Alliance of Automobile Manufacturers, Inc. v. Currey

Filing 63

RULING granting 32 Motion to Dismiss. Signed by Judge Janet C. Hall on 11/26/2013. (Malone, P.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ALLIANCE OF AUTOMOBILE
MANUFACTURERS, INC.,
Plaintiff,

:
:
:
:
v.
:
:
MELODY A. CURREY, COMMISSIONER, :
DEPARTMENT OF MOTOR VEHICLES
:
OF THE STATE OF CONNECTICUT,
:
Defendant,
:
:
and
:
:
CONNECTICUT AUTOMOTIVE
:
RETAILERS ASSOCIATION,
:
Intervenor.
:

CIVIL ACTION NO.
3:13-CV-398 (JCH)

NOVEMBER 26, 2013

RULING RE: DEFENDANTS’ MOTION TO DISMISS (Doc. No. 32)
I.

INTRODUCTION
Plaintiff Alliance of Automobile Manufacturers, Inc. (“Alliance”) brings this

declaratory judgment action against defendant Melody Currey, Commissioner of the
Connecticut Department of Motor Vehicles (the “Commissioner”), seeking to invalidate
provisions of the Connecticut Franchise Act (“CFA”), as amended in 2009. The
Commissioner moves to dismiss Alliance‟s Complaint for lack of subject matter
jurisdiction under Rule 12(b)(1) and for failure to state a claim under Rule 12(b)(6).
Intervenor Connecticut Automotive Retailers Association (“CARA”), whose Motion to
Intervene (Doc. No. 44) was granted on September 9, 2013, has filed additional briefing
in support of the Commissioner.
On October 30, 2013, the court held an oral argument on the Commissioner‟s
Motion to Dismiss (Doc. No. 32). For the reasons below, the Motion is GRANTED.
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II.

BACKGROUND
Alliance is a non-profit trade association comprising twelve major automobile

manufacturers (“Members”), none of which have their principal place of business in
Connecticut or in-state manufacturing facilities. Compl. (Doc. No. 1) ¶¶ 9, 14. CARA is
a trade association whose members, hundreds of automobile dealers in Connecticut,
are required to perform warranty work pursuant to written agreements with the
manufacturers. See Fleming Aff. (Doc. No. 44-2) ¶¶ 3, 5. The Commissioner is
responsible for interpreting and enforcing the provisions of state law at issue in this
case. Compl. ¶ 11.
A.

1982 Regulatory Scheme

Like many states, Connecticut regulates the relationship between manufacturers
and dealers—in particular, the issue of warranty repair reimbursement—and has done
so for decades, because of the perceived asymmetry in bargaining power. See Compl.
¶¶ 45, 50. As enacted in 1982, the state‟s regulatory scheme permits manufacturers to
require dealers to perform certain warranty repair services, even on vehicles they did
not sell. See Pub. Act 82-445, § 2(a). Under the 1982 law, as well as under current
law, manufacturers‟ compensation to dealers performing warranty repairs must be
reasonable, and time allowances for diagnosing and performing such repairs must be
“reasonable and adequate for the work to be performed.” Id. § 2(b).
From 1982 to 2009, these repairs were to be reimbursed according to a schedule
of compensation provided by the manufacturer. Id. The dealer‟s minimum hourly rate
for labor on warranty work was set at the rate charged by the dealer “for like service to
nonwarranty customers, provided that the rate charged to nonwarranty customers is
reasonable.” Id. Under this longstanding regime, the primary factor in determining
2

“reasonable compensation” was “the prevailing wage rates being paid by dealers in the
community in which the dealer is doing business.” Id.
B.

2009 Amendments

The 2009 amendments to the CFA at issue (collectively, the “2009
Amendments”) consist of two changes to the prior regulatory scheme, one revising the
statutory methods for determining reasonable compensation (the “Reimbursement
Provisions”), the other prohibiting manufacturers from recovering from in-state dealers
the costs incurred as a result of the Reimbursement Provisions (the “Recoupment Bar”).
Rather than requiring the manufacturer to provide the dealer with a schedule of
compensation, the Reimbursement Provisions call for “fair and reasonable”
compensation to be determined according to specific statutory methods. See Conn.
Gen. Stat. § 42-133s(a). For parts, the average percentage markup is declared by the
dealer and
established by the dealer submitting to the manufacturer or distributor one
hundred sequential nonwarranty customer-paid service repair orders
which contain warranty-like parts, or sixty consecutive days of
nonwarranty customer-paid service repair orders which contain warrantylike parts, whichever is less, covering repairs made no more than one
hundred eighty days before the submission and declaring the average
percentage markup.
Id. § 42-133s(b). For labor, the average labor rate is “established by submitting to the
manufacturer or distributor all nonwarranty customer-paid service repair orders covering
repairs made during the month prior to the submission and dividing the amount of the
dealer's total labor sales by the number of total labor hours that generated those sales.”
Id. § 42-133s(c). For both parts and labor, certain types of nonwarranty repairs, such as
“specials or promotional discounts for retail customer repairs,” are excluded in
calculating the retail rates customarily charged by the dealer. Id. § 42-133s(d).
3

Absent objection, parts and labor are to be compensated according to these
rates, which are presumed to be fair and reasonable. See id. §§ 42-133s(b)-(c). That
presumption, however, is rebuttable. Id. In particular, within thirty days of the dealer‟s
submissions to the manufacturer, the manufacturer may rebut the dealer‟s declared
rates “by reasonably substantiating” that they are “unfair and unreasonable in light of
the practices of all other franchised motor vehicle dealers in the vicinity offering the
same line-make vehicles.” Id. If a declared rate is rebutted, the manufacturer shall
propose an adjustment. Id. Should the dealer, in turn, disagree with the proposed
adjusted rate, the dealer may file a protest with the Commissioner within thirty days of
receiving the manufacturer‟s proposal, in which case the Commissioner will hold a
hearing. Id. At such a hearing, the burden is on the manufacturer to prove that the rate
declared by the dealer is unfair and unreasonable and that the manufacturer‟s proposed
adjustment is fair and reasonable. Id.
The Recoupment Bar prohibits a manufacturer from otherwise recovering from
in-state dealers increased costs due to the Reimbursement Provisions. In particular, a
manufacturer is barred from recovering such costs in the form of
an increase in the wholesale price of a vehicle or surcharge imposed on a
dealer solely intended to recover the cost of reimbursing a dealer for parts
and labor pursuant to this section, provided a manufacturer or distributor
shall not be prohibited from increasing prices for vehicles or parts in the
normal course of business.
Id. §42-133s(g).
C.

Alleged Injury to Members

Alliance‟s Members have written dealer sales and service agreements (“Dealer
Agreements”) with Connecticut dealers; with few exceptions, Dealer Agreements
predate the 2009 Amendments. Compl. ¶ 16. Alliance alleges that the Reimbursement
4

Provisions require Members to pay far more for warranty repairs than provided for in
Dealer Agreements, and that the Recoupment Bar prevents manufacturers from
exercising their contractual rights to recapture the increased costs. Compl. ¶ 2.
Alliance also alleges that the 2009 Amendments were enacted as protectionist
legislation at the behest of in-state dealers, who allegedly benefit at the expense of outof-state manufacturers and dealers as well as at the expense of consumers both in
state and out of state. Id. ¶¶ 3-4. Members are alleged to have suffered adverse
consequences to their commercial activities as a result of numerous requests from instate dealers for additional reimbursement. Id. ¶¶ 6, 31. Alliance further alleges that
the Reimbursement Provisions and Recoupment Bar raise consumer costs for vehicles
and related repairs and products, insulate dealers from competition with independent
repair shops, and reward dishonest and inefficient dealers. Id. ¶¶ 7, 32.
III.

STANDARD OF REVIEW
A.

Subject Matter Jurisdiction

A case is properly dismissed for lack of subject matter jurisdiction under Rule
12(b)(1) if the district court lacks the statutory or constitutional power to adjudicate the
case. Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir.2008). Although the
court takes all facts alleged in the complaint as true, subject matter jurisdiction must be
shown affirmatively, and that showing is not made by drawing from the pleadings
inferences favorable to the party asserting jurisdiction. Id. Hence, on a Rule 12(b)(1)
motion, unlike a Rule 12(b)(6) motion, the plaintiff bears the burden of proving by a
preponderance of the evidence that jurisdiction exists. Id. (citing Makarova v. United
States, 201 F.3d 110, 113 (2d Cir. 2000)).

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B.

Failure to State a Claim

A case is properly dismissed under Rule 12(b)(6) if the Complaint fails to allege
facts sufficient “to state a claim for relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 547 (2007). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). As articulated by the Supreme Court in Iqbal and Twombly, the standard for
dismissal on a 12(b)(6) motion reflects two working principles. See Pension Ben. Guar.
Corp. ex rel. St. Vincent Catholic Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt.
Inc., 712 F.3d 705, 717 (2d Cir. 2013). First, the court‟s customary acceptance of all
allegations in a complaint does not apply to legal conclusions. See Iqbal, 556 U.S. at
678. Hence, to survive a motion to dismiss, the Complaint must provide more than
“[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements.” Id. Second, assuming the truth of all well-pleaded factual
allegations, and drawing all reasonable inferences in the plaintiff‟s favor, the district
court must determine whether these allegations and inferences plausibly entitle the
plaintiff to relief—that is, whether the complaint shows “more than a sheer possibility
that a defendant has acted unlawfully.” Id. This second task is context-specific and
“requires the reviewing court to draw on its judicial experience and common sense.” Id.
at 679.
IV.

