Court Opinion

ID: 9704248
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:27:57.169628+00
Date Added: 2024-06-11T18:21:59.165853
License: Public Domain

JUSTICE McMORROW dissenting: I initially joined the majority opinion in this case. I remain in agreement with the majority in its adoption of the independent approach in analyzing limitations of remedy and disclaimers of consequential damages. However, in light of arguments regarding unconscionability that were raised in Hyundai’s petition for rehearing, as well as subsequent changes made by the court to its opinion, I believe that rehearing should be allowed. As Hyundai notes in its petition for rehearing, “[t]he effect of this Court’s decision could be tremendous, and [could] impact all manufacturers of goods sold in Illinois.” The majority’s unconscionability determination imposes an impossible burden on manufacturers and in the process provides a powerful disincentive for manufacturers to offer written warranties. In addition, the majority’s decision on this issue runs counter to federal regulations dealing with the allocation of responsibility between manufacturers and sellers. This novel decision represents a dramatic change in state contract law governing warranty exclusions and undoubtedly will have a far-reaching impact. In part (I)(B) of its opinion, the majority holds, as a matter of state contract law, that Hyundai’s exclusion of consequential damages in its manufacturer’s limited warranty is procedurally unconscionable and therefore may not be enforced. Two factual points form the basis of the majority’s unconscionability determination: (1) the lack of evidence that the warranty was present or even referred to in Gartner’s sales contract, and (2) plaintiffs testimony that she never saw any part of Hyundai’s written warranty, including the disclaimer of consequential damages, until she looked in her owner’s manual after she had signed the sale contract and driven the car off the lot. The majority notes that procedural unconscionability refers, inter alia, to a situation where a term is so difficult to find, read, or understand that a plaintiff cannot fairly be said to have been aware that she was agreeing to it. With this definition in mind, the majority states: “[Wjhatever other context there might be in which a contractual provision would be found to be procedurally unconscionable, that label must apply to a situation such as the case at bar where plaintiff has testified that she never saw the clause nor is there any basis for concluding that plaintiff could have seen the clause, before entering into the sale contract.” (Emphasis in original.) 222 Ill. 2d at 101-02. In other words, the consequential damages clause was difficult to find or read (and therefore procedurally unconscionable), not because it was in small print or because it was relegated to the back of the contract, but rather because, based on the record evidence, it was not “made available to the plaintiff at or before the time she signed the sale contract.” 222 Ill. 2d at 100-01. In support of its ruling that Hyundai’s consequential damages clause is unconscionable, the majority points to 16 C.F.R. § 700.11(b), a Federal Trade Commission (FTC) regulation dealing with written warranties. Section 700.11(b) states, in pertinent part: “A written warranty must be ‘part of the basis of the bargain.’ This means that it must be conveyed at the time of sale of the consumer product ***.” 16 C.F.R. § 700.11(b) (2000). This requirement that the warranty “must be conveyed at the time of sale” raises two questions. First, what is meant by “conveyed at the time of sale”? The majority takes the position that, in order for the warranty to be conveyed at the time of sale, it must be made available to the purchaser at or before the time the purchaser signs the sale contract. In the case at bar, as noted, the warranty was included in the owner’s manual, which was in the glove compartment of the car, and plaintiff apparently did not see the warranty until after she signed the purchase contract and drove the car off the lot. In the majority’s view, the inclusion of the warranty in the glove compartment of the car did not constitute the conveying of the warranty at the time of sale. However, Hyundai appears to argue in its petition for rehearing that such inclusion of the warranty in the glove compartment did constitute providing the warranty “at the time of sale.” The majority disagrees, but cites to no authority for its contrary interpretation of this phrase. A more important question with regard to this requirement is whether it is the warrantor or the retail seller who bears the burden of conveying the warranty at the time of sale. Section 700.11(b) does not say. However, this question is answered by section 702.3 (16 C.F.R. § 702.3 (2000)). Section 702.3(a), which describes the duties of a seller, provides, in pertinent part: “[T]he seller of a consumer product with a written warranty shall make a text of the warranty readily available for examination by the prospective buyer by: (1) Displaying it in close proximity to the warranted product, or (2) Furnishing it upon request prior to sale and placing signs reasonably calculated to elicit the prospective buyer’s attention in prominent locations in the store or department advising such prospective buyers of the availability of warranties upon request.” 16 C.F.R. § 702.3(a) (2000). Section 702.3(b), which describes the duties of a warrantor, provides, in pertinent part, that a warrantor shall: “Provide sellers with warranty materials necessary for such sellers to comply with the requirements set forth in paragraph (a) of this section, by the use of one or more by the following means: (A) Providing a copy of the written warranty with every warranted consumer product[.]” 