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Mago v. Mercedes-Benz - 9/7/2006

Arizona Court of Appeals Division One Holds That Lessee Is Not Entitled to Recover Under Arizona’s “Lemon Law” But Can Recover Under the Magnuson Moss Warranty Act Where the Lessee Acquired the Vehicle After a Sale From a Dealer to a Lessor.

Mago leased a new Mercedes-Benz E430 (“the car”) from a dealer (Phoenix Motor Company), that simultaneously sold the vehicle and assigned the lease to a lessor (Mercedes-Benz Credit Corporation). The car was manufactured by Mercedes-Benz U.S.A. Inc. The manufacturer issued a written warranty that covered the car for four years or fifty thousand miles, and the warranty rights were assigned to Mago as part of the lease agreement. The vehicle exhibited numerous problems that were never resolved, and Mago eventually revoked his acceptance of the car. The manufacturer refused the revocation and declined to pay damages. Mago filed a complaint in superior court seeking remedies under A.R.S. § 44-1261 et seq. (“Lemon Law”) and the Magnuson Moss Warranty Act, 15 U.S.C. §§ 2301-2312 (“Warranty Act”). The manufacturer moved for summary judgment, arguing that the statutes do not apply to leased vehicles. The trial court agreed, finding that Mago, as a lessee, is not a “consumer” as used in either the Lemon Law or the Warranty Act.

The Court of Appeals reversed, based on its then-recent decision in Parrot v. DaimlerChrysler Corp., 210 Ariz. 143, 108 P.3d 922 (App. 2005), which held that a lessee may seek remedies under either statute because a lessee constitutes a “consumer” under both statutes. The Supreme Court, however, vacated that decision, and remanded the Mago case for reconsideration in light of its holding in Parrot v. DaimlerChrysler Corp., 212 Ariz. 255, 130 P.3d 530 (2006).

In Mago, the Court of Appeals held that the Supreme Court’s decision in Parrot compelled a conclusion that Mago does not possess any remedies under the Lemon Law, reasoning that as a lessee, Mago does not hold title to the car and therefore has no title to transfer to the manufacturer. Transfer of title is necessary in order to obtain, in return, a replacement vehicle or refund as contemplated by the Lemon Law. However, the Court found that Parrot does not dictate resolution of the Warranty Act issues. Unlike the situation examined by the Supreme Court in Parrot, the record here “reflects a second sale – one from Dealer to Lessor.” Thus, the Court had to decide (1) whether that sale constituted a “qualifying sale” under the Warranty Act, and if so, (2) whether Mago demonstrated he is a “consumer” as defined by the Warranty Act.

The Court held that “a qualifying sale must only occur sometime within the sequence of events that ultimately places the consumer product with the consumer,” and because Mago produced evidence that the sale from Dealer to Lessor led to his lease of the car, his status as a lessee (rather than a buyer) did not preclude his seeking relief under the Warranty Act. The Court also held that Mago constitutes a “consumer” under the Warranty Act. The Warranty Act defines a consumer as, inter alia, one who “is transferred [a consumer product] during the duration of . . . [a] written warranty.” 15 U.S.C. § 2301(3). The Court found that “transfer,” which is not defined in the Act, should be given its plain meaning and should apply to a change in possession and control of the product, but does not require a change is asset ownership. Thus Mago’s lease of the car qualifies as a transfer under the Warranty Act. The Court further found that the transfer occurred during the applicability of the written warranty. Thus, the Court held that Mago could seek relief under the Warranty Act and reversed the trial court’s grant of summary judgment on this count.

Judge Timmer authored the opinion; Judge Winthrop and Judge Barker concurred.

Posted On: 9/11/2006