Sharon McGarvey v. Penske Auto Group , 486 F. App'x 276 ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 11-2085
____________
SHARON MCGARVEY; BRYAN BECHTEL;
KATIE MCGARVEY, on behalf of themselves
and all others similarly situated,
Appellants
v.
PENSKE AUTO GROUP, INC.; UNITED AUTOCARE PRODUCTS, INC.;
UNITED AUTOCARE, INC.; INNOVATIVE AFTERMARKET SYSTEMS, L.P.
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 1-08-cv-05610)
District Judge: Honorable Jerome B. Simandle
____________
Argued May 15, 2012
Before: SMITH, FISHER and GARTH, Circuit Judges.
(Filed: July 2, 2012 )
Leonard W. Aragon
Robert B. Carey
Hagens Berman Sobol Shaprio
11 West Jefferson Street, Suite 1000
Phoenix, AZ 85003
Patrick Howard
Charles J. Kocher
Simon B. Paris (Argued)
Saltz, Mongeluzzi, Barrett & Bendesky
1650 Market Street
One Liberty Place, 52nd Floor
Philadelphia, PA 19103
Counsel for Appellants
Daniel E. Brewer
Drinker, Biddle & Reath
18th & Cherry Streets
One Logan Square, Suite 2000
Philadelphia, PA 19103
Mary E. Kohart (Argued)
Elliott Greenleaf & Siedzikowski, P.C.
925 Harvest Drive
Suite 300, Union Meeting Corporate Center V
Blue Bell, PA 19422
Aimee L. Kumer
Elliott Greenleaf & Siedzikowski, P.C.
50 South 16th Street
Suite 2960, Two Liberty Place
Philadelphia, PA 19103
Counsel for Penske Auto Group,
United Autocare Products, Inc.
and United Autocare, Inc.
Douglas A. Albritton
Reed Smith
10 South Wacker Drive, 40th Floor
Chicago, IL 60606
John J. Hare (Argued)
Keith D. Heinold
Kevin M. McKeon
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA 19103
Counsel for Innovative Aftermarket
Systems LP
____________
OPINION OF THE COURT
____________
2
FISHER, Circuit Judge.
Sharon McGarvey, Katie McGarvey, and Bryan Bechtel (collectively, “Plaintiffs”)
appeal both the District Court’s dismissal of their First Amended Complaint for failure to
state a claim as well as its denial of their motion for leave to amend. Plaintiffs filed a
putative class action in the U.S. District Court for the District of New Jersey against
Penske Auto Group, Inc. (“PAG”), United Autocare Products, Inc. (“UAP”), United
Autocare, Inc. (“UA”), 1 and Innovative Aftermarket Systems (“IAS”) (collectively,
“Defendants”), alleging the Defendants created a tying arrangement that violated federal
and state laws. For the reasons stated below, we will affirm the District Court’s order.
I.
We write principally for the parties, who are familiar with the factual context and
legal history of this case. Therefore, we will set forth only those facts necessary to our
analysis.
This case involves the sale of the Ibex Anti-Theft Etch System (“Ibex System”) to
purchasers of automobiles. The Ibex System was manufactured by IAS, distributed to
dealerships by UAP and UA, and sold by automobile dealerships owned by PAG. The
Ibex was comprised of two components. First, the Ibex included an Etch Code, which
was a unique serial number, placed onto the primary windows of the vehicle, that was
1
Defendants submit that the party’s correct name is United Autocare, LLC, not
United Autocare, Inc. as named in the caption.
3
registered for later searches if necessary. Because a vehicle’s glass is one of the most
valuable items for a thief to remove from a stolen vehicle for resale, the Etch Code was
designed to help deter theft by making the glass unmarketable. Second, the Ibex included
a Limited Warranty, which provided a credit reimbursement in the amount of $2,500,
$5,000, or $7,500 if the consumer purchased a replacement vehicle after the original
vehicle was stolen. The Limited Warranty contract reads, in pertinent part:
“In the event the Ibex Anti-Theft Etch System fails to prevent the Vehicle
specified in this Limited Warranty from being stolen within the Warranty
Period, and such failure results in the Customer’s primary insurance
company declaring the Vehicle a Total Loss as a direct result of theft, we
will provide the customer with a replacement vehicle, by issuing at the
dealership listed in this Warranty, a credit in the name of the Customer (up
to ___ $2,500 or ___$5,000 or ___$7,500 check one) to be applied towards
the purchase of the replacement vehicle.
