Don Johnson Hayward Motors Inc et al v. General Motors LLC

Filing 23

ORDER signed by Judge Pamela Pepper on 9/24/2018. 16 Plaintiffs' Motion for Summary Judgment DENIED. 18 Defendant's Motion for Summary Judgment as to Counts 1 and 2 GRANTED. Plaintiffs to file amended complaint within 20 days. (cc: all counsel) (cb)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

DON JOHNSON HAYWARD MOTORS, INC.,
GROSS MOTORS, INC., GROSS CHEVROLET-BUICK-GMC, INC.,
BROADWAY AUTOMOTIVE GREEN BAY, INC.,
SLEEPY HOLLOW CHEVROLET BUICK GMC, INC.,
MIKE SHANNON AUTOMOTIVE, INC.,
SHEBOYGAN CHEVROLET BUICK GMC CADILLAC, INC.,
HERITAGE CHEVROLET, INC., KOCOUREK CHEVROLET, INC.,
KLEIN CHEVROLET BUICK, INC., TOYCEN MOTORS, INC.,
TOYCEN OF LADYSMITH, INC., and A-F MOTORS, INC.,
Plaintiffs,
v.

Case No. 16-cv-1350-pp

GENERAL MOTORS LLC,
Defendant.

ORDER DENYING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT (DOC.
16), GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT ON
COUNTS ONE AND TWO (DOC. 18) AND ALLOWING PLAINTIFFS TO FILE
AN AMENDED COMPLAINT

On October 7, 2016, the plaintiffs—licensed motor vehicle dealers in
Wisconsin—filed a complaint against defendant General Motors, alleging that
the defendant’s plans to impose a warranty cost recovery surcharge violate
Wisconsin Statute §218.0125. Dkt. No. 1. In addition to seeking a preliminary
and permanent injunction (Count One) and declaratory judgment (Count Two),
the plaintiffs seek damages for alleged violations of Wis. Stat. §218.0125 and
for breach of contract (Counts Three and Four). After mediation failed, the
parties agreed to resolve their dispute on an expedited basis, and filed cross
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motions for summary judgment. Dkt. Nos. 11 and 13. The plaintiffs ask the
court to grant summary judgment on Counts One and Two, dkt. no. 16, and
the defendants seek an order dismissing all claims, dkt. no. 18. Because the
court concludes that the defendant’s proposed surcharge does not violate the
plain language of the statute, the court will deny the plaintiffs’ motion for
summary judgment, and will grant defendant’s motion for summary judgment
on Counts One and Two.
I.

Findings of Fact
The parties agree to the following facts.
All the plaintiffs are corporations organized under the laws of the State of

Wisconsin with principal places of business in Wisconsin, and are licensed as
new motor vehicle dealers under the provisions of Wis. Stat. §§218.0101, et
seq. (the “Act”). Dkt. No. 15 at ¶¶1-13. Defendant General Motors LLC (“GM”) is
a Delaware limited liability company, which maintains its principal place of
business at 100 GM Renaissance Center in Detroit, Michigan, and is licensed
as a motor vehicle manufacturer doing business in Wisconsin under the
Act. Id. at ¶14.
The defendant manufactures and sells new motor vehicles and
replacement parts to independently owned and operated authorized dealers in
the United States, who sell or lease vehicles to retail customers and perform
repairs and service on the defendant’s vehicles. Id. at ¶15. The contractual
relationships between the defendant and its dealers are laid out in Dealer Sales
and Service Agreements and incorporated Standard Provisions (“Dealer
2

Agreements”) establishing the parties’ respective rights and obligations
concerning the promotion, sale and service of [the defendant’s] vehicles. Id. at
¶¶16-17.
The defendant gives new vehicle retail customers a limited, written
warranty covering defects in various parts, systems and accessories. Id. at ¶18.
Under the Dealer Agreement, every dealer agrees to perform warranty repairs
on qualified vehicles within the warranty period on the owner’s request,
without charge to the owner, regardless of where the owner bought the vehicle.
Id. at ¶19.
In the absence of an applicable statute or regulation, the Dealer
Agreement says that the defendant will reimburse its dealers for performing
warranty repairs and service in accordance with its Service Policies and
Procedures Manual (“SPPM”). Id. at ¶20. Under the SPPM, the defendant
reimburses its dealers for the labor provided in warranty repairs, based on an
approved hourly rate that the defendant calculates by dividing the total
amount the dealer charged its nonwarranty customers for labor by the number
of labor hours which the nonwarranty customers were billed. Id. at ¶21. The
defendant multiplies that approved hourly rate by the flat rate time allotted by
the defendant for each particular repair or service, as provided in its labor time
guide (“LTG”). Id. at ¶22. The defendant conducts LTG studies to determine the
actual time to complete the repair, plus a markup for performing miscellaneous
tasks. The plaintiffs dispute the reasonableness of the defendant’s LTG studies.
Id. at ¶23.
3

