What happens to lemon vehicles after they are legally considered lemons? When the manufacturer takes your vehicle back in a lemon law buyback or replacement, it will generally liquidate the remaining value in the car by selling it at auction.
Does the next owner know the car is a lemon? The answer should be yes. The Automotive Consumer Notification Act (ACNA), found at California Civil Code §1793.23, was added to the California lemon law (a.k.a. the Song Beverly Consumer Warranty Act), requiring the manufacturer taking the car back to permanently inscribe the title as a “lemon law buyback”, making it a lemon law title branded vehicle.
This law also requires the manufacturer to disclose in writing to the subsequent purchaser the nature of the lemon issue, the replairs performed, and that the specific lemon issue is protected by warranty for one year.
The intention of the law is to prevent “lemon laundering”, whereby a lemon vehicle is not lemon law title branded and is passed off to an unsuspecting consumer.
Effect on the Value of the Vehicle
Cars are depreciating assets as it is. A lemon car title is similar to a “salvage title” for a total loss vehicle, though it is not as devastating to the car’s value as a salvage title. Even so, it further reduces the value of your already pre-owned vehicle, even if the manufacturer can repair the lemon defect, because the lemon car title travels with the vehicle for the rest of its life.
The founder of our firm has experience in lemon law title branded vehicles. The loss in value caused by the title brand is not uniform, and it depends on the strength of the market for the vehicle as a preowned car. However, as a rule of thumb, he notes that the loss of actual cash value caused solely by “lemon law buyback” title branding is often in the range of 25%.
So, take away a quarter of the wholesale (i.e., dealer trade-in) value of a vehicle of the same make, model, model year, color, options, and mileage, and you roughly have the value of the lemon as an asset to the manufacturer after completing the buyback.
Also consider that cars depreciate by virtue of time, and that the DMV can take awhile to process branded titles. As another rule of thumb, it’s not uncommon for cars to lose as much as 1-2% of MSRP value per month just by passage of time (though this levels out over time).
When you take this into consideration, the delays in processing a lemon law buyback ultimately make the end result that much more painful for the manufacturer, whether it is because of their own stonewalling or because of title delays.
How does the ACNA affect your lemon law case?
Two factors should be considered: (1) title branding is expensive for manufacturers, and (2) the failure to title brand can be even worse. Regarding the latter, manufacturers are worried about being caught lemon laundering, as they would likely draw unwanted state, if not federal, regulatory attention, as well as fraud and other consumer claims that may indicate punitive damages.
Thus, the ACNA lurks in the background of your lemon law case, and may act both as an impetus for the manufacturer to fight the case and as impetus to settle. A skillful lemon law attorney will understand the practical effects of the ACNA and recognize how to use them to craft the best strategy for his or her client.
Contact Us Today
For more information on lemon law title branded vehicles and how the branding process works, contact Goldsmith West today for a free consultation. We look forward to assisting you.
Arbitration plays an important role in lemon law cases, and the question of whether and when to arbitrate is an important one. To make an informed decision, you first need to know how the arbitration process works.
What is lemon law arbitration?
The federal lemon law (the Magnusson-Moss Warranty Act) states that a manufacturer may require a consumer to go to arbitration prior to filing a lawsuit, provided the arbitration program meets certain qualifications and the warranty properly describes the procedure.
The California lemon law (the Song Beverly Consumer Warranty Act) cites the same federal qualifying standards for arbitration, and makes prior participation a requirement to asserting the lemon law presumption under the Tanner Consumer Protection Act, which makes cases harder for manufacturers to defend. The California law also creates a second avenue to a civil penalty if the manufacturer fails to comply with the Tanner Consumer Protection Act.
Lemon law arbitration is binding on the manufacturer but not on the consumer, meaning the manufacturer cannot reject the decision, but the consumer can choose to reject it and proceed to a lawsuit. The process is paid for by the manufacturer and is free to the consumer.
The arbitration process is designed to provide a method of resolving lemon law claims that is quicker than litigation and doesn’t require a lemon car lawyer or other attorneys. Consumers and manufacturers may choose to be represented by attorneys if they wish. However, arbitration providers generally do not award attorney’s fees.
Fairness in Arbitration
The opinion of our firm is that arbitration is typically biased in favor of the manufacturer. For example, when David Goldsmith, the founder of our firm, defended automobile manufacturers in BBB Auto Line arbitrations for more than a decade, he never lost an arbitration. Many of those cases nonetheless went on to settle, meaning that a win for the manufacturer didn’t mean the cases were lacking merit.
