899 F.2d 1315 (2nd Cir. 1990), 886, Motor Vehicle Mfrs. Ass'n of United States, Inc. v. Abrams

Docket Nº:886, Docket 89-7971.
Citation:899 F.2d 1315
Party Name:MOTOR VEHICLE MANUFACTURERS ASSOCIATION OF the UNITED STATES, INC., and Automobile Importers of America, Inc., Plaintiffs-Appellees, v. Robert ABRAMS, Attorney General of the State of New York, Defendant-Appellant.
Case Date:March 26, 1990
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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899 F.2d 1315 (2nd Cir. 1990)


STATES, INC., and Automobile Importers of America,

Inc., Plaintiffs-Appellees,


Robert ABRAMS, Attorney General of the State of New York,


No. 886, Docket 89-7971.

United States Court of Appeals, Second Circuit

March 26, 1990

Argued Feb. 20, 1990.

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Jane M. Azia, New York City, Asst. Atty. Gen. of the State of N.Y. (Robert Abrams, Atty. Gen., of the State of N.Y., John W. Corwin, Asst. Atty. Gen. in Charge, Bureau of Consumer Frauds and Protection, Mary Hilgeman, Harvey M. Berman, Asst. Attys. Gen., of counsel), for defendant-appellant.

William R. Stein, New York City (Hughes Hubbard & Reed, New York City and Washington, D.C., William R. Maguire, David B. Madoff, of counsel), for plaintiffs-appellees.

John C. Lamb, Jeff B. Marschner, Richard A. Elbrecht, Mary-Alice Coleman, Legal Services Unit, Div. of Legal Affairs, California Dept. of Consumer Affairs, Sacramento, Cal., of counsel, for Michael A. Kelley, Director of Dept. of Consumer Affairs for the State of Cal., as amicus curiae.

John S. Smith, III, Governor's Office of Consumer Affairs, Atlanta, Ga., for the Nat. Ass'n of Consumer Agency Administrators, Washington, D.C., as amicus curiae.

Hubert H. Humphrey, III, Atty. Gen. of the State of Minn., D. Douglas Blanke, Asst. Atty. Gen., Tracy Smith, Sp. Asst. Atty. Gen., of counsel, for States of Minn., Conn., Fla., Ind. and Ohio, as amicus curiae.

Before FEINBERG, CARDAMONE and MINER, Circuit Judges.

FEINBERG, Circuit Judge:

In this appeal, we again face the increasingly complex problem of applying preemption doctrine. Defendant Robert Abrams, Attorney General of the State of New York, appeals from a judgment of the United States District Court for the Southern District of New York, Leonard B. Sand, J., holding certain amendments to New York's automobile "Lemon Law," in particular, GBL Secs. 198-a(g), (h) and (m), preempted under the Supremacy Clause of the United States Constitution by the Magnuson-Moss Warranty Act, 15 U.S.C. Secs. 2301-2312, and by regulations promulgated by the Federal Trade Commission (the FTC) pursuant to the Act (the FTC Regulations). See 16 C.F.R. Secs. 703.1-703.8. The judge's opinion is reported at 697 F.Supp. 726. We conclude that the Lemon Law amendments are not preempted, and thus reverse and remand.


Next to a house, a car is perhaps the most significant purchase that most consumers make. Manufacturers of automobiles routinely provide warranties to consumers. Until relatively recently, however, these warranties were governed exclusively by the Uniform Commercial Code (UCC) and state common law, and a consumer who had a dispute with a manufacturer concerning performance of a car under the

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warranty had only the remedies of suit under the UCC or the common law. These remedies apparently were not effective, particularly for a consumer saddled with a chronically defective automobile, popularly known as a "lemon."

After many years of study, and partially in response to "a rising tide of complaints ... from irate owners of motor vehicles complaining that automobile manufacturers and dealers were not performing in accordance with the warranties on their automobiles," H.R.Rep. No. 93-1107, 93rd Cong., 2d Sess. (1974), reprinted in 1974 U.S.Code Cong. & Admin.News 7702, 7708, Congress passed the Magnuson-Moss Warranty Act (the Act) in 1975. See Pub.L. 93-637, 88 Stat. 2183. The thrust of the Act is disclosure. "In order to improve the adequacy of information available to consumers, prevent deception, and improve competition in the marketing of consumer products," the Act requires that "any warrantor warranting a consumer product" must "fully and conspicuously disclose in simple and readily understood language the terms and conditions of such warranty." 15 U.S.C. Sec. 2302(a). The Act does not require that a warranty be provided, but mandates that, if one is given, it not be misleading.

