Court Opinion

ID: 4196184
Source: CourtListenerOpinion
Date Created: 2017-08-16 14:09:54.498605+00
Date Added: 2024-06-11T14:39:53.933528
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

General Motors, LLC,                 :
                 Petitioner          :
                                     :
            v.                       : No. 1075 C.D. 2016
                                     : ARGUED: December 12, 2016
Bureau of Professional and           :
Occupational Affairs, State Board of :
Vehicle Manufacturers, Dealers and :
Salespersons,                        :
                   Respondent        :

BEFORE:     HONORABLE ROBERT SIMPSON, Judge
            HONORABLE JULIA K. HEARTHWAY, Judge
            HONORABLE JOSEPH M. COSGROVE, Judge

OPINION BY
JUDGE HEARTHWAY                          FILED: August 16, 2017

            General Motors, LLC (GM), petitions for review of the June 10, 2016
final order of the Department of State, State Board of Vehicle Manufacturers,
Dealers and Salespersons (Board), sustaining two counts of a protest filed by Budd
Baer, Inc., Mel Grata Chevrolet, Inc., and Turner Automotive of New Holland, Inc.
(collectively, Protesting Dealers). Protesting Dealers elected to invoke a statutory
provision that changed the manner in which they are reimbursed for warranty parts.
The Board determined that GM was not permitted under its contract with
Protesting Dealers to adjust the manner in which it reimbursed Protesting Dealers
for warranty labor in response to Protesting Dealers’ action. The Board also ruled
that GM was not permitted to impose a surcharge on Protesting Dealers to recover
increased warranty costs resulting from Protesting Dealers’ election.       For the
reasons set forth below, we reverse.
             This dispute on reimbursement for warranty service between GM and
Protesting Dealers arises from conflicting interpretations of the Board of Vehicles
Act1 (Act), “a comprehensive statute governing the relationship between
automobile manufacturers and their franchise dealers.” Rosado v. Ford Motor Co.,
337 F.3d 291, 293 (3d Cir. 2003).

             In addition to the Act, the relationship between GM and its dealers is
also governed by Dealer Sales and Service Agreements (Dealer Agreements).2
Dealers agree in Dealer Agreements to perform warranty repairs and services on
qualified vehicles.3 Although warranty repairs are provided to consumers at no
additional charge, the anticipated cost of those repairs is built into the price of new
vehicles.4 GM agrees in Dealer Agreements to reimburse dealers for that work in
accordance with the Service Policies and Procedures Manual (SPPM).5

             Pursuant to the SPPM, GM reimburses dealers for the labor costs in
warranty work in one of two ways:

      (1) Dealer retail rate (known as Option A), where dealers are reimbursed at
      the rate they use for similar non-warranty repairs and service; or

      1
        Act of December 22, 1983, P.L. 306, as amended, 63 P.S. §§ 818.1-818.37.
      2
        Stipulation of Facts (SF), 2/12/16, ¶ 6.
      3
        SF at ¶ 11.
      4
        SF at ¶ 25.
      5
        SF at ¶ 13.

                                            2
      (2) CPI-based rate (known as Option C), where GM and dealer agree to a
      base labor rate that is periodically adjusted according to the Consumer Price
      Index.6

               Unless otherwise required under state law, GM reimburses dealers for
parts used in warranty work at a standard rate of 40 percent over dealer cost.7
Alternatively, pursuant to the Act, dealers may elect to be reimbursed for parts at
the statutory dealer’s retail rate. Section 9(a)(2) states, “Compensation for parts,
including major assemblies used in warranty service, shall be at the dealer’s retail
rate. . . .” and then addresses the process for establishing a dealer’s retail rate. 63
P.S. § 818.9(a)(2). Thus, Pennsylvania dealers have a choice between receiving
parts reimbursement pursuant to the statute’s retail rate or an alternative rate
agreed upon by the parties.

               Dealers may also elect under the Act to be reimbursed for warranty
labor at a statutory dealer’s retail rate. Echoing section 9(a)(2), section 9(a)(3)
states, “Compensation for labor used in warranty service shall be at the dealer’s
retail rate. . . .” 63 P.S. § 818.9(a)(3). As with parts reimbursement, the Act offers
a statutory dealer’s retail rate for labor as an option available to dealers.

