Amicus Curiae Brief — Motor Vehicle Manufacturers Ass'n of United States v. Abrams

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In the Supreme Court of the Unite [ati ne a | ;

OCTOBER TERM, 1990

MoToR VEHICLE MANUFACTURERS ASSOCIATION OF THE

UNITED STATES, INC., ET AL., PETITIONERS

Vv.

ROBERT ABRAMS, ATTORNEY GENERAL

OF THE STATE OF NEW YORK

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

PR SSASER TEN SE

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

KENNETH W. STARR

Solicitor General

STUART M. GERSON

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

ROBERT A. LONG, JR.

Assistant to the Solicitor General

DOUGLAS LETTER

MATTHEW M. COLLETTE

Attorneys

JAMES M. SPEARS Department of Justice

General Counsel Washington, D.C. 20530

JaY C. SHAFFER (220) 514-2217

Deputy General Counsel

ERNEST J. ISENSTADT

Assistant General Counsel

MELVIN H. ORLANS

Attorney

Federal Trade Commission

Washington, D.C. 20580

QUESTION PRESENTED

The Magnuson-Moss Warranty Act directs the Federal

Trade Commission to establish “minimum standards” for

informal dispute resolution mechanisms under the Act.

This case presents the question whether the Act, or FTC

regulations promulgated under the Act, preempts the in-

formal dispute resolution provisions of New York’s

“lemon law.”

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TABLE OF CONTENTS

Page

a acl sul ieasctnepennennatnnion 1

Nee em dehicabapuedansioiahipendatontaboand 6

ELA CRE elridcatea dn ction caaditheatetaash 20

TABLE OF AUTHORITIES

Cases:

Automobile Importers of America v. Minnesota,

871 F.2d 717 (8th Cir. 1989) _......222 17, 18

Boyle v. United Technologies Corp., 487 U.S. 500

ESTES Ea cone A 8,13

California v. ARC America Corp., 109 S. Ct. 1661

TTD SE a es Eo 8, 9,11

California Retail Liquor Dealers Ass’n Vv. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) ..20000202.. 17

Chrysler Corp. v. Texas Motor Vehicle Comm’n,

755 F.2d 1192 (5th Cir. 1985)... 9, 12,17

City of New York v. FCC, 486 U.S. 57 (1988) .... 8

Fidelity Fed. Sav. & Loan Ass’n V. De la Cuesta,

ele ee 8

Florida Lime & Avocado Growers, Inc. Vv. Paul,

sR Pr a 8,11

Hillsborough County v. Automated Medical Lab-

oratories, Inc., 471 U.S. 707 (1985) -.....22220..... 15

Hines Vv. Davidowitz, 312 U.S. 52 (1941) 22000. 8

International Paper Co. v. Ouellette, 479 U.S. 481

YSERA SC Sane Oran Sr Mees ea 18, 14, 16

Ray Vv. Atlantic Richfield Co., 485 U.S. 151 (1978)... 10

Rice v. Santa Fe Elevator Corp., 331 U.S. 218

EPS Ee Bale Cree A SF, ET) 9

Schneidewind v. ANR Pipeline Co., 485 U.S. 298

ENE AOR ETT Ea CO ae Oe SY Oe SCE eS 8

Testa V. Katt, 330 U.S. 386 (1947) —...000002 17

United States v. Kimbell Foods, Inc., 440 U.S. 715

ESSAI ARE SAMRAT ee a 8

Wolf v. Ford Motor Co., 829 F.2d 1277 (4th Cir.

GLE ESE AN Cte SR ECE Ae 17, 18

Constitution, statutes and rules: Page

U.S. Const. Art. VI, Cl. 2 (Supremacy Clause)... 16

Magnuson-Moss Warranty-Federal Trade Com-

mission Improvement Act of 1975, Pub. L. No.

Sees ee es 1

rs SS 5 fk REE een 1

EE eee 3

abet 1,2

NG 2,3

I oi ccantnaninecniianintiniaiiplahalins 2,3

SN A Ce RT en 2

i eelianiibintnbe 9,10

15 U.S.C. 2810 (a) (1) 2... cee 2,14

pT Die ok ONT | ASR U Cee EnEne 2,10, 14

8) Ear aeeene ee 2

16 UB en te (4)... nneccenennneeesse 2,18

Be RR cen cnassvetenennececscseesenncones 18

_ Tere 2

EEA ee 10

pL SE: ern nenenenee 2,9

Be I OD oiticitenitennensetnnensecinicneene 3

15 U.S.C. 2811 (c) (1) (A) 22-22... 8

N.Y. Gen. Bus. Law (McKinney 1988) :

SEAVER SS RS ISS ee ee 4

§ 198-a(b) (Supp. 1990) -.......... 4

8 ESS EE SE ee 5

ES SO SR cL ee ee 5

iss shaninnibebainaielice E

I as tslatnmie 5

| aes een 5

TELE Ee I, oS ee 5

I I CI cineca ccnctinsmscenunniasnsintianiselinbinhons 16

a a iit vaste niteincstitsnnniichnneiinninncincnncinarais 3

as SD Oe ce OR Roe passim

i cisalaneeiaedeonnin 3

a isaaciaiianaiaiia 3

Section 708.2 (tb) (8) .................-......ccccccsceeees 4,10

ES II RED RR SR 3

a RE a 3

TET EE ERAS eR 3

Statutes and rules—Continued : Page

i sanernnnaa 3

aE |) ¢ Fae 4,16

ET RR REE 4, 13, 15

Sections 703.6-703.7 000... wali 3

Miscellaneous:

