ALLIANCE OF AUTOMOBILE MANUFACTURERS v. GWADOSKY

304 F.Supp.2d 104 (2004) | Cited 3 times | D. Maine | February 13, 2004

ORDER ON PLAINTIFF ALLIANCE OF AUTOMOBILE MANUFACTURERS' MOTION FOR PRELIMINARY INJUNCTION

On September 4, 2003, Alliance of Automobile Manufacturers(Manufacturers) filed a complaint with this court for declaratory andinjunctive relief against Dan A. Gwadosky in his official capacity asSecretary of State of the State of Maine and G. Steven Rowe in hisofficial capacity as Attorney General of the State of Maine (State). TheComplaint seeks a declaration that Sections 10 and 12 of newly enactedL.D. 1294 are unconstitutional and an order preliminarily and permanentlyenjoining their enforcement. On October 9, 2003, the Maine Auto DealersAssociation (Dealers) filed a motion for amicus curiae "plus"status and on December 22, 2003, the Court granted the Motion in part. OnOctober 10, 2003, the State answered the complaint, denying its essentialallegations. With the filing of the complaint, Manufacturers moved for aPreliminary Injunction against the enforcement of Section 10 of MaineLegislative Document 1294 (L.D. 1294). On October 10, 2003, the Statefiled an objection to the issuance of a preliminary injunction.Page 2

I. Statement of Facts

To rule on this motion, it is necessary to reiterate the long, complex,and litigious history leading up to the enactment of L.D. 1294 and thefiling of this case.1 The two major players, the Manufacturers andthe Dealers, have been engaged for nearly three decades in Maine in anelaborate and contentious game of economic, political, and legalchess.2 The battle lines in this dispute have been drawn over howmuch money the Dealers will receive back from the Manufacturers whenperforming work under manufacturer warranty. There is substantial moneyat stake. During the year 2002, one manufacturer, Ford, imposed a priceadjustment of $500 on each new car sold in Maine and, as a result,received back slightly more than $3.6 million dollars in that year alone.If other manufacturers follow Ford's lead, the dollars could proveserious.

The public tends to see the dealer-manufacturer relationship assymbiotic and unitary: the manufacturer designs and builds vehicles; thedealer sells and repairs them, all to their greater economic advantage.Beneath the surface, however, is an uneasy, often roiling relationship.Since the parties themselves have been unable over the course of the lastthree decades to negotiate satisfactorily their conflicting positions inthe warranty reimbursement area, they have each periodically sought toenlist the support of the legislative and judicial arms of government.Each legislative action has been followed byPage 3resort to the judicial branch, spawning new legislation and newjudicial rulings, a seemingly never ending cycle, perfectly exemplifiedby the instant case. See, e.g., Darling's v. Ford Motor Company,2003 ME 21, 825 A.2d 344; Acadia Motors v. Ford Motor Co.,2002 ME 102, 799 A.2d 1228; Nissan Motor Corp. In U.S.A. v. Darling'sHonda/Nissan, 1999 Me. Super. LEXIS 190 (Me. Super. Ct. July 7,1999); Darling's d/b/a Darling's Bangor v. Ford Motor Co.,1998 ME 232, 719 A.2d 111; American Honda Motor Co. v. Darling'sHonda/Nissan, 1997 Me. Super. LEXIS 225 (Me. Super. Ct. July 27,1997); Darling's d/b/a Darling's Bangor v. Ford Motor Co., No.95-CV-398-B-H (Me. D. 1995); Acadia Motors v. Ford Motor Co.,844 F. Supp. 819 (D.Me 1994), aff'd in part, rev'd in part on othergrounds, 44 F.3d 1050 (1st Cir. 1995); Darling's BangorFord/VW/Audi v. Ford Motor Co., 92-SC-229 (Me. Dist. Ct. 3, S. Pen.,Oct. 20, 1992).

Alliance is a trade association of ten car and light truckmanufacturers.3 Its members account for more than 90% of all motorvehicle sales in the United States. Amicus curiae "Plus"Dealers is a trade association, representing Maine's automobile dealers,all of whom are franchisees of one or more of Alliance's members. Thelegal relationship between Manufacturers and Dealers is defined in aSales and Service Agreement (Agreement). When a new vehicle is sold inthe United States, the Manufacturer issues a warranty of free labor andparts for certain repairs, replacements or adjustments during the term ofthe warranty. Under the Agreement, the Dealers are required to performwarranty work and the Manufacturers are required to reimburse the Dealersfor parts used and labor performed.Page 4

By its nature, work performed by one party that the other mustreimburse is a potential source of controversy. The Agreement typicallycontains extremely explicit rules to clarify reimbursement practices. InFord's case, reimbursement levels are established by specific nationalreimbursement formulae both for parts and labor. Under the terms of theFord Agreement, for example, the time component of labor is reimbursedbased upon standard hours generated by Ford's own analysis of the time itshould take to complete each specific repair, not the amount of time theDealer says the repair actually took

