June 16, 1987 

Mr. John R. Hale 

Commissioner 

Credit Union Department 

914 East Anderson Lane 

Austin, Texas 78752 

Opinion No. JM-721 

Re: Constitutionality of House Bill 

Nos. 1953 and 1531. which regulate 

the sale of motor vehicles 

Dear Commissioner Hale: 

You inquire about the constitutionality of certain statutes and 

proposed amendments applying to the sale of motor vehicles. You are 

particularly concerned about pro+sions which prohibit sales of motor 

vehicles from locations other than a permanent sales location. Briefs 

submitted to us state that rental car agencies have in the past sold 

used cars in Texas at temporary "off-site" sales. These sales are 

also called "fleet" sales. Such sales are usually sponsored by credit 

unions that make financing available to members who purchase vehicles. 

Credit unions in the past have also sponsored off-site sales of new 

cars, held at sites which are not permanent auto dealer locations. 

The proposed legislation you inquire about will prevent both kinds of 

sales -- the off-site sales of new cars and of used rental cars. You 

specifically ask about House Bill No. 1531. which amends article 

4413(36). V.T.C.S., and House Bill No. 1953, which amends article 

6686, V.T.C.S. 

Article 4413(36), V.T.C.S., the Texas Motor Vehicle Commission 

Code, regulates the distribution and sale of new motor vehicles in 

this state. V.T.C.S. art. 4413(36), 951.01, 1.02. It provides that 

no one may act as a dealer of new motor vehicles without obtaining a 

license from the Motor Vehicle Commissioner. Dealers may carry on the 

business of a dealership at more than one location, if the separate 

location is expressly authorized by the dealer's franchise and 

license. V.T.C.S. art. 4413(36). 14.02(c)(l). Lxensees may not 

participate in a "new motor vehicle show or exhibition at which new 

motor vehicles are offered for sale" unless the Motor Vehicle 

Commission has granted its approval. Id. House Bill No. 1531, 

pending before the 70th Legislature, wouldprohibit the sale of any 

new motor vehicle, except a motor home. at a show or exhibition. 

House Bill No. 1531, 70th Leg., (1987) (proposing amendment to section 

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Mr. John R. Hale - Page 2 (JM-721) 

4.02(c)(2) of article 4413(36)). Thus, the off-site sale of a gloup 

of new cars would be prohibited if House Bill No. 1531 is enacted. 

Article 6686, V.T.C.S., permits dealers in motor vehicles to 

apply for a general distinguishing number and a master dealer's 

license plate, icstead of registering vehicles individually. An automobile dealer must have "a currently valid general distinguishing 

number" assigned by the Department of Highways and Public Transportation, and may not reassign a certificate of title or other evidence 

of ownership without one. V.T.C.S. art. 6686(a)(l-A). These requirements apply to dealers in new or used cars. 

To apply for a general distinguishing number, an individual must 

file a sworn application with the department showing. among other 

things: 

(A) that the location for which the applicant 

seeks the issuance of a general distinguishing 

number is an established and permanent place of 

business situated on real property owned, or 

leased by him under a written lease for a term of 

not less than one'year, on which the applicant 

maintains a permanent furnished office for the 

sale of vehicles of the type specified in his 

application. . . . 

(B) that the applicant intends to remain in 

business for at least one year at the sp.+cifieh 

location. . . . 

V.T.C.S. art. 6686(a)(l-A)(vi)(A), (B) (enacted by Acts 1985, 69th 

Leg., ch. 465, at 1633). 

House Bill No. 1953, enacted by the regular session of the 70th 

Legislature, requires a separate general distinguishing number for any 

location from which the person engages in business. H.B. No. 1953, 

70th Leg. (1987) (mending V.T.C.S. art. 6686(a)(l) (iii), (v)). In 

addition, the dealer's sworn application for a general distinguishing 

number wotild have to state that the applicant intends to remain 

engaged in business as a dealer for at least one year at the speciflrd 

1. A brief submitted in connection with this request argues that 

the present version of section 4.02(c)(2), as interpreted by the Texas 

Motor Vehicle Commission, allows participation in bona fide trade 

shows and exhibitions only where a sale of vehicles is an incidental 

purpose. Thus, "parking lot sales" which have as their primary 

purpose the sale of vehicles may not be authorized by the statute. 

