ruling on the exceptions and reply filed in this case.
There are no contested issues of notice or jurisdiction in this proceeding. Therefore, these matters are set out in the Findings
of Fact and Conclusions of Law without further discussion here.
II. REASONS FOR DECISION
A. Evidence Presented
State of Texas, 2014 WL 4694594 (2014)
Staff offered the following exhibits that were admitted into evidence: ( 1) 60-Day Letter; (2) Texas Notification of Audit Results;
(3) Penalty and Interest Waiver Worksheet; (4) Audit Report; (5) Audit Plan; and (6) Amended Audit Procedure 124 (AP 124)
spreadsheet of allowed and disallowed transactions. 1 Petitioner provided copies of the disputed certificates and related invoices
as well as shipping documentation. Staff also submitted the pleadings and attached exhibits that were filed while this matter
was pending before the Comptroller. All of these submitted documents are admitted without objection. Petitioner, during the
exceptions period, submitted two letters, described by Petitioner as affidavits, from individuals who worked for companies
involved in the disputed purchases in which the author attested to shipment out-of-state of the disputed purchases. However,
under 1 Texas Administrative Code SECTION l55.l53(a)(4), the ALI is precluded from reopening the record once a PFD has
been issued. Therefore, the ALJ is proscribed from giving any consideration to the letters. 2
B. Agreed Adjustments
*2 Staff has agreed to adjust the audit. SEE the second Amended AP 124 spreadsheet.
C. Background and Issues Presented
Petitioner is a manufacturer and wholesaler of automotive parts for drilling equipment and large machinery. Petitioner was
audited by Staff for the audit period July 1, 2007, through March 31, 2011. Staff issued a Texas Notification of Audit Results
dated November 10, 2011, assessing a deficiency in the amount of$***, consisting of tax in the amount of$***, penalties in
the amount of$***, and accrued interest of$***. Petitioner timely requested redetermination.
The only remaining contentions involve two resale certificates and two blanket exemption certificates that Petitioner contends
were improperly disallowed by the auditor, and a sale in which the goods were shipped out of state. Staff contends that the
certificates in dispute were produced after the 60-day reconciliation period and therefore cannot be accepted. In the case of the
remaining contested sales, Staff contends that Petitioner has failed to show that the items were shipped out of state.
D. ALI's Analysis and Recommendation
All gross receipts of a seller are presumed taxable unless a properly completed resale or exemption certificate is accepted by the
seller. 3 All certificates obtained on or after the date the Comptroller's auditor actually begins work on the audit at the seller's
place of business or on the seller's records after the entrance conference or during the 60-day reconciliation period are subject to
4
verification, even if the certificate is complete on its face. Certificates delivered after the sixty-day period will not be accepted
5
and the deduction will not be granted.
There are two resale certificates that are in dispute. The two resale certificates have been rejected by Staff because they were
produced after the 60-day reconciliation period expired. Petitioner produced the resale certificates executed by *** (COMPANY
B) and*** (COMPANY C) on July 17, 2013, when they were filed by facsimile transmission in this contested case hearing.
The COMPANY B resale certificate is dated April 25, 2010, while the COMPANY C resale certificate is dated July 4, 2006.
The 60-day letter was issued on January 3, 2012. The 60-day letter expressly stated that: "Any certificates presented after the
expiration of the sixty days will not be accepted and the sales will be treated as taxable as required by Tex. Tax Code Ann.
SECTJON 151.054 and 151.103."
Petitioner claims that the COMPANY B resale certificate applies to 15 invoices, which were scheduled in the audit as Rec.
ID nos. 1919-219 to 1919-277. The transactions were scheduled as additional taxable sales because no resale certificate was
provided to the auditor. In the case of the COMPANY C resale certificate, Petitioner claims that the COMPANY C resale
certificate applies to one invoice, which was scheduled in the audit as Rec. ID. No. 1919-16. The transaction was scheduled as
an additional taxable sale because no resale certificate was provided to the auditor. Petitioner has not provided any evidence
State of Texas, 2014 WL 4694594 (2014)
that contradicts the readily apparent conclusion that both resale certificates were produced after the 60-day reconciliation period
had expired. Thus, the ALI concludes that the disallowance of the two resale certificates should be affirmed.
