BRIEF SUMMARY OF ARIZONA WARRANTY LAW

BRIEF SUMMARY OF ARIZONA WARRANTY LAW In addition to the basic common law breach of warranty claim, Arizona plaintiffs have three codified avenues for redress in the Arizona Uniform Commercial Code, 1 the federal Magnuson-Moss Warranty Act, 2 and the Arizona Motor Vehicle Warranties Act. 3 UNIFORM COMMERCIAL CODE Arizona has adopted the provisions of the Uniform Commercial Code (UCC), which are set forth in Title 47 of the Arizona Revised Statutes. Article 2 allows causes of action for breach of: (1) express warranty; 4 (2) implied warranty of merchantability; 5 (3) implied warranty of fitness for a particular purpose. 6 The UCC also provides an additional equitable remedy of revocation 7 and allows disclaimers and limitations of warranty. UCC Express Warranty An express warranty is created by (1) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain that warrants that the goods shall conform to the affirmation or promise; (2) any description of the goods which is made part of the basis of the bargain that warrants that the goods shall conform to the description; or (3) any sample or model which is made part of the basis of the bargain that warrants that the whole of the goods shall conform to the sample or model. 8 To recover under a theory of breach of express warranty, the plaintiff must show there is a warranty between the buyer and seller, the warrantor has failed to perform as provided for in the express warranty and the plaintiff has suffered damages as a result. 9 UCC Implied Warranty of Merchantability An implied warranty of merchantability is created when the defendant-seller is a merchant with respect to the goods sold. Ariz. Rev. Stat. 47-2314(B). 10 To recover under a theory of breach of an implied warranty of merchantability, the plaintiff needs to 1 (set forth in Title 47 of the Arizona Revised Statutes) 2 (15 U.S.C. 2301, et seq.) 3 (Ariz. Rev. Stat. 44-1261, et seq.). 4 A.R.S. 47-2313 5 A.R.S. 47-2314 6 A.R.S. 47-2315 7 A.R.S. 47-2608 8 A.R.S. 47-2313; Dillon v. Zeneca Corp., 202 Ariz. 167, 171, 42 P.3d 598, 602 (App. 2002). 9 A.R.S. 47-2313. 10 Dietz v. Waller, 141 Ariz. 107, 685 P.2d 744 (App. 1984). 1

show that a defect complained of existed at the time of sale 11 and that the defect renders the product unfit for the ordinary purposes for which such goods are used. 12 However, unlike in strict product liability, the Code plaintiff claiming a breach of implied warranty of merchantability cannot claim against a remote manufacturer because of lack of privity. 13 UCC Implied Warranty of fitness for a Particular Purpose An implied warranty of fitness for a particular purpose is created between a buyer and a seller when the defendant-seller knew of the particular purpose for which the product was required, and that the plaintiff-buyer relied upon the defendant s skill and judgment to select or furnish suitable goods. 14 Likewise it is not available against a remote manufacturer due to the privity requirement. UCC Revocation of Acceptance The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it either 1) on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or 2) without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. 15 Under the U.C.C., the buyer is no longer required to elect between revocation of acceptance and recovery of damages for breach. Both are now available to him 16 but revocation of acceptance is not available to a plaintiff against a remote manufacturer, for lack of privity 17 and it does not apply to a new motor vehicle which is subject to the provisions of title 44, chapter 9, article 5 (Arizona s Lemon Law ). 18 11 Hines v. Mercedes-Benz USA, L.L.C., 358 F.Supp.2d 1222 (ND Ga. 2005); Powers v. American Honda Motor Co., Inc., 139 Idaho 333, 336, 79 P.3d 154, 157 (2003) 12 Dietz v. Waller, 141 Ariz. 107, 685 P.2d 744 (App. 1984). 13 Id.; Flory; Rocky Mountain, supra; Hines v. Mercedes-Benz USA, L.L.C., 358 F.Supp.2d 1222 (ND Ga. 2005); American Suzuki Motor Corporation v. Superior Court, 37 Cal.App.4th 1291, 44 Cal.Rptr.2d 526 (1995) 14 Tri City Property Mgt. Servs., Inc. v. Research Prods. Corp., 149 Ariz. 596, 721 P.2d 144 (App.1986). 15 A.R.S. 47-2608 16 Id. at Comment 1 17 Chaurasia v. General Motors Corp., 212 Ariz. 18, 22, 126 P.3d 165, 169 (App. 2006); Ocana v. Ford Motor Co., 33 Fla. L. Weekly D2325, 992 So.2d 319 (Fla.App. 2008) 18 A.R.S. 47-2608(D) 2

