The National Pulse
Sweeter Lemon Laws
As More Drivers Choose to Lease Cars, Courts Are Expanding Federal Warranties
Posted Jan 10, 2006 9:55 AM CST
By Wendy N. Davis
The astronomical price of gasoline hasn’t stopped Americans from hitting the roads. But as rising interest rates get tacked onto the bill, more consumers are opting to lease their cars rather than buy.
Courts are catching up to the trend, adding auto lessees to the list of those protected by federal warranty statutes and expanding the reach of lemon laws on behalf of drivers who ended up with defective cars.
The federal lemon law, the 1975 Magnuson-Moss Warranty Act, allows consumers to sue in state courts to enforce car warranties and provides for recovery of attorney fees. Without the act, consumers who get stuck with lemons might still be able to sue for breach of contract, but—unless courts also could award attorney fees—damages would likely be too small for a lawyer to take the case.
The statute applies only to “consumers,” but its inelegant definitions of the term leave room to argue about whether lessees qualify. Some courts—including the well-regarded New York State Court of Appeals—have ruled that lessees aren’t consumers because they haven’t made purchases, which is required to meet one of Magnuson-Moss’ three definitions of consumer.
But the statute also talks about consumers as those entitled to enforce warranties—which supports the more recent interpretation that lessees are consumers. “Clearly any person who has leased a new vehicle that comes with a warranty is entitled to enforce that warranty,” says Birmingham, Mich., lawyer Dani Liblang, who has represented plaintiffs in these types of cases for 23 years.
Besides, if lessees aren’t consumers, what are they?
“That’s why it was so crazy that there were ever any decisions saying otherwise,” Liblang says.
Milwaukee defense lawyer Nate Cade confirms the trend that courts in the last few years seem to have concluded that lessees qualify as consumers. Recently, courts in at least six jurisdictions—Arizona, Florida, Illinois, New Jersey, Ohio and Wisconsin—have decided that the federal law applies when consumers have leased cars.
Scott Cohen, a Chicago appellate lawyer who represents lemon law plaintiffs, has handled many of those cases. In one of his recent, highly publicized cases, the Wisconsin Supreme Court ruled in May in Peterson v. Volkswagen of America Inc., 281 Wis. 2d 39, that lessees have standing to enforce car warranties under Magnuson-Moss.
In that case, the plaintiff, Jaime R. Peterson, had gone to a dealership to lease a new Volkswagen Beetle that, she said, turned out to be a lemon. To structure the deal, the dealership had sold the car to the bank, which leased it to Peterson. The dealer gave the bank a two-year, 24,000-mile warranty.
When she sued under Magnuson-Moss, the bank claimed that a lessee wasn’t a consumer and argued that only the bank could enforce the warranty.
The court rejected that argument, holding that Peterson was entitled to the warranty’s protections and, therefore, entitled to sue under Magnuson-Moss.
Cohen says the recent plaintiff-friendly cases are a departure from one of the first major decisions on the issue, a 2002 ruling by the New York Court of Appeals. DiCintio v. DaimlerChrysler Corp, 768 N.E.2d 1121.
In DiCintio, the state high court ruled that a lessee didn’t meet the statute’s definition of consumer. “Because DiCintio’s transaction ... was a lease rather than a sale, and there is no other relevant sale, there is no ‘written warranty’ or ‘implied warranty’ under the warranty act, and DiCintio is not a ‘consumer,’ ” the court wrote.
The reason for the shift appears to be an acknowledgment by courts that, as cars have become more expensive, more and more people are leasing them. According to the U.S. Department of Transportation, new passenger car sales have declined from 9.3 million in 1990 to 7.6 million in 2003. Nevertheless, new passenger car leases increased from 534,000 to nearly 1.7 million during that same time period.
Also, car dealers who lease autos offer warranties, but these warranties don’t mean much unless consumers are able to sue to enforce them.
“It is unlikely that the auto-leasing market would have developed as it has if prospective lessees were denied the right to enforce the manufacturers’ new-car warranties,” wrote New Jersey appeals court judge Barbara Byrd Wecker for a three-judge panel in Ryan v. American Honda Motor Corp., 376 N.J. Super. 185 (March 30, 2005).
STATUTES OF LIMITATIONS
Courts also have recently handed plaintiffs victories when it comes to interpreting the statute of limitations.
Magnuson-Moss itself doesn’t contain a statute of limitations, so states must apply their own time frames. But which ones?
Most state versions of the Uniform Commercial Code give consumers four years to file breach-of-warranty claims, but some state lemon laws set out far shorter time frames.
This issue came up recently in Missouri, where the state’s Uniform Commercial Code gives plaintiffs four years to file a claim, but the lemon law provides only 18 months.
In the case, Edwards v. Hyundai Motor America, 163 S.W.3d 494 (May 3, 2005), plaintiffs Jammy and Julie Edwards bought a car in 2001 that came with a six-year, 72,000-mile warranty. The Edwardses said they had problems with the transmission, brakes, engine and trim.
When they sued under Magnuson-Moss in 2004, Hyundai argued that the court should dismiss the case because Missouri’s lemon law has an 18-month statute of limitations.
Instead, the court held that Missouri’s Uniform Commercial Code, which carries a four-year statute of limitations, should apply. Otherwise, the court wrote, plaintiffs would not have a way to enforce warranties longer than 18 months.
“Applying the statute of limitations found in the lemon law to all breach-of-warranty claims would essentially render virtually all new-car warranties fraudulent,’’ Judge Lawrence G. Crahan wrote for the three-member panel. “This effect simply could not have been what the legislature intended when it enacted the lemon law.”