1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-17-1999

Liberty Lincoln v. Ford Mtr Co

Precedential or Non-Precedential:

Docket 98-6135

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Recommended Citation

"Liberty Lincoln v. Ford Mtr Co" (1999). 1999 Decisions. Paper 65.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/65
Filed March 17, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 98-6135 

LIBERTY LINCOLN-MERCURY, INC. 

 Appellant 

v. 

FORD MOTOR COMPANY 

On Appeal from the United States District Court 

for the District of New Jersey 

(Civil Action No. 96-6037 (MTB)) 

District Judge: Hon. Maryanne Trump Barry 

Argued January 11, 1999 

BEFORE: GREENBERG and SCIRICA, Circuit Judges, 

and CARMAN,* Chief Judge, 

U.S. Court of International Trade 

(Filed: March 17, 1999) 

 ERIC L. CHASE, ESQ. (ARGUED) 

 Bressler, Amery & Ross, P.C. 

 P.O. Box 1980 

 Morristown, New Jersey 07962 

 Attorney for Appellant 

_________________________________________________________________ 

*Honorable Gregory W. Carman, Chief Judge of the United States Court 

of International Trade, sitting by designation. 
 DENNIS R. LAFIURA, ESQ. (ARGUED) 

 Pitney, Hardin, Kipp & Szuch 

 P.O. Box 1945 

 Morristown, New Jersey 07962-1945 

 Attorney for Appellee 

OPINION OF THE COURT 

CARMAN, Chief Judge: 

I. INTRODUCTION 

This is an appeal of the district court's order directing 

summary judgment for appellee, Ford Motor Company 

(Ford), and denying summary judgment for appellant,

Liberty Lincoln-Mercury, Inc. (Liberty). Appellant challenges 

the district court's determination that, as a matter of law, 

Ford's Extended Service Plans (ESPs) are not included 

under the New Jersey Franchise Practices Act (FPA). N.J. 

STAT. ANN. SS 56:10-1 to 10-15 (West 1999). Appellant also 

challenges the district court's dismissal of its additional 

common law and statutory claims. Additionally, appellant 

argues it is entitled to summary judgment against Ford 

because of Ford's refusal to pay the retail reimbursement 

rate under the FPA. 

The FPA obligates the franchisor to "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 for such services and parts" in satisfaction of a 

warranty. S 56:10-15(a). Ford requires its dealers to repair 

and replace parts under both Ford's standard written 

warranties and Ford's ESPs, however, the reimbursement 

rate differs under each contract type. Ford reimburses 

dealers for standard written warranty repairs at the"retail 

rate" for the parts and work done. In 1991, Ford recognized 

Liberty's retail rate to be seventy seven percent over dealer 

cost. When a dealer performs ESP-covered repairs, however, 

it is reimbursed for labor at a prescribed labor rate 

multiplied by the applicable Ford Service Time Standard for 

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the repair involved. Dealers are reimbursed for parts 

supplied in performing ESP repairs according to formulae 

that provide for reimbursement at only thirty to forty 

percent markups over dealer cost depending upon the

model year of the vehicle. 

The district court permitted the distinction in 

reimbursement rates between Ford's ESPs and standard 

written warranties because it characterized the Ford ESPs 

as service contracts and determined that there was a 

distinction under New Jersey law between service contracts 

and warranties. The district court concluded that"under no 

exercise of statutory construction can [Ford's ESPs] . . . fall 

within the purview of the [FPA]." Liberty Lincoln-Mercury, 

Inc. v. Ford Motor Co., 8 F. Supp. 2d 450, 457 (D.N.J. 1998) 

(Liberty III). 

We reject the district court's characterization of Ford's 

ESPs. This Court concludes an ESP contract may include 

warranty provisions that fall under the FPA because at 

least some of the ESPs cover defects in factory-supplied 

parts or workmanship, as do the standard warranties. 

Based on this conclusion, we must determine whether

there is sufficient evidence to create a genuine issue of 

material fact, a decision that turns, in part, on whether 

provisions of Ford's ESPs formed part of the basis of the 

bargain for sales of Ford vehicles. Because we find that 

provisions of Ford's ESPs may or may not have formed part 

of the basis of the bargain for sales of vehicles by appellant, 

we conclude there is a genuine issue of material fact, and 

summary judgment is inappropriate. Accordingly, the

judgment of the district court is vacated, and the case is 

remanded for trial. 

II. FACTUAL BACKGROUND 

The facts of this case have been set forth in great detail 

in Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 923 F. 

