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Liberty Lincoln-Mercury v. Ford Motor Co.

January 22, 1998










On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 95-3121)

Before December 1991

GREENBERG, Circuit Judge.

Filed January 22, 1998

Argued December 11, 1997



Defendant Ford Motor Company ("Ford") appeals from an order of the district court dated March 13, 1996, entered March 15, 1996, granting partial summary judgment in

favor of plaintiff Liberty Lincoln-Mercury, Inc. ("Liberty") on the grounds that Ford's assessment of a dealer-parity surcharge ("DPS") violated the New Jersey Franchise Practices Act, N.J. Stat. Ann. Section(s) 56:10-15(a) (West Supp. 1997). Ford also appeals from the district court's order of September 19, 1996, entered September 23, 1996, amending the March 13 order nunc pro tunc to preclude Ford from altering certain practices that were in effect as of the date of the March order. Liberty cross appeals from the district court's March 13, 1996 dismissal of its claim alleging illegal price discrimination under the Robinson-Patman Act, 15 U.S.C. Section(s) 13(a), and from the portions of the district court's February 26, 1997 final order entered February 27, 1997, rejecting Liberty's claim for damages incurred before December 1991, denying recovery of certain fees, and awarding prejudgment interest at the rates set forth in New Jersey Court Rule 4:42-11.

The district court had jurisdiction over Liberty's state law claim pursuant to 28 U.S.C. Section(s) 1332 based on diversity of citizenship and the requisite amount in controversy, and over Liberty's federal law claim under 28 U.S.C. Section(s) 1331. This court's jurisdiction rests on 28 U.S.C. Section(s) 1291 based on the district court's entry of the final order dated February 26, 1997, and entered February 27, 1997. *fn1 For the reasons that follow, we will reverse the district court's September 19, 1996 order, and will vacate the district court's order awarding attorneys' fees and remand that issue for reconsideration. We otherwise will affirm.


On March 11, 1976, Ford and Liberty entered into a franchise agreement by executing Ford's standard "Lincoln and Mercury Sales and Service Agreements." Pursuant to the agreement, Ford, a motor vehicle manufacturer and franchisor, sells vehicles at wholesale prices to Liberty, which in turn sells them to consumers at retail prices. The retail vehicle sales are accompanied by a warranty issued by Ford to the consumer, guaranteeing that Ford will replace certain systems or parts in the vehicle free of charge. See app. at 38; 173.

Under the standard franchise agreement, a franchisee-dealer such as Liberty must perform warranty repairs on any vehicle brought to its dealership regardless of where the owner purchased the vehicle. Ford then must reimburse the dealer for the parts and labor associated with the warranty repairs. From 1976 until 1991, Ford reimbursed Liberty for parts used in warranty repairs pursuant to a standard nationwide reimbursement formula. Under the relevant version of that formula, Ford reimbursed dealers at 30-40% above their cost for parts depending on the model of the vehicle repaired. See id. at 115.

On December 12, 1991, Liberty wrote to Ford, asking to be reimbursed for warranty parts at its retail rate of 77% above its cost pursuant to the New Jersey Franchise Practices Act ("NJFPA"), which provides that a motor vehicle franchisor "shall reimburse" its franchisee for parts used in warranty repairs at the franchisee's "prevailing retail price," provided that the retail price is "not unreasonable." N.J. Stat. Ann. Section(s) 56:10-15(a). See app. at 286. Ford responded on January 17, 1992, that it intended "to offset[any] parts mark-up above 30%." Ford explained that it would "estimate the incremental cost to [Ford] of the higher mark-up" Liberty had demanded and would provide Liberty "a menu of items" on Liberty's account from which the costs could be recovered. Ford informed Liberty that it would adjust the amount of its recovery charges "periodically . . . to ensure that only incremental costs are recovered." Id. at 295.

On July 7, 1992, after several months of correspondence, Ford agreed to reimburse Liberty at Liberty's claimed rate of 77% above cost although Ford "continue[d] to believe that a retail markup of 77% is unreasonably high." App. at 308. On October 1, 1992, Ford reminded Liberty "that there would be cost recovery," and informed Liberty that it was "reviewing the nature of the recoveries that will be implemented." Id. at 319. Ford then wrote to Liberty on November 5, 1992, confirming its agreement to reimburse Liberty at a 77% markup retroactive to December 12, 1991, the date Liberty first demanded retail-rate reimbursement, and announcing that Ford would recover the cost of paying the incremental reimbursement through a "dealer parity surcharge." Id. at 321.

Ford explained,

[a]s you know, parity between dealers, and parity in the overall economic relationship between Ford and its dealers, is essential. It is necessary for Ford to maintain dealer parity, notwithstanding Ford's acceptance of your request to be reimbursed for warranty parts at a markup exceeding the mark-up which Ford extends uniformly to all dealers nationally.

To maintain that parity, and to ensure fairness to the overwhelming majority of dealers who are satisfied with . . . a uniform warranty parts reimbursement mark-up, and to recover our increased costs . . . . [c]osts incurred through today will be divided by the total number of vehicles in your dealership's inventory and . . . `in-transit' to your dealership . . . . The quotient will constitute a dealer parity surcharge to your wholesale price for each such vehicle.

