General Motors Corp. v. Abrams
| Decision Date | 15 February 1990 |
| Docket Number | D,No. 127,127 |
| Parties | , 1990-1 Trade Cases 68,932 GENERAL MOTORS CORPORATION, Plaintiff-Appellee, v. Robert ABRAMS, Attorney General of the State of New York, Defendant-Appellant. ocket 89-7338. |
| Court | U.S. Court of Appeals — Second Circuit |
Richard J. Davis, New York City (Weil Gotshal & Manges, New York City, Craig M.J. Allely, Gen. Motors Corp., Francis H. Dunne, of counsel), for plaintiff-appellee.
Ronna D. Brown, Asst. Atty. Gen. for Atty. Gen. of State of N.Y., New York City, N.Y. , for defendant-appellant.
John K. Van De Kamp, Atty. Gen. of State of Cal., San Diego, Cal., Andrea Sheridan Ordin, Chief Asst. Atty. Gen., Herschel T. Elkins, Sanford N. Gruskin, Sr. Asst. Attys. Gen., Albert Norman Shelden, Lawrence Tapper, Deputy Attys. Gen., for amicus curiae, State of Cal.
Before KAUFMAN, WINTER, Circuit Judges, and MOTLEY, District Judge. *
As an independent federal administrative agency charged with preventing "unfair methods of competition" and "unfair or deceptive acts or practices," the Federal Trade Commission ("FTC" or "Commission") historically has operated in areas of dual state-federal regulation. Consumer warranty law is one example. While the protection of consumers from unfair practices is a traditional state police power function, federal laws and administrative regulations may operate in tandem with--or even preempt--state law under the Supremacy Clause of the United States Constitution, Article VI, Cl. 2.
This appeal raises the general question whether a consent order entered into by the FTC similarly may preempt state law. Unlike an agency regulation which has industry-wide effect, a consent order is binding only on the parties to the agreement. Answering in the affirmative, we also must address whether the instant FTC Consent Order requiring General Motors Corporation ("GM" or "General Motors") to operate under the auspices of the Better Business Bureau ("BBB") an informal arbitration program for resolving consumer complaints preempts either the substantive decison-making criteria or the procedural and record-keeping requirements of the New York New Car Lemon Law, ch. 799, 1986 N.Y., laws 1882, amending New York General Business Law Sec. 198-a ("Lemon Law" or "Statute").
The dispute arose after New York State amended its business code to require that any existing manufacturer's informal dispute settlement mechanism conform to the requirements of the State's new Lemon Law. General Motors brought suit on December 1, 1986, in federal district court seeking a declaration that certain provisions of the state Statute were unconstitutional and an injunction restraining the enforcement of these provisions with respect to GM's federally mandated consumer arbitration program. The Attorney General moved to dismiss the suit under Fed.R.Civ.P. 12(b)(6) for failure to state a cause of action for which relief may be granted. GM cross-moved for summary judgment.
Denying the State's motion to dismiss and granting summary judgment, Judge Haight of the Southern District of New York held that the 1983 FTC Consent Order requiring GM to establish a consumer arbitration program preempts the New York Statute on several grounds. The district court found that the FTC order "occupies the field," to the exclusion of state regulation, within the narrow context of disputes between GM and its consumers. 703 F.Supp. 1103, 1111 (S.D.N.Y.1989). The district court further held that the Lemon Law conflicts with the arbitral processes mandated by the FTC Order in a manner creating "an obstacle to the accomplishment We reverse the judgment and order of preemption and dismiss GM's complaint. While an FTC consent order may in some circumstances preempt state law, we do not believe the agreement entered into by GM and the Commission was intended to have this effect on the provisions of the state Lemon Law at issue.
and execution of the full federal purposes and objectives, as expressed in the consent order." Id
We begin with a summary of the FTC negotiations and state legislation that form the background of this dispute. In 1980, the FTC issued a complaint against GM for failing to notify consumers about serious engine and transmission defects in certain GM cars and light trucks. Avoiding the expense, delay and risks of litigation, the FTC negotiated and entered into a Consent Order requiring GM to implement a nationwide third-party arbitration program, administered by the BBB, to settle complaints of individual owners relating to the defective powertrain components. 102 F.T.C. 1741, 1749. The final Order was preceded by a preliminary proposal which was published and submitted for public comment under agency rules. 48 Fed.Reg. 20730 (1983).