DISCUSSION
Alliance‟s four-count Complaint challenges the constitutionality of the 2009

Amendments both on their face and as applied. Compl. ¶ 1. Counts One and Two
allege, respectively, that the Reimbursement Provisions violate the Contracts,
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Commerce, and Due Process Clauses of the U.S. Constitution, id. ¶¶ 51-56, and that
the Recoupment Bar violates the Commerce and Contracts Clauses, id. ¶¶ 57-59. In
Count Three, Alliance seeks a declaration that, under Connecticut law, measures
adopted by Members in response to the economic burden imposed by the
Reimbursement Provisions do not run afoul of the Recoupment Bar unless they seek to
recover specific, identifiable costs. Id. ¶¶ 60-64. Count Four alleges that the
Reimbursement Provisions and the Recoupment Bar deprive Members of constitutional
rights under color of state law in violation of 42 U.S.C. § 1983. Id. ¶¶ 65-66.
The Commissioner moves the court to dismiss the Complaint on several
grounds. With respect to Counts One and Two, the Commissioner argues: (1) Alliance
lacks standing to challenge the Recoupment Bar; (2) the constitutional claims are not
ripe for adjudication; (3) the court should apply Pullman or Burford abstention; and (4)
Alliance has failed to state plausible claims for relief. With respect to Counts Three and
Four, the Commissioner argues that, conditional upon the court‟s dismissal of Counts
One and Two, the court should also dismiss Alliance‟s section 1983 claim, which is
derivative of the claims in those other two counts, and should decline to exercise
supplemental jurisdiction over the remaining state law claim in Count Three.
Where, as in the instant case, a motion to dismiss is made on the ground that the
court lacks subject matter jurisdiction as well as on other grounds, the court should
consider the Rule 12(b)(1) challenge first, since lack of subject matter jurisdiction may
render the other challenges moot. See Rhulen Agency, Inc. v. Alabama Ins. Guar.
Ass'n, 896 F.2d 674, 678 (2d Cir.1990); 5B Charles Alan Wright et al., Federal Practice
and Procedure § 1350 (3d ed. 2013) (“[W]hen the motion [to dismiss] is based on more

7

than one ground, the cases are legion stating that the district court should consider the
Rule 12(b)(1) challenge first because if it must dismiss the complaint for lack of subject
matter jurisdiction, the accompanying defenses and objections become moot and do not
need to be determined by the judge.”). Standing and ripeness implicate the court‟s
jurisdiction. The court, therefore, considers these issues at the outset—along with the
discretionary doctrines of abstention—before addressing whether Alliance has stated
plausible claims for relief under Rule 12(b)(6).
The court holds as follows: (1) with respect to Alliance‟s facial challenge, the
threshold criteria of subject matter jurisdiction are met, and abstention is unwarranted;
(2) Alliance‟s purported as-applied challenge is dismissed for lack of supporting
allegations that would permit the court to determine standing and ripeness; (3) Counts
One and Two are dismissed for failure to state plausible constitutional claims; (4) Count
Four, which alleges injury under section 1983 due to the constitutional claims in Counts
One and Two, is likewise dismissed; and, (5) in the absence of any remaining federal
claims, the court declines to exercise supplemental jurisdiction over Count Three, which
seeks declaratory relief concerning the scope of application of the Recoupment Bar
under state law.
A.

Standing

A plaintiff association, such as Alliance, has standing “to bring suit in its own
name on behalf of its members if: „(a) its members would otherwise have standing to
sue in their own right; (b) the interests it seeks to protect are germane to the
organization's purpose; and (c) neither the claim asserted nor the relief requested
requires the participation of individual members in the lawsuit.‟” Bldg. & Const. Trades
Council of Buffalo, New York & Vicinity v. Downtown Dev., Inc., 448 F.3d 138, 144 (2d
8

Cir. 2006) (quoting Hunt v. Washington State Apple Adver. Comm'n, 432 U.S. 333, 343
(1977)). Under the first prong of the analysis, an individual member of the plaintiff
association has standing to sue if: “(1) it has suffered an „injury in fact‟ that is (a)
concrete and particularized and (b) actual or imminent, not conjectural or hypothetical;
(2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is
likely, as opposed to merely speculative, that the injury will be redressed by a favorable
decision.” Id. (quoting Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc.,
528 U.S. 167, 180-81 (2000) (citing Lujan v. Defenders of Wildlife, 504 U.S 555, 560-61
(1992))). “The injury-in-fact necessary for standing need not be large, an identifiable
trifle will suffice.” LaFleur v. Whitman, 300 F.3d 256, 270 (2d Cir. 2002) (citation and
internal quotation marks omitted). However, vague intentions to engage in prohibited
activity “someday”—without any description of concrete plans—do not support a finding
of “actual or imminent” injury. See Lujan, 504 U.S. at 564.
In the Complaint, Alliance alleges that the 2009 Amendments have inflicted
significant economic harm on Members, exposing them to civil liability for exercising
contractual rights, and causing them to incur higher costs from doing business in
Connecticut by generating numerous requests from in-state dealers for additional
reimbursement payments. Compl. ¶¶ 6, 31. There is no question that this pecuniary
injury suffices to support Alliance‟s standing in general as an association representing
Members‟ interests. The question is only whether this pecuniary injury also suffices to
support Alliance‟s standing to bring the particular claims asserted here. The court
concludes that it does.

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While the Commissioner does not contest Alliance‟s standing to challenge the
Reimbursement Provisions on the basis of the alleged economic harm to Members, the
Commissioner argues that that basis does not support Alliance‟s standing to challenge
the Recoupment Bar. See Def.‟s Mem. in Supp. of Mot. to Dismiss (“Def.‟s Mem.”)
(Doc. No. 32-1) at 17-18. In particular, Alliance is said to lack standing because its
Members do not meet the “injury in fact” prerequisite of individual standing. Id. The
Complaint alleges only that, absent the Recoupment Bar, Members would “consider”
imposing surcharges or modifying benefit programs. Compl. ¶¶ 40-41, 61-62 (emphasis
added). According to the Commissioner, these allegations do not amount to “concrete
plans,” as required by Lujan. See Def.‟s Mem. at 18.
The pecuniary injury to Members, however, has two interrelated parts: (1) the
higher costs; and (2) the inability to recover those costs. As alleged in the Complaint,
Members would not necessarily bear the costs but for the Recoupment Bar, which
prohibits intentionally recovering these increased costs by various contractual means.
Id. ¶ 2. The fact that Members sustain the alleged economic harm because they are
unable to adopt previously lawful measures for recovering such costs suffices to support
Alliance‟s standing to pursue its constitutional claims with respect to the Recoupment
Bar. Hence, independently of whether the Complaint states plausible claims for relief,
the CompIaint adequately alleges an “injury in fact” sufficient to satisfy the threshold
requirements of standing to bring these claims. It would be strange, to say the least, to
permit Alliance to challenge the Reimbursement Provisions, but not the Recoupment
Bar, based on the alleged pecuniary injury to Members, when that injury is itself alleged
to result from the different components of the law working in tandem.

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B.

Ripeness

Ripeness is not one doctrine, but two, “constitutional ripeness” and “prudential
ripeness,” which entail distinct inquiries. Simmonds v. I.N.S., 326 F.3d 351, 356-59 (2d
Cir. 2003); see also Nat'l Park Hospitality Ass'n v. Dep't of Interior, 538 U.S. 803, 808
(2003) (“The ripeness doctrine is drawn both from Article III limitations on judicial power
and from prudential reasons for refusing to exercise jurisdiction.” (citations and internal
quotation marks omitted)). In the present Motion, the Commissioner argues that Counts
One and Two should be dismissed because Alliance‟s claims are neither constitutionally
nor prudentially ripe for adjudication. See Def.‟s Mem. at 9-14. Only the absence of
constitutional ripeness implicates the court‟s jurisdiction. Simmonds, 326 F.3d at 357.
The court, therefore, addresses that issue first.
1.

