Business Influence Over Legislative and Regulatory Outcomes

For decades, political scientists have been probing the various mechanisms by which businesses influence legislative outcomes and the regulatory process. In particular, political scientists examine how interest groups form advocacy coalitions that lobby, negotiate for favorable laws, and build (or set) agendas in their favor (Reference KamienieckaKamieniecka 2006; Reference Leech, Cigler and LoomisLeech et al. 2002; Reference Baumgartner and JonesBaumgartner & Jones 1993; Reference KingdonKingdon 1984). Two major tactics that businesses use to influence legislators and public opinion are issue redefinition and framing (Reference Baumgartner and JonesBaumgartner & Jones 1993). Often, businesses postpone and even defeat policy proposals by amplifying critical beliefs and values (Reference KamienieckaKamieniecka 2006), redefining policy goals (Reference SnowSnow et al. 1986), and dominating the rhetoric of the debate (Reference RikerRiker 1996).

When direct influence is less likely to be successful, interest groups and policy entrepreneurs often shop for venues and try to move decisionmaking authority into alternative and potentially more favorable policy venues (Reference Baumgartner and JonesBaumgartner & Jones 1993). The initial thrust of venue shopping studies focused on how venue shopping is strategic, planned, and deliberate (Reference Baumgartner and JonesBaumgartner & Jones 1993; Reference Sabatier, Jenkins-Smith and SabatierSabatier & Jenkins-Smith 1999). However, more recently, Reference PrallePralle (2003, Reference Pralle2006) offers a more complex model of venue shopping in practice and focuses on: (1) the limited rationality of political actors, and (2) the cultural or ideological constraints on venue choice. Advocacy groups choose venues not only to advance substantive policy goals but also to serve organizational needs or reinforce organizational identities and reputation (Reference PrallePralle 2003). Organizational considerations may also prevent venue shopping even when it may seem rational to do so: “[t]he range of options canvassed by a strategic actor is likely to be circumscribed by a culturally specific sense of appropriate action” (Reference PrallePralle 2003:256; citations omitted).

More recently, political scientists are analyzing how businesses shape and change institutions over time without formal revision of rules or attack on statutes (Reference Hacker and PiersonHacker & Pierson 2002; Reference HackerHacker 2002; Reference PiersonPierson 2004). Instead of attacking laws directly, powerful interests and political elites adapt existing institutions and policies to new ends (conversion), create new institutions or policies without eliminating existing ones (layering), and alter the effect of existing institutions on social life because of changing circumstances (drift) (Reference ThelanThelan 2004; Reference Streeck, Thelan, Streeck and ThelanStreeck & Thelan 2004; Reference HackerHacker 2004; Reference SchicklerSchickler 2001). Thus, business influence occurs within existing policy bounds as well as through large-scale legislative reform (Reference BarnesBarnes 2007, Reference Barnes2008; Reference HackerHacker 2004).

In addition to influencing legislative outcomes, business influence on regulatory policy has also received significant attention by economists and political scientists (Reference QuirkQuirk 1981; Reference PosnerPosner 1974; Reference StiglerStigler 1971; Reference BernsteinBernstein 1955). Consistent with mainstream pluralist political science and client politics (Reference WilsonWilson 1989), “capture” arguments show how competing interest groups reshape regulatory agencies so that they become a friendly protector of private interests by (1) exerting direct influence on regulatory bodies, (2) inserting people within agencies who have sympathetic views toward business, and (3) isolating regulatory agencies and making their survival dependent on the existence of groups that need continued oversight (Reference GormleyGormley 1983; Reference SabatierSabatier 1975; Reference KolkoKolko 1965; Reference BernsteinBernstein 1955; Reference HuntingtonHuntington 1952; Reference HerringHerring 1936; Reference ShapiroShapiro 1988).

Political scientists have made great strides in explaining the mechanisms by which businesses actively influence law among legislatures and regulatory agencies. Political scientists, however, focus less on how internal dispute resolution structures developed by organizations can shape law among public legal institutions. To tackle this issue and develop a theory that accounts for how organizations construct the meaning of law within an organizational field and then import their logic into the legislature, the next section draws on neo-institutional organizational sociologists who focus on how organizations shape their legal environment.

The Sociological New Institutionalist Movement and Legal and Organizational Fields

Neo-institutional sociologists challenge the notion that organizations simply resist, obey, or avoid law in a way that yields the most rational or favorable cost-benefit outcome (Reference VaughnVaughn 1998; Reference Pfeffer and SalancikPfeffer & Salancik 1978; Reference WilliamsonWilliamson 1975; Reference Scott and DavisScott & Davis 2007). Instead, neo-institutionalists see organizations as complex social actors whose behavior is shaped by their cultural environment (Reference DiMaggio and PowellDiMaggio & Powell 1983; Reference Meyer and RowanMeyer & Rowan 1977; Reference Scott, Meyer and ScottScott 1983). These scholars are interested in how common systems of meaning, values, and norms develop among the community of organizations that make up the organizational field (Reference Suchman and EdelmanSuchman & Edelman 1996; Reference Edelman and O'BrienEdelman 2007). Thus, neo-institutionalists argue that rationality is socially constructed by nonmarket factors such as widely accepted norms and patterns of behavior that become taken for granted and institutionalized within organizational fields.

