Liberty Lincoln-Mercury, Inc. v. Ford Motor Co.

• Decision Date: 14 March 1996
• Docket Number: Civil Action No. 95-3121 (MTB).
• Parties: LIBERTY LINCOLN-MERCURY, INC., Plaintiff, v. FORD MOTOR COMPANY, Defendant.
• Court: U.S. District Court — District of New Jersey

923 F. Supp. 665

LIBERTY LINCOLN-MERCURY, INC., Plaintiff, v. FORD MOTOR COMPANY, Defendant.

Civil Action No. 95-3121 (MTB).

United States District Court, D. New Jersey.

March 14, 1996.

Bressler, Amery & Ross by Eric L. Chase and Genevieve K. LaRobardier, Florham Park, New Jersey, and Carlet, Harrison & Klein by Norman Klein, Clifton, New Jersey, for Plaintiff.

Pitney, Hardin, Kipp & Szuch by Dennis R. LaFiura, Morristown, New Jersey, and Mayer, Brown & Platt by Michael R. Feagley, Chicago, Illinois, for Defendant.

OPINION

BARRY, District Judge.

This matter comes before the court on the motion of defendant Ford Motor Company ("Ford") for partial summary judgment and for dismissal of certain counts of the amended complaint and the cross-motion of plaintiff Liberty Lincoln-Mercury ("Liberty") for partial summary judgment. This court held oral argument on the matter on March 5, 1996.

I. STATEMENT OF THE CASE

The facts surrounding this motion are not in dispute. Plaintiff became an authorized Lincoln-Mercury dealer on March 11, 1976, when plaintiff and defendant entered into standard Lincoln and Mercury Dealer Sales and Service Agreements (the "Agreements"). Pl.'s 12(g) Statement of Undisputed Facts ("Pl.'s 12(g) Statement"), ¶ I.A.; Def.'s 12(g) Statement of Undisputed Facts ("Def.'s 12(g) Statement"), ¶ 1. The Agreements were amended on May 7, 1979 to record a change in ownership interests in Liberty. Pl.'s 12(g) Statement, ¶ I.B.

Defendant warranties the vehicles it manufactures against manufacturing defects and damages, with the warranties running from defendant to purchasers of new Ford vehicles. Id. at II.A. Although the manufacturer issues the warranty, the Agreements require the dealer to perform the necessary warranty repairs (parts and labor) at no direct cost to the customer, whether or not the dealer had sold the vehicle to the particular purchaser. Id. at II.C. Thus, when a Ford vehicle is covered by the manufacturer's warranty, the owner may bring the vehicle to any franchised dealer and have the vehicle repaired at no cost to him or her.

When a dealer repairs an automobile under warranty, the dealer submits a reimbursement claim to defendant for the parts and labor used in satisfying the warranty. Agreements (attached at Certif. of Robert X. Robertazzi ("Robertazzi Certif."), Exs. A, B.), ¶ 4(b)(4), at 8. The amount of the reimbursement is determined by a schedule published in defendant's Warranty and Policy Manual ("Manual"), which is revised and reissued annually. Def.'s 12(g) Statement, ¶¶ 3-4. Currently,¹ defendant generally reimburses dealers at a standard rate of 40% above the dealer's cost for warranty parts on 1994 (or later) model year vehicles, 35% for 1993 model year vehicles, and 30% for earlier years' vehicles.² Id. at ¶ 5; Robertazzi Certif., Ex. D. The Manual does not contemplate reimbursing dealers at a reasonable retail rate, or even at the suggested retail rate, which is 63% over cost for parts. Pl.'s 12(g) Statement, ¶ II.G. If a dealer disagrees with the parts reimbursement issued, the Manual provides an appeal procedure whereby a dealer may challenge the amount of reimbursement. Warranty Manual (attached at Aff. of James W. Suhay, Ex. A),³ 6.5-1.

A bill which supplemented the New Jersey Franchise Practice Act ("NJFPA" or "Act") states,

If any motor vehicle franchise shall require or permit motor vehicle franchisees to perform services or provide parts in satisfaction of a warranty issued by the motor vehicle franchisor:

a. The motor vehicle franchisor shall reimburse each motor vehicle franchisee ... for such parts as are supplied, in an amount equal to the prevailing retail price charged by such motor vehicle franchisee for such ... parts in circumstances where such ... parts are supplied other than pursuant to warranty.

N.J.Stat.Ann. § 56:10-15. On December 12, 1992, plaintiff submitted a letter to defendant requesting an increase in its warranty parts reimbursement from 30% (the schedule reimbursement rate at the time) to retail markup, as required by the NJFPA. Robertazzi Certif., Ex. E.

In July 1992, after plaintiff provided documentation for a sample of retail repairs, defendant agreed to reimburse plaintiff for warranty parts at plaintiff's retail rate, a mark-up of 77% over cost. Id., Ex. M; Def.'s 12(g) Statement, ¶ 8. In order to recoup the costs incurred by complying with the NJFPA, however, defendant assessed—and continues to assess—a surcharge on new vehicles sold by plaintiff. Decl. of Philip Meilak ("Meilak Decl."), ¶ 3. The surcharge is added to the cost of the vehicle after plaintiff sells the car to the customer.⁴ Defendant concedes that this surcharge is utilized for the purpose of recovering the cost of reimbursing plaintiff for warranty parts at the retail rate. Id.