40 Fed. Reg. (1975) :

p. 60,168 (16 C.F.R. Pt. 703 (Subch. G) ) .......... 3

ETRE TOP era 4,10

RRS rhc i POE eR 3, 14

SS AS rac 4

EE Ae Re 16

TEA HR REM IEE ea rr To 15

RE 18, 15, 16

ERECTA eae Te atten Rat Se 16

SE a enon 16

43 Fed. Reg. (1978) :

i i tis cadena 10

ae ee ee aT 10

54 Fed. Reg. 21,070 (1989) .............occccece cece eee 4

S. Conf. Rep. No. 1408, 98d Cong., 2d Sess. (1974) .. 10

Iu the Supreme Court of the United States

OCTOBER TERM, 1990

No. 89-2026

MoToR VEHICLE MANUFACTURERS ASSOCIATION OF THE

UNITED STATES, INC., ET AL., PETITIONERS

ROBERT ABRAMS, ATTORNEY GENERAL

OF THE STATE OF NEW YORK

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court’s in-

vitation to the Solicitor General to express the views of

the United States in this case.

STATEMENT

1. Congress enacted the Magnuson-Moss Warranty-

Federal Trade Commission Improvement Act of 1975

(Warranty Act), Pub. L. No. 93-637, 88 Stat. 2183 (codi-

fied at 15 U.S.C. 2301-2312), to “improve the adequacy

of information available to consumers, prevent deception,

and improve competition in the marketing of consumer

products.” 15 U.S.C. 2302(a). The Warranty Act does

not require manufacturers to offer warranties, but pro-

vides that “any warrantor warranting a consumer prod-

uct to a consumer by means of a written warranty shall,

(1)

to the extent required by rules of the [Federal Trade]

Commission, fully and conspicuously disclose in simple

and readily understood language the terms and conditions

of such warranty.” 15 U.S.C. 2302(a). The Act requires

warrantors to designate written warranties on consumer

products as either “full” or “limited” (Section 2303),

provides minimum standards for “full” warranties (Sec-

tion 2304), ed limits the extent to which a written war-

ranty may disclaim or modify implied warranties (Sec-

tion 2308). Consumers may enforce their rights under

the Act by filing an action for damages and other relief

in federal district court (subject to amount in contro-

versy requirements) or in state court. 15 U.S.C. 2310(d).

In addition to providing for increased disclosure by

warrantors, the Warranty Act was intended “to encour-

age warrantors to establish procedures whereby consumer

disputes are fairly and expeditiously settled through in-

formal dispute settlement mechanisms.” 15 U.S.C. 2310

(a (1). To further this goal, Congress directed the Fed-

eral Trade Commission (FTC) to “prescribe rules setting

forth minimum requirements for any informal dispute

settlement procedure which is incorporated into the terms

of a written warranty” covered by the Act. 15 U.S.C,

2310(a) (2). The Act does not require warrantors to es-

tablish alternative dispute resolution (ADR) mechanisms,

but a warrantor providing a procedure that meets the

FTC’s minimum requirements may require the consumer

to resort to the procedure before filing a civil action under

the Warranty Act. See 15 U.S.C. 2310(a) (3). The FTC

has authority to “review the bona fide operation of any

dispute settlement procedure” under the Act, and to “take

appropriate remedial action” if the procedure fails to

comply with federal standards. 15 U.S.C. 2310‘a) (4).

The Warranty Act contains a saving clause, which pro-

vides that “|n]othing in this chapter shall invalidate or

restrict any right or remedy of any consumer under State

law or any other Federal law.” 15 U.S.C. 2311(b) (1),

Immediately following the saving clause is a preemption

clause, which states that the Act preempts any state label-

ing or disclosure laws that are not identical to 15 U.S.C.

2302, 2303, or 2304. 15 U.S.C, 2311(¢) (1).

2. In 1975, the FTC promulgated regulations imple-

menting the Warranty Act. See 40 Fed. Reg. 60,168

(1975) (codified at 16 C.F.R., subch. G). The require-

ments for ADR mechanisms under the Warranty Act are

set out in the FTC’s “Rule 703,” 16 C.F.R. Pt. 703. In

adopting Rule 708, the FTC concluded that the Warranty

Act’s goal of promoting fair and expeditious settlement

of warranty disputes through ADR mechanisms “is best

implemented by a careful balancing of consumer and war-

rantor interests.” 40 Fed. Reg. 60,198 (1975). The

FTC noted that “[i]f costs are too high, warrantors may

decline to incorporate [ADR] Mechanisms [in their war-

ranties]; in any event, costs will ba passed through to

consumers in the form of higher product prices.” /bid.

