Lemon Law 101
Putting the Squeeze on Road Lemons
by Dani K. Liblang of Liblang & Associates, P.C.
State and federal statutes offer a wide array of relief for consumers saddled with a bad car or truck. These statutes also provide for recovery of costs and attorney fees -- a strong incentive for attorneys who would like to take up the cause on behalf of unhappy "lemon" owners. Although the "Lemon Law" is often thought of as the principal or only source of relief, in fact relief is available under several other acts as well. In addition to providing for direct relief from the defective vehicle, they also allow for damages against the dealer and manufacturer, withholding payment even from third party financers, and provide methods to protect the consumer from adverse credit reports. This article provides a brief overview of the many statutes and regulations that can be used to assist these clients, a summary of significant case law, and several practice tips.
Michigan "Lemon" Law
Michigan's lemon law1 applies to new passenger cars and trucks purchased after June 25, 1986. Relief may be had only against the manufacturer or distributor of the vehicle, as opposed to the new vehicle dealer.2 Effective January 1, 1999, the statute was amended to include both purchased and leased vehicles. Under the statute, the manufacturer or its authorized dealer must repair "any defect or condition that impairs the use or value of the new motor vehicle to the consumer or which prevents the new motor vehicle from conforming to the manufacturer's express warranty," provided that the defect or condition was reported to the manufacturer or dealer within the term of the express warranty or one year from the date of delivery to the consumer, whichever is earlier.3
Much confusion has arisen over whether the defect or condition must constitute a substantial impairment of use or value in order to impose liability under the Act. It should be noted that the language of the statute itself uses the disjunctive "or" and, thus, provides that the obligation to repair can arise under two distinct circumstances: (1) where the problem substantially impairs the use or value of the vehicle, or (2) where the defect or condition prevents the vehicle from conforming to the manufacturer's express warranty. Notably absent from the latter circumstance is any requirement that the nonconformity substantially impairs the use or value of the vehicle.
Where the defect or condition has been timely reported to the manufacturer or its dealer, repairs must be made "even if the repairs cannot be performed until after the expiration of the manufacturer's express warranty."4 In other words, the manufacturer can no longer hide behind the expiration of the express warranty as an excuse not to repair a defect or condition that was timely reported and continues or reoccurs beyond the warranty expiration date.
A "prima facie" lemon is a vehicle that continues to have a defect or condition, despite having been subjected to a "reasonable number of repair attempts." It is presumed that a reasonable number of attempts have been made if "one of the following occurs":
(a) The same defect or condition that substantially impairs the use or value of the new motor vehicle to the consumer has been subject to repair a total of 4 or more times by the manufacturer or new motor vehicle dealer and the defect or condition continues to exist. Any repair performed on the same defect made pursuant to subsection (4) shall be included in calculating the number of repairs under this section.
(b) The new motor vehicle is out of service because of repairs for a total of 30 or more days or parts of days during the term of the manufacturer's express warranty, or within 1 year from the date of delivery to the original consumer, whichever is earlier . . ..5
Practice Tip: The different elements embodied in subparagraphs (a) and (b) involve another area that has generated a lot of controversy among practitioners. On the basis of the language "if one of the following occurs," it is clear that the Legislature intended to establish two distinct standards. The "four times" standard in paragraph (a) does not require that all four repair attempts occur within the first year. In fact, the additional language, "any repair performed on the same defect pursuant to subsection (6) shall be included in calculating the number of repairs under this section," requires just the opposite.
