In Dismissing Claims Against OEM, Federal Court Quietly Rejects FTC Interpretation of Magnuson-Moss Warranty Act

A federal court in Wisconsin recently granted a motion to dismiss all claims in a putative multi-district class action against motorcycle manufacturer Harley-Davidson, asserting claims that the OEM’s warranty violated the Magnuson-Moss Warranty Act (“MMWA”) and state antitrust and consumer protection laws. Although the court did not acknowledge the conflict, the decision quietly rejected the interpretation by the Federal Trade Commission (“FTC”) of the MMWA and associated rules as set forth in an enforcement action brought against Harley-Davidson by the agency just two years ago.

Federal Court Dismisses Claims Arising Out of Motorcycle Warranty

In re Harley-Davidson Aftermarket Parts Marketing, Sales Practices, and Antitrust Litigation, Case No. 23-MD-3064 (E.D. Wis.), purchasers of Harley-Davidson motorcycles alleged that the manufacturer’s 24-month limited warranty violated the MMWA’s anti-tying prohibition by advising purchasers to “insist that your authorized Harley-Davidson dealer uses only genuine Harley-Davidson replacement parts and accessories to keep your Harley-Davidson motorcycle and its limited warranty intact,” that “unapproved modifications . . . may void all or part of your new motorcycle warranty,” and that the use “of aftermarket performance parts may void all or parts of your limited warranty.” The plaintiffs also alleged that Harley-Davidson violated the MMWA’s requirement that all warranty terms be fully disclosed pre-sale because the warranty instructed purchasers to “see an authorized Harley-Davidson dealer for details” and because Harley-Davidson did not provide its dealers with signs displaying the full text of the warranty.

In a decision issued in early June 2024, the Wisconsin federal court granted Harley-Davidson’s motion to dismiss all counts for failure to state a claim. The court found that when all terms of the warranty are read together, Harley-Davidson’s warranty “does not state that using non-Harley-Davidson parts will affect the warranty”—a statement that would run afoul of the anti-tying prohibition of the MMWA and associated rule adopted by the FTC—but instead addresses the types of modifications that “may” void the powertrain warranty. The court also found that Harley-Davidson’s warranty did not violate the MMWA pre-disclosure rule adopted by the FTC, which requires warrantors to “fully and conspicuously disclose in simple and readily understood language the terms and conditions of such warranty,” noting that plaintiffs had failed to allege any additional warranty terms not included in the warranty documents they received. The court also dismissed antitrust and fraud-based claims asserted against Harley-Davidson.

Decision Quietly Rejects The Outcome of Prior FTC Enforcement Action

The multi-district class action in Wisconsin federal court followed in the wake of a 2022 administrative enforcement action brought by the FTC against Harley-Davidson based on the same alleged violations of the MMWA and associated anti-tying and pre-disclosure rules.  Rather than fight that action—which would have been adjudicated by an FTC administrative law judge—Harley-Davidson entered into a consent decree in June 2022 in which it denied any violation but agreed to make changes to the language of its warranty, including additional disclosure to customers about their rights; send and post notices to customers that their warranties would remain in effect even if they buy aftermarket parts or use independent repair facilities; and advise Harley-Davidson dealers to remove deceptive display materials and compete fairly with independent repair facilities. 

Notably, in their briefing on the motion to dismiss, both the plaintiffs and Harley-Davidson in the In re Harley-Davidson Aftermarket Parts Marketing, Sales Practices, and Antitrust Litigation discussed the impact of the 2022 enforcement action at length. Plaintiffs argued that the FTC enforcement action demonstrated that their complaint met the minimal burden under Fed. R. Civ. P. 12(b)(6) that a complaint state a “plausible” claim, and that the FTC’s interpretation of the MMWA and associated anti-tying and pre-disclosure rules adopted by the agency were entitled to deference under Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984). Harley-Davidson in reply argued that no Chevron deference was required because there was no statutory ambiguity, and because an unadjudicated FTC complaint, filed with a settlement without admission of liability, did not have the force of law.

The Wisconsin federal court did not address these arguments in its June 2024 order granting Harley-Davidson’s motion to dismiss, implicitly declining to give deference to the FTC’s interpretation of the MMWA and associated anti-tying and pre-disclosure rules.  At the same time, the decision suggests the federal court would have found the allegations against Harley-Davidson in the FTC enforcement action equally implausible. Although Harley-Davidson chose not to contest the FTC’s 2022 enforcement action, the recent federal court decision demonstrates that companies can still mount an early and vigorous defense in court even after making the strategic decision to settle with the FTC rather than fight in a potentially unfavorable administrative forum.