The Dealers have rankled at the Manufacturers' warranty reimbursementrates. They claim the reimbursement rates for warranty work aresignificantly below retail rates for non-warranty work. Viewing allrepair work, both warranty and non-warranty, as a whole, the Dealersposit that they are required to make up the Manufacturers' stinginess byincreasing prices for non-warranty work. As a consequence, the Dealersargue the Manufacturers are mandating that non-warranty customers, whopay retail rates, must subsidize the Manufacturers, who do not. To theargument that the Dealers are receiving reimbursement at rates theybargained for and agreed to, the Dealers point to the overpoweringeconomic weight of the Manufacturers, which they claim forces them toaccept parsimonious reimbursement rates.4 By contrast, the Dealersargue retailPage 5customers for non-warranty work have no such leverage and end uppaying what the Manufacturers will not. In response, the Manufacturershave used a mirror argument, pointing to the national market forautomobiles and claiming that consumers outside Maine will be required topay higher prices for warranty work to make up for the extra money theManufacturers must reimburse Dealers in Maine.

The Dealers have successfully sought legislative intervention. In 1975,the State of Maine first began to regulate the price manufacturers mustpay to Maine car dealers for repairs made under manufacturer warranty.Pub.L. 1975 Ch. 573, § 1176. The statute contained the relativelybenign provision that manufacturers must "adequately and fairlycompensate each of its motor vehicle dealers for parts and labor." 10M.R.S.A. § 1176 (1975). In 1979, the Maine Legislature acted again.This time it enacted a provision by which a dealer could collectattorney's fees in the event the dealer was successful in a legal actionfor a claim for warranty reimbursement the manufacturer had denied. Pub.L. 1979, Ch. 498, § 3.

In 1980, the Maine Legislature repealed the 1975 statute and replacedit with a new provision that continued to require Manufacturers to"adequately and fairly compensate" the dealers for parts, but mandatedthey reimburse Dealers for any labor "at the retail rate customarilycharged by that (dealer) for the same labor when not performed insatisfaction of a warranty." P.L. 1975, Ch. 698, § 1. In 1991, theLegislature amended the statute to require parts reimbursement forwarranty work to be made "at the retail rate customarily charged by that(dealer) for the same parts when not provided in satisfaction of awarranty." P.L. 1991, Ch. 328. As of October 9, 1991, the effective dateof the 1991 S. Rep. No. 2073, 84th Cong., 2d Sess., 2 (1956).Page 6law, the Manufacturers were mandated as a matter of Maine statutorylaw to reimburse Maine Dealers for both parts and labor for warranty workat rates the Dealers charged non-warranty customers.

This did not sit well with the Manufacturers. One manufacturer, Ford,simply ignored the law and continued to reimburse its dealers at lowerrates. In 1992, Darling's resorted to Small Claims Court to compelcompliance with the reimbursement requirements of § 1176. The SmallClaims Court dismissed the claim because Darling's had failed to submitan adequate claim for reimbursement to Ford. Darling's BangorFord/VW/Audi, 92-SC-229 (Me. Dist. Ct. 3, S. Pen.) (Oct. 20, 1992).

On April 1, 1993, Ford announced a new policy. It agreed to reimburseits Maine Dealers at what amounted to retail rates, but at the same time,it stated that in order to recover this increase in costs, it wouldsurcharge approximately $160 per vehicle, thereby increasing thewholesale price for each new Ford vehicle sold in Maine. This surcharge,termed a "warranty parity surcharge," appeared on each dealer's monthlyparts invoice in the month following the sale. The surcharge was imposedbased on the number of vehicles sold, without regard to whether thedealer actually performed warranty work in that month. The surcharge wasimposed on Maine dealers only.

In 1993, the Dealers brought suit in this Court, claiming the surchargeviolated Maine statutory law. Acadia Motors, 44 F.3d at 1055.The First Circuit ruled that § 1176 did not restrict theManufacturers from recovering their compliance costs:

Noting in the language of section 1176 prohibits a manufacturer from increasing vehicle prices in order to recover its increased compliance costs. The statute says nothing about wholesale or retail prices, and apparently leaves the manufacturer free to increase wholesale prices, and the dealer to increase retail prices.Page 7

Id. Despite its victory, Ford discontinued the surcharge anddid not immediately re-impose it.

A brief period of quiescence followed the First Circuit opinion. It wasnot to last. Later in 1995, Darling's initiated suit against Ford,presenting a host of issues for judicial resolution. On April 1, 1998,Judge Hornby certified a series of questions of state law to the MaineSupreme Judicial Court pursuant to 4 M.R.S.A. § 57 and M.R.Civ.P.76B. The Maine Law Court responded on October 28, 1998. Darling'sd/b/a Darling's Bangor Ford, 1998 ME 232, 719 A.2d 111. The partiesultimately and uncharacteristically settled the dispute. See AcadiaMotors, Inc., 2002 ME 102, ¶ 7, 799 A.2d 1228.