               In 2012, GM implemented a policy under which any dealer that
sought retail reimbursement for parts (instead of standard contractual
reimbursement of 40% over cost) would be ineligible for Option C/CPI-based

      6
          SF at ¶¶ 16-18.
      7
          SF at ¶ 23.

                                            3
reimbursement for labor.8 In other words, dealers that choose retail reimbursement
for parts would also be required to accept Option A/retail reimbursement rate for
labor under the policy. The policy change was communicated to dealers in the
second edition of the 2012 SPPM.9

             In 2014, Protesting Dealers requested retail reimbursement pursuant
to section 9(a)(2) of the Act for warranty parts (instead of standard reimbursement
of 40% over cost).10 Prior to these requests, Protesting Dealers were enrolled in the
Option C/CPI-based reimbursement program for labor.11 Protesting Dealers did
not request Option A/retail reimbursement for labor,12 nor did they seek to invoke
section 9(a)(3) to compel retail rate reimbursement for warranty labor.

             GM approved the requests for retail reimbursement for parts.13 But
pursuant to the SPPM, Protesting Dealers’ reimbursement program for labor was
changed from Option C/CPI-based rates to Option A/retail rates as a consequence
of Protesting Dealers’ election to receive retail rate reimbursement for warranty
parts.14 In addition, GM imposed a cost recovery surcharge of $122 per vehicle in
response to the adjustments in reimbursement rates for warranty parts.15

      8
        SF at ¶ 20.
      9
        Id.
      10
         SF at ¶ 28.
      11
         SF at ¶ 41.
      12
         SF at ¶ 40.
      13
         SF at ¶¶ 33, 36 and 39.
      14
         SF at ¶ 42.
      15
         SF at ¶¶ 43-45.

                                         4
              Protesting Dealers objected to the change in reimbursement for
warranty labor rates (which was done pursuant to GM policy as set forth in the
SPPM and not at Protesting Dealers’ request). Protesting Dealers also objected to
the imposition of the cost recovery surcharge.16 Those objections were presented
to the Board, which concluded that the Act prohibited GM from (1) transferring
Protesting Dealers to Option A/retail reimbursement rates for warranty labor; and
(2) imposing a cost recovery surcharge on Protesting Dealers of $122 per vehicle.17
This petition for review followed.18

              First we address whether the Board erred in determining that GM
violated section 9(a)(3) of the Act by converting Protesting Dealers to retail rate
reimbursement for labor—pursuant to its contract with Protesting Dealers—when
Protesting Dealers elected to receive retail rate reimbursements for parts under the
Act. The parties agree that Protesting Dealers are entitled under the Act to elect to
be reimbursed at the statutory retail rate for warranty parts. They disagree about
the consequences of that election on reimbursement for warranty labor, however.
This is an issue of first impression.

              Protesting Dealers argue that they have not elected retail labor
reimbursement under the Act, and that GM may not “unilaterally” transfer them to
retail labor reimbursement.          GM argues that under the terms of the SPPM,
Protesting Dealers’ election for statutory retail rate reimbursement for warranty

       16
          SF at ¶ 46.
       17
          Final Adjudication and Order, Docket No. 1325-60-2014, 6/10/16.
       18
          This Court’s standard of review is limited to determining whether constitutional rights
were violated, whether an error of law was committed, or whether necessary findings of fact are
supported by substantial evidence. Section 704 of the Administrative Agency Law, 2 Pa. C.S. §
704. The questions raised in this case are questions of law.

                                               5
parts renders them ineligible for labor reimbursement under the CPI-adjusted
Option C program. GM contends that under the SPPM, Protesting Dealers must be
converted to Option A, under which Protesting Dealers would be reimbursed at a
retail rate for warranty labor as defined by the SPPM.

                The Board agreed with Protesting Dealers, concluding that GM
violated the Act by converting Protesting Dealers’ labor reimbursement from
Option C to Option A without a request from Protesting Dealers to do so. The
Board stated, “nowhere in section 9 of the Act is there any statutory authority for
the manufacturer to unilaterally choose to seek a change of rate compensation in
the absence of a request from a dealer.”19

                The basis and scope of the Board’s authority is defined by the Act.
Section 4(a)(4) of the Act sets forth the general power of the Board to
“[a]dminister and enforce” the Act. 63 P.S. § 818.4(a)(4). In the context of a filed
protest, section 4(d)(5) empowers the Board to compel compliance with the Act.
63 P.S. § 818.4(d)(5). However, the Board acknowledges that it does not have
jurisdiction to adjudicate disputes arising from the contract between GM and
Protesting Dealers.20

