No. 02 C 5327 Page4

selling the Hummer. Instead, it argues that the Act does not allow plaintiffs to enforce the
warranty provisions because there was no sale as required by the Act and the transaction
between defendant and Mister Leasing was not “for purposes other than resale” of the
Hummer,

The warranty delivered from defendant to Mister Leasing is a written warranty as
defined by the Act. The terms of the warranty were part of the bargain between defendant
and Mister Leasing. It is doubtful that plaintiffs and Mister Leasing would have agreed to the
sale if it were not for the warranty. This warranty was issued in connection with the sale of
the vehicle from defendant to Mister Leasing. “Sale,” as defined by the Act, is not limited to
transactions between the warrantor and the ultimate consumer.

The sale was for purposes other than resale. Mister Leasing’s vice-president maintains
that it would not have purchased the Hummer if it were not for the leasing agreement with
plaintiffs. Mister Leasing never intended to add the vehicle to its inventory or advertise it for
sale to other parties. Mister Leasing profited from this transaction through the lease
agreement. While it is true that Mister Leasing was likely to sell the vehicle after the
expiration of the lease (potentially even to plaintiffs), the purpose of the transaction between
Mister Leasing and defendant was not for resale, but for the lease of the vehicle to plaintiffs.

We recognize that other courts have disagreed with this interpretation of the
Magnuson-Moss Act. In Sellers v. Frank Griffin AMC Jeep, Inc., 526 So.2d 147 (Fla. App. 1*
Dist. 1988), a Florida appellate court held that Magnuson-Moss did not apply to a pure
automobile lease that did not offer a purchase option, because sales and leases give rise to

different rights and responsibilities. In Sellers, there was no sale by the manufacturers



No. 02 C 5327 Page 9

than the lease price at the time that they took possession. The fact that they were able to trade
in the vehicle for a price similar to the Kelly Blue Book value is certainly circumstantial
evidence as to the quality of the vehicle. At this time, however, a material issue of fact as to
whether the vehicle was damaged still exists.

CONCLUSION

For the foregoing reasons, defendant’s motion for summary judgment is denied.

6. Mere

JAMES B. MORAN

nior Judge, U. S. District Court
Mare, 10 , 2003.



No. 02 C 5327 Page 6

In Diamond, the court did not reach the question of whether the sale to a financing
company was a sale under the Act, determining that, in any case, the purpose of the

transaction was for resale. Relying heavily on DiCinto, the court reasoned that even though

the lessor may collect money from the lessee, the resale of the vehicle is ultimately part of the

plan. 2002 WL 31155064 at *5 quoting DiCintio, 768 N.E.2d at 1127. The court determined

that it was disingenuous for plaintiffs to claim that the financing agent did not purchase the
vehicle for resale “merely because its intent was to lease the vehicle before ultimately selling
it.” Id; see also DiCintio, 768 N.E.2d at 1127 (stating that the purchase of the vehicle was not
for purposes other than resale because “ultimate resale is presumably an intrinsic part of its
plan when it takes title to the vehicle”).

Here, the uncontested affidavits of Mister Leasing’s vice-president suggest differently.
He claims that Mister Leasing’s primary purpose in buying the car was to facilitate the lease.
Any resale of the vehicle would take place only after plaintiffs had used a considerable
percentage of the vehicle’s value. Moreover, the courts’ reading of the statute in DiCintio and
Diamond would render many purchasers of automobiles unable to sue for breach of warranty.
Certainly, many customers plan on selling or trading in a vehicle after years of use. The Act
requires us to look for the reason that the vehicle was purchased, and the reason was the
subsequent lease to plaintiffs, not resale.

This reading of the Magnuson-Moss Act best serves Congress’ goal of “better
protecting consumers.” H.R. Rep. 93-1107 (June 13, 1974). Plaintiffs here fit squarely within
the definition of “consumer” in that they are entitled to enforce the warranty by the terms of

15 U.S.C. § 2301(3). If we then determine that this warranty does not qualify as a written



No. 02 C 5327 Page 5

incident to the lease agreement and the court determined that to expand Magnuson-Moss to
pure leases would require legislative action. Id. at 156.

