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. e du/thir dc ir c uit_1999/65Filed 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

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*Honorable Gregory W. Carman, Chief Judge of the Un ited 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 dir ecting 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 matte r of law, Ford's Extended Service Plans (ESPs) are not includ ed under the New Jersey Franchise Practices Act (FPA). N.J. STAT. ANN. SS 56:10-1 to 10-15 (West 1999). Appella nt also challenges the district court's dismissal of its ad ditional common law and statutory claims. Additionally, appe llant argues it is entitled to summary judgment against F ord because of Ford's refusal to pay the retail reimbur sement
rate under the FPA.

The FPA obligates the franchisor to "reimburse each
motor vehicle franchisee for such services as are r endered and for such parts as are supplied, in an amount eq ual to the prevailing retail price charged by such motor v ehicle franchisee for such services and parts" in satisfac tion of a warranty. S 56:10-15(a). Ford requires its dealers to repair and replace parts under both Ford's standard writte n warranties and Ford's ESPs, however, the reimbursem ent rate differs under each contract type. Ford reimbur ses dealers for standard written warranty repairs at th e"retail rate" for the parts and work done. In 1991, Ford re cognized Liberty's retail rate to be seventy seven percent o ver dealer cost. When a dealer performs ESP-covered repairs, h owever, it is reimbursed for labor at a prescribed labor ra te multiplied by the applicable Ford Service Time Stan dard for

2the repair involved. Dealers are reimbursed for par ts

supplied in performing ESP repairs according to for mulae that provide for reimbursement at only thirty to fo rty 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 standar d
written warranties because it characterized the For d ESPs
as service contracts and determined that there was a distinction under New Jersey law between service co ntracts
and warranties. The district court concluded that"u nder no exercise of statutory construction can [Ford's ESPs ] . . . fall within the purview of the [FPA]." Liberty Lincoln-M ercury, 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 incl ude warranty provisions that fall under the FPA because at least some of the ESPs cover defects in factory-sup plied parts or workmanship, as do the standard warranties

. Based on this conclusion, we must determine whether there is sufficient evidence to create a genuine is sue of material fact, a decision that turns, in part, on w hether 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 forme d part of the basis of the bargain for sales of vehicles b y appellant, we conclude there is a genuine issue of material fa ct, 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, 1 34 F.3d 557 (3rd Cir. 1998) (Liberty II).1 The pertinent f acts to this appeal are set forth below.

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1. In Liberty Lincoln-Mercury, Inc. v. Ford Motor C o., 134 F.3d 557 (3rd Cir. 1998), this Court applied the Franchise Practi ces 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 pursua nt to warranties issued by Ford.

3A. Standard Warranties

Ford manufactures automobiles, including Lincoln an d Mercury vehicles, and sells them through franchised dealers. Liberty is one such dealer. Ford's relatio nship 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 Warrant y (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 v ehicle 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 Warran ty also covers safety belts and supplemental restraint syst ems. Body sheet metal panels are covered against corrosi on for a limited period of time or miles, whichever comesf irst. The Standard Warranty's cost is built into the price of each new vehicle sold by Ford to the dealer and by the deale r to the end consumer. Purchasers of Ford vehicles do not pa y any additional consideration for the Standard Warranty nor can they purchase new vehicles without the Standard War ranty.

B. Extended Service Plans

In addition to its Standard Warranty, Ford also off ers a variety of ESPs which "protect owners against the repair/replacement costs of specific major componen ts after warranty." For example, Ford's Base ESP "adds to [t he] vehicle's standard 6/60 powertrain warranty, coveri ng many more parts and repairs." The Base ESP "[c]over s 82 major components against defects in factory-supplie d 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, i n turn,
offer the ESPs for sale to owners of used and new L incoln and Mercury automobiles. An ESP is purchased in a separate, optional contract, usually for additional consideration.2 An ESP may be transferred by the

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2. There is at least one example in the record wher e as part of a promotion a Ford Extended Service Plan (ESP) contra ct appears to have
been available without additional consideration.

