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    Court of Appeals Digest

    Daniel Blinka; Thomas Hammer

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    Wisconsin Lawyer
    Vol. 77, No. 6, June 2004

    Court of Appeals Digest


    This column summarizes selected published opinions of the Wisconsin Court of Appeals. Prof. Daniel D. Blinka and Prof. Thomas J. Hammer invite comments and questions about the digests. They can be reached at the Marquette University Law School, 1103 W. Wisconsin Ave., Milwaukee, WI 53233, (414) 288-7090.

    by Prof. Daniel D. Blinka &
    Prof. Thomas J. Hammer

    Arbitration

    Confirmation - Public Policy

    Kadlec v. Kadlec, 2004 WI App 84 (filed 23 March 2004) (ordered published 28 April 2004)

    A family partnership invested in real estate located in Iowa. When a dispute arose, the matter was submitted to arbitration. One partner signed an exclusive listing with a Wisconsin real estate broker to sell the property on a 4 percent commission. The property sold for $1.2 million. One partner paid half the commission but the other partner refused to pay the other half. The arbitrator issued a supplemental order compelling the delinquent party to pay the remaining amount.

    The court of appeals, in a decision written by Judge Cane, reversed. The court found that the dispute over payment of the commission fell within the contractual authority of the arbitrator to "resolve all disputes" between the partners. Nonetheless, the court found that the supplemental order violated "strong public policy."

    Both Wisconsin and Iowa require licensure of real estate brokers. The broker in this case was not licensed in Iowa. An "individual state's power to regulate its real estate brokers through licensure requirements must be preserved. To conclude otherwise would allow a licensed real estate broker from one state to provide services in another state notwithstanding that other state's requirements. The consequence of that scenario is that all other states' regulations become meaningless. We cannot endorse an arbitrator's award that implicates such a possibility. Thus, we conclude this is a rare case where strong public policy requires the arbitrator's order to be vacated" (¶ 14).

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    Attorneys

    Medical Treatment - Assignments - Joint and Several Liability

    Riegleman v. Krieg, 2004 WI App 85 (filed 17 March 2004) (ordered published 28 April 2004)

    In a two-day trial the court found that a law firm was liable for the payment for "medical" treatment provided by a chiropractor. The court found that the law firm had entered into a written contract that made it jointly and severally liable for payment of any outstanding balance owed the chiropractor. It also found that the chiropractor's treatment was reasonable and necessary.

    The court of appeals, in an opinion authored by Judge Anderson, affirmed. After tersely disposing of a laches claim, the court of appeals found that sufficient evidence supported the determination that the chiropractor's charges were reasonable and necessary. In essence, the trial judge found that the testimony offered by two chiropractors was more credible than the testimony offered by an orthopedic doctor (¶ 24). It next held "that the document at the center of this controversy is a valid contract, which conveys an assignment. The question of how to classify this type of document is an issue that has not yet been fully addressed in Wisconsin. However, our research reveals that the prevailing trend is for courts to hold that this type of document - that is, the type containing language agreeing to protect a medical provider's right to payment for services from any insurance settlement - is a valid contract which creates an assignment and entitles the medical provider (the assignee) the right of contractual enforcement against both the patient (the assignor) and the patient's lawyer" (¶ 25). The contract language unambiguously obliged the law firm to protect the chiropractor's financial interests in receiving payment for services rendered. The court of appeals discussed case law from other states that supported this determination.

    The opinion concludes with an "instruction": "If an attorney and client have signed an assignment in favor of a medical provider and a dispute arises over whether the amount owing is reasonable and necessary, and if the attorney does not want to hold funds indefinitely, he or she should bring an action for declaratory judgment pursuant to Wis. Stat. § 806.04 and seek guidance from the court as to who is entitled to the disputed funds. Specifically, the attorney should do the following: 1. Commence a declaratory judgment action under Wis. Stat. § 806.04 naming the patient as plaintiff and the medical care provider as defendant. 2. Deposit or file the disputed amount with the Clerk of Courts. We note that the standard language of these assignments authorizes payment of a yet to be determined amount of money (i.e., authorizes the patient's attorney to pay directly to the medical provider 'such sums as may be due and owing'). When an amount is yet to be determined, the trial court has the inherent authority to determine what is reasonable and necessary" (¶ 36).