In addition to providing warranty repairs, the dealers perform
nonwarranty repairs on GM and other brands of vehicles, for which they charge
their service customers. Id. at ¶24. When performing nonwarranty repairs or
service, the dealers typically charge customers based on third-party LTGs that
generally allot more time to complete the same repair than does the defendant’s
LTG. Id. at ¶25. Again, absent any applicable statute or regulation, the
defendant reimburses its dealers for parts installed in connection with
warranty repairs at a standard markup of forty percent over dealer cost. Id. at
¶26. When performing nonwarranty repairs or service, the dealers typically
charge customers a parts mark-up that exceeds the defendant’s warranty parts
markup of forty percent over dealer cost. Id. at ¶27.
Although warranty repairs and service are provided to the consumer at
no additional charge at the time of service, their cost represents an expense
that must be paid through the revenues that the defendant generates. Id. at
¶28. To be able to provide both warranty and nonwarranty repairs and service,
the plaintiffs make investments in service facilities, tools and equipment,
training and other items, the costs of which must be paid through the revenues
the plaintiffs generate. Id. at ¶29.
Section 218.0125 of the Act allows Wisconsin dealers to request that the
defendant reimburse them for parts and labor at their effective nonwarranty
retail rates. Id. at ¶30. Under §§218.0125(3m)(b) and (c)(2) of the Act,
Wisconsin dealers may elect to request reimbursement for the parts they install
when performing warranty repairs at their average, nonwarranty percentage
4

markup determined in accordance with the Act. Id. at ¶31. Similarly, under
those sections of the Act, Wisconsin dealers may elect to request
reimbursement for the labor they provide when performing warranty repairs at
their average effective nonwarranty labor rate, determined in accordance with
the Act. Id. at ¶32. The statutory formula to calculate a dealer’s effective
nonwarranty labor rate under ¶§218.0125(3m)(c)(1) requires the defendant to
divide the total amount the dealer charged its customers for labor by the flat
rate hours allotted for the same repairs in the defendant’s LTG—even if the
dealer used a third-party LTG when it charged the customer for the underlying
repair (the “Statutory Labor Rate”). Id. at ¶33. The defendant then must
reimburse the dealer for warranty labor by multiplying the dealer’s Statutory
Labor Rate by the flat-rate time allotted by the defendant’s LTG. Id. at ¶34.
At the time of the briefing, the defendant had approximately 125
authorized dealers in Wisconsin. Id. at ¶35. Approximately thirty-five of the
defendant’s Wisconsin dealers (including each of the plaintiffs) had requested
parts reimbursement in accordance with the Act. Id. at ¶36. Because of their
statutory requests, the defendant was reimbursing the plaintiffs for the parts
they install when performing warranty repairs at markups ranging from 66% to
106% over dealer cost. Id. at ¶37. Approximately thirty of these Wisconsin
dealers (including each of the plaintiffs except A-F Motors, Inc.) also had
sought warranty labor reimbursement in accordance with the Act. Id. at ¶38.
Because of those statutory requests, the defendant was reimbursing the

5

plaintiffs for the labor they provided when performing warranty repairs at the
following rates:
Dealer
Don Johnson
Hayward Motors,
Inc.
Gross Motors Inc.
Gross ChevroletBuick-GMC Inc.
Broadway
Automotive-Green
Bay Inc.
Toycen of
Laydsmith Inc.
Sleepy Hollow
Chevrolet Buick
GMC Inc.
Mike Shannon
Automotive Inc.
Sheboygan
Chevrolet Buick
GMC Cadillac
Heritage Chevrolet,
Inc.
Kocourek
Chevrolet, Inc.
Klein Chevrolet
Buick, Inc.

Prior Labor
Rate
$82.95

Current Labor 2016 Labor
Rate
Hours
$97.28
1,676.2

$93.74

$107.56

2,744.6

$95.01

$104.02

2,876.8

$104.72

$108.36

10,669.7

$106.06

$118.37

1,600.3

$85.44

$96.75

4,296.3

$103.61

$119.17

11,487.80

$99.68

$123.93

7,398.6

$100.23

$105.87

1,711.9

$95.52

$129.62

5,440.9

$89.82

$120.15

2,746.4

Id. at ¶39.1

In its brief in support of its motion for summary judgment, the defendant
provided this same chart, but added a fourth column of numbers under the
heading “Projected Annual Labor Cost Increase.” Dkt. No. 19 at 10. As far as
the court can tell, to come up with the numbers in this fourth column, the
defendant first multiplied the “Prior Labor Rate” by the “2016 Labor Hours.” It
then multiplied the “Current Labor Rate” by the “2016 Labor Hours.” Finally, it
subtracted the product of the first calculation from the product of the second,
and rounded off the result for a “Projected Annual Labor Cost Increase.” It also
added a row at the bottom of the chart, entitled “Total;” in the final column
1

