Newmar Corp. v. McCrary , 129 Nev. 638 ( 2013 )

129 Nev., Advance Opinion 67
IN THE SUPREME COURT OF THE STATE OF NEVADA
NEWMAR CORPORATION, A No. 58174
DELAWARE CORPORATION,
Appellant,
vs. FILED
ALLISON MCCRARY, AN
INDIVIDUAL, OCT 0 3 2013
Respondent.
NEWMAR CORPORATION, A No. 59045
DELAWARE CORPORATION,
Appellant,
vs.
ALLISON MCCRARY, AN
INDIVIDUAL,
Respondent.
Consolidated appeals from a district court judgment in a
revocation of acceptance and breach of warranty action and from a post-
judgment order awarding attorney fees. Eighth Judicial District Court,
Clark County; Valorie J. Vega, Judge.
Affirmed in part and reversed in part.
Morris Law Group and Robert McCoy, Rex D. Garner, and Raleigh C.
Thompson, Las Vegas,
for Appellant.
Alverson, Taylor, Mortensen & Sanders and Kurt R. Bonds, Alan V.
Mulliner, and Eric W. Hinckley, Las Vegas,
for Respondent.
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BEFORE THE COURT EN BANC. 1
OPINION
By the Court, CHERRY, J.:
In this opinion, we consider whether a purchaser of a motor
home may revoke acceptance and recover the purchase price from the
motor home's manufacturer under the Uniform Commercial Code (UCC).
We hold that a purchaser is entitled to revoke acceptance of the motor
home against its manufacturer where, as here, privity exists between the
manufacturer and the buyer because the manufacturer interjected itself
into the sales process and had direct dealings with the buyer to ensure the
completion of the transaction. We also conclude that the district court
properly awarded incidental and consequential damages but that it
abused its discretion in awarding attorney fees. Thus, we affirm the
judgment but reverse the award of attorney fees.
FACTS AND PROCEDURAL HISTORY
Respondent Allison McCrary purchased a luxury motor home
manufactured by appellant Newmar Corporation from Wheeler's Las
Vegas RV. The purchase included Newmar's two-year express warranty
for repair and service. After purchasing the motor home, McCrary let it
remain in Wheeler's possession for repairs, due to some issues noticed
during the test drives. A week later, McCrary returned to inspect and
pick up the motor home. Noticing continued problems with the motor
home during the inspection, McCrary met with a Newmar factory
representative. She stated that she would not take possession of the
1 The Honorable Kristina Pickering, Chief Justice, voluntarily
recused herself from participation in the decision of this matter.
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motor home until the representative assured her that Newmar would take
care of any problems and that there was a full, bumper-to-bumper
warranty. After receiving the sought-after reassurances from Newmar,
McCrary took possession of the motor home.
Shortly thereafter, the motor home experienced significant
electrical problems, making it unsafe to drive and resulting in repeated
delays and canceled vacation plans for McCrary. After numerous repairs
at the Newmar factory and other repair shops, McCrary attempted to
revoke her acceptance of the motor home from Newmar, but Newmar
rejected the revocation. McCrary then filed the underlying action
asserting, inter alia, causes of action for revocation of acceptance, breach
of contract, and breach of warranty against Newmar. 2
Prior to trial, both parties made offers of judgment. Neither
offer was accepted. Following a bench trial, based on the particular facts
of this case, the district court concluded that McCrary did not take
possession of the motor home when she signed the contract and would not
have completed the purchase and eventually taken possession except for
the interactions with and assurances made by Newmar's representative to
McCrary. Ultimately, the district court found in favor of McCrary and
awarded her $406,500 in damages—the $385,000 purchase price for the
motor home based on the revocation of acceptance, but required McCrary
to return the motor home as part of the revocation, $12,500 for the cost of
insuring the motor home, and $9,000 for storage fees—plus $44,251.40 in
McCrary also asserted claims against Wheeler's. Wheeler's was
2
subsequently removed from the litigation during the summary judgment
stage because McCrary attempted to revoke acceptance only from
Newmar.
