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Darling's Hyundai v. Hyundai Motor America

Superior Court of Maine, Kennebec

January 20, 2015

DARLING'S HYUNDAI, Plaintiff - Appellee,
v.
HYUNDAI MOTOR AMERICA, Defendant-Appellant.

ORDER

MICHAELA MURPHY, JUSTICE

Defendant/Appellant Hyundai Motor America ("Hyundai") appeals the District Court's small claims opinion in Docket Nos. SC-2013-0287, SC-2013-0289, and SC-2013-0290 (collectively, the Small Claims Judgment) pursuant to M.R. Civ. P. 76D. The Small Claims Judgment held that Darling's was entitled to a 94% markup under 10 M.R.S.A. § 1176 ("section 1176") on remanufactured radio, rear seat entertainment ("RSE"), and Navigation units (collectively, the "remanufactured units") installed under warranties on Hyundai vehicles. Hyundai argues it is not required to pay Darling's the 94% markup because Darling's did not "provide" the remanufactured units under the meaning of section 1176. Darling's argues the District Court properly found Hyundai was required to pay the markup because, from the perspective of the vehicle owner, Hyundai does "provide" the remanufactured units.

For the reasons discussed below, the court denies Hyundai's M.R. Civ. P. 76D appeal.

I. Background

Darling's is an automobile dealer/franchisee of Hyundai, the manufacturer/franchisor. Darling's is contractually required to perform warranty repairs on Hyundai vehicles at no cost to the customer. Darling's filed four small claims actions in the Augusta District Court in May of 2013 regarding warranty repairs. The District Court ruled in favor of Darling's and Hyundai appealed the judgment on three of the four claims.

In the three claims at issue, Darling's performed repairs on Hyundai vehicles covered by Hyundai's express warranty at no charge to the customers. Pursuant to the parties' agreement, as embodied by the 2013 Hyundai Warranty Policy and Procedure's Manual ("Warranty Manual"), Hyundai reimburses Darling's for labor costs and for the Hyundai parts used in warranty repairs.

Section 5.1 of the Warranty Manual provides that Hyundai will reimburse Darling's for the costs of the parts by paying the dealer net price plus an additional parts handling allowance based on the dealer net price. Hyundai utilizes a 40% markup on the dealer net price as the "parts handling allowance" for nearly all of its dealers in the country. Maine dealers, however, are afforded a different parts handling allowance per Maine law. Specifically, section 1176 requires the manufacturer to reimburse the dealer for any parts provided at "the retail rate customarily charged by that [dealer] for the same parts when not provided in satisfaction of a warranty..." 10 M.R.S.A. § 1176. The "retail rate" is the price that a dealer would "customarily" charge a nonwarranty customer for that same part. See Darling's v. Ford Motor Co., 1998 ME 232, 18, 719 A.2d 111 (hereinafter "Ford Motor Co. 1998").[1] Here, the parties stipulated that the "retail rate, " or the average percentage markup, to be applied to all parts used by Darling's in warranty repairs is 94%. Accordingly, each time Darling's performs a warranty repair, it receives a reimbursement including both the dealer net price and the 94% markup from Hyundai.

In the three cases at issue, Darling's performed repairs in which the remanufactured units were installed under warranty. The repairs at issue are governed by section 5.6 of the Warranty Manual, which explains that, unlike most other parts, Darling's is not required to keep a supply of new radio, RSE, or navigation units. Instead, Darling's must replace these defective parts with the remanufactured units that are stocked by a parts distribution center. When Darling's orders and receives a remanufactured unit, Hyundai invoices Darling's for the remanufactured dealer net price. After Darling's installs the remanufactured unit, it must mail the defective unit back to Hyundai to receive a credit in an amount equal to the price for which it was invoiced.

The question at issue is whether Section 1176 requires Hyundai to pay the 94% markup in addition to the dealer net price for the remanufactured units.

A. Summary of the Small Claims judgment

The District Court determined that Hyundai was required to pay Darling's the 94% markup on the remanufactured units. Small Claims Judgment, 2-4. It explained that while Darling's is not permitted to stock new radio, RSE, or navigation systems for warranty repairs, Hyundai does require Darling's to perform those warranty repairs using remanufactured parts. Id. at 3. From this, the District Court explained that viewed from the vehicle owner's perspective, Darling's has "provided" the remanufactured unit as part of the warranty process. Id.

Furthermore, the District Court explained that the Law Court rejected a construction of section 1176 similar to the one proffered by Hyundai in Ford Motor Co. 1998. In that case, the manufacturer argued that section 1176 did not cover, and that markup payments were not owed for, "sublet repairs, " i.e. repairs that "occur when the dealer must make a repair, but cannot provide the specialized labor or materials required to make the repair." Id. (quoting Ford Motor Co. 1998, 1998 ME 232, ¶ 20, 219 A.2d 111). The dealer must instead hire a subcontractor to make the repair. Id. The Law Court rejected the manufacturer's argument that the dealer was not "providing" the labor or parts involved in the sublet repairs as the term is used in section 1176 explaining:

We determine that section 1176 includes reimbursement for sublet repairs. The statute governs reimbursement of all repairs in which a manufacturer "requires or permits a motor vehicle franchisee to perform labor or provide parts in satisfaction of a warranty..." 10 M.R.S.A. § 117(1997). Since section 1176 applies to all warranty repairs, it applies to warranty repairs accepted by dealers who lack the ability to make all repairs on their premises, as well as to the dealers who have the ability to make all repairs on their premises.

Id. (quoting Ford Motor Co. 1998, 1998 ME 232, ¶ 21, 219 A.2d 111. Accordingly, the District Court held that section 1176 applies to warranty repairs involving Hyundai ...


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