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Lemon Law 101: An Overview

Introduction

State and federal statutes offer a wide array of relief for consumers saddled with a bad car or truck. At the same time, these statutes provide for recovery of costs and attorney fees - a strong incentive for attorneys who would like to take up the cause on behalf of unhappy lemon owners. This article will provide a brief overview of the many statutes than can be used to assist these potential clients, along with practice tips and case law.

Michigan "Lemon" Law - MCLA 257.1401, et seq.

Michigan's lemon law applies to new passenger cars and trucks purchased after June 25, 1986. Relief may be had only against the manufacturer or distributor of the vehicle, as opposed to the new vehicle dealer. MCLA 257-1401(b).

A "prima facie" lemon is a vehicle that continues to have a defect or condition which "substantially impairs the value of the vehicle, despite having been subjected to a "reasonable number of repair attempts." It is presumed that a reasonable number of attempts have occurred if either of the following criteria have been met:

(a) The vehicle has been out of service for repairs at least 30 days (or parts of days) during the first year of ownership for the same or different problems; or

(b) The vehicle has been subjected to four or more repair attempts for the same problem, provided that the first repair attempt occurred within the first year of ownership. MCLA 257.1403(a)-(b).

Once the vehicle has been out of service for 25 days or subject to repair for the same problem on three occasions, the buyer is required to notify the manufacturer, by certified mail, return receipt requested, of the need for repair. MCLA 257.1403(3). The manufacturer must then notify the buyer "as soon as reasonably possible" of a "reasonably accessible repair facility." MCLA 257.1401(3)(a), (b). The manufacturer has five business days after delivery of the vehicle to the repair facility to complete the repairs. If repairs are not completed within the five days, the buyer is entitled to a refund or replacement vehicle "acceptable to the consumer." MCLA 257.1403(1). See, also, Ayer v Ford Motor Company, 200 Mich. App 337 (1993) (summary disposition in favor of buyer affirmed, where manufacturer failed to complete repairs in 5 business days, despite manufacturer's argument that delay was due to unavailability of parts).

The refund or replacement must take place within 30 days after the final repair attempt. A refund is to include the purchase price, sales taxes and transfer fees, interest on any finance contract, and dealer installed options or accessories, less a statutory offset for use. MCLA 257.1403(1). The offset for use is calculated based on a statutory formula:

  • Step 1. Determine the miles “attributable to the consumer” by taking the mileage at the time of the first repair and subtracting: (a) the miles on the vehicle at delivery, (b) miles back and forth to the shop, (c) miles put on by the repair facility.  CM = consumer mileage.
  • Step 2. Determine the “purchase price” of the vehicle. This is the price of the vehicle before taxes, title and registration fees, etc.  PP = purchase price.
  • Step 3. Calculate offset:  CM/100,000 x PP = Offset

If the manufacturer has an "alternative dispute resolution mechanism" (ADR) that meets Federal Magnuson-Moss guidelines (see discussion, infra), the buyer must first resort to that mechanism before filing suit, in order to protect his or her right to recover costs and attorney fees. MCLA 257.1405. The result of the ADR is binding only on the manufacturer, and not on the consumer. Thus, if the ADR does not result in appropriate relief (which it rarely does), the consumer is free to pursue his or her claim in court. It should be noted that the lemon law does not supersede other remedies afforded under state or federal law. MCLA 257.1404.

Practice tip: It is often productive to file a motion for summary disposition pursuant to Ayer v Ford, supra, shortly after filing suit. Even if the motion is lost, this will force the defendant to put its best evidence forward at an early stage. You can then focus your discovery on dissipating the defendant's line of defense.

Uniform Commercial Code

The warranty provisions of the Uniform Commercial Code (MCLA 440.2313, 440.2316), can be used alone or in conjunction with a lemon law claim. Among the remedies available under the Code are revocation of acceptance (MCLA 440.2608), and recovery of costs and attorney fees as incidental or consequential damages under MCLA 440.2719. See Kelynack v Yamaha Motor Corp. 152 Mich App 102 (1986). These remedies are also available under the Lease provisions of Article 2A of the Code, MCLA 440.2802, et seq.

