GENERAL MOTORS, LLC v. BUREAU OF PROFESSIONAL AND OCCUPATIONAL AFFAIRS, STATE BOARD OF VEHICLE MANUFACTURERS, DEALERS AND SALESPERSONS
No. 24 MAP 2018
IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT
July 17, 2019
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ. APPEAL OF: BUDD BAER, INC. D/B/A BUDD BAER BUICK GMC. ARGUED: December 6, 2018. [J-108-2018]
OPINION
CHIEF JUSTICE SAYLOR DECIDED: July 17,
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
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
The Act was amended in 2013, however, to do so. See
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.
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
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.”
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
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, the Board concluded that, under Section 9(b.4)(1)(i) of the Act, “surcharge for parts and labor warranty reimbursement is permitted only where the dealer has sought both.” Id. at 15 (footnote omitted).
On General Motors’ subsequent appeal, a divided panel of the Commonwealth Court reversed. See General Motors, LLC v. Bureau of Prof‘l and Occupational Affairs, 169 A.3d 681, 688 (Pa. Cmwlth. 2017). As to the labor-reimbursement issue, the majority found the Board‘s ruling to have been “premised on the supposition that the parties may not agree to terms that are not expressly authorized by the Act.” Id. at 685. To the contrary, the majority reasoned, the Act does not restrict the ability of the parties to contract in such fashion. Rather, the majority explained:
[p]roperly understood, section 9 of the Act provides a safeguard for dealers that are dissatisfied with the warranty reimbursement available to them under 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 General Motors’ 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.
Id. Thus, the majority found that the Board misapprehended the basis for General Motors’ conversion of Dealers’ warranty-labor rate from Option C to Option
The majority turned to whether General Motors violated Section 9(b.4)(1)(i) of the Act by imposing surcharges, crediting General Motors’ argument that the statute‘s restriction on cost recovery effectively creates a safe harbor for dealers that do not seek any retail rate reimbursement under section 9(a). The majority recognized that the statute‘s language providing that manufacturers cannot recover costs from dealers that do not apply for retail rate reimbursement for “parts and labor” was “facially conjunctive.” General Motors, 169 A.3d at 687 (quoting
The majority also found it material that the same “parts and labor” terminology is employed in Section 9(b.4)(2) of the Act, which prescribes that “[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,”
The self-evident object of section 9(b.4) is to permit manufacturers to recover increased costs from a dealer that invokes section 9(a) to be reimbursed at a statutorily defined retail rate instead of at the rate the parties had agreed upon in their contract. This Court cannot identify any policy reason that would justify limiting the ability of manufacturers to recover under section 9(b.4) only to instances where dealers elect to invoke retail rate reimbursement for both parts and labor.
General Motors, 169 A.3d at 687. Based on this reasoning, it was the majority‘s position that treating “parts and labor” in the conjunctive would be inconsistent with the object of the Act. As such, the majority presumed that the General Assembly did not intend such a result, which it found to be unreasonable. See
Judge Cosgrove authored a dissenting opinion, characterizing the Act as “an exercise of [the Commonwealth‘s] police power” designed to “prevent frauds, impositions and other abuses upon its citizens and to protect and preserve the investments and properties of the citizens of this Commonwealth.” Baer Buick GMC, 169 A.3d at 688 (Cosgrove, J., dissenting) (quoting, indirectly, 49 Pa. Code §19.1). Against this backdrop, the dissent reasoned:
[I]t is difficult to see how the Legislature could have intended statutory language, which may be subject to two reasonable interpretations, to be viewed in a way which favors multibillion dollar corporations based in other states (or countries) over the protective interests of local automobile dealers operating within the Commonwealth.
Id. Judge Cosgrove also criticized the majority for failing to accord deference to the Board‘s interpretation of the Act, which he opined should be overturned only if clearly
erroneous. See id. (citing Maggiano v. Pa. State Bd. of Vehicle Mfrs., Dealers, and Salespersons, 659 A.2d 1071, 1074 (Pa. Cmwlth. 1995)).
We allowed Dealers’ appeal to consider the two matters of statutory construction posed by the Board‘s and the Commonwealth
I. Section 9(a) and Option C
Dealers contend that Section 9(a) of the Act prohibits manufacturers from conditioning access to a contractual reimbursement rate on the non-exercise of a statutory right, and the contractual ineligibility requirement associated with Option C should therefore be deemed invalid to the extent that it impinges on a dealer‘s ability to exercise its statutory reimbursement options. They explain that the statutory compensation rates for parts and labor under the Act are subject to different reimbursement methodologies, see
A statutory option is simply not available if a dealer loses something by accessing that option. And because the General Assembly mandated that the statutory reimbursement options be available to dealers, GM has violated the Act by conditioning access on the non-exercise of a statutory right.
. . . [T]he contractual and statutory reimbursement options must be independent of one another and must each be available with no strings attached. By attaching a string to the statutory parts reimbursement option, GM violated the unambiguous words of the statute.
Brief for Appellants at 25; see also id. at 30-31.
