The Lemon Report

I didn’t have to put all those zeroes into the title. But wow, thats a lot of money, huh?

Yes, General Motors lost a staggering 38.7 BILLION dollars in the past year. To put that in perspective, if you multiplied the amount of GM shares that exist by the current share price ($26.60), the result would be a market capitalization of only slightly more than 15 billion dollars. In other words, GM lost more than double what the market says its worth… in ONE YEAR.

So here I am, representing consumers who are either suing GM, about to sue GM, or trying to get a settlement from GM, and from the looks of it, my good friend GM has a pretty decent shot of filing for BANKRUPTCY at some point.

This is, to be perfectly blunt… literally… a Lemon Nightmare. (Cue the sour scary music).

Lets go off on a tangent for a minute. Many of you will remember a company called Daewoo that manufactured low end vehicles in the late 1990’s. When they filed for bankruptcy, the court established a trust fund to pay for warranty repairs. As far as I can tell, there were never any issues with the funding of the trust fund. However, Daewoo vehicles still lost half their value. Why? Well first off, it became very difficult to find Daewoo parts. Then, Daewoo owners found that they could not obtain collision insurance because the difficulty in obtaining such parts made it impractical for insurers to pay for repairs. And in the period before creation of the trust fund, unsold Daewoo vehicles rusted on the dealership lots, as it was illegal to sell them in some states without a warranty.

SO, in the event of a GM bankruptcy, even if provisions were made by the court for payment of warranty claims, which isn’t a given considering the cost of this liabilty, the value of the vehicles are likely to decline significantly. This would broadly effect a large segment of the US population. Essentially, a good many of us would be forced to ‘write down’ the value of our second biggest asset.

But, you ask, this is a lemon law blog, right? How would a GM bankruptcy effect my lemon law case?

Now one thing I never wanted to be was a bankruptcy lawyer. I can’t honestly say that I always dreamed of being a lemon lawyer, but one day it started to make sense, and I actually quite enjoy it. Bankruptcy, on the other hand, is the subject that I tended to snooze through in law school. HOWEVER, if there is one thing that even a daft lemon lawyer knows about bankruptcy, its the concept of the “automatic stay”. The rule is pretty black and white. If a person or corporation files for bankruptcy, any lawsuits pending against the debtor is stayed pending a resolution of the underlying bankruptcy issues. So in the (hopefully) unlikely situation that GM or another automobile manufacturer were to file for bankruptcy, any pending lemon law cases would be delayed indefinitely. Any cases that we were hoping to settle would likely be delayed as well.

Meanwhile, as these cases languish, the bankruptcy court would proceed to restructure the liabilities of the company or perhaps order its liquidation. Warranty rights of consumers could theoretically be discharged, but its more likely that the the court would create a Daewoo-like trust from the remaining assets of the corporation to cover warranty repairs going forward.

Whether or not such a trust would be sufficiently funded is a key question. Keep in mind, GM has been increasing the term of its warranty, perhaps in a desperation move to take in more revenue now at the expense of future costs. It would take a whole lot of money to cover warranty repairs on GM vehicles for upwards of the next 7 years. But lets assume that there are sufficient funds. That’s the best case scenario. My GM cases are delayed for a few months to a year or so, but ultimately I can pursue them against a solvent trust, unless, of course, the bankruptcy court discharges any past warranty liabilities.

A worst case scenario is, indeed, a situation where those past warranty liabilities are discharged by the court, OR, where the trust is not sufficiently funded. This is where it gets tricky.

If you have ever financed a vehicle, take a look at the back of your finance agreement. In bold letters, you will find a paragraph that states:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

This language is required to be in your retail installment contract, pursuant to a little known rule promulgated by the Federal Trade Commission (16 C.F.R. 433) called the “FTC Rule on Preservation of Consumers’ Claims and Defenses”, otherwise known as the “Holder Rule“. The rule puts lenders into the shoes of a seller of consumer goods in situations where consumers cannot sue the seller. Like, for instance, in this case where a mobile home was damaged due to defective plumbing, the seller of a mobile home went out of business, and the lender had to pay damages to the consumer.

In the unlikely scenario that my GM clients could not enforce their claims against a warranty trust, it would be the lenders who would take the hit. One has to wonder whether lenders take this risk into account when writing loans on GM vehicles. With all the talk lately of a ‘credit crunch’, this is one potential fly in the ointment that is routinely overlooked.

Lets start at the beginning, shall we?

Overview

 The New York Lemon Law, otherwise known as New York General Business Law Section 198-a, is a consumer protection statute originally enacted in 1983 as a response to rampant consumer complaints about defective automobiles.  It has a four year statute of limitations, which means that you can bring a lawsuit or arbitration to enforce your rights under the law within four years of your purchase or lease of the vehicle in question.

What happens if I have a Lemon?

Did you ever hear the phrase, “One man’s terrorist is another man’s freedom fighter”?  This is what comes to mind when I’m asked what happens if your car is a lemon.  One man’s lemon is an automobile manufacturer’s sparkling example of modern engineering.  The trick is getting the right person (or ajudicating entity) to agree its a lemon.  Once you get that accomplished (more about that in a minute), your entitled to your choice of the following:

• Repurchase of the vehicle by its manufacturer.
• Comparable replacement vehicle.

What makes my car a lemon?

This is the type of question that deserves a simple answer.  So here it is.  Your car is a lemon if it has been subject to a sufficient amount of warranty repairs.

Now let me give you the real answer. 

First off, for new cars (which are what I concentrate on), we will only take into account warranty repairs that occur within the first 2 years or 18,000 miles from original delivery of the vehicle, whichever comes first.

