New Jersey Lemon Law: Pending Legislative Initiatives, DD 12/06

Defense Digest

New Jersey Lemon Law: Pending Legislative Initiatives

In 1989 the State of New Jersey joined many other states in enacting consumer protection legislation that is popularly known as the "Lemon Law." This law provides remedies to consumers beyond that which may be already available under existing laws that govern warranty disputes or consumer fraud claims. The Lemon Law is set forth at Title 56, Section 18, Chapter 29 through 49 of the New Jersey Statutes Annotated. Essentially, the Lemon Law enables purchasers of new vehicles that meet certain criteria to obtain either a refund of the purchase price or a replacement vehicle. This article will provide an overview of the current Lemon Law, explain why it is very powerful, and then discuss pending attempts by the Legislature to expand the protections offered by this law.

Current Law

The intent of the Legislature is stated in the statute:

The Lemon Law applies to both lessees and purchasers of new vehicles. The law currently provides that a manufacturer (or its dealer) shall, within the earlier of 18,000 miles or two years, make all repairs necessary to correct a "nonconformity" within a "reasonable time." The term "nonconformity" is defined to mean "a defect or condition which substantially impairs the use, value or safety of a motor vehicle."

However, the Legislature did not define what is meant by "substantial" or by "reasonable time." Those terms have been the subject of judicial interpretation over time.

The Legislature has provided that, under very specific conditions, a rebuttable presumption may arise that a manufacturer is unable to repair a "nonconformity" within a "reasonable time," within the period of protection (the earlier of 18,000 miles or two years). The conditions are: (1) three or more repair attempts for "substantially the same nonconformity, and it continues to exist" or (2) the vehicle has been out of service for "one or more nonconformities" for a cumulative of 20 or more days and the nonconformity continues to exist, and, in addition to (1) or (2), above, the manufacturer must receive a written warning, by certified mail, return receipt requested, giving the manufacturer a final opportunity to effect the repair within ten calendar days of the receipt of the warning letter. If the repair is satisfactory, the consumer is not entitled to relief under the Lemon Law. If it is not, then the consumer may pursue such relief.

The foregoing criteria pertain only to the triggering of the presumption. However, some consumer advocates argue that, by analogy, those criteria should serve to supply the definition of what is meant by "substantially impairs the use, value or safety of a motor vehicle."

In any event, if a vehicle is found to qualify, with or without the presumption, the consumer has the election of a repurchase or a replacement vehicle. If the consumer elects a repurchase, the manufacturer is entitled to a credit or set-off for the amount of mileage the vehicle was driven. The calculation of that set-off is set forth in N.J.A.C. 13:45A-26.11.

The Lemon Law also mandates that the consumer be provided a written notice of his or her rights under this law at the time the vehicle is leased or purchased. Failure to provide that written notification is a violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56: 8-2.

It should also be noted that the courts have interpreted the Lemon Law as only applying to vehicles used for personal, i.e., non-commercial, purposes.

Impact of Current Law

Because of the inherent ambiguity in the statute, consumers are free to argue, and do argue, that any number of concerns may constitute a "substantial impairment" of the "use, value or safety" of a vehicle.

In McClintock v. Chrysler, 91 N.J.A.R.2d 2 (CMA) (1991), Administrative Law Judge (now Superior Court Judge) Kane stated, "The remedial provisions of the Act are only evoked when defects become life threatening, cause the vehicle not to function or result in a great diminution in the value of the vehicle." (emphasis added).

However, vehicles have been found to be "Lemons" for concerns such as persistent water penetration or repetitive activation of dash warning lights. Plaintiffs' attorneys routinely assert that "…whether a defect or nonconformity substantially impairs the use or value of the goods to a buyer is not purely ‘objective’." Berrie v. Toyota Motor Sales, USA, Inc., 267 N.J. Super. 152, 157 (App. Div. 1993). Plaintiffs argue that such alleged impairments "…may be ‘personalized' in the sense that the facts must be examined from the viewpoint of the buyer and his circumstances, objective in the sense that the criterion is what a reasonable person in the buyer’s position would have." They assert that, under Berrie, a vehicle may qualify as a "Lemon" if its alleged nonconformities "shake the confidence" of the consumer.

Because many people who serve as jurors have had some unpleasant experiences with motor vehicles, many plaintiffs enjoy a certain amount of sympathy. There are plaintiffs' attorneys who have dedicated their practices to this area of the law. The current Lemon Law is robust and, as with many consumer protection laws in New Jersey, is generally interpreted very liberally to effectuate the social goals articulated in the statement of legislative intent that was cited above.

Pending Initiatives to Broaden the Lemon Law

At the present time there are several Bills pending in legislative committees to expand the scope of the current Lemon Law.

Bills A811 (in the Assembly) and S534 (in the Senate) would expand the period of protection from 18,000 miles to 24,000 miles. If this were to happen, this would make the mileage consistent with the time period of 24 months.

The Senate committee made some amendments as of February 9, 2006, which involve the conditions necessary to trigger the presumption discussed above. The Senate amendments would cause the "three repair" requirement to only apply to nonconformities that are unlikely to cause death or serious bodily injury if the vehicle is driven. The Senate then would add a third condition that could trigger the presumption. The third condition would be the existence of a nonconformity that is "likely to cause death or serious bodily injury" if the vehicle is driven and is subject to only one repair and it continues to exist.