In response to antidiscrimination laws that alter the “legal environment,” organizations often adopt many legal practices and structures because their cultural environment constructs adoption as the legitimate or natural thing to do (Reference DiMaggio and PowellDiMaggio & Powell 1983; Reference EdelmanEdelman 1990, Reference Edelman1992). Organizations respond to new laws by creating new offices and developing written rules, procedures, and policies that attempt to achieve legal legitimacy while simultaneously limiting law's impact on managerial power and unfettered discretion over employment decisions (Reference EdelmanEdelman 1992). The increasing legalization within organizations has been empirically studied in response to changes in civil rights law (Reference DobbinDobbin et al. 1993; Reference Dobbin and SuttonDobbin & Sutton 1998; Reference SuttonSutton et al. 1994; Reference EdelmanEdelman 1990, Reference Edelman1992; Reference EdelmanEdelman et al. 1999), education (Reference ShortShort 2006), antipollution law (Reference HawkinsHawkins 1983), health and safety law (Reference Bardach and KaganBardach & Kagan 1982), and environmental law (Reference KaganKagan et al. 2003). As organizational responses to law spread among the organizational field over time, they become institutionalized (Reference EdelmanEdelman 1990).

Organizations' ability to mediate law's impact on organizations can affect the manner in which claims are resolved.Footnote ⁶Reference EdelmanEdelman et al.'s (1993) study of internal grievance complaint handlers for 10 large organizations revealed that complaint handlers were often unconcerned with actual formal legal rights and outcomes, not fully apprised of the law, and chose not to invoke legal principles when attempting to address employee complaints.Footnote ⁷ Neo-institutionalists increasingly emphasize that organizational fields may have multiple, contradictory logics that at times overlap with other fields (Reference HeimerHeimer 1999; Reference EdelmanEdelman et al. 2001; Reference SchneibergSchneiberg 2005). For example, law becomes “managerialized” when the managerial and business values of an organizational field influence the way we understand law, legality, and compliance (Reference EdelmanEdelman et al. 2001). That is, lawlike structures developed among organizations try to adhere to the primary logic within private organizational fields—namely, rationality and efficiency (Reference Edelman and O'BrienEdelman 2007). However, these structures simultaneously try to appeal to the primary logic of the core of the legal field—namely, impartiality, justice, and protecting rights (Reference EdelmanEdelman et al. 2001).

Law is rendered endogenous when managerialized conceptions of what law means are deferred to by core legal institutions such as courts. That is, law is endogenous when “organizations are both responding to and constructing the law that regulates them” (Reference EdelmanEdelman et al. 1999:407; Reference Edelman and KaganEdelman 2002, Reference Edelman, Nelson and Nielson2005, Reference Edelman and O'Brien2007). Edelman and her coauthors demonstrate that employment discrimination law is endogenous to the extent that judicial interpretations of antidiscrimination law come to incorporate the presence of institutionalized structures as evidence of fair, nondiscriminatory treatment. As courts increasingly defer to internal grievance structures that place a premium on fair procedure without examining their substantive effect, they weaken the capacity of equal opportunity laws to directly effectuate change (Reference EdelmanEdelman et al. 1999; Reference EdelmanEdelman et al. 2001). Moreover, ambiguous and vaguely defined legal terms such as discrimination become infused with managerial values and principles that equate compliance mechanisms with per se evidence of nondiscriminatory treatment. As courts embrace managerial rhetoric and values into law, organizational constructions of law gain not just organizational legitimacy, but legal legitimacy as well (Reference EdelmanEdelman et al. 2001). The blurring of overlapping legal and organizational field logics, therefore, have powerful consequences for how courts interpret law.

In sum, neo-institutionalists and political scientists tend to emphasize different mechanisms when explaining the relationship between business organizations and law. Neo-institutionalists focus on how organizations and organizational fields respond to law, often through symbolic indicators of compliance that diffuse among organizations and become institutionalized. Only recently have Edelman and colleagues begun examining how organizational fields influence core legal institutions such as courts. Neo-institutionalists, however, fail to account for how organizations directly interact with the legislature and do not theorize how organizational fields affect the meaning of law at the legislative level. An analysis of legislative deference to organizational construction of law needs to account for how organizations directly interact with public actors such as legislators during the lawmaking process. By contrast, political scientists focus on the tactics businesses use to directly influence public legal institutions. Political scientists, however, focus less attention on neo-institutional ideas about the importance of private institutional structures as a means of reshaping the meaning of law among core public legal institutions.

These limitations hinder the application of some political science theories to situations where disputes are increasingly resolved in private dispute resolution venues. For example, although it is well settled that interest groups shop for favorable venues, less is known about what interest groups do when shifting into existing venues is unlikely to lead to favorable outcomes. Although regulatory capture takes various forms, typically capture studies focus on business capture of existing governmental regulatory agencies and regulatory enforcement. Capture studies also do not address organizational reshaping of formal legislative content and language once laws are enacted.