Rule 703 requires, inter alia, that ADR mechanisms be

sufficiently funded, “competently staffed,” and not charge

any fee to consumers, 16 C.F.R. 703.3(a); that decision

makers be “sufficiently insulated from the warrantor and

the sponsor,” 16 C.F.R. 703.3(b), and “interested in the

fair and expeditious settlement of consumer disputes,”

16 C.F.R. 708.4(¢); and that mechanisms establish “writ-

ten operating procedures,” “investigate, gather and or-

ganize all information necessary for a fair and expedi-

tious decision,” and “[rjender a fair decision,” 16

C.F.R. 703.5. In addition, Rule 703 establishes a time-

table for resolving disputes, 16 C.F.R. 703.5, recordkeep-

ing and auditing requirements, 16 C.F.R. 703.6-703.7,

and requires specific disclosures to consumers concerning

dispute settlement procedures, 16 C.F.R. 703.2. A war-

rantor may operate, but “shall not incorporate into the

terms of a written warranty a Mechanism that fails to

comply” with these requirements. 16 C.F.R. 703.2(a).

Rule 703 states that “|t]he Mechanism may allow an

oral presentation by a party to a dispute * * * only if

* * * |bjoth warrantor and consumer expressly agree to

the presentation” and the mechanism fully discloses to

the consumer specific information regarding the proce-

dures of the hearing. 16 C.F.R. 703.5(f). The Rule fur-

ther specifies that “[d]Jecisions of the mechanism shall

not be legally binding on any person,” but requires the

warrantor to act in good faith. 16 C.F.R. 703.5(j).

In adopting Rule 703, the FTC explained that “the

consumer would be required to resort to the warrantor’s

complying mechanism only when pursuing rights or rem-

edies newly created by [the Warranty Act].” 40 Fed.

Reg. 60,191 (1975); see also id. at 60,194 (“the Act only

allows the Mechanism to delay consumers seeking rights

or remedies newly created by Title I of the [Warranty]

Act”). Accordingly, Rule 703 requires the warrantor to

disclose in the warranty “that if a consumer chooses to

seek redress by pursuing rights and remedies not created

by Title I of the Act, resort to the Mechanism would not

be required under any provision of the Act.” ’ 16 C.F.R.

703.2 (b) (3).

3. Since 1982, nearly every State has enacted a “lemon

law” to provide increased protection for buyers of new

cars. New York’s lemon law, originally enacted in

1983, sets a minimum duration for warranties and sim-

plifies the procedures for obtaining relief. See N.Y. Gen.

Bus. Law $ 198-a (McKinney 1988). The key provisions

of the New York law require manufacturers to repair,

free of charge, any defect that fails to conform to a

written warranty during the first 18,000 miles or two

years after delivery, id. $198-a(b) (Supp. 1990), and

allows consumers to obtain a replacement vehicle or a

refund of the purchase price if a defect occurring within

10n April 11, 1988, petitioners filed a petition with the FTC

asking the agency to initiate a rulemaking proceeding to determine

whether the FTC should preempt state laws that impose require-

ments on ADK mechanisms that differ from the requirements of

tule 703. On May 16, 1989, the FTC published an advance notice

of proposed rulemaking requesting public comment on whether

to initiate a review of Rule 702%. See 54 Fed. Reg. 21,070 (1989).

The FTC has as yet taken no further action.

the statutory period substantially impairs the automo-

bile’s value, and the manufacturer is unable to repair

the vehicle after four attempts or the vehicle is out of

service for 30 days or more. Z/d. § 198-aic)-(d). The

original version of the New York lemon law permitted

consumers to sue in state court to obtain a refund or re-

placement vehicle, but required consumers to resort first

to a manufacturer’s ADR mechanism if that mechanism

complied in ali respects with the FTC’s Rule 703. Id.

£ 198-a(g) (McKinney 1988).

In 1986, New York amended its lemon law to add the

provisions at issue in this case. The amendments were

passed in response to “growing consumer dissatisfaction

with informal dispute settlement mechanisms” adminis-

tered by motor vehicle manufacturers. See Pet. App. 4

(citing Approval Memorandum of Governor Cuomo, §S.

5342-A, Aug. 2, 1986). Under the amended statute, man-

ufacturers are not required to offer an ADR mechanism. »

But the amended law provides that “{i]f a manufacturer

has established an informal dispute settlement mechan-

ism, such mechanism shall comply in all respects with the

provisions of this section.” § 198-a(g). The New York

law provides that “{e]ach manufacturer shall require that

each informal dispute resolution mechanism used by it

provide, at a minimum,” for a mandatory oral hearing

at the request of the consumer. § 198a(m)(1) (i). The

amended New York statute also imposes additional rec-

ordkeeping requirements (§ 198-a(m)(3)), and requires

mechanism staff to receive training in arbitration and in

the New York lemon law, § 198-a(m) (1) (i). In addi-

tion, each mechanism must provide for remedies of re-

pair and replacement under certain circumstances. § 198-

a(m)(1) (iii). The New York lemon law makes the

mechanism decision binding upon the warrantor if the

consumer accepts the decision within thirty days. § 198-

ath).

4, Shortly after enactment of the 1986 lemon law

amendments, petitioners brought this action for declar-

atory relief. They sought, among other things, a declara-

tion that the Warranty Act and the FTC’s regulations

preempt the ADR provisions of the 1986 New York

lemon law amendments.

The district court held that the Warranty Act implic-

itly preempts the New York lemon law. The court

concluded that the Warranty Act occupies the field of

ADR mechanisms and leaves “no room in this system

for the states to tinker with the federal criteria, possibly

discouraging the creation of mechanisms.”’ Pet. App. A33.

