ASSEMBLY, No. 4380

STATE OF NEW JERSEY

221st LEGISLATURE

 

INTRODUCED MAY 16, 2024

 


 

Sponsored by:

Assemblyman  CRAIG J. COUGHLIN

District 19 (Middlesex)

Assemblyman  JOHN DIMAIO

District 23 (Hunterdon, Somerset and Warren)

Assemblyman  WILLIAM B. SAMPSON, IV

District 31 (Hudson)

Assemblyman  BENJIE E. WIMBERLY

District 35 (Bergen and Passaic)

 

Co-Sponsored by:

Assemblymen Azzariti Jr., Inganamort, Barranco, Miller, Calabrese, Assemblywoman Ramirez, Assemblyman Marenco, Assemblywoman Donlon, Assemblyman Schnall, Assemblywoman Bagolie, Assemblymen Rumpf, DePhillips, Barlas, Assemblywoman Quijano, Assemblyman Myhre, Assemblywomen N.Munoz, Dunn, Matsikoudis, Assemblymen Hutchison and Greenwald

 

 

 

 

SYNOPSIS

     Establishes “Motor Vehicle Open Recall Notice and Fair Compensation Act.”

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act concerning motor vehicle open recalls and motor vehicle franchises, supplementing P.L.1971, c.356 (C.56:10-1 et seq.), and amending various parts of the statutory law.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

            1.         (New section) Sections 1 through 5 of P.L.    , c.     (C.        ) (pending before the Legislature as this bill) shall be known and may be cited as the “Motor Vehicle Open Recall Notice and Fair Compensation Act.”

 

     2.    (New section) As used in sections 2 through 5 of P.L.    , c.    (C.        ):

     “Chief administrator” means the Chief Administrator of the New Jersey Motor Vehicle Commission.

     “Commission” means the New Jersey Motor Vehicle Commission established pursuant to section 4 of P.L.2003, c.13 (C.39:2A-4).

     “Dealer” means a person who is actively engaged in the retail business of buying, selling, or exchanging new or used motor vehicles.

     “Motor vehicle franchisee” means the same as the term is defined in section 1 of P.L.1977, c.84 (C.56:10-13).

     “Motor vehicle franchisor” means the same as the term is defined in section 1 of P.L.1977, c.84 (C.56:10-13).

     “New motor vehicle” means a new motor vehicle, as that term is defined in section 1 of P.L.1977, c.84 (C.56:10-13), that is subject to an open recall, or has been recalled, in accordance with federal law.

     “Open recall” means a safety or emissions recall on a specific vehicle that has not been corrected or addressed. 

     “Retail” does not include wholesale sales, sales between dealers, or sales to owners or operators of motor vehicle junk businesses or motor vehicle junk yards, as those terms are defined in R.S.39:11-2, or any other person engaged in the business of dismantling, destroying, or recycling motor vehicles.

     “Time of sale” means the period of time when the buyer executes a retail order form for the purchase, or lease agreement for the lease, of a used motor vehicle.

     “Used motor vehicle” means a used motor vehicle, as that term is defined in R.S.39:10-2.

 

     3.    (New section) a. A motor vehicle franchisee or dealer shall not conduct a retail sale of a used motor vehicle without first contacting, or accessing information provided through the Internet website of, the National Highway Traffic Safety Administration, or a subsequently established similar official source of information, to determine whether there are any open recalls on the motor vehicle offered for retail sale.  If an open recall is discovered, the motor vehicle franchisee or dealer shall inform a prospective purchaser about the recall and provide the prospective purchaser with a printed copy of the recall information, as published on the Internet website of the National Highway Traffic Safety Administration, or a subsequently established similar official source of information.

     b.    A motor vehicle franchisee or dealer shall not sell or otherwise transfer to a retail customer any used motor vehicle that is subject to a stop-sale notice, do-not-drive notice, or similar notice or designation issued by the National Highway Traffic Safety Administration, or its successor.

     c.     There shall be an irrebuttable presumption that a motor vehicle franchisee or dealer had no knowledge of the existence of an open recall, stop-sale notice, do-not-drive notice, or similar notice or designation for a used motor vehicle if, at the time of sale:

     (1)   the motor vehicle franchisee or dealer accessed the Internet website of the National Highway Traffic Safety Administration on open recalls, or a subsequently established similar official source of information; and

     (2)   a search by the motor vehicle franchisee or dealer using the specific vehicle identification number of the motor vehicle yielded no indication of an open recall, stop-sale notice, do-not-drive notice, or similar notice or designation for the used motor vehicle.

     d.    Nothing in this section shall be construed to:

     (1)   create any legal duty or liability upon a motor vehicle franchisee or dealer related to the accuracy, errors, or omissions of the Internet website of the National Highway Traffic Safety Administration on open recalls, or a subsequently established similar official source of information; or

     (2)   require a motor vehicle franchisee or dealer to provide a prospective purchaser with any recall information that may be added to the Internet website of the National Highway Traffic Safety Administration on open recalls, or subsequently established similar official source of information, after the motor vehicle franchisee or dealer has provided a printed copy of the recall information as it appeared at the time it was provided to the prospective purchaser of the used motor vehicle at the time of sale.

 

     4.    (New section)  a.  Any motor vehicle franchisor or dealer offering motor vehicles for sale in this State shall provide a list to the Chief Administrator of the New Jersey Motor Vehicle Commission of motor vehicles registered in this State that are subject to an open recall for which the necessary repairs remain uncompleted for a period of six or more months after the initial notice of recall issued by the manufacturer pursuant federal law.  In addition to any other information that the chief administrator may deem appropriate, the list shall identify each motor vehicle by year, make, model, and vehicle identification number.  Any motor vehicle franchisor or dealer that is required to submit a list pursuant to this subsection shall provide an updated list to the chief administrator every 180 days after the submission of the initial list pursuant to this subsection.

     b.    Upon receipt of an initial or updated list pursuant to subsection a. of this section, the chief administrator shall, within 30 days, direct a motor vehicle franchisor or dealer to send out a notice on official letterhead of the commission at the motor vehicle franchisor or dealer’s expense, to all registered owners of the listed motor vehicles.  The notice shall read as follows:

     “…………. (date)

     …………… (registered owner’s name)

     …………… (registered owner’s address)

     THERE IS AN OPEN RECALL ON YOUR VEHICLE:

     YOUR IMMEDIATE ACTION IS REQUIRED!

