Does a company still count as a car manufacturer's affiliate if it owns the manufacturer but gives up control?

Plain-English summary

The Chairman of the Texas Department of Motor Vehicles Board asked the AG a question about the rule that keeps car manufacturers from also owning the dealerships that sell their vehicles. Under section 2301.476 of the Occupations Code, a manufacturer (defined to include any company "affiliated with" a manufacturer) generally may not own an interest in, operate or control, or act as a dealer. The setup the Board described: a parent company owns and controls both a Texas-licensed vehicle manufacturer and a Texas-licensed dealership, so both the parent and the dealer currently qualify as "manufacturers." The Board asked whether the parent could come into compliance by relinquishing control of the manufacturer while still owning it.

The AG worked through the statute's definition. Subsection 2301.476(a)(2) gives two separate ways an entity can qualify as a manufacturer: (A) by being affiliated with a manufacturer, or (B) by being controlled by, or under common control with, a manufacturer. The word "or" between them signals two distinct paths. On the facts, the parent would no longer be controlled by or under common control with the manufacturer, so route (B) would not catch it. That left route (A), which turns on the meaning of "affiliated with."

The Legislature never defined "affiliated" for this chapter, and the AG found no case construing it here. Definitions of "affiliate" elsewhere in the statutes vary too much by context to borrow, so the AG used the term's common meaning, drawn from Black's Law Dictionary: a corporation related to another by shareholdings or other means of control, which carries concepts of both ownership and control. Reading the term that way also keeps subsection (A) from being swallowed by subsection (B), which would happen if "affiliated" meant control alone. So the AG concluded a court would likely hold that a company keeping full ownership of a manufacturer, even after giving up control, remains affiliated with it for purposes of subsection 2301.476(a)(2)(A). The AG added that whether a company truly relinquished all control while keeping full ownership is a factual inquiry beyond the scope of an opinion, and limited the answer to the full-ownership facts described, not nominal or minority ownership.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The requesting DMV Board chairman (as the opinion described it): The opinion answered that because "affiliated with" includes both ownership and control, a court would likely conclude a parent company that keeps full ownership of a manufacturer but gives up control still qualifies as a manufacturer under subsection 2301.476(a)(2)(A). It also noted that whether control was actually relinquished is a fact question outside an AG opinion.

Manufacturers and dealers structuring corporate ownership (as the opinion described them): The opinion treated the manufacturer-dealer separation in section 2301.476 as reaching companies affiliated with a manufacturer through ownership, not control alone, so restructuring that keeps full ownership likely does not escape the affiliation prong.

Companies relying on a control-only reading of "affiliate" (as the opinion described them): The opinion declined to import an "affiliate means control" definition from other statutes, finding the Legislature's definitions too divergent to supply the meaning here, and read "affiliated" by its common meaning instead.

Common questions

Can a car manufacturer's parent company own a Texas dealership if it gives up control of the manufacturer?
Under this opinion, likely not while it keeps full ownership of the manufacturer. The AG concluded a court would probably find the company still "affiliated with" the manufacturer, because affiliation includes ownership, not just control.

What does "affiliated with" mean under section 2301.476?
The opinion used the common meaning of "affiliate": a corporation related to another by shareholdings or other means of control. That meaning takes in both ownership and control, not control by itself.

Why didn't the AG borrow an "affiliate" definition from another statute?
The opinion found that statutory definitions of "affiliate" differ significantly by context, from utility law to franchise tax to the Medical Liability Act, so it would not engraft one of those special definitions onto chapter 2301.

Did the AG decide whether this particular company gave up control?
No. The opinion said whether a company actually relinquished total control while keeping full ownership involves factual inquiries that are beyond the scope of an attorney general opinion.

