Attacking Breach of Implied Warranty Claims in
Magnuson-Moss Actions Brought in Privity States
Paul E. Wojcicki
Kathleen M. McDonough
Segal McCambridge Singer & Mahoney, Ltd.*
Chicago, Philadelphia, Princeton, Austin, Brighton, New York, Baltimore
Introduction
In breach of warranty actions brought against motor vehicle manufacturers or
distributor/warrantors under the Magnuson-MossBFederal Trade Commission
Improvement Act of 1975, 15 U.S.C. ' 2301, et seq. (AMagnuson-Moss Act@),
consumers invariably include a breach of the implied warranty of merchantability
claim along with their breach of written warranty claim against the remote
manufacturer or distributor-warrantor. In theory, at least, a breach of implied
warranty claim is easier to prove than is a breach of written warranty claim.
Generally, in order to establish a breach of a written warranty, a consumer must
show that parts or workmanship in the car proved defective under normal use and
were not repaired or replaced under the warranty. Arguably, even if several defects
arise, the written warranty is not breached provided that each is repaired or
corrected within a reasonable time.
On the other hand, to prove a breach of implied warranty of merchantability claim,
plaintiff need only show that the vehicle was unfit for its ordinary purpose, that is, it
failed to provide a reasonably safe and reliable means of transportation.
Accordingly, the warranty may be found to have been breached where there are no
recurring problems, but there are a relatively large number of repair attempts during
the warranty period. In other words, while a large number of repair attempts, itself,
should not be sufficient to impose liability for breach of a written warranty, this factor
alone may support a finding that the implied warranty of merchantability has been
breached.
In Illinois, and several other states, privity is required in order to maintain a cause of
action for breach of implied warranty where a plaintiff seeks solely economic
damages. That is, the implied warranty arises only between the consumer and his
*
Mr. Wojcicki and Ms. McDonough are shareholders of the firm. They represent several
automobile and motor home manufacturers, importer-distributors, retail dealers, and
auto financing companies in Magnuson-Moss actions pending in state and federal
courts in Illinois, Indiana, and Michigan.
immediate seller, usually the dealer. In the vast majority of cases the consumerplaintiff is not in vertical privity with the manufacturer/warrantor. Federal courts hold
that where vertical privity is required to give rise to an implied warranty under state
law, it is required under the MagnusonBMoss Act. Federal courts, moreover, reject
the notion that by issuing a written warranty, the manufacturer or other warrantor
creates privity with the consumer-purchaser. The Illinois Supreme Court has
reached the opposite conclusion, reasoning that by giving a written warranty the
manufacturer/warrantor creates a Aprivity-like@ relationship between itself and the
consumer for purposes of the Magnuson-Moss Act, but not for purposes of state law.
But, because MagnusonBMoss is a federal statute, as a matter of policy, state
courts should follow federal court decisions construing it.
Accordingly,
MagnusonBMoss plaintiffs should not be allowed to pursue breach of implied
warranty claims in states, like Illinois, that require vertical privity.
In Magnuson-Moss Actions, State Law, Including Privity Requirements,
Governs the Creation of Implied Warranties
The Magnuson-Moss Act defines the term "implied warranty" as "an implied warranty
arising under State law . . . in connection with the sale by a supplier of a consumer
product." 15 U.S.C. ' 2301(7). Accordingly, under the MagnusonBMoss Act, state
law, including privity requirements, governs the creation of implied warranties.
Abraham v. Volkswagen of America, Inc., 795 F.2d 238, 249 (2nd Cir. 1986); Walsh
v. Ford Motor Co., 588 F.Supp. 1513, 1525 (D.D.C. 1984), affirmed 807 F.2d 1000,
1012 (D.C. Cir.1986); Kowalke v. Bernard Chevrolet, Inc., 2000 WL 656660 (N.D.Ill. Mar.