6

In a letter dated September 21, 2016, the defendant notified its
Wisconsin dealers receiving (or requesting) warranty reimbursement under the
Act that the defendant would begin adding a surcharge to invoices of any new
vehicle purchased by those dealers, to recoup GM’s alleged increased warranty
reimbursement costs. Id. at ¶¶40, Dkt. No. 15-3 (“Exhibit C”). The proposed
surcharge would be a uniform amount, applied solely to new vehicles sold to
Wisconsin dealers that have requested statutory reimbursement. Id. at ¶42.
The defendant planned to calculate the parts component of the cost recovery
surcharge by “aggregating the total estimated amount of increased warranty
parts reimbursement it is required to pay to dealers in Wisconsin requesting
warranty parts reimbursement under the Act,” then dividing that amount by
the projected number of vehicles that will be purchased by those dealers. Id. at
¶43. The initial amount of the surcharge to be applied to Wisconsin dealers
requesting only warranty parts reimbursement under the Act would be $219.
¶44. The defendant planned to calculate the labor component of the cost
recovery surcharge by “aggregating the total estimated amount of increased
warranty labor reimbursement it is required to pay to Wisconsin dealers
requesting warranty labor reimbursement under the Act,” then dividing that
amount by the projected number of vehicles that will be purchased by those
dealers. Id. at ¶45. The initial amount of the surcharge to be applied to
Wisconsin dealers requesting both warranty parts and warranty labor

under “Projected Annual Labor Cost,” it totaled the “Projected Annual Labor
Cost” for all of the plaintiffs.
7

reimbursement under the Act will be $389. Id. at ¶46. The defendant offered to
any Wisconsin dealer that was already receiving statutory parts or labor
reimbursement the opportunity to revert to that dealer’s contract rate, to avoid
the cost recovery surcharge in the future. Id. at ¶47.
II.

Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure mandates that a court

“shall” grant summary judgment if a moving party shows that there is no
genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56. See also Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317,
324 (1986); Ames v. Home Depot U.S.A., Inc., 629 F.3d 665, 668 (7th Cir.
2011). “Material facts” are those under the applicable substantive law that
“might affect the outcome of the suit.” Anderson, 477 U.S. at 248. A dispute
over “material fact” is “genuine” if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Id.
A party asserting that a fact cannot be disputed or is genuinely disputed
must support the assertion by:
(A) citing to particular parts of materials in the record,
including depositions, documents, electronically stored
information,
affidavits
or
declarations,
stipulations
(including those made for purposes of the motion only),
admissions, interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the
absence or presence of a genuine dispute, or that an adverse
party cannot produce admissible evidence to support the
fact.

8

Fed. R. Civ. P. 56(c)(1). “An affidavit or declaration used to support or oppose a
motion must be made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant or declarant is competent to
testify on the matters stated.” Fed. R. Civ. P. 56(c)(4).
Here, the parties have stipulated to the facts. Dkt. No. 15. They dispute
only the legal issue, and they frame that legal issue in different ways.
III.

Legal Analysis
A.

The Issue Before the Court

The plaintiff dealers have asked the court “for a declaration that the
warranty cost recovery surcharge which the defendant . . . plans to impose on
vehicles the [plaintiffs] purchase from [the defendant] violates Wis. Stat.
§ 218.0125.” Dkt. No. 17 at 1. They assert that “[t]he sole issue currently
presented by this case is whether the Wisconsin legislature intended to permit
manufacturers to recover some or all of the increased amounts they are
required to pay dealers electing to be compensated for warranty work under
Wis. Stat. § 218.0125 by selectively surcharging those same dealers[.]” Id. at 9.
They characterize the issue as a “simple question of statutory construction,”
and argue that the answer to their question is that the legislature did not
intend for manufacturers to recover the compensation through a surcharge. Id.
The defendant says that the “sole issue before the Court is whether
Wisconsin law affirmatively precludes [the defendant] from increasing the
prices of vehicles it sells to Wisconsin dealers that have demanded enhanced
statutory warranty reimbursement in order to offset the additional warranty
9

expense associated with those vehicles.” Dkt. No. 21 at 4 (emphasis in the
original). It poses the question this way: “may [the defendant] recover its
increased warranty reimbursement costs in Wisconsin by increasing the price
of vehicles it sells only to those Wisconsin dealers that have demanded
enhanced statutory warranty reimbursement?” Dkt. No. 19 at 6 (emphasis in
the original). Not surprisingly, the defendant urges the court to answer this
question in the affirmative.
Neither the Seventh Circuit nor any Wisconsin court has addressed the
issue.
B.

Jurisdiction

The parties have asked the court to interpret a Wisconsin statute. This
court’s jurisdiction to entertain that request is grounded in diversity; the
plaintiffs are Wisconsin citizens, the defendant a citizen of Delaware, and the
plaintiffs allege that if the court rules in the defendant’s favor, they will suffer
losses of over $75,000. Dkt. No. 1 at ¶¶15-16. See 28 U.S.C. §1332.
The court notes that the defendant has not raised the prices it charges
the plaintiffs for new vehicles. The plaintiffs have sued because the defendant
said that it was going to raise the prices it charged dealers who had requested
statutory compensation, as of a date certain. The defendant has not challenged
the plaintiffs’ standing, and the fact that the defendant said that it would take
specific action, on a specific date, against specific dealers (as well as its
continuing statement of intent through this suit to implement the “cost
recovery” program) was a real and immediate threat of injury sufficient to
10

constitute an actual case or controversy. See, e.g., Whitmore v. Arkansas, 495
U.S. 149, 155 (1990) (harm must be “actual or imminent”); City of Los Angeles
v. Lyons, 461 U.S. 95, 101-102 (1983) (plaintiff must show that he is
“immediately in danger of sustaining some direct injury”).
C.

