HB938

SECTION 1. Chapter 437, Hawaii Revised Statutes, is amended by adding a new section to part I to be appropriately designated and to read as follows:

"§437- Remote electronic transmission compensation. (a) New motor vehicle dealers of the line-make located in the State may sell consumers the same motor vehicle accessory, option, add-on, feature, improvement, or upgrade for a motor vehicle of the line-make manufactured, imported, or distributed by the manufacturer or distributor.

(b) A manufacturer or distributor may, on the same terms offered to the dealer, after the date of sale of the motor vehicle by a dealer to a consumer, sell to the consumer or activate for a fee a permanent or temporary motor vehicle accessory, option, add-on, feature, improvement, or upgrade for a motor vehicle of a line-make manufactured, imported, or distributed by the manufacturer or distributor; provided that the accessory, option, add-on, feature, improvement, or upgrade is activated or installed directly on the consumer's motor vehicle through remote electronic transmission; provided further that if the motor vehicle was sold or leased as new by a franchised new motor vehicle dealer in the State within the five-year period preceding the remote electronic transmission, then the manufacturer or distributor shall pay the franchised new motor vehicle dealer a minimum of twenty per cent of the gross revenue received by the manufacturer, distributor, agent, or common entity for the sale or activation and renewals during the five-year period.

(c) The manufacturer or distributor shall provide each of the manufacturer's or distributor's franchised dealers with a quarterly statement of the revenue received by the manufacturer or distributor, its agent, or its common entity during that quarter for the remote sales or activations and renewals relating to those vehicles sold or leased by the dealer during the five-year period subsequent to the sale or lease of the vehicle to the consumer.

(d) When providing a new motor vehicle to a dealer for offer or sale to the public, it shall be unlawful for the manufacturer or distributor to fail to provide to the dealer a written disclosure that may be provided to a potential buyer of the new motor vehicle of each accessory or function of the vehicle that may be initiated, updated, changed, or maintained by the manufacturer or distributor through over-the-air or remote means, and the charge to the consumer for initiation, update, change, or maintenance. A manufacturer or distributor may comply with this subsection by notifying the dealer that the information is available on a website or by other digital means."

SECTION 2. Section 437-1.1, Hawaii Revised Statutes, is amended as follows:

1. By adding a new definition to be appropriately inserted and to read

""Common entity" means a person:

(1) Who is directly or indirectly controlled by or has more than ten per cent of the person's equity interest directly or indirectly owned, beneficially or of record, through any form of ownership structure, by a manufacturer or distributor; or

(2) Who has more than ten per cent of the person's equity interest directly or indirectly controlled or owned, beneficially or of record, through any form of ownership structure, by one or more persons who also directly or indirectly control or own, beneficially or of record, more than thirty per cent of the equity interests of a manufacturer or distributor."

2. By amending the definition of "franchise" or "franchise agreement" to read:

""Franchise" or "franchise agreement" means any contract or agreement between a dealer and a manufacturer [or], distributor, or common entity that authorizes the dealer to engage in the business of selling or purchasing any particular make or makes of new motor vehicles or motor vehicle parts manufactured or distributed by the manufacturer or distributor, or that establishes rights or obligations, or both, relating to the dealer's new motor vehicle operation, including agreements relating to dealership facilities or site control."

3. By amending the definition of "manufacturer" to read:

""Manufacturer" means any person, resident or nonresident, or a common entity thereof, who is engaged in the business of manufacturing or assembling new motor vehicles."

4. By amending the definition of "sale", "selling", and equivalent expressions to read:

""Sale", "selling", and equivalent expressions, mean the act or attempted act, either as principal or an agent or in any capacity whatsoever, of selling, bartering, exchanging, leasing, or otherwise disposing of, or negotiating, or offering, or attempting to negotiate the sale, purchase, lease, or exchange of, or interest in, a motor vehicle, including an option to purchase a motor vehicle. "Sale", "selling", and equivalent expressions, includes:

(1) Accepting a deposit or receiving a payment for the retail purchase, lease, or other use of a motor vehicle, but does not include facilitating a motor vehicle dealer's acceptance of a deposit or receipt of a payment from a consumer or receiving payment under a retail installment sale contract;

(2) Accepting a reservation from a consumer for a specific motor vehicle identified by a vehicle identification number or other product identifier;

(3) Setting the retail price for the purchase, lease, or other use of a motor vehicle, but does not include setting a manufacturer's suggested retail price;

(4) Offering or negotiating with a consumer the terms for the purchase, lease, or other use of a motor vehicle;

(5) Offering or negotiating with a consumer a value for a motor vehicle being traded in as part of the purchase, lease, or other use of a motor vehicle, but does not include a website or other means of electronic communication that identifies to a consumer a conditional trade-in value and that contains language informing the consumer that the trade-in value is not binding on any motor vehicle dealer;

(6) Any transaction where the title of a motor vehicle or a used motor vehicle is transferred to a consumer;

(7) Any retail lease transaction where a consumer leases a vehicle for a period of at least twelve months, but does not include administering lease agreements, taking assignments of leases, performing required actions pursuant to such leases, or receiving payments under a lease agreement that was originated by a motor vehicle dealer;

(8) Displaying sample vehicles or offering or coordinating test drives to customers;

(9) Arranging the pickup or delivery of a newly purchased new motor vehicle; or

(10) Compensating salespersons, employees, agents, or contractors to engage in these activities."

