May 9, 2016 – A commercial truck manufacturer must pay double damages of $200,000 and another $200,000 in attorney fees for violating Wisconsin’s lemon law, a state appeals court has ruled, rejecting an “accord and satisfaction” argument.

Navistar Inc., which sold a lemon to Klismet’s 3 Squares Inc., (Klismet’s) argued that any lemon law claim was discharged under the doctrine of accord and satisfaction because Klismet’s borrowed money to purchase the truck and the lienholder accepted and cashed a refund check. The appeals court did not agree.

In Klismet’s 3 Squares Inc. v. Navistar Inc., 2014AP1830 (May 5, 2016), a three-judge panel for the District IV Court of Appeals ruled that accord and satisfaction did not defeat the lemon law claim since Klismet’s did not “accept” any refund.

Lemon Law Claims Arise

Klismet’s had paid about $96,000 for a 2012 International 4300. The fees and finance charges totaled about $11,000. The truck logged about 23,000 miles within the first year, but problems arose. Four attempts at repair were unsuccessful.

Klismet’s sent a lemon law notice demanding a refund. Wis. Stat. section 218.0171 requires a manufacturer, at the consumer’s request, to provide a refund less a reasonable allowance for use. A refund is available for “nonconforming” vehicles under warranty or within a year where reasonable attempts to repair the vehicle failed.

Navistar had 30 days to send a refund. Navistar did not meet this deadline but instead sent a notice of what Navistar deemed a proper refund amount. Klismet’s challenged this amount, including the $22,000 identified as a “reasonable allowance” for use.

Four days after the statutory refund deadline, Navistar sent a check for $83,145 to TCF Equipment Finance Inc., the lienholder on the truck. It sent a separate check to Klismet’s in the amount of $2,067. TCF Equipment cashed its check. Klismet’s didn’t.

Additionally, Klismet’s never authorized TCF Equipment to cash any checks that were sent to satisfy the loan. Klismet’s kept the vehicle in its possession and filed a lemon law lawsuit. The circuit court ultimately entered judgment for Navistar after a trial.

The court in Waupaca County ruled that Navistar violated the statutory deadline, denied Navistar’s “accord and satisfaction” argument, and rejected the “reasonable allowance” deduction that Navistar put forward based on Klismet’s use of the vehicle.

The court awarded double damages, which were available for lemon law violations that applied to vehicles purchased before March 1, 2014 (double damages are no longer available for lemon law violations, under a law that was enacted in 2014).

Double damages amounted to $199,500. The court granted a $7,288 “reasonable allowance” deduction, a much lower amount than what Navistar had calculated. The court also entered an award of $200,507 for attorney fees and costs. Navistar appealed.

No Accord and Satisfaction

First, the three-judge panel ruled that Klismet’s lemon law claim was not barred by accord and satisfaction, rejecting the argument that a lienholder’s acceptance of a refund payment can constitute “accord and satisfaction” by the vehicle’s owner.

The panel noted that Klismet’s, not the lienholder, was the creditor. And Klismet’s never cashed any checks that Navistar sent and never authorized TCF Equipment to do so.

Navistar did not present evidence that TCF Equipment was Klismet’s agent, the panel noted, and Klismet’s did not cash the check Navistar sent. The panel also rejected the claim that Klismet’s accepted the check by failing to return it within a reasonable time.

“Having rejected all of Navistar’s arguments that Klismet’s accepted payment from Navistar, it is clear that Navistar has not established this necessary element of accord and satisfaction,” wrote Judge Gary Sherman for the three-judge panel.

Reasonable Allowance

The appeals panel also ruled that the circuit court did not err in setting a “reasonable allowance for use” amount, which allowed a bigger refund to be issued.

Wis. Stat. section 218.0171(2)(b)2.b. says a reasonable allowance for use “may not exceed the amount obtained by multiplying the full purchase price of the motor vehicle by a fraction, the denominator of which is 100,000 … and the numerator of which is the number of miles” driven before the nonconformity was reported.

The circuit court used a denominator of 300,000 when applying the formula to determine the “reasonable allowance for use” calculation, noting that a 2012 International 4300 can have a useful life of more than 300,000 miles.

The panel ruled that the circuit court had discretion to do so because the statute merely sets a ceiling amount. “[I]t was not unreasonable for the court to decide that an allowance derived by multiplying the purchase cost by a fraction that compared the actual miles driven to 100,000 was not a ‘reasonable allowance for use’ for a vehicle whose useful life could be expected to exceed 300,000 miles,” Sherman explained.

Klismet’s Not Barred by Conduct

Finally, the appeals court rejected Navistar’s claim that Klismet’s conduct prevented Navistar from providing a timely refund, barring the lemon law claims.

The panel explained that claims can be barred if a manufacturer proves the vehicle owner “intentionally prevented” the manufacturer from meeting the 30-day deadline.

“Navistar points to no facts in the present case that would support a claim that Klismet’s intentionally prevented Navistar from complying with the thirty-day statutory period,” Judge Sherman wrote.

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