In 1999, Ford informed the Dealers it would re-impose the warrantyparity surcharge of $150 (later $250) for each vehicle sold or leased inMaine to recover the costs of compliance with § 1176 and the costs ofthe settlement it had incurred in the Darling suit. Acadia,2002 ME 102, ¶ 7, 799 A.2d at 1230. The result was predictable. On August10, 1999, a large number of individual Maine auto dealers filed suit inState Superior Court seeking a declaratory judgment that the surchargeviolated § 1176. Again, the result was predictable. On June 25, 2002,the Maine Supreme Judicial Court agreed with the First Circuit Court ofAppeals and ruled that the Maine statute "contains no languagerestricting or conditioning Ford's ability to recover its costs ofcompliance." Id. 2002 ME 102, ¶ 11, 799 A.2d at 1230.

The Dealers turned once more to the Maine Legislature and in 2003, theLegislature acted. The result is L.D. 1294 and the pending lawsuit.Section 10 of L.D. 1294 provides in part: "A [manufacturer] may nototherwise recover its costs for reimbursing a [dealer] for parts andlabor pursuant to this section." This statutoryPage 8provision appears to plug the hole in the law the First Circuit andthe Maine Supreme Judicial Court determined existed in earlier versions.The Manufacturers have now turned to this Court for relief from the newlyenacted Maine law.

II. Discussion

This Court must apply a familiar four-part test to determine whetherinjunctive relief is appropriate: first, the likelihood of success on themerits; second, the potential for irreparable harm, if the injunction isdenied; third, the balance of relevant impositions; and, four, the effectof the court's ruling on the public interest. Ross-Simmons of Warwickv. Baccarat, 102 F.3d 12, 15 (1st Cir. 1996), accordRosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219 (1st Cir. 2003);Narragansett Indian Tribe v. Guilbert, 934 F.3d 4, 5 (1st Cir.1991).

A. Likelihood of Success

Alliance's Motion for Preliminary Injunction is grounded on theassertion that Section 10 of L.D. 1294 is unconstitutional. Although theComplaint attacks both Section 10 and Section 12 of L.D. 1294, Alliance'sMotion for Preliminary Injunction is directed only against Section 10.The Motion asks this Court to enjoin enforcement of Section 10 pendingthe final resolution of this lawsuit. The Complaint challenges theconstitutionality of Section 10 on three grounds: (1) that it violatesthe Commerce Clause; (2) that it violates the Contracts Clause; and, (3)that it violates the Takings Clause.5 The Court will limit itsdiscussion to the Commerce and Contracts Clauses. In evaluatingAlliance's claims of constitutional infirmity, this Court is required topresume the challenged act is constitutional. Davies Warehouse Co. v.Bowles, 321 U.S. 144, 153Page 9(1944) ("State statutes, like federal ones, are entitled to thepresumption of constitutionality until their invalidity is judiciallydeclared.").

1. Commerce Clause

Under the United States Constitution, Article I, section 8, Congresshas the power "to regulate commerce with foreign nations, and among theseveral states, and with the Indian tribes." U.S. Const. Art. I, section8, cl. 3. In matters not governed by federal legislation, "the Clause haslong been understood to have a "negative" aspect that denies the Statesthe power unjustifiably to discriminate against or burden the interstateflow of articles of commerce." Oregon Waste Systems, Inc. v.Department of Environmental Quality, 511 U.S. 93, 98 (1994);Wyoming v. Oklahoma, 502 U.S. 437, 454 (1992); Welton v.Missouri, 91 U.S. 275 (1876). This "negative command, known as thedormant Commerce Clause, prohibits states from acting in a manner thatburdens the flow of interstate commerce." Pharm. Research & Mfrs.Of Am. v. Concannon, 249 F.3d 66, 79 (1st Cir. 2001) (hereinafterPhaRMA), aff'd sub nom. Pharm. Research & Mfrs. Of Am. v.Walsh, 123 S.Ct. 1871 (2003).

Alliance alleges that Section 10 of L.D. 1294 violates the CommerceClause by "burdening interstate commerce through extraterritorialregulation of the wholesale prices of motor vehicles; purposefullydiscriminating against out-of-state manufacturers, motor vehicle dealersand consumers and favoring in-state motor vehicle dealers and consumers;and, by having a practical effect that imposes a heavier burden onout-of-state manufacturers, dealers and consumers than on in-statedealers and consumers." Pl.'s Complaint at 50.Page 10

a. Extraterritorial Regulation

Alliance claims that Section 10's prohibition from recovering warrantycosts extends beyond the boundaries of the State of Maine. It contendsthat under the "plain and ordinary meaning" of Section 10, the Alliance'smembers "cannot raise prices in any state for the purpose ofrecovering the costs of complying with Section 1176." Pl.'s Mot. ForPreliminary Injunction at 13. Alliance asserts that its memberscould not require reimbursement of dealers in Michigan without runningafoul of Maine law. Having raised the spectre of "extraterritorialreach," Alliance urges this Court to conclude that the Section 10 is aper se violation of the Commerce Clause. See PhaRMA, 249 F.3d at79.

