Monday, March 19, 2007

BAR Modifies Invoice Requirement Effective 3/4/07

The California Bureau of Automotive Repair as made a small change to the California Code of Regulations Section 3356 invoice requirements. The Written Estimate Law (Business and Professions Code Section 9884.9) has always required that Labor and "Parts" be listed on the estimate, but it was not stated that each part to be used had to be listed separately. The Regulations written by the BAR provide the details as to how the law is to be complied with but until now was no clear on this issue.
Effective March 4, the Regulations will require that the work order separately list each part. "The changes clairify the requirement to list and describe labor separately from parts and to include the individual price for labor on each job and for each part listed and described in an invoice" according to a BAR memo dated February 9, 2007, to all Automotive Repair Dealer.
The new wording of the California Code Of Regulations, Section 3356 and the California Business & Professions Code concerning written estimates is reproduced below.

California Code of Regulations (CCR) Section 3356. Invoice Requirements.
(a) All invoices for service and repair work performed, and parts supplied, as provided for in Section 9884.8 of the Business and Professions Code, shall comply with the following:
(1) The invoice shall show the automotive repair dealer's registration number and the corresponding business name and address as shown in the Bureau's records. If the automotive repair dealer's telephone number is shown, it shall comply with the requirements of subsection (b) of Section 3371 of this chapter. (2) The invoice shall separately list, describe and identify all of the following: (A) All service and repair work performed, including all diagnostic and warranty work, and the price for each described service and repair.
(B) Each part supplied, in such a manner that the customer can understand what was purchased, and the price for each described part. The description of each part shall state whether the part was new, used, reconditioned, rebuilt, or an OEM crash part, or a non-OEM aftermarket crash part.
(C) The subtotal price for all service and repair work performed. (D) The subtotal price for all parts supplied, not including sales tax. (E) The applicable sales tax, if any.
(b) If a customer is to be charged for a part, that part shall be specifically listed as an item in the invoice, as provided in subparagraph (B) of paragraph (2) of subsection (a) above. If that-item is not listed in the invoice, it shall not be regarded as a part, and a separate charge may not be made for it.
(c) Separate billing in an invoice for items generically noted as shop supplies, miscellaneous parts, or the like, is prohibited.
(d) The automotive repair dealer shall give the customer a legible copy of the invoice and shall retain a legible copy as part of the automotive repair dealer's records pursuant to Section 9884.11 of the Business and Professions Code and Section 3358 of this article.

The law which requires that a written estimate be given is California Business and Professions Code Section 9884.9, it reads:
§9884.9. (a) The automotive repair dealer shall give to the customer
a written estimated price for labor and parts necessary for a
specific job. No work shall be done and no charges shall accrue
before authorization to proceed is obtained from the customer. No
charge shall be made for work done or parts supplied in excess of the
estimated price without the oral or written consent of the customer
that shall be obtained at some time after it is determined that the
estimated price is insufficient and before the work not estimated is
done or the parts not estimated are supplied. Written consent or
authorization for an increase in the original estimated price may be
provided by electronic mail or facsimile transmission from the
customer. The bureau may specify in regulation the procedures to be
followed by an automotive repair dealer if an authorization or
consent for an increase in the original estimated price is provided
by electronic mail or facsimile transmission. If that consent is
oral, the dealer shall make a notation on the work order of the date,
time, name of person authorizing the additional repairs, and
telephone number called, if any, together with a specification of the
additional parts and labor and the total additional cost, and shall
do either of the following:
(1) Make a notation on the invoice of the same facts set forth in
the notation on the work order.
(2) Upon completion of the repairs, obtain the customer's
signature or initials to an acknowledgment of notice and consent, if
there is an oral consent of the customer to additional repairs, in
the following language:

"I acknowledge notice and oral approval of an increase in the
original estimated price.
(signature or initials)"

Nothing in this section shall be construed as requiring an
automotive repair dealer to give a written estimated price if the
dealer does not agree to perform the requested repair.
(b) The automotive repair dealer shall include with the written
estimated price a statement of any automotive repair service that, if
required to be done, will be done by someone other than the dealer
or his or her employees. No service shall be done by other than the
dealer or his or her employees without the consent of the customer,
unless the customer cannot reasonably be notified. The dealer shall
be responsible, in any case, for any service in the same manner as if
the dealer or his or her employees had done the service.
(c) In addition to subdivisions (a) and (b), an automotive repair
dealer, when doing auto body or collision repairs, shall provide an
itemized written estimate for all parts and labor to the customer.
The estimate shall describe labor and parts separately and shall
identify each part, indicating whether the replacement part is new,
used, rebuilt, or reconditioned. Each crash part shall be identified
on the written estimate and the written estimate shall indicate
whether the crash part is an original equipment manufacturer crash
part or a nonoriginal equipment manufacturer aftermarket crash part.

(d) A customer may designate another person to authorize work or
parts supplied in excess of the estimated price, if the designation
is made in writing at the time that the initial authorization to
proceed is signed by the customer. The bureau may specify in
regulation the form and content of a designation and the procedures
to be followed by the automotive repair dealer in recording the
designation. For the purposes of this section, a designee shall not
be the automotive repair dealer providing repair services or an
insurer involved in a claim that includes the motor vehicle being
repaired, or an employee or agent or a person acting on behalf of the
dealer or i

Friday, December 1, 2006

Texaco v. Dagher, No. 04–805 (U.S. Supreme Court, February 28, 2006.)