    The court also offered these further words of "advice and caution to attorneys faced with similar circumstances: An attorney should not assume that he or she can ignore an assignment that he or she has agreed to honor simply because a client changes his or her mind about the assignment - to make such an assumption is contrary to rules of professional conduct, which require that disputed funds be held in trust 'until the dispute is resolved.' SCR 20:1.15(d). When dealing with an attorney, another person (whether an attorney or a lay person) has the right to expect that the attorney will be honest and straightforward. If an attorney signs a document intending that the medical provider rely upon it to continue to render care and to postpone collection efforts, while intending not to be obligated to dispense settlement proceeds to the medical provider, a more serious question of misrepresentation and fraud could arise" (¶ 37) (citation omitted).

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    Consumer Law

    Wisconsin Consumer Act - Standing to Bring Claim

    Zehetner v. Chrysler Fin. Co., 2004 WI App 80 (filed 30 March 2004) (ordered published 28 April 2004)

    The plaintiff and her boyfriend, who is the father of the plaintiff's child, went to an automobile show and offered to buy a car from a dealership. They both signed a motor vehicle purchase contract that listed both of their names as the "prospective purchaser." The boyfriend applied for credit to finance the purchase, but his credit application was denied. The plaintiff and her boyfriend then completed and signed a credit application as joint applicants, the plaintiff providing employment and credit reference information and describing her co-applicant as her "fiancé."

    Using the joint credit application, the salesperson obtained approval from Chrysler Financial to finance the purchase. Eventually the plaintiff and her boyfriend parted ways, and the boyfriend defaulted on the loan. Chrysler demanded payment from the plaintiff and ultimately named her as well as her former boyfriend as defendants in a small claims replevin action. Although the plaintiff did not have the car and believed that her former boyfriend was responsible for the payments, she accepted Chrysler's representation that she was obligated to make the payments and that her credit rating would suffer if she failed to do so. In fact, she made several payments totaling more than $2,000. Apparently, it was later discovered that although the plaintiff had executed several documents in connection with the purchase, she did not sign the retail installment contract and Chrysler Financial now concedes that she therefore had no obligation to make payments under that contract.

    The plaintiff sued Chrysler Financial on several theories, all but one of which were dismissed by stipulation. The remaining claim alleged that Chrysler Financial had violated Wis. Stat. section 427.104 of the Wisconsin Consumer Act by engaging in the conduct described above. The circuit court concluded that the plaintiff had no standing because she was not a customer as defined by section 421.301(17), which provides in relevant part that "customer" means "a person other than an organization who seeks or acquires real or personal property, services, money or credit for personal, family or household purposes."

    In a decision authored by Judge Schudson, the court of appeals held that the plaintiff satisfied the definition of "customer," concluding that when the plaintiff provided her credit background and signed documents to facilitate the vehicle purchase, she was arguably seeking both personal property and credit for "personal, family or household purposes." Said the court, "sec. 421.301(17) addresses 'personal, family or household purposes'; unquestionably, when a woman is engaged to the father of her child, and when they are purchasing a car together, they apparently are doing so for anticipated personal, family and household purposes" (¶ 17) (emphasis in original).

    Finally, the court turned to section 427.105(1), which defines the remedies available under the Wisconsin Consumer Act. The statute provides, in part, that a "person" injured by a violation of this chapter may recover actual damages and the penalty provided therein, and it does not restrict recovery to "customers."

    In sum, the court held that the plaintiff was a "customer" under section 421.301(17) and a "person" under section 427.105(1) and, therefore, had standing to pursue her action.

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    Criminal Procedure

    Jury Trial - Instructing Jury on Lesser-included Offense After Jury Deliberations Commence

    State v. Thurmond, 2004 WI App 49 (filed 3 Feb. 2004) (ordered published 24 March 2004)

    This case raised the issue as to whether a judge can instruct on lesser-included offenses after the jury has begun deliberating. After lengthy deliberations that failed to produce a verdict, the state moved the trial court to instruct the jury on lesser-included offenses. Over defense objection the trial court granted the motion, providing the jury with instructions on lesser-included offenses and giving the jurors additional verdict forms. Ultimately, the jury convicted on one of those lesser offenses.

