Federal Lemon Law Assistance

THE MAGNUSON-MOSS WARRANTY ACT– AN OVERVIEW

In 1975 Congress adopted a piece of landmark legislation, the Magnuson-Moss
Warranty Act. The Act was designed to prevent manufacturers from drafting
grossly unfair consumer warranties and to make it economically viable
for consumers to bring warranty suits by providing for the award of attorney’s
fees. States built on the themes of the Magnuson-Moss Act by later passing
their own lemon laws.

Although the Magnuson-Moss Act covers consumer products broadly, Congress
was particularly concerned with unfair and inequitable automobile warranties.
The following is an overview of the Act which outlines the situations
in which the Act applies. (Full text of Magnuson-Moss
Act.)

A. Magnuson-Moss Checklist: An Overview

1. Does the Magnuson-Moss Warranty Act Apply?

Section of Act

a. The Act is effective July 4, 1975 and applies to goods manufactured
after that date.

§312

b. The Act applies to all consumer products, defined as tangible
personal property normally used for personal, family, or household
purposes.

§ 301(1)

c. The Act applies to written warranties defined as either a written
affirmation or promise that the material or workmanship is defect
free or will meet a specified level of performance over a specified
period of time, or (2) a written undertaking to refund, repair,
replace or otherwise remedy a product if it fails to meet specifications
set forth. In either case it must be given by a supplier at no extra
charge, to a buyer for purposes other than resale of the product.
NOTE: Not all express warranties under the UCC are written warranties
under the Act.

§ 301(6) (1)

d. The Act applies to implied warranties defined as an "implied
warranty arising under State law in connection with the sale by
a supplier of a consumer product".

§ 301(7), § 310(d)

e. The Act applies to service contracts, defined as a written "contract
to perform, over a fixed period of timeor for a specified duration,
services relating to the maintenance repair of a consumer product".

§ 301(8)

2. Who Can Sue?

 

a. A consumer under Magnuson-Moss is anyone — an individual or
a business – who buys a consumer product "for purposes other
than resale." This includes a business or corporation buying
an automobile for business use, as an automobile is "normally
used for personal, family or household purposes".

§ 301(3), § 301(1)

b. The definition of "consumer" includes the buyer of
the product and "any person to whom [the] product is transferred
during the duration of an implied or written warranty (or service
contract) applicable to the product." This definition eliminates
the defense of lack of horizontal privity to the extent it exists
under the various versions of UCC § 2-318.

§ 301(3)

c. The definition of consumer also includes any person "entitled
under applicable state law to enforce" the agreement, This
provision extends the federal right to sueto a point equal to the
most liberal state law applicable to a case.

§ 301(3)

3. What Are the Grounds for a Suit and the Causes of Action?

 

Personal or economic injury due to:

§ 310(d)

a. Failure to honor a written warranty (breach of contract).

§ 310(d)

b. Failure to honor a service contract agreement (breach of contract).

§ 310(d)

c. Failure to honor any implied warranty created by state; e.g.,
the warranties of fitness for a particular purpose or of merchantability,
of the Uniform Commercial Code, effective in 49 states. Note that
implied warranty suits against manufacturers can be brought even
where thereis no written warranty

§ 310(d)

d. Violation of a prohibition or failure to comply with a requirement
of the Act or rules under it; e.g., disclaimer of implied warranties
(§ 308), designation (§ 303), disclosure (16 C.F.R. §
701), pre-sale availability (16 C.F.R. § 702).

§ 310(d)

4. Who Can Be Sued?

 

a. Any "warrantor", defined to include persons obligated
under an implied warranty.

§ 301(5)

b. Any "supplier", defined as any person in the chain
of distribution who has a duty or obligation under the Act to the
consumer.

§ 301(4)

c. Under a written warranty, a business that serves as a "designated
representative" for warranty service (authorized service agent)
does not automatically become a co-warrantor. Only the warrantor
"actually making" the written warranty is subject to suit.
These provisions insulate other suppliers from liability for the
warrantor’s breach of written warranty, but not of the implied warranties.

§ 307, § 310(f)

5. What Remedies Are Available?

 

a. Consumers can recover damages from the breach. This includes
remedies already available under state law, such as recovery of
the purchase price, market price of a replacement, loss in value
due to the problem, recovery of other costs, and statutory penalties,
if any. The Act is silent as to what rules or principles govern.

§ 310(d)(1)

b. "Other legal and equitable relief," which may include
injunctive relief or specific performance, even if not available
under state a law; e.g., replacement of the "lemon," or
extension of the warranty duration.

§ 310(d)(1)

c. Costs and expenses reasonably incurred in bringing the suit;
e.g., filing fees, witnesses’ fees, stenographic costs.

§ 310(d)(2)

d. Attorney’s fees reasonably incurred, based on actual time expended.