4purchaser to a subsequent purchaser of the vehicle only by

paying a fee to Ford. Dealers do not have to sell F ord ESPs and may sell ESPs offered by other providers, inclu ding themselves. Some eighty percent of Ford dealers sel l 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 t he ESP's purchase price. Finally, an ESP is not available fo r 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 wi th Standard Warranties, dealers must purchase all part s used for ESP repairs from Ford at prices set by Ford, an d the dealer must absorb the attendant business costs, su ch as storage and inventory control, for those parts. Dea lers seeking reimbursement from Ford for ESP repairs mus t use the same forms and processes for the submission of their claims as they use for their Standard Warranty clai ms.

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 "o we 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." Salv e Regina College v. Russell, 499 U.S. 225, 235-40 (1991). Th is Court must determine whether the record, when viewed in t he light most favorable to appellant, Liberty, shows t hat there are no genuine issues of material fact and that app ellee, 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 mot or vehicle franchisee for such services as are rendere d and for such parts as are supplied, in an amount equal to t he

5prevailing retail price charged by such motor vehic le

franchisee for such services and parts." S 56:10-15 (a). Reimbursement is required "[i]f any motor vehicle f ranchise shall require or permit motor vehicle franchisees t o perform services or provide parts in satisfaction of a warr anty issued by the motor vehicle franchisor." Id. In ord er to make a prima facie case under the FPA, a plaintiff must show that the services or parts for which it is see king 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 lan guage of the statute should be given its "ordinary meaning a nd construed in a common sense manner to accomplish th e 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, th at the ordinary definition of "warranty" is unhelpful in r esolving
the issue before the Court. WEBSTER'S THIRD NEW INT ERNATIONAL 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 some times 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 ch aracter, quality, or fitness of purpose of the goods. A warranty is a statement or representation made by sel ler of goods, contemporaneously with and as a part of contract of sale, though collateral to expre ss object of

6sale, 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 ce rtain parts of a vehicle and do not make any representati ons about the vehicle's "integrity," "character," "qual ity" 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 serv ice 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 durat ion. 15 U.S.C.A. S 2301, See Warranty (Extended service war ranty).3 " Id. at 1369. Unlike warranties, service contracts do not need to have a representation about a good's qualit y, fitness or integrity and need not be part of the or iginal contract of sale. Nevertheless, they are included a s a subspecies of warranty under BLACK'S definition. Th us, it appears there is no bright line definition of the t erm "warranty."4 Since the term "warranty" in the FPA i s not clear and the ordinary meaning is unhelpful, the Co urt
should read the statute as a whole and read the FPA in "full light of its history, purpose and context." K och v. Director, Division of Taxation, 1999 WL 14127, *3 ( N.J. 1999) (citations omitted).

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3. BLACK'S LAW DICTIONARY 1587 (6th Ed. 1990) defin es "extended service warranty" as a:

[t]ype of additional warranty sold with purc hase 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 eithe r extends the coverage period or extends the range of potential def ects covered beyond the protection furnished in the contract of sale

.

4. The district court discussed at length the wides pread confusion over the two terms and how "extended warranty" and"servi ce contract" are often used interchangeably. See Liberty Lincoln-Mer cury, Inc. v. Ford Motor Co., 8 F. Supp. 2d. 450, 454 (D. N.J. 1998).

7The 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 histo ry speaks only to the purpose of the statute. The purpose is twofold: first, to "safeguard consumers;" and second, to "of fer[ ] protection to the competent retailer against arbitr ary 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 relati ons." Liberty II, 134 F.3d at 566. Thus, the only legisla tive intent that can be discerned from the FPA's history is tha t the definition of "warranty" must be construed in a way that protects the "competent retailer" from "arbitrary a ctions by

manufacturers."

When the ordinary meaning of a statute and the stat ute's legislative history fail to provide sufficient guid ance to a term's meaning, sound principles of statutory const ruction instruct the Court to look to other statutes pertai ning to the same subject matter which contain similar terms .5 See 2B NORMAN J. SINGER, SUTHERLAND ON STATUTORY CONSTR UCTION SS 51.01, 51.02, 51.03 (5th Ed. 1992). A prior stat ute's
definition of the term will control if it is natura l and reasonable to think that the members of the legisla ture, in drafting the new statute, were influenced by the pr ior 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).

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5. The parties direct the Court's attention to four statutes, only one of which, the Uniform Commerce Code (UCC), the Courtfi nds 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), t he 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), 1 5 U.S.C.A. SS 2301-2312 (West 1999). The UVLL is unhelpful bec ause it does not apply to new vehicles or new vehicle warranties. Th e NVLL is unhelpful because it uses the term "warranty" to define itsel f. See S 56:12-30. The MMWA is unhelpful because it is a federal statute a nd therefore does not speak to the intent of the New Jersey legislature w ith regard to the use of the term "warranty." The fourth statute is New J ersey's incorporation
of the UCC and is addressed in the text.