     Dear …………… (owner’s name):

     This notification concerns a motor vehicle registered in your name in the State of New Jersey, a …………… (year, make, model), vehicle identification number …………… (vehicle identification number).

     The New Jersey Motor Vehicle Commission is contacting you because your …………… (year, make, model) vehicle has an open recall for a serious motor vehicle defect that could cause serious injury to you and/or a passenger in your vehicle if not remedied.

     The New Jersey Motor Vehicle Commission has been provided information from …………… (motor vehicle franchisor or dealer) that the …………… (make, model) that is currently registered in your name, identified by the vehicle identification number …………… (vehicle identification number), has been recalled.

     According to information provided by …………… (motor vehicle franchisor or dealer), your vehicle has not been repaired yet.  The potentially lifesaving repair is FREE of charge to you and parts are available now.  A FREE loaner car or other alternative transportation may be available to assist with any inconvenience this repair may cause you.

     What should you do now?

-    Visit …………… (internet website of motor vehicle manufacturer or dealer) or call the motor vehicle franchisor or dealer toll-free at …………… (toll-free motor vehicle franchisor or dealer number) to find your nearest …………… (make) dealership.

-    Immediately contact a local …………… (make) dealership to schedule a FREE repair for your recalled vehicle.  Ask for alternative transportation, if needed.

-    If you believe you have already taken action on this recall, visit …………… (the Internet website of the National Highway Traffic Safety Administration on open recalls, or a subsequently established similar official source of information) and enter your …………… (make, model) vehicle identification number to verify the repair and ensure that no other recalls have been issued for your vehicle.

     The safety of you and your family on New Jersey roadways is one of the commission’s top priorities.  Please act NOW to protect yourself and the passengers in your vehicle.  If you believe that …………… (motor vehicle franchisor or dealer) or your …………… (make) dealer has failed or is unable to remedy the defect in your vehicle, without charge and within a reasonable period of time, you may submit a complaint by mail to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue S.E., West Building, Washington, DC 20590.  Alternatively, you may call the toll-free Vehicle Safety Hotline at …………… (toll-free telephone number) or visit …………… (Internet website of the National Highway Traffic Safety Administration).”

 

     5.    (New section) Any corporation or association that is primarily owned by or comprised of motor vehicle franchisees, which corporation or association primarily represents the interests of motor vehicle franchisees, shall have standing to file an administrative petition, or to bring an action before any court of competent jurisdiction, for itself or by, for, or on behalf of any motor vehicle franchisee or group of motor vehicle franchisees for any alleged violation of P.L.1971, c.356 (C.56:10-1 et seq.), as amended and supplemented.

 

     6.    Section 1 of P.L.1989, c.24 (C.56:10-7.2) is amended to read as follows:

     1.    The Legislature hereby finds and declares the following:

     a.     Notwithstanding the enactment of the "Franchise Practices Act," P.L.1971, c.356 (C. 56:10-1 et seq.), and other legislation dealing with the franchisor-franchisee relationship, including, but not limited to P.L.1982, c.156 (C. 56:10-17 et seq.), inequality of bargaining power continues to exist between motor vehicle franchisors and motor vehicle franchisees. This inequality of bargaining power exists even as to motor vehicle franchisees who have had their franchises for many years and who have expended large sums of money in the promotion of their franchises.

     b.    This inequality of bargaining power enables motor vehicle franchisors to compel motor vehicle franchisees to execute franchises and related leases and agreements which contain terms and conditions that would not routinely be agreed to by the motor vehicle franchisees absent the compulsion and duress which arise out of the inequality of bargaining power. These terms and conditions are detrimental to the interests of the motor vehicle franchisees in that they require the motor vehicle franchisees to relinquish their rights which have been established by the "Franchise Practices Act" and supplemental legislation and other statutes and laws of this State.

     c.     As a result, motor vehicle franchisees have been denied the opportunity to have disputes with their motor vehicle franchisors arising out of the franchisor-franchisee relationship heard in an appropriate venue, convenient to both parties, by tribunals established by statute for the resolution of these disputes.  It is therefore necessary and in the public interest to ensure that motor vehicle franchisees voluntarily determine whether to agree to certain terms and conditions contained in franchises and related leases and agreements presented to them by motor vehicle franchisors and under circumstances unaffected by the compulsion which arises from the inequality of bargaining power.

     d.    The distribution, sale, and service of new motor vehicles in the State of New Jersey vitally affects the general economy of this State, and there is a compelling public interest in providing a system of new motor vehicle franchisees to foster competition and promote motor vehicle and highway safety by ensuring there are qualified facilities to provide independently owned and operated sales, warranty, open recall, and routine service for motor vehicles.

     e.     The new motor vehicle franchise system encourages local investment in motor vehicle dealerships, creates jobs and economic activity in virtually every community in this State, and advances the public interest by fostering an extensive network of independent new motor vehicle franchisees who compete for motor vehicle sales and service business, offer ready access to open recall and warranty service, when needed, and provide routine maintenance to ensure motor vehicle and highway safety.

     f.     There remains, however, a vast disparity in bargaining power between motor vehicle franchisors and their franchisees, which, if left unchecked, would discourage local investment in the motor vehicle franchise system and result in fewer new motor vehicle franchisees, less competition in the motor vehicle marketplace, and diminished consumer access to qualified motor vehicle warranty, open recall, and routine service facilities.

     g.    Despite prior enactments, certain motor vehicle franchisors have failed to comply with the law, and many motor vehicle franchisees have found it either too risky to oppose their supplier or too burdensome to take on a legal challenge to unfair or oppressive marketplace behavior carried out by motor vehicle franchisors, which franchisors control the exclusive supply of motor vehicles, parts, and special equipment to motor vehicle franchisees.

     h.    As a result, it is necessary for the Legislature to further revise the laws pertaining to motor vehicle franchisees to strengthen and clarify certain provisions of existing law intended to protect the public from marketplace behavior that has the potential to restrict competition for sales and threaten highway safety by limiting consumer access to essential warranty and open recall service provided by neighborhood new car dealers.

