Court Opinion

ID: 9480050
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:36:20.94305+00
Date Added: 2024-06-11T17:47:27.059759
License: Public Domain

WINTER, Circuit Judge,
dissenting:
I agree with my colleagues that a consent decree with the force of federal law may preempt a state statute. However, I disagree with them as to the preemptive effect of the Federal Trade Commission (“FTC”) consent decree in issue. This case involves a highly unusual legal and factual situation, and I approach it rather differently from my colleagues.
The first unusual aspect is that the New York statute appears to have an effect on General Motors (“GM”) entirely different from its effect on every other manufacturer. The statutory provision in question was designed to allow manufacturers to operate their own arbitration programs where they choose to do so and to require consumers to resort in the first instance to the manufacturer’s program, if one exists. The statute was thus intended to allow manufacturers voluntarily to establish an arbitration program that would be a mandatory first step for consumers under the Lemon Law. Counsel for the defendants conceded at oral argument that this provision was for the benefit of manufacturers. However, it appears to be mandatory for GM because the arbitration provisions of the FTC consent decree are treated as a manufacturer’s arbitration program for purposes of the law in question.1 This appears to be the result of sheer happenstance in legislative drafting, for there is no evidence that the New York legislature ever intended to single out GM or that New York has any policy goal or reason to make maintenance of an arbitration program mandatory for GM and not its competitors.
The second unusual aspect arises from the first. The legal issue before us is not the traditional preemption question whether a federal policy or procedure invalidates a state policy or procedure. No one is arguing that New York cannot enact a Lemon Law and provide arbitration, including optional manufacturers’ arbitration, as one remedy. New York could also have declared that arbitration programs mandated by federal law are not to be used for Lemon Law enforcement but that manufacturers bound to such federal programs could establish separate programs for Lemon Law purposes. Even if New York wanted to single out GM and mandate that it maintain an arbitration program, it could have required GM to establish a second program separate from that under the consent decree. Every policy goal of the legislation in question could thus easily have been achieved without creating even an arguable preemption issue.
The question is not whether a New York policy or procedure can coexist with a federal policy or procedure but whether New York can provide that a federally mandated remedial procedure be used to enforce its local policy even though it could have provided for an identical procedure under state law. A finding of preemption here would thus in no way lessen New York’s power to *45enact substantive regulation and provide a comprehensive arsenal of remedial procedures concerning automobiles or other consumer products. Cases relied upon by my colleagues that caution against unnecessary interference with the exercise of state police powers are beside the point. The question rather is whether New York is unnecessarily interfering with a federal remedial procedure.
My colleagues conclude that New York or any other state’s use of the federal procedure is valid because the FTC consent decree was designed to be a vehicle for the enforcement of state substantive law. I disagree. It is virtually indisputable that the decree was intended to authorize arbitrators to issue decisions based solely on their view of common sense and equity without regard to state substantive law, unless that law expressly forbade the result. The language incorporated into the original decree stated that the arbitrator “may make any decision, which the Arbitrator deems to be fair and equitable ..., provided state law does not prohibit all or part of that decision.” Rule 27B, Uniform Rules for Better Business Bureau Arbitration, reprinted in FTC Consent Order, 102 F.T.C. 1741, 1774. Moreover, the lack of either state or federal standards was the basis for FTC Commissioner Pertschuk’s dissent and defendant Attorney General Abrams’ opposition to the decree before it was adopted by the FTC.
Whatever the evidence of language and intent, however, the matter is settled by an examination of the Uniform Rules for Better Business Bureau Arbitration, 102 F.T.C. at 1771-74, which are binding on GM under the consent decree. It should be understood that the Better Business Bureau (“BBB”) rules have an application beyond the FTC consent decree. They bind businesses of all kinds across the nation who have agreed to participate in the BBB arbitration program. They thus have a life of their own apart from this litigation, including a history of interpretation and operational practice. My principal disagreement with my colleagues concerns their view that these rules are somehow to be interpreted without regard to how the BBB arbitration program has actually operated for many years and without regard to how the BBB and other parties to these rules, who have no connection with the present litigation, interpret them.
