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WARRANTY: THE STEPCHILD OF PRODUCT LIABILITY

By: William A. Dreier, M. Karen Thompson and Steven A. Karg
July 2000

When manufacturers or sellers consider potential product liability, what comes to mind are the staggering judgments returned in strict liability actions for manufacturing defects, design defects or inadequate instructions or warnings. Often disregarded is the ever-present damage potential of breach of warranty claims.

In many jurisdictions, including New Jersey, personal injury and property damage claims for breaches of implied warranties have been subsumed within product liability actions either by statute (N.J.S.A. 2A:58C-1b(3)), or by common law. This preference for tort responsibility for personal injury or property damage is recognized in the Restatement (Third) of Torts: Products Liability Section 1, and although a warranty claim is usually asserted as an additional basis of liability, it is often abandoned during the litigation process. Warranty damages are relegated to claims for economic losses or property damage to the product itself.

However, there is an often-overlooked danger. The Magnuson-Moss Act, 15 U.S.C. Section 2301 et seq (the “Act”), imposes significant potential liability on sales of consumer goods to the public. (See also the regulations implementing the Act, 16 CFR Section 700.1 et seq.) The Act and its related regulations provide detailed requirements affecting manufacturers or sellers who give any warranties concerning consumer goods or who provide any service contracts within 90 days after a sale. Different standards are imposed for full warranties and limited warranties. Even if a seller or manufacturer provides a limited warranty, Magnuson-Moss precludes a seller or manufacturer from limiting the effect of a state’s implied warranties of merchantability and fitness for purpose. The Act and its regulations are detailed and present a veritable mine field that must be navigated if any warranties or service contracts are given. Although a claim under the Act is (inexplicably) seldom asserted, sellers must be scrupulous in conforming both to the state’s warranty laws and to the provisions of the Magnuson-Moss Act.

Lurking beneath the surface are two significant provisions. One is the Uniform Commercial Code’s four-year limitations period which in some cases may help a plaintiff, and in others aids the defendant. The period is measured from the breach by the seller, usually the date of sale, unless there is a deficient repair under the warranty where this conduct might itself constitute the breach and thus extend the four-year period. Often, the product defect does not appear until after the four-year U.C.C. limitations period has run out; but where the claim is made within the limitations period, the warranty claim can be deadly to a defendant and may have a significant effect on the value of the case. The discovery rule may also affect the limitations issue. If, however, an accident occurs soon after the sale and the plaintiff is barred by a two-year personal injury statute of limitations, there may be an additional period open in some states under the four-year warranty limitations statute. In New Jersey, the statutory single product liability cause of action for most personal injuries (N.J.S.A. 2A:58C-1) would prevent this tactic, except where the claim is for a consumer product and the plaintiff asserts a Magnuson-Moss claim.

The second pitfall is contained in 15 U.S.C. Section 2310(d). If the supplier or warrantor fails to comply with any obligation under the Magnuson-Moss Act or under either the seller’s written warranty or an implied warranty, and plaintiff prevails, “he may be allowed by the court to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses (including attorneys’ fees based on actual time expended) determined by the court to have been reasonably incurred by the plaintiff … unless the court in its discretion shall determine that such an award of attorneys’ fees would be inappropriate.” The result is, in effect, a one-sided English rule, allowing an award of attorneys’ fees to benefit a successful plaintiff, but leaving a successful defendant without a similar remedy.

There is no separate “Magnuson-Moss” cause of action. The claim may be made in a personal injury, property damage or economic loss action. It merely requires a breach of an express or implied warranty, and then Section 2310(d) damages may be awarded if demanded.

Incidentally, so long as the seller has sold a consumer product as defined in the Act, the purchaser need not be an individual, but may be a corporation, partnership or any other entity. Thus the sale of microwave ovens, marketed for household use, but purchased by a corporation for an executive’s office or the employee lunch room, can carry with it potential Magnuson-Moss liability for costs and attorneys’ fees if the item is not of merchantable quality and harms another. The Supremacy Clause, of course, prevents the states from limiting this right.