Constitutional Ripeness

Like standing, constitutional ripeness is a limit on the power of the judiciary
rooted in the Case or Controversy Clause of Article III. Id. at 357. “It prevents courts
from declaring the meaning of the law in a vacuum and from constructing generalized
legal rules unless the resolution of an actual dispute requires it.” Id. Constitutional
ripeness overlaps with standing, insofar as a case is premature for review if the
plaintiff‟s injury is merely speculative and may never occur, depending on some final
administrative resolution. See New York Civil Liberties Union v. Grandeau, 528 F.3d
122, 130 n.8 (2d Cir. 2008) (“Standing and ripeness are closely related doctrines that
overlap most notably in the shared requirement that the plaintiff's injury be imminent
rather than conjectural or hypothetical.” (citation, alteration, and internal quotation marks
omitted)); Nat'l Org. for Marriage, Inc. v. Walsh, 714 F.3d 682, 688 (2d Cir. 2013)

11

(“Often, the best way to think of constitutional ripeness is as a specific application of the
actual injury aspect of Article III standing.”)
Having concluded that Alliance has standing to bring the claims asserted in this
action, the court has no trouble determining that Alliance‟s claims are also
constitutionally ripe. Alliance has alleged not future or speculative harm, but present
harm to Members resulting from the challenged provisions of state law. See, e.g.,
Compl. ¶¶ 2, 6, 31.
The Commissioner‟s arguments to the contrary go to the merits of Alliance‟s
claims, and not to the absence of a case or controversy. Alliance‟s allegation that, to
comply with state law, Members must bear higher costs and refrain from exercising
previously lawful means of recovering these costs squarely presents “a real, substantial
controversy, not a mere hypothetical question.” AMSAT Cable Ltd. v. Cablevision of
Conn., 6 F.3d 867, 872 (2d Cir.1993) (citation and internal quotation marks omitted).
There is, moreover, no uncertainty that the declaratory relief sought would redress the
alleged injury. Hence, regardless of whether the Complaint states plausible claims for
relief under Rule 12(b)(6), the claims satisfy the ripeness required by Article III.
2.

Prudential Ripeness

The real issue of ripeness raised by the Commissioner is one of prudential
ripeness—that is, not whether Alliance has adequately alleged a case or controversy,
but whether the existing controversy will be more definitely presented for sound
judgment by the court at a future date. Simmonds, 326 F.3d at 357. Akin to
discretionary doctrines of abstention, like the Pullman and Burford doctrines, prudential
ripeness “constitutes an important exception to the usual rule that where jurisdiction
exists a federal court must exercise it.” Id. In determining whether a dispute is
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prudentially ripe, the court must consider a variety of factors, including the likelihood
that a plaintiff will be made worse off on account of the delay. Id.
Where a plaintiff challenges a state‟s regulatory scheme, courts typically engage
in a two-step ripeness inquiry, evaluating: (1) the fitness of the issues for judicial
decision; and (2) the hardship to the parties that would result from withholding judicial
resolution. See New York Civil Liberties Union v. Grandeau, 528 F.3d 122, 132 (2d Cir.
2008) (citing Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)). Issues are “fit for
judicial decision” when “they would not benefit from any further factual development and
when the court would be in no better position to adjudicate the issues in the future than
it is now.” Simmonds, 326 F.3d at 359 (citing Whitman v. Am. Trucking Ass‟ns, 531
U.S. 457, 479 (2001)). In assessing possible hardship to the parties from withholding
judicial resolution, courts ask “whether the challenged action creates a direct and
immediate dilemma for the parties.” Id. at 360 (citation and internal quotation marks
omitted).
The lynchpin of Alliance‟s Complaint is that dealers‟ retail rates, which are
presumed to be fair and reasonable under the Reimbursement Provisions, see Conn.
Gen. Stat. §§ 42-133s(b)-(c), exceed the rates for warranty repairs set out in Dealer
Agreements, because the latter rates reflect discounts for volume, predictability, and
other benefits to dealers from providing warranty repairs, see Compl. ¶ 30. Alliance
claims, inter alia, that the Reimbursement Provisions require warranty rates to be set at
or above dealers‟ retail rates, id., and that, as a result, Members have received
numerous requests for additional reimbursement from in-state dealers and incurred
substantially higher costs from doing business in Connecticut, id. ¶ 31.

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The Commissioner counters that the Reimbursement Provisions do not require
reimbursement at above-contract rates. See Def.‟s Mem. at 10-11. On the
Commissioner‟s reading of the statute, a manufacturer need pay above-contract rates
only if the manufacturer fails to reach a negotiated resolution with a given dealer and
receives an adverse determination from the Commissioner interpreting the “fair and
reasonable” standard to dictate the higher rates. See id. at 11. As attested by the
Division Manager of Administrative Hearings for the Department of Motor Vehicles,
none of this has yet happened. See Payne Aff. (Doc. No. 32-2) ¶¶ 3-4. Only one
protest has been filed, and it was withdrawn after the parties resolved the matter on
their own. Id. ¶ 3.
a.

Fitness for Judicial Resolution

Alliance challenges the 2009 Amendments both on their face and as applied.
See Compl. ¶ 1. A pre-enforcement challenge to the facial validity of a law is normally
fit for judicial review as of the law‟s enactment, because such challenges involve purely
legal questions requiring no special agency expertise. See Nutritional Health Alliance v.
Shalala, 144 F.3d 220, 227 (2d Cir. 1998); see also Suitum v. Tahoe Reg'l Planning
Agency, 520 U.S. 725, 736 n.10 (1997); United States v. Quinones, 313 F.3d 49, 59 (2d
Cir. 2002). In contrast, as-applied challenges may well benefit from further
development of the factual context in administrative proceedings. See, e.g., Pennell v.
City of San Jose, 485 U.S. 1, 10 (1988).
i.

Fitness of Alliance‟s As-Applied Challenge for Review. Notwithstanding the

Complaint‟s reference to an as-applied challenge, and plaintiff‟s counsel‟s claim of such
at oral argument, no as-applied challenge is properly before the court because Alliance
has yet to plead facts supporting such a challenge. For standing and constitutional
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ripeness purposes, the Complaint adequately alleges an injury-in-fact resulting from the
law‟s present effects on Members‟ commercial activities. See Sections IV.A & IV.B,
supra. However, Alliance does not allege any unconstitutional application of the law
apart from the general applicability of the law to all manufacturers who transact
business with in-state dealers.
The as-applied challenge is, therefore, effectively a facial challenge. As Alliance
observes, the distinction between facial and as-applied challenges “goes to the breadth
of the remedy employed by the Court, not what must be pleaded in a complaint.” See
Pl.‟s Opp‟n at 27 n.3 (quoting Citizens United v. F.E.C., 558 U.S. 310, 331 (2010)).
Here, however, unlike in Citizens United, there is no narrower, as-applied challenge
framed for the court‟s review. Given the allegations in Alliance‟s Complaint, declaring
the 2009 Amendments unconstitutional as applied to Members is indistinguishable from
declaring the 2009 Amendments facially invalid as a state regulation of the dealermanufacturer relationship.
It bears emphasizing that, although, in the court‟s view, no as-applied challenge
is present in the instant case, a well-pleaded, narrower as-applied challenge may well
pose prudential ripeness concerns. Absent any action by the Commissioner, the court
cannot discern what as-applied challenges may exist. Indeed, while Alliance or its
Members may wish to challenge particular applications of the CFA, with respect to
some of these challenges, action by the Commissioner may well be necessary to
facilitate sound judgment by this court. Moreover, Alliance has associational standing to
bring only challenges that require no Member to participate individually in the litigation.
See Bldg. & Const. Trades Council, 448 F.3d at 144 (citations omitted).

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In the absence of pleadings supporting an as-applied challenge, the court cannot
assess the need for individual Members to participate in the lawsuit or the prudence of
delay to permit development of the issues in administrative proceedings. Hence, to the
extent that Alliance purports to bring a separate as-applied challenge, that challenge is
hereby dismissed, because it has not been sufficiently pleaded to permit the court to
make the requisite threshold determinations of standing and ripeness.
ii. Fitness of Alliance‟s Facial Challenge for Review. A pre-enforcement facial
challenge to a law is generally fit for review as of the law‟s enactment. See Suitum, 520
U.S. at 736 n.10; Gardner v. Toilet Goods Ass'n, 387 U.S. 167, 170-72 (1967). The
Commissioner argues, however, that the issues presented would benefit from allowing
her the opportunity to interpret and apply the challenged provisions “on a case-by-case
basis.” See id. at 12. The court disagrees. The statute affords the Commissioner a
limited role in resolving rate disputes. Because the issues in this case are neither
contingent on, nor likely to be sharpened by, recourse to the Commissioner, they are fit
for this court‟s review.
In determining whether Alliance‟s facial challenge is fit for review, the court
preliminarily construes the challenged provisions of state law. In so doing, the court is
guided by several well-settled precepts of statutory construction in Connecticut.1 See,
e.g., Republican Party of Connecticut v. Merrill, 307 Conn. 470, 488-89 (2012). The
fundamental objective of the court‟s statutory construction is “to ascertain and give

1

Federal courts should exercise caution in interpreting state statutes. See Collette v. St. Luke's
Roosevelt Hosp., 132 F. Supp. 2d 256, 267 (S.D.N.Y. 2001). A federal court may look, in particular, to
the state‟s approach to statutory construction where such an approach is relevant in predicting how the
state would construe its own statutes. See Beason v. United Technologies Corp., 337 F.3d 271, 275-76
(2d Cir. 2003). Here, as in Beason, the Connecticut Supreme Court has not directly addressed the issues
before this court, but that Court‟s precedent on statutory construction provides direction. Id.

