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

U.S. District Court, District of New Jersey


May 28, 1998

LIBERTY LINCOLN-MERCURY, INC., PLAINTIFF, V. FORD MOTOR COMPANY, DEFENDANT.

The opinion of the court was delivered by: Barry, District Judge

Plaintiff's motion for summary judgment denied and defendant's cross-motion for summary judgment granted. Plaintiff's complaint dismissed.

MARYANNE TRUMP BARRY, U.S.D.J.

The opinion of the court was delivered by: MARYANNE TRUMP BARRY

This matter comes before the court upon the motion of plaintiff Liberty Lincoln-Mercury, Inc. ("Liberty") for summary judgment pursuant to Fed. R. Civ. P. 56(a) and the cross-motion of defendant Ford Motor Company ("Ford") for summary judgment pursuant to Fed. R. Civ. P. 56(b). The court has reviewed the submissions of the parties without oral argument pursuant to Fed. R. Civ. P. 78. For the reasons discussed below, plaintiff's motion will be denied and defendant's cross-motion will be granted. In this, the third round in a series of lawsuits involving these parties, Liberty asks this court to further test the boundaries of N.J.S.A. 56:10-15 (the "Automobile Warranty Reimbursement Act" or the "Act"), which regulates the amount of reimbursement an automobile manufacturer must pay its dealers for repairs made pursuant to the manufacturer's warranty, and under which Liberty was granted relief by this court approximately two years ago. *fn1 In this round, however, rather than seeking redress under the statute with respect to repairs made pursuant to Ford's new car "warranty," Liberty asks the court to apply the same statutory framework to repairs made pursuant to Ford's "extended service plan contracts," otherwise known as "ESPs." The competing motions raise one core issue: whether Ford's ESPs should be considered "warranties" as that term is used in N.J.S.A. 56:10-15. If so, argues Liberty, Ford's refusal to pay ESP claims at retail violates the warranty reimbursement and prohibited practices provisions of the Act. If not, argues Ford, the provisions of the parties' Sales and Service Agreements -- and lower reimbursement rates -- control. Because this issue is narrowly focused and the facts surrounding the matter have,

in large part, already been set forth by this court in Liberty Lincoln-Mercury, Inc. v. Ford Motor Company, 923 F. Supp. 665 (D.N.J. 1996), aff'd in part, rev'd and vacated in part on other grounds, 134 F.3d 557 (3d Cir. 1998), the court's discussion of the facts herein will be brief and limited to the issue at hand.

I.

Ford manufactures motor vehicles, including Lincoln and Mercury vehicles, which are sold to a nationwide network of authorized dealers, including Liberty. Amended Complaint at PP 10, 12. The parties' relationship is governed by a Lincoln Sales and Service Agreement and a Mercury Sales and Service Agreement (collectively the "Sales and Service Agreements"). Id. at P 13; Certification of Robert X. Robertazzi ("Robertazzi Cert."), Exhibits A-C. Each new vehicle Ford sells to its dealers for resale to consumers carries with it a standard written Ford new vehicle limited warranty, Affidavit of Bruce L. Ayres ("Ayres Aff.") at P 2, which contains a bumper to bumper warranty, as well as separate warranties covering items such as safety restraints, corrosion, federal emissions control systems, and noise emissions (collectively the "limited warranty"). See Ford's 1996-Model Warranty Informational Booklet annexed to id., Exhibit A.

The bumper to bumper warranty provides that "authorized Ford dealers will repair, replace or adjust all parts of your vehicle (except tires) that are defective in factory-supplied materials or workmanship for 3 years or 36,000 miles (whichever occurs first)." Id., Exhibit A at 5. The safety restraints and corrosion warranties provide similar language, albeit with varying warranty lives. Id., Exhibit A at 6. The emissions defect warranty also provides similar protection, but adds the following language:

Ford warrants that your vehicle or engine:

. is designed, built, and equipped to conform, at the time it is sold, with the emissions regulations of the U.S. Environmental Protection Agency (EPA), and

. is free from defects in factory-supplied materials and workmanship which could cause it to fail to conform with applicable EPA regulations.

Id., Exhibit A at 12.

Because the cost of the limited warranty is built into each new vehicle sales transaction between Ford and the dealer and between the dealer and the end consumer, id. at P 2, the consumer does not pay any additional consideration for the limited warranty. Neither dealers (from Ford) nor consumers (from dealers) can purchase new vehicles without the limited warranty. Id. at P 3.