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prejudgment interest and $107,581.50 in attorney fees. The court entered
judgment accordingly, and these appeals followed.
DISCUSSION
We must first determine whether revocation of acceptance is
an available cause of action against a manufacturer before we can reach
the issues of damages and attorney fees.
Revoking acceptance from Newmar
Newmar argues that, under Nevada's applicable UCC
provision, NRS 104.2608, a buyer can only revoke acceptance from a seller,
and while it manufactured the motor home, it was not a seller of the motor
home. Thus, Newmar contends that Wheeler's is the only entity from
whom McCrary can revoke acceptance and that, because McCrary revoked
acceptance with the wrong entity, she alone must bear the consequences of
that mistake.
McCrary contends that the district court correctly determined
that Newmar was a co-seller based on Newmar's exclusive warranty and
its employee's participation in the sales process. McCrary asserts that
Newmar should be held to its actions.
The UCC provision governing revocation of acceptance was
adopted and codified in Nevada as NRS 104.2608. It allows a buyer to
revoke her acceptance of a purchased good if the item suffers from a
"nonconformity [that] substantially impairs its value to the buyer" and the
buyer accepted the item on the understanding that the seller would cure
the nonconformity or was induced into accepting a nonconforming item
"either by the difficulty of discovery before acceptance or by the seller's
4
assurances." NRS 104.2608(1)(a), (b); 3 see also NRS 104.2608(2) (requiring
notification to the seller of the defect and timeliness for revocation).
Under the UCC, "[s]eller' means a person who sells or contracts to sell
goods." NRS 104.2103(1)(c). Here, there is no question as to the motor
home's nonconformity, and thus we turn directly to whether the
manufacturer can be considered a "seller" under the UCC.
We have previously addressed revocation of acceptance
against the immediate seller, but we have not yet determined whether
revocation of acceptance is available against a manufacturer. See Waddell
v. L.V.R.V., Inc., 122 Nev. 15, 125 P.3d 1160 (2006) (affirming judgment
for revocation against the dealer that sold the subject motor home); Havas
v. Love, 89 Nev. 458, 459, 514 P.2d 1187, 1188 (1973) (allowing revocation
against the defendant who sold a motorbus to the plaintiff). The
Legislature has given some guidance, directing our courts to liberally
construe and apply the UCC to "make uniform the law among the various
jurisdictions." NRS 104.1103(1)(c). However, the jurisdictions are split as
to whether revocation of acceptance is proper against a manufacturer,
giving us the opportunity to decide the issue de novo. See Wyeth v.
Rowatt, 126 Nev. „ 244 P.3d 765, 775 (2010) ("[I]ssues involving a
purely legal question are reviewed de novo.").
In revocation of acceptance cases, the term "seller" has been
restricted to the immediate seller by a majority of jurisdictions but has
been inclusive of the manufacturer by a minority of jurisdictions. A
3 The
legislative history of NRS 104.2608 does not indicate whether
the Legislature intended that the buyer may revoke only against the
immediate seller or may return the goods to a remote seller such as the
manufacturer.
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majority of jurisdictions have determined that revocation is not available
against a manufacturer because the manufacturer is not a "seller" under
the UCC. See, e.g., Seekings v. Jimmy GMC of Tucson, Inc., 638 P.2d 210,
214 (Ariz. 1981) (following "the logic as well as the letter of the U.C.C." to
require privity and hold that a motor home "manufacturer who does not
sell to the purchaser [directly and for whom the seller was not agent]
cannot be liable for revocation and attendant damages"); Griffith v.