(cf: P.L.1989, c.24, s.1)

 

     7.    Section 5 of P.L.1999, c.45 (C.56:10-7.4) is amended to read as follows:

     5.    It shall be a violation of P.L.1971, c.356 (C.56:10-1 et seq.) for any motor vehicle franchisor, directly or indirectly, through any officer, agent or employee, to engage in any of the following practices:

     a.     To impose unreasonable standards of performance or unreasonable facilities, financial, operating or other requirements upon a motor vehicle franchisee.

     b.    To base the disapproval of the transfer, sale or assignment of a motor vehicle franchise, or any interest therein, on the ground that the proposed transferee is not a natural person.

     c.     (1) To fail to compensate a motor vehicle franchisee for all reasonable costs incurred by the franchisee in complying with the requirements imposed on the franchisee by the franchisor or by law relating to a product recall.

     (2)   With respect to a new motor vehicle or any used motor vehicle that is of the same line make as the motor vehicle franchisor and motor vehicle franchisee, that is held for sale by the motor vehicle franchisee, that is subject to a stop-sale notice, do-not-drive notice, or similar notice or designation issued by the National Highway Traffic Safety Administration, its successor, or the motor vehicle franchisor, and for which motor vehicle a part or remedy is not reasonably available to perform a service or repair, the reasonable costs of the motor vehicle franchisee, if not preempted by federal law or regulation, shall be 1.75 percent of the value of the motor vehicle per month, or per portion of a month, while the part or remedy is unavailable.

     (3)   For purposes of this subsection, the value of a new motor vehicle shall be the motor vehicle franchisor’s suggested retail price of the motor vehicle, and the value of a used motor vehicle shall be the average trade-in value of the used motor vehicle, as indicated in an independent third-party guide for the year, make, model, and mileage of the motor vehicle.

     (4)   Notwithstanding any provision of this subsection to the contrary, a motor vehicle franchisor may compensate one or more motor vehicle franchisees under a national recall compensation program, provided that the compensation paid under that program is equal to or greater than the amounts set forth in this section.

     d.    To utilize an arbitrary or unreasonable formula or other calculation or process intended to gauge performance as a basis for making any decision or taking any action governed by P.L.1971, c.356 (C.56:10-1 et seq.).

     e.     Except as provided pursuant to section 6 of P.L.2015, c.24 (C.56:10-27.1), to own or operate or enter into an agreement with a person, other than an existing motor vehicle franchisee, to operate a retail facility for the servicing of motor vehicles, which is authorized to perform warranty service on motor vehicles manufactured or distributed by the motor vehicle franchisor.  The establishment, relocation, reopening or reactivation of such a facility pursuant to an agreement with a motor vehicle franchisee shall be subject to the provisions of P.L.1982, c.156 (C.56:10-16 et seq.), except that paragraph (3) of subsection b. of section 8 of that act (C.56:10-23) shall not be applicable.  Notice shall be given to motor vehicle franchisees in the same line make or makes within six miles of the proposed retail facility for the servicing of motor vehicles which is authorized to perform warranty service on motor vehicles manufactured or distributed by the motor vehicle franchisor.

     f.     To require an unconditional release from a motor vehicle franchisee without permitting the franchisee to except from the release any claims for outstanding financial obligations of the motor vehicle franchisor to the motor vehicle franchisee for which payment will not be made at or before the giving of the release.

     g.    (1) To require or attempt to require a motor vehicle franchisee to order or purchase a new or used motor vehicle, or any accessory or equipment thereof not required by law; or (2) to require or attempt to require a motor vehicle franchise to accept delivery of any motor vehicle, or any accessory or equipment thereof not required by law, which is not as ordered by the motor vehicle franchisee; or (3) to take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit, as a result of the motor vehicle franchisee's failure or refusal to purchase, order or accept delivery of any such motor vehicle, accessory or equipment. This subsection shall not prevent a motor vehicle franchisor from requiring that a motor vehicle franchisee carry a representative inventory of models offered for sale by the motor vehicle franchisor.

     h.    To fail or refuse to sell or offer to sell to all motor vehicle franchisees in a line make every motor vehicle sold or offered for sale to any motor vehicle franchisee of the same line make, or to fail or refuse to sell or offer to sell such motor vehicles to all motor vehicle franchisees at the same price for a comparably equipped motor vehicle, on the same terms, with no differential in discount, allowance, credit or bonus, and on reasonable, good faith and non-discriminatory allocation and availability terms.  However, the failure to deliver any such motor vehicle shall not be considered a violation of this section if the failure is not arbitrary and is due to a lack of manufacturing capacity or to a strike or labor difficulty, a shortage of materials, a freight embargo or other cause over which the franchisor has no control.  A motor vehicle franchisor shall not require a motor vehicle franchisee to purchase unreasonable quantities of advertising materials, purchase special tools not required to properly service a motor vehicle or undertake sales person or service person training unrelated to the motor vehicle or meet unreasonable display requirements as a condition of receiving a motor vehicle.