                In rejecting GM’s argument that its contract with Protesting Dealers
rendered them ineligible for Option C labor reimbursement once they elected to be
reimbursed for warranty parts at a retail rate, the Board stated, “nothing in section

      19
           Board decision at 13-14.
      20
           Id. at 12.

                                             6
9 of the Act permits parties to waive its terms.”21 Similarly, the Board rejected
GM’s argument that absent an election for retail rate reimbursement for warranty
labor under section 9(a)(3), the parties’ contract controls such labor
reimbursement: “The Board also rejects this argument, as again there is not
statutory support for it.”22 These rulings appear to be premised on the supposition
that the parties may not agree to terms that are not expressly authorized by the Act.

                The Act does not so restrict the ability of the parties to contract,
however. Properly understood, section 9 of the Act provides a safeguard for
dealers that are dissatisfied with the warranty reimbursement available to them
under their contracts with manufacturers. Section 9 creates a statutory level of
reimbursement that a dealer may rely upon. However, section 9 does not preclude
manufacturers and dealers from contractual agreement to a different arrangement
for warranty reimbursement.

                The Board’s ruling reflects a misapprehension of the basis for GM’s
conversion of Protesting Dealers’ labor rate reimbursement from Option C to
Option A. GM’s action was grounded in the parties’ agreement, not the Act. GM
was not seeking unilaterally to invoke section 9(a)(3) of the Act; GM was
proceeding according the terms of its contract with Protesting Dealers.         That
contract offers Option C reimbursement for warranty labor only if a dealer agrees
to standard reimbursement for warranty parts. Option C is not a creation of the
Act; it is a creation of the contract, and the contract may define Option C
eligibility. Section 9(a)(3) of the Act offers Protesting Dealers the safeguard of

      21
           Id. at 11.
      22
           Id.

                                           7
statutory retail rate reimbursement for labor if Protesting Dealers are dissatisfied
with the reimbursement available pursuant to the agreement with GM. The Act
does not protect Protesting Dealers’ access to Option C. The question of whether
GM may make this change to Protesting Dealers’ warranty labor rate
reimbursement is a contractual question over which the Board has no jurisdiction.
Therefore, the Board erred as a matter of law when it concluded that the shift of
Protesting Dealers’ labor rate reimbursement from Option C to Option A pursuant
to their contracts with GM violated section 9(a)(3) of the Act.

             Next we consider whether the Board erred in determining that GM’s
proposed imposition of a $122 surcharge per vehicle to recoup increased warranty
parts costs—resulting from Protesting Dealers’ election to receive retail rate
reimbursement for parts under the Act—would violate section 9(b.4) of the Act,
which is set forth below:
             (b.4) Recovery.—

             (1)(i) A manufacturer or distributor may not
             recover its costs from a dealer within this
             Commonwealth that does not apply to the
             manufacturer or distributor for retail rate
             reimbursement for parts and labor, including an
             increase in the wholesale price of a vehicle or
             surcharge imposed on a dealer intended to recover
             the cost of reimbursing a dealer for parts and labor
             under this section.

             (ii) A manufacturer or distributor may increase the
             price for a vehicle or part in the normal course of
             business.

             (2) A dealer may elect to revert to the nonretail
             rate reimbursement for parts and labor once in a

                                          8
               calendar year to avoid a manufacturer or
               distributor surcharge.

63 P.S. § 818.9(b.4).

               The Board determined that GM’s proposed surcharge of $122 per
vehicle violated section 9(b.4)(1)(i) of the Act because Protesting Dealers only
elected retail rate reimbursement for parts under the Act, and did not elect
statutory retail rate reimbursement for labor.               The Board concluded that a
surcharge is only permissible when a dealer seeks statutory retail rate
reimbursement for both parts and labor.23

               GM argues that “the Act permits a manufacturer to impose a cost
recovery surcharge on any dealer that receives statutory retail reimbursement for
parts or labor, and only prohibits a manufacturer from imposing a surcharge on any
dealer that has decided to continue to abide by the parties’ agreed-upon contract

       23
          Also within its discussion of this issue, the Board stated—
       Because that question is not before it, the Board has not addressed whether a
       manufacturer may surcharge a dealer who has elected retail rate reimbursement
       for parts (but not for labor) for the cost of reimbursing dealers for parts or
       similarly whether a manufacturer may surcharge a dealer who has elected retail
       rate reimbursement for labor (but not for parts) for the cost of reimbursing dealers
       for labor for warranty work.

