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California Supreme Court:
Recovery Under Lemon Law Not Reduced by Credit
Where Manufacturer Won’t Repurchase Defective Vehicle, Damages Won’t Be Lowered By Amount Allowed on Trade-in or Proceeds From a Sale, Evans’s Opinion Declares
By a MetNews Staff Writer
The California Supreme Court held yesterday that the statutory restitution remedy in California’s “lemon law” is not reduced by either trade-in credit or sale proceeds where a consumer has been forced to get rid of a defective vehicle that the he manufacturer won’t fix or buy back.
Justice Kelli Evans wrote the opinion reversing the judgment of Div. One of this district’s Court of Appeal which, in an opinion by Justice Helen I. Bendix, reduced a plaintiff’s recovery against the automobile manufacturer in a suit under the Song-Beverly Act Consumer Warranty Act by the amount the plaintiff already recovered by trading in a malfunctioning vehicle
Chief Justice Patricia Guerrero and Justices Carol A. Corrigan, Goodwin H. Liu, Joshua P. Groban, and Martin J. Jenkins signed the opinion. Justice Leondra R. Kruger wrote a concurring opinion in which Groban and Jenkins joined.
Jeep Wrangler Purchased
In January 2011, Lisa Niedermeier purchased a new Jeep Wrangler from FCA US LLC—formerly known as Chrysler Group LLC—for approximately $40,000.
Throughout the warranty period, she experienced a host of problems with the Wrangler’s transmission, engine and exhaust, causing the vehicle to jerk, make rattling noises and emit noxious gases. The vehicle’s floorboard also heated up and caused impaired braking, acceleration and turning. Her vehicle was unusable for a total of 75 days during the failed repair attempts.
Between April and June of 2015, Niedermeier made three buyback demands of FCA, but FCA declined to repurchase the vehicle. In October, after additional repair attempts failed, she traded in the vehicle for a $19,000 trade-in credit toward the purchase of a new GMC Yukon.
Song-Beverly Claim
In October 2016, she sued, asserting causes of action for fraudulent inducement and concealment, and breach of express and implied warranties under the Song-Beverly Act, codified in California Civil Code §1791 et seq. A jury found against her on fraudulent inducement and concealment, but found that FCA willfully violated the act.
Sec. 1794(a) allows a car buyer who “is damaged by a failure to comply with any obligation” under the code or under an implied or express warranty or service contract to “bring an action for the recovery of damages and other legal and equitable relief.”
Under §1794(c), the amount of damages in an action under these code section “shall include the rights of replacement or reimbursement as set forth in subdivision (d) of Section 1793.2.”
Sec. 1793.2(d), in turn, provides:
“If the manufacturer or its representative…is unable to service or repair a new motor vehicle...to conform to the applicable express warranties after a reasonable number of attempts, the manufacturer shall either promptly replace the new motor vehicle in accordance with subparagraph (A) or promptly make restitution to the buyer in accordance with subparagraph (B). However, the buyer shall be free to elect restitution in lieu of replacement, and in no event shall the buyer be required by the manufacturer to accept a replacement vehicle.”
Formula Provided
The code section sets forth a specific formula for calculating the amount of restitution in subsection (d)(2)(B):
“In the case of restitution, the manufacturer shall make restitution in an amount equal to the actual price paid or payable by the buyer, including any charges for transportation and manufacturer-installed options, but excluding nonmanufacturer items installed by a dealer or the buyer, and including any collateral charges such as sales or use tax, license fees, registration fees, and other official fees, plus any incidental damages to which the buyer is entitled under Section 1794, including, but not limited to, reasonable repair, towing, and rental car costs actually incurred by the buyer.”
Following the verdict, FCA filed a post-judgment motion requesting $19,000 to be offset from the awarded damages, the amount of the trade-in credit she received.
Los Angeles Superior Court Judge Daniel Murphy denied the motion, reasoning that reducing the jury award would be inconsistent with the pro-consumer policy supporting the act.
The Court of Appeal disagreed and held, as a matter of first impression, that the act’s restitution remedy did not include any amount the plaintiff received from trading in a defective vehicle, and reduced the award to Niedermeier. Bendix reasoned that allowing full restitution after receiving credit for trading in the vehicle would place her in a better position than had she never bought the car.
Plain Language
Evans first looked to the plain language of the code and found that it “lays out a specific formula for calculating the amount of restitution to be paid by the manufacturer as damages in an action pursuant to section 1794.”
She continued:
“Nowhere does section 1793.2 provide that a restitution order must be reduced by any amount a buyer receives when trading in or selling the defective vehicle to a third party.”
Noting that the statute excluded other costs such as “nonmanufacterer-installed options” from the restitution calculation and allowed reduction by the amount of use by the buyer, she said:
“The Legislature could have stated that the trade-in or sale amounts were to be offset or reduced from the statutory restitution remedy. It did not do so.”
