In 2024, the California Supreme Court and Courts of Appeal issued several opinions affecting dealerships and vehicle manufacturers. In particular, the courts’ opinions impact Lemon Law claims, the rights of a manufacturer to compel arbitration as non-signatories to the sales contract between the customer and the dealership, and impact of statutory offers to compromise under section 998 of the Code of Civil Procedure. Of particular importance, the California Supreme Court issued its long-awaited opinion in Rodriguez v. FCA which holds that Song-Beverly Act’s refund-or-replace provision applies to vehicles for which the manufacturer’s express warrant was issued with the sale and not for vehicles with a balance remaining on the express warranty.

California Supreme Court holds that under California’s Lemon Law, neither trade-in credit nor sale proceeds reduce the statutory restitution remedy where a consumer has been forced to trade-in or sell a defective vehicle due to manufacturer’s violation of the statute

In Niedermeier v. FCA US LLC Niedermeier had purchased a new Jeep Wrangler from FCA US LLC (“FCA”) for approximately $40,000. The vehicle turned out to be defective (i.e. a lemon). Despite numerous attempts to repair the vehicle, the issues persisted. Niedermeier requested FCA buy back the vehicle, but FCA declined. Eventually, Niedermeier purchased a new vehicle, a GMC Yukon, for approximately $80,000. In connection with the sale, she traded in the defective Wrangler, receiving a trade-in credit of $19,000.

Niedermeier later sued FCA for breach of warranty under California’s Lemon Law, the Song-Beverly Consumer Warranty Act (“Act”). A jury found in her favor and awarded her a significant sum, $98,961.08. The damages award included: (1) the purchase price of the defective Wrangler, including charges for transportation and manufacturer-installed options, finance charges, sales tax, license fees, and other official fees pursuant to Civil Code section 1793.2(d)(2)(B) for a total of $39,799; (2) incidental and consequential damages of $5,000; (3) a deduction of $5,214.57, reflecting the amount attributable to Niedermeier’s use of the vehicle before she first delivered it to FCA’s authorized facilities for repairs pursuant to Civil Code section 1793.2(d)(2)(C); and (4) a penalty of $59,376.65 pursuant to Civil Code section 1794(c) due to FCA’s willful failure to repurchase the vehicle.

FCA appealed, arguing the award should be reduced by the trade-in amount. The Court of Appeal agreed with FCA, and Niedermeier filed a petition for review with the California Supreme Court.

The Supreme Court reversed the Court of Appeal holding that in an action under the Song-Beverly Act, neither a trade-in credit nor sale proceeds reduce the statutory restitution remedy. The Court reasoned that the Act’s plain language does not permit such a reduction. Additionally, the Court found that this interpretation is supported by the legislative history and consumer-protective purpose of the Act. The Court further noted that allowing such a reduction would incentivize manufacturers to delay compliance with the Act.

Court of Appeal holds that car manufacturers, who were not parties to a sale contract between plaintiffs and the dealership containing an arbitration provision, could not compel arbitration based on the doctrine of equitable estoppel

In Davis v. Nissan North America, Inc. plaintiffs filed a lemon lawsuit against Nissan North America, Inc. and Nissan of San Bernardino (“Nissan”) after they bought a Nissan vehicle with a defective transmission at Nissan of Riverside which was not named as a defendant. Nissan attempted to compel arbitration as per the arbitration clause in the sale contract between plaintiffs and Nissan of Riverside. The trial court denied the motion, ruling that Nissan, not being a party to the contract, could not invoke the clause based on the doctrine of equitable estoppel. Nissan appealed the decision, arguing that the trial court erred by refusing to compel arbitration based on equitable estoppel.

The Court of Appeal agreed with the trial court’s ruling reasoning that Nissan’s reliance on the doctrine of equitable estoppel was misplaced. It explained that equitable estoppel applies when a party’s claims against a non-signatory are dependent upon the underlying contractual obligations. Here, the plaintiffs’ claims were not founded on the sale contract’s terms, but rather on Nissan’s statutory obligations under the Song-Beverly Act (lemon law act) relating to manufacturer warranties. The Court concluded that the plaintiffs are pursuing their statutory and tort claims in court, and there was no inequity in allowing them to do so.

Court of Appeal holds that a car sold with manufacturer’s original warranties benefitted from the Song-Beverly Act’s “repair or replace” remedies despite being previously owned

In Stiles et al. v. Kia Motors America, Inc. Brandi Stiles and Abel Gorgita purchased a 2011 Kia Optima, which was manufactured and distributed by Kia Motors America, Inc. (“Kia”). At the time of purchase, some of Kia’s original warranties were still in effect, including the basic and drivetrain warranties. The car developed serious defects covered by the warranties, including issues with the transmission, electrical system, brakes, engine, suspension, and steering. Despite multiple attempts, Kia was unable to repair the defects. Stiles and Gorgita filed a lawsuit against Kia on the grounds that Kia failed to replace the car or make restitution as required under the Song-Beverly Consumer Warranty Act (“Act”).

