Michigan Lemon Law Best Practices & Insights

The lemon law provides a cumulative remedy and does not displace or limit any other remedies available for breach of an express or implied warranty.¹³ More often than not, there are several other statutory claims that should be considered and brought either in conjunction with or instead of, a lemon law action. Chief among these is a claim under the federal Magnuson-Moss Warranty Act (MMWA).¹⁴ The MMWA applies not only to the manufacturer but also to any warrantor, supplier or service contractor who fails to comply with a written warranty, implied warranty or service contract.¹⁵ Like the lemon law, the MMWA allows for a refund or replacement and the recovery of actual costs and attorney fees.¹⁶ Unlike the Lemon law, the MMWA does not require written notice as a prerequisite to relief and does not mandate a particular number of repair attempts, days out of service, or even that the defect or condition substantially impairs the use or value of the vehicle. Generally, two unsuccessful repairs under the MMWA are sufficient to establish liability.¹⁷ More importantly, the MMWA does not mandate a statutory offset for use and puts the burden on the defendant to establish the value of any claimed offset.¹⁸ The lemon law’s offset, on the other hand, can be punitive and provides a strong incentive for the manufacturer to delay the action, forcing the consumer to accumulate mileage that will reduce the consumer’s recovery.¹⁹ Thus, where the vehicle has 25,000 miles or more, a MMWA claim is ordinarily the better option.

It is also prudent to assert claims for breach of express and implied warranty under the UCC.²⁰ As with the MMWA, the UCC allows claims against both the manufacturer and the selling dealer and does not impose a minimum number of repair attempts. Repurchase may be available under the UCC, which allows for revocation where the nonconformity “substantially impairs [the vehicle’s] value to [the buyer].”²¹ The UCC also allows the buyer to deduct his or her damages from the payments still due under the contract.²² Although not provided by statute, attorney fees may be recovered as consequential damage under the UCC.²³

Where part of the problem is the dealer’s failure to competently or timely repair, it may also be a good idea to assert a claim under the Motor Vehicle Service and Repair Act.²⁴ The MVSRA has a fee-shifting provision and permits recovery of double damages where the violation is shown to be wilful.²⁵ Additionally, the MVSRA provides for joint and several liability of “a person who directly or indirectly controls a motor vehicle repair facility or its employees, as well as a general partner, officer, or director of the facility.”²⁶

In a proper case, the practitioner may also want to consider a claim under the Michigan Consumer Protection Act, MCL 445.901, et seq. Generally, an MCPA claim may be predicated on the violation of another statute²⁷ or the breach of an express or implied warranty.²⁸ MCPA claims may nearly always be asserted against the manufacturer,²⁹ but caution should be exercised in bringing a claim against a dealer who is likely to assert that it is exempt from the MCPA due to having licenses to sell and service vehicles. Merely having a license is not sufficient to support an exemption, but this is a topic for another (long) day.³⁰ That said, UCC Art. 2A specifically preserves MCPA claims in the context of lease transactions.³¹

Finally, when the vehicle is subject to a finance contract arranged by the selling dealer, the finance company steps into the shoes of the dealer and is subject to all claims and defenses that could be asserted against the dealer.³² Federal and state law mandates that any consumer finance contract assigned by the seller contains a so-called “holder notice,” notifying the consumer that the holder of the contract is subject to all the same claims and defenses that could be asserted against the seller.³³ Although the statutory holder rule limits the buyer’s affirmative recovery to amounts paid to the holder, the statutes allow the buyer to cancel the remainder of the contract.³⁴ An additional benefit to adding the finance company is that doing so will often assist in resolving the case. As a party, the finance company has the ability (and incentive) to facilitate settlement by reducing the outstanding balance, waiving interest, contributing cash or substituting collateral. The finance company may also cross-claim against the dealer. This puts added pressure on both the manufacturer and the dealer because the manufacturer must indemnify and defend the dealer for any warranty-related liabilities.³⁵

The purpose of the Lemon law’s written notice requirement is to “allow the manufacturer an opportunity to cure the defect or condition.”³⁶ Beyond requiring that the notice be written, sent by certified mail, and advise the manufacturer of the need for repair, the statute does not require that the notice be in any particular form. While the best practice is to send the notice in the form of a certified letter prior to filing suit so as to avoid any argument, a purely textual reading of the statute allows notice by filing the complaint with the requisite allegations of the need for repair and serving the complaint by certified mail, return receipt requested.³⁷ This argument is most persuasive when it is shown that the manufacturer had actual notice prior to filing the complaint and failed to avail itself of an opportunity to cure.

