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Auto lessee can enforce Magnuson-Moss

By: dmc-admin//June 1, 2005//

Auto lessee can enforce Magnuson-Moss

By: dmc-admin//June 1, 2005//

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A lessee of an automobile meets the definition of "consumer" in the Magnuson-Moss Warranty Act (MMWA), and can sue for breach of warranty under the Act, the Wisconsin Supreme Court held on May 27.

According to the complaint, in 1999, Jaime R. Peterson leased a new 1999 Volkswagen Beetle from North Shore Bank. "Prior to or contemporaneous to Plaintiff’s lease of the Beetle," Ernie Von Schledorn Pontiac Buick Volkswagen (EVS), an authorized Volkswagen dealer, sold the Beetle to the bank.

North Shore "purchased the Beetle for purposes other than resale": to lease to Peterson. Volkswagen issued the Bank a written warranty for two years or 24,000 miles. The bank assigned its rights in the defendant’s written warranty to Peterson. The Bank would not have purchased the vehicle without the issuance of the warranty, and Peterson would not have leased the vehicle without the transfer of the warranty.

Peterson experienced several problems with the vehicle, allegedly violating the written warranty and the implied warranty of merchantability. Peterson furnished the vehicle to authorized Volkswagen dealers for repairs on several occasions, and the repairs were covered under the written warranty.

Nevertheless, defects remained uncorrected, and Peterson attempted unsuccessfully to revoke her acceptance of the vehicle. Peterson then brought suit under the MMWA. Waukesha County Circuit Court Judge Lee S. Dreyfus, Jr., dismissed the action, holding that a lessee is not a consumer under the MMWA.

Peterson appealed, and the court of appeals affirmed in a published decision, Peterson v. Volkswagen of America, Inc., 2004 WI App 76, 272 Wis.2d 676, 679 N.W.2d 840. The state Supreme Court accepted review, and affirmed in a unanimous opinion by Justice Jon P. Wilcox.

The court began by noting a split of authority whether an automobile lessee may qualify as a "consumer" under the MMWA. The leading case concluding that the MMWA does not apply to leases is DiCintio v. DaimlerChrysler Corp., 768 N.E.2d 1121 (N.Y. 2002), and the leading case to the contrary is Cohen v. AM General Corp., 264 F. Supp. 2d 616, 621 (E.D. Ill. 2003). The court adopted the reasoning of the latter line as more consistent with the statute.

The MMWA definition of "consumer" can be met in three ways. A category-one consumer is "a buyer (other than for purposes of resale) of any consumer product." 15 U.S.C. 2301(3). It was undisputed that Peterson is not a category-one consumer.

A category-two consumer is "any person to whom such product is transferred during the duration of an implied or written warranty (or service contract) applicable to the product." Finally, a category-three consumer is "any other person who is entitled by the terms of such warranty (or service contract) or under applicable State law to enforce against the warrantor (or service contractor) the obligations of the warranty (or service contract)."

The parties disputed whether Peterson was a category-two consumer. To resolve this, the court looked to the definition of "written warranty": "any undertaking in writing in connection with the sale by a supplier of a consumer product to refund, repair, replace, or take other remedial action with respect to such product in the event that such product fails to meet the specifications set forth in the undertaking, which written affirmation, promise, or undertaking becomes part of the basis of the bargain between a supplier and a buyer for purposes other than resale of such product." The terms "sale" and "in connection with the sale" are undefined.

What the court held

Case: Peterson v. Volkswagen of America, Inc., No. 2003AP955

Issue: Is an automobile lessee a "consumer" entitled to enforce the Magnuson-Moss Warranty Act?

Holding: Yes. A lessee who leases a vehicle from a third-party that bought the vehicle with a warranty, and which assigned its rights under the warranty to the lessee, is a "consumer" under categories two and three of the definition of that term, entitled to sue under the Act.

Counsel: Gregory H. Moss, Scott Cohen, Chicago, IL, for appellant; Bruce D. Huibregtse, Laura Skilton Verhoff, Drew J. Cochrane, Madison, for respondent.

