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Dealer Wins on Appeal of Warranty Decision
By Dana F. Clarke

Vehicle warranties are complicated things regulated by federal and state laws. The resolution of disputes about warranties usually depends on the relationships among the various parties to a vehicle sale transaction, the documents, and a lot of who-said-what-to-whom. Here’s a typical example.

Nathan Sheridan leased a used vehicle from Fladeboe Volkswagen, Inc. Prior to the lease, Fladeboe installed in the vehicle an aftermarket audio visual system, which came with an express warranty from the system manufacturer and Volkswagen of America, Inc.

Sheridan then embarked on a trip to Las Vegas. On the way, the vehicle lost power and was towed to a Volkswagen dealer. The dealer determined that the power loss was due to the audio visual system.

Sheridan demanded that Fladeboe repair the vehicle, reimburse him for his expenses, and inform him of the name of the audio visual system’s installer. When Fladeboe informed Sheridan that he would have to drop his reimbursement demand to learn the name of the installer, Sheridan sued Fladeboe and Volkswagen, alleging breach of contract, violation of the Song-Beverly Act, negligence, negligent misrepresentation, fraud, suppression of facts, and cruelty to kittens (just kidding).

Volkswagen cross-complained against Fladeboe for indemnification, contribution, and breach of contract, and successfully moved for summary judgment against Sheridan. The trial court also entered judgment against Fladeboe on Sheridan’s claim for breach of express warranty and violation of the Song-Beverly Consumer Warranty Act and against Fladeboe on Volkswagen’s indemnity claim for attorneys’ fees and costs.

Not happy with these results, Fladeboe appealed to the California Court of Appeals, arguing that the trial court erred in finding a breach of the lease agreement and in awarding attorneys’ fees and costs to Volkswagen.

The appellate court agreed that the trial court erred in finding against Fladeboe on Sheridan’s breach of express warranty and violation of the Song-Beverly Consumer Warranty Act claims. The court explained that the lease agreement between Sheridan and Fladeboe provided that the vehicle was being provided “as is” and without any warranties. The court noted that the only warranties on the vehicle were from the audio visual system installer and Volkswagen.

Sheridan also argued that Fladeboe breached its contract with Volkswagen, which the court noted as being irrelevant given that Sheridan was not a party to that contract and his complaint did not allege a third-party beneficiary theory.

The court also reversed the award of attorneys’ fees and costs to Volkswagen, finding that the trial court erred in determining the amount of the award. The court noted that the parties did not disagree that Volkswagen was entitled to its attorneys’ fees in defending against Sheridan’s complaint, but Volkswagen had also included its attorneys’ fees and costs in prosecuting its cross-complaint. The court rejected Volkswagen’s argument that the fees for prosecuting the indemnity claim were only incidental to the fees incurred to defend against Sheridan’s complaint and remanded the claim to the trial court for determination of the proper award.

Sheridan v. Fladeboe Volkswagen, Inc., 2011 Cal. App. Unpub. LEXIS 3228 (Cal. App. April 29, 2011).

Dana F. Clarke is a partner in the California office of Hudson Cook, LLP. He can be reached at 714-263-0427 or by email at dclarke@hudco.com.

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