MCLA 440.2608, governing revocation, provides that the buyer is entitled to revoke acceptance where the defect or nonconformity is either difficult to discover or remains unresolved after reasonable efforts to cure and "substantially impairs the value of the goods" to the buyer. In Colonial Dodge v Miller, 420 Mich 452 (1984), the Supreme Court made it clear that "substantial impairment" is a subjective test, to be measured from the actual buyer's perspective. Thus, the Court held that the buyer, Mr. Miller, was entitled to revoke his acceptance of a vehicle delivered without a spare tire.

The Code has several distinct advantages over lemon law. First, revocation is available upon a showing of "substantial impairment" without the buyer having to subject himself or herself to the frustration of enduring four repair attempts or 30 days in the shop. Kelynack, supra (revocation permitted where engine failure occurred within first three months of ownership, despite replacement of engine under warranty). Second, the buyer need not resort to the manufacturer's ADR program in order to recover costs and attorney fees. Third, there are no formal notice requirements which are conditions precedent to relief. See, e.g., King v Taylor Chrysler Plymouth, 184 Mich. App 204 (1990) (no particular words or form required to give notice; filing of the Complaint is sufficient notice under UCC). Finally, the Code applies to sales or leases of new and used vehicles, and covers a broader range of vehicles and products than the lemon law (e.g. boats, motor homes, motorcycles, snowmobiles, ATVs, commercial vehicles, industrial machinery, farm equipment, etc.).

Practice tip: Always include the claims available under the UCC, even where you are confident that the vehicle qualifies as a lemon under Michigan's Lemon Law. Doing so will help to protect your client against an adverse result in the event that there is a technical defect in the "lemon" claim.

Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act, 15 USC 2301, et seq, is designed to put "teeth" into state law warranty rights. The Act applies to all consumer goods with a value of $25.00 or more, and covers express written warranties, as well as warranties "arising under state law". 15 USC 2301 (1), 15 USC 2310(d)(3). The Act prohibits the disclaimer of the implied warranty of merchantability (MCLA 440.2314) if the vehicle is sold with a written warranty or service contract. See, 15 USC 2308(c) (warranty disclaimer ineffective even where permitted under state law). Further, the Act nullifies the privity defense, expressly permitting revocation against a remote manufacturer. See, Ventura v Ford Motor Co., 180 NJ Super 45, 433 A2d 801 (App Div 1981) (Act broadens remedies available to consumers by eliminating state law privity requirements).

Remedies under the Act include a refund or replacement (at the consumer's option), as well as recovery of costs and attorney fees. 15 USC 2310 (d). In Jordan v Transnational Motors, 212 Mich. App 94 (1995), the Court of Appeals held that the trial court had abused its discretion in failing to consider the remedial nature of the Act in determining appropriate attorney fees. Essentially, the Court opined that the remedial nature of the Act would be thwarted if attorneys were unable to obtain a reasonable return in these cases.

Practice tip: Pre-litigation resort to the manufacturer's ADR is required only if the ADR program meets Magnuson-Moss guidelines. The guidelines dictate that the warranty must include a statement requiring the consumer to resort to ADR before pursuing a civil action. If the warranty does not include such a statement, then the consumer is free to proceed immediately to court. The guidelines further require that the ADR process be completed within 40 days after the consumer notifies the ADR mechanism of the dispute. At least with respect to the "big three" (GM, Ford and Chrysler), it is this author's experience that the ADR process is almost never timely completed, and that the warranty documents do not contain the requisite statement requiring the consumer's participation. Thus, for all practical purposes, the ADR requirement is rarely an impediment to recovery of fees and costs.

The Motor Vehicle Finance Act, MCLA 492.114a(b), and the Federal Trade Commission's "Holder Rule" 16 CFR 433, provide that where financing is arranged by the dealer, the finance company will be subject to all of the consumer's claims and defenses arising out of the transaction. Thus, the buyer or lessee of a defective vehicle will be able to assert his or her claims against the seller and manufacturer against the finance company, as well. Under 16 CFR 433, the finance company must place notice of the Holder Rule in the body of the contract. The consumer's damages against the finance company will be limited to the amounts paid under the contract. MCIA 492.114a(b). The Motor Vehicle Finance Act (MVFA) further bars a finance company who is on notice of the consumer's complaints from exercising self-help repossession in the absence of an evidentiary hearing and a court order. MCLA 492.114a(e). The purpose of the evidentiary hearing is to establish that the consumer would not be "unreasonably burdened nor deprived of adequate transportation by making payments.

