By Thomas B. Hudson and Nicole Frush Munro
We’re back with our monthly collection of selected legislative and regulatory highlights, and a recap of some of the many auto sale and financing lawsuits we follow each month. Remember – what we report here does not capture every recent development. We select those we think should be particularly important or interesting to car dealers.
We include items from other states. Why? We want you to be able to see new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws – if Attorneys General or plaintiffs’ lawyers are pursuing particular types of claims in other states, those laws and claims might soon appear in your state.
Note that this column does not offer legal advice. There is no substitute for checking with your own lawyer to learn how what we report might apply to you, or if you have any questions.
This Month’s CARLAWYER© Compliance Tip
The Uniform Commercial Code provides that sales of goods create certain “implied warranties.” Except in a few states, dealers selling cars are permitted by the UCC to “disclaim” these implied warranties. To do so, any disclaimer must contain certain words and must be conspicuous. Take a look at your buyers order. Does it attempt to say that implied warranties do not apply? If so, have you run that wording by your lawyer? If not, and if you want a court to permit you to disclaim these warranties, you need to get your lawyer to bless your disclaimer language.
FTC Hammers Two Auto Dealers. Two car dealers from Maryland and Ohio have agreed to settle the Federal Trade Commission’s charges that they falsely advertised the cost or available discounts for their vehicles. The settlements, part of the FTC’s continuing crackdown on deceptive motor vehicle dealer practices, prohibit the dealers from advertising discounts or prices unless the ads clearly disclose any qualifications or restrictions.
The FTC charged that Timonium Chrysler, Inc., of Cockeysville, Md., violated the FTC Act by advertising discounts and prices not available to a typical consumer. Ganley Ford West, Inc., in Cleveland, also is charged with misrepresenting that vehicles were available at a specific dealer discount, when in fact the discounts only applied to specific, and more expensive, models of the advertised vehicles.
Timonium Chrysler’s website touted specific “dealer discounts” and “internet prices,” but allegedly failed to disclose adequately that consumers would need to qualify for a series of smaller rebates not generally available to them. The complaint further alleges that, in many instances, even if a consumer qualified for all the rebates, the cost of the vehicle was still greater than the advertised price. Ganley Ford advertised its discounted vehicles on its website and in local newspapers, and allegedly failed to disclose that its advertised discounts generally applied only to more expensive versions of the vehicles advertised.
The proposed orders settling the FTC’s charges are designed to prevent the two dealers from engaging in similar deceptive advertising practices in the future. The dealers cannot advertise prices or discounts unless accompanied by clear disclosures of any required qualifications or restrictions. The auto dealers are also barred from misrepresenting:
the existence or amount of any discount, rebate, bonus, incentive, or price;
the existence, price, value, coverage, or features of any product or service associated with the motor vehicle purchase;
the number of vehicles available at particular prices; or
any other material fact about the price, sale, financing, or leasing of motor vehicles.
The dealers must maintain and make available copies of all advertisements and promotional materials to the Commission for inspection upon request for the next five years, and they are required to comply with the FTC’s order for 20 years.
Arbitration Clause in Lease Applied to Lessees’ Claims of Willful or Negligent Credit Reporting: A husband and wife entered into an agreement to lease a vehicle. The agreement included an arbitration clause. The lessees later sued several entities in connection with the lease agreement, alleging that the defendants wrongfully reported a debt on their credit reports, in violation of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. The defendants moved to compel arbitration, and the U.S. District Court for the Northern District of New York granted the motion. Noting the broad, expansive language of the arbitration clause, which encompassed all claims arising out of or relating to the lease agreement and to the relationship of the parties to the lease, the court concluded that the claims of willful or negligent credit reporting concerned a dispute over payments under the lease agreement and, therefore, were related to the parties’ relationship that arose from the lease. See Gaul v. Chrysler Financial Services Americas LLC, 2013 U.S. Dist. LEXIS 102563 (N.D.N.Y. July 23, 2013).
