Alliance of Auto. Mfrs., Inc. v. Currey

• Decision Date: 26 November 2013
• Docket Number: Civil Action No. 3:13–CV–398 (JCH).
• Court: U.S. District Court — District of Connecticut
• Parties: ALLIANCE OF AUTOMOBILE MANUFACTURERS, INC., Plaintiff, v. Melody A. CURREY, Commissioner, Department of Motor Vehicles of the State of Connecticut, Defendant, and Connecticut Automotive Retailers Association, Intervenor.

984 F.Supp.2d 32

ALLIANCE OF AUTOMOBILE MANUFACTURERS, INC., Plaintiff,

v.Melody A. CURREY, Commissioner, Department of Motor Vehicles of the State of Connecticut, Defendant,andConnecticut Automotive Retailers Association, Intervenor.

Civil Action No. 3:13–CV–398 (JCH).

United States District Court,

D. Connecticut.

Nov. 26, 2013.

Daniel L. Goldberg, James C. McGrath, Samuel R. Rowley, William N. Berkowitz, Bingham McCutchen, Boston, MA, Michael C. D'Agostino, Bingham McCutchen, Hartford, CT, for Plaintiff.

Mark F. Kohler, Michael Skold, State of Connecticut, Office of the Attorney General, Hartford, CT, for Defendant.

RULING RE: DEFENDANTS' MOTION TO DISMISS (Doc. No. 32)

JANET C. HALL, District Judge.

I. INTRODUCTION

Plaintiff Alliance of Automobile Manufacturers, Inc. (“Alliance”) brings this declaratory judgment action against defendant Melody Currey, Commissioner of the Connecticut Department of Motor Vehicles (the “Commissioner”), seeking to invalidate provisions of the Connecticut FranchiseAct (“CFA”), as amended in 2009. The Commissioner moves to dismiss Alliance's Complaint for lack of subject matter jurisdiction under Rule 12(b)(1) and for failure to state a claim under Rule 12(b)(6). Intervenor Connecticut Automotive Retailers Association (“CARA”), whose Motion to Intervene (Doc. No. 44) was granted on September 9, 2013, has filed additional briefing in support of the Commissioner.

On October 30, 2013, the court held an oral argument on the Commissioner's Motion to Dismiss (Doc. No. 32). For the reasons below, the Motion is GRANTED.

II. BACKGROUND

Alliance is a non-profit trade association comprising twelve major automobile manufacturers (“Members”), none of which have their principal place of business in Connecticut or in-state manufacturing facilities. Compl. (Doc. No. 1) ¶¶ 9, 14. CARA is a trade association whose members, hundreds of automobile dealers in Connecticut, are required to perform warranty work pursuant to written agreements with the manufacturers. See Fleming Aff. (Doc. No. 44–2) ¶¶ 3, 5. The Commissioner is responsible for interpreting and enforcing the provisions of state law at issue in this case. Compl. ¶ 11.

A. 1982 Regulatory Scheme

Like many states, Connecticut regulates the relationship between manufacturers and dealers—in particular, the issue of warranty repair reimbursement—and has done so for decades, because of the perceived asymmetry in bargaining power. See Compl. ¶¶ 45, 50. As enacted in 1982, the state's regulatory scheme permits manufacturers to require dealers to perform certain warranty repair services, even on vehicles they did not sell. See Pub. Act 82–445, § 2(a). Under the 1982 law, as well as under current law, manufacturers' compensation to dealers performing warranty repairs must be reasonable, and time allowances for diagnosing and performing such repairs must be “reasonable and adequate for the work to be performed.” Id. § 2(b).

From 1982 to 2009, these repairs were to be reimbursed according to a schedule of compensation provided by the manufacturer. Id. The dealer's minimum hourly rate for labor on warranty work was set at the rate charged by the dealer “for like service to nonwarranty customers, provided that the rate charged to nonwarranty customers is reasonable.” Id. Under this longstanding regime, the primary factor in determining “reasonable compensation” was “the prevailing wage rates being paid by dealers in the community in which the dealer is doing business.” Id.

B. 2009 Amendments

The 2009 amendments to the CFA at issue (collectively, the “2009 Amendments”) consist of two changes to the prior regulatory scheme, one revising the statutory methods for determining reasonable compensation (the “Reimbursement Provisions”), the other prohibiting manufacturers from recovering from in-state dealers the costs incurred as a result of the Reimbursement Provisions (the “Recoupment Bar”).