The customer is obliged to utilize the total benefit provided to replace the
Vehicle specified in the Warranty and the replacement Vehicle must be of
equal or greater value than the original purchase price paid for the covered
Vehicle.”
In November 2008, Plaintiffs filed a putative class action in the U.S. District Court
for the District of New Jersey, alleging that Defendants violated the Magnuson-Moss
Warranty Act (“MMWA”), 15 U.S.C. § 2302(c), the New Jersey Truth-in-Consumer
Contract, Warranty, and Notice Act (“NJTCCA”), N.J. Stat. Ann. § 56:12-15, New Jersey
common law, and the New Jersey Consumer Fraud Act (“CFA”), N.J. Stat. Ann. § 56:8-
2. On June 29, 2009, the District Court dismissed the Plaintiffs’ MMWA claim on the
ground that they failed to allege actual damages as required under the statute. McGarvey
v. Penske Auto. Grp., Inc. (McGarvey I), 639 F. Supp. 2d 450, 457 (D.N.J. 2009), vacated
4
in part by McGarvey v. Penske Auto. Grp., Inc. (McGarvey II), No. 08-5610, 2010 WL
1379967, at *2 (D.N.J. Mar. 29, 2010). 2 But the District Court held that Plaintiffs
sufficiently stated a NJTCCA claim, even in the absence of actual damages, because they
were able to show that the Limited Warranty violated a clearly established legal right
under the MMWA. Id. at 458. 3 Specifically, the Court found that the Ibex System’s
tying of the warranty benefit, i.e., credit reimbursement, to a consumer’s purchase of a
replacement vehicle at a particular dealership violated a consumer’s clearly established
legal right under the MMWA to be free from warranties that are conditioned on the
consumer’s use of a specific article or service. Id. at 463. 4 In addition, the Court held
that Plaintiffs stated a claim for unjust enrichment under New Jersey common law but
failed to state a claim under the CFA. Id. at 465-66.
2
The District Court held that the statute required a showing of actual damages
based on a reading of the following provision: “a consumer who is damaged by the
failure of a supplier, warrantor, or service contractor to comply with any obligation under
this chapter . . . may bring suit for damages and other legal and equitable relief[.]” 15
U.S.C. § 2310(d)(1) (emphasis added). This portion of the District Court’s opinion was
not subsequently vacated.
3
The NJTCCA prohibits sellers from offering any written consumer warranty that
“includes a provision that violates any clearly established legal right . . . as established by
State or Federal law at the time the offer is made[.]” N.J. Stat. Ann. § 56:12-15.
4
Under the MMWA, “[n]o warrantor of a consumer product may condition his
written or implied warranty of such product on the consumer's using, in connection with
such product, any article or service (other than article or service provided without charge
under the terms of the warranty) which is identified by brand, trade, or corporate
name[.]” 15 U.S.C. § 2302(c).
5
After McGarvey I, Plaintiffs filed their First Amended Complaint, maintaining the
NJTCCA and common law unjust enrichment claims, while adding a claim for a
declaratory judgment that the Limited Warranty contracts were void and unenforceable.
Next, Defendants filed a motion for reconsideration of the District Court’s June 29, 2009
order. On reconsideration, the District Court held that, contrary to its earlier holding,
Plaintiffs did not allege sufficient facts to show that the Limited Warranty violated
consumers’ clearly established right under § 2302(c) of the MMWA and thus failed to
state a claim under the NJTCCA. McGarvey II, 2010 WL 1379967, at *6-9.
In response to McGarvey II, Plaintiffs filed a motion for leave to file a Second
Amended Complaint. McGarvey v. Penske Auto. Grp., Inc. (McGarvey III), No. 08-
5610, 2011 WL 1325210, at *3 (D.N.J. Mar. 31, 2011). The District Court denied the
motion on the basis that any amendment would be futile and could not state a claim under
the NJTCCA, the Declaratory Judgment Act, or the common law theory of unjust
enrichment. Id. at 1. The District Court then granted the Defendants’ motion to dismiss
the First Amended Complaint. Id. Plaintiffs filed a timely appeal.