The district court also held that the lemon law’s addi-

tional provisions conflict with the Warranty Act and FTC

regulations (Pet. App. A38-A39), and deprive warran-

tors of their “federally granted right to incorporate into

their warranties and require the use of any mechanism

that complies with the F.T.C.’s minimum requirements.”

Pet. App. A44. .

5. The court of appeals reversed. The court first held

that the Warranty Act’s use of the term “minimum

standards,” and the inclusion of a broad saving clause,

show that Congress did not intend to occupy the field of

ADR mechanisms for warranty disputes. Pet. App. A8-

Al13. The court of appeals next held that there is no

actual conflict between the New York lemon law and the

Warranty Act and its regulations, since compliance with

both is possible. Pet. App. Al2-A13. Finally, the court

held that the New York lemon law does not frustrate the

purpose of the Warranty Act, since both statutes aim at

consumer protection and encourage the fair and expedi-

tious settlement of disputes. Pet. App. A16-A17.

DISCUSSION

In our view, the decision of the court of appeals is cor-

rect on all but one narrow issue. The court of appeals

correctly held that neither the Warranty Act nor the

FTC’s Rule 703 expressly preempts state law concerning

ADR mechanisms, and that federal law does not occupy

the entire field of informal procedures for resolving war-

ranty disputes. Moreover, we agree with the court of

appeals that it is possible to comply with both federal

law and the New York lemon law. And if the New York

law is construed as imposing additional requirements

only on warrantors who offer ADR mechanisms as a pre-

requisite to suit under the New York lemon law, the

state law does not frustrate the purposes of the federal

Warranty Act.

The courts below, however, apparently construed the

New York law as imposing additional requirements on

warrantors who offer an ADR mechanism as a pre-

requisite to suit under the federal Warranty Act. In our

view, States are free to provide additional warranty

rights and remedies under state law, but are not free to

alter the pre-judicial procedures of the federal cause of

action established by the Warranty Act and Rule 703.

Accordingly, to the extent that the New York lemon law

seeks to alter federal remedies, it is preempted.

Although the court of appeals failed to recognize the

foregoing distinction, we do not believe that this case

warrants further review. On the broad question pre-

sented, the court of appeals correctly held that States

are not precluded from legislating concerning informal

mechanisms for resolving warranty disputes. Contrary

to petitioners’ contention (Pet. 7-9), there is no gen-

uine conflict among the circuits on this issue. The ques-

tion whether a State can prohibit a warrantor from

offering a program that mcets federal minimum require-

ments solely as a prerequisite to suit under federal law

is a considerably narrower issue that was not squarely

considered or decided by the courts below and may not

arise with great frequency. Moreover, the States and

the lower courts have not had an opportunity to corisider

the views of the FTC on this issue, which are set out for

the first time in this brief.

i. Federal law, including federal regulations promul-

cated pursuant to authority delegated by Congress, may

expressly or impliedly supplant state law. City of New

York v. FCC, 486 U.S. 57, 63-64 (1988); Fidelity Fed.

Sav. & Loan Ass’n Vv. De la Cuesta, 458 U.S. 141, 153-

154 (1982). Congress, or an administrative agency

acting within its delegated authority, can preempt state

law by so stating in express terms. Schneidewind v. ANR

Pipeline Co., 485 U.S. 293, 299 (1988). In the absence

of explicit statutory language, courts will infer an intent

to preempt state law in two situations. First, “when

Congress intends that federal law occupy a given field,

state law is preempted.” California v. ARC America

Corp., 109 S. Ct. 1661, 1665 (1989). Second, even if

Congress has not occupied the field entirely, state law is

preempted to the extent that it actually conflicts with

federal law, either because it is impossible to comply

with both, Florida Lime & Avocado Growers, Inc. V.

Paul, 373 U.S. 132, 141-143 (1963), or because “the

application of state law would ‘frustrate specific objec-

tives’ of federal legislation,” Boyle v. United Technol-

ogies Corp., 487 U.S. 500, 507 (1988) (quoting United

States v. Kimbell Foods, Inc., 440 U.S. 715, 728 (1979) );

see also Hines v. Davidowitz, 312 U.S.. 52, 67 (1941).

2. As both courts below correctly recognized (and as

petitioners implicitly concede), neither the Warranty Act

nor the FTC’s regulations expressly preempt state reg-

ulation of informal procedures for resolving warranty

disputes. The Warranty Act’s preemption clause applies

only to state warranty laws that concern “labeling or

disclosure with respect to written warranties or perform-

ance thereunder.” 15 U.S.C. 2311(c) (1) (A). It is clear

that laws concerning ADR mechanisms do not fall within

the narrow scope of this provision. In addition, the FTC’s

regulations concerning ADR mechanisms do not expressly

preempt state law.

We also agree with the court of appeals that neither

Congress nor the FTC intended to occupy the entire field

of informal procedures for resolving warranty disputes.

This Court has stated that “[w]hen Congress legislates

in a field traditionally occupied by the States, ‘we start

with the assumption that the historic police powers of

the States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of Con-

gress.’”’ California v. ARC America Corp., 109 S. Ct.