Dealer Violated TILA by Failing to Pay Off Balance Owed on Trade-In: A buyer bought a car, unaware that the car had previously been used as a rental car. As part of the sale, the buyer traded in a 2006 Ford Taurus, and the dealership agreed to pay off the balance owed, but it never did so. After the finance company repossessed the Taurus, the buyer sued the dealership under a number of theories. The U.S. District Court for the District of Maryland granted summary judgment to the buyer on one of her Truth in Lending Act claims. Because the dealership indicated it would pay off the balance owed on the Taurus and failed to do so, the court found that the dealership incorrectly itemized that amount as an amount paid to a third party, in violation of TILA. The buyer also alleged that the dealership violated the Maryland Consumer Protection Act by failing to pay off the balance owed on the Taurus. The court refused to grant either party summary judgment on this claim, noting that because the buyer settled with the finance company, there was a genuine issue of fact regarding whether she could prove damages. See Jones v. Koons Automotive, Inc., 2013 U.S. Dist. LEXIS 98284 (D. Md. July 15, 2013).
Car Buyer’s Rescission and Revocation of Acceptance Claims Failed for Lack of Reasonable Reliance on Dealer’s Statements Regarding Condition of Vehicle: When a buyer bought a car, the salesman told him that the vehicle was clean and undamaged and showed him a report from the Carfax website reflecting no accidents or damage to the car. However, the Buyer’s Order stated that “THIS VEHICLE WAS ANNOUNCED HAVING UNIBODY DAMAGE AT THE AUCTION” and that the dealership “STRONGLY RECOMMEND[ED] CUSTOMERS SHOULD GET VEHICLE INSPECTED BY A MECHANIC OF THEIR CHOICE BEFORE MAKING THE PURCHASE.” The Buyer’s Order also included a disclaimer that the car was being sold “AS-IS NO WARRANTY” and that the “Customer will pay all costs for any repairs. The dealership assumes no responsibility for any repairs regardless of any oral statements about the vehicle.” When the buyer later learned that the car had significant body damage from a prior accident, he sued the dealership for rescission and revocation of acceptance. The trial court dismissed the complaint, and the Georgia Court of Appeals affirmed. The appellate court explained that the buyer’s rescission and revocation of acceptance claims failed because the buyer could not show that he reasonably relied on the car dealer’s statement that the car was undamaged since the Buyer’s Order clearly warned that the car may be damaged. See Raysoni v. Payless Auto Deals, LLC, 2013 Ga. App. LEXIS 607 (Ga. App. July 9, 2013).
Breach of Express Warranty Claim Failed Where Car Repairs Required after Warranty Expired were Unrelated to Defects that Allegedly Existed during Warranty Period: A car buyer sued the manufacturer of her car for breach of express and implied warranties, claiming that the car was defective because of issues with its struts and suspension that only arose after the warranty had expired. She claimed that the cause of the vehicle’s problems after the warranty expired were the result of defects that existed during the warranty period that went unrepaired. The trial court granted summary judgment in favor of the manufacturer, and the Court of Appeals of Michigan affirmed. The appellate court noted that the undisputed evidence showed that defects that were noticed during the warranty period were repaired within a reasonable time, and the vehicle was returned to service without any further complaints. The appellate court determined that repairs and defects found in the car after the warranty expired did not evidence a causal link to alleged defects that were left unrepaired over the term of the warranty. As such, the appellate court held there was no breach of express warranty. The appellate court also determined that because the buyer could not establish that a defect existed when she bought the car, there was also no breach of implied warranty of merchantability. See Gorman v. American Honda Motor Company, 2013 Mich. App. LEXIS 1356 (Mich. App. August 6, 2013).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (thudson) and Nikki (nmunro) are partners in the law firm of Hudson Cook, LLC. Tom is the author of several books, available at www.counselorlibrary.com. Tom is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery. Spot Delivery, CARLAW and the books are produced by CounselorLibrary.com LLC. For information, call 410-865-5411 or visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2013, all rights reserved. Single publication rights only, to the Association. (9/9/13) HC# 4849-5006-8245.