Alliance's argument misses the mark. In construing the territorialreach of Section 10, this Court is obligated to apply "the elementalrule" that "every reasonable construction must be resorted to, in orderto save a statute from unconstitutionality." Hooper v.California, 155 U.S. 648, 657 (1895). When faced with two possibleconstructions of a statute, one of which would raise "seriousconstitutional problems" while the other would not, the Court is requiredto construe the statute to avoid such problems. Immigr. &Naturalization Serv. v. St. Cyr, 533 U.S. 289, 299-300 (2001).

Justice Cardozo, writing for the Supreme Court in Baldwin v. G.A.F.Seelig, Inc., 294 U.S. 511, 521 (1935) observed that "New York hasno power to project its legislation into Vermont by regulating the priceto be paid in that state for milk acquired there." Section 10, however,makes no such attempt. In concluding that the Maine Rx Program did notconstitute impermissible extraterritorial regulation, the Supreme Courtquoted the First Circuit with approval:

the Maine Act does not regulate the price of any out-of-state transaction, either by its express terms or by its inevitable effect. Maine does not insistPage 11 that manufacturers sell their drugs to a wholesaler for a certain price. Similarly, Maine is not tying the price of its in-state products to out-of-state prices.

PhaRMA, 123 S.Ct. at 1871.

Despite Alliance's vigorous arguments to the contrary, this Court doesnot interpret Section 10 of L.D. 1294 as attempting to reach outsideMaine borders and restrict what the manufacturers reimburse dealers inother states. Section 10 does not "regulate the price of any out-of-statetransaction, either by its express terms or inevitable effect." It doesnot insist that manufacturers set their warranty reimbursements outsideof Maine at "a certain price." It does not attempt to tie the level ofwarranty reimbursement in Maine "to out-of-state prices." TheManufacturers' argument that what they lose from Maine dealers, they mustcollect from out-of-state dealers is bottomed on the fallacy that theyhave a constitutional right to a particular national rate of return fromwarranty repairs.

Moreover, in the Act itself, the Maine Legislature itself fully statedits legislative aim to address Maine transactions. See PhaRMA,249 F.3d at 97 (concurrence). The Maine Legislature has declared indetail its intent in enacting regulations of business practices amongmotor vehicle manufacturers, distributors and dealers:

The Legislature finds that the manufacture, distribution and sale of motor vehicles in the State vitally affects the general economy of the State and the public interest and public welfare; that the manufacturers of motor vehicles whose physical manufacturing facilities are not located within the State and distributors are doing business in the State through their control over and relationship and transactions with their dealers in the State; that the geographical location of the State makes it necessary to ensure the availability of motor vehicles and parts and dependable service for motor vehicles throughout the State to protect and preserve the transportation system, the public safety and welfare and the investments of its residents. The Legislature declares, on the basis of these findings, that it is necessary to regulate and to license motor vehicle manufacturers and distributors andPage 12 their branches and representatives, motor vehicle dealers and any other persons engaged in the business of selling or purchasing vehicles in the State in order to prevent frauds, impositions and other abuses against residents and to protect and preserve the economy, the investments of residents, the public safety, and the transportation system of the State.

10 M.R.S.A. § 1182. Although enacted in 1997 before the passage ofL.D. 1294, this public policy statement is contained within the samesubchapter and sets forth the Legislature's rationale for regulating themanufacturer-dealer relationship; Section 10 is part of this regulatoryscheme. The Maine Legislature should be taken at its word that itsmanufacturer-dealer laws are intended to apply in Maine to Maine publicpolicy issues. In the words of the First Circuit, "it cannot be properfor a federal court to make judicial "findings" contrary to Maine'slegislative declarations and on that basis declare that Maine's Act isinvalid." PhaRMA, 249 F.3d at 97 (concurrence).