1661, 1665 (1989) (quoting Rice v. Santa Fe Elevator

Corp., 331 U.S. 218, 230 (1947)). There is no doubt

that consumer protection and warranty law traditionally

are areas of state regulation. As the court of appeals

noted (Pet. App. A2), warranties were governed exclu-

sively by the Uniform Commercial Code and state com-

mon law until Congress enacted the Warranty Act in

1975. See also Chrysler Corp. v. Texas Motor Vehicle

Comm'n, 775 F.2d 1192, 1205 (5th Cir. 1985) (consumer

protection an area of traditional state regulation). Thus,

Congress is presumed not to have occupied the field of

informal procedures for resolving warranty disputes ab-

sent a clear and manifest purpose to do so. Congress

expressed no such purpose in the Warranty Act. On the

contrary, the Warranty Act’s saving clause broadly pro-

vides that nothing in the Act “shall invalidate or restrict

any right or remedy of any consumer under State law

or any other Federal law.” 15 U.S.C. 2311(b) (1) (em-

phasis added) .”

The legislative history of the Warranty Act confirms

that Congress did not intend to foreclose all state regu-

lation of ADR mechanisms. Aceording to the Conference

Report, “if a consumer chooses to seek redress without

*The provisions concerning informal dispute resolution proce-

dures appear in the section of the Warranty Act concerning reme-

dies, see 15 U.S.C. 2310, and are properly viewed as within the

rights and remedies preserved by the saving clause. Petitioners’

contrary assertion that informal dispute resolution procedures are

“a totally new field not traditionally a subject of state regulation,”

Pet. Reply Br. 4, is unpersuasive. See Chrysler Corp., 755 F.2d at

1206 (declining to draw a distinction between “substantive” anc

“procedural” remedies). Petitioners also assert (Pet. 17) that Con-

gress intended the saving clause to preserve only rights and reme-

dies in existence in 1975. The language of the Act draws no sucu

distinction.

utilizing the provisions of [15 U.S.C. 2310, 15 U.S.C.

2311(b)] preserves all alternative avenues of redress,

and utilization of any informal dispute settlement mech-

anism would then not be required by any provision of this

Act.” §. Conf. Rep. No. 1408, 93d Cong., 2d Sess. 27

(1974). In addition, the FTC has recognized that ‘‘the

protections of the Warranty Act are in addition to, rather

than in lieu of, warranty rights and remedies under State

law,” 43 Fed. Reg. 50,737 (1978), and that the goal of

encouraging uniform warranty documents “is subordinate

to that of permitting States to fashion their own scheme

o|f] warranty rights and remedies which may be more

protective than the minimum level of protection of the

Federal Act.” /d. at 50,738. In promulgating Rule 703,

the FTC stated that ‘the consumer would be required to

resort to [the] warrantor’s complying mechanism only

when pursuing rights or remedies newly created by [15

U.S.C. 2310).” 40 Fed. Reg. 00,191 (1975). Thus, “if

a consumer seeks redress by pursuing rights and remedies

not created by Title I of the Act,’’ Rule 703 simply does

not apply. See 16 C.F.R. 703.2 (b) (3).

Because neither the Warranty Act nor Rule 703 pur-

ports to govern dispute settlement mechanisms for state

law claims, the States remain free to provide different

or additicnal remedies, including ADR mechanisms, as a

matter of state law.’

3 In concluding that Congress did not intend to occupy the field,

the court of appeals relied in part on Congress’s direction to the

FTC to establish “minimum requirements” for informal dispute

settlement procedures. 15 U.S.C. 2310(a) (2). The court said that

the phrase “strongly suggests that Congress intended federal law

in this area to supplement, not supplant, the rights and remedies

provided by state law.” Pet. App. A&8. We would not ascribe con-

trolling significance to the phrase “minimum requirements.” The

statutory language might be construed either to permit warrantors

to adopt additional, voluntary standards (see Ray v. Atlantic Rich-

feld Co., 435 U.S. 151, 168 n.19 (1978)), or to permit States to

impose additional, mandatory standards on warrantors who offer

an ADR mechanism as a prerequisite to suit under the Warranty

3. State law also is preempted to the extent that it

actually conflicts with federal law. California v. ARC

America Corp., 109 S. Ct. at 1665. In our view, the an-

swer to the question whether the New York lemon law

conflicts with the Warranty Act depends upon interpreta-

tion of the New York statute.

a. If the New York lemon law is interpreted to impose

additional requirements, over and above those established

by Rule 703, only for ADR mechanisms offered as a pre-

requisite to suit under state law, then the state law does

not conflict with the Warranty Act or Rule 703. If the

lemon law is so construed, it is possible for warrantors to

comply with both federal and state law in a variety of

ways—for example, by setting up two ADR mechanisms

(one that meets federal requirements, another that meets

state requirements), or by not requiring consumers to

resort to an ADR mechanism as a prerequisite to filing

suit under the Warranty Act, or by declining to adopt

any ADR mechanism. Nor would the lemon law, so con-

strued, frustrate the purposes of federal law. Neither

the Warranty Act nor Rule 703 purports to govern ADR

mechanisms used for purposes of state law. Even if state

law prescribes additional or conflicting ADR _ require-

ments, warrantors remain free to set up an ADR mecha-

nism that meets only the minimum federal requirements

as a prerequisite to suit under the Warranty Act.*

Act (see Florida Lime & Avocado Growers, 373 U.S. at 147-148).

