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California Supreme Court:
‘Lemon Law’ Excludes Used Cars With Unexpired Warranty
Opinion Says Act’s Refund-or-Replace Rule Does Not Apply to Preowned Vehicles Sold With Balance Remaining on Manufacturer’s New Car Guarantee
By Kimber Cooley, associate editor
The California Supreme Court held yesterday resolved ambiguity in a statute, holding that the refund-or-replace remedy provided for in California’s “lemon law”—requiring automakers to provide a substitute vehicle or to pay restitution for the purchase of a defective new car—does not apply to used automobiles purchased with some balance remaining on the manufacturer’s warranty.
Sec. 1793.2(d)(2) of the Song-Beverly Consumer Warranty Act provides for the refund-or-replace relief when the manufacturer is “unable to service or repair a new motor vehicle, as that term is defined in paragraph (2) of subdivision (e) of Section 1793.22, to conform to the applicable express warranties after a reasonable number of attempts.”
A “new motor vehicle” is defined in §1793.229(e)(2) as one “bought or used primarily for personal” purposes as well as “a dealer-owned vehicle and a ‘demonstrator’ or other motor vehicle sold with a manufacturer’s new car warranty.”
Appealing a judgment of dismissal were plaintiffs Everardo Rodriguez and Judith Arellano, who, in 2013, purchased a 2011 Dodge Ram 2500 with 55,444 miles from Pacific Auto Center, a used-car dealership in Fontana. The vehicle’s manufacturer-issued 100,000-mile powertrain warranty was still in effect at the time of the purchase.
2018 Lawsuit
In 2018, Rodriguez and Arellano filed a complaint against FCA US LLC—the automaker that oversees Dodge and other brands—asserting that the automaker violated §1793.2 by failing to replace or refund the cost of their vehicle after six failed attempts by FCA-authorized facilities to repair issues with the engine.
FCA moved for summary judgment, arguing that the refund-or-replace remedy only applies to new motor vehicles and not to the purchase of a used car. Then-Riverside Superior Court Judge L. Jackson Lucky IV (now an arbitrator/mediator) agreed and judgment was entered in favor of the defendant.
Div. Two of the Fourth District Court of Appeal, in an opinion by then-Justice Marsha Slough (now retired), affirmed the judgment, saying:
“The sole issue in this case is whether the phrase ‘other motor vehicle sold with a manufacturer’s new car warranty’ covers sales of previously owned vehicles with some balance remaining on the manufacturer’s express warranty. We conclude it does not and that the phrase functions instead as a catchall for sales of essentially new vehicles where the applicable warranty was issued with the sale.”
Justice Goodwin H. Liu authored yesterday’s opinion for the unanimous court affirming the judgment and agreeing with the Court of Appeal’s interpretation, writing that textual clues and the framework of the act support the view that “the phrase ‘other motor vehicle sold with a manufacturer’s new car warranty’ is most naturally understood to mean other vehicles for which such a warranty is issued with the sale.”
He acknowledged language in a 1995 Third District decision supporting a contrary view and said that “[w]e disapprove Jensen v. BMW of North America, Inc.,…to the extent it is inconsistent with this opinion.”
Text of Statute
Liu noted ambiguity in the text of the statute, saying:
“Here, the phrase at issue, considered as a snippet by itself, is reasonably susceptible to either plaintiffs’ interpretation (i.e., any vehicle sold with an unexpired manufacturer’s new car warranty) or FCA’s (i.e., a vehicle with a manufacturer’s new car warranty that was issued with the sale). But ‘[w]e do not consider statutory language in isolation; instead, we examine the entire statute to construe the words in context.’ ”
Turning to the context, he wrote:
“[The] text makes clear that certain used cars—’a dealer owned vehicle and a “demonstrator” or other motor vehicle sold with a manufacturer’s new car warranty’—qualify as ‘new motor vehicles’ for purposes of the statute….The meaning of the disputed phrase is informed by the specific mention of dealer-owned vehicles and demonstrators as examples of a ‘motor vehicle sold with a manufacturer’s new car warranty.’….As the Court of Appeal explained, ‘What makes these vehicles unique is that even though they aren’t technically new, manufacturers (or their dealer-representatives) treat them as such upon sale by providing the same type of manufacturer’s warranty that accompany new cars.’….In other words, they are vehicles for which a new car warranty ‘was issued with the sale.’ ”
The parties dispute whether dealer or demonstrator vehicles are typically sold with “full” new car warranties. Liu, however, found the issue largely irrelevant to the analysis and opined:
“The key point, as FCA further explains, is that ‘demonstrators are not warranted prior to sale. In every case, the first customer to purchase or lease a demonstrator or dealer-owned vehicle receives a new warranty arising in that transaction, directly from the manufacturer….’ In other words, a warranty in this context is a guarantee made by the manufacturer to a retail buyer.”