On the other hand, the "30 days" standard of paragraph (b) does require that all 30 days or parts of days be accumulated within the first year. However, paragraph (b) does not require a showing of "substantial impairment" or that the repair attempts involved the same defect or condition. Apparently, the Legislature recognized what is obvious to most consumers ?? i.e., that an inordinate number of trips back and forth to the shop is, itself, a "substantial impairment" regardless of the nature of the repairs. In this regard, the legislative history explains:
The bill would define a reasonable number of attempts as either four single tries to repair a substantial defect or the keeping of the vehicle out of service because of any defect (i.e., not necessarily substantial) for 30 days during the shorter of the warranty period or one year from delivery. (Although the bill does not explicitly say so, its sponsors say they intend that none of the four attempts to repair a substantial defect need occur during the period of warranty; however, the consumer must report the defect during that time.)6
In order to take advantage of the presumption, the consumer must give notice to the manufacturer of the need for repair. Under the statute, the notice is to be given in writing, by certified mail, return receipt requested, once the vehicle has been out of service for 25 days or subject to repair for the same problem on three occasions.7 The manufacturer must then notify the buyer "as soon as reasonably possible" of a "reasonably accessible repair facility."8 The manufacturer has five business days after delivery of the vehicle to the repair facility to complete the repairs.
If repairs are not completed within the five days, the buyer is entitled to a refund or replacement with a vehicle "currently in production and acceptable to the consumer."9 See, also, In one case, summary disposition in favor of the buyer was affirmed where the manufacturer failed to complete repairs in five business days, despite the manufacturer's argument that delay was due to lack of availability of parts.10
It should be noted that, as a remedial statute, the lemon law is entitled to broad construction in favor of the consumer.11 At least one circuit court judge has seen fit to grant summary disposition despite the lack of technical compliance with the notice provisions where it was undisputed that the manufacturer was on actual notice of the need for repair, as evidenced by the factory representative having met with the dealer and consumer.12
Of course, nothing in the statute precludes finding liability where the presumption has not been established. Where the repair history does not meet the presumption, the issue whether the manufacturer or dealer has had a "reasonable opportunity" to repair and has failed to do so is a question of fact.
Where the presumption arises, the statute is intended to be self-executing, and the refund or replacement must take place within 30 days after the final repair attempt. A refund must include the purchase price, sales taxes and transfer fees, interest on any finance contract, and dealer installed options or accessories, less a statutory offset for use.13 The statutory offset is "a fraction having as the denominator 100,000 miles and having as the numerator the miles directly attributable to use by the consumer and any previous consumer prior to his or her first report of a defect or condition that impairs the use or value of the new motor vehicle plus all mileage directly attributable to use by a consumer beyond 25,000 miles."14
If the manufacturer has an "alternative dispute resolution mechanism" (ADR) that meets federal Magnuson-Moss guidelines (see discussion below), the buyer must first resort to that mechanism before filing suit, in order to protect the right to recover costs and attorney fees.15 The result of the ADR is binding only on the manufacturer, and not on the consumer. Thus, if the ADR does not result in appropriate relief (and experience suggests that it rarely does), the consumer is free to pursue the claim in court. It should be noted that the lemon law does not supersede other remedies afforded under state or federal law.16
Uniform Commercial Code
The warranty provisions of the Uniform Commercial Code (UCC)17 can be used alone or in conjunction with a lemon law claim. Among the remedies available under the UCC are revocation of acceptance18 and recovery of costs and attorney fees as incidental or consequential damages.19 These remedies are also available under the lease provisions of Article 2A of the UCC.20
The UCC provision governing revocation provides that the buyer is entitled to revoke acceptance where the defect or nonconformity is either difficult to discover or remains unresolved after reasonable efforts to cure and "substantially impairs the value of the goods" to the buyer.21 The Supreme Court has made it clear that "substantial impairment" is a subjective test, to be measured from the actual buyer's perspective. Thus, the Court held that the buyer, Mr. Miller, was entitled to revoke his acceptance of a vehicle delivered without a spare tire.22
The UCC has several distinct advantages over the lemon law. First, revocation is available upon a showing of "substantial impairment" without subjecting the buyer to the frustration of enduring four repair attempts or 30 days in the shop. Further, it is not necessary to prove a breach of the express or implied warranties in order to support a claim for revocation. Indeed, revocation is an available remedy, even in the face of an "as is" disclaimer.23 Second, the buyer need not resort to the manufacturer's ADR program in order to recover costs and attorney fees. Third, there are no formal notice requirements that are conditions precedent to relief.24 Finally, the code applies to sales or leases of new and used vehicles, and covers a broader range of motor vehicles than the lemon law (e.g., motor homes, motorcycles, ATVs, etc.).
