Lemon Law Update

Links to Wisconsin statutory materials in this article require that you have the free Adobe Acrobat Reader Software on your computer.

By Stephen J. Nicks

hree years ago in Hughes v. Chrysler Motors Corp.,¹ the Wisconsin Supreme Court issued a sweeping, pro-consumer statement on bright-line liability and the measure of damages in lemon law cases. Four recent cases, remarkably all from District II of the Court of Appeals and all involving Chrysler, are significant additions to the established lemon law body of cases that formed the foundation for Hughes.²

Wisconsin's lemon law became effective on Nov. 3, 1983.³ Lemon law liability is predicated on a vehicle having a condition that substantially impairs its use, value, or safety and the vehicle being either out of service 30 days (for all defects) or subject to repair by the dealer four times for a single defect.⁴ These prerequisites must occur within the term of the express warranty or one year, whichever is sooner. At the consumer's direction, the manufacturer has 30 days to either provide a refund or a comparable new vehicle.⁵ If the manufacturer fails to respond or chooses not to accept the offer, a consumer may sue to recover twice the amount of pecuniary loss, plus reasonable attorney fees.⁶

The major holding in Hughes was that the 30-day period for the manufacturer to respond to the consumer's demand for a refund or comparable new vehicle⁷was to be strictly observed. Chrysler had argued in Hughes that since it was only 35 days late in offering a replacement vehicle, holding it strictly to the 30-day period created manifest unfairness since the double damages and reasonable attorney fees (approximately $50,000) that were then triggered so greatly outweighed the consumer's actual damages. The supreme court rejected this argument stating: "[T]he statute demands that a manufacturer respond within 30 days. Wisconsin Stat. § 218.015(2)(c). Chrysler did not respond within the 30 days required by the law. We will not rewrite the statute."⁸

Simple, right? Well, what happens if a refund is requested and the manufacturer responds within the 30 days, conceding liability, but not agreeing with the consumer's refund calculation? Is the 30-day period tolled for negotiations? Is it extended? Or does a counter-offer reset the 30-day limit? The refund a consumer is entitled to is the full purchase price, plus sales tax, finance charge, amount paid by the consumer at the point of sale, and collateral costs, less a reasonable allowance for use.⁹ Given this range of refund components, initial disagreement on the exact dollar amount can be expected.

Church v. Chrysler

The court of appeals in Church v. Chrysler Corp.¹⁰ faced just this kind of situation. The facts as recited in the opinion were somewhat intricate, but not out of the ordinary:

"On July 20, 1995, Anna Church wrote a letter to Chrysler stating her belief that their vehicle was a 'lemon' as defined by § 218.015, Stats. She offered to transfer title of the vehicle to Chrysler in return for 'a refund of the full purchase price plus all monies [they] are entitled to as set forth in section 218.015(2)(b) of the Wisconsin Statutes.' Chrysler responded to the Churches on Aug. 4, 1995, indicating its agreement to repurchase the vehicle. It set forth a detailed computation of its proposed refund in the amount of $27,832.98 and requested that the Churches call with their acceptance of the refund amount within two business days.

"On August 11, 1995, the Churches sent a letter to Chrysler indicating their belief that Chrysler's proposed refund amount was inaccurate. The Churches' letter stated that '[t]he correct refund calculated in accordance with the lemon law' was $30,404.82. The letter additionally notified Chrysler that the Churches expected to receive their refund no later than thirty days from their initial offer on July 20, 1995. On August 15, 1995, Chrysler responded to the Churches advising them that § 218.015, Stats., 'only provides for the costs relating to the vehicle at the time of sale' and that they were not entitled to reimbursement for either the rebate they had received at the time of purchase or the cost of accessories. Chrysler nevertheless agreed to include the price of the accessories in the refund. Chrysler notified the Churches that they would be contacted when their checks, totaling a refund of $29,374.51, arrived at the local Chrysler office.