Rather than requiring the manufacturer to provide the dealer with a schedule of compensation, the Reimbursement Provisions call for “fair and reasonable” compensation to be determined according to specific statutory methods. SeeConn. Gen.Stat. § 42–133s(a). For parts, the average percentage markup is declared by the dealer and

established by the dealer submitting to the manufacturer or distributor one hundred sequential nonwarranty customer-paid service repair orders which contain warranty-like parts, or sixty consecutive days of nonwarranty customer-paid service repair orders which contain warranty-like parts, whichever is less, covering repairs made no more than one hundred eighty days before the submission and declaring the average percentage markup.

Id. § 42–133s(b). For labor, the average labor rate is “established by submitting to the manufacturer or distributor all nonwarranty customer-paid service repair orders covering repairs made during the month prior to the submission and dividing the amount of the dealer's total labor sales by the number of total labor hours that generated those sales.” Id. § 42–133s(c). For both parts and labor, certain types of nonwarranty repairs, such as “specials or promotional discounts for retail customer repairs,” are excluded in calculating the retail rates customarily charged by the dealer. Id. § 42–133s(d).

Absent objection, parts and labor are to be compensated according to these rates, which are presumed to be fair and reasonable. See id. § 42–133s(b, c). That presumption, however, is rebuttable. Id. In particular, within thirty days of the dealer's submissions to the manufacturer, the manufacturer may rebut the dealer's declared rates “by reasonably substantiating” that they are “unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles.” Id. If a declared rate is rebutted, the manufacturer shall propose an adjustment. Id. Should the dealer, in turn, disagree with the proposed adjusted rate, the dealer may file a protest with the Commissioner within thirty days of receiving the manufacturer's proposal, in which case the Commissioner will hold a hearing. Id. At such a hearing, the burden is on the manufacturer to prove that the rate declared by the dealer is unfair and unreasonable and that the manufacturer's proposed adjustment is fair and reasonable. Id.

The Recoupment Bar prohibits a manufacturer from otherwise recovering from in-state dealers increased costs due to the Reimbursement Provisions. In particular, a manufacturer is barred from recovering such costs in the form of

an increase in the wholesale price of a vehicle or surcharge imposed on a dealer solely intended to recover the cost of reimbursing a dealer for parts and labor pursuant to this section, provided a manufacturer or distributor shall not be prohibited from increasing prices for vehicles or parts in the normal course of business.

Id. § 42–133s(g).

C. Alleged Injury to Members

Alliance's Members have written dealer sales and service agreements (“Dealer Agreements”) with Connecticut dealers; with few exceptions, Dealer Agreements predate the 2009 Amendments. Compl. ¶ 16. Alliance alleges that the Reimbursement Provisions require Members to pay far more for warranty repairs than provided for in Dealer Agreements, and that the Recoupment Bar prevents manufacturers from exercising their contractual rights to recapture the increased costs. Compl. ¶ 2. Alliance also alleges that the 2009 Amendments were enacted as protectionist legislation at the behest of in-state dealers, who allegedly benefit at the expense of out-of-state manufacturers and dealers as well as at the expense of consumers both in state and out of state. Id. ¶¶ 3–4. Members are alleged to have suffered adverse consequences to their commercial activities as a result of numerous requests from instate dealers for additional reimbursement. Id. ¶¶ 6, 31. Alliance further alleges that the Reimbursement Provisions and Recoupment Bar raise consumer costs for vehicles and related repairs and products, insulate dealers from competition with independent repair shops, and reward dishonest and inefficient dealers. Id. ¶¶ 7, 32.

III. STANDARD OF REVIEWA. Subject Matter Jurisdiction

A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) if the district court lacks the statutory or constitutional power to adjudicate the case. Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir.2008). Although the court takes all facts alleged in the complaint as true, subject matter jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the party asserting jurisdiction. Id. Hence, on a Rule 12(b)(1) motion, unlike a Rule 12(b)(6) motion, the plaintiff bears the burden of proving by a preponderance of the evidence that jurisdiction exists. Id. (citing Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000)).

B. Failure to State a Claim

A case is properly dismissed under Rule 12(b)(6) if the Complaint fails to allege facts sufficient “to state a claim for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). As articulated by the Supreme Court in Iqbal and Twombly, the standard for dismissal on a 12(b)(6) motion reflects two working principles. See Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717 (2d Cir.2013). First, the court's customary acceptance of all allegations in a complaint does not apply to legal conclusions. See Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Hence, to survive a motion to dismiss,...