SECTION 3. Section 437-28, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) In addition to any other actions authorized by law, the board, after notice and hearing as provided in chapter 91, and subject to appeal to the circuit court of the circuit in which the board has jurisdiction under the procedure and rules prescribed by the laws of the State or the applicable rules of the courts pertaining to appeals to circuit courts, may suspend, revoke, fine, or deny the renewal of any license, or prior to notice and hearing deny the issuance of any license for any cause authorized by law, including but not limited to circumstances where the board finds that the applicant or holder, or any officer, director, general manager, trustee, partner, or stockholder owning more than ten per cent interest of the applicant or holder:

(1) Has intentionally made a false statement of a material fact in the application for a license or in any other statement required by this chapter or has obtained or attempted to obtain a license by fraud or misrepresentation;

(2) Has failed to comply with, observe, or adhere to any provision of this chapter or any other law relating to the sale, taxing, or licensing of motor vehicles or any rule or order made pursuant to this chapter;

(3) Has committed a fraudulent act in selling, purchasing, or otherwise dealing in motor vehicles or has misrepresented the terms and conditions of a sale, purchase, or contract for sale or purchase of a motor vehicle or any interest therein including an option to purchase motor vehicles;

(4) Has engaged in business under a past or present license issued pursuant to this chapter, in a manner as to cause injury to the public or to those with whom one is dealing;

(5) Has failed to comply with, observe, or adhere to any law in any other respect so that the board deems the applicant or holder to be an unfit or improper person to hold a license;

(6) Has failed to meet or maintain the conditions and requirements necessary to qualify for the issuance of a license;

(7) Is insolvent, has filed or is the subject of a petition for bankruptcy, wage earner's plan, or financial reorganization plan, or has made or proposes to make an assignment for benefit of creditors;

(8) Is not at least eighteen years of age, or in the case of a partnership applicant or holder of a license, if any general or limited partner is not at least eighteen years of age;

(9) Has charged more than the legal rate of interest on the sale, purchase, or attempted sale or purchase, or in arranging the sale or purchase of a motor vehicle or any interest therein including an option to purchase;

(10) Has violated any law pertaining to false advertising or to credit sales in the offering, soliciting, selling, purchasing, or arranging to sell or purchase a motor vehicle or any interest therein;

(11) Has wilfully failed or refused to perform any unequivocal and indisputable obligation under any written agreement involving the sale or purchase of a motor vehicle or any interest therein, including an option to purchase;

(12) Has been denied the issuance of a license under this chapter for substantial culpable cause or has had a license issued under this chapter suspended, revoked, or the renewal thereof denied for substantial culpable cause;

(13) Has entered, has attempted to enter, or proposes to enter into any contract or agreement contrary to this chapter or any rule adopted thereunder;

(14) Has been, is engaged, or proposes to engage in the business of selling new motor vehicles as a dealer or auction without a proper franchise therefor;

(15) Has at any time employed, utilized, or attempted or proposed to employ or utilize any person not licensed under this chapter who is required to be so licensed;

(16) Has entered or attempted to enter any one-payment contract where the contract is required to be signed by the purchaser prior to removal of the motor vehicle for test driving from the seller's premises;

(17) Is a salesperson or dealer and:

(A) Has required a purchaser of a motor vehicle as a condition of sale and delivery, to purchase special features, appliances, accessories, or equipment not desired or requested by the purchaser; provided that this prohibition shall not apply as to special features, appliances, accessories, or equipment [~~which~~] that are ordinarily installed on the vehicle when received or acquired by the dealer;

(B) Has represented and sold as an unused motor vehicle any motor vehicle [~~which~~] that has been leased or operated as a demonstrator or U-drive motor vehicle;

(C) Has sold a new motor vehicle without providing or securing for the purchaser the standard factory new car warranty for the vehicle unless the dealer or salesperson clearly notes in writing on the sales contract that the new motor vehicle is sold without the standard factory warranty;

(D) Has sold a new motor vehicle covered by a standard factory warranty without informing the purchaser in writing that any repairs or other work necessary on any accessories [~~which~~] that were not installed by the manufacturer of the vehicle may not be obtainable in a geographic location other than where the purchase occurred; provided that the notice required by this section shall conform to the plain language requirements of section 487A-1, regardless of the dollar amount of the transaction;

(E) Has engaged in any improper business conduct, including but not limited to employing, contracting with, or compensating consumer consultants; or

(F) Has sold or leased a new or used motor vehicle, other than at auction, without written documentation upon which the salesperson or dealer shall appropriately indicate the type of sale, which both the customer and salesperson or dealer shall place their initials in the designated spaces prior to the signing of the contract of sale or lease and that contains the following provision printed legibly in at least fourteen point bold typeface:

"This (IS) (IS NOT) a door-to-door sale. There (IS A) (IS NO) 3-DAY RIGHT TO CANCEL on this purchase.

____ Customer's Initials ____ Salesperson's

or Dealer's Initials";

(18) Is an applicant or holder of a dealer's license and:

(A) Has sold or proposed to sell new motor vehicles without providing for the maintenance of a reasonable inventory of parts for new vehicles or without providing and maintaining adequate repair facilities and personnel for new vehicles at either the main licensed premises or at any branch location;

(B) Has employed or proposed to employ any salesperson who is not duly licensed under this chapter; or

(19) Is an applicant or a holder of an auction's license and has sold or proposed to sell new motor vehicles without being franchised therefor; or

(20) Is an applicant for a salesperson's license and:

(A) Does not intend to be employed as a salesperson for a licensed motor vehicle dealer; or

(B) Intends to be employed as a salesperson for more than one dealer;

(21) Being a manufacturer [or], distributor[:], or common entity of a manufacturer or distributor that:

(A) Has required any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to perform any act not required by or to refrain from performing any act not contrary to the reasonable requirements of the franchise agreement with the dealer, by threatening to cancel the franchise agreement or by threatening to refuse, at the expiration of the current franchise agreement, to enter into a new franchise agreement with the dealer;

(B) Has required any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to perform any act not required by or to refrain from performing any act not contrary to the reasonable requirements of the franchise agreement with the dealer, by awarding or threatening to award a franchise to another person for the sale of the same make of any motor vehicle in the relevant market area of a dealer;

(C) Has canceled or failed to renew the franchise agreement of any dealer in the State without good faith[~~, as defined herein~~]. As used in this subparagraph, "good faith" means the duty of each party to any franchise agreement to fully comply with that agreement, or to act in a fair and equitable manner towards each other;

(D) Has delayed delivery of or refused to deliver without cause, any new motor vehicle to a dealer, franchised to sell the new motor vehicle, within a reasonable time after receipt of a written order for the vehicle from the dealer. The delivery to another dealer of a motor vehicle of the same model and similarly equipped as the vehicle ordered by a dealer who has not received delivery thereof, but who had placed the written order for the vehicle prior to the order of the dealer receiving the vehicle, shall be prima facie evidence of a delayed delivery of, or refusal to deliver, a new motor vehicle without cause. The nondelivery of a new motor vehicle to a dealer within sixty days after receipt of a written order for the vehicle from a dealer shall also be prima facie evidence of delayed delivery of, or refusal to deliver, a new motor vehicle without cause; provided that the delayed delivery of, or refusal to deliver, a motor vehicle shall be deemed with cause if the manufacturer establishes that the delay or refusal to deliver is due to a shortage or curtailment of material, labor, transportation, utility service, labor or production difficulty, or other similar cause beyond the reasonable control of the manufacturer;

