United States Court of Appeals
For the First Circuit
Nos. 04-2281, 04-2282
GENERAL MOTORS CORPORATION,
Plaintiff, Appellant/Cross-Appellee,
v.
DARLING'S, d/b/a DARLING'S AUTO MALL,
Defendant, Appellee/Cross-Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]
Before
Boudin, Chief Judge,
Cyr, Senior Circuit Judge,
and Howard, Circuit Judge.
James C. McGrath, with whom Daniel L. Goldberg, Bingham
McCutchen LLP, Frederick J. Badger, Jr., Richardson, Whitman,
Large & Badger, Lawrence S. Buonomo and General Motors
Corporation, were on brief for appellant.
Judy A.S. Metcalf, with whom Laura Lee Klein and Eaton
Peabody were on brief, for appellee.
Bruce C. Gerrity, Jeanne B. McHale and Preti, Flaherty,
Beliveau, Pachios & Haley, LLC, on brief for amicus curiae Maine
Auto Dealers Association, Inc.
April 14, 2006
HOWARD, Circuit Judge. These cross-appeals are the
latest episode in a thirty-year conflict between national motor
vehicle manufacturers and their Maine-based dealers concerning the
manufacturers' obligation to reimburse the dealers for repairs made
to vehicles under warranty. See Alliance of Auto. Mfrs. v.
Gwadosky, 304 F. Supp. 2d 104, 106 (D. Me. 2004) (summarizing this
"long, complex, and litigious history"). General Motors ("GM")
brought this diversity lawsuit seeking a declaration of certain of
its rights and obligations under the Maine warranty reimbursement
statute, see Me. Rev. Stat. Ann. tit. 10, § 1176,1 and Darling's,
GM's authorized distributor in Maine, responded with several
related counterclaims.
I. BACKGROUND
A. The Statutory Context
At the urging of Maine's motor vehicle dealers, the Maine
legislature began regulating the manufacturer-dealer relationship
in 1975. See Me. Rev. Stat. Ann. tit. 10, § 1171 et seq. (the
"Dealer Act"); Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 33
(1st Cir. 2005). The original version of the warranty
reimbursement provision required a motor vehicle manufacturer to
“adequately and fairly compensate each of its motor vehicle dealers
1
We recently upheld the constitutionality of § 1176 against
Commerce and Contracts Clause challenges brought by an association
of manufacturers. See Alliance of Auto. Mfrs. v. Gwadosky, 430
F.3d 30 (1st Cir. 2005).
-2-
for parts and labor.” Me. Rev. Stat. Ann. tit. 10, § 1176 (1975).
Following amendments in 1980 and 1991, the statute more
specifically required manufacturers to reimburse for parts and
labor “at the retail rate customarily charged” by each dealer for
the same parts and labor provided to non-warranty customers. Me.
Rev. Stat. Ann. tit. 10, § 1176 (1997).2 Although the statute did
not specify how a dealer's customary retail rate for parts should
be established, it stated that a dealer's retail rates for labor
are established by posting its labor rates in a conspicuous
location within view of the dealer's service customers. See id.
2
At the time this litigation was initiated in 2001, § 1176
provided in relevant part:
If a motor vehicle [manufacturer] requires or permits a
motor vehicle [dealer] to perform labor or provide parts
in satisfaction of a warranty created by the
[manufacturer], the [manufacturer] shall properly and
promptly fulfill its warranty obligations . . . and . .
. shall reimburse the [dealer] for any parts so provided
at the retail rate customarily charged by that [dealer]
for the same parts when not provided in satisfaction of
a warranty. Further, the [manufacturer] shall reimburse
the [dealer] for any labor so performed at the retail
rate customarily charged by that [dealer] for the same
labor when not performed in satisfaction of a warranty;
provided that the [dealer's] rate for labor not performed
in satisfaction of a warranty is routinely posted in a
place conspicuous to its service customer. . . . Any
claim made by a [dealer] for compensation for parts
provided or for reimbursement for labor performed in
satisfaction of a warranty must be paid within 30 days of
its approval. All the claims must be either approved or
disapproved within 30 days of their receipt. When any
such claim is disapproved, the [dealer] that submitted it
must be notified in writing of its disapproval within
that period, together with the specific reasons for its
disapproval.
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Following another amendment in 2003, a dealer may now establish its
customary retail rate for parts by submitting to the manufacturer
either 100 sequential or 60 days of non-warranty customer-paid
service repair orders. See Me. Rev. Stat. Ann. tit. 10, § 1176
(2004). The average parts markup percentage for those repairs
establishes the dealer's customary retail markup for parts. See
id. The 2003 amendment also extends the period of time for a
manufacturer to approve or disapprove a claim, from 30 days to 60
days after submission, extends the time a manufacturer has to pay
a claim, from 30 days to 60 days after approval, limits the
manufacturers' reimbursement obligation to only those claims
submitted within 90 days of the performance of the warranty repair,
and bars manufacturers from recovering the costs of reimbursing
their Maine dealers at retail rates. See id.
B. GM's Nationwide Uniform Warranty Reimbursement
System
GM distributes its automobiles through a nationwide
network of authorized dealers. Darling's has been a Maine-based
authorized GM dealer since 1994, selling three lines of GM vehicles
(Buick, Pontiac and GMC) under successive versions of the Dealer
Sales and Service Agreement (“Dealer Agreement”), the most recent
of which was executed in 2000. Pursuant to the Dealer Agreement,
Darling's must perform warranty repairs on qualified vehicles and
GM must reimburse Darling's for parts and labor in accordance with
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the Service Policies and Procedures Manual (“Service Manual”).3 GM
reimburses its North American dealers based on a uniform
methodology that uses a fixed markup for the cost of parts (usually
40 percent), and the dealers' established hourly rates for labor,
multiplied by GM's labor time guidelines, which provide the number
of labor hours allotted for a specific repair.
