General Motors Corp. v. Darling's

Decision Date14 April 2006
Docket NumberNo. 04-2281.,No. 04-2282.,04-2281.,04-2282.
Citation444 F.3d 98
PartiesGENERAL MOTORS CORPORATION, Plaintiff, Appellant/Cross-Appellee, v. DARLING'S, d/b/a Darling's Auto Mall, Defendant, Appellee/Cross-Appellant.
CourtU.S. Court of Appeals — First Circuit

James C. McGrath, with whom Daniel L. Goldberg, Bingham McCutchen LLP, Frederick J. Badger, Jr., Richardson, Whitman, Large & Badger, Lawrence S. Buonomo and General Motors Corporation, were on brief for appellant.

Judy A.S. Metcalf, with whom Laura Lee Klein and Eaton Peabody were on brief, for appellee.

Bruce C. Gerrity, Jeanne B. McHale and Preti, Flaherty, Beliveau, Pachios & Haley, LLC, on brief for amicus curiae Maine Auto Dealers Association, Inc.

Before BOUDIN, Chief Judge, Cyr, Senior Circuit Judge, and Howard, Circuit Judge.

HOWARD, Circuit Judge.

These cross-appeals are the latest episode in a thirty-year conflict between national motor vehicle manufacturers and their Maine-based dealers concerning the manufacturers' obligation to reimburse the dealers for repairs made to vehicles under warranty. See Alliance of Auto. Mfrs. v. Gwadosky, 304 F.Supp.2d 104, 106 (D.Me. 2004) (summarizing this "long, complex, and litigious history"). General Motors ("GM") brought this diversity lawsuit seeking a declaration of certain of its rights and obligations under the Maine warranty reimbursement statute, see Me.Rev.Stat. Ann. tit. 10, § 1176,1 and Darling's, GM's authorized distributor in Maine, responded with several related counterclaims.

A. The Statutory Context

At the urging of Maine's motor vehicle dealers, the Maine legislature began regulating the manufacturer-dealer relationship in 1975. See Me.Rev.Stat. Ann. tit. 10, § 1171 et seq. (the "Dealer Act"); Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 33 (1st Cir.2005). The original version of the warranty reimbursement provision required a motor vehicle manufacturer to "adequately and fairly compensate each of its motor vehicle dealers for parts and labor." Me.Rev.Stat. Ann. tit. 10, § 1176 (1975). Following amendments in 1980 and 1991, the statute more specifically required manufacturers to reimburse for parts and labor "at the retail rate customarily charged" by each dealer for the same parts and labor provided to non-warranty customers. Me.Rev.Stat. Ann. tit. 10, § 1176 (1997).2 Although the statute did not specify how a dealer's customary retail rate for parts should be established, it stated that a dealer's retail rates for labor are established by posting its labor rates in a conspicuous location within view of the dealer's service customers. See id. Following another amendment in 2003, a dealer may now establish its customary retail rate for parts by submitting to the manufacturer either 100 sequential or 60 days of non-warranty customer-paid service repair orders. See Me.Rev.Stat. Ann. tit. 10, § 1176 (2004). The average parts markup percentage for those repairs establishes the dealer's customary retail markup for parts. See id. The 2003 amendment also extends the period of time for a manufacturer to approve or disapprove a claim, from 30 days to 60 days after submission, extends the time a manufacturer has to pay a claim, from 30 days to 60 days after approval, limits the manufacturers' reimbursement obligation to only those claims submitted within 90 days of the performance of the warranty repair, and bars manufacturers from recovering the costs of reimbursing their Maine dealers at retail rates. See id.

B. GM's Nationwide Uniform Warranty Reimbursement System

GM distributes its automobiles through a nationwide network of authorized dealers. Darling's has been a Maine-based authorized GM dealer since 1994, selling three lines of GM vehicles (Buick, Pontiac and GMC) under successive versions of the Dealer Sales and Service Agreement ("Dealer Agreement"), the most recent of which was executed in 2000. Pursuant to the Dealer Agreement, Darling's must perform warranty repairs on qualified vehicles and GM must reimburse Darling's for parts and labor in accordance with the Service Policies and Procedures Manual ("Service Manual").3 GM reimburses its North American dealers based on a uniform methodology that uses a fixed markup for the cost of parts (usually 40 percent), and the dealers' established hourly rates for labor, multiplied by GM's labor time guidelines, which provide the number of labor hours allotted for a specific repair.