The use of the presumption makes a lemon law case easier to prove. Combined with the additional threat of civil penalty, it also provides more incentive for manufacturers to settle. Lemon law arbitration is quicker than litigation and may be necessary to avoid losing your lemon law case by motion if you rely on the federal law, such as in the case where the vehicle was purchased outside the state of California.
Furthermore, as we’ll discuss in a separate blog post, there is a clearer rule, favoring consumers, on the issue of negative equity deductions in arbitration than there may currently be in case law governing litigation of this issue.
Put simply, it is our opinion that the same case that often loses at arbitration would win if it went to trial. Furthermore, the arbitration decision becomes admissible evidence, meaning a bad decision in an unfair tribunal may be used against the you later.
Also, since no attorney’s fees are awarded, you are left to either (a) go to battle in an unfair forum against manufacturers who pay for and help establish the program and have experience with perhaps hundreds or thousands of arbitrations, without the assistance of counsel, or to (b) allocate a portion of your award to your lemon car lawyer. This is not necessary with a litigated claim.
Every case is unique. There are some cases in which arbitration is necessary, or is the wisest legal and/or practical choice you can make. In other cases, arbitration may disadvantage and/or delay your best claim. We recommend relying on the advice of an experienced lemon car lawyer before deciding to arbitrate your claim. Our firm can offer you free advice on this subject, which may help you even in the event that you decide to pursue your claim without a lawyer. Contact us today for a free evaluation.
There are two major arbitration providers that serve the majority of the automakers: the Better Business Bureau (BBB) Autoline Program. This is the largest provider. It works for the following manufacturers:
|Acura (2012 model year or earlier)||Aston Martin Lagonda of North America, Inc.||Audi of America, Inc.|
|Bentley Motors, Inc.||BMW of North America, LLC||Buick|
|Saturn||Ferrari North America, Inc.||Ford Motor Company LLC|
|Lincoln Motor Company||Jaguar USA||Land Rover USA|
|Kia Motors America, Inc.||Hyundai Motor America, Inc.||Genesis Motors America|
|Automobili Lamborghini America, LLC||Lotus Cars USA, Inc.||Maserati North America, Inc.|
|Mazda Motor of America, Inc.||Mercedes Benz USA LLC||Nissan North America, Inc.|
|Infiniti USA||Volkswagen Group of America, Inc.|
Another large lemon law arbitration provider is the California Dispute Settlement Program (CDSP). It works for the following manufacturers:
|Toyota Motor North America, Inc.||Scion||Tesla Motors|
|Fiat North America (FCA US LLC)||Jeep||Chrysler|
Finally, there is the Consumer Arbitration Program (CAP-Motors). This program works for Porsche Cars North America. For more information about how these programs work and whether lemon law arbitration is a good option for your case, call Goldsmith West today at 310-200-6705, or fill out our contact form. We look forward to assisting you.
Lemon Law Buyback Information
When you owe more in finance (whether for a purchase or lease) than your vehicle is worth, you are said to be “upside down.” Another way to describe this surplus debt is “negative equity.”
Sometimes, negative equity is created at the time the new car is purchased or leased. This generally happens when you trade in a car you are upside down on for a new one. The surplus debt is rolled into the finance of the new car.
For instance, let’s say you have a car that’s worth $15K but still has a remaining loan of $20K. You are $5K upside down. Then, let’s say you trade the car in on a new car you are purchasing for $25K. The $5K negative equity will be added to the purchase, so you are effectively securing a $30K loan with a $25K asset.
Negative equity is controversial because cars are depreciating assets by themselves. Starting upside down in a transaction is a good way to stay upside down for a long time, while you are making payments.
The significance of negative equity on a lemon law buyback
If you have a qualifying California lemon law claim, the manufacturer must repurchase or replace your vehicle (minus a value offset for miles driven before the problems started).
In the case of a lemon law repurchase, the amount of the refund is equal to the “actual price paid or payable by the buyer,” which includes the down payment and monthly payments, along with registration charges and other costs listed on the purchase or lease agreement.
Whether the negative equity counts as part of the price “paid or payable” for the car is a heated topic of debate between consumer lawyers and manufacturer defense attorneys. The consumer lawyers argue the debt is part of the price paid to purchase the vehicle. After all, there is no way for the consumer to get the trade-in vehicle back, and it’s not his or her fault that the car is a lemon and may end up on the receiving end of a lemon law buyback.