Practice Tip: Always include the claims available under the UCC, even where you are confident that the vehicle qualifies as a "lemon" under Michigan's lemon law. Doing so will help to protect your client against an adverse result in the event that there is a technical defect in the "lemon" claim.
Magnuson-Moss Warranty Act
The Magnuson-Moss Warranty Act25, is designed to put "teeth" into state law warranty rights. The act applies to all consumer goods with a value of $25 or more, and covers express written warranties, as well as warranties "arising under state law."26 The act prohibits the disclaimer of the implied warranty of merchantability27 if the vehicle is sold with a written warranty or service contract. The warranty disclaimer is ineffective even where permitted under state law.28 Further, the act nullifies the privity defense, expressly permitting revocation against a remote manufacturer.29
Remedies under the Magnuson-Moss Act include a refund or replacement at the consumer's option, as well as recovery of costs and attorney fees.30 Michigan's Court of Appeals has held that the trial court abused its discretion in failing to consider the remedial nature of the act in determining appropriate attorney fees.31 Essentially, the court opined that the remedial nature of the Act would be thwarted if attorneys were unable to obtain a reasonable return in these cases.
Practice Tip: Pre-litigation resort to the manufacturer's ADR is required only if the ADR program meets Magnuson-Moss guidelines. The guidelines dictate that the warranty must include a statement requiring the consumer to resort to ADR before pursuing a civil action. If the warranty does not include such a statement on its face, then the consumer is free to proceed immediately to court. "On the face of the warranty" is defined in the Magnuson-Moss regulations as follows:
(1) If the warranty is a single sheet with printing on both sides of the sheet, or if the warranty is comprised of more than one sheet, the page on which the warranty text begins;
(2) If the warranty is included as part of a longer document, such as a use and care manual,the page in such document on which the warranty text begins.32
The guidelines further require that the ADR process be completed within 40 days after the consumer notifies the ADR mechanism of the dispute.
At least with respect to the "big three" (GM, Ford and DaimlerChrysler), it is this author's experience that the ADR process is almost never timely completed, and that the warranty documents do not contain the requisite statement requiring the consumer's participation. Thus, for all practical purposes, the ADR requirement is rarely an impediment to recovery of fees and costs.
The Motor Vehicle Finance Act and Federal "Holder" Rule
Michigan's Motor Vehicle Finance Act33 and the Federal Trade Commission's "holder rule"34 provide that where financing is arranged by the dealer, the finance company will be subject to all the consumer's claims and defenses arising out of the transaction. Thus, the buyer or lessee of a defective vehicle will be able to assert claims against the seller and manufacturer and against the finance company, as well. The regulations require that the finance company must place notice of the holder rule in the body of the contract.35 The consumer's damages against the finance company will be limited to the amounts paid under the contract.36
The Motor Vehicle Finance Act (MVFA) further bars a finance company that is on notice of the consumer's complaints from exercising self-help repossession in the absence of an evidentiary hearing and a court order.37 The purpose of the evidentiary hearing is to establish that the consumer would not be "unreasonably burdened or deprived of adequate transportation by making payments."38
Practice Tip: It is often wise to seek an ex parte temporary restraining order or a preliminary injunction prohibiting the finance company from reporting adverse credit information or repossessing the vehicle during the pendency of the litigation.39 Although most finance institutions' legal departments are aware of the law, many of the collection departments are not. If the finance company pleads a counterclaim, the consumer's affirmative defenses should include not only the MVFA and the holder rule but, also sections of the UCC granting the buyer a security interest in the vehicle to secure damages and permitting withholding of payment.40
Where the finance company repossesses in violation of a court order or after being on notice of the consumer's intent to withhold payment as allowed by statute, the complaint should include a count for conversion. This allows the consumer to recover treble damages, plus costs and attorney fees.41 Other causes of action may include wrongful repossession,42 wrongful acceleration of debt,43 violation of the Michigan Collection Practices Act,44 the Fair Debt Collection Practices Act,45 and violation of the Fair Credit Reporting Act.46
Other statutes that should be reviewed in preparing consumer claims include the Michigan Consumer Protection Act,47 the Motor Vehicle Service and Repair Act,48 and the Garagekeeper Liability Act.49
The frustration of owning or leasing a defective vehicle is all too familiar to many consumers. State and federal consumer statutes provide important remedies to these consumers, ranging from monetary damages to buy-backs of defective vehicles. These often overlooked statutes also provide for the recovery of costs and attorney fees to the successful plaintiff's attorney. Thus, the attorney who tackles these cases usually reaps a twofold benefit-the professional reward of having served a client well, and the financial reward of obtaining a fee well earned.
