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

Supreme Court of Pennsylvania

July 17, 2019


          ARGUED: December 6, 2018

          Appeal from the Order of the Commonwealth Court at No. 1075 CD 2016 dated 8/16/17, reconsideration denied 10/12/17, reversing the decision of the State Board of Vehicle Manufacturers, Dealers and Salespersons at No. 1325-60-2014 dated 6/10/16




         In this appeal, we address a dispute between a motor vehicle and replacement parts manufacturer and independently owned and operated franchise dealers concerning reimbursement for warranty repairs.

         At the times relevant to this litigation, the appellants, Baer Buick GMC and Grata Chevrolet ("Dealers"), and the appellee, General Motors, LLC, were parties to dealer sales and service agreements, per which Dealers sold and serviced vehicles manufactured by General Motors. Under the contractual terms, Dealers committed to performing repairs required by limited warranties extended by General Motors upon sales with no additional charge to customers (albeit that the projected cost of such repairs was factored into the purchase price for new vehicles).[1] General Motors was then required to reimburse Dealers in accordance with a Service Policies and Procedures Manual (the "SPPM"). These commitments extended to qualified vehicles that had been sold by Dealers and to those purchased from other dealers. See Stipulation at ¶¶10-11.

         Through the SPPM, General Motors agreed to pay dealers at large for labor during warranty work under either of two options, denominated "Option A (Retail Rate) and Option C (CPI-based)." Stipulation at ¶16. The terms were as follows:

Under Option A, a dealer may establish its "effective" labor rate based on an average of its retail rate, subject to certain verification requirements.
Under Option C, GM offers to enter into specific labor rate agreements with its dealers pursuant to which they agree on an initial labor rate for warranty repairs, with a guaranteed minimum annual adjustment of at least 2.5% over a three year period based on the Consumer Price Index.

Id. at ¶¶17-18. Option C, apparently, was the preferred option among dealers for labor reimbursement. See id. at ¶19 ("Many GM dealers choose Option C because its guaranteed annual increases allow[] them to budget for their warranty labor rates for warranty repairs."). General Motors' standard reimbursement policy for parts installed in connection with warranty repairs was to pay one hundred and forty percent of the dealers' costs. See id. at ¶23.

         Apparently, both labor reimbursement alternatives, Options A and C, were initially made available to all dealers regardless of whether they sought reimbursement for parts under the standard contractual methodology or invoked an alternative rate, presumably under a governing regulatory statute. In 2012, however, General Motors instituted a policy effectively rendering any dealer pursuing an alternative reimbursement methodology for calculating warranty parts reimbursement ineligible for contractually-based Option C reimbursement for labor. See Stipulation at ¶¶20, 22 ("Eligibility [for Option C] is contingent on [Dealer's] continued compliance with GM standard parts reimbursement policy." (quoting the 2014 version of the SPPM)). Instead, the SPPM made dealers selecting extra-contractual, retail-rate reimbursement for parts eligible for remuneration for the labor component of warranty repairs only under Option A.

         The business relationship between vehicle manufacturers and dealers is also regulated, in Pennsylvania, by the Board of Vehicles Act.[2] In 2012, when General Motors instituted the policy giving rise to this dispute, manufacturers were required to issue a schedule of compensation to extend "reasonable compensation" for warranty parts and labor. See 63 P.S. §818.9(b) (repealed). For labor, the statute specified that the hourly rate paid to a dealer "shall be no less than the rate charged by the dealer for like service to nonwarranty customers for nonwarranty service and repairs at a reasonable rate." Id. Notably, the statute at the time did not equate a retail rate for parts reimbursement with the required "reasonable compensation."

         The Act was amended in 2013, however, to do so. See 63 P.S. §818.9(a)(2) ("Compensation for parts . . . shall be at the dealer's retail rate."). The governing prescription for labor was also amended to track this language, see id. §818.9(a)(3) ("Compensation for labor used in warranty service shall be at the dealer's retail rate."), and the general expression of a reasonableness nexus was removed. Further, the amendments added discrete methods for calculating retail rates, respectively, for parts and labor. See id. §818.9(a)(2), (3).

         Additionally, the General Assembly added Section 9(b.4) to regulate cost recovery by manufacturers, as follows:

(b.4) Recovery.--
(1)(i) A manufacturer or distributor may not recover its costs from a dealer within this Commonwealth that does not apply to the manufacturer or distributor for retail rate reimbursement for parts and labor, including an increase in the wholesale price of a vehicle or surcharge imposed on a dealer intended to recover the cost of reimbursing a dealer for parts and labor under this section.
(ii) A manufacturer or distributor may increase the price for a vehicle or part in the normal course of business.
(2) A dealer may elect to revert to the nonretail rate reimbursement for parts and labor once in a calendar year to avoid a manufacturer or distributor surcharge.

