McCoy, Turnage & Robertson law partner Ellen Turnage represented Lt. Nathan Kindig in the Lemon Law case that brought this issue to the attention of the California legislature. Lt. Kindig’s case was especially sympathetic as evidenced by Ms. Turnage’s testimony to the California State Senate Judiciary Committee. I have endeavored to summarize her testimony here:

Any one who purchases and takes delivery of a vehicle within the state of California is protected by California’s lemon law, a very consumer friendly statute. However, buyers, including California residents, who purchase vehicles in other states – even though they register the vehicles in California and pay California sales tax – are not protected by the California Lemon Law. These California citizens do not realize they are not protected by California Lemon Law until they discover they are the proud owners of a lemon.

But even worse is the fact that our military personnel who are not California residents and who purchased vehicles in other states are excluded from California lemon law protection. The tragedy is that these individuals are not here voluntarily. They are ordered to this state for the purpose of protecting this state and our nation. And yet, our California Lemon Laws fail to protect them. They are in essence individuals without a state.

Let me see if I can demonstrate how our laws fail to protect our military by describing Lt. Kindig’s pending lawsuit against DaimlerChrysler.

During his call to my office, I learned that he purchased the vehicle in the state of Washington. California’s Lemon Law does not protect vehicles purchased outside of California. We are one of the few states with that limit. Several states protect vehicles which are either purchased or registered within that state.

I explained to Lt. Kindig that maybe I could convince Chrysler to repurchase the lemon vehicle with a notice and demand letter. I frequently work with the various manufacturers in lemon law matters, I know the people involved at the manufacturers and I hoped I could persuade Chrysler’s representative to take care of this matter early on.

Not so. Chyrsler’s representative called me from Michigan. He said and I quote, “Do you really expect Chrysler to give any deference to the fact that Lt. Kindig is in the military. I have to treat him just like everyone else.” I said, “you bet I do and no you don’t.”

Chrysler’s representative informed me that under the Federal Lemon Law, Lt. Kindig would get only diminution in value as opposed to a full repurchase since we could not claim California Lemon Law damages.

I filed the lawsuit on December 19, 2005 under Federal Lemon Law.

Eventually, after months of haggling and after I volunteered to waive my fees of almost $7,000, Chrysler said it would repurchase the vehicle if Lt. Kindig agreed to a large offset. By this time, Lt. Kindig had returned to Iraq and we were communicating via the internet. He agreed to the inflated offset. California Lemon Law has a formula that defines the offset. Chrysler refused to use the offset formula and just demanded a specific offset amount.

Let me briefly share Lt. Kindig’s frustration with you. He purchased this vehicle in Washington. He was transferred to San Diego and brought the truck with him. After his return from his first deployment to Iraq, the vehicle began to overheat. He took it to a Chrylser authorized repair facility. They replaced the water pump. He took his family, his wife and 7 year old daughter, to Arkansas to visit his parents. The vehicle overheated. The water pump was replaced again in Arkansas. On his return trip, it overheated multiple times and had various repair attempts. He took it to two authorized repair facilities in Arizona. He had to leave it for two weeks and rent a car to return to California. He went back to get the truck. On the return trip, the vehicle continued to overheat. Finally, on August 19, 2005, it overheated so badly steam was coming out from under the hood. He parked it. He has not driven it since.

This added stress is not good for anyone but especially not good for someone fighting a war. He needs to know his family has reliable transportation. When he has free time from his duties as a physician’s assistant, he needs to send e-mails and make phone calls to his family, not to his attorney.

He paid $540.12 every month for a vehicle he could not drive. This is not acceptable. Chrylser admitted that it would have repurchased this vehicle immediately upon receiving my notice and demand letter but for the fact that the vehicle was not purchased in California. A LEMON IS A LEMON. This has to change for our military personnel stationed in California. We owe this extra level of protection to our protectors. We need to expand statutes to protect our military who are guests in our state.

Shocked by the indifference of Chrysler, Ms. Turnage and Lt. Kindig welcomed the offer of Sen. Ellen Corbett to author a bill to make the California Lemon Law applicable to military personnel, regardless of where they purchased their lemon vehicle. Lt. Kindig was so committed to the issue that he called in from Iraq where he was deployed for a second tour of duty. Lt. Kindig testified telephonically to the Senate Judiciary Committee; you could have heard the proverbial pin drop in the hearing room.

SB 234 takes effect on January 1, 2008 and thereafter all active duty military stationed in California will be protected by the California Lemon Law. Thank you Ellen and, especially, thank you Lt. Kindig!