23, 2000); Jones v. Fleetwood Motor Homes, 1999 WL 999784 (N.D.Ill., Oct 29, 1999);
Larry J. Soldinger Associates, Ltd. v. Aston Martin Lagonda of North America, Inc., 1999
WL 756174 (N.D.Ill., Sept. 13, 1999); Feinstein v. Firestone Tire and Rubber Co., 535
F.Supp. 595, 605, n. 13 (S.D.N.Y.1982). If state law requires vertical privity for the
creation of an implied warranty, vertical privity is required to maintain a breach of
implied warranty claim under MagnusonBMoss. Abraham, 795 F.2d at 242; Walsh,
588 F.Supp. at 1525; Feinstein, 535 F.Supp. at 605, n. 13.
In Abraham, owners of Volkswagen Rabbits brought a nationwide class action
against Volkswagen under Magnuson-Moss alleging breach of written and implied
warranties. Id. 795 F.2d at 241. Volkswagen moved to dismiss for lack of subject
matter jurisdiction, arguing, inter alia, that plaintiffs could not satisfy the Act=s 100
named-plaintiffs jurisdictional requirement. Id. The district court agreed. It found
that breach of implied warranty claims brought under the Act are subject to the privity
requirements of the law of the state in which the car was purchased. Id. at 242.
Accordingly, the court refused to count the plaintiffs who purchased their vehicles in
Illinois, and other vertical privity states, for jurisdictional purposes, finding that those
plaintiffs were not in privity with Volkswagen, and thus did not possess a valid
implied warranty claim. Id. The Second Circuit affirmed this aspect of the district=s
court=s holding, finding that the Act=s Alanguage and legislative history . . . indicate
that Congress did not intend to supplant state law with regard to privity in the case of
implied warranties.@ Id. at 249 (emphasis added; footnote omitted).
Walsh also involved a nationwide class action brought under MagnusonBMoss and
alleging claims for, inter alia, breach of the implied warranty of merchantability. Id.
588 F.Supp. at 1517. Ford moved to dismiss the implied warranty claims brought on
behalf of the named-plaintiffs who purchased cars in vertical privity states. Id. at
1524. It further argued that plaintiffs who did not possess a valid implied warranty
claim could not be counted towards the Act=s 100-named-plaintiff jurisdictional
requirement for class actions. Id. The court found that:
. . . Congress has specifically provided that implied warranties Aarise@
under State law. 15 U.S.C. ' 2301(7). If, in this action, there are to be
any implied warranty claims at all under MagnusonBMoss, they must
Aoriginate@ from or Acome into being@ from state law. [Footnote omitted.]
Therefore, if a State does not provide for a cause of action for breach of
implied warranty where vertical privity is lacking, there cannot be a
Federal cause of action for such a breach.
Id. at 1525 (emphasis added). The district court further observed that the statutory
history and various commentators supported its conclusion that AState privity rules
apply when determining the existence of an implied warranty cause of action under
MagnusonBMoss.@ Id. For example, a Senate report from the Committee on
Commerce, provides:
It is not the intent of the Committee to alter in any way the manner in
which implied warranties are created under the Uniform Commercial
Code. For instance, an implied warranty of fitness for a particular
purpose which might be created by an installing supplier, is not, in
many instances, enforceable by the consumer against the
manufacturing supplier. The Committee does not intend to alter
existing state law on these subjects.
Id., citing Senate Comm. on Commerce, S.Rep. No. 151, 93rd Cong., 1st Sess. 21
(1973) (emphasis added by the court). See also Hearings on Consumer Warranty
Protection before the Subcomm. on Commerce & Finance of the House Comm. on
Interstate and Foreign Commerce, 93rd Cong., 1st Sess. 91, 94 (March 20, 1973).
The Walsh court next turned its attention to the laws of the various states where the
vehicles were purchased, including Illinois. It found that in Illinois, vertical privity is
required to maintain an action for breach of implied warranty. Id. at 1529.
Accordingly, it dismissed the implied warranty claims of the plaintiffs who purchased
their vehicles in Illinois since they were not in privity with Ford. Id. at 1530.