In DiCintio v. DaimlerChrysler Corp., 768 N.E.2d 1121 (N.Y. 2002), the New York

Court of Appeals expanded Sellers, holding that the Act did not apply to a 36-month lease with

an option to buy. The court reasoned that the Magnuson-Moss Act is designed to protect
buyers of products and that by leasing a vehicle, a party takes on fewer obligations and gets

fewer rights in return. Jd. at 1124-25. See also Voelker v. Porsche Cars North America, Inc.,

2003 WL 291909 (N.D. Ill. 2003) (citing DiCintio and Diamond, and holding that “the Act only

applies to purchased goods and not to leased products”); Corral y. Rollins Protective Services

Co., 732 P.2d 1260 (Kan. 1987) (lease/servicing agreement for an alarm system not subject to

Magnuson-Moss Act because it has no characteristics of a sale); D.L. Lee & Sons, Inc. v. ADT

Sec, Systems, Mid-South, Inc., 916 F. Supp. 1571 (S.D. Ga. 1995) (“there must be an
identifiable purchase and sale before the provisions of the Magnuson-Moss Act apply”). But

see Freeman v. Hubco Leasing, Inc., 324 S.E.2d 462 (Ga. 1985) (a lease that conveys ownership

after 48 monthly payments and a final lump sum payment is actually a sale); Henderson y.

Benson-Hartman Motors, Inc., 41 U.C.C. Rep. Serv. 782 (Pa. Ct. of Common Pleas 1983) (lease

with most characteristics of a sale should be treated as a sale by the Magnuson-Moss Act),
The Act does not require us to look at the bundle of rights acquired by the purchaser
and the lessee. Instead, a plain reading of the Act forces us to simply look for a warranty
exchange in connection with a sale. Defendant clearly sold the vehicle to Mister Leasing and,
when doing so, made a series of promises in connection with this sale. This is enough for the

warranty to meet the first part of the definition of “written warranty” in 15 U.S.C. § 2301(6).



No, 02 C 5327 Page 8

Damages

Defendant relies on Valenti v. Mitsubishi Motor Sales of America, Inc., 773 N.E.2d 1199
(il. App. 1* Dist. 2002), arguing that plaintiffs cannot prove damages because they sold the
vehicle for fair market value. In Valenti, the plaintiff purchased a vehicle, drove it for two-
and-a-half years and 17,290 miles before trading in the vehicle. Jd. at 1203, Plaintiff did not
contradict defendant’s assertions that she had sold the car for its fair market value. Id. at
1202. The court determined that she could not allege damages with enough specificity to
survive a summary judgment motion because it appeared that, following the sale of the vehicle,

she had no losses. Id. at 1202-03.

There are important differences between this case and Valenti. First, plaintiffs dispute

that they received fair market value for the Hummer at trade-in. Both parties present
differing estimates of the value of the vehicle, an issue of material fact. Second, in Valenti, the
plaintiff's only allegations were that she had lost money through the ownership of the vehicle.
773 N.E.2d at 1203, In the present case, plaintiffs have alleged that the vehicle was defective
from the commencement of the lease agreement.

The measure of damages for a breach of warranty claim is the difference between the
value of the property as warranted and the actual value on the date of the breach. Wheelock
y. Berkeley, 27 N.E. 942 (1891); Felde v. Chrysler Credit Corp., 580 N.E.2d 191 (1991). This
means that damages should be the difference in value at the time of plaintiff's acceptance.

Felde, 580 N.E.2d at 198. Plaintiffs here claim that the vehicle was worth substantially less

Defendant submits that a printout of the Kelly Blue Book value was $43,775.00. Plaintiffs submit
the affidavit of an expert witness, Joseph Pennacchio, who assessed the value of the Hummer and stated that
$49,000 did not constitute fair market value, and that it should have been $54,610.



