Third Circuit Concludes that Tying Arrangement Does Not Violate New Jersey’s Truth-in Consumer Contract, Warranty, and Notice Act

The New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act (the “NJ Warranty Act”) prohibits a seller from offering to consumers any warranty containing a provision that violates a “clearly established legal right” under state or federal law. The Third Circuit analyzed the scope of this “clearly established legal right” in its July 2, 2012 opinion in McGarvey v Penske Auto Group and suggested that a warranty will be upheld absent a blatant violation of law.

Plaintiff purchasers commenced a putative class action against the makers, distributors, and sellers of a vehicle anti-theft system that comes with a limited warranty providing a credit of up to $7,500 if a car equipped with the anti-theft system is stolen and the owner buys a replacement vehicle at the dealership listed in the warranty. Plaintiffs complained that this limited warranty contravenes the NJ Warranty Act because the tying of the warranty benefit — i.e, the credit reimbursement — to the purchase of a replacement vehicle at a specified dealership violates a consumer’s clearly established legal right under the federal Magnuson-Moss Warranty Act to be free from warranties that are conditioned on the use of a specific article or service.

Finding that the term “clearly established legal right” is neither clear nor unambiguous on its face, the Third Circuit turned to the legislative history and case law interpreting the statute, both of which indicate that the NJ Warranty Act was intended to protect against warranty provisions that infringe on rights that either have long been recognized as common law — for instance, a warranty conditioned on a buyer’s complete waiver of damages resulting from a seller’s wrongdoing — or are clearly proscribed by state or federal law. Overlaying those criteria on the FTC guidelines and opinion letters concerning tying arrangements under the Magnuson-Moss Warranty Act, the Court held it was significantly less clear that the limited warranty here ran afoul of those tie-in prohibitions. Accordingly, the Court affirmed the dismissal of plaintiffs’ claim and credited the District Court’s denial of their motion for leave to amend on the ground that such amendment would be futile.

Because it found the violation of the alleged right to be insufficiently clear, the Court stopped short of defining what the term “clearly established legal right” means, given that such a step was unnecessary to resolve the matter. Nevertheless, the opinion provides helpful guidance for parties pleading or trying to dismiss a claim brought under the NJ Warranty Act.

You may also like...