16

effect to the apparent intent of the legislature.” Id. Under the “plain meaning rule” of
section 1-2z of the Connecticut General Statutes,
[t]he meaning of a statute shall, in the first instance, be ascertained from
the text of the statute itself and its relationship to other statutes. If, after
examining such text and considering such relationship, the meaning of
such text is plain and unambiguous and does not yield absurd or
unworkable results, extratextual evidence of the meaning of the statute
shall not be considered.
Conn. Gen. Stat. § 1-2z. Only if “examination of the text of the applicable statute and
related statutes yields an ambiguity” will the court “resort to extratextual sources, such
as the legislative history and circumstances surrounding the statute's enactment.”
Cordero v. Univ. of Connecticut Health Ctr., 308 Conn. 215, 225 (2013). “The test to
determine ambiguity is whether the statute, when read in context, is susceptible to more
than one reasonable interpretation.” Bennett v. New Milford Hosp., Inc., 300 Conn. 1,
11 (2011).
As amended in 2009, the CFA sets out, inter alia, procedures for determining
“fair and reasonable” reimbursement for warranty services and for resolving rate
disputes between manufacturers and dealers. See Conn. Gen. Stat. §§ 42-133s.
Under subsections (b) and (c), the respective warranty rates for parts and labor are
declared by a dealer based on the rates charged by the dealer for similar nonwarranty
services during the period immediately preceding the dealer‟s submissions to the
manufacturer. Id. §§ 42-133s(b) & (c). Although the dealer‟s declared rates are
presumed to be “fair and reasonable,” a manufacturer may rebut that presumption and
propose a modified rate. Id. A dealer who disagrees with the proposed modification
may then file a protest with the Commissioner, who will hold a hearing pursuant to the
statute, at which hearing the manufacturer bears the burden of proof. Id.
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According to the Commissioner, the issues here are unfit for review because, in
the absence of protests, the Commissioner has yet to interpret and apply the “fair and
reasonable” standard. See Def.‟s Mem. at 12-13. The Reimbursement Provisions,
however, prescribe one method by which manufacturers may, in the first instance, rebut
the statutory presumption supporting a dealer‟s proposed rate—namely, “by reasonably
substantiating that the rate is unfair and unreasonable in light of the practices of all
other franchised motor vehicle dealers in the vicinity offering the same line-make
vehicles.” Conn. Gen. Stat. §§ 42-133s(b) & (c). A proposed modification by the
manufacturer is to be “based on [this] rebuttal.” Id. Moreover, in any subsequent
administrative proceeding, the manufacturer bears “the burden of proving that the rate
declared by the dealer was unfair and unreasonable as described in this subsection and
that the proposed adjustment . . . is fair and reasonable pursuant to the provisions of
this subsection.” Id. (emphasis added). The phrases limiting the manner in which the
manufacturer may carry its burden of proof indicate the legislature‟s clear intent to bar
extra-statutory grounds for disputing dealer‟s proposed rates.
The Commissioner contends that the phrase “in light of” leaves open her
consideration of other unenumerated factors. This construction ignores the plain
meaning of the statutory language in context and is inconsistent with the intent of the
legislature, as embodied in the text of these and related provisions of the CFA.
First, the phrase “in light of” is used in context to specify how a manufacturer may
rebut the dealer‟s proposed rates: if the manufacturer so chooses, it may reasonably
substantiate that the dealer‟s rates are “unfair and unreasonable in light of the practices”
of vicinity dealers. Id. The phrase “in light of”—which bears its ordinary sense of “in

18

consideration of” or “in relationship to,” Webster‟s II New College Dictionary 634 (1995),
or “in view of,” Webster‟s Third New International Dictionary, 1308 (1981), see also
Oxford English Dictionary, www.oed.com (“with the help afforded by knowledge of
(some fact)”)—precedes the single explicit statutory basis of rebuttal. The legislature
could have provided other associated grounds of rebuttal like cost or profit margins, but
it chose not to do so. Under the doctrine of expressio unius est exclusio alterius, the
court infers that such connected, but unmentioned grounds of rebuttal were excluded.
See State v. Bell, 303 Conn. 246, 265 (2011); 2A Norman J. Singer & J.D. Shambie
Singer, Sutherland Statutory Construction § 47:23 (7th ed. 2012). Indeed, subsections
(b) and (c), in which the phrase appears, expressly limit the manufacturer to the
description of “fair and reasonable” provided in those subsections. Id. Hence, on the
court‟s reading of the plain language of the statute, there is no legal basis for the
manufacturer to argue about cost or profit margins either to the dealer, in response to
the dealer‟s declared rates, or to the Commissioner, in “any hearing held pursuant to”
subsections (b) and (c). Id.
As evident in the text of these and related provisions, the legislature‟s intent was
to increase warranty reimbursement payments to dealers by using dealers‟ retail rates,
whether the retail rates are those declared by a given dealer or those of all vicinity
dealers. Id. In fact, subsection (d) excludes a variety of low-cost or discounted
nonwarranty repairs from the calculation of the dealer‟s declared rates. Id. § 42133s(d). Similarly, subsection (e) requires manufacturers to reimburse dealers for parts
at the statutory rate—based on average percentage markup—even for parts provided
by the manufacturer at no cost to the dealer. Id. § 42-133s(e). Subsection (g)—also

19

known as the Recoupment Bar—expressly prohibits manufacturers from intentionally
recovering costs from Connecticut dealers. Id. § 42-133(f). Together, these sections
demonstrate that the legislature not only intended to use dealers‟ retail rates as the
basis for warranty reimbursement, but also plainly contemplated that, in maximizing
reimbursement to dealers, higher costs would be borne by manufacturers.
Finally, it bears emphasizing that the administrative hearing is a statutory remedy
afforded to the dealer, not the manufacturer. Under subsections (b) and (c), the
manufacturer is entitled to rebut the statutory presumption supporting the dealer‟s
declared rates by substantiating that those rates are unfair in light of the practices of
vicinity dealers and to propose a modified rate on that basis. Id. §§ 42-133s(b) & (c).
However, only the dealer has the right to institute proceedings before the Commissioner
by filing a protest, even though the manufacturer ultimately bears the burden of proof in
such proceedings. Id.
Given the absence of non-statutory grounds of rebuttal, Alliance‟s claims here
are not contingent on, nor are they likely to be obviated by, factual development or
agency interpretation in administrative proceedings. Alliance‟s claims are premised
only on the alleged disparity between rates in preexisting Dealer Agreements and
dealers‟ nonwarranty rates in general. See Compl. ¶ 2. The claims have nothing to do
with discrepancies between a particular dealer‟s rates and those of vicinity dealers.
What Alliance challenges, then, is not something committed to the Commissioner‟s
discretion under section 42-133s, but something dictated by the legislature—that is, the
use of dealers‟ retail rates (or the “practices” of all other motor vehicle dealers in the
vicinity) as the statutory basis for determining compensation for warranty repairs. The

20

use of those rates reflects a legislative judgment that nonwarranty rates are fair and
reasonable. The fact that the Commissioner is empowered to resolve some disputes
does not empower her to alter this legislative judgment. Hence, requiring Alliance to
await the Commissioner‟s case-by-case elaboration of the “fair and reasonable”
standard will not refine for the court‟s review the constitutional injury alleged in this case
and for which Alliance seeks judicial relief.
Alliance‟s challenge to the facial validity of the 2009 Amendments is, therefore, fit
for review. Of course, to succeed on this challenge, Alliance must prove that no set of
circumstances exist under which the challenged provisions would be valid. See United
States v. Salerno, 481 U.S. 739, 745 (1987). Facial challenges to legislative
enactments are, for that very reason, the most difficult type of challenge to mount
successfully. Id.
b.

Possible Hardship to Members

As the Commissioner points out, the Reimbursement Provisions do not penalize
Members who seek to rebut a dealer‟s proposed rates. See Def.‟s Mem. at 13. The
hardship to Members from delaying judicial resolution comes from other sources. In
particular, Alliance alleges that Members have incurred significantly higher costs of
doing business in Connecticut and have foregone options for mitigating these costs as a
result of the 2009 Amendments. See Compl. ¶¶ 2, 6, 31, 35-37.
In assessing possible hardship, courts ask whether the challenged provisions
create “a direct and immediate dilemma for the parties.” Grandeau, 528 F.3d at 134
(quoting Marchi v. Bd. of Coop. Educ. Servs. of Albany, 173 F.3d 469, 478 (2d Cir.
1999)). Based on the allegations in the Complaint, Members must choose whether to
comply with the law, reimbursing dealers at allegedly above-contract rates, see Compl.
21

¶ 2, or to violate the law, risking civil liability, see Conn. Gen. Stat. § 42-133ee
(authorizing damages actions for CFA violations). Given the likelihood of continuing
hardship to Members, and the fitness of Alliance‟s claims for review, delaying judicial
review is unwarranted.
Having determined that Alliance‟s facial challenge is both constitutionally and
prudentially ripe, the court addresses the propriety of applying either Pullman or Burford
abstention to this case.
C.

