LEGAL FILE: Court: Warranty law covers lessees, too

The Center for Auto Safety is the nation’s premier independent, member driven, non-profit consumer advocacy organization dedicated to improving vehicle safety, quality, and fuel economy on behalf of all drivers, passengers, and pedestrians.

By Eric Freedman
Automotive News / May 16, 2005

A New Jersey appeals court has ruled that the federal Magnuson-Moss Warranty Act protects lessees as well as purchasers of new vehicles. The ruling was made in a lawsuit against American Honda Motor Co. Inc.

"It is unlikely that the auto leasing market would have developed as it has if prospective lessees were denied the right to enforce the manufacturers’ new car warranties," said the Appellate Division of the New Jersey Superior Court.

"Moreover, if a manufacturer’s written warranty does not apply to a lessee, the dealer should not supply its leasing customer with the written warranty at all, and the manufacturer should include a clear disclaimer in the written warranty, stating that it is not applicable to a leasing customer."

The decision conflicts with an interpretation of the Magnuson-Moss law by the highest court in neighboring New York.

The New Jersey court reinstated a lawsuit accusing Honda of breaching its warranty obligations on a 1999 Passport SUV that Christopher Ryan leased from Burns Honda in Marlton.

The lawsuit also seeks triple damages for fraud, based on Honda’s position that lessees aren’t included under Magnuson-Moss, says Ryan’s lawyer, Robert Silverman of Haddonfield.

Engine troubles

The case arose when the Passport developed engine problems at about 22,000 miles. The dealership attributed the problems to external damage or tampering and suggested that Ryan file a casualty claim with his insurer, which he did. The insurer paid Ryan $8,236.99 for repairs, minus a $2,000 deductible, and $533.94 for rental-car fees.

Ryan sued American Honda, but not the dealership, in Camden County Superior Court seeking damages under Magnuson-Moss and the New Jersey consumer fraud and lemon laws. He later withdrew the lemon law claim. Lower court judges dismissed the rest of the claims without trial and ordered Ryan to pay Honda $8,606 in sanctions.

But the appellate court unanimously revived the case, rejecting Honda’s argument that Magnuson-Moss doesn’t apply to lessees.

"We doubt that a dealer who takes title to a new vehicle would pay for that title unless it received the manufacturer’s written warranty for the benefit of all the dealer’s customers, whether buyer or lessee," Judge Barbara Wecker wrote for the panel. "The warranty is undoubtedly a condition of the transaction that is a basis of the bargain, and the warranty is issued in connection with the manufacturer’s original sale of the car to the lessor."

The court didn’t address the merits of Ryan’s claims.

Declined comment

American Honda spokesman Jeff Smith says the company stands by its warranty program but declined to comment further on Ryan’s case because it’s pending.

Says Smith: "If a consumer has a leased vehicle warranty issue and wishes to pursue legal action, he or she should pursue remedies allowed under applicable state laws and not under the federal Magnuson-Moss Warranty Act, which, as the highest court in New York state has found, applies to products that are purchased and does not apply to leases."

Silverman said that, unlike the New York court, most courts "are taking a common-sense approach and siding with New Jersey’s."

The Association of International Automobile Manufacturers filed a friend-of-the-court brief supporting Honda’s position.