    In a majority decision authored by Judge Curley, the court of appeals reversed. The court was able to find little guidance in Wisconsin law on the issue raised by this appeal and thus looked to several other jurisdictions that have dealt with it. The defendant advanced the position taken by those courts that have adopted a per se rule that giving a belated lesser-included instruction is prejudicial error. The court of appeals declined to adopt a per se rule, noting that "the weight of state authority holds that it would not be appropriate to adopt a per se rule which would declare the belated giving of any [lesser-included offense] instruction to be prejudicial error" (¶ 14). However, the court did adopt the position taken by the Maine Supreme Court that a reinstruction presenting choices for lesser-included offenses not presented in the initial instructions, if proper at all, should be a rare event, only done in exceptional circumstances. See State v. La Pierre, 754 A.2d 978 (Maine 2000).

    The principal fear is that the stalled jury may regard the newly furnished theory of liability as the court's recommendation that the jury resolve its impasse by agreeing to the lesser offense. In its summary of the practice in other jurisdictions, the court said "courts have reversed cases when post-summation lesser-included offense instructions were given: when it appeared likely that the jury saw the belated instructions as a court recommendation to convict; when the timing of the instructions makes the new instruction appear overly significant, upsetting the orderly process of the trial and upsetting the defendant's right to a fair trial; when the defendant's presentation of his case is harmed; and when circumstances suggest the verdict was driven by a stalled jury's desire to disband rather than complete a fair assessment of the evidence" (¶ 17). In this case the appellate court believed many of these circumstances were present and, accordingly, reversed the defendant's convictions and remanded the case for a new trial.

    Judge Schudson filed an opinion concurring in part and dissenting in part.

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    Guardianships

    Child Support in Chapter 880 Proceedings - Notice of Child Support Claim Required

    Amy Z. v. Jon T., 2004 WI App 73 (filed 31 March 2004) (ordered published 28 April 2004)

    A child's maternal aunt petitioned the probate branch of the circuit court for permanent guardianship of the child under Wis. Stat. chapter 880. The petition recited that the child's mother was deceased and that the father had been charged with felony physical abuse of the child. At the hearing the court granted the petition, appointed the aunt as guardian, and, over the father's objection, entered a child support order.

    The father appealed, arguing that the circuit court did not have authority to issue a child support order in the context of a chapter 880 guardianship proceeding and, even if it did, neither the guardianship petition nor the ensuing proceedings provided him with adequate notice that child support would be addressed at the hearing.

    In a decision authored by Judge Nettesheim, the court of appeals concluded that the circuit court had the authority to address child support in the context of a chapter 880 guardianship proceeding. However, contrary to section 880.07(1)(e), the guardianship petition failed to state any claim for support. In the view of the appellate court, no reasonable person responding to the petition would anticipate that there was a claim for support. As a matter of fact, the issue of support was first raised as the parties were making their closing statements to the circuit court. "Given that the matter of support was not raised until the final moments of the hearing and was not otherwise addressed at any earlier point in the proceedings, we hold that the proceedings did not provide [the father] with fair and adequate notice to address the issue. We reverse the child support order and remand for a new hearing" (¶ 22).

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    Insurance

    Primary Coverage - Umbrellas

    Treder v. LST Ltd. P'ship, 2004 WI App 75 (filed 9 March 2004) (ordered published 28 April 2004)

    This insurance coverage dispute arose out of an injury suffered by the plaintiff in an apartment building owned by a partnership, "LST," and managed by Bieck Management. At issue was responsibility for a "second layer of coverage" for a $2 million settlement. Another insurer, Commercial Union, paid its limits of $1 million under a general liability policy, but it also had issued an umbrella policy that named both LST and Bieck as insureds. West Bend issued a policy that named only Bieck as an insured. West Bend contended that 1) Commercial Union also was responsible for the remaining amount, and 2) in the alternative, the insurers should share the burden pro rata. The trial court ruled that West Bend's policy was not on "equal footing with Commercial Union's umbrella policy, and sharing the losses on a pro rata basis" contravened case law (¶ 2).