Latham Motors, Inc., 913 P.2d 572, 577 (Idaho 1996) (determining that the
manufacturer could not be liable under a revocation claim because it did
not sell the vehicle to the plaintiffs); Henderson v. Chrysler Corp., 477
N.W.2d 505, 507-08 (Mich. Ct. App. 1991) (rejecting revocation against
nonselling manufacturer when there was no privity and leaving plaintiff
with remedies under a warranty); Neal v. SMC Corp., 99 S.W.3d 813, 816-
18 (Tex. App. 2003) (noting that because "[t]he nature of a revocation
claim logically requires privity of contract [,] . . . revocation is available to
the buyer only against the immediate seller"; the motor home
manufacturer, "in the absence of a contractual relationship with the
consumer, is not a seller" by virtue of a manufacturer's express warranty);
see generally Fedrick v. Mercedes-Benz USA, L.L.C., 366 F. Supp. 2d 1190,
1200 (N.D. Ga. 2005); Conte v. Dwan Lincoln-Mercury, Inc., 374 A.2d 144,
150 (Conn. 1976); Hardy v. Winnebago Indus., Inc., 706 A.2d 1086, 1091
(Md. Ct. Spec. App. 1998); Ayanru v. Gen. Motors Acceptance Corp., 495
N.Y.S.2d 1018, 1023 (Civ. Ct. 1985); Reece v. Yeager Ford Sales, Inc., 184
S.E.2d 727, 731 (W. Va. 1971). According to these courts, revocation is not
available against the manufacturer unless there is a direct contractual
relationship between the manufacturer and the buyer or an agency
relationship between the manufacturer and the seller. The rationale
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behind this position is that revocation is intended to return the buyer and
seller to their original positions and that because the manufacturer does
not own the goods or receive the purchase price when the goods are sold, it
cannot be involved in restoring the parties to their former positions. See,
e.g., Seekings, 638 P.2d at 214; Griffith, 913 P.2d at 577; Henderson, 477
N.W.2d at 507-08; Neal, 99 S.W.3d at 817-18; Gasque v. Mooers Motor Car
Co., Inc., 313 S.E.2d 384, 390 (Va. 1984).
Conversely, a minority of states have held that revocation of
acceptance can be had against entities further removed from the
transaction than the immediate seller, such as the manufacturer. See,
e.g., Ford Motor Credit Co. v. Harper, 671 F.2d 1117, 1126 (8th Cir. 1982);
Durfee v. Rod Baxter Imps., Inc., 262 N.W.2d 349, 357-58 (Minn. 1977);
Volkswagen of Am., Inc. v. Novak, 418 So. 2d 801, 804 (Miss. 1982); Fode v.
Capital RV Ctr., Inc., 575 N.W.2d 682, 687-88 (N.D. 1998); Gochey v.
Bombardier, Inc., 572 A.2d 921, 924 (Vt. 1990). As explained in Gochey,
this decision is based on the viewpoint that traditional privity is not
necessary, but that the relationship established based on a manufacturer's
warranty is sufficient:
"Under state law the right to revoke acceptance
for defects substantially impairing the value of the
product and to receive a refund of the purchase
price are rights available to a buyer against a
seller in privity. Where the manufacturer gives a
warranty to induce the sale it is consistent to
allow the same type of remedy as against that
manufacturer. Only the privity concept, which is
frequently viewed as a relic these days, has
interfered with a rescission-type remedy against
the manufacturer of goods not purchased directly
from the manufacturer. If we focus on the fact
that the warranty creates a direct contractual
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obligation to the buyer, the reason for allowing the
same remedy that is available against a direct
seller becomes clear."
572 A.2d at 924 (quoting Ventura v. Ford Motor Corp., 433 A.2d 801, 811-
12 (N.J. Super. Ct. App. Div. 1981) (citations omitted)).
In assessing these two positions, we find the majority position
to be too inflexible in its adoption of a strict, literal interpretation of
privity and in defining what constitutes a "seller." This position ignores
the UCC's mandate for liberal application. We perceive instances where,
as here, revocation of acceptance against a manufacturer might be
appropriate.