Volkswagen argued that the "sale" referred to must be to the ultimate consumer in order for a written warranty to meet the definition of "written warranty," and that, even if the sale of the vehicle from EVS to the bank qualifies as a sale under the Act, it was not a sale "for purposes other than resale."

The court disagreed for two reasons. First, the plain language of sec. 2301(6)(B) does not limit to whom a sale can be made or require a sale to the ultimate consumer, but only requires that the warranty be issued "in connection with the sale by a supplier of a consumer product."

Second, the court noted that the definition of "written warranty" utilizes the term "supplier," — defined as "any person engaged in the business of making a consumer product directly or indirectly available to consumers." 15 U.S.C. 2301(4). The court concluded, "If Congress had intended to require a direct sale between a manufacturer and the ultimate consumer in order for the definition of ‘written warranty’ to be satisfied, it would not have included the term ‘supplier’ in the definition of ‘written warranty’ or defined the term ‘supplier’ so broadly."

The court in DiCintio held that a lessee did not meet the definition of "written warranty" because the definition required the transfer of title to a consumer, relying on the definition of "sale" under the Uniform Commercial Code, and concluding transfer of title to the consumer was a prerequisite for a sale to occur.

The Wisconsin Supreme Court disagreed, explaining, "First, even assuming it is appropriate to turn to the
Uniform Commercial Code for the definition of ‘sale,’ nothing in the text of the MMWA limits to whom the sale must be made. That is, even conceding that the MMWA requires a transfer of title for a sale to occur, it does not require that title be transferred to the ultimate consumer. Also, we note that requiring that title be transferred to the ultimate user of the product would render superfluous the second category of ‘consumer,’ as anyone to whom title was transferred through a sale would necessarily constitute a category one consumer — ‘a buyer . . . of any consumer product.’ 15 U.S.C. 2301(3)."

The court declined to consider legislative history, on which the DiCintio court heavily relied, because it concluded the statute unambiguously included Peterson within the definition of "consumer."

The court also rejected Volkswagen’s argument that the sale from EVS to North Shore and the issuance of the warranty to the bank were not "for purposes other than resale of such product." In DiCintio the court concluded that, because the lessee retains an option to purchase at the end of the lease, ultimate resale is an intrinsic part of the bank’s plan.

Instead, the court agreed with the court in Cohen that, while ultimate resale (possibly to the lessee) is likely, the underlying purpose of the sale is not resale, but lease.

Even in traditional sales of new cars, the court noted, the buyer is likely to resell the vehicle after a few years of use.

Thus, the court held that Peterson alleged facts sufficient to meet the definition of "written warranty" under the MMWA.

The court also found that Peterson is a person "to whom such product is transferred during the duration of a[] . . . written warranty."

Related Links

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Case Analysis

In DiCintio, and the leading Seventh Circuit case on the issue, Voelker v Porsche Cars North America, Inc., 353 F.3d 516 (7th Cir. 2003), the courts held that a lessee is not a category two consumer because, in order to qualify as a category two consumer, the product in question must have been "transferred during the duration of" a written warranty. Those courts found that the warranties did not begin until after possession of the car transferred to the lessee, and thus, the transfer was not "during the duration of the warranty."

The Supreme Court disagreed, noting that Peterson alleged in her complaint that the warranty was in effect at the time of the lease, because the vehicle was sold to North Shore prior to her lease, and Volkswagen issued the warranty to the bank.

Finally, the court held that, even if the Beetle was not transferred to Peterson during the duration of the warranty, Peterson is nevertheless a category-three consumer, because she is a "person who is entitled by the terms of such warranty . . . to enforce against the warrantor . . . the obligations of the warranty."

The court reasoned, "Peterson alleged that the Bank assigned her its rights in Volkswagen’s warranty. She also alleged that she furnished the vehicle to authorized Volkswagen dealers for repairs on numerous occasions for several different problems and that Volkswagen ‘allowed [her] to enforce its written warranty’ and said repairs were ‘covered by [the] written warranty.’ Thus, even though we do not have the warranty before us, Volkswagen cannot seriously argue (at this stage in the proceedings) that Peterson was not entitled to enforce its warranty."

Accordingly, the court affirmed the court of appeals.

Click here for Case Analysis.

David Ziemer can be reached by email.

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