In this study, I develop an “institutional-political” theory to show how organizations' construction of law within an organizational field shapes the meaning of law among legislators and courts. I draw from neo-institutional ideas about the importance of institutional structures as mechanisms for endogenously shaping the meaning of law and from political science literatures on how interest groups form advocacy coalitions that lobby and reframe issues at the legislative level in accordance with business prerogatives. The following case study explores how automobile manufacturers created and institutionalized private dispute resolution venues in response to California consumer warranty laws, and then convinced the legislature to incorporate these structures into statutes. Legislative codification of manufacturers' private structures made consumer rights largely contingent on consumers using these structures before seeking relief in court.

Examining the overlap among organizational and legal fields allows me to demonstrate how ideas and norms about institutional venues initially developed within an organizational field flow into the core logic of the legal field. Although this study is consistent with traditional political science studies of interest group politics, venue shopping, institutional change, and capture, it enhances these literatures by showing that political action and what businesses choose to lobby for is often determined and driven by institutionalized norms within the organizational field. By focusing on the subtle process by which organizations' construction of law and compliance within an organizational field is successfully codified into law, this study presents a nuanced analysis about not only how businesses shape the content and meaning of law, but also how public rights created by statute become privatized and co-opted by businesses. Organizations do not just capture existing institutions or shift from one venue to another—they create their own institutional venues.

Stage 1: The Song-Beverly Consumer Warranty Act—Creating a “Legal Weapon” for Consumers

California's consumer warranty statute was an outgrowth of investigations and public hearings by the California Senate Business and Professions Committee in November 1969. The committee concluded that aside from automobile repairs, the single largest category of consumer complaints was warranty problems. In addition to warranties being confusing and misleading, consumers complained that manufacturers and retailers rarely accepted responsibility for making repairs under their warranties. The largest number of warranty complaints concerned automobile dealers and manufacturers.

The committee inquiry convinced California State Assembly Senator Alfred Song that consumers “need legal protection” (Song press release, 2 Feb. 1970). As the leading proponent and coauthor of the Song-Beverly Act (Civil Code §§ 1790 et seq.), Senator Song specifically indicated that the purpose of creating a consumer warranty protection law was to establish “legal weapons” for consumers (Song letter, 2 July 1971). If manufacturers wanted the advertising and marketing benefits of issuing warranties at the time of sale, manufacturers needed to eliminate the practice of making warranties “little more than sales gimmicks” (Song letter, 10 Aug. 1970; San Francisco Chronicle, 25 June 1970, p. 12 [quoting Song]).

The proposed Act set forth rights, responsibilities, and the legal relationship of buyers and sellers of consumer goods in California. Manufacturers or retailers issuing express warranties for consumer goods sold in California that were unable to service or repair consumer goods to conform to the applicable express warranties were required to either replace the goods, reimburse buyers, or face potential lawsuits. The Act initially proposed that if the buyer established that a retailer or manufacturer's failure to comply was willful, any subsequent court judgment could include a civil penalty up to three times the actual damages plus attorneys' fees. By addressing future performance and the responsibility of the warrantor in case of unforeseen failure, the rights and remedies under the Song-Beverly Act went far beyond the California Commercial Code. In particular, the Commercial Code severely limits damages to the cost of repair or diminution in value, provides no potential for civil penalties or attorneys' fees, and focuses on manufacturer obligations regarding the product at the time of sale.

Not surprisingly, the original Song-Beverly Act had strong public support among California residents. Private businesses, however, opposed the bill, claiming the law was “poorly drafted,”“full of ambiguities making the measure difficult to interpret,”“an unnecessary restriction on big business,” and “absurd and ridiculous” (Legislative enrolled bill report to Governor Reagan, 11 Sept. 1970; Legislative Commerce and Public Utilities Committee analysis, 3 Aug. 1970; Lee Stoddard, Speed Queen letter, 12 Feb. 1971; Raypack Inc. letter to Governor Reagan, 12 Aug. 1970; Song letters, 3 and 10 Aug. 1970). Manufacturers indicated that the availability of civil penalties would clog the court system and put them out of business. However, once it became clear the Act was likely to pass despite contentious opposition, those opposing the bill participated in the process. Senator Song's description of his interactions with manufacturers highlights the process whereby business values were injected into the revision process:

The legislative history did not indicate precisely what changes or revisions manufacturers requested in order to fall more in line with current business practices. The final bill codified into law, however, reduced recovery for civil penalties from three times actual damages to two. It also indicated that manufacturers and retailers would only be liable under the Act if they had been given a “reasonable number of attempts” to fix defects (Civil Code § 1793.2). This provision, however, was not specifically defined in the Act. Although the California Manufacturers and Retailers Associations maintained that the bill was still ambiguous and poorly drafted, they withdrew opposition to the bill. Most other businesses remained opposed despite participating in the process. In August 1970, the Song-Beverly Act easily passed and went into effect for products bought on or after March 1, 1971.

