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The State of California - State and Consumer Services Agency
LEGAL AFFAIRS
400 R Street, Suite 3090
Sacramento, CA 95814-6200
Legal Guide W-2
MOTOR VEHICLE BUYER'S DISPUTE SETTLEMENT OPTIONS
September 1993
In the event of a dispute involving a new motor vehicle, the
buyer should consider all of the dispute settlement options and
should give special attention to fulfilling the buyer's own
responsibilities.
BUYER'S OBLIGATION TO COOPERATE
If the manufacturer, dealer or some third party has a
responsibility to the buyer to resolve a problem, the buyer's
first obligation is to make that party aware of the existence and
nature of the problem. The buyer's second obligation is to give
the other party ample opportunity to take the steps needed to
resolve the problem.
The buyer, in short, must act in good faith. In fact, the law
requires both parties to act in good faith. Good faith means,
essentially, honesty in fact and the avoidance of conduct that
makes it difficult or impossible for the other party to perform
the contract or enjoy its benefits. Each party has a legal duty
to both perform the contract in good faith -- that is, to fulfill
the other party's reasonable expectations by carrying out all
promises -- and, when enforcing the contract, to enforce the
contract in good faith, such as by following any agreed methods
of resolving the problem.
The manufacturer, seller or other party may attempt to perform
its obligations to the buyer but not succeed. Motor vehicles are
complicated and are subject to malfunction in many ways. Despite
the manufacturer's best efforts and the buyer's fondest hopes, a
newly purchased vehicle may not function perfectly. On occasion,
there will be problems that may be difficult to resolve
and that may require more than a single repair attempt.
If a buyer anticipates that a motor vehicle is not likely to
function perfectly at all times and may occasionally need
extraordinary repair services, he or she will be better prepared
for the inconvenience, frustration, and, sometimes, expense, that
may accompany the need for multiple attempts to repair it.
Most of the reported court decisions that have ruled against the
buyer are the result of the buyer's failure to understand and
respect the viewpoint of the other party or parties. Most often,
the buyer has failed to give the manufacturer or its agents a reasonable
opportunity to make the needed repairs -- has perhaps
expected and demanded too much, too soon.
In applying the legal rules that govern warranties in the sale of
motor vehicles and other products, the courts require a
reasonable measure of cooperation by the buyer. Happily for the
buyer, the courts also insist upon a reasonable measure of
cooperation and good faith performance by the manufacturer and
its agents.
WARRANTOR'S OBLIGATION TO REPAIR
Most, but not all, of the reported court decisions in cases
involving claims by buyers for cancellation of sales because the
manufacturer failed to repair the vehicle, are now being decided
in favor of the buyer.
Both the New Car Lemon Law and the reported court decisions
affirm that a new car manufacturer is required to honor its
warranty -- to live up to its promises to the buyer. These cases
hold that while the buyer must cooperate with the manufacturer
and give the manufacturer a reasonable opportunity to make any
needed repairs, a buyer is not expected to tolerate seemingly
endless repair attempts that do not resolve the problem. At some
point, enough is enough.
In fact, the Tanner Consumer Protection Act 2 provides that it is
presumed that a reasonable number of attempts have been made to
conform a new motor vehicle to the applicable warranties if
either of the following has occurred within either one year of
delivery of the vehicle to the buyer, or 12,000 miles, which ever
first occurs:
a) the same defect or problem has been the subject of four or
more repair attempts by the manufacturer or its agent, and the
buyer has at least once notified the manufacturer of the need for
the repair; or
b) the vehicle is out of service due to attempted repairs of the
defect or problem by the manufacturer or its agent for a
cumulative total of more than 30 days.3
If the buyer has cooperated with the manufacturer and its
representatives by giving them ample opportunity to make needed
repairs, and the vehicle is still defective in ways that
substantially affect its use, value or safety, the courts will
help the buyer by ordering either the replacement of the vehicle
or a cancellation of the sale and a refund of the purchase price.
