Tuesday, June 14, 2011

No logo: difference between OEM and non-OEM equipment immaterial

Bourgi v. West Covina Motors, Inc., 2011 WL 2207477 (Cal. App. 2 Dist.)

“[A]fter learning that a Hummer vehicle he had purchased as new had sustained prior damage in an eco-terrorist attack on the respondent's dealership” (!), Bourgi sued for violation of various California laws. After various maneuvers, he lost at a bench trial and appealed.

The 2003 Hummer H2 Bourgi bought cost over $69,000, of which he paid $15,000 down and financed the rest. The H2 was advertised and sold as new, but in fact had been vandalized and damaged by the Earth Liberation Front. Its hood and right side had been repainted and the right rear passenger window replaced. West Covina didn’t disclose this. After about five months, Bourgi returned to West Covina for repairs, complaining of wind noise. At that point, a service rep told Bourgi that the H2 had been previously repainted and printed out the vehicle’s history, which disclosed the vandalism. Bourgi demanded a replacement H2 but was refused.

Bourgi continued to make monthly loan payments until after the initial trial in 2007, at which point it was voluntarily repossessed with nearly 20,000 miles on it.

West Covina argued that it was entitled to a safe harbor under California vehicle law because there was no material damage to the H2, and thus no disclosure of prior damage and repair notwithstanding the CLRA. The court agreed that the CLRA was trumped by this safe harbor for minor repaired damage.

Bourgi’s expert testified that the quality of the repair and repainting was below industry standards, including a non-OEM replacement window without the GMC logo on it, and that the defects reduced the value of the H2 by 20% and that repainting would cost $2000 or $1000 if the dealer did it. He admitted that it was not uncommon for a new vehicle to get dings during transit requiring repair and repainting, but not damage that required approximately half the vehicle to be repainted.

West Covina’s expert testified that the H2 was a “gorgeous vehicle” without notable problems. He testified that the non-OEM window was acceptable and was under warranty, and that none of the items at issue affected the H2’s value. Another witness testified that the cost of repainting and replacing the window was about $1000, and would cost the dealer less than $500 to correct any paint defects.

The trial court personally inspected the H2 and found it to be in new condition, with only cosmetic defects correctable by minor repairs that Bourgi himself failed to notice for five months. Though reasonable minds might differ on the quality of the repairs, the trial court concluded as finder of fact that they were adequate to restore it to its new vehicle condition, and thus that there was no duty to disclose. Though the replacement window was lower cost than an OEM window, there was no evidence that it was of lesser value. The fact that the window and repainted areas weren’t covered by a GMC warranty wasn’t sufficiently material to justify recission because they were covered by warranties from the glass manufacturer/West Covina respectively. (Compare this to the treatment of gray market goods with divergent warranties.)

The vehicle law requires disclosure in writing of any material damage known by the dealer to have been sustained by the vehicle and subsequently repaired. Material damage is defined as damage requiring repairs exceeding 3% of the MSRP or $500, whichever is greater, with some other exclusions and details. Damage repaired at a cost at or below the threshold is not material and need not be disclosed. Whether the damage met the materiality threshold here required resolving questions of fact: whether the repairs actually restored the car to its predamaged condition, whether replacement parts and equipment used were OEM (as set forth in the statute), and the true costs of repair.

Bourgi argued that the repair was inadequate because West Covina used a non-OEM part, which by definition wouldn’t restore the H2 to its original, new car condition. He argued that all windows should match and have the GMC insignia, but the trial court was persuaded by West Covina’s expert, who testified that the replacement glass was acceptable to GM. The trial court also found that, had Bourgi requested it after the dispute arose, West Covina would have installed a GMC factory window. The evidence was that the replacement was identical to the OEM window except for the GMC “bug” on the glass. The appellate court agreed that, even if the replacement glass might not be acceptable as a non-OEM part, the cost of the replacement plus the cost of repainting didn’t exceed 3% of MSRP (here, $54,180).

Bourgi argued that, in order to avoid disclosure, the repairs must be complete and adequate. The appellate court disagreed to the extent that Bourgi argued for perfect repair that would never require a touchup. Here, Bourgi didn’t even notice the damage, and the trial court found that the damage wasn’t why he wanted to rescind the contract. The purpose of the statute, to allow a dealer to repair minor damage and still be entitled to call the car new, wouldn’t be served by finding a violation here.

Bourgi argued that the dealer misrepresented the standard equipment, since the company that made the replacement window was not a GM-authorized OEM supplier and thus he didn’t receive the “matching set” of tinted windows advertised on the sticker. The trial court could properly have credited expert testimony that the use of non-OEM class was both standard in the industry and immaterial, in part because glass might not be available from the factory, and also because following GM specifications and holding Department of Transportation certifications, as this window did, was sufficient to make the glass acceptable. The only difference was the logo. Thus, the trial court could properly find that there was no material misrepresentation.  The OEM window was more expensive, but there was no evidence that it was better, or even different, other than the logo. 

This case is an interesting test of various TM theories of value.  The customer now, though perhaps for other reasons, claims that he wants the TM for itself, and the vendor says the TM doesn't add any value.  I wonder if a court will agree with that argument the next time around.

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