(E) Has discriminated against any of their franchised dealers in the State by directly or indirectly charging the dealer more for a new motor vehicle or services, parts, or accessories or a higher rate of transportation for transporting the vehicle from the manufacturing or assembly plant to the dealer or any portion of the distance, than is charged to any other of their franchised dealers in the State for the same make, model, and year of a new motor vehicle or for the same devices, parts, or accessories for the similar transportation for the vehicle during the same period. A manufacturer or distributor who provides or causes to be provided greater transportation benefits for a new motor vehicle as aforesaid to any of their franchised dealers in the State than is provided to any of their competing franchised dealers in the State for the same or lesser price or charge than that imposed upon the franchised dealer in the State during the same period is deemed to have so discriminated against the competing franchised dealer in the State. Evidence of similar discriminatory practice against franchised dealers in other states shall not constitute a defense to or justification of the commission of the discriminatory act against the franchised dealer in the State. The intent and purpose of this subparagraph is to eliminate inequitable pricing policies set by manufacturers or distributors [~~which~~] that result in higher prices of new motor vehicles to the consumer in the State. This subparagraph shall be liberally interpreted to effect its intent and purpose and in the application thereof, the substance and effect and not the form of the acts and transactions shall be primarily considered in determining whether a discriminatory act has been committed. Nothing [~~contained~~] in this subparagraph shall prohibit establishing delivered prices or destination charges to dealers in the State [~~which~~] that reasonably reflect the seller's total transportation costs incurred in the manufacture or delivery of products to the dealers, including costs that are related to the geographical distances and modes of transportation involved in shipments to this State, or [~~which~~] that meet those lower prices established by competitors;

(F) Has required a dealer of new motor vehicles in the State as a condition of sale and delivery of new motor vehicles to purchase special features, appliances, accessories, or equipment not desired or requested by the dealer; provided that this prohibition shall not apply to special features, appliances, accessories, or equipment, except heaters, that are regularly installed on that particular model or new motor vehicles as "standard" equipment or to special features, appliances, accessories, or equipment that are an integral part of the new motor vehicles and cannot be removed therefrom without substantial expense. Nothing in this subparagraph shall make it unlawful for a dealer to sell a vehicle that includes a heater that has been installed as standard equipment;

[~~(G)~~ Has failed to adequately and fairly compensate its dealers for labor incurred by the dealer to perform under and comply with manufacturer's warranty agreements. In no event shall any manufacturer or distributor pay its dealers a labor rate per hour for warranty work that is less than that charged by the dealer to the retail customers of the dealer nor shall the rates be more than the retail rates. All claims made by the dealers for compensation for delivery, preparation, and warranty work shall be paid within thirty days after approval and shall be approved or disapproved within thirty days after receipt. When any claim is disapproved, the dealer shall be notified in writing of the grounds for disapproval;

~~(H)~~] (G) Has wilfully failed to affix the vehicle bumper impact notice pursuant to section 437-4.5(a), or wilfully misstated any information in the notice. Each failure or misstatement is a separate offense;

[~~(I)~~] (H) Has wilfully defaced, or removed the vehicle bumper impact notice required by section 437-4.5(a) prior to delivery of the vehicle to which the notice is required to be affixed to the registered owner or lessee. Each wilful defacement, alteration, or removal is a separate offense; [or

~~(J)~~] (I) Has required a dealer to refrain from participation in the management of, investment in, or the acquisition of, any other line of new motor vehicle or related products; provided that the new motor vehicle dealer maintains a reasonable line of credit consistent with the requirements of section 437-7(d)(1) for each make or line of new motor vehicle, remains in compliance with reasonable facilities and other franchise requirements of the manufacturer or distributor, and makes no unauthorized change in the principal management of the dealer[.]; or

(J) Has competed with a new motor vehicle dealer operating under an agreement or franchise from the manufacturer, distributor, or common entity in the State:

(i) Through the ownership, operation, or control of any new motor vehicle dealers in the State, or by participation in the ownership, operation, or control of any new motor vehicle dealer in the State. A manufacturer, distributor, or factory branch shall not be deemed to be competing when operating, controlling, or owning a dealership, either temporarily for a reasonable period, but in any case not to exceed one year, which one-year period may be extended for a one-time, additional period of up to six months upon application to, and approval by, the board, which approval shall be subject to the manufacturer, distributor, or factory branch demonstrating the need for this extension, and with other new motor vehicle dealers of the same line or make being given notice and an opportunity to be heard in connection with said application, or in a bona fide relationship in which an independent person had made a significant investment subject to loss in the dealership and can reasonably expect to acquire full ownership of the dealership on reasonable terms and conditions within a reasonable period of time; or

(ii) By selling directly or indirectly new motor vehicles to any consumer in the State except through a new motor vehicle dealer holding a franchise for the line-make that includes the new motor vehicle. This clause shall not preclude a manufacturer, distributor, or factory branch from selling new vehicles to its employees, family members of employees, retirees and family members of retirees, not-for-profit organizations, or the federal, state, or local governments; providing information to a consumer for the purpose of marketing; or displaying vehicles or allowing test-drives for promotional purposes at events where the manufacturer, distributor, or factory branch is a sponsor and the vehicles are not for sale to the public at the event."

SECTION 4. Section 437-28.5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The same procedures, protections, rights, and remedies provided to a dealer under section 437-3.6, section 437‑28(a)(21), and part II shall apply to a distributor that is not a manufacturer[.], or any common entity of a manufacturer or distributor."