Abstention

Abstention doctrines are “extraordinary and narrow exceptions to a federal
court‟s duty to exercise its jurisdiction.” Niagara Mohawk Power Corp. v. Hudson RiverBlack River Regulating Dist., 673 F.3d 84, 100 (2d Cir. 2012) (citing Woodford v. Cmty.
Action Agency of Greene Cnty., Inc., 239 F.3d 517, 522 (2d Cir. 2001)) (internal
quotation marks omitted). Based on much the same analysis as in Section IV.B.2,
supra, the court concludes that abstention is not justified and would lead to needless
delay.
1.

Pullman

Pullman abstention stems from the concern that “a federal court will be forced to
interpret state law without the benefit of state-court consideration and therefore under
circumstances where a constitutional determination is predicated on a reading of the
statute that is not binding on state courts and may be discredited at any time—thus
essentially rendering the federal-court decision advisory and the litigation underlying it
meaningless.” Moore v. Sims, 442 U.S. 415, 428 (1979). “Abstention under the
Pullman doctrine may be appropriate when three conditions are met: (1) an unclear
state statute is at issue; (2) resolution of the federal constitutional issue depends on the
22

interpretation of the state law; and (3) the law is susceptible to an interpretation by a
state court that would avoid or modify the federal constitutional issue.” Vermont Right to
Life Comm., Inc. v. Sorrell, 221 F.3d 376, 385 (2d Cir. 2000) (citation and internal
quotation marks omitted).
However, the doctrine is one of discretion. “Satisfaction of all three criteria does
not automatically require abstention.” Id. Indeed, “important federal rights can outweigh
the interests underlying the Pullman doctrine.” Id. (citation, alterations, and internal
quotation marks omitted). In applying Pullman abstention, courts must bear in mind that
the balance is to be “heavily weighted in favor of the exercise of jurisdiction.” Moses H.
Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 2 (1983).
In the present case, Alliance alleges violations of federal constitutional rights.
The Commissioner argues that abstention is warranted because of the uncertainty as to
how the Commissioner will interpret and apply the “fair and reasonable” standard under
state law. The court disagrees. Regardless of the merits of Alliance‟s claims, a
plaintiff‟s decision to bring suit in federal court to vindicate federal rights, over which this
court has clear jurisdiction, is not to be disregarded lightly. While terms like “fair” and
“reasonable” may be “inherently flexible,” Def.‟s Mem. at 15, these terms are not
inherently ambiguous. The Connecticut legislature has given the terms a clear meaning
in the context of the statutory scheme. See Section IV.B.2.a.ii, supra.
It is true that, in Count Three of the Complaint, Alliance also seeks a declaration
that the state‟s Recoupment Bar only prohibits business decisions which entail the
recovery of specific, identifiable costs. The Commissioner argues that Alliance thereby
concedes, in effect, that its federal claims hinge on the interpretation of state law or,

23

alternatively, that Count Three is baseless. See Def.‟s Mem. at 16; Def.‟s Reply (Doc.
No. 45) at 6. In the court‟s view, there is no necessary inconsistency between Alliance‟s
claim that the Recoupment Bar abrogates contractual rights, see Pl.‟s Opp‟n at 14, and
the sought declaration, under state law, that some business decisions are nevertheless
not foreclosed, see Compl. ¶ 64.
Admittedly, whether the Recoupment Bar leaves open any contractual means of
mitigating the economic harms alleged in this case is a matter of state law. Confronted
with a particular application of the Recoupment Bar, a state court employing the canon
of constitutional avoidance may well provide a limiting construction.2 Yet such a limiting
construction would not avoid Alliance‟s facial challenge here.
The Recoupment Bar reads:
A manufacturer or distributor may not otherwise recover its costs from
dealers within this state, including an increase in the wholesale price of a
vehicle or surcharge imposed on a dealer solely intended to recover the
cost of reimbursing a dealer for parts and labor pursuant to this section,
provided a manufacturer or distributor shall not be prohibited from
increasing prices for vehicles or parts in the normal course of business.
Conn. Gen. Stat. Ann. § 42-133s(g). Based on the text alone, price increases in the
ordinary course of business are permitted. Many, if not all, otherwise contractually
permissible cost-recovery methods—including the surcharges expressly contemplated
by Members, see Compl. ¶ 40—are unequivocally prohibited. Whether the
Recoupment Bar makes it unlawful, in addition, for Members to modify benefit or
incentive programs on the basis of multiple factors, only one of which is in-state costs
from warranty reimbursement payments to dealers, presents a closer question of state

2

Unlike a state court, a federal court may not impose a limiting construction on a state statute
unless such a construction is readily apparent. See Tunick v. Safir, 209 F.3d 67, 76 (2d Cir. 2000).

24

law. Yet, however a state court might rule on that question, the instant challenge to the
facial validity of the 2009 Amendments will not be avoided.3 Even assuming Members
were permitted to modify some benefit programs in some circumstances, the issue in
the instant case would remain whether the 2009 Amendments—to the extent that they
raise costs for manufacturers and bar otherwise lawful means of recovering those
costs—are facially constitutional.
While Connecticut courts are the ultimate expositor of the meaning of
Connecticut law, and are likewise capable of adjudicating Alliance‟s claims here,
including its federal constitutional claims, Alliance chose to institute suit in this forum.
The court will not disturb that choice, absent a determination that the state statute at
issue is unclear and susceptible of an interpretation by a state court that would avoid of
modify the constitutional issues presented by Alliance‟s facial challenge. Having
concluded that the state statutory construction will not alter the gravamen of Alliance‟s
facial federal constitutional attack, the court declines to apply Pullman abstention.
2.

Burford

The aim of Burford abstention is to “avoid resolving difficult state law issues
involving important public policies or avoid interfering with state efforts to maintain a
coherent policy in an area of comprehensive regulation or administration.” Bethphage
Lutheran Serv., Inc. v. Weicker, 965 F.2d 1239, 1243 (2d Cir. 1992) (quoting Am.
Disposal Servs., Inc. v. O'Brien, 839 F.2d 84, 87 (2d Cir. 1988)). Under Burford, a
federal court should decline to exercise its equitable jurisdiction to interfere with state
3

Notably, neither party has asked the court in their briefs to certify the question to the
Connecticut Supreme Court. See Conn. Gen. Stat. § 51-199b(d) (“The Supreme Court may answer a
question of law certified to it by a court of the United States . . . if the answer may be determinative of an
issue in pending litigation in the certifying court and if there is no controlling appellate decision,
constitutional provision or statute of this state.”).

25

administrative or judicial proceedings if it determines that: (1) there are “difficult
questions of state law bearing on policy problems of substantial public import whose
importance transcends the result in the case then at bar,” New Orleans Pub. Serv., Inc.
v. Council of City of New Orleans, 491 U.S. 350, 361 (1989) (“NOPSI”); or (2) federal
review in such cases will disrupt “state efforts to establish a coherent policy with respect
to a matter of substantial public concern,” id. In applying Burford abstention, courts in
this Circuit consider: (1) the degree of specificity of the state regulatory scheme; (2) the
necessity of discretionary interpretation of state statutes; and (3) whether the subject
matter of the litigation is traditionally one of state concern. Weicker, 965 F.2d at 1243.
Undoubtedly, the regulation of automobile manufacturers represents an
important, albeit not exclusive, area of state regulation. However, there are no pending
state administrative or judicial proceedings with which this court‟s decision could
interfere. Moreover, as the court already noted in Section IV.B.2, supra, the 2009
Amendments do not necessitate discretionary interpretation by the Commissioner to be
susceptible of federal review. Indeed, Alliance is attacking not discrete actions by the
Commissioner, but the statutory scheme itself, as amended in 2009. Cf. Tenoco Oil
Co., Inc. v. Dep't of Consumer Affairs, 876 F.2d 1013, 1029 n.23 (1st Cir. 1989)
(“Burford abstention does not apply . . . when the effect of an entire state regulatory
scheme is challenged as unconstitutional.”); Hickerson v. City of New York, 932 F.
Supp. 550, 557 (S.D.N.Y. 1996). Although the longstanding CFA as a whole is not
before the court, the 2009 Amendments set forth a specific policy with respect to
warranty reimbursement rates, the details of which have already been formulated.

26

“Burford is concerned with protecting complex state administrative processes
from undue federal interference.” NOPSI, 491 U.S. at 362. Candidates for Burford
abstention typically are cases in which the state has delegated oversight of a scheme
involving both statutes and regulations to a state agency in partnership with state
courts. See, e.g., Berman Enterprises, Inc. v. Jorling, 3 F.3d 602, 608 (2d Cir. 1993);
Law Enforcement Ins. Co., Ltd. v. Corcoran, 807 F.2d 38, 43 (2d Cir. 1986) (“The New
York courts have long been active partners in the state's regulatory plan.”). Here, the
court faces the bare statute. The parties point to no relevant precedent, administrative
decisions, or agency rulemaking with which construction of the statute would
necessarily be intertwined. Under the new law, the Commissioner is authorized to
resolve certain disputes. The state, however, has not delegated to her and/or state
courts the task of fleshing out an elaborate regulatory scheme.
In sum, the policy challenged by Alliance has already been formulated to a
degree sufficient to permit review of Alliance‟s claims. Federal review will not impede
the state‟s ability to formulate a coherent policy in an area of substantial import, such a
policy having already been formulated. Hence, Burford abstention, like Pullman
abstention, is unwarranted.
D.