GM processes warranty reimbursement clams through a
nationwide computer system called the Warranty Information System
(“WINS”). WINS, which allows dealers to submit claims
electronically, was developed in the mid-1990s to standardize GM's
warranty claims processing across all of its lines. Before WINS,
a dealer which sold three different lines of GM vehicles, like
Darling's, was required to submit separate reimbursement claims
through three distinct processing systems. All of GM's dealers in
the United States, Canada, Mexico and the Caribbean now use WINS.
Annually, GM uses the system to pay approximately 48 million claims
(including some non-warranty claims) worth over four billion
dollars.
WINS requires each warranty reimbursement claim to
include the dealer's repair order number, the date of service, the
vehicle identification number ("VIN"), the applicable labor
operation number, the failed part number, and the parts
3
We refer to the Dealer Agreement and the Service Manual
collectively as the "GM-Darling's Agreement."
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reimbursement amount. Within five days of submission, WINS
automatically reviews the claim to determine whether it is within
certain basic parameters based on the information provided in the
claim and any existing electronic records for the vehicle
corresponding to the entered VIN.4 If WINS finds an error in the
claim, the dealer is notified electronically. If the claim passes
the initial check, GM reimburses the dealer based on a uniform
methodology. WINS calculates the maximum labor reimbursement by
multiplying GM's time guidelines for the repair by the dealer's
approved labor rate, which is usually an average of the rates a
dealer has charged for all manner of repairs. It calculates the
maximum parts reimbursement by multiplying the cost of the parts by
the established parts markup rate for that dealer, which is usually
40 percent. As long as the total amount requested by the dealer
does not exceed these ceilings, WINS automatically approves the
claim and credits the dealer through an open account held jointly
by GM and the dealer. Approximately 90 percent of all WINS claims
are approved in this way and are paid within seven to ten days of
the initial claim submission.
4
Among other things, WINS checks that the vehicle is within
warranty coverage, that the vehicle's characteristics match the
reported repairs, and that the claim was submitted within 180 days
after the repair date.
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C. GM's Reimbursement of Warranty Claims in Maine
Because Maine's warranty reimbursement statute requires
manufacturers to reimburse for parts and labor “at the retail rate
customarily charged” by each dealer, Maine dealers may request
warranty reimbursement for parts and labor using their own internal
formulas, and not those specified by the manufacturers. But, being
an automated system, WINS has certain limitations that prevent it
from processing claims that include variables that it was not
programmed to handle. For example, WINS cannot handle multiple
parts markup rates for a single dealer. Nor can it substitute GM's
time guidelines with dealer-specific labor times. Consequently,
when a Maine dealer submits a claim that exceeds GM's uniform
nationwide rate and includes such variables, WINS is unable to
fully reimburse the dealer. To accommodate Maine's dealers without
completely abandoning WINS, GM devised a two-tiered reimbursement
system whereby Maine dealers first submit a claim through WINS for
reimbursement at GM's uniform rate, and then submit a supplemental
claim to collect the difference between the WINS rate and the
dealer's retail rate.
To verify the accuracy of supplemental claims, and to
allow GM to cross-reference the supplemental claims with the
initial WINS claims, GM requires that supplemental claims include
the VIN and date of repair. In addition, to verify the dealer's
retail rate, GM requires information in the supplemental claim that
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is not provided in the WINS submission: the dealer's various parts
markup percentages, the retail labor hours charged by the dealer,
and the method by which the labor time was calculated. This
information allows GM to assess the basis of the dealer's claimed
retail rate and to verify its accuracy by reviewing the dealer's
actual non-warranty service records.
Maine dealers typically submit supplemental claims by e-
mail or fax to the GM Area Service Manager ("ASM") assigned to each
dealer's region. The ASM reviews the supplemental claim, verifies
that the individual claims associated with the supplemental claim
were previously submitted and paid by WINS, and determines whether
the amount sought appears reasonable based on the information
provided. Because GM prefers to manage its dealer reimbursements
through WINS, if the supplemental claim is approved, the ASM
directs the dealer to submit an "H-route" request -- a specially
coded electronic claim -- for payment through WINS. Thus, dealers
submitting supplemental claims receive two payments from WINS:
first from the initial WINS submission, and second from the H-route
request.
Each ASM's computer contains WINS data going back four
months. Therefore, if a supplemental claim is filed within four
months of its initial approval through WINS, the ASM will have
direct access to the WINS information and will only need the
dealer's repair order number to access it. But for supplemental
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claims submitted more than four months later (GM has agreed to pay
initial and supplemental warranty claims submitted up to 180 days
after the repair date), the ASM must contact the regional office to
obtain the WINS data and can only access it by using the VIN of the
subject vehicle. Without the VIN, it is difficult, if not
impossible, for the ASM to access the initial WINS claim
information.5
D. Genesis of the Present Disputes
1. Disputes concerning Darling's supplemental
claims
Darling's customary retail rates for parts and labor,
which include a wide variety of pricing mechanisms, exceed GM's
uniform nationwide reimbursement rates. Depending on the
particular part, Darling's may determine the parts price markup
according to a "matrix" (providing a different percentage markup
depending on the cost of the part), a "menu" (providing a flat rate
for parts and labor for certain repairs), or a "retail list"
(providing a list of suggested retail prices by the manufacturer).
Although Darling's most often calculates its labor time by using
5
The VIN is a unique identifying number assigned to each new
vehicle by the manufacturer. Because each VIN corresponds to only
one particular vehicle, it provides a tool for organizing and
indexing a vehicle's historical records. While other numbers are
assigned to a repair (e.g., the dealer's repair order number), none
of these other numbers, which are not unique to a particular
vehicle, is as effective as the combination of the VIN and date of
service for pinpointing a particular repair to a particular
vehicle.
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the "Motors Manual" -- one of a number of trade manuals used by
repair shops to determine the amount of time appropriate for a
given repair -- it has used at least seven different methods to
determine the repair time. Moreover, Darling's has charged
different labor rates depending on the repairs made, and Maine's
warranty reimbursement statute permits Darling's to change its
various labor rates at any time so long as it posts the new rates
within the view of its service customers. As explained above, WINS
is not capable of accounting for these variables.