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Mr. John R. Hale - Page 3 (JM-721) 

location and that he or his employee will be there to engage in 

business during reasonable and lawful business hours. Id. (amending - 

V.T.C.S. art. 6686(vi)(B)). 

These provisions on location will prevent both fleet sales of 

rental cars and off-site sales of new cars. You question the 

constitutional validity of legislation which restricts the sale of 

vehicles by dealers that do not operate from a permanent location. 

You first ask whether either or both of the bills could be construed 

as an attempt by the legislature to pass a special law regulating the 

automobile trade by effectively prohibiting some persons from engaging 

in that trade. This question raises issues under the equal protection 

clause and the due process ciause of the Fourteenth Amendxpent to the 

United States Constitution. 

The legislation distinguishes between persons who offer motor 

vehicles for sale from a permanent business location virtuailjj every 

business day and those who wish to offer motor vehicles for sale 

occasionally from a location only temporarily devoted to that purpose. 

There is no fundamental right to engage in the business of selling 

mqtor vehicles; therefore, the legislature needs only a rational basis. 

for treating persons differently according to their particular mode of 

selling motor vehicles. See City of New Orleans v. Dukes, 427 U.S. 

297 (1976). Under the rational relationship test, a statute will be 

sustained-if the legislarure could have reasonably concluded that the 

challenged classification would promote 'a legitimate state purpose. 

See, e.g., Exxon Corp. v. Eagerton, 462 U.S. 176, 195 (1983); Allied 

Stores V. Bowers, 358 U.S. 522, 530 (1959). 

Article 4413(36). V.T.C.S., includes the following purpose 

clause: 

The distribution and sale of new motor vehicles 

in this State vitally affects the general economy 

of the State and the public interest and welfare 

of its citizens. :r: is the policy of this State 

and the purpose of this Act to exercise the 

State's police power to insure a sound system 

of distributing and selling new motor vehicles 

through licensing and regulating the manufacturrrs, distributors, and franchised dealers of 

those vehicles to pruvide for compliance with 

manufacturer's warranties, and to prevent frauds, 

unfair practices, discriminations, impositions, 

and other abuses of our cicieens. 

V.T.C.S. art. 4413(36). 01.02. 

p. 3353 
Mr. John R. Hale - Page 4 (JM-721) 

A brief submitted to us indicates that the proposed legislation 

will serve to protect purchases by prohibiting car sales by unlicensed, onfranchised "fly-by-night" dealers. Such dealers cannot 

repair motor vehicles. They have no capital investment in the 

facility from vhich they sell. Therefore, they cannot provide the 

services necessary to keep the vehicles they sell in good condition. 

The proposed legislation protects consumers from sales methods which 

might leave them in possession of a defective vehicle without any 

practical method of holding the dealer accountable. 

Another brief argues that House Bill No. 1953 is anti-consumer, 

because credit union members are satisfied with "off-site" sales. It 

also argues that consumers are sufficiently protected under existing 

law. because the vehicles have warranties and complete service 

records. In the event of problems, the consumer may seek recourse 

under the Deceptive Trade Practices Act. The consumer saves money on 

the price of his purchased vehicle, and the car rental rates offered 

by the rental companies reflect the savings they realize by selling 

their used vehicles. 

The view that House Bill No. 1953 is anti-consumer is supported 

by a letter from the Chicago Regional Office of the Federal Trade 

Commission on similar Illinois legislation. A letter to the minority 

whip of the Illinois House of Representatives commented on legislation 

which would have prohibited fleet sales by rental car agencies. 

Letter from John N. Peterson, Acting Director, Chicago Regional Office 

of the Federal Trade Commission to John W. Hallock, Jr. Minority Giip, 

Illinois House of Representatives, Nov. 13. 1986. The letter stated 

that the bill was contrary to the public interest because it would 

unnecessarily restrain competitiou in the used car market. Its 

principal effect would be to increase costs to consumers in the used 

car market. Existing licensing requirements appeared sufficient to 

address concerns about unscrupulous dealers. Id. - 

Acts of the legislature are presumed valid. Anniston Mfg. Co. v. 

Davis, 301 U.S. 337 (1937). When someone alleges that a statute 

involves a classification denying the equal protection laws, he has 

the burden of proving that it is essentially arbitrary. Minnesota v. 

Clover Leaf Creamery Co., 449 U.S. 456 (1981). 