Today, therefore, the buyer of a defective car begins with a
legal bargaining advantage over the manufacturer and its
representatives. If the buyer is willing to cooperate with the
manufacturer and its agents in their effort to make the needed
repairs, the buyer should end up with either a properly
functioning motor vehicle or, if the problem is not repaired and
substantially affects the use, value or safety of the vehicle, a
legally enforceable right to a replacement of the vehicle or
refund of its purchase price.
CAN THE CAR BE REPAIRED?
Remember at the first sign of a defect or malfunction, the
buyer should carefully read the owner's manual and all warranty
information. In order to obtain the maximum protections
provided by the New Car Lemon Law, the law may require that you
follow the procedures contained in that information.
The warranty usually will contain step-by-step procedures for the
buyer to follow to secure performance of the manufacturer's
warranty obligations. Therefore, the steps spelled out in the
written warranty are the first steps that the buyer should take
to resolve the problem. The manufacturer's written warranty
usually requires that the buyer's first step be to notify the
manufacturer or one of its authorized repair facilities in the
event of a defect or malfunction, and to use the manufacturer's
own repair facilities. It is best if this notice is in writing,
and explains the problem or defeat. The notice should be either
sent certified mail so that a receipt is obtained, or delivered
in person, in which case the buyer should ask for a receipt for
the letter. Of course, the buyer should keep a copy of the letter
for his or her records. If the buyer paid for the car by
borrowing money from a financial institution, a copy of the
letter also should be sent to the financial institution.
The law requires that the buyer allow the manufacturer a
reasonable length of time and a reasonable number of attempts to
repair the defect.4 If the buyer has complied with the
requirements of the New Car Lemon Law and the manufacturer has
not been able to repair the vehicle, the buyer will need to
consider further action.
DIAGNOSIS BY AN INDEPENDENT MECHANIC
It may be advisable to have an inspection of the car by an
independent mechanic, who should be asked to diagnose the
vehicle's problems and then express his or her findings and
recommendations in writing.
A diagnosis and report by an independent mechanic is important.
First, it may disclose the real nature and cause of the problems.
Second, if the report is shared with the manufacturer and its
representatives, the information may help them resolve the
problems. Of course, if the report states that there is no
problem, the buyer will have learned that he or she probably has
no reason to complain.
Finally, the report will help substantiate the buyer's own
observations about the vehicle's performance, and will help the
buyer make a more convincing case if the dispute ends up being
decided by an arbitrator or judge.
REQUEST FOR A REPLACEMENT OR REFUND
If the manufacturer and its representatives have made numerous
repair attempts but have not been able to resolve the problem,
and the buyer appears to have a right to revoke his or her
acceptance of the car or receive a replacement or refund under
the New Car Lemon Law, it may be time for the buyer to formally
request a replacement of the vehicle or a refund of its purchase
price.
A request for a replacement or price refund ordinarily should be
communicated in the form of a letter and should be prepared with
a great deal of care. The letter should describe the vehicle's
problems and the efforts that have already been made to resolve
them, and should include copies of the work orders and invoices
for the repair services furnished, a report from an independent
mechanic if possible, any prior correspondence that relates to
the problems and any statements from witnesses. The letter should
be firm but respectful, and should ordinarily include an offer of
the buyer's full cooperation.
Even though the manufacturer already may have made repeated
repair attempts, it may be advisable to give the manufacturer and
its representatives at least one additional opportunity to
correct the problems, particularly if there is doubt about
whether the manufacturer has had a genuinely meaningful
opportunity to effect repairs. The letter might be worded m terms
of a request for a refund or replacement unless the manufacturer
is able to resolve the problems after one final repair attempt.
The letter should be sent to the manufacturer's regional office
and to any other address designated in the warranty and owner's
manual for the receipt of complaints, with copies to the original
seller and to any repair facilities and financing agencies that
are involved. In that way, everyone with an interest in the
transaction will be informed about the problems and the buyer's
request for action. (Of course, the buyer should keep a copy of
the letter for his or her own records, including all
documentation sent with the letter.)
A letter requesting a replacement or refund and offering another
opportunity to repair the vehicle probably will result in further
action by the manufacturer and its representatives -- action that
may resolve the problems. The letter also will help satisfy
requirements in the New Car Lemon Law which must be met before
certain kinds of claims can be asserted.