Kia demurred to the complaint, arguing that the remedies sought under the Song-Beverly Act apply only to new motor vehicles, and the car purchased by Stiles and Gorgita was not a “new motor vehicle” as defined in the Act. The trial court sustained Kia’s demurrer, relying on a previous decision by the California Supreme Court, Rodriguez v. FCA US, LLC, which held that a used motor vehicle with an unexpired warranty is not a “new motor vehicle” under the Song-Beverly Act.

The Court of Appeal reversed the trial court’s decision holding that a previously owned motor vehicle purchased with the manufacturer’s new car warranty still in effect is a “new motor vehicle” as defined by the Act. Therefore, the “replace or refund” remedy of the Act applied. The Court rejected Kia’s argument that the Act’s definition of a “new motor vehicle” should be limited to vehicles that have never been previously sold to a consumer and come with full express warranties. The Court also rejected Kia’s argument that Stiles and Gorgita’s interpretation of the Act conflicts with its implied warranty provisions.

Note: Stiles and Gorgita filed a petition for review with the California Supreme Court. The petition was granted on July 24, 2024. The Supreme Court noted: “Further action in this matter is deferred pending consideration and disposition of a related issue in Rodriguez v. FCA US, LLC.” As discussed below, the Supreme Court issued its opinion in Rodriguez on November 1, 2024. The opinion holds 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 the Act’s definition of “new motor vehicle” unless the new car warranty was issued with the sale. For a more detailed discussion on Rodriguez please review our previous article.

Court of Appeal holds that a frequent “check engine” light notification is not necessarily notice of a “material defect” in a car represented to be in good condition for the purposes of tolling the statute of limitations under the discovery rule

In Medina v. St. George Auto Sales, Inc. Jose Medina purchased a used car from St. George Auto Sales (“St. George”) in December 2014, with financing from Alaska Federal Credit Union (“Alaska Federal”). Medina later discovered that the car had extensive engine repairs that were not disclosed to him at the time of purchase. He experienced multiple issues with the car, including the check engine light activating several times shortly after the purchase. Despite repeated repairs, the problems persisted. In December 2015, Medina learned from a different dealership that the car had significant pre-existing engine issues, which led him to believe that St. George had concealed this information.

Medina filed a lawsuit in August 2018 against St. George and Alaska Federal, claiming a violation of the Consumer Legal Remedies Act (“CLRA”). The defendants filed a demurrer and then a motion for summary judgment on the grounds that the claim was barred by the three-year statute of limitations. They contended that Medina should have been aware of the issues by March 2015 due to the repeated activation of the check engine light. The trial court overruled the defendants’ demurrer and denied their motion for summary judgment and motion for nonsuit, finding that there were factual questions about when Medina should have suspected the harm. The jury ultimately found in favor of Medina, concluding that he did not have sufficient notice of the claim until later. Defendants appealed.

The Court of Appeal held that the discovery rule applies to the CLRA’s statute of limitations, meaning the limitations period begins when the plaintiff discovers or should have discovered the basis for the claim. The Court found no error in the trial court’s rulings on the demurrer, summary judgment, or nonsuit motions, as there were factual questions about when Medina should have known about the engine issues and the defendants’ potential wrongdoing. The judgment in favor of Medina was affirmed.

In a Lemon Law case, Court of Appeal holds that to determine whether civil penalties could be imposed on the manufacturer, Kia Motors, a new trial was necessary to determine whether Kia’s breach of the Song-Beverly Act was willful

In Valdovinos v. Kia Motors America, Inc. plaintiff purchased a new 2014 Kia Optima and soon experienced issues with the vehicle’s reverse gear. Despite multiple visits to the dealership, the problem persisted. The plaintiff requested a buyback from Kia Motors America, Inc. (“Kia”), but Kia’s investigations, including installing a flight recorder, did not confirm the defect. Kia eventually offered to repurchase the vehicle, but the plaintiff rejected the offer and continued to use the car until filing a lawsuit under California’s Song-Beverly Consumer Warranty Act (“Act”).

A jury in the trial court found in favor of the plaintiff, awarding restitution and a civil penalty for Kia’s willful violation of the Act. Kia filed posttrial motions challenging the restitution amount and the civil penalty. The court partially granted Kia’s motions, striking the civil penalty for insufficient evidence but denying the motion to reduce the restitution amount. The court also granted Kia’s motion for a new trial on the issue of civil penalties.

