Court Opinion

ID: 803490
Source: CourtListenerOpinion
Date Created: 2012-07-02 16:46:00+00
Date Added: 2024-06-11T18:00:08.450756
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                ____________

                                        No. 11-2085
                                       ____________

                    SHARON MCGARVEY; BRYAN BECHTEL;
                    KATIE MCGARVEY, on behalf of themselves
                          and all others similarly situated,
                                                Appellants

                                            v.

    PENSKE AUTO GROUP, INC.; UNITED AUTOCARE PRODUCTS, INC.;
   UNITED AUTOCARE, INC.; INNOVATIVE AFTERMARKET SYSTEMS, L.P.
                            ____________

                    On Appeal from the United States District Court
                              for the District of New Jersey
                                (D.C. No. 1-08-cv-05610)
                    District Judge: Honorable Jerome B. Simandle
                                      ____________

                              Argued May 15, 2012
                Before: SMITH, FISHER and GARTH, Circuit Judges.

                                 (Filed: July 2, 2012 )

Leonard W. Aragon
Robert B. Carey
Hagens Berman Sobol Shaprio
11 West Jefferson Street, Suite 1000
Phoenix, AZ 85003

Patrick Howard
Charles J. Kocher
Simon B. Paris (Argued)
Saltz, Mongeluzzi, Barrett & Bendesky
1650 Market Street
One Liberty Place, 52nd Floor
Philadelphia, PA 19103
       Counsel for Appellants

Daniel E. Brewer
Drinker, Biddle & Reath
18th & Cherry Streets
One Logan Square, Suite 2000
Philadelphia, PA 19103

Mary E. Kohart (Argued)
Elliott Greenleaf & Siedzikowski, P.C.
925 Harvest Drive
Suite 300, Union Meeting Corporate Center V
Blue Bell, PA 19422

Aimee L. Kumer
Elliott Greenleaf & Siedzikowski, P.C.
50 South 16th Street
Suite 2960, Two Liberty Place
Philadelphia, PA 19103
        Counsel for Penske Auto Group,
        United Autocare Products, Inc.
        and United Autocare, Inc.

Douglas A. Albritton
Reed Smith
10 South Wacker Drive, 40th Floor
Chicago, IL 60606

John J. Hare (Argued)
Keith D. Heinold
Kevin M. McKeon
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA 19103
       Counsel for Innovative Aftermarket
       Systems LP
                                    ____________

                                OPINION OF THE COURT
                                     ____________

                                         2
FISHER, Circuit Judge.

       Sharon McGarvey, Katie McGarvey, and Bryan Bechtel (collectively, “Plaintiffs”)

appeal both the District Court’s dismissal of their First Amended Complaint for failure to

state a claim as well as its denial of their motion for leave to amend. Plaintiffs filed a

putative class action in the U.S. District Court for the District of New Jersey against

Penske Auto Group, Inc. (“PAG”), United Autocare Products, Inc. (“UAP”), United

Autocare, Inc. (“UA”), 1 and Innovative Aftermarket Systems (“IAS”) (collectively,

“Defendants”), alleging the Defendants created a tying arrangement that violated federal

and state laws. For the reasons stated below, we will affirm the District Court’s order.

                                              I.

       We write principally for the parties, who are familiar with the factual context and

legal history of this case. Therefore, we will set forth only those facts necessary to our

analysis.

       This case involves the sale of the Ibex Anti-Theft Etch System (“Ibex System”) to

purchasers of automobiles. The Ibex System was manufactured by IAS, distributed to

dealerships by UAP and UA, and sold by automobile dealerships owned by PAG. The

Ibex was comprised of two components. First, the Ibex included an Etch Code, which

was a unique serial number, placed onto the primary windows of the vehicle, that was

       1
        Defendants submit that the party’s correct name is United Autocare, LLC, not
United Autocare, Inc. as named in the caption.

