Tang v. C.A.R.S. Protection Plus, Inc.

Citation734 N.W.2d 169,2007 WI App 134
Decision Date03 April 2007
Docket NumberNo. 2006AP1540.,2006AP1540.
PartiesThomas TANG, Plaintiff-Respondent, v. C.A.R.S. PROTECTION PLUS, INC., Defendant-Appellant.
CourtCourt of Appeals of Wisconsin

On behalf of the defendant-appellant, the cause was submitted on the briefs of William E. Hughes, Jennifer J. Kopp and Theresa E. Essig of Whyte Hirschboeck Dudek, S.C., of Milwaukee.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Mitchell J. Barrock of Barrock & Barrock of Brookfield.

Before WEDEMEYER, P.J., CURLEY and KESSLER, JJ.

¶ 1 CURLEY, J

C.A.R.S. Protection Plus, Inc. (CARS) appeals from the judgment entered in favor of Thomas Tang, determining that CARS breached its contract with Tang and awarding Tang attorney's fees under the Magnuson-Moss Warranty Act (Magnuson-Moss Act or the act). CARS contends that the trial court erred in concluding that it breached the contract because the trial court's factual findings regarding Tang's and O'Reilly Motors's (O'Reilly) communications with CARS were clearly erroneous, and because the trial court erred in finding that under the terms of the contract, CARS was not allowed to demand a determination of "cause" of a car part's failure at the car owner's expense before CARS had to pay out on its warranty. CARS instead claims that Tang failed to fulfill his obligations under the warranty. CARS also contends that the trial court erred in awarding Tang attorney's fees under the Magnuson-Moss Act, claiming that the act was not violated and that the act does not apply because the contract was a service contract rather than a warranty.1 Tang asserts that the trial court's conclusions were proper and asks this court to grant him attorney's fees for this appeal under the Magnuson-Moss Act and moves for frivolous costs.

¶ 2 We are satisfied that the trial court's factual findings regarding the number of contacts that Tang and O'Reilly had with CARS were not clearly erroneous and that the trial court properly interpreted the contract. Therefore, we conclude that CARS breached the contract and the implied covenant of good faith. We further determine that the contract was a service contract, that the trial court properly concluded that Tang established a claim under the Magnuson-Moss Act, and we remand to the trial court for a determination of whether attorney's fees for this appeal are appropriate under the Magnuson-Moss Act. Finally, we deny Tang's motion for frivolous costs. Accordingly, we affirm the judgment, but remand for a determination of whether Tang is entitled to attorney's fees for this appeal under the Magnuson-Moss Act.

I. BACKGROUND.

¶ 3 On January 16, 2004, Tang purchased a used 1999 Jaguar XJR on the internet auction site eBay from WFL Wholesale (WFL) for $19,850. Prior to purchasing the car, Tang had inquired from WFL about purchasing a warranty and WFL referred Tang to CARS, a company that specializes in issuing car warranties. Tang purchased a "Value Plus Limited Warranty" (the contract) for thirty-six months from CARS for $1,499. The warranty was accepted and approved by CARS on January 30, 2004.

¶ 4 The contract sets forth a list of "covered components," which includes, under the heading "engine," in part: "All internally lubricated parts: Engine block, cylinder head(s), intake manifold, pistons, piston rings . . . ." The warranty also set forth a "warranty claim procedure" which provides in part:

Your vehicle must be at a repair center in order for a claim to be opened. Once the vehicle is at the repair center call CARS Protection Plus, Inc. at 1-800-335-6838 with the estimate of repairs before any work begins. The limited warranty holder is responsible for the charges relating to the tear down and diagnosis of the vehicle. If it is determined that the covered component has failed and the estimate for the repair is agreed upon by our adjuster, an authorization number will be issued for the repair . . . . No invoices will be processed for reimbursement without a valid authorization number. Repairs can be done at any qualified repair shop you choose, however, CARS Protection Plus, Inc. reserves the right to have repairs done at a location other than the one you have selected. When making the repairs, the repair shop shall use components of the same type and quality as those removed. Replacement parts may include new, rebuilt or used components. When having maintenance done on your vehicle you must retain all copies of work performed. We reserve the right to request any and all maintenance records pertaining to your vehicle.