In the event that Section 9(a) is deemed ambiguous in the relevant regards, Dealers invoke multiple factors articulated in the Statutory Construction Act, including assessment of the occasion and necessity for the statute, the object to be attained, the mischief to be remedied, and the consequences of a particular interpretation. See
Upon review, we credit the Commonwealth Court majority‘s analysis and holding on the Option C issue on their terms. As General Motors persuasively argues, although the Act plainly modifies its contractual relationship with Dealers, nothing in the enactment precludes the company from enforcing a preexisting, contractual,
under the Act only to those dealers who will accept the company‘s standard parts reimbursement protocol. And nothing in the contract, beyond a monetary incentive to voluntarily refrain from invoking the statutory reimbursement methodology, interferes with Dealers’ ability to access the full panoply of benefits made available under the Act. Accord Brief for Appellee at 44 (“[T]he Option C eligibility language presents no conflict with dealers’ ability to receive statutory reimbursement for warranty parts and labor.“).6
We realize that the Act embodies remedial legislation designed to protect Pennsylvania dealers from unfair practices on the part of vehicle manufacturers, amidst business relationships with perceived bargaining disparities. Accordingly, the principle of statutory construction favoring a broad construction of remedial legislation militates in Dealers’ favor. See
In terms of judicial deference to the Board‘s construction of the Act, Dealers
(…continued)
Nevertheless, at least if taken too far, an intrusion upon otherwise vested interests will implicate constitutional interests, and thus, it is clear that the Legislature would have proceeded with its own circumspection in balancing the important respective rights and interests involved in manufacturer-dealer business relationships. Accordingly, and in light of the fact that the Act purports only to establish an alternative scheme of remuneration available to dealers at their own discretion, we conclude that the principle that remedial statutes are to be liberally construed does not operate to effectively strip an otherwise discretionary, contract-based incentive program of the material condition on which it is premised.
Although, as Justice Mundy notes, Darling was a federal diversity case, the federal circuit court plainly expressed its own disinclination to unnecessarily interfere with commercial contracts in the absence of a clear legislative mandate. See Darling, 444 F.3d at 109. And certainly the decision would have no less persuasive force had this sentiment derived from the Supreme Judicial Court of Maine. As to the assertion, in the concurring and dissenting opinion, that Darling was based on legislative silence whereas the present case involves requirements expressly articulated by the Pennsylvania General Assembly, see Concurring and Dissenting Opinion, slip op. at 3, we have repeatedly observed that such requirements simply do not pertain to the availability of contractual incentives above and beyond the statutorily-prescribed retail rates. In other words, both scenarios (Darling and the present case) involve legislative silence in the relevant respects.
construction. See, e.g., Colville v. Allegheny Cty. Ret. Bd., 592 Pa. 433, 443 n.4, 926 A.2d 424, 430 n.4 (2007).8
Here, we agree with Dealers that the question presented ultimately devolves to whether the contractual condition attending a dealer‘s eligibility for Option C reimbursement is void as against a public policy deriving from the Act. However, while certainly General Motors bears the burden, under the Act, “to prove it has not violated any provision of this act,”
Board‘s construction is surpassed by the weight of our independent legal analysis pertaining to the Option C issue and Section 9(a) of the Act.9
In summary, we agree with the Commonwealth Court and General Motors that the Act does not create a statutory right for Dealers to participate in the Option C program, either by virtue of its plain terms or by implication.
II. Section 9(b.4) and Surcharge
Relative to the interpretation of Section 9(b.4), Dealers criticize the Commonwealth
General Motors, on the other hand, maintains that the Legislature intended for manufacturers to be able to recoup their costs for warranty repairs, and that the Commonwealth Court properly construed the plain language of Section 9(b.4)(1)(i) to conclude that General Motors was entitled to recover its increased costs from dealers that opt out of the safe harbor by seeking statutory retail reimbursement for warranty parts. Reading this subsection in conjunction with the reversionary provision in subsection (b.4)(2), the company contends, its approach represents the only reasonable interpretation of the phrase “parts and labor.”
As related by a prominent commentator, “[t]he terms ‘and’ and ‘or’ are often misused in statutes.” NORMAN SINGER, 1A SUTHERLAND STATUTORY CONSTRUCTION §21:14 (7th ed. 2018). But, by this point in time at least, the Legislature should be no less aware of the problem than we are, and accordingly, in the absence of a result that is unreasonable, absurd, or incapable of execution, this Court has generally taken “and” to mean “and” and “or” to mean “or.” See, e.g., Garratt v. City of Phila., 387 Pa. 442, 445-46, 127 A.2d 738, 740 (1956).10 See generally HON. ANTONIN SCALIA & BRYAN A. GARNER, READING LAW 117 (2012) (explaining that, ordinarily, the conjunction “and” “entails an express or implied both before the first element.” (emphasis in original)). Thus, in the context of Section 9(b.4)(1)(i), we read the phrase “parts and labor” to mean both parts and labor, and we credit Dealers’ argument that a manufacturer cannot impose a surcharge on a dealer that does not apply for retail-rate reimbursement for both. See
In terms of Section 9(b.4)(2)‘s reversionary clause, we also agree with Dealers that the treatment of “parts and labor” in that section to mean both parts and labor does not create a result that is absurd, unreasonable, or incapable of execution. From our point of view, the Act appears to be somewhat of a blunt instrument in its protective provisions, since, for example, it does not require an inquiry into the impact of the statutory calculation of reimbursement rates and regulation cost recovery on manufacturers’ or dealers’ profit margins. The statute also does not require any
assessment of the impact of any vehicle pricing adjustments that may result from a manufacturer‘s inability to impose surcharges on competitiveness or profitability.11
Nevertheless, in response to General Motors’ arguments about economic sensibility, we observe that “[t]he vast majority of states regulate the price of warranty reimbursement payments to automobile dealers, and over a dozen states have enacted . . . recoupment prohibitions.” Alliance of Auto. Mfrs., Inc. v. Currey, 984 F. Supp. 2d 32, 56 (D. Conn. 2013). Furthermore, neither the Legislature nor the parties
The order of the Commonwealth Court is affirmed as it relates to Section 9(a) and reversed as concerns Section 9(b.4)(1)(i).13
Justices Todd, Donohue, Dougherty and Wecht join the opinion.
Justice Mundy files a concurring and dissenting opinion.
Justice Baer did not participate in the consideration or decision of this case.