Contrary to popular belief, the law does not explicitly require a specific number of warranty repairs or days out of service for repair to qualify your vehicle as a lemon.  Rather, during that 2 year / 18,000 mile time period, if the manufacturer has been unable to repair a substantial defect, “after a reasonable number of attempts”, pursuant to the vehicle’s warranty, then the manufacturer should repurchase or replace the vehicle under the law. 

This is where the law pulls a fast one on us.  Even though it gives us a fuzzy “reasonable” standard to determine how many repairs are sufficient to qualify the vehicle as a lemon, it proceeds to tell us that a court should presume a reasonable number of repair attempts, when the vehicle has been repaired under its warranty 4 times for the same defect (with the defect continuing to persist after the 4th repair attempt), or 30 days altogether for warranty repairs.

Theoretically, a court could decide that only a couple of repair attempts, or perhaps 20 days out of service for repair, satisfy the “reasonable” requirement.  Particularly in cases where the defect complained of puts the occupants of the vehicle in danger of serious harm.  In practice, however, we generally want to see 4+ repairs or 30 days before litigating these cases.

What if my car is working wonderfully… after 14 repairs and 112 days out of service?

Its story time, children. 

 A few years ago, in a land not so far away, a big nasty monster coughChryslercough decided to make life difficult for decent hard working New Yorkers.  Not satisfied with tearing away warranty enforcement rights from automobile Leasee’s (thats a story for another day), the big bad monster dressed himself up in the finest suit available in Albany, and with a growl and hiss, made his way to the Court of Appeals building.  His goal was to coerce the judges into ruling that if an automobile has been fixed, regardless of how many repairs it had previously, then Lemon Law relief should be denied to the good hard working people of New York. 

However, the good judges saw through the monster’s ruse.  For once, reason ruled the day.  It was firmly agreed upon that consumers should not be put in a position of having to avoid having their car fixed in order to take advantage of this consumer protection statute.  Frankly, I was pleasantly shocked.  You can read all about it in DaimlerChrysler Corporation v. Spitzer .

My apologies to The Rose Law Firm.  Seriously..  I love you guys! 

Ok, if you weren’t interested in my story.  The gist of it is that it doesn’t matter if your car is currently working properly.  What matters is how much it was repaired during the 2 year, 18,000 mile presumption period.

What are “substantial” repairs?

Good question!

Specifically, the statute requires that the defect complained of “Substantially impair the value of the vehicle to the consumer.”  Now at this point I am torn between detailing the origins of this language and summarizing the intricacies of its dual subjective/objective interpretation, or giving you a plainer answer.

 For once, simplicity rules the day.  Generally speaking, for a defect to be considered substantial enough to justify Lemon Law relief, it should detrimentally effect the functionality or safety of the car.  No, radio static does not cut it.  The interior molding is loose, too bad.  Water leaking into the vehicle, you have my ear.  Transmission fell out…  8 times.  Your my new best friend.

The lawyers are fighting over me!  They claim that I won’t have to pay them!  Are these lawyers on crack?

Some of them are!  Err..

The Lemon Law is considered a consumer protection statute.  One nice thing about such statutes is that in order to make the laws more practical for consumers to utilize, there are often fee-shifting provisions contained within them that require a defendant to pay the legal fees of a consumer who wins his case in court.  This creates an incentive for the automobile manufacturers to settle cases early if they have any merit in order to avoid having to pay out even more money in legal fees (both for their own lawyers, and for the consumer’s).  In cases where the manufacturer voluntarily repurchases or replaces a vehicle pursuant to the New York Lemon Law, they will pay a fee to the attorney, at that early stage, of approximately $2,000.00, give or take a few hundred.  If it goes into litigation and settles, or if the consumer ends up winning the case, the attorney fee paid by the manufacturer will be a great deal higher.

So yes, us Lemon Law attorneys are put in the enviable position of not having to rely upon our clients for our money.  And we fight tooth and nail for your business.  Which also benefits you.

What else do I need to know?

Now your asking too much!  What, you want me to end this blog on its second post?  Get real!  If you absolutely must have more New York Lemon Law information this very minute, might I humbly suggest the FAQ section of my web site, Lemonfirm.com/info.htm?

Get to it!

Welcome to The Lemon Report, where all the news thats fit to print about… the New York Lemon Law… is not exactly printed. But its here anyway.

This would not be a first blog post unless I introduced myself. So here goes. My name is Eugene Krukas, and among other things, I’m a Lemon Lawyer based in Long Island, New York. Feel free to browse my web site, Lemonfirm.com. In addition to my local practice, I am also involved in several consumer protection law partnerships with attorneys in other states. My out of state law partners and I collectively advertise on the internet through the Lemonfreedom.com web site.

Besides suing large automobile manufacturers, my interests include baseball, fishing, and eating… preferably a good dry aged steak.

(Behold, my stock photo)

The purpose of this blog is to discuss the ins and outs of the New York State Lemon Law. Quite a niche, eh? The fact of the matter is the topic isn’t very interesting to people who have working cars. And the rest of you wish you didn’t have to read what I have to say.

Nonetheless, the goal here is to provide some basic information to those of you who find yourselves in the unfortunate position of having paid good money for a big problem. I welcome comments and suggestions by other people in the industry, but the primary focus is on information for the consumer. To that extent, I am always happy to address any topics that are emailed to me at ekrukas@gmail.com.

I’ll finish this inaugural post with a quote. Call it gallows humor if you will.

“If the automobile had followed the same development cycle as the computer, a Rolls-Royce would today cost $100, get one million miles to the gallon, and explode once a year, killing everyone inside.”
-Robert X Cringely