In addition to the limited warranty, Ford offers several versions of ESPs, which provide additional repair cost protection during the lifetime of the ESP contract. Id. at P 20; Certification of Eric L. Chase, Exhibit E. In this regard, Ford's 1996-Model Warranty Informational Booklet provides as follows:

You can get additional protection for your new car or light truck by buying a Ford Extended Service Plan (Ford ESP). Ford ESP is an optional service contract, backed and administered by Ford. Ford ESP provides repair cost protection after the Bumper to Bumper Warranty expires and other benefits during the warranty, such as rental reimbursement and certain covered maintenance and wear items.

You can buy Ford ESP from any participating Ford Motor Company dealer. Ford ESP is the only extended service program with the Ford name on it and the only service contract backed by Ford Motor Company.

When you buy Ford ESP, you receive peace of mind protection throughout the United States and Canada by a network of more than 5,100 participating Ford Motor Company dealers.

Id., Exhibit A at 25.

Ford sells ESPs to its participating dealers and the dealers, in turn, offer the ESPs for sale to owners of new and used Ford, Lincoln, and Mercury vehicles. Id. at P 12. Ford's dealer prices range from just under $100 to over $2000, depending upon which ESP version is chosen. Id. at P 13. Ford provides each dealer with manufacturer's suggested retail prices for the ESPs, which range from about $200 to over $3,500. Id. at P 13. While dealers typically are not obligated to sell ESPs, approximately 80% choose to do so. Id. at P 14. Dealers are also permitted to sell extended service contracts that compete with Ford's ESPs, and over 60% sell some form of competing service contract. Id. at P 15. Additionally, although even Liberty concedes that ESPs typically represent optional and separate contracts offered at an additional cost, Plaintiff's Brief in Support of Motion for Summary Judgment at 6, it appears that at least one dealer occasionally absorbs the cost of ESPs at the time of the original new car transaction as an incentive to new car buyers. See Certification of Genevieve K. LaRobardier, Exhibit A; see also March 16, 1998 Letter from Defendant's Counsel.

When a dealer repairs a component covered by an ESP, it is reimbursed by Ford at a prescribed labor rate multiplied by the applicable Ford Service Time Standard for the repair involved. Ayres Aff. at P 26. Dealers are also reimbursed for parts supplied in performing ESP-covered repairs according to formulae that provide for reimbursement at predetermined markups over dealer cost, depending upon the model year of the vehicle. Id.; Robertazzi Cert. at P 11; Certification of Kurt R. Olcheski at P 4. As discussed in Liberty Lincoln-Mercury, Inc. v. Ford Motor Company, 923 F. Supp. at 666-69, this framework was also used by Ford to determine reimbursement rates for repairs made pursuant to its limited warranty until this court found that the framework, and its accompanying surcharge scheme, violated N.J.S.A. 56:10-15. Id. at 668-69. The crux of this lawsuit is whether Ford's ESPs are subject to the same statutory requirements, a dispute that, given the difference in reimbursement rates, is more than merely academic.

II.

In construing a New Jersey statute, the court's fundamental task is to effectuate the intent of the legislature in light of the language used and the objectives sought to be achieved. Lesniak v. Budzash, 133 N.J. 1, 8, 626 A.2d 1073 (1993) (citations omitted); State v. Maguire, 84 N.J. 508, 514, 423 A.2d 294 (1980). "The first step is [to examine] the provisions of the [statute] to ascertain whether they are expressed in plain language that ... clearly and unambiguously yields only one interpretation." Richard's Auto City, Inc. v. Director, Div. of Taxation, 140 N.J. 523, 531, 659 A.2d 1360 (1995) (citations omitted); see also Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, 835, 108 L. Ed. 2d 842, 110 S. Ct. 1570, (1990). If so, the unambiguous words used in the statute will carry their ordinary and well-understood meanings unless the statute "explicitly indicate[s]" that the words are to carry "special meanings." State v. Mortimer, 135 N.J. 517, 532, 641 A.2d 257 (1994), cert. denied, Mortimer v. New Jersey, 513 U.S. 970, 130 L. Ed. 2d 351, 115 S. Ct. 440 (1994) (citations omitted); State v. Afanador, 134 N.J. 162, 171, 631 A.2d 946 (1993) (citations omitted). In any event, the court need not resort to materials outside the text of the statute unless the statute is unclear or ambiguous. State v. Sutton, 132 N.J. 471, 479, 625 A.2d 1132 (1993); State v. Butler, 89 N.J. 220, 226, 445 A.2d 399 (1982); see also Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 117 L. Ed. 2d 391, 112 S. Ct. 1146 (1992).

That having been said, the Act provides as follows:

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 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 ....

