## Facts

- Brenda Johnson bought a used 1997 Kia Sportage from Earnhardt’s Gilbert Dodge, Inc. in May 2000.
- The sales paperwork stated the vehicle was sold “AS IS,” but also limited the implied warranty of merchantability to 15 days or 500 miles, consistent with Arizona’s used-car statute.
- As part of the same transaction, Johnson applied (through the dealer) for a DaimlerChrysler extended plan covering certain mechanical failures for six years/60,000 miles.
- Johnson paid the dealer an additional $1,235 for the plan; the application was signed by Johnson as purchaser and by Earnhardt as dealer.
- In the application, Earnhardt represented the vehicle qualified, stated it had reviewed the plan with Johnson, and promised it would provide service in accordance with the plan’s provisions.
- The plan described coverage for repair costs (parts and labor, less a deductible) for specified component failures, and directed that service would be provided or assisted by the selling dealer at its place of business.
- After purchase, Johnson experienced mechanical problems and sought service; she asserted the problems were covered by the plan and that she had been told she was purchasing an extended warranty connected to Earnhardt.
- Johnson sued Earnhardt under the Magnuson–Moss Warranty Act (MMWA) for breach of the implied warranty of merchantability and sought revocation; the trial court granted summary judgment and fees to Earnhardt.
- The court of appeals reversed, concluding the plan was both a service contract and a written warranty and that Earnhardt was a warrantor; the Arizona Supreme Court granted review.

## Issues

1. Whether the dealer “entered into a service contract” with the buyer within the meaning of 15 U.S.C. § 2308(a), barring the dealer from limiting the state-law implied warranty of merchantability.
2. Whether the DaimlerChrysler extended plan was a “written warranty” or instead a “service contract” under the MMWA.

## Decision

- The Arizona Supreme Court held that Earnhardt had “entered into a service contract” with Johnson at the time of sale for purposes of 15 U.S.C. § 2308(a).
- Because a service contract was entered into, the dealer could not limit the implied warranty of merchantability to 15 days/500 miles; the limitation was ineffective under federal law.
- The court held the DaimlerChrysler plan was a “service contract,” not a “written warranty,” under the MMWA.
- The court rejected the court of appeals’ reasoning on the “written warranty” classification but affirmed the result allowing Johnson’s implied-warranty claim against Earnhardt to proceed and remanded for further proceedings.

## Legal Principles

- Under 15 U.S.C. § 2308(a), when a seller enters into a service contract with a consumer at the time of sale (or within 90 days) for a consumer product, the seller may not disclaim or modify state-law implied warranties for that product.
- A dealer may “enter into a service contract” under § 2308(a) even if the plan names a third party as the formal contracting party, where the dealer undertakes contractual duties tied to the plan (e.g., selling it, reviewing it with the buyer, and providing or assisting with covered service) and receives payment in the transaction.
- An extended repair plan that primarily promises future repair or replacement for specified component failures, without affirming defect-free condition or a specified level of performance over time, is a “service contract” under 15 U.S.C. § 2301(8), not a “written warranty” under § 2301(6).
- When § 2308 applies, attempted state-law or contractual limitations on the implied warranty of merchantability are ineffective, and implied-warranty duration is governed by § 2308(b) in relation to the service contract.

## Conclusion

Because the dealer’s obligations and role in selling and servicing the extended plan amounted to entering into a service contract, federal law barred the dealer from shortening the implied warranty of merchantability; the extended plan remained a service contract rather than a written warranty, and the buyer’s implied-warranty claim against the dealer could proceed on remand.


Johnson v. Earnhardt’s Gilbert Dodge, Inc., 212 Ariz. 381, 132 P.3d 825 (Ariz. 2006)