If the letter does not result in a solution to the problems -- if
the offered repair attempt or attempts are not successful in
resolving the problems and the manufacturer has not voluntarily
replaced the vehicle or refunded its purchase price -- the buyer
will need to consider what to do next.
MEDIATION
While many buyers are able to continue to represent themselves
effectively in negotiating a replacement or refund, some
situations may call for participation by a third party. This is
particularly true if the issues are complex or the buyer lacks
the ability to bargain effectively. Therefore, the buyer may wish
to be represented by an attorney at this point it is not
essential, however, that a third party formally represent
the buyer. Intervention by a lawyer, for instance, may be
premature or even counter-productive. At this stage, the mere
presence of a neutral third party to act as a mediator may be all
that is needed. What is mediation?
A mediator -- perhaps a mutual friend of the dealer and the
buyer, or someone from a local church, neighborhood justice
center, regulatory agency, consumer affairs office or community
organization -- may be able to help the parties resolve the
problem by mutual agreement.
The role of a mediator is to help each party understand the issues
and the perspective of the other party or
parties. A mediator helps the parties try to resolve the problem
themselves, but the mediator never attempts to impose a decision.
The power to arrive at a solution rests in the parties' hands
alone.
Mediation requires that each of the parties be willing to
communicate with the other and to assume personal responsibility
for reaching an agreement. Mediation requires parties who have an
intention to agree. Mediation, in short, must be voluntary.
Mediation requires a commitment by the parties that they will
work toward achieving a mutually satisfactory result. And
mediation requires that the parties also be willing to listen and
take advice. Clearly, not all people and not all situations are
appropriate for mediation.
Mediation is not the same as arbitration, although it may employ
similar methods. In arbitration, the arbitrator, like a judge in
a court of law, listens to the evidence and then renders a
decision. In contrast, a mediator listens to both sides, and then
helps the parties work out an agreement for themselves.
Sometimes, an arbitrator may act like a mediator and attempt to
help the parties reach an agreement before beginning the more
formal arbitration process.
Mediation also is distinguishable from litigation (sometimes
called the "adversarial process" or
"adjudication") in that its focus is on peace,
not conflict. Mediation is more like sitting
down for a truce agreement, in contrast to the more combative
process of litigation.
A good mediator therefore attempts to foster an informal and
relaxed environment. Mediation cannot take place in an atmosphere
of fear.
Mediation also is confidential. It is, legally, a settlement
discussion in which the parties exchange mutual offers of
compromise that are legally privileged. Therefore, what is said,
offered or accepted by either party cannot later be used against
that party in court.
Mediation forces the parties to consider alternatives. Because of
the informal yet confidential nature of mediation, the resulting
agreement can take account of all of the real needs and real
interests of each of the parties. It provides an open and
creative forum to resolve their problems. Therefore it can result
in a real "victory" for everyone.
In mediation, legal rules do not have to be applied. While the
rules that apply to a transaction can and usually do influence
the parties in their efforts to resolve their dispute, the
parties are free also to ignore the legal rules that apply to the
case in the interests of reaching a settlement.
Mediation is a powerful process. It potentially is much more
powerful than going to court, because the resulting agreement is
almost always carried out willingly by each party. This is true
because the parties have invested their time and energy into
fashioning the settlement agreement, and have endorsed the agreed
resolution of the dispute.
Although a person who is trained and experienced in mediation may
be quite successful in facilitating the resolution of a dispute,
mediation is a function that virtually everyone performs on
occasion. Therefore, while the services of a trained and
experienced mediator should be used if available, the involvement
of a third party -- almost any impartial third party -- is likely
to increase the chance that a dispute will be resolved.
ARBITRATION
If mediation is unavailable, inappropriate or not successful in
resolving the problems, the buyer will need to consider the other
available options.
