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General Motors, LLC v. Bureau of Professional and Occupational Affairs

Commonwealth Court of Pennsylvania

August 16, 2017

General Motors, LLC, Petitioner
Bureau of Professional and Occupational Affairs, State Board of Vehicle Manufacturers, Dealers and Salespersons, Respondent

          ARGUED: December 12, 2016




         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 Act[1] (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
(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 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]

         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 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 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 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 ...

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