II.
The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(d). We
have appellate jurisdiction under 28 U.S.C. § 1291.
“[W]e review de novo a district court’s grant of a motion to dismiss for failure to
state a claim under Federal Rule of Civil Procedure 12(b)(6).” Ballentine v. United
States, 486 F.3d 806, 808 (3d Cir. 2007) (citation omitted). At this stage, we must accept
6
all factual allegations as true and construe the complaint in the light most favorable to the
plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (citation
omitted).
We review the District Court’s denial of a party’s request for leave to file an
amended complaint for abuse of discretion. Toll Bros., Inc. v. Twp. of Readington, 555
F.3d 131, 137 (3d Cir. 2009) (citation omitted). “Under Federal Rule of Civil Procedure
15(a), leave to amend should be freely given when justice so requires[.]” Id. at 144 n.10
(internal quotation marks omitted). But a district court may deny the motion if the
amendment would be futile. Phillips, 515 F.3d at 228 (citation omitted).
III.
A.
The NJTCCA prohibits sellers from offering any written consumer warranty that
“includes a provision that violates any clearly established legal right . . . as established by
State or Federal law at the time the offer is made[.]” N.J. Stat. Ann. § 56:12-15.
Plaintiffs contend that the Defendants violated the NJTCCA by offering the Limited
Warranty, which contains tie-in provisions that violate their clearly established legal right
under the MMWA. We disagree because Plaintiffs’ right in question was not clearly
established at the time the Limited Warranty was offered.
When interpreting the NJTCCA, we “construe the statute as we believe the New
Jersey Supreme Court would construe it.” Liberty Lincoln-Mercury, Inc. v. Ford Motor
Co., 676 F.3d 318, 323 (3d Cir. 2012). We first look to the language of the statute, and if
7
the statute is clear and unambiguous on its face, then we enforce the statute as written.
See id. at 323-24 (citation omitted). “If the language of the statute is ambiguous, courts
may look to the statute’s history, policy, purpose, and other extrinsic aids to ascertain
statutory intent.” Id. at 324. Here, the term “clearly established legal right” is not clear
and unambiguous. The phrase does not indicate in what circumstances a consumer’s
legal right is established, nor does it define what it means for the right to be clearly
established. Nothing in the NJTCCA defines this term or aids in giving it meaning.
Thus, we look to extrinsic aides, like the statute’s legislative history and State case law,
which lead us to conclude that the consumers’ legal right in this case was not “clearly
established” under the NJTCCA. Even without defining the specific definition of
“clearly established legal right,” we are convinced that whether the Limited Warranty
violates the MMWA, and consequently whether consumers had a right to be free from
warranties like the Limited Warranty, is significantly less clear compared to the
violations of rights that were previously found to be sufficient to state a NJTCCA claim.
First, the Assembly Statement in support of the NJTCCA’s passage lists
provisions that the Legislature considered to “clearly violate the rights of consumers.”
Statement, Bill No. A1660, 1981 N.J. Laws, Chapter 454, Assembly No. 1660, page 2-3
8
(“Assembly Statement”). 5 At the time the NJTCCA was first introduced on May 1,
1980, these listed provisions, including a consumer’s complete waiver of damages
resulting from a seller’s liability, infringed on rights that had been long-recognized in
common law. See, e.g., Bisso v. Inland Waterways Corp., 349 U.S. 85, 115 (1955)
(acknowledging “a longstanding admiralty rule, based on public policy, [that]
invalidat[es] contracts releasing towers from all liability for their negligence.”);
Northwest Airlines, Inc. v. Alaska Airlines, Inc., 351 F.2d 253, 256 (9th Cir. 1965), cert.
denied, 383 U.S. 936 (1966) (holding indemnity contract provision relieving party of any
damages, even in the case of its own negligence, to be unenforceable because it would be
contrary to public policy).