As a result, Darling's began submitting supplemental
warranty reimbursement requests in June 2000. Although Darling's
initially included with its claims most of the information required
by GM, it did not provide either the date of service or the VIN.
GM therefore had difficulty linking the supplemental claims with
the corresponding WINS claims and confirming that the claims were
submitted within 180 days of the repair. As it turned out, many of
Darling's claims were untimely and, because the claims lacked the
VINs, GM often had to request additional information from Darling's
warranty administrator, Larry Rolnick.
Less than a month after Darling's first round of
supplemental submissions, Joyce Nolan, GM's Director of Warranty
Operations, wrote to John Darling, president of Darling's, to
request the date of service and the VIN for each supplemental
claim. Nolan advised Darling that, as soon as GM received this
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information, GM would supply Darling's with "procedural information
on receiving payment through" WINS. Darling replied by letter,
asserting that "[b]ecause the [warranty reimbursement] statute does
not require this information and because it is readily available to
GM as part of the initial claim submission, we have chosen not to
include it as part of our supplemental retail warranty claim
sheet." Nolan responded that it would be unduly burdensome for GM
to locate the initial claim submissions without the VINs. But, as
a "good will gesture," Nolan agreed to approve Darling's first two
supplemental submissions and to provide procedural information
about H-routing those claims, so long as Darling's would provide
the applicable VINs by August 15, 2000. Nolan also stated that
future supplemental claim submissions would not be approved if
submitted without VINs. Darling's persisted in its refusal to
provide VINs, failed to submit an H-route request for the first two
sets of supplemental claims, and therefore never received
reimbursement on those claims.
After further correspondence failed to resolve the
impasse, GM's Market Area Manager assigned to Darling's, Barry
Alick, arranged to meet with Darling at one of his dealerships in
September 2000. Alick again explained that it was difficult for GM
to access the claims history of a particular vehicle without the
VIN and date of service. Nevertheless, Alick offered to pay all
then-pending claims, even though many were untimely, if Darling's
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would agree to provide the VINs on all future claims and to H-route
approved claims for payment via WINS. Darling's agreed and
subsequently H-routed over $75,000 in supplemental claims, which GM
paid.
Although Darling's began to include VINs with its
supplemental claims, it continued to submit them late. In a
February 2001 letter, Nolan reminded Darling of the 180-day filing
deadline, but again agreed to pay the pending claims in an effort
to "work with you cooperatively." Nolan emphasized, however, that
"going forward, GM will not approve either initial or supplemental
claims for warranty reimbursement unless the claim in question is
received within 180 days of the repair order date." Darling's
thereafter continued to submit untimely claims, and GM denied them.
In May 2001, Darling's responded by reducing the amount
of information included in its supplemental claims. Darling
instructed Rolnick to design a "short form" supplemental claim that
included only the repair order number, the parts and labor
reimbursement that WINS had paid at the uniform rate, a summary of
Darling's retail rate for parts and labor, and the difference
between the uniform reimbursement and Darling's retail rate.
Darling's short form not only omitted the VIN and date of service
for each repair, but also the other information it had previously
provided explaining the basis for its customary retail rate. The
omissions made it difficult for GM to access the underlying WINS
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data and left GM without a basis for assessing the reasonableness
of the claims. Rolnick testified that changing to a short claim
form actually increased his workload because it required first
preparing an internal worksheet setting forth all the information
previously provided to GM, and then preparing a short form omitting
certain information.
2. The charge back dispute
Underlying the dispute about the information required in
a supplemental claim was GM's concern that Darling's was over-
charging it for warranty repairs. Because, as a practical matter,
GM does not receive any of the actual repair invoices associated
with a dealer's warranty claims, it monitors warranty claims by
exception. In other words, GM pays warranty claims without
verification that the dealer actually performed the work or
performed the work in compliance with the dealer agreement.6
In order to detect excessive warranty claims, GM analyzes
the claims through its Automated Warranty Administrative Review
Expert ("AWARE") system. When AWARE identifies a dealer with
elevated warranty levels, GM notifies the dealer and provides it
with materials to conduct a "dealer self-review." These self-
reviews allow the dealer to audit itself and identify any instances
6
GM likens its warranty reimbursement process to the IRS's
system for processing income tax returns. Like the IRS, GM credits
most incoming claims so long as they are internally consistent, but
reserves the right to audit claims that appear suspicious.
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in which it has over-charged GM or otherwise departed from the
Dealer Agreement or Service Manual. If a dealer continues to
exhibit apparently excessive warranty costs, GM may issue
additional self-reviews and, eventually, may conduct its own
"claims expense review" of selected records at the dealership.
Darling's had one of the highest "cost per vehicle
serviced" and lowest customer satisfaction ratings of all the GM
dealers located in the zone covering northern New England. During
1999 and 2000, its warranty claim submissions indicated elevated
levels of warranty costs compared with other dealers. After
Darling's performed three self-reviews, GM conducted a claims
expense review in August 2000. The claims expense review revealed
a number of improper warranty practices by Darling's: (1) seeking
reimbursement for "goodwill" repairs made to cars covered by
Darling's extended service contracts,7 (2) charging labor hours in
excess of those provided under GM's time guidelines, and (3)
failing to retain parts replaced in connection with warranty
repairs. As a result, GM debited $4,245 from Darling's account.
After correspondence between the parties, GM agreed to re-credit
7
To maintain customer "goodwill," the Service Manual empowers
Darling's, in certain limited circumstances, to make repairs at no
charge to the customer, and seek warranty reimbursement from GM,
even though the manufacturer's warranty for the vehicle has
technically expired (e.g., when the warranty only recently expired
or the repairs are extensive). The Service Manual does not,
however, permit Darling's to seek a goodwill reimbursement when the
vehicle's repair is covered by Darling's extended service contract.