*3 The remaining certificates in dispute are described in Petitioner's submission dated July 11, 2013, as blanket certificates
of exemption. They involve sales to*** (COMPANY D) and*** (COMPANY E). However, in the case of COMPANY D, its
certificate actually states that the items were purchased for resale or further processing. Petitioner claims that the certificates
relates to three sales that were scheduled as taxable by the auditor as Rec. ID Nos. 1919-198, 1919-252, and 1919-254 because
no certificates were provided. The certificate was included in Petitioner's submission dated July 11, 2013, which occurred
after the 60-day reconciliation period ended. Petitioner has not provided any evidence contradicting the conclusion that the
certificate was produced after the sixty-day period. Therefore, the ALI concludes that the COMPANY D certificate was properly
disallowed by Staff.
Although Petitioner in its July 11, 2013, submission refers both to a blanket exemption certificate and shipping documentation
for the COMPANY E sale, no certificate was found in the exhibits. The ALI only found documentation supporting a claim that
the items purchased by COMPANY E were shipped out of state. Therefore, the ALI will only consider Petitioner's claim that
the sale involved an out-of-state shipment.
Sales tax normally applies to the sale of taxable items in Texas. 6 However, taxable items purchased in Texas for shipment
outside of Texas are exempt from sales tax. 7 Nevertheless, vendors, such as Petitioner, who are claiming that the sales are
exempt because the tangible personal property was shipped out of state, must maintain documentation supporting the out-of-
state delivery or shipment. 8 Petitioner must show that shipment was made by means of the vendor's facilities, by means of
delivery to a carrier for shipment to a consignee at a point outside of Texas, or by means of delivery to a forwarding agent for
shipment to a location in another state, territory, or possession of the United States. 9
The sale to COMPANY E was scheduled in the audit as Rec. ID. No.1919-0264, the item is referred to in the audit as CL T -9880
for a taxable amount of$***. The related invoice (No. 1106220) describes the part as CLT -9884 Transmission Core, with a
ship-to address of COMPANY E, ***.The shipping documentation provided by Petitioner does not match the invoice. The item
being shipped is described as "CLT 9880 Allison Trans," and the address is ***. Petitioner in its submission dated September
29, 2013, explains that the invoice was prepared before it received payment in advance of shipment and received instructions to
ship the item to the customer's rebuild facility of choice, which was described in the shipping documents. In addition, Petitioner
explains that CLT -9880 refers to a family of transmission models that includes CLT -9884. Petitioner, however, did not provide
any evidence supporting these explanations. Consequently, the ALJ finds that Petitioner has not provided evidence that would
allow the ALI to determine that the item was shipped out of state.
*4 In the absence of evidence supporting Petitioner's contentions, the ALJ finds there is no basis for recommending any
additional deletions to the audit.
III. FINDINGS OF FACT
1. ***(Petitioner) was audited for sales and use tax compliance by the Tax Division of the Texas Comptroller ofPublic Accounts
(Staff) for the audit period July 1, 2007, through March 31, 2011.
2. Staff issued a Texas Notification of Audit Results dated November 10, 2011, assessing a deficiency in the amount of$***,
consisting of tax in the amount of$***, penalties in the amount of$***, and accrued interest of$***.
3. Petitioner timely requested redetermination.
State of Texas, 2014 WL 4694594 (2014)
4. On April4, 2013, Staff referred this matter to the State Office of Administrative Hearings for a hearing based on the parties'
written submissions and issued a Notice of Hearing by Written Submissions that contained a statement of the nature of the
hearings; a statement of the legal authority and jurisdiction under which the hearings were to be held; a reference to the particular
sections of the statutes and rules involved; and a short, plain statement of the matters asserted.