‘Minute Order*Form (06/97)

United States District Court, Northern District of Illinois

0)

Name of Assigned Judge James B. Moran Sitting Judge if Other
or Magistrate Judge . than Assigned Judge

CASE NUMBER 02 C 5327 DATE 3/10/2003

CASE Mark Cohen et al. Vs. AM General Corporation

TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented. ]
Memorandum Opinion and Order

DOCKET ENTRY:
qd) Oo Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due
(3) im} Answer brief to motion due___. Reply to answer brief due,
(4) oO Ruling/Hearingon set fora
(5) oO Status hearing[held/continued to] [set for/re-set for} on setfor at
(6) oO Pretrial conference[held/continued to] [set for/re-set for]on___——ssetfor_——s at.
(7) a Trial[set for/re-set for]on____at
(8) o [Bench/Jury trial] [Hearing] held/continued to___at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) Local Rule 41.1 OFRCP41(a\(1) 1 FRCP41(a)(2).
(ao) of (Other docket entry] Enter Memorandum Opinion and Order. For the foregoing reasons,
defendant’s motion for summary judgment is denied. Status hearing set for March 25, 2003 at 9:15am.
al of [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.
ql vutnber of notices

« Number.

Document

Notices mailed by judge’s staff. -

MAR 1 1 2003

Notified counsel by telephone, ¢ docketed

ov | Docketing to mail notices.

Mail AO 450 form.

Lung te
J FSI sia “sin
Copy to judge/magistrate judge. AT)
OS: .
courtaom d Ol Yh eu
vas inal OT 03-gany

Date/time received in
central Clerk’s Office

date mailed notice

ruiling deputy initials



No. 02 C 5327 Page 7

warranty under the Act, there is nothing for the plaintiffs to enforce. Moreover, when selling
the Hummer to Mister Leasing, defendant was aware that Mister Leasing was facilitating a
lease and transferring possession of the vehicle to plaintiffs. It knew that plaintiffs would be
the users of the vehicle and the only party who would likely seek to enforce the warranty. If
they are unable to do so, the assurances of the manufacturer are empty — no party would be
able to enforce the warranty.’

This is not to say that all Jessees of automobiles should be entitled to enforce the
manufacturer’s warranty. Each lessee gets the rights that he bargains for. In situations like
this, however, where the sale of a vehicle is merely to facilitate a lease, the issuance of the
warranty accompanies this sale, and the lessor explicitly transfers its rights in the warranty
to the lessee — the lessee is protected by the Magnuson-Moss Act.

Implied Warranty

While not specifically briefed by the parties, we should look at plaintiff's claim for
breach of implied warranty. No contractual privity exists between plaintiffs as lessees and
defendant as the manufacturer. Implied warranty claims under Illinois law traditionally
required privity between the claimant and the warrantor. Szajna y. General Motors Corp.,
503 N.E.2d 760, 762 (Il. 1987). The Illinois Supreme Court, however, adopted the rule that
privity is not required where a consumer seeks to bring a claim based on an implied warranty
if a Magnuson-Moss warranty is given. Id, at 769, Because we conclude that plaintiffs can

enforce the terms of the written warranty, they may also seek to enforce an implied warranty.

1To strictly follow the holdings of DiCintio or Diamond and apply them to the facts here, we would
need to determine either that there was no sale or that there was no written warranty. In either case, that
would render Mister Leasing, the actual purchaser of the vehicle, unable to bring a claim for breach of
warranty. Defendant would have issued a warranty that was a fundamental part of the bargain, yet entirely
illusory merely because Mister Leasing chose to lease the vehicle, rather than use it itself.



No. 02 C5327 Page 3

a buyer (other than for purposes of resale) of any consumer product, any person
to whom such product is transferred during the duration of an implied or
written warranty (or service contract) applicable to the product, and any other
person who is entitled by the terms of such warranty (or service contract) or
under applicable State law to enforce against the warrantor (or service
contractor) the obligations of the warranty (or service contract).