Several lawsuits were filed in the wake of the 1998 combining of Shell and Texaco’s marketing businesses. Probably the last active lawsuit was thrown out by the U.S. Supreme Court in a unanimous decision written by Justice Clarence Thomas. Oral argument was held on January 10 and the decision was issued in record time on February 28, 2006.
No Price Fixing
The theory of the case filed in California was that the motive for the formation of the new company called Equilon (Equiva on the east coast) was to fix the price of gasoline sold to Shell and Texaco dealers and eliminate competition between them in violation of the Sherman Act.
If Shell and Texaco had gotten together and agreed to charge the same price to their retailers without forming the joint company, that would clearly have violated federal anti-trust law, a so called per se violation. But, the oil companies convinced the U.S. District Court Judge that the “joint venture” (actually a Delaware limited liability company) made all the difference because Shell and Texaco were now one company instead of two in competition and the oil company’s lawyers argued that they had to charge the same prices to avoid a violation of price discrimination laws by dealers.
On appeal, the Ninth Circuit Court of Appeals in San Francisco saw through the ruse and reinstated the suit saying that Equilon’s “price-optimization” policy was price-fixing by a different name. The opinion stated that far from enhancing competition the merger allowed Shell and Texaco to raise prices as crude oil prices fell. When crude reached near-historic lows, dropping $10 to $12 a barrel between September 1998 (Shell and Texaco formed Equilon in June of 1998) and February 1999, Equilon raised its prices 40¢ per gallon in the Los Angeles area and 30¢ in Seattle and Portland.
The reversal of the Ninth Circuit Court of Appeals by the Supreme Court was expected in light of the abandonment of strict enforcement of anti-trust laws by the federal government and courts. A victory by dealers would have been of major significance because of the large amount of money that could have been awarded against Shell and Texaco and could even have been tripled under the federal anti-trust law.
Score Card
Of all the lawsuits filed after the formation of Equilon, only one was successful. Abrahim vs Equilon was filed by this law firm on behalf of over forty California Shell and Texaco Dealers alleging that Shell and Texaco had failed to offer its lessee dealers the right to purchase the station properties that were being transfered to Equilon as required by California law.
As with the Dagher case, the U.S. District Court in San Diego threw out the case, but the Ninth Circuit reversed and sent the case back for trial. Equilon agreed to binding arbitration of the dealer’s claims on the eve of trial. Arbitration was conducted last year, resulting in an award of $10 million to the remaining 19 dealers.
Texaco was subsequently gobbled up by Chevron, collapsing Equilon, and Shell’s right to use the Texaco name expires this year.

Thursday, November 30, 2006


Texas Supreme Court

More than 400 dealers in 17 states filed a class action against Equilon over four years ago. They saw their case dismissed by the Texas trial court, then resurrected by the state appeals court, and now killed by the Texas Supreme Court.

The Texas Supremes ruled that while Shell dealers may have to pay more for fuel than other retailers, the major is "not obligated to price its gasoline with their interests in mind or to protect them from competition."

Shell Oil et al v. HRN Inc et al, arose out of the Shell-Texaco merger in 1998 and was based on dealers’ claim that Shell had violated the Uniform Commercial Code by setting its DTW prices so high that they couldn't compete with the 73% to 80% of other dealers in Houston who were paying rack or lower.

The dealer attorneys claimed that Equilon used "illegal, strong-armed business practices," to drive Shell and Equilon dealers out of business so it could replace them with more profitable company-ops.

At the heart of the case was the argument that the Uniform Commercial Code requires that where a supplier unilaterally sets prices, they must price in good faith. Dealers also claimed that Equilon raised DTWs if they failed to lower posted prices, broke oral promises about rents, wouldn't let them buy cheaper product from jobbers, and required them to install only Shell island card readers, all designed to run the dealers into the ground.

Shell claimed that if retailers lost money or went out of business, it was due to hypermarts, that there was no evidence its DTW pricing caused dealers to fail and even if there were, the retailers would have no case because UCC doesn’t require its DTW to be competitive, only that it be applied uniformly to all and within the DTW range charged by other refiners, making it "commercially reasonable."

Dealer’s hopes had earlier been raised by the Court of Appeals in Houston, when it ruled that the dealers were "captive buyers" and that inferences could be drawn from some circumstantial evidence the dealers had presented about how Shell arrived at DTW prices, but the latest ruling dashed those hopes.

The rulings of the Texas Supreme Court have no direct effect on cases in California, but the oil companies, in responding to California UCC cases, will certainly point to the Texas Supreme Court’s ruling to argue that if a price was commercially reasonable and non-discriminatory, the intent behind it is immaterial. The opinion argues that, if these dealers were charged the same DTW price by another refiner who did not have a similar plan to thin their ranks, presumably the price would pass muster under the dealers' view of the law.

