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LEMON LAWS;

OLR Research Report


July 17, 2009

 

2009-R-0267

LEMON LAW

By: Meghan Reilly, Legislative Analyst

Dan Duffy, Principal Analyst

You asked for information about the lemon law.

SUMMARY

The lemon law offers protections for a new vehicle when (1) the same defect has been the subject of repair attempts four or more times during the first 24,000 miles or two years of service, (2) it has been out of service for repair for a cumulative total of 30 days during the same period and the defect continues to exist, or (3) the same safety-related defect has been the subject of repair two or more times in the first year or twice within the warranty period, whichever comes first.

The lemon law establishes a variety of remedies, including giving a consumer the right to a refund or replacement vehicle if a manufacturer or its representative is unable to make a vehicle live up to its warranty after a reasonable number of repair attempts and the defect substantially impairs the vehicle's use, safety, or value.

It establishes a low-cost arbitration program in the Department of Consumer Protection (DCP) that consumers can use to enforce their rights without going to court.

Finally, it establishes a manufacturer informal dispute settlement mechanism (IDSM) certification program. If the attorney general certifies that a manufacturer's IDSM meets certain standards, the manufacturer can require a consumer to seek a settlement through it before going to court. To date, the attorney general has not certified any manufacturer's IDSM.

The program's constitutionality was challenged in 1989 by the Motor Vehicle Manufacturer's Association. The court agreed with the challenge on one ground, that the law unconstitutionally limited judicial review of a manufacturer's appeal. The General Assembly amended the law the following year to make DCP-run arbitration binding on both consumer and manufacturer and to subject appeals made by either party to the same level of judicial review.

COVERAGE

The law applies to new “passenger motor vehicles,” “passenger and commercial motor vehicles,” and motorcycles bought or leased in this state.  A “passenger motor vehicle” is one used for private transportation of people and their belongings, with at least 50% of the total area enclosed by the body, excluding the engine compartment, used for seating and having a capacity of no more than 10 people, including the driver.  A “passenger and commercial motor vehicle” is one used for both private and commercial purposes and eligible for a combination registration (CGS 42-179 to 42-186).

LEMON STANDARD

The law presumes that a seller has made a reasonable number of attempts to repair a vehicle when (1) the same defect has been the subject of a repair attempt four or more times during the first 24,000 miles or two years of service, (2) the vehicle has been out of service for repair for a cumulative total of 30 days during the same period and the defect continues to exist, or (3) the same safety-related defect has been the subject of repair two or more times in first year or twice within the warranty period, whichever comes first.

The two-year warranty period and the 30-day repair period are extended when repair services are unavailable due to war, invasion, strike, fire, flood, or other natural disaster.

LEGAL RIGHTS AND REMEDIES

The lemon law establishes different ways for a consumer to enforce his rights. A consumer may apply for arbitration provided by DCP. A consumer may sue in court to enforce his rights. (But if a manufacturer has established an IDSM that the attorney general certified as complying in all respects with relevant federal and state law, then a consumer must first use that mechanism before he has the right to a refund or a replacement vehicle.) A consumer can sue in court. The lemon law provides that it does not in any way limit a consumer's other rights or remedies available under other laws.

The law establishes two affirmative defenses to lemon law claims:  (1) the defect or condition does not substantially impair the vehicle's use, safety, or value; and (2) the defect or condition is the result of the consumer's abuse, neglect, or unauthorized modification.  Further, the law absolutely forbids lemon law claims unless the manufacturer, its agent, or authorized dealer has made at least one attempt to repair the vehicle or has refused to do so.

The court may award costs and attorney's fees to a consumer who prevails in a Lemon Law suit, or may award the same to a manufacturer if it finds that a consumer brought the suit without substantial justification.

REFUND OR REPLACEMENT

If a vehicle cannot be made to live up to its warranty, a consumer has the right to choose a refund or a replacement vehicle.

Refund

The refunded purchase price is the full contract price including charges for undercoating, dealer preparation, transportation, and installed options.  The refund must include all collateral charges including sales tax, license and registration fees and similar government charges, and any finance charges incurred by the consumer.  It must also include all incidental damages, defined by the Uniform Commercial Code, as including expenses reasonably incurred in inspection, receipt, transportation, and care and custody of the goods and any other expense incident to the breach of warranty.  A refund must be made to the consumer and lienholder, as their interests may appear.

Reasonable Allowance for Use

Manufacturers may deduct a reasonable allowance for a consumer's use of the vehicle.  A reasonable allowance is determined by multiplying the total price of the vehicle by the number of miles the vehicle traveled and dividing the product by 120,000.

ARBITRATION

The law requires the commissioner to appoint individuals as arbitrators.  An appointed arbitrator must (1) be a member of an arbitration organization;  (2) be paid;  and (3) not be an employee or independent contractor of a business that manufactures, distributes, sells, or services motor vehicles.

The commissioner may refer disputes to the American Arbitration Association or to other arbitration organizations.  The law prohibits an arbitration organization and any arbitrators it appoints from being affiliated with a motor vehicle manufacturer, distributor, dealer, or repairer.  It requires the organization to follow the lemon law's arbitration procedures.

Applying

The law requires DCP to establish a toll-free number for consumers to inquire about arbitration (1-800-538-2277).  Consumers can also learn about the program and download an arbitration application through DCP's website (Department of Consumer Protection).An application must be completed by filing papers describing the dispute and paying a $50 filing fee.  DCP must review the application and, if it qualifies for arbitration, notify the manufacturer, which must submit relevant information and a $250 filing fee.