     i.     Unless compelled by law or legal process, (1) if the customer has objected thereto in writing, to require a motor vehicle franchisee to publish, release, convey or otherwise provide information obtained with respect to any customers, contracts, products, services or other transactions of the motor vehicle franchisee which is not necessary for the motor vehicle franchisor to meet its obligations to consumers or the motor vehicle franchisee, including vehicle recalls or other requirements imposed by State or federal law, or for complying with the duties or obligations of the respective parties under the franchise; or (2) to release such information which has been provided to it by the motor vehicle franchisees to any third party.

     j.     To impose or attempt to impose any requirement, limitation or regulation on, or interfere or attempt to interfere with, the manner in which a motor vehicle franchisee utilizes the facilities at which a motor vehicle franchise is operated, including, but not limited to, requirements, limitations or regulations as to the line makes of motor vehicles that may be sold or offered for sale at the facility, or to take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit, as a result of the manner in which the motor vehicle franchisee utilizes his facilities, except that the motor vehicle franchisor may require that the portion of the facilities allocated to or used for the motor vehicle franchise meets the motor vehicle franchisor's reasonable, written space and volume requirements as uniformly applied by the motor vehicle franchisor.  The provisions of this subsection shall not apply if the motor vehicle franchisor and the motor vehicle franchisee voluntarily agree to the requirement and separate and valuable consideration therefor is paid.

     k.    To require or attempt to require a motor vehicle franchisee, or the owner or landlord of property on which a motor vehicle franchise is operated, to give a motor vehicle franchisor or any person under the control of the motor vehicle franchisor an interest in or option with respect to the real property on which the motor vehicle franchise is operated, to restrict the uses to which the facility at which the motor vehicle franchise is operated may be put during or after the term of the franchise, or to take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit, as a result of the failure or refusal of a motor vehicle franchisee, property owner, or landlord to agree to or comply with any such demand or restriction.  Nothing in this subsection shall be deemed to bar a voluntary agreement between a motor vehicle franchisor and a motor vehicle franchisee, or the owner or landlord of property on which a motor vehicle franchise is operated, to give the motor vehicle franchisor or the person under the control of the motor vehicle franchisor an interest in or option with respect to the real property on which a motor vehicle franchise is operated, or to restrict the uses to which the facility at which the motor vehicle franchise is operated is put, provided that separate and valuable consideration is paid for such interest, option or restriction.

     l.     To require or attempt to require a motor vehicle franchisee to relocate his franchise or to implement any facility or operational modification or to take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit as a result of the failure or refusal of such motor vehicle franchisee to agree to any such relocation or modification, unless the motor vehicle franchisor can demonstrate that: (1) funds are generally available to the franchisee for the relocation or modification on reasonable terms; and (2) the motor vehicle franchisee will be able, in the ordinary course of business as conducted by such motor vehicle franchisee, to earn a reasonable return on his total investment in such facility or from such operational modification, and the full return of his total investment in such facility or from such operational modifications within 10 years; or (3) the modification is required so that the motor vehicle franchisee can effectively sell and service a motor vehicle offered by the motor vehicle franchisor based on the specific technology of the motor vehicle.  This subsection shall not be construed as requiring a motor vehicle franchisor to guarantee that the return as provided in paragraph (2) of this subsection will be realized.

     m.   Directly, or through any financial institution having any commonality of ownership with the motor vehicle franchisor, to require or attempt to require, or to take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit, as a result of the failure or refusal of a motor vehicle franchisee to maintain working capital, equity, floor plan financing or other indications of financial condition, greater than the lesser of (1) the minimum required to operate the motor vehicle franchise based on the operations of the franchise over the prior 12-month period; or (2) an increase of no more than [5%] five percent over the prior calendar year, unless the motor vehicle franchisor, or the financial institution having any commonality of ownership with a motor vehicle franchisor, can establish that such failure or refusal prevents the franchisee from operating the franchise in the ordinary course of business.  This subsection shall not apply if the working capital, equity, floor plan financing or other indication of financial condition is the result of an accommodation by the motor vehicle franchisor, or financial institution with a commonality of ownership with the motor vehicle franchisor, to the motor vehicle franchisee, containing specific terms and deadlines for the restoration of the motor vehicle franchisee's working capital, inventory, floor plan financing or other indication of financial condition, which accommodation is agreed to in writing by the motor vehicle franchisee.

     n.    To impose or attempt to impose any conditions on the approval of the transfer of a motor vehicle franchise, except as provided in section 6 of P.L.1971, c.356 (C.56:10-6).

     o.    To amend or modify the franchise of a motor vehicle franchisee, or any lease or agreement ancillary or collateral to such franchise, including in connection with the renewal of a franchise, if such amendment or modification is not in good faith, is not for good cause, or would adversely and substantially alter the rights, obligations, investment or return on investment of the motor vehicle franchisee.

     p.    To take or withhold or threaten to take or withhold any action, impose or threaten to impose any penalty, or deny or threaten to deny any benefit, because the motor vehicle franchisee sold or leased a motor vehicle to a customer who exported the vehicle to a foreign country or who resold the vehicle, unless the motor vehicle franchisor can establish that the motor vehicle franchisee knew or reasonably should have known, prior to the sale or lease, that the customer intended to export or resell the motor vehicle; provided, however, that it shall be presumed that the motor vehicle franchisee did not know or should not have reasonably known that the vehicle would be exported if the vehicle is titled or registered in any state or the District of Columbia.

     q.    To require a motor vehicle franchisee, at the time of entering into a franchise arrangement, any lease or agreement ancillary or collateral to a motor vehicle franchise, or any amendment, modification, renewal or termination thereof, to assent to a release, assignment, novation, waiver or estoppel, which would relieve any person from liability imposed by P.L.1971, c.356 (C.56:10-1 et seq.); provided that nothing in this subsection shall be deemed to prohibit a voluntary agreement between the motor vehicle franchisor and the motor vehicle franchisee which contains a release, assignment, novation, waiver or estoppel for which separate and valuable consideration is paid by the motor vehicle franchisor to the motor vehicle franchisee.