Supp. 665 (D.N.J. 1996) (Liberty I), aff 'd in part, rev'd in 

part, rev'd and vacated in part on other grounds, 134 F.3d 

557 (3rd Cir. 1998) (Liberty II).1 The pertinent facts to this 

appeal are set forth below. 

_________________________________________________________________ 

1. In Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 134 F.3d 557 (3rd 

Cir. 1998), this Court applied the Franchise Practices Act (FPA), N.J. 

STAT. ANN. S 56:10-1 to 10-15 (West 1999), to Ford's reimbursement of its 

licenced franchised dealers who made repairs pursuant to warranties 

issued by Ford. 

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A. Standard Warranties 

Ford manufactures automobiles, including Lincoln and 

Mercury vehicles, and sells them through franchised

dealers. Liberty is one such dealer. Ford's relationship with 

Liberty is governed by a Lincoln Sales and Service 

Agreement and a Mercury Sales and Service Agreement. 

Every vehicle Ford sells to its dealers for resale comes with 

a standard written Ford New Vehicle Limited Warranty 

(Standard Warranty). The Standard Warranty contains a 

bumper to bumper warranty that requires dealers to repair, 

replace or adjust all parts, except tires, of the vehicle sold 

that are defective with regard to factory-supplied materials 

or workmanship up to a specified period of years or

mileage, whichever comes first. The Standard Warranty also 

covers safety belts and supplemental restraint systems. 

Body sheet metal panels are covered against corrosion for 

a limited period of time or miles, whichever comesfirst. The 

Standard Warranty's cost is built into the price of each new 

vehicle sold by Ford to the dealer and by the dealer to the 

end consumer. Purchasers of Ford vehicles do not pay any 

additional consideration for the Standard Warranty nor can 

they purchase new vehicles without the Standard Warranty. 

B. Extended Service Plans 

In addition to its Standard Warranty, Ford also offers a 

variety of ESPs which "protect owners against the 

repair/replacement costs of specific major components after 

warranty." For example, Ford's Base ESP "adds to [the] 

vehicle's standard 6/60 powertrain warranty, covering 

many more parts and repairs." The Base ESP "[c]overs 82 

major components against defects in factory-supplied 

materials or workmanship." Other ESPs also provide 

additional services such as coverage for scheduled 

maintenance services on covered components and 

replacement of certain items due to wear and tear. 

Ford sells ESPs to its participating dealers who, in turn, 

offer the ESPs for sale to owners of used and new Lincoln 

and Mercury automobiles. An ESP is purchased in a 

separate, optional contract, usually for additional 

consideration.2 An ESP may be transferred by the 

_________________________________________________________________ 

2. There is at least one example in the record where as part of a 

promotion a Ford Extended Service Plan (ESP) contract appears to have 

been available without additional consideration. 

 4 
purchaser to a subsequent purchaser of the vehicle only by 

paying a fee to Ford. Dealers do not have to sell Ford ESPs 

and may sell ESPs offered by other providers, including 

themselves. Some eighty percent of Ford dealers sell Ford 

ESPs, and around sixty percent of Ford dealers sell

competing ESPs. An ESP purchaser may cancel a Ford 

ESP, and he will receive a refund of a portion of the ESP's 

purchase price. Finally, an ESP is not available for 

purchase after the Standard Warranty expires. 

Ford dealers must perform all Standard Warranty and

ESP work on all Ford cars sold by a dealer. Dealers risk 

franchise termination if they refuse service. As with 

Standard Warranties, dealers must purchase all parts used 

for ESP repairs from Ford at prices set by Ford, and the 

dealer must absorb the attendant business costs, such as 

storage and inventory control, for those parts. Dealers 

seeking reimbursement from Ford for ESP repairs must use 

the same forms and processes for the submission of their 

claims as they use for their Standard Warranty claims. 

III. STANDARD OF REVIEW 

This Court's review of a district court's grant of summary 

judgment is plenary. See Matthews v. Lancaster Gen. Hosp., 

87 F.3d 624, 632 (3rd Cir. 1996). Circuit courts "owe no 

deference to district court adjudications of state law," 

Leavitt v. Jane L., 518 U.S. 137, 145 (1996), even though 

the district court may have "local expertise." Salve Regina 

College v. Russell, 499 U.S. 225, 235-40 (1991). This Court 

must determine whether the record, when viewed in the 

light most favorable to appellant, Liberty, shows that there 

are no genuine issues of material fact and that appellee, 

Ford, was entitled to judgment as a matter of law. See 

Salley v. Circuit City Stores, Inc., 160 F.3d 977, 980 (3rd 

Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 

322-23 (1986)). 

