be presented to the court. Therefore, plaintiffs’ attorneys will often include the repairing dealer(s) in order to attempt to destroy the federal diversity jurisdiction (which allows federal courts to hear cases involving “citizens” of different states). By naming a California dealership in the lawsuit, filed by a California plaintiff, the diversity of citizenship requirement cannot be met, and the case will be sent back to state court. The result is that plaintiffs’ counsel now regularly name dealers for “negligent repair” causes of action with no real evidence of any actual negligent by the dealership in diagnosis or repairing the vehicle, and with no real intent to actually litigate against the dealers since plaintiffs are not able to recover attorneys’ fees on a negligence claim. What Should a Dealer Do When It Is Served With a Lemon Lawsuit? Dealerships should immediately forward any lemon lawsuits in which they are named to their manufacturer and request defense and indemnification. Both dealer sales and service agreements and California law provide dealers with potential rights on lemon law claims. Specifically, Vehicle Code Section 11713.13(f)(1) provides that it is unlawful and a violation of the Vehicle Code for a manufacturer/ distributor to fail, upon demand, to indemnity an existing or former dealer from claims resulting from “(A) The condition, characteristics, manufacture, assembly or design of any vehicle, parts, accessories, tools or equipment, or the selection or combination of parts or components manufactured or distributed by the manufacturer or distributor.” If a dealer doesn’t know where to send the lawsuit and its tender, it should review its dealer sales and service agreement (which often provides the specific address and/or department where the lawsuits should be sent), ask its manufacturer/ distributor’s regional team, or forward it to its manufacturer/distributor’s legal department. It is important to forward the lawsuits as soon as possible since the manufacturer may take upwards of a couple of weeks to a couple of months to review and respond to the tender. In the meantime, the dealership will, in most circumstances, only have 30 days from its receipt of the lawsuit to file a response to the complaint. It is very important for a dealer to make sure it timely responds to the complaint, or else it risks having the plaintiff’s counsel obtain a default against it. Because many of the newer breed of lemon lawsuits include a negligent repair claim against the dealer, some of the manufacturers may deny the tender outright and tell the dealer it will have to defend itself in the lawsuit, which will require the dealership to hire its own attorney to respond to the complaint and defend the lawsuit. Other manufacturers may agree to defend and indemnify its dealers on lemon lawsuits with negligent repair claims, but will propose an indemnification agreement with a carve-out for those claims alleged solely against the dealer. What is Next on the Lemon Law Horizon? New Legislation Proposed (AB 1755) There is a new Assembly Bill (AB 1755) that recently passed the legislature that will change some of the processes in how lemon law cases are litigated. While it is not entirely clear from the bill whether dealers that are named in the lemon lawsuit are covered by the changes (which predominantly refers to the manufacturer/distributor), the bill will place limits on early discovery procedures, require mediation and limit the buyer’s ability to recover a civil penalty if the manufacturer timely offers to repurchase or replace the vehicle. At this writing, the bill is currently pending on Gov. Gavin Newsom’s desk. Rodriguez v. FCA US LLC Appeal to California Supreme Court In addition to AB 1755, there is currently a case pending before the California Supreme Court that will have a significant impact on lemon law cases for used vehicles sold with a remaining factory warranty. The California Supreme Court is scheduled to hear oral arguments in early September 2024 and must decide whether California’s lemon law statute applies to used vehicles that were not sold as CPO units but were purchased with a remaining new vehicle warranties. The lower court in the Rodriguez case found that the Lemon Law did not apply. While that result seems favorable, if the California Supreme Court upholds the prior ruling, it may lead to an increase in litigation against the selling dealers without any protection or indemnity from the manufacturer. We reasonably anticipate that if the Rodriguez decision is upheld by the Supreme Court, plaintiffs’ counsel will shift their focus to the selling dealer for claims related to the implied warranties that accompany the sale of a vehicle, fraud or negligent misrepresentation regarding the condition of the vehicle at the time of sale and the representations made by the sales staff, and Consumers Legal Remedies Act (CLRA) claims regarding the condition of the vehicle. Manning, Leaver, Bruder & Berberich LLP is a Los Angeles law firm that practices throughout California and has been in existence for over 100 years. It has a strong automobile dealer practice covering all areas related to the automobile dealer industry, including dealership buy-sells, real estate transactions, business and consumer litigation, regulatory compliance, dealer association law and franchise law. See www.manningleaver.com for more information and areas of practice. Nothing in this article may be considered as legal advice. Contact legal counsel for legal advice. 1. California’s Lemon Law: A Sweet Deal for Lawyers, Sour for Consumers by Kyla Christoffersen Powell, published in the Los Angeles Daily News on July 17, 2024. 2. Civil Code Section 1793.22. 3. Civil Code Section 1794(c). 29 California New Car Dealer Quarterly
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