ARGUED: December 6, 2018
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
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY,
appeal, we address a dispute between a motor vehicle and
replacement parts manufacturer and independently owned and
operated franchise dealers concerning reimbursement for
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). 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.
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
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.
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.
business relationship between vehicle manufacturers and
dealers is also regulated, in Pennsylvania, by the Board of
Vehicles Act. 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."
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.
the General Assembly added Section 9(b.4) to regulate cost
recovery by manufacturers, as follows:
(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
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.
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.
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
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.
for General Motors dated Apr. 8, 2016, in Baer Buick
GMC, No. 1325-60-2014, at 2.
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
mediation efforts failed to resolve the above issues among
the litigants,  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). "[M]ore fundamentally," the
Board opined, it was beyond its own authority to adjudicate
contractual disputes. Id. at 11-12. With respect
to the surcharge issue, ...