LEGAL FILE: Dealership loses bid to reinstate suit over warranty audit

DaimlerChrysler did not violate its sales and service agreement or act in bad faith when it rejected warranty claims and charged back the disallowed amount to a Cincinnati dealership, the Ohio Court of Appeals has ruled.

DaimlerChrysler had a contractual right to audit warranty claims submitted by Kenwood Lincoln-Mercury Inc. and followed its standard audit procedures in doing so, the court said.

According to the appeals court, DaimlerChrysler paid the dealership more than $1.2 million on 7,238 warranty repair claims for January 1996 through October 1997.

After an audit, the automaker charged back $32,951 of that amount, contending that the dealership had failed to keep complete inventory records and had used Freon, cleaning agents and lubricants from unapproved sources.

The dealership sued for double damages but lost at a nonjury trial in Hamilton County Court of Common Pleas.

In upholding the verdict, the appeals court said DaimlerChrysler did not violate a section of Ohio law that requires franchisers to approve or disapprove a franchisee's warranty claims within 45 days. DaimlerChrysler initially approved all the claims within that time limit.

In addition, the court said DaimlerChrysler did not violate the legal duty of franchisers to act in good faith.

The dealership admitted at trial that DaimlerChrysler was entitled contractually to conduct the audit, the three-judge panel said.

The court noted that the dealership had obligated itself under the sales and service agreement not to use unauthorized parts in performing warranty repairs.

The court also rejected the dealership's argument that the sales and service agreement was onerous, saying the contract was "entered into freely by parties possessing equal business experience and equal bargaining power."

The dealership's lawyer, Curtis Cornett of Cincinnati, said there was no testimony that warranty repairs hadn't been performed or that any customers were dissatisfied.

He also said there has been virtually no previous litigation on the question of whether manufacturers have a right under Ohio law to approve franchisees' claims and then go back later to do a warranty audit.

Cornett said his client will ask the state Supreme Court to review the decision.

You can send e-mail to Eric Freedman at [email protected]