§ 310(d)(2)

CAUSES OF ACTION UNDER THE MAGNUSON-MOSS ACT

The Magnuson-Moss Warranty Act, designed to protect consumers from deceptive
warranty practices, expands the consumer’s arsenal to resolve warranty
complaints. The Act’s provisions for private enforcement of rights and
remedies must be read in conjunction with the rights, remedies and defenses
of the Uniform Commercial Code. Consideration also should be given to
lemon laws and other state laws that create special rights and remedies
for injured consumers. The Act creates four separate federal causes of
action:

A. Breach of Written Warranty

The Magnuson-Moss Act defines "limited" and "full"
warranties. Under Magnuson-Moss, there is a cause of action for breach
of any written warranty, whether "full" or "limited".
The cause of action is valid even where written warranty has already expired,
as long as the defects appeared during warranty period. No automobile
manufacturer offers a full warranty as defined by the Act; rather, the
warranties are "limited". When a warranty is "limited",
proving breach of warranty under the Act is similar to proving a breach
under the UCC. The consumer must prove that (1) a warranty was made; (2)
the warranty was breached; (3) an injury occurred; and (4) the breach
of warranty proximately caused the injury.

The Act’s "lemon provision" is available in the case of a "full"
warranty. A consumer suing under a "full" warranty does not
need to prove a breach of the written warranty, but only show the existence
of a "defect, malfunction, or failure to conform with such written
warranty" which existed after the warrantor had a reasonable number
of attempts to remedy the product.

"Written warranty" under the Act (defined in § 301(6))
is not identical to "express warranty" under the UCC. For example,
"written warranty" does not include mere product claims, such
as "waterproof", made without regard to any time period. Moreover,
oral guarantees are not written warranties under the Act, although these
are normally express warranties under UCC § 2-313.

Under the Act, "written warranty" includes: (1) promises or
affirmations that a product is free of defects in material or workmanship;
(2) promises or affirmations that the product will meet a specified level
of performance over a specified period of time; and (3) promises to take
some remedial action if the product fails to meet the specifications set
forth in the undertaking. The promise, affirmation, or undertaking must
form part of the basis of the bargain between a supplier of the product
and a consumer buyer.

The Seventh Circuit has ruled that a claim for breach of a written warranty
as contained in advertising is not cognizable under the Magnuson-Moss
Act. In Skelton v. General Motors Corporation, 660 F.2d 331 (7th Cir.
1981), rev’g 500 F. Supp. 3181 (N.D. Ill. 1981), the consumers alleged
that GM created a written warranty under Magnuson-Moss through brochures,
manuals, and consumer advertising, which was then breached by substituting
transmissions. The Seventh Circuit held that only those written warranties
specifically defined in Section 301(6) are actionable under Magnuson-Moss.
The Court of Appeals rejected the district court’s conclusion that whenever
a manufacturer offers a written warranty to a consumer "[o]ther written
promises presented in connection with the same transaction should also
be enforceable as part of the ‘written warranty.’" 660 F.2d at 320-21,
quoting 500 F. Supp. at 1191.

B. Breach of Implied Warranty

The Magnuson-Moss Act gives consumers a cause of action for breach of
"implied warranty" (§ 310(d)). The implied warranties covered
by the Act are those created by state law. Although the Act creates no
new implied warranties, it both alters the ability of a seller to exclude
them and provides a federal cause of action for their breach. This cause
of action appears to be available even where there is no written warranty
involved.

Most cases brought to date are based on breaches of both written and
implied warranties. However, a few involve breach of implied warranties
without alleging breach of a written warranty.

For example, General Motors Corp. Engine Interchange Litigation, MDL
No. 308 (N.D. Ill.), rev’d, 594 F.2d 1106 (7th Cir.), cert. denied, 444
U.S. 870 (1979), aff’d after remand, 620 F.2d 1190 (1980) was filed in
federal court under the Magnuson-Moss Act. The plaintiffs alleged that
the undisclosed use of Chevrolet engines in Oldsmobiles breached both
written warranties and the implied warranty of merchantability (UCC §
2-314). On June 27, 1981, the jury returned a general verdict in favor
of a sub-class of plaintiffs and awarded each of these plaintiffs $550.
In light of the Seventh Circuit’s decision in Skelton v. General Motors,
supra, invalidating the written warranty theory, upon which at least part
of the case was tried, the district court granted GM’s motion for a new
trial.

C. Breach of Service Contract

The Magnuson-Moss Act provides a cause of action for breach of a "service
contract" as defined in § 301(8). The optional "extended
warranty" offered through many dealerships by auto manufacturers
and independent insurance companies are "service contracts"
as defined by the Act. For example, some auto companies offer extended
warranty coverage to 5 years or 50,000 miles for a one-time payment of
$200 to $500, depending upon the make and model of the automobile.

Moreover, under § 308(a), the sale of a service contract within
90 days of the sale of a new car may have the effect of barring any contractual
limitation on implied warranty duration. When a consumer purchases a service
contract, and the written warranty expired before any defects appeared,
an attorney may want to plead breach of service contract as well as breach
of the implied warranty of merchantability.