N.J.S.A. 56:10-15 (emphasis added). *fn2

The Act neither defines "warranty" nor offers any basis upon which to give the term any special meaning. Thus, unless "warranty" is deemed unclear or ambiguous, its plain, well-understood, ordinary meaning will control. Manalapan Realty, L.P. v. Township Committee of Tp. of Manalapan, 140 N.J. 366, 383, 658 A.2d 1230 (1995) ("When construing legislation, in the absence of a specific definition, we give words their ordinary and well-understood meanings.") (quoting Great Atlantic and Pacific Tea Co. v. Bor. of Point Pleasant, 137 N.J. 136, 143-44, 644 A.2d 598 (1994)); see also Matter of Seidman, 37 F.3d 911, 924 (3d Cir. 1994).

In this regard, Webster's Collegiate Dictionary defines "warranty" as a "usually written guarantee of the integrity of a product and of the maker's responsibility for the repair or replacement of defective parts." Webster's Collegiate Dictionary, 1329 (9th ed. 1985). Similarly, the American Heritage Dictionary defines "warranty" as "an assurance by the seller of property that the goods or property are as represented or will be as promised." American Heritage Dictionary, 1364 (2d College Ed. 1985). Black's Law Dictionary defines "warranty," in the context of a commercial transaction, as follows:

An assurance or guaranty, either express in the form of a statement by a seller of goods, or implied by law, having reference to and ensuring the character, quality, or fitness of purpose of the goods. A warranty is a statement or representation made by seller of goods, contemporaneously with and as part of contract of sale, though collateral to express object of sale, having reference to character, quality, fitness, or title of goods, and by which seller promises or undertakes to insure that certain facts are or shall be as he then represents them. (citations omitted). A promise or agreement by seller that article sold has certain qualities or that seller has good title thereto. A statement of fact respecting the quality or character of goods sold, made by the seller to induce the sale, and relied upon by the buyer.

Black's Law Dictionary, 1586 (6th ed. 1990). According to these definitions, therefore, a warranty typically possesses the following characteristics: (a) a representation by the seller; (b) made at the time of the original transaction and as part of the basis of the bargain; (c) regarding the character, quality, or fitness of the goods sold; and (d) a promise or assurance by the seller to make the goods conform to that representation.

Ford argues that its ESPs are merely "service contracts," which do not possess the requisite characteristics of a "warranty." In support of its argument, Ford relies upon the fifth edition of Black's Law Dictionary, which, according to Ford, defines a "service contract" as "a written agreement to perform maintenance on a consumer product for a specified duration." Defendant's Brief in Support of Cross-Motion for Summary Judgment at 8 (quoting Black's Law Dictionary, 1228 (5th ed. 1979)). While the court was unable to locate Black's fifth edition, the sixth and current edition defines "service contract" as follows:

A written agreement to perform maintenance or repair (or both) service on a consumer product for a specified duration. 15 U.S.C.A. at 2301. See Warranty (Extended service warranty).

Black's Law Dictionary, 1369 (6th ed. 1990). After proceeding to the definition of "warranty," as the definition of "service contract" directs, Black's reveals the following sub-definition of "extended service warranty": Type of additional warranty sold with purchase of ... motor vehicles ... to cover repair costs not otherwise covered by manufacturer's standard warranty. Also known as an extended service contract, such either extends the coverage period or extends the range of potential defects covered beyond the protection furnished in the contract for sale.

Id. at 1587 (emphasis added).

These definitions illustrate precisely why it is difficult to cull from the language of the Act a bright line distinction between terms such as "warranty," "extended warranty," "extended service warranty," "extended service contract," and "service contract." On one hand, a "service contract," which typically contains no representation as to the character, quality, or fitness of the goods sold and need not be part of the original sales transaction, would not appear to satisfy all of the criteria of a "warranty." Indeed, in many respects, an extended service contract is more akin to "repair insurance" than a "warranty." On the other hand, many sources (including Ford's employees and the same law dictionary upon which Ford relies to demonstrate that ESPs are not warranties), rightly or wrongly, use the terms described above interchangeably. See, e.g., Kenneth E. Spahn, Service Warranty Associations: Regulating Service Contracts As "Insurance" Under Florida's Chapter 634, 25 Stetson L. Rev. 597, 610-613 (Spring 1996) ("This general distinction [between insurance and warranty] becomes even more confusing ... as the terms 'service contract' and 'warranty' are often used interchangeably."); Barkley Clark & Christopher Smith, The Law of Product Warranties, P 19.01 (1984) ("The terms 'service contract' and 'written warranty' are used interchangeably in some industries, causing confusion for consumers and business."); Black's Law Dictionary, 1369 (6th ed. 1990); see also Regency Oldsmobile, Inc. v. General Motors Corp., 1988 U.S. Dist. LEXIS 3505, 1988 WL 36336, at *1 (D.N.J. Apr. 19, 1988). As a result, the court finds that the wording of N.J.S.A. 56:10-15, particularly as to the scope of the term "warranty," is, to say the least, not entirely clear. The court may, therefore, look to other sources of statutory construction.