Senator Song's achievement was a remarkable one because the Song-Beverly Act was the first consumer warranty law—state or federal—passed in the country. At its inception, the Song-Beverly Act's purpose was to arm consumers with powerful legal weapons attainable through the court system. However, all involved realized that ambiguities in the law could create unforeseen challenges. Even Senator Song noted that “like most new pieces of legislation, [the Act had] its share of loopholes and ambiguities” (Song letter, 5 Nov. 1971). In particular, the Act did not define what constituted a reasonable number of attempts, willful violation, or a civil penalty. One also sees, even before the law's passage, early attempts by manufacturers to mediate the law's impact.

Stage 2: Manufacturers' Mediation of California Consumer Rights Through Institutional Venue Creation

Despite lofty goals, the Song-Beverly Act was not entirely effective during the 1970s. Testimony at the California State Assembly Committee's hearings in December 1979, revealed a high level of consumer frustration with new cars and warranty performance. Manufacturers rarely acknowledged that they were given a reasonable number of attempts to fix a defect under warranty, especially since the Song-Beverly Act did not define the term. As a result, full restitution or replacement of new automobiles rarely occurred (Department of Consumer Affairs enrolled bill report, 2 July 1982; Bill Lockyear memo, Assembly Committee on Labor, Employment, and Consumer Affairs, 18 April 1980).

In 1980, California Assemblywoman Sally Tanner decided to clarify and expand the Song-Beverly Act by proposing a specific law, referred to as the California “Lemon Law,” which defined what constituted a “reasonable number of attempts” for new motor vehicles. Because automobiles were the primary source of complaints from consumers and the second most expensive purchase for consumers, Assemblywoman Tanner felt that it was necessary to add some teeth to legal protections afforded consumers. The bill proposed that a consumer could invoke a “legal presumption” that the automobile manufacturer had been legally given a reasonable of attempts to repair a nonconformity if (1) the same nonconformity had been subject to repairs by the manufacturer or its agents four or more times, or (2) the new motor vehicle had been out of service by reason of repair for a cumulative total of 20 days or more.

Manufacturers strongly objected to the Lemon Law and lobbied against the proposal. They alerted Assemblywoman Tanner and the rest of the legislature through letters and detailed memoranda that, in response to the Song-Beverly Act's passage in 1970, automobile manufacturers had created internal dispute resolution processes to resolve consumer disputes. In particular, the three major American automobile manufacturers, Ford, General Motors, and Chrysler, submitted reports detailing the goals and structure of their programs to the legislature. With some variation, these dispute resolution processes consisted of panels of three to five persons, often including manufacturer and dealer representatives, a mechanic, and a consumer advocate.

Diffusion of institutional venues among manufacturers and dealers occurred in the 1970s and 1980s. More than 2,000 automotive dealers across the United States jointly funded and controlled a third-party dispute resolution process to resolve warranty complaints. Manufacturers often used the Better Business Bureau or other third-party organizational surrogates to administer these programs.

Manufacturer advocacy to the California legislature was also uniform. Led by Ford, General Motors, and Chrysler, manufacturers without exception framed the purpose and benefits of their dispute resolution processes in terms of legitimacy, efficiency, informality, and customer satisfaction as opposed to consumer protection. Manufacturers collectively claimed that their institutional venues were primarily created to benefit consumers and provided less costly, more effective ways of resolving disputes. Despite not providing consumers with a right to oral presentation, Ford noted the legitimacy such programs provided “as self-regulating mechanisms. . . . Their very existence means that our dealers and our own personnel are perceived as taking the extra steps required to resolve issues to the satisfaction of customers … .” (Ford Consumer Appeals Board memo, p. 2; in legislative records from the early 1980s). Full restitution in these programs, however, remained rare.

In sum, as in the employment context (Reference EdelmanEdelman et al. 1993), internal dispute resolution processes provided a means through which manufacturers' values and norms influenced the structure and content of the organizational field far more than did consumers' interests.Footnote ¹¹ Moreover, as shown in the interest group and venue shopping literatures (Reference Baumgartner and JonesBaumgartner & Jones 1993; Reference PrallePralle 2003, Reference Pralle2006), advocacy coalitions influenced public policy and redefined consumer rights by linking them to other socially recognized values such as informality and efficiency.

Stage 3: The Legislature Codifies Manufacturer Institutional Venues into the Lemon Law

After the original Lemon Law was narrowly defeated in 1980 and 1981, the Lemon Law, Civil Code § 1793.22, was enacted in 1982, but with significant changes from the original proposal.Footnote ¹² In order to pass the bill, the California Legislature deferred to and codified the logic of manufacturers' valuation of institutional venues without any apparent formal review of these programs. Under the Lemon Law, a consumer was entitled to a “legal presumption” that the manufacturer received a “reasonable number of attempts” if (1) the same nonconformity had been subject to repair four or more times within the first 12,000 miles or 12 months from purchase, or (2) had been out of service by reason of repair for a cumulative total of more than 30 (not 20) calendar days within the first 12,000 miles or 12 months from purchase. A manufacturer was permitted to rebut the presumption at trial by showing that its actions in a particular case was reasonable.