    The court of appeals, in a decision written by Judge Curley, affirmed based on Oelhafen v. Tower Insurance Co., 171 Wis. 2d 532 (Ct. App. 1992). "[B]y attempting to transform what is essentially a primary policy into an 'umbrella' policy by pointing to the 'other insurance' clause found in the Commercial Union policy, and coupling it with the wording of the 'real estate property managed' endorsement found in the West Bend policy, West Bend has ignored the reasoning behind the Oelhafen ruling. As noted, the umbrella policy serves a different function than primary policies - it is the last line of defense - and that is why coverage offered in primary policies is utilized before that found in umbrella policies. Oelhafen requires an exhaustion of primary policies before the umbrella policy becomes responsible for any liability. Thus, as we have noted, Oelhafen declared that umbrella policies stand apart from primary policies, umbrella policies serve a different function than primary policies, and, unlike a primary insurance policy, an 'umbrella policy specifically contemplates and, in fact, requires' underlying insurance" (¶ 20) (citations omitted).

    "The West Bend policy purchased here was intended to be a primary policy covering the business and business property. The endorsement for managed properties has no requirement that underlying insurance exist. ... We also observe that the 'real estate managed property' endorsement was honored in this case because the Commercial Union general liability policy paid its policy limit - the first $1,000,000 - before coverage was sought from West Bend. Moreover, the phrase 'except other insurance purchased specifically to apply in excess of this insurance' references, by implication, additional umbrella coverage that may be purchased to sit on top of the Commercial Union umbrella policy. Because West Bend's policy requires no underlying coverage, it is a primary policy and does not qualify under the exception. ... Thus, it is obligated to pay its limits before the Commercial Union umbrella policy" (¶ 21).

    Ambiguity - UIM

    Gohde v. MSI Ins. Co., 2004 WI App 69 (filed 23 March 2004) (ordered published 28 April 2004)

    The Gohdes were injured in an automobile accident. The issues in this case concern the validity of a reducing clause in their underinsured motorist (UIM) coverage. This opinion marks the third time the court of appeals is considering the matter, the latest remand from the supreme court coming in light of Folkman v. Quamme, 2003 WI 116.

    The court of appeals, in a decision written by Judge Peterson, held that the policy is unambiguous when read as a whole. Nothing in the policy's organization or structure produced "contextual ambiguity." For example, "[t]he policy takes the insured through an orderly and logical sequence. The declarations page and index are roadmaps at the beginning of the policy. Nothing on the declarations page states that it is the entire policy" (¶ 13). "A reasonable insured would review the declarations page, and then be directed by the index to the limits of UIM coverage. Here, the insured would find the reducing clause" (¶ 14). Conceding that "the conflict between 'the most we will pay' language and the reducing clause" could arguably create some ambiguity, it was insufficient to disrupt the policy's otherwise clear language (¶ 15).

    Judge Hoover concurred because the holding was consistent with Folkman, although he plainly took issue with that case.

    Ambiguity - UIM

    Bellile v. American Family Mut. Ins. Co., 2004 WI App 72 (filed 23 March 2004) (ordered published 28 April 2004)

    As in Gohde III (summarized above), this case called upon the court to determine whether a UIM reducing clause in an automobile insurance policy was ambiguous. Applying the approach set forth in Folkman v. Quamme, the court held that this policy - like that in Gohde III - was sufficiently clear and the reducing clause valid.

    The court of appeals, in an opinion authored by Judge Cane, closely examined the policy's organization and language, as required by Folkman. Since the insured conceded that the reducing clause conformed with Wis. Stat. section 632.32(5)(i), the only remaining issue was whether the clause somehow became ambiguous in the context of the entire policy. (¶ 15). Although the declarations and "quick reference index" betrayed some shortcomings, they were nonetheless "adequate" (¶¶ 19, 21). For example, the quick reference index did not list the UIM coverage, but "finding the endorsement [was] not an arduous task" (¶ 21). The definitions in the endorsement's limits of liability section did "conflict," but created neither "ambiguity" nor "a sufficient degree of contextual ambiguity to engender objectively reasonable alternative meanings"(¶ 23).

    Judge Hoover filed the same concurrence that appears in Gohde III (see above).