Plaintiff filed suit against defendant on October 5, 1992, and this suit was dismissed without prejudice in May 1994.⁵ Pl.'s 12(g) Statement, ¶¶ III.S., III.T. Plaintiff filed a Complaint in this matter on June 30, 1995 and amended it on July 7, 1995. The amended complaint alleges: 1) violation of the NJFPA, N.J.Stat.Ann. § 56:10-15, 2) violation of the NJFPA, N.J.Stat.Ann. § 56:10-7, 3) violation of the Automobile Dealer's Day in Court Act, 15 U.S.C. §§ 1221-1225, 4) violation of section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), 5) breach of contract, 6) breach of the covenant of good faith and fair dealing, 7) unjust enrichment and conversion, 8) bad faith, 9) estoppel, and 10) quantum meruit.

Defendant has moved to dismiss Counts One (in part), Two, Three, Four, Seven, Nine, and Ten. Defendant has also moved for partial summary judgment on Counts One (in part), Five, Six, and Eight.⁶ Plaintiff has cross-moved for partial summary judgment as to liability on all Counts. For the reasons stated herein, the court grants plaintiff's motion for summary judgment as to liability since December, 1991, on Count One and defendant's motion to dismiss Count Four. Because the remedies sought by plaintiff under the remaining Counts are duplicative of those sought within these claims,⁷ and because, at oral argument, plaintiff agreed that it will not press those claims if it prevails, as it will, on Count One—at least as to the allegations subsequent to December, 1991—those Counts will be dismissed.

II. DISCUSSION

A. New Jersey Franchise Practice Act, N.J.Stat.Ann. § 56:10-15

This is a case of first impression in the State of New Jersey. Under the Agreements, when a vehicle is covered by a Ford warranty, the dealer must repair the vehicle, pursuant to the warranty, at no cost to the customer. Often times, the repair work will involve the dealer replacing or providing parts for the vehicle. When this happens, the NJFPA requires the franchisor-manufacturer to reimburse the franchisee-dealer "in an amount equal to the prevailing retail price charged" by the dealer for such parts, so long as the retail price is not unreasonable. N.J.Stat.Ann. § 56:10-15. The question before the court, then, is whether it is permissible under the NJFPA for defendant to reimburse plaintiff for parts used in warranty repairs at the retail rate (77%), yet impose a surcharge on vehicles sold by plaintiff in order to make up the difference between the retail rate and the standard reimbursement rate.⁸

Defendant's position is that the Act does not prohibit manufacturers from recovering the increased costs of complying with the NJFPA by assessing a surcharge on vehicle prices. Def.'s Mem. in Support of Motion to Dismiss, at 3; Def.'s Reply Mem. in Support of Motion to Dismiss ("Def.'s Mot. to Dismiss Reply"), at 5-10. Defendant points to Acadia Motors, Inc. v. Ford Motor Co., 44 F.3d 1050 (1st Cir.1995), in which the Court of Appeals for the First Circuit interpreted a Maine statute similar to the NJFPA.⁹ There, the court found that the statute permitted manufacturers to increase vehicle prices in order to recover its increased compliance costs because the statute says nothing about wholesale or retail prices. Id. at 1056. The court stated, "It is quite commonplace for manufacturers and other regulated entities to pass on to retailers and consumers their costs of complying with regulatory statutes. This is so even when the costs are passed on to the `beneficiaries' of the regulations." Id. Similarly, defendant states that the NJFPA permits manufacturers to recoup the costs of complying with the Act by surcharging plaintiff's vehicle sales because the Act does not, by its terms, prohibit this.

This court disagrees. The NJFPA is a remedial statute which is intended to equalize the disparity in bargaining power which, so often, characterizes franchisor-franchisee relationships. Westfield Centre Serv., Inc. v. Cities Serv. Oil Co., 86 N.J. 453, 461-65, 432 A.2d 48 (1981). The NJFPA clearly states that manufacturers must reimburse dealers for warranty parts at the retail rate as long as the rate is not unreasonable. N.J.Stat. Ann. § 56:10-15. Defendant refused to do so until plaintiff explicitly requested compliance with the Act. Robertazzi Certif, Ex. D. When defendant finally agreed to conform its conduct to the Act, it imposed a surcharge on plaintiff which essentially nullified its compliance and created an end-run around the Act.

Even assuming that the NJFPA would permit franchisor-manufacturers to recover their compliance costs from franchisee-dealers, an assumption that may not be correct, certainly defendant is correct when it states that the NJFPA does not dictate the manner in which franchisor-manufacturers may recover these costs, and the Act is silent regarding wholesale prices. Def.'s Mot. to Dismiss Reply, at 5-7. This does not mean, however, that all methods of cost-recovery are permissible. Defendant's method certainly is not. Defendant is engaged in a shell game, the purpose of which is to avoid, altogether, the costs of complying with the NJFPA. The Act does not contemplate, nor does it...