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Darling's all amounts except for $1,279, the amount paid to
Darling's for warranty repairs for which Darling's did not retain
parts as required by the Service Manual.
3. The labor rate dispute
As set forth above, WINS evaluates the labor
reimbursement portion of a warranty claim based on each dealer's
pre-approved warranty labor rate multiplied by the GM labor time
guideline for the particular repair. In situations where a dealer,
like Darling's, charges a different retail labor rate depending on
the type of repair, WINS uses a single rate based on the weighted
average of the dealer's actual customer-pay experience. To make
this calculation, GM requests that the dealership submit 100
sequential repair orders that reflect the labor rates actually
charged to customers. The average of these charges becomes
Darling's effective labor rate for purposes of the initial WINS
reimbursement.
In September 2000, Darling's requested GM to increase its
effective labor rate from $48.95 to $52.00 per hour to match its
posted retail rate. Several months later, Darling's submitted a
warranty labor rate adjustment application together with supporting
documentation (i.e., a form detailing 100 sequential repair
orders). This documentation revealed that the average rate
Darling's actually charged customers was only $51.58. It was lower
than the posted rate because Darling's provides discounts on
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certain repairs. As a result, GM denied Darling's request for a
labor rate increase. After Darling's protested the outright
denial, GM advised that it would increase Darling's effective labor
rate to $51.58 upon receipt of a revised warranty labor rate
adjustment application. GM did not require Darling's to resubmit
the supporting documentation. Darling's refused to submit a
revised application, so its WINS labor rate remained at $48.95.
Nonetheless, under GM's reimbursement scheme, Darling's continued
to receive the difference between the WINS rate and its posted
retail labor rate in response to supplemental claims.
E. Proceedings Below
The present lawsuit was initiated in 2001 when GM filed
a complaint in federal district court seeking a declaration that
Maine's warranty reimbursement statute does not prohibit GM from
(1) requiring Darling's to submit its warranty reimbursement claims
within 180 days of the repair date, (2) requiring Darling's to
submit supplemental information (i.e., VINs and dates of service)
to receive reimbursement at the retail rate, and (3) enforcing its
contractual right to audit and charge back previously paid warranty
claims. Darling's responded with several counterclaims.
Counterclaim counts I and II sought damages for the supplemental
claims that GM had denied because they either did not provide
sufficient information (i.e., the "short form" claims) or because
they were submitted late (i.e., more than 180 days after the repair
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date). Count III sought damages for GM's refusal to increase
Darling's initial WINS labor rate to $52.00 per hour, while Count
V sought an injunction to compel GM to fully reimburse Darling's in
a single step. Count IV sought damages and injunctive relief to
prevent GM from auditing and debiting claims that it had previously
approved. And Count VI sought damages alleging that GM had engaged
in unfair and deceptive trade practices. See Me. Rev. Stat. Ann.
tit. 10, § 1174.
Judgment on the pleadings was entered in favor of GM on
whether GM could require Darling's to submit its warranty
reimbursement claims within 180 days of the repair date. Following
a bench trial, the court ruled in favor of GM on all the remaining
claims, holding that (1) GM's multi-step reimbursement system is
permissible under the statute, (2) GM's refusal to increase
Darling's initial reimbursement labor rate to $52.00 did not
violate the statute, (3) GM's requirement that Darling's provide
the VIN and date of service with each claim does not violate the
statute, (4) GM has a contractual right, which does not violate the
statute, to audit and charge back amounts paid for warranty repair
reimbursement, during the statutory approval period, and (5) GM's
actions did not constitute unfair or deceptive trade practices
under § 1174. See Gen. Motors Corp. v. Darling's, 324 F. Supp. 2d
257 (D. Me. 2004) ("GM-Darling's I"). Although the court initially
expressed no opinion as to whether GM could exercise its charge
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back rights outside the statutory approval period, it subsequently
amended its judgment, holding that the statute prohibited GM from
charging back Darling's warranty claims after the statutory period
had elapsed. See Gen. Motors Corp. v. Darling's, 330 F. Supp. 2d
9 (D. Me. 2004) ("GM-Darling's II"). GM appeals from the court's
amended judgment, and Darling's cross-appeals from the court's
other rulings.8
II. DISCUSSION
A. Standard of Review
Statutory interpretation typically raises questions of
law engendering de novo review. United States v. Zenon-
Encarnacíon, 387 F.3d 60, 63 (1st Cir. 2004). Similarly, the
district court's interpretation of the GM-Darling's Agreement is
reviewed de novo. Servicios Comerciales Andinos, S.A. v. Gen.
Elec. Del Caribe, Inc., 145 F.3d 463, 469 (1st Cir. 1998). But the
lower court's factual findings will remain undisturbed absent clear
error. Gallo Motor Ctr., Inc. v. Mazda Motor of Am., Inc., 347
F.3d 20, 24 (1st Cir. 2003).9
8
The Maine Auto Dealers Association filed an amicus curiae
brief in support of Darling's.
9
Because Darling's is the party asserting the affirmative of
the controlling issues in the case, i.e., statutory violations by
GM, the district court held that Darling's bore the burden of
proof. Darling's does not contest that ruling on appeal.
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B. GM's Right to Audit and Charge Back
As set forth above, GM sought a declaration that the
Maine warranty reimbursement statute "does not prohibit GM from
exercising its contractual right to audit paid warranty claims and
charge back improperly paid amounts." In the district court, GM
argued that, pursuant to the GM-Darling's Agreement, it has the
right to audit warranty reimbursement claims, and that § 1176 does
not limit that right. Darling's countered that GM has no such
contractual right, and that GM's charge back of $1,279 violated the
statute.
In its initial ruling, the district court considered only
whether GM could charge back amounts improperly paid during the
statutory approval period. The court first examined the parties'
contractual relationship and concluded that the plain language of
the Service Manual gave GM the right to debit claims previously
paid to Darling's, if Darling's failed to retain parts removed in
the course of warranty repairs for 15 days following GM's
reimbursement for such repairs. Turning to the statute, the court
found "no basis on which to conclude that a debit during the
statutory time frame for approving or disapproving a claim violates
section 1176." GM-Darling's I, 324 F. Supp. 2d at 276.