The usual scenario that gives rise to a fraud claim against a selling dealership goes something like this. Joe Consumer reads in the local circular about certified pre-owned vehicles for sale. He is interested in some of the offerings and decides to stop by the dealership that placed the ad. He meets with a salesperson, who tells him that the CPO program is one of the best there is. Each CPO vehicle has been subjected to a 112-point inspection and is almost “like new.” In fact, it’s better than new, because the vehicle has to meet exacting standards and comes with an extended “bumper-to-bumper” warranty.

Joe Consumer agrees to pay a premium for the "better-than-new" certified pre-owned vehicle and drives off the lot feeling that he’s gotten a great deal.

Within a short amount of time, however, Joe Consumer begins to notice a lot of problems with his CPO vehicle. There are some mechanical problems that the dealership cannot seem to fix and a perplexing inability to stay aligned.

Because Joe Consumer does not have time to drive all the way back to the selling dealership during the work week, he drives to the dealership close to his work. To his shock, he is informed by this dealership that the vehicle has over-spray, evidence of bondo on the quarter panel, and other signs of collision damage.

Adding to his woes, this new dealership says that they “won’t touch it” and warns that the factory warranty is probably void because of the prior collision damage.

In all likelihood, the used car department failed to perform an adequate inspection when the dealership first acquired the vehicle. Then, the fact of the insufficient inspection was never communicated to the sales force, who aggressively puffed the quality of the CPO program to the consumer.

What claims does the consumer have? There would be a lemon law claim under the Song-Beverly Consumer Warranty Act for the void warranty. There would also be a common law fraud claim if the consumer can prove that the dealership knew of the problems with the CPO inspection, but hid that information from the public. Most interestingly, is a claim under something called the Consumers Legal Remedies Act (CLRA). This powerful, pro-consumer statue can be a good compliment to a lemon law claim. It does not require “intent” or “knowledge” like common law fraud, but it covers situations like the one I have described above. The CLRA prohibits, among other things, “[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he or she does not have; [and] [r]epresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.”

Similar to the lemon law, the CLRA allows a consumer to obtain a refund and consequential damages. Unlike the lemon law, the CLRA can give rise to an award for punitive damages. Consumers can also help obtain permanent injunctions against businesses to prevent further unfair and deceptive practices towards other members of the public.

Bottom line: consumer claims involving CPO vehicles should always include an analysis of whether there is a CLRA and/or fraud claim in addition to a lemon law claim.

There are a few notable investigations pending. For example, on October 19, 2007, NHTSA opened an investigation on the 2007 Chrysler Pacifica for an engine compartment fire concern. The investigation is in the Preliminary Evaluation (PE) phase, which is the initial phase of a NHTSA investigation. As defined by NHTSA, a "PE is prompted after a review of consumer complaints and/or manufacturer service bulletins suggest a safety defect may exist. The results of a PE determine whether the investigation will be upgraded to an Engineering Analysis or closed. Most PEs are resolved within four months." NHTSA describes the reason for the investigation on the 2007 Pacificas as follows: “complainants allege that a fire erupted under the hood of the vehicle while they were driving the vehicle and without warning. The fire began on the driver's side, near the front of the vehicle. The agency has received two vehicle owner complaints alleging a fire, and some early warning reporting (EWR) data. This preliminary evaluation has been opened to further assess the potential safety consequences associated with the alleged defect.”

On February 14, 2007, NHTSA opened an Engineering Analysis on 2006-2007 Dodge Durangos for side curtain air bag failure. NHTSA investigators discovered the problem during testing and describe it as follows: “The metal gas distribution tube in the side curtain air bag assembly may fracture during deployment resulting in failure of the air bag to deploy properly.” The Engineering Analysis stage is defined by NHTSA as the “second and final phase of a NHTSA investigation, an EA is undertaken if data from a PE indicate further examination of a potential safety defect is warranted. The results of an EA determine whether a safety recall should be initiated or the investigation should be closed. Most EAs are resolved within one year.”

Also at the EA stage is a complaint of wheel failure in the 2005-2007 Nissan 350Zs. Initially, the Office of Defects Investigation (ODI) opened pe06-050 based on two consumer complaints alleging incidents of wheel separation while driving due to spoke fracture. One of the incidents resulted in a crash and serious injury when the separated wheel struck a California Highway Patrol Officer on the opposite side of the freeway. Nissan claims that the problem was caused by an after-market “re-chroming” process, but ODI also found incidences of cracking in original Nissan alloy wheels. ODI is continuing the investigation, because it wants to determine what is causing the problems in the original equipment.

The work of ODI is critical to the safety of motorists. It can also be helpful to consumers who have lemon law claims. Through its collection of consumer complaints, manufacturers' technical service bulletins, and accident data, ODI has amassed a storehouse of information on almost all makes and models of vehicles. While this information may not be admissible in court, it can be very instructive to both the consumer and the consumer’s attorney and should be consulted when considering a lemon law claim.