IV. THE FRANCHISE PRACTICES ACT 

The FPA requires franchisors to "reimburse each motor 

vehicle franchisee for such services as are rendered and for 

such parts as are supplied, in an amount equal to the 

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prevailing retail price charged by such motor vehicle 

franchisee for such services and parts." S 56:10-15(a). 

Reimbursement is required "[i]f 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." Id. In order to 

make a prima facie case under the FPA, a plaintiff must 

show that the services or parts for which it is seeking 

reimbursement at the retail rate were performed or replaced 

pursuant to an agreement that is a "warranty" under the 

FPA. 

The FPA does not define the term "warranty." In the

absence of a specific statutory definition, the language of 

the statute should be given its "ordinary meaning and 

construed in a common sense manner to accomplish the 

legislative purpose." N.E.R.I. Corp. v. New Jersey Highway 

Auth., 686 A.2d 328, 335 (N.J. 1996) (quoting State v. 

Pescatore, 516 A.2d 261, 264 (N.J. Super. Ct. App. Div. 

1996)); see also Manalapan Realty, L.P. v. Township Comm. 

of the Township of Manalapan, 658 A.2d 1230, 1239 (N.J. 

1995) (citations omitted). 

The district court found, and this Court agrees, that the 

ordinary definition of "warranty" is unhelpful in resolving 

the issue before the Court. WEBSTER'S THIRD NEW INTERNATIONAL 

DICTIONARY 2578 (1981) defines "warranty" as: 

 [a] usu. written guarantee of the integrity of a product 

 and the good faith of the maker given to the purchaser 

 and generally specifying that the maker will for a 

 period of time be responsible for the repair or 

 replacement of defective parts and will sometimes also 

 provide periodic servicing. 

BLACK'S LAW D ICTIONARY 1586 (6th Ed. 1990) defines

"warranty" as: 

 [a]n 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 a part of 

 contract of sale, though collateral to express object of 

 6 
 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. 

Therefore, contracts that only promise to repair certain 

parts of a vehicle and do not make any representations 

about the vehicle's "integrity," "character," "quality" or 

"fitness" would not appear to satisfy either of the above 

definitions. 

A "service contract," however, which is included as a 

subspecies of warranty under BLACK'S "extended service 

warranty" definition, is defined in BLACK'S as "[a] written 

agreement to perform maintenance or repair (or both) 

service on a consumer product for a specified duration. 15 

U.S.C.A. S 2301, See Warranty (Extended service warranty).3 

" Id. at 1369. Unlike warranties, service contracts do not 

need to have a representation about a good's quality, 

fitness or integrity and need not be part of the original 

contract of sale. Nevertheless, they are included as a 

subspecies of warranty under BLACK'S definition. Thus, it 

appears there is no bright line definition of the term 

"warranty."4 Since the term "warranty" in the FPA is not 

clear and the ordinary meaning is unhelpful, the Court 

should read the statute as a whole and read the FPA in 

"full light of its history, purpose and context." Koch v. 

Director, Division of Taxation, 1999 WL 14127, *3 (N.J. 

1999) (citations omitted). 

_________________________________________________________________ 

3. BLACK'S LAW DICTIONARY 1587 (6th Ed. 1990) defines "extended service 

warranty" as a: 

 [t]ype of additional warranty sold with purchase of appliances, 

motor 

 vehicles, and other consumer goods to cover repair costs not 

 otherwise covered by manufacturer's standard warranty. Also known 

 as an extended services contract, such either extends the coverage 

 period or extends the range of potential defects covered beyond the 

 protection furnished in the contract of sale. 

4. The district court discussed at length the widespread confusion over 

the two terms and how "extended warranty" and"service contract" are 

often used interchangeably. See Liberty Lincoln-Mercury, Inc. v. Ford 

Motor Co., 8 F. Supp. 2d. 450, 454 (D. N.J. 1998). 

 7 
The legislative history of the FPA, however, offers little or 

no assistance in defining the term "warranty" under the 

FPA. See Legislative Statement, L.1977, c.84, S 3, Assembly 

No. 1956 (N.J. May 24, 1976). The legislative history speaks 

only to the purpose of the statute. The purpose is twofold: 

first, to "safeguard consumers;" and second, to "offer[ ] 

protection to the competent retailer against arbitrary 

actions by manufacturers." Id. This Court has held that the 

FPA is a "remedial statute intended to equalize the disparity 

of bargaining power in franchisor-franchisee relations." 