     r.     To provide any term or condition in any motor vehicle franchise, in any lease or other agreement ancillary or collateral to a motor vehicle franchise or in any renewal, amendment or modification thereof, which term or condition directly or indirectly violates P.L.1971, c.356 (C.56:10-1 et seq.).

     s.     To allocate vehicles to or evaluate the performance of a motor vehicle franchise based on, or offer any discount, incentive, bonus, program, allowance or credit that differentiates between vehicle sales by a motor vehicle franchisee within a territory or geographic area assigned to the motor vehicle franchisee and vehicle sales outside of such territory or geographic area.

     t.     To take or withhold, or threaten to take or withhold, any action; impose, or threaten to impose, any penalty; or deny or limit, or threaten to deny or limit any benefit to a motor vehicle franchisee who discloses to a customer any recall or any information related to a condition that may affect the safety, emissions, or operability of a motor vehicle, including, but not limited to, the provision of notice pursuant to section 4 of P.L.    , c.     (C.        ) (pending before the Legislature as this bill).

     u.    To reduce the amount of compensation otherwise owed to a motor vehicle franchisee, whether through a chargeback, removal from an incentive program, reduction in amount owed under an incentive program, or any other means, because the motor vehicle franchisee has submitted a claim for reimbursement under subsection c. of this section or was otherwise compensated for a motor vehicle subject to a recall.

(cf: P.L.2015, c.24, s.2)

 

     8.    Section 3 of P.L.1977, c.84 (C.56:10-15) is amended to read as follows:

     3.    If any motor vehicle franchise shall require or permit motor vehicle franchisees to perform labor services or provide parts in satisfaction of a warranty [issued], extended warranty, maintenance, or other service-related plan offered by the motor vehicle franchisor:

     a.     The motor vehicle franchisor shall reimburse each motor vehicle franchisee for such labor services, including diagnostic work, as are rendered and for such parts as are supplied, in an amount equal to the greater of the adequate and fair compensation calculated pursuant to subsection j. of this section or the prevailing retail price charged by such motor vehicle franchisee for such labor services and parts in circumstances where such labor services are rendered or such parts supplied other than pursuant to warranty; provided that such motor vehicle franchisee's prevailing retail price is not unreasonable when compared with that of the holders of motor vehicle franchises from the same motor vehicle franchisor for identical merchandise or services in the geographic area in which the motor vehicle franchisee is engaged in business.

     b.    The motor vehicle franchisor shall not by agreement, by restrictions upon reimbursement, or otherwise, restrict the nature and extent of labor services to be rendered or parts to be provided so that such restriction prevents the motor vehicle franchisee from satisfying the warranty by rendering labor services in a good and workmanlike manner and providing parts which are required in accordance with generally accepted standards.  Any such restriction shall constitute a prohibited practice hereunder.

     c.     The motor vehicle franchisor shall reimburse the motor vehicle franchisee pursuant to subsection a. of this section, without deduction, for labor services performed on, and parts supplied for, a motor vehicle by the motor vehicle franchisee in good faith and in accordance with generally accepted standards, notwithstanding any requirement that the motor vehicle franchisor accept the return of the motor vehicle or make payment to a consumer with respect to the motor vehicle pursuant to the provisions of P.L.1988, c.123 (C.56:12-29 et seq.).

     d.    For the purposes of this section, the "prevailing retail price" charged by: (1) a motor vehicle franchisee for parts means the price paid by the motor vehicle franchisee for those parts, including all shipping and other charges, multiplied by the sum of 1.0 and the franchisee's average percentage parts markup over the price paid by the motor vehicle franchisee for parts purchased by the motor vehicle franchisee from the motor vehicle franchisor and sold at retail.  The motor vehicle franchisee may establish average percentage parts markup under this section by submitting to the motor vehicle franchisor 100 sequential customer paid service repair orders or 90 days of customer paid service repair orders, whichever is less, covering repairs made no more than 180 days before the submission, and declaring [what] the average percentage parts markup [is].  The average percentage parts markup so declared shall go into effect 30 days following the declaration subject to audit of the submitted repair orders by the motor vehicle franchisor and adjustment of the average percentage parts markup based on that audit.  Only retail sales not involving warranty repairs, parts covered by subsection e. of this section, or parts supplied for routine vehicle maintenance, shall be considered in calculating average percentage parts markup.  No motor vehicle franchisor shall require a motor vehicle franchisee to establish average percentage parts markup by a methodology, or by requiring information, that is unduly burdensome or time consuming to provide, including, but not limited to, part by part or transaction by transaction calculations.  A motor vehicle franchisee shall not request a change in the average percentage parts markup more than twice in one calendar year; and (2) a recreational motor vehicle franchisee for parts means actual wholesale cost, plus a minimum 30[%] percent handling charge and any freight costs incurred to return the removed parts to the motor vehicle franchisor.

     e.     If a motor vehicle franchisor supplies a part or parts for use in a repair rendered under a warranty other than by sale of that part or parts to the motor vehicle franchisee, the motor vehicle franchisee shall be entitled to compensation equivalent to the motor vehicle franchisee's average percentage parts markup on the part or parts, as if the part or parts had been sold to the motor vehicle franchisee by the motor vehicle franchisor.  The requirements of this section shall not apply to entire engine assemblies and entire transmission assemblies.  In the case of those [assemblies] parts, the motor vehicle franchisor shall reimburse the motor vehicle franchisee in the amount of 30[%] percent of what the motor vehicle franchisee would have paid the motor vehicle franchisor for [the assembly] a part if the [assembly] part had not been supplied by the franchisor other than by the sale of that [assembly] part to the motor vehicle franchisee.