One logical source is New Jersey's New Vehicle Lemon Law (the "New Vehicle Lemon Law"), N.J.S.A. 56:12-29 through 56:12-48, particularly given that, in 1991, the New Jersey Legislature partially incorporated it into the Automobile Warranty Reimbursement Act. *fn3 The purpose of the New Vehicle Lemon Law is to require manufacturers of new motor vehicles "to correct defects originally covered under the manufacturer's warranty which are identified and reported within a specified period." N.J.S.A. 56:12-29. Unlike the Automobile Warranty Reimbursement Act, the New Vehicle Lemon Law defines the terms "manufacturer's warranty" and "warranty" as "any warranty, whether express or implied[,] of the manufacturer[] of a new motor vehicle of its condition and fitness for use, including any terms or conditions precedent to the enforcement of obligations under the warranty." N.J.S.A. 56:12-30 (emphasis added).

-

Contracts that merely promise to repair certain parts of an automobile and do not make any representations about the vehicle's "condition and fitness for use" would not appear to satisfy this definition. Although no reported case has expounded upon the meaning or scope of the term "warranty" in the context of the New Vehicle Lemon Law, a case in which the Supreme Court of Appeals of West Virginia interpreted a similar statute provides some guidance. See Adams v. Nissan Motor Corp. in U.S.A., 182 W. Va. 234, 387 S.E.2d 288 (W. Va. 1989). At issue in Adams was the timeliness of a claim under that state's lemon law, which provides protection during the term of the warranty or one year, whichever is earlier. 387 S.E.2d at 292-93. The plaintiffs in that case argued that their extended service contract (referred to therein as a "Security Plus Agreement") extended the term of their warranty. Id. The court disagreed after evaluating the statute's definition of "warranty," a definition that is virtually identical to the definition under the New Jersey statute. Id. at 293. The court reasoned as follows:

We hold that the Security Plus Agreement is a service contract and not a warranty as intended by W. Va. Code at 46A-6A-5. West Virginia Code at 46A-6A-2(3) defines the 'manufacturer's express warranty' and 'warranty' to mean 'the written warranty of the manufacturer of a new motor vehicle of its condition and fitness for use, including any terms or conditions precedent to the enforcement of obligations under that warranty....' A brief perusal of the actual Security Plus Agreement document reveals that it fails to provide any warranty for fitness for use or the vehicle's condition. Instead, it merely provides for the repair of the vehicle without cost in the event of the mechanical breakdown of certain covered parts listed in the service agreement.

Id.

A similar result was reached in Saladino v. Team Chevrolet, Inc., 242 Ill. App. 3d 735, 611 N.E.2d 583, 183 Ill. Dec. 320 (Ill. App. 2 Dist.), appeal denied, 152 Ill. 2d 580, 190 Ill. Dec. 910, 622 N.E.2d 1227 (Ill. 1993), which found that, in connection with the Magnuson-Moss Warranty Act, an agreement that "does not affirm the quality or workmanship of the automobile [or] ... warrant against defects" and merely "offer[s] to repair certain defects that may occur within a certain time period or number of miles," is not a warranty. Id. at 588.

Another source to be considered is New Jersey's version of the Uniform Commercial Code (the "Code"). The Code's definition of express warranties by affirmation, promise, description, and sample provide, in relevant part, as follows:

(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

N.J.S.A. 12A:2-313(1)(a)-(c). Thus, similar to the New Vehicle Lemon Law's definition, the Code's definition of the term "warranty" includes the fundamental requirement that the seller make a representation or affirmation regarding the product to be sold.

The foregoing authorities, in this court's opinion, support a finding that the New Jersey Legislature did not intend the definition of "warranty" to encompass any extended contract that does not, among other things, contain such a representation. As also discussed above, however, it is equally clear to this court that terms such as "service contract" and "extended service contract" are often used interchangeably and confused with the terms "warranty" and "extended warranty." Unless there is some evidence that the New Jersey Legislature confused these terms or intended that they be used interchangeably, however, this fact alone, given the authorities cited above, cannot carry the day. Although sparse, the evidence that does exist regarding this issue suggests the contrary.

