Lemonade Out of a Lemon Law Ruling

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In a win for auto manufacturers, a California appeals court recently ruled the State’s Lemon Law did not apply to the purchasers of used vehicles. The case involves a plaintiff who bought a nearly-new Ford F-350 from the vehicle’s original owner and soon encountered engine problems. The vehicle was covered under the original warranty, but the plaintiff sought to use California’s Lemon Law protection.

The appeals court found the definition of “seller” excluded private parties under California’s Lemon Law. The court went on to explain “[w]here the sellers are private parties who are not routinely engaged in such a ‘retail’ business, the fact that a plaintiff bought a vehicle with its remaining written warranty rights is not alone dispositive under the act.” While the case’s positive result is surely welcomed by auto manufacturers, the appeals court went on to say California’s Lemon Law produces “absurd results.” The “absurd results” comment is a reference to California’s Lemon Law protection not passing along to subsequent buyers. Many states Lemon Laws afford new buyers and subsequent buyers similar protection.

Lemon Laws typically allow a buyer to demand a refund or replacement if a nearly-new vehicle’s issue cannot be fixed with a reasonable number of attempts. There are variations from state to state, but some states define a reasonable number of attempts as days the vehicle is being repaired and/or the number of repair attempts. Usually minor problems cannot trigger the Lemon Law, instead an issue must be one that “substantially impairs” the vehicle’s use. The definition of “substantially impairs” can vary widely. A nearly-new vehicle is generally under 24 months and 24,000 miles.

While the court’s decision is advantageous to manufacturers since it limits the Lemon Law coverage to original customers, the court’s comments do not inspire confidence in the ruling remaining in place. Any changes to the law would likely come from the legislature. Since many states allow transferability of Lemon Law protection to subsequent customers, there is a significant risk that the legislature could step in and specifically allow subsequent buyers the same protection as new buyers. Overall, this ruling is highly positive for auto manufacturers since California’s economy is over 10% of the United States’ GDP.

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