The most significant changes, however, concerned the codification of manufacturers' dispute resolution processes into the Lemon Law. Specifically, the legal presumption as to what constituted a “reasonable number of attempts”—the main purpose of the Lemon Law—could not be asserted in court unless the consumer first resorted to the existing “qualified third-party dispute resolution process” to the extent that a manufacturer maintained one (Civil Code § 1793.22(c)). Thus, legal protections afforded under the Lemon Law were contingent upon using manufacturers' third-party dispute resolution processes if they existed. Dispute resolution processes “qualified” if they met the minimum requirements set forth in the federal warranty law, the Magnuson-Moss Warranty and Federal Trade Commission Improvement Act (Magnuson-Moss Act), and in particular, Federal Trade Commission Rule 703, for dispute resolution proceedings.Footnote ¹³ Decisions under dispute resolution processes were binding on manufacturers but not consumers. Moreover, in a display of deference to manufacturer venues, the Lemon Law indicated that if the consumer chose to reject the arbitrator's ruling and sue, the arbitrator's findings could be admitted at trial without any need for evidentiary foundation. The Lemon Law also provided that no civil penalties or attorneys' fees could be recovered in dispute resolution processes unless the manufacturer-run program permitted such recovery. Further, unlike the all (restitution, replacement) or nothing (no award) remedies at trial, arbitrators were permitted to award consumers the opportunity to allow manufacturers another repair attempt.

Although manufacturers still publicly opposed passage of the Lemon Law, some recognized the potential for keeping these disputes out of courts. Loren Smith, a lobbyist for the Motor Car Dealers Association, commented after the Lemon Law passed: “[w]e think it's a good start. I look at it as a way to eliminate court cases” (The Californian, 26 May 1982, p. 19) (compare Edelman et al. 1993). Thus the broad, vague mandate of these laws and weak enforcement mechanisms gave wide latitude to manufacturers.

Like employers in the civil rights context, manufacturers responded to both environmental demands (change in public attitudes and awareness, the law, legal mandates) and managerial self-interests (desire for fewer lawsuits, greater efficiency, informality, quick resolution, and no civil penalties or attorney's fees) by developing private institutional venues to satisfy legitimacy and efficiency concerns. Through issue redefinition, framing, and advocacy coalitions, organizations redefined and “converted” (compare Reference HackerHacker 2002, Reference Hacker2004; Reference BarnesBarnes 2007, Reference Barnes2008) public rights attainable in court into private rights to dispute resolution. The legislature, without ever formally and critically analyzing whether manufacturer institutional venues were procedurally and substantively fair to consumers, “layered” manufacturer venues into the Lemon Law via formal revisions (Reference Streeck, Thelan, Streeck and ThelanStreeck & Thelan 2004; Reference BarnesBarnes 2007, Reference Barnes2008). Thus, the norms regarding compliance that evolved within the organizational field during the 1970s shaped manufacturers' conceptions of law in their lobbying behavior in the 1980s.

Stage 4: Conflicting Tensions of Symbolic Structures and Substantive Compliance

Although the final codified Lemon Law encouraged consumers to use automobile manufacturer–sponsored institutional venues, the Lemon Law did not establish a means of ensuring that manufacturer-run programs operate fairly. Consumers were funneled into these processes by manufacturers claiming they were complying with the minimum requirements under FTC Rule 703. However, there was no regulatory or monitoring oversight. Not a single manufacturer formally qualified its program under the Lemon Law after its passage in 1982.

The legislative history indicates that many consumer groups complained to Assemblywoman Tanner and the California Department of Consumer Affairs in the mid-1980s. Complaints included allegations that (1) arbitrators often had no legal training and no training in the Lemon Law, and often were not even provided copies of the applicable warranty law, (2) many manufacturer processes did not allow consumers oral presentation at hearings while dealers and manufacturer representatives often participated in the decisionmaking process (Ford and Chrysler) or staffed these panels with their own employees, (3) manufacturer proceedings were taking much longer than 40 days as required by FTC guidelines, and (4) arbitrators relied on expert testimony from mechanics supplied by manufacturers to evaluate automotive defects. Moreover, decisions in favor of consumers often resulted merely in another repair attempt for manufacturers. However, there was often no follow-up by arbitrators to determine if repair attempts resolved the problems.

Consumers virtually gave up on manufacturers' dispute resolution processes due to the lack of fairness, loss of time, and safety hazards associated with continuing to drive unsafe vehicles. In a letter to Assemblywoman Tanner, the Director of Consumer's Aid of Shasta, Inc., stated:

In 1987, Assemblywoman Tanner developed what she termed a “due process” bill. She proposed (1) establishing a program in the California Bureau of Automotive Repair to certify manufacturer arbitration programs, and (2) investigating consumer complaints regarding the qualified program's failure to follow its own written procedures. Although certification was voluntary, Assemblywoman Tanner proposed that if a manufacturer did not have a “qualified third-party dispute resolution process” certified by the state and the consumer filed suit and prevailed (i.e., was awarded restitution or replacement), the consumer would be automatically entitled to a civil penalty plus attorneys' fees. No showing of willfulness was required for the civil penalty.