Practice tip: It is often wise to seek ex parte temporary restraining order or a preliminary injunction prohibiting the finance company from reporting adverse credit information and/or repossessing the vehicle during the pendency of the litigation. Although most finance institutions' legal departments are aware of the law, many of the collection departments are not. If the finance company pleads a counter-complaint, the consumer's affirmative defenses should include not only the MVFA and the Holder Rule but, also, MCLA 440.2711 and MCI 440.2717 (granting the buyer a security interest in the vehicle to secure damages and permitting withholding of payment, respectively).

Other Statutes

Other statutes which should be reviewed in preparing consumer claims include: (1) the Michigan Consumer Protection Act, MCLA 445.901, et seq; (2) the Motor Vehicle Service and Repair Act, MCLA 257.1301, et seq; and (3) the Garage keeper Liability Act, MCLA 256.54.

Conclusion

The frustration of owning or leasing a defective vehicle is all too familiar to many consumers. State and federal consumer statutes provide important remedies to these consumers, ranging from monetary damages to buy-backs of defective vehicles. These often overlooked statutes also provide for the recovery of costs and attorney fees to the successful plaintiff's attorney. Thus, the attorney who tackles these cases usually reaps a twofold benefit - the professional reward of having served a client well, and the financial reward of obtaining a fee well earned.

MOTORCYCLE LEMON LAW 101
Putting the Squeeze on Road Lemons

Executive Summary

State and federal statutes offer a wide array of relief for consumers saddled with a bad motorcycle or faulty repairs and customization. These statutes also provide for recovery of costs and attorney fees -- a strong incentive for attorneys who would like to take up the cause on behalf of unhappy "lemon" owners. Because the "Lemon Law" is often thought of as the principal or only source of relief and, because Michigan's "Lemon Law" applies only to passenger vehicles, many motorcycle owners mistakenly believe there is nothing that can be done. In fact, legal relief is available. In addition to providing for direct relief from the defective motorcycle, the applicable statutes also allow for damages against the dealer and manufacturer, withholding payment even from third party financers, and provide methods to protect the consumer from adverse credit reports. This article provides a brief overview of the many statutes and regulations that can be used to assist motorcycle owners, a summary of significant case law, and several practice tips.

Uniform Commercial Code

The warranty provisions of the Uniform Commercial Code (UCC) 1 can be used alone or in conjunction with claims under the other statutes mentioned in this article. Among the remedies available under the UCC are revocation of acceptance 2 and recovery of costs and attorney fees as incidental or consequential damages. 3 These remedies are also available under the lease provisions of Article 2A of the UCC. 4

The UCC provision governing revocation provides that the buyer is entitled to revoke acceptance where the defect or nonconformity is either difficult to discover or remains unresolved after reasonable efforts to cure and "substantially impairs the value of the goods; to the buyer. 5 The Supreme Court has made it clear that "substantial impairment" is a subjective test, to be measured from the actual buyer's perspective. Thus, the Court held that a buyer was entitled to revoke his acceptance of a vehicle delivered without a spare tire. 6 While lack of a spare tire may not be a problem to many people, the buyer in that case was a traveling salesperson who was concerned about the dangers of being stranded on a Detroit area freeway.

The UCC has several distinct advantages. First, revocation is available upon a showing of "substantial impairment" without subjecting the buyer to the frustration of enduring four repair attempts or 30 days in the shop as is required under Michigan's "lemon law." Further, it is not necessary to prove a breach of the express or implied warranties in order to support a claim for revocation. Indeed, revocation is an available remedy, even in the face of an "as is" disclaimer. 7 Second, the buyer need not resort to the manufacturer's alternative dispute resolution (ADR) program in order to recover costs and attorney fees. Third, there are no formal notice requirements that are conditions precedent to relief. 8 Finally, the code applies to sales or leases of new and used motorcycles.