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    Mortgages

    Seller's Buy-back Interest Superior to Interest Created by a Mortgage

    Daughtry v. MPC Sys. Inc., 2004 WI App 70 (filed 18 March 2004) (ordered published 28 April 2004)

    The city of La Crosse owned a historical retail building. MPC offered to buy and extensively renovate the building; the offer resulted in a property sales contract between MPC and the city. The contract contained a reversion clause, giving the city the right to buy back the building for a specified price if MPC failed to "substantially complete" the renovation by a specific date. MPC acquired financing for the project from LaQuinta, which agreed to provide MPC with financing for both the purchase price and renovations in exchange for a first mortgage security interest.

    When MPC failed to complete renovations on time, the city sought to exercise the contract clause giving it the right to buy back the building. MPC stopped making mortgage payments and LaQuinta eventually brought a foreclosure action against MPC and named the city as a codefendant. The circuit court granted summary judgment in favor of the city and against both MPC and LaQuinta. With reference to LaQuinta, the court declared that the city's ownership interest upon buy-back was superior to the interest created by the mortgage held by LaQuinta. The correctness of this ruling was among the issues faced by the appellate court in this case.

    LaQuinta argued that, even if MPC breached the contract, thereby entitling the city to buy back the building, the court should nonetheless grant summary judgment to LaQuinta because its mortgage agreement with MPC gave LaQuinta an interest in the property superior to the city's right to buy back the property. LaQuinta argued that the mortgage was a "purchase money mortgage" and, as such, took precedence over any other claim to the property.

    In a decision authored by Judge Lundsten, the court of appeals disagreed. "The parties dispute whether the mortgage is a 'purchase money mortgage,' but we need not resolve that dispute. We agree with the circuit court and the city that, even if the mortgage agreement between LaQuinta and MPC is properly characterized as a 'purchase money mortgage,' it does not give LaQuinta an interest superior to the city's right to buy back the property" (¶ 57). In the court's view, LaQuinta failed to provide authority for its assertion that a purchase money mortgage has priority over the type of reversionary interest held by the city. Said the court, "we agree with the circuit court's conclusion that, in the absence of a provision in the contract between MPC and the city making the city's reversionary right subordinate to the type of mortgage held by LaQuinta, the city's reversionary right, and its lawful exercise of that right, extinguishes LaQuinta's interest in the [building]" (¶ 64).

    The court also rejected LaQuinta's argument that its mortgage was a "construction lien" within the meaning of the contract specification that the city's right to buy back the building was subject to construction liens. "LaQuinta has not provided any support for its argument that the term 'construction lien' encompasses an interest created by a mortgage" (¶ 67).

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    Taxation

    Real Estate Transfer Fee - Transfer from Partnership to Partnership

    Turner v. Wisconsin Dep't of Revenue, 2004 WI App 82 (filed 3 March 2004) (ordered published 28 April 2004)

    James and Jean Turner are husband and wife. They were doing business as the sole partners of EPCO until it ceased operation on Dec. 31, 1997. On Jan. 1, 1998, the Turners began doing business as the sole partners of EPCO of WI LLP (EPCO LLP). The next day James, as general partner of EPCO, transferred real property from EPCO to EPCO LLP by warranty deed. The transfer was for no consideration other than assumption of the debt by EPCO LLP and receipt of an interest in EPCO LLP by the Turners.

    The Department of Revenue assessed a transfer fee on the real estate transaction described above. The Turners appealed the assessment to the Wisconsin Tax Appeals Commission, which concluded that the conveyance of real estate from EPCO to EPCO LLP was subject to the Wisconsin real estate transfer fee and was not exempt from the fee under Wis. Stat section 77.25(15m), which is an exemption for transfers between partnerships and family member partners. The circuit court agreed.

    In a decision authored by Judge Snyder, the court of appeals affirmed. No transfer fee exemption for partnership-to-partnership conveyances is available under section 77.25(15m). However, under the statute, transfers between a partnership and a partner may be exempt if three requirements are met. First, the conveyance must be between "a partnership and one or more of its partners." Second, all of the partners must be related to each other as specified in the statute. Finally, the transfer must be "for no consideration other than the assumption of debt or an interest in the partnership."

