BMW buyer to get day in court on lemon-law claims

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BMW logo is seen during Munich Auto Show, IAA Mobility 2021 in Munich, Germany, September 8, 2021. REUTERS/Wolfgang Rattay
  • BMW cannot hitch a ride on customer and dealership's installment contract that compels arbitration
  • Luxury car manufacturer violated warranty, California and U.S. consumer protection acts, buyer contends

(Reuters) - BMW cannot force a California woman to arbitrate her breach of warranty claims under state and federal “lemon laws,” a U.S. appeals court held.

The 9th U.S. Circuit Court of Appeals overturned a ruling Tuesday that allowed the manufacturer to enforce an arbitration agreement in an installment contract that Kim Ngo had signed to arrange dealer financing through a BMW subsidiary for a new 535i in 2012.

“Here, the arbitration clause expressly states that only three parties — Ngo, the dealership, and (the BMW subsidiary) — may compel arbitration … none of which is BMW,” the three-judge panel held.

The decision sends Ngo’s lawsuit against the manufacturer back to U.S. District Court in Los Angeles, where she filed it in July 2020 after BMW North America allegedly refused to repurchase or replace the car after seven trips to the repair shop between 2015 and 2019. She alleged that BMW had breached its four-year, 50,000-mile warranty and violated the “repair, replace or repurchase” provisions of the California Song-Beverly and federal Magnuson-Moss Warranty Acts.

In an answer filed in the district court in 2020, BMW denied Ngo’s allegations and said she had waited too long to file suit.

A week after filing that answer, BMW filed a motion to compel arbitration. Although it was not a party to Ngo’s installment contract with the dealership, it argued that the contract was intended for its benefit and because of its “affiliation” with BMW Bank.

U.S. District Judge Michael Fitzgerald agreed that BMW was a third-party beneficiary of the installment contract, and ordered the case to arbitration in September 2020.

However, the 9th Circuit said there was no evidence that the installment contract was meant for BMW’s benefit.

To the contrary, the parties “could have easily added BMW” to the short list of parties entitled to enforce the arbitration clause, but never did so, Circuit Judge Barrington Parker wrote for the court. Parker, a 2nd Circuit judge who sat on the 9th Circuit by designation, was joined by 9th Circuit Judges Kim McLane Wardlaw and Andrew Hurwitz.

In addition, the installment contract specified that it “does not affect any warranties covering the vehicle that the vehicle manufacturer may provide,” and the manufacturer’s warranty clearly allows consumers to proceed in court, Parker wrote.

Ngo’s attorneys at Gupta Wessler and Strategic Legal Practices did not immediately respond to requests for comment on Tuesday.

BMW and its attorneys at Morgan, Lewis & Bockius also had no immediate comment.

The case is Ngo v. BMW North America et al., 9th U.S. Circuit Court of Appeals, No. 20-56027.

For Ngo: Jennifer Bennett and Matthew Wessler of Gupta Wessler and Payam Shahian of Strategic Legal Practices

For BMW: Thomas Peterson, Betty Luu and Lisa Weddle of Morgan Lewis & Bockius

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