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Sharon Mcgarvey, et al v. Penske Automotive Group

March 31, 2011

SHARON MCGARVEY, ET AL., PLAINTIFFS,
v.
PENSKE AUTOMOTIVE GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Jerome B. Simandle

OPINION

SIMANDLE, District Judge:

I. INTRODUCTION

This putative class action involves warranties alleged to be prohibited by the Magnuson Moss Warranty Act ("MMWA"), 15 U.S.C. § 2302. This Court previously granted Defendants' motion to dismiss the First Amended Complaint because it did not allege sufficient facts to show that the warranty in question violated the MMWA, but permitting Plaintiffs the opportunity to move for an amendment to cure the defect. The case is now before the Court upon Plaintiffs' motion to file a Second Amended Complaint, which attempts to add allegations necessary to show that the warranty is prohibited by the MMWA [Docket Item 99]. Defendants Penske Automotive Group, Inc. ("PAG") and United Autocare Products, Inc. and United Autocare, Inc. ("UAP") argue that the amendment is futile [Docket Item 100], and Defendant Innovative Aftermarket Systems ("IAS") agrees for similar reasons [Docket Item 101].

Because the MMWA does not provide Plaintiffs with a private right of action, they are suing under New Jersey's Truth-In-Consumer Contract, Warranty and Notice Act ("NJTCCA"), N.J. Stat. Ann. § 56:12-15; they also seek declaratory judgment that the warranty is void and restitution under a theory of unjust enrichment. The principal issues to be decided by the Court are: first, whether the proposed Second Amended Complaint alleges facts sufficient to show that the Defendants violated a "clearly established" legal right under the NJTCCA; and second, whether, if the warranty is prohibited by the MMWA, the warranty is void or voidable, entitling Plaintiffs to declaratory judgment and the return of their consideration under a theory of unjust enrichment. For the reasons explained below, the Court finds that the consumer right at issue here is not "clearly established," and that the warranty is not voidable even if it is prohibited under the MMWA. Therefore, the Court will deny the motion to amend as futile.

II. BACKGROUND

As explained in this Court's previous two opinions in this matter, this case involves a limited warranty issued with the IBEX Anti-Theft Etch System, a product designed to deter automobile theft. McGarvey v. Penske Automotive Group, Inc. ("McGarvey I"), 639 F. Supp. 2d 450, 457 (D.N.J. 2009); McGarvey v. Penske Automotive Group, Inc. ("McGarvey II"), Civil No. 08-5610 (JBS/AMD), 2010 WL 1379967 (D.N.J. March 29, 2010); (Second Am. Compl. ¶¶ 1-2). The IBEX system is manufactured by IAS, distributed to dealerships by UAP, and sold by automobile dealerships owned by PAG. (Id. ¶ 2.) The warranty provides in relevant part:

[If the vehicle is stolen] we will provide the customer with a replacement vehicle, by issuing at the dealership listed in this Warranty, a credit in the name of the Customer (up to $2,500 or $5,000 or $7,500 check one) to be applied towards the purchase of the replacement vehicle. (Second Am. Compl. ¶ 43) Plaintiffs argue that the terms of the warranty constitute an unlawful product tying arrangement that is prohibited by the MMWA because it requires the purchase of a replacement vehicle from a particular dealership in order to confer any benefit, and that even though their vehicles were not stolen, merely having been a party to such a warranty is sufficient for relief. (Id. ¶ 4.)

In McGarvey I, this Court determined that Plaintiffs could not state an independent claim under the MMWA, because they did not meet the requirements for that statute's private right of action. McGarvey I, 639 F. Supp. 2d at 457. The Court ruled, however, that Plaintiffs may have a cause of action under the NJTCCA based on the MMWA's anti-tying provision, even in circumstances in which the MMWA does not itself provide an independent federal cause of action. Id. at 458. The NJTCCA provides a cause of action when a defendant offers "any written consumer warranty . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee as established by State or Federal law at the time the offer is made." N.J. Stat. Ann. § 56:12-15. Thus, the Court held that Plaintiffs' NJTCCA claim could proceed if they could show that the warranty violated a right clearly established by the MMWA, even if the MMWA required additional conditions be met in order to have a private right of action for that violation. McGarvey I, 639 F. Supp. 2d at 464.

In McGarvey I, the Court also found that the IBEX warranty was prohibited by the MMWA. Id. at 463. The anti-tying provision of the MMWA proscribes warranties on consumer products that condition the warranty "on the consumer's using, in connection with such product, any article or service (other than [an] article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name." § 2302(c). The IBEX warranty requires that in order to receive the credit for replacement of the stolen vehicles, the consumer must purchase a vehicle at the named dealership listed in the warranty. The Court found that this tying of the benefit of the warranty to a purchase made at a particular dealership violated § 2302(c) of the MMWA. McGarvey I, 639 F. Supp. 2d at 463.

After McGarvey I, Plaintiffs amended their complaint to reflect the Court's ruling. [Docket Item 51.] The First Amended Complaint maintains Plaintiffs' claims on the basis of common law unjust enrichment and the NJTCCA and adds a claim for declaratory judgment that the IBEX warranties are void and unenforceable.

On reconsideration of McGarvey I, the Court found that it had not taken into account other MMWA provisions which affect the interpretation of the anti-tying provision. McGarvey II, 2010 WL 1379967, at *9. As explained in McGarvey II, additional provisions of the MMWA make it clear that the statute cannot be read as a blanket prohibition on any warranty provision that requires the consumer to purchase some product or service identified by "brand, trade, or corporate name" in order to gain the benefit of the warranty. Id. at *7. The Court found that the statute requires an assessment of whether a credit toward repurchase is "severable," in the sense the term was used by the Commissioner of the Federal Trade Commission in an early opinion interpreting the statute. Id.

As explained in McGarvey II, a warranty's benefit is severable if the warrantor's prerogative to designate who performs its obligations under the warranty is severable from the consumer's prerogative to choose what products or services to purchase for use in connection with the warranted product. Id. For example, a warrantor can choose who performs the installation of a replacement part without affecting the consumer's ability to choose which producer of the parts to purchase from. In such a case, the prerogatives are severable, and the warrantor may choose the servicer, but not the brand of repair parts. Choosing the brand of replacement parts would violate the anti-tying provision. An example of where they are not severable is where the warrantor pays for half of the parts and services, because the warrantor has a direct financial interest in both which parts are purchased and who performs the service. The Court found that it erred in not requiring Plaintiffs to allege facts showing that the prerogatives of the warrantor and consumer in this case are severable. Id. at *8.

In response to McGarvey II, Plaintiffs seek leave to file a Second Amended Complaint containing allegations showing that the prerogatives of the warrantor and consumer in this case are severable (Second Am. Compl. ΒΆΒΆ 52-57). Defendants oppose the amendment, arguing that it is futile in several respects. Among other things, Defendants argue that because the Court's interpretation of the MMWA's anti-tying provision was based on a question of first impression about the scope of that provision, they cannot be said to have violated a "clearly established" consumer right under the NJTCCA. Defendants also maintain that the MMWA's explicit remedies and limited private right of action foreclose Plaintiffs' remedies which are based on ...


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