"On August 23, 1995, thirty-three days after Anna's original letter offering to transfer the vehicle back to Chrysler and requesting a refund, the Churches filed this action against Chrysler. On September 11, 1995, Chrysler sent a letter to the Churches and enclosed two checks totaling $29,374.51."¹¹

The resolution. After reviewing the language of Wis. Stat. section 218.015 and citing Hughes for the proposition that one purpose of the lemon law was to provide an incentive to the manufacturer to respond in a timely manner, the court rejected Chrysler's contention that the Churches' negotiations for a greater refund somehow suspended or delayed the running of the time clock.¹²

The court ruled that when the parties cannot agree on the correct amount of refund within the 30-day time frame, the lemon law gives the manufacturer two options: 1) pay the amount demanded by the consumer within 30 days; or 2) pay the amount the manufacturer thinks is correct.¹³ If the manufacturer pays the amount the consumer demanded, the matter obviously is concluded. If the manufacturer pays the amount it thinks is correct, the consumer has the choice of accepting it, or going to court. If the court option is chosen, the issue is simply whether the amount offered by the manufacturer was correct. If the amount was insufficient, the manufacturer loses and suffers the blow of double damages plus reasonable attorney fees imposed by Wis. Stat. section 218.015(7).¹⁴

The court of appeals "appreciate[d] that the rigidity of the thirty-day requirement places the manufacturer in a difficult position with attendant risk," but found that this was outweighed by the underlying policy of the lemon law to level the playing field between the consumer and the manufacturer.¹⁵

Church has therefore created a sense of urgency on the manufacturer's part in negotiating the amount of a lemon law refund. This sense of urgency should create last best offers from manufacturers that truly are what they purport to be. The consequences of not acting in good faith would seem to be too great.

Church also yielded one other helpful practice pointer, this relating to how a rebate figures into the refund calculation. The court found that a manufacturer may reduce the "full purchase price" refund called for in Wis. Stat. section 218.015(2) by the amount of any manufacturer's rebate given at the time of sale.¹⁶ The court found that a customer's "pecuniary loss" (the language of the refund statute) includes only that portion of the purchase price he or she actually paid.¹⁷

Schey v. Chrysler Corp.

Schey v. Chrysler Corp.¹⁸ considered the question: Is a used motor vehicle covered by the lemon law if, when the vehicle was submitted for repair, it still was under the manufacturer's warranty and was within one year of the first delivery date to a consumer?¹⁹

Schey purchased a used Dodge Neon that was approximately six months old. It was designated "used" and "as is" on the dealer's lot. Schey returned six times to the dealer for transmission repairs, covered by the warranty, but the problem persisted. Schey requested that Chrysler give him a comparable new car and Chrysler refused, contending that Wis. Stat. section 218.015(2)(a) covers only "new" vehicles. Schey contended that being "new" was not the end of the analysis, but rather the statute also included previously owned vehicles as long as they had an unexpired manufacturer's warranty, and less than one year had expired after first delivery to a consumer.

The court found the statute ambiguous in this regard, and looked to the statute's history and the object sought to be accomplished. In a 2-1 decision, the lemon law was found to protect only purchasers of "new" vehicles and nonprivately titled demonstrators and executive vehicles.

Citing Hughes, the court reasoned that the lemon law's intent was to improve the automobile manufacturers' quality control to ensure that new car purchasers received what they expected ­ a defect-free car. The majority contrasted this with the different expectations of a used car purchaser of an "as is" vehicle. The drafting history, highlighted by an exchange of correspondence between an assistant attorney general and a legislative aide to Rep. Holschbach, as well as a later amendment to the lemon law adding demonstrators and executive driven cars,²⁰ also were cited by the majority to support the conclusion that previously owned vehicles, such as Schey's Neon, were not intended to be covered.

