The U.S. Court of Appeals for the Second Circuit has rejected a motor vehicle dealer’s claim for retroactive higher warranty reimbursement from a manufacturer under New York Vehicle and Traffic Law § 465, where the dealer failed to use the manufacturer’s existing procedures to submit timely, individualized requests for reimbursement at statutory rates. In Tom Rice Buick-Pontiac, GMC Truck, Inc. v. General Motors Corp., __ F.3d __, 2008 WL 5387751 (2d Cir. Dec. 29, 2008), the Second Circuit held that, although VTL § 465 requires a manufacturer to reimburse a dealer for warranty parts and labor at the same price and rate charged for similar non-warranty work in the dealer’s community or marketing area, the manufacturer has no obligation to investigate every warranty claim proactively to determine whether reimbursement above the standard rate is warranted. Thus, a dealer may not recover additional payment on previously paid warranty claims unless the dealer can demonstrate that the manufacturer has already rejected the dealer’s claim for higher reimbursement in violation of the statute. To view the court’s opinion, please click here.  

Tom Rice is a lawsuit brought against General Motors (GM) by sixteen present and former GM dealers in New York, in which the plaintiffs claim that GM’s standard national reimbursement rate for warranty claims, which allows dealers up to a 40% parts markup, falls below the dealer markup charged in the plaintiffs’ communities for non-warranty repairs. The plaintiffs allege that GM’s computer system, by which dealers submit their warranty reimbursement claims, prohibits dealers from requesting reimbursement at a rate higher than the 40% default; thus, the plaintiffs contend that GM has been systematically underpaying New York dealers for warranty repairs pursuant to NY VTL § 465. The plaintiffs seek to recoup from GM incremental payment on past warranty claims to bring their reimbursements up to the level they claim they should have received under New York law.  

The parties selected one dealer, Fulton Chevrolet-Cadillac Co., Inc., as a test plaintiff and proceeded to discovery on the claims of that plaintiff only. After discovery, GM moved for summary judgment as to Fulton, and the U.S. District Court for the Southern District of New York granted the motion and dismissed all of Fulton’s claims. Tom Rice Buick-Pontiac, GMC Truck, Inc. v. General Motors Corp., 2006 WL 2322626 (S.D.N.Y. Aug. 10, 2006).  

On appeal, the Second Circuit affirmed the district court’s order granting summary judgment in favor of GM. The court found that, in addition to the process of submitting claims for warranty reimbursement through GM’s automated claims system for routine approval up to the national default rate, dealers have several other options to seek exceptions to the standard reimbursement rate. One alternative allows a dealer to specially route a claim through the computer system to the dealer’s GM sales representative, including additional comments and seeking individualized review of the claim so that reimbursement might be granted at a higher rate. This option may also be employed after a claim has been processed but the dealer is dissatisfied with GM’s disposition of the claim. A dealer may also use a “case add credit” function to request additional reimbursement on a previously submitted claim. Finally, the court found that a dealer may contact its local sales representative directly to state its case for additional reimbursement, or may invoke the dispute resolution procedures available pursuant to the governing dealer agreement with GM.

The court found that the test plaintiff had not availed itself of any of GM’s procedures to request additional warranty reimbursement for any claim, either before or after receiving and accepting reimbursement from GM at the standard rate, and rejected the dealer’s argument that any effort to submit such claims would have been futile.  

The Second Circuit disagreed with an earlier district court decision, Ralph Oldsmobile Inc. v. General Motors Corp., 2000 WL 1459767 (S.D.N.Y. Sept. 29, 2000), in which it was held that the statute contains no requirement that a dealer submit a particularized claim for a specific dollar figure, but instead requires the manufacturer to reimburse the dealer at statutory rates regardless of how much the dealer actually requests. On the contrary, the Tom Rice court held that “claim,” as intended by the New York State Assembly, means “a request for reimbursement in a specific amount.” The court reasoned that to hold otherwise would “unreasonably burden manufacturers such as GM, . . . [because] it would have to conduct an inquiry not simply with regard to contested claims, but with regard to every claim in every marketing area in New York State to ascertain the prevailing market rate.” The Tom Rice court’s approach, however, “impos[es] on dealers only the relatively trivial burden of making timely requests for compensation at higher rates than what the manufacturer typically pays.”  

Additionally, the Second Circuit reasoned that a ruling that a dealer could retroactively seek additional reimbursement through litigation, without having ever previously submitted a timely, particularized claim for a higher reimbursement rate, would undermine such common law doctrines as waiver, estoppel and account stated. The court noted that it need not determine whether any of those doctrines would apply under the specific facts of the case to find that the New York State Assembly could not have intended to alter the applicability of those long-standing common law principles when it adopted NY VTL § 465, in the absence of a clear manifestation of that intent.  

To further support its holding, the Second Circuit looked to case law in other states—namely Illinois, Maine, New Jersey, and Ohio—that have adopted statutes that are substantially similar to NY VTL § 465. In those states, courts have ruled in similar circumstances that, despite a statutory right to potentially higher warranty reimbursement rates, dealers have the obligation to submit particularized claims requesting such rates in a timely manner.  

Having determined that a dealer may not make a claim for additional warranty reimbursement in the first instance in litigation, and because the test plaintiff had not submitted timely claims for specific amounts in excess of GM’s standard national reimbursement rate, despite having the opportunity and several methods by which to do so, the court affirmed the district court’s decision to grant GM’s motion for summary judgment.1  

This decision by the Second Circuit, in the absence of any guidance from the New York Court of Appeals or any intermediate New York appellate court on the issue, provides a strong defense for manufacturers in litigation by motor vehicle dealers seeking additional, retroactive warranty reimbursement under NY VTL § 465 when the dealers fail to submit warranty claims in the ordinary course of business for the additional amounts.2 Additionally, the case underscores the importance to manufacturers of having a system in place whereby dealers may submit claims for higher reimbursement rates and a reliable method of processing those claims.