     f.     The motor vehicle franchisor shall reimburse the motor vehicle franchisee for parts supplied and labor services rendered under a warranty within 30 days after approval of a claim for reimbursement.  All claims for reimbursement shall be approved or disapproved within 30 days after receipt of the claim by the motor vehicle franchisor.  When a claim is disapproved, the motor vehicle franchisee shall be notified in writing of the grounds for the disapproval.  No claim that has been approved and paid shall be charged back to the motor vehicle franchisee unless it can be shown that the claim was false or fraudulent, that the labor services were not properly performed, that the parts or labor services were unnecessary to correct the defective condition, or that the motor vehicle franchisee failed to reasonably substantiate the claim in accordance with reasonable written requirements of the motor vehicle franchisor, provided that the motor vehicle franchisee had been notified of the requirements prior to the time the claim arose and the requirements were in effect at the time the claim arose.  A motor vehicle franchisor shall not audit a claim after the expiration of 12 months following the payment of the claim unless the motor vehicle franchisor has reasonable grounds to believe that the claim was fraudulent.

     g.    The obligations imposed on motor vehicle franchisors by this section shall apply to any parent, subsidiary, affiliate or agent of the motor vehicle franchisor, any person under common ownership or control, any employee of the motor vehicle franchisor and any person holding 1[%] percent or more of the shares of any class of securities or other ownership interest in the motor vehicle franchisor, if a warranty or service or repair plan is issued by that person instead of or in addition to one issued by the motor vehicle franchisor.

     h.    [The provisions of this section shall also apply to franchisor administered service and repair plans:

     (1)   if the motor vehicle franchisee offers for sale only the franchisor administered service or repair plan; or

     (2)   if the motor vehicle franchisee is paid its prevailing retail price for all service or repair plans the motor vehicle franchisee offers for sale to purchasers of new motor vehicles; or

     (3)   for the first 36,000 miles of coverage under the franchisor administered service or repair plan, if the warranty offered by the motor vehicle franchisor on the motor vehicle provides coverage for less than 36,000 miles; or

     (4)   for motor vehicles covered by a franchisor administered service or repair plan, if the motor vehicle franchisee does not offer for sale the franchisor administered service or repair plan.]

     With respect to franchisor administered service or repair plans covering only routine maintenance service, this section applies only to those plans sold to customers on or after the effective date of P.L.1999, c.45.

     i.     A motor vehicle franchisor shall make payment to a motor vehicle franchisee pursuant to incentive, bonus, sales, performance or other programs within 30 days after receipt of a claim from the motor vehicle franchisee.  When a claim is disapproved, the motor vehicle franchisee shall be notified in writing of the grounds for disapproval.  No claim shall be disapproved unless it can be shown that the claim was false or fraudulent, or that the motor vehicle franchisee failed to reasonably substantiate the claim in accordance with reasonable written requirements of the motor vehicle franchisor, provided that the motor vehicle franchisee had been notified of the requirements prior to the time the claim arose and the requirements were in effect at the time the claim arose.  A motor vehicle franchisor shall not audit a claim after the expiration of 12 months following the payment of the claim.

     j.     (1) Except as otherwise provided in subsection a. of this section, the motor vehicle franchisor shall provide adequate and fair compensation to each motor vehicle franchisee for labor services rendered in a repair in an amount not less than the amount the retail customer pays for the same labor services with regard to rate and time.

     (2)   Any time guide agreed to before the effective date of P.L.    , c.     (C.        ) (pending before the Legislature as this bill) by the motor vehicle franchisor and the motor vehicle franchisee for repairs may be used in lieu of actual time expended.  If a time guide has not been agreed to before the effective date of P.L.    , c.     (C.        ) (pending before the Legislature as this bill) or the time guide does not define the time for an applicable repair, the motor vehicle franchisor’s time guide shall be used, except that the definition of time for an applicable repair shall be multiplied by 1.5.

     (3)   A motor vehicle franchisor shall pay the motor vehicle franchisee an hourly rate for labor services performed in connection with repairs in an amount that is the greater of:

     (a)   the franchisee’s hourly labor rate for retail customer repairs, determined by dividing the amount of the franchisee’s total labor sales for retail customer repairs by the number of total labor hours that generated such sales for the month preceding the request, excluding the work specified in subsection k. of this section; or

     (b)   an amount equal to the franchisee’s markup over cost that results in the same gross profit percentage for labor hours performed in work covered by subparagraph (a) of this paragraph as the franchisee receives for labor performed in its retail customer repairs, as evidenced by the average of the franchisee’s gross profit percentage in the franchisee’s financial statements provided to the franchisor for the two months preceding the franchisee’s written request.  In the written request, the franchisee shall provide the arithmetic mean of the hourly wage paid to all franchisee technicians during the preceding two months preceding the request, which arithmetic mean shall be the franchisee cost used in the calculation of an hourly rate for labor services pursuant to this paragraph.

     k.    The average percentage parts markup and labor rate declared pursuant to this section shall become effective 30 days following their declaration, subject to an audit of the submitted repair orders by the motor vehicle franchisor and a proposed adjustment of the average percentage parts markup or labor rate if the motor vehicle franchisee’s submission fails to comply with the respective calculation described in this section.  Only retail sales not involving warranty repairs, parts covered by subsection h. of this section, or parts supplied for routine vehicle maintenance, shall be considered in calculating average percentage parts markup and labor rate.  No motor vehicle franchisor shall require a motor vehicle franchisee to establish average percentage parts markup or labor rate by using a methodology, or by requiring information, that is unduly burdensome or time consuming to provide, including, but not limited to, part-by-part or transaction-by-transaction calculations.  A motor vehicle franchisee shall not request a change in the average percentage parts markup and labor rate more than twice in one calendar year.