                                              3
registered for later searches if necessary. Because a vehicle’s glass is one of the most

valuable items for a thief to remove from a stolen vehicle for resale, the Etch Code was

designed to help deter theft by making the glass unmarketable. Second, the Ibex included

a Limited Warranty, which provided a credit reimbursement in the amount of $2,500,

$5,000, or $7,500 if the consumer purchased a replacement vehicle after the original

vehicle was stolen. The Limited Warranty contract reads, in pertinent part:

       “In the event the Ibex Anti-Theft Etch System fails to prevent the Vehicle
       specified in this Limited Warranty from being stolen within the Warranty
       Period, and such failure results in the Customer’s primary insurance
       company declaring the Vehicle a Total Loss as a direct result of theft, 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.
       The customer is obliged to utilize the total benefit provided to replace the
       Vehicle specified in the Warranty and the replacement Vehicle must be of
       equal or greater value than the original purchase price paid for the covered
       Vehicle.”

       In November 2008, Plaintiffs filed a putative class action in the U.S. District Court

for the District of New Jersey, alleging that Defendants violated the Magnuson-Moss

Warranty Act (“MMWA”), 15 U.S.C. § 2302(c), the New Jersey Truth-in-Consumer

Contract, Warranty, and Notice Act (“NJTCCA”), N.J. Stat. Ann. § 56:12-15, New Jersey

common law, and the New Jersey Consumer Fraud Act (“CFA”), N.J. Stat. Ann. § 56:8-

2. On June 29, 2009, the District Court dismissed the Plaintiffs’ MMWA claim on the

ground that they failed to allege actual damages as required under the statute. McGarvey

v. Penske Auto. Grp., Inc. (McGarvey I), 639 F. Supp. 2d 450, 457 (D.N.J. 2009), vacated

                                             4
in part by McGarvey v. Penske Auto. Grp., Inc. (McGarvey II), No. 08-5610, 2010 WL

1379967, at *2 (D.N.J. Mar. 29, 2010). 2 But the District Court held that Plaintiffs

sufficiently stated a NJTCCA claim, even in the absence of actual damages, because they

were able to show that the Limited Warranty violated a clearly established legal right

under the MMWA. Id. at 458. 3 Specifically, the Court found that the Ibex System’s

tying of the warranty benefit, i.e., credit reimbursement, to a consumer’s purchase of a

replacement vehicle at a particular dealership violated a consumer’s clearly established

legal right under the MMWA to be free from warranties that are conditioned on the

consumer’s use of a specific article or service. Id. at 463. 4 In addition, the Court held

that Plaintiffs stated a claim for unjust enrichment under New Jersey common law but

failed to state a claim under the CFA. Id. at 465-66.

       2
         The District Court held that the statute required a showing of actual damages
based on a reading of the following provision: “a consumer who is damaged by the
failure of a supplier, warrantor, or service contractor to comply with any obligation under
this chapter . . . may bring suit for damages and other legal and equitable relief[.]” 15
U.S.C. § 2310(d)(1) (emphasis added). This portion of the District Court’s opinion was
not subsequently vacated.
       3
         The NJTCCA prohibits sellers from offering any written consumer warranty that
“includes a provision that violates any clearly established legal right . . . as established by
State or Federal law at the time the offer is made[.]” N.J. Stat. Ann. § 56:12-15.
       4
         Under the MMWA, “[n]o warrantor of a consumer product may condition his
written or implied warranty of such product on the consumer's using, in connection with
such product, any article or service (other than article or service provided without charge
under the terms of the warranty) which is identified by brand, trade, or corporate
name[.]” 15 U.S.C. § 2302(c).

                                               5
       After McGarvey I, Plaintiffs filed their First Amended Complaint, maintaining the

NJTCCA and common law unjust enrichment claims, while adding a claim for a

declaratory judgment that the Limited Warranty contracts were void and unenforceable.

Next, Defendants filed a motion for reconsideration of the District Court’s June 29, 2009

order. On reconsideration, the District Court held that, contrary to its earlier holding,

Plaintiffs did not allege sufficient facts to show that the Limited Warranty violated

consumers’ clearly established right under § 2302(c) of the MMWA and thus failed to

state a claim under the NJTCCA. McGarvey II, 2010 WL 1379967, at *6-9.

