Lemon Law Update
Sixteen years after its passage, the Lemon Law continues to be a vibrant, evolving
area. Four recent Court of Appeals cases add important elements in handling Lemon
Law disputes.Links to
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By Stephen J. Nicks
hree years ago in
Hughes v. Chrysler Motors Corp.,1 the Wisconsin Supreme Court
issued a sweeping, pro-consumer statement on bright-line liability
and the measure of damages in lemon law cases. Four recent cases,
remarkably all from District II of the Court of Appeals and all
involving Chrysler, are significant additions to the established
lemon law body of cases that formed the foundation for Hughes.2
Wisconsin's lemon law became effective on Nov. 3, 1983.3 Lemon law liability is predicated
on a vehicle having a condition that substantially impairs its
use, value, or safety and the vehicle being either out of service
30 days (for all defects) or subject to repair by the dealer
four times for a single defect.4
These prerequisites must occur within the term of the express
warranty or one year, whichever is sooner. At the consumer's
direction, the manufacturer has 30 days to either provide a refund
or a comparable new vehicle.5
If the manufacturer fails to respond or chooses not to accept
the offer, a consumer may sue to recover twice the amount of
pecuniary loss, plus reasonable attorney fees.6
The major holding
in Hughes was that the 30-day period for the manufacturer
to respond to the consumer's demand for a refund or comparable
new vehicle7was to be
strictly observed. Chrysler had argued in Hughes that
since it was only 35 days late in offering a replacement vehicle,
holding it strictly to the 30-day period created manifest unfairness
since the double damages and reasonable attorney fees (approximately
$50,000) that were then triggered so greatly outweighed the consumer's
actual damages. The supreme court rejected this argument stating:
"[T]he statute demands that a manufacturer respond within
30 days. Wisconsin
Stat. § 218.015(2)(c). Chrysler did not respond within
the 30 days required by the law. We will not rewrite the statute."8
Simple, right? Well, what happens if a refund is requested
and the manufacturer responds within the 30 days, conceding liability,
but not agreeing with the consumer's refund calculation? Is the
30-day period tolled for negotiations? Is it extended? Or does
a counter-offer reset the 30-day limit? The refund a consumer
is entitled to is the full purchase price, plus sales
tax, finance charge, amount paid by the consumer at the point
of sale, and collateral costs, less a reasonable allowance for
use.9 Given this range
of refund components, initial disagreement on the exact dollar
amount can be expected.
Church v. Chrysler
The court of appeals in Church
v. Chrysler Corp.10
faced just this kind of situation. The facts as recited in the
opinion were somewhat intricate, but not out of the ordinary:
"On July 20, 1995, Anna Church wrote a letter to Chrysler
stating her belief that their vehicle was a 'lemon' as defined
by § 218.015, Stats. She offered to transfer title of the
vehicle to Chrysler in return for 'a refund of the full purchase
price plus all monies [they] are entitled to as set forth in
section 218.015(2)(b)
of the Wisconsin Statutes.' Chrysler responded to the Churches
on Aug. 4, 1995, indicating its agreement to repurchase the vehicle.
It set forth a detailed computation of its proposed refund in
the amount of $27,832.98 and requested that the Churches call
with their acceptance of the refund amount within two business
days.
"On August 11, 1995, the Churches sent a letter to Chrysler
indicating their belief that Chrysler's proposed refund amount
was inaccurate. The Churches' letter stated that '[t]he correct
refund calculated in accordance with the lemon law' was $30,404.82.
The letter additionally notified Chrysler that the Churches expected
to receive their refund no later than thirty days from their
initial offer on July 20, 1995. On August 15, 1995, Chrysler
responded to the Churches advising them that §
218.015, Stats., 'only provides for the costs relating to
the vehicle at the time of sale' and that they were not entitled
to reimbursement for either the rebate they had received at the
time of purchase or the cost of accessories. Chrysler nevertheless
agreed to include the price of the accessories in the refund.
Chrysler notified the Churches that they would be contacted when
their checks, totaling a refund of $29,374.51, arrived at the
local Chrysler office.
"On August 23, 1995, thirty-three days after Anna's original
letter offering to transfer the vehicle back to Chrysler and
requesting a refund, the Churches filed this action against Chrysler.
On September 11, 1995, Chrysler sent a letter to the Churches
and enclosed two checks totaling $29,374.51."11
The resolution. After reviewing the language of Wis.
Stat. section 218.015 and citing Hughes
for the proposition that one purpose of the lemon law was to
provide an incentive to the manufacturer to respond in a timely
manner, the court rejected Chrysler's contention that the Churches'
negotiations for a greater refund somehow suspended or delayed
the running of the time clock.12
The court ruled that when the parties cannot agree on the
correct amount of refund within the 30-day time frame, the lemon
law gives the manufacturer two options: 1) pay the amount demanded
by the consumer within 30 days; or 2) pay the amount the manufacturer
thinks is correct.13
If the manufacturer pays the amount the consumer demanded, the
matter obviously is concluded. If the manufacturer pays the amount
it thinks is correct, the consumer has the choice of accepting
it, or going to court. If the court option is chosen, the issue
is simply whether the amount offered by the manufacturer was
correct. If the amount was insufficient, the manufacturer loses
and suffers the blow of double damages plus reasonable attorney
fees imposed by Wis.