An interesting dissent was filed in Schey, arguing that the term "new" in Wis. Stat. section 218.015(2)(a) is relevant only to the existence of a manufacturer's warranty. The dissent, ignoring the legislative history, maintained that it is axiomatic that all motor vehicles, once delivered and registered under Wis. Stat. chapter 341, are "used" motor vehicles. To the dissent, the only inquiry relevant is whether Schey was a protected "consumer" within the whole of Wis. Stat. section 218.015(1)(b),²¹ and not just under Wis. Stat. section 218.015(1)(b)1., which contains the only other reference to "new." The majority is taken to task for creating "a loophole large enough to drive" a lemon through by rewriting the statutory definitions of motor vehicle and consumer.²²

Dieter v. Chrysler

When the consumers in Dieter v. Chrysler Corp.²³ went to pick up their new Dodge Ram pickup, they noticed scratches in the paint that happened when the dealer installed Chrysler after-market accessories (a tonneau cover, a bug shield, and rust-proofing). They complained and the dealer agreed to repair the scratches. Four months later the dealer sent the truck to a body shop for the scratched areas to be repainted, but the consumers were displeased with the swirl-marked result.

The consumers demanded the truck be repurchased and then sued Chrysler for lemon law violation. The case was decided on summary judgment. The thrust of Chrysler's defense centered on Malone v. Nissan Motor Corp.,²⁴ where a dealer-installed option (a rear spoiler) was found to be not covered by the lemon law. The court distinguished Malone because the spoiler installed in that case was not from Nissan, and the accessories here were Chrysler products. This is an important narrowing of Malone. Since the after-market accessories were from the motor vehicle manufacturer, lemon law relief would be appropriate absent other factors.

In Dieter, however, even though the accessories would have been covered under the lemon law, the court of appeals denied relief. It found that the case turned on the critical fact that the consumers knew about these scratches when they accepted the vehicle. When a consumer knowingly accepts a vehicle that has been damaged at the dealership, the manufacturer and the lemon law provide no relief. As the court succinctly put it: "[T]he whole point of the Lemon Law is to protect consumers from hidden defects in their new vehicles."²⁵

The court took great pains to limit Dieter to cases of undisputed, actual consumer knowledge of a defect prior to delivery. It expressly closed the door on any future attempts by manufacturers to devise elaborate disclaimer schemes about notice of possible defects, or of placing any burden on consumers to prove they had no notice of a defect, or even to thoroughly inspect a vehicle before delivery.

Dussault v. Chrysler

The last case, Dussault v. Chrysler Corp.,²⁶ centered on what is a "comparable new vehicle" under Wis. Stat. section 218.015(2)(b)2.a., when a consumer who had purchased a demonstrator opts for replacement. Demonstrators and executive vehicles are included within the lemon law definition of a motor vehicle in Wis. Stat. section 218.015(1)(d), even though they are used. The issue in this case was whether Chrysler met its obligation to provide a "comparable new vehicle" by offering to replace a consumer's demonstrator with another demonstrator. The consumer maintained that only a brand new vehicle would fulfill the statutory obligation.

When Dussault first purchased her 1994 Eagle Vision demonstrator, it had 6,302 miles. The car came equipped with a six-cylinder engine, automatic transmission, leather seats, and had a suggested retail price of $25,787. Chrysler offered to replace it with a 1997 Eagle Vision demonstrator with 5,728 miles, a six-cylinder engine, automatic transmission, leather seats, and a suggested retail price of $26,290.

The court of appeals found that the meaning of "new" was unclear in the phrase "comparable new vehicle," because lemon law coverage includes demonstrators and executive vehicles, which are used vehicles. Turning to the purposes of the lemon law as articulated in Hughes, the court sought to place the purchaser back in the position he or she was when they bought the car.²⁷ The court ruled that Chrysler's offer of a comparably equipped demonstrator placed Dussault back into the position she thought she was in when she purchased the original car, and therefore the offer satisfied lemon law requirements. A demonstrator or executive vehicle need not be replaced with a brand new vehicle.

The only lingering question is the color purple. The court of appeals read "comparable" to mean "a similar model vehicle with similar features, such as the type of engine, transmission, brakes, seat upholstery and accessories."²⁸ At the second summary judgment hearing in this case, Dussault's attorney raised objection to the color of the replacement vehicle, claiming that purple was not "comparable" to the original emerald green. According to the attorney's affidavit, purple was unacceptable to his client. The court of appeals avoided ruling on the materiality of color, instead rejecting the argument because the attorney's affidavit was "nonevidentiary," and was therefore insufficient for summary judgment purposes. This let stand the circuit court's conclusion that the lemon law did not require an "identical" replacement vehicle.