As we explain more fully, pp. 13-16, infra, we think the former

interpretation is correct, given Congress’s delegation of responsi-

bility to the FTC and the FTC’s considered decision to strike a

particular balance between consumer interests and warrantor costs.

Wholly apart from the “minimum requirements” language, how-

ever, the court of appeals plainly reached the correct result in hold-

ing that neither Congress nor the FTC intended to occupy the

entire field of informal warranty dispute resolution mechanisms.

4 It is possible that, in practice, some warrantors will be unwill-

ing to bear the expense of operating two separate ADR mechanisms.

But neither Congress nor the FTC has made this empirical deter-

mination. And even if warrantors were unwilling to operate two

The Fifth Cireuit recognized the validity of such a dual

system in Chrysler Corp. v. Texas Motor Vehicle

Comm’n, 755 F.2d 1192 (1985). In that case, the court

noted that the Texas ADR mechanism operated separately

from “alternative private mediation systems under sec-

tion 110 of Magnuson-Moss.” Jd. at 1206. Consequently,

Texas consumers could choose between a mechanism cre-

ated under the Warranty Act, or invoke the state-run

system, or even pursue one remedy and then the other.

Ibid.

b. Although it was not a central focus of the litiga-

tion, the courts below appear to have construed the New

York lemon law as imposing additional requirements even

on ADR mechanisms established solely as a prerequisite

to suit under the federal Warranty Act. See Pet. App.

A4-A5, A8, A15, A19. Under this more expansive inter-

pretation of the New York law, a warrantor is not per-

mitted to establish a mechanism that meets only the mini-

mum requirements of Rule 703 as a prerequisite to suit

under the Warranty Act. Nor is a warrantor permitted

to operate one mechanism for purposes of federal law and

another for state law purposes. Instead, a warrantor

wishing to require consumers to resort to an ADR proc-

ess before suing under the Warranty Act must establish

a mechanism that meets the requirements of state law.

Even if the New York lemon law is interpreted expan-

sively to apply to ADR mechanisms offered solely as a

prerequisite to suit under the Warranty Act, we agree

with the court of appeals that it is possible for warrantors

to comply with both federal and state law. A warrantor

ADR mechanisms, they might choose to operate a single mechanism

that meets federal requirements under the Warranty Act. As the

Fifth Circuit noted in Chrusler Corp. v. Teras Motor Vehicle

Comm’n, 755 F.2d 1192, 1206 (1985), “[t]here are many reasons

why a consumer might prefer the informal proceedings offered by

his manufacturer at no charge under [the Warranty Act] to [a]

state-run proceeding * * * in which a hearing is conducted and the

rules of evidence apply.”

could refrain from requiring consumers to resort to its

ADR mechanism as a prerequisite to suit under the War-

ranty Act, or it could adopt the more stringent state law

procedures to the extent not prohibited by Rule 703.°

Alternatively, it could decline to adopt any mechanism.

In our view, however, the New York lemon law, so in-

terpreted, “interferes with the methods by which the

federal statute was designed to reach [its] goal,” Inter

national Paper Co. v. Ouellette, 479 U.S. 481, 494

(1987), and is to that extent preempted.*

To determine whether a particular state law interferes

with the methods by which a federal statute is designed

to reach its goal, one must first identify with precision

the federal goal or goals at issue. Respondent points to

the “broad consumer protection goal of the [Warranty]

Act” (Br. in Opp. 10), and suggests that any state law

that favors consumers furthers rather than frustrates the

5 We disagree with petitioners’ assertion (Pet. 13-15) that a

warrantor who chooses to be bound by decisions of the ADR mecha-

nism violates Rule 703. Petitioners rely on 16 C.F.R. 703.5(j)

(“[d]ecisions of the Mechanism shall not be legally binding on any

person”) and 40 Fed. Reg. 60,211 (1975) (“reference within the

written warranty to any binding, nonjudicial remedy is prohibited

by the Rule and the Act”). Although it is true that warrantors

cannot require consumers to be bound by the decision of an ADR

mechanism operated under Rule 703, the FTC has never determined

that warrantors are barred from accepting decisions in favor of

the consumer as binding on the warrantor. Rule 703 generally does

not prevent warrantors from choosing to adopt ADR mechanisms

with features more favorable to consumers than those required by

Rule 703. And Rule 703 specifically encourages warrantors to ac-

cept informal decisions by obligating them to act in good faith.

See 16 C.F.R. 703.5(j).

