A look under the 'hood' reveals that auto manufacturers are failing to fulfill their legal obligations

Last month, the Civil Justice Association of California (CJAC) attacked California's lemon law, arguing that changes to the lemon law are needed to disincentivize greedy plaintiffs' attorneys who file too many lawsuits. But a closer look at the mechanics of the lemon law statute itself, actual data, and recent cases, tells an entirely different story.

The data shows that the number of lemon law lawsuits is minuscule compared to the number of vehicles registered in California. For example, in 2021, the Frontier Data Group reported that out of the seven million new cars registered in California between 2018-2021, less than 1% of vehicles ended up in a lemon law lawsuit.  

Only some Californians are even aware of the basics of the lemon law: If a vehicle is not fixed within a reasonable number of repair attempts, the manufacturer must repurchase or replace the vehicle. And most Californians--and even some courts--are unaware of one key aspect of the lemon law that would reduce the number of lawsuits if it were followed: That the auto manufacturer has an affirmative duty to promptly replace/repurchase defective vehicles, regardless of whether a consumer ever makes such a request.

Stated differently, auto manufacturers have a duty to monitor vehicle repairs in California and proactively contact consumers to offer replacements/repurchases before the consumer requests it. The consumer is not required to contact the manufacturer to request a replacement before the manufacturer is obligated to replace/repurchase the vehicle. "[A] manufacturer is capable of becoming aware of every failed repair attempt. Computerized recordkeeping at dealership service departments could easily facilitate this task, even without any direct contact from the consumer to the manufacturer or any request for replacement or reimbursement to the dealership. It is thus apparent that a manufacturer need not be 'clairvoyant'; it need only demonstrate more initiative in honoring warranties." Krotin v. Porsche Cars North America, Inc. (1995) 38 Cal.App.4^th 294, 303. So, do auto manufacturers monitor the service records of their own dealerships and proactively repurchase/replace defective vehicles? Unfortunately, the answer is no, despite the ease with which this could be accomplished.

Automakers' lemon law failures drive lawsuit surge

As mentioned above, it is the auto manufacturer--and not the consumer--who has an affirmative duty to promptly offer a replacement/repurchase to consumers with defective vehicles. But most manufacturers repeatedly fail to comply with this legal obligation.

Nearly 30 years ago, a California appellate court correctly predicted that auto manufacturers would ignore their affirmative duty, stick their heads in the sand, and wait until the consumer contacts them to request a repurchase/replacement. "In reality, as indicated by the facts alleged at trial by the Krotins, the manufacturer seldom on its own initiative offers the consumer the options available under the Act: a replacement vehicle or restitution." Id. This continues to be the modus operandi of most automobile manufacturers.

Even when a consumer contacts the manufacturer, it typically still fails to comply with its affirmative duty

Even when the consumer contacts the manufacturer and asks for a repurchase/replacement, they often drag out the repurchase/replacement process. In the majority of cases our firm works on, the consumer contacted the manufacturer to request help before the lawsuit was filed. In one matter, the manufacturer dragged out the repurchase/replacement process for three years before a lawsuit was filed. During that time, the manufacturer agreed to replace the vehicle on four separate occasions, but repeatedly sold the replacement vehicle to another consumer and failed to replace the vehicle. In another matter, the manufacturer dragged out the repurchase for seven months, and because of its delay, the consumer's vehicle was totaled in an auto accident. To compound the consumer's problems, the manufacturer completely ignored the consumer's communications after the accident.  

Simply put, auto manufactures could reduce the number of lemon law lawsuits if they complied with their own affirmative obligations under the lemon law. However, since Krotin was decided nearly 30 years ago, auto manufacturers have typically failed to do so.

Automakers ignore arbitration rulings from their own dispute programs

CJAC argues that an easy way to reduce the number of lemon law lawsuits is to require consumers to use the manufacturers' third-party dispute resolution programs, but CJAC ignores that manufacturers often fail to comply with these program decisions. In California, a manufacturer is required to comply with the arbitration decision within 30 days of its receipt of notice that the consumer has accepted the arbitration decision. (See Cal. Code Reg. § 3397.5(b)). According to the data reported by California's Arbitration Certification Program ("ACP"), manufacturers routinely fail to comply with the decision within that time frame. When these violations are brought to the attention of the ACP, it conducts an investigation and reports its findings in an annual report called the Annual Review. These Annual Reviews detail several violations of section 3397.5(b) by various auto manufacturers. For example, Fiat Chrysler Automobiles had 60 violations of the 30-day rule in 2019 and 25 violations in 2020. Accordingly, the manufacturers' failures in complying with these programs disincentives consumers to regularly use them.   

Conclusion

Auto manufacturers and CJAC can't have their cake and eat it too. They cannot ignore the affirmative duty to repurchase/replace defective vehicles under the lemon law--which they have been doing for nearly 30 years--and then complain about the number of lemon law lawsuits. Unfortunately, it is much easier for auto manufacturers to blame plaintiffs' attorneys than for them to acknowledge that they often fail to comply with the law. Moreover, they ignore that plaintiffs' attorneys only get compensated if they prevail, so there is no incentive to take meritless cases. If auto manufacturers simply complied with their legal obligations from the outset, the courts' dockets would be reduced significantly, and consumers would not be forced to pursue litigation, all while having to continue to drive a defective and unsafe vehicle.