Liberty II, 134 F.3d at 566. Thus, the only legislative intent 

that can be discerned from the FPA's history is that the 

definition of "warranty" must be construed in a way that 

protects the "competent retailer" from "arbitrary actions by 

manufacturers." 

When the ordinary meaning of a statute and the statute's 

legislative history fail to provide sufficient guidance to a 

term's meaning, sound principles of statutory construction 

instruct the Court to look to other statutes pertaining to 

the same subject matter which contain similar terms.5 See 

2B NORMAN J. SINGER, SUTHERLAND ON STATUTORY CONSTRUCTION 

SS 51.01, 51.02, 51.03 (5th Ed. 1992). A prior statute's 

definition of the term will control if it is natural and 

reasonable to think that the members of the legislature, in 

drafting the new statute, were influenced by the prior 

statute. See id.; see also, e.g., In the Matter of Return of 

Weapons to J.W.D., 693 A.2d 92, 115-17 (N.J. 1997); State 

v. Brown, 126 A.2d 161, 166 (N.J. 1956). 

_________________________________________________________________ 

5. The parties direct the Court's attention to four statutes, only one of 

which, the Uniform Commerce Code (UCC), the Courtfinds helpful. The 

first three statutes are the New Jersey New Vehicle Lemon Law (NVLL), 

N.J. STAT. ANN. SS 56:12-29 to 12-49 (West 1999), the New Jersey Used 

Vehicle Lemon Law (UVLL), N.J. STAT. A NN. SS 56:8-67, 56:8-67.1 (West 

1999), and the Magnuson-Moss Warranty Act (MMWA), 15 U.S.C.A. 

SS 2301-2312 (West 1999). The UVLL is unhelpful because it does not 

apply to new vehicles or new vehicle warranties. The NVLL is unhelpful 

because it uses the term "warranty" to define itself. See S 56:12-30. The 

MMWA is unhelpful because it is a federal statute and therefore does not 

speak to the intent of the New Jersey legislature with regard to the use 

of the term "warranty." The fourth statute is New Jersey's incorporation 

of the UCC and is addressed in the text. 

 8 
The Uniform Commercial Code (UCC) is the law that 

governs commercial transactions in New Jersey and was 

incorporated into law in New Jersey before the FPA was 

enacted. See N.J. STAT. ANN . S 12A:1-102(2)(b) (West 1999). 

The UCC provides "unified coverage of its subject matter" 

and avoids repeals by implication. S 12A:1-104. The Court 

will use the UCC's definition of "warranty," see S 12A:2- 

313(1), to discern the meaning of "warranty" under the FPA. 

The Court uses this definition for two reasons.6 First, 

Article Two of the UCC applies to transactions in goods, see 

S 12A:2-102, and the "warranty" contemplated in section 

10-15 of the FPA is related to a sale of a good, a motor 

vehicle. Second, there is nothing in the FPA that explicitly 

repeals the UCC as to automobile warranties. 

We find the UCC's definition of warranty compelling and 

look to its elements to determine the definition of warranty 

under the FPA. Unlike the district court, however, we find 

that an ESP contract may include warranty provisions that 

fall under the FPA, notwithstanding the fact that the same 

ESP contract may also include service provisions. See, e.g., 

Newmark v. Gimbel's Inc., 258 A.2d 697, 701 (N.J. 1969) 

(finding that a warranty exists "with no less force" in a 

"hybrid" sale and service contract "than it would have in 

the case of a simple sale"). We now turn to the elements of 

a warranty under the UCC. 

The New Jersey UCC defines "express warranties" as:

 (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 

_________________________________________________________________ 

6. The UCC definition of warranty is also instructive because the rules of 

statutory interpretation suggest that statutes with similar purposes be 

construed with reference to each other. See State v. DiCarlo, 338 A.2d 

809, 811 (N.J. 1975). Both the UCC and the FPA strive to protect 

consumers in their purchases. S 12A:2-312, Official Comment 4; 

Legislative Statement, L.1977, c.84, S 3, Assembly No. 1956 (N.J. May 

24, 1976). 

 9 
 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. 

S 12A:2-313(1). 

The UCC makes it clear that an express warranty is 

created when a promise is made by a seller to a buyer 

which relates to a good and becomes part of the basis of 

the bargain. See S 12A:2-313(1). The seller promises that 

the good sold will conform to some standard which may be 

established by a model, a level of quality, an assurance, a 

description or a list of specifications. The UCC does not 

require the use of formal words of promise or that the seller 

have a specific intention to warrant the good but rather 

that the substance of the sales agreement contains a 

promise of conformity as described above. See S 12A:2- 

313(2). 