In short, this Court concludes that Section 10 is does not have anextraterritorial reach violative of the Commerce Clause of the UnitedStates Constitution.

b. Discrimination Against Out-Of-State Commerce

Alliance next claims Section 10 constitutes a per se violationof the Commerce Clause, because it discriminates against interstatecommerce and favors in-state economic interests over out-of-stateinterests. It alleges that Section 10's "purpose is to transfer wealthexclusively from out-of-state manufacturers, dealers and consumers toin-state dealers." Pl.'s Mot. at 17. This argument isunpersuasive. In reviewing whether a state statute violates the CommerceClause, the first step is "to determine whether it "regulatesevenhandedly with only `incidental' effects on interstate commerce, ordiscriminates against interstate commerce." Oregon Waste Systems,Inc., 511 U.S. 93, 98 (1994) (quoting Hughes v. Oklahoma,441 U.S. 322, 325-26 (1979); Ford Motor Co. v. TexasPage 13Dept. of Transp., 264 F.3d 493, 499 (5th Cir. 2001). Astatute discriminates against interstate commerce when it provides for"differential treatment of in-state and out-of-state economic intereststhat benefits the former and burdens the latter." Oregon Waste,511 U.S. at 99; see also Ford Motor, 264 F.3d at 499. If a statestatute discriminates against interstate commerce, "strict scrutiny" isapplied under a "virtually per se invalid rule." PhaRMA, 249F.3d at 79.

The Commerce Clause does not invalidate all state regulation that has adisparate impact on out-of-state economic interests. Instead, it looks towhether in-state business entities are favored over similarly situationout-of-state entities. Ford Motor, 264 F.3d at 500. The case ofExxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978) isillustrative. In Exxon, a Maryland statute provided that aproducer or refiner of petroleum products could not operate any retailgas station within the State and had to extend all "voluntary allowances"uniformly to all services stations it supplied. Exxon challenged thestatute based in part on an asserted violation of the Commerce Clause.Justice Stevens made short work of Exxon's argument: Plainly, the Maryland statute does not discriminate against interstate goods, nor does it favor local producers and refiners. Since Maryland's entire gasoline supply flows in interstate commerce and since there are no local producers or refiners, such claims of disparate treatment between interstate and local commerce would be meritless.Exxon, 437 U.S. at 125.

To posit the opposite example, in Lewis v. BT Investment Managers,Inc., 447 U.S. 27 (1980), the Supreme Court declared a Floridastatute violative of the Commerce Clause because it favored Florida-basedbanks, bank holding companies, and trust companies over those samecompanies with principal operations outside of Florida.Page 14Lewis, 447 U.S. at 42. The Lewis Courtdistinguished Exxon: "The Court [in Exxon] concluded that thestatute could not discriminate against interstate petroleum producers andrefiners in favor of locally based competitors because, as a matter offact, there were no such local producers or refiners to be favored."Lewis, 447 U.S. at 40-1.

This leads us back to PhaRMA Judge Hornby easily dispatchedthe claim of in-state versus out-of-state discrimination: There are no Maine drug manufacturers, and no suggestion on this record that Maine is in the process of trying to establish a favorable environment to bring them here. Instead, the rebate program applies to any manufacturer, whether or not it is from Maine. Maine is trying to benefit its residents, specifically those who are uninsured, in the purchase of prescription medicines; but it is not trying to better their lot over out-of-staters. So the question is not whether Maine is discriminating against out-of-staters, but simply whether it has the power to extend its authority to out-of-state manufacturers.Pharm. Research & Mfg. of Am. v. Comm'r, 2000 U.S. Dist.LEXIS 17363 * 13 (hereinafter PhaRMA). PhaRMA did not even raisethis argument before the First Circuit. PhaRMA 249 F.3d 83(noting "Pharma does not contend, nor did the district court find, thatthe Maine Act discriminates on its face or in its effects. Therefore, weneed not discuss it further."). The Supreme Court simply noted that the"Maine Rx Program will not impose a disparate burden on any competitors.A manufacturer could not avoid its rebate obligation by openingproduction facilities in Maine and would receive no special benefit tocompetitors of rebate-paying manufacturers." PhaRMA., 123 So.Ct. at 1871.

Applying these principles, Section 10 of L.D.I 294 does notdiscriminate against out-of-state manufacturers, because as a matter offact, there are no in-state manufacturers to be favored. GeneralMotors Corp. v. Tracy, 519 U.S. 278, 299 (1997)Page 15([I]n absence of actual or prospective competition between thesupposedly favored and disfavored entities in a single marketthere can be no local preference, whether by express discriminationagainst interstate commerce or undue burden upon it, to which the dormantCommerce Clause may apply.") (emphasis added); Alliance of Auto.Mfgrs. v. Kirkpatrick, 2003 U.S. Dist. LEXIS 12323 at 29 ("RecentSupreme Court precedent has strongly suggested that Commerce Clauseclaims of the kind at issue here [alleged protectionism] cannot jumpacross markets. . . .)

To the extent the "local benefit" or "subsidy" category of casesapplies, the State urges the Court to conclude that the recoupmentprohibition is "too far afield from . . . protectionism" to constitute aper se violation of the Commerce Clause. Def.'s Mem. at 13(quoting Fireside Nissan v. Fanning, 30 F.3d 206, 217 (1str Cir.1994). Based on the record before it, the Court agrees with the Statethat the degree of local benefit and its impact on out-of-statebusinesses is speculative, at best.

b. Pike v. Bruce Church

If the statute does not have an impermissible extraterritorial reachand does not discriminate against out-of-state commerce, then the thirdleg of the analysis is the balancing test under Pike v. BruceChurch, 397 U.S. 137 (1970). At oral argument, counsel for Alliancestated that it is "not making a Pike v. Bruce Church argument"and therefore, the Court will not address this final Commerce Clauseanalytic framework.

