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Warranty Law Upheld for Car Leases

State justices, in wide-impact ruling, back S. Jersey man’s ‘lemon’ lawsuit against Honda

Tuesday, February 28, 2006
By Robert Schwanberg

The New Jersey Supreme Court ruled yesterday that people who lease motor vehicles are covered by a federal warranty protection law.

In a 6-1 ruling, the high court rejected arguments that the 1975 Magnuson-Moss Warranty Act protects only those who buy consumer products, not those who lease them.

The decision reinstates a Camden County man’s lawsuit against American Honda Motor Corp. claiming serious engine defects in a 1999 Honda Passport that was a new vehicle when he leased it. But it will have a far broader impact by providing additional protection to the drivers who lease, rather than buy, their vehicles.

“It’s a very important decision for consumers all across the state of New Jersey,” said Robert Silverman, whose law firm represents Christopher Ryan of Berlin in his lawsuit against Honda.

Because the federal law applies to all consumer products backed by a written warranty – not just motor vehicles – the ruling should protect those who lease other products, such as boats, for their personal use, Silverman said.

The ruling also was a victory for law firms like Kimmel & Silverman that specialize in representing car buyers who get stuck with “lemons.” A key protection of the Magnuson-Moss Act forces the manufacturer of a defective product to pay the consumer’s legal fees.

“It’s not to make lawyers more money; it’s basically so consumers get to court at all,”

Silverman said.

If they could not collect their attorneys’ fees from the manufacturer, consumers who get stuck with a defective automobile could not afford to sue, he said.

The Alliance of Automobile Manufacturers had filed a friend-of-the-court brief supporting Honda’s position that Congress never intended to protect leased vehicles when it passed the law three decades ago.

“About a quarter of all vehicles financed in the United States are done through leases,” said Charles Territo, a spokesman for the alliance. The alliance represents BMW, DaimlerChrysler, Ford, General Motors, Toyota, Volkswagen, Mazda, Mitsubishi, and Porsche.

A spokesman for Honda had no immediate comment.

In an unsigned opinion, six justices of the New Jersey Supreme Court ruled the federal law protects those, like Ryan, who sign a motor vehicle lease giving them the right to enforce the manufacturer’s warranty.

The dissenting justice, Roberto Rivera-Soto, said the act is “unambiguous” in requiring a sale. He noted that people who lease defective vehicles can sue under other laws and said the ruling gives them “attorney fee-shifting that is generally disfavored in the law.”

Silverman said those other laws do not always apply, noting New Jersey’s Lemon Law did not protect Ryan because his Honda was 4,000 miles past the 18,000-mile limit when it first developed serious engine problems.

Ryan’s warranty covered the vehicle for 36,000 miles but Honda claimed the engine trouble was due to “external damage or tampering” and not covered. Silverman sued to enforce the warranty under the Magnuson-Moss Act but a trial judge ruled Ryan, as a lessee, was not entitled to its protection.

Silverman said his firm uses that law in about half the cases it brings.

Courts around the nation have reached conflicting conclusions as to whether the Magnuson-Moss Act covers leased vehicles, and both sides hired lawyers with appellate expertise to argue to the justices.

Carl Poplar, the Cherry Hill lawyer hired by Kimmel & Silverman to argue its case, said it is likely the question will go to the U.S. Supreme Court because of its “great effect on commerce.”

Robert Schwaneberg covers legal issues. He may be reached at rschwaneberg@starledger.com or (609) 989-0324.

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