Friday, February 7, 2014
C.A. Says City May Aid Relocated Auto Dealer Financially After Two Years
By MICHAEL J. PEIL, Staff Writer
A city cannot entice an auto dealer to relocate from another city by agreeing to provide financial assistance, but the city may provide financial assistance to a dealer who has spent two years in its new location, this district’s Court of Appeal held yesterday.
Div. Eight, in an opinion by Justice Laurence D. Rubin, affirmed a two-year enjoinment prohibiting the city of Lancaster from providing financial assistance to Juan Lou Gonzales after he moved his dealership to the city.
The court rejected, however, the city of Palmdale’s argument that the law provides a never ending prohibition on giving money to relocating dealers.
Rubin explained that the trial court had properly applied Government Code §53804 and Health & Safety Code §33426.7—which provide that a city, or redevelopment agency, should not give financial assistance to a vehicle dealer that is relocating from one jurisdiction to the city’s jurisdiction within the same market area—when it prohibited Lancaster from giving financial assistance to Gonzales for the two-years following his decision to relocate.
The Legislature, Rubin said, did not intend these statutes to impose a “never-ending prohibition” on financial assistance, as the restriction only seeks to address the direct affect a city’s offer of financial aide can have on an auto dealer’s decision to bring its business to that city.
Gonzales owned a Saturn dealership in the Palmdale auto mall. Due to the 2008 recession, and its subsequent reorganization in bankruptcy, General Motors stopped production of its Saturn car line.
Gonzales then sought to start a Chevrolet franchise from GM.
GM imposes criteria on all of its Chevrolet dealerships that a franchised sales lot must meet. The Palmdale auto mall had a preexisting Chevrolet dealer, and Gonzales was incapable of finding a car lot in other various locations throughout Palmdale that fit the GM criteria.
The Lancaster auto mall was the only other location in the area that fit GM’s requirements, so Gonzales entered into negotiations with Lancaster to obtain the location.
In August 2010, while the negotiations were still underway, the Lancaster City Council authorized $604,000 in financial assistance to help Gonzales move his dealership.
Days later, Palmdale filed a complaint against Lancaster stating that the offered financial assistance violated statutory law, and should therefore be void.
While the lawsuit was pending, Gonzales opened his Chevrolet dealership in Lancaster on Nov. 9, 2010.
In July 2012, after a bench trial, the court found Lancaster had violated the statutes, voided the resolution to provide assistance, and enjoined the city from providing any financial assistance for two-years from the date of Gonzales’ opening of his dealership.
On Nov. 13, 2012, two years and four days after Gonzales opened his Lancaster dealership, the city paid Gonzales $300,000 for his covenant to operate his dealership in the auto mall for a minimum of 10 years.
The city of Palmdale, “the trial’s nominal winner,” filed an appeal.
Palmdale contended that the court erred by limiting the ban on financial assistance to only two years because the statute says that a city should not provide any assistance to a car dealer, without time qualifications for the prohibitory length.
Rubin explained that Palmdale was basing its appeal off of an incomplete statement of the law. He “quoted more fully” the statute, emphasizing language he read to imply a time restraint on the length of prohibition of financial assistance.
“The statute prohibits the assistance to an auto dealer that ‘is relocating’…The phrase ‘is relocating’ implies a contemporaneous element, suggesting a city must not offer financial assistance to an auto dealer while the dealer is relocating to the city.”
Rubin said that the law had been passed to hinder one city from luring business from a nearby town “in a race for sales tax revenue.” He explained that once the causal link between the assistance and relocation has been addressed, further extensions of the regulation would go beyond the statute’s intended purpose.
“[B]anning all future financial assistance could have unintended consequences which the Legislature likely does not desire; for example, a city’s economic revitalization plans or urban development proposals could suffer if a city could not offer financial assistance to a relocated dealership no matter how long it had done business in the city. If the Legislature had intended such a far reaching result so far into the future, in all likelihood the Legislature would have said so.”
The case is City of Palmdale v. City of Lancaster; 14 S.O.S. 678.
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