Very few reported cases involve breach of service contract. However,
note the following two cases.

Britton v. Bill Anselmi Pontiac-Buick-GMC, Inc., 786 P.2d 855 (Wyo.
1990). Consumer purchased a "brass hat" special–a car with
low mileage which was advertised as having been used solely to transport
General Motor’s executives to and from the airport. Consumers also purchased
extended warranty coverage to a term of 48 months/48,000 miles. Immediately
after purchase, the automobile suffered from a defective heater, windows
that would not close, a defective alternator, a useless gas gauge, a leaking
sun roof, peeling paint, and a defective transmission. After the dealership
was unable to repair these problems, the consumer sued General Motors
and the dealership. The Supreme Court of Wyoming held that the consumer’s
claim clearly falls under breach of written warranty or a breach of service
contract. The court particularly noted that the consumers had paid an
additional $350 for the extended warranty coverage. The court remanded
consumer’s Magnuson-Moss claim for reconsideration.

Illinois v. Hunt International Resources Corp., 481 F. Supp. 71 (N.D.
Ill. 1979), The district court rejected plaintiff’s claim for breach of
a service contract under Magnuson-Moss on the ground that plaintiff’s
cause of action was unrelated to defendants’ performance of their obligations
under any contract.

D. Failure To Comply With Obligations

The fourth cause of action under the Magnuson-Moss Act is for damage
caused by "the failure of a supplier, warrantor, or service contractor
to comply with any obligation under this title." The "title"
is Title I of the Magnuson-Moss Warranty Act, which contains all the provisions
relating to warranties and service contracts, and which authorizes the
Federal Trade Commission to issue rules in specified areas to implement
the title. The obligations under the title pertain to disclosure of warranty,
ready availability of the warranty prior to sale, and restrictions on
the use of disclaimers and limitations. The FTC has issued implementing
regulations on "Interpretations of Magnuson-Moss
Warranty Act" and "Informal Dispute
Settlement Procedures" at 16 C.F.R. Parts 700 and 703 respectively.

The Warranty Act does not provide for minimum or statutory penalties
for violation of the Act. A private action based on violation of the Act
must allege actual damages from the violation to justify a recovery.

For example, in Currier v. Spencer, 772 S.W.2d 309 (Ark. 1989) the consumer
charged the supplier with breach of the Magnuson-Moss Act. The consumer
purchased a used car from Currier, a used car dealer. Immediately after
purchase, the consumer experienced problems with his car and discovered
that the car was actually two different cars welded together. The consumer
stopped payment on his check and attempted to return the car, but Currier
refused. The consumer then sold the car for $6,750. Currier then brought
suit to recover the unpaid balance of the purchase price. The consumer
counterclaimed, alleging breach of express and implied warranties, misrepresentation,
violation of the odometer law and violation of the Magnuson-Moss Act by
not preparing and displaying a buyer’s guide on the window of the automobile.
The lower court dismissed Currier’s complaint and awarded the consumer
$1,500 for the difference between the purchase price of the car and the
value of the car. This amount was doubled for failure to provide an odometer
statement. Court costs and attorney’s fees were awarded for violation
of the Magnuson-Moss Act. The appellate court affirmed, noting that the
failure to provide a "buyer’s guide" was a clear violation of
Magnuson-Moss.

For additional examples of cases pleading violation of Magnuson-Moss
in addition to other causes of action under the Act, see Miller and Kanter,
"Litigation Under Magnuson-Moss: New Opportunities in Private Actions,"
13 U.C.C.L.J. 10, 12 nn. 6 and 7.

E. The Magnuson-Moss Act and Used Goods

Because the term "goods" as defined under UCC § 2-102
makes no distinction between new and used goods, implied warranties have
been found to arise in the sale of used cars, unless expressly excluded
or modified in accordance with UCC § 2-316.
See,
Gast v. Rogers-Dingus Chevrolet, 585 So.2d 725 (Miss. 1991).
Moore v. Burt Chevrolet, Inc., 39 Colo. App. 11, 563 P.2d 369 (1977).

Jackson v. H. Frank Olds, Inc., 65 Ill. App. 3d 571, 382 N.E.2d 550 (1978).

The Magnuson-Moss Act also applies to used goods. The language of Section
310(d) creates a cause of action for breach of a written warranty, a service
contract, or an implied warranty in the sale of used goods.

See,
Patton v. McHone, 822 S.W.2d 608 (Tenn. Ct. App. 1991).
Currier v. Spencer, 772 S.W.2d 309 (Ark. 1989).
Vieweg v. Friedman, 526 N.E.2d 364, 173 Ill. App.3d 471, (Ill. App. Ct.
1988).

The Magnuson-Moss Warrant Act Overview is an excerpt from
the Center for Auto Safety’s Magnuson-Moss Litigation Manual, available
for $95.00 plus $10 shipping.

Magnuson-Moss Litigation Manual, $105.00