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

• Decision Date: 17 March 1999
• Docket Number: INC,No. 98-6135,LINCOLN-MERCUR,98-6135
• Citation: 171 F.3d 818
• Parties: 38 UCC Rep.Serv.2d 11 LIBERTY, Appellant, v. FORD MOTOR COMPANY.
• Court: U.S. Court of Appeals — Third Circuit

Page 818

171 F.3d 818

38 UCC Rep.Serv.2d 11

LIBERTY LINCOLN-MERCURY, INC., Appellant, v. FORD MOTOR COMPANY.

No. 98-6135.

United States Court of Appeals, Third Circuit.

Argued Jan. 11, 1999.

Decided March 17, 1999.

Eric L. Chase, Bressler, Amery & Ross, P.C., Morristown, New Jersey, for appellant.

Dennis R. LaFiura, Pitney, Hardin, Kipp & Szuch, Morristown, New Jersey, for appellee.

Before: GREENBERG and SCIRICA, Circuit Judges, and CARMAN, ^* Chief Judge, U.S. Court of International Trade.

OPINION OF THE COURT

CARMAN, Chief Judge.

I. INTRODUCTION

This is an appeal of the district court's order directing summary judgment for appellee, Ford Motor Company (Ford), and denying summary judgment for appellant, Liberty Lincoln-Mercury, Inc. (Liberty). Appellant challenges the district court's determination that, as a matter of law, Ford's Extended Service Plans (ESPs) are not included under the New Jersey Franchise Practices Act (FPA). N.J.STAT.ANN. §§ 56:10-1 to 10-15 (West 1999). Appellant also challenges the district court's dismissal of its additional common law and statutory claims. Additionally, appellant argues it is entitled to summary judgment against Ford because of Ford's refusal to pay the retail reimbursement rate under the FPA.

The FPA obligates the franchisor to "reimburse each motor vehicle franchisee for such services as are rendered and for such parts as are supplied, in an amount equal to the prevailing retail price charged by such motor vehicle franchisee for such services and parts" in satisfaction of a warranty. § 56:10-15(a). Ford requires its dealers to repair and replace parts under both Ford's standard written warranties and Ford's ESPs, however, the reimbursement rate differs under each contract type. Ford reimburses dealers for standard written warranty repairs at the "retail rate" for the parts and work done. In 1991, Ford recognized Liberty's retail rate to be seventy seven percent over dealer cost. When a dealer performs ESP-covered repairs, however, it is reimbursed for labor at a prescribed labor rate multiplied by the applicable Ford Service Time Standard for the repair involved. Dealers are reimbursed for parts supplied in performing ESP repairs according to formulae that provide for reimbursement at only thirty to forty percent markups over dealer cost depending upon the model year of the vehicle.

The district court permitted the distinction in reimbursement rates between Ford's ESPs and standard written warranties because it characterized the Ford ESPs as service contracts and determined that there was a distinction under New Jersey law between service contracts and warranties. The district court concluded that "under no exercise of statutory construction can [Ford's ESPs] ... fall within the purview of the [FPA]." Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 8 F.Supp.2d 450, 457 (D.N.J.1998) (Liberty III ).

We reject the district court's characterization of Ford's ESPS. This Court concludes an ESP contract may include warranty provisions that fall under the FPA because at least some of the ESPs cover defects in factory-supplied parts or workmanship, as do the standard warranties. Based on this conclusion, we must determine whether there is sufficient evidence to create a genuine issue of material fact, a decision that turns, in part, on whether provisions of Ford's ESPs formed part of the basis of the bargain for sales of Ford vehicles. Because we find that provisions of Ford's ESPs may or may not have formed part of the basis of the bargain for sales of vehicles by appellant, we conclude there is a genuine issue of material fact, and summary judgment is inappropriate. Accordingly, the judgment of the district court is vacated, and the case is remanded for trial.

II. FACTUAL BACKGROUND

The facts of this case have been set forth in great detail in Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 923 F.Supp. 665 (D.N.J.1996) (Liberty I ), aff'd in part, rev'd in part, rev'd and vacated in part on other grounds, 134 F.3d 557 (3rd Cir.1998) (Liberty II ). ¹ The pertinent facts to this appeal are set forth below.