       In response to McGarvey II, Plaintiffs filed a motion for leave to file a Second

Amended Complaint. McGarvey v. Penske Auto. Grp., Inc. (McGarvey III), No. 08-

5610, 2011 WL 1325210, at *3 (D.N.J. Mar. 31, 2011). The District Court denied the

motion on the basis that any amendment would be futile and could not state a claim under

the NJTCCA, the Declaratory Judgment Act, or the common law theory of unjust

enrichment. Id. at 1. The District Court then granted the Defendants’ motion to dismiss

the First Amended Complaint. Id. Plaintiffs filed a timely appeal.

                                             II.

       The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(d). We

have appellate jurisdiction under 28 U.S.C. § 1291.

       “[W]e review de novo a district court’s grant of a motion to dismiss for failure to

state a claim under Federal Rule of Civil Procedure 12(b)(6).” Ballentine v. United

States, 486 F.3d 806, 808 (3d Cir. 2007) (citation omitted). At this stage, we must accept

                                              6
all factual allegations as true and construe the complaint in the light most favorable to the

plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (citation

omitted).

       We review the District Court’s denial of a party’s request for leave to file an

amended complaint for abuse of discretion. Toll Bros., Inc. v. Twp. of Readington, 555

F.3d 131, 137 (3d Cir. 2009) (citation omitted). “Under Federal Rule of Civil Procedure

15(a), leave to amend should be freely given when justice so requires[.]” Id. at 144 n.10

(internal quotation marks omitted). But a district court may deny the motion if the

amendment would be futile. Phillips, 515 F.3d at 228 (citation omitted).

                                              III.

                                              A.

       The NJTCCA prohibits sellers from offering any written consumer warranty that

“includes a provision that violates any clearly established legal right . . . as established by

State or Federal law at the time the offer is made[.]” N.J. Stat. Ann. § 56:12-15.

Plaintiffs contend that the Defendants violated the NJTCCA by offering the Limited

Warranty, which contains tie-in provisions that violate their clearly established legal right

under the MMWA. We disagree because Plaintiffs’ right in question was not clearly

established at the time the Limited Warranty was offered.

       When interpreting the NJTCCA, we “construe the statute as we believe the New

Jersey Supreme Court would construe it.” Liberty Lincoln-Mercury, Inc. v. Ford Motor

Co., 676 F.3d 318, 323 (3d Cir. 2012). We first look to the language of the statute, and if

                                               7
the statute is clear and unambiguous on its face, then we enforce the statute as written.

See id. at 323-24 (citation omitted). “If the language of the statute is ambiguous, courts

may look to the statute’s history, policy, purpose, and other extrinsic aids to ascertain

statutory intent.” Id. at 324. Here, the term “clearly established legal right” is not clear

and unambiguous. The phrase does not indicate in what circumstances a consumer’s

legal right is established, nor does it define what it means for the right to be clearly

established. Nothing in the NJTCCA defines this term or aids in giving it meaning.

Thus, we look to extrinsic aides, like the statute’s legislative history and State case law,

which lead us to conclude that the consumers’ legal right in this case was not “clearly

established” under the NJTCCA. Even without defining the specific definition of

“clearly established legal right,” we are convinced that whether the Limited Warranty

violates the MMWA, and consequently whether consumers had a right to be free from

warranties like the Limited Warranty, is significantly less clear compared to the

violations of rights that were previously found to be sufficient to state a NJTCCA claim.

       First, the Assembly Statement in support of the NJTCCA’s passage lists

provisions that the Legislature considered to “clearly violate the rights of consumers.”

Statement, Bill No. A1660, 1981 N.J. Laws, Chapter 454, Assembly No. 1660, page 2-3

                                               8
(“Assembly Statement”). 5 At the time the NJTCCA was first introduced on May 1,

1980, these listed provisions, including a consumer’s complete waiver of damages

resulting from a seller’s liability, infringed on rights that had been long-recognized in

common law. See, e.g., Bisso v. Inland Waterways Corp., 349 U.S. 85, 115 (1955)

(acknowledging “a longstanding admiralty rule, based on public policy, [that]

invalidat[es] contracts releasing towers from all liability for their negligence.”);

Northwest Airlines, Inc. v. Alaska Airlines, Inc., 351 F.2d 253, 256 (9th Cir. 1965), cert.

denied, 383 U.S. 936 (1966) (holding indemnity contract provision relieving party of any

damages, even in the case of its own negligence, to be unenforceable because it would be

contrary to public policy).