The court subsequently granted GM's motion to amend its
judgment to clarify whether GM could audit and charge back
improperly paid warranty claims after the statutory period for
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approval. The court first determined that "charge-backs after the
expiration of the statutory period in fact operate as disapprovals
of the claim, since the dealer is deprived of some or all of the
amount that it was previously awarded as reimbursement for
performing warranty repairs." GM-Darling's II, 330 F. Supp. 2d at
11. It then concluded that the plain language of § 1176 "makes no
provision for future disapprovals" after the statutory period. Id.
The court rejected GM's contentions that it is not feasible to
conclusively verify all warranty claims within the statutory
period; that, as a result, manufacturers would be forced to bear
increased costs with respect to warranty reimbursement; and that
those increased costs would ultimately be passed on to consumers.
Id. at 11-12. Based on the evidence before it, the court concluded
that "GM will be able to effectively implement reasonable
verification procedures within the confines of the sixty-day
requirements." Id. at 12. Moreover, the court noted that GM is
still permitted to audit its dealers outside the statutory period,
and, although it cannot charge back such claims, it has "other
contractual rights which it can attempt to exercise to manage
recalcitrant dealers." Id.
Darling's challenges the district court's initial
judgment. While conceding that the Dealer Agreement affords GM
general audit rights, Darling's argues that the right to "audit"
does not encompass the right to charge back a claim that has
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already been approved and paid. Darling's contends that this is so
because no provision of the GM-Darling's Agreement can fairly be
interpreted as giving GM the right to charge back claims. We
disagree for the reasons set forth by the district court, see GM-
Darling's I, 324 F. Supp. 2d at 274-76, and see no need to restate
its persuasive reasoning. See Lawton v. State Mut. Life Assurance
Co. of Am., 101 F.3d 218, 220 (1st Cir. 1996) ("[W]hen a lower
court produces a comprehensive, well-reasoned decision, an
appellate court should refrain from writing at length to no other
end than to hear its own words resonate."). We therefore conclude
that GM has a contractual right to debit previously paid claims
where Darling's has failed to retain parts in accordance with GM's
parts retention policy.10
Darling's next argues that the approval period provision
of § 1176 limits GM's contractual right to audit and charge back
improperly paid warranty claims. It provides that all warranty
reimbursement claims "must be either approved or disapproved within
60 days of their receipt." Darling's argues that this language is
unambiguous and absolute -- once "approved," a claim is final.
Darling's contends that the statute does not specifically provide
manufacturers with a right of "look back" or "re-approval."
10
We note that this case presents only the issue of GM's
contractual right to charge back for violations of the parts
retention policy. We express no opinion as to whether GM has a
right to debit claims for any other reason.
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According to Darling's, this statutory silence supersedes GM's
contractual right to audit and charge back claims once they have
been approved. Alternatively, Darling's argues that GM must, at a
minimum, respect the approval deadline set forth by the statute.
Darling's embraces the reasoning of the district court's amended
judgment -- that allowing a manufacturer to "tentatively" approve
and pay a claim during the 60-day statutory period, only to
subsequently disapprove and debit the claim after the statutory
period has expired, would "render the statutory language virtually
meaningless." GM-Darling's II, 330 F. Supp. 2d at 11.
In analyzing this argument we "examin[e] the plain
meaning of the statutory language and consider[] the language in
the context of the whole statutory scheme." Darling's v. Ford
Motor Co., 825 A.2d 344, 346 (Me. 2003) ("Darling's-Ford III"). In
so doing, we "avoid statutory constructions that create absurd,
illogical or inconsistent results," and will only look behind the
plain language to the legislative history, "if we find the statute
ambiguous." Id.; Acadia Motors, Inc. v. Ford Motor Co., 44 F.3d
1050, 1055 (1st Cir. 1995) ("Acadia I") ("Only when the language of
the statute is ambiguous should courts look beyond the words of the
statute to its history, policy or other extrinsic aids to ascertain
statutory intent."). A statute is ambiguous only if it admits of
more than one reasonable interpretation. In re Thinking Machs.
Corp., 67 F.3d 1021, 1025 (1st Cir. 1995).
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Darling's argument proceeds from the erroneous assumption
that a manufacturer needs statutory authorization to audit and
charge back improperly paid warranty claims. As Darling's
recognizes, there is no basis in the statute for imposing such a
requirement. And the statute's silence means precisely the
opposite of what Darling's says that it means. Cf. Acadia I, 44
F.3d at 1056-57 (holding that, where § 1176 did not explicitly
prohibit manufacturers from assessing a surcharge to defray the
cost of complying with the statute, such a prohibition should not
be read into the statute by the courts); Acadia Motors, Inc. v.
Ford Motor Co., 799 A.2d 1228, 1231 (Me. 2002) ("Acadia II")
(agreeing with the First Circuit that § 1176 does not prohibit a
manufacturer from imposing a surcharge given the statute's silence
with regard to cost recovery); Darling's v. Ford Motor Co., 719
A.2d 111, 115 (Me. 1998) ("Darling's-Ford II") (holding that
Darling's was entitled to reimbursement at its "flat rate" prices
where neither the plain language nor the legislative history of §
1176 explicitly prohibited a dealer from setting its retail rate in
such a manner). Absent a clear mandate from the legislature, we
are disinclined to unnecessarily interfere with the bargains that
have been struck between the manufacturers and their distributors.
See Acadia I, 44 F.3d at 1057 (cautioning that federal courts
should interpret state statutes narrowly, careful not to impose
prohibitions not supported in the statute); 2 Norman J. Singer,
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Sutherland on Statutes and Statutory Construction § 61:6 (6th ed.
