Recent court cases deal with car dealers

Listen to this article

“The car has become an article of dress without which we feel uncertain, unclad, and incomplete.”

— Marshall McLuhan, Understanding Media (1964), p. 22

Car dealers, like Rodney Dangerfield, “don’t get no respect.” Surveys consistently show that they rank at the lowest echelons of public esteem, hovering near the same level of regard as lawyers.

The lack of esteem tends to breed more than its share of litigation for those who engage in transactions involving vehicles for their livelihood. The Minnesota courts have recently had occasion to deal with a number of different legal doctrine affecting car dealers. The cases reflect their vulnerability to litigation, whether the lawsuits are brought in vain or result in victories for the claimants and defeat for the car dealers.

Licenses and lessees

Those who sell or lease vehicles know that they are conveying dangerous instrumentalities that are likely, if misused, to cause injuries on the highways and byways of Minnesota. The degree and extent of their responsibility was addressed in two somewhat parallel cases involving sale and lease of vehicles.

Adhering to its narrow role as a tribunal that is empowered only to “find” the law, not to “create” it, the Court of Appeals turned down an invitation to extend liability to used car sellers for the misdeeds of drivers of the vehicles they sell.

In Johnson v. Johnson, 611 N.W.2d 823 (Minn. App. June 20, 2000), two decedents were killed in an automobile accident caused by an unlicensed driver of a pickup who was driving while drunk and without liability insurance. The estate sued the car dealership that sold the vehicle to the errant driver’s girlfriend, claiming that the facility was legally liable for the accident after it sold a used pickup truck in a cash transaction to a woman, who later allowed it to be used by her unlicensed, uninsured, and inebriated boyfriend, who killed the two decedents while driving the vehicle.

The St. Louis County District Court dismissed that lawsuit, and the appellate court affirmed. The principal issue in the case was whether the vehicle dealer was liable for negligence or vicariously liable under the State Fee Responsibility Act for failing to assure that the driver of the purchased pickup was licensed and had insurance. Agreeing with the trial court, the appellate tribunal refused the claimants’ invitation to “create a law imposing on Minnesota sellers of motor vehicles a duty to determine the license and insurance status of car purchasers.” It noted that sellers are “not required to check the license and insurance status of purchasers.”

Although the dealership routinely ascertained whether purchasers had licenses, that practice did not establish an obligation to “check the license status of prospective drivers as well.” Imposing such a requirement “would discourage sellers from checking anyone’s license status.”

Establishing such a liability would extend Minnesota law, which the court felt was outside of its limited purview “to find the law, to state it, and to apply it to the facts.”

Unlike car dealers, who convey ownership upon sale, rental car companies have some liability, albeit limited, for accidents caused by their lessees. In Johnson v. Americar Rental Systems, 2000 WL 944626 (Minn. App. July 11, 2000), a rental car company was sued by a woman who was injured as a passenger in a vehicle the company had leased to her husband, who was driving it at the time of the accident. The rental company had an insurance policy with liability limits of $1 million, including “split limits” of $30,000 per person and $60,000 per occurrence in the event the renter was driving the vehicle at the time of the accident.

The woman’s husband, who was at fault in the accident, was separately insured with a different insurer that provided bodily injury liability limits of $100,000 per person and $300,000 per accident. The woman’s damages were stipulated to be $225,000. The rental company sought to limit its liability to $105,000, which is the maximum limit for vicarious liability for a rental car company under Minn. Stat. sec. 65B.49, subd. 5(a)(i)(2). The statute provides that the owner of a rental vehicle is not vicariously liable for damages greater than $100,000, which has been increased by inflation to $105,000, per person and $300,000 per accident if the rental company has liability insurance at the time of the accident “covering losses up to at least” those amounts.

A Hennepin County District Court judge held that the car company did not meet the statutory requirements and, therefore, had unlimited vicarious liability. The judge reasoned that the rental company had attempted to limit liability coverage to $300,000 to renters, which conflicted with the vicarious liability cap statute. The judge held that the rental company was entitled to “limited vicarious liability,” but that payments received from other sources were not a set-off to the maximum statutory liability of $105,000. The judge concluded that the car company “met the statutory requirements” because it had a $1 million liability policy, and that the “split limits” did not vitiate its statutory compliance.

But the District Court judge did not allow the rental company to avoid liability altogether. The rental company’s argument that it should not have to pay any damages was based on payment of a large portion of the damages by the husband’s own insurance carrier. This led the rental company to argue that it should not have to pay any damages because “the purpose of the vicarious liability cap statute” was to assure that at least $105,000 of insurance was available to an injured party, which had been satisfied here by the husband’s own insurer.

Terming the car company’s argument “clever,” the Court of Appeals found it ultimately unpersuasive. The statutory “cap” requires that the rental company’s insurer be responsible for at least $105,000 in damages, regardless of collateral source payments by other insurers. Construing the “intent of the Legislature,” the Court concluded that the rental company’s liability carrier was responsible for a total of $105,000, as required by law.

Sales scenarios

Vehicle accidents are not the only source of litigation for those engaged in the automobile business. Sales transactions themselves often give rise to lawsuits, as reflected in three scenarios addressed by the Court of Appeals this summer.