The Supreme Court also criticized the Appeals Court for using a wholesale cost analysis that compared Shell's DTW price to prices available to other classes of trade, which it found was not evidence of bad faith.

Adding insult to injury, the Supremes added a parting dig that if the dealers are "captive," it is as a result of their own choice to become Shell-branded lessees!
What does This Mean For California?
UCC Good Faith Pricing:
We last covered the issue of pricing in issue 220 of the CGB Lawletter. California Business and Professions Code section 2305 requires a supplier to set a price in “good faith” where the original supply contract leaves the matter of price open. In other words, your supply contract probably requires you to pay your franchisor’s “posted” DTW price. This means the supplier must act in a “commercially reasonable” manner.

The Texas decision in Shell Oil et al v. HRN Inc et al addresses two elements of the California law: “good faith” and “commercially reasonable.”

There are a few previously reported cases applying the UCC to the petroleum industry. The most notable is a 1985 California Supreme Court decision, E.S. Bills, Inc. v. Tzucanow 215 Cal.Rptr. 278. The court there held that the following factors are relevant in determining whether a motor fuel supplier was charging a "commercially reasonable" price:
(a) Retail prices charged by the supplier at its own stations;
(b) Wholesale prices the supplier charged a larger volume purchaser;
(c) A published Lundberg report of current refiner prices;
(d) Wholesale prices charged by refiners;
(e) company-op. pricing: the retail prices charges at such a station can be considered in determining whether the wholesale price that the same supplier charged you is commercially reasonable. If the company station is selling at or below your cost, then there is potentially a serious legal issue.
(f) The profitability of the station when it was operated by the previous dealer;
(g) The reasons for the decline in a station’s business;
(h) The supplier's awareness of retail prices charged by the dealer's competitors; and
(i) Any evidence showing that the supplier was deliberately trying to drive the dealer out of business.
(j) cost of complying with franchise agreement: Although no court has ruled directly on the issue, we believe that the franchisee should be able to show the amount of gross profit he must generate to comply with the rent, royalty, minimum volume and other provisions of the franchise agreement.
The Shell Oil et al v. HRN Inc et al. decision calls into question several points that we made in our earlier article.

If California courts accept the Texas Supreme Court’s rational, evidence of pricing to other classes of trade could be ruled inadmissible, including- retail prices charged by the supplier at its own stations; wholesale prices the supplier charged a larger volume purchaser; published Lundberg type reports of current refiner prices and wholesale prices charged by refiners. The only issue left would be whether the oil company’s pricing was within the DTW range charged by other refiners.

Since the Texas court found that the motivation of the oil company is immaterial, evidence of the reasons for the decline in a station’s business, the supplier's awareness of retail prices charged by the dealer's competitors evidence showing that the supplier was deliberately trying to drive the dealer out of business may also be ruled out.

Finally, evidence of the cost of complying with the franchise agreement would not be admissible evidence of bad faith. This would rule out arguments that high rents contribute to bad faith pricing, prohibitions by the oil company from buying cheaper product from jobbers, and requiring dealers to pay for required equipment at jacked up prices such as Shell card readers (Mobil Speedpass readers, ARCO PIC machines etc.)

Recommended procedures: We suggest the following in this area:

(1) Generally: If you feel that your buying price is non-competitive, you might want to have your attorney send the supplier a letter citing the leading California case: E.S. Bills v. Tzucanow. You might also want to gather some of the kind of evidence that the courts have said can be used to support a claim that a wholesale price is not commercially reasonable.

(2) Jobber-supplied dealers: Jobber-supplied dealers in particular should take note of this court ruling as well as in Shell Oil et al v. HRN Inc et al. If you feel that your buying price is non-competitive, you might want to have your attorney send the jobber a letter citing this case. You might also want to gather some of the kind of evidence that the court in the E.S. Bills v. Tzucanow case said can be used to support a claim that a wholesale price is not commercially reasonable. You may want to include the information in the letter.

(3) Major-brand dealers: Experience indicates that majors usually are not too responsive to an individual dealer’s contention that the wholesale price is unlawfully high. You may therefore want to analyze whether you might have a possible damage claim under the applicable law. The case discussed above should give you a good idea of what kind of evidence would be relevant. We also suggest that you review the article on proving damages in service station cases in CGB Lawletter No. 196.

(4) Purchasing from alternative sources: We never recommend that you purchase product from alternative sources without first obtaining legal advice. This is particularly true if you are a major brand dealer.

(5) Price discussions: Dealers must be extremely careful about discussing price with each other. You have a right to discuss problems and legal issues. Nevertheless, any kind of agreement among competitors to set, peg or fix prices or margins is a criminal offense. Prosecutors are always very interested in filing such cases due to their political appeal. (E.g., see Lawletter No. 191 ).

(6) Pricing discussions with suppliers: Refiners sometimes refuse to discuss company station pricing or price breaks given to other dealers. Often marketing personnel claim that any such discussion would be illegal price fixing. However, you have a right to discuss with your supplier whether the price that you are being charged is “commercially reasonable.” Furthermore, the wholesale and retail prices of your competitors, including stations operated by your supplier, are a lawful, legitimate and relevant factor in such discussions.