Car makers can curb consumer lawsuits under the state's "lemon law" by promptly offering to buy back the vehicle from complaining customers, even if the customer refuses to sign a deal that includes a confidentiality clause the customer finds objectionable , a divided state appeals court has ruled.
On Dec. 26, a majority of a three-justice panel of the California Second District Court of Appeal in Los Angeles sided with automaker Volkswagen in its dispute with a man who sought to sue VW for allegedly selling him a defective vehicle.
According to court documents, the plaintiff, identified as Terry Carver, leased a VW Atlas crossover SUV from Galpin Volkswagen, a dealership in North Hills near Los Angeles in July 2021.
California Second District Appellate Justice Lee Smalley Edmon
| Appellate.courts.ca.gov/
According to court documents, the vehicle had 17 miles on the odometer at the time of lease.
In March 2022, Carver reportedly brought the vehicle back to the dealership, complaining of check engine and airbag lights turning on, car engine ignition issues and doors which allegedly locked on their own.
The dealership then allegedly told Carver a part needed to complete repairs had been on back order since December 2021. The vehicle remained at the dealership.
After learning of the inability to repair the car, Carver allegedly messaged VW, demanding the company reimburse his car payments for as long as the vehicle remained out of service.
Carver and VW exchanged emails over the course of the next few weeks, with VW allegedly telling Carver that they expected his vehicle could be repaired within a few weeks.
However, in April 2022, citing California's Song-Beverly vehicle warranty act, commonly known as the state's "lemon law," Carver and his attorney demanded VW allow Carver to "revoke his acceptance of the vehicle" and then repurchase the car.
Nineteen days later, VW confirmed it would repurchase the car, offering $8,542 in direct reimbursement to Carver, pay off of the outstanding lease on the car, and $3,000 to pay Carver's attorney fees "as a gesture of goodwill."
The reimbursement amount accounted for an offset of $2,415 to account for the more than mileage Carver had driven the vehicle.
The buyback offer agreement included a so-called "financial confidentiality" provision, which required Carver to agree to not discuss the financial terms of the offer with anyone except his attorneys, accountants or immediate family members.
The two sides reportedly renegotiated the deal to allow Carver to keep the vehicle, and receive only $7,500 in cash.
Carver, however, still refused to sign the deal, saying he objected to the confidentiality clause.
The vehicle was ultimately repaired and returned to Carver on May 9, 2022, at no cost to Carver. He was further provided a "loaner" vehicle by the Galpin dealership during the time his vehicle was in the shop.
According to court records, Carver testified he had continued to drive the vehicle since it was returned to him and reported no significant problems since.
However, on May 25, 2022, Carver filed suit under the vehicle warranty law, saying VW had violated the law's provisions by refusing to repurchase the car unless he signed the confidentiality provision.
He demanded VW be made to pay him up to twice his alleged actual damages.
A Los Angeles County Superior Court judge sided with VW, saying nothing in the Song-Beverly Act would prevent a car maker from including that confidentiality clause.
The judge determined VW's repurchase offer was sufficient to block the lawsuit.
On appeal, two of the three justices on the appellate panel agreed.
In the ruling, the majority said the record in the case revealed no evidence that VW had engaged in the "stonewalling" in response to Carver's invocations of the vehicle's warranty, such as is typically seen in cases in which consumers demand automakers buy back a supposedly defective car.
"... We conclude that (Volkswagen's) offer to repurchase was undisputably prompt," the majority said.
The majority further agreed the mileage offset subtracted by VW from the repurchase offer was also fair.
The justices split 2-1 on the question of whether VW and other automakers should be permitted to include a provision prohibiting public disclosure of the financial terms of the repurchase agreement.
The court noted California law generally prohibits automakers from forcing customers to keep mum on the repurchase altogether.
But the majority said they believed the intent of that law is to prevent automakers from essentially "laundering" defective automobiles back onto the market, by secretly repurchasing defective vehicles from customers and then using confidentiality agreements to sell them again to unwitting customers.
The majority said provisions keeping financial terms of repurchase agreements under wraps is different, as financial terms are "unrelated to vehicle safety."
The majority further said they believed the penalties and other provisions in the car warranty law were written by lawmakers to encourage automakers to settle quickly with complaining consumers and avoid lawsuits altogether.
"Against this backdrop, it would be anomalous if the Legislature intended negotiations about financial nondisclosure terms - which the statute expressly permits - to derail lemon buybacks, thereby increasing litigation and delaying consumer recovery," the majority said. "We therefore conclude that the Legislature intended to allow vehicle manufacturers to condition lemon buybacks on the purchaser's consent to financial nondisclosure terms."
The majority opinion was authored by Justice Lee Smalley Edmon. Judge Mark K. Hanasono concurred.
Hanasono is a Los Angeles County Superior Court judge who is sitting on the Second District Appellate Court on a pro tem assignment expiring Dec. 31.
In dissent, Justice Rashida A. Adams said he believed the law should be interpreted differently.
While she agreed the law does not necessarily prevent such financial non-disclosure provisions, Adams said she believed allowing automakers to include such provisions could serve as an escape hatch, of sorts, allowing them to use pre-litigation offers to escape obligations under the law.
"It may be that allowing a consumer to discuss the financial terms of a manufacturer's reacquisition of a vehicle under (the "lemon law") is not obviously related to the Act's purpose," Adams wrote. "Yet, allowing a manufacturer to avoid complying with statutory mandates under the Act by insisting on the consumer's agreement to an extraneous term the statute permits, but does not require, would seem to be entirely at odds with the Act's consumer protective purpose.
"... Offering to settle a lemon law claim is not necessarily the same as complying with the Act. Neither the manufacturer nor the consumer is required to settle a claim in advance of litigation, but the manufacturer is required to comply with the Act's restitution provision. If the parties are unable to reach a settlement, the manufacturer is not excused from complying with the statute if such compliance is owed.
"In this case, I would not conclude that (VW) has demonstrated Carver cannot establish an element of his claim under the Act because (VW) offered to comply with the statute, but did not do so because Carver rejected the additional confidentiality term (VW) demanded in exchange."
Carver has been represented by attorney Nicholas A. Bravo, of the Bravo Law Firm, of Burbank.
VW has been represented by attorneys Sean P. Conboy, Nathaniel K. Fisher, Shaun Kim and Paul Czer, of the firm of Squire Patton Boggs, of Los Angeles.