® In reaching this conclusion, we recognize that courts should not

lightly infer preemption, and that this is particularly so where, as

here, the field is one traditionally regulated by the States. See

Boyle Vv. United Technologies Corp., 487 U.S. at 507-508 (1988)

(noting, in the context of displacement of state law by federal

common law, that a conflict is more readily found where the area

is “one of unique federal concern’’).

purpose of the Act and Rule 703. This approach ig-

nores the Act’s specific goal of encouraging warrantors

to establish ADR mechanisms. It also allows the States

to substitute their judgment for the FTC’s approach in

Rule 703. Petitioners, on the other hand, contend that

Congress intended to grant warrantors a “federal right

* * * to structure their warranty programs in accordance

with the needs of consumers and the demands of the

marketplace.” Pet. 20. That contention is not easily rec-

onciled with the Act’s broad saving clause, see page 2,

supra,

While the general goal of the Warranty Act un-

doubtedly is consumer protection, Congress also expressed

a more specific purpose in the ADR provisions—‘to en-

courage warrantors to establish procedures whereby con-

sumer disputes are fairly and expeditiously — settled

through informal dispute settlement mechanisms.” 15

U.S.C. 2310(a) (1). Congress directed the FTC to pre-

scribe rules to achieve this goal. 15 U.S.C. 2310(a) (2).

In promulgating Rule 703, the FTC stated:

The intent of the Act is to provide for fair and

expeditious settlement of consumer warranty dis-

putes, through informal mechanisms established vol-

untarily by warrantors. The Commission has deter-

mined that this legislative scheme is best imple-

mented by a careful balancing of consumer and war-

rantor interests. The Rule is intended to establish

a framework for fair and expeditious settlement of

warranty disputes at cost levels acceptable to war-

rantors.

40 Fed. Reg. 60,198 (1975) ‘emphasis added). Conse-

quently, the relevant inquiry is whether the New York

lemon law (if interpreted to affect the federal remedy)

impermissibly alters the balance of consumer and seller

interests struck by the Warranty Act and Rule 703."

7 This Court has recognized that state law that upsets a balance

of interests addressed by federal law is preempted. In /nterna-

tional Paper Co. V. Ouellette, 479 U.S. 481, 494 (1987), the Court

held that certain aspects of a State’s nuisance law improperly inter-

We believe that application of the New York lemon law

to ADR mechanisms established solely as a prerequisite

to suit under federal law would impermissibly alter the

balance of interests established in Rule 703. In adopting

that Rule, the FTC—in order to achieve a balance between

the interests of consumers and warrantors—specifically

rejected proposals to make mechanism decisions unilater-

ally binding upon warrantors, to require mandatory oral

hearings, and to impose more extensive recordkeeping re-

quirements on warrantors.

For example, Rule 703 provides that “[d]ecisions of

the mechanism shall not be legally binding on any per-

son.” 16 C.F.R. 703.5(j). In adopting this provision, the

FTC rejected a proposal that mechanism decisions he

made binding at the option of the consumer. Instead, the

FTC opted for a provision requiring warrantors to act

in good faith and allowing the mechanism decision to

be introduced as evidence in any subsequent civil action.

The FTC concluded that an adverse decision would have

“far greater impact on the warrantor than it will on

consumer,” but would not unduly discourage warrantors

from adopting mechanisms. 40 Fed. Reg. 60,210-60,211

(1975). The FTC was “not persuaded that making this

impact on the warrantor even greater [i.e., unilaterally

binding] would benefit consumers more than it would

discourage warrantors from adopting mechanisms.” /d.

at 60,211. Thus, application of the New York lemon law

to ADR mechanisms established under the Warranty Act

would substitute the judgment of the New York legisla-

ture for that of the FTC.

fered with the Clean Water Act, because circumvention of the

federal permit system would result in “upsetting the careful balance

of public and private interests so carefully addressed by the Act.”

See also Hillsburough County Vv. Automated Medical Laboratories,

Inc., 471 U.S. 707, 721 (1985) (ordinance providing more restric-

tive standards for the collection of blood plasma not preempted by

federal regulation establishing minimum safety standards because

“(neither Congress nor the FDA * * * has struck a particular

balance between safety and quantity’).

Similarly, 16 C.F.R. 703.5(f) provides for an oral

hearing only upon the agreement of both parties. The

FTC rejected proposals to require a hearing at the re-

quest of the consumer because it concluded that “the

need to foster a variety of Mechanisms, including na-

tional ones, is greater than the need for oral presenta-

tions at the behest of the parties,” 40 Fed. Reg. 60,209

(1975), and that mandatory hearings could be costly for

consumers, ibid,

In addition, the FTC set the recordkeeping require-

ments of Rule 708 “with a view to acceptable cost

levels.” * 40 Fed. Reg. 60,211 (1975). The FTC deleted

a provision requiring computation of the average time

between referral to an ADR process and final resolu-

tion on the ground that such a requirement “is burden-

some to compute and of questionable value.” /d. at

60,213. Instead, the FTC opted for a provision requir-

ing a record of decisions delayed beyond 40 days. /d. at

60,212-60,213. The New York lemon law resurrects the

provision rejected by the FTC. See N.Y. Gen. Bus. Law

$ 198-a(m) (3) (iv) (McKinney 1988).

In short, application of the New York lemon law to

federal remedies would “‘upset the balance of | consumer

and warrantor] interests so carefully addressed by | Rule

703]. International Paper Co. Vv. Ouellette, 479 U.S. at

494. The FTC, exercising authority delegated by Con-

gress, has determined that a particular balance of con-

sumer and warrantor interests will best achieve the goals

of the Warranty Act. To the extent that the New York

law would substitute the judgment of the New York

legislature for that of the FTC, it is preempted.