    In the opinion of the court, the conveyance at issue failed the very first of these three prongs inasmuch as EPCO LLP was never an EPCO partner. The Tax Appeals Commission had concluded that "there is no family member exemption where the transfer is between partnerships rather than from a partnership to exempted family members" (¶ 12). The court of appeals agreed with this conclusion. For the exemption to apply, the partner or partners who are involved in the conveyance must be human beings, not just legal entities. Said the court, "the transfer fee exemption available for conveyances between partnerships and family member partners is inapplicable [in this case] because the conveyance was partnership-to-partnership rather than partnership-to-partner" (¶ 14).

    The Turners' attempt to invoke the husband and wife exemption under section 77.25(8m) failed because it was not raised before the Tax Appeals Commission.

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    Torts

    Safe Place Statutes - Land Owners

    Binsfield v. Conrad, 2004 WI App 77 (filed 23 March 2004) (ordered published 28 April 2004)

    The plaintiff was electrocuted and severely injured while working on an outdoor advertising sign. Expert analysis revealed the existence of more than a dozen structural problems with the sign and numerous OSHA violations. A suit was filed against the land owner (Conrad) and the sign owner. The trial court granted summary judgment in favor of the land owner.

    The court of appeals, in a decision written by Judge Hoover, affirmed. The court held that the land was not a "place of employment" within the meaning of the safe place statute because the sign was distinct from the land on which it sat. "The safe place statute contemplates that both the 'place' and appurtenant premises will be subject to ownership, control, or custody of the same employer or owner" (¶ 13). "[A]n owner of appurtenant land who does not also have ownership, custody, or control of the 'place' cannot be liable for injuries sustained at the 'place.' There is no dispute that Conrad exercised no ownership, custody, or control over [the] sign" (¶ 14). "Imposing safe place liability on the owner of appurtenant premises simply because of the physical proximity would effectively make that owner an insurer for the 'place,' a duty the safe place statute never intended to create. For the owner of appurtenant premises to be liable, the injury would have to occur on the premises themselves" (¶ 15) (citation omitted).

    The trial court also appropriately exercised its discretion when it denied the plaintiff's motion for a default judgment. The basis for the motion was that the land owner's answer was filed four days beyond the courtesy extension allowed by the plaintiff. The record supported the finding of "excusable neglect" (¶ 30).

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    Warranties

    Magnuson-Moss Warranty Act - Lessees as "Consumers" Under the Act

    Peterson v. Volkswagen of Am. Inc., 2004 WI App 76 (filed 31 March 2004) (ordered published 28 April 2004)

    A bank purchased a Volkswagen (VW) Beetle from an authorized VW dealership in order to facilitate the lease of the vehicle to the plaintiff. In consideration for the sale of the car, VW issued and supplied to the bank its written warranty. The plaintiff then leased and took possession of the vehicle from the bank and the bank assigned its rights in the vehicle warranty to the plaintiff.

    Following numerous failed attempts to remedy defects in the car, the plaintiff revoked acceptance of the vehicle in writing, which VW refused. The plaintiff then filed a claim for breach of warranty pursuant to the Magnuson-Moss Warranty Act, 15 U.S.C. sections 2301-2312. The circuit court dismissed the claim on a motion to dismiss, concluding that because the plaintiff leased, rather than purchased, the vehicle under the warranty, she failed to satisfy the Act's definition of a "consumer" and is therefore not entitled to the Act's protections.

    In a majority decision authored by Judge Brown, the court of appeals reversed. The sole issue on appeal was whether the plaintiff had standing to pursue her claim under the Act, which allows a "consumer" to bring suit when he or she claims to be "damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under the [Act] or under a written warranty, implied warranty, or service contract." Recognizing that no Wisconsin court has addressed the question of whether an automobile lessee is entitled to enforce a written warranty issued as part of a lease transaction under the Act and that other jurisdictions are divided on the question, the majority concluded that "where the sale of a vehicle is merely to facilitate a lease, the issuance of the warranty accompanies this sale, and the lessor explicitly transfers its rights in the warranty to the lessee - the lessee is protected by the Magnuson-Moss Act" (¶ 15).

    Judge Snyder filed a dissenting opinion.

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