In Twardy v. L.B. Sales Inc., 2000 WL 821662 (Minn. App. June 27, 2000) (unpublished), an automobile dealership was held liable for violating the Minnesota Consumer Fraud Act, Minn. Stat. sec. 325F.68 in connection with the sale of a used vehicle. The dealership had purchased a 1993 car at an out-of-state auction and offered it for sale, listing the car as having 77,000 miles. A purchaser asked about the vehicle’s mileage and was assured by a salesman that he had checked with the prior owners and that “the mileage shown on the odometer was correct,” a version that the salesman disputed. The Ramsey County District Court, trying the case without a jury, believed the purchaser rather than the salesman, and awarded the buyer more than $5,000 for car repairs resulting from an engine failure, finding that the dealership violated the fraud statute.

The Court of Appeals affirmed, noting that the statute was “remedial in nature and
[was] liberally construed to protect consumers.” Although the purchaser had signed a document at the time she bought the car indicating that she did not rely upon the odometer’s reading as a “factor in the purchase,” the dealership was liable under the statute even if there was “no evidence that the alleged misrepresentation caused [the purchaser] to be damaged.” Additionally, the documented evidence indicating no misrepresentations “does not necessarily trump” the purchaser’s “oral testimony” about the mileage misrepresentation.

A class action brought against a dealership in Bloomington for charging a transfer fee upon purchase of a manufacturer’s warranty accompanying the sale of a used car was rejected in Haas v. Daimler Chrylser Corp., 611 N.W.2d 382 (Minn. App. June 13, 2000). The lawsuit claimed that the transfer fee violated the Federal Magnuson-Moss Warranty Act, 15 U.S.C. sec. 2302 (c), as well as sec. 2-318 of the Uniform Commercial Code. The Hennepin County District Court disagreed and dismissed the case.

The Court of Appeals affirmed, holding that the required $150 payment to transfer the warranty did not violate either law. Although the federal law prohibits the placing of any “conditions” on a warranty, regulations adopted by the Federal Trade Commission interpreting the statute permit a warranty to “be limited to the initial purchaser of the item,” provided that the seller complies with other requirements. The court rejected the claimant’s “semantic argument” that the transfer fee constitutes an impermissible “condition,” concluding that the warranty was “conspicuously” designated to be of a “limited” nature and had “legitimately restricted its duration to the initial owners of the vehicle.” Accordingly, the purchaser of the used car lacked any “statutory right to receive the remainder of the warranty,” which permitted the seller to charge the transfer fee without infringing the law.

The court also rejected the UCC claim, which was premised on the prohibition of sec. 2-318 of the code, if a seller excludes or limits the scope of a warranty “to any person who may reasonably be expected to use, consume, or be affected by the goods and who was injured by breach of the warranty.” The used car purchaser’s argument was flawed because it “confuses the first-party right to receive services under the warranty” with the statutory right of third parties to recover “damages caused by breach of the warranty.” The statute does not entitle the secondary purchaser to “assume the warranty” without paying the transfer fee prescribed by the car dealership.

An automobile auction company is entitled to recover on a motor vehicle bond in Old Republic Surety Company v. Auto Dealers Exchange of Minneapolis, LLC, 2000 WL 890449 (Minn. App. July 3, 2000) (unpublished).

The bonding company had issued the bond to a car dealership as the principal, which then purchased seven vehicles from the auction company. It failed to pay for some of them, which triggered a claim by the auctioneer on the claim. The Hennepin County District Court judge upheld the claim and ordered the bonding company to pay the remaining balance of nearly $40,000 for three unpaid vehicles.

The Court of Appeals affirmed, rejecting the bonding company’s argument that the auction house was not covered by the bond because it “acted as a financier,” rather than a “traditional seller of motor vehicles” who is covered by the bond. The case turned on interpretation of Minn. Stat. sec. 168.27, subd. 24, which required that car dealers maintain a surety bond of $50,000 “for the benefit … any transferor, seller, or purchaser of a motor vehicle for any monetary loss” resulting from the dealer’s failure to fulfill its obligations in connection with the sale of a vehicle.

The bonding company argued that the auctioneer was not covered by the statute because it financed the sale by allowing the dealership up to 45 days to pay the purchase price and, therefore, the monetary losses were incurred by the auction company in its “role as a financier” and not as vehicle seller. The court disagreed, holding that the auction house transferred the vehicles to the dealership “with the clear expectation that it would be paid in full” and that its anticipation should not be dashed simply because it gave the dealership “the courtesy” of 45 days to make payment in full. The court also rejected the contention that allowing the auction house to recover against the bond would “defeat the public policy considerations underlying the motor vehicle dealer bonding statute.” The “public policy” argument was not persuasive because the statute and underlying caselaw warranted that the auction house proceed on the bond because of the dealership’s failure to pay the purchase price.

The new 2001 model cars will soon be on the market, resulting in increased sales activities, both for new and used vehicles. But as these recent Court of Appeals rulings demonstrate, litigation is a year-round activity for those engaged in the business of buying, leasing, selling, and insuring motor vehicles in Minnesota.

Marshall H. Tanick is an attorney with the Twin Cities law firm of Mansfield, Tanick & Cohen, P.A. He is certified as a civil trial specialist by the Minnesota State Bar Association and represents employers and employees in a variety of workplace-related matters.