       Next, the two cases in which the New Jersey Superior Court held that the plaintiffs

sufficiently stated a NJTCCA claim also involved alleged wrongdoing that fell squarely

within prohibited conduct under state or federal law. In Bosland v. Warnock Dodge, Inc.,

       5
          “Examples of such provisions are those that deceptively claim that a seller or
lessor is not responsible for any damages caused to a consumer, even when such damages
are the result of the seller’s or lessor’s negligence. These provisions provide that the
consumer assumes all risks and responsibilities, and even agrees to defend, indemnify
and hold harmless the seller from all liability. Other provisions claim that a lessor has the
right to cancel the consumer contract without cause and to repossess its rental equipment
from the consumer’s premises without liability for trespass. Still other provisions
arbitrarily assert the consumer cannot cancel the contract for any cause without punitive
forfeiture of deposits and payment of unfounded damages. Also, the consumer’s rights to
due process is often denied by deceptive provisions by which he allegedly waives his
right to receive legal notices, waives process of law in the repossession of merchandise
and waives his rights to retain certain property exempted by State or Federal law from a
creditor’s reach.” Statement, Bill No. A1660, 1981 N.J. Laws, Chapter 454, Assembly
No. 1660, page 2-3.

                                              9
the complaint alleged that the seller failed to itemize a documentary service fee that was

included in the vehicle registration fee, when the state automotive sales practices

regulation explicitly deemed it “‘unlawful’” to “‘charg[e] . . . a consumer monies, or any

other thing of value, in exchange for the performance of any documentary service without

first itemizing the actual documentary services which is being performed[.]’” 933 A.2d

942, 945-46 (N.J. Super. Ct. App. 2007) (quoting N.J. Admin. Code § 13:45A-

26B.2(a)(2)(i)). In United Consumer Financial Services Company v. Carbo, form

contracts provided by a finance company to vacuum cleaner distributors allowed sellers

to charge a fee of $20 if a check was returned for any reason, when the Retail Installment

Sales Act only authorized a fee “‘if a check of the buyer is returned to the holder

uncollected due to insufficient funds in the buyer’s account.’” 982 A.2d 7, 22 (N.J.

Super. Ct. App. 2007) (citing N.J. Stat. Ann. § 17:16C-42(e)).

       In contrast, whether the Limited Warranty violates a consumer’s legal right under

§ 2302(c) of the MMWA is significantly less clear. The critical language in the MMWA

states that a warrantor shall not condition its warranty “on the consumer’s using, in

connection with such product, any article or service (other than article or service provided

without charge under the terms of the warranty) which is identified by brand, trade, or

corporate name.” 15 U.S.C. § 2302(c). But the statute fails to define what it means to

use an article or service “in connection with such product” or specify whether “using in

connection with” applies to parts or services that the consumer must pay for in the

process of redeeming the warranty benefits, which is at issue here.

                                             10
       Other sources that typically aid in interpreting the statute are equally unhelpful.

The MMWA’s legislative history and Federal Trade Commission (“FTC”) Guidelines

suggest that the MMWA prohibits tying arrangements for articles or services that are

unrelated to redeeming the warranty benefit. 6 However, as in cases like this one where

the condition applies to parts or services that the consumer must pay for in the process of

redeeming the warranty benefit, it is unclear whether the prohibition of tying

arrangements applies. According to the FTC Guidelines, when a warranty covers only

the replacement of parts but not the labor charges to install those parts, § 2302(c)

prohibits warrantors from specifying the service or labor consumers must use to install

the replacement parts. 16 C.F.R. § 700.10(b). However, the FTC’s subsequent Opinion

Letter suggests that in certain cases where the warrantor pays a portion of the labor cost

under the warranty, it may specify the labor service to be used. Donald S. Clark, Federal

Trade Commission, Nat’l Indep. Auto. Dealers Assoc. Response Letter (Dec. 31, 2002)

(“Opinion Letter”).

       Although both parties rely heavily on the FTC’s Opinion Letter to support their

respective positions, the Letter ultimately fails to indicate whether the Limited Warranty

violates a consumer’s legal right under § 2302(c) of the MMWA. The FTC’s position is

       6
         For example, an automobile manufacturer may not require the consumer to
regularly use a certain brand of motor oil as a condition of redeeming warranty repairs.
See H.R. Rep. 93-1107 (1974). Nor can a manufacturer require the use of specific repair
services for non-warranty maintenance as a condition of redeeming warranty repairs. 16
C.F.R. § 700.10(c).