Next, the two cases in which the New Jersey Superior Court held that the plaintiffs
sufficiently stated a NJTCCA claim also involved alleged wrongdoing that fell squarely
within prohibited conduct under state or federal law. In Bosland v. Warnock Dodge, Inc.,
5
“Examples of such provisions are those that deceptively claim that a seller or
lessor is not responsible for any damages caused to a consumer, even when such damages
are the result of the seller’s or lessor’s negligence. These provisions provide that the
consumer assumes all risks and responsibilities, and even agrees to defend, indemnify
and hold harmless the seller from all liability. Other provisions claim that a lessor has the
right to cancel the consumer contract without cause and to repossess its rental equipment
from the consumer’s premises without liability for trespass. Still other provisions
arbitrarily assert the consumer cannot cancel the contract for any cause without punitive
forfeiture of deposits and payment of unfounded damages. Also, the consumer’s rights to
due process is often denied by deceptive provisions by which he allegedly waives his
right to receive legal notices, waives process of law in the repossession of merchandise
and waives his rights to retain certain property exempted by State or Federal law from a
creditor’s reach.” Statement, Bill No. A1660, 1981 N.J. Laws, Chapter 454, Assembly
No. 1660, page 2-3.
9
the complaint alleged that the seller failed to itemize a documentary service fee that was
included in the vehicle registration fee, when the state automotive sales practices
regulation explicitly deemed it “‘unlawful’” to “‘charg[e] . . . a consumer monies, or any
other thing of value, in exchange for the performance of any documentary service without
first itemizing the actual documentary services which is being performed[.]’” 933 A.2d
942, 945-46 (N.J. Super. Ct. App. 2007) (quoting N.J. Admin. Code § 13:45A-
26B.2(a)(2)(i)). In United Consumer Financial Services Company v. Carbo, form
contracts provided by a finance company to vacuum cleaner distributors allowed sellers
to charge a fee of $20 if a check was returned for any reason, when the Retail Installment
Sales Act only authorized a fee “‘if a check of the buyer is returned to the holder
uncollected due to insufficient funds in the buyer’s account.’” 982 A.2d 7, 22 (N.J.
Super. Ct. App. 2007) (citing N.J. Stat. Ann. § 17:16C-42(e)).
In contrast, whether the Limited Warranty violates a consumer’s legal right under
§ 2302(c) of the MMWA is significantly less clear. The critical language in the MMWA
states that a warrantor shall not condition its warranty “on the consumer’s using, in
connection with such product, any article or service (other than article or service provided
without charge under the terms of the warranty) which is identified by brand, trade, or
corporate name.” 15 U.S.C. § 2302(c). But the statute fails to define what it means to
use an article or service “in connection with such product” or specify whether “using in
connection with” applies to parts or services that the consumer must pay for in the
process of redeeming the warranty benefits, which is at issue here.
10
Other sources that typically aid in interpreting the statute are equally unhelpful.
The MMWA’s legislative history and Federal Trade Commission (“FTC”) Guidelines
suggest that the MMWA prohibits tying arrangements for articles or services that are
unrelated to redeeming the warranty benefit. 6 However, as in cases like this one where
the condition applies to parts or services that the consumer must pay for in the process of
redeeming the warranty benefit, it is unclear whether the prohibition of tying
arrangements applies. According to the FTC Guidelines, when a warranty covers only
the replacement of parts but not the labor charges to install those parts, § 2302(c)
prohibits warrantors from specifying the service or labor consumers must use to install
the replacement parts. 16 C.F.R. § 700.10(b). However, the FTC’s subsequent Opinion
Letter suggests that in certain cases where the warrantor pays a portion of the labor cost
under the warranty, it may specify the labor service to be used. Donald S. Clark, Federal
Trade Commission, Nat’l Indep. Auto. Dealers Assoc. Response Letter (Dec. 31, 2002)
(“Opinion Letter”).
Although both parties rely heavily on the FTC’s Opinion Letter to support their
respective positions, the Letter ultimately fails to indicate whether the Limited Warranty
violates a consumer’s legal right under § 2302(c) of the MMWA. The FTC’s position is
6
For example, an automobile manufacturer may not require the consumer to
regularly use a certain brand of motor oil as a condition of redeeming warranty repairs.