UCC Warranty Disclaimers and Limitations Sellers may limit or exclude consequential and incidental damages and also disclaim all warranties, express or implied 19 unless the disclaimer/exclusion is unconscionable. 20 Sellers may also limit the buyers remedies under the warranty to returning the non-conforming goods, repayment of the purchase price, or repair or replacement of non-conforming goods or parts. 21 However, when the limited remedy fails of its essential purpose, the buyer is allowed to pursue other remedies available under the U.C.C. 22 A warranty fails in its essential purpose if, for example a warrantor is unable to repair or replace a defective part under the repair or replace provision of its limited warranty. 23 FEDERAL MAGNUSON-MOSS WARRANTY ACT While the Magnuson-Moss Warranty Act ( MMWA ) does not require a manufacturer to supply a warranty with the sale of a consumer product 24 it does require that a warrantor who supplies a warranty costing the consumer more than ten dollars at retail to comply with the disclosure requirements set forth in 15 U.S.C. 2302; 2303. The Federal Trade Commission has authority to prescribe regulations addressing and enforcing disclosure requirements. 25 The MMWA calls for the application of state written and implied warranty law rather than the creation of additional federal law, except in specific instances in which the Act expressly prescribes a regulating rule. 26 The provisions of the MMWA that create a private cause of action permit a consumer to sue a warrantor for (1) a violation of the substantive provisions of the Act, (2) a breach of a written warranty, (3) a breach of an implied warranty, or (4) a breach of a service contract 27. MMWA Designation as Full or Limited The MMWA requires a warrantor to clearly and conspicuously designate its warranty as either a full (statement of duration) warranty or a limited warranty. 28 It is important to distinguish the differences between full and limited warranties. The 19 A.R.S. 47-2316 20 A.R.S. 47-2719(C). 21 A.R.S. 47-2719. 22 A.R.S. 47-2719(B). 23 Kalil Bottling Co. v. Burroughs Corp., 127 Ariz. 278, 282, 619 P.2d 1055, 1059 (App. 1982); Roberts v. Morgensen Motors, 135 Ariz. 162, 166, 659 P.2d 1307, 1311 (App. 1982). 24 15 U.S.C. 2302(b)(2). 25 16 C.F.R. 700 to 703. 26 Walsh v. Ford Motor Co., 807 F.2d 1000, 1012 (D.C. 1986); See 15 U.S.C. 2301 et. seq.; Plagens v. National RV Holdings, 328 F.Supp.2d 1068, 1073-74 (D. Ariz. 2004). 27 Id. 28 See 15 U.S.C. 2303. 3

majority of product warranties are, in fact, limited warranties. There has been much dispute as to the provisions of 15 U.S.C. 2304, which describes the minimum provisions of a full warranty and the provisions of 15 U.S.C. 2310, which discusses consumer remedies under the MMWA. Some jurisdictions have read these two provisions to mean that the MMWA provides that the remedy under any written warranty is refund or replacement. This is contrary to the clear and unambiguous language of the MMWA. Arizona is amongst the majority of jurisdictions which have held that the remedy of refund or replacement is applicable only to full warranties, as set forth in 15 U.S.C. 2304, and that the remedies available to consumers for breach of a limited warranty are dependent upon the remedies available by the terms of the written warranty under state law. 29 Therefore, in the case of a breach of written warranty in Arizona, the court would simply revert to the Arizona law on product warranties. 30 MMWA Full Warranty When a warrantor has designated a warranty as a full warranty, it incorporates the Federal Minimum Standards that are set forth in 15 U.S.C. 2304. In order for a warrantor warranting a consumer product by means of a written warranty to meet the Federal minimum standards for warranty-- (1) the warrantor must remedy the product within a reasonable time, without charge when there is a defect, malfunction or failure to conform to the written warranty; (2) the warrantor may not limit the duration of any implied warranty on the consumer product; (3) the warrantor may not exclude or limit consequential damages for a breach of the written warranty or implied warranty unless the limitation is conspicuously displayed on the face of the warranty; and (4) if the product contains a defect or malfunction after a reasonable number of attempts by the warrantor to remedy the defect or malfunction, the warrantor must either replace the consumer product or refund the consumer the money paid towards the product. 31 MMWA Limited Warranty Any written warranty that does not provide all of the elements above, must be designated a limited warranty. There is no corresponding requirement under the MMWA for a warrantor that supplies a limited warranty, except that it complies with the 29 Chaurasia v. General Motors Corp., 212 Ariz. 18, 22, 126 P.3d 165, 169 (App. 2006); Ocana v. Ford Motor Co., 33 Fla. L. Weekly D2325, 992 So.2d 319 (Fla.App. 2008) 30 Plagens, 328 F.Supp.2d at 1073-74 (supra at note 220). 31 15 U.S.C. 2304. 4

