KBK Attorneys Fight Back Against Manufacturer Lobby

In an article published in Law360, KBK attorneys Kristin Kemnitzer and Adam McNeile authored a piece rebuking an attempt by the automotive manufacturer lobby. The article can be found at the following link.

Imagine that you drop your child off at nursery school and your brand-new SUV starts spewing fuel in the school parking lot, putting your family, teachers, and small children at risk. Or, imagine that you return to your Crossover in an airport parking lot at 11:00 p.m. only to find it will not start, leaving you stranded and alone late at night? Or imagine that you are driving in the fast lane on a Los Angeles freeway and your sedan loses all power -- for the fourth time in three months?

What do you do if these situations continue to recur, even after taking your car in numerous times for repairs and the dealership cannot fix them? What if you reach out to the manufacturer and it refuses to provide you relief?

Consumers constantly face these terrifying real-life scenarios. No matter the technological advancements, manufacturers will always produce, and consumers will end up driving, some defective vehicles. Fortunately, in California consumers have recourse to vindicate their rights in these frightening situations. A recent Expert Analysis by vehicle manufacturer spokesperson Kyra Powell entitled “California Auto Defect Law Incentivizes Overlitigation” ignores the very real safety benefits the California lemon law confers on all Californians. Ms. Powell’s organization, the Civil Justice Association of California, endeavors to weaken California’s strong consumer protection laws.

The Song-Beverly Consumer Warranty Act, commonly known as the “lemon law,” is the bulwark that keeps our roads safe.^[1]

Under the lemon law, a manufacturer has an affirmative statutory duty to repurchase or replace a vehicle if a substantial defect cannot be repaired after a reasonable number of repair attempts.^[2]

If the manufacturer willfully fails to comply with its warranty obligations, the consumer may be awarded a civil penalty of up to two times the consumer’s actual damages. ^[3]

“Without such a provision, a seller or manufacturer who knew the consumer was entitled to a refund or replacement might nevertheless be tempted to refuse compliance in the hope the consumer would not persist, secure in the knowledge its liability was limited to refund or replacement.”^[4]

There would be no need for consumer warranty litigation if manufacturers abided by their affirmative obligations under the Song-Beverly Act. Unfortunately, manufacturers do not always live up to their responsibilities under the law. With some frequency, consumers are forced to initiate litigation to protect their rights.

A consumer protection measure is only as strong as a consumer’s ability to enforce it. The Legislature drafted the Song-Beverly Act to include two essential components of an effective consumer statute: (1) a private right of action and (2) the ability for competent attorneys to be compensated for taking meritorious cases.

The Song-Beverly Act carefully balances the considerations of the manufacturer and the consumer. Only defects which “substantially impair” the use, value or safety of the vehicle are covered. This limitation protects the manufacturer against trivialities. Moreover, the consumer must give the manufacturer a reasonable number of repair attempts to fix the nonconformity. Only after these reasonable repair attempts and the manufacturer’s failure to repurchase or replace the vehicle may the buyer pursue litigation. Furthermore, reasonable attorneys’ fees are only awarded to the prevailing buyer. Given that the consumer attorney bears all the financial risk, her or she has no incentive whatsoever to take any but the most meritorious case.

Vehicles throughout America are more reliable today because consumer attorneys prosecuting meritorious cases have been vigilant in ensuring that manufacturers comply with the Song-Beverly Act and similar lemon laws in other states. Manufacturers are in the business of creating profits for their shareholders – when they have to repurchase non-conforming vehicles, it hurts their bottom line. Flouting the law can be a public relations disaster, as VW learned in the 2016 Volkswagen diesel emissions scandal.^[5]

A direct, intended benefit of robust enforcement of the lemon law is that vehicle manufacturers are incentivized to design and produce higher quality vehicles for sale to the public.^[6]

Vehicles on the whole may be safer than ever, but that does not mean the lemon car has gone the way of the dodo. If a consumer purchases a lemon, he or she deserves the protection of the law.

Only some manufacturers comply with the lemon law by repurchasing and replacing defective vehicles prior to litigation. There are certain manufacturers we never have to sue because they buy the cars back before we need to get involved. Conversely, there are other manufacturers that we have sued hundreds of times because they systematically fail to fulfil their responsibilities under the law.

Manufacturers and their lobbying groups may argue that there is an uptick in warranty litigation. While there does not appear to be public data on the subject, we would expect that certain manufacturers see vastly disproportionate levels of litigation as compared to their number of cars on the road. Warranty litigation is simply a byproduct of certain manufacturers’ failure to abide by their obligations under the law and consumers knowing their rights. If manufacturers systematically complied with the law, they would not face litigation.^[7]Indeed, many do not.

Needless to say, a lone consumer without the protection of a consumer protection statute is left in a veritable David vs. Goliath situation. The individual consumer has limited resources vis-a-vis a large corporation with deep pockets, armies of attorneys, and little incentive to remedy the harm. The California legislature enacted the Song-Beverly Act to correct this imbalance and to make roads safer for all of us.