See H.R. Rep. 93-1107 (1974). Nor can a manufacturer require the use of specific repair
services for non-warranty maintenance as a condition of redeeming warranty repairs. 16
C.F.R. § 700.10(c).
11
that in the case of 50/50 warranties, where a warrantor pays 50% of the labor cost and
50% of the cost for parts with respect to covered repairs, warrantors are permitted to
specify the labor service to be used. A tie-in provision in such cases does not violate the
MMWA because the warranted repair work cannot be severed into the part that the
warrantor can perform and the part that another repair shop can perform. Thus, the
warranting dealer, who pays a proportion of the repair costs, “has a direct interest in
providing the warranty service for which it is partly financially responsible.” Id. The
Limited Warranty here is similar in that the warrantor shares in the cost of the
consumers’ replacement vehicle and thus arguably has an interest in specifying the
conditions of the consumers’ purchase. However, unlike the warrantor’s 50% payment of
the repair cost under the 50/50 warranty, the warrantor’s payment of the credit
reimbursement here is a pre-determined, fixed amount that could remain unaffected by,
and is potentially severable from, the purchase of the replacement vehicle.
In the end, our analysis demonstrates that whether the Limited Warranty violates a
consumer’s right under § 2302(c) of the MMWA is significantly less clear than the
violations of long-established common law listed in the Assembly Statement as well as
the violations of law found sufficient to state a NJTCCA claim in Bosland and United
Consumer Financial Services Company. Regardless of what the New Jersey Legislature
specifically intended “clearly established legal right” to mean, it was not intended to
include the types of right at issue here, where the violation of the right is unclear.
Therefore, we hold that the consumers’ right to be free from warranties like the Limited
12
Warranty was not clearly established under the MMWA. 7 Accordingly, the District
Court did not err in dismissing Plaintiffs’ NJTCCA claim. For the same reason, any
amendment to the complaint would have been futile in establishing the claim, so the
District Court did not abuse its discretion in denying the Plaintiffs’ motion for leave to
amend. 8
B.
In the District Court, Plaintiffs sought a declaratory judgment voiding the Limited
Warranty contract and submitted an unjust enrichment claim under New Jersey common
law, arguing that the Defendants should return to the Plaintiffs the value paid for the Ibex
System. Plaintiffs presumably sought the declaratory judgment voiding the contract
because their unjust enrichment claim cannot stand as long as the parties’ relationship is
governed by an existing contract. Kas Oriental Rugs, Inc. v. Ellman, 926 A.2d 387, 392
7
We decline to define the precise contours of the term “clearly established legal
right” because principles of comity counsel us to refrain from leading the state courts in
the interpretation of state law when it is unnecessary to the resolution of the matter before
us. See Manning v. Princeton Consumer Discount Co., 380 F. Supp. 116, 120 (E.D. Pa.
1974).
8
Even if we were to hold that the Limited Warranty violated the MMWA, this
would only indicate that the consumers had a legal right to be free from such warranties.
It would not necessarily mean that the right was clearly established under the MMWA.
Interpreting the NJTCCA to apply equally to violations of a legal right and violations of a
clearly established legal right would fail to give the phrase “clearly established” any
meaning and render it superfluous. See Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501
U.S. 104, 112 (1991) (Courts should construe statutes “so as to avoid rendering
superfluous” any statutory language.). Thus, Plaintiffs must show something more than a
post hoc judicial recognition of their right in order to prove that the right was clearly
established. Their failure to do so would also lead us to reject their NJTCCA claim.
13
(N.J. Super. Ct. App. 2007). Because we hold that the Limited Warranty did not violate
the consumer’s clearly established legal right under the MMWA and thus, did not violate
the NJTCCA, see supra Part III.A., Plaintiffs were not entitled to a declaratory judgment
voiding the Limited Warranty contract. And without a declaratory judgment voiding the
contract, Plaintiffs’ unjust enrichment claim must also necessarily fail. Therefore, the
District Court properly dismissed both claims and did not abuse its discretion in denying
the motion for leave to amend.
IV.
For the reasons set forth above, we will affirm the District Court’s order.
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