Failure to State a Claim in Counts One and Two

The Commissioner moves the court to dismiss this action, not only on
jurisdictional and abstention grounds, but on additional grounds under Rule 12(b)(6). In
particular, the Commissioner argues that Alliance fails to state plausible constitutional
claims in Counts One and Two and that the remaining claims either are derivative of
these claims or pertain to issues exclusively of state law, over which the court should

27

decline to exercise supplemental jurisdiction in the absence of any remaining federal
claims.
At the motion to dismiss stage, the court bears in mind its restricted focus on the
legal sufficiency of the Complaint, taking the factual allegations therein to be true and
drawing all reasonable inferences in the plaintiff's favor. Harris v. Mills, 572 F.3d 66, 71
(2d Cir. 2009).
1.

Contract Clause

The U.S. Constitution bars states from passing legislation “impairing the
Obligation of Contracts.” U.S. Const art. I, § 10. Although “facially absolute,” the
Contract Clause
does not trump the police power of a state to protect the general welfare of
its citizens, a power which is paramount to any rights under contracts
between individuals. Rather, courts must accommodate the Contract
Clause with the inherent police power of the state to safeguard the vital
interests of its people.
Buffalo Teachers Fed'n v. Tobe, 464 F.3d 362, 367 (2d Cir. 2006) (citations, alterations,
and internal quotation marks omitted). “To determine if a law trenches impermissibly on
contract rights, [courts in this Circuit] pose three questions to be answered in
succession: (1) is the contractual impairment substantial and, if so, (2) does the law
serve a legitimate public purpose such as remedying a general social or economic
problem and, if such purpose is demonstrated, (3) are the means chosen to accomplish
this purpose reasonable and necessary.” Id. at 368.
The allegations in Alliance‟s Complaint plausibly allege that the 2009
Amendments impair Members‟ contractual relationships with Connecticut dealers. The
threshold inquiry, however, is whether these allegations plausibly allege substantial

28

impairment. Energy Reserves Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400,
411 (1983). The court concludes that they do not.
“The primary consideration in determining whether the impairment is substantial
is the extent to which reasonable expectations under the contract have been disrupted.”
Sanitation and Recycling Indus., Inc. v. City of New York, 107 F.3d 985, 993 (2d
Cir.1997). “Impairment is greatest where the challenged government legislation was
wholly unexpected.” Id. Where, as here, the industry has been heavily regulated, and
regulation of contracts is therefore foreseeable, a party‟s ability to prevail on its Contract
Clause challenge is greatly diminished. Id.; see also Sal Tinnerello & Sons, Inc. v.
Town of Stonington, 141 F.3d 46, 53 (2d Cir. 1998) (“If the plaintiff could anticipate,
expect, or foresee the governmental action at the time of contract execution, the plaintiff
will ordinarily not be able to prevail.”); Donohue v. Mangano, 886 F. Supp. 2d 126, 157
(E.D.N.Y. 2012) (“Of controlling importance in the determination of whether a law
violates the contracts clause is the foreseeability of the law when the original contract
was made; for what was foreseeable then will have been taken into account in the
negotiations over the terms of the contract.” (citation and internal quotation marks
omitted)).
At the motion to dismiss stage, the question is not whether Alliance will prevail on
the merits, but whether, under the circumstances of the industry and statutory scheme
at issue, Alliance has alleged facts sufficient to plausibly state a claim for relief. Even
under this liberal pleading standard, Alliance‟s Complaint fails because it alleges no
facts which, accepted as true, suggest that the 2009 Amendments were unforeseeable
to Members. Warranty reimbursement rates have long been governed by provisions of

29

the CFA similar in kind to the Reimbursement Provisions, if somewhat different in scope
and detail. See Pub. Act 82-445, §§ 2(a) & (b) (effective June 8, 1982). Hence, despite
drawing all inferences in Alliance‟s favor, the court determines that the Complaint does
not plausibly allege substantial impairment.
The pertinent contracts between Members and authorized dealers are embodied
in Dealer Agreements, which, with few exceptions, predate the 2009 Amendments.
Compl. ¶ 16.4 However, Alliance mischaracterizes the pre-2009 CFA as “merely
prohibit[ing] manufacturers from failing to „reasonably‟ compensate dealers for warranty
work.” Pl.‟s Opp‟n at 26. On the contrary, since 1982, the CFA has mandated specific
measures of warranty reimbursement rates, affirmatively tying these rates to what
dealers both charge and pay for nonwarranty work. See Pub. Act 82-445 § 2(b). Under
the regulatory regime prior to 2009, not only was the primary factor in determining
reasonableness “the prevailing wage rates being paid by dealers in the community in
which the dealer is doing business,” id.; it was also unlawful for a manufacturer to
reimburse a dealer for warranty work at an hourly labor rate “less than the rate charged
by such dealer for like service to nonwarranty customers, provided that the rate charged
to nonwarranty customers is reasonable,” id. (emphasis added).5

4

When exactly Dealer Agreements were formed is unclear on the face of the Complaint. Because
Alliance did not attach any examples of such Dealer Agreements to the Complaint, none are part of the
present record before the court.
5

Because the pre-2009 CFA already tied the minimum hourly labor rate for warranty repairs to
dealers‟ nonwarranty rates, there may well be, as the Commissioner argues, an issue as to whether
Dealer Agreements, which Alliance alleges contain rates significantly lower than those now required by
the 2009 Amendments, were void for violating prior state law. See Pl.‟s Reply at 8. However, that issue
is not properly before the court. The present inquiry is a narrow one: whether Alliance has plausibly
alleged “substantial impairment”—meaning, in this case, facts sufficient to suggest that the 2009
Amendments were unforeseeable, given the regulations in effect at the time of contracting. This inquiry
does not require determining whether Dealer Agreements were void, as formed.

30

The question to which the Complaint provides no answer is: what reasonable
expectation did Members have to be free of this sort of regulation of warranty
reimbursement rates, which Connecticut has regulated in some detail for decades? As
Judge Posner explained in a similar Seventh Circuit case, “what was foreseeable [at the
time of contracting] will have been taken into account in the negotiations over the terms
of the contract.” Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d 892, 894-95 (7th
Cir. 1998). In other words, the expected costs of foreseeable future regulation are
already presumed to be priced into the contracts formed under the prior regulation. Id.
at 895. Unless the 2009 Amendments were unforeseeable, the reasonable possibility of
such changes to the CFA was reflected in the terms of Dealer Agreements; hence,
invalidating the law would represent a windfall to Members. Id.
Standing alone, of course, a history of regulation is an insufficient basis on which
to reject a Contract Clause challenge. Id. A reading of the plain statutory language,
however, demonstrates the clear continuity here between the Reimbursement
Provisions and their precursor, which covers the same topic and shares the same overt
legislative intent to protect dealers. The pre-2009 CFA likewise incorporated dealers‟
nonwarranty rates as a baseline, albeit based on labor rates. Apart from the specific
methods for calculating dealers‟ rates, the largest differences under the 2009
Amendments are: (1) the shift to determining reasonableness (where disputed) by
reference to vicinity dealers‟ retail rates, rather than by reference to the wages paid by
such dealers; and (2) the addition of the Recoupment Bar.
While these changes to the CFA may adversely affect Members, they are
scarcely beyond the foreseeable scope of preceding regulation. The statutory minimum

31

for warranty labor reimbursement was already the dealer‟s retail rate—except in the
situation where that rate was unreasonable. See Pub. Act 82-445, § 2(b) (codified as
Conn. Gen. Stat. § 42-133s(b) (1982)). The 2009 Amendments follow this longstanding
statutory default in two interconnected ways: (1) by elaborating methods for calculating
declared retail rates and limiting possible avenues of rebuttal, Conn. Gen. Stat. § 42133s(b) & (c); and (2) by barring manufacturers from passing reimbursement costs
along to Connecticut dealers and consumers, id. § 42-133s(g). The vast majority of
states regulate the price of warranty reimbursement payments to automobile dealers,
and over a dozen states have enacted analogous recoupment prohibitions. See
Intervenor‟s Mem. in Supp. of Def.‟s Mot. to Dismiss (“Intervenor‟s Supp.”) (Doc. No. 48)
at 8. In a similar case brought by Alliance in 2003, the First Circuit held, as a matter of
law at the summary judgment stage, that Maine‟s analog of the Recoupment Bar was a
“foreseeable addition” to a similar warranty reimbursement scheme. See Alliance of
Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 42 (1st Cir. 2005).6 That Alliance has been
engaged in similar litigation for years weighs against the very plausibility of its
substantial impairment claim here.
Alliance‟s sole remaining argument is that foreseeability should be addressed on
the basis of a factually developed record. See Pl.‟s Opp‟n at 35. By Alliance‟s own
6

Alliance relies on another case brought in Florida, in which the district court declined to dismiss
the Contract Clause claim. See Alliance of Auto. Mfrs., Inc. v. Jones, 897 F. Supp. 2d 1241 (N.D. Fla.
2012). That reliance is misplaced. In Jones, the defendants argued only that Alliance lacked
associational standing to bring the claim because the issue of foreseeability would require Members‟
participation in the litigation. In Jones, the court held that Alliance had standing, since whether regulation
was foreseeable depends on the extent of prior regulation of the industry, not on individual manufacturers‟
expectations. Id. at 1255.
The issue here is whether Alliance has plausibly alleged unforeseeability. That issue was not
before the court in Jones. Moreover, the conclusion in Jones that foreseeability rests on prior regulation
of the industry is entirely consistent with this court‟s view that Alliance has standing but has not plausibly
stated a claim.

