State Supreme Court curbs cases that qualify for lemon law claim

The state Supreme Court ruled on Thursday that a still-active warranty on a used car does not grant a new owner the right to sue the manufacturer under the state's lemon law. This decision could significantly impact state courts, which have been facing a surge in such cases.

"We conclude that a motor vehicle purchased with an unexpired manufacturer's new car warranty does not qualify as a 'motor vehicle sold with a manufacturer's new car warranty' under Section 1793.22, subdivision (e)(2)'s definition of 'new motor vehicle' unless the new car warranty was issued with the sale," Justice Goodwin Liu wrote for a unanimous court.

The ruling affirmed a decision by the 4th District Court of Appeal, Division 2. Rodriguez v. FCA US LLC, 2024 DJDAR 10366 (Cal. S. Ct., filed May 17, 2022).

Shane H. McKenzie of Horvitz & Levy LLP argued the case at the Supreme Court for defendant/respondent FCA US LLC, commonly known as Stellantis North America.

"We thought the Court of Appeal wrote a clear and compelling analysis, and we're glad the Supreme Court agreed," McKenzie said in a statement. "The Supreme Court's holding is really the only one that is consistent with the lemon law's statutory language and common sense."

Consumer attorneys and advocates decried the decision.

"This will have enormous consequences for millions of vehicle owners who pay extra for used vehicles that include the manufacturer's warranties, with the reasonable expectation that if major problems arise, they won't have to pay out of pocket for repairs," read a statement from Rosemary Shahan, president of Consumers for Auto Reliability and Safety.

Joseph A. Kaufman, a lemon law attorney at Joseph Kaufman and Associates in Pasadena, said the ruling is "obviously a rollback in consumer protections" but that he didn't think consumers would be completely powerless to pursue cases against auto manufacturers.

The federal Magnuson-Moss Warranty Act, the California Consumer Legal Remedies Act and a consumer goods section of the Song-Beverly Consumer Warranty Act are all available tools to auto consumers, Kaufman said.

But he said there is no doubt, "we are at a weird point in California history with consumer protection issues. Consumer protections are being rolled back."

Erik Whitman, senior attorney at American Lemon Law Group, disagreed that there are other sufficient avenues for pursuing these lemon law cases.

"The California Uniform Commercial Code, the Magnuson-Moss Act, and the Consumer Legal Remedies Act are insufficient in comparison, lacking the strength and benefits provided by the Song-Beverly Act," Whitman wrote in a statement. "This Act is designed to be a consumer-friendly statute, ensuring that successful claimants can recover attorney fees, thereby facilitating access to legal help. Unfortunately, under these alternative legal theories, fee recovery is less straightforward, discouraging consumers from pursuing their claims due to potential attorney fee liabilities."

Thursday's ruling overturned Jensen v. BMW of North America, Inc., a 1995 decision from the 3rd District Court of Appeal that interpreted the Song-Beverly Act as covering used vehicles with the remainder of a factory warranty still in effect.

Plaintiffs Everardo Rodriguez and Judith Arellano purchased a used 2011 Dodge Ram 2500 with an unexpired powertrain warranty but continued to experience engine problems after multiple repairs by FCA US LLC. They sued under the Song-Beverly Act, arguing that their vehicle, sold with a manufacturer's warranty, should qualify as a "new motor vehicle."

FCA contended that the refund-or-replace provision does not apply to used cars simply because they have an existing manufacturer warranty. A Riverside County trial court and the Court of Appeal sided with FCA, ruling that the law's protections for "new motor vehicles" do not extend to previously owned cars with a remaining manufacturer warranty.

The number of lemon law cases filed in California state courts has increased in recent years. In 2022, there were nearly 15,000 filings, which rose to more than 22,000 in 2023. In Los Angeles County, lemon law cases now constitute nearly 10% of all civil filings.

In September, Gov. Gavin Newsom signed Assembly Bill 1755, which requires that consumers attempt to resolve their complaint with the manufacturer through mediation. The law also made several changes to speed up the litigation process after a lawsuit is filed, including expedited discovery. The governor also urged legislators to enact more measures next year to reduce the number of lemon law cases.

In its ruling, the California Supreme Court said that if the Legislature desires, it could amend the act to allow more lemon law cases.

"We express no view on the parties' policy arguments as to whether the Song-Beverly Act strikes an appropriate balance between protecting buyers of cars with unexpired new car warranties and cabining manufacturers' liability for the refund-or-replace remedy. Those arguments are best directed to the Legislature, which remains free to amend the definition of 'new motor vehicle' to include used vehicles with a balance remaining on the manufacturer's new car warranty," Liu wrote.

Ted Mermin, executive director of the Center for Consumer Law and Economic Justice at UC Berkeley, which filed an amicus curiae brief in support of the plaintiffs/appellants, urged state lawmakers to amend the law.

"California consumers, regulators, and manufacturers have long understood that used cars sold with the balance remaining on the manufacturer's new car warranty are covered under the Lemon Law," he wrote in a statement. "We encourage the Legislature to take up the Supreme Court's invitation to amend the Lemon Law to ensure that this law can continue to live up to its strongly pro-consumer purpose."