Background and statutory framework

Generally, a motor vehicle manufacturer may not directly or indirectly own an interest in a dealer or dealership, operate or control a dealer or dealership, or act as a dealer (Tex. Occ. Code § 2301.476(c)). For this prohibition, "manufacturer" includes a person who is affiliated with a manufacturer or representative, or who, directly or indirectly through an intermediary, is controlled by or under common control with a manufacturer (Tex. Occ. Code § 2301.476(a)(2)). "Dealer" and "manufacturer" are defined for chapter 2301 in section 2301.002 (Tex. Occ. Code §§ 2301.002(7), 2301.002(19)).

Because subsection 2301.476(a)(2) separates its two characteristics with "or," it sets out two distinct ways to qualify as a manufacturer: by affiliation with a manufacturer, or by control by or common control with one (Tex. Occ. Code § 2301.476(a); Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014); Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 581 (Tex. 2000)). On the facts described, the parent company was neither controlled by nor under common control with the manufacturer, so it would not qualify under subsection (a)(2)(B); the open question was whether it remained "affiliated with" the manufacturer under subsection (a)(2)(A).

The Legislature did not define "affiliated" for chapter 2301, and the AG found no case construing the term in section 2301.476. Definitions of "affiliate" elsewhere differ significantly by context (compare Tex. Util. Code § 11.003(2)(C) and Tex. Tax Code § 171.0001(1) with Tex. Occ. Code § 1201.003(2) and Tex. Civ. Prac. & Rem. Code § 74.001(a)(1)), so the AG declined to engraft a definition from another statute onto chapter 2301 (Colorado Cty. v. Staff, 510 S.W.3d 435, 453 (Tex. 2017)). Looking instead to the common meaning (In re Ford Motor Co., 442 S.W.3d 265, 271 (Tex. 2014)), the AG took "affiliate" to mean a corporation related to another by shareholdings or other means of control, a definition that includes both ownership and control (Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., L.L.C., 381 S.W.3d 465, 467 (Tex. 2012)). Reading "affiliated" to mean control alone would render subsection (A) meaningless, an outcome courts avoid (City of Dallas v. TCI West End, Inc., 463 S.W.3d 53, 55 (Tex. 2015)). On that reasoning, a court would likely conclude a company that relinquishes control but keeps full ownership of a manufacturer remains affiliated with it under subsection 2301.476(a)(2)(A). Whether a company actually relinquished total control while keeping full ownership is a factual inquiry beyond the scope of an AG opinion (Tex. Ins. Code § 823.005).

Citations

Statutes:

• Tex. Occ. Code §§ 2301.476, 2301.476(a), 2301.476(a)(2), 2301.476(a)(2)(A), 2301.476(a)(2)(B), 2301.476(c), 2301.002(7), 2301.002(19)
• Tex. Util. Code § 11.003(2)(C)
• Tex. Tax Code § 171.0001(1)
• Tex. Occ. Code § 1201.003(2)
• Tex. Civ. Prac. & Rem. Code § 74.001(a)(1)
• Tex. Ins. Code § 823.005

Cases:

• Jaster v. Comet II Constr., Inc., 438 S.W.3d 556 (Tex. 2014)
• Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578 (Tex. 2000)
• Colorado Cty. v. Staff, 510 S.W.3d 435 (Tex. 2017)
• In re Ford Motor Co., 442 S.W.3d 265 (Tex. 2014)
• Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., L.L.C., 381 S.W.3d 465 (Tex. 2012)
• City of Dallas v. TCI West End, Inc., 463 S.W.3d 53 (Tex. 2015)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0156
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2017/kp0156.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

July 31, 2017

Mr. Raymond Palacios, Jr. Opinion No. KP-0156
Chairman, Department of Motor Vehicles Board Re: Whether wholly owning a motor vehicle
4000 Jackson Avenue manufacturer results in affiliation with that
Austin, Texas 78731 manufacturer for purposes of subsection
2301.476(a)(2) of the Occupations Code
(RQ-0170-KP)

Dear Mr. Palacios:

     You ask whether a company that wholly owns a motor vehicle manufacturer but relinquishes control of the manufacturer is "affiliated with" the manufacturer for purposes of section 2301.476 of the Occupations Code. [1] Generally, a motor vehicle "manufacturer ... may not directly or indirectly: (1) own an interest in a ... dealer or dealership; (2) operate or control a ... dealer or dealership; or (3) act in the capacity of a ... dealer." TEX. OCC. CODE § 2301.476(c). [2] For purposes of this prohibition, a "manufacturer" includes "a person who: (A) is affiliated with a manufacturer or representative; or (B) directly or indirectly through an intermediary, is controlled by, or is under common control with, a manufacturer." Id. § 2301.476(a)(2).