One of the primary enforcement mechanisms of California’s lemon law is a private right of action that awards reasonable attorneys’ fees and costs to the prevailing consumer, without any consideration of proportionality to what the consumer recovered. This one-way fee shifting statute is “part of an overall legislative policy designed to enable consumers and others who may be in a disadvantageous contractual bargaining position to protect their rights through the judicial process by permitting recovery of attorney’s fees incurred in litigation in the event they prevail.”

Absent this private enforcement mechanism and the availability of attorneys’ fees, the statute would be a paper tiger.

The Song-Beverly Act provides for a mandatory one-way attorneys’ fee shifting provision to the prevailing plaintiff.

If the buyer prevails in an action under this section, the buyer shall be allowed by the court to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses, including attorney’s fees based on actual time expended, determined by the court to have been reasonably incurred by the buyer in connection with the commencement and prosecution of such action.^[9]

This language dictates a specific basis for the award, sets parameters on the court’s discretion, and prevents any proportionality argument. To that end, courts have long held that fee awards pursuant to fee shifting legislation are not limited by the amount of damages recovered. Absurd results would occur if fees were proportional to the value of the vehicle. Such a rule would incentivize manufactures to use a scorched earth policy to chill any consumer attorney from taking a case. It would mean that the attorney representing the buyer of a high-cost luxury vehicle would be entitled to higher fees than an attorney representing the owner of an economy vehicle. Luckily, the Song-Beverly Act entitles the owner of a Fiat to the same protections as an owner of a Ferrari.

Some lobbying organizations are now fighting tooth and nail to defang the lemon law, claiming that it is only attorneys who benefit from its enforcement. These organizations would lead the legislature to believe that consumer attorneys take increasingly unmeritorious cases to line their pockets at the expense of the victimized manufacturers.

In fact, Ms. Powell claims in her recent hit-piece that attorneys’ fees are driving a deluge of new warranty cases. The op-ed fails to address the public policy concerns behind the Song-Beverly Act and the actual terms of law. Courts will only award reasonable attorneys’ fees based on actual time expended to the prevailing party. The law is working as intended. If manufacturers are obdurate in complying with the law, the consumer’s attorneys’ fees and costs necessarily increase, and manufacturers will have to pay more fees not only to the consumer’s attorney, but to their own attorneys as well. Over the years, we have seen some cases in which manufacturers spent hundreds of thousands of dollars defending against a lemon law claim.

If there are situations when a consumer’s attorney seeks more fees than they are reasonably entitled to, the statute has a way of dealing with that – it requires the manufacturer to pay only “reasonable” fees to the “prevailing party.” The manufacturer can and will object to such unreasonable fees, and the court will be the final arbiter of that matter.^[10]

Consumer attorneys simply could not be in business for long if they take unmeritorious cases that they lose.

A non-conforming vehicle cannot only seriously injure its driver and passengers, it is a danger to everyone else on the road. The Song-Beverly Act remains crucial in protecting all Californians from unsafe, unreliable vehicles. It incentivizes manufacturers to produce safe vehicles, attempt to repair defects, and repurchase the cars if they do not conform to the warranties. Necessarily, it incentivizes consumers to bring meritorious cases if manufacturers break the law. The Song-Beverly Act protects not only the buyer of the SUV, the Crossover, and the sedan, but every single Californian.

^[1] Cal. Civ. Code Sec. 1790, et seq.

^[2] Cal. Civ. Code Sec. 1793.2(d); Krotin v. Porsche Audi (1995) 38 Cal.App. 4th 294. The dealership acts as the agent for the manufacturer for purposes of repair attempts. Ibrahim v. Ford Motor Co. (1989) 214 Cal. App. 3d 878, 883. A “nonconformity” warranting repurchase is one that substantially impairs the use, value, or safety of the vehicle to the buyer. It is the consumer’s choice whether to accept the repurchase (i.e. buyback) or replacement. The manufacturer cannot force the consumer to choose one or the other. Cal. Civ. Code Sec. 1793.22(e)(1).

^[3] Cal. Civ. Code Sec. 1794(c).

^[4] Kwan v. Mercedes Benz of N. Am. (1994) 23 Cal. App. 4th 174, 184.

^[5] Volkswagen emissions scandal

^[6] California is the largest state economy in the U.S. and the fifth biggest economy in the world. (cbsnews.com). Therefore, California’s strong consumer protection laws incentivize manufacturers to produce the safest vehicles possible in order to avoid consumer protection litigation in the state.

^[7] California has 17,765,625 registered automobiles on the road. (Highway Statistics 2010). Warranty litigation involves only a miniscule fraction of all cars on the road.

^[8] Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 150 (internal citations omitted).

^[9] Civ. Code §1794(d) (emphasis added).

^[10] E.g. Holcomb v. BMW of N. Am., LLC (S.D. Cal., Feb. 14, 2020, No. 18CV475 JM (BGS)) 2020 WL 759285 (carefully analyzing consumer’s attorneys’ fee request in accordance with statutory construction).