An Attorney General Opinion cannot evaluate the factual bases of 

statements for and against the proposed legislation. The arguments 

and information provided to us do not, on their face, refute any 

possibility that there is a rational basis for these bills. We must 

conclude that the legislature reasonably believed that the proposed 

restrictions on motor vehicle sales would protect Texas consumers from 

fraud and unfair practices by "fly-by-night" dealers. We cannot say 

that the proposed enactments violate the equal protection clause. Cf. 

Calvert v. McLemore, 358 S.W.2d 551 (Tex. 1962) (statute violating 

p. 3354 
Mr. John R. Hale - Page 5 (JM-721) 

article VIII, section 2. of the Texas Constitution which requires 

reasonable basis for classifying and exempting persons engaged in same 

occupation for occupation tax). 

An economic regulation challenged under the Fourteenth Amendment 

on substantive due process grounds will not be overturned if 

there is an evil at hand for correction, and . . . 

it might be thought that the particular legislative measure was a rational way to correct it. 

Williamson v. Lee Optical of Oklahoma, 348 U.S. 483, 488 (1955). The 

court will not strike down state business regulatious merely because 

"they may be unwise, improvident, or out of harmony with a particular 

school of thought." - Id. 

Article I, section 19, of the Texas Constitution also provides 

for due process of law: 

No citizen of this State shall be deprived of 

life. liberty, property, privileges or immunities, 

or in any manner disfranchised, except by the due 

course of the law of the land. 

We note that the opinions from other states, and the commentaries of 

scholars, tend to place statutory provisions like the one at hand in a 

very critical light, at least insofar as the guarantees against the 

deprivation of liberty without due process of law in various state 

constitutions are found to extend meaningful protection to substantive 

interests in economic freedom. Our research suggests that a number of 

state judiciaries would examine Rouse Bill Nos. 1953 and 1531 strictly 

for real evidence of the actual relationship of the means embodied in 

the prohibitions in the statute to the actual and purported purposes 

of the prohibitions. If the courts of Texas should choose to follow a 

similar approach to interpreting the liberty interests in the due 

process clause of the Texas Constitution, then we surmise that it 

might be difficult for this statute to pass constitutional muster. 

See, e.g., Defiance Milk Products Company v. Du Mond, 132 N.E. 2d 829 

(N.Y. 1956); In re Certificate of Need for Aston Park Hospital, Inc., 

193 S.E.2d 729 (N.C. 1973); Paulsen, "The Persistence of Substantive 

Due Process in the States," 34 Minn. L. Rev. 91 (195G); Comment, 

"Rediscovering Means Analysis in State Economic Substantive Due 

Process," 34 Ala. L. Rev. 161 (1983); Note, "State Economic 

Substantive Due Process: A Proposed Approach," 88 Yale L.J. 1487 

(1978). 

You next ask whether this legislation would burden interstate 

commerce in violation of the federal constitution. U.S. Const. art. 

I. 48. We assume that some of the new and used motor vehicles sold in 

p. 3355 
Mr. John R. Hale - Page 6 (JM-721) 

Texas move in interstate commerce, including some of the vehicles sold 

in "off-site" sales and "fleet" sales, and that the Texas regulations 

of the sale of motor vehicles would affect interstate commerce. 

In Exxon Corporation v. Governor of Maryland, 437 U.S. 117 

(i978), the Supreme Court considered a Maryland statute providing that 

a producer or refiner of petroleum products (1) may not operate any 

retail service station within the state and (2) must extend all 

temporary price reductions uniformly to all service stations it 

supplies. Although the burden of these provisions fell only on 

certain interstate companies, the court rejected arguments that they 

violated the commerce clause. It found that these provisions did not 

favor local production, prohibit the flow of interstate goods, or 

distinguish between in-state and out-of-state production. Id. at 125. - 

The court stated that 

interstate commerce is not subjected to an impermissible burden simply because an otherwise valid 

regulation causes some business to shift from one 

interstate supplier to another. 

Id. at 127. We believe the court's reasoning in Exxon Corporation v. 

Governor of Maryland supports a finding that the statutes and bills 

you inquire about do not violate the federal commerce clause. 

You finally ask whether the Texas provisions violate state or 

federal antitrust provisions. 