In Feinstein, plaintiffs in three actions, two of which involved MagnusonBMoss
claims, brought claims alleging defects in steel-belted radial tires manufactured by
defendant. Plaintiffs moved for certification of a nationwide class. Id. 535 F.Supp. at
597. Among the reasons identified by the district court for denying class certification
in the MagnusonBMoss actions was the lack of common questions of law. It found
that the Act looks to state law to determine whether an implied warranty is created,
and that state implied warranty law differs in many significant areas such as vertical
privity requirements. Id. at 605. The court highlighted that, A[i]f state law requires
vertical privity to enforce an implied warranty and there is none, then . . . the
warranty does not >arise.=@ Id. at 605, n. 13.
Illinois and several other states continue to adhere to the vertical privity requirement.
See e.g. Rothe v. Maloney Cadillac, Inc., 119 Ill.2d 288, 518 N.E.2d 1028, 1029
(1988) (A[W]ith respect to purely economic loss, the UCC article II implied warranties
give a buyer of goods a potential cause of action only against his immediate seller.@);
Tomka v. Hoechst Celanese Corp., 528 N.W.2d 103 (Iowa 1995); Auto Owners Ins.
Co. v. Chrysler Corp., 129 Mich.App. 38, 341 N.W.2d 223 (1983); Cameron v.
American Dental Technologies, Inc., 1995 WL 599871 *6 (E.D.Mich.) (Under
Michigan law, Awhere no personal injury is involved, plaintiffs must be in privity with
the party against which they are asserting a claim for breach of an implied warranty
of merchantability.@); Mt. Holly Ski Area v. U.S. Electrical Motors, 666 F.Supp. 115,
120 (E.D.Mich.1987) (A[I]in order for a plaintiff to recover economic losses on a
breach of implied warranty theory under Michigan contract law, privity of contract
must exist between the plaintiff and the defendant.@); Davis v. Homasote Co., 281
Or. 383 (1978); see also Henderson v. Chrysler Corp., 191 Mich.App. 337 477
N.W.2d 505 (1991) (privity necessary to maintain a revocation of acceptance claim
under the UCC). In the absence of a direct buyer-seller relationship, the implied
warranty of merchantability does not arise in the states that require privity. Where
the implied warranty does not arise under state law, there exists no implied warranty
for a consumer-plaintiff to enforce against the warrantor under the MagnusonBMoss
Act.
State Court Decisions Holding That Vertical Privity Is Not Required to
Maintain an Implied Warranty Claim Under the MagnusonBMoss Act Are
Inconsistent with the Federal Decisions And Should Give Way
In 1986, the Illinois Supreme Court decided Szajna v. General Motors, 115 Ill. 2d
294, 503 N.E.2d 760, a breach of warranty case brought under the Magnuson-Moss
Act and the Illinois UCC. In Szajna, the Court Adecline[d] to abolish the privity
requirement in implied-warranty economic-loss cases@ brought under the UCC. Id.
115 Ill.2d at 311, 503 N.E.2d at 767. But, the court further held that as a matter of
federal law, where a Magnuson-Moss written warranty is given, the non-privity
consumer may also maintain an action for breach of implied warranty against a
manufacturer/warrantor. Id. 115 Ill.2d at 315, 503 N.E.2d at 769. Subsequently, in
Rothe, the Court explained that in Szajna:
We concluded that Magnuson-Moss does more than merely preclude a
manufacturer/express warrantor from disclaiming an implied warranty
which State law imposes upon him. We concluded that
MagnunsonBMoss
also
actually
imposes
upon
the
manufacturer/express warrantor the same implied warranties which,
under State law, are imposed only against the buyer=s immediate seller.
