Request By:
Joseph K. Beasley
Attorney at Law
P.O. Box 856
Harlan, Kentucky 40831
Opinion
Opinion By: David L. Armstrong, Attorney General; Robert V. Bullock, Assistant Attorney General
This is in response to your inquiry in which you ask whether or not a customer arbitration board which has been established pursuant to KRS 367.865 has the authority to require a Kentucky automobile dealer to pay fifty percent of the cost of buying back a consumer's defective vehicle.
It should be noted that a review of the material you submitted establishes that the customer arbitration board found that the Chrysler Corporation and Harlan Motors had not been able to properly repair the consumer's vehicle and therefore the consumer was entitled to a new vehicle. The opinion of the board dated December 20, 1985, further reads:
The board further dictates that when Chrysler Corporation takes possession, the vehicle is to be sold at auction. The difference between repurchase price and auction price is to be equally shared by Chrysler Corporation and Harlan Motor Company.
It should be noted that it has been alleged that the dealer was not specifically named in the notice of the arbitration hearing and was, therefore, unaware that he had been placed in jeopardy. Simple equity dictates that an individual shall not be held liable for monetary damages if he has not been given notice and an opportunity to defend. If this was shown to be the case, an award against a franchise dealer would obviously be ultravires.
It is appropriate for the Attorney General as chief law officer of the state to provide advice and assistance so that arbitration panels may properly perform the tasks that have been assigned by the General Assembly. KRS 367.865(7). We shall therefore address through this opinion the question of whether a Kentucky automobile dealer can be required by the manufacturer to pay all or part of an award issued by an arbitration panel who finds that a consumer has purchased a defective vehicle.
KRS 367.865 requires each motor vehicle manufacturer to offer to the buyer a comprehensive informal dispute resolution system. It does not prevent an arbitration panel established through this law from requiring a dealer to share in the cost associated with an award. 1 The question of whether a franchise dealer can be held liable for all or part of the costs associated with a defective vehicle hinges upon a reading of what has been known as the Dealer's Bill of Rights, KRS 190.046, which reads in part as follows:
Notwithstanding the terms of any franchise agreement, each motor vehicle manufacturer . . . doing business within this Commonwealth, shall assume all responsibility for and shall defend, indemnify, and hold harmless its motor vehicle dealers against any loss, damages, and expenses, including legal costs, arising out of compliants, claims, or lawsuits resulting from warranty defects, which shall include structural or production defects or defects in the assembly, or design of motor vehicles, parts, accessories, or other functions beyond the control of the dealer, including without limitation, the selection of parts or components for the vehicle. . . .
(Emphasis added.)
A reading of KRS 190.046 shows that the intent of the General Assembly is to require a manufacturer who produces a defective motor vehicle to assume all responsibility for such defects. While it is generally true that individuals are free to contract away rights which they may possess, public policy prevents this in instances in which a statute has been enacted and there is unequal bargaining power. Furthermore, KRS 190.070(1)(i) prohibits a manufacturer from requiring a dealer to prospectively assent to a release, assignment, novation, waiver, or estoppel which would relieve any person from liability to be imposed by the law or to require any controversy between a dealer and a manufacturer to be referred to any person other than the duly constituted courts of the Commonwealth or United States of America. It is therefore obvious that a manufacturer is prohibited from requiring that a franchise dealer submit to an arbitration panel the question of whether the dealer must pay for all or part of the cost of repairing or replacing a defective new motor vehicle.
Footnotes
Footnotes
1 But see, however, KRS 367.842(5) and KRS 367.844 (what is known as the Kentucky New Car "Lemon" Law) which prohibits franchised dealers being exposed to liability under that act.