A. Standard Warranties

Ford manufactures automobiles, including Lincoln and Mercury vehicles, and sells them through franchised dealers. Liberty is one such dealer. Ford's relationship with Liberty is governed by a Lincoln Sales and Service Agreement and a Mercury Sales and Service Agreement. Every vehicle Ford sells to its dealers for resale comes with a standard written Ford New Vehicle Limited Warranty (Standard Warranty). The Standard Warranty contains a bumper to bumper warranty that requires dealers to repair, replace or adjust all parts, except tires, of the vehicle sold that are defective with regard to factory-supplied materials or workmanship up to a specified period of years or mileage, whichever comes first. The Standard Warranty also covers safety belts and supplemental restraint systems. Body sheet metal panels are covered against corrosion for a limited period of time or miles, whichever comes first. The Standard Warranty's cost is built into the price of each new vehicle sold by Ford to the dealer and by the dealer to the end consumer. Purchasers of Ford vehicles do not pay any additional consideration for the Standard Warranty nor can they purchase new vehicles without the Standard Warranty.

B. Extended Service Plans

In addition to its Standard Warranty, Ford also offers a variety of ESPs which "protect owners against the repair/replacement costs of specific major components after warranty." For example, Ford's Base ESP "adds to [the] vehicle's standard 6/60 powertrain warranty, covering many more parts and repairs." The Base ESP "[c]overs 82 major components against defects in factory-supplied materials or workmanship." Other ESPs also provide additional services such as coverage for scheduled maintenance services on covered components and replacement of certain items due to wear and tear.

Ford sells ESPs to its participating dealers who, in turn, offer the ESPs for sale to owners of used and new Lincoln and Mercury automobiles. An ESP is purchased in a separate, optional contract, usually for additional consideration. ² An ESP may be transferred by the purchaser to a subsequent purchaser of the vehicle only by paying a fee to Ford. Dealers do not have to sell Ford ESPs and may sell ESPs offered by other providers, including themselves. Some eighty percent of Ford dealers sell Ford ESPs, and around sixty percent of Ford dealers sell competing ESPs. An ESP purchaser may cancel a Ford ESP, and he will receive a refund of a portion of the ESP's purchase price. Finally, an ESP is not available for purchase after the Standard Warranty expires.

Ford dealers must perform all Standard Warranty and ESP work on all Ford cars sold by a dealer. Dealers risk franchise termination if they refuse service. As with Standard Warranties, dealers must purchase all parts used for ESP repairs from Ford at prices set by Ford, and the dealer must absorb the attendant business costs, such as storage and inventory control, for those parts. Dealers seeking reimbursement from Ford for ESP repairs must use the same forms and processes for the submission of their claims as they use for their Standard Warranty claims.

III. Standard of Review

This Court's review of a district court's grant of summary judgment is plenary. See Mathews v. Lancaster Gen. Hosp., 87 F.3d 624, 632 (3rd Cir.1996). Circuit courts "owe no deference to district court adjudications of state law," Leavitt v. Jane L., 518 U.S. 137, 145, 116 S.Ct. 2068, 135 L.Ed.2d 443 (1996), even though the district court may have "local expertise." Salve Regina College v. Russell, 499 U.S. 225, 235-40, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991). This Court must determine whether the record, when viewed in the light most favorable to appellant, Liberty, shows that there are no genuine issues of material fact and that appellee, Ford, was entitled to judgment as a matter of law. See Salley v. Circuit City Stores, Inc., 160 F.3d 977, 980 (3rd Cir.1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

IV. THE FRANCHISE PRACTICES ACT

The FPA requires franchisors to "reimburse each motor vehicle franchisee for such services as are rendered and for such parts as are supplied, in an amount equal to the prevailing retail price charged by such motor vehicle franchisee for such services and parts." § 56:10-15(a). Reimbursement is required "[i]f 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." Id. In order to make a prima facie case under the FPA, a plaintiff must show that the services or parts for which it is seeking reimbursement at the retail rate were performed or replaced pursuant to an agreement that is a "warranty" under the FPA.

The FPA does not define the term "warranty." In the absence of a specific statutory definition, the language of the statute should be given its "ordinary meaning and construed in a common sense manner to accomplish the legislative purpose." N.E.R.I. Corp. v. New Jersey Highway Auth., 147 N.J. 223, 686 A.2d 328, 335 (1996) (quoting State v. Pescatore, 213 N.J.Super. 22, 516 A.2d 261, 264 (1996)); see also Manalapan Realty, L.P. v. Township Comm. of the Township of Manalapan, 140 N.J. 366, 658 A.2d 1230, 1239 (1995) (citations omitted).

The district court found, and this Court agrees, that the ordinary definition of "warranty" is unhelpful in resolving the issue before the Court. WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 2578 (1981) defines "warranty" as:

[a] usu. written guarantee of the integrity of a product and the good faith of the maker given to the purchaser and generally specifying that the maker will for a period of time be responsible for the repair or replacement of defective parts and will...