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Ninth Circuit Rules in Consumer’s Favor in California Vehicle Warranty Case

carBusinesses that sell goods to the public must follow guidelines established by consumer protection laws, which prohibit deceptive advertising and other fraudulent or misleading acts. This can apply to the use of specific words in particular market sectors. If a word, term, or phrase has a distinct meaning for a particular good or service, it is known as a “term of art.” The misleading use of a term of art could entitle a consumer to damages under various California laws. The Ninth Circuit Court of Appeals recently ruled in favor of a consumer who brought statutory and common-law claims against a car dealership in connection with its use of the term “completed inspection report” in its marketing. Gonzales v. CarMax Auto Superstores, LLC, Nos. 14-56842, 14-56305, slip op. (9th Cir., Oct. 20, 2016).

The plaintiff in Gonzales asserted causes of action under three California statutes. First, the California Consumers Legal Remedies Act (CLRA), Cal. Civ. Code § 1750 et seq., prohibits a wide range of “deceptive practices.” This includes “[m]isrepresenting the…certification of goods;” “[r]epresenting that goods…have…characteristics…which they do not have;” and “[r]epresenting that goods…are of a particular standard, quality, or grade,…if they are of another.” Id. at §§ 1770(a)(2), (5), (7). Consumers may recover actual damages, injunctive relief, restitution, punitive damages, and other relief.

The Song-Beverly Consumer Warranty Act (CWA), also known as the California Lemon Law, covers retail goods sold in the state of California. Cal. Civ. Code § 1790 et seq. It requires sellers to include certain warranties with those goods:  the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. If a manufacturer provides express warranties, it must offer sufficient resources or contract with third-party service providers to fulfill its obligations under those warranties. Damages for consumers include “replacement or reimbursement,” rescission of a sales contract, or the cost of repair. Id. at § 1794. Willful violations may allow an award of double the amount of actual damages.

The California Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., prohibits “unfair, deceptive, untrue or misleading advertising.” Id. at § 17200. Consumers may recover a civil penalty of up to $2,500 for each violation. The penalty for an intentional violation may be as high as $6,000.

The dispute in Gonzales involved the term “inspection report.” The plaintiff purchased a used vehicle from the defendant, largely based on the defendant’s claim that every vehicle was “certified” with an inspection report. The defendant provided him with a certificate, but the car developed problems shortly after the purchase. The plaintiff filed suit, alleging that the defendant’s inspection report failed to meet the requirements of California state law, found in Cal. Veh. Code § 11713.18(a)(6). He asserted causes of action under the CLRA, the CWA, and the UCL, and for common law fraud.

While the trial court granted summary judgment for the defendant, the Ninth Circuit reversed that ruling. It held that “in the automobile industry, ‘inspection report’ is a term of art with an established technical meaning.” Gonzales, slip op. at 12. By using the term “inspection report,” the court held, the defendant obligated itself to follow state law.

Business litigation attorney James G. Schwartz has represented Bay Area businesses and business owners in litigation and transactional matters for the past 40 years. To schedule a free and confidential consultation with a member of our knowledgeable and experienced team, contact us today online or at (925) 463-1073.

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