Sounds great, right? A lot of times, it is; it's a great deal from which all parties walk away happy. Sometimes, however, the deal goes sour. Fortunately, the California Lemon Law covers vehicles that prove to be “certified lemons.”

A common misconception is that the lemon law only covers new vehicles and only if the defect appears in the first year or two. California lemon law is broader than that, however. The formal name of California’s lemon law, “The Song-Beverly Consumer Warranty Act,” hints at the key to its application. Specifically, if a vehicle is sold with a warranty, then it is covered by the lemon law, regardless of whether the vehicle was purchased new or used. The scope of the warranty may dictate how much help the lemon law will be to the consumer, but it will still be of some help. California’s lemon law states that "[i]f the manufacturer or its representative in this state is unable to service or repair a ... motor vehicle . . . to conform to the applicable express warranties after a reasonable number of attempts, the manufacturer shall either promptly replace the new motor vehicle . . . or promptly make restitution to the buyer. . . However, the buyer shall be free to elect restitution in lieu of replacement." (Cal. Civ. Code, § 1793.2(d)(2).)

Word on the street is that the manufacturers would like to pass a law exempting CPO vehicles from the lemon law. Consumers and law makers should oppose any such effort. The principle is simple: the manufacturers should not be allowed to have it both ways. If they want the benefits of being able to market and profit from their CPO programs, then they should stand behind them. If the Manufacturers are worried about the lemon law, then they should make sure that the oversight of their CPO programs is sound and that consumers are getting what they bargained for – a superior used vehicle with a dependable extended warranty.

The most important risk is the fact that the consumer will probably be giving up the right to bring a lemon law claim under California’s Lemon Law, the Song-Beverly Consumer Warranty Act. Why is this important? It is important, because California’s Lemon Law is strong and pro-consumer and the consumer who gives up her California Lemon Law rights is giving up significant rights. In fact, many car makers will argue that by taking delivery across state line, say in Arizona or Oregon, the consumer is forever waiving their right to have a defective vehicle repurchased. If the manufacturer wins that argument, then the consumer may be limited to Commercial Code remedies, which may only be the cost of repair.

Second, is that failure to comply with the strict requirements for out of state delivery could subject consumers to California Franchise Tax Board penalties.

If you are looking at purchasing a “big ticket” item, such as a motor home or boat, be sure to weigh the benefits of out of state delivery tax savings carefully against the considerable rights you are jeopardizing.

Now, if your car is operating within normal and generally acceptable tolerances, you should not bring a lemon law case. But if you suspect that “operating to manufacturer’s specifications” is code for “we don’t know what is going on with your vehicle and we don’t want to admit it,” then don’t lose hope. Even if the dealership does not actually “turn a wrench” on your car and even if the dealer says that the vehicle is “operating to manufacturing specifications,” California’s lemon law may still help you. All you have to do is present your vehicle to the dealership for repair. The rest is up to the dealership and if the technician fails to properly diagnose the defect, that is their problem and not yours. Each presentation for repair, regardless of what happens in the technician’s bay afterwards, counts as a repair attempt under the lemon law. The policy for this is a good one. It stops dealers and manufacturers from leading the consumer around with false or negligent reports of “no problem found” or “operates to manufacturer’s specifications.”

The moral: don’t be discouraged just because the dealership seems not to hear or believe you. Just keep bringing your lemon back until the dealership either admits your car has a problem and fixes that problem or until you have exhausted a reasonable number of repair visits.

Lenders are reporting a sharp increase in consumers trading in vehicles where they are “upside down” on the loan. In other words, they owe more than the car is worth. The difference is called “negative equity.” Undisclosed negative equity, i.e., negative equity from a trade-in vehicle that is rolled into the price of the new vehicle, violates state and federal truth in lending laws. Disclosed negative equity becomes a sticking point in lemon law cases. The dispute: manufacturers say “we’re willing to repurchase the vehicle, but we will deduct the negative equity from the final award.” The consumer’s attorney will respond: “the negative equity constitutes part of the price ‘paid or payable’ for the vehicle and should be reimbursed.” Indeed, the State of California Department of Consumer Affairs supports the lemon law lawyer’s view of the matter. The Department wrote an opinion letter to Ford Motor Company’s General Counsel in April 1997 stating specifically that “‘negative equity’ is part of the actual price payable by the buyer.”