Magnuson-Moss Warranty Act 9

The Magnuson-Moss Warranty Act, is designed to put "teeth" into state law warranty rights. The act applies to all consumer goods with a value of $25 or more, and covers express written warranties, as well as warranties "arising under state law." 10 The act prohibits the disclaimer of the implied warranty of merchantability 11 if the motorcycle is sold with a written warranty or service contract. The warranty disclaimer is ineffective even where permitted under state law. 12 Further, the act nullifies the privity defense, expressly permitting revocation against a remote manufacturer. 13

Remedies under the Magnuson-Moss Act include a refund or replacement at the consumer's option, as well as recovery of costs and attorney fees. 14 Michigan's Court of Appeals has held that the trial court abused its discretion in failing to consider the remedial nature of the act in determining appropriate attorney fees. 15 Essentially, the court opined that the remedial nature of the Act would be thwarted if attorneys were unable to obtain a reasonable return in these cases.

Practice Tip: Pre-litigation resort to the manufacturer's ADR is required only if the ADR program meets Magnuson-Moss guidelines. The guidelines dictate that the warranty must include a statement requiring the consumer to resort to ADR before pursuing a civil action. If the warranty does not include such a statement on its face, then the consumer is free to proceed immediately to court. "On the face of the warranty" is defined in the Magnuson-Moss regulations as follows:

(1) If the warranty is a single sheet with printing on both sides of the sheet, or if the warranty is comprised of more than one sheet, the page on which the warranty text begins;

(2) If the warranty is included as part of a longer document, such as a use and care manual, the page in such document on which the warranty text begins. 16

The guidelines further require that the ADR process be completed within 40 days after the consumer notifies the ADR mechanism of the dispute.

It is this author's experience that motorcycle warranty documents typically do not contain the requisite statement requiring the consumer's participation. Thus, for all practical purposes, the ADR requirement is rarely an impediment to recovery of fees and costs.

The Federal "Holder" Rule – "Preservation of Consumer Claims and Defenses"

The Federal Trade Commission's "holder rule" 17 provides that where financing is arranged by the dealer, the finance company will be subject to all the consumer's claims and defenses arising out of the transaction. Thus, the buyer or lessee of a defective motorcycle will be able to assert claims against the seller and manufacturer and against the finance company, as well. The regulations require that the finance company must place notice of the holder rule in the body of the contract. 18 The consumer's damages against the finance company will be limited to the amounts paid under the contract. 19

Practice Tip: It is often wise to seek an ex parte temporary restraining order or a preliminary injunction prohibiting the finance company from reporting adverse credit information or repossessing the motorcycle during the pendency of the litigation. 20 Although most finance institutions' legal departments are aware of the law, many of the collection departments are not. If the finance company pleads a counterclaim, the consumer's affirmative defenses should include not only the holder rule but, also sections of the UCC granting the buyer a security interest in the motorcycle to secure damages and permitting withholding of payment. 21

Where the finance company repossesses in violation of a court order or after being on notice of the consumer's intent to withhold payment as allowed by statute, the complaint should include a count for conversion. This allows the consumer to recover treble damages, plus costs and attorney fees. 22 Other causes of action may include wrongful repossession, 23 wrongful acceleration of debt, 24 violation of the Michigan Collection Practices Act, 25 the Fair Debt Collection Practices Act, 26 and violation of the Fair Credit Reporting Act. 27

Other Statutes

Other statutes that should be reviewed in preparing consumer claims include the Michigan Consumer Protection Act, 28 the Motor Vehicle Service and Repair Act, 29 and the Garagekeeper Liability Act. 30

Conclusion

The frustration of owning or leasing a defective motorcycle is all too familiar to many consumers. State and federal consumer statutes provide important remedies to these consumers, ranging from monetary damages to buy-backs of defective motorcycles. These often overlooked statutes also provide for the recovery of costs and attorney fees to the successful plaintiff's attorney. Thus, the attorney who tackles these cases usually reaps a twofold benefit -- the professional reward of having served a client well, and the financial reward of obtaining a fee well earned.