    As background, you describe a scenario where a parent company owns and controls a Texas-licensed motor vehicle manufacturer and a Texas-licensed automobile dealership. Request Letter at 1. You explain that "[a]s the corporate relationship between these three entities stands today," both the dealer and the parent company qualify as manufacturers under subsection 2301.476(a)(2). Id. If the parent company "relinquishes control" of the manufacturer while maintaining ownership, you question whether such action would bring the parent company into compliance with subsection 2301.476(c). Id. at 2.

   Subsection 2301.476(a) describes two characteristics that result in an entity qualifying as a manufacturer, separated by "or." See TEX. OCC. CODE § 2301.476(a). When construing statutes, "[w]e limit our analysis to the words of the statute and apply the plain meaning ... unless a different meaning is apparent from the context or the plain meaning leads to absurd . . . results." Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014) (quotation marks omitted). The plain meaning of the term "or" expresses a choice between two alternatives. See Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 581 (Tex. 2000) (explaining that the Legislature's use of the disjunctive term "or" generally "signifies a separation between two distinct ideas"). Thus, when we give the term "or" its plain, grammatical meaning as a disjunctive expressing a choice between two possibilities, subsection 2301.476(a) results in two avenues by which an entity may itself qualify as a manufacturer: either by affiliation with a manufacturer; or under control by, or under common control with, a manufacturer. See TEX. OCC. CODE § 2301.476(a).

     Under the facts you describe, the manufacturer does not control the parent company, nor is the parent company under common control with the manufacturer. Thus, the parent company will not qualify as a manufacturer under subsection 2301.476(a)(2)(B) based on the facts you describe. See id. § 2301.476(a)(2)(B). However, subsection (A) provides a distinct way to qualify as a manufacturer apart from subsection (B). An entity will still qualify as a manufacturer if it remains affiliated with the manufacturer. Id. § 2301.476(a)(2)(A). We must therefore determine the meaning of the phrase "affiliated with" to analyze whether the parent company you describe qualifies as a manufacturer for purposes of section 2301.476.

     The Legislature did not define "affiliated" for purposes of chapter 2301 of the Occupations Code, and we find no cases construing the meaning of the term in the context of section 2301.476. While definitions of "affiliate" exist throughout the statutes, those definitions differ significantly depending on the context. Compare TEX. UTIL. CODE § 11.003(2)(C) (defining affiliates of electric utilities to include, among others, "a corporation that has at least five percent of its voting securities owned or controlled, directly or indirectly, by a public utility"), and TEX. TAX CODE § 171.0001(1) (defining "affiliated group" for purposes of the franchise tax as "a group of one or more entities in which a controlling interest is owned by a common owner or owners, either corporate or noncorporate, or by one or more of the member entities"), with TEX. OCC. CODE § 1201.003(2) (defining "affiliate" for purposes of the Manufactured Housing Standards Act as "a person who is under common control"), and TEX. CIV. PRAC. & REM. CODE § 74.001(a)(1) (defining "affiliate" for purposes of the Medical Liability Act as "a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a specified person, including any direct or indirect parent or subsidiary"). Given the Legislature's divergent definitions of "affiliate" in various contexts, we cannot rely on a statutory definition of affiliate inapplicable to chapter 2301 to determine the term's meaning in that context. [3] See Colorado Cty. v. Staff, 510 S.W.3d 435, 453 (Tex. 2017) (noting the difference "between consulting other statutory definitions to determine common meaning and engrafting a special definition from one statute to circumscribe the plain meaning of a term used in another" and declining to do the latter).