While New Jersey's Used Vehicle Lemon Law, N.J.S.A. 56:8-67 through 8-80, has little other relevance to this matter, particularly given that, by its terms, it does not apply to new vehicles or new vehicle warranties, it illustrates that the New Jersey Legislature, at least as of 1995, was aware that "warranties" and "service contracts" are separate and distinct concepts. Enacted in 1995, the Used Vehicle Lemon Law, among other things, prohibits numerous unlawful practices, including the failure to disclose the existence of any "written warranty, service contract or repair insurance currently in effect on a used motor vehicle," N.J.S.A. 56:8-68(d), and requires dealers to provide at the time of sale a free written warranty, the duration of which depends upon the vehicle mileage. N.J.S.A. 56:8-69. Unlike the Automobile Warranty Reimbursement Act or the New Vehicle Lemon Law, the Used Vehicle Lemon Law defines both of the terms at issue in this matter:

"Warranty" means any undertaking, in writing and in connection with the sale by a dealer of a used motor vehicle, to refund, repair, replace, maintain or take other action with respect to the used motor vehicle, and which is provided at no extra charge beyond the price of the used motor vehicle.

"Service Contract" means a contract in writing to refund, repair, replace, maintain or take other action with respect to a used motor vehicle for any period of time or any specific mileage or provided at an extra charge beyond the price of the used motor vehicle.

N.J.S.A. 56:8-67 (emphasis added). For purposes of this case, the definitions themselves are not relevant, and are arguably misleading. *fn4 What is relevant, however, is that the New Jersey Legislature recognizes that the two concepts exist and are different from one another.

Accordingly, the court is not aware of, nor has it been presented with, any reason to find that the New Jersey Legislature intended the term "warranty" to encompass any agreement, irrespective of the label *fn5 used, that does not possess the following characteristics: (a) a representation by the seller; (b) made at the time of the original transaction and as part of the basis of the bargain; (c) regarding the character, quality, or fitness of the goods sold; and (d) a promise or assurance by the seller to make the goods conform to that representation. Because ESPs do not make any representations regarding the quality, condition, or fitness of the vehicles sold, *fn6 they do not satisfy this definition. *fn7

Finally, albeit parenthetically, as a matter of at least this court's common sense, "warranties" and "service contracts," including Ford's ESPs, embody two quite different concepts. Whenever one purchases a new car, the manufacturer's "warranty," either implicitly or explicitly, represents to him or her that nothing will go wrong with the car during the warranty period, but if it does, the car will be fixed. Such a representation is given to all consumers at the time of every purchase. A service contract, on the other hand, is optional on the part of the consumer and can be obtained, often for a separate fee and always pursuant to a separate contract, long after the consumer purchases the car. More importantly, it does not guarantee the integrity of the car; rather, it recognizes, either implicitly or explicitly, that the car can (or will) start to break down beyond the warranty period and, if (or when) it does, it will be fixed.

If the court's "common sense" makes any sense at all, it further supports its legal conclusion that although ESPs complement and, in some respects, are similar to Ford's limited warranty, under no exercise of statutory construction can they be deemed to fall within the purview of the statute. Had the New Jersey Legislature intended to regulate extended service contracts such as ESPs, it could and, presumably, would have done so. It is not within the province of this court, however, to do judicially what New Jersey's elected officials have not done legislatively. As an esteemed member of the Court of Appeals for the Third Circuit has recently observed, "I do not make the laws. I just work here."

III.

For the reasons discussed above, plaintiff's motion for summary judgment will be denied and defendant's cross-motion for summary judgment will be granted. As a result, plaintiff's complaint will be dismissed.

MARYANNE TRUMP BARRY, U.S.D.J.

Dated: May 27th, 1998

ORDER

This matter having come before the court upon the motion of plaintiff Liberty Lincoln-Mercury, Inc. for summary judgment pursuant to Fed. R. Civ. P. 56(a) and the cross-motion of defendant Ford Motor Company for summary judgment pursuant to Fed. R. Civ. P. 56(b); and the court having reviewed the submissions of the parties without oral argument pursuant to Fed. R. Civ. P. 78; and for the reasons discussed in the opinion of even date;

IT IS ON THIS 27th day of May, 1998;

ORDERED that plaintiff's motion for summary judgment be and hereby is denied and defendant's cross-motion for summary judgment be and hereby is granted; and it is further

ORDERED that plaintiff's complaint be and hereby is dismissed.

MARYANNE TRUMP BARRY, U.S.D.J.


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