CALIFORNIA LEMON LAW CHANGES FOR DEALERS By Gary H. Prudian, Esq., Partner, Manning, Leaver, Bruder & Berberich LLP There have been seismic developments in the world of California’s lemon law in recent months, with both the California Supreme Court and state Legislature weighing in. The California Supreme Court holds that used vehicles sold with the balance of the factory warranty remaining are not “new” vehicles. In Rodriguez v. FCA, the California Supreme Court was tasked with deciding whether noncertified used vehicles sold with the balance of the new factory warranty are “new” vehicles for the purpose of being eligible for the “refund or replace” remedy under the Song-Beverly Act, better known as the California Lemon Law. On Oct. 31, 2024, the Court issued its long‑awaited decision, and in a big win for manufacturers held that vehicles sold with the balance of the factory warranty are not new vehicles for purposes of the lemon law. The Court found that manufacturers’ liability attaches only when they issue a warranty concurrently with the sale, which is not the case when a vehicle is sold with the balance of the factory warranty remaining. The determination is key, as manufacturers are required to buy back or replace a defective new motor vehicle.1 The Song-Beverly Act does provide a similar remedy for buyers of used motor vehicles, but places the obligation on the “distributor or retailer seller making express warranties” with respect to the used vehicle.2 On noncertified used vehicles, the dealership faces potential claims under the “refund or replace” remedy on vehicles for which it provides a warranty concurrent with the sale. While the decision is a major win for the manufacturers, it is, at best, a mixed bag for dealerships. Dealerships will retain the statutory and contractual right of indemnification from manufacturers on lemon law cases involving new vehicles and vehicles certified under the manufacturers’ CPO guidelines. This is because, in those sales, the manufacturer is issuing a warranty concurrent with the sale — be it a new vehicle warranty or a certified pre-owned warranty.3 However, previously, manufacturers had to defend lemon law claims against them arising from purchasers of used vehicles with the balance of the original new vehicle warranty remaining — and arguably had a statutory duty to defend dealerships, even those dealerships of different makes, that sold these vehicles. While the Rodriguez decision will reduce the amount of lemon law claims against the manufacturers, dealerships have lost an important tool for limiting their exposure and legal costs, and it may result in increased lemon law litigation against dealerships. Dealerships cannot disclaim the implied warranty of merchantability on any used car sale in which the dealership certifies the vehicle, issues a written warranty, or sells a service contract in which it is obligated to perform the services.4 We reasonably anticipate that the plaintiffs’ bar will shift their focus away from the manufacturers to the selling dealerships for claims related to the implied warranties that accompany 31 California New Car Dealer Quarterly
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