1.2.7 Lemon Laundering
“Lemon laundering” involves a manufacturer buying back a lemon car from a consumer, then passing on that same car to another consumer without disclosing its lemon history. This treatise extensively treats lemon laundering.
- • The nature of lemon laundering and how it works is described in § 2.1.6, infra.
- • How to investigate lemon laundering is examined in §§ 2.2–2.5, infra.
- • State lemon laundering statutes requiring title branding and other disclosures are reviewed in § 7.6, infra. See also Appx. C, infra.
- • Manufacturers’ potential liability for lemon laundering is examined in § 2.6.6, infra.
- • Automobile auctions are examined in § 2.6.4, infra.
- • MVICSA may be violated when the dealer does not provide title documentation for the buyer to sign, in an attempt to hide information on the existing title relating to the lemon history. See §§ 126.96.36.199–188.8.131.52, infra.
- • Lemon laundering may involve common law fraud, which may lead to punitive damages. See Ch. 8, infra.
- • Lemon laundering may involve a breach of implied or express warranties, which may lead to revocation of acceptance, withholding of installment payments, and a claim for damages, even if the seller had no knowledge of the car’s lemon history. See § 9.2, infra.
- • A breach of an implied or written warranty in a lemon laundering case may also lead to a Magnuson-Moss Warranty Act claim, which would provide for attorney fees. See § 9.2, infra.
- • Lemon laundering also will violate a state UDAP statute, which will often provide attorney fees, minimum, multiple, or punitive damages, and which may not require proof of the defendant’s intent or knowledge. See § 9.4, infra.
- • Lemon laundering may violate a state’s automobile dealer licensing statute or regulations, which will either provide a cause of action, leverage with the dealer, or an indirect cause of action under a UDAP, warranty, or fraud claim. See § 7.7, infra.
- • Lemon laundering may also violate the federal or state RICO statute. The federal statute provides federal jurisdiction, attorney fees, and treble damages. See § 9.5, infra. The state RICO statute may provide similar remedies in state court. See § 9.6, infra.
- • If the seller claims ignorance of the fact that the vehicle was returned as a lemon, rescission on the grounds of mistake may be available. See § 9.3, infra.
- • How to litigate a lemon laundering case is examined in Chapter 10, infra, including: advising the client, who to sue, what claims to plead, jurisdictional issues, res judicata, class actions, evidentiary issues (such as how to introduce evidence of the defendant’s misconduct against other consumers), trial of lemon laundering cases, damage issues, settlements, attorney fees, and collecting judgments against the defendant, the defendant’s surety, related lenders, and auction companies. See also various sample pleadings found in the online version of this treatise, and summarized in Appendix G, infra, including, among others: a lemon laundering complaint and sample discovery.