The California Supreme Court recently reversed the judgment of the Court of Appeal on an issue that affects nearly all California consumers with lemon law claims.
This issue began in June 2012 when plaintiff Kirzhner leased a Mercedes-Benz for his personal use. During the warranty period the vehicle exhibited a number of defects including inoperative steering column adjustment, inoperative power seats, malfunctioning navigation system, illuminating coolant level warning light, and smoke emanating from the vehicle’s cigarette lighter. Frustrated by defendant Mercedes-Benz’s inability to repair these issues, plaintiff filed suit. While the case was in litigation, defendant made a 998 offer stating they would: “…make restitution in an amount equal to the actual price paid or payable by the plaintiff, including any charges for transportation and manufacturer-installed options, but excluding non-manufacturer items installed by a dealer or the plaintiff, and including any collateral charges such as sales or use tax, license fees, registration fees, and other official fees, plus any incidental damages to which the buyer is entitled under [Civil Code] Section 1794, including, but not limited to, reasonable repair, towing, and rental costs actually incurred by [plaintiff], less a reasonable mileage offset in accordance with Civil Code Section 1793.2(d)(2)(C), all to be determined by court motion if the parties cannot agree.” Plaintiff accepted the 998 offer, and the court entered judgment accordingly. The parties were subsequently unable to agree on the amount due pursuant to the 998 so plaintiff filed a motion requesting the court to make the determination. In making it’s determination, the trial court excluded the $680.00 in registration renewal fees and certificate of nonoperation fees, which plaintiff then appealed claiming the court erred in interpreting Civil Code Section 1793.2(d)(2)(B).
Prior to 2017, there was little to no guidance in the case law regarding incidental damages applicable to cases involving the Song-Beverly Consumer Warranty Act, also known as the California lemon law. This worked to the benefit of consumers and their attorneys alike, leaving a broad reading of the code to control industry standards. Incidental damages according to the letter of the law were to include “but not [be] limited to, reasonable repair, towing, and rental car costs actually incurred by the buyer.” (Civil Code Section 1793.2, subd. (d)(2)(B).) The lack of limiting language allowed California lemon law attorneys for decades to successfully argue consumers should be entitled to items such as registration renewals, insurance premiums, and storage costs associated with their lemons.
However, the Court of Appeal’s decision in Allen Kirzhner v. Mercedes-Benz USA, LLC (2017) 18 Cal. App. 5th 453,would bring the broad interpretation of incidental damages within the Song-Beverly Consumer Warranty Act to a screeching halt. In 2017, the Court of Appeal found that the trial court properly denied plaintiff recovery of approximately $680.00 in vehicle registration renewal and certificate of nonoperation fees which he incurred in the years after he first leased the car. Their analysis dealt a crushing blow to incidental damages under the Song-Beverly Consumer Warranty Act. The Court distinguished “reasonable repair, towing, and rental car costs actually incurred by the buyer” from registration renewal fees by characterizing such fees as “a standard cost of owning any vehicle.” This appeal unfortunately gave manufacturers ammunition to use against consumers in refusing to reimburse registration renewal fees and other previously accepted incidental damages like insurance premiums, which similar to registration renewals, are also mandated by state law.
While the California Supreme Court stopped short of allowing registration renewals in all instances to be recoverable as incidental damages, their opinion provides a roadmap as to how and when registration renewals can be reimbursed. Whereas the Court of Appeal had significantly limited what could be considered an incidental damage by disallowing damages that could be considered “a standard cost of owning any vehicle”, the California Supreme Court instead fashioned a new mold to which any incidental damages would need to fit into in order to be reimbursed. Registration renewal and nonoperation fees are now recoverable as incidental damages if (1) they were incurred in the care and custody of the vehicle and (2) if they were incurred as a result of or incident to the manufacturer’s breach or other violation of the Song Beverly Consumer Warranty Act.
The fact that they were adding a new standard which could make it more difficult for consumers to prove their damages was not lost on the California Supreme Court. In acknowledging this reality, the California Supreme Court goes out of its way in providing a detailed hypothetical scenario in which a consumer could meet this new standard. In their hypothetical, a buyer presents their defective vehicle for repair four separate times within the first seven months of ownership, thereby triggering the presumption under Civil Code Section 1793.22, subdivision (b)(2) that a reasonable number of repair attempts were made. The manufacturer then delays providing the buyer with restitution or a replacement vehicle and the buyer incurs a registration renewal fee at the end of their first year of ownership. After the fee is paid, the manufacturer finally repurchases the vehicle. This delay then benefits the manufacturer who will have nearly the entire next year’s registration paid for by the buyer, who had a lessened ownership interest from the date the presumption was triggered. Even in a “less extreme” hypothetical where the buyer continues to possess and use the vehicle for some time after payment of the registration renewal fee, the Court believed that a trier of fact could still conclude that the buyer would not have had to pay the renewal fee but for the manufacturer’s delay in repurchasing or replacing the vehicle. Both scenarios are commonplace in California lemon law cases and will serve as a guide on how to present and argue incidental damages in the future.
Ultimately the Court’s reasoning stemmed from the fact that once the manufacturer’s duty to repurchase or replace arises, the consumer no longer has the same ownership interest in the vehicle since the manufacturer should be complying with their obligation to promptly repurchase or replace the consumer’s vehicle. The California Supreme Court went on to address how something being a standard cost of owning a vehicle can prove it was incurred as a care and custody cost which would meet the first element for incidental damages. For example, buyers and lessees are legally required to pay registration renewal fees incurred prior to the vehicle’s transfer back to the manufacturer (Veh. Code, §§ 4000, subd. (a)(1), 4601, 4604) and payment of these fees safeguards the vehicle against impoundment (Veh. Code, § 22651, subd. (o)(1)(A)) which would undoubtedly qualify as a cost associated with the care and custody of the vehicle. Furthermore, manufacturers would be receiving a windfall in not having to pay for these fees themselves, and not holding them accountable for these fees could even result in tactical delays on their part to save money.
Although the Court of Appeal was understandably concerned about opening up a “Pandora’s box” of potential costs had they allowed the registration renewals as incidental damages, the California Supreme Court’s opinion provided a fair balance of justice by keeping a tight rein on what could be considered an incidental damage. As long as the requested costs are reasonably incurred in the care and custody of nonconforming goods pending their return to the seller and they were incurred after the manufacturer’s duty to replace or repurchase arises, consumers will now have legal precedent to recover damages that are rightfully theirs.
The implication of this new California Supreme Court opinion will undoubtedly have lasting effects in the lemon law world. Back in 2017 counsel for nearly all major automobile manufacturers wasted no time educating their plaintiffs’ side colleagues about the precedent the Court of Appeal’s decision would have on all future negotiations and settlements. Although while pending review the Court of Appeal’s decision was persuasive at best, it was enough to sway attorneys’ and judges’ opinions on the issue of incidental damages, and particularly with the plaintiffs’ bar, attorneys across the state did not want to risk creating even more bad precedent for consumers in a field that doesn’t see much change in case law to begin with. With the California Supreme Court’s opinion swinging the balance of power back in consumers’ direction by giving them a standard they believed “[would] not be difficult to meet” lemon law attorneys across California should embrace this new precedent and utilize it to argue for not only registration renewals, but insurance premiums, and storage expenses associated with their clients’ lemons as well.