The State of California - State and Consumer Services Agency
400 R Street, Suite 3090
Sacramento, CA 95814-6200
Legal Guide W-2
MOTOR VEHICLE BUYER'S DISPUTE SETTLEMENT OPTIONS
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.
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.
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.
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.
Richard A. Elbrecht
Legal Services Unit
Department of Consumer Affairs
Post Office Box 310
Sacramento, CA 95802
1. Civil Code section 1793.2 et
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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