The Court of Appeal held that the restitution award should not include the cost of the optional service contract, certain insurance premiums, and other specific amounts. The Court affirmed the trial court’s decision to grant a new trial on the civil penalty, finding substantial evidence that Kia may have had a good faith and reasonable belief that the vehicle was not defective. The Court directed the trial court to amend the judgment to exclude the non-recoverable amounts from the restitution award and to conduct a new trial on the civil penalty, limited to the period before the lawsuit was filed. The Court clarified that a violation of the Act is willful only if it is deliberate, knowing, or not based on a good faith and reasonable belief of compliance.

Court of Appeal holds that a vehicle manufacturer, Ford Motor Co., cannot compel arbitration as a third-party beneficiary to car sale contract between plaintiff and the dealership

In Rivera v. Superior Court plaintiffs purchased a new 2020 Ford Super Duty F-250 from Fairway Ford in San Bernardino, financing the purchase through the dealer and signing a sale contract that included an arbitration provision. The truck developed mechanical issues during the warranty period, and after unsuccessful repair attempts by Ford of Ventura, the plaintiffs filed a lawsuit under the Song-Beverly Consumer Warranty Act against Ford Motor Company (“FMC”) and Ford of Ventura. FMC moved to compel arbitration based on the arbitration provision in the sale contract between the petitioners and the non-party dealer.

The trial court granted FMC’s motion to compel arbitration, finding that FMC could enforce the arbitration provision as a third-party beneficiary of the sale contract and that the plaintiffs were equitably estopped from refusing to arbitrate their claims. Plaintiffs moved for reconsideration twice, citing appellate decisions that disapproved of the precedent relied upon by the trial court. Both motions for reconsideration were denied, with the trial court maintaining its original order compelling arbitration. Plaintiffs appealed.

The Court of Appeal reversed on the grounds that FMC and Ford of Ventura were neither intended third-party beneficiaries of the sale contract nor entitled to enforce the arbitration provision under the doctrine of equitable estoppel. The Court found that the sale contract did not express an intent to benefit FMC and that the plaintiffs’ claims against FMC and Ford of Ventura were based on warranty obligations independent of the sale contract.

In a Lemon Law case, Court of Appeal holds that trial court erred in granting motion to stay based on forum selection clause in sales contract

In Lathrop v. Thor Motor Coach, Inc. Kenneth and Janet Lathrop purchased a motorhome from a dealer in California, manufactured by Thor Motor Coach, Inc. (“Thor”). They later sued the dealer and Thor under the Song-Beverly Consumers Warranty Act and the Consumer Legal Remedies Act (“CLRA”), alleging defects in the motorhome and failure to perform necessary repairs. Thor moved to stay the action based on a forum selection clause in its warranty, which designated Indiana as the exclusive forum for disputes and included a jury trial waiver and an Indiana choice-of-law clause. Thor acknowledged these provisions were unenforceable under California law and offered to stipulate that California substantive rights would apply in an Indiana court.

The trial granted Thor’s motion to stay, finding the forum selection clause mandatory and not unreasonable. The court placed the burden on the Lathrops to show that enforcing the clause was unreasonable. The Lathrops appealed, arguing that the trial court applied the wrong standard and that Thor did not meet its burden to show that litigating in Indiana would not diminish their unwaivable rights under California law.

The Court of Appeal reversed holding that the trial court erred by placing the burden on the Lathrops instead of Thor. The Court held that Thor did not meet its burden to show that litigating in Indiana would not substantially diminish the Lathrops’ rights under the Song-Beverly Act and the CLRA. The Court also found that enforcing the forum selection clause based on Thor’s proposed stipulation would violate California public policy and that the stipulation was insufficient to protect the Lathrops’ unwaivable statutory rights.

Court of Appeal holds that the “rescission-and-restitution” remedy of the Automobile Sales Finance Act is a penalty and therefore subject to a one-year statute of limitations

In Pompey v. Bank of Stockton the plaintiff purchased a recreational vehicle (“RV”) from a dealership in 2014, with the defendant Bank of Stockton (“Bank”) financing the purchase. The sales contract inaccurately reflected the downpayment as $19,100 in cash instead of $1,000 in cash and $18,100 in trade-in value. The plaintiff later discovered issues with the RV and filed a lawsuit in February 2017, alleging violations of the Automobile Sales Finance Act (“ASFA”) due to the incorrect downpayment disclosure.

Pompey filed a motion for summary judgment as to the ASFA claim. Defendants opposed claiming that the cause of action was barred by the one-year statute of limitation applicable to penalties. The trial court granted summary judgment for Pompey finding that the four-year statute of limitations for written contracts applied, rather than the one-year statute for statutory penalties. Defendants appealed.

