Automakers Push Back Against Consumer Protections

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When the transmission in Sarah and Scott McKinney's 2004 Audi A6 failed after five years, the repair cost thousands of dollars. Audi wouldn't cover it, the McKinneys say, though the problem was a common one -- so widespread that it later became the subject of a federal class-action suit.

The McKinneys, who live in Arlington Heights, Ill., say they are hoping a preliminary settlement in that suit will bring them a reimbursement later this year.

"I think it is our only hope," Ms. McKinney said.

That recourse may not be available for car owners in the future, as some automakers have started to challenge class actions -- and to a lesser extent, lemon laws -- by trying to force consumers to agree instead to a binding arbitration process.

F. Paul Bland Jr., a senior attorney at Public Justice, a nonprofit consumer advocacy group, sees this as a brazen effort to take away important consumer automotive rights. If the automakers behind this effort are successful, consumer watchdogs say, owners like Gary Peterson of Spring Hill, Fla., might be stuck with defective vehicles that cannot be repaired.

The steering of Mr. Peterson's 2011 Kia Sorento pulled so suddenly and strongly that the vehicle sometimes changed lanes by itself. When he could no longer tolerate the problem -- and concluded that Kia would not help -- he saw the lemon law as his only chance.

"Well, short of a lawsuit how are you going to take on a big company like Kia?" Mr. Peterson said. His complaint resulted in Kia's having to buy back the vehicle.

That recourse might not be possible if the automakers' efforts are successful.

The remedies sought by the McKinneys and by Mr. Peterson took different approaches. In a class action, thousands of consumers can benefit when a product they bought is judged to be defective.

In a typical lemon-law case, a lone consumer starts with arbitration, generally choosing among arbitration firms approved under each state's lemon law. If the outcome is unsatisfactory, there are provisions to appeal, including the courts.

But now a few automakers are trying to do away with those resources by taking advantage of something consumers have done for decades when buying a vehicle: signing an agreement with the dealer to use arbitration to resolve disputes. Some automakers -- including Honda, Toyota and Mercedes-Benz -- are arguing that these sales agreements cover them, too.

Consequently, the automakers say, consumers may not use class-actions or lemon laws to get restitution. Instead, they argue, the consumer must use binding arbitration, in which the decision is final.

"I think this is a very worrisome issue," said Christine Hines, the consumer and civil justice counsel at Public Citizen, a nonprofit consumer advocacy group.

Arbitration takes consumers out of a public process -- the court or state-monitored lemon laws -- and puts them in a private system, Ms. Hines said. Moreover, she said, it requires the consumer to play by rules set by the arbitration firm approved by the automaker.

Groups of consumers represented by a class-action may be happy to be included even if they receive only a small benefit, but few would devote the time, effort and expense to go into arbitration alone against an automaker, consumer advocates say.

"So one of the main benefits from the company's standpoint is to eliminate claims against the company," said Jean Sternlight, a law professor at the University of Nevada Las Vegas, who studies arbitration.

The legal force behind these challenges is the 2011 decision of the United States Supreme Court in AT&T Mobility L.L.C. v. Concepcion. A result of that decision is that companies can bar consumers from bringing class-action suits and instead require each consumer to individually use binding arbitration.

Some critics argue that too often class-action suits benefit the plaintiffs' lawyers while consumers get little of value.

But some class actions do help consumers with compensation and extended warranties, said Clarence Ditlow, executive director of the Center for Auto Safety.

Mr. Bland of Public Justice said that class-action suits could also reveal information about defects that manufacturers might want to keep secret -- something that was possible in arbitration.

For example, Mr. Ditlow said, information that came out of suits over Firestone tire failures on Ford Explorers helped to prompt Congressional hearings and led in 2000 to Congress's passing the Transportation Recall Enhancement, Accountability and Documentation Act.

Last year, Honda and Toyota separately asked federal district courts in California to dismiss class-action suits and compel each of the thousands of consumers who wanted to be compensated to individually use binding arbitration.

In the Honda case, in Federal District Court for the Northern District of California, the plaintiffs claimed the 2008-10 Accords burned oil at a much greater rate than would be expected; Honda lost.

The Toyota case involved allegations of unintended acceleration. Toyota also lost when a federal judge for the Central District of California rejected the arbitration argument because Toyota brought it up late in the proceedings.

Spokesmen for neither Honda nor Toyota would comment on the cases, saying the outcomes are pending.

Asked if Toyota would again try to get class-actions replaced by arbitration, a spokesman, Mike Michels, wrote that "while we also don't comment on future legal strategy, I can say that we believe arbitration is generally a better path to resolution for both customers and Toyota."

Commenting on whether there would be a repeat of Honda's challenge to class-action suits, Chris Martin, a company spokesman, wrote in an e-mail: "Every claim is different, and we'll always respond to them on a case-by-case basis as appropriate."

While Honda and Toyota failed, Mercedes-Benz succeeded last September when a judge in the Federal District Court of the Northern District of California ruled that the owner of a 2008 E350 had to use arbitration instead of pursuing the state's lemon law in court.

The judge agreed with Mercedes that the Supreme Court's Concepcion decision made binding arbitration appropriate.

Richard H. Frankel, a law professor at Drexel University, said that was an alarming expansion of the Concepcion case, because it went beyond class actions and into lemon laws. "If courts are willing to do that, then I think consumer claims in general are in a lot of trouble," he said.

Mercedes was not attempting to get around the lemon law in that case, a Mercedes spokeswoman, Donna Boland, wrote in an e-mail.

Automakers would benefit if dealers agreed to include them in the binding agreements that consumers sign when buying a vehicle, said Ms. Sternlight, the law professor. "I think it would lead to a great decrease in the number of lemon law claims that would be filed by consumers, and a huge decrease in the number of class-actions that could be filed by dissatisfied customers against manufacturers for product defects," she said.

In that case, consumers would be required to press their claims through arbitration, Ms. Sternlight said. She said she doubted that many would do that because few individuals have the resources to hire experts and challenge an automaker.

It is not clear, however, why dealers would choose such a legal link.

"The dealers are fiercely independent of the manufacturers," said Roger Billings, a law professor at Northern Kentucky University, whose work includes legal issues involving dealerships and automakers. "They are not agents of the manufacturers for any purpose whatsoever."

Charles Cyrill, a spokesman for the National Automobile Dealers Association, declined to comment on the matter.

autonews

This article originally appeared in The New York Times.


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