1 MCL 440.2313-440.2316.
2 MCL 440.2608.
3 MCL 440.2719. See also, Kelynack v Yamaha Motor Co, 152 Mich App 105, 394 NW2d 17 (1986) (involving revocation of acceptance of defective motorcycle).
4 MCL 440.2802, et seq.
5 MCL 440.2608.
6 Colonial Dodge, Inc v Miller, 420 Mich 452, 362 NW2d 704 (1984).
7 See, e.g., Esquire Mobile Homes, Inc v Arrendale, 182 Ga App 528, 356 SE2d 250, 252, 3 UCC Rep Serv 2d 1798 (1987); Blankenship v Northtown Ford, 95 Ill App 3d 303, 420 NE2d 167, 50 Ill Dec 850 (1981); Gadula v General Motors Corporation, Mich Ct App Unpublished, Docket No. 213853 (Jan. 5, 2001)(revocation permissible remedy even where warranty not breached); Kelynack, supra (revocation was permitted where an engine failure occurred within the first three months of ownership, despite the replacement of engine under warranty).
8 See, e.g., King v Taylor Chrysler Plymouth, 184 Mich App 204, 211, 457 NW2d 42 (1990)(no particular words or form is required to give notice; filing of the complaint is sufficient notice under the UCC).
9 15 USC 2301, et seq.
10 15 USC 2301(1); 15 USC 2310(d)(3).
11 MCL 440.2314.
12 15 USC 2308(c).
13 See, Ventura v Ford Motor Co, 180 NJ Super 45, 433 A2d 801 (App Div 1981)(the Act broadens remedies available to consumers by eliminating state law privity requirements). 14 15 USC 2310(d).
15 Jordan v Transnational Motors, Inc, 212 Mich App 94, 537 NW2d 471 (1995).
16 16 CFR 703.1(h).
17 16 CFR 433.
18 Id.
19 MCL 492.114a(b).
20 Recently, this author brought a successful motion to hold the finance company in contempt where it continued to report adverse credit information after an order was issued barring such reports. The court also allowed plaintiff to amend her complaint and add a slander of credit claim.
21 MCL 440.2711 and MCL 440.2727, respectively.
22 MCL 600.2919a.
23 MCL 492.114(b).
24 MCL 492.132.
25 MCL 445.251.
26 15 USC 1692 et seq.
27 15 USC 1681, et seq.
28 MCL 445.901, et seq.
29 MCL 257.1301, et seq.
30 MCL 256.541.

Title Fraud: Seminal Issues and Citations Title Fraud Issues Dealer Required to Have Valid Title In Its Immediate Possession MCLA 257.235(1) Dealer Must Show Reassigned Title(s) to Consumer MCLA 257.233a(3) Dealer May Only Issue 1 Temporary Tag Per Vehicle MCLA 257.226a(1) Dealer May Not Use Dealer Plate for More Than 72 Hrs MCLA 257.244(8) Dealer Must Submit Application for Title within 15 days of Sale/Lease MCLA 257.217(4) Dealer Transfer to Another Dealer – Must Warranty Title and Fill in Odometer Statement MCLA 257.235(3) Dealer Cannot Sign Odometer as Transferor & Transferee MCLA 257.233a(3) Must Provide Copies of ALL documents signed at the time MCLA 257.251a MCLA 257.248a – Advertising Vehicle as "Demo", "Executive", etc. Sec. 248a. A motor vehicle dealer shall not advertise or represent a motor vehicle to be a demonstrator, executive or manufacturer's vehicle, leased vehicle, new motor vehicle, or used or secondhand vehicle unless the vehicle so described is as defined in this act. Title Fraud Remedies Revocation UCC Sec. 2-608 (Michigan MCLA 440.2608) Sale in violation of Motor Vehicle Code is "void and – monies paid under the terms of such a void contract can be recovered by the purchaser." Waldron v Drury's Van Lines, Inc, 1 Mich App 601, 608, 137 NW2d 743, 746 (1965). Moreover, the fact that Plaintiff has had use of the vehicle does not affect his ability to void the sale. Roe v Flamegas Industrial Corp, 16 Mich App 210, 167 NW2d 835 (1969) (no offset for use) Statutory Damages – Odometer Statute State & Federal: 3 x actual or $1,500 � whichever greater Attorney Fees MCLA 257.233a(15) ; 49 USC §32710(a) and (b) Michigan Consumer Protection Act Unfair Deceptive Practices MCLA 445.903 Statutory Damages & Attorney Fees MCLA 445.911 Equitable Relief Permitted (i.e., revocation, credit reporting injunction MCLA 445.911(1)(b)