5. The record closed on September 30, 2013.
6. Staff has agreed to adjust the tax assessed.
7. The 60-day letter was issued on January 3, 2012. The 60-day letter expressly stated that: "Any certificates presented after
the expiration of the sixty days will not be accepted and the sales will be treated as taxable as required by Tex. Tax Code Ann.
SECTION 151.054 and l5I.l03."
8. Petitioner produced the resale certificates executed by*** (COMPANY B) and*** (COMPANY C) on July 17,2013, when
they were filed by facsimile transmission in this contested case hearing.
9. The COMPANY B resale certificate is dated April25, 2010, while the COMPANY C resale certificate is dated July 4, 2006.
10. The COMPANY B and COMPANY C certificates were produced after the 60-day reconciliation period expired.
11. The blanket resale certificate executed by COMPANY D, was produced by Petitioner as part of its submission dated July
11, 2013, which occurred after the 60-day reconciliation period ended.
12. The sale to*** (COMPANY E) was scheduled in the audit as Rec. ID. No. 1919-0264. The item is described in the audit
as CLT-9880 for a taxable amount of$***.
13. The related invoice (No. 11 06220) describes the part as CL T -9884 Transmission Core, with a ship-to-address ofCOMPANY
E, ***.
14. The shipping documentation provided by Petitioner does not match the invoice. The item being shipped is described as
"CLT 9880 Allison Trans," and the address is***.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter pursuant to Texas Tax Code ch. 111.
2. The State Office of Administrative Hearings has jurisdiction over matters related to the hearing in this matter, including the
authority to issue a proposal for decision with findings of fact and conclusions of law pursuant to Texas Government Code
ch. 2003.
*5 3. Staff provided proper and timely notice of the hearing pursuant to Texas Government Code ch. 2001.
4. The burden of proof of establishing error by a preponderance of evidence rests on Petitioner. SEE 34 Tex. Admin. Code
SECTION 1.40(2)(B). If the claimed error involves an exemption, the burden rests on Petitioner to show entitlement to the
exemption by clear and convincing evidence. SEE 34 Tex. Admin. Code SECTlON
6. All gross receipts of a seller are presumed taxable unless a properly completed resale or exemption certificate is accepted
by the seller. SEE Tex. Tax Code Ann. SECTION l51.054(a).
State of Texas, 2014 WL 4694594 (2014)
7. All certificates obtained on or after the date the Comptroller's auditor actually begins work on the audit at the seller's
place of business or on the seller's records after the entrance conference or during the 60-day reconciliation period are subject
to verification, even if the certificate is complete on its face. SEE 34 Tex. Admin. Code SECTION 3.282 and 3.285, and
Comptroller's Decision No. 48,770 (2011).
8. Certificates delivered after the 60-day period will not be accepted, and the deduction will not be granted. SEE 34 Tex. Admin.
Code SECTION 3.285(b)( 4), Tex. Tax Code Ann. SECTION 15 L054(e), and Comptroller's Decision No. 104,169 (2011).
9. The disputed certificates were properly disallowed.
10. Sales tax normally applies to the sale of taxable items in Texas. SEE Tex. Tax Code Ann. SECTION l51.05l(a).
11. However, taxable items purchased in Texas for shipment outside of Texas are exempt from sales tax. SEE Tex. Tax Code
Ann. SECTION 15 I
12. Nevertheless, vendors, such as Petitioner, who are claiming that the sales are exempt because the tangible personal property
was shipped out of state, must maintain documentation supporting the out-of-state delivery or shipment. SEE Letter Rulings,
State Tax Automated Research System Accession Nos. 9210Ll198G09 (September 2, 1992) and 8908L0951F10 (August 21,
1989).