Rothe, 119 Ill.2d at 209, 518 N.E.2d at 1030. With respect the vertical privity issue,
the Supreme Court=s interpretation of MagnusonBMoss is in conflict with the federal
court decisions that have addressed the issue, Abraham v. Volkswagen of America,
Inc., 795 F.2d 238, 249 (2nd Cir. 1986); Walsh v. Ford Motor Co., 588 F.Supp. 1513,
1525 (D.D.C. 1984); and Feinstein v. Firestone Tire and Rubber Co., 535 F.Supp.
595, 605, n. 13 (S.D.N.Y.1982), as well as the legislative history cited in those
cases. Recent federal cases have expressly rejected the Szjana/Rothe analysis of
the privity issue. See Kowalke v. Bernard Chevrolet, Inc., 2000 WL 656660 (N.D.Ill. Mar.
23, 2000); Jones v. Fleetwood Motor Homes, 1999 WL 999784 (N.D.Ill., Oct 29, 1999) (NO.
98 C 3061); Larry J. Soldinger Associates, Ltd. v. Aston Martin Lagonda of North America,
Inc., 1999 WL 756174 (N.D.Ill., Sept. 13, 1999).
The Supreme Court=s decisions in Szajna and Rothe are also inconsistent with its
decisions addressing the interpretation of federal law. Recently, in Wilson v. Norfolk
& W. Ry. Co., 187 Ill.2d 369, 718 N.E.2d 172 (1999), the court held that Athe
decisions of federal courts interpreting a federal statute . . . are controlling upon
Illinois courts >in order that the act be given uniform application.=@ Id. 187 Ill.2d at
374, 718 N.E.2d at 175, quoting Busch v. Graphic Color Corp., 169 Ill.2d 325, 332,
662 N.E.2d 397 (1996).
It is noteworthy that neither Szajna nor Rothe discuss, distinguish, or even make
mention of the Abraham, Walsh, or Feinstein decisions. Accordingly, it is safe to
assume, and logical to conclude, that Abraham, Walsh, or Feinstein, in which federal
courts interpreted the MagnusonBMoss Warranty Act and its relationship to state law
implied warranty claims, were not brought to the court=s attention. Had the Szajna or
Rothe courts been aware of Abraham, Walsh, or Feinstein, they would have been
required to, and no doubt would have, followed them.
The Szajna and Rothe cases are still the law in Illinois. However, a recent trial court
decision agreed with the arguments raised here, declined to follow Szajna and
Rothe, and dismissed the plaintiff=s breach of implied warranty claim against a
distributor-warrantor. A recent unpublished Illinois appellate court decision notes the
inconsistency between Szajna=s and Rothe=s analysis of the privity issue and federal
decisions which have considered the issue. Griffin v. Mercedes-Benz of North
America, Inc. No. 1-99-2580, Order at 22, n. 6 (1st Dist. Aug. 30, 2000). Previously,
in Brouillet v. Mitsubishi Motor Sales of America, Inc., the Illinois appellate court, in
an unpublished decision, found that the federal court=s analysis of the privity issue
Alends further support@ for its decision to affirm the summary judgment entered in
favor of the distributor-warrantor on the plaintiff=s breach of implied warranty of
merchantability claim. The issue is presently on appeal in two cases pending in the
Illinois appellate court, Valenti v. Mitsubishi Motor Sales of America, Inc. and
Mitchell-Jackson v. Hyundai Motor America.
Conclusion
In most cases, a breach of implied warranty of merchantability claim is more difficult
to defend than a breach of written warranty claim. Accordingly, obtaining dismissal
of an implied warranty claim should make the case easier to defend and increase the
likelihood of a defense verdict, or enhance the prospect of a more cost-effective
settlement. Under the federal courts= interpretation of the Magnuson-Moss Act, in
states that require vertical privity for creation of an implied warranty, a plaintiff is
prohibited from maintaining a breach of implied warranty claim against a
manufacturer/warrantor with whom he in not in privity. State courts should be
encouraged to follow the Illinois Supreme Court=s holding that federal decisions
interpreting federal acts, such as Magnuson-Moss, are controlling, and contrary state
court decisions should give way to the federal decisions.