She opined that “trade-in or sale proceeds obtained years after the purchase of a defective vehicle are not part of ‘the actual price paid or payable’ because they are separate and apart from the settled purchase price of the vehicle at the time of contracting.”
Evans noted that Bendix declined to follow a plain language reading of the statute, and instead relied on the 2000 Fourth District Court of Appeal decision Mitchell v. Blue Bird Body Company which held that the “actual price paid or payable” in §1793.2(d)(2)(B) included interest payments paid after a vehicle was purchased.
However, the jurist found this reliance wanting, as the court in Mitchell “did not consider whether it was appropriate to reduce the statutory restitution remedy by the amount of a trade-in credit or sale proceeds in order to restore the status quo” when such reduction is not enumerated in the statute.
Double Recovery
Evans further rejected arguments that not reducing the award by the trade-in credit amounts to a “double recovery” prohibited under the California Uniform Commercial Code. She wrote:
“We conclude that the Act’s restitution and replacement remedies are distinct from the available California Uniform Commercial Code remedies referenced in section 1794, and the California Uniform Commercial Code remedies do not reduce the Act’s statutory restitution remedy. We also find that any attempt to reduce the statutory restitution remedy by the remedies set forth in the California Uniform Commercial Code would conflict with the Act, and the Act’s restitution remedy thus controls.”
She continued:
“FCA argues a few out-of-state cases support a conclusion that the relevant provisions of the California Uniform Commercial Code should reduce the statutory restitution remedy. None of these cases, however, address the issue before us: whether alternate California Uniform Commercial Code remedies should reduce damages calculated pursuant to the express statutory restitution formula contained in California’s lemon law….In California, as discussed above, the Uniform Commercial Code provides additional damages affected consumers can elect to pursue under section 1794 if they wish but it does not displace the statutory restitution remedy.”
Legislative Intent
Evans noted that multiple amendments to the act were enacted to further protect consumers. She looked to the history of the code and said:
“This history demonstrates that the Legislature intended to lay out a precise method for calculating restitution awards payable to buyers, including the amounts allowed to be reduced from awards. The evolution of the Act also indicates a legislative intent to ensure buyers receive full compensation under the Act, to make it easier for buyers to access all the benefits to which they are entitled under applicable warranties, and to constrain manufacturers from evading their statutory obligations.”
She reasoned:
“This counsels against reducing statutory restitution awards by trade-in credits or sales proceeds, when such reductions are not enumerated or authorized in section 1793.2, subdivision (d).”
Other Concerns
Evans rejected arguments that denying the reduction would incentivize buyers to reintroduce defective vehicles into the market without the warnings manufacturers are required to make, saying:
“Contrary to the Court of Appeal’s focus, it is manufacturers, not buyers who are forced to trade in or sell their vehicles, who undercut the Act’s labeling and notification provisions by failing to timely comply with the Act’s requirements….Allowing buyers to recover full restitution, as defined in the statute, incentivizes manufacturers to comply with their obligations under the Act.”
She similarly noted that a rule requiring reduction created perverse incentives, writing:
“[T]he Court of Appeal’s (and FCA’s) interpretation would incentivize manufacturers to drag out the process of offering restitution in hopes of paying reduced damages. Specifically, manufacturers would be encouraged to wait for consumers to become fed up with delays and give up and sell or trade in their defective (if not dangerous) vehicles, at which point the manufacturers could request that the consumers’ damages be reduced accordingly.”
She declared:
“[W]e decline to adopt a rule that reduces a buyer’s statutory restitution award by a trade-in credit or sale proceeds at least where, as here, a consumer has been forced to trade in or sell the defective vehicle due to the manufacturer’s failure to comply with the Act. Once restitution is available to a plaintiff as a remedy, the measure of restitution is as described in section 1793.2, subdivision (d)(2), with no reductions other than those expressly stated in that subdivision.”
Kruger’s Concurring Opinion
Kruger agreed with the majority’s opinion insofar as it was limited to the case where “the buyer ‘has been forced’ to trade in or sell the defective vehicle because of ‘the manufacturer’s failure to comply with the [Song-Beverly Consumer Warranty] Act.’ ”
She explained:
“An across-the-board rule giving lemon law plaintiffs a categorical entitlement to full reimbursement (or else a new replacement car) plus the proceeds of resale or trade-in would also raise significant questions of fairness. A rule permitting this sort of double recovery in every case would mean that plaintiffs who buy luxury vehicles could wind up turning a substantial profit if those vehicles later prove defective, while plaintiffs who buy economy cars probably could not — for reasons that have nothing to do with the extent of their actual losses or the extent of the manufacturer’s wrongdoing.”
The case is Niedermeier v. FCA US LLC, 2024 S.O.S. 809.
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