MMWA Etch Claim Fails, but State Claim Sticks

November 2009, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author

“Throw enough of it against the wall, and something will stick,” says the adage, and plaintiffs’ lawyers heed that advice. In a recent case, the lawyer claimed that the dealer violated the Magnuson Moss Warranty Act’s (MMWA) anti-tying provisions, and also claimed that the MMWA violation constituted a separate violation of a state “unfair and deceptive acts and practices” or “UDAP” law. The court rejected one claim but allowed the other. Here’s what happened.

Car buyers bought an anti-theft “etch” system in connection with their motor vehicle purchase from a dealership owned and operated by Penske Automotive Group Inc. Penske sold the etch system with a limited warranty under which purchasers could elect coverage for either two or five years. The warranty provided up to a $7,500 credit at the dealership where the buyer bought the car if the etch failed to deter vehicle theft and the car was not recovered.

The warranties purchased designated a specific Penske dealership as the dealership for which the buyers would receive a credit. Although none of the buyers suffered a vehicle theft, they filed a class action lawsuit against Penske and the etch provider for violations of the MMWA and state UDAP laws.

The buyers claimed that the warranty created an unlawful “tying” arrangement in violation of the MMWA by tying the benefit of the warranty to a Penske dealership. Penske moved to dismiss, and the buyers moved for summary judgment.
The U.S. District Court for the District of New Jersey noted that the MMWA prohibits warrantors from conditioning a written or implied warranty on the consumer using any article or service identified by brand, trade, or corporate name other than an article or service provided without charge under the terms of the warranty.

Penske claimed that the buyers could not sustain this claim because the MMWA requires a showing of actual damages. The court agreed, concluding that the MMWA requires a plaintiff to demonstrate actual damages proximately caused by a party’s failure to comply with the MMWA in order to prevail on such claims.

The court upheld, however, the buyers’ claim under the state unfair and deceptive acts and practices laws. The court noted that the state law provides a remedy for plaintiffs if a warranty simply contains a provision prohibited by the MMWA, even without actual damages.

Because the warranty violated the substantive anti-tying provision of the MMWA, it violated state law. Thus, the court allowed the state law claim to proceed.

We’ve seen several instances of this sort of “bootstrapping,” where a plaintiff argues that a violation of a federal law or regulation constitutes a state UDAP law violation. The plaintiffs’ lawyers really like UDAP claims because, typically, a state UDAP law provides that a successful plaintiff is entitled to actual damages, plus some multiple (double or sometimes triple the plaintiff’s actual damages) plus attorneys’ fees and court costs.

That can make a plaintiffs’ lawyer smile. And a dealer frown.

Vol. 6, Issue 10

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