2. Contracts Clause

Alliance asserts that Section 10 of L.D. 1294 violates the ContractsClause of the United States Constitution. U.S. Const. Art I, section 10,cl. 1. The Contracts Clause provides: "No State shall . . . passany . . . law impairing the Obligation of Contracts."Page 16Id. As the Supreme Court has explained, although thelanguage of the Contract Clause "is facially absolute, its prohibitionmust be accommodated to the inherent police power of the State "tosafeguard the vital interests of its people." Energy Reserves Groupv. Kan. Power & Light Co., 459 U.S. 400, 410 (1983) (quotingHome Bldg. & Loan Assn. v. Blaisdell, 290 U.S. 398, 434(1934)).

This is not the first time this Court has visited this issue. In 1994,Judge Brody addressed a Contract Clause allegation in the warrantyreimbursement context and in 1998, Judge Hornby ruled that Judge Brody'sdecision was "the final decision for purposes of collateral estoppel."Acadia Motors, 844 F. Supp. at 823-28; Darling's v.Ford, Civil No. 95-398-B-H at 7. As Ford Motor Company was pressingthe issue in the Acadia Motors and Darling's cases andis not a party to the instant action, this Court cannot give JudgeBrody's 1994 decision preclusive effect. Dennis v. R.I. Hosp. TrustNat'l Bank, 744 F.2d 893, 899 (1st. Cir. 1984). Nevertheless, JudgeBrody's reasoning is persuasive.

The first step in a Contracts Clause analysis is whether theLegislature intended the law to apply to pre-existing contracts. Neitherparty has asserted that L.D. 1294 has only prospective application andthis is consistent with Judge Brody's determination in 1994 that the 1991amendments to the warranty reimbursement statute were to be applied towarranty work performed after the effective date of the statute"regardless of when the underlying franchise agreement was executed."Acadia Motors, 844 F. Supp. at 826. This Court accepts theimplicit view that the provisions of Section 10 of L.D. 1294 apply towarranty work performed from September 13, 2003 onward, regardless ofwhen the franchise agreement was entered into.Page 17Once the Court determines that a newly enacted statute affects apre-existing contract, the Court must analyze "whether the state law has,in fact, operated as a substantial impairment of a contractualrelationship." Allied Structural Steel Co., v. Spannaus,438 U.S. 234, 244 (1978). Alliance points to the provision in the standardAgreement that reserves to the Manufacturer the right to price itsvehicles. Ford Sales and Service Agreement Standard Provisions,para. 1.(f)("DEALER PRICE" shall mean, with respect to each COMPANYPRODUCT to which it refers, the price to the Dealer for such product,as from time to time established by the Company . . .) ¶. 10 ("The Company has the right at any time and from time to time tochange or eliminate prices, charges, discounts, allowances, rebates,refunds or other terms of sale affecting COMPANY PRODUCTS . . .).Alliance argues that the impairment from pricing in Section 10 issubstantial, because it limits its members' "pre-existing contractualright to price products that forms the foundation of a motor vehiclemanufacturer's business strategy." Def.'s Mem. at 20.

The law requires more. To determine "substantial impairment," thestatute must be analyzed in terms of whether the industry has beenregulated in the past. Energy Reserves Group, 459 U.S. at 411;Allied Structural Steel Co., 238 U.S. at 242, n.13 (citingVeix v. Sixth Ward Bldg. & Loan Assn., 310 U.S. 32, 38(1940)) (stating "[w]hen he purchased into an enterprise alreadyregulated in the particular to which he now objects, he purchased subjectto further legislation upon the same topic.") In the words of JusticeHolmes, "One whose rights, such as they are, are subject to staterestriction, cannot remove them from the power of the State by making acontract about them." Hudson County Water Co. v. McCarter,209 U.S. 349, 357 (1908). Under this analysis,Page 18in the words of the First Circuit, the courts "look long and hardat the reasonable expectations of the parties." Houlton Citizens'Coalition v. Town of Houlton, 175 F.3d 178, 190 (1st Cir. 1999). Itis to this end, the courts will examine "whether the parties operated ina regulated industry." Id.

Alliance cannot gainsay Judge Gene Carter's 1984 determination thatsince 1975 Maine has adopted "an extensive system of regulation ofbusiness practices between motor vehicle manufacturers, distributors, anddealers." N.A. Burkitt, Inc. v. J.J. Case Co., 597 F. Supp. 1086,1091 (D.C. Me. 1984). As part of this system of regulation, thewarranty reimbursement area has been the subject of steadily increasingState restriction ever since then In light of the extensive history, bothlegislative and judicial, this Court views with utmost skepticismAlliance's claim that the Section 10's prohibition against surcharges was"not foreseeable." Def.'s Mem. at 20. Indeed, once it wasjudicially clarified that the Manufacturers could collect back theirenhanced reimbursement costs by surcharging Maine vehicles, it wasvirtually inevitable this hole would be statutorily plugged.