GM processes warranty reimbursement clams through a nationwide computer system called the Warranty Information System ("WINS"). WINS, which allows dealers to submit claims electronically, was developed in the mid-1990s to standardize GM's warranty claims processing across all of its lines. Before WINS, a dealer which sold three different lines of GM vehicles, like Darling's, was required to submit separate reimbursement claims through three distinct processing systems. All of GM's dealers in the United States, Canada, Mexico and the Caribbean now use WINS. Annually, GM uses the system to pay approximately 48 million claims (including some non-warranty claims) worth over four billion dollars.

WINS requires each warranty reimbursement claim to include the dealer's repair order number, the date of service, the vehicle identification number ("VIN"), the applicable labor operation number, the failed part number, and the parts reimbursement amount. Within five days of submission, WINS automatically reviews the claim to determine whether it is within certain basic parameters based on the information provided in the claim and any existing electronic records for the vehicle corresponding to the entered VIN.4 If WINS finds an error in the claim, the dealer is notified electronically. If the claim passes the initial check, GM reimburses the dealer based on a uniform methodology. WINS calculates the maximum labor reimbursement by multiplying GM's time guidelines for the repair by the dealer's approved labor rate, which is usually an average of the rates a dealer has charged for all manner of repairs. It calculates the maximum parts reimbursement by multiplying the cost of the parts by the established parts markup rate for that dealer, which is usually 40 percent. As long as the total amount requested by the dealer does not exceed these ceilings, WINS automatically approves the claim and credits the dealer through an open account held jointly by GM and the dealer. Approximately 90 percent of all WINS claims are approved in this way and are paid within seven to ten days of the initial claim submission.

C. GM's Reimbursement of Warranty Claims in Maine

Because Maine's warranty reimbursement statute requires manufacturers to reimburse for parts and labor "at the retail rate customarily charged" by each dealer, Maine dealers may request warranty reimbursement for parts and labor using their own internal formulas, and not those specified by the manufacturers. But, being an automated system, WINS has certain limitations that prevent it from processing claims that include variables that it was not programmed to handle. For example, WINS cannot handle multiple parts markup rates for a single dealer. Nor can it substitute GM's time guidelines with dealer-specific labor times. Consequently, when a Maine dealer submits a claim that exceeds GM's uniform nationwide rate and includes such variables, WINS is unable to fully reimburse the dealer. To accommodate Maine's dealers without completely abandoning WINS, GM devised a two-tiered reimbursement system whereby Maine dealers first submit a claim through WINS for reimbursement at GM's uniform rate, and then submit a supplemental claim to collect the difference between the WINS rate and the dealer's retail rate.

To verify the accuracy of supplemental claims, and to allow GM to cross-reference the supplemental claims with the initial WINS claims, GM requires that supplemental claims include the VIN and date of repair. In addition, to verify the dealer's retail rate, GM requires information in the supplemental claim that is not provided in the WINS submission: the dealer's various parts markup percentages, the retail labor hours charged by the dealer, and the method by which the labor time was calculated. This information allows GM to assess the basis of the dealer's claimed retail rate and to verify its accuracy by reviewing the dealer's actual non-warranty service records.

Maine dealers typically submit supplemental claims by e-mail or fax to the GM Area Service Manager ("ASM") assigned to each dealer's region. The ASM reviews the supplemental claim, verifies that the individual claims associated with the supplemental claim were previously submitted and paid by WINS, and determines whether the amount sought appears reasonable based on the information provided. Because GM prefers to manage its dealer reimbursements through WINS, if the supplemental claim is approved, the ASM directs the dealer to submit an "H-route" request — a specially coded electronic claim — for payment through WINS. Thus, dealers submitting supplemental claims receive two payments from WINS: first from the initial WINS submission, and second from the H-route request.

Each ASM's computer contains WINS data going back four months. Therefore, if a supplemental claim is filed within four months of its initial approval through WINS, the ASM will have direct access to the WINS information and will only need the dealer's repair order number to access it. But for supplemental claims submitted more than four months later (GM has agreed to pay initial and supplemental warranty claims submitted up to 180 days after the repair date), the ASM must contact the regional office to obtain the WINS data and can only access it by using the VIN of the subject vehicle. Without the VIN, it is difficult, if not impossible, for the ASM to access the initial WINS claim information.5

D. Genesis of the Present Disputes

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