SECTION 5. Section 437-52, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A manufacturer or distributor shall not:

(1) Require any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party that requires the law of another jurisdiction to apply to any dispute between the dealer and manufacturer or distributor, or requires that the dealer bring an action against the manufacturer or distributor in a venue outside of Hawaii, or requires the dealer to agree to arbitration or waive its rights to bring a cause of action against the manufacturer or distributor, unless done in connection with a settlement agreement to resolve a matter or pending dispute between a manufacturer or distributor, or officer, agent, or other representative thereof, and the dealer; provided that such agreement has been entered voluntarily for adequate and valuable consideration; [~~and~~] provided further that the renewal or continuation of a franchise agreement shall not by itself constitute adequate and valuable consideration;

(2) Require any dealer in the State to enter into any agreement with the manufacturer or distributor or any other party, to prospectively assent to a release, assignment, novation, waiver, or estoppel, which instrument or document operates, or is intended by the applicant or licensee to operate, to relieve any person from any liability or obligation of this chapter, unless done in connection with a settlement agreement to resolve a matter or pending dispute between a manufacturer or distributor, or officer, agent, or other representative thereof, and the dealer; provided that such agreement has been entered voluntarily for adequate and valuable consideration; [~~and~~] provided further that the renewal or continuation of a franchise agreement shall not by itself constitute adequate and valuable consideration;

(3) Cancel or fail to renew the franchise agreement of any dealer in the State without providing notice, and without good cause and good faith, as provided in section 437-58;

(4) Refuse or fail to offer an incentive program, bonus payment, holdback margin, or any other mechanism that effectively lowers the net cost of a vehicle to any franchised dealer in the State if the incentive, bonus, or holdback is made to one or more same [~~line make~~] line-make dealers in the State;

(5) Unreasonably prevent or refuse to approve the relocation of a dealership to another site within the dealer's relevant market area. The dealer shall provide the manufacturer or distributor with notice of the proposed address and a reasonable site plan of the proposed location. The manufacturer or distributor shall approve or deny the request in writing no later than sixty days after receipt of the request. Failure to deny the request within sixty days [~~constitutes~~] shall constitute approval;

(6) Require a dealer to construct, renovate, or make substantial alterations to the dealer's facilities unless the manufacturer or distributor can demonstrate that such construction, renovation, or alteration requirements are reasonable and justifiable based on reasonable business consideration, including current and reasonably foreseeable projections of economic conditions existing in the automotive industry at the time such action would be required of the dealer, and agrees to make a good faith effort to make available, at the dealer's option, a reasonable quantity and mix of new motor vehicles, which, after a reasonable analysis of market conditions, are projected to meet the sales level necessary to support the increased overhead incurred by the dealer as a result of the required construction, renovation, or alteration; provided that a dealer may be required by a manufacturer or distributor to make reasonable facility improvements and technological upgrades necessary to support the technology of the manufacturer's or distributor's vehicles. If the dealer chooses not to make such facility improvements or technological upgrades, the manufacturer or distributor shall not be obligated to provide the dealer with the vehicles [~~which~~] that require the improvements or upgrades or any corresponding incentives or benefits. A manufacturer or distributor may not require a dealer to construct, renovate, or make substantial alterations to the dealer's facility if the dealer has completed a construction, renovation, or substantial alteration to the same component of the facility that was required and approved by the manufacturer or distributor within the previous ten years. For purposes of this paragraph, a "substantial alteration" means an alteration that has a major impact on the architectural features, characteristics, appearance, or integrity of a structure or lot. [~~The term "substantial~~] "Substantial alteration" does not include routine maintenance, such as painting and repairs reasonably necessary to maintain a dealership facility in attractive condition, or any changes to items protected by federal intellectual property rights. If a dealer has completed facility construction, renovation, or substantial alteration under an incentive program, the manufacturer or distributor may not deny a dealer payment or benefits according to the terms of that program in place when the dealer began to perform under the program. If the incentive program under which the dealer completed a facility construction, renovation, or substantial alteration on or after January 1, 2016, does not contain a specific time period during which the manufacturer or distributor must provide payments or benefits to a dealer, then the manufacturer or distributor may not deny the dealer payment or benefits under the terms of that incentive program, as it existed when the dealer began to perform under the program for the balance of ten years after the manufacturer or distributor made the program available to the dealer, regardless of whether the manufacturer's or distributor's facility program has been changed or canceled. This paragraph shall not be construed to require a manufacturer or distributor to provide payment or benefits if changes have been made to the facility since the manufacturer's or distributor's approval that would render the facility non-compliant, regardless of whether the manufacturer's or distributor's image program has changed. Facility changes that are necessitated due to damage sustained from a natural disaster or as a result of necessary safety upgrades shall not be considered a change to the facility that renders the facility non-compliant; provided that those facility changes substantially restore the facilities to the previous or current compliant state. Eligibility for facility-related incentives under this paragraph shall not apply to:

(A) Lump sum payments for the cost of the facility upgrade;

(B) Payments on a per vehicle basis; and

Nothing in this paragraph shall be construed to allow a franchised motor vehicle dealer to impair or eliminate a manufacturer's or distributor's intellectual property or trademark rights and trade dress usage guidelines; impair other intellectual property interests owned or controlled by the manufacturer or distributor, including the design and use of signs; or refuse to change the design or branding of any signage or other branded items required by a manufacturer or distributor at any time, if the manufacturer or distributor requires those changes of all of its franchised dealers nationally;

(7) Require the dealer to establish or maintain an exclusive showroom or facility unless justified by current and reasonably expected future economic conditions existing in the dealer's market and the automobile industry at the time the request for an exclusive showroom or facility is made; provided that [~~the foregoing~~] this paragraph shall not restrict the terms and conditions of any agreement for which the dealer has voluntarily accepted separate and valuable consideration;

(8) Condition the award of an additional franchise on the dealer entering a site control agreement or the dealer waiving its rights to protest the manufacturer's or distributor's award of an additional franchise within the dealer's relevant market area; provided that [~~the foregoing~~] this paragraph shall not restrict the terms and conditions of any agreement for which the dealer has voluntarily accepted separate and valuable consideration;

(9) Require a dealer or the dealer's employees to attend a training program that does not relate directly to the sales or service of a new motor vehicle in the same [~~line make~~] line-make of that sold or serviced, or both, by the dealer;