                                             11
that in the case of 50/50 warranties, where a warrantor pays 50% of the labor cost and

50% of the cost for parts with respect to covered repairs, warrantors are permitted to

specify the labor service to be used. A tie-in provision in such cases does not violate the

MMWA because the warranted repair work cannot be severed into the part that the

warrantor can perform and the part that another repair shop can perform. Thus, the

warranting dealer, who pays a proportion of the repair costs, “has a direct interest in

providing the warranty service for which it is partly financially responsible.” Id. The

Limited Warranty here is similar in that the warrantor shares in the cost of the

consumers’ replacement vehicle and thus arguably has an interest in specifying the

conditions of the consumers’ purchase. However, unlike the warrantor’s 50% payment of

the repair cost under the 50/50 warranty, the warrantor’s payment of the credit

reimbursement here is a pre-determined, fixed amount that could remain unaffected by,

and is potentially severable from, the purchase of the replacement vehicle.

       In the end, our analysis demonstrates that whether the Limited Warranty violates a

consumer’s right under § 2302(c) of the MMWA is significantly less clear than the

violations of long-established common law listed in the Assembly Statement as well as

the violations of law found sufficient to state a NJTCCA claim in Bosland and United

Consumer Financial Services Company. Regardless of what the New Jersey Legislature

specifically intended “clearly established legal right” to mean, it was not intended to

include the types of right at issue here, where the violation of the right is unclear.

Therefore, we hold that the consumers’ right to be free from warranties like the Limited

                                              12
Warranty was not clearly established under the MMWA. 7 Accordingly, the District

Court did not err in dismissing Plaintiffs’ NJTCCA claim. For the same reason, any

amendment to the complaint would have been futile in establishing the claim, so the

District Court did not abuse its discretion in denying the Plaintiffs’ motion for leave to

amend. 8

                                             B.

       In the District Court, Plaintiffs sought a declaratory judgment voiding the Limited

Warranty contract and submitted an unjust enrichment claim under New Jersey common

law, arguing that the Defendants should return to the Plaintiffs the value paid for the Ibex

System. Plaintiffs presumably sought the declaratory judgment voiding the contract

because their unjust enrichment claim cannot stand as long as the parties’ relationship is

governed by an existing contract. Kas Oriental Rugs, Inc. v. Ellman, 926 A.2d 387, 392

       7
         We decline to define the precise contours of the term “clearly established legal
right” because principles of comity counsel us to refrain from leading the state courts in
the interpretation of state law when it is unnecessary to the resolution of the matter before
us. See Manning v. Princeton Consumer Discount Co., 380 F. Supp. 116, 120 (E.D. Pa.
1974).
       8
         Even if we were to hold that the Limited Warranty violated the MMWA, this
would only indicate that the consumers had a legal right to be free from such warranties.
It would not necessarily mean that the right was clearly established under the MMWA.
Interpreting the NJTCCA to apply equally to violations of a legal right and violations of a
clearly established legal right would fail to give the phrase “clearly established” any
meaning and render it superfluous. See Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501
U.S. 104, 112 (1991) (Courts should construe statutes “so as to avoid rendering
superfluous” any statutory language.). Thus, Plaintiffs must show something more than a
post hoc judicial recognition of their right in order to prove that the right was clearly
established. Their failure to do so would also lead us to reject their NJTCCA claim.

                                             13
(N.J. Super. Ct. App. 2007). Because we hold that the Limited Warranty did not violate

the consumer’s clearly established legal right under the MMWA and thus, did not violate

the NJTCCA, see supra Part III.A., Plaintiffs were not entitled to a declaratory judgment

voiding the Limited Warranty contract. And without a declaratory judgment voiding the

contract, Plaintiffs’ unjust enrichment claim must also necessarily fail. Therefore, the

District Court properly dismissed both claims and did not abuse its discretion in denying

the motion for leave to amend.

                                            IV.

       For the reasons set forth above, we will affirm the District Court’s order.

                                            14