One is arbitration -- for instance, the use of a manufacturer's
informal dispute settlement program. Most new car manufacturers
now have a third-party dispute resolution process for use in the
event that a dispute arises between a buyer and a manufacturer
regarding a defect, malfunction or attempted repairs. The
manufacturer must meet certain federal and state requirements in
order to have a "qualified" third-party dispute
resolution process.5 Information about the third-party dispute
resolution process is contained in the owners manual and/or the
warranty information.
If the manufacturer has a qualified third-party dispute
resolution process and timely notifies the buyer of its
existence, operation and effect, the buyer cannot assert the
presumptions regarding a reasonable number of repair attempts
provided in the Tanner Consumer Protection Act (set out above)
unless the buyer first uses the manufacturer's third-party
dispute resolution process to attempt to settle the dispute.
Therefore, the buyer should read and carefully follow the
instructions in his or her owner's manual and/or warranty
information regarding the third-party dispute resolution process.
Arbitration is usually defined as an informal process in which
two or more persons agree to let an impartial third person or
panel make a final decision in a dispute between them.
In arbitration, the legal rules, including the rules of evidence,
are not strictly applied. Decisions are based, instead, on
concepts of equity and fairness, and the procedures are simple
enough to be understood and used without legal help.
The written warranty or other documents received at the time of
the purchase of a motor vehicle usually will state whether the
manufacturer offers an arbitration program and, if so, how the
buyer can use the program.
A complaint to an arbitration program should be prepared with as
much care as the initial letter of complaint to the manufacturer.
The buyer should attach copies of all correspondence and other
relevant documents to the complaint form that is provided by the
arbitration program.
Some arbitration programs also offer mediation as an option. Some
of them require that an initial attempt be made to resolve the
problem by mediation before arbitration begins. If mediation is
offered, the buyer should probably accept the offer if the buyer
feels capable of bargaining effectively.
Automobile dispute resolution programs are nonbinding
on the buyer. That means that while the manufacturer has
committed itself to abide by the arbitration program's decision,
the buyer has the choice of either accepting or rejecting it.
If the buyer accepts the decision of the manufacturer's
arbitration program and the manufacturer abides by the decision,
the dispute is considered resolved. If not, the buyer will need
to consider his or her other options.
COURT ACTION
If a buyer has exhausted all informal settlement options,
including mediation by a neutral third party as well as review by
an available arbitration program, the buyer should consider the
advantage and disadvantage of filing a lawsuit.
The decision to bring a court action should not be made casually.
The buyer should be aware, for example, that a lawsuit may not
succeed in recovering all of the buyer's out-of-pocket losses,
even if the court agrees that the buyer has a right to a
replacement or refund. The reason is that unless the case can be
litigated in small claims court (that is, where the buyer is
seeking money damages that do not exceed $5,000), the buyer
probably will need to hire and pay an attorney to handle the
case. Moreover, if the buyer does not win, he or she will be
obligated to pay the other parties' court costs, such as filing
fees and deposition expenses.
If the buyer already has a family lawyer, that person might be
able to evaluate the buyer's case and represent the buyer. A
letter from the lawyer to the manufacturer, dealer and financing
agency could even result in a resolution of the problems without
litigation (and the risk of losing the case entirely), in which
case the legal costs may be small.
In some localities, certain attorneys specialize in handling
motor vehicle sales and warranty disputes. A buyer who is
considering the filing of a court action should check the
telephone directory's "yellow pages" or consult with
the lawyer referral service of the county bar association and
attempt to locate such a specialist. A specialist also may be
able to negotiate a fair settlement without filing suit.
Many attorneys will accept an automobile warranty case on an
hourly fee basis, which means that the buyer must pay the
attorney a fixed fee for each hour or portion thereof that the
attorney works on the case. Some attorneys also may accept a case
of this kind on a "contingent fee" basis, which means
that the attorney will be paid in the form of an agreed portion
of the amount recovered such as one-third of the actual proceeds
of recovery after deducting court costs -- and will waive any
claim for fees if the buyer does not prevail. However, even when
the attorney accepts the case on a "contingent" fee
basis, the buyer may be required to pay for litigation costs such
as filing fees, deposition costs, or expert witness fees, as
those costs are incurred.