Board’s decision at 13 fn. 8. This language is perplexing because the Board appears to be stating
that it is not addressing the very issue it is deciding: whether GM may use a surcharge to recover
its increased warranty parts reimbursement expenses. The Board appears to have premised its
discussion on the idea that GM was seeking to recover increased costs relating to both parts and
labor. But GM maintains it is seeking to recoup only increased parts costs. See Joint Status
Report, 2/19/16, at 3.

                                                9
rates.”24 In essence, GM contends that the statute creates a safe harbor for dealers
that do not seek any retail rate reimbursement under section 9(a).

              Section 9(b.4)(1)(i) provides that a manufacturer may not impose a
surcharge on a dealer that has not sought retail rate reimbursement for parts and
labor. This language is susceptible to more than one meaning. Consistent with
Protesting Dealers’ argument, this language could be understood to mean that only
dealers that elect retail rate reimbursement for both parts and labor are vulnerable
to a manufacturer surcharge.             Alternatively, the provision could be read
consistently with GM’s position that the statute creates a safe harbor for dealers
that do not invoke the statute for any retail reimbursement.25                  “A statute is
ambiguous or unclear if its language is subject to two or more reasonable
interpretations.” Office of the Governor v. Donahue, 59 A.3d 1165, 1168 (Pa.
Cmwlth. 2013) (quoting Bethenergy Mines, Inc. v. Department of Environmental
Protection, 676 A.2d 711, 715 (Pa. Cmwlth.), appeal denied, 685 A.2d 547 (Pa.
1996)). When a statute is ambiguous or unclear, a court “must interpret the statute
and ascertain the intention of the General Assembly.” Pelter v. Department of
Transportation, Bureau of Driver Licensing, 663 A.2d 844, 848 (Pa. Cmwlth.
1995) (citation omitted). The statutory construction of section 9(b.4)(1)(i) is also a
matter of first impression.

       24
          GM Brief at 43.
       25
          As GM states in its brief, the language in Section 9(b.4)(1)(i) of the Act, “[a]
manufacturer. . . may not recover its costs from a dealer. . . that does not apply to the
manufacturer. . . for retail rate reimbursement for parts and labor. . . ,” could reasonably be
understood to mean that a manufacturer may not impose a surcharge on a dealer that (1) has not
applied for retail reimbursement for parts; and (2) has not applied for retail reimbursement for
labor. GM Brief at 40.

                                              10
             The Statutory Construction Act of 1972 sets forth rules to guide the
process of ascertaining legislative intent. “Every statute shall be construed, if
possible, to give effect to all its provisions.” 1 Pa. C.S. § 1921(a). “[T]he
intention of the General Assembly may be ascertained by considering. . . [t]he
object to be obtained [and t]he consequences of a particular interpretation.” 1
Pa.C.S. § 1921(c)(4) and (6). It is also presumed that the legislature “does not
intend a result that is. . . unreasonable.” 1 Pa.C.S. § 1922(1).

             In discerning the legislative intent underlying the facially conjunctive
phrase “parts and labor” in section 9(b.4)(1)(i), we must also consider the use of
the same phrase in section 9(b.4)(2): “[a] dealer may elect to revert to the nonretail
rate reimbursement for parts and labor once in a calendar year to avoid a
manufacturer or distributor surcharge”, 63 P.S. § 818.9(b.4)(2) (emphasis added).
The use of the phrase “parts and labor” in section 9(b.4)(2) supports GM’s position
that a dealer must not be using any statutory retail warranty reimbursement to be
protected from the possibility of a surcharge for increased reimbursement costs.

             The self-evident object of section 9(b.4) is to permit manufacturers to
recover increased costs from a dealer that invokes section 9(a) to be reimbursed at
a statutorily defined retail rate instead of at the rate the parties had agreed upon in
their contract. This Court cannot identify any policy reason that would justify
limiting the ability of manufacturers to recover under section 9(b.4) only to
instances where dealers elect to invoke retail rate reimbursement for both parts and
labor.

             We decline to adopt an interpretation of section 9(b.4) that would run
counter to the object of the Act. See 1 Pa.C.S. § 1921(c). Though the Board
                                          11
concluded that GM is barred from recovery under section 9(b.4) of the Act because
Protesting Dealers invoked statutory retail rate reimbursement for only warranty
parts, and not for both parts and labor, we presume that the General Assembly did
not intend such an unreasonable result. See 1 Pa.C.S. § 1922(1). The Board erred
as a matter of law in determining that GM was precluded from imposing a
surcharge for increased parts costs in this case.