Analysis
1.

The Rules of Statutory Construction

Because jurisdiction is based on diversity, the court must interpret the
law as it thinks the Wisconsin courts would. Winebow, Inc. v. Capitol-Husting.,
Inc., 867 F.3d 862, 868 (7th Cir. 2017). Wisconsin courts begin with the text of
the statute. Id. When the meaning is clear from the text, the “inquiry ordinarily
ends.” Teschendorf v. State Farm Ins. Cos., 717 N.W.2d 258, 263 (Wis. 2006).
Where statutory language is unambiguous, there is no need to consult
extrinsic sources of interpretation, such as legislative history. State ex rel. Kalal
v. Circuit Court for Dane Cty., 681 N.W.2d 110, 124 (2004). In looking for the
plain meaning of a statute, the court considers “the role of the relevant
language in the entire statute,” Teschendorf, 717 N.W.2d at 263 (quoting
Landis v. Physicians Ins. Co. of Wis., Inc., 628 N.W.2d 893, 899 (Wis. 2001)),
considering the “context in which words appear, the structure of the statute,
and the purpose of the statute where it is evident from the statutory text,” id.
(citing Kalal, 681 N.W.2d 110 at 124).2

In State v. Delaney, decided the year before Kalal and three years before
Teschendorf, the Wisconsin Supreme Court said, “Only when statutory
language is ambiguous may we examine other construction aids such as
legislative history, scope, context, and subject matter.” State v. Delaney, 658
2

11

If a statute is ambiguous, the court must continue its inquiry. “A statute
is ambiguous if reasonable persons could disagree as to [the statute's]
meaning.” State v. Delaney, 658 N.W.2d 416, 420 (Wis. 2003). “[A] statute is
ambiguous if it is capable of being understood by reasonably well-informed
persons in two or more senses.” Kalal, 681 N.W.2d at 124 (citing Bruno v.
Milwaukee Cty., 660 N.W.2d 656, 661 (Wis. 2003)). In a case like this one,
however, where “it is obvious that people disagree as to the meaning to be given
a statute,” the disagreement alone “cannot be controlling.” Nat’l Amusement
Co. v. Wis. Dept. of Taxation, 163 N.W.2d 625, 628 (Wis. 1969). “The court
should look to the language of the statute itself to determine if ‘well-informed
persons’ should have become confused.” Id.
The Wisconsin Supreme Court has held that it looks “outside the statute”
in three situations: (1) where, after considering all “intrinsic sources,” the
meaning of the statute is ambiguous; (2) where the statute’s meaning is plain,
but the Court wishes to “contribute to an informed explanation that will firm
up statutory meaning,” and thus looks to the legislative history; and (3) where
the meaning appears plain, but that plain meaning would produce absurd
results. Teschendorf, 717 N.W.2d at 263.

N.W.2d 416, 419-20 (Wis. 2003). The Kalal Court cited Delaney for the
proposition that “statutory language is interpreted in the context in which it is
used; not in isolation but as part of a whole; in relation to the language of
surrounding or closely-related statutes; and reasonably, to avoid absurd and
unreasonable results.” Kalal, 681 N.W.2d at 124. Teschendorf made no
reference to Delaney, but cited Kalal.
12

2.

The Language of the Statute

As Wisconsin law requires, the court begins with the language of the
statute, Wis. Stat. §218.0125. Section 218.0125(3m)(a) requires that a
manufacturer “reasonably compensate” a qualifying dealer who performs work
“to rectify the product or warranty defects of the manufacturer,” or “to satisfy
delivery and preparation obligations of the manufacturer,” or for “any other
work required, requested, or approved by the manufacturer, importer, or
distributor or for which the manufacturer, importer, or distributor has agreed
to pay.”
“Reasonable compensation” for dealers who request compensation based
on work performed means compensation
equal to the dealer’s effective nonwarranty labor rate multiplied by
the number of hours allowed for the repair under the
manufacturer’s, importer’s, or distributor’s time allowances used
in compensating the dealer for warranty work. Reasonable
compensation under par. (a) for parts is equal to the dealer’s cost
for the parts multiplied by the dealer’s average percentage markup
over dealer cost for parts.
Wis. Stat. §218.0125(3m)(b).
“Reasonable compensation” for dealers who request compensation based
on having received 100 sequential repair orders is calculated as follows:
using the submitted substantiating orders under sub. (4m)(a)2., by
dividing the total customer labor charges for qualifying
nonwarranty repairs in the repair orders by the total number of
hours that would be allowed for the repairs if the repairs were
made under the manufacturer’s, importer’s, or distributor’s time
allowances used in compensating the dealer for warranty work.
Wis. Stat. §218.0125(3m)(c)(1). Section 218.0125(3m)(c)(2) defines “average
percentage markup over dealer cost for parts” in the repair orders context as
13

the dealer’s “total charges for parts in the repair orders” divided by “the total
dealer cost for parts.” Wis. Stat. §218.0125(3m)(c)(2)
The application of the statute is not automatic; it applies only to
qualifying dealers. To qualify for the statutory compensation, the dealer must
submit to the manufacturer (1) a written notice of the claimed effective
nonwarranty labor rate or average percentage markup over dealer cost for
parts, and (2) either 100 sequential repair orders for qualifying nonwarranty
repairs, or all repair orders for qualifying nonwarranty repairs performed in a
ninety-day period, whichever is less. Wis. Stat. §218.0125(4m)(a).
3.