Panel Deliberations

 

Once all the relevant information has been submitted or collected through DCP's own investigatory powers, DCP sends the written testimony to a technical expert certified by the National Institute of Automotive Service or a comparable organization and refers the case to an arbitration panel.  The technical expert remains available to respond to the panel's questions.

The department may present a case to an arbitrator solely based on the parties' written documents, but only if the consumer and the motor vehicle manufacturer agree in writing and the agreement is signed after the customer has requested arbitration.

An automotive expert must sit as a nonvoting panel member.  The panel must decide within 60 days of receiving the consumer's complaint.

Decisions

A panel may dismiss the case or decide to award any of the remedies authorized by the Lemon Law or Federal Trade Commission regulations.  It must base its decision solely on whether a manufacturer has failed to comply with the Lemon Law.  A panel's decision is final and binding on both parties, but is subject to judicial review.

A panel may order (1) replacement with a comparable vehicle acceptable to the consumer; (2) refund, plus collateral charges; (3) reimbursement for expenses and compensation of incidental damages; and (4) any other remedies available under the vehicle's warranty, the Lemon Law, or federal warranty law.

Compliance

A manufacturer must act in good faith and comply by the date specified in the panel's decision.  The department must contact the consumer to verify compliance within 10 days of the date.

MANUFACTURER'S INFORMAL DISPUTE SETTLEMENT MECHANISM

The state attorney general must issue a certificate of approval to a manufacturer that establishes an informal dispute settlement mechanism that complies in all respects with Federal Trade Commission regulations concerning such procedures and with state Lemon Law requirements.  The attorney general is authorized to make any investigation necessary to determine compliance and to revoke a certificate if a mechanism fails to comply with all requirements.

A consumer must use a manufacturer's certified dispute settlement program before availing himself of his Lemon Law rights to a refund or replacement vehicle.

Program Requirements

The Lemon Law prohibits a manufacturer's program from including any practice which (1) delays a decision for more than 60 days after the consumer contacts the settlement program;  (2) delays the ordered remedies for more than 10 days after the consumer signifies that he accepts the decision;  (3) requires the consumer to make the vehicle available for inspection more than once and available for repair more than once by a dealer;  (4) fails to consider the remedies available under the Lemon Law, including repair, replacement, refund, reimbursement for expenses and collateral charges, compensation for consequential and incidental damages, and any other remedy available under express or implied warranties;  (5) requires the consumer to take any action not required by pertinent Federal Trade Commission regulations;  or (6) fails to conform to all Lemon Law standards concerning the handling of consumer complaints.

The law requires programs to keep extensive records on the number of vehicles sold in the state and the receipt, handling, and disposition of consumer complaints.

MOTOR VEHICLE MANUFACTURER'S ASSN. V. O'NEILL

In 1989, the original arbitration scheme in the lemon law was invalidated in Motor Vehicle Manufacturer's Assn. v. O'Neill, 212 Conn. 83 (1989). At the time, DCP administered three-member arbitration panels to settle lemon law disputes. In addition to refund or replacement, the panels could order reimbursement for expenses, compensation for incidental damages, and any other remedy (other than repair) available under the Connecticut Unfair Trade Practices Act or authorized under federal law for informal dispute settlement procedures. Under prior law, manufacturers, but not consumers, were bound by the panels' decisions.

The manufacturers' association challenged the lemon law on three grounds. One, by requiring manufacturers to submit cases to arbitration, the law deprives them of their right to a jury trial. Two, by limiting the scope of judicial review of appeals, it violates the state constitution's separation of powers provisions and the right of access to courts. Three, by requiring manufacturers to pay a $250 filing fee to defend themselves in arbitration, it denies them due process and equal protection of the law.

The court agreed with the challenge on one issue. It held that the limited judicial review of manufacturer appeals is unconstitutional and that a higher level of judicial review is necessary.

The state Supreme Court held that this process unconstitutionally limits a manufacturer's access to court and limits its right to judicial review. The General Assembly amended the lemon law to make panel decisions binding on both parties, subject to the judicial review described below. It limits the basis on which panels make their decisions to whether manufacturers have failed to comply with the lemon law.

Under the act, the court's review is restricted to the record of the panel's proceedings. But the court must conduct a de novo review of legal questions raised by the appeal. It must also consider factual questions. In doing so, it must uphold the panel's decision unless it finds (1) that the findings are unsupported by substantial evidence in the record and (2) the substantial rights of the appellant have been prejudiced. The law already establishes standards for vacating or modifying arbitration awards.

If the arbitrators have failed to state their findings or reasons for the award, or if they are inadequate, the court must examine the record to determine if there is a reason to uphold the award.

The court upheld the law on the other two issues. It ruled that the essentially equitable, rather than legal, nature of the arbitration panel proceedings means there is no automatic right to a jury trial. It also held that requiring manufacturers to pay a $250 filing fee was not unconstitutional because it did not foreclose the opportunity to challenge lemon law claims.

RETURNED VEHICLES

The law requires a manufacturer to notify the Department of Motor Vehicles (DMV) when accepting a returned vehicle.  This notice must include all relevant information, including the vehicle's make, model, year, vehicle identification number, and original title number.  Manufacturers must also stamp “MANUFACTURER BUYBACK” on the face of the original title in letters at least one-quarter inch high.  a copy of the stamped title must be sent to the DMV.

MR/DD:tjo