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Autobahn Imports, L.P. v. Jaguar Land Rover North America, L.L.C.

United States Court of Appeals, Fifth Circuit

July 13, 2018

AUTOBAHN IMPORTS, L.P., Doing Business as Land Rover of Fort Worth, Plaintiff-Appellee,
v.
JAGUAR LAND ROVER NORTH AMERICA, L.L.C., Defendant-Appellant.

          Appeal from the United States District Court for the Northern District of Texas

          Before HIGGINBOTHAM, SMITH, and CLEMENT, Circuit Judges.

          JERRY E. SMITH, Circuit Judge

         This is a dispute between a U.S. car distributor, Jaguar Land Rover North America ("Jaguar"), and a franchised dealership, Autobahn Imports ("Autobahn"), concerning chargebacks of around $300, 000 in incentive payments the distributor had made to the dealer. The Board of the Texas Department of Motor Vehicles (the "Board") declared the chargebacks invalid, and Jaguar exercised its statutory right of review in the state appellate court. While that appeal was pending, Autobahn sued for damages based on the Board's findings, claiming violations of the Texas Deceptive Trade Practices Act ("DTPA") and breach of contract. Before the state court of appeals had completed its review, the federal district court granted summary judgment to Autobahn on its various claims. Because Autobahn's antecedent failure to exhaust divested the district court of power to decide the claim when it did, summary judgment is vacated and remanded.

         I.

         Jaguar offers an incentive known as the "Business Builder Program," which provides dealers a percentage of the retail price of every vehicle sold if certain conditions are met. The relevant terms are set out in the Business Builder Program Manual ("Manual") and the Operations Bulletin ("Rules"), collectively referred to as the Business Builder Contracts.[1] According to Jaguar, dealerships are entitled to incentive payments if they (1) deliver each new vehicle to the "end-user"; (2) submit the end-user's name and address to Jaguar; and (3) maintain the necessary documentation to support that address. The Rules define an "end user" as "a purchaser/lessee purchasing or leasing a vehicle from an authorized Dealership for retail, commercial or business use, with no intent to resell. An approved leasing company purchasing to lease is considered an end user." The Rules offer no definition of an "approved leasing company."

         In 2010, a dispute arose regarding the procedures and policies governing the 2011 Business Builder Program, and Autobahn filed a complaint with the Texas Department of Motor Vehicles. Before the Board acted, Jaguar and Autobahn entered into the 2011 Settlement Agreement, which outlined certain "Handover Policies" that Autobahn would follow. That agreement required Autobahn to extend to "[e]very retail purchaser . . . an invitation to visit Autobahn's dealership personally" to receive the vehicle, or to conduct the handover "at the residence/office of the purchaser or end-user." The agreement stated that "[a]ll deliveries . . . will be conducted by trained Autobahn personnel."

         The parties dispute the reach of the agreement. Jaguar asserts that the Handover Policies apply to all "end users," while Autobahn insists that it applies only to "individual retail purchasers, not leasing companies."

         A new dispute regarding the 2013 Business Builder Program forms the principal basis for the current action. Jaguar conducted an audit of Autobahn's sales from February 2013 through January 2014. The auditor looked at 134 sales files, "all of which involved sales to leasing companies," and claimed that in 90 cases, Autobahn was not entitled to an incentive payment because "[d]elivery was not made to the vehicle's end-user by an authorized Land Rover retailer representative." Instead, the leasing agency delivered the vehicle to the lessee. The auditor initiated 91 chargebacks for incentive payments.[2]Autobahn appealed, and Jaguar affirmed all but 5, resulting in $317, 204.80 in chargebacks.

         In May 2014, Autobahn filed a complaint with the Board, alleging that the chargeback violated Section 2301.467(a)(1) of the Texas Occupations Code, which prohibits a manufacturer, distributor, or representative from "requir[ing] adherence to unreasonable sales or service standards."[3] Autobahn sought "a declaration from the Board that [Jaguar's] interpretation of 'end-user' to exclude a leasing company purchasing a vehicle from Autobahn" violated that prohibition.

         The Board referred Autobahn's complaint to an administrative law judge ("ALJ") at the State Office of Administrative Hearings. In August 2015, the ALJ issued a Proposal for Decision, concluding that the chargebacks violated Section 2301.467(a)(1). The ALJ noted that the dispute ultimately turned on the question "whether a leasing company is an end-user under the terms of the Business Builder documents." The ALJ thought yes. While noting that neither the Manual nor the Rules define "an approved leasing company," she still found that "[s]ales to leasing companies are qualified sales under Business Builder according to the Program documents." She concluded that Jaguar's "charge-backs to Autobahn for sales to leasing companies . . . [were] invalid under . . . § 2301.467(a)(1) for requiring adherence to unreasonable sales or service standards."[4]

         The Board adopted the ALJ's findings of fact and conclusions of law and issued a final order stating that Jaguar "improperly charged back against [Autobahn] certain incentive payments for sales to leasing companies and that those chargebacks are invalid and rescinded."

         In November 2016, Jaguar appealed the Board's order to the state court of appeals.[5] During the pendency of that appeal, Autobahn sued in state court, [6] claiming breach of contract and violations of the DTPA, the latter of which would entitle it to treble damages.[7]

         Jaguar removed, and Autobahn sought summary judgment. It claimed (1) Jaguar's "violation[] of Section 2301, as found by the Board, establish[es] Autobahn's claim under the [DTPA] as a matter of law" and (2) that "the Board expressly found that the underlying agreements . . . collectively constitute valid and enforceable contracts that [Jaguar] breached by virtue of wrongful charge-backs." Jaguar replied that (a) the action was premature because Autobahn had not yet exhausted its administrative remedies and that (b) even if the action were properly before the court, Autobahn was not entitled to treble damages on summary judgment because it had not established that Jaguar acted "knowingly" as required by the DTPA.

         The federal district court rejected Jaguar's exhaustion argument, reasoning that "the Board's final order is final and enforceable." The court then granted summary judgment on Autobahn's DTPA and breach-of-contract claims but denied "double recovery" as to the latter. Jaguar appealed, and, in the interim, the Texas Court of Appeals affirmed the Board's order.[8]

         II.

         A.

         The parties dispute the point at which the Board's order became final for purposes of administrative exhaustion. We agree with Jaguar that Autobahn filed too soon.

         Sitting in diversity, we apply Texas substantive law on the exhaustion question, [9] "look[ing] first [and foremost] to the final decisions of the Texas Supreme Court."[10] Where that court has yet to speak directly to the question, "we must make our best Erie guess, "[11] with the recognition that "non-binding language from the [Texas] [S]upreme [C]ourt is the second- or third-best predictive indicium of how [it] might decide."[12]

         Our analysis begins and ends with Subaru of America v. David McDavid Nissan, 84 S.W.3d 212, 221 (Tex. 2002), which offers the court's most thorough explication of exhaustion and the Board's jurisdiction. A car dealership had sued a manufacturer for several Code violations without first having sought administrative relief. The court began its analysis by explaining that Texas agencies enjoy two forms of jurisdiction: "primary" and "exclusive." Id. at 220. The former is "prudential," the latter "jurisdictional." Id. Hence, where the agency possesses exclusive jurisdiction, "a party must first exhaust administrative remedies before a trial court has subject matter jurisdiction over a dispute." Id. at 222. As for Code-based claims, the Texas Motor Vehicle Commission Code "creates a hybrid claims-resolution process" whereby "the Board has exclusive jurisdiction . . . over claims and issues the Code governs, [and] a party ...


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