(10) Require a dealer to pay all or part of the cost of an advertising campaign or contest, or purchase any promotional materials, showroom, or other display decorations or materials at the expense of the dealer without the consent of the dealer, which consent shall not be unreasonably withheld;

(11) Implement or establish a customer satisfaction index or other system measuring a customer's degree of satisfaction with a dealer as a sale or service provider unless any such system is designed and implemented in such a way that is fair and equitable to both the manufacturer and the dealer. In any dispute between a manufacturer, distributor, and a dealer, the party claiming the benefit of the system as justification for acts in relation to the franchise shall have the burden of demonstrating the fairness and equity of the system both in design and implementation in relation to the pending dispute. Upon request of any dealer, a manufacturer or distributor shall disclose in writing to [~~such~~] the dealer a description of how that system is designed and applied to [~~such~~] the dealer;

(12) Implement or establish an unreasonable, arbitrary, or unfair sales or service performance standard in determining a dealer's compliance with a franchise agreement. If the sales or service performance standard is to be used as the basis for a termination of a dealer, then the performance standard shall be deemed unreasonable, arbitrary, or unfair if the standard does not include material and relevant local market factors, including but not limited to the geography of the dealer's assigned territory as set forth in the franchise agreement, market demographics, change in population, product popularity, number of competitor dealers, and consumer travel patterns;

(13) Implement or establish a system of motor vehicle allocation or distribution to one or more of its dealers that is unfair, inequitable, or unreasonably discriminatory. As used in this paragraph, "unfair" includes without limitation, requiring a dealer to accept new vehicles not ordered by the dealer or the refusal or failure to offer to any dealer all models offered to its other same [~~line make~~] line-make dealers in the State. The failure to deliver any motor vehicle shall not be considered a violation of this section if such failure is due to an act of God, work stoppage, or delay caused by a strike or labor difficulty, shortage of products or materials, freight delays, embargo, or other causes of which the motor vehicle franchisor shall have no control. Notwithstanding the foregoing, a dealer may be required by a manufacturer or distributor to make reasonable facility improvements and technological upgrades necessary to support the technology of the manufacturer's or distributor's vehicles. If the dealer chooses not to make such facility improvements or technological upgrades, the manufacturer or distributor shall not be obligated to provide the dealer with the vehicles [~~which~~] that require the improvements or upgrades; [or]

(14) Require a dealer that is constructing, renovating, or substantially altering its dealership facility to purchase goods, building materials, or services for the dealership facility, including but not limited to office furniture, design features, flooring, and wall coverings, from a vendor chosen by the manufacturer or distributor if: goods, building materials, or services of a substantially similar appearance, function, design, and quality are available from other sources; and the franchised motor vehicle dealer has received the manufacturer's or distributor's approval; provided that this approval shall not be unreasonably withheld or unreasonably delayed. In the event that a manufacturer or distributor does not approve the dealer's use of substantially similar goods, building materials, or services, the manufacturer or distributor shall provide the dealer, in writing at the time of disapproval, a detailed list of reasons why the proposed substantially similar items are not acceptable. Nothing in this paragraph shall be construed to allow a franchised motor vehicle dealer to impair or eliminate a manufacturer's or distributor's intellectual property or trademark rights and trade dress usage guidelines or impair other intellectual property interests owned or controlled by the manufacturer or distributor, including the design and use of signs[.]; or

(15) Require a new motor vehicle dealer to purchase or lease any electric vehicle charging stations at the dealer's expense unless the dealer has notified the manufacturer or distributor of the dealer's intention to begin selling and servicing electric vehicles manufactured or distributed by that manufacturer or distributor. If the dealer is actually offering for retail sale or providing warranty service on electric vehicles manufactured or distributed by that manufacturer or distributor, the dealer shall not be required to purchase or lease, at the dealer's expense:

(A) More than the number of electric vehicle charging stations for use by service technicians and customer education than would reasonably be necessary for the dealer to perform these functions based on the dealer's reasonably estimated sales and service volume during the following three-year period; or

(B) To make electric vehicle charging stations located at the dealership available for use by the general public. Nothing in this subparagraph shall prohibit a manufacturer or distributor from establishing an incentive program for its dealers within the State that provides financial assistance to dealers that purchase or install electric vehicle charging stations; provided that the incentive compensation paid to the dealer for the dealer's purchase or lease and installation of all electric vehicle charging stations is reasonable and the amount is paid in a lump sum related specifically to the electric vehicle charging stations.

Notwithstanding the terms or conditions of any franchise or other agreement, policy, or incentive program, it shall be unlawful for any manufacturer or distributor to require that any of its franchised dealers in the State purchase or lease any diagnostic equipment or tool for the maintenance, servicing, or repair of electric vehicles if the dealer has other diagnostic equipment or tools available for servicing another brand or line-make of vehicle manufactured or distributed by that manufacturer or distributor that can perform the work to the standards required by and which have been approved by the applicable manufacturer or distributor; provided that approval by the manufacturer or distributor shall not be unreasonably withheld."

SECTION 6. Section 437-53, Hawaii Revised Statutes, is amended to read as follows:

"[[]§437-53[]] Sale, assignment, or transfer of franchise to qualified purchaser. (a) A manufacturer or distributor shall not unreasonably withhold consent to the sale, assignment, or transfer of the franchise to a qualified purchaser capable of being licensed as a dealer.

(b) The dealer shall notify the manufacturer or distributor, in writing, of its desire to sell, assign, or transfer its franchise and identify the proposed transferee's name, address, financial qualifications, and business experience. Along with such notice, the dealer shall also provide the manufacturer or distributor with completed application forms and related information generally used by the manufacturer or distributor to conduct its review of such a proposal, and a copy of all agreements regarding the proposed sale, assignment, or transfer. The manufacturer or distributor shall, within thirty days of receipt of the application and all supporting documentation as specified therein, review the application and identify in writing the additional information, data, or documents, if any, needed by the manufacturer or distributor to complete its review. If the manufacturer or distributor does not reject the application within sixty days of receipt of the completed application and all supporting documentation or within sixty days of receipt of any additional information, data, or documents timely requested by the manufacturer or distributor, the application shall be considered approved, unless the sixty-day deadline is extended by mutual agreement of the manufacturer or distributor and the dealer.

