Joseph Kaufman & Associates is proud to announce that an article written by its attorneys Brian Lynn and Maria Sanjur-Van Brande has been published in the Daily Journal.
You can read the article on the Daily Journal (with a subscription) or below.
Putting the squeeze on California’s lemon law
By J. Brian Lynn and Maria Sanjur-Van Brande
California’s lemon law, the Song-Beverly Consumer Warranty Act, is one of the most pro-consumer lemon laws in the United States. However, a case currently pending in California’s Supreme Court could weaken its consumer-friendly protections if the Court of Appeals’ decision in Niedermeier v. FCA US LLC is affirmed.
In Niedermeier v. FCA US LLC, 56 Cal.App.5th 1052 (2020), a jury concluded that plaintiff’s vehicle was a lemon and awarded the repurchase price and a civil penalty, finding FCA’s violation of the act to be willful. FCA appealed, seeking an offset in plaintiff’s damages – a deduction in the repurchase price based on the amount plaintiff received in credit when she traded in the vehicle after FCA denied her repurchase request. The Court of Appeals agreed with FCA and deducted the requested offset from the damage award. Niedermeier, 56 Cal.App.5th at 1061. Further, by reducing the damages for the repurchase price, the court felt constrained to reduce the civil penalty as well. Id. at 1077. The act only allows for a civil penalty up to two times the actual damages, and the civil penalty award exceeded this limitation once the trade-in amount was deducted. Accordingly, the court reduced the civil penalty to two times the amount of the modified damage award. Id.
The Niedermeier court’s decision was largely based on: (1) its interpretation of the term “restitution,” contained in the act; (2) its conclusion that disallowing an offset would result in a windfall for plaintiffs who trade in their vehicles; and (3) its conclusion that a contrary decision would incentivize buyers to reintroduce defective vehicles into the market to other consumers without the warnings a manufacturer otherwise would have to provide, since the act requires manufacturers to rebrand, as lemons, the titles of repurchased, defective vehicles.
In examining the Niedermeier court’s decision, it is important to note that courts must (and typically do) consider that the Song-Beverly Consumer Warranty Act is intended to benefit consumers. “Broadly speaking, the Act regulates warranty terms; imposes service and repair obligations on manufacturers, distributors and retailers who make express warranties; requires disclosure of specified information in express warranties; and broadens a buyer’s remedies to include costs, attorney fees and civil penalties. … [T]he purpose of the Act has been to provide broad relief to purchasers of consumer goods with respect to warranties.” National R.V., Inc. v. Foreman, 34 Cal.App.4th 1072, 1080 (1995). The act “is manifestly a remedial measure, intended for the protection of the consumer; it should be given a construction calculated to bring its benefits into action.” Kwan v. Mercedes-Benz of North America, Inc., 23 Cal.App.4th 174, 184 (1994).
Under the act, manufacturers have a duty to promptly repurchase or replace vehicles that cannot be repaired after a reasonable number of attempts. If a consumer elects to have the vehicle repurchased, the amount of the “restitution” is calculated following a specific formula contained in the act. Pursuant to the language in the act, manufacturers may only deduct, from the repurchase amount, a mileage offset and any nonmanufacturer items installed by the dealer.
In reaching its decision, the Niedermeier court misinterpreted the applicable language of the act, undermined its pro-consumer nature, and ignored its important underlying public policy goals. Indeed, Niedermeier’s reasoning was expressly rejected by two other Courts of Appeals. First, in Figueroa v. FCA US, LLC, 84 Cal.App.5th 708 (2022), the Court of Appeals held that the defendant-manufacturer was not entitled to an offset for the net proceeds that plaintiff obtained when he sold his truck to CarMax after the defendant rejected plaintiff’s repurchase request. Subsequently, in Williams v. FCA US LLC, 88 Cal.App.5th 765 (2023), the Court of Appeals held that the defendant-manufacturer was not entitled to an offset for the credit plaintiff received when she traded in her vehicle. Williams and Figueroa essentially concluded that the Niedermeier court erred in three significant ways.
First, in concluding that “restitution” under the act should be consistent with the common law, it ignored that “restitution” is specifically defined in the act. Specifically, nothing in the act provides for the offset that the manufacturer requested, and such an offset contradicts the act’s remedial purpose.
Second, although acknowledging that disallowing an offset would sometimes result in a windfall for plaintiffs, the courts rejected the conclusion that such a windfall would be improper. Rather, if an offset were allowed, it would improperly reward the manufacturer for its wrongful conduct. “FCA cannot complain that the vehicle’s owner has received an unjustified windfall when it could have avoided such a result by complying with the Song-Beverly Act.” Figueroa, 84 Cal.App.5th at 714. Further, if an offset were allowed, manufacturers would be encouraged to delay buying back vehicles, knowing that they could substantially reduce any subsequent verdict (actual damages and civil penalties) and/or settlement if they waited long enough for a plaintiff to trade in a vehicle before the manufacturer repurchased the vehicle.
Third, Niedermeier’s purported concern that precluding an offset would incentivize buyers to reintroduce defective vehicles into the market to other consumers, without the labeling and notification warnings a manufacturer would otherwise have to provide, is misplaced. “[I]t is FCA, and not the vehicle’s owner, who undercuts the act’s labeling and notification requirements by refusing to repurchase the vehicle as required by the act. The labeling and notification requirements only apply where the manufacturer replaces or repurchases the vehicle, something FCA has refused to do.” Figueroa, 84 Cal.App.5th at 714.
In sum, the Niedermeier decision provides an economic incentive for manufacturers to avoid complying with the Song-Beverly Consumer Warranty Act and is a departure from the act’s pro-consumer purpose. We are cautiously optimistic that the California Supreme Court will reverse this decision, and that it will utilize the sound reasoning employed in Williams and Figueroa.
J. Brian Lynn is senior counsel, and Maria Sanjur-Van Brande is an associate at Joseph Kaufman & Associates, Inc.
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