Aug. 7, 2009 – Damages recovered under the state’s Lemon Law for a defective leased vehicle do not include the purchase price of the vehicle, if the lessee opted to buy it.

The Wisconsin Supreme Court also held on July 17 in Tammi v. Porsche Cars North America, Inc., 2009 WI 83, that the consumer’s “pecuniary loss” is reduced by a “reasonable amount” for the vehicle’s use before it is doubled under Wis. Stat. §   218.0171 (7).

A leased Porsche

Under a lease for a Porsche sports car, Bruce Tammi would make 36 payments totaling $68,844.50. At the end of the lease term, Tammi had an option to buy the car for $64,344.10 plus tax.

During the first year under warranty, an automatic spoiler improperly deployed, setting off warning lights and alarms inside the vehicle. Tammi took the car to a certified Porsche service provider for repairs at least eight times, but this problem persisted.

Tammi filed a complaint in Wisconsin state court, seeking double damages for his lease payments in accordance with § 218.0171 (7). Porsche removed the case to federal court on the basis of diversity jurisdiction.

While the case was pending, Tammi opted to buy the Porsche for $75,621.88 after he had already made payments totaling $57,458. Tammi testified that he had fixed the spoiler malfunction on his own, and he believed the car was worth more than the lease buyout amount.

Tammi amended his claimed damages to include the vehicle purchase price and he sought to keep ownership of the car. Porsche filed several motions to limit Tammi’s damages to his lease payments, but the federal district court denied them.

The jury determined Tammi had suffered a “nonconformity covered by the manufacturer’s express warranty which substantially impaired the use, value or safety of his vehicle.” The jury further found that Tammi had complied with his obligations under the Lemon Law and awarded him $26,600 for pecuniary loss.

Applying the Lemon Law damages provisions, the district court revised the jury award so that Tammi’s “pecuniary loss” comprised a reimbursement for his lease payments ($57,458) and the vehicle purchase price ($75,621.88). The district court then doubled the pecuniary loss pursuant to § 218.0171 (7) for a total award of $266,159.76, plus costs, and allowed Tammi to keep the Porsche.

The district court refused to reduce the damage award based on Tammi’s reasonable use of the vehicle   prior to his Lemon Law complaint, contending that § 218.0171 (7) did not provide for that.

When the Court of Appeals certified questions arising from its review of the damage award, the Wisconsin Supreme Court undertook a review of the Lemon Law.

Exclude the purchase price

The Court of Appeals first asked whether a consumer can recover the purchase price under § 218.0171 (7) if the consumer decides to buy the leased vehicle after initiating a Lemon Law action. The Wisconsin Supreme Court answered that the consumer cannot.

To explain its answer in an opinion authored by Justice David Prosser, the court dissected the obligations and penalties imposed on the vehicle manufacturers and their agents.

Section 218.0171 (2) (a) obligates a manufacturer to repair a vehicle’s “nonconformity.” Violation of just that duty entitles a consumer to sue under § 218.0171 (7), which provides for doubling of the consumer’s “pecuniary loss” and recovery of attorney fees.

Purchasers – and others who acquire title to the vehicle – can benefit from additional statutory remedies found in § 218.0171 (2) (b) 2. That is, the manufacturer must replace the vehicle or refund the full purchase price. But those remedies do not include doubling the purchase price or reimbursement of attorney fees, unless the manufacturer fails to comply within 30 days of the consumer’s demand.

Lessees – who do not hold title to the vehicle – are covered by § 218.0171 (2) (b) 3. When the manufacturer fails to repair a nonconformity, the statute instructs the manufacturer to refund to the lessee the “amount paid under the written lease, plus any sales tax and collateral costs, less a reasonable allowance for use.”

The difference in remedies corresponds to the purchaser’s greater financial obligation compared to that of a lessee, the court explained. The purchaser obtains title to the vehicle, becoming obligated to pay its entire purchase price, whereas the lessee only owes a financial obligation to the lessor (who holds title) for a specific term.

In this case, the court noted, Tammi was a lessee who opted to become a purchaser. Accordingly, Tammi “contends that he is not only entitled to a refund of his reduced lease obligation but also a refund of his entire purchase price. Both, he contends, are measures of his ‘pecuniary loss,’ which should be doubled by the court as a matter of law,” the justices observed.

But the court said that Tammi was not required to buy the vehicle and so he cannot claim that he incurred the purchase price as a result of the manufacturer’s violations.

“We fail to see how a consumer’s voluntary expenditure of money – beyond any obligation in his lease and sales tax and collateral costs – can fairly be described as part of a ‘pecuniary loss’ caused by the manufacturer that the statute requires a court to double,” the court said.

Reduce award for reasonable use

The Court of Appeals asked whether a damage award under § 218.0171 (7) is subject to a reduction for reasonable use of the vehicle. The Wisconsin Supreme Court answered that it is.

The court observed that the statute reduces a purchaser’s refund of the purchase price to account for the vehicle’s use. Likewise, a lessee’s refund of the amount paid under the lease is adjusted for use, the court noted.

Section 218.0171 (7) entitles a lessee to a refund of the entire lease obligation, But the court said, “In a normal situation, we see no reason in equity or in the statute to disregard ‘a reasonable allowance for use’ to reduce the amounts used in determining ‘pecuniary loss.’”