MOTOR VEHICLE MFRS. ASS'N OF US, INC. v. Abrams, 86 CIV 9592 (LBS).

• Decision Date: 16 August 1989
• Docket Number: No. 86 CIV 9592 (LBS).,86 CIV 9592 (LBS).
• Citation: 720 F. Supp. 284
• Parties: MOTOR VEHICLE MANUFACTURERS ASSOCIATION OF UNITED STATES, INC. and Automobile Importers of America, Inc., Plaintiffs, v. Robert ABRAMS, Attorney General of the State of New York, Defendant.
• Court: U.S. District Court — Southern District of New York

720 F. Supp. 284

MOTOR VEHICLE MANUFACTURERS ASSOCIATION OF UNITED STATES, INC. and Automobile Importers of America, Inc., Plaintiffs, v. Robert ABRAMS, Attorney General of the State of New York, Defendant.

No. 86 CIV 9592 (LBS).

United States District Court, S.D. New York.

August 16, 1989.

COPYRIGHT MATERIAL OMITTED

Hughes Hubbard & Reed (Philip A. Lacovara, William R. Stein, Ross Lipman, of counsel), New York City, for plaintiffs.

Robert Abrams, Atty. Gen., State of N.Y. (John W. Corwin, Jane M. Azia, Mary Hilgeman, Asst. Attys. Gen., of counsel), New York City, for defendant.

OPINION

SAND, District Judge.

Presently before the Court is the one issue that remains in this action: Whether the provision of the New York Lemon Law that effectively requires automobile manufacturers to offer basic warranties of two years or 18,000 miles (whichever comes first) violates the Commerce Clause of the United States Constitution.

BACKGROUND

The plaintiffs, trade associations that represent the interests of domestic car manufacturers and foreign car manufacturers, importers and distributors, instituted this action in December 1986 challenging several provisions of New York General Business Law § 198-a — better known as the Lemon Law — which was enacted in 1983. In two prior opinions, this Court invalidated several provisions of the statute. In May 1988 we held that § 198a(i) violated the First Amendment. 684 F.Supp. 804 (S.D.N.Y.1988). In October 1988 we held §§ 198-a(g), (h) & (m) invalid because they were pre-empted by the Magnuson-Moss Warranty — Federal Trade Commission Improvement Act, 15 U.S.C. §§ 2301 et seq. (1982), and regulations promulgated thereunder. 697 F.Supp. 726 (S.D.N.Y.1988).

The parties agreed to try the remaining issue, concerning the constitutionality of § 198-a(b), based on affidavits and exhibits submitted to the Court, trial briefs and oral argument.¹ Pursuant to Federal Rule of Civil Procedure 52(a), the Court makes the following findings of fact and conclusions of law.

New York General Business Law § 198-a(b) provides:

If a new motor vehicle does not conform to all express warranties during the first eighteen thousand miles of operation or during the period of two years following the date of original delivery of the motor vehicle to such consumer, whichever is the earlier date, the consumer shall during such period report the nonconformity, defect or condition to the manufacturer, its agent or its authorized dealer. If the notification is received by the manufacturer's agent or authorized dealer, the agent or dealer shall within seven days forward written notice thereof to the manufacturer by certified mail, return receipt requested. The manufacturer, its agent or its authorized dealer shall correct said nonconformity, defect or condition at no charge to the consumer, notwithstanding the fact that such repairs are made after the expiration of such period of operation or such two year period.

N.Y.Gen.Bus.Law § 198-a(b) (McKinney 1988). Only motor vehicles sold and registered in New York are covered by the provision. N.Y.Gen.Bus.Law § 198-a(a)(2) (McKinney 1988).

Plaintiffs claim that this provision, which effectively sets a minimum level of new vehicle warranty protection, violates the Commerce Clause of the United States Constitution, Art. I, § 8, cl. 3. Plaintiffs argue that the New York statute is per se invalid under the Commerce Clause because it regulates conduct outside the state; it opens the door to inconsistent state regulation in an area where uniformity is necessary; and it impermissibly disadvantages consumers in other states. Alternatively, plaintiffs argue that the statute imposes substantial burdens on interstate commerce that are not outweighed by local benefits. See Plaintiffs' Post-Trial Brief at i-ii.

