California Supreme Court Clarifies Possible Lemon Law Damages

By Chariese Solorio, Sarah M. Nakamoto, and Olivia LaCasto*

In Kirzhner v. Mercedes-Benz USA, LLC (2020) 9 Cal.5th 966, the California Supreme Court expanded the possible damages that are recoverable under the Song-Beverly Consumer Warranty Act (the “Act”) to include registration renewal and nonoperation fees as incidental damages if such fees were “incurred after the manufacturer’s duty to promptly provide a replacement vehicle or restitution arises.” Id. at 980.

In Kirzhner, the plaintiff leased a new vehicle from the defendant manufacturer. The plaintiff alleged that during the warranty period, the vehicle exhibited defects. The plaintiff also alleged that he presented the vehicle to the defendant for repair, but the defendant was unable to remedy the defects after a reasonable number of attempts. Months after filing suit, the plaintiff accepted a settlement offer the defendant made pursuant to Code of Civil Procedure section 998, stating that the defendant would provide either a replacement vehicle or restitution. Id. at 970. The plaintiff selected restitution and requested reimbursement for vehicle registration renewal and nonoperation fees he paid after the initial lease of his vehicle. Id. at 969-70.

The California Supreme Court held that registration renewal and nonoperation fees are not recoverable as collateral charges because they are not auxiliary to and do not supplement the price paid to own or lease a vehicle. However, such fees are recoverable as incidental damages if they are incurred as a result of the manufacturer’s breach of its duty to promptly provide a replacement vehicle or restitution under the Act. Id. at 970.

Based on the plain language of the Act, the court concluded that only the initial registration fee paid at the time of the lease or purchase of the vehicle and not any subsequent registration renewal or nonoperation fees are recoverable as collateral charges. The court found the Act makes clear that charges must be collateral to the “price paid or payable” to be recoverable. Id. at 972. Subsequent registration renewal and nonoperation fees do not supplement the price paid to own or lease the vehicle. Id. at 973. Such fees are not paid to the dealer as part of the total cost in exchange for the vehicle.  Id. Rather, they are paid to the Department of Motor Vehicles long after the initial purchase or lease transaction in order to continue to legally own or operate the vehicle. Id. at 975.

Further, the court concluded that registration renewal and nonoperation fees are recoverable as incidental damages if they were incurred as a result of the manufacturer’s failure to promptly provide a replacement vehicle or restitution once its obligation to do so arises. Id. at 977. Such fees paid after the manufacturer’s duty arises are expenses incurred in the “care and custody” of a defective vehicle because the buyer would not have incurred such fees but for the manufacturer’s delay. At that point, “the fees are no longer simply a standard cost of ownership” and are more like post-revocation care and custody costs that courts have awarded as incidental damages. Id. at 980.Kirzhner was remanded for the plaintiff to have an opportunity to prove that the registration renewal and nonoperation fees he paid resulted from the defendant’s failure to promptly provide him with restitution. Id. at 987-988.

*Olivia LaCasto is a 2023 summer associate in Snell & Wilmer’s Orange County office and is not admitted to practice law. She is anticipated to graduate from Loyola Law School in May 2024.