The Franchise Memorandum

The United States Court of Appeals for the Fifth Circuit has held that a franchisee seeking relief for violations of the Texas Motor Vehicle Commission Code (the “Code”) had to exhaust all available administrative remedies before proceeding in state court. Autobahn Imports, L.P. v. Jaguar Land Rover N. Am., LLC, 2018 WL 3406933 (5th Cir. July 13, 2018). A dispute arose between franchisor Jaguar Land Rover North America and franchisee Autobahn Imports when Jaguar requested roughly $300,000 of chargebacks in incentive payments from Autobahn. Autobahn filed a complaint with the Texas Department of Motor Vehicles (the “Board”) claiming that the chargebacks violated the Code. The Board issued a final order holding that the chargebacks were invalid, and Jaguar appealed the decision to the Texas Court of Appeals. While that appeal was pending, Autobahn filed suit against Jaguar in state court based on the Board’s findings and moved for summary judgment on claims for breach of contract and violation of the Texas Deceptive Trade Practices Act (DTPA). Jaguar removed the action to federal court and argued, among other things, that Autobahn had not exhausted all available administrative remedies. The court disagreed and granted summary judgment for the dealer.

On appeal, the Fifth Circuit agreed with Jaguar that Autobahn filed suit too soon. The court noted that a party must first exhaust all administrative remedies to obtain a final Board decision in order to support DTPA claims based on Code violations in state or federal court. Given that Jaguar appealed the Board’s decision, the decision could become final only after a substantial-evidence review. Because Autobahn did not wait for the Texas Court of Appeals to process Jaguar’s appeal before seeking summary judgment, the federal district court did not have jurisdiction to hear Autobahn’s claims. As a result, the district court’s summary judgment ruling was vacated and remanded.