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New Jersey Coalition of Automotive Retailers v. DaimlerChrysler Motors Corp.

December 27, 1999

NEW JERSEY COALITION OF AUTOMOTIVE RETAILERS, PLAINTIFF,
v.
DAIMLERCHRYSLER MOTORS CORPORATION, DEFENDANT.



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

FOR PUBLICATION

MEMORANDUM OPINION

This matter comes before the Court on plaintiff's application for a preliminary injunction and defendant's motion for judgment on the pleadings. For the reasons stated, the Court decides the motions as follows: (1) plaintiff's application for a preliminary injunction is granted, and (2) defendant's motion for judgment on the pleadings is denied as to plaintiff's claim premised on the New Jersey Franchise Practices Act and granted as to plaintiff's claim premised on the Automotive Dealers Day in Court Act.

The Court will file an order after determining the size of the bond required by Federal Rule of Civil Procedure 65(c) and whether the order should be made final, thereby obviating the need for a bond. The Court issues an accompanying Order to Show Cause directing the parties to address those two subjects.

BACKGROUND

The parties generally do not dispute the facts underlying this matter. Plaintiff New Jersey Coalition of Automotive Retailers ("NJCAR") is a trade association whose members consist of approximately 650 automotive retailers throughout the state of New Jersey. (Verif. Compl. ¶ 1.) Approximately 150 members of NJCAR currently hold franchises to sell motor vehicles manufactured by defendant DaimlerChrysler Motors Corp. ("DaimlerChrysler"). (Id. ¶ 3.) The relationship between motor vehicle manufacturers such as DaimlerChrysler and their retailers is governed by the New Jersey Franchise Practices Act (the "Act" or "NJFPA"), N.J. Stat. Ann. ("N.J.S.A.") § 56:10-1, et seq.

In addition to selling motor vehicles, automotive retailers are obliged, pursuant to written franchise agreements with motor vehicle manufactures, to provide warranty service on the vehicles that they sell. (Verif. Compl. ¶ 6.) Such warranty service typically includes both labor and parts. (Id.) The NJFPA requires manufacturers to reimburse a dealer at retail prices for the parts sold and the labor performed by a dealer under the manufacturer's warranty provided that the dealer's prevailing retail price is reasonable. N.J.S.A. § 56:10-15. DaimlerChrysler, however, has a warranty parts reimbursement schedule whereby its retailers receive only a 30 to 40 percent markup on warranty parts. (Verif. Compl. ¶ 11.)

The New Jersey Legislature amended the Franchise Practices Act, with the amendment effective on March 12, 1999, to clarify the manufacturer's obligation with respect to the reimbursement for parts used to perform warranty repairs. N.J.S.A. § 56:10-15(d) states in pertinent part:

For the purposes of this section, the "prevailing retail price" charged by a motor vehicle franchisee for parts means the price paid by the motor vehicle franchisee for those parts, including all shipping and other charges, multiplied by the sum of 1.0 and the franchisee's average percentage markup over the price paid by the motor vehicle franchisee for parts purchased by the motor vehicle franchisee from the motor vehicle franchisor and sold at retail. The motor vehicle franchisee may establish average percentage markup under this section by submitting to the motor vehicle franchisor 100 sequential customer paid service repair orders or 90 days of customer paid service repair orders, whichever is less, covering repairs made no more than 180 days before the submission, and declaring what the average percentage markup is. The average percentage markup so declared shall go into effect 30 days following the declaration subject to audit of the submitted repair orders by the motor vehicle franchisor and adjustment of the average percentage markup based on that audit. . . . No motor vehicle franchisor shall require a motor vehicle franchisee to establish average percentage markup by a methodology, or by requiring information, that is unduly burdensome or time consuming to provide, including, but not limited to, part by part or transaction by transaction calculations. . . . Id.

After the effective date of the March 12, 1999 legislation, several NJCAR members requested reimbursement from DaimlerChrysler for warranty parts at prevailing retail prices. (Verif. Compl. ¶ 14.) DaimlerChrysler responded with a letter dated May 27, 1999, which threatened imposition of a $400 per vehicle charge on all DaimlerChrysler vehicles sold in New Jersey if even one retailer sought an increased compensation rate. (Id. ¶ 15.) The letter provides in full:

This letter responds to your letter requesting warranty reimbursement for parts at retail. If DaimlerChrysler Motors Corporation pays any dealer an increased compensation rate for parts, pursuant to the dealer's request under New Jersey Law, then DaimlerChrysler will initiate the following action:

DaimlerChrysler Motors Corporation will discontinue using the current 30% and 40% warranty parts markup rates effective with warranty repairs on and after June 12, 1999. Payment for parts used in warranty work by New Jersey dealers will automatically be made at DaimlerChrysler Motor Corporation's published suggested retail parts price, except where valid requests are made by individual dealers pursuant to New Jersey law. Further information concerning payment and reimbursement details will be contained in a subsequent warranty bulletin.

In order to recover these increased costs, DaimlerChrysler Motors Corporation will institute a $400 surcharge on the invoice for all vehicles sold to and shipped to New Jersey dealers, or other equivalent measures. The additional charges will go into effect July 1, 1999.

In the event there are no requests by any dealership in New Jersey for retail rate reimbursement, then DaimlerChrysler Motors Corporation will not institute the above action. (Verif. Compl., Ex. B: Letter from R.D. Ciesta dated 5-27-99.)

M.J. MacDonald, a representative of DaimlerChrysler, transmitted a nearly identical message to all DaimlerChrysler New Jersey retailers via electronic mail on May 26, 1999. (Id., Ex C: ...


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