Thus, regardless of the payment mechanism, when the buyer retains
an attorney and after paying attorney's fees and court costs, the
buyer usually will end up receiving only a portion of the damages
to which he or she otherwise is legally entitled. Yet, if the
attorney is able to negotiate a settlement without filing suit,
or soon after suit is filed, the amount of the fees may be small
and the net loss to the buyer negligible.
In cases in which there is no option but to file a lawsuit,
however, an attorney may be able to help the buyer recover an
amount that exceeds the buyer's out-of-pocket losses, so that the
buyer's actual recovery at least equals his or her losses. For
instance, the court may increase a buyer's total recovery by
awarding punitive or exemplary damages. Awards of this kind,
however, are recoverable only in cases involving willful and
serious misconduct by the other party or parties; therefore, such
awards are rare.
The buyer's recovery in a court action also can be increased by
an award of attorney's fees made by the court. The amount of fees
that courts award, however, usually is not enough to cover the
fees actually charged by the typical attorney. Therefore, the
buyer still may be forced to bear a portion of the litigation
costs unless the attorney agrees to provide free or cut-rate
services. And if the case is settles before it is submitted to
the court for a decision, the buyer may not be able to get the
other party to pay for all or any portion of the buyer's
attorney's fees as part of the settlement agreement, in which
event the attorney still will need to take a part of the buyer's
recovery as his or her fees. The buyer should discuss these
issues with his or her attorney before suit if filed.
Once filed, the timing and costs of the court action cannot be
controlled completely by the buyer, or by his or her attorney.
The courts have certain deadlines and timelines, which must be
followed and met. Additionally, the other parties to the lawsuit
may take certain actions, such as filing a motion, noticing
depositions, or demanding the production of documents, which may
cause the buyer to have to respond in order to preserve his or
her rights or the case. Therefore, both the cost and the
direction of the lawsuit can be very unpredictable.
Even with the new accelerated trial court procedures, once filed,
court actions usually move forward more slowly than the parties
would like. Therefore, even after a court action is filed,
settlement efforts can and should continue. In fact, virtually
all courts require the parties to make a further
attempt to settle a litigated dispute prior to trial.
Only a small percentage of civil court cases actually proceed to
trial. Rather, most of them are settled before trial. One reason
why most lawsuits do not result in a trial is that contested
cases usually require at least one or more full days in trial,
and the cost of attorney's time to prepare for and try the case
can be very expensive to the parties. In fact, if a buyer's
attorney charges regular hourly rates, the cost may be
prohibitively high for most buyers. In that case, the likely
result, is a net recovery for the buyer that is much less than
the buyer's out-of-pocket losses.
One should not conclude, therefore, that the filing of a lawsuit
means (or should mean) the end to informal efforts to resolve the
dispute. Similarly, neither party should terminate informal
settlement efforts on the assumption that in anticipated lawsuit
will make it unnecessary to continue to explore settlement
options.
While courts are required to apply the legal rules that apply to
a transaction, these include many principles that give courts
power to achieve results that are fair to both parties. For
instance, the doctrine of good faith requires that both parties
perform and enforce their contracts in good faith. And courts
have the power to refuse to enforce contracts and contract terms
that are unconscionable.
Although litigation is an option in disputes involving defective
motor vehicles, it is an expensive and time consuming way to
resolve the dispute. Therefore, a lawsuit, and especially a
trial, should always be a last resort, an option
that should be avoided if possible. Always, if a mutually
agreeable solution seems to be within reach, efforts to settle
the dispute should be ongoing -- both before and after the filing
of any court action.
NOTICE: We attempt to make our legal guides
accurate as of the date of publication, but they are only
guidelines and not definitive statements of the law. Questions
about the law's application to particular cases should be
directed to a specialist.
Prepared by
Richard A. Elbrecht
Supervising Attorney
Legal Services Unit
Department of Consumer Affairs
Post Office Box 310
Sacramento, CA 95802
1. Civil Code section 1793.2 et seq.
2. Civil Code section 1793.22.
3. Civil Code section 1793.22(b).
4. Civil Code section 1793.22.
5. Civil Code section 1793.22(d).
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