13. Petitioner must show that shipment was made by means of the vendor's facilities, by means of delivery to a carrier for
shipment to a consignee at a point outside of Texas, or by means of delivery to a forwarding agent for shipment to a location
in another state, territory, or possession of the United States. SEE, Tex. Tax Code Ann. SECTION 15 I .330(a), (d).
14. Petitioner failed to show that the part sold to COMPANY E was shipped out of state.
15. No additional adjustments to the audit assessment are warranted, other than those agreed to by Staff. Therefore, the audit
should be affirmed, subject to the adjustments agreed by Staff.
ORDER OF THE COMPTROLLER
*6 On October 17, 2013, the State Office of Administrative Hearings' Administrative Law Judge (ALI), Peter Brooks, issued
a Proposal for Decision in the above-referenced matter to which Petitioner filed Exceptions on December 16, 2013. The Tax
Division filed a Response on January 13, 2014. An Amended Proposal for Decision was issued on January 30, 2014, and no
exceptions were filed. The Comptroller has considered the Exceptions, the Response and the ALI's recommendation letter and
determined that the ALI's Amended Proposal for Decision, except for minor changes to correct typographical or clerical errors,
should be adopted without change and this Decision represents the ruling thereon.
The above Decision resulting in Petitioner's liability as set out in Attachment A, which is incorporated by reference, is approved
and adopted in all respects. The Decision becomes final twenty days after the date Petitioner receives notice of this decision,
and the total sum of the tax, penalty, and interest amounts is due and payable within twenty days thereafter. If such sum is not
paid within such time, an additional penalty of ten percent of the taxes due will accrue, and interest will continue to accrue.
If either party desires a rehearing, that party must file a motion for rehearing, which must state the grounds for rehearing, no
later than twenty days after the date Petitioner receives notice of this Decision. Notice of this Decision is presumed to occur
on the third day after the date of this Decision.
Signed on This 16th Day of June 2014.
Susan Combs
State of Texas, 2014 WL 4694594 (2014)
Texas Comptroller of Public Accounts
Footnotes
Staff in its Response to Petitioners Additional Argument and Evidence (dated September 16, 20 13) agreed, after reviewing additional
shipping documentation provided by Petitioner that COMPANY C Nos. 555 and 556, representing sales shipped out of state to
COMPANY G, should be deleted. A second Amended AP 124 spreadsheet was submitted with this Response superseding the original
Amended AP 124 spreadsheet that was attached to the Response to Petitioners Reply to the Position Letter, which was dated February
13, 2013. The original Amended AP 124 adjustments reduced the tax assessed to$***
2 Nonetheless, even if the letters were admissible, they cannot substitute for the evidence of shipping required by Texas Tax Code
SECTION 151.330(a). Documents such as bills oflading, Federal Express receipts, or postal receipts, in conjunction with an invoice
with an out-of-state shipping address, have been found sufficient to document an out-of-state sale. SEE Comptrollers Decision No.
102,724 (2010) and See Comptrollers Decision No. 45,102 (2007). ALSO SEE Comptrollers Decision No. 41,893 (2003) holding
that affidavits are not sufficient to establish proof of out-of-state shipment.
3 SEE Tex. Tax Code Ann. SECTION l51.054(a).
4 SEE 34 Tex. Admin. Code SECTION 3.282 and 3.285, and Comptrollers Decision No. 48,770 (2011).
5 SEE 34 Tex. Admin. Code SECTION 1.285{1l)(4), Tex. Tax Code Ann. SECTION l51.054(e), and Comptrollers Decision No.
I 04,169 (20 II).
6 SEE Tex. Tax Code Ann. SECTION 151.05l(a).
7 SEE Tex. Tax Code Ann. SECTION 151.330(a).
g SEE Letter Rulings, State Tax Automated Research System Accession Nos. 9210L1198G09 (September 2, 1992) and 8908L0951FIO
(August 21, 1989).
9 SEE, Tex. Tax Code Ann. SECT! ON l51.330(a),
2014 WL 4694594 (Tex.Cptr.Pub.Acct.)
US.