As an additional goal, the Act is designed to encourage warrantors of consumer products "to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms." 15 U.S.C. Sec. 2310(a)(1). To accomplish this, the Act directs the FTC to "prescribe rules setting forth minimum requirements for any informal dispute settlement procedure," id. Sec. 2310(a)(2), and states that a warrantor "may establish an informal dispute settlement procedure which meets the requirements" laid down by the FTC. Id. Sec. 2310(a)(3). If a warrantor's mechanism meets the minimum requirements established by the FTC, the Act permits the warrantor to require consumers to resort to its dispute settlement mechanism before suing it under the Act. Id.

The FTC subsequently promulgated regulations governing such mechanisms. See Part 703--Informal Dispute Settlement Mechanisms: Promulgation of Rule, 40 Fed.Reg. 60190, 60191 (Dec. 31, 1975). The FTC Regulations set forth requirements such as organization of the dispute settlement mechanism, qualification of arbitrators, operation of the mechanism, recordkeeping, audits and openness of records and proceedings. See 16 C.F.R. Sec. 703.3-703.8.

The Act, however, apparently was not successful in resolving consumer problems with chronically defective automobiles. Appellant Abrams, for example, reported that his office and other consumer protection agencies had received an "endless stream of consumer complaints regarding the purchase of new cars which fail to meet reasonable standards of quality, durability and performance." In response, and along with a number of other states, New York in 1983 passed the Lemon Law. See 1983 N.Y.Laws 1883, ch. 444 (codified at GBL Sec. 198-a); see generally Note, Lemon Laws: Putting the Squeeze on Automobile Manufacturers, 61 Wash.U.L.Q. 1125, 1147 n. 119 (1984) (citing statutes). The heart of the Lemon Law is its "refund or replace" provision--i.e., its requirement that, during the first two years or 18,000 miles of operation, GBL Sec. 198-a(b), if a manufacturer is unable to repair the same problem after four tries or if a vehicle is out of service for a total of 30 days or more, id. Sec. 198-a(d), then "the manufacturer, at the option of the consumer, shall replace the motor vehicle with a comparable motor vehicle, or accept return of the vehicle from the consumer and refund to the consumer the full purchase price" of the automobile. Id. Sec. 198a(c)(1).

In 1986, New York amended the Lemon Law, adding the provisions under attack in this case. See 1986 N.Y.Laws 3077, ch. 799 (amending various subsections of GBL Sec. 198-a). Among other things, the Lemon Law amendments were designed to address "growing consumer dissatisfaction with informal dispute settlement mechanisms" administered by motor vehicle manufacturers. Approval Memorandum of Governor Cuomo, Senate Bill No. 3342-A, August 2, 1986. The Lemon Law amendments provide

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that although a manufacturer is not required to offer a dispute resolution mechanism in New York, if a manufacturer does so, it must, at a minimum: comply with the Lemon Law, GBL Sec. 198a(g); comply with the FTC Regulations, id. Sec. 198a(m)(1)(ii); provide arbitrators trained in arbitration and familiar with the Lemon Law, id. Sec. 198-a(m)(1)(i); and afford consumers an opportunity to make an oral presentation to the arbitrator. Id. In addition, both arbitrators and consumers must receive a copy of a document entitled "New Car Lemon Law Bill of Rights," outlining consumers' substantive rights under the statute. Id.; see also id. Sec. 198-a(m)(2) (text of New Car Lemon Law Bill of Rights). The Lemon Law amendments also require a manufacturer to comply with any decision accepted by the consumer within 30 days of acceptance, or face penalties for non-compliance, id. Sec. 198-a(h), and to keep certain records of the awards by the mechanism and the number of days it takes to issue and comply with decisions. Id. Sec. 198-a(m)(3).

In December 1986, plaintiffs-appellees brought the suit now before us. Plaintiff-appellee Motor Vehicle Manufacturers Association of the United States, Inc., is a trade association of various domestic motor vehicle manufacturers, while plaintiff-appellee Automobile Importers of America, Inc., is a trade association of various foreign motor vehicle manufacturers, importers and distributors. In their original and amended complaints, appellees challenged the Lemon Law amendments on the ground that they conflicted with various provisions of the United States Constitution, including the Supremacy Clause. Only the latter claim is now before us.

In 1988, the district court ruled that the Act and the FTC Regulations occupied the field of informal dispute resolution mechanisms, and that "there is no room in this system for states to tinker with the federal criteria, possibly discouraging the creation of mechanisms." 697 F.Supp. at 736. In addition, although the district court stated that the Lemon Law amendments "do not appear draconian," id. at 729, it nevertheless found that there were "a number of ways in which the state statute actually conflicts with the federal statute and regulations." Id. at 742. The district court thus held that the Lemon Law amendments were preempted by the Act and by the FTC Regulations. Id. at 744. After all the other claims raised by plaintiffs were disposed of, this appeal followed.


Appellant Abrams contends that the district court erred in holding that the Act and the FTC Regulations preempt the Lemon Law amendments. Appellant argues that Congress has not occupied the field of consumer protection in general or consumer arbitration programs in particular, and that...

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