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

governs commercial transactions in New Jersey and w as incorporated into law in New Jersey before the FPA was enacted. See N.J. STAT. ANN . S 12A:1-102(2)(b) (We st 1999). The UCC provides "unified coverage of its subject m atter" 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 Fi rst, Article Two of the UCC applies to transactions in g oods, see S 12A:2-102, and the "warranty" contemplated in sec tion 10-15 of the FPA is related to a sale of a good, a motor vehicle. Second, there is nothing in the FPA that e xplicitly 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 provision s that fall under the FPA, notwithstanding the fact that t he same ESP contract may also include service provisions. S ee, e.g., Newmark v. Gimbel's Inc., 258 A.2d 697, 701 (N.J. 1 969) (finding that a warranty exists "with no less force " in a "hybrid" sale and service contract "than it would h ave in the case of a simple sale"). We now turn to the ele ments 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 goo ds and becomes part of the basis of the bargain cre ates an express warranty that the goods shall confor m to the affirmation or promise.

(b) Any description of the goods which is ma de part of

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6. The UCC definition of warranty is also instructi ve 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 stri ve 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).

9the basis of the bargain creates an express warranty

that the goods shall conform to the descript ion.

(c) Any sample or model which is made part o f the basis of the bargain creates an express warr anty 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 buy er which relates to a good and becomes part of the bas is of the bargain. See S 12A:2-313(1). The seller promise s that the good sold will conform to some standard which m ay be established by a model, a level of quality, an assu rance, a description or a list of specifications. The UCC do es not require the use of formal words of promise or that the seller have a specific intention to warrant the good but r ather 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 i nto consideration when determining whether a warranty e xists. Generally, the seller knows more about the good and is better able to absorb any loss resulting from a dan gerous condition relating to the good than the buyer. See Cintrone v. Hertz Truck Leasing & Rental Servs., 212 A.2d 76 9, 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 transferre d 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 confo rmity to some standard are warranties; to be a warranty, the promise must also be part of the basis of the barga in 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 t he

10bargain" under New Jersey law "once the buyer has b ecome

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). Th e 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 re fer to a specific fixed point in time but rather to the rela tionship between the parties to a commercial transaction. Se e 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 b ut "describes the commercial relationship between the parties as to the product."). Indeed, Official Comment Seve n to
section 2-313 of the UCC states that:

The precise time when words of description o r affirmation are made or samples are shown is not material. The sole question is whether the l anguage 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 modificati on, 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 ti me but whether the seller's actions or language when viewe d in light of his relationship with the buyer were fairl y regarded as part of the contract to purchase the good.

Appellant, Liberty, argues that Ford's ESPs are alw ays part of the basis of the bargain in the sale of For d vehicles by Ford dealers and must be viewed either as part o f the

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7. This Court recognizes that reliance may become a factor in determining whether or not an affirmation of fact o r promise is part of the basis of the bargain. If the defendant has prov en 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 ground s, 505 U.S. 504 (1992).

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

contract. Additionally, Liberty argues that Ford ES Ps purchased after the original sale of the vehicle ar e valid post-sale modifications of the original sale and pa rt of the basis of the bargain of the original sale because t he initial transaction contained the opportunity to obtain a F ord ESP and that opportunity remains open as part of the
transaction until the termination of the Standard W arranty. Liberty bases its assertions on Ford's promotional literature, the fact that ESPs are available only t o purchasers of new Ford vehicles and the fact that F ord ESPs are specific to the particular vehicle sold.

Appellee, Ford, argues that its ESPs are not part o f the basis of the bargain in the sales of its vehicles s ince they are contracts separate from the sales agreements an d require additional consideration. Given the definit ion of "warranty" discussed above, this Court finds that t here is a genuine issue of material fact as to whether provis ions in at least some Ford ESPs form a part of the basis of th e bargain in the sale of a vehicle by appellant Liber ty. As a result, this Court concludes that this case must be
remanded for trial.

V. CONCLUSION

For the foregoing reasons, we vacate the district c ourt'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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