BILL ANALYSIS
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|Hearing Date:June 27, 2005 |Bill No:AB |
| |585 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC
DEVELOPMENT
Senator Liz Figueroa, Chair
Bill No: AB 585Author:Negrete McLeod
As Amended:June 22, 2005 Fiscal: Yes
SUBJECT: Equipment dealers.
SUMMARY: Revises and recasts equipment dealer law to set forth
the contractual rights and obligations of dealers, single-line
dealers, suppliers, and single-line suppliers.
Existing law:
1)Regulates the business relations between equipment dealers and
manufacturers, wholesalers, and distributors of agricultural,
utility, industrial equipment and parts.
2)Defines applicable terms, including:
a) "Equipment" means machines designed for agriculture,
livestock, grazing, light industrial and utility purposes.
The definition excludes all-terrain vehicles, earth moving
and heavy construction equipment, and mining and forestry
equipment.
b) "Equipment dealer" or "dealership" means a person,
partnership, corporation or association primarily engaged
in the retail sale of equipment.
c) "Supplier" means a person, partnership, corporation or
association primarily engaged in manufacturing, assembling
or wholesale distribution of equipment, and includes any
successor in interest, as specified.
d) "Dealer agreement" means an oral or written contract or
agreement between a supplier and an equipment dealer,
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providing the rights and obligations of the parties with
respect to the purchase or sale of equipment.
e) "Net cost" means the price the dealer paid the supplier
for the equipment, less all applicable discounts, plus
freight costs.
f) "Net price" means the price listed for repair parts in
the supplier's price list or catalog, less all applicable
discounts.
3)Authorizes an equipment dealer to establish a lien for unpaid
charges and file the lien with the Secretary of State.
4)Prohibits a supplier from engaging in various acts and
practices with respect to an equipment dealer, including, but
not limited to:
a) Coercing a dealer to order equipment not listed in the
base price of the advertised equipment.
b) Coercing a dealer to enter into any agreement.
c) Refusing to deliver to any dealer equipment covered by
the dealer agreement.
d) Terminating, canceling, or failing to renew a dealer
agreement or substantially changing the competitive
circumstances of the dealer agreement without cause.
e) Requiring, under specified circumstances, substantial
renovation or the acquiring of new or additional space of
the dealer's place of business as a condition of renewal or
extension of a dealership agreement.
f) Discriminating, under certain conditions, the prices
charged for equipment.
g) Preventing the dealer from changing the capital
structure of the equipment dealership or the means by which
the dealer is financed.
h) Preventing the dealer from transferring any part of the
interest to another party and restricts the dealer from
transferring control of the dealership and/or power of
management without the written consent of the supplier.
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i) Requiring a dealer to agree to a release which would
relieve any one from liability regarding any of the above
unlawful actions.
5)Specifies the conditions under which an equipment dealer's
contract would be renewed or denied.
6)Requires the supplier to repurchase inventory upon termination
of a dealer agreement at specified prices based on fair market
value or specified percentages of net cost.
7)Outlines the conditions by which an equipment dealership must
be transferred in the event of an equipment dealer's death.
8)Authorizes dealers to recover for damages and reasonable fees.
This bill:
1)States legislative intent that the sale of equipment under
contract vitally affects the general economy of this state and
that the regulation of the dealer-supplier relationship is an
important public policy of the state.
2)Recasts the Equipment Dealers law as the Fair Practices of
Equipment Manufacturers, Distributors, Wholesalers and Dealers
Act; and revises the terms above and defines numerous other
relevant terms, including:
a) "Dealer" (formerly, "equipment dealer" or "dealership")
is any person primarily engaged in the sale of equipment,
as defined, but not a "franchisee."
b) "Equipment" as all-terrain vehicles and other machinery,
equipment, implements, or attachments used for the
following: lawn, garden, golf course, landscaping or
grounds maintenance; planting, cultivating, irrigating,
harvesting, and producing agricultural or forestry
products; raising, feeding, tending to, or harvesting
products from livestock and related activities; and,
industrial, construction, maintenance, mining, or utility
activities or applications. Self-propelled vehicles
designed primarily for the transportation of persons on a
street or highway is excluded from this definition.
c) "Good cause" is a dealer's failure to comply with its
contractual obligations if those obligations are the same
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as those imposed on other dealers in this state.
d) "Single-line dealer" is a dealer that has both:
purchased 75% of its new equipment from a single supplier,
and has over $40 million average annual sales.
e) "Single-line supplier" is a supplier that sells a
single-line dealer 75% of the dealer's equipment.
3)Prohibits a supplier from various acts and practices,
including:
a) Coercing or compelling a dealer to accept delivery of
any equipment or parts unless they are safety features
required by the supplier.
b) Refusing to deliver ordered equipment within a
reasonable timeframe unless the supplier limits the
production volume of the ordered equipment and provides a
30-day notice of the reduction.
c) Terminating, canceling, or failing to renew a dealer
contract without "good cause."
d) Requiring, under specified circumstances, substantial
renovation, new or additional space for the dealer's
business as a condition for renewing a dealership contract,
unless the supplier gives the dealer one year's written
notice and allows two additional years to complete the
renovation.
e) Discriminating, directly or indirectly, in prices
charged to different dealers for the same equipment or
parts if the effect is to lessen competition or create a
monopoly.
f) Requiring a dealer to purchase goods or services as a
condition of the sale of equipment, parts, or other goods
and services unless the parts, special tools, and training
are necessary for safe operation of the equipment.
g) Coercing any dealer into refusing to purchase or
penalize any dealer for purchasing another supplier's
equipment.
