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Car Dealers Beware: Failure to Settle Song-Beverly Consumer Warranty Act Claims Quickly Can Result in Liability for Huge Legal Fees

A recent Court of Appeals decision, Goglin v. BMW of North America, LLC, et al. reveals the risk to the dealer of failing to quickly settle a consumer demand for restitution under the Song-Beverly Act. BMW and the dealer recently lost an appeal of an award of over $185,000 in attorney fees following settlement of a consumer claim.

In April 2011, Goglin purchased a 2008 BMW 535i from a BMW dealer. The total sale price for the vehicle was $45,762, payable in 60 monthly installments of $762.70.

In June 2013, Goglin alleged that BMW and the dealership had violated the Consumer Legal Remedies Act by selling her a used vehicle with prior collision damage and a protracted history of mechanical failures. She requested that they remedy the violation by unwinding the transaction, refunding her payments, reimbursing her for her reasonable expenses, and paying off her outstanding loan balance. She also demanded that the dealership enter into a stipulated injunction requiring it to disclose collision damage in writing.

The dealership responded by questioning her claims, but nonetheless offering to resolve the matter by repurchasing the vehicle for all costs incurred by Goglin, including paying off her existing loan and reimbursing her for her down payment and any loan proceeds she made, less an offset for depreciation due to her use of the vehicle, plus the dealership offered to reimburse Goglin for her reasonable attorney fees. The offer was contingent upon Goglin agreeing to a general release and a nondisparagement clause.

Goglin countered. She would accept the dealership's offer to the extent the offer was to reimburse her in full without offsets. She refused to agree to sign a general release, arguing that the applicable consumer protection laws "do not require that consumers waive their rights in order to have a dealer comply with statutory obligations."

The settlement discussions failed and Goglin sued the dealership and BMW. Both responded with routine answers and then Goglin's attorney engaged in discovery which BMW challenged. BMW was sanctioned by the trial court $7,295 before the dealer and BMW finally capitulated and went to mediation, where the matter was finally settled. The terms of the settlement required that BMW and the dealer pay Goglin $75,000 less Goglin's loan balance. They also agreed to pay Goglin's attorney fees in an amount to be separately negotiated or resolved by a motion before the trial judge. When the dealer balked at Goglin's fee demand, she brought a motion for an award of fees. As a result, the trial court then awarded Goglin an additional $185,000 in fees and costs.

The Court of Appeal affirmed the award, finding that Goglin was not acting unreasonably in rejecting the pre-litigation settlement that included "unfavorable extraneous terms". The appellate court also rejected the dealer's argument that Goglin could have avoided litigation and settled the matter earlier had she negotiated more at the outset. Finally, the appellate court also awarded Goglin "her costs on appeal."

In total, BMW and the dealership ultimately paid the consumer over $250,000 plus all fees/costs associated with their losing appeal-likely an additional $50,000. Along the way, the dealership spent substantial legal fees to defend the claim.

We have consistently advised our dealer clients to settle these types of cases immediately, and to not allow the consumer's legal fee demand to impede an otherwise prudent settlement. On one occasion, we even had our client leave our firm because the dealer felt we had not fought hard enough or defended it aggressively enough. But, as this one case proves, there are times when it makes sense to fight, and there are times like this, where fighting a consumer is lose-lose proposition.

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