Manufacturers, not surprisingly, were not pleased. Once again, manufacturers deflected the Song-Beverly Act and Lemon Law's goal of protecting legal rights toward focusing their institutional venues more on fairness and informality (compare Reference EdelmanEdelman et al. 1993). Automobile manufacturers argued that the certification process would overly formalize the process. The following letter sent by General Motors to the California legislature captures the flavor of letters and memoranda sent by the vast majority of manufacturers concerning their collective desire to not formalize private dispute resolution processes:

Although this bill ultimately passed, it was not without significant revisions. Labeled the “Tanner Compromise,” manufacturers agreed to (1) certify their programs, (2) “take into account” statutory standards, (3) provide dispute resolution panels with copies of the Lemon Law, and (4) require panel familiarity with the law (David Collins, General Motors, 16 Jan. 1990; see also Senate legislative analysis, 4 Sept. 1987). However, arbitrators retained flexibility and final authority regarding the standards, statutory or otherwise, that they chose to ultimately apply in particular cases. The finalized statutory language also indicated that manufacturers could avoid non-willful civil penalties as long as they substantially complied with certification requirements. Finally, manufacturers who chose not to maintain a dispute resolution process or certify their process under Civil Code § 1793.22(c) were not subject to a mandatory civil penalty if the consumer received full restitution or replacement at trial. Rather, in those situations, the jury had discretion to award a civil penalty up to twice the actual damages.

Thus, due to the lack of enforcement and monitoring mechanisms in the Lemon Law concerning dispute resolution processes, manufacturers initially ignored the minimum procedural requirements and FTC Rule 703 guidelines. In response to consumer outrage from 1982 to 1987, the legislature in 1987 focused its efforts on regulating the certification process, but again left substantive results to manufacturers and their third-party administrators. Since 1987, approximately three-fourths of all automobile and motor home manufacturers participate in California's Arbitration Certification Program. Manufacturers that do not certify their program often maintain some form of uncertified dispute resolution process.

Stage 5: Deference to Dispute Resolution Procedures—Legislative Logic Converges With Manufacturer Logic

Over time, amendments the legislature made to the Lemon Law had less to do with protecting consumer rights and more to do with legitimating institutional venues into law and consequently, bolstering the degree to which consumers, manufacturers, legislators, and courts deferred to institutional venues designed and funded by manufacturers. Core legal ideals about impartiality and protecting formal legal rights blurred with manufacturer logic regarding institutional venues framed as more efficient and informal.

In 1989, the Lemon Law was amended to clarify the dispute resolution certification process. The amendment established that when a Lemon Law case went to court, only decisions from a qualified third-party dispute resolution process certified by the state were admissible into evidence without further foundation. This bill was unanimously adopted in response to a few rogue manufacturers' attempts to admit findings from uncertified dispute resolution processes. The Senate Judiciary Committee expressly noted the deference private venues should be afforded in court: “[t]his policy is intended to encourage manufacturers to submit their dispute resolution programs for state certification by giving extra credence to the findings and decisions of that body” (Legislative Council report, 19 July 1989, p. 1; emphasis added).

In 1991, the legislature sponsored a bill that proposed precluding consumers from filing lawsuits unless they first participated in the qualified third-party dispute resolution process and received a decision. Thus, in this proposal, a consumer's right—not just to raise a legal presumption but also to file a lawsuit under the Song-Beverly Act—was predicated on participating in the manufacturers' dispute resolution process.

California's leading plaintiffs' Lemon Law firm, Kemnitzer, Dickinson, Anderson & Barron (Kemnitzer), compiled information from Better Business Bureau Autoline (a dispute resolution program many manufacturers use to run their programs) and other dispute resolution companies. Kemnitzer reported that consumer awards under BBB Autoline are often far smaller than the full restitution consumers can obtain in court. Of the 600 cases in which consumers sought restitution from the manufacturer that the BBB Autoline arbitrated in 1990, approximately 25 percent of consumers received a restitutionary award that they could have received in court while 57 percent were awarded the opportunity to allow manufacturers another chance to fix the defect—a remedy not available under the Song-Beverly Act or Lemon Law (Alan Cohen, Senior Attorney, Council of BBB letter, 24 May 1991). Of the 250 cases in Northern California that were decided between 1988 and 1991 by Toyota's and Hyundai's dispute resolution programs, only 10 percent (25 cases) received full restitution (Mark Anderson letter, 26 Aug. 1991, referencing deposition, 18 April 1991, Ricardy v. Toyota Motor Sales, Civil No. 46138 (Superior Court, Sutter County)). Kemnitzer argued that, although private dispute resolution programs had improved, state certified third-party venues sponsored by manufacturers should not be a prerequisite to litigation.