2000) (stating that statutes in derogation of a natural or common
right, including statutes that "threaten[] to invade an existing
property or contract right," must be narrowly interpreted). We
therefore reject Darling's contention that an improperly approved
claim cannot be audited and debited within the statutory period for
approval.
The closer question is (or rather was, see infra) whether
the charge back of a claim is effectively a "disapproval" of the
claim, which must occur within the statutory approval period. GM-
Darling's II, 330 F. Supp. 2d at 11. Darling's defends the
district court's reasoning, contending that "approved" cannot be
construed to mean "preliminarily" or "tentatively approved." GM
counters that the provision was designed solely to ensure that
dealers are promptly paid for performing warranty repairs, and has
no bearing on whether a manufacturer may impose verification and
recovery procedures after approval.
Whatever merit there might have been to GM's position,
Maine's Supreme Judicial Court recently decided the issue against
it and consistent with the district court's ruling. See Darling's
v. Ford Motor Co., 892 A.2d 461, 464-65 (Me. 2006) (holding that a
manufacturer must issue final decisions on warranty claims within
the statutory period). As a federal court sitting in diversity, we
are obliged to give effect to the SJC's authoritative construction
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of the Maine statute. Accordingly, we reject GM's appeal and
affirm the district court's conclusion that any charge backs must
take place within § 1176's statutory approval period.
C. Darling's Counterclaims
1. The validity of GM's reimbursement process
Darling's argued at the bench trial that § 1176 does not
permit a manufacturer to reimburse its dealer in a multi-step
process whereby the dealer initially receives only partial
reimbursement. The district court rejected this argument, finding
nothing in the statute requiring a manufacturer to reimburse its
dealers at the retail rate in one lump-sum payment. GM-Darling's
I, 324 F. Supp. 2d at 270. The court also found, as a factual
matter, that GM's multi-step reimbursement process is not "so
complicated and costly that it circumvents the purposes of the
statute by preventing or unreasonably interfering with
reimbursement at the retail rate." Id. The court found that the
administrative costs to Darling's of complying with GM's two-step
process are reasonable, and that it would be overly burdensome to
GM to modify WINS or to convert to a manual processing system so
that GM could reimburse Darling's in one step. See id. at 270-71.
Darling's argues on appeal that the plain language of §
1176 mandates that GM fully reimburse Darling's at the retail rate
in one payment. Darling's contends that each time GM makes a
payment at the uniform WINS rate, it violates the statute by
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reimbursing Darling's below its customary retail rate. Darling's
maintains that its interpretation of the statutory text is
consistent with the legislature's intent to treat manufacturers the
same as any other service customer. Because ordinary non-warranty
customers are not entitled to pay repair bills in incremental
steps, Darling's argues, neither should GM. Finally, Darling's
contests the court's factual findings that it would be
prohibitively difficult for GM to modify WINS to allow full
reimbursement at the retail rate in one step, and that it would be
overly burdensome for GM to review Darling's claims manually in the
first instance.
As with Darling's audit and charge back argument, this
argument fails because it attempts to extract more restrictions
from the statute than the plain language supports. The pertinent
language from the statute states:
[T]he [manufacturer] shall properly and
promptly fulfill its warranty obligations . .
. and . . . shall reimburse the [dealer] for
any parts . . . provided at the retail rate
customarily charged by that [dealer] . . .
[and] shall reimburse the [dealer] for any
labor . . . performed at the retail rate
customarily charged by that [dealer] . . . .
Me. Rev. Stat. Ann. tit. 10, § 1176 (emphasis added). The
"properly and promptly" language sets forth two goals.
Manufacturers must act promptly to reimburse their dealers, but
they must also take care that their calculations are proper. As
noted above, the statute specifically provides that manufacturers
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have 60 days (previously 30 days) to approve or disapprove a
warranty reimbursement claim, and have an additional 60 days
(previously 30 days) after approval to pay an approved claim. Id.
The proper reimbursement rate is, of course, the dealer's customary
retail rate. Id. We agree with the district court's conclusion
that GM properly and promptly fulfills its warranty obligations by
reimbursing Darling's at its customary retail rate within 60 days
of approval. It is of no consequence that GM pays its
reimbursements in increments, so long as the full retail rate is
paid within the statutory time-frame.
Although the statute sets forth the basic parameters for
processing warranty claims, we see no indication, either on the
face of the statute or in its legislative history, prescribing how
GM must structure its claims processing system. That the
legislature sought to equalize the cost of warranty and non-
warranty repairs does not mean, as Darling's argues, that it
intended that manufacturers would pay for repairs in the same way
as non-warranty customers. Moreover, GM's multi-step reimbursement
system appears to strike a reasonable balance of the statutory
goals: prompt yet accurate reimbursement. The initial step allows
dealers to collect a significant portion of their reimbursement in
short order. Despite the fact that the statute gives GM 120 days
to approve and pay warranty reimbursement claims, 90 percent of all
initial WINS claims are approved and paid, albeit at GM's uniform
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nationwide rate, within ten days of submission. To ensure that the
claimed retail rates are bona fide, however, GM manually reviews
each supplemental claim seeking reimbursement in excess of GM's
uniform nationwide rate. Although GM takes more time to process
the supplemental claims, approved claims are paid within the
statutory deadlines.
We also reject Darling's contention that GM's
reimbursement process places administrative burdens on Darling's
that effectively defeat the statute's purpose of equalizing the
costs of warranty and non-warranty repairs. The district court
found that, given the amount of supplemental claims paid by GM to
Darling's -- over $200,000 in one 20-month period -- compared to
the minimal administrative costs associated with submitting those
claims -- approximately $6,500 during that same period -- GM's two-
step warranty reimbursement process is not unreasonably burdensome.
GM-Darling's I, 324 F. Supp. 2d at 270. We agree that when these
administrative costs are compared to the returns, they "are not so
out-of-line . . . as to raise concerns about whether Darling's is
truly being reimbursed at its retail rate." Id. at 271.