What the Statute Requires

According to the defendant, “the plain language of the statute . . . does
not prohibit, limit, restrict or even address the manner in which manufacturers
may increase vehicle prices.” Dkt. No. 19 at 13. They argue that the statute is
“silent regarding wholesale vehicle prices,” and that “[f]or that reason alone,”
they are entitled to summary judgment.
This “plain language” argument is a red herring. True, the statute does
not say that manufacturers cannot raise their prices. It does not say that they
cannot recover their costs. It does not say that they cannot charge dealers who
request compensation more than dealers who do not. There are many things
the statute does not say. That is not, in the court’s view, the issue. The issue is
whether the defendant’s “cost recovery” program constitutes a violation of what
the statute does say.

14

Section 281.0125 is titled “Warranty reimbursement.” The court is
mindful of the Seventh Circuit’s admonition that, for many reasons,
“dictionaries must be used as sources of statutory meaning only with great
caution.” United States v. Costello, 666 F.3d 1040, 1043-1046 (7th Cir. 2012).
Here, however, Merriam-Webster’s definition of “reimburse” as a transitive verb
meaning “to pay back to someone,” with a secondary definition of “to make
restoration or payment of an equivalent to,” https://www.merriamwebster.com/dictionary/reimburse, seems to fit.
After defining terms, the statute section explains that, “for the protection
of the buying public,” manufacturers must make sure that, before they deliver
a new vehicle to a retail purchaser, they have “specified the delivery and
preparation obligations” of the dealers. Wis. Stat. §218.0125(2). The statute
requires the manufacturer to make these specifications in writing, and to file a
copy with the Department of Transportation. Id. Those specs “shall constitute
the dealer’s only responsibility for product liability as between the dealer and
the manufacturer . . . .” Id. That means that any “mechanical, body, or parts
defects arising from any warranties of the manufacturer . . . shall constitute
the manufacturer’s . . . product or warrant liability.” Id. (emphasis added).
So—the dealer is responsible for any delivery and preparation obligations
that the manufacturer specifies in writing, while the manufacturer is
responsible for mechanical, body and parts defects. Given that, it makes sense
that Wis. Stat. §218.0125(3m) would require the manufacturer to compensate a
dealer who repairs product or warranty defects that are the responsibility of the
15

manufacturer. The statute doesn’t require the manufacturer to compensate any
dealer who undertakes repairs or obligations that are the responsibility of the
manufacturer. It mandates compensation from the manufacturer only when
the dealer asks for it in writing, and demonstrates that within the six months
before making the request, the dealer had a significant number of such repair
orders or repairs—100 sequential repair orders, or all the repair orders the
dealer actually performed within ninety days, whichever is less.
But for those dealers who qualify, and who ask, the statute requires the
manufacturer to bear the cost.
Perhaps more relevant to the issue in dispute, the statute mandates that
when a dealer qualifies, the manufacturer must “reasonably compensate” that
dealer. Wis. Stat. §218.0125(3m). The court does not have to resort to a
dictionary to find out what “reasonably compensate” means; the statute defines
the phrase. “Reasonable compensation” for labor is the dealer’s effective
nonwarranty labor rate times the number of hours that the dealer’s time
allowances provide for nonwarranty work. “Reasonable compensation” for parts
is the dealer’s cost for the parts times the dealer’s average percentage markup
over the dealer cost for parts. Wis. Stat. §218.0125(3m)(b). The statute even
defines “average percentage markup,” and “effective nonwarranty labor rate.”
Wis. Stat. §218.0125(3m)(c)(1) and (2).
The “plain language” of the statute, then, requires manufacturers to pay
qualifying dealers “reasonable compensation” for performing repairs that are
the manufacturer’s responsibility, and it precisely and specifically defines
16

“reasonable compensation.” The issue is not whether the statute says that the
defendant cannot do what it proposes to do. The issue is whether what the
defendant proposes to do would violate that “plain language.”
4.

“Reasonable Compensation”

According to the plaintiffs, if a manufacturer can surcharge qualifying
and requesting dealers to recoup the cost of the “reasonable compensation,”
those dealers won’t receive the “reasonable compensation” provided by the
plain meaning of the statute. Dkt. No. 17 at 10.
Citing cases from other courts in other districts, the defendant first
asserts that it is “quite commonplace” for manufacturers to pass on to retailers
and consumers the costs of complying with regulatory statutes. Dkt. No. 19 at
13 (citing Acadia Motors, Inc. v. Ford Motor Co., 44 F.3d 1050, 1056 (1st Cir.
1995)). The defendant argues that it is doing nothing more than what an
economically rational actor would do—recovering costs through price increases.
Id. at 13-14. This argument strikes the court as irrelevant. The question is not
whether manufacturers want to be able to recoup the cost of complying with
Wis. Stat. §218.0125—one would assume that they do. The question is whether
the statute allows them to.
More relevant to the plaintiff’s argument is the defendant’s response that
its price increase isn’t based on the amount of statutory compensation each
dealer receives. Dkt. No. 19 at 13. Rather, the price increase is based on how
many new cars the compensated dealer purchases.