Despite the opposition of numerous consumers and state attorneys general (including defendant-appellant Robert Abrams of New York) to the proposed settlement, the FTC issued the Consent Order on November 16, 1983, providing for case-by-case arbitration rather than direct redress to consumers. 1
The program established by the Consent Order marks an "experiment" by the FTC designed to assure that the consumer receives fair and equitable treatment at the hands of the manufacturer. Its principal characteristics are the use of untrained arbitrators chosen from broad segments of the community who "make common sense adjudications based on their own sense of fairness." The arbitrators might include, for example, "lawyers, professors, accountants, company executives, housewives, trade association personnel." The third-party arbitration is wholly voluntary for consumers and the results are binding only on GM, 102 F.T.C. at 1761--i.e., consumer participation in GM's arbitration program is not a precondition or a bar to pursuing other remedies.
The Order provides for the BBB to administer the General Motors program in accordance with the provisions of the Consent Order, the BBB's Uniform Rules for Arbitration, the General Motors Zone Handbook for Third Party Arbitration and the General Motors Consumer Arbitration Handbook. Significant to this appeal, these documents, incorporated into the Consent Order, contain two explicit references to state law.
Section 27B of the BBB's Uniform Rules for Arbitration states:
The arbitrator may make any decision, which the Arbitrator deems fair and equitable within the scope of your agreement to arbitrate, provided state law does not prohibit all or part of that decision.
Section 3 provides that "[t]he law of the state where your dispute is arbitrated shall apply." 102 F.T.C. at 1771.
Effective Sept. 1, 1983, the New York legislature enacted its original Lemon Law, codified as section 198-a of the State General Business Law. The Law created a statutory warranty requiring a manufacturer In addition, any defect during this period "substantially impair[ing] the value of the motor vehicle" that proves unrepairable after a "reasonable number of attempts" renders the vehicle a "lemon," entitling the consumer to a refund of the full purchase price or replacement. Sec. 198-a(c). The Statute defines "reasonable number of attempts" as four or if the vehicle is out for repair for a cumulative total of 30 or more days. Sec. 198-a(d). These remedies are available to any consumer who first resorts to a manufacturer's informal dispute mechanism (if one exists) that complies with minimum federal standards. Sec. 198-a(g).
to repair free of charge any new motor vehicle that does not conform to its express warranties for a statutorily specified period of time--two years or eighteen thousand miles, whichever comes sooner. Sec. 198-a(b)
The 1986 amendments to the Lemon Law added that "[i]f a manufacturer has established an informal dispute settlement mechanism, such mechanism shall comply in all respects with the provisions of this section...." Sec. 198-a(g). Subsection (m) sets forth the "minimum" Lemon Law requirements for a manufacturer's informal dispute settlement mechanism. GM primarily challenges the requirements that arbitrators be "trained in arbitration and familiar with the provisions of [the Lemon Law]" and that they apply Lemon Law remedies. Sec. 198-(m)(1)(i), (iii).
The major differences between the Consent Order and the New Car Lemon Law may be summarized as follows:
1) The Statute requires the consumer to resort to a manufacturer's dispute resolution mechanism before seeking judicial relief under the Lemon Law, whereas the Consent Order makes participation in the GM-BBB arbitration program wholly optional;
2) The Lemon Law specifies standards for liability and redress for statutorily determined automotive "lemons," as compared with the "fair and equitable" open standard of GM's program;
3) Under the Lemon Law, arbitrators must be "trained in arbitration," "familiar with" the New York Lemon Law, and "provided with a written copy of the provisions of" the Lemon Law, rather than merely untrained community arbitrators called for in the Order;
4) The Statute adds recordkeeping requirements to the reporting provisions contained in the Consent Order.
The New York Statute also directed the Attorney General to create an "alternative arbitration mechanism" to be conducted by professional arbitrators appointed by the Attorney General who must apply Lemon Law standards and remedies. 2 This separate arbitration forum has been available to consumers since January 1, 1987.
We initially must address, as a matter of first impression for this court, whether a consent order entered into by a federal administrative agency can ever preempt...
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