MMWA s other disclosure requirements. 32 A limited warranty must be conspicuously designated as a limited warranty and must fully and conspicuously discloses in simple and readily understood language the terms and conditions of such warranty, in accordance with the rules promulgated by the Federal Trade Commission. 33 MMWA Statute of limitations The MMWA does not provide a statute of limitations governing actions by a private consumer on its face and, as such, the courts look to the most analogous state statute to determine the appropriate statute of limitations. 34 In Arizona, a federal district court has determined that the statute of limitations for an MMWA is four years from the time the cause of action accrues because the U.C.C. is the most analogous statute. 35 MMWA Attorney s fees If a consumer is successful in an action under the MMWA, the court may award the consumer reasonable attorneys fees and costs. 36 However, the MMWA does not preclude an award of attorney s fees to a successful defendant in state court, 37 while fees are not awardable to a successful defendant in Federal court for a purely Federal cause of action. 38 MMWA Implied Warranties. The term implied warranty means an implied warranty arising under State law (as modified by sections 2308 and 2304(a) of this title) in connection with the sale by a supplier of a consumer product. The modifications referred to are 1) if a limited written warranty is provided, implied warranties may not be disclaimed; however, they may be limited to the duration of the written warranty; 39 and 2) the duration of an implied warranty may not be limited in a full warranty. 40 32 See, 15 U.S.C. 2303(a)(2); Ventura v. Ford Motor Corp., 433 A.2d 801, 808-809 (N.J. 1981); Lara v. Hyundai Motor Corp., 331 Ill.App. 3d 53, 60 (2d Dist. 2002); American Law of Products Liability 3d 18:11 (2003); Barkley Clark & Christopher Smith, The Law of Product Warranties 16.03 (Warren, Gorham & Lamont 1984). 33 16 C.F.R. 701.1; 702.1, et seq. 34 Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1140 (9 th Cir. 2000). 35 Hillery v. Georgie Boy Manufacturing, Inc., 341 F.Supp.2d 1112 (D. Ariz. 2004). 36 See 15 U.S.C. 2310(d)(2). 37 Chaurasia 38 Plagens, 328 F.Supp.2d at 1073-74 (supra at note 220). 39 15 U.S.C. 2308 40 15 U.S.C. 2304(a) 5