The defense attorneys argue that there should be a deduction for the debt carried over from the previously traded-in car, because paying off two cars due to one lemon would be a “windfall” — an unearned reward.
Which way is more ethical?
This answer to this question is important. If a deduction is taken for negative equity, the amount of reimbursement for payments made by the consumer will be reduced, eliminated, or — in extreme cases — reversed, so that the consumer actually owes the manufacturer money after the car is “bought back” in a lemon law repurchase.
Taking our example of the $30K debt owed on a $25k car, if the consumer has made $1,000 in payments at the time of a lemon law buyback, he or she will actually have to pay the manufacturer $4,000 to take back the car. For many cash strapped consumers, this outcome is not feasible. The lemon law repurchase itself becomes prohibitive.
This issue can be very confusing. Goldsmith West has found that many consumers are not even aware that they have financed negative equity, let alone that they may be asked to pay the manufacturer money for it, despite having a strong lemon law claim may end in a lemon law buyback.
What the Law Says About Negative Equity
At the time of this writing, there is no California case law that is controlling on this subject. Case law is generally created when a case is appealed, and it is likely that neither the consumer attorneys nor the defense attorneys have found the right case, or want to put the issue before the court at the risk of creating unfavorable law.
However, the California Department of Consumer Affairs (DCA) has a longstanding rule that no deduction should be taken by the manufacturer for negative equity. While this may not control courts, the rule should be enforced in lemon law arbitrations, as DCA audits them for compliance. In one of its recent “Lemon Law Aid for Consumers” pamphlets, DCA described this rule’s effect in no uncertain terms:
- If the arbitrator decision awards you a replacement or refund of your vehicle, the manufacturer is prohibited from deducting for negative equity. Negative equity is not an allowable deduction in State-certified arbitration programs. When an award is made, it is the responsibility of both the State-certified arbitration program and the manufacturer to ensure the consumer is made whole.
- Negative equity is also referred to as being “upside-down” in your car loan. In other words, if you owe more money on your car loan than the car is worth, the manufacturer may not deduct that amount. Therefore, when the arbitration program receives and reviews the repurchase and replacement amounts (calculation worksheets) provided by the manufacturer, it is the program’s duty to notify the manufacturer of unallowable deductions, such as negative equity. This deduction must be corrected and returned to the consumer.
Negative Equity Solutions
While the question of how to treat negative equity in the case of a lemon law buyback is difficult, there may be an easier answer in the case of a replacement. It is possible to do a trade by “collateral swap.” In a collateral swap, the loan schedule, current balance, and payment amount stays the same. The only thing that changes is one car (the lemon) is removed as collateral to secure the loan, and is replaced by another car (the replacement vehicle). The consumer is arguably returned to the position that he or she bargained for, with a new car and the same loan terms.
Many lemon law settlements that involve negative equity result in some kind of compromise on the issue. Converting the value of the settlement into a “cash-and-keep” deal is one way to do this; unfortunately, it often leaves the consumer to continue driving the lemon. It also avoids the manufacturer’s requirement to title brand the vehicle as a lemon.
Another solution is to pursue arbitration instead of litigation, because the DCA rule should be controlling in arbitration. We’ve already detailed how arbitration appears to be biased against the consumer, but this may in fact be the best reason to choose to arbitrate a lemon law case.
However, despite the clear DCA rule prohibiting negative equity deductions, our experience is that the two major private arbitration providers — the Better Business Bureau (BBB) Auto Line Program and the California Dispute Settlement Program (CSDP) — may be passive aggressive when it comes to negative equity. By failing to adequately explain the rule to their arbitrators or in published rules for consumers, they create a situation that may confuse consumers or their own individual arbitrators. Indeed, DCA audits of arbitration providers have found this to be the case in the past, with respect to certain manufacturers.
Negative equity can be confusing, and where it exists, it is often a central issue to a lemon law case. It must be considered in the overall strategy of how to proceed in a case. Be sure you understand this issue — or have experienced lemon law counsel who understands it — before you decide how to approach your lemon law claim. For more information on negative equity in lemon law buyback cases, contact Goldsmith West today for a free consultation.
Auto Recalls and Lemon Vehicles
We get many questions — and, understandably, some confusion — from potential clients regarding how recalls affect a lemon vehicle claim. Let’s examine the issue.