Id. Ford informed Liberty that after this initial cost recovery, "[i]ncremental costs incurred during each period . . . will be divided by the total number of vehicles invoiced . . . . The quotient will constitute the surcharge to your wholesale vehicle price for each such vehicle." Id. Ford assured Liberty that, [i]n the event the total monthly surcharge differs from the incremental [reimbursement] costs incurred by Ford, the aggregate amount of any excess or shortfall to the surcharge . . . will be netted against the

Costs used to determine the surcharge for the immediately subsequent Billing Period." Id. at 322.

In correspondence dated December 21, 1992, Liberty requested additional reimbursements to supplement the below-retail reimbursements it had received for warranty parts it installed between 1986 and December 12, 1991. See id. at 326. Ford rejected that claim. See id. at 346.

On October 5, 1992, Liberty filed a class action in federal district court for the District of New Jersey on behalf of 38 New Jersey Lincoln-Mercury dealers, alleging that Ford's warranty reimbursement practices violated the NJFPA. On May 14, 1993, the district court, finding that the dealers' claims required a "part-by-part, sale-by-sale" analysis of each dealer's retail rate, denied the motion for class certification for lack of the requisite commonality among the dealers' claims. Liberty Lincoln Mercury, Inc. v. Ford Mktg. Corp., 149 F.R.D. 65, 76 (D.N.J. 1993) ("Liberty I"). The court later dismissed Liberty I without prejudice by consent of the parties.

Liberty then filed this action on June 30, 1995. In its complaint and amended complaint Liberty alleged that Ford's imposition of the DPS violated the NJFPA's mandate that Ford reimburse Liberty for warranty parts at Liberty's prevailing retail price. Liberty also alleged that by imposing the DPS on Liberty but not on its competitors, Ford had engaged in unlawful price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. Section(s) 13(a). *fn2

Liberty moved for summary judgment as to liability on both claims and Ford moved to dismiss Liberty's price discrimination claim. By order dated March 13, 1996, the district court granted Liberty's motion for summary judgment as to its NJFPA claim and granted Ford's motion to dismiss Liberty's price discrimination claim. The district court found that Ford was "engaged in a shell game, the purpose of which is to avoid, altogether, the costs of complying with the NJFPA." Slip op. at 9. Finding that the DPS, by effectively reducing Liberty's reimbursements from Liberty's retail rate to Ford's standard rate, "essentially nullified [Ford's] compliance and created an end-run around the Act," the district court concluded that it "would be formalistic, in the extreme," to find that Ford had paid Liberty the requisite reimbursement "when [Ford] charges back the very benefits which the Act intends to confer." Id. at 8-9. The court thus held that the DPS violated the "clear language of the NJFPA" by denying Liberty reimbursement at its retail rate. Id. at 11. The court concluded, however, that because the DPS placed Liberty in the same economic position as competitors who received only standard reimbursements at 30-40% above cost, it did not give rise to a price discrimination claim under the Robinson-Patman Act. See id. at 12-13.

Thereafter Ford discontinued the DPS, and on April 29, 1996, wrote to all New Jersey dealers announcing new policies for processing retail-rate reimbursement claims. The policies required dealers to document their claimed retail prices as to each warranty part by attaching retail customer repair orders for the same part installed in similar vehicles within the preceding six months. See app. at 513, 516. Ford also informed the dealers that "payment of warranty parts reimbursement at levels higher than [standard] reimbursement levels will be recovered . . . as with other regulatory compliance costs." Id. at 514.

On May 15, 1996, Liberty submitted a request for retail-rate reimbursement for warranty parts installed during April and May 1996. Ford rejected the request for failure to satisfy Ford's new documentation requirements. See app. at 736-42. On June 20, 1996, Liberty filed a "Motion to Enforce the Order of March 13, 1996" challenging Ford's new policies as imposing insurmountable burdens designed to prevent Liberty from receiving retail-rate reimbursement, in violation of the NJFPA and the district court's March order. Liberty sought sanctions and an order enjoining Ford from implementing the new requirements.

Ford responded that the issues raised in Liberty's Motion to Enforce were beyond the scope of the complaint and the March order, which had addressed only the legality of the DPS and were silent as to the proper methods for establishing a dealer's retail rate. Ford contended that its new policies were appropriate in light of Liberty I's pronouncement favoring a "part-by-part, sale-by-sale" analysis of each dealer's retail rate, 149 F.R.D. at 76, and sought discovery and the opportunity to develop a factual record regarding the nature of the new policies and the burdens they entailed. See app. at 729-30.

The district court, without allowing discovery or holding an evidentiary hearing, held on September 19, 1996, that in adopting its new reimbursement policies Ford had "ignored or evaded" the "clear thrust" of the March opinion. Slip op. at 1. The court found that the new procedure "appears to be onerous in the extreme and designed to frustrate any attempt to obtain statutory reimbursement . . . at the dealer's prevailing retail rate." Finding, however, that the terms of the March order were not "explicit," the court denied Liberty's Motion to Enforce, but amended the March order nunc pro tunc to forbid Ford from altering its prior reimbursement procedure absent Liberty's consent or leave of the court. The court also enjoined Ford from"any further or other financial imposition on . . . Liberty . .. as a recoupment" of Ford's NJFPA compliance costs. Slip op. at 2-3.

Liberty also moved for summary judgment as to the issues of damages, interest, costs and fees. In afinal order dated February 26, 1997, and supplemental final order dated April 22, 1997, the district court granted Liberty's motion in part, awarding Liberty a total of approximately $800,000 in damages, ...

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