63 P.S. §818.9(b.4). Significantly, although the Act addresses payment of retail rates in mandatory terms, see id. §818.9(a)(2), (3), Section 9(b.4)(2) implies, if it does not explicate, that dealers are free to accede to payment of contractual rates rather than invoking the statutory ones.

         In 2014, Dealers sought retail reimbursement for warranty parts pursuant to Section 9(a)(2) of the Act while intending to remain enrolled in the contractual, Option C reimbursement program for labor. See id. at ¶28. Per the SPPM, however, General Motors advised Dealers that it would change their reimbursement for warranty labor from Option C to Option A, against their wishes. See id. at ¶42. General Motors also conveyed to Dealers that the company intended to impose a discrete cost recovery fee, or surcharge, to new vehicle invoices, initially in the amount of $122 per vehicle. See id. at ¶¶43-45.

         Dealers, along with several other franchise dealers, lodged a protest with the State Board of Vehicle Manufacturers, Dealers and Salespersons (the "Board"), which is charged with administering and enforcing the Act. See 63 P.S. §§818.4(a), 818.8(d)(1). Relevantly, with respect to the labor rate, Dealers claimed that General Motors violated Section 9(a)(3) of the Act by contractually changing the manner in which it reimburses dealers for warranty labor, when Dealers had merely exercised their statutory rights concerning reimbursement for warranty parts. They also challenged General Motors' ability to impose a surcharge on dealers that elect the statutory retail reimbursement rate for warranty parts but not labor. See id. §818.9(b.4)(1)(i) (providing that a manufacturer "may not recover its costs from a dealer . . . that does not apply to the manufacturer . . . for retail rate reimbursement for parts and labor. . . ." (emphasis added)). According to Dealers, the statute's plain language did not permit manufacturers to impose surcharges when dealers elect statutory reimbursement for parts but not labor. See id. §818.9(b.4)(1)(i), (2).

         In response, General Motors contended that nothing in the Act guarantees dealers the right to participate in Option C, which is purely a matter of contract. According to General Motors:

GM is not obligated under Pennsylvania law to offer Option C, as it often results in a higher reimbursement rate than the dealer's own retail rate. GM voluntarily offers this program because it is administratively convenient for dealers and allows them to compete more aggressively for retail repair work by maintaining a lower retail labor rate without sacrificing the amount they receive for warranty labor reimbursement. In exchange for these benefits, however, dealers agree that their "[e]ligibility [for Option C] is contingent on [their] continued compliance with GM standard parts reimbursement policy." If a dealer instead prefers to request retail parts reimbursement rather than accept GM's standard 40% parts markup, it is no longer eligible for Option C and reverts to Option A.

         Brief for General Motors dated Apr. 8, 2016, in Baer Buick GMC, No. 1325-60-2014, at 2.

         With respect to the surcharge, General Motors recognized that the Act forbids cost recovery from dealers that have not chosen to seek retail reimbursement for "parts and labor." 63 P.S. §818.9(b.4)(1)(i). According to the company, however, Dealers did not qualify for such safe-harbor protection on account of their selection of the statutory, retail rate for parts. General Motors asserted that foreclosing manufacturers from recouping costs attendant to warranty repairs lacks economic sensibility. Moreover, according to the company, such an approach would contravene the surcharge's reversionary provision. See id. §818.9(b.4)(2) ("A dealer may elect to revert to the nonretail rate reimbursement for parts and labor once in a calendar year to avoid a manufacturer or distributor surcharge.").

         After mediation efforts failed to resolve the above issues among the litigants, [3] the Board issued a decision, on the stipulated facts, sustaining Dealers' protest in all material respects. Initially, the Board observed that, upon the lodging of a protest, a vehicle manufacturer bears the burden to establish that it did not violate any provision of the Act. See 63 P.S. §818.8(d)(3). As to the labor-reimbursement rate, the Board discerned no statutory authority that would permit the parties to waive or alter the terms of Section 9 of the Act. See Baer Buick GMC v. General Motors LLC, No. 1325-60-2014, slip op. at 11 (Bd. Veh. Mfrs., Dealers & Salespersons Jun. 10, 2016).[4] "[M]ore fundamentally," the Board opined, it was beyond its own authority to adjudicate contractual disputes. Id. at 11-12.[5] With respect to the surcharge issue, ...

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