The Lemon law contains a provision requiring the resort to an informal dispute settlement procedure (IDSP) prior to filing suit if the manufacturer has such a procedure and the procedure meets the requirements of the Magnuson-Moss Warranty Act and complies with 16 CFR 703.³⁸. As a practical matter, most manufacturers either do not have a qualifying IDSP or do not enforce this provision. A qualifying IDSP cannot be binding on the consumer but must be binding on the manufacturer if the consumer accepts the IDSP decision.

To enforce an IDSP prerequisite, any requirement to resort to an IDSP must be clearly and conspicuously disclosed “on the face of the written warranty.”³⁹ “On the face of the warranty” means “[i]f the warranty is included as part of a larger document, such as a use and care manual, the page in such document on which the warranty text begins.”⁴⁰ If the disclosures or the IDSP itself do not comply with all of the MMWA regulations, the failure to resort to the IDSP before filing suit will not bar the consumer’s MMWA claim.⁴¹

There are some situations where less than four repair attempts or less than 30 days in the shop should be deemed a “reasonable number” of repair attempts. “If, for example, the manufacturer refuses to repair, claiming there is no defect, or after a single repair takes the position that further repair would be unnecessary or unavailing, the buyer is not precluded from exercising his or her right under the lemon law.”⁴² Similarly, this applies where the defect is one that cannot be effectively “cured,” such as paint defects, which the courts have recognized are “impossible for any dealer to repaint the vehicle in a manner that would match the type of finish originally achieved at the manufacturer’s plant when the car was built.”⁴³

Manufacturers often argue that the defect must continue to exist throughout the litigation. That is not the case. Once a vehicle has crossed the “lemon” threshold, it remains a lemon regardless of subsequent cure. For example, in Ayer v. Ford Motor Co⁴⁴, the court affirmed summary disposition for the plaintiff where Ford ultimately replaced the vehicle’s engine but did so beyond the time periods allotted in the act. “To allow a defendant to assert the unavailability of parts as a reason for failing to make timely repairs would defeat the statute’s intent to place the risk of inconvenience and monetary loss on the manufacturer rather than the consumer.”⁴⁵ Thus, the court held that the statutory presumption “that a manufacturer has been afforded a reasonable number of attempts to repair is unrebuttable absent the exceptions contained in the statute.”⁴⁶

It should be noted that an offset for use applies only where the consumer has opted for a refund. There is no offset for use when the consumer opts for a replacement vehicle. MCL 257.1403(2) provides the statutory formula for calculating the consumer’s offset for use of the vehicle, which is determined by multiplying the purchase or lease price by a fraction having as the denominator 100,000 miles and having as the numerator the miles “directly attributable to the consumer or any previous consumer” prior to his or her report of “a defect or condition that impairs the use or value” of the vehicle, plus all mileage “directly attributable to use by a consumer beyond 25,000 miles.”

First, to correctly determine the “purchase or lease price,” all items not included in the statutory definition, such as rebates, taxes, fees, and after-market equipment not installed by or for the manufacturer, should not be included. Second, the first report of a defect or condition need not be the defect or condition that was subject to four or more repair attempts. Third, mileage that is not attributable to the consumer, such as mileage on the vehicle at delivery and mileage accumulated due to repair attempts, is not included in the fraction’s numerator. Finally, under MCL 257.1403(3), counting mileage over 25,000 may be avoided if the consumer can present evidence that “the vehicle did not provide reliable transportation” beyond the first 25,000 miles. Although this latter determination is, by statute, for a court or IDSP to determine, as a practical matter, the argument can and should be argued in the context of resolving these cases short of trial.