04.07.2014
Extended Service Contracts for Electronic Devices in Schools

Many school districts purchase electronic devices such as tablets and laptops for students as they enter high school.  To protect their investment, school districts often contract with companies to insure against future damage and repair costs.  These agreements are called extended service contracts and are governed by the California Song-Beverly Consumer Warranty Act (SBCWA), the California Commercial Code, and the federal Magnuson-Moss Warranty Act (MMWA). 

What are school districts’ options when a service contractor does not promptly settle claims or repair covered equipment?  School districts may purchase lower cost electronics that regularly require repair, and service contractors may not be prepared to handle the volume of devices a school district owns.  If all students receive a tablet, for example, expedited service is imperative so students do not fall behind in their studies.  When a contractor is overwhelmed with the number of service requests or does not adequately respond for other reasons, districts may consider legal options to encourage the contractor to provide appropriate service.

Under California’s SBCWA, service contracts must include: a description of the covered product, the period of the contract, who can request repair, any exclusions from coverage, the procedure the buyer should follow to obtain performance, the steps the service contractor will take to carry out its obligations, and information regarding informal dispute procedures.  (Civil Code § 1794.4(c).) Service contracts are presumed cancellable and refundable in full by the purchaser at any time; however, the contract can provide for an alternate refund structure, which is outlined in the statute.  (Civil Code § 1794.5.)

Most service contracts include a binding arbitration clause, which precludes a school district or other consumer from filing a lawsuit. Absent an arbitration clause, school districts can sue service contractors under state or federal law.

Under SBCWA, a buyer that is damaged by a failure to comply with an obligation under the contract may sue for damages and other relief including costs and attorney’s fees. (Civil Code § 1794.)  Additionally, a claim that the service contractor failed to uphold the bargain is actionable under SBCWA or as general breach of contract under the Commercial Code.

Under MMWA, school districts must utilize the service contractor’s internal dispute mechanism prior to filing a lawsuit in federal court.  (15 U.S.C. § 2310.)

The federal law requires service contractors to have a mechanism to investigate, gather and organize all information necessary for a fair and expeditious decision of each dispute. (16 C.F.R. § 703.5.) Recovery under MMWA can include costs and expenses such as reasonable attorney’s fees.  (15 U.S.C. § 2310(d)(2).)  A class action with at least 100 members does not require exhaustion of all internal procedures before filing a lawsuit.  (15 U.S.C. § 2310(d).)

If the service contractor’s internal mechanism does not resolve disputes in a timely or reasonable manner, a consumer can file a complaint with the Federal Trade Commission, which will investigate the service contractor’s dispute resolution process.  (15 U.S.C. § 2310(d).)

When entering a service contract for electronic devices, school districts need to be proactive consumers. Carefully screen service contractors before making an agreement; research the contractor’s reputation in the community; and seek the advice of counsel before signing an agreement.

Remember, too, that most electronic products come with an express manufacturer’s warranty. Under state law, an extended service contract cannot apply to items, costs, or time periods covered by the express warranty. (Civil Code § 1794.41(a)(3).) Thus, a service contract may be unnecessary if devices are not expected to outlast their manufacturers’ warranties. While damage to individual devices may not be covered by the warranty, the devices may become obsolete or unusable due to normal wear and tear before the warranty expires. An alternative to extended service contracts is to rely on the warranty and contract out for individual repairs, while maintaining sufficient devices in stock to ensure students are not disadvantaged if a device malfunctions.

(Note: Kevin Fannan, a law clerk in AALRR’s San Diego office, assisted in the research and preparation of this post)

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