The Court of Appeal reversed holding that the rescission and restitution remedy under the ASFA is a penalty and, thus, is governed by the one-year statute of limitations for actions upon a statute for a penalty or forfeiture. The Court noted that the ASFA imposes strict liability without regard to actual damages or fault, and the legislative history indicated the remedy was intended as a penalty.

For a more detailed discussion of this opinion, please review our article published on November 13, 2024.

In a long-awaited opinion, the California Supreme Court holds that Song-Beverly Act’s refund-or-replace provision applies to vehicles for which the manufacturer’s express warrant was issued with the sale and not for vehicles with a balance remaining on the express warranty

In Rodriguez v. FCA US, LLC plaintiffs Everardo Rodriguez and Judith Arellano purchased a two-year-old car with over 55,000 miles on it, which still had an unexpired manufacturer’s powertrain warranty. Despite numerous repair attempts by the manufacturer, FCA US, LLC (“FCA”), the car continued to experience engine problems. Plaintiffs sued FCA under the Song-Beverly Consumer Warranty Act (“Act”), seeking to enforce the refund-or-replace provision, arguing that their car qualified as a “new motor vehicle” because it was sold with a manufacturer’s new car warranty.

The trial court granted FCA’s motion for summary judgment concluding that the plaintiffs’ car did not qualify as a “new motor vehicle” under the Act. The Court of Appeal affirmed the trial court’s decision, holding that the language in the Act “other motor vehicle sold with a manufacturer’s new car warranty” does not include previously owned vehicles with some balance remaining on the manufacturer’s express warranty.

The California Supreme Court affirmed holding 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 Civil Code section 1793.22(e)(2) of the Act unless the new car warranty was issued with the sale of the used car. The Court emphasized that the statutory language and the broader context of the Act support this interpretation, maintaining the distinction between new and used vehicles and their respective warranty protections.

For a more detailed discussion of the Rodriguez opinion, please review our article published on November 13, 2024.

In a Lemon Law case, Court of Appeal holds that simultaneous section 998 statutory offers to compromise to the same party may be valid to shift costs

In Zavala v. Hyundai Motor America Maritza Zavala filed a lawsuit against Hyundai Motor America (“HMA”) under the Song-Beverly Consumer Warranty Act (“Act”), alleging that HMA failed to honor its warranty obligations for a vehicle she purchased in 2016. After prevailing at trial, Zavala was awarded $23,122.44 in damages. The trial court also granted Zavala’s motion for attorney fees and ruled on the parties’ competing motions to tax costs, resulting in a judgment in favor of Zavala for $276,104.61 in attorney fees and costs.

The trial court concluded that HMA’s offer to compromise under Code of Civil Procedure section 998 was invalid for cost shifting because it contained two options: a $65,000 payment and a statutory option that was deemed too vague. The court found that the statutory option lacked specificity, making the entire offer invalid.

The Court of Appeal reversed holding that the $65,000 option was sufficiently specific and certain to trigger cost shifting under section 998, even though the statutory option was not. The Court concluded that the trial court erred by not separately considering the validity of the two options. The Court thus reversed the trial court’s orders on Zavala’s motion for attorney fees and the parties’ motions to tax costs, as well as the judgment based on those orders.

Court of Appeal holds that under the Song-Beverly Consumer Warranty Act, vehicle manufacturers may condition “lemon buybacks” on the purchaser’s consent to keep the financial terms of the agreement confidential

In Carver v. Volkswagen Groupo of America, Inc. plaintiff leased a new 2021 Volkswagen Atlas from Galpin Volkswagen, LLC, and experienced several issues with the vehicle, including problems with the check engine and airbag lights, ignition, and door locks. After multiple repair attempts and delays due to a backordered part, the plaintiff requested Volkswagen Group of America, Inc. (“VWGA”) to repurchase the vehicle. VWGA offered to repurchase the vehicle, including reimbursement for payments made and additional attorney fees, but included a financial confidentiality provision in the offer. Plaintiff did not accept the offer and continued to use the vehicle. She then sued VWGA under the Song-Beverly Act (“Act”).

The trial court granted summary judgment in favor of the defendants on the plaintiff’s breach of warranty claims. The court found that VWGA’s offer to repurchase the vehicle was prompt and compliant with the Act, including the calculation of the mileage offset and the inclusion of a financial confidentiality provision. The court concluded that the plaintiff could not prove damages for the breach of the implied warranty of merchantability, as VWGA’s offer exceeded the restitution amount required by the Act. Plaintiff appealed.

The Court of Appeal affirmed holding that VWGA’s offer was prompt and compliant with the Act, including the use of the vehicle’s agreed value for the mileage offset calculation. The Court also determined that the financial confidentiality provision was permissible under the Act. As a result, the plaintiff could not prove the necessary elements for breach of express or implied warranty claims, and the summary judgment in favor of the defendants was affirmed.