(c) If a manufacturer or distributor denies a dealer's proposed sale, assignment, or transfer of the franchise, the dealer may file a petition in the manner prescribed in section 437-51, within sixty days of the notice of denial. The manufacturer or distributor shall have the burden of proof to demonstrate at a hearing pursuant to a timely filed complaint that the proposed transferee [~~is not of good moral character or does~~]:

(1) Has been convicted of a felony or a crime of fraud, deceit, or moral turpitude;

(2) Does not meet the written, reasonable, and uniformly applied business standards or qualifications of the manufacturer relating to the financial qualifications of the transferee and business experience of the transferee or the transferee's executive management[.]; or

(3) Is not willing to be bound by the existing terms of the franchise agreement by which the dealer was bound. The manufacturer or distributor shall not condition the transfer of a franchise agreement, upon site control or an agreement to renovate or make substantial improvements to a facility; provided that voluntary and noncoerced acceptance of such conditions by the transferee in writing, including but not limited to a written agreement for which the transferee has accepted separate and valuable consideration, shall not constitute a violation.

(d) Subsection (c) shall not apply if a dealer, or an officer, partner, or stockholder of a dealership, sells or transfers a part of the interest to another officer, partner, stockholder, spouse, child, grandchild, parent, sibling, or a general manager or other employee with significant and varied managerial experience for a dealer for at least five years. A dealer, officer, partner, or stockholder shall not have the right to sell or transfer a part of the interest, or a right thereunder, without the consent of the manufacturer or distributor, except that the consent may only be denied if the proposed transferee has been convicted of a felony or a crime of fraud, deceit, or moral turpitude. The manufacturer or distributor shall not condition consent upon a change in the franchise agreement."

SECTION 7. Section 437-54, Hawaii Revised Statutes, is amended to read as follows:

"[[]§437-54[]] Transfer of franchise to successor who is not a qualified purchaser. (a) A manufacturer or distributor shall not refuse or fail to give effect, unless it has good cause, to the dealer's designated successor[~~, whether designated by will, other estate planning document, or written notice to the manufacturer or distributor either while the dealer was living or within ninety days of the~~] for principal operator of the dealership upon the dealer's death [or], incapacity[.], or retirement.

(b) The designated successor shall be:

(1) The person named by filing a written instrument with the manufacturer;

(2) If the dealer dies, the person who is entitled to inherit the deceased dealer's ownership interest in the new motor vehicle dealership under the terms of the dealer's will or testamentary trust, or who has otherwise been designated in writing by a deceased dealer to succeed the deceased dealer in the new motor vehicle dealership, or who is entitled to inherit under the laws of intestate succession of the State or the appointed and qualified personal representative or testamentary trustee of the deceased dealer; or

(3) If the dealer becomes incapacitated, the person appointed by the court as the legal representative of the dealer.

[~~(b)~~] (c) In determining whether good cause exists for the manufacturer's or distributor's refusal to honor the succession, the manufacturer or distributor shall have the burden to prove that the successor [~~is not of good moral character, is~~]:

(1) Has been convicted of a felony or a crime of fraud, deceit, or moral turpitude;

(2) Is not willing to be bound by the existing terms of the franchise agreement[~~, and~~] by which the dealer was bound; or

(3) Does not meet the written, reasonable, and uniformly applied business standards or qualifications of the manufacturer or distributor relating to the financial qualifications of the successor and business experience of the successor or successor's executive management. If the successor is the spouse or a child, grandchild, parent, or sibling of the dealer; or the executive manager of the dealership, then the manufacturer shall show the designated successor is [~~either~~] not qualified to operate the dealership [or] and fails to demonstrate that the dealership will be operated by a qualified executive manager.

[~~(c)~~] (d) The designated successor shall furnish written notice to the manufacturer or distributor including all necessary application forms and related information customarily required by the manufacturer or distributor of the successor's intention to succeed to the ownership of the new motor vehicle dealership within sixty days prior to the designee's actual proposed succession to dealership ownership for the manufacturer or distributor to determine whether the [~~proposed~~] designated successor meets the [~~normal, reasonable, and uniformly applied standards for the grant of an application as a new motor vehicle dealer.~~] requirements of this section.

[~~(d)~~] (e) The manufacturer or distributor shall notify the [~~proposed~~] designated successor of its belief that good cause exists to refuse to honor the succession within sixty days after receipt of the notice of the proposed successor's intent to succeed the franchise, and the manufacturer or distributor shall detail its reasons why it believes good cause exists to deny the succession.

[~~(e)~~] (f) A [~~proposed~~] designated successor may file a petition in the manner prescribed in section 437-51 within sixty days after receipt of the manufacturer's or distributor's notice of refusal to honor the succession. The franchise shall continue, and the manufacturer or distributor is prohibited from any action to the contrary, until a final [~~judgment~~] determination, including exhaustion of all appellate remedies, has been rendered on the proposed succession.

(g) If the designated successor does not choose to protest under subsection (f), or the protest is not successful, the manufacturer or distributor shall allow the designated successor a reasonable period of time, which shall not be less than six months, in which to negotiate a sale of the dealership. Any proposed sale under this section shall be subject to the provisions of section 437-53."

SECTION 8. Section 437-56, Hawaii Revised Statutes, is amended to read as follows:

"§437-56 Reimbursement for parts[.] and labor. (a) Each manufacturer, distributor, or common entity shall specify in writing to each of its dealers licensed in the State the dealer's obligations for predelivery preparation and warranty service on a manufacturer's, distributor's, or common entity's products. A manufacturer, distributor, or common entity shall timely compensate a motor vehicle dealer who performs required work to maintain or repair a manufacturer's, distributor's, or common entity's product under a warranty or maintenance plan, extended warranty, certified pre-owned warranty, or a service contract, issued by the manufacturer, distributor, or common entity; to fulfill a manufacturer's, distributor's, or common entity's delivery or preparation procedures; or to repair a motor vehicle as a result of a manufacturer's, distributor's, or common entity's recall, campaign service, authorized goodwill, directive, or bulletin.