Because we affirm the district court's rulings that §
1176 does not prohibit GM's claims processing system, and that the
administrative costs associated with filing supplemental claims are
so insignificant that they do not defeat the purpose of the
statute, we need not consider whether GM could modify WINS to allow
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one-step reimbursement, or whether GM could manually review all
warranty reimbursement claims in the first instance.
2. Darling's effective labor rate
Darling's argued below that GM violated § 1176 by
refusing to increase Darling's approved warranty reimbursement
labor rate used by WINS in the initial step of the reimbursement
process. As explained above, the labor rate used by WINS is
calculated by averaging the labor rates charged in 100 sequential
non-warranty repairs. GM calls it the "effective labor rate."
Darling's submitted an application requesting an increase in its
effective labor rate from $48.95 to $52.00 per hour to reflect its
posted labor rate, but the paperwork submitted by Darling's only
supported an increase to $51.58. GM indicated to Darling's that it
would increase Darling's labor rate to $51.58 upon submission of a
revised warranty labor rate application, but Darling's never filed
a revision.
The district court upheld GM's refusal to increase
Darling's labor rate to $52.00. The court noted that since GM's
multi-step reimbursement system is permissible under § 1176, "the
issue of GM's 'refusal' to increase Darling's labor rate in the
initial reimbursement stage is probative only as to whether GM has
complicated the reimbursement process to the extent that dealers
are discouraged from making supplemental claims." GM-Darling's I,
324 F. Supp. 2d at 272. Because Darling's did not allege that GM
-29-
failed to reimburse Darling's at its full labor rate following
submission of its supplemental claims, the court concluded that the
evidence did not support such a conclusion. The court also noted
that GM had expressed a willingness to increase Darling's labor
rate following its submission of a revised application, and the
court found that the administrative burden of submitting such a
revised application would be "virtually nonexistent." Id.
On appeal, Darling's focuses on GM's practice of
calculating the initial WINS reimbursement based on Darling's
"effective" or average rate. Essentially repeating its argument
that GM must reimburse its Maine dealers in a single step,
Darling's contends that the statute does not contemplate payments
at the effective rate, but rather, requires that its labor costs be
reimbursed at the customary retail rate only. Because it has
established its customary retail labor rate by posting its labor
rates in a place conspicuous to its service customers, see Me. Rev.
Stat. Ann. tit. 10, § 1176; id. tit. 29-A, § 1805, Darling's argues
that GM must reimburse at that rate. Darling's further argues that
GM's initial use of an effective rate amounts to arbitrary and
capricious behavior because the evidence establishes that WINS is
capable of assigning a unique labor rate to each dealer. Darling's
contends that WINS could reimburse Darling's at its actual retail
labor rate -- i.e., its posted labor rate -- in the first instance
-30-
without requiring the submission of unnecessary warranty labor rate
applications.
As the district court properly concluded, Darling's
statutory argument cannot stand in light of our holding that GM's
multi-step reimbursement system is lawful. That Darling's receives
less than its full retail reimbursement rate in the initial step is
not a violation of the statute so long as GM pays Darling's its
full retail rate within the statutory period for approval and
payment. And Darling's does not dispute that GM has paid it the
difference between its retail rate and its effective rate in
response to its supplemental reimbursement requests.
Darling's fares no better in its alternative argument --
that, because WINS has the capability of fully reimbursing
Darling's in one step, requiring the submission of unnecessary
documentation to establish an effective rate, and thus
unnecessarily dragging out the reimbursement process, is arbitrary
and capricious behavior in violation of the statute. Darling's
argument fails because of its stipulation that it charges different
retail labor rates depending on the type of repair. Although WINS
has the capability of programming one unique labor rate for each
dealer, the court supportably found that it is not capable of
accounting for multiple labor rates for each dealer. Therefore, it
is not unreasonable for GM to reimburse Darling's based on an
average labor rate in the first instance, and then for the
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difference between that average rate and the actual retail rate in
response to a supplemental claim.
3. The VIN and date of service requirement and
the 180-day submission deadline
As noted above, after nearly a year of negotiating with
Darling's concerning the information required for a supplemental
claim, and after repeatedly reminding Darling's of the 180-day
submission deadline provided in the Service Manual, GM denied
several of Darling's supplemental claims as untimely. When
Darling's retaliated by submitting "short form" claims omitting the
VIN and date of service, GM denied those as well. GM's amended
complaint sought declarations that § 1176 does not bar GM from
requiring Darling's to include the VIN and date of service with
each supplemental claim, and that GM is not obligated to pay any
warranty reimbursement claim that is not submitted within 180 days
of the repair. Darling's countered that its "short form" claims
provided all the information required by Maine law. Darling's also
argued that the only deadline for the submission of a warranty
reimbursement claim is set forth in the statute of limitations
provision of the Dealer Act. See Me. Rev. Stat. Ann. tit. 10, §
1183 (setting a four-year limitation period for "[a]ctions arising
out of any provision of" the Dealer Act). Thus, Darling's sought
damages for the over $122,000 in warranty claims denied by GM.
With regard to 180-day submission deadline, the district
court granted GM's motion for judgment on the pleadings, holding
-32-
that the 180-day limit set forth in the Service Manual is binding
on the parties as to both initial warranty claims and supplemental
claims. In so doing, the court rejected Darling's argument that
the Dealer Act's limitation period sets the time period for
submitting a claim for reimbursement. Cf. Darling's-Ford II, 719
A.2d at 117 (answering certified questions posed by the federal
district court in Darling's-Ford I, and holding that because § 1176
does not bar a manufacturer from imposing a reasonable time limit
for warranty submissions, the district court was correct in
concluding that Ford's 180-day limit was permissible under the
statute).11 Following the bench trial, the court also upheld GM's
contractual right to require the VIN and date of service "as part
of a 'sufficiently individualized' claim." GM-Darling's I, 324 F.
Supp. 2d at 274. The court found that GM had a reasonable basis
for requiring the VIN and date of service, and that Darling's
refusal to provide such "readily available" information was
unreasonable. Id. at 273.