32

account, however, what discovery will reveal is only the exact magnitude of the costs
incurred by Members, not whether the 2009 Amendments were foreseeable in light of
the law at the time of contracting. Id. The allegation that the costs and contractual
impairments are “substantial,” Compl. ¶¶ 31, 33, 38, 54, 59, does not go beyond a
threadbare recital of the elements of a Contract Clause claim. Whether Alliance can
prove that Members‟ costs of doing business in Connecticut are now higher is irrelevant
for purposes of the present Motion to Dismiss. Taken as true, the allegation of cost in
the Complaint is still legally insufficient because it provides no basis on which the court
could infer that the 2009 Amendments were unforeseeable. Unless the changes to the
CFA were unforeseeable, any impairment from those changes is not substantial,
because the possibility of such changes to preexisting law is presumed to be priced into
the contracts. Kolosso, 148 F.2d at 894-95.
Having determined that Alliance‟s Complaint does not plausibly allege substantial
impairment, the court need not reach whether the 2009 Amendments serve a legitimate
public purpose. Absent allegations supporting an inference of substantial impairment,
the Complaint fails to plausibly state a Contract Clause claim.
2.

Commerce Clause

From Congress‟s express authority to regulate interstate commerce, see U.S.
Const. art. I, § 8, flows the “negative” or “dormant” implication that the Commerce
Clause bars state regulation which “discriminates against or unduly burdens interstate
commerce and thereby impedes free private trade in the national marketplace.”
Selevan v. New York Thruway Auth., 584 F.3d 82, 90 (2d Cir. 2009) (quoting Gen.
Motors Corp. v. Tracy, 519 U.S. 278, 287 (1997)). However, states retain power “to
make laws governing matters of local concern which nevertheless in some measure
33

affect interstate commerce or even, to some extent, regulate it.” Id. A state statute
violates the so-called dormant Commerce Clause “only if it (1) clearly discriminates
against interstate commerce in favor of intrastate commerce, (2) imposes a burden on
interstate commerce incommensurate with the local benefits secured, or (3) has the
practical effect of „extraterritorial‟ control of commerce occurring entirely outside the
boundaries of the state in question.” Id. (citation and internal quotation marks omitted).
a.

Clear Discrimination and Pike Balancing

A statute that clearly discriminates is “virtually invalid per se” and can survive
judicial scrutiny only if the discrimination is “demonstrably justified by a valid factor
unrelated to economic protectionism.” Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205,
216 (2d Cir. 2004). Absent clear discrimination, the court applies a lower level of
scrutiny known as Pike balancing, under which an apparently evenhanded regulation
will be invalidated only if the burdens it imposes on interstate commerce are “clearly
excessive in relation to the putative local benefits.” Id. at 217 (quoting Pike v. Bruce
Church, Inc., 397 U.S. 137, 142 (1970)). Where, as here, the statute does not regulate
competitors in an interstate market, there is no claim either for clear discrimination or for
undue burden under Pike.
Alliance alleges that the 2009 Amendments harm not only its Members, but outof-state dealers as well. See Compl. ¶¶ 55, 58. Alliance further alleges that the CFA,
as amended, is “protectionist” legislation, which burdens out-of-state interests while
favoring Connecticut dealers. Id. However, Alliance does not purport to represent outof-state dealers. Nor has it alleged facts that, taken as true, suggest third-party
standing. See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418
F.3d 168, 174 (2d Cir. 2005) (requiring, for such standing, litigant to show, in addition to
34

“injury in fact” to itself, “close relation” to allegedly injured third party and hindrance to
that party's ability to protect its own interests).
Under the dormant Commerce Clause analysis, “any notion of discrimination
assumes a comparison of substantially similar entities.” Gen. Motors, 519 U.S. at 298.
Indeed, “in the absence of actual or prospective competition between the supposedly
favored and disfavored entities in a single market there can be no local preference,
whether by express discrimination against interstate commerce or undue burden upon
it, to which the dormant Commerce Clause may apply.” Id. at 300 (emphasis added);
see also Town of Southold v. Town of E. Hampton, 477 F.3d 38, 49 (2d Cir. 2007)
(“[L]aws that draw distinctions between entities that are not competitors do not
„discriminate‟ for purposes of the dormant Commerce Clause.”). The CFA regulates
only the relationship between dealers and manufacturers, who are not competitors in
the same market. Hence, given the lack of competition in the same market, Alliance‟s
Complaint fails to plausibly state a claim of clear discrimination or, in the alternative, of
undue burden on interstate commerce under Pike balancing.
In fact, Alliance identifies nothing in the CFA that distinguishes out-of-state and
in-state interests or that dictates, either directly or indirectly, favorable treatment of instate interests. Alliance‟s analogy to West Lynn Creamery, Inc. v. Healy, 512 U.S. 186
(1994), is wholly disingenuous. Unlike here, in West Lynn Creamery, the state used a
tax on all fluid milk sold in the state to expressly subsidize in-state dairy farmers. That
none of Alliance‟s Members maintain their principal place of business in Connecticut or
have in-state manufacturing facilities is beside the point. While Members are free to
relocate to the state, they would not reap any benefit under the CFA by doing so,

35

because they are not franchised dealers. Nor are they, in fact, “substantially similar
entities.” Gen. Motors, 519 U.S. at 298.
Alliance‟s related allegation that the 2009 Amendments are “protectionist” is
merely conclusory. The putative “burden” on interstate commerce depends on the
possibility that Members will raise prices or reduce benefit programs elsewhere as a
result of the Recoupment Bar, which makes it illegal to recover costs from in-state
dealers. See Compl. ¶¶ 55, 58. Speculative or merely potential pricing impacts not
dictated by the state‟s regulatory regime are not cognizable under the dormant
Commerce Clause. See Freedom Holdings, 357 F.3d at 220; Jones v. Schneiderman,
11 CIV. 8215 KMW GWG, 2013 WL 5452758, *22-23 (S.D.N.Y. Sept. 30, 2013). If
companies‟ independent economic decisions were a sufficient basis for claims of
discriminatory “effects” or excessive “burden,” interstate businesses would always be in
a position to nullify state regulation simply by arguing that they will shift regulatory costs
to another state. Moreover, although Members themselves are alleged to have incurred
higher costs, see Compl. ¶¶ 6, 31, the fact that an interstate company stands to lose
money is not of constitutional significance under the dormant Commerce Clause. See
CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 88 (1987) (“The fact that the burden
of a state regulation falls on some interstate companies does not, by itself, establish a
claim of discrimination against interstate commerce.”); Exxon Corp. v. Governor of Md.,
437 U.S. 117, 127 (1978) (“[The Commerce Clause] protects the interstate market, not
particular interstate firms.”); Nat'l Elec. Mfrs. Ass'n v. Sorrell, 272 F.3d 104, 110 (2d Cir.
2001) (“[T]hat manufacturers must bear some of the costs of the Vermont regulation in
the form of lower profits does not cause the statute to violate the Commerce Clause.”).

36

In sum, there are no allegations in the Complaint from which the court could
reasonably infer that the 2009 Amendments facially discriminate, were enacted for a
discriminatory purpose, have discriminatory effects, or even burden interstate
commerce. Alliance has, therefore, failed to plausibly state a dormant Commerce
Clause claim under the first two prongs of the analysis.
b.

