Chrysler Corp. v. Texas Motor Vehicle Com'n, 84-1651

Citation755 F.2d 1192
Decision Date28 March 1985
Docket NumberNo. 84-1651,84-1651
Parties, 53 USLW 2504, 1985-1 Trade Cases 66,498 CHRYSLER CORPORATION, Plaintiff-Appellee, v. TEXAS MOTOR VEHICLE COMMISSION, et al., Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Jim Mattox, Atty. Gen., II. Clyde Farrell, Asst. Atty. Gen., Chief, Consumer Protection Div., Mary Keller, Austin, Tex., for defendants-appellants.

David Crump, Houston, Tex., for amicus--The Legal Foundation of America.

Thompson & Knight, Schuyler B. Marshall, IV, Stephen F. Fink, Dallas, Tex David M. Kendall, Austin, Tex., for plaintiff-appellee.

Chilton Davis Varner, Griffin B. Bell, Atlanta, Ga., for amici--Motor Vehicle Mfrs. Assn. and Auto. Importers of America.

Appeal from the United States District Court for the Western District of Texas.

Before THORNBERRY, REAVLEY, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

We review for constitutional sufficiency Texas' effort to encourage extrajudicial resolution of warranty-related disputes between the purchasers of new vehicles and automobile manufacturers. Chrysler Corporation persuaded the district court that Texas' "lemon law," which grants automobile purchasers certain additional administrative remedies against manufacturers, is unconstitutional. The district court held that the statute denies manufacturers due process because automobile dealers, whose interests are said to conflict with those of manufacturers, constitute a majority of the adjudicatory commission that resolves disputes under the lemon law. The district court also concluded that because decisions of the commission are binding on manufacturers but leave purchasers free to pursue their judicial remedies--a perceived discrimination in remedial advantage of automobile purchasers over manufacturers--the law denies manufacturers equal protection. Finally, the district court rejected the argument that the lemon law is preempted by the Magnuson-Moss Warranty Act.

We agree that Magnuson-Moss does not preempt but are unconvinced that Texas has violated any constitutional right of automobile manufacturers in its effort to encourage extrajudicial resolution of warranty-related disputes and to mitigate the economic advantage of manufacturers in them. We affirm the district court's finding of no preemption and reverse its holding that the statute is unconstitutional.

I

In 1983 the Texas Legislature, joining twenty-nine other states, enacted its "lemon law," section 6.07 of the Texas Motor Vehicle Commission Code, TEX.REV.CIV.STAT.ANN. art. 4413(36), Sec. 6.07 (Vernon 1976 & Supp.1985). 1 Section 6.07 provides new warranty remedies for automobile purchasers and offers them an administrative forum--a judicial proceeding before the Commission--in which to assert those remedies. The law simultaneously preserves for automobile purchasers all prior protections offered them under Texas law; that is, section 6.07 creates additional rights for consumers but takes none away. Because specifics of the statutory scheme are important to an understanding of Chrysler's constitutional challenges, we explain the operation of section 6.07 in some detail. 2

Section 6.07 is integrated into the Texas Motor Vehicle Commission Code, and accordingly, the provision has the principal effect of extending existing administrative enforcement powers of the Commission to enforce automobile warranty provisions. 3 Under section 6.07(e) the Commission, a body comprised of five licensed motor vehicle dealers and four consumers appointed by the governor for six-year terms, see Sec. 2.03(a), is given authority to adjudicate disputes under the lemon law and to enforce its provisions.

Section 6.07 not only designates the Commission as an informal forum for the adjudication of warranty claims, but also extends the remedies of purchasers for breaches of warranty and establishes the conditions under which those remedies may be asserted. Subsection (b) provides that if a new motor vehicle does not conform to the applicable express warranties and the owner reports the nonconformity during the warranty period or within one year of the sale, whichever is earlier, the manufacturer must "make the repairs as are necessary to conform the vehicle to applicable express warranties, notwithstanding such repairs are made after the expiration of ... [the warranty term] or ... [the] one year period." Under section 6.07(c), if the manufacturer fails to remedy the warranty violation after a "reasonable number of attempts" and the violation "substantially impairs the use and market value" of the vehicle, the manufacturer must replace it with a comparable one or refund the purchaser his purchase price (less a reasonable allowance for use). The manufacturer's affirmative defenses are to show either (1) that the problem is the result of owner abuse, neglect or unauthorized modification or (2) that the problem does not substantially impair the value of the car.