     l.     A motor vehicle franchisor shall not recover its costs, except as provided in this section, from a motor vehicle franchisee within this State, including, but not limited to, an increase in the wholesale price of a vehicle or a surcharge imposed on a motor vehicle franchisee solely, which increase is intended to recover the cost of reimbursing a franchisee for parts and service pursuant to this section, provided that a motor vehicle franchisor shall not be prohibited from increasing prices for vehicles or parts in the normal course of business.

     m.   A motor vehicle franchisor shall not charge back any claim paid for labor services and parts provided in the performance of an open recall, warranty, or other services agreement for an incentive, bonus, sales, performance, or other program without providing written notice to the franchisee within 30 days from the on-site audit, which written notice explains in detail the basis for each of the proposed chargebacks and the methodology by which the franchisee was selected for audit or review.  After all internal dispute resolution processes provided through the franchisor have been resolved, the franchisor shall provide final notice to the franchisee of the final amount of the proposed chargeback.  If the franchisee or its representative institutes an administrative or judicial action for a violation of P.L.1971, c.356 (C.56:10-1 et seq.), as amended and supplemented, challenging the chargeback within 30 days of the receipt of the final notice, the total proposed chargeback amounts shall be stayed, without bond, until the final judgment has been rendered in such action.  A franchisor shall not deny or charge back a claim paid for labor services and parts provided in the performance of an open recall, warranty, or other service agreement or for an incentive, bonus, sales, performance, or other program unless the franchisor satisfies its burden of proof that the franchisee did not make a good faith effort to comply with the reasonable written procedures of the franchisor, that the franchisee did not actually perform the work, or that the claim was materially false or fraudulent.  A franchisor shall not deny or charge back a claim due to an administrative or scrivener’s error in the submission of the claim.

     n.    A motor vehicle franchisor shall not unilaterally reduce or otherwise manipulate the price of parts required for warranty or open recall services in a manner that unfairly and unilaterally allows the franchisor to reduce the level of compensation paid to franchisees for warranty and open recall services the motor vehicle franchisees provide to consumers within 60 or fewer days preceding an announcement of an open recall, any time after an open recall, or after a warranty claim has arisen.

(cf: P.L.2011, c.66, s.5)

 

     9.    This act shall take effect immediately and shall apply to all motor vehicle franchise agreements in effect on or after the effective date of P.L.    , c.     (C.        ) (pending before the Legislature as this bill) but shall not apply retroactively to any cause of action that shall have arisen prior to the effective date of P.L.    , c.     (C.        ) (pending before the Legislature as this bill).

 

 

STATEMENT

 

     This bill establishes the “Motor Vehicle Open Recall Notice and Fair Compensation Act,” which supplements the “Franchise Practices Act,” N.J.S.A.56:10-1 et seq. (the act) and amends various sections of law concerning franchise practices.  The bill also updates a findings and declarations section in the act.  The bill is to take effect immediately and apply to all motor vehicle franchise agreements in effect on or after the bill’s effective date.  However, the bill is not to apply retroactively to any cause of action that arose prior to the bill’s effective date.

National Highway Traffic Safety Administration Recall Information

     The bill requires a motor vehicle franchisee or dealer to access information on open recalls available on the Internet website of the National Highway Traffic Safety Administration (NHTSA) prior to selling a used motor vehicle.  If a recall is discovered, a franchisee or dealer is required to inform a prospective purchaser by providing a printed copy of the recall information.  A franchisee or dealer is prohibited from selling a used motor vehicle that is subject to a stop-sale notice, do-not-drive notice, or similar notice or designation issued by the NHTSA.

     The bill creates an irrebuttable presumption that a franchisee or dealer had no knowledge of the existence of an open recall, stop-sale notice, do-not-drive notice, or similar notice or designation on a used motor vehicle if, at the time of sale: (1) the franchisee or dealer accessed the Internet website of the NHTSA; and (2) the franchisee or dealer’s search using the specific vehicle identification number of the motor vehicle yielded no indication of an open recall, stop-sale notice, do-not-drive notice, or similar notice or designation.  The bill does not create a legal duty or liability upon a franchisee or dealer related to the accuracy, errors, or omissions of the Internet website.  The bill does not require a franchisee or dealer to provide a prospective purchaser with recall information added to the Internet website after providing the printed information on recalls at the time of sale.

     Any motor vehicle franchisor or dealer offering motor vehicles for sale in this State is required to provide the Chief Administrator of the New Jersey Motor Vehicle Commission (commission) with a list of motor vehicles registered in this State that are subject to an open recall for which the necessary repairs remain uncompleted for a period of six months or longer after the initial notice of recall issued by the manufacturer.  At a minimum, this list is to identify each motor vehicle by year, make, model, and vehicle identification number.  A motor vehicle franchisor or dealer is required to provide an updated list to the commission every 180 days after submission of the initial list.

     Within 30 days of receiving the lists, the commission is required to direct the motor vehicle franchisor or dealer to send a notice on official commission letterhead, at the motor vehicle franchisor or dealer’s expense, to all registered owners of the listed motor vehicles.  The bill provides the form to be used for this notice, which is to inform recipients of an open recall and the options available to resolve the issue, including contact information for the NHTSA.

 

Compensation for Recall Costs

     Under current law, a motor vehicle franchisor is required to compensate a motor vehicle franchisee for all reasonable costs incurred by the franchisee in complying with the requirements imposed by the franchisor relating to a product recall.  In addition to these compensation requirements, the bill also provides guidance on certain costs that must be remitted to a motor vehicle franchisee in the event of a recall.