DISCUSSION

Although the Commerce Clause is framed in terms of Congressional power,² the Supreme Court "long has recognized that this affirmative grant of authority to Congress also encompasses an implicit or `dormant' limitation on the authority of States to enact legislation affecting interstate commerce." Healy v. Beer Institute, ___ U.S. ___, 109 S.Ct. 2491 n. 1, 105 L.Ed.2d 275 (1989). However, there remains a "residuum of power in the state to make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it." Southern Pacific Co. v. Arizona, 325 U.S. 761, 767, 65 S.Ct. 1515, 1519, 89 L.Ed. 1915 (1945).

The Court has employed a two-part test to analyze whether state legislation unduly interferes with interstate commerce:

When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits. We have also recognized that there is no clear line separating the category of per se invalid under the Commerce Clause, and the category subject to the balancing approach. In either situation the critical consideration is the overall effect of the statute on both local and interstate activity.

Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573, 579, 106 S.Ct. 2080, 2084, 90 L.Ed.2d 552 (1986) (citations omitted); see also Healy, 109 S.Ct. at 2499-50 n. 14. We proceed to follow that approach.

A.

The Court's first inquiry concerns whether the statute per se violates the Commerce Clause.

Plaintiffs argue that the statute "results in direct regulation of conduct outside New York" in that "the requirements that dealers give notice and repair the defect are not limited to New York dealers." Plaintiffs' Post-Trial Brief at 22-23. This argument misconstrues the statute somewhat. The statute imposes a free repair obligation on "the manufacturer, its agent or its authorized dealer" (emphasis added), leaving it to the manufacturer to decide how it will repair those covered vehicles that develop problems while outside New York.

Ford, for instance, instituted a plan whereby New York owners must pay the cost of repairs to the out-of-state dealer and then be reimbursed by a New York dealer. See Attorney General's Evidentiary Submission Exhibit hereinafter "Def. Exh." FF at F001037. General Motors' plan requires New York owners to pay the cost of the deductible to the out-of-state dealer and then be reimbursed by a New York dealer. See Def. Exh. ZZ. The State apparently considers these plans, which impose no free repair obligation on out-of-state dealers, to be in compliance with the statute. See Transcript of Oral Argument, Apr. 14, 1989 at 46.

The only obligation § 198-a(b) specifically imposes on out-of-state agents or dealers is to forward written notice of reported problems to the manufacturer within seven days. Innocuous as it is, this requirement nonetheless has the effect of "regulating commerce in other States," Brown-Forman, 476 U.S. at 580, 106 S.Ct. at 2085, in violation of the Commerce Clause. See also Edgar v. MITE Corp., 457 U.S. 624, 642-43, 102 S.Ct. 2629, 2640-41, 73 L.Ed.2d 269 (1982) (plurality opinion) ("The Commerce Clause also precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the state."). This conclusion is reinforced by the fact that New York would lack jurisdiction to enforce the notice requirement against a non-complying out-of-state agent or dealer. As explained in MITE, id. at 643, 102 S.Ct. at 2641:

The limits on a State's power to enact substantive legislation are similar to limits on the jurisdiction of state courts. In either case, "any attempt `directly' to assert extraterritorial jurisdiction over persons or property would offend sister States and exceed the inherent limits of the State's power." Shaffer v. Heitner, 433 U.S. 186, 197, 97 S.Ct. 2569, 2576, 53 L.Ed.2d 683 (1977).

The fact that agents and dealers have contractual relationships with manufacturers that require them to service vehicles according to the manufacturers' warranty policies, see, e.g., Def. Exhs. UU (Chrysler Direct Dealer Agreement) & VV (Ford Sales & Service Agreement), is of no moment. The obligation at issue here stems from the New York statute.

Accordingly, insofar as the Attorney General interprets § 198-a(b) to require that agents or dealers outside New York send manufacturers written notice of owners' complaints, it is per se in violation of the Commerce Clause.³

The statute's regulation of manufacturers, agents and dealers who do business in New York does not suffer from this defect. Although attacked by plaintiffs as having effects that reach extraterritorially, § 198-a(b) is readily distinguished from the statutes the Supreme Court has struck down on that ground.

The liquor price control cases involved state statutes that essentially tied prices that distributors could charge in-state to those charged elsewhere. The ultimate flaw in those statutes was the fact that distributors could not change their prices outside the state without violating the statutes. See Brown-Forman, supra (invalidating New York law that required liquor producers selling to wholesalers within state to affirm that prices charged were no higher than lowest price distiller charged wholesalers in any other state during that month); Healy, supra (invalidating Connecticut law that required out-of-state shippers of beer to affirm that their posted prices for products sold to Connecticut wholesalers are, as of the moment of posting, no higher than prices at which those products are sold in neighboring states); see also Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 55 S.Ct....