A New Twist to the Lemon

From the Blog of Phyllis G. Pollack.

In recent weeks, the California appellate courts have issued decisions on diverse topics. Two of these decisions, although seemingly disparate, may not be so, on closer analysis. By discussing the most recent one first, hopefully, my quandary will become apparent.

On March 2, 2011, the Fourth Appellate District issued its opinion in Martinez vs Kia Motors America, Inc (E049780), (Martinez v Kia Appeal decision ) holding that under California’s Song-Beverly Consumer Warranty Act (Civ. Code Section 1790 et seq.), a consumer plaintiff may, indeed, seek replacement or reimbursement for an allegedly defective vehicle, even though Plaintiff no longer possesses the vehicle!

It seems that Plaintiff Juanita Martinez purchased a new 2002 Kia Sedona. Thereafter, she had significant problems with the vehicle while it was still under warranty. More particularly, in June 2005, the car started shaking and making strange noises and smoke started coming out from the engine. Plaintiff smelled a strong acidic odor which she believed to be battery acid. She pulled to the side of the road. A third party who happened to be an auto mechanic looked at the engine and advised that he thought the alternator had overcharged the battery. So, Plaintiff called her son, requesting that he purchase a new battery and bring it to her. He did so. (Id. at 3-4.)

Plaintiff then had the car towed to a Kia dealer who denied warranty service. She then had it towed to a second dealer; its “Master Technician” spent approximately 10 hours inspecting and working on the car and concluded that plaintiff “… incorrectly tried to jump-start the vehicle battery by reversing the polarity, thus causing the problems”. (Id. at 4.). Consequently, that dealer, too, denied warranty coverage. As plaintiff did not have the money to pay for the repairs, she left the vehicle with the second dealer, (since it would not run) so that the dealership “…could fix it. “ (Id).

Plaintiff also stopped making the payments on the car loan. So, the lender repossessed the vehicle and had it towed to a third dealer who discovered that the problem was, indeed, with the alternator, and who fixed it under the warranty.

Even though the vehicle was now in the possession of the lender, Plaintiff sued Kia under California’s Song-Beverly Consumer Warranty Act (“Act”). Kia took the position that since plaintiff no longer had possession of the vehicle, she lacked standing to sue and filed a summary judgment motion on this ground. The trial court granted it.

The appellate court reversed, holding that under the Act, “a plaintiff does not need to possess or own the vehicle to avail himself or herself of the Act’s remedies.” (Id. at 4). Reviewing the statutory framework very carefully, the appellate court determined that nowhere in any of the pertinent statutes, is there any language stating or providing “…that the consumer must own or possess the vehicle at all times in order to avail himself or herself of these remedies.” (Id. at 7.) Rather, all that the pertinent statutes require is that the buyer

‘‘“deliver [the] nonconforming goods to the manufacturer’s service and repair facility” for the purpose of allowing the manufacturer a reasonable number of attempts to cure the problem.” (citation) Once this delivery occurs and the manufacturer fails to cure the problem, the “manufacturer shall” replace the vehicle or reimburse (make restitution to) the buyer….” (Id. at 7-8.)

The appellate court also rejected the notion that the principles of restitution and revocation found in the common law and the Uniform Commercial Code should apply:

“ Under common law and the Uniform Commercial Code, a party seeking to rescind a contract must generally return any consideration received. Pursuant to Civil Code section 1691, subdivision (b), a rescinding party must “[r]estore… everything of value which he has received … under the contract.” Under Uniform Commercial Code sections 2604 and 2608, where a buyer revokes acceptance of the goods, “the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account….” Defendant argues that these principles also apply to the restitution remedy under the Act. We disagree.” (Id. at 13). (emphasis original)

Thus, the appellate court concluded that a consumer may obtain replacement or restitution under the Act even though the consumer no longer possess or owns the vehicle.

So… the question arises, what exactly are the plaintiff’s damages? Is the plaintiff entitled to the full value of the vehicle? To only the amounts she paid down and/ or on her loan? To an amount somewhere in between? What happens if she is later sued for a deficiency on the loan? Or, is she entitled to a replacement vehicle? And if so, at what value? Interestingly, the statutes in the Act addressing the amount of damages, simply state that in the case of a replacement vehicle, “the manufacturer shall replace the buyer’s vehicle with a new motor vehicle substantially identical to the vehicle replaced” while in the case of restitution, “the manufacturer shall make restitution in an amount equal to the actual price paid or payable by the buyer.” (Civil Code section 1793.2(d)(2)(A) and (B). (Emphases added.)

If one reads these statutes with the same strictness as did the appellate court, it might appear that Plaintiff is entitled to a windfall in that she should be awarded either the full purchase price or a brand new replacement vehicle “substantially identical” to the one that was repossessed.

And, this is where the second appellate decision comes in. In Cabrera vs E. Rojas Properties, Inc (B216445), ( Cabera v Rojas)the Second Appellate District Court decided, on February 18, 2011, that in the context of a personal injury action, Plaintiff was entitled to recover from the defendant (who caused her injuries) only the amounts actually paid by her own medical insurer to the hospital, doctors and other medical providers rather than the amounts billed by those entities to the insurance company. Specifically, the medical providers had billed Plaintiff’s medical insurer the sum of $57,534.45, but after adjustments, were paid only $8,914.26. The appellate court held even though Plaintiff had the foresight to carry medical insurance, Plaintiff was still not entitled to obtain a windfall by being awarded the amount billed rather than the amount paid as against the defendant; Plaintiff’s damages against the defendant could only be the $8,914.26 actually paid; Plaintiff could not collect a windfall from the defendant by being awarded the billed amount of $57,534.45. As this opinion notes, other appellate courts in California have held the opposite (ie., that the Plaintiff would be entitled to an award of $57,534.45 and thus to a “windfall”) and so the issue is pending before the California Supreme Court. (See note 2 at page 6.)

So, applying the notion from this most recent personal injury case that Plaintiff is not entitled to a windfall but should collect only what was actually paid and not the full amount “billed”, what ARE plaintiff’s damages under the Act? And if one does apply this rule from this personal injury case, is it contrary to the language of Civil Code section 1793.2(d)(2)(A) and (B), noted above, which seems not to envision the situation in which a consumer who no longer owns or possesses the vehicle and never fully paid for it, seeks restitution or replacement?

It will be most interesting to see how the trial courts deal with these issues, and even more interesting to see how the parties deal with them in my next “lemon law” mediation!

… Just something to think about!

                       

Phyllis Pollack

Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as… MORE >