We also have concerns with the minority view, based on the
fact that the jurisdictions taking this approach have expressly eliminated
privity, enacted relevant statutory definitions, or eliminated privity from
consideration. See, e.g., Novak, 418 So. 2d at 803-04 (determining that
based on the Mississippi Legislature's "abolish[ment of] privity of contract
for breach of warranty claims including actions brought under the [UCC],"
the sales contract and the accompanying manufacturer's warranty were
"so closely linked both in time of delivery and subject matter, that they
blended into a single unit at the time of sale"); Harper, 671 F.2d at 1126(declining to limit relief as it would be "contrary to the Code's mandate to
administer its remedies liberally," even though the UCC "eliminates the
defense of privity in suits for damages for breaches of warranties, [but
remains] silent as to revocation of acceptance"); Durfee, 262 N.W.2d at
357-58 (concluding that because plaintiff could have sued under a
warranty theory, when "the absence of privity would not bar the suit
despite the language of the pertinent Code sections[,]" the same logic
should be applied to revocation as "[t]he remedies of the Code are to be
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liberally administered"); Fode, 575 N.W.2d at 687-88 (determining that
the buyer could revoke acceptance from a nonprivity manufacturer based
on the merger of the warranty with the contract); Gochey, 572 A.2d at 924(concluding that an express warranty creates a contract with the ultimate
buyer, pointing out that "[w]hen the manufacturer's defect results in
revocation by the consumer, the manufacturer must assume the liability it
incurred when it warranted the product to the ultimate user"). Our
Legislature thus far has been silent on the issue of privity. As a result, we
are hesitant to completely eliminate any requirement of privity,
particularly because doing so may result in too broad an application of the
revocation of acceptance cause of action.
While we have concerns with both positions, because of the
unique circumstances of this case, we need not choose between the two at
this point. The direct interactions and representations made by Newmar
to McCrary expanded the relationship between the two parties and
created privity. 4 Newmar, even though it was the manufacturer,
interjected itself into the sales process and through its representations
assisted in the completion of the sales transaction. Under the unique facts
of this case, we conclude that this direct involvement on the part of the
manufacturer in the sales process created a direct relationship with the
buyer sufficient to establish privity between the manufacturer and the
buyer. See Alberti v. Manufactured Homes, Inc., 407 S.E.2d 819, 824 n.4
4Black's Law Dictionary defines privity as "Mlle connection or
relationship between two parties, each having a legally recognized interest
in the same subject matter (such as a transaction, proceeding, or piece of
property); mutuality of interest." Black's Law Dictionary 1320 (9th ed.
2009).
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(N.C. 1991) (stating that the prerequisite for revocation of acceptance that
there be a direct contractual relationship between the parties can include
the manufacturer when the buyer and manufacturer have direct dealings
with each other); Cedars of Lebanon Hosp. Corp. v. European X-Ray
Distribs. of Am., Inc., 444 So. 2d 1068, 1072 & n.4 (Fla. Dist. Ct. App.
1984) (holding that privity can exist between the manufacturer and buyer
even though there is an intermediate seller when there are direct contacts
between the two parties in completing the sale). This resulting
relationship is sufficient to include the manufacturer within the definition
of "seller" under NRS 104.2103(1)(c), and, as a result, allow for revocation
of acceptance against the manufacturer. When the manufacturer is
ultimately responsible for the defect that resulted in the breach to the
consumer and has directly involved itself in the transaction to ensure the
sale, it can be the entity that is held responsible to the consumer.
Accordingly, we affirm the district court's decision that McCrary was
entitled to revoke acceptance from Newmar.
Award of incidental and consequential damages
Newmar next argues that its single-page warranty explicitly
and clearly disclaims liability for incidental and consequential damages.