On appeal, Darling's abandons its argument that the
statute's limitations period sets the claims submission deadline.
Instead, it presents a new argument that attempts to distinguish
the present case from Darling's-Ford I and Darling's-Ford II by
arguing that its late claim submissions were justified by GM's
11
After the court's judgment on the pleadings was entered, the
2003 amendment to § 1176 specifically incorporated a 90-day
deadline for the submission of warranty reimbursement claims.
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delay in creating a supplemental claims procedure. Darling's
contends that, because GM did not provide it with a "mechanism
within which to bring its ongoing and past due warranty
reimbursement rights to the attention of GM," we should not enforce
GM's 180-day submission deadline. As this argument was not raised
below, we do not consider it now. See B & T Masonry Constr. Co. v.
Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 40 (1st Cir. 2004) (holding
that in the absence of extraordinary circumstances, "legal theories
not raised squarely in the lower court cannot be broached for the
first time on appeal") (quotation omitted)).12
With respect to the VIN and date of service dispute,
Darling's hinges its argument on a faulty interpretation of the
SJC's opinion in Darling's-Ford II. Darling's contends that the
SJC set forth a definitive statement of what information the
statute requires a dealer to include in its claims for
reimbursement: (1) the original computerized claim number, (2) the
retail amount claimed, (3) the amount the dealer received under the
uniform nationwide system, (4) the nature of the claim (i.e., parts
or labor), and (5) the difference between the amount received and
12
Even were we to give Darling's the benefit of plain error
review, there would be no basis for reversal in this case. The
onus of filing a claim for warranty reimbursement resides with the
dealer. See, e.g., Darling's-Ford II, 719 A.2d at 114 (holding
that the statute requires the dealers to submit claims that are
sufficiently individualized to enable the manufacturers to satisfy
their obligations). Nothing in the statute obligates GM to
initiate the development of reimbursement claims forms.
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the retail price. See 719 A.2d at 114-15.13 Because the SJC did
not include the VIN and date of service in this list, Darling's
argues, the statute does not require such information to accompany
its supplemental claims.
Darling's argument is again premised on the faulty
assumption that GM can only exercise rights vis-á-vis its dealers
that are expressly provided for in the statute. This is not so.
We agree with the district court's interpretation of Darling's-Ford
II. The SJC's opinion does not suggest that the five items
considered in that case were the only items that a manufacturer
could require a dealer to provide in its warranty reimbursement
claims. See GM-Darling's I, 324 F. Supp. 2d at 273 n.14;
Darling's-Ford II, 719 A.2d at 114-15. Again, where the statute
does not expressly regulate a particular issue, we will not
interpret it to control an area that is governed by the terms of a
dealer-manufacturer agreement. See supra at 24-25.
13
The district court, acting pursuant to Me. Rev. Stat. Ann.
tit. 4, § 57 and Me. R. Civ. P. 76B, requested instructions from
the SJC regarding interpretation of § 1176. Inter alia, it asked
whether § 1176 requires a dealer "to make a 'particularized claim'
to a manufacturer in seeking reimbursement for warranty work?"
Darling's-Ford II, 719 A.2d at 114. If so, the district court
asked whether the Darling's claims, which contained the five items
listed above, "meet the 'particularized claim' requirement?" Id.
The SJC answered both questions in the affirmative. First, the SJC
stated that accomplishing the objectives of § 1176 "necessarily
requires that a dealer submit a claim that is sufficiently
individualized to enable a manufacturer to satisfy [its warranty
reimbursement] obligations." Id. Second, the SJC found that the
Darling's claims were "sufficient to show that Darling's meets the
statutory requirement for an individualized claim." Id. at 115.
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The district court supportably found that, under the
Dealer Agreement, GM has a right to "such information and
assistance as may reasonably be requested by [GM] to facilitate
compliance with applicable laws, regulations, investigations and
orders relating to products." GM-Darling's I, 324 F. Supp. 2d at
266, 274 (quoting the Dealer Agreement). The Dealer Agreement
further provides that the refusal to provide such information
constitutes a breach. See id. Thus, although the statute may not
require Darling's to submit the VIN and date of service with its
supplemental claims, the GM-Darling's Agreement does require it so
long as the request is reasonable.
We conclude that the court's finding -- that inclusion of
the VIN and date of service on supplemental claims greatly
facilitates the claims administration process while imposing only
a marginal burden on Darling's -- was not clearly erroneous. See
id. at 273. The evidence establishes that the most efficient way
for GM to pinpoint a particular repair is through use of the VIN
and date of service. Moreover, Darling's warranty administrator
acknowledged that it is actually less burdensome for Darling's to
provide the VIN and date of service data because omission of that
data requires the extra step of creating a "short form" claim.
Given the added administrative efficiencies, and the lack of any
burden imposed on Darling's, we hold that GM may reasonably require
Darling's to furnish the VIN and date of service with each
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supplemental claim, and that, pursuant to the GM-Darling's
Agreement, Darling's is not entitled to reimbursement where such
information is withheld.
4. Unfair and deceptive trade practices
Finally, Darling's argues that GM's failure to honor the
deadlines of § 1176, its refusal to reimburse Darling's claims that
were submitted without the VINs and dates of service, its refusal
to approve Darling's application for a labor rate increase, and its
insistence on the right to debit previously approved and paid
warranty reimbursement claims constitute arbitrary and
unconscionable conduct in violation of Me. Rev. Stat. Ann. tit. 10,
§ 1174 (providing, in relevant part, that "[i]t shall be unlawful
for any . . . [m]anufacturer . . . to engage in any action which is
arbitrary, in bad faith or unconscionable and which causes damage
to any of said parties or to the public"). In light of our
holdings above, finding no violations of § 1176 and no other
indication that GM's conduct was arbitrary or in bad faith, we
affirm the district court's ruling rejecting this claim.14
III. Conclusion
For the foregoing reasons, we affirm the district court's
judgment in all respects.
So ordered.
14
We also deny Darling's request for attorney's fees.
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