Sing for Serv. v. DOWC Admin. Servs.
| Docket Number | 1:20-cv-5617-GHW |
| Decision Date | 03 January 2022 |
| Parties | SING FOR SERVICE, LLC D/B/A MEPCO, Plaintiff, v. DOWC ADMINISTRATION SERVICES, LLC, Defendant. |
| Court | U.S. District Court — Southern District of New York |
DOWC Administration Services, LLC (“DOWC”) administers extended vehicle warranties. In 2019, DOWC entered into a transaction with SING for Service, LLC, doing business as Mepco (“Mepco” or “Sing”). Mepco was to provide financing for purchasers of the extended warranties administered by DOWC. It did so by entering into payment plan agreements with the purchasers, permitting them to pay for their extended warranties over time. DOWC failed to include covenants in its agreements requiring that Mepco provide a minimal level of service to purchasers; it also failed to obtain a commitment from Mepco to use any particular form of payment plan agreement with its sellers-instead, the transaction documents contemplated that Mepco would create its own form agreements and provide them to the purchasers of extended warranties without prior review by DOWC.
Mepco is alleged to have provided bad customer service, causing some purchasers to terminate their extended warranties. The cancellations harmed DOWC and 18W Holdings, Inc. d/b/a 1-800 Warranty (“18W”), which sold the extended warranties. DOWC tried to get Mepco to improve, but when it failed to do so, DOWC attempted to terminate the payment plan agreements entered into between Mepco and the purchasers of the extended warranties. Mepco refused- pointing out that DOWC was not a party to the contracts that it sought to terminate and that it had no contractual rights to cause Mepco to terminate them. This action for declaratory judgment followed: both Mepco and DOWC seek guidance regarding the scope of DOWC's rights to terminate the payment plan agreements entered into between Mepco and purchasers of the extended vehicle warranties.
DOWC presents a number of arguments to imbue its agreements with rights that it failed to negotiate. It relies heavily on extrinsic evidence of an unexecuted document presented to it over a year before the deal closed, and penumbral language in the recitals to its agreement with Mepco. Because DOWC is not a party to the agreements which it seeks to terminate, and DOWC did not negotiate covenants permitting it to terminate those agreements, DOWC's claim for declaratory judgment must be dismissed. DOWC's claims for breach of the implied covenant of good faith and fair dealing are dismissed because DOWC stretches the doctrine too far in an effort to add substantive provisions to the agreements that it failed to negotiate.
1. Extended Warranties In General
This case involves extended vehicle warranties and the process by which they are sold, administered, and financed. Amended Counterclaims, Dkt. No. 48 (the “Counterclaims”).[2] In the industry, extended warranties are referred to as “vehicle service contracts.” Vehicle service contracts “provide additional protection for automobiles either by supplementing an existing factory warranty or by extending protection beyond the expiration of a factory warranty.” Am. Compl., Dkt. No. 8 (“AC”), ¶ 6; Answer, Dkt. No. 48 (the “Answer”), ¶ 6. Vehicle service contracts are sold by “sellers, ” who receive a commission for each sale. The car owners who purchase an extended warranty are referred to as “purchasers.” Purchasers of vehicle service contracts can either pay for them fully upfront, or in installments. Counterclaims ¶¶ 13, 14, 16.
DOWC is an administrator of vehicle service contracts. Id. ¶ 11. The service contracts administered by DOWC “are offered to customers through automobile dealers and third-party Sellers, such as 18W Holdings, Inc. (d/b/a 1-800 Warranty) (‘18W').” Id. ¶ 12. “DOWC and its Sellers have complete discretion whether to offer payment plan services to their customers and whether to rely on a third-party vendor for collecting monthly payments from customers.” Id. ¶ 13. Around January 2019, DOWC selected Mepco to provide “payment plan services for purchasers of Service Contracts administered by DOWC.” Id. ¶ 14. In that role, Mepco essentially acts as a lender: it pays DOWC and the relevant seller lump payments for service contracts that it agrees to finance. In exchange, it receives installment payment over time from the purchaser of the vehicle service contract. See generally Administrator Agreement, Dkt. No. 8-1 (the “Administrator Agreement”), ¶ 2.