In its Memorandum, Alliance cites the case of Chrysler Corp. v.Kolosso Auto Sales, Inc., 148 F.3d 892, 895 (7th cir. 1988) for theproposition that a "history of regulation is never a sufficient conditionfor rejecting a challenge based on the [C]ontracts [C]lause," because tofind otherwise would permit a state to "decide to change the price in[the motor vehicle manufacturer's] contracts." But, in Kolosso,the Seventh Circuit affirmed a district court ruling that enforced newWisconsin legislation allowing a dealer to challenge a manufacturer'srefusal to permit relocation of a dealership and overriding a specificprovision to the contrary in the franchise contract.Page 19Chief Judge Posner wrote "a contractual obligation is not impairedwithin the meaning that the modern cases impress upon the Constitution ifat the time the contract was made the parties should have foreseen thenew regulation challenged under the clause." Chrysler, 148 F.3dat 897. Since 1975, the state of Maine has required the Manufacturers toreimburse warranty claims at adequate and fair rates. From that time on,it was, in this Court's view, reasonable for the Manufacturers to expectthat the Legislature would continue to regulate this part of theManufacturer-Dealer relationship until this overall legislative goal wasinescapable.

In his 1994 opinion, Judge Brody concluded that the 1991 statutorychanges were within reasonable expectations, "at least as to thosecontracts entered into after 1975." Acadia Motors, 844 F. Supp.at 827. Although Alliance has submitted evidence of model franchiseagreements, there is no evidence from which this Court can conclude thatany of the agreements pre-dated 1975.6 Further, the Ford contracts,which Alliance counsel stated were representative, anticipate regulatorychange, a factor the Supreme Court found significant in EnergyReserves7, 495 U.S. at 416 (stating "[m]oreover, thePage 20contracts expressly recognize the existence of extensive regulationby providing that any contractual terms are subject to relevant presentand future state and federal law."). In sum, this Court concludes thatAlliance's reasonable expectations have not been substantially impairedby the enactment of Section 10 of L.D. 1294. Accord AcadiaMotors, 844 F. Supp. at 827.

Having found that the impairment of Section 10 was within thereasonable expectations of the parties, the Court need not to go furtherand examine whether the impairment "rests on, and is prompted by,significant and legitimate state interests." Energy Reserves,459 U.S. at 416. However, the Court notes, in passing, that Judge Brody'sopinion on this issue in 1994 is exactly applicable to the issue beforethe Court today. Acadia Motors, 844 F. Supp. at 827-28. Althoughthe Manufacturers see the issue as mandating higher prices forout-of-staters, the Legislature is not compelled to view the policyquestion as the Manufacturers propose it. Instead, as Judge Brodyconcluded, the Maine Legislature is entitled to make a policy decision torespond to what it perceives as the disparity in bargaining power betweenManufacturers and Dealers and to prevent Manufacturers, who have been"unwilling to pay the fair and full price for repairs made necessary whentheir automobiles failed to meet warranty stands," to force Dealers toshift costs of performing warranty work to nonwarranty customers.Id. at 828. This time dealing with Section 10 of L.D. 1294, thisCourt agrees with Judge Brody that the "Legislature's concern forprotection of dealers and the public is a significant and legitimatepublic purpose" and that the means chosen by the Legislature to implementthese purposes is also reasonable." Id.Page 21

B. Irreparable Harm

Finally, in the Court's view, Alliance's motion also clearly stumbleson the irreparable harm requirement. The First Circuit has interpretedCivil Rule 65(a) as placing the burden squarely on the movant todemonstrate that a denial of interim injunctive relief would causeirreparable injury. Ross-Simons, 102 F.3d at 18. To be entitledto injunctive relief, the movant must demonstrate the inadequacy of legalremedies. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312(1982); Ross-Simons, 102 F.3d at 18-19; Lopez v.Garriga, 917 F.2d 63, 68 (1st Cir. 1990). To the contrary, Alliancehas unequivocally demonstrated it has a vehicle for recoupment of moniesits members will have lost if the statute is deemed unconstitutional. Itsown member Ford Motor Company has successfully garnered $3.6 million fromMaine dealers in the year 2002 alone by surcharging its dealers. Alliancehas failed to demonstrate that this remedy would be unavailable to itsmembers in this case.