MMWA Remedies in Consumer Disputes. A consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under the MMWA, or under a written warranty, implied warranty, or service contract, may bring suit for damages and other legal and equitable relief. If, however, the supplier, warrantor, or service contractor has established an informal dispute settlement procedure which is incorporated into the terms of a written warranty, and which is in full compliance with the rules promulgated by the Commission, 41 and the warrantor incorporates in its written warranty a requirement that the consumer resort to such procedure before pursuing any legal remedy under the MMWA respecting such warranty, then a consumer may not commence a civil action under the MMWA without first resorting to the informal dispute resolution process. 42 ARIZONA MOTOR VEHICLE WARRANTIES ACT The Arizona Motor Vehicle Warranties Act 43 A.R.S. 44-1261, et seq., requires that, if a motor vehicle does not conform to all applicable express warranties the consumer shall report the nonconformity to the manufacturer, its agent or its authorized dealer or issuer of a warranty during the shorter of a) the term of the express warranty; or b) the period of two years; or c) twenty-four thousand miles from the date of original deliver, whichever first occurs. A.R.S. 44-1262 specifically defines the conditions and timeframe within which a vehicle to be considered a lemon. In other words, after the warranty expires, or after the vehicle has been driven 24,000 miles, or after two years, from the date of original delivery, whichever first occurs, defects in a motor vehicle no longer give way to relief under the Act. Under the Act, if the manufacturer is unable to conform the motor vehicle to any express warranty by repairing or correcting the defect or condition which substantially impairs the use and value of the motor vehicle to the consumer after a reasonable number of attempts, the manufacturer must either replace the motor vehicle with a new motor vehicle or refund the consumer the full purchase price, including all collateral charges. The manufacturer is entitled to reasonable offset for the consumer s use of the vehicle during ownership. 44 If the motor vehicle is a motor home, the Act applies only to the self-propelled vehicle and chassis, but not to those portions of the vehicle designed, used or maintained primarily as a mobile dwelling, office or commercial space. The Act further does not apply to any vehicle with a declared gross weight over 10,000 pounds, motor vehicles purchased for resale, or sold at public auction. 41 16 C.F.R. 703.1, et seq. 42 15 U.S.C. 2310 43 The Act is also referred to as the Arizona Lemon Law 44 A.R.S. 44-1263. 6

Lemon Law Presumptions The Act provides that it is presumed that a manufacturer has had a reasonable number of attempts when either of the following conditions exists: (1) the same nonconformity has been subject to four or more repair attempts, but the non-conformity continues to exist; or (2) the motor vehicle has been out of service by reason or repair for a cumulative total of thirty or more calendar days. 45 However, the presumption is not without conditions and it is a rebuttable presumption. For instance, if a vehicle is delivered to the manufacturer s authorized dealer for repair, and the repair is effectuated in four days, but the consumer, by his own choice, does not retrieve the vehicle for 24 days, the additional 20 days will not be attributed to the time out of service by reason of repair. In order for the presumptions to apply against a manufacturer, the consumer must provide the manufacturer with prior direct written notification of the alleged defect and allow the manufacturer a reasonable opportunity to cure the defect. 46 While the issue has not been addressed by Arizona courts, the clear language of the statute states that one of the presumptive conditions must occur within the statutory warranty period of 2 years or 24,000 miles of original delivery of the vehicle. Thus, where a defect is subject to repair at the one year mark, then again at the eighteen month mark, then again at the 26,000 mile mark, the presumption would not apply because the third repair came after the expiration of the 24,000 mile period set by the statute. Meeting the presumption is not, however, a prerequisite to bringing an action under the Act; rather, the presumption of reasonable number of repair attempts is simply not available and burden of proof may be more difficult for the plaintiff. Lemon Law Defenses and Limitations A consumer must bring an action under the Act within 6 months of the expiration of 2 years or 24,000 miles (statutory warranty period), or expiration of the written warranty, whichever first occurs. Prior to suit, however, the consumer, or someone on his behalf must have given the manufacture direct written notice of the nonconformance and provide the manufacturer a final opportunity to cure. If, upon the final opportunity to cure, the nonconformance is cured, there is no cause of action under the Act. The issue as to how the final opportunity to cure would affect a claim of 30 days out of service has not been addressed in Arizona. In addition, if a manufacturer has established or participates in an informal dispute settlement procedure which complies in all respects with 16 code of federal regulations part 703, 44-1263 relating to refunds or replacement does not apply to any consumer who has not first resorted to such a procedure. Although not specifically stated, since refund or replacement is the exclusive remedy under the Act, it stands to reason that there really can be no cause of action under the Act under these circumstances. 45 See A.R.S. 44-1264(A). 46 A.R.S. 44-1264(C). 7

