Tuesday, July 28, 2020

Page 1

California Supreme Court:

‘Lemon Law’ Plaintiff Might Be Able to Recoup Renewal Fees

By Sandra Hong, Staff Writer

Car buyers or lessees may recover vehicle registration renewal and nonoperational fees as incidental damages under California’s “lemon law” if they can prove that the damages were caused by the manufacturer’s breach of its duty to provide a prompt remedy, the California Supreme Court held yesterday.

“We hold that such fees are not recoverable as collateral charges because they are not auxiliary to and do not supplement the price paid for the vehicle,” Justice Joshua P. Groban said in an opinion for a unanimous court, “but they are recoverable as incidental damages if they were incurred as a result of the manufacturer’s breach of its duty to promptly provide a replacement vehicle or restitution under the Act.”

The opinion reverses a decision by Div. Three of the Fourth District Court of Appeal which declared that the statute “does not require payment of vehicle registration renewal fees and related costs incurred after the initial purchase or lease.” The amount in issue was about $680.

Consumer Warranty Act

Under the Song-Beverly Consumer Warranty Act, appearing Civil Code §1790 et seq.—commonly referred to as California’s “lemon law”—car buyers or lessees may demand either a replacement vehicle or restitution “in an amount equal to the actual price paid or payable by the buyer” for a defective car under a manufacturer’s warranty. The manufacturer must also pay for any “collateral charges” and “incidental damages” incurred by the buyer.

In the present case, plaintiff Allen Kirzhner alleges that Mercedes was unable to repair a vehicle he leased after numerous attempts. Six months after Kirzhner filed suit, Mercedes made a settlement offer under Code of Civil Procedure §998, agreeing to either replacement or restitution, and specifying that the amount of restitution and incidental damages would “be determined by court motion if the parties cannot agree.”

Kirzhner opted for restitution; the parties did not agree on the amount.

Lower Courts’ Findings

Orange Superior Court Judge James Di Cesare awarded Kirzhner $47,708.06, an amount that included the initial registration fee when the lease was signed in 2012 but excluded registration renewal fees paid in 2013 and 2014. Also excluded was a nonoperation fee paid by Kirzhner in 2015 in lieu of a registration fee since the vehicle was not being driven.

Div. Three of the Fourth District Court of Appeal, in a Nov. 27, 2017 opinion by Justice David A. Thompson, affirmed Di Cesare’s decision, finding that only the initial registration fee could be considered a “collateral charge” associated with “the actual price paid or payable” as provided under §1790. Registration fees paid after the initial contract could not be considered collateral charges because, Thompson said, “they are incurred and paid after the initial purchase or lease.”

Thompson characterized registration fees “as a standard cost of owning any vehicle” and could not qualify as incidental damages as argued by Kirzhner, adding that if the court were to adopt such an interpretation of incidental damages it “would open up a ‘Pandora’s box’ of potential costs,” such as oil changes, gas, and car washes.

Incidental Damages

Groban agreed that the fees could not be recovered as collateral charges. However, he declared that Kirzhner could pursue recovery of such fees as incidental damages, as provided through §1790 and guided by the California Uniform Commercial Code §2715, which addresses incidental damages.

Groban highlighted specific language in California’s UCC section to conclude that the intent of the section was “to provide reimbursement for the buyer who incurs reasonable expenses in connection with the handling of rightfully rejected goods or goods whose acceptance may be justifiably revoked, or in connection with effecting cover where the breach of the contract lies in non-conformity or non-delivery of the goods.”

As for Thompson’s concerns about opening up a “Pandora’s box,” Groban concluded that that the code provides limits to claiming such damages.

“We have not found any case in which a court has awarded such standard ownership or use costs—incurred solely for the buyer’s benefit and unconnected to the manufacturer’s breach—as incidental damages,” Groban wrote.

In the case of renewal and nonoperational fees, Groban observed that payment of such fees by a buyer could inure to the benefit the manufacturer in two ways. First, by the manufacturer no longer needing to pay for the fees after repossessing the vehicle; and second, by safeguarding the manufacturer from paying impoundment penalties.

Causal Link

However, Kirzhner still had to prove that the payment of vehicle renewal and nonoperational fees resulted from Mercedes’ breach in order to recover such fees as incidental damages under the Song-Beverly Act, Groban said.

“Here, Kirzhner does not allege any facts tending to show that he incurred increased or additional registration fees that he would not have otherwise paid absent his vehicle’s defects and Mercedes’s failure to repair,” he noted.

Mercedes argued that its duty to promptly provide restitution or replacement as a basis for awarding incidental damages did not apply to Kirzhner’s claims. Rather, the duty only applied in cases where the buyer sought civil penalties. The court disagreed.

Groban pointed to the language of the act, which “indicates the opposite” and provides buyers a “two-tier system of damages” for willful and negligent violations. Groban cited §1794(c), providing “[i]f the buyer establishes that the failure to comply was willful, the judgment may include, in addition to the amounts recovered under subdivision (a), a civil penalty…”

Lack of Factual Record

The court remanded the case to determine whether the fees Kirzhner paid resulted from Mercedes’ failure to provide prompt restitution or replacement since the record lacked facts indicating when the vehicle was repaired, the total number of repair attempts, and whether any repairs were successful.

“We accordingly have no way of knowing when, if ever, Mercedes’s duty to promptly provide restitution arose and when its breach of this duty occurred,” Groban wrote, noting that the date of Kirzhner filing his lawsuit was not sufficient evidence.

He added that Kirzhner need not show that Mercedes’ breach of duty was willful and that Mercedes could not claim a defense of “good faith and reasonable belief” that its duty had not arisen when Kirzhner incurred and paid the fees.

The case is Kirzhner v. Mercedes-Benz USA, LLC, 2020 S.O.S. 3747.