[~~(a)~~] (b) Compensation for parts used in required work shall be determined pursuant to subsection (d). In no event shall any manufacturer [or], distributor, or common entity pay its dealers a markup on parts for warranty work that is less than that charged by the dealer to the retail customers of the dealer; provided that [~~such~~] the dealer's retail parts markup is not unreasonable when compared with that of same [~~line make~~] line-make authorized franchise dealers of the manufacturer [or], distributor, or common entity for identical merchandise or services in the State. If a manufacturer, distributor, or common entity furnishes a part or component to a motor vehicle dealer at no cost to use in performing repairs under a recall, campaign service action, or warranty repair, the manufacturer, distributor, or common entity shall compensate the dealer for the part or component in the same manner as warranty parts compensation under this subsection, less the cost for the part or component as listed in the manufacturer's, distributor's, or common entity's price schedule. The manufacturer, distributor, or common entity shall be prohibited from establishing or implementing a special part or component number for parts used in warranty work, if the result of the special part or component lowers compensation to the dealer below that amount calculated pursuant to this section. This subsection shall not apply to parts or components that are subject to a recall and are issued a new special part or component number.

[~~(b)~~] (d) The retail markup charged by the dealer shall be established by submitting to the manufacturer or distributor a sufficient quantity of numerically consecutive repair orders from the most recent months to provide one hundred qualifying customer-paid repair orders[. For a dealer unable to provide one hundred qualifying customer-paid repair orders out of all numerically consecutive repair orders within the two-month period prior to the submission, the dealer shall submit customer service repair orders of all types, including customer pay, warranty, and internal, for that two-month period.] or sixty consecutive days of nonwarranty customer-paid service repair orders that contain warranty-like parts, whichever is less, covering repairs made no more than one hundred eighty days before the submission. The repair orders shall contain the price and percentage markup. [~~Dealers~~] The dealer shall declare in [~~their~~] its submission the average markup the dealer is declaring as its new parts reimbursement rate. The declared parts reimbursement markup shall take effect within [~~ninety~~] thirty days after initial submission to the manufacturer [or], distributor [and shall be presumed to be fair and reasonable. However, the manufacturer or distributor may make reasonable requests for additional information supporting the submission. The ninety-day time frame in which the manufacturer or distributor shall make the declared parts reimbursement markup effective shall commence following receipt from the dealer of any reasonably requested supporting information.], or common entity subject to the procedures in subsection (g). The dealer shall not request a change in the parts reimbursement markup more than once every twelve months.

[~~(c)~~] (e) In determining qualifying repair orders for parts[,] and labor, the following work shall not be included: repairs for manufacturer or distributor special events; repairs covered by any insurance or service contract; federal, state, or local government legislated vehicle emission or safety inspections; parts sold at wholesale or repairs performed at wholesale, which shall include any sale or service to a fleet of vehicles; engine assemblies and transmission assemblies; routine maintenance not covered under any retail customer warranty, such as fluids, filters, and belts not provided in the course of repairs; nuts, bolts, fasteners, and similar items that do not have an individual part number; tires; [~~and~~] vehicle reconditioning[.]; and vehicles owned by the dealer or its employees at the time of the repair.

(f) The retail rate customarily charged by the dealer for labor may be established by submitting to the manufacturer or distributor a sufficient quantity of numerically consecutive repair orders from the most recent months to provide one hundred qualifying customer-paid repair orders or sixty consecutive days of nonwarranty customer-paid service repair orders that contain warranty-like repairs, whichever is less, covering repairs made no more than one hundred eighty days before the submission and dividing the amount of the dealer's total labor sales by the number of total labor hours that generated those sales. The repair orders shall contain the price and hourly rate. The dealer shall declare in its submission the hourly rate the dealer is declaring as its new labor reimbursement rate. The average labor rate shall go into effect thirty days following the declaration, subject to the procedures laid out in subsection (g). The dealer shall not request a change in the labor rate reimbursement markup more than once every twelve months.

(g) (1) A manufacturer, distributor, or common entity may contest to the dealer the material accuracy of the retail parts markup or retail labor rate that was calculated by the dealer under this section within thirty days after receiving notice from the dealer or, if the manufacturer, distributor, or common entity requests supplemental repair orders pursuant to paragraph (4), within thirty days after receiving the supplemental repair orders. If the manufacturer, distributor, or common entity seeks to contest the retail parts markup, retail labor rate, or both, the manufacturer, distributor, or common entity shall submit no more than one notification to the dealer. The notification shall be limited to an assertion that the rate is materially inaccurate or fraudulent, and shall provide a full explanation of any and all reasons for the allegation; evidence substantiating the manufacturer's, distributor's, or common entity's position; a copy of all calculations used by the manufacturer, distributor, or common entity in determining the manufacturer, distributor, or common entity's position, and a proposed adjusted retail parts markup or retail labor rate, as applicable, on the basis of the repair orders submitted by the dealer or, if applicable, on the basis provided in paragraph (5). After submitting the notification, the manufacturer, distributor, or common entity shall not add to, expand, supplement, or otherwise modify any element of that notification, including but not limited to its grounds for contesting the retail parts markup, retail labor rate, or both, without justification. A manufacturer, distributor, or common entity shall not deny the dealer's submission for the retail parts markup, retail labor rate, or both.

(2) If the dealer agrees with the conclusions of the manufacturer, distributor, or common entity and any corresponding adjustment to the retail parts markup or retail labor rate, no further action shall be required. The new adjusted rate shall be deemed effective as of the thirtieth calendar day after the manufacturer's, distributor's, or common entity's receipt of the notice submitted pursuant to paragraph (1).

(3) In the event the manufacturer, distributor, or common entity provides all of the information required by paragraph (1) to the dealer, and the dealer does not agree with the adjusted rate proposed by the manufacturer, distributor, or common entity, the manufacturer, distributor, or common entity shall pay the dealer at the manufacturer's, distributor's, or common entity's proposed adjusted retail parts rate or retail labor rate until a decision is rendered upon any board protest filed pursuant to paragraph (1) or until any mutual resolution between the manufacturer, distributor, or common entity and the dealer. The manufacturer, distributor, or common entity's proposed adjusted rate shall be deemed to be effective as of the thirtieth day after the manufacturer's, distributor's, or common entity's receipt of the repair orders submitted pursuant to subsections (d) and (f).

