Depending on when you bought the 98 RS, it may be out of warranty (did you check). I forget, there is a bumper-to-bumper and also a drivetrain warranty, right?
Anyway, just ask the rep to put the reason down in writing. Write him/Subaru a letter if need be. You'll find they won't be so brave when they have to put their reasons down on paper.
And if they do have a valid reason for denying it, then no reason why they shouldn't put it in writing.