17

The defendant proposes to increase its prices for the dealers who have
sought compensation by an amount certain, and it explains how it is going to
calculate that amount certain. The price increase will have both a labor
component and a parts component—just like the statute does. Dkt. No. 19 at
11-12.
Under the statute, to figure out the “reasonable compensation” for a
qualifying dealer who seeks compensation for performing nonwarranty labor,
one must multiply the dealer’s effective nonwarranty labor rate by the number
of hours allowed for the repair under the manufacturer’s time allowances used
to compensate the dealer for warranty work. Wis. Stat. §218.0125(3m)(b). The
defendant proposes to calculate the labor component of its price increase “by
aggregating the total estimated amount of increased warranty labor
reimbursement it is required to pay to Wisconsin dealers requesting warranty
labor reimbursement under the Act and then dividing that amount by the
projected number of vehicles that will be purchased by those dealers.” Dkt. No.
19 at 12.
To calculate the “reasonable compensation” for a qualifying dealer who
seeks compensation for nonwarranty parts, the statute requires that one
multiply the dealer’s cost for the parts by the dealer’s average percentage
markup over dealer cost for those parts. Wis. Stat. §218.0125(3m)(b). The
defendant proposes to calculate the parts component of its price increase “by
aggregating the total estimated amount of increased warranty parts
reimbursement it is required to pay dealers in Wisconsin requesting warranty
18

parts reimbursement under the Act and then dividing that amount by the
projected number of vehicles that will be purchased by those dealers.” Dkt. No.
19 at 11.
The defendant has indicated that it will charge an “initial” price increase
of $219 per vehicle for those dealers who request compensation for parts only,
and $389 for those dealers requesting compensation for parts and labor. Id. at
11-12. The defendant asserts that it is tying the price increase to the number
of vehicles the dealer purchases from the defendant, “not the amount or
frequency of its warranty activity.” Dkt. No. 21 at 7-8. The defendant also notes
that dealers can control how frequently they buy new GM vehicles, and how
many they buy, as well retail prices charged to customers. Id. at 8. The
defendant also notes that it offered to allow any dealer who already was
receiving compensation “to revert to the parties’ contract rate”—in other words,
to stop taking advantage of the statutory compensation—“in order to avoid the
price increase.” Dkt. No. 19 at 12.
Will the proposed price increase based on the number of new vehicles a
dealer buys effectively reduce the “reasonable compensation” received by the
dealers who request it? For those dealers who, in the face of the proposed price
increase, accept the defendant’s offer to revert to the contract rate, the answer
is no. Reverting to the contract price would be their prerogative. The statute
does not require a dealer to seek compensation—whether to do so is the
dealer’s choice.

19

For those dealers who continue to seek statutory compensation, the
court believes that the answer also is no, although it is more complicated. Take
plaintiff Don Johnson Hayward Motors, Inc. as an example. According to the
stipulated facts, at a labor rate of $97.28 and a predicted 1,676.2 labor hours
in a year, the dealer would be entitled to $163,060.73 in labor reimbursement
for that year. Dkt. No. 15 at ¶39. Under the defendant’s proposed “cost
recovery” plan, that is the amount the defendant would pay the dealership. It is
the same amount the defendant would have paid the dealership absent the
“cost recovery” plan’s implementation. But if the dealership purchased twentyfive new cars after implementation of the “cost recovery” plan, it would pay
$9,7253 more for those cars than the GM franchisee in the next town that did
not seek reimbursement.
The increased cost would impact the dealership’s bottom line. It might
require the dealership to charge its customers a higher retail price, or cause it
to cut costs to avoid retail price increases. But it is a stretch to say that this
kind of indirect impact mandates the conclusion that the cost recovery
program denies dealers the “reasonable compensation” required by the plain
language of the statute.
5.

Other Decisions Construing Similar Statues and Plans

Perhaps the court’s conclusion above should be the end of the
discussion. The defendant’s “cost recovery” plan does not violate the plain

This number assumes a price increase of $389 per vehicle, which is the price
increase the defendant proposes for both the parts and labor component.
3

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language of the statute requiring manufacturers to “reasonably compensate”
those qualifying dealers who request such compensation. But because no
Wisconsin state or federal court has addressed whether a manufacturer’s cost
recovery surcharge violates Wis. Stat. §218.0125, the parties both urge the
court to consider how other courts have looked at similar plans in relation to
similar statutes in other states.
For example, the state of Maine had a statute that required a franchisor
to compensate franchisees for parts at the franchisee’s retail cost. Acadia
Motors v. Ford Motor Co., 44 F.3d 1050, 1052 (1st Cir. 1995). To recover the
cost of this statutory requirement, Ford increased the sticker price of every car
it sold in the state by $160. Id. at 1052-53. In upholding the surcharge, the
First Circuit stated that “[n]othing in the language [of the statute] prohibits a
manufacturer from increasing vehicle prices in order to recover its increased
compliance costs.” Id. at 1056. The court reasoned that because “statute says
nothing about wholesale or retail prices,” it “leaves the manufacturer free to
increase wholesale prices, and the dealer to increase retail prices.” Id.4
That is the reasoning the defendant has employed here; as the court
noted above, it found that argument less compelling than did the First Circuit.
A similar New Jersey statute required manufacturers to reimburse its
dealers for parts used in warranty repairs at the dealers’ prevailing retail price,