Extraterritorial Control

In Heely v. Beer Institute, Inc., 491 U.S. 324 (1989), the Supreme Court laid out
in detail the third (“extraterritoriality”) prong of the dormant Commerce Clause analysis:
First, the Commerce Clause . . . precludes the application of a state
statute to commerce that takes place wholly outside of the State's borders,
whether or not the commerce has effects within the State, and,
specifically, a State may not adopt legislation that has the practical effect
of establishing a scale of prices for use in other states. Second, a statute
that directly controls commerce occurring wholly outside the boundaries of
a State exceeds the inherent limits of the enacting State's authority and is
invalid regardless of whether the statute's extraterritorial reach was
intended by the legislature. The critical inquiry is whether the practical
effect of the regulation is to control conduct beyond the boundaries of the
State. Third, the practical effect of the statute must be evaluated not only
by considering the consequences of the statute itself, but also by
considering how the challenged statute may interact with the legitimate
regulatory regimes of other States and what effect would arise if not one,
but many or every, State adopted similar legislation. Generally speaking,
the Commerce Clause protects against inconsistent legislation arising
from the projection of one state regulatory regime into the jurisdiction of
another State.
Id. at 336-37 (citations and internal quotation marks omitted).
Alliance‟s Complaint alleges that the CFA, as amended in 2009, has the
“practical effect” of burdening out-of-state interests while favoring domestic interests.
Compl. ¶¶ 55, 58. That allegation is legally insufficient to state a claim, however,
because the putative “burden” is not dictated by or otherwise within the control of the
state but, instead, depends on potential pricing decisions by Members. See Freedom
37

Holdings, 357 F.3d at 220; Jones, 2013 WL 5452758, *22-23. Indeed, the 2009
Amendments make no mention of other states. Unlike in Healy, where the Supreme
Court struck down a Connecticut law requiring out-of-state beer distributors to affirm
that their prices posted domestically were no higher than those in bordering states, the
CFA provisions here do not peg in-state pricing, benefits, or regulation to other
jurisdictions.7 The Second Circuit has repeatedly rejected similar extraterritoriality
challenges to state regulations containing no reference to other states. See, e.g.,
Freedom Holdings, 357 F.3d at 221 (New York cigarette contraband statute); Nat'l Elec.
Mfrs. Ass'n v. Sorrell, 272 F.3d 104, 110 (2d Cir. 2001) (Vermont labeling requirement).
To correct this obvious deficiency in its Complaint, Alliance now constructs in its
Opposition brief a hypothetical in which the Recoupment Bar might be applied to an
entirely out-of-state commercial transaction involving an in-state dealer. See Pl.‟s
Opp‟n at 45. Such scenarios do not suffice to save a Complaint otherwise lacking
plausible allegations of extraterritoriality. Not only is Article III standing meant to
prevent litigation of general disputes of a “someday” character, Lujan, 504 U.S. at 564;
Alliance‟s facial challenge also cannot be sustained on the abstract possibility of a
single unconstitutional application of the Recoupment Bar, Salerno, 481 U.S. at 745.
In the court‟s view, the third inquiry in Healy—namely, how the challenged statute
interacts with other states‟ legitimate regulatory regimes—makes clear the absence of a
plausible extraterritoriality claim in Alliance‟s Complaint. See 491 U.S. at 336.
7

Alliance‟s parallel suit in Florida is, once again, distinguishable in this regard. Unlike the CFA,
the Florida law prohibits licensed manufacturers from offering incentive programs outside the state that
they do not offer in Florida, unless they can prove to Florida authorities that relevant differences support
the decision to treat two designated zones or regions differently. See Fla. Stat. § 320.64(38). Such a
scheme clearly resembles the Connecticut law invalidated in Healy. The CFA, however, contains no such
provisions, and Alliance makes no allegations plausibly suggesting that the 2009 Amendments either
directly refer to or indirectly rely on other states.

38

Accepting Alliance‟s allegations as true and drawing all reasonable inferences in its
favor, the court finds no basis for any necessary interaction between the CFA and other
states‟ laws, much less a necessarily disruptive interaction. Given Alliance‟s parallel
litigation elsewhere, the court is aware of similar warranty reimbursement statutes
enacted by other states. However, nothing in the present Complaint remotely suggests
that the CFA is inconsistent with the legitimate regulatory regimes of other states.
The Complaint is legally insufficient under any of the three prongs of the analysis.
Accordingly, Alliance has failed to plausibly state a dormant Commerce Clause claim.
3.

Due Process

Alliance challenges only the Reimbursement Provisions on due process grounds.
See Compl. ¶¶ 52-53, 56. As Alliance concedes in its Complaint, the 2009
Amendments were premised on “level[ing] the playing field for new car dealers in
dealing with manufacturers and distributors, in order to promote fair competition.”
Compl. ¶ 45. Alliance alleges, however, that the provisions were actually motivated by
a decrease in the volume of warranty repairs, id. ¶ 47; that the legislature deliberately
sought to recapture lost revenue, id. ¶ 48; that the law insulates dealers from
competition with independent service shops, id. ¶ 49; and that a growing body of
literature undercuts “the well-worn rationale that all motor vehicle franchise laws, no
matter how oppressive, overreaching or economically devastating to manufacturers and
consumers, are necessary to protect dealers from „abuses‟ by manufacturers or to „level
the playing field‟ to equalize the parties‟ bargaining power,” id. ¶ 50.
Economic legislation like that at issue here is reviewed only for arbitrariness or
irrationality. See In re Chateaugay Corp., 53 F.3d 478, 486 (2d Cir. 1995). Substantive
due process requires that such legislation merely be “supported by a legitimate
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legislative purpose furthered by a rational means.” Id. at 486-87. Rational basis review
is, thus, “a paradigm of judicial restraint.” F.C.C. v. Beach Commc'ns, Inc., 508 U.S.
307, 314 (1993).
Under this deferential standard of review, a plaintiff must overcome the “strong
presumption of rationality that attaches to a statute.” Beatie v. City of New York, 123
F.3d 707, 712 (2d Cir. 1997). A state has no obligation to produce evidence as part of
any judicial fact-finding, because legislative choices that do not single out suspect
groups or burden fundamental rights “may be based on rational speculation
unsupported by evidence or empirical data.” Heller v. Doe by Doe, 509 U.S. 312, 320,
(1993). Hence, to state a due process claim, a plaintiff must set forth sufficient
allegations plausibly showing that the legislative facts relied on “could not reasonably be
conceived to be true by the governmental decisionmaker.” Beatie, 123 F.3d at 712.
Even accepting Alliance‟s allegations as true, the court determines that they are
insufficient to overcome the strong presumption of legislative rationality. While Alliance
claims that the Reimbursement Provisions harm consumers and go against a growing
tide of research, nothing in the Complaint plausibly suggests that it was irrational or
arbitrary for the state legislature to reach a contrary conclusion. Whether, in fact, the
law injures consumers or lacks empirical support, see Compl. ¶¶ 46, 50, is irrelevant.8
In enacting the 2009 Amendments, the legislature could reasonably have thought to

8

Alliance cites the Supreme Court‟s decision in Shelby County v. Holder, 133 S. Ct. 2612 (2013),
for the proposition that state legislatures may not rely on outdated data, where the conditions that
originally justified the law‟s adoption have changed. See Pl.‟s Response to Intervenor (Doc. No. 50) at 56. In Shelby County, however, the question was whether sufficient data supported extraordinary
congressional action impinging on states‟ sovereignty. In this case, the question is only whether the
state, in passing ordinary economic legislation pursuant to its undisputed police power, has chosen
reasonable ends to achieve a legitimate legislative purpose.

40

help consumers on the view that, if dealers need not subsidize below-market rates for
warranty work, they can offer more competitive retail rates. See Def.‟s Mem. at 38.
Alliance argues that the contrary positions of the parties make resolution at the
pleadings stage inappropriate. See Pl.‟s Opp‟n at 47-48. However, it is well settled that
the Government has no duty to produce evidence to sustain a validly enacted statute‟s
rationality. Lewis v. Thompson, 252 F.3d 567, 582 (2d Cir. 2001). Indeed, absent
suspect classifications or impingement on fundamental rights, state legislative
decisionmaking is not subject to a federal court‟s factfinding. Heller, 509 U.S. at 320.
In the area of economics or social welfare, legislation need not be effective or even
logically consistent, in every respect, with its articulated aims in order to survive federal
due process review. See Williamson v. Lee Optical, 348 U.S. 483, 487-88 (1955). “It is
enough that there is an evil at hand for correction, and that it might be thought that the
particular legislative measure was a rational way to correct it.” Williamson, 348 U.S. at
488.
Unless Alliance alleges facts from which the court may reasonably infer arbitrary
or irrational governmental action, the court must defer to the Connecticut state
legislature. Because Alliance‟s Complaint makes no such factual allegations, it fails to
plausibly state a substantive due process claim under the U.S. Constitution.
E.

Dismissal of Counts Three and Four

Based on the dismissal of Counts One and Two, Counts Three and Four of
Alliance‟s Complaint must likewise be dismissed. Without Counts One and Two,
Alliance‟s section 1983 claim in Count Four lacks plausible allegations of “deprivation[s]”
of constitutional rights. 42 U.S.C. § 1983. In the absence of any remaining federal

41

claims, the court declines to exercise supplemental jurisdiction over Alliance‟s claim for
declaratory relief under state law in Count Three. See 28 U.S.C. §§ 1367(c)(3).
V.

CONCLUSION
For the reasons set forth above, the court GRANTS the Commissioner‟s Motion

to Dismiss (Doc. No. 32). The Clerk is hereby directed to close this case. If Alliance
believes that it can allege facts sufficient under Rule 11 to warrant repleading in light of
this Ruling, it has until December 16, 2013 to move the court to reopen the case with a
proposed amended complaint attached.
SO ORDERED.
Dated at New Haven, Connecticut this 26th day of November, 2013.

/s/ Janet C. Hall
Janet C. Hall
United States District Judge

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