The legislative history indicates that although the State Assembly passed this proposal by a vote of 72-0, Assemblywoman Tanner succeeded in having the proposal withdrawn by the State Senate on the eve of the final vote after strong opposition from consumer advocates. Nonetheless, the fact this proposal almost passed shows how far the “rationalized myth” (Reference Suchman and EdelmanSuchman & Edelman 1996) of manufacturer institutional venues had been inscribed into legislative thinking regarding consumer rights.

Stage 6: Judicial Deference—Organizational Logic Overlaps With Judicial logic

Because many Lemon Law disputes have been privatized, there are only four published California court cases substantively interpreting manufacturer-sponsored dispute resolution processes. However, the four cases exemplify the argument that consumer warranty law is endogenous, i.e., much like legislative enactments, judicial interpretations of consumer warranty violations incorporate the presence of institutionalized venues as evidence of fair treatment, and a public policy concern for quick, informal resolution of consumer disputes. Judges, these cases suggest, reflexively interpret consumer warranty protection law not as protecting legal weapons, but as a system for keeping cases out of court in the hope that consumers and manufacturers can work problems out in private dispute resolution venues.

In 1994, the California court of appeals in the Second Appellate District issued two decisions within months clarifying that manufacturers with qualified third-party dispute resolution processes were immunized from non-willful civil penalties under Civil Code § 1794(e) but potentially liable for civil penalties for willful misconduct under Civil Code § 1794(c) (Suman v. BMW of North America 1994). California courts indicated that the Legislature intended to “confer a benefit” to manufacturers who maintained dispute resolution processes by immunizing them from non-willful civil penalties (Jernigan v. Ford Motor Co. 1994). California courts also signaled that consumers should accept the success and failure of such privatized processes: “[w]e encourage manufacturers to maintain qualified third-party dispute resolution processes, thereby ensuring that fewer consumers will have to take their problems to court” (Suman v. BMW of North America 1994:13). The following passage best reflects how, with respect to dispute resolution proceedings, the California courts adopted the logic and preferences of the legislature, which masks the fact that the legislature adopted the logic and preferences of manufacturers:

The judicial and legislative message to consumers was clear: if a dispute resolution process existed, then a consumer should use the private “courthouse” (Reference Edelman and SuchmanEdelman & Suchman 1999).

Even for willful civil penalties, dispute resolution procedures constituted a partial defense. When evaluating willful misconduct under § 1794(c), California courts held that juries should consider the nature of the manufacturer's conduct, including whether they acted reasonably, acted in “good faith,” or maintained written policies and procedures to resolve consumer disputes (Kwan v. Mercedes-Benz of North America 1994:186; Suman v. Sup. Ct. [BMW of North America] 1995:1323). Thus, the judicial component of this journey through California's Lemon Law reflects deference to private venues in a manner consistent with the legislature's codification of manufacturers' preference for informal, private resolution of public rights.

Stage 7: The Current State of Lemon Law Dispute Resolution

Since 1992, there has been very little substantive change to the dispute resolution provisions of the California Lemon Law. Today, all 50 states have consumer warranty laws. Many states channel consumers into dispute resolution provisions as a prerequisite to claiming a legal presumption in court. Over the course of 35 years since California's groundbreaking consumer warranty law, manufacturers have been able to develop and legitimate an alternative dispute resolution system, with the blessing of the state, which largely transforms and privatizes legal rights to a point where manufacturers are, in effect, the legislature and court (Reference Edelman and SuchmanEdelman & Suchman 1999). This is a critical yet largely unrecognized mechanism through which “the ‘haves’ come out ahead” (Reference GalanterGalanter 1974:95).

The Effects of Organizational Privatization of Public Legal Rights

Manufacturers, like employers, do not simply resist, ignore, or obey ambiguous laws, but instead they construct compliance in a manner that serves their rational and legitimacy interests. Legislative and judicial deference to organizational responses to law had a powerful effect on the meaning of consumer rights. In particular, public legal rights created by the legislature were redefined and controlled by private organizations.

Consumer rights have been redefined in powerful ways. First, if a manufacturer maintains a dispute resolution process, the consumer must use the process in order to claim the “legal presumption” in court that a manufacturer has been given a “reasonable number of attempts.” Second, simply by establishing a dispute resolution procedure, manufacturers create the potential for resolving disputes without providing full restitution or replacement (the only awards consumers are entitled to in court), paying plaintiffs' attorneys' fees (which consumers are automatically entitled to in court should they prevail), and paying civil penalties up to twice the actual damages. Instead, one final repair attempt can be “awarded” in favor of consumers. Third, if the manufacturer prevails in the private process, the manufacturer now contains a legal weapon, namely, the arbitrator's findings, which are admissible in court without evidentiary foundation should the consumer decide to sue. The fate of California's consumer protection laws as mechanisms for social change poignantly demonstrates the paradoxical role that law plays in American society. The legislature initially provided consumers with weapons but then limited the practical effect of these weapons when it made them contingent on the use of manufacturer dispute resolution processes.