             For these reasons, we reverse the Board’s order.

                                        __________________________________
                                        JULIA K. HEARTHWAY, Judge

                                          12
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

General Motors, LLC,                 :
                 Petitioner          :
                                     :
            v.                       : No. 1075 C.D. 2016
                                     :
Bureau of Professional and           :
Occupational Affairs, State Board of :
Vehicle Manufacturers, Dealers and :
Salespersons,                        :
                   Respondent        :

                                   ORDER

            AND NOW, this 16th day of August, 2017, the order of the Bureau of
Professional and Occupational Affairs, State Board of Motor Vehicle
Manufacturers, Dealers and Salespersons, is reversed.

                                     __________________________________
                                     JULIA K. HEARTHWAY, Judge
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA

General Motors, LLC,                       :
                 Petitioner                :
                                           :
             v.                            :
                                           :
Bureau of Professional and                 :
Occupational Affairs, State Board of       :
Vehicle Manufacturers, Dealers and         :
Salespersons,                              :   No. 1075 C.D. 2016
                   Respondent              :   Argued: December 12, 2016

BEFORE:      HONORABLE ROBERT SIMPSON, Judge
             HONORABLE JULIA K. HEARTHWAY, Judge
             HONORABLE JOSEPH M. COSGROVE, Judge

DISSENTING OPINION
BY JUDGE COSGROVE                              FILED: August 16, 2017

             Although I respect the exceptionally well written and reasoned
Majority opinion, I cannot agree with its conclusion.
             This case requires us to define the boundaries of the Board of
Vehicles Act (Act), Act of December 22, 1983, P.L. 306, as amended, 63 P.S. §§
818.1-818.37, relative to automobile dealer reimbursements for parts and labor
expenses incurred in performance of warranty repairs.          Specifically, we must
determine whether manufacturers (in this case, General Motors, LLC (Petitioner)),
may require dealers, such as the present Intervenors (Protesting Dealers), who had
elected retail rates for parts (as statutorily permitted) to also elect retail rates for
labor. While Petitioner insists it is entitled to impose this requirement based on its
contract with dealers in Pennsylvania, the State Board of Vehicle Manufacturers,
Dealers and Salespersons (Board) found in favor of the Protesting Dealers, and, in
my opinion, correctly so.
             The Majority recognizes that the Act is "a comprehensive statute
governing the relationship between automobile manufacturers and their franchise
dealers." Majority, slip op. at 2 (citing Rosado v. Ford Motor Co., 337 F.3d 291,
293 (3d Cir. 2003)).        As we held in Maggiano v. State Board of Vehicle
Manufacturers, Dealers, and Salespersons, 659 A.2d 1071, 1074 (Pa. Cmwlth.
1995), the "legislative purpose of the Act" is "set forth" in "49 Pa. Code § 19.1."
This provision states that the Act is an "exercise of [the Commonwealth's] police
power," and is designed to "prevent frauds, impositions and other abuses upon [the
Commonwealth's] citizens and to protect and preserve the investments and
properties of the citizens of this Commonwealth." Id. Against this backdrop, it is
difficult to see how the Legislature could have intended statutory language, which
may be subject to two reasonable interpretations, to be viewed in a way which
favors multibillion dollar corporations based in other states (or countries) over the
protective   interests   of   local   automobile   dealers   operating   within   the
Commonwealth. As the Majority disagrees, I believe it errs.
             If this were not reason enough for a result different from the
Majority's, I am concerned that we have not given appropriate deference to the
Board. "[O]ur focus must center on the Board's interpretation of the Act ... [and]
the Board's decision cannot be overturned unless clearly erroneous." Maggiano,
659 A.2d at 1074 (emphasis added), citing Alpha Auto Sales v. Department of
State, Bureau of Professional and Occupational Affairs, 644 A.2d 153 (Pa. 1994).
The Majority recognizes that the two questions presented are matters of "first
impression," and with regard to the second, specifically notes that the statutory

                                        JMC-2
language "is susceptible to more than one meaning." Majority, slip op. at 5, 10. In
reversing, however, the Majority does not chide the Board for being clearly
erroneous, as we required in Maggiano. Without such a finding, we are bound to
uphold the Board's decision. Failing to do so, I must dissent.

                                       ___________________________
                                       JOSEPH M. COSGROVE, Judge

                                      JMC-3