Court Opinion

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Opinions of the United
1999 Decisions                                                                                                             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Precedential or Non-Precedential: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

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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

                                  5
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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