Stat. section 218.015(7).14
The court of appeals "appreciate[d] that the rigidity
of the thirty-day requirement places the manufacturer in a difficult
position with attendant risk," but found that this was outweighed
by the underlying policy of the lemon law to level the playing
field between the consumer and the manufacturer.15
Church has
therefore created a sense of urgency on the manufacturer's part
in negotiating the amount of a lemon law refund. This sense of
urgency should create last best offers from manufacturers that
truly are what they purport to be. The consequences of not acting
in good faith would seem to be too great.
Church also
yielded one other helpful practice pointer, this relating to
how a rebate figures into the refund calculation. The court found
that a manufacturer may reduce the "full purchase price"
refund called for in Wis.
Stat. section 218.015(2) by the amount of any manufacturer's
rebate given at the time of sale.16
The court found that a customer's "pecuniary loss"
(the language of the refund statute) includes only that portion
of the purchase price he or she actually paid.17
Schey v. Chrysler Corp.
Schey v. Chrysler
Corp.18 considered
the question: Is a used motor vehicle covered by the lemon law
if, when the vehicle was submitted for repair, it still was under
the manufacturer's warranty and was within one year of the first
delivery date to a consumer?19
Schey purchased a used Dodge Neon that was approximately six
months old. It was designated "used" and "as is"
on the dealer's lot. Schey returned six times to the dealer for
transmission repairs, covered by the warranty, but the problem
persisted. Schey requested that Chrysler give him a comparable
new car and Chrysler refused, contending that Wis. Stat. section
218.015(2)(a)
covers only "new" vehicles. Schey contended that being
"new" was not the end of the analysis, but rather the
statute also included previously owned vehicles as long as they
had an unexpired manufacturer's warranty, and less than one year
had expired after first delivery to a consumer.
The court found the statute ambiguous in this regard, and
looked to the statute's history and the object sought to be accomplished.
In a 2-1 decision, the lemon law was found to protect only purchasers
of "new" vehicles and nonprivately titled demonstrators
and executive vehicles.
Citing Hughes, the
court reasoned that the lemon law's intent was to improve the
automobile manufacturers' quality control to ensure that new
car purchasers received what they expected a defect-free
car. The majority contrasted this with the different expectations
of a used car purchaser of an "as is" vehicle. The
drafting history, highlighted by an exchange of correspondence
between an assistant attorney general and a legislative aide
to Rep. Holschbach, as well as a later amendment to the lemon
law adding demonstrators and executive driven cars,20
also were cited by the majority to support the conclusion that
previously owned vehicles, such as Schey's Neon, were not intended
to be covered.
An interesting dissent was filed in Schey,
arguing that the term "new" in Wis. Stat. section 218.015(2)(a)
is relevant only to the existence of a manufacturer's warranty.
The dissent, ignoring the legislative history, maintained that
it is axiomatic that all motor vehicles, once delivered and registered
under Wis. Stat. chapter 341, are "used" motor vehicles.
To the dissent, the only inquiry relevant is whether Schey was
a protected "consumer" within the whole of Wis. Stat.
section 218.015(1)(b),21 and not just under Wis. Stat.
section 218.015(1)(b)1.,
which contains the only other reference to "new." The
majority is taken to task for creating "a loophole large
enough to drive" a lemon through by rewriting the statutory
definitions of motor vehicle and consumer.22
Dieter v. Chrysler
When the consumers in Dieter
v. Chrysler Corp.23
went to pick up their new Dodge Ram pickup, they noticed scratches
in the paint that happened when the dealer installed Chrysler
after-market accessories (a tonneau cover, a bug shield, and
rust-proofing). They complained and the dealer agreed to repair
the scratches. Four months later the dealer sent the truck to
a body shop for the scratched areas to be repainted, but the
consumers were displeased with the swirl-marked result.
The consumers demanded the truck be repurchased and then sued
Chrysler for lemon law violation. The case was decided on summary
judgment. The thrust of Chrysler's defense centered on Malone
v. Nissan Motor Corp.,24
where a dealer-installed option (a rear spoiler) was found to
be not covered by the lemon law. The court distinguished Malone
because the spoiler installed in that case was not from Nissan,
and the accessories here were Chrysler products. This is an important
narrowing of Malone. Since the after-market accessories
were from the motor vehicle manufacturer, lemon law relief would
be appropriate absent other factors.
In Dieter,
however, even though the accessories would have been covered
under the lemon law, the court of appeals denied relief. It found
that the case turned on the critical fact that the consumers
knew about these scratches when they accepted the vehicle. When
a consumer knowingly accepts a vehicle that has been damaged
at the dealership, the manufacturer and the lemon law provide
no relief. As the court succinctly put it: "[T]he whole
point of the Lemon Law is to protect consumers from hidden defects
in their new vehicles."25
The court took great pains to limit Dieter
to cases of undisputed, actual consumer knowledge of a defect
prior to delivery. It expressly closed the door on any future
attempts by manufacturers to devise elaborate disclaimer schemes
about notice of possible defects, or of placing any burden on
consumers to prove they had no notice of a defect, or even to
thoroughly inspect a vehicle before delivery.
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