The quality of available evidence as to the meaning and operation of the BBB rules is exceptional. In the record and unchallenged by the defendants is an affidavit of Dean W. Determan, former General Counsel of the Council of Better Business Bureaus, Inc., and Vice President in charge of its Media/Arbitration Division. Mr. Determan authored the rules in question and for many years supervised the BBB arbitration program, during which he was responsible for interpreting the rules.
Among other things stated by Mr. Deter-man in that affidavit is that the BBB rules incorporated in the FTC order “provided that arbitrators’ decisions were to be based on equity and not on state legal principles. This has continued to be the operating premise of the program.” Mr. Determan further stated that the BBB program has trained more than 25,000 persons nationwide to be BBB arbitrators and has instructed them
to apply their own concept of fairness to the facts in the cases they hear. They are not taught the various state laws which would apply if the disputes they were hearing had been brought in court. In fact, while the arbitrators are told that they may allow parties to present the substantive law from the state where they are sitting, or even from other states, they are specifically instructed that they are not to apply any particular law, but instead are to do what they personally believe is right.
... It is specifically understood that under the BBB Rules arbitrators should not enforce established legal principles such as the Uniform Commercial Code, warranty law, or any other substantive law, except as those principles might form the basis of the arbitrator’s independent common sense and ideas of fairness.
*46Mr. Determan’s affidavit also shed light on the two references to state law in the BBB rules. He specifically stated that Section 3 — “The law of the state where your dispute is arbitrated shall apply,” 102 F.T.C. at 1771 — was designed only “to settle questions of choice of procedural law,” and was
included to anticipate situations in which a consumer lives in one state, but is serviced by a BBB located in a different state. For example, New York law requires eight days’ notice of an arbitration hearing, but New Jersey only requires seven. This provision does not and is not intended to incorporate state substantive law into the arbitration decisional process.
My colleagues rely heavily upon Section 27B — “The Arbitrator may make any decision, which the Arbitrator deems to be fair and equitable ..., provided state law does not prohibit all or part of that decision,” 102 F.T.C. at 1774 — as compelling an arbitrator to follow state substantive law. With regard to that Section, Mr. Determan stated,
This provision means that no decision can require any party to perform an action that would put the party in jeopardy under any other law. For example, if an arbitrator decides a vehicle would achieve better fuel economy if the catalytic converter were removed, he may not “award” the removal of the catalytic converter in contravention of state law. Similarly, an arbitrator could not order seat belts removed as part of a remedy, where cars were required to have them. Again, however, this provision does not and is not intended to substitute state substantive law for the sense of fairness judgment of the arbitrator as to what remedy, if any, is appropriate.
I thus conclude that the Lemon Law, as interpreted, is in palpable conflict with the consent decree. The BBB arbitration program expressly precludes application of state substantive law. The New York statute commands it. BBB arbitrators are not trained in state law and are instructed that its use is not mandatory. The New York statute commands that the arbitrators be trained in the Lemon Law and follow it. Compliance by GM with the consent decree and with the Lemon Law as interpreted is thus not possible, see Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217-18, 10 L.Ed.2d 248 (1963), unless the BBB, which is not under any legal duty to comply with the Lemon Law, voluntarily cooperates both in revising the standards followed by its arbitrators and in allowing its arbitrators to be retrained.
I would note further that my colleagues’ decision creates the potential for considerable mischief extending far beyond this case. Companies will hereafter be rather more cautious in entering into federal consent decrees providing for arbitration programs that may later be put to unanticipated uses. Certainly, no counsel for a manufacturer will recommend agreeing to a consent decree involving BBB arbitration. Moreover, because this decision concludes that a particular state warranty law governs BBB arbitration and that BBB arbitrators are not properly trained, the decision suggests that as a matter of law the BBB has been misinterpreting and misadminis-tering its arbitration program all these years. As a result, mischief may follow for businesses and consumers in other industries as well. Litigation claiming that BBB arbitration has not applied state substantive law, until now unthinkable, has been made more likely.
Finally, I would note that my colleagues’ exertions are rather pointless other than to single out GM for harsher treatment. If we were to hold that New York could not use the FTC arbitration program as a vehicle to impose its own substantive law, GM would be restored to the position held by all other automobile manufacturers in the State of New York and would have a choice whether to set up an arbitration program (in its case, a second program) for use under the Lemon Law. I therefore dissent.

. The question whether the statute applies to GM's arbitration program is not raised in the present case.