First things first: What is a “recall”? In the context of vehicles, a recall is an initiative to remedy an anticipated problem, usually safety-related, before the problem causes damage (hopefully). Recalls are regulated by the National Highway Traffic Safety Administration (NHTSA). They may be initiated voluntarily by the manufacturer or by order of the NHTSA. Recalls usually consist of a modification or replacement of a particular part or component of the vehicle. However, in some cases, they apply to the whole vehicle.
Usually, consumers are notified by the manufacturer about the need for a recall by mail, and authorized dealerships are instructed to check for open recalls whenever a vehicle comes in for service. The urgency level can vary. In some instances, manufacturers and dealerships are absolutely prohibited from releasing a vehicle to a consumer before the recall is complete, due to safety concerns.
Do recalls count as repair attempts for lemon vehicles?
A lemon vehicle generally qualifies for repurchase or replacement under lemon law rules after there has been an unreasonable number of repair attempts for a substantial issue that is covered by warranty, or if the problem with the vehicle renders it unfit for the ordinary uses of a consumer automobile. Do recalls count?
This is a complicated question, and the answer may depend on the facts of your case. Manufacturers might argue that a recall is a proactive measure demonstrating that they are taking responsibility in advance, and that it should not count toward a lemon law analysis. On the other hand, a consumer may feel fear about learning of an unrepaired safety issue and annoyance at the time and inconvenience of having to bring the vehicle in immediately.
There should be little debate that a recall service visit counts in the lemon law analysis if the consumer has experienced the issue(s) the recall is intended to cure. What might require more complex legal argument is the situation in which a single recall arguably devalues the vehicle, or where a multitude of recalls on a single vehicle calls into question the vehicle’s use, value or safety, or fitness for use, as would be expected of an ordinary consumer automobile.
Lemon Law Rules and Single Recalls
Let’s look at the effect of a single recall. Recently, our firm handled a case involving the SC147 Recall in a 2014 Kia Optima. This recall is due to metal fragments that were deposited in the vehicle’s crankshaft during the machining process and could cause engine failure. The recall repairs consist of replacing the engine long block assembly in affected vehicles. Needing a new engine is bad enough on its own, but this created a situation where dealerships had to perform serial engine replacements, sometimes with lengthy delays.
In our case, the dealership actually damaged our client’s lemon vehicle in the course of performing the recall repair. There were other repair attempts in this case, but even if there had not been, it is arguable that lemon law liability was created under breach of implied warranty based on this single repair need, which the dealer could not meet due to a defect in material and workmanship, resulting in potential lemon vehicle claims.
Lemon Law Rules and a Multitude of Recalls
What about the scenario in which a consumer has to deal with a large number of safety recalls? There have been individual lemon vehicles with as many as 20-30 recalls. Depending on the nature of the particular recalls and their relationship to each other (e.g., Do multiple recalls affect the same system in the car?) and, most importantly, the effect of the recalls on the particular consumer’s experience, it is possible that a multitude of recall repairs could create a lemon vehicle scenario.
Recalls Involving Third Parties
A good example of this scenario is the recent Takata airbag recall. Takata is a third party producer of airbags that were installed in various models across the industry, and which have been recalled due to the possibility of exploding upon deployment, possibly causing death. Due to the large number of vehicles affected, there has been a shortage of airbags needed to perform the recall.
As a case in point, a friend of our firm contacted us when trading in a Volkswagen Passat for a new one. The dealer offered a trade-in value at the time of the new car sale, and then called back and lowered it by several thousand dollars due to the fact that (a) the car had Takata airbags and (b) there was a backlog in performing the recall. We were surprised by this blatant admission of the effect on value (as a result of the safety concern) by the very dealer who would likely have had the responsibility of performing the recall, and possibly have a glut of lemon vehicles on its hands
This scenario potentially creates liability from a number of different angles, including lemon law rules and the consumer legal remedies act against the dealer, as well as Takata (who is probably not solvent), as well as possibly other parties. Fortunately, we were able to help our friend resolve her issue.
The biggest misconceptions we see about recalls is that a recall or a number of recalls by itself creates a lemon vehicle based on lemon law rules. While this may be intuitive, lemon law analysis depends on the experiences of the consumer. It may require complex application of the law to the facts of a case to make this connection.
If you need help determining how recalls affect your potential lemon vehicle case, contact Goldsmith West today to schedule a free consultation.