Laura C. Williams and R. Bryan Martin | Haight Brown & Bonesteel | December 14, 2015
In Daniel v. Ford Motor Company (filed 12/02/15), the Ninth Circuit resolved a federal and state court split on the issue of whether consumers can sustain a breach of implied warranty claim under California’s Song Beverly Consumer Warranty Act (aka the “lemon law” statute) for “latent” defects discovered after the warranty period has expired. Answering this question in the affirmative, the Ninth Circuit followed the holding in the California state appellate decision of Mexia v. Rinker Boat Co. 95 Cal.Rptr.3d 285 (2009), which definitively determined there is nothing in California’s lemon law that requires a consumer to discover a latent defect during the duration of the warranty.
The underlying class action lawsuit was brought in federal district court by purchasers of Ford Focus vehicles. The plaintiffs alleged Ford was aware of, but failed to disclose, a rear suspension defect in the Focus that resulted in premature tire wear which can cause decreased vehicle control, catastrophic tire failure and drifting on wet or snowy roads. The plaintiffs alleged a number of claims including violations of California’s Song Beverly Consumer Warranty Act and Magnuson Moss Warranty Act. Ford successfully moved for summary judgment on all claims prompting an appeal.
On review, the Ninth Circuit identified three key issues it would decide: 1) whether summary judgment was proper where the district court had declined to follow the precedent in Mexia, which held “latent” defects may still breach the implied warranty even when they are not discovered within warranty’s duration period; 2) whether summary judgment was proper where the district court misinterpreted the language of Ford’s express warranty; and 3) whether the district court properly credited certain evidence presented by the plaintiffs.
Turning to issue one, the Ninth Circuit acknowledged the Song-Beverly Consumer Warranty Act contains a one year durational limit for the implied warranty of merchantability under California Civil Code §1791.1(c). The Court went on to emphasize the controlling authority in Mexia, which stated, “[t]here is nothing [in §1791.1] that suggests a requirement that the purchaser discover and report to the seller a latent defect within that time period.”
In response to Ford’s argument that a number of federal district court cases had distinguished and rejected Mexia outright, the Ninth Circuit reiterated the rule that it was bound to follow the intermediate courts of the State of California, i.e. Mexia, unless there was convincing evidence the California Supreme Court (which had denied review) would have decided the matter differently had it granted review. Finding no published or unpublished California court opinions disapproving or rejecting Mexia, the Ninth Circuit upheld Mexia emphasizing the case was in line with the legislative intent to expand consumer protections and remedies.
With respect to issue two, the Ninth Circuit found Ford’s express warranty was ambiguous as it was unclear whether it was limited to manufacturing defects or if it also included design defects upon which plaintiffs’ claims were premised. The Court determined that under contract interpretation principles, the ambiguous warranty must be construed against the drafter, Ford, and thus the warranty was deemed to include both manufacturing and design defects, allowing plaintiffs to proceed with their claims.
Finally, analyzing issue three, the Ninth Circuit determined, contrary to the district court, that plaintiffs had presented sufficient evidence to create a triable issue as to the element of reliance with respect to their fraudulent omission claims under California’s Consumer Legal Remedies Act and Unfair Competition Law. Specifically…