     Instead, we look to the common meaning of the term "affiliate." See In re Ford Motor Co., 442 S.W.3d 265, 271 (Tex. 2014) (explaining that "undefined terms in a statute are typically given their ordinary meaning"). The common understanding of the term "affiliate" is a "corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation." BLACK'S LAW DICTIONARY 63 (8th ed. 2004) (emphasis added); see also Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., L.L.C., 381 S.W.3d 465, 467 (Tex. 2012) (Wainwright, J., concurring) (using the same definition to discuss the meaning of "affiliate" in determining whether an entity established a common carrier pipeline). Thus, the common understanding of the term "affiliate" includes concepts of both ownership and control.

    A contextual reading of subsection 2301.476(a)(2) supports using the common understanding of the term affiliate. Subsection 2301.476(a)(2) establishes two distinct methods to qualify as a manufacturer, either through affiliation or control. TEX. OCC. CODE § 2301.476(a)(2). Limiting the meaning of the term "affiliated" to the concept of control would render subsection (A) meaningless. Courts avoid adopting an interpretation that renders any portion of a statute meaningless. City of Dallas v. TCI West End, Inc., 463 S.W.3d 53, 55 (Tex. 2015). Accordingly, the use of the term "affiliated" suggests that the Legislature meant something beyond mere control.

    Your question in essence asks whether a company's relinquishing control of a manufacturer will suffice to avoid an affiliation with the manufacturer even if the company continues to own the manufacturer. [4] Because the common understanding of "affiliated with" includes both ownership and control, a court is likely to conclude that a company that relinquishes control of a manufacturer but maintains full ownership of that manufacturer remains affiliated with the manufacturer for purposes of subsection 2301.476(a)(2)(A). [5]

                                 SUMMARY

                  For purposes of section 2301.476 of the Occupations Code, a manufacturer includes an entity affiliated with a manufacturer. The common understanding of the term affiliate includes concepts of both ownership and control. Thus, a court is likely to conclude that a company that relinquishes control of a manufacturer but maintains full ownership of that manufacturer remains affiliated with the manufacturer for purposes of section 2301.476.

                                       Very truly yours,

                                       KEN PAXTON
                                       Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

[1] See Letter from Mr. Raymond Palacios, Jr., Chairman, Tex. Dep't of Motor Vehicles Bd., to Honorable Ken Paxton, Tex. Att'y Gen. at 1-2 (July 6, 2017), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] For purposes of chapter 2301, "dealer" means "a person who holds a general distinguishing number issued by the board under Chapter 503, Transportation Code." TEX. OCC. CODE § 2301.002(7). "Manufacturer" means "a person who manufactures or assembles new motor vehicles." Id. § 2301.002(19).

[3] Multiple briefs submitted in response to this request suggest that the Legislature generally understands "affiliate" in terms of control alone. See e.g., Letter from Michael C. Terrell, Taft Law, to Honorable Ken Paxton, Tex. Att'y Gen. at 2-3 (July 27, 2017) (on file with the Op. Comm.); Letter from Bill Cobb, Cobb & Counsel, to Honorable Ken Paxton, Tex. Att'y Gen. at 3-4 (July 27, 2017) (on file with the Op. Comm.). However, it is not possible to divine a general legislative understanding of the term from the differing statutory definitions of the term in different contexts. Of course, the Legislature may define "affiliated with" for purposes of this section if it intends a specific meaning different from the common understanding of the term.

[4] Whether a company in fact relinquished total control of a manufacturer while maintaining full ownership is a question that would involve factual inquiries into the nature of the continued ownership. See TEX. INS. CODE § 823.005 (defining "control" as "the power to direct ... the management and policies of a person .... The power may be possessed directly or indirectly by any means, including through the ownership of voting securities"). Any such factual determination is beyond the scope of an attorney general opinion.

[5] In the facts you describe, the parent company plans to "wholly own" the motor vehicle manufacturer after relinquishing control of it. Request Letter at 2. We limit our opinion to these facts and do not address to what extent nominal or minority ownership would suffice to result in an affiliation with the manufacturer.