The main problem with the negative equity question is that consumers could actually end up owing the manufacturer money at the end of a lemon law buy-back transaction. Here’s how. Let’s say you trade in a late-model vehicle where you have $10,000.00 in negative equity. That $10,000.00 is properly disclosed and re-financed in the purchase of the new vehicle. Let’s also say that you made a down-payment of $2,000.00 and that your monthly payments are $500.00 and that your loan balance is $30,000. Let’s also assume that within the first three months, you brought the vehicle into the shop four times for defects to the engine. The auto-maker agrees to buy your car back. Great you say! But wait. Here’s how the manufacturer does the math: you get back the $2,000.00 plus three monthly payments of $500.00 totaling $1,500.00. That comes to $3,500.00. The auto maker cuts a check to the bank for the $30,000.00 loan balance, but then subtracts $10,000.00 from $3,500.00, leaving a negative balance of $6,500.00. That’s the amount of the check you will be writing to the auto giant who made the lemon vehicle.

Is this fair? The auto makers say “Yes! While we might be responsible for making a lemon car; we’re not responsible for how consumers decide to handle their debt.” As a matter of public policy, however, this effectively lets the auto makers skate on their obligations under the lemon law, because very few consumers can come up with $6,500.00 cash at a moment’s notice. The law is unclear, so the moral of this story is: consider keeping that late-model vehicle a little longer if your only option in trading it in will be to re-finance the negative equity.

The benchmark in the California Lemon Law is four times for the same defect under warranty or 30 cumulative days for any number of different or similar defects. If the defect constitutes a safety hazard that could cause bodily injury or death, then the benchmark is two times. But the benchmark is just that – a guideline. It is not a requirement. I have seen manufacturers repurchase vehicles after three repair attempts where the three repair attempts came in the first 5,000 miles. I have also seen manufacturers resist repurchasing vehicles where there have been nine or ten repair attempts, where the repair attempts stretched over 60,000 or 70,000 miles. (We eventually got our client a new replacement truck.)

One argument that we use at our firm is that the case of Krotin v. Porsche held that the California Lemon Law imposes an affirmative duty upon manufacturers to repurchase lemon vehicles after a reasonable number of repair attempts have yielded no fix. The rationale behind the Krotin case is that manufactuers have more knowledge, resources and power than any one individual consumer will every have. They are also charged with knowledge of the Lemon Law. Therefore, if your car starts to look like a lemon, the manufacturer should step up and offer to buy it back or replace it.

To summarize, it’s tempting to use that phrase that lawyers love to use “it depends,” but it really does depend – on the type of defect, on the mileage at the time you make the claim, and on whether the manufacturer knows your lawyer. If you think that you have given the manufacturer a reasonable amount of time to repair your vehicle, but the vehicle is still unrepaired, call an experienced lemon law attorney. Most will provide you with a free consultation, so there is no risk in getting that little bit of information that might help you ditch that lemon.

Manufacturers such as Chrysler, General Motors, Ford Motor Company, Toyota and Honda often find themselves on the receiving end of complaints from consumers about lemon vehicles. Not infrequently, these manufacturers tell consumers that the defect – also called a “non-conformity to warranty” – is somehow the fault of the consumer. A good example: a friend of mine who is an attorney had a pretty clear lemon law claim against Chrysler. Within the first 18,000 miles, his Town & Country had been to the dealership seven times for uneven and excessive brake wear. The first response from Chrysler was “you live on a hill; you are causing the brake wear.” My friend is a smart guy and of course had the perfect response: “are you saying that no one who lives on a hill can buy a Chrysler vehicle?” A little coaching from me and he was able to convince Chrysler to repurchase his MiniVan under California’s Lemon Law.

Now, my friend is an experienced and savvy attorney. Trained in argument and advocacy, he had a compelling answer to the “blame the victim” tactics of Chrysler. Many consumers, however, absorb the guilt that the manufacturers lay upon them. Our advice: resist the psychology of the blame game. If your vehicle is still under warranty and manifests a defect, take it to an authorized dealership and talk with the service advisor. Explain the defect in detail: what you experience, the conditions under which you experience it and the conditions under which you do not experience it. Confirm that the service advisor described the defect accurately on the repair order. When you pick up your vehicle, ask what was done to diagnose the problem. Then, ask what the technician did to repair it, if anything. If your service advisor blames your driving for the defect, seek clarification and specifics. Measure the advisor’s explanation against your own understanding of how you drive. You should not automatically assume that the advisor is right, just because he is wearing a shirt that says “Toyota” or “Honda.” After the repair attempt, take your vehicle for a test drive. If the defect remains unrepaired, take your car back to the dealership immediately. Do not delay, as that could a) be bad for your car and b) diminish your potential lemon law claim. The hope, of course, is that the dealership can fix your car. When the dealership cannot fix your car after a reasonable number of repair attempts (usually considered to be four times or a cumulative total of 30 days), then you may have a lemon on your hands and a claim under the lemon law to the manufacturer is in order.