The Maine statute subsequently was amended to prohibit manufacturers from
adding state-specific surcharges to wholesale motor prices in order to recoup
the costs of their compliance with retail-rate reimbursement statutes. Alliance
of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 32 (1st Cir. 2005).
4

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which was higher than the provisions in the standard dealer agreements.
Liberty Lincoln-Mercury v. Ford Motor Co., 676 F.3d 318, 321-22 (3d Cir.
2012). In New Jersey,
Ford [had] calculated, for each New Jersey dealer, the cost of
increased warranty reimbursements due to the higher retail
reimbursement rate, and then divided that total by the number
of wholesale vehicles purchased by that same dealer. That
amount constituted the surcharge added to the wholesale price
of every vehicle purchased by that specific dealer.
Consequently, the wholesale vehicle surcharge a dealer faced
would increase in direct proportion to the amount of warranty
claims the dealer submitted.
Id. at 322. Franchise dealers sued, and the district court concluded that that
cost recovery plan violated the New Jersey statute. Id. (citing Liberty LincolnMercury, Inc. v. Ford Motor Co. (Liberty I), 923 F. Supp. 665, 667-70 (D.N.J.
1996), aff’d in part, 134 F.3d 557, 564 (3d Cir. 1998) (Liberty II)). So, Ford
devised a new plan—it calculated how much it cost for Ford to comply with the
New Jersey statute, and divided that by the total number of cars it sold in the
state. It imposed the resulting number as a “flat surcharge for every wholesale
vehicle sold in the State, rather than a surcharge that varied across dealers.”
Id. So—the more cars a New Jersey dealer bought, the more flat surcharges it
paid, regardless of how many warranty repair reimbursements it received. Id.
The dealers challenged this new plan. The district court concluded that
the new plan also violated the statute. Id. The Third Circuit disagreed. Like the
First Circuit in Acadia, the Third Circuit concluded that the New Jersey statute
“permit[ted] cost-recovery systems using bona fide wholesale price increases,”
because the statute did not “impose limitations on wholesale vehicle
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transactions.” Id. at 324. The court held that because the new Ford plan was a
“flat surcharge assessed on all wholesale vehicles sold within the State,” and
depended on the number of cars a dealer sold and not the number of statutory
reimbursements, the new plan was not subject to regulation under the New
Jersey statute. Id. at 325.
The plaintiffs point out that the Third Circuit had rejected Ford’s first
crack at a New Jersey cost-recovery plan—the one where it took an individual
dealer’s warranty reimbursement costs and divided it by the number of cars
that dealer invoiced in that month. Liberty II, 134 F.3d at 565. While the court
found that the New Jersey statute did not “preclude cost-recovery systems
effected through wholesale vehicle price increases,” it concluded that Ford’s
plan was not such a system. Id. at 564. The Third Circuit found it critical that
Ford based its first plan on the number of reimbursements each dealer
received, finding that “[w]hen a dealer incurs financial burdens upon making a
retail-rate warranty reimbursement claim, the dealer, in effect, is compensated
for the warranty transaction at a below-retail rate, which the [New Jersey]
statute forbids.” Id. at 564-65. The court compared that to a plan in which a
dealer “incurs financial burdens as a result of other transactions;” under that
kind of plan, the court found, “those [financial] burdens may reduce the return
the dealer receives on those transactions, but the terms of those transactions
are unregulated. Therefore the decreased compensation associated with those
transactions does not violate the statute as does a below-retail rate of
compensation for installing warranty parts.” Id. at 565.
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The Third Circuit’s reasoning as to Ford’s first New Jersey plan is a bit
like the court’s reasoning as to the defendant’s Wisconsin plan. It is hard to
characterize the defendant’s proposed price increase as a reduction in the
dealers’ statutorily-mandated reasonable compensation; while it imposes a
financial burden on the dealers for buying new vehicles wholesale, the result is
a reduction in the dealer’s return on the subsequent retail sale, not a reduction
in the reasonable compensation.
6.