He continued:
“By specifically mentioning dealer-owned vehicles and demonstrators, the Legislature highlighted vehicles for which a manufacturer’s new car warranty arises upon sale to a retail buyer. Thus, the phrase ‘other motor vehicle sold with a manufacturer’s new car warranty’ is most naturally understood to mean other vehicles for which such a warranty is issued with the sale….The phrase serves as ‘a catchall to ensure that manufacturers cannot evade liability under the Act by claiming a vehicle doesn’t qualify as new because the dealership hadn’t actually used it as a demonstrator.’….For example, it would cover a car owned by a manufacturer or distributor for marketing purposes.”
Overall Framework
Saying “[t]his interpretation is bolstered by the overall framework of the Song-Beverly Act,” Liu pointed out that the statute distinguishes between new and used products. The justice wrote:
“For new products, liability extends to the manufacturer; for used products, liability extends to the distributor or retail seller and not to the manufacturer, at least where the manufacturer has not issued a new warranty or played a substantial role in the sale of a used good….Against this backdrop, it would be anomalous to construe ‘other motor vehicle sold with a manufacturer’s new car warranty’…to include any used car sold by a distributor or retailer with a preexisting, unexpired manufacturer’s warranty. If the Legislature had meant to depart from the basic scheme and extend manufacturer liability in this way, again we think it would have spoken more clearly.”
The plaintiffs argue that the legislative history “shows a consistent effort to expand the ‘new motor vehicle’ definition.” Unpersuaded, the jurist said that the history “offers little insight on the question before us.”
He commented:
“[T]he Legislature’s incremental expansions do not indicate any intent to cover used vehicles with an unexpired manufacturer’s new car warranty. Indeed, what we find most significant about the legislative history is that it makes no mention of used vehicles….”
Jensen Case
The plaintiffs cited the Jensen case as supporting their interpretation. In an opinion by then-Justice Janice Rogers Brown (later a justice of the California Supreme Court, then a judge of the U.S. Circuit Court for the District of Columbia, now retired), the Third District said that “cars sold with a balance remaining on the manufacturer’s new motor vehicle warranty are included within [the Song-Beverly Act’s] definition of ‘new motor vehicle.’ ”
Liu agreed with Fourth District that Jensen is distinguishable because it involved a lease by a manufacturer-affiliated dealership that offered a full warranty with the transaction and did not address the issue of whether a used vehicle with an unexpired warranty sold by a third-party reseller qualifies as a “new” car.
He noted that the Court of Appeal in the present case was “not the only court to have questioned the broad statement in Jensen on which plaintiffs here rely” and concluded that the decision is disapproved to the extent it is inconsistent with the high court’s opinion.
The jurist declared:
“We express no view on the parties’ policy arguments as to whether the Song-Beverly Act strikes an appropriate balance between protecting buyers of cars with unexpired new car warranties and cabining manufacturers’ liability for the refund or-replace remedy. Those arguments are best directed to the Legislature, which remains free to amend the definition of ‘new motor vehicle’ to include used vehicles with a balance remaining on the manufacturer’s new car warranty. ‘Our task is to give effect to the statute as we find it.’ ”
The case is Rodriguez v. FCA US LLC, 2024 S.O.S. 3474.
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