The Act provides two specific affirmative defenses: 1. An alleged nonconformity does not substantially impair the use and market value of the motor vehicle. 2. A nonconformity is the result of abuse, neglect or unauthorized modifications or alterations of the motor vehicle. 47 In addition, under Arizona law 1) the Act does not apply to leased motor vehicles; 48 and 2) the consumer must retain possession of the motor vehicle throughout the duration of the litigation as return of the vehicle to the manufacturer is a key element of the exclusive remedy of refund or repurchase. 49 Lemon Law Substantial Impairment In order to recover under the Act, the defect or condition complained of must substantially impair the use and value of the motor vehicle to the consumer. 50 The issue of substantial impairment is one of great debate across the country. Some jurisdictions have applied a purely subjective test, some a purely objective test, and others variations of combinations of the subject and objective tests. 51 Arizona has not reached this issue; however, the Legislature s use of the terms use and market value in the Act as an affirmative defense lends to the conclusion that the actual use and market value of the vehicle at issue would be held to be objectively applicable to determination of substantial impairment and the objective test will weigh heavier than the subject test in Arizona courts. Lemon Law Obligations of the Consumer and the Manufacturer Upon Decision or Award of Repurchase When the manufacturer is obligated under the Act to replace the motor vehicle or refund the purchase price, the manufacturer is allowed a reasonable allowance for the consumer s use of the motor vehicle. 52 Some jurisdictions provide statutory formulae for calculation of reasonable allowance for use; Arizona does not. In 2010, the U.S. District Court, Arizona, in addressing the issue of jurisdictional limits, applied the California formula of: mileage/120,000 (x purchase price). 53 The basis for this formula 47 A.R.S. 44-1263(B) 48 Parrot v. DaimerlChrysler, 212 Ariz. 255, 130 P.3d 530 (2006) 49 Hull v. DaimerlChrysler, 209 Ariz. 256, 99 P.3d 1026 (App. 2004) 50 A.R.S. 44-1263(A) 51 Iams v. DaimlerChrysler Corp., 174 Ohio App.3d 537, 548, 883 N.E.2d 466, 475 (Ohio App. 3 Dist.,2007) 52 Id. 53 Moreno v. General Motors, 2010 WL 276744 (D.Ariz.) Not Reported in F.Supp.2d. 8

is seemingly a fair one, in that it takes into consideration and calculates for the variation in value of usage based upon the purchase price of the vehicle. Thus, the usage per mile charge for a Jaguar, being a luxury car, would be more than the usage per mile charge for an F-150, being an everyday use vehicle. There may also be some offset or consideration based upon damage or conditions of the vehicle attributable to the plaintiff s care, maintenance, and/or damage to the vehicle which are not directly related to any nonconformance with the warranty. The consumer must retain possession of the motor vehicle throughout the duration of the litigation as return of the vehicle to the manufacturer is a key element of the exclusive remedy of refund or repurchase. 54 In Hull, the plaintiffs leased the subject vehicle, purchased the vehicle at the end of the term of the lease, and sold the vehicle just prior to trial. Because return of the vehicle to the manufacturer is required for refund or replacement, the Arizona Court of Appeals held that that Plaintiffs failure to retain possession of the vehicle precluded recovery under the Arizona Motor Vehicle Warranty Act. Lemon Law Attorney Fees If a consumer is successful in a claim under the Act, the court shall award the consumer reasonable costs and attorney s fees. Unlike the MMWA, the award of attorney s fees to a plaintiff under the Arizona Motor Vehicle Warranties Act is not discretionary. 55 Also unlike the MMWA, an award of attorney s fees to a successful defendant is permissible. CONCLUSION Although warranty litigation can, and often does, become muddled and seemingly complex, when the focus on the actual issues and applicable law is maintained, warranty litigation should be very straight-forward. The rights, remedies, and obligations/duties of all of the parties are in writing both in the written sales contracts and warranties, and in the applicable statutes. This should lead to an early case assessment and early settlement or one can spend more time and money than the case is worth because at the end of the day one never gets an award of more than the value of the product and fees awarded rarely cover true costs. Settle early and settle often. Negatu Molla Monroe, McDonough, Goldschmidt & Molla, PLLC 4578 North First Ave., Suite 160 Tucson, Arizona 85718 Ph: (520) 325-2000 Fax: (520) 886-3527 Email: nmolla@mmgm-law.com 54 Hull v. DaimerlChrysler, 209 Ariz. 256, 99 P.3d 1026 (App. 2004) 55 A.R.S. 44-1265; 15 U.S.C. 2310 9