The Fairness Argument

There is a difference between Wisconsin’s statute and the Maine and New
Jersey statutes. The Maine and New Jersey statutes required manufacturers to
reimburse all dealers at the retail rate for parts. Dealers did not have to ask for
reimbursement; every dealer in the state received reimbursement under the
statute, whether they sought it or not. Dealers did not “opt in” to the more
costly reimbursement. In Wisconsin, a dealer gets the more costly
compensation only if the dealer asks for it.
There is a related difference between the plans the First and Third
Circuits approved and the defendant’s proposed Wisconsin plan. The plans
those courts approved increased wholesale prices on all cars purchased by all
dealers; the defendant’s Wisconsin plan surcharges only those cars purchased
by dealers who elect to receive statutory compensation.
Looking at these two facts from one perspective, one could argue that the
defendant’s Wisconsin plan is identical in principle to the Ford plans approved
in Acadia and Liberty II; it recoups costs by increasing wholesale prices (as the
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plaintiffs have conceded it is entitled to do, dkt. no. 17 at 8) for all dealers
responsible for the defendant’s increased costs, and it does so without regard
to how many times they perform repairs or how much statutory compensation
they receive.
Viewed from another perspective, the defendant’s Wisconsin plan raises
wholesale prices only for those dealers who qualify for, and exercise their right
to request, statutory compensation. Looking at the situation from this angle,
one has a sense that there is something “unfair” about this—that dealers like
the plaintiffs, who have done nothing more than what the law allows them to
do, are being “punished” by having to pay higher prices for the defendant’s
vehicles than dealers who elected not to avail themselves of the compensation
provided by §218.0125(3m).
The plaintiffs go further, arguing that the plan discriminates among
dealers. They argue that in cases where a dealer buys lots of cars, but does not
do a lot of warranty word or receive much warranty compensation, the
surcharge “penalizes the dealer for exercising its statutory right by ‘an
offsetting debit’ that exceeds the increased compensation it receives under the
statute,” and characterize this as “discrimination.” Dkt. No. 17 at 14. They
illustrate this possibility in their reply brief, describing four hypothetical deals,
each receiving a different amount of compensation, each purchasing a different
number of vehicles. Dkt. No. 22 at 8. The hypothetical dealer who receives
$400,000 in warranty compensation and buys 1,250 new cars would be
subject to a $312,500 surcharge; that dealer would end up receiving $87,500
25

more in warranty compensation than it would pay in surcharges. In contrast, a
dealer who received only $200,000 in warranty compensation and purchased
only 1,000 new cars would be surcharged $250,000, and would end up
receiving $50,000 less in warranty compensation that it pays in surcharges.
These hypotheticals, the plaintiffs argue, demonstrate that the defendant’s plan
violates the statute, by providing less than reasonable compensation to some
dealers.
This is an argument that the defendant’s plan is not fair, in the generic
sense of the word. As the court already has discussed, the first dealer will
receive the $400,000 in reasonable compensation to which it is entitled under
the statute. The second dealer will receive the $200,000 in reasonable
compensation to which it is entitled under the statute. The new vehicle
purchase patterns of the two dealers are different, and will result in different
surcharges and different impacts on their bottom lines. But it does not follow
that the plan violates the Wisconsin statute; both dealers receive the
reasonable compensation the statute requires.
The plaintiffs also present a sort of “slippery slope” argument, predicting
the impact the defendant’s plan will have. They argue that if the defendant’s
plan goes into effect, “the only economically rational choice for the dealers who
pay more in surcharges than the increased warranty compensation they receive
under § 218.0125 will be to relinquish their statutory rights and accept the
rates offered by [the defendant.]” Id. at 9. They speculate that eventually the
only dealers who will be subject to the surcharge are the dealers whose
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statutory compensation exceeds their wholesale purchase surcharges, and
voila!—the defendant’s Wisconsin surcharge will be directly linked to the
amount of compensation those dealers receive, just like the plan the Third
Circuit struck down in Liberty I. Id.
This argument is speculative, and the reasoning does not necessarily
follow. Even if the only dealers subject to the surcharge are dealers who do so
much warranty work that their reasonable compensation for that work exceeds
the surcharge they pay on new vehicle purchases, they still would be receiving
the reasonable compensation required by the statute. While they would suffer a
decrease to their bottom line, that decrease still would result from the number
of new vehicles purchased, and would not be a deduction from the reasonable
compensation.
7.

Summary

It may be that “[s]omething is rotten in the state of Denmark.”5 There
may be something problematic with the defendant’s plan to increase wholesale
car prices only for those dealerships that receive compensation under
§218.0125. The plaintiffs have reserve the right to challenge the plan in other
ways, if the court rules against them on this challenge. Dkt. No. 17 at n.3. The
court cannot predict how it would rule on any other challenge to the proposed
plan. The court rules only on the claim that the plan violates §218.0125, and
finds that it does not.

5

WILLIAM SHAKESPEARE, HAMLET act 1, sc. 4.
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The parties have not addressed the merits of Counts Three and Four. The
parties agreed that the plaintiffs would have the right to file an amended
complaint within twenty days after the court issued this ruling, “which
Amended Complaint may raise other claims for relief arising out of the
proposed charges set forth and described in Complaint Exhibit 1, to the extend
they are not resolved by the opinion and order.” Dkt. No. 12 at 2. The court
approved that stipulation. Dkt. No. 13 at 2. The court will allow the plaintiffs
that time to file the amended complaint.
IV.

Conclusion
The court DENIES the plaintiffs’ motion for summary judgment, dkt. no.

16, and GRANTS the defendants’ motion for summary judgment on Counts
One and Two, dkt. no. 18. The court ORDERS that the plaintiffs shall file an
amended complaint within twenty days of the date of this order.
Dated at Milwaukee, Wisconsin, this 24th day of September, 2018.
BY THE COURT:
______________________________
HON. PAMELA PEPPER
United States District Judge

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