Conclusion

These four recent cases demonstrate that the lemon law continues to be a vibrant, evolving area even 16 years after its passage. Each has added important elements of practical guidance in handling lemon law disputes.

Endnotes

¹ Hughes v. Chrysler Motors Corp., 197 Wis. 2d 973, 542 N.W.2d 148 (1996); see Fill 'Er Up, 69 Wis. Law. 24 (June 1996), for an in-depth discussion of Hughes.

² See A New Twist on Lemon Law, 64 Wis. Law. 23 (October 1991), for an overview of earlier Wisconsin cases interpreting Wis. Stat. section 218.015.

³ Wis. Stat. § 218.015.

⁴ Wis. Stat. § 218.015(1)(f) and (h).

⁵ Wis. Stat. § 218.015(2)(c).

⁶ Wis. Stat. § 218.015(7).

⁷ Wis. Stat. § 218.015(2)(c) and (cm)1.

⁸ Hughes, 197 Wis. 2d at 986, 542 N.W.2d at 153.

⁹ Wis. Stat. § 218.015(2)(b)2.b.

¹⁰ Church v. Chrysler Corp., 221 Wis. 2d 460, 585 N.W.2d 685 (Ct. App. 1998).

¹¹ Id. at 464-65, 585 N.W.2d at 687.

¹² Id. at 468, 585 N.W.2d at 688.

¹³ Id. at 469, 585 N.W.2d at 689.

¹⁴ Id.

¹⁵ Id.

¹⁶ Id. at 470, 585 N.W.2d at 689.

¹⁷ Id.

¹⁸ Schey v. Chrysler Corp., ___ Wis. 2d ___, ___ N.W.2d ___ (Ct. App. 1999) [decided May 26, 1999; ordered published June 30, 1999; No. 98-1277, 1999 WL 330377 (Wis. Ct. App.)].

¹⁹ See Wis. Stat. § 218.015(2)(a).

²⁰ Wis. Stat. § 218.015(1)(d). The court referenced Malone v. Nissan Motor Corp. in U.S.A., 190 Wis. 2d 436, 442, 526 N.W.2d 841 (Ct. App. 1994). Malone is interesting in that lemon law relief was denied for defects in a dealer installed, non-Nissan rear spoiler, because the "manufacturer did not design, engineer, manufacture, distribute, sell or advertise" the dealer add-on. Important to the majority in Schey was the control a dealer or manufacturer had over a demonstrator or an executive driven vehicle, contrasted with a privately owned or leased vehicle.

²¹ Wis. Stat. § 218.015(1)(b):

"Consumer" means any of the following:

1) The purchaser of a new motor vehicle, if the motor vehicle was purchased from a motor vehicle dealer for purposes other than resale.

2) A person to whom the motor vehicle is transferred for purposes other than resale, if the transfer occurs before the expiration of an express warranty applicable to the motor vehicle.

3) A person who may enforce the warranty.

4) A person who leases a motor vehicle from a motor vehicle lessor under a written lease.

²² Schey, 1999 WL 330377, at *4 (Wis. Ct. App.).

²³ Dieter v. Chrysler Corp., ___Wis. 2d ___, ___ N.W.2d ___ (Ct. App. 1999) [decided July 21, 1999; ordered published Aug. 17, 1999; No. 98-0958, 1999 WL 512107 (Wis. Ct. App.)].

²⁴ Malone v. Nissan Motor Corp. in U.S.A., 190 Wis. 2d 436, 526 N.W.2d 841 (Ct. App. 1994).

²⁵ Dieter, 1999 WL 512107, at *2 (Wis. Ct. App.).

²⁶ Dussault v. Chrysler Corp., ___Wis. 2d ___, ___ N.W.2d ___ (Ct. App. 1999); [decided July 7, 1999; ordered published Aug. 17, 1999; No. 98-0744, 1999 WL 459995 (Wis. Ct. App.)].

²⁷ Dussault, 1999 WL 459995, at *3 (Wis. Ct. App.).

²⁸ Id.

Wisconsin Lawyer