Alliance of Automobile Manufacturers v. Gwadosky, No. CIV.03-154-B-W.

• Citation: 304 F.Supp.2d 104
• Decision Date: 13 February 2004
• Docket Number: No. CIV.03-154-B-W.
• Parties: ALLIANCE OF AUTOMOBILE MANUFACTURERS, Plaintiff, v. Dan A. GWADOSKY, et al., Defendants.
• Court: U.S. District Court — District of Maine

304 F.Supp.2d 104

ALLIANCE OF AUTOMOBILE MANUFACTURERS, Plaintiff, v. Dan A. GWADOSKY, et al., Defendants.

No. CIV.03-154-B-W.

United States District Court, D. Maine.

February 13, 2004.

Bruce W. Hepler, Friedman, Gaythwaite, Wolf & Leavitt, Portland, ME, John J. Sullivan, Mayer, Brown, Rowe & Maw, Washington, DC, Russell R. Eggert, Mayer, Brown, Rowe & Maw, Chicago, IL, for Alliance of Automobile Manufacturers, Plaintiff.

Francis E. Ackerman, Assistant Attorney General, Augusta, ME, for Secretary

of State, Maine, Attorney General, Maine, Defendants.

ORDER ON PLAINTIFF ALLIANCE OF AUTOMOBILE MANUFACTURERS' MOTION FOR PRELIMINARY INJUNCTION

WOODCOCK, District Judge.

On September 4, 2003, Alliance of Automobile Manufacturers (Manufacturers) filed a complaint with this court for declaratory and injunctive relief against Dan A. Gwadosky in his official capacity as Secretary of State of the State of Maine and G. Steven Rowe in his official capacity as Attorney General of the State of Maine (State). The Complaint seeks a declaration that Sections 10 and 12 of newly enacted L.D. 1294 are unconstitutional and an order preliminarily and permanently enjoining their enforcement. On October 9, 2003, the Maine Auto Dealers Association (Dealers) filed a motion for amicus curiae"plus" status and on December 22, 2003, the Court granted the Motion in part. On October 10, 2003, the State answered the complaint, denying its essential allegations. With the filing of the complaint, Manufacturers moved for a Preliminary Injunction against the enforcement of Section 10 of Maine Legislative Document 1294 (L.D.1294). On October 10, 2003, the State filed an objection to the issuance of a preliminary injunction.

I. Statement of Facts

To rule on this motion, it is necessary to reiterate the long, complex, and litigious history leading up to the enactment of L.D. 1294 and the filing of this case.¹ The two major players, the Manufacturers and the Dealers, have been engaged for nearly three decades in Maine in an elaborate and contentious game of economic, political, and legal chess.² The battle lines in this dispute have been drawn over how much money the Dealers will receive back from the Manufacturers when performing work under manufacturer warranty. There is substantial money at stake. During the year 2002, one manufacturer, Ford, imposed a price adjustment of $500 on each new car sold in Maine and, as a result, received back slightly more than $3.6 million dollars in that year alone. If other manufacturers follow Ford's lead, the dollars could prove serious.

The public tends to see the dealer-manufacturer relationship as symbiotic and unitary: the manufacturer designs and builds vehicles; the dealer sells and repairs them, all to their greater economic advantage. Beneath the surface, however, is an uneasy, often roiling relationship. Since the parties themselves have been unable over the course of the last three decades to negotiate satisfactorily their conflicting positions in the warranty reimbursement area, they have each periodically sought to enlist the support of the legislative and judicial arms of government. Each legislative action has been followed by resort to the judicial branch, spawning new legislation and new judicial rulings, a seemingly never ending cycle, perfectly exemplified by the instant case. See, e.g., Darling's v. Ford Motor Company, 2003 ME 21, 825 A.2d 344; Acadia Motors v. Ford Motor Co., 2002 ME 102, 799 A.2d 1228; Nissan Motor Corp. In U.S.A. v. Darling's Honda/Nissan, 1999 Me.Super. LEXIS 190 (Me.Super.Ct. July 7, 1999); Darling's d/b/a Darling's Bangor v. Ford Motor Co., 1998 ME 232, 719 A.2d 111; American Honda Motor Co. v. Darling's Honda/Nissan, 1997 Me.Super. LEXIS 225 (Me.Super.Ct. July 27, 1997); Darling's d/b/a Darling's Bangor v. Ford Motor Co., No. 95-CV-398-B-H (Me.D.1995); Acadia Motors v. Ford Motor Co., 844 F.Supp. 819 (D.Me.1994), aff'd in part, rev'd in part on other grounds, 44 F.3d 1050 (1st Cir.1995); Darling's Bangor Ford/VW/Audi v. Ford Motor Co., 92-SC-229 (Me.Dist.Ct.3, S.Pen., Oct. 20, 1992).

