Court of Appeal (Cal.) Says that Circumstances of Pre-Litigation Settlement of Lemon Law Claim with Unrepresented Party Rendered Settlement Unforceable

In Rheinhart v. Nissan N. Am., Inc., No. D079940, 2023 WL 4195050, at *11–12 (Cal. Ct. App. June 27, 2023), the Court of Appeal refused to enforce a pre-litigation settlement of a Song-Beverly claim with an unrepresented party.

Here, Rheinhart’s right to remedies under the Act are substantive rights that the Legislature has declared unwaivable. Given the nature of those rights, Nissan’s summary judgment burden was not just to establish the existence of the Release and its validity, but to show that enforcing the Release would “ ‘not diminish in any way [Rheinhart’s] substantive rights afforded … under California law’ ” (Verdugo, supra, 237 Cal.App.4th at p. 147, 187 Cal.Rptr.3d 613) or “would not result in a significant diminution of [those] rights.” (America Online, Inc. v. Superior Court, supra, 90 Cal.App.4th at p. 10, 108 Cal.Rptr.2d 699; see also G Companies Management, LLC v. LREP Arizona, LLC, supra, 88 Cal.App.5th at p. 350, 304 Cal.Rptr.3d 651.) Applying this standard gives effect to the Act’s manifestly remedial and consumer protection purposes. Under the principles discussed above, and the factual circumstances of this case, Nissan cannot meet this burden.  It is undisputed that Rheinhart presented the rear-view camera issue to Nissan on three occasions, and that thereafter Nissan agreed to pay him $3,548.40 in compromise. There is no evidence that before Nissan presented Rheinhart with the settlement agreement that it advised him of the Act’s replacement or restitution remedies or the fact Nissan had an affirmative obligation to offer those remedies once it engaged in a reasonable number of repair efforts. There is no indication Nissan’s $3,548.40 settlement payment endeavored to approximate the vehicle’s purchase price or other sums owed under the Act for reimbursement. There is no evidence otherwise that Rheinhart, who was unrepresented by counsel, was aware of his rights under the Act or its antiwaiver provision. He did not expressly waive his rights under the Act. The circumstances suggest unequal bargaining strength between a consumer unaware of his rights and a manufacturer seeking to circumvent its statutory obligations. And Rheinhart is unlike the plaintiff in Kaufman, who was apparently represented by counsel at the time she entered into the settlement and release, which expressly acknowledged her rights under the rent ordinance. (Kaufman, supra, 195 Cal.App.4th at pp. 738, 746, 124 Cal.Rptr.3d 555.) We decline to extend Kaufman (or Geraghty, which followed Kaufman) to these circumstances. In addition to the distinguishing aspects above, Kaufman involved unique facts and circumstances in that the tenant waited seven years after entering into the settlement and the court interpreted the antiwaiver provision as only voiding waivers “in the context of an eviction or an owner move-in.” (Id. at p. 745, 124 Cal.Rptr.3d 555.) Kaufman did not acknowledge a defendant’s burden to prove a settlement does not diminish substantive rights when dealing with antiwaiver provisions in the consumer protection context.  On this summary judgment record, the Release contravened Rheinhart’s right to elect the Act’s substantive remedies of replacement or restitution. On that basis, it is void as against public policy, and Nissan is not entitled to summary judgment on grounds the Release bars Rheinhart’s claims as a matter of law.  We emphasize that our holding is not that section 1790.1 precludes settlement and release of claims under the Act. To be sure, there are many instances where parties have settled disputes over a claimed breach of the Act. (See Madrigal v. Hyundai Motor America (2023) 90 Cal.App.5th 385, 307 Cal.Rptr.3d 144 [stipulated settlement on first day of trial].) In this respect, we do not disagree with the observations of McLaren Automotive Inc. v. Shaoo (C.D.Cal. 2021) 2021 WL 4707001, that a buyer is not precluded from agreeing to settle his claim for a lesser amount than the full purchase price of the vehicle (id. at p. *10) and In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation (N.D.Cal. Sept. 8, 2020) 2020 WL 5371404, which generally declined to apply section 1790.1 to settlements or else “no settlement releasing any Song-Beverly Act … claim would be enforceable.” (Id. at p. *6.)