16 C.F.R. § 702.3(b)(l)(i) (2000). Under section 702.3, it is the retail seller’s obligation to make the written warranty available to the prospective buyer at the point of sale. The manufacturer, on the other hand, is required only to provide the retail seller with the warranty materials that the seller will need to meet this obligation. 16 C.F.R. §§ 702.3(a), (b)(l)(i) (2000). Thus, in the case at bar, it was Gartner’s obligation to make the written warranty available to plaintiff. Hyundai’s obligation, on the other hand, was merely to provide Gartner with the necessary warranty materials. It is undisputed that Hyundai satisfied this requirement. The majority acknowledges section 702.3 and its allocation of responsibility between the warrantor and the seller. However, the majority asserts that Hyundai has waived any argument based on section 702.3. The majority states: “[I]t is clear that Hyundai has utterly failed to raise any argument based on section 702.3 or any differentiation of responsibility between itself and Gartner. We decline to accept the dissent’s invitation to consider section 702.3 sua sponte and decide this issue on the basis of an argument the parties have never made, not in the circuit court, the appellate court, initial briefing before this court, nor even on rehearing.” 222 Ill. 2d at 105. The majority emphasizes that an argument based on section 702.3 was not raised by the parties in the circuit court, the appellate court, or in initial briefing before this court. The reason Hyundai did not raise this argument in the lower courts or on initial briefing before this court is that it was unnecessary. No argument that Hyundai’s consequential damages exclusion was procedurally unconscionable was raised in the courts below or in plaintiffs brief to this court.5 With regard to Hyundai’s petition for rehearing, the majority is incorrect in asserting that Hyundai “utterly failed” to raise an argument based on differentiation of responsibility. Hyundai pointed in its petition to “the very different roles” of the warrantor and the seller regarding the sales transaction in the case at bar. It is true that, in making this argument, Hyundai failed to cite specifically to section 702.3 of the FTC regulations. However, the majority’s invocation of waiver in this instance, solely because Hyundai failed to cite to the appropriate section of the regulations, constitutes, in my view, an overly technical application of the waiver doctrine. See In re D.F., 208 Ill. 2d 223, 238-39 (2003) (the rule of waiver is a limitation on the parties and not on the court). The majority’s application of the waiver doctrine is objectionable for a more fundamental reason as well. In explaining its waiver decision, the majority asserts that it will not address sua sponte an argument on behalf of Hyundai that was not raised below. However, the majority fails to note that its own procedural unconscionability rationale for declining to enforce Hyundai’s exclusion was itself raised sua sponte. As previously indicated, no argument was raised in the courts below or in plaintiffs brief to this court that Hyundai’s consequential damages exclusion was procedurally unconscionable because Hyundai failed to make its warranty available to plaintiff at the time she signed the purchase contract. This argument is raised for the first time by this court in its opinion in the case at bar. The unavoidable implication of the majority’s refusal to consider the section 702.3 contention is that it is perfectly acceptable for this court to raise, sua sponte, an argument on behalf of one party, while nevertheless declining to consider, sua sponte, an argument on behalf of the opposing party. While I do not believe that the majority intends this implication, it necessarily follows, and it undoubtedly will be a message taken from the majority’s decision in this case. The majority attempts to limit the impact of its procedural unconscionability holding by asserting that the outcome might be different if section 702.3 were properly raised. The majority states: “We intimate no suggestion as to what the outcome of this or any future case might be if this or any other argument were properly raised before this court or the circuit court.” 222 Ill. 2d at 105. I disagree with this assertion. The majority today concludes, as a matter of state contract law, that an exclusion in a limited warranty is unenforceable where a manufacturer fails to make the warranty available to the consumer at or before the time the purchase contract is signed. While the relevant FTC regulations contradict this holding, these regulations are not necessarily-controlling. The majority cites to section 700.11(b) merely as support for its holding that Hyundai’s warranty exclusion is unconscionable. The majority’s decision regarding the unconscionability of warranty exclusions will stand regardless of whether section 702.3 is properly raised in a future case. I note, in addition, that there are difficulties with the majority’s unconscionability holding even when considered solely as a matter of state contract law, without reference to the federal regulations. In finding Hyundai’s consequential damages disclaimer unconscionable, the majority concludes that this exclusion is void and unenforceable as a matter of public policy. The clear implication of such a holding is that Hyundai did something wrong, such as hiding the exclusion “in a maze of fine print.” Frank’s Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill. App. 3d 980, 990 (1980). However, in the case at bar Hyundai committed no such infraction. Instead, Hyundai’s transgression was that it failed to make the warranty “available to the plaintiff at or before the time she signed the sale contract.” 