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Court Holds ‘Lemon Law’ Arbitration Panels May Offer Refund Reduced by Mileage Offset

2003-1284. Maitland v. Ford Motor Co., 2004-Ohio-5717.
Franklin App. No. 02AP-935, 153 Ohio App.3d 161, 2003-Ohio-3009. Judgment reversed.
Moyer, C.J., Lundberg Stratton, O'Connor and O'Donnell, JJ., concur.
Resnick, F.E. Sweeney and Pfeifer, JJ., dissent.
Opinion: http://www.supremecourt.ohio.gov/rod/newpdf/0/2004/2004-Ohio-5717.pdf

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(Nov. 10, 2004) The Supreme Court of Ohio today ruled 4-3 that a vehicle owner who asserts a claim under Ohio 's “Lemon Law” and accepts an arbitration award of less than the full purchase price of the vehicle is precluded from later suing the manufacturer to recover the difference between the arbitration award and the full purchase price.

The Court also held that deduction of a mileage offset from a Lemon Law arbitration award or settlement offer does not constitute a deceptive or unconscionable act under Ohio 's Consumer Sale Practices Act.

The case involved a class action lawsuit filed by Beatrice Maitland and other consumers who experienced continuing mechanical problems with new vehicles they leased or purchased from Ford, General Motors and Daimler Chrysler and subsequently sought relief under Ohio 's Lemon Law.

In each instance, the manufacturer disputed the consumer's claim that a vehicle qualified as a “lemon,” and the matter was referred to mandatory arbitration through a manufacturer-sponsored independent dispute resolution mechanism (IDRM). In each case, the IDRM panel found that the vehicle did not conform to warranty requirements, and ruled that the manufacturer should refund the purchase price of the vehicle or terminate the lease minus a prorated mileage set-off amount to cover the buyer's prior use of the vehicle. Each of the plaintiffs accepted the panel's award.

In September 2000, Maitland and other vehicle purchasers who had received less-than-full refunds filed suit in Franklin County Common Pleas Court . Their complaint asserted that the mileage set-offs deducted from their awards by IDRM panels violated a specific provision in the Lemon Law, R.C. 1345.72(B), that entitles the owner of a non-complying vehicle to one of two specific remedies: a replacement vehicle acceptable to the owner or a refund of the full purchase price plus certain other expenses. The suit also sought additional damages on a separate claim that the manufacturer-controlled IDRM panels' deduction of mileage set-offs from the plaintiffs' arbitration awards, when no such set-offs are authorized by the Lemon Law, constituted an “unconscionable, deceptive or unfair business practice” under the state Consumer Sales Practices Act (CSPA).

The common pleas court granted a motion by the manufacturers to dismiss the suit. It ruled that, by accepting the reduced refunds awarded by the IDRM panels, the plaintiffs had settled their Lemon Law claims and had waived the right to pursue additional recovery under that statute.

On review, the 10th District Court of Appeals reversed the trial court and ordered it to reinstate and hear the plaintiffs' case. The appellate panel held that, if true, the facts asserted by Maitland and the other plaintiffs did state a claim for which they could reasonably seek additional recovery from the manufacturers under both the Lemon Law and CSPA.

Today's Supreme Court decision, authored by Justice Evelyn Lundberg Stratton, reversed the court of appeals and reinstated the trial court decision dismissing Maitland's suit.

“We agree with the trial court that the plaintiffs had the opportunity to reject the decision of the arbitration board and file a civil action under (the Lemon Law). Instead, they chose to accept the arbitration decision and settle their warranty disputes,” wrote Justice Stratton.

Under the Lemon Law, Justice Stratton wrote, “a consumer may settle a warranty dispute or accept the decision of an informal dispute-resolution board, avoiding the time and cost of protracted litigation and the exasperation of owning a defective vehicle. The consumer agrees to accept a setoff from the refund of the vehicle's purchase price, in lieu of having to prove in court that the vehicle is defective, whereas the setoff provides the manufacturer with an incentive to settle a disputed claim in lieu of requiring the consumer to prove in court that the vehicle is defective. The consumer is not required to make such a compromise, and may instead file a civil action … ”

“Because the Lemon Law does not preclude a refund of less than the full purchase price in either settlement or the informal dispute-resolution process, we agree with the trial court that the plaintiffs' cause of action based on the Lemon Law fails to state a claim for relief and should be dismissed,” wrote Justice Stratton. “Because we have determined that the settlement and informal dispute-resolution processes are not bound by the remedies set forth in R.C. 1345.72(B), and that the parties' settlements with the manufacturers preclude subsequent litigation, we also hold that the plaintiffs' cause of action based on the Consumer Sales Practices Act fails to state a claim for relief and should be dismissed.”

Justice Stratton's opinion was joined by Chief Justice Thomas J. Moyer and Justices Maureen O'Connor and Terrence O'Donnell.

Justice Paul E. Pfeifer entered a dissenting opinion, joined by Justices Alice Robie Resnick and Francis E. Sweeney Sr., in which he wrote that the majority decision “eviscerates the Lemon Law.”

“The plain language of R.C. 1345.72(B) provides that when the Lemon Law is violated, the consumer can choose between receiving a new car or a full refund. In this case, even though the vehicles were found to violate the Lemon Law, the consumers received neither new cars nor full refunds. The reason for this disconnect is that consumers were allowed to accept a settlement offer that was contrary to the mandate of R.C. 1345.72(B),” wrote Justice Pfeifer.

Finding the Legislature's intent in enacting that the Lemon Law was to give greater leverage to consumers who are in an “unequal bargaining position” with auto manufacturers, Justice Pfeifer wrote: “In my view, the IDRM is limited to determining whether the Lemon Law has been violated. No other reading is compatible with the plain language of (the statute), which provides only two specific remedies for violations of the Lemon Law. … To allow settlements when the statute does not authorize them is to read into the statutory scheme provisions that are not there.”

John Murray, 419.624.3000, for Beatrice Maitland et al.

Elizabeth McNellie, 614.462.2651, for Ford Motor Company.