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Fee for Optional Service Contract Is Not Recoverable Under Lemon Law—C.A.
Opinion Also Says Standard for Civil Penalties for Willful Violations Requires More Than Showing of Unreasonable Actions
By a MetNews Staff Writer
Div. Two of this district’s Court of Appeal has held that the recovery of restitution under California’s lemon law for the actual price paid for a defective vehicle does not include the price of an optional service agreement purchased concurrently with the vehicle.
The court, in its opinion filed Thursday, also considered the standard required for the imposition of civil penalties for willful violations under the law, and rejected a standard that would define “willful” as “unreasonable.” Instead, the court held that a willful violation occurs if actions taken are “deliberate, knowing, or not based on a good faith and reasonable belief that [the manufacturer] was complying with the Act.”
Under the statute, known as the Song-Beverly Consumer Warranty Act and codified at Civil Code §1790 et seq., a manufacturer has an “affirmative duty,” after unsuccessful attempts to repair the vehicle, to either replace the consumer’s defective vehicle or promptly make restitution to the consumer for the actual price paid.
The disputes arose after plaintiff Luis Valdovinos sued Kia Motors America Inc. for violating the act. The complaint, filed Sept. 8, 2016, alleges that Valdovinos purchased a 2014 Kia Optima at a Cerritos Kia dealership for $30,127 in 2014.
According to the plaintiff, the Optima, which had only 19 miles on it, repeatedly went into reverse gear. Despite multiple trips to the dealership, mechanics were not able to replicate the problem and could not effect repairs.
The case went to trial in May 2022 and the plaintiff presented video evidence of an incident in 2019 showing the problems with the reverse gear. The jury found for the plaintiff and awarded him restitution in the amount of $42,568.90, comprised of the purchase price plus $12,912 in incidental damages.
The jury also found that Kia’s violation was willful and awarded twice the restitution amount—$85,317.80—as a civil penalty.
Kia filed a motion for judgment notwithstanding the verdict—or, judgment non obstante veredicto (“JNOV”)—and a motion for a new trial, arguing that restitution should not include the third-party service contract fee (as well as among other incidentals not at issue on appeal) and that there was insufficient evidence of a willful violation.
Los Angeles Superior Court Judge Steven Kleifield denied the JNOV as to the restitution award but granted it as to the civil penalty. Kleifield said that “a distributor does not “willfully” violate the act if it has a “good faith and reasonable belief” that it has performed properly and found “no substantial evidence that Kia knew that the [Optima] had a defect that it could not repair.”
He continued by saying in the order that, if the JNOV ruling is “reversed on appeal,” the court “concurrently grants a partial new trial solely on the claim for civil penalties.”
Justice Brian M. Hoffstadt wrote the opinion reversing the amended judgment as to the restitution amount and ordering a new trial on the issue of the civil penalty. Presiding Justice Judith Ashmann-Gerst and Justice Victoria M. Chavez joined in the opinion.
Restitution Amount
Hoffstadt noted that “no published California decision” has determined that an optional, third-party service agreement is not covered by the restitution provisions of the act but “federal courts applying the Act have uniformly come to this conclusion.”
Sec. 1793.2 provides that the actual price paid by a consumer includes any manufacturer-installed options but “exclud[es] nonmanufacturer items installed by a dealer or the [consumer].” Given this exclusion, the justice opined:
“Because the optional service contract for plaintiff’s Optima was supplied by American Financial, it is not a ‘manufacturer-installed option[]’ and is instead a ‘nonmanufacturer item installed by’ someone else; under the plain text of the Act, the optional service contract is not part of the “actual price paid” by plaintiff for his Optima.”
Unpersuaded by the plaintiff’s contention that this language only excludes physical items that can be “installed,” he wrote:
“Contextually, the ‘actual price paid’ is consideration for the vehicle; the service contract is not paid in exchange for the vehicle, it is instead an add-on supplied by someone else….Practically, plaintiff’s construction would obligate manufacturers to pay restitution for any nonphysical items purchased from third parties, such as satellite radio subscriptions.”
The jurist acknowledged that restitution under the act also includes collateral charges such as taxes and other fees associated with the purchase but said that “plaintiff’s purchase of an optional service contract is not a charge collateral to the sale because it is not part and parcel with the purchase of the vehicle itself, as consumers have the option of forgoing such service contracts.”
Willful Violation
Turning to the civil penalties, Hoffstadt remarked that “[w]hile a deliberate violation of the Act—that is, where the party sued maliciously and in a blameworthy manner failed to comply with the Act—certainly constitutes a ‘willful’ violation, such moustache-twirling malevolence is not required to show ‘willfulness.’ ”
He added that “[a] manufacturer does not act ‘willfully’ if its failure to comply with the Act is an ‘honest mistake’ because it ‘acted with a good faith and reasonable belief’ that it was complying.”
Valdovinos asserts that negligent violations of the act amount to willful violations because if violations made with a reasonable belief are not willful, then unreasonable violations must be so.
Saying that “[w]e reject this argument for what boils down to two reasons,” the jurist wrote:
“First, the net effect of plaintiff’s argument is to substitute the word “willful” in section 1794, subdivision (c), with “negligent.” Yet these two concepts are antithetical to one another….
“Second, plaintiff’s argument rests on an erroneous premise. He plucks the word ‘reasonable’ out of a phrase used to describe when conduct is not willful (namely, when the manufacturer acts ‘with a good faith and reasonable belief’), and then asserts that un-‘reasonable’ conduct is therefore willful. But this ignores the context in which the word ‘reasonable’ appears….A murder of crows is not necessarily homicidal, and an unkindness of ravens is not necessarily hurtful or mean. Context matters. In defining willfulness to exclude a manufacturer who harbors ‘a good faith and reasonable belief’ that it is complying with the Act, the word ‘reasonable’ qualifies the nature of the manufacturer’s ‘good faith’ ‘belief’; ‘reasonableness’ separate and apart from the manufacturer’s subjective belief is not a requirement of the exclusion, so objective unreasonableness separate and apart from the manufacturer’s subjective belief is not a basis for finding conduct to be willful.”
Time Frame
Hoffstadt limited the window for a willful violation and declared:
“The pertinent window starts once the consumer has presented a sufficiently nonconforming vehicle to an authorized ‘service or repair’ facility and provided the manufacturer a ‘reasonable number of attempts’ to fix that nonconformity….
“The pertinent window ends once the consumer has invoked the right to sue under the Act. This end point is implied from the function of the Act’s civil penalty—that is, to deter dilatory conduct by manufacturers and thereby to encourage the prompt replacement or repurchase of defective vehicles.”
The justice reasoned that there was evidence supporting plaintiff’s claim of a willful violation under the standard announced despite the video evidence of the non-performing transmission occurring outside of this window, noting that Valdovinos alleged that mechanics witnessed the defect during a 2014 visit, undermining the validity of the JNOV order.
He declared that “[t]he new trial on the issue of whether Kia willfully violated the Act should be conducted on remand subject to the guardrails clarified in this opinion.”
The case is Valdovinos v. Kia Motors America Inc., 2024 S.O.S. 3057.
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