The three conditions that would exist if the Senate Bill were to become law would be in the alternative. A consumer would need only satisfy one of the three conditions: (1) three repairs for non-serious nonconformities, (2) 20 or more days out of service, or (3) one repair for a serious nonconformity. In addition to any one of those three, the consumer, or the consumer's attorney, would still have to submit the written warning to the manufacturer, giving it a last chance to repair the alleged nonconformity

The Senate amendment would also mandate that the initial notification to the consumer of his or her Lemon Law rights be written in the English and Spanish languages.

Bill A1005 (in the Assembly) would mandate that, if a vehicle were subject to being repurchased, the manufacturer would be entitled to no credit or set off for vehicle mileage. It does not appear that a comparable Bill has yet been introduced in the Senate.

Bills A3203 (in the Assembly) and S1890 (in the Senate) would essentially carry over the Lemon Law methodology to the area of new home sales. These Bills would amend N.J.S.A. 46:3B-7, which established the New Home Warranty Fund. This Fund was created to provide reimbursement to home purchasers who have been unable to obtain satisfactory repairs from their builders.

The proposed amendment provides that after a "reasonable number of repair attempts" fail to correct a construction defect or code violation, which pose a safety hazard or "substantially impairs the use or market value" of the new home, the Fund will purchase the home from the owner for a sum to reflect the market price adjusted for increases in market value, plus all relevant expenses.

The proposed amendment also provides that the Fund would thereafter institute legal action against the builder to recover the reimbursements made by the Fund, plus the costs incurred by the Fund to purchase the home and institute the legal action.

The proposed amendment provides a presumption that a reasonable number of repair attempts has failed to correct the defect or code violation if, within two years of initial notification of the defect or code violation, there have been:

To trigger that presumption, the builder must receive written notification, via certified mail, return receipt requested, that gives the builder a final opportunity to correct the defect or violation. The final warning shall be given after two or more repairs or after the owner has been unable to occupy the home for 20 or more days.

The proposed amendment would also mandate that, if the Fund prevails and the home must be repurchased by the builder, it could not be re-sold or leased unless a written notification were provided to the subsequent purchaser or lessee of the home advising of the status of the home. Failure to provide that written notice would entitle the subsequent purchaser or lessee to void the sale or lease and would constitute a violation of the Consumer Fraud Act, N.J.S.A. 56: 8-2.

Bill A1189 (in the Assembly) would amend the Consumer Fraud Act. Although this does not implicate the Lemon Law, per se, it does impact new vehicle manufacturers. This proposed amendment would require motor vehicle manufacturers to "establish a procedure" whereby consumers would be informed of any "adjustment program," i.e., any expansion or extension of a consumer's warranty. This would not include adjustments made on a case-by-case basis.

Under this proposed amendment, the manufacturers directly, or through dealers, shall advise consumers of the existence of such adjustments and advise the consumer, when the vehicle is presented for service, of the existence of such a program to reimburse eligible repair costs. The proposed amendment would mandate that any violation would constitute a violation of the Consumer Fraud Act, which could enable the consumer to recover triple damages and counsel fees.

Conclusion

As discussed above, the current Lemon Law pertains only to new motor vehicles and provides a very powerful tool to consumers who believe they have not received a satisfactory product for their money.

Pending initiatives in the Legislature would expand the methodology of the Lemon Law to new home purchasers. Pending initiatives would also provide new vehicle consumers with an expanded period of protection, insofar as mileage is concerned, and would create an alternative condition under which a presumption could be triggered to benefit the consumer. Another pending initiative would also deny the manufacturer any credit or set off for mileage while the vehicle was operated by the consumer. In effect, allowing the consumer to have free use of the vehicle and obtain a refund or replacement vehicle.

The New Jersey Legislature has historically positioned itself as being "progressive" or consumer-friendly. The pending initiatives would appear to be consistent with that history. Naturally, every benefit conferred upon someone will have a cost associated therewith. Inevitably, the proposed benefits for New Jersey consumers would be offset by way of increased costs of products sold in New Jersey, and those costs would be paid by other consumers. This is sometimes called "cost spreading."

These proposed initiatives are not yet the law of this state. Effective advocacy may yet forestall them from being enacted into law. By presenting these initiatives to concerned communities of interest, such advocacy may yet be realized.

Should these initiatives become law, they will increase the leverage that consumers have against vehicle manufacturers (or home builders) and will likely encourage consumers to become litigants. In particular, Bill S534, that redefines the nature of the conditions needed to trigger the presumption of an actionable nonconformity, is very serious.

Existing jurisprudence has given some meaning to the undefined term "substantial impairment." While the proposed amendment would seemingly only pertain to the existence, vel non, of the presumption, it would be logical for the plaintiffs' bar to seek – by analogy – to argue that the Legislature has intended to make repetitive defects actionable, even if they do not pose a threat of death or serious bodily injury. In this way, the proposed amendment could be viewed as a mechanism to re-define the term "nonconformity" to mean "non-substantial" impairment of use, value or safety.

Were this to happen, we could expect a profound change in the litigation environment.

Forewarned is forearmed.

* Nick is an associate in our Cherry Hill, New Jersey office. He can be reached at (856) 414-6015 or nikierniesky@mdwcg.com.