Some states have laws that require consumers to jump through a hoop or two before suing a dealer. These laws are designed to permit the dealer to avoid the expense and bother of litigation by taking certain steps to right any alleged wrongs. California has such a law, and a recent case illustrates how it works.

Michael Losorelli and his fiancée bought a car from CarMax Auto Superstores California LLC. It turned out that the car’s vehicle identification number was false and the car was impounded by the police. CarMax initially made an offer to reimburse the purchase price of the vehicle, as well as additional costs, and also asked Losorelli and his fiancée to sign a confidential settlement agreement.

Losorelli did not want to sign the settlement agreement and hired a lawyer. The attorney, on behalf of Losorelli, sent CarMax two letters. One letter asserted that CarMax was violating the Song-Beverly Consumer Warranty Act and the Consumers Legal Remedies Act and demanded that CarMax take corrective action. The other letter requested full restitution plus incidental and consequential damages and a civil penalty twice the amount of actual damages, as well as attorney’s fees and costs.

CarMax replied, stating that Losorelli’s fiancée was a co-buyer and any resolution of the matter must include her. CarMax also offered a full refund of the purchase price, including taxes, title and tags, and any other reasonable, documented costs. It also offered $500 in attorney’s fees to resolve the matter.

Losorelli did not accept the offer and instead sued CarMax. Losorelli’s fiancée also sued, and the trial court consolidated the actions.

After several initial rulings in the case, the claims under the CLRA, the unfair competition law and for fraud remained. The trial court granted summary judgment for CarMax on the fiancée’s claims. With respect to Losorelli, the trial court granted summary judgment for CarMax on the UCL and fraud causes of action, but found that an issue of material fact existed as to whether the remedy under the CLRA was satisfied. CarMax appealed.

The Court of Appeal of California noted that the CLRA requires an aggrieved consumer to, within a certain period of time before filing suit, notify the person alleged to have committed the unlawful practice and demand that the person correct, repair, or replace the goods or services. The statute also provides that no action for damages may be maintained if an appropriate correction, repair, or replacement is given, or is agreed to be given within a reasonable time, to the consumer.

The appellate court found that Losorelli’s attorney sent the requisite demand letter under the CLRA. The appellate court also found that CarMax’s offer of a full refund of the purchase price, including taxes, title and tags, and any other reasonable, documented costs in response to that letter was sufficient under the CLRA. The appellate court also noted that this offer was not conditioned on the confidentiality agreement. Accordingly, the appellate court directed the trial court to vacate its ruling denying CarMax’s motion for summary judgment on the CLRA claim.

Does your state have a law like this one? If not, perhaps a letter to your legislator, enclosing a copy of this article, is in order!

Thomas B. Hudson is a partner in the firm of Hudson Cook LLP and the author of several widely read compliance manuals. Email him at THudson@autodealermonthly.com.