Newmar further contends that revocation cancels only a contract of sale
and that the warranty from a manufacturer is still intact, preventing the
collection of those damages. However, Newmar's repeated failed attempts
to repair the motorhome under the expanded warranty resulted in the
frustration and deprivation of McCrary's benefit of the bargain to the
point that no remedy was available to her. NRS 104.2719(2) provides that
"[w]here circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this chapter."
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Because McCrary's remedy failed to serve its purpose, she was entitled to
pursue remedies available under the UCC. The pertinent UCC provision,
NRS 104.2715, explicitly provides for the award of incidental and
consequential damages. See also Clark v. Int'l Harvester Co., 581 P.2d
784, 797, 802 (Idaho 1978) (noting that "other courts have uniformly held
that where a party limits its warranty obligation to the repair and
replacement of defective parts failure to fulfill that obligation, if such
failure operates to deprive the other party of the substantial value of the
bargain, causes the limited remedy 'to fail of its essential purpose' within
the meaning of that section and entitles the party to pursue the remedies
otherwise available under the UCC" including incidental and
consequential damages (quoting Idaho Code § 28-2-719(2))); Durfee v. Rod
Baxter Imps., Inc., 262 N.W.2d 349, 357-58 (Minn. 1977) (awarding the
purchase price plus incidental damages and determining that because
"Mlle existence and comprehensiveness of a warranty undoubtedly are
significant factors in a consumer's decision to purchase a particular
automobile[,] . . . [w]hen the exclusive remedy found in the warranty fails
of its essential purpose and when the remaining defects are substantial
enough to justify revocation of acceptance, we think the buyer is entitled
to look to the warrantor for relief"); Koperski v. Husker Dodge, Inc., 302
N.W.2d 655, 664, 666 (Neb. 1981) (noting that "[r]epair and replacement'
clauses,. . . have become the basic mechanism by which manufacturers
limit or avoid liability in actions for breach of warranty," and explaining
that when the car is so defective that the repair and replace warranty fails
in its essential purpose, the buyer may sue for breach of warranty and
may, in some cases, sue for incidental and consequential damages); Ehlers
v. Chrysler Motor Corp., 226 N.W.2d 157, 161 (S.D. 1975) (determining
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that respondent was entitled to incidental and consequential damages
under the warranty when the available remedy failed its essential purpose
due to a breach caused by unreasonable delays in the vehicle's repairs).
Accordingly, because incidental and consequential damages may be
awarded pursuant to the revocation claim, we affirm the district court's
award of those damages. See NRS 104.2715; Novak, 418 So. 2d at 803;
Fode, 575 N.W.2d at 689.
Award of attorney fees
Newmar also challenges the award of attorney fees. We
conclude that the award of attorney fees to McCrary was an abuse of
discretion, as the award was not authorized under the plain language of
NRCP 68(f) and NRS 17.115(4). See McCarran Int'l Airport v. Sisolak, 122
Nev. 645, 673, 137 P.3d 1110, 1129 (2006). We conclude that the district
court properly declined to award attorney fees under NRS 18.010 because
Newmar's defense against revocation was not unreasonable given the split
in jurisdictions on this issue. Additionally, attorney fees were not proper
under NRS 17.115(4) because McCrary did not receive a larger award at
trial than she would have under the pretrial offer of judgment.
CONCLUSION
For the reasons articulated above, we conclude that when a
vehicle has substantial, irreparable defects, a purchaser is entitled to
revoke acceptance of the vehicle from the manufacturer when the
manufacturer interjected itself into the sales process and made direct
representations to the buyer, thereby creating privity. Furthermore,
under the UCC, the purchaser is permitted to receive the purchase price
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along with incidental and consequential damages. 5 We further conclude
that the district court abused its discretion in awarding attorney fees.
Thus, we affirm the judgment but reverse the order awarding attorney
fees.
J.
Gibbons
J.
Hmdesty
Parraguirre
J.
Douglas
J.
Saitta
5 1n
light of our resolution of this appeal, we need not reach
Newmar's remaining contentions.
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.