Our conclusion is reinforced by the fact that the New

York law, so interpreted, would alter the procedures by

*’ Because warrantors may be expected to respond to increased

costs by raising prices or declining to offer an ADR alternative,

a warrantor’s interest in a low-cost ADR system may be viewed

as equivalent to the consumer's long-term interest in efficient resolu-

tion of complaints.

which consumers pursue their federal right of action

under the Warranty Act. It is fundamental under the

Supremacy Clause that a State may not curtail a cause

of action authorized by federal law or impose limits on

federally prescribed rights. See generally California Re-

tail Liquor Dealers Ass’n V. Midcal Aluminum, Ine., 445

U.S. 97, 104 (1980) (a State cannot grant immunity

from the Sherman Act simply by declaring lawful a vio-

lation of the federal statute); Testa v. Katt, 330 U.S.

386, 394 (1947) (States generally are not free to deny

enforcement of claims growing out of a valid federal

law),

4. Although the court of appeals failed te recognize

the distinction between ADR mechanisms offered as a

prerequisite to suit under the Warranty Act and ADR

mechanisms offered for other purposes, we nevertheless

believe that this case warrants no further review. The

court of appeals correctly held that federal law has not

occupied the field of infortnal methods for resolving war-

ranty disputes. There is no real conflict among the cir-

cuits on this issue. Like the Second Circuit in this case,

both the Fifth and the Eighth Circuits have held that

neither the Warranty Act nor Rule 703 occupies the field

of warranty dispute resolution mechanisms. See Chrysler

Corp., 755 F.2d at 1205-1206; Automobile Importers of

America V. Minnesota, 871 F.2d 717, 719-721 (8th Cir.

1989).

We do not read the Fourth Cireuit’s opinion in Wolf

Vv. Ford Motor Co., 829 F.2d 1277 (1987), as reaching a

contrary result. Under the approach we take to this case,

Chrysler Corp., Automobile Importers, and Wolf are

reconcilable. In holding that the Texas lemon law did not

interfere with the goals of the Warranty Act, the court

in Chrysler Corp, expressly recognized that Texas law did

not prevent the establishment of separate mechanisms for

purposes of state and federal law. See 755 F.2d at 1206

(“{T]he preclusive effect of [15 U.S.C. 2310] is limited

to rules governing informal dispute resolution procedures

created by private warrantors and does not affect such

schemes where provided as an option for consumers by

state law.’”’). Petitioners simply ignore the second half

of the court’s statement. See Pet. 8; Pet. Reply Br. 2.

The Minnesota lemon law that was at issue in Automo-

bile Importers requires warrantors to provide a state

law mechanism. 871 F.2d at 717. Thus, unlike the elec-

tive provisions enacted by New York and Texas, there

is no danger that warrantors will choose to withdraw

from the alternative dispute resolution arena as a result

of the additional state requirements. In addition, it is

not clear that the Minnesota law at issue in Automobile

Importers precludes a warrantor from establishing a

mechanism that complies énly with the minimal require-

ments of Rule 703 for purposes of the federal cause of

action, so long as it meets the additional requirements

for purposes of the state law cause of action. See 871

F.2d at 719 n.4 (quoting statute).

In Wolf, the court of appeals held that a consumer

could not challenge, on state law grounds, the fairness

of a federal ADR mechanism established under Rule

703. The court’s decision rested on the provisions of the

Warranty Act delegating to the FTC authority to “re-

view the bona fide operation of any dispute settlement

procedure,” 15 U.S.C. 2310(a) (4), and obtain injunc-

tive or other remedies against noncomplying ADR mech-

anisms, 15 U.S.C. 2310(c) (1). See 829 F.2d at 1280.

The court held that, where an ADR mechanism is

“established under the auspices of the [Warranty]

Act, id. at 1278, “any attack on the fairness or legitimacy

of [the] mechanism must be through [the FTC’s] admin-

istrative channels,” id. at 1279 n.3. That limited holding

is consistent with our view that States generally are free

to regulate informal mechanisms for resolving warranty

disputes, except to the extent that they are established

as a prerequisite to suit under the Warranty Act.

In the present cas¢, our disagreement with the court of

appeals is a narrow one. Moreover, the courts below did

not address directly the distinction between ADR mech-

anisms established as a prerequisite to suit under the

Warranty Act and ADR mechanisms established for

other purposes. Instead, both courts focused on whether

federal law precludes the States from requiring any ADR

mechanism to meet requirements that exceed those of

Rule 703. Thus, it is possible that the Second Circuit

would adopt the view expressed in this brief if it were

presented in a future case. In addition, it may be de-

sirable to allow the States an opportunity to reexamine

their lemon laws with an eye toward determining whether

they intend to regulate ADR mechanisms that are em-

ployed solely for purposes of federal! law. And respond-

ent may wish to reconsider, in light of the views of the

FTC, whether the New York lemon law should be inter-

preted to apply to ADR mechanisms offered solely as a

prerequisite to suit under the Warranty Act. Finally,

the practical importance of the narrow issue on which we

depart from the Second Circuit remains uncertain, and

the FTC retains authority to address the issue in a

rulemaking proceeding. See n.1, supra. For these rea-

sons, and particularly because the court of appeals may

not regard its opinion in this broad declaratory judg-

ment proceeding to have definitively resolved the narrow

question on which we have expressed concern, we believe

that a grant of certiorari in this case would be

premature.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.