(4) If the manufacturer, distributor, or common entity determines from the dealer's set of repair orders submitted pursuant to subsections (d) and (f) that the dealer's submission for a retail parts markup or retail labor rate is substantially higher than the dealer's current warranty rate, the manufacturer, distributor, or common entity may request, in writing, within thirty days after the manufacturer's, distributor's, or common entity's receipt of the repair orders submitted pursuant to subsection (d) or (f), all repair orders closed within the period of thirty days immediately preceding, or thirty days immediately following, the set of repair orders submitted by the dealer. If the dealer fails to provide the supplemental repair orders, all time periods under this section shall be suspended until the supplemental repair orders are provided.

(5) If the manufacturer, distributor, or common entity requests supplemental repair orders pursuant to paragraphs (1) and (4), the manufacturer, distributor, or common entity may calculate a proposed adjusted retail parts markup or retail labor rate, as applicable, based upon any set of the qualified repair orders submitted by the dealer, if the manufacturer, distributor, or common entity complies with all of the following requirements:

(A) The manufacturer, distributor, or common entity uses the same requirements applicable to the dealer's submission pursuant to paragraph (1);

(B) The manufacturer, distributor, or common entity uses the formula to calculate the retail parts markup or retail labor rate as provided in subsections (d) and (f); and

(C) The manufacturer, distributor, or common entity omits all charges in the repair orders as provided in subsection (e).

(h) If the manufacturer, distributor, or common entity does not contest the retail parts markup or retail labor rate that was calculated by the dealer, or if the manufacturer, distributor, or common entity fails to contest the rate pursuant to subsection (g), within thirty days after receiving the repair orders submitted by the dealer pursuant to subsection (d) or (f), the uncontested retail parts markup or retail labor rate shall take effect on the thirtieth day after the manufacturer's, distributor's, or common entity's receipt of the repair orders and the manufacturer, distributor, or common entity shall use the new retail parts markup or retail labor rate, or both, if applicable, to determine compensation to fulfill warranty obligations to the dealer pursuant to this section.

(i) When calculating the retail parts markup or retail labor rate, promotional reward program cash-equivalent pay methods shall not be considered discounts.

(j) The labor time allowance claimed by the franchisee for a repair shall be the amount of time allowed by the franchisor's labor time guide or the labor time guide used by the dealer for labor furnished other than pursuant to open recall, warranty, or other manufacturer reimbursed service work, whichever is greater. If neither time guide contains an allowance for a repair, compensation for labor time shall be the actual time spent to complete the repair.

[~~(d)~~] (k) Dealers shall have at least thirty days after the repair work is completed to submit a claim for approval. All claims made by the dealers for compensation for delivery, preparation, and warranty work shall be approved or disapproved and if approved, paid within forty-five days after receipt by a manufacturer [or], distributor, or common entity of a properly completed claim. All sale incentive claims shall be approved or disapproved and if approved, paid within sixty days after receipt by a manufacturer [or], distributor, or common entity of a properly completed claim. When any claim is disapproved, the dealer shall be notified in writing of the grounds for disapproval. A claim shall not be disapproved based solely on a dealer's failure to comply with a specific claim processing requirement, such as a clerical error or other administrative technicality that does not put into question the legitimacy of the claim after the dealer properly resubmits the claim in accordance with the manufacturer's, distributor's, or common entity's submission guidelines. If a claim does not meet the submission guidelines, the written notice disapproving the claim shall identify the specific claim documentation procedure or procedures violated by the dealer for the dealer to resubmit a claim for payment or compensation if the claim was denied for a dealer's incidental failure within thirty days of the disapproval. Failure to disapprove a claim within the required time frame constitutes approval of the claim.

[~~(e)~~] (l) A manufacturer [or], distributor [~~may~~], or common entity shall not recover, or attempt to recover, from dealers its cost for reimbursing a dealer for warranty work as required by this section. This subsection shall not prohibit a manufacturer, distributor, or common entity from increasing the prices of parts or motor vehicles in the normal course of business.

[~~(f)~~] (m) For the purposes of this section, the director of commerce and consumer affairs shall:

(1) Conduct a review of the costs of the repairs of motor vehicles, including the prices charged by dealers for performing repairs under warranty and repairs not under warranty; and

(2) Compare such costs to repairs performed by non-dealers."

SECTION 9. Section 437-57, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:

"(b) A manufacturer or distributor shall not chargeback a dealer for sales or warranty payments unless the manufacturer or distributor can satisfy its burden of proof that the dealer's claim was fraudulent or [~~that the dealer did not substantially comply with the reasonable written procedures of the manufacturer or distributor.~~] unsubstantiated. A manufacturer, distributor, or common entity shall not chargeback a claim based solely on a dealer's failure to comply with a specific claim processing requirement, such as a clerical error or other administrative technicality that does not put into question the legitimacy of the claim after the dealer properly resubmits the claim in accordance with the manufacturer's, distributor's, or common entity's submission guidelines.

(c) The manufacturer or distributor shall provide the dealer a written notice [~~thirty~~] sixty days before imposing a proposed chargeback[.] identifying the specific claim documentation procedure or procedures violated by the dealer for the dealer to resubmit a claim for payment or compensation if the claim was denied for a dealer's incidental failure as set forth in subsection (b). The dealer may protest the imposition of a proposed chargeback prior to the imposition of a proposed chargeback. The dealer, manufacturer, or distributor shall conduct any internal dispute resolution process in accordance with the franchise agreement. After the internal dispute resolution process is concluded, the dealer may file a petition in the manner prescribed in section 437-51 protesting the proposed chargeback amount. If a petition is filed, the proposed chargeback shall be stayed during the entirety of the action and until a final judgment has been rendered."

SECTION 10. Section 437-59, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

"(e) All reimbursement claims made by new motor vehicle dealers pursuant to this section for recall repairs, or for compensation where no part or repair is reasonably available and the vehicle is subject to a stop-sale order shall be subject to the same limitations and requirements as a warranty reimbursement claim made under section 437-56 [~~or 437‑28(a)(21)(G)~~]. In the alternative, a manufacturer may compensate its franchised dealers under a national recall compensation program; provided that the compensation under the program is equal to or greater than that provided under subsection (a) or the manufacturer and dealer otherwise agree."

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	938
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII