Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State

550 N.E.2d 919, 75 N.Y.2d 175, 551 N.Y.S.2d 470, 1990 N.Y. LEXIS 89

• Court: New York Court of Appeals
• Decided: January 18, 1990
• Status: Published

Opinions

OPINION OF THE COURT

Simons, J.

Plaintiffs, trade associations representing automobile manufacturers, importers and distributors, commenced this action seeking a declaration that the New Car Lemon Law alternative arbitration mechanism, contained in General Business Law § 198-a (k), violates the State Constitution. Specifically, they allege that the statute deprives motor vehicle manufacturers of their right to trial by jury (NY Const, art I, § 2), abridges the Supreme Court’s jurisdiction (NY Const, art VI, § 7) and constitutes an unconstitutional delegation of judicial authority (NY Const, art VI, §§ 1, 7). In addition, plaintiffs maintain that the alternative arbitration mechanism violates the New York State Administrative Procedure Act.

I

The original Lemon Law (General Business Law § 198-a) was enacted in 1983 to provide New York consumers greater protection than that afforded by automobile manufacturers’ express limited warranties or the Federal Magnuson-Moss Warranty Act (15 USC § 2301 et seq.). Under the statute, when a manufacturer is unable to correct a defect or condition that "substantially impairs” the value of the motor vehicle after a reasonable number of attempts, the manufacturer, at the option of the consumer, is required either to (1) replace the motor vehicle with a comparable motor vehicle or (2) accept return of the vehicle and refund the full purchase price to the consumer (General Business Law § 198-a [c] [1]; 13 NYCRR 300.17 [b]). As originally enacted, the statute did not establish an informal dispute resolution mechanism and consumers were forced to seek these remedies in court or by means of nonbinding informal arbitration programs established by the manufacturers, procedures which often proved costly for the average consumer and resulted in long delays and unfair awards (see generally, Givens, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 198-a, at 311-313). The Legislature responded by enacting General Business Law § 198-a (k), which gives the consumer the option of arbitration, rather than legal proceedings, and compels participation by the manufacturer.¹

Plaintiffs subsequently commenced this action and, after issue was joined, both parties moved for summary judgment. Supreme Court granted defendants’ motion and declared section 198-a (k) constitutional. The Appellate Division modified by declaring a portion of the regulations implementing the statute invalid and otherwise affirmed. Plaintiffs appealed to this court on constitutional grounds (CPLR 5601 [b]) and we now affirm.

II

Plaintiffs contend first that section 198-a (k), which allows the consumer to unilaterally invoke the compulsory arbitration program, violates article I, §2 of the New York State Constitution by depriving automobile manufacturers of their right to a trial by jury. Section 2 mandates that "[t]rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever” (NY Const, art I, § 2). Thus, an examination of the constitutional sources which previously "guaranteed” a trial by jury is necessary to determine the scope of the present right.

New York’s first Constitution, enacted in 1777, guaranteed trial by jury in all cases "in which it hath heretofore been used” (NY Const of 1777 art XLI). The import of that provision was to include in the constitutional guarantee all cases in which a jury trial had been provided under common law (see, Matter of Luria, 63 Misc 2d 675, 676-677; Siegel, NY Prac § 377). Prior to 1777 a jury trial was required if the nature and substance of the relief requested was legal; if the relief demanded was equitable, there was no right to a jury trial (see, Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367, 370; Matter of Luria, 63 Misc 2d 675, 682, supra; 4 Weinstein-KornMiller, NY Civ Prac ¶ 4101.02). Subsequent Constitutions, up to and including the Constitution of 1894, adopted the "heretofore been used” clause without change. The effect was to include in the constitutional guarantee those cases to which the right to jury trial had been extended not only at common law before 1777 but also by statute between the 1777 and 1894 Constitutions (Matter of Luria, supra; Siegel, NY Prac § 377). The Constitution of 1938, whose relevant sections remain unchanged today, abandoned the "heretofore been used” language and provided that "[t]rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever” (NY Const of 1938, art I, § 2 [emphasis added]). Consequently, all cases afforded a jury trial under the common law prior to 1777 and all cases to which the Legislature extended a right to a jury trial prior to 1894 come within the present constitutional guarantee in article I, §2.

Plaintiffs concur in this interpretation of the constitutional provision but contend that they are entitled to a jury trial because the remedies created by the Legislature in the Lemon Law, acceptance of a replacement vehicle or a refund of the full purchase price (General Business Law § 198-a [c] [1]), are analogous to actions triable by jury at common law.

Analysis starts by recognizing that judicial remedies for breach of contract may be characterized as either "legal” or "equitable”, depending on whether they were available in the common-law courts or in courts of equity (Farnsworth, Contracts § 12.2). The principal "legal” remedy to enforce a contract is a judgment awarding a sum of money. This is a type of "substitutional” relief "intended to give the promisee something in substitution for the promised performance, as when the court awards a buyer of goods money damages instead of the goods” (id.). The principal "equitable” remedy to enforce a contract is an order requiring specific performance of the contract (id.). This is a type of "specific” relief "intended to produce as nearly as is practicable the same effect that the performance due under a contract would have produced” (Restatement [Second] of Contracts § 357, comment a). The remedy of specific performance allows a court to compel a party to a contract to perform, "if not exactly, at least substantially, what he has undertaken to do” (11 Williston, Contracts § 1418, at 644 [3d ed 1968]).

Turning to the Lemon Law remedies, the replacement remedy provided by the Lemon Law is analogous to specific performance; it is designed to produce, as nearly as practicable under the circumstances, the same performance promised under the contract. The remedy is equitable in nature and would not be subject to a jury trial under common law (see, supra; Independent Church of Realization of Word of God v Board of Assessors, 72 AD2d 554, 555). Accordingly, plaintiffs are not entitled to a jury trial under article I, § 2 of the New York Constitution when the consumer seeks the replacement remedy under General Business Law § 198-a (c) (1).

As for the refund remedy, plaintiffs maintain it is indistinguishable from the legal actions of breach of warranty (see, Emerald Painting v PPG Indus., 99 AD2d 891, 892; Walter Sign Corp. v Municipal St. Sign Co., 25 AD2d 667, 668) and revocation of acceptance and refund of the purchase price (see, Merola v Atlas Lincoln Mercury, 70 AD2d 950; Stream v Sportscar Salon, 91 Misc 2d 99, 109; UCC 2-608). Unlike a "legal” breach of warranty action, however, in which a consumer retains the defective vehicle and seeks damages as compensation for the breach (see, UCC 2-714 [2]), the refund remedy of the Lemon Law permits the consumer to seek rescission to undo the wrong and return to the status quo ante (see, Matter of Teller, 277 App Div 937, 938, amended 277 App Div 1016).

Furthermore, compared to an action for revocation of acceptance under UCC 2-608, in which the buyer first revokes acceptance of the product and then pursues an action to recover the consideration paid, the revocation and cancellation of the contract do not occur prior to litigation under the Lemon Law. The distinction is critical. Actions similar to the action under UCC 2-608 for the return of the purchase price after a party has fully rescinded a contract, actions upon a rescission, are considered actions at law (see, Vail v Reynolds, 118 NY 297, 302). By contrast, actions for rescission to restore the status quo ante are considered actions in equity (id.). They are "not founded upon a rescission, but [are] maintained for a rescission” and the plaintiff offers in his complaint to return what he has received and make tender of it upon trial (Vail v Reynolds, 118 NY 297, 302, supra [emphasis in original]).

The Lemon Law refund remedy is an action seeking a rescission and restoration of the status quo ante, similar to an action for restitution, and is equitable in nature (see, Tull v United States, 481 US 412, 422). It would not have been triable by jury under the common law (Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367, 370, supra; JIHL Assocs. v Frank, 107 AD2d 662, 663) and is not entitled to a jury trial under article I, §2 of the New York Constitution. That incidental fees and charges are recoverable under the Lemon Law refund remedy (see, General Business Law § 198-a [c] [1]) does not compel a contrary conclusion; a party may receive full relief in an equitable action and the awarding of fees as an incident of the equitable relief sought to restore the status quo ante does not disturb the equitable nature of the action (see, Jamaica Sav. Bank v M. S. Investing Co., 274 NY 215, 222-223). Consequential damages, which are recoverable in a legal action for breach of contract, are not recoverable under the statute (see, Givens, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 198-a, at 315).

ill

Plaintiffs next contend that the compulsory arbitration mechanism implemented by General Business Law § 198-a (k) abridges the constitutionally guaranteed jurisdiction of the Supreme Court.² Article VI, § 7 (a) of the New York Constitution provides that "[t]he supreme court shall have general original jurisdiction in law and equity”. Plaintiffs maintain that when a claim may be brought in a court of law, as the Lemon Law claim may at the consumer’s option (see, General Business Law § 198-a [f], [h], [j], [l]), the Constitution requires that the Supreme Court be permitted to determine that claim in every instance based on its own de novo review of the law and the facts. Because General Business Law § 198-a (k) limits the Supreme Court’s jurisdiction to CPLR article 75 review when a consumer elects compulsory arbitration in the first instance, plaintiffs argue that the Lemon Law provision produces an unconstitutional limitation of the Supreme Court’s general original jurisdiction.

Legislation which affects the jurisdiction of the Supreme Court is not necessarily void, however. The Constitution gives the Legislature the "power to alter and regulate the jurisdiction and proceedings in law and in equity” (NY Const, art VI, § 30). It may award jurisdiction to other tribunals,³ change or abolish common-law causes of action or substitute new remedies (see, Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143, 152-153; Montgomery v Daniels, 38 NY2d 41, 57; People ex rel. Swift v Luce, 204 NY 478, 488; Matter of Stilwell, 139 NY 337, 342; People v Honeckman, 125 Misc 2d 1000, 1003).

The Supreme Court has lost no jurisdiction as a result of General Business Law § 198-a (k) because the jurisdiction secured to it by the Constitution does not attach until a claim is made litigable, that is, made the subject of a suit or litigation in a court of law (People ex rel. Swift v Luce, supra). If the consumer chooses to litigate a Lemon Law claim, the Supreme Court has full jurisdiction to adjudicate it. If the consumer chooses arbitration, the claim becomes litigable when either party seeks review of the award. Supreme Court is vested with jurisdiction to review the claim in such proceedings by applying the standards of CPLR article 75 as we have interpreted them (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 508 [judicial review of compulsory arbitration pursuant to CPLR art 75 must be premised on adequate evidence in the record]). In enacting the statute, the Legislature has merely created a new cause of action and, as it has done before, awarded one of the litigants the option of choosing arbitration or judicial proceedings in the first instance (see, Executive Law §§ 297-298 [Human Rights Law]). Although the type of adjudication differs when a consumer elects arbitration, the statute does not withhold or abridge the court’s "general original jurisdiction” (see, Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143, 152-153, supra).

In sum, the constitutional provision is not offended by the statute because once a consumer decides to litigate a claim in court, or either party decides to seek review of the arbitration proceeding, the Supreme Court is vested with jurisdiction to hear the claim.

IV

Plaintiffs further allege that they have a constitutional right to have a court or public officer adjudicate their disputes with consumers (see, NY Const, art VI, §§ 1, 7) and that General Business Law § 198-a (k) abridges that right by unconstitutionally delegating sovereign judicial power to private arbitrators.

The Legislature may, by statute, provide for compulsory references in certain instances provided that it does not violate rights guaranteed to the parties by the Constitution (see, Schaffer v City Bank Farmers Trust Co., 269 NY 336, 339-340; Steck v Colorado Fuel & Iron Co., 142 NY 236, 250-251; Glass v Thompson, 51 AD2d 69, 75-76; Siegel, NY Prac § 379). As we have stated, however, plaintiffs are not entitled to a jury trial for claims arising under the Lemon Law and therefore adjudication by arbitrators in the first instance is permissible under the Constitution (see also, CPLR 4317 [b] [authorizing a reference without consent of the parties]).

The dissent refers to language found in the Mount St. Mary’s decision stating that the Legislature may not create ad hoc arbitration tribunals, unlimited by rules of law or evidence, to resolve disputes (Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 505, supra). The court continued, however, that a legislative delegation to an arbitration tribunal is constitutional if there are "standards to guide the delegate body” and judicial oversight "to assure that there is a reasonable basis for the action by [it] in compliance with the legislative standards.” (Id.)

The General Business Law, and the regulations implementing it, carefully outline standards to guide the arbitrators and authorizes judicial oversight to insure a reasonable basis for the decision. Thus, the statute and rules provide that before undertaking their duties arbitrators must be trained in the required procedural techniques and in the responsibilities they assume under the program (13 NYCRR 300.7 [e]) and their "personal objectivity” must be "insured” (General Business Law § 198-a [k]; see also, 13 NYCRR 300.7 [b], [c]). Each party has the "right” to present its case at the arbitration hearing, "to be in attendance during any presentation made by the other party and to rebut or refute such presentation” (General Business Law § 198-a [k]; see also, 13 NYCRR 300.13). Moreover, the statute spells out the basis for relief and the specific award authorized. The consumer is entitled to relief if, within certain time periods set forth in General Business Law § 198-a (b), the manufacturer is unable to repair or correct any defect or condition which "substantially impairs the value of the motor vehicle to the consumer after a reasonable number of attempts”, as defined in the statute (General Business Law § 198-a [c] [1]; [d] [1], [2]). If the consumer prevails, the arbitrator is limited to awarding one of two remedies, acceptance of a replacement vehicle of comparable quality or a refund of the full purchase price, plus certain fees and charges (General Business Law § 198-a [c] [1]; 13 NYCRR 300.17 [b]).

Thus, arbitrators are selected pursuant to detailed standards, the procedures they must follow are specified, the grounds for relief defined and their determinations are subject to judicial review under article 75 of the CPLR to ensure compliance with these standards (General Business Law § 198-a [k]).

The dissent expresses apprehension over the deference afforded to arbitration proceedings generally. However, Lemon Law arbitrators, unlike others, are not given broad powers to interpret substantive case law when rendering a decision (see, dissenting opn, at 192-193). Rather, they are required to follow a specific procedure outlined in the statute and regulations to resolve fact-specific disputes and grant one of only two types of specific relief. Inasmuch as compulsory arbitration is involved, judicial review under CPLR article 75 is broad, requiring that the award be in accord with due process and supported by adequate evidence in the record (see, Caso v Coffey, 41 NY2d 153, 156; Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 508, supra). The award must also be rational and satisfy the arbitrary and capricious standards of CPLR article 78 (Caso v Coffey, supra, at 158). If the arbitrator fails to follow the statutory standards, the award should be vacated for exceeding the legislative grant of authority (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 506, supra, quoting Matter of Guardian Life Ins. Co. v Bohlinger, 308 NY 174, 183). Finally, the court’s coercive power is available to ensure compliance with the arbitrator’s decision pursuant to the provisions of CPLR 7514. Given these legislative standards and the courts’ power under CPLR article 75, the arbitration proceeding remains within the judicial domain.

Although the dissent’s argument proceeds on the premise that something has been taken away from the courts, it concedes the statute creates a new cause of action and a new remedy and does not violate the constitutional provision contained in article VI, § 7 (dissenting opn, at 193). The Legislature has merely created a new limited class of disputes and provided a procedure for resolving them, much in the same way it removed automobile claims from judicial cognizance by the No-Fault Insurance Law (see, Montgomery v Daniels, 38 NY2d 41, 57, supraA⁴ Thus, the situation differs materially from that in Matter of Fink v Cole (302 NY 216) in which power, without appropriate standards, was delegated to a private corporation to issue licenses at its discretion. Moreover, the "traits” by which the dissent would identify the judicial function abide in all dispute-resolution bodies; they are not unique to the courts.

Finally, the Legislature has provided for accountability in several ways. It has set forth the procedures to be followed and the elements of the claim entitling a consumer to recovery, defining the arbitration mechanism, the elements of the claim and the relief to be accorded and ensuring that its mandate be followed by providing for the expanded judicial review available in compulsory arbitration.

Accordingly, we find no merit to plaintiff’s claim that the statute unconstitutionally abridges the powers of the judiciary or the dissent’s argument that it violates fundamental concepts of separation of powers or accountability.

V

Finally, plaintiffs argue that the alternate arbitration mechanism established under the Lemon Law violates the State Administrative Procedure Act by not requiring that the arbitrator’s decision include findings of fact, conclusions of law, or reasons for the determination (see, State Administrative Procedure Act § 302 [1]). The State Administrative Procedure Act requirements apply to "agencies” conducting "adjudicatory proceedings” (see, State Administrative Procedure Act §§ 100, 102). General Business Law § 198-a (k) provides that the alternate arbitration procedure "shall be conducted by a professional arbitrator or arbitration firm”, presently the American Arbitration Association. This entity is not a "department, board, bureau, commission, division, office, council, committee or officer of the state, or a public benefit corporation or public authority” and therefore is not an "agency” within the meaning of the State Administrative Procedure Act (see, State Administrative Procedure Act § 102 [1]). Accordingly, the State Administrative Procedure Act requirements do not apply to the alternative arbitration mechanism and the standards and procedures to be applied are those set forth in General Business Law § 198-a and the regulations enacted to implement it (13 NYCRR 300.1-300.19).

Plaintiffs claim that the arbitration violates their right to procedural due process, raised for the first time in the Appellate Division, is beyond our review (see, Matter of Barbara C., 64 NY2d 866, 868).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

1 . General Business Law § 198-a (k) provides:

"Each consumer shall have the option of submitting any dispute arising under this section upon the payment of a prescribed filing fee to an alternate arbitration mechanism established pursuant to regulations promulgated hereunder by the New York state attorney general. Upon application of the consumer and payment of the filing fee, all manufacturers shall submit to such alternate arbitration.

"Such alternate arbitration shall be conducted by a professional arbitrator or arbitration firm appointed by and under regulations established by the New York state attorney general. Such mechanism shall insure the personal objectivity of its arbitrators and the right of each party to present its case, to be in attendance during any presentation made by the other party and to rebut or refute such presentation. In all other respects, such alternate arbitration mechanism shall be governed by article seventy-five of the civil practice law and rules.”

2 . Plaintiffs’ contention is not that they possess a due process right to litigate a particular claim in Supreme Court (see, Matter of Colton v Riccobono, 67 NY2d 571, 576 [generally, there is no per se constitutional right of access to the civil courts]), but that the Supreme Court’s constitutionally guaranteed jurisdiction may not be curtailed by compelling binding arbitration of the new Lemon Law cause of action at the sole option of the consumer.

3 . Although the Supreme Court has jurisdiction over all claims arising in law or equity (except for claims against the State, where exclusive jurisdiction has been conferred on the New York Court of Claims [see, NY Const, art VI, §9]), the Legislature may grant concurrent jurisdiction to other courts of limited jurisdiction (see, e.g., Matter of Malloy, 278 NY 429, 432; People v Darling, 50 AD2d 1038; People v Davis, 27 AD2d 299; see generally, Siegel, NY Prac § 12).

4 . Contrary to the dissent’s argument (dissenting opn, at 190-191), other compulsory arbitration mechanisms established by the Legislature which do not provide for a first-instance adjudication by a judicial entity have been upheld (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 497-498; Country-Wide Ins. Co. v Harnett, 426 F Supp 1030, affd 431 US 934; see, Insurance Law § 5106 [b]).