Alliance is a trade association of ten car and light truck manufacturers.³ Its members account for more than 90% of all motor vehicle sales in the United States. Amicus curiae"Plus" Dealers is a trade association, representing Maine's automobile dealers, all of whom are franchisees of one or more of Alliance's members. The legal relationship between Manufacturers and Dealers is defined in a Sales and Service Agreement (Agreement). When a new vehicle is sold in the United States, the Manufacturer issues a warranty of free labor and parts for certain repairs, replacements or adjustments during the term of the warranty. Under the Agreement, the Dealers are required to perform warranty work and the Manufacturers are required to reimburse the Dealers for parts used and labor performed.

By its nature, work performed by one party that the other must reimburse is a potential source of controversy. The Agreement typically contains extremely explicit rules to clarify reimbursement practices. In Ford's case, reimbursement levels are established by specific national reimbursement formulae both for parts and labor. Under the terms of the Ford Agreement, for example, the time component of labor is reimbursed based upon standard hours generated by Ford's own analysis of the time it should take to complete each specific repair, not the amount of time the Dealer says the repair actually took.

The Dealers have rankled at the Manufacturers' warranty reimbursement rates. They claim the reimbursement rates for warranty work are significantly below retail rates for non-warranty work. Viewing all repair work, both warranty and non-warranty, as a whole, the Dealers posit that they are required to make up the Manufacturers' stinginess by increasing prices for non-warranty work. As a consequence, the Dealers argue the Manufacturers are mandating that non-warranty customers, who pay retail rates, must subsidize the Manufacturers, who do not. To the argument that the Dealers are receiving reimbursement at rates they bargained for and agreed to, the Dealers point to the overpowering economic weight of the Manufacturers, which they claim forces them to accept parsimonious reimbursement rates.⁴ By contrast, the Dealers argue retail customers for non-warranty work have no such leverage and end up paying what the Manufacturers will not. In response, the Manufacturers have used a mirror argument, pointing to the national market for automobiles and claiming that consumers outside Maine will be required to pay higher prices for warranty work to make up for the extra money the Manufacturers must reimburse Dealers in Maine.

The Dealers have successfully sought legislative intervention. In 1975, the State of Maine first began to regulate the price manufacturers must pay to Maine car dealers for repairs made under manufacturer warranty. Pub.L.1975 Ch. 573, § 1176. The statute contained the relatively benign provision that manufacturers must "adequately and fairly compensate each of its motor vehicle dealers for parts and labor." 10 M.R.S.A. § 1176 (1975). In 1979, the Maine Legislature acted again. This time it enacted a provision by which a dealer could collect attorney's fees in the event the dealer was successful in a legal action for a claim for warranty reimbursement the manufacturer had denied. Pub.L.1979, Ch. 498, § 3.

In 1980, the Maine Legislature repealed the 1975 statute and replaced it with a new provision that continued to require Manufacturers to "adequately and fairly compensate" the dealers for parts, but mandated they reimburse Dealers for any labor "at the retail rate customarily charged by that (dealer) for the same labor when not performed in satisfaction of a warranty." P.L.1975, Ch. 698, § 1. In 1991, the Legislature amended the statute to require parts reimbursement for warranty work to be made "at the retail rate customarily charged by that (dealer) for the same parts when not provided in satisfaction of a warranty." P.L.1991, Ch. 328. As of October 9, 1991, the effective date of the 1991 law, the Manufacturers were mandated as a matter of Maine statutory law to reimburse Maine Dealers for both parts and labor for warranty work at rates the Dealers charged non-warranty customers.

This did not sit well with the Manufacturers. One manufacturer, Ford, simply ignored the law and continued to reimburse its dealers at lower rates. In 1992, Darling's resorted to Small Claims Court to compel compliance with the reimbursement requirements of § 1176. The Small Claims Court dismissed the claim because Darling's had failed to submit an adequate claim for reimbursement to Ford. Darling's Bangor Ford/VW/Audi, 92-SC-229 (Me.Dist.Ct.3, S.Pen.) (Oct. 20, 1992).

On April 1, 1993, Ford announced a new policy. It agreed to reimburse its Maine Dealers at what amounted to retail rates, but at the same time, it stated that in order to recover this increase in costs, it would surcharge approximately $160 per vehicle, thereby increasing the wholesale price for each new Ford vehicle sold in Maine. This surcharge, termed a "warranty parity surcharge," appeared on each dealer's monthly parts invoice in the month following the sale. The surcharge was imposed based on the number of vehicles sold, without regard to whether the dealer actually performed warranty work in that month. The surcharge was imposed on Maine dealers only.

In 1993, the Dealers brought suit in this Court, claiming the surcharge violated Maine statutory law. Acadia Motors, 44 F.3d at 1055. The First Circuit ruled that § 1176 did not restrict the Manufacturers from recovering their compliance costs:

Noting in the language of section 1176 prohibits a manufacturer from increasing vehicle prices in order to recover its increased compliance costs. The statute says nothing about wholesale or retail prices, and apparently leaves the manufacturer free...