2. Service Contracts
The relationships between the purchasers, sellers, DOWC, and Mepco are governed by a series of interrelated contracts. Counterclaims ¶ 15. At the core of each transaction is a vehicle service contract, which “is the primary agreement that outlines the parties' relationship.” Id. ¶ 16. “When a customer purchases a Service Contract, the Seller, here 18W, enters the information about the customer and the vehicle in Inline, a cloud-based electronic customer relationship management (CRM) platform.” Id. ¶ 18. Then, “Inline CRM generates the relevant documents for the customer's review and approval.” Id. DOWC provides the template form of service contract to Inline CRM, which it uses to generate an individualized service contract for each customer and her vehicle. Id. ¶¶ 18, 19.
The service contracts themselves are straightforward: they identify the buyer, her vehicle, the contract price, and its duration. Form of Service Contract, Dkt. No. 29-1, Ex. B (the “Service Contract”). The Service Contract describes the maximum amount of liability under the contract and outlines the scope of coverage provided by the warranty. Id. The Service Contract permits both the relevant purchaser and DOWC to cancel the contract under specified circumstances. The purchaser has the right to cancel the contract at any time. Id. ¶ 4. If the purchaser does so, she is entitled to a pro-rata refund of the payment that she made to purchase the contract: DOWC is obligated to make that payment. Id.
The only parties to the Service Contract are DOWC and the relevant purchaser.[3] Id. ¶ 10. The Service Contract does not contain any reference to Mepco or any other financing source. Nor does it refer to any other agreements between DOWC, Mepco, or any other parties. It does, however, contain an integration clause that reads as follows: Id. ¶ 11. In sum, the Service Contract defines the general structure of the extended warranty coverage provided to the purchaser, but the agreement itself has nothing to say regarding the relationship between the purchaser and Mepco, or between Mepco and DOWC. To the contrary, the integration clause expressly disclaims the existence of other agreements that apply to the Service Contract.
3. Payment Plan Agreements
When a purchaser chooses to pay for her service contract in installments, she receives a payment plan agreement “that outlines the terms specific to the payment schedule.” Counterclaims ¶ 20. This document is also generated for the purchaser by Inline CRM. Significantly, for the purpose of understanding the disconnect that led to this dispute, Mepco provides the template payment plan agreements directly to Inline CRM for distribution to purchasers. Id. ¶ 18. “DOWC does not have access to the forms Mepco provides to Inline CRM or signed Payment Plan Agreements in the Inline CRM.” Id. ¶ 19.
The payment plan agreement used by Mepco to finance the service contracts at issue in this case states expressly that it is entered into between Mepco and the purchaser of the relevant service contract. Form of Payment Plan Agreement, Dkt. No. 29-1, Ex. B (the “Payment Plan Agreement”).
This Payment Plan Agreement (“Agreement”) is between Purchaser and SING For Service, LLC d/b/a/ Mepco (“MEPCO”), a Seabury Asset Management Company. Purchaser has purchased a service contract (“Contract”) from Seller that is issued by DOWC Administration Services (“Administrator”). This Agreement is entered into to enable Purchaser to pay for the Contract pursuant to an installment payment program.
Payment Plan Agreement at 1. The Payment Plan Agreement sets out the aggregate purchase price for the underlying contract and breaks the purchase price down into a number of installment payments. Id. The Payment Plan Agreement lays out the obligations of the purchaser with respect to the payments due: Id.
The Payment Plan Agreement provides the purchaser the right to cancel the contract at any time. Id. at 2 ( ); see also Id. at 3. Similarly, Mepco retains the authority to terminate the contract under certain circumstances, in particular if the purchaser fails to make a payment or another event of default occurs under the contract. Id. at 3. The Payment Plan Agreement provides Mepco a number of important rights, presumably designed to secure its opportunity to obtain repayment of the money that it advances. Among other things, under the agreement, the purchaser “assigns to MEPCO all of Purchaser's right, title and interest in and to the Contract and all proceeds thereof, including Purchaser's rights to receive all unearned and return amounts.” Id. Mepco is also designated as the purchaser's attorney in fact to cancel the underlying service contract...
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