Dani K. Liblang of Liblang & Associates, P.C. in Birmingham, has successfully handled thousands of consumer warranty claims and is the author of the Breach of Warranty Chapter in ICLE's Michigan Causes of Action Formbook. She is a member of the National Association of Consumer Advocates and has served as vice-president of the Michigan Trial Lawyers Association -- Oakland Chapter. She graduated cum laude from the University of Detroit Mercy School of Law in 1982. In addition to warranty law, she specializes in personal injury, no-fault insurance and employment law.
1MCL 257.1401, et seq.
6House Legislative Analysis Section, House Bill 4854 (Second Analysis 10-3-85).
10Ayer v Ford Motor Company, 200 Mich App 337, 503 NW2d 767, 770 (1993), lv den, 519 NW2d 886 (1994).
11See, e.g., Jordan v Transnational Motors, Inc, 212 Mich App 94, 537 NW2d 471, 473 (1995).
12Engel v Ford Motor Co, et al., Wayne County Circuit Court No. 96?605353?CK (March 11, 1997) (Hon. Amy P. Hathaway).
19MCL 440.2719. See also, Kelynack v Yamaha Motor Co, 152 Mich App 105, 394 NW2d 17 (1986).
20MCL 440.2802, et seq.
22Colonial Dodge, Inc v Miller, 420 Mich 452, 362 NW2d 704 (1984).
23See, e.g., Esquire Mobile Homes, Inc v Arrendale, 182 Ga App 528, 356 SE2d 250, 252, 3 UCC Rep Serv 2d 1798 (1987); Blankenship v Northtown Ford, 95 Ill App 3d 303, 420 NE2d 167, 50 Ill Dec 850 (1981); Gadula v General Motors Corporation, Mich Ct App Unpublished, Docket No. 213853 (Jan. 5, 2001)(revocation permissible remedy even where warranty not breached); Kelynack, supra (revocation was permitted where an engine failure occurred within the first three months of ownership, despite the replacement of engine under warranty).
24 See, e.g., King v Taylor Chrysler Plymouth, 184 Mich App 204, 211, 457 NW2d 42 (1990)(no particular words or form is required to give notice; filing of the complaint is sufficient notice under the UCC).
2515 USC 2301, et seq.
2615 USC 2301(1); 15 USC 2310(d)(3).
2815 USC 2308(c).
29See, Ventura v Ford Motor Co, 180 NJ Super 45, 433 A2d 801 (App Div 1981)(the Act broadens remedies available to consumers by eliminating state law privity requirements).
3015 USC 2310(d).
31Jordan v Transnational Motors, Inc, 212 Mich App 94, 537 NW2d 471 (1995).
3216 CFR 703.1(h).
3416 CFR 433.
39Recently, this author brought a successful motion to hold the finance company in contempt where it continued to report adverse credit information after an order was issued barring such reports. The court also allowed plaintiff to amend her complaint and add a slander of credit claim.
40MCL 440.2711 and MCL 440.2727, respectively.
45USC 1692 et seq.
4615 USC 1681, et seq.
47MCL 445.901, et seq.
48MCL 257.1301, et seq.