Manufacturers were also able to control consumer rights once they were privatized. As managerial and business values penetrated the way legislators and courts understood consumer protection law, manufacturers gained the ability to control the processes, the rights, and the remedies through private dispute resolution venues. In particular, manufacturers co-opted the dispute resolution process because they fund the processes, design the rules and remedies, and are the “repeat players” who benefit from altered rules (Reference GalanterGalanter 1974:97). Other than attempts by legislators to legitimate these structures by establishing parameters for certification and cursory state regulatory monitoring mechanisms, manufacturers have in effect deregulated themselves from court jurisdiction and implemented their altered version of consumer rights in private venues.Footnote ¹⁴

It is important to note that manufacturers' eagerness to privatize the process is not likely driven by wanton disregard for the law or lack of concern over consumer warranty problems. The legislative history suggests that manufacturers believe that these processes are better for the consumer because they are more informal and efficient. Manufacturers also believe that these processes free the court system of these cases. However, manufacturers' ability to control consumer warranty rights through private dispute resolution procedures transforms and potentially undermines formal legal rights in several ways.

First, the punitive, compensatory, and deterrence goals of consumer protection laws may remain unfulfilled by these procedures. Manufacturers frame a new rights rhetoric geared more around therapeutic healing (letting the consumer air frustrations) and problem-solving (giving the manufacturer one final repair attempt) than substantive relief obtainable in the court system (restitution, replacement, attorneys' fees, and civil penalties). At one point, General Motors admitted that only 250 of its 1,000 arbitrators were lawyers and purposely instructed its arbitrators not to rely on law when addressing disputes (G.M. letter, 8 July 1987). Second, an unfair dispute resolution process together with an unfavorable ruling may convince some consumers that further legal action is unwarranted or futile. The most significant way that manufacturer control transforms legal rights is that legislatures and courts view these institutional venues themselves as evidence of good faith on the part of the manufacturer when evaluating whether a manufacturer's failure to repurchase was willful.

Social Policy Implications

When evaluated from a social policy standpoint, manufacturers' adoption of institutional venues to resolve disputes has not been entirely negative for consumers. At a minimum, institutional venues are symbols that demonstrate commitment to consumer warranty protection. Institutional venues may also provide a significant opportunity for consumers to vent frustrations, resolve disputes, and even punish manufacturers in the form of restitution when consumers are fed up with improper service and a breach of warranty is recognized by the arbitrator. However, the implementation of symbolic policies and procedures does not guarantee substantive change for consumers. Even in the most favorable institutional venues, these procedures do not provide equivalent compensation or public recognition that consumers could receive through Lemon Law claims in court. Manufacturers' adoption of dispute resolution procedures may perhaps represent an improvement in handling consumer warranty disputes, but it may also hinder detection of manufacturers not living up to their obligations under warranties.

Even in situations where one would most expect law to protect the one-shot player—cases arising under a remedial statute granting individual rights—there are subtle, nuanced ways by which statutes can be weakened. Once legislatures and courts codify and defer to institutional venues, one sees a shift toward more organizational power both to resists rights mandates and to control the enforcement, the dispute resolution process, rules, and most important, the meaning of consumer rights. Although Minnesota Attorney General Hubert H. Humphrey in 1989 submitted a letter on behalf of attorney generals in all 50 states proclaiming, “[s]tate new car lemon laws [are] the single most important advance in consumer protection in the last decade” (CA Lemon Law report 2002), the law in action suggests that these laws are susceptible to organizational transformation and reconstruction in subtle but powerful ways.

Although this article focuses on deference to organizational dispute resolution venues in the context of consumer warranty laws, scholars would be well served to examine legislative and regulatory deference and codification of structures that organizations create in other areas affecting consumers: namely, financial and capital markets governance—especially in light of the current economic crisis in the United States. Amidst the push toward collaborative and delegated governance arrangements between business and government in the past two decades, laws such as the Gramm-Leach-Bliley ActFootnote ¹⁵ and the Sarbanes-Oxley ActFootnote ¹⁶ rely on and defer to corporations' financial disclosure policies and internal compliance structures such as ethics codes, monitoring, and auditing and reporting systems in order to protect consumers and investors from financial fraud (Reference KrawiecKrawiec 2003; Reference O'Brien and O'BrienO'Brien 2007). Similar to the Lemon Law context, the legislative and regulatory apparatus looks to corporations to determine what “best practices” are and what constitutes compliance with these laws. Although these corporate structures may symbolize compliance and ethical conduct by corporations, the recent financial crisis shows that such institutionalized structures may provide little guarantee that financial fraud and abuse will not occur.

How the basic architecture of legal systems—public and private—are institutionally structured in ways to privatize law and limit possibilities of using the public system for redistributing change is worthy of future focus by political and sociolegal scholars. Given the current momentum for public-private governing models and the prevalence of pre-dispute mandatory arbitration clauses in consumer and employment contracts, the subtle struggles for legal institutional power and authority in the twenty-first century are not likely only about what the rules are, i.e., playing for favorable rules in the disputing game, but rather, who is the legitimate supplier of the rules and where the legitimate venue is for the disputing game.