¶ 5 In March 2004, Tang began to notice problems with the car's engine and took it to Wilde Jaguar (Wilde), a Jaguar dealership. The mechanics at Wilde inspected the car and informed Tang that there was low compression in one cylinder and that the engine would have to be replaced. On March 5, 2004, Bill Heaney of Wilde contacted Richard Hardy, the claims adjuster at CARS assigned to Tang, and informed Hardy of what the mechanics had concluded. Hardy informed Heaney that CARS would not pay for the repair unless it knew what triggered the problem, that a tear-down of the engine was necessary to make that determination, and that Tang would be responsible for the cost of the tear-down and diagnosis. After Tang experienced some difficulties contacting Hardy, CARS provided him with an alternative telephone number where he eventually reached Hardy. According to Tang, Hardy told him that CARS would not cover the repair unless a tear-down of the engine was performed at Tang's expense, because CARS needed to know the "cause" of the damage. CARS denies that Tang contacted Hardy and that an alternative number was given.

¶ 6 Hoping to avoid the tear-down, Tang took the car to another auto repair center, F & F Tire (F & F), for another evaluation. The mechanics at F & F reached the same conclusion as those at Wilde: a leak in one cylinder led to low compression in that cylinder and the engine needed to be replaced. F & F referred Tang to O'Reilly, which specializes in engines like the one in Tang's Jaguar.

¶ 7 Consistent with the previous two analyses, the mechanics at O'Reilly also concluded that there was a defect in a cylinder, specifically scoring on the cylinder caused by broken piston rings, and that the engine needed to be replaced. On March 22, 2004, Kelly Kotecki, Tang's service writer at O'Reilly, contacted Hardy and informed Hardy that Tang's car needed a new engine. Hardy told Kotecki that CARS needed more information before the engine replacement could be covered and that the engine had to be dismantled to determine what component had caused the failure. Kotecki disagreed that such a tear-down was necessary because it was clear that the piston rings, a covered component, had failed and that the engine needed to be replaced. Hardy refused to authorize the repair unless a further tear-down was performed at Tang's expense, and advised Kotecki to obtain authorization from Tang. According to Kotecki's testimony, he believed Hardy's demands were atypical because warranty claims generally require only a determination of what component failed, not the cause of the failure.

¶ 8 Kotecki and Tang discussed Hardy's demand for a tear-down. According to Tang, he spoke with Hardy, disputing the need for further tear-down, but Hardy told him it was needed. CARS denies this conversation ever took place. Tang authorized the tear-down because he felt he had no other choice. O'Reilly performed a tear-down of the engine, which again confirmed that the damaged piston rings had scored the cylinder walls. According to Kotecki, he contacted Hardy on March 25, 2004, and informed him that the tear-down had confirmed the original diagnosis, but Hardy refused to authorize the repair, requested further tear-down of the engine, and demanded that the engine be removed from the car so an adjustor from CARS could be sent to examine it.2 According to CARS, the conversation never took place, and CARS specifically disputes that it ever promised to send an inspector. O'Reilly further dismantled the engine in anticipation of an inspector. An inspector never arrived to inspect the engine.

¶ 9 Around April 13, 2004, Kotecki informed Tang that an inspector had never arrived, that the car could no longer sit in the shop, but that because they knew that the reason for the problem was the failure of a covered component—broken piston rings that had scored a cylinder—the repair should be covered by the warranty. As a result, Kotecki searched for a used engine, but, finding none, Tang ultimately authorized O'Reilly to order a new engine. Kotecki had not yet received authorization from CARS, but started making arrangements to install the new engine because he felt there was no reason why the repair would not be authorized.

¶ 10 The new engine arrived on April 20, 2004. On April 29, 2004, Kotecki spoke with Hardy and told him that O'Reilly had finished the tear-down of the engine, had received the replacement engine, and was waiting for an adjustor from CARS to arrive. Whether the engine had already been installed at this time is in dispute: Kotecki states it had not; CARS maintains that Kotecki told Hardy that it had. It is, however, undisputed that Hardy informed Kotecki that CARS was not sending out an inspector, CARS was not going to authorize the claim, and the claim would have to be sent for review, for which CARS needed a copy of the final bill. According to Kotecki, when he told Hardy that O'Reilly had the replacement engine on hand, Hardy stopped dealing with him. According to CARS, an authorization number was never issued because it was unable to determine the cause and extent of the damage or whether the engine needed to be replaced. Based on his conversation with Hardy, Kotecki still had the impression that CARS would cover the repair because the failed component was covered and because...

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