     The bill provides that for certain new motor vehicles, or used motor vehicles of the same line make as the motor vehicle franchisor and motor vehicle franchisee, and subject to a stop-sale notice, do-not-drive notice, or similar notice or designation for which a part or remedy is not reasonably available, which motor vehicles are held for sale by the motor vehicle franchisee, the costs of the motor vehicle franchisee are to equal 1.75 percent of the value of each motor vehicle per month, or per portion of a month.  This requirement applies when not preempted by federal law or regulation.  For the purposes of this calculation, a motor vehicle’s value is to be the motor vehicle franchisor’s suggested retail price, or for a used motor vehicle, the value is to be the average trade-in value as indicated in an independent third-party guide for the year, make, model, and mileage.  Under the bill, a motor vehicle franchisor may compensate its motor vehicle franchisees under a national recall compensation program if the compensation thereby provided is at least the value provided for by this requirement.

     The bill prohibits a motor vehicle franchisor from reducing the amount of compensation otherwise owed to a motor vehicle franchisee because the motor vehicle franchisee has submitted a claim for reimbursement pursuant to the new guidance on compensation for recalls.

 

Reimbursement for Certain Expenses

     Under current law, certain requirements are triggered if a motor vehicle franchise requires or permits motor vehicle franchisees to perform services or provide parts in satisfaction of a warranty issued by the motor vehicle franchisor.  This bill amends this requirement to extend to the satisfaction of a warranty, extended warranty, maintenance, or other service-related plan offered by the motor vehicle franchisor.

     Under the bill, labor services to be reimbursed include diagnostic work.  In the case of entire engine and entire transmission assemblies, the bill provides that the motor vehicle franchisor is required to reimburse the motor vehicle franchisee in the amount of 30 percent of what the motor vehicle franchisee would have paid the motor vehicle franchisor for a part if the part had not been supplied by the franchisor other than by the sale of that part to the motor vehicle franchisee.  The bill removes franchisor administered service and repair plans from consideration of reimbursement.

     The bill amends certain provisions of law concerning the process for calculating average percentage parts markup.  Specifically, the bill provides that franchisor-administered service or repair plans covering only routine maintenance service on plans sold to customers after March 12, 1999 are relevant to this calculation.  Additionally, the prohibition on a motor vehicle franchisor to require a franchisee to establish average percentage parts markup and labor rate by an unduly burdensome or time consuming methodology is amended to prohibit a demand for part-by-part or transaction-by-transaction calculations.

     The bill provides that adequate and fair compensation for labor services rendered in a repair requires the motor vehicle franchisor to pay each motor vehicle franchisee no less than the amount the retail customer pays for the same labor services with regard to rate and time.  In calculating this amount, the bill permits the use of a time guide, entered into by the franchisor and franchisee, in lieu of the actual time expended on the repair.  In the event that a time guide has not been agreed to for repairs or the time guide does not specify a time for the applicable repair, the motor vehicle franchisor’s time guide is to be used, except that the motor vehicle franchisor’s definition of time for an applicable repair is multiplied by 1.5.

     Additionally, the bill provides that a motor vehicle franchisor is to pay a motor vehicle franchisee an hourly rate for labor services performed in connection with repairs.  The hourly rate is to be the greater of: (1) an amount calculated by dividing the amount of the franchisee’s total labor sales for retail customer repairs by the number of total labor hours that generated such sales for the month preceding a request for reimbursement; or (2) an amount equal to the franchisee’s markup over cost that results in the same gross profit percentage for labor hours performed for retail customer repairs.  For the second of these options, the franchisee’s gross profit percentage comes from the franchisee’s financial statements provided to the franchisor for the two months preceding the franchisee’s written request, and the franchisee is required to provide in the written request the arithmetic mean of the hourly wage paid to all its technicians during the preceding two months preceding the request.  The arithmetic mean is the franchisee cost used in the calculation of an hourly rate for labor services performed in connection with repairs.

 

Restrictions on Reimbursement

     A motor vehicle franchisor is prohibited under the bill from recovering its costs from a motor vehicle franchisee, except in certain circumstances.  However, a motor vehicle franchisor’s right to increase prices for vehicles or parts in the normal course of business is preserved.

     A motor vehicle franchisor is prohibited under the bill from charging back any claim paid for labor services and parts provided in the performance of an open recall, warranty, or other services agreement for an incentive, bonus, sales, performance, or other program without providing written notice to the franchisee within 30 days from the on-site audit, which written notice explains in detail the basis for each of the proposed chargebacks and the methodology by which the franchisee was selected for audit or review.  After all internal dispute resolution processes provided through the franchisor have been resolved, the franchisor is required to provide final notice to the franchisee of the final amount of the proposed chargeback.  If the franchisee or its representative institutes an administrative or judicial action for a violation of the act, challenging the chargeback within 30 days of the receipt of the final notice, the total proposed chargeback amounts are to be stayed, without bond, until the final judgment has been rendered.

     A franchisor is not permitted to deny or charge back a claim paid for labor services and parts provided in the performance of an open recall, warranty, or other service agreement or for an incentive, bonus, sales, performance, or other program unless the franchisor satisfies its burden of proof that the franchisee did not make a good faith effort to comply with the reasonable written procedures of the franchisor, that the franchisee did not actually perform the work, or that the claim was materially false or fraudulent.  A franchisor is not permitted to deny or charge back a claim due to an administrative or scrivener’s error in the submission of the claim.

     Under the bill, a motor vehicle franchisor is not to unilaterally reduce or manipulate the price of parts required for warranty or open recall services in a manner that unfairly and unilaterally allows the franchisor to reduce the level of compensation paid to motor vehicle franchisees for warranty and open recall services within 60 or fewer days preceding an announcement of an open recall, any time after an open recall, or after a warranty claim has arisen.

 

Standing of Certain Corporations or Associations

     The bill provides that any corporation or association which is primarily owned by or comprised of motor vehicle franchises has standing to file an administrative petition, or to bring an action before any court of competent jurisdiction, for itself or by, for, or on behalf of any motor vehicle franchisee or group of motor vehicle franchisees for any alleged violation of the act.