222 Ill. 2d at 100-01. This raises the question of how Hyundai could have avoided this transgression and ensured that the warranty was conveyed to plaintiff. The majority insists that the inclusion of the warranty in the purchase contract is not the only way in which “plaintiff could *** have received the warranty.” There are other possibilities, the majority asserts, but these possibilities are not identified. 222 Ill. 2d at 103. If the warranty must be made available to the consumer at or before the time the purchase contract is signed, and if, as the majority concludes, the warrantor may not rely on the seller to meet this responsibility, then there is, in my view, only one possible way in which the warrantor could satisfy this obligation. The warrantor must have a representative physically present on the seller’s premises to make sure that the warranty is conveyed to the consumer, thereby ensuring the warranty’s enforceability. A moment’s reflection reveals the unreasonableness of such a requirement. Under the majority’s holding, which is not limited to automobile manufacturers, any manufacturer who warrants a product sold at a retail outlet would need to hire representatives for each of the many such outlets that sold the manufacturer’s products. This is an impossible burden to place on the manufacturer. It is unreasonable for the majority to hold Hyundai responsible for failing to do something that cannot realistically be achieved. There is another way in which the majority’s decision here is objectionable. The majority reasons that, because Hyundai’s consequential damages disclaimer was not provided to plaintiff at or before the time she signed the purchase contract, this exclusion was not part of the agreement and is void and unenforceable. However, according to the record evidence cited by the majority, it was the entire warranty, and not just the consequential damages exclusion, that was unavailable to plaintiff at the time she signed the contract. As the majority asserts: “[P]laintiff testified without contradiction that she never saw any part of the written warranty, much less the disclaimer of consequential damages, until she looked in her owner’s manual after she had signed the contract and driven the car off the lot. Thus, on this record, we must conclude that the warranty information, including the disclaimer of consequential damages, was not made available to the plaintiff at or before the time she signed the purchase contract.” (Emphasis in original.) 222 Ill. 2d at 101. Under the majority’s reasoning, if the consequential damages exclusion is void because it was not made available to plaintiff and was not part of the agreement entered into by plaintiff, the same is also true of the warranty as a whole. It follows that, if the warranty itself is void, i.e., not part of the agreement, plaintiff should not be able to bring suit against Hyundai under the warranty. Nevertheless, in the case at bar, the majority holds, sua sponte, that Hyundai’s exclusion is void because it was not conveyed to plaintiff. The majority does not, however, reach the same conclusion regarding the warranty as a whole. This is inconsistent. The majority’s holding regarding Hyundai’s consequential damages disclaimer is objectionable for yet another reason. In my view, the majority’s decision on this issue is detrimental to consumers. By holding that Hyundai’s consequential damages exclusion is unenforceable because Hyundai failed to do something that it could not realistically accomplish, the majority is discouraging manufacturers from offering written warranties at all. While a manufacturer’s decision to provide such warranties undoubtedly is influenced by competitive pressures, the benefits of offering a warranty will be considerably diminished if the manufacturer has no control over the scope of the warranty offered. Under the majority’s holding, the ability of a manufacturer to control this scope through exclusions such as a disclaimer of consequential damages is severely constrained, if not eliminated. Faced with such a prospect, a manufacturer might very well conclude that it is no longer cost effective to offer a written warranty. Such a result would indeed be anticonsumer. In its petition for rehearing, Hyundai argues that the majority erred in basing its unconscionability determination on the lack of evidence that the warranty was included in the purchase contract. Hyundai contends that, as a warrantor, it has no control over the terms of the sales contract, which is between Gartner (not Hyundai) and plaintiff, and is a document entirely separate from the warranty between Hyundai and plaintiff. In responding to this argument, the majority asserts that it is not “unfair to bind a manufacturer by the actions of a seller” (222 Ill. 2d at 102). In support of this proposition, the majority points to Wilbur v. Toyota Motor Sales, U.S.A., 86 F.3d 23 (2d Cir. 1996). Wilbur is clearly distinguishable from the case at bar. The plaintiff in Wilbur sued Toyota Motor Sales (Toyota) for refusing to honor its new car warranty on her Toyota Camry. The plaintiff bought the car in May 1992 from Tri-Nordic Toyota (Tri-Nordic), which had used it as a demonstrator for several months prior to the sale. Before the plaintiff bought the car, Tri-Nordic told her that, during the time the car was being used as a demonstrator, it had been in an accident that required nearly $4,000 in repairs. However, Tri-Nordic told the plaintiff that the car had been fully repaired and had sustained no structural damage. At the time of the plaintiff’s purchase of the car, the plaintiff received a copy of Toyota’s warranty, which stated that the warranty went into effect “ ‘on the date the vehicle is first delivered or put into use (in-service date).’ ” Wilbur, 86 F.3d at 24-25. Tri-Nordic filled in the in-service date as “5/18/92,” the date the plaintiff bought the car. The warranty also stated that “ ‘repairs and adjustments required as a result of ... accident ... are not covered.’ ” Wilbur, 86 F.3d at 25. In June 1992 the plaintiff began experiencing problems with the car, but when she took it in for repairs, she was told that the repairs were excluded from coverage because the vehicle had sustained structural damage in an accident. Following the filing of the plaintiffs suit for breach of warranty, Toyota moved for summary judgment, and the motion was granted. A main issue on appeal was whether Toyota’s warranty, with its accident exclusion, went into effect on the date that the plaintiff bought the car or on the date several months previously when it was delivered to Tri-Nordic. If it went into effect when the car was delivered to Tri-Nordic, this would mean that the warranty’s exclusion for accidental damage applied from that date, and there was thus no warranty coverage for any repairs resulting from the accident. If, however, the warranty did not go into effect until the plaintiff bought the car, the accidental damages exclusion would not have taken effect until after the accident took place, and the repairs resulting from the accident would be covered. The Court of Appeals held that the warranty went into effect on the date the plaintiff bought the car. The court therefore reversed the grant of summary judgment in favor of Toyota. In reaching this conclusion, the court conceded that “it was the actions of Tri-Nordic, not Toyota, which resulted in the damage to the car that in turn led to this lawsuit.” Wilbur, 86 F.3d at 27. However, the court added that Toyota “gave its dealer the authority to fill in the in-service date.” Wilbur, 86 F.3d at 27. In other words, Toyota would not have been vulnerable to the suit arising from the accident if Tri-Nordic had not filled in the “5/18/92” in-service date on the warranty, which was an action that Toyota had authorized Tri-Nordic to take. The court concluded that the plaintiff’s breach-of-warranty claim “cannot be defeated on Toyota’s motion for summary judgment and must be allowed to proceed to trial.” Wilbur, 86 F.3d at 27. While it was Tri-Nordic’s actions that led to the accident in Wilbur, this accident was problematic for Toyota only because of the in-service date that Tri-Nordic filled in on the warranty. As noted, Toyota had authorized TriNordic to fill in this date. In the case at bar, on the contrary, any error on the part of Gartner in failing to include the warranty in the sales contract was not authorized by Hyundai. With regard to whether a manufacturer may be bound by the actions of a seller, the most that can be concluded from Wilbur is that, where the warrantor authorized the actions of the seller, the warrantor’s disclaimer may be held unenforceable. However, Wilbur has no application to the case at bar, where any error on the part of the seller in failing to include the warranty in the purchase contract clearly was not authorized by Hyundai. The majority’s reliance on Wilbur is misplaced. In sum, I disagree with the majority’s unconscionability determination for several reasons. Under the majority’s novel holding, which represents a dramatic change in state contract law, manufacturers now face an impossible hurdle in attempting to ensure that their warranty exclusions are enforceable. A possible result is that manufacturers will conclude it is no longer cost-effective to offer written warranties. This result, as noted, would be decidedly anticonsumer. Moreover, in holding Hyundai responsible for failing to make its warranty available to plaintiff at the time she signed the purchase contract, the majority directly contradicts the relevant FTC regulations, particularly section 702.3, which provides that it is the seller’s responsibility to make the warranty available to the purchaser at the point of sale. In addition, by raising an argument, sua sponte, on behalf of plaintiff but declining, at the same time, to consider, sua sponte, an argument on behalf of Hyundai, the majority sends an unfortunate message regarding the fairness of this court’s approach to arguments raised on behalf of parties who appear before us. Because of my disagreement with the majority on these points, I respectfully dissent from the modification of the opinion upon denial of rehearing. It is my belief that this court could benefit from briefing on these matters. I note, too, that this court allows successive petitions for rehearing where a majority opinion has been modified upon denial of rehearing. In light of the extensive modifications made by the majority here, I suggest the filing of such a petition. For the foregoing reasons, I vote to grant Hyundai’s petition for rehearing.  In her brief to this court, plaintiff did contend that the disclaimer at issue was unconscionable. However, in making this argument, which consisted of a single paragraph that contained a block quote, plaintiff contended that Hyundai’s warranty exclusion was substantively unconscionable in that it was “an invalid contract of adhesion.” Plaintiff did not argue that the warranty exclusion was procedurally unconscionable.