The' Texas Free Enterprise and Antitrust Act of 1983 defines ss 

unlawful various practices that lessen competition, such as monopolies 

and conspiracies in restraint of trade. Bus. 6 Coma. Code E015.01, 

15.05. Rowever, nothing in the section defining unlawful practices 

shall be construed to prohibit activities that are 

exempt from the operation of the federal antitrust 

laws, 15 U.S.C. Section 1 et seq. Furthermore, 

nothing in this section shall apply to actions 

required or affirmatively approved by any statute 

of this state or of the United States or by a 

regulatory agency of this state or of the United 

States duly acting under any constitutional or 

statutory authority vesting the agency with such 

power. 

Bus. 6 Comm. Code §15.05(g). Thus, the conduct required by the 

proposed statutes does not violate the state antitrust law. 

--. 

We finally consider whether the proposed legislation conflicts 

with the Sherman Act, 15 U.S.C. 01 et seq. In Parker v. Brown, 317 

? 

p. 3356 
Mr. John R. Hale - Page 7 (JM-721) 

U.S. 341 (1943), the Supreme Court established the "state action" 

exemption from the federal antitrust laws. The state, in exercising 

its sovereign powers, is exempted from the restraints of the federal 

antitrust laws. 

The standards for applying the Parker v. Brown doctrine, as 

articulated by the federal courts, are as follows: 

1. The alleged anticompetitive activity must 

be mandated by the state acting as sovereign; 

2. The challenged restraint must be clearly 

articulated and affirmatively expressed as state 

policy 9 and the policy must be actively supervised 

by the state itself. 

3. Some decisions indicate that the importance 

of the state's regulatory interest is also to be 

considered. 

Annot., 70 L. Ed.2d 973 (1983). 

In New Motor Vehicle Board v. Orrin W. Fox Co., 439 U.S. 96 

(1978) the Supreme Court considered whether California statutes 

governing the establishment or relocation of new-car dealerships 

violated the Sherman Act. The statutes required that an automobile 

manufacturer that wanted to add dealerships to the market area of its 

existing franchises must notify the existing franchisees as well as 

the New Motor Vehicle Board. If an existing franchise filed a protest 

with the board, the manufacturer could not open the proposed dealership until the board heard the protest and determined its merits. 

An automobile manufacturer and the proposed franchisees sought to 

declare the statutes invalid as violating the Sherman Act, among other 

grounds. They argued that 

by delaying the establishment of automobile 

dealerships whenever competing dealers protest, 

the state scheme gives effect to privately 

initiated restraints on trade. 

Id. at 109. 

was 

The court stated that the California regulatory scheme 

a system of regulation, clearly articulated and 

affirmatively expressed, designed to displace 

unfettered business freedom in the matter of the 

establishment end .relocation of automobile dealerships. The regulation is therefore outside the 

p. 3357 
Mr. John R. Hale - Page 8 (JM-721) 

reach of the antitrust laws under the 'state 

action' exemption. 

Id. The court also countered the argument that the legislation 

conflicted with the Sherman Act because it allowed the auto dealers to 

invoke state power to restrain competition. Quoting Exxon Corporation 

v. Governor of Maryland, the court observed that there was a conflict 

between the statute and the central policy of the Sherman Act, but 

that 

this sort of conflict cannot itself constitute a 

sufficient reason for invalidating the . . . 

statute. For if an adverse effect on competition 

were, in and of itself, enough to render a state 

statute invalid, the States' power to engage 

in economic regulation would be effectively 

destroyed. 

439 U.S. at 111 (quoting Exxon Corporation v. Governor of Maryland, 

437 U.S. at 133). In our opinion, the proposed enactments do not 

violate either-the state or the federal antitrust laws. 

SUMMARY 

House Bill Nos. 1531 and 1953 of the 70th 

Legislature restrict the locations from which new 

and used cars may be sold. These proposed 

restrictions do not on their face violate the 

equal protection clause, the due process clause, 

or the commerce clause of the United States 

Constitution. Nor do they violate the Texas 

Antitrust and Free Enterprise Act of 1983, Tex. 

Bus. & Comm. Code 0515.01 et seq., nor the Sherman 

Act, 15 U.S.C. 91 et seq. Scholarly authorities 

and cases from other states on due process 

requirements of state constitutions, if adopted by 

the Texas Supreme Court, suggest that these bills 

would violate article I, section 19 of the Trxas 

Constitution. 

JACK HIGHTOWER 

First Assistant Attorney General 

p. 3358 
Mr. John R. Bale - Page 9 (JM-721) 

,rMARY KELLER 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison and 

Donald Bustion 

Assistant Attorneys General 

p. 3359