The policy behind a warranty should also be taken into 

consideration when determining whether a warranty exists. 

Generally, the seller knows more about the good and is 

better able to absorb any loss resulting from a dangerous 

condition relating to the good than the buyer. See Cintrone 

v. Hertz Truck Leasing & Rental Servs., 212 A.2d 769, 775 

(N.J. 1965) ("Warranties of fitness are regarded by law as 

an incident of transaction because one party to the

relationship is in a better position than the other to know 

and control the condition of the chattel transferred and to 

distribute the losses that may occur because of a 

dangerous condition the chattel possess."). It must be 

emphasized, however, that not all promises of conformity to 

some standard are warranties; to be a warranty, the

promise must also be part of the basis of the bargain for 

the purchase of the good. 

What constitutes "part of the basis of the bargain" is 

hard to define. See 3 MARY ANNE FORAN, WILLISTON ON SALES 

S 17-7 (5th Ed. 1994). The UCC does not define what

constitutes "part" or "basis." This Court has held that a 

promise is presumed to be a "part of the basis of the 

 10 
bargain" under New Jersey law "once the buyer has become 

aware of the affirmation of fact or promise . . . ." Cipollone 

v. Liggett Group, Inc., 893 F.2d. 541, 568 (3rd Cir. 1990), 

overruled on other grounds, 505 U.S. 504 (1992). The 

defendant may rebut this presumption by " `clear 

affirmative proof ' . . . that the buyer knew that the 

affirmation of fact or promise was untrue."7 Id. 

WILLISTON ON SALES notes that "bargain" does not refer to a 

specific fixed point in time but rather to the relationship 

between the parties to a commercial transaction. See 

WILLISTON ON SALES atS 17-7; see also, e.g., Autzen v. John C. 

Taylor Lumber Sales, Inc., 572 P.2d 1322, 1325 (Or. 1977) 

(The bargain relevant to the creation of a warranty under 

the UCC does not occur at any fixed point in time but 

"describes the commercial relationship between the parties 

as to the product."). Indeed, Official Comment Seven to 

section 2-313 of the UCC states that: 

 The precise time when words of description or 

 affirmation are made or samples are shown is not 

 material. The sole question is whether the language or 

 samples or models are fairly to be regarded as part of 

 the contract. If language is used after the closing of the 

 deal . . . the warranty becomes a modification, and 

 need not be supported by consideration if it is 

 otherwise reasonable and in order (emphasis added). 

S 12A:2-313, Official Comment 7. Thus, the focus is not on 

any particular language at a particular point in time but 

whether the seller's actions or language when viewed in 

light of his relationship with the buyer were fairly regarded 

as part of the contract to purchase the good. 

Appellant, Liberty, argues that Ford's ESPs are always 

part of the basis of the bargain in the sale of Ford vehicles 

by Ford dealers and must be viewed either as part of the 

_________________________________________________________________ 

7. This Court recognizes that reliance may become a factor in 

determining whether or not an affirmation of fact or promise is part of 

the basis of the bargain. If the defendant has proven non-belief, the 

plaintiff may still recover economic damages if he can prove reliance 

despite non-belief. See Cipollone v. Liggett Group, Inc., 893 F.2d. 541, 

568 n.31 (3rd Cir. 1990), overruled on other grounds, 505 U.S. 504 

(1992). 

 11 
original contract or as a post-sale modification of the sales 

contract. Additionally, Liberty argues that Ford ESPs 

purchased after the original sale of the vehicle are valid 

post-sale modifications of the original sale and part of the 

basis of the bargain of the original sale because the initial 

transaction contained the opportunity to obtain a Ford ESP 

and that opportunity remains open as part of the 

transaction until the termination of the Standard Warranty. 

Liberty bases its assertions on Ford's promotional 

literature, the fact that ESPs are available only to 

purchasers of new Ford vehicles and the fact that Ford 

ESPs are specific to the particular vehicle sold. 

Appellee, Ford, argues that its ESPs are not part of the 

basis of the bargain in the sales of its vehicles since they 

are contracts separate from the sales agreements and 

require additional consideration. Given the definition of 

"warranty" discussed above, this Court finds that there is a 

genuine issue of material fact as to whether provisions in at 

least some Ford ESPs form a part of the basis of the 

bargain in the sale of a vehicle by appellant Liberty. As a 

result, this Court concludes that this case must be

remanded for trial. 

V. CONCLUSION 

For the foregoing reasons, we vacate the district court's 

order of summary judgment and remand this case for a 

determination consistent with this opinion. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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