Section 6.07(d) creates presumptions that have earned the statute its designation as a "lemon law." Under the statute there is a presumption that a reasonable number of attempts have been made to repair the vehicle when (1) the same defect has been subject to repair four or more times within the express warranty term or during the first year of purchase (whichever is earlier) and the defect continues; or (2) the vehicle is out of service for repairs for a total of 30 or more days during that same period.

Any party losing before the Commission may appeal by filing a petition for review in the district court of Travis County. Sec. 7.01. Under the standard for review in such appeals, the Commission's decision is upheld unless the action taken is found to be "invalid, arbitrary or unreasonable," id., and in accordance with the general rules for judicial review of agency action provided in the Administrative Procedure and Texas Register Act, TEX.REV.CIV.STAT.ANN. art. 6252-13a (Vernon Supp.1985), the Commission's decision remains effective and fully enforceable while review is proceeding in the district court. See APTRA, Sec. 19(b)(3). Texas law does provide one avenue for supersedeas in such administrative appeals, however, for the appealing party is entitled to petition the district court for a temporary injunction barring enforcement of the agency's decision pending review. See generally 2 TEX.JUR.3d Administrative Law Sec. 77 (1979).

Because section 6.07 adds but does not take away any warranty remedies otherwise provided by Texas law, the purchaser who institutes a proceeding before the Commission enjoys additional avenues of redress should he lose in that administrative forum. He may, of course, petition for review of the Commission's decision as described above, but he may also institute a de novo action in the state district court under the Deceptive Trade Practices Act, TEX.BUS. & COMM.CODE ANN. Sec. 17.41 et seq. (Vernon Supp.1985). Under section 6.07(e), so long as the purchaser has exhausted his administrative remedies under the lemon law, he enjoys in his DTPA suit the benefits of the presumptions and remedies created by section 6.07, regardless of the outcome of his proceedings before the Commission, and is exempt from any application of collateral estoppel or related principles that might otherwise keep him from proceeding afresh under the DTPA. 4 This latter aspect of subdivision (e) is particularly important in the scheme created by the lemon law, for it encourages purchasers to use this extrajudicial forum for resolving warranty disputes by providing that its use is without prejudice and will add additional arrows to a purchaser's remedial quiver should he, nonetheless, file suit in district court.

II

Chrysler argues first that dealers and manufacturers are so at economic odds that a Commission composed of a majority of automobile dealers cannot constitutionally adjudicate purchaser-manufacturer disputes under the lemon law. The argument is that dealers have sufficient financial interest in the outcome of those disputes that decisions by the Commission 5 under section 6.07 deny due process to the manufacturers. Chrysler relies on Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927), and its progeny in the administrative context, Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973).

-1-

Chrysler's due process argument rests on the assertedly antagonistic relationship between car manufacturers and their dealers in warranty disputes with consumers. Specifically, Chrysler explains that unless a warranty defect was caused by consumer abuse, a persisting problem is most likely the product of either a manufacturing flaw or the dealer's negligent failure to repair the vehicle correctly. For that reason dealers are often named as defendants in warranty suits along with the manufacturer on either a negligent repair or misrepresentation theory. Given this circumstance, Chrysler asserts, dealer members of the Commission will be unsympathetic to claims of manufacturers in lemon law hearings that the warranty problem is not manufacturing error but inept repair. Moreover, although it is apparently conceded that dealers are entitled to disclaim all warranties, Chrysler argues that since the dealers are ordinarily subject to liability in warranty disputes and since the lemon law operates as a remedy only against manufacturers, see Sec. 6.07(e), dealers on the Commission will have an incentive to make the provision an attractive remedy for purchasers by being biased in their favor. The argument is that by encouraging purchasers to use section 6.07 the dealers will deflect potential liability they might face were the purchaser to pursue other remedies. Because the dealers will be thus inclined to favor purchasers in lemon law disputes, Chrysler argues that permitting the Commission to adjudicate these matters denies car manufacturers due process.

The district court...

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