Alliance argued it would be "unfair" if its members were to charge newcar purchasers to make up for the loss of past surcharges. However, inthe early 1990s, when Ford imposed the $160 surcharge on each new vehiclesold in Maine to recollect the higher warranty reimbursement mandated byMaine law, Ford simply assessed its surcharge on each Dealer's partsinvoice in the month following the sale. It did so "without regard towhether the dealer actually performed warranty work in that month."Acadia Motors, 44 F.3d at 1052-53. The Dealers' claim that insome instances they paid more in surcharges than they received inincreased reimbursement under the new policy did not impress Ford at thetime. Id. at 1053 n. 6. Ford simply responded that the $160Page 22figure was "calculated to recoup Ford's increased costs of doingbusiness over time, spreading those costs evenly among the dealers."Id.

Having determined that Alliance has not met its burdens of establishinga likelihood of success on the merits and irreparable injury, the Courtdoes not need to address the remaining tests under Ross-Simmons.

III. Conclusion

The Alliance of Automobile Manufacturers' Motion for PreliminaryInjunction is DENIED for the reasons set forth above.

1. In its recitation of facts, the Court has borrowed freely fromthe facts as set forth in the opinions of the First Circuit, the MaineSupreme Judicial Court, and Judges D. Brock Hornby, and the late MortonA. Brody of this Court.

2. It should come as no surprise that Maine is not alone. Litigationhas percolated on a variety of issues involving manufacturer-dealerwarranty reimbursement in New Jersey (New Jersey Coalition of Auto.Retailers v. DaimlerChrysler Motors Corp., 107 F. Supp.2d 495(D.N.J. 1999), (Liberty Lincoln-Mercury v. Ford Motor Co.,134 F.3d 557 (3rd Cir. 1998)); in New York (Ralph Oldsmobile v. GeneralMotors Corp., 2000 U.S. Dist. LEXIS 14244 (S.D.N.Y. 2000)),(G/C Volkswagen Corp. v. Volkswagen of America, Inc., 1998 U.S.Dist. LEXIS 17987 (S.D.N.Y. 1998); in Vermont (Northwood AMC Corp. v.American Motors Corp., 423 A.2d 846 (1990)); in Illinois (KrononMotor Sales v. Ford Motor Co., 41 F.3d 338 (7th Cir. 1994)); in Ohio(Jim White Agency Co. v. Nissan Motor Corp., 126 F.3d 832 (6thCir. 1997)); and in Florida (Brandon Chrysler Plymouth Jeep Eagle,Inc. v. Chrysler Corp., 898 F. Supp. 858 (M.D. Fla. 1995)).

3. These members include: BMW Group, DaimlerChrysler, Ford MotorCo., General Motors, Mazda, Mitsubishi Motors, Nissan, Porsche, Toyota,and Volkswagen.

4. Judge Brody in Acadia Motors, 844 F. Supp. at 825 n. 7quoted the following congressional statement on the manufacturer-dealerrelationship: [The] vast disparity in economic power and bargaining strength has enabled the manufacturer determine arbitrarily the rules by which the two parties conduct their business affairs. These rules are incorporated in the sales agreement or franchise which the manufacturer has prepared for the dealer's signature. Dealers are with few exceptions completely dependent on the manufacturer for their supply or cars. When the dealer has invested to the extent required to secure a franchise, he becomes in a real sense the economic captive: of his manufacturer. . . . The faults of the factory-dealer system are directly attributable to the superior market position of the manufacturer.

5. At oral argument, Alliance waived the Takings Clause claim forpurposes of the Motion for Preliminary Injunction.

6. Following oral argument at which the State had pointed out thatnone of the original Agreements had been produced, Alliance move tosupplement its declarations to provide further information about thefranchise Agreements. The Court granted Alliance's motion over theobjections of the Defendants and Amicus Curias "Plus." Alliancesubmitted specimen policies from three manufacturers, DaimlerChrysler,General Motors, and Ford through the Affidavits of Jane F. Steinmetz,William T. Hepburn, Jr., and Matt Falerios. There is no indication in anyof the Affidavits that any of the current Maine Dealer Agreementspre-dated the Maine legislation in 1975.

7. For example, the Ford documents contain references to theparties' understanding that the Agreement is subject to applicable lawand the law may change during its term. The Ford Warranty & PolicyManual states that "No policy or procedure contained in the Warranty andPolicy Manual is intended to be inconsistent with, or contrary to theSales and Service Agreement or state law." The Ford Sales andService Agreement provides that "Both parties recognize the rights of theDealer and the Company under this agreement are defined and limited bythe terms of this agreement and applicable law." In its StandardProvisions, Ford retains "the right to amend, modify or change thisagreement in case of legislation, government regulation or changes incircumstances beyond the control of the Company that might affectmaterially the relationship between the Company and the Dealer." TheFord Standard Conditions mandate that the Dealer comply with "allapplicable federal, state, and local law, rules and regulations in theordering, sale and service of COMPANY PRODUCTS . . ., including withoutlimitation those related to . . .: customer service." There is nosimilar provision applicable to Ford.

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