15 U.S.C, § 2301(3).
As part of the lease transaction Mister Leasing transferred all rights in the warranty
to plaintiffs. Even as lessees rather than purchasers of the Hummer, plaintiffs became entitled

to enforce the warranty against the warrantor. See Diamond vy. Porsche Cars North America,

Inc., 2002 WL 31155064, *3 (N.D. Ill. 2002) (holding that automobile lessees were entitled to
assert rights to the warranty because the lessor transferred all rights to the plaintiff).

Written Warranty

This does not end the inquiry, however. The Magnuson-Moss Act allows enforcement
only of an implied or written warranty as defined by the Act. A written warranty is defined
as

(A) any written affirmation of fact or written promise made in connection with
the sale of a consumer product by a supplier to a buyer which relates to the
nature of the material or workmanship and affirms or promises that such
material or workmanship is defect free or will meet a specified level of
performance over a specified period of time, or

(B) any undertaking in writing in connection with the sale by a supplier of a
consumer product to refund, repair, replace, or take other remedial action with
respect to such product in the event that such product fails to meet the
specifications set forth in the undertaking,

which written affirmation, promise, or undertaking becomes part of the basis
of the bargain between a supplier and a buyer for purposes other than resale of
such product.

15 U.S.C. § 2301(6).

Defendant does not dispute that it issued a written warranty to Mister Leasing when



No. 02 C 5327 Page 2

Leasing would not have purchased the vehicle. Mister Leasing transferred its rights in
American General’s factory warranty to the plaintiffs.

Plaintiffs allegedly experienced numerous problems with the Hummer, Pursuant to the
warranty, plaintiffs tendered the vehicle to authorized dealers of Hummers, who serviced the
vehicle at no cost to plaintiffs. Plaintiffs filed their complaint in the Circuit Court of Cook
County on June 5, 2002, alleging breach of the warranty and revoking acceptance of the
vehicle. On July 11, 2002, plaintiffs chose to trade in the vehicle, receiving $49,000 for the
Hummer.

Defendants filed a motion for summary judgment, arguing that plaintiffs are not
entitled to enforce the terms of the warranty pursuant to the Magnuson-Moss Act and that
they cannot prove any damages because they were able to trade in the vehicle for its fair
market value.

DISCUSSION

We grant a motion for summary judgment only if there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp.
v Catrett, 477 U.S. 317, 322-23 (1986). We draw all reasonable inferences and view all
admissible evidence in the light most favorable to the non-moving party. Anderson vy. Liberty
Lobby, Inc., 477 U.S. 242, 255 (1986). Only if there is insufficient evidence to support a jury
verdict do we grant a motion for summary judgment. Id. at 248,

Magnuson-Moss Act
The Magnuson-Moss Act authorizes civil suits by a consumer to enforce the terms of

an implied or express warranty. 15 U.S.C. § 2310(d)(1). “Consumer” is defined as



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

MARK COHEN and FIRST CHOICE
MEDICAL,

Plaintiff,

vs. No. 02 C 5327

DOCKETED

MAR i 1 2003

AM GENERAL CORPORATION,

wwe SS ES

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiffs Mark Cohen and First Choice Medical (First Choice) filed a complaint in
state court against defendant AM General Corporation (AM) alleging breach of express and
implied warranties and revocation of acceptance, Defendant removed the case to the district
court and filed a motion for summary judgment, arguing that the Magnuson-Moss Warranty
Improvement Act, 15 U.S.C. § 2301 e¢ seq., does not apply to lease transactions and that
plaintiffs cannot demonstrate damages as a matter of law. For the following reasons,
defendant’s motion for summary judgment is denied.

BACKGROUND

On July 6, 1999, plaintiffs arranged to lease a new 1999 American General Hummer
(Hummer) from Naperville Hummer Jeep for a total lease price of $84,000. In order to
facilitate this transaction Mister Leasing Corporation (Mister Leasing) purchased the
Hummer. Plaintiffs had the option to purchase the vehicle at the conclusion of the lease
period. A) Jordan, the vice-president of Mister Leasing, maintains that the purchase of the

Hummer was for the purpose of leasing it to plaintiffs and that without such a plan Mister