4)Requires a supplier that is not a single-line supplier to give
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a dealer that is not a single-line dealer 180 days written
notice of the supplier's intent to terminate, cancel, not
renew, or change the dealer contract, except as specified.
5)Prohibits a single-line supplier from terminating a contract
with a single-line dealer without good cause or unless other
specified conditions are met; and provides that the supplier
must provide 90 days written notice of its intention to
terminate a contract and the single-line dealer shall have 60
days to rectify any deficiencies that caused the supplier to
terminate the contract.
6)Requires a single-line supplier to reject or approve a
warranty claim from a single-line dealer within 45 days and
provide written justification for any rejection. A
single-line supplier may audit the dealer's warranty claims.
7)Requires a supplier to credit a dealer's account within 30
days for any returned parts, and provides that the supplier is
liable for 110% of the price of the returned parts, plus
interest, if the supplier does not comply with this
requirement.
8)Specifies that fair market value of repurchased property upon
termination of a contract is equal to the acquisition cost,
plus shipping, handling, and set-up fees, less depreciation
cost of the equipment over three years.
9)Requires a supplier to repurchase equipment, demonstrators,
equipment used in a manufacturer's incentive program, repair
parts, and specialized equipment or repair tools at specified
rates upon termination of the contract between the dealer and
the supplier if the property being repurchased meets specified
conditions.
10) Requires a supplier to pay or credit a dealer's account for
the return of equipment within 90 days of receipt of the
equipment, and provides that once this credit takes place the
title of the equipment transfers to the supplier.
11) Requires the supplier and dealer to split the cost of
shipping any repurchased equipment or items to the nearest
supplier distribution center.
12) Provides that a dealer shall hold a lien on any equipment
repurchased by a supplier until the supplier pays the dealer
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for the repurchase.
13) Makes technical, non-substantive, and conforming changes.
FISCAL EFFECT: According to the Assembly Appropriations
Committee analysis, dated May 18, 2005, this bill would have no
net fiscal impact. Because equipment dealers must file a lien
with the Secretary of State's Office, that office will incur
minor costs for additional filing which will be fully offset by
fees.
COMMENTS:
1.Purpose. This bill is sponsored by the FarWest Equipment
Dealers Association (Sponsor) to clarify, modernize, and add
uniformity to existing law regulating the business
relationship between equipment dealers and suppliers, and to
add language regarding warranty work performed by a dealer on
a supplier's equipment. The Sponsor indicates that since the
enactment of the original equipment dealers' legislation in
1992, business practices between dealers and suppliers have
changed and the updates and changes in this bill are necessary
to reflect those changes. The Sponsor states that it has been
working with manufacturers to find uniform and consistent
language to ensure fair treatment of both dealers and
manufacturers.
2.Background. The original equipment dealers' law was enacted
in 1992 (AB 2478 Areias, Chapter 1271, Statutes of 1992).
That bill, also by the same Sponsor, regulated the business
relations between independent dealers and manufacturers,
wholesalers, and distributors of agricultural, utility, and
industrial equipment. The law emerged out of concern that
mergers and acquisitions in the 1980's resulted in drastic
dealer closings which affected rural economies. Furthermore,
it was argued that dealer contracts in California offered
little or no protection for the dealer if the
manufacturer/supplier merged with another company or
unilaterally decided to terminate the agreement for whatever
reason.
The following year, AB 1311 (Areias, Chapter 532, Statutes of
1993) made technical cleanup to the law. The equipment dealer
law has been unchanged since these two original bills were
enacted more than 12 years ago.
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3.Arguments in Support. The Author's office has given the
Committee numerous individual letters from individual
equipment dealers and employees supporting this measure.
Proponents write that they believe that this bill would
clarify and modernize the law, and help to establish uniform
and consistent treatment for both suppliers and dealers in all
states.
4.Arguments in Opposition. This bill is opposed by the Farm
Equipment Manufacturers Association (FEMA), who believes that
the "bill takes the current balanced business practices
statute, carefully negotiated a dozen years ago, and in many
cases radically tilts the playing field in favor of equipment
dealers." FEMA argues that the bill requires an unreasonably
long notice to a dealer when terminating a contract for
nonperformance; creates a process for regulating warranties
that is unjustified and burdensome; and may inadvertently
imply that dealers can cancel an agreement and trigger the
repurchase of equipment. While recent amendments have
addressed some of past concerns, FEMA has proposed additional
amendments to address their concerns.
NOTE : Double-referral to Judiciary Committee
SUPPORT AND OPPOSITION:
Support: FarWest Equipment Dealers Association (Sponsor)
35 individual equipment dealers and equipment dealer employees
Opposition: Farm Equipment Manufacturers Association
Consultant: G. V. Ayers