Articles Posted in Auto Fraud

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In Sanchez v. Valencia Holding Company, LLC., California’s Second District Court of Appeals explains that while a car buyer is generally bound by the terms of a sale contract, Golden State courts will not enforce terms that it deems unconscionable.

Gil Sanchez is the lead Plaintiff in a class action against Defendant car dealer Valencia Holding Company, LLC. He bought a pre-owned Mercedes-Benz from the dealer at a sales price of more than $53,000 and made a $15,000 down payment. Soon thereafter, Plaintiff allegedly experienced a wide range of problems with the vehicle, including engine failure. When the dealer allegedly was unable to repair the vehicle and indicated that the necessary repairs would not be covered under Plaintiff’s warranty, he filed the present action.

Plaintiff alleges that Defendant engaged in widespread fraud and unfair business practices in violation of California law by: (1) failing to separately itemize the amount of down payments that was to be deferred to a date after the execution of the parties’ Sale Contract; (2) failing to distinguish registration, transfer and titling fees from license fees; (3) charging buyers an “Optional DMV Electronic Filing Fee” without asking the buyer if he or she wanted to pay it; (4) charging new tire fees for used tires; and (5) telling Plaintiff to pay $3,700 to have the vehicle certified so he could qualify for a lower interest rate when that payment was actually for an optional extended warranty unrelated to the rate. In response, the dealer filed a motion to compel arbitration, asserting that the matter was subject to arbitration under the Sale Contract.

The trial court denied the motion to compel, ruling that a plaintiff suing under the state’s Consumers Legal Remedies Act has the right to maintain the suit as a class action, and therefore cannot be required to arbitrate his or her claims individually. On appeal, the Second District affirmed the lower court’s decision. However, the Court’s decision was based on the Sale Contract’s specific terms, rather than Plaintiff’s right to maintain a class action.

California law empowers a court to refuse to enforce any contractual provision that it deems both procedurally and substantively unconscionable. In this case, according to the Court, the Sale Contract’s arbitration provision “contains multiple invalid clauses, it is permeated by unconscionability and is unenforceable.” Specifically, the Court explained that “[t]he provision is unconscionable because it is adhesive and satisfies the elements of oppression and surprise; it is substantively unconscionable because it contains harsh terms that are one sided in favor of the car dealer to the detriment of the buyer.”

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In previous posts, we’ve explained some of the ways in which car buyers who have been hoodwinked by dealers and manufacturers can seek to get their money back. The Seventh Circuit Court of Appeal’s ruling in Greenberger v. Geico concerns another player in the auto industry accused of fraud: an auto insurance company. The ruling explains that a plaintiff looking to sue an insurance company for breach of contract or fraud for low-balling a damage estimate must have the physical evidence to prove that the money paid by the insurer was not enough to fix the car.

Plaintiff Steven Greenberger sued Defendant Geico, his car insurance carrier, alleging breach of contract, consumer fraud in violation Illinois law and common-law fraud. In 2002, Plaintiff was involved in an auto accident, which left his 1994 Acura with bumper, steering box, suspension and lower body damage. After inspecting the car, a Geico adjuster issued Plaintiff a check for just over $3,000. Plaintiff did not repair the car. An individual later approached Plaintiff about buying the car, but when the potential buyer had it inspected by a mechanic, the mechanic indicated that the car needed more than $5,000 worth of repairs.

Plaintiff filed a proposed class action, claiming that Geico systematically violates its promise to restore policyholders’ vehicles to pre-loss condition by omitting certain necessary repairs from it collision damage estimates. A district court dismissed Plaintiff’s claims.

On appeal, the Seventh Circuit affirmed the lower court’s decision, finding that Plaintiff’s claims are barred by the Illinois Supreme Court’s decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, (2005). In Avery, the Supreme Court held that a policyholder’s suit against his insurer for failing to restore his collision-damaged car to its pre-loss condition cannot succeed without an examination of the car to determine whether the money paid by the insurer to cover the claim is sufficient to repair it. In the present matter, Plaintiff’s car was damaged in an accident; Geico inspected it and issued a check to cover Plaintiff’s insurance claim. Instead of repairing the car, however, Plaintiff donated it to charity. Thus the car was not available for examination.

Avery also established, according to the court, that a fraud claim cannot be simply a reformulated breach of contract claim. In other words, a fraud claim must allege more than simple failure to follow through on a promise. Since Plaintiff’s claims are limited to allegations concerning Geico’s promise to restore damaged cars to pre-loss condition, these are essentially contract claims that cannot also be alleged as fraud.

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Solid evidence and strong legal arguments are all well and good, but in order to successfully sue a car dealer for fraud, you first have to bring the action in the right venue. In Tolbert v. Coast to Coast Dealer Services, Inc., the Northern District of Ohio explains that it will enforce an arbitration clause requiring a dispute to be resolved via arbitration unless the provision is “unconscionable.”

Plaintiffs Leah Tolbert and Diana Barker bought a 2004 Jeep Sports Liberty Truck from Defendant Coast to Coast Dealer Services, Inc. (Coast to Coast), a used car dealership. Plaintiffs made a $3,500 down payment and agreed to pay the remaining purchase price ($4,400) in $300 monthly payments. They also purchased a Vehicle Service Agreement (VSA), under which Defendant agreed to service and repair the car. The VSA included an arbitration clause providing that “any and all claims, disputes, or controversies of any nature whatsoever” between the parties is subject to arbitration, a dispute resolution format in which parties submit the matter to one or more private arbitrators.

Plaintiffs allegedly began having trouble with the car shortly after driving it off of the lot. The “check engine” light allegedly went on within a day of the purchase, the first of what would be a long string of alleged issues related to the car. According to the court, Plaintiffs “had to bring the vehicle back to [the dealership] over ten different times for various problems, including the engine light, engine smoke, fan relay system, and replacement of the water pump and thermostat.” Plaintiffs stopped making the monthly payments on the car when it allegedly became inoperable due to an engine problem and Coast to Coast repossessed the vehicle after performing repairs on it.

Plaintiffs filed the lawsuit, alleging that Defendant committed fraud by selling the car without disclosing various mechanical defects and by offering the VSA with no intent of honoring it. Whether or not this was the case, however, will be decided elsewhere. The court granted Defendant’s motion to compel arbitration, finding that the VSA’s arbitration clause is valid and requires that Plaintiffs’ claims be resolved by an arbitrator.

While Plaintiffs argued that the arbitration clause was “unconscionable” – because it forces them to give up their right to be awarded attorneys’ fees and punitive damages and arbitration proceedings will result in significantly higher costs – and therefore unenforceable, the court disagreed. “An unconscionable contract is one in which there is an absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party,” the court stated. In an arbitration proceeding, the court found that Plaintiffs retained the full slate of remedies available under Ohio law and noted that the arbitration clause includes a provision requiring Defendant to advance Plaintiffs’ arbitration costs if they are unable to pay them. As a result, the arbitration clause was not unconscionable.

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