November 16, 2021 How COVID is Affecting OEMs’ Lemon Law Strategies

OEMs facing hiring issues, parts shortages and court backlogs must use strategic litigation tactics and software to combat Lemon Law claims.

By Christopher Schmidt

The pandemic has significantly disrupted the Lemon Law litigation landscape for automotive OEMs. Supply chain disruptions, microchip and parts shortages and staffing issues have resulted in more vehicles being on repair lots with longer and slower turnaround times. These issues have created a perfect storm for OEM general counsel and their strategic partners as courts work to resolve the voluminous number of backlogged cases on their civil dockets.

So what can OEMs do to avoid or mitigate Lemon Law litigation hassles that have been exacerbated by COVID? Through strategic litigation preemption tactics and technology, OEMs can manage Lemon Law litigation in ways that benefit stakeholders and dealerships.  

1. The pandemic-driven developments affecting Lemon Law litigation    

The pandemic’s impact on Lemon Law litigation has been felt from all angles, beginning with the courts themselves. Facing backlogged dockets due to COVID-related closures, many courts have focused on addressing the criminal docket, leaving civil cases to languish. Generally, parties may be more prone to settling as their established trial dates near. However, with courts delaying civil trials into late 2021 and 2022, the resulting glut of cases is leaving OEMs with significant open liability on their books.    

Additionally, the pandemic has prompted mechanics and technicians to leave the automotive sector in growing numbers. This development has been a critical blow for manufacturers and dealers struggling to recruit talent. The dearth of experienced technicians to repair vehicles has led to slower service turnaround times on potential lemons, enhancing their risk profiles. Even worse, these pressures are affecting OEMs’ strategies in court, as many of the senior technicians they turn to for expert witness work are taking early retirement. As a result, manufacturers are facing more difficulties finding experienced technician witnesses for active cases. 

Finally, microchip and parts availability issues are forcing OEMs to make difficult decisions about their inventory. Many OEM departments are struggling to find the best possible solution to this problem. However, they are engaging in a high-stakes guessing game when deciding how to best allocate supplies to satisfy their new vehicle production, repair, maintenance and recall needs.

Plaintiffs’ attorneys are pouncing on all of these vulnerabilities by bringing OEMs into state court actions along with their dealerships. The impact of these strategies is most evident before trial, as plaintiffs will often drag out discovery and file motions to compel. Their goal? To paper over cases, make it as expensive for OEMs and dealers as possible to try them, and either rack up discovery fees that they can later claim or pressure OEMs into settlements.  

2. The ways OEMs can address and tackle Lemon Law issues by themselves and with their local dealerships

Given the stakes involved, OEMs must address the inventory, labor and litigation struggles impacting their Lemon Law response strategies. As a starting place, in-house legal departments, outside counsel and other strategic partners should research developments in federal and state executive orders to analyze emerging coronavirus mandates and supply chain trends. Leveraging expert insights on these tactics, especially from partners with local connections, can help provide context for how OEMs should proceed.  

OEMs addressing imminent litigation should tailor their tactics to each jurisdiction. In stronger Lemon Law states, cases will typically stall for months, giving OEMs the option to hold off on substantial work until critical developments arise. In weaker jurisdictions, general counsel should identify problematic cases, pursue settlements and make firm offers of judgment or compromise if necessary. These offers can preempt plaintiffs’ counsel from claiming total legal fee awards should plaintiffs fail to secure favorable verdicts. 

OEMs should also consider pursuing alternative dispute resolution to address their Lemon Law claims.  Although dealerships have traditionally taken a piecemeal approach with mediation, arbitration and the like, this will need to change to temper aggressive plaintiffs’ firms. Because the expenses and risks are much lower in alternative dispute resolution, plaintiffs will be more open to settling with OEMs in this setting than they would in court.

Using technology can also help improve and streamline OEMs’ internal processes for identifying and buying back suspect lemons. For example, OEMs can leverage AI tools and predictive analytics to evaluate vehicle records in dealer management software and assess which vehicles would be best to make competitive buyback offers on before litigation arises. Departments can then calculate competitive buyback offer ranges and address problematic lemons based on historical data.  

COVID’s impact has likely exacerbated many of the pressures OEMs currently confront, putting Lemon Law considerations front and center for manufacturers. OEM legal departments should ensure that their companies can survive this storm with the right tactics and technology.

Christopher Schmidt is an attorney and warranty litigation case manager at LegalEase Solutions. He works closely with in-house counsel for some of the industry’s largest automobile manufacturers to offer guidance on litigation management and settlement strategies. He also helps OEMs minimize their risks and reduce their legal spend with tailored technology and outsourcing solutions. He can be reached at christopher.schmidt@legaleasesolutions.com.

https://legaleasesolutions.com/

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