Automobile Fraud: 10.3.5.3 Internet Sales
The sale of vehicles through the internet creates special opportunities for fraud, so the question of where an internet seller can be sued becomes important.
The sale of vehicles through the internet creates special opportunities for fraud, so the question of where an internet seller can be sued becomes important.
Dealers often include in the paperwork a provision that the dealer can refer any legal action the consumer brings against the dealer to binding arbitration. In effect, the consumer waives the right to use the court system. Dealers include this provision to limit their exposure to class actions, punitive damage awards, discovery, juries, and public disclosure of their illegal practices.
An arbitration requirement is a matter of contract. The requirement applies only if there is a consummated arbitration agreement that has not been superseded by another agreement, whose terms require arbitration of the particular dispute at issue, and whose terms require arbitration between the particular parties to the case.
A common theory to challenge the enforceability of an arbitration requirement is to claim that the arbitration clause is unconscionable under state law, and thus should be stricken. The Federal Arbitration Act provides that arbitration clauses are enforceable save upon such grounds as exist for the revocation of any contract,110 and unconscionability is one such ground.
There is conflicting precedent whether a Magnuson-Moss Warranty Act claim for breach of a written warranty is subject to an arbitration requirement.118 There are two grounds to argue that a Magnuson-Moss Act claim can remain in court, and need not be moved to arbitration, but the law is presently unsettled concerning both grounds.
In addition to the Magnuson-Moss Act restrictions discussed in § 10.3.6.4, supra, two federal laws, the federal Truth in Lending Act and the Military Lending Act, limit mandatory arbitration clauses in motor vehicle transactions in certain fairly narrow circumstances.
A defendant can waive its right to require arbitration by waiting too long during court litigation to raise the arbitration requirement. By acting in a way that is inconsistent with a known right, to the consumer’s prejudice, the defendant waives the arbitration requirement. Such may be the case when the defendant first raises the arbitration requirement after extensive discovery, after motions to dismiss or summary judgment are filed, or after other litigation activity.142
Any challenge to the enforceability of an arbitration agreement must take into account the Supreme Court’s instructions in Rent-A-Center, West, Inc. v. Jackson145 as to who decides whether an arbitration agreement is enforceable: the court or the arbitrator. The court determines arbitrability when the arbitration agreement does not clearly specify that this task is for the arbitrator.
Consumers invariably are better off bringing individual claims in court instead of before an arbitrator, particularly because the dealer has selected the arbitration service provider. But the same may not be true of a classwide arbitration. Corporations appear to fear class arbitration more than class actions in court, and consumers may have more success getting a case certified before an arbitrator than a judge.
An individual arbitration seeking punitive damages poses real risks for the defendant.
In selecting the parties for an automobile fraud suit, remember that all dealerships are not solvent and not all judgments are collectable. Accordingly, it is important to investigate not only the selling dealer, but also the potential liability of others in the chain of title and others involved in the sale.
Among the parties to consider naming as defendants are:
Defendants who were not involved in the original fraud may be liable if they ratified others’ fraud, knowingly accepted the benefits of the fraud, conspired with others, or aided and abetted the fraud.176 These means of establishing liability apply to tort claims and most courts borrow them for UDAP claims as well.
The Restatement (Second) of Agency defines ratification as “the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act as to some or all persons is given effect as if originally authorized by him.”177 To establish liability by ratification, one court held that the plaintiff must show that the defendant: (1) had actual knowledge of the allegedly fraudulent conduct; (2) knew or should have known that this conduct constituted a tort; and (3) armed with this k
Another theory provides that one who knowingly receives the benefits of fraud can be held liable for it.184 This theory of liability is sometimes referred to as “fruit of the fraud” liability,185 and holds liable those peripheral parties to a transaction who, while not directly making a fraudulent representation, knowingly profit from it.
Civil conspiracy is another potential theory of liability.191 Civil conspiracy is not an independent tort of its own as much as a device by which to spread joint and several liability for another tort among those who facilitated it.
To aid and abet a fraud, the culpable party must act knowingly or recklessly in substantially assisting a fraud.198 This assistance can be to further the fraud or to assist in the concealment of the fraud.199 Courts often identify the following as the elements of a claim that one party aided and abetted another’s fraud: (1) the party whom the defendant aids must perform a wrongful act causing injury; (2) at the time the defendant provides assistance, they must be generally aware of their rol
Recovering from the creditor for the dealer’s misconduct is an important strategy when the dealer is judgment proof. Creditors are, of course, liable for their own misdeeds and their participation in or ratification of the dealer’s fraud.204 But they also have derivative liability for claims against the dealer by virtue of the Federal Trade Commission’s Holder Rule.205
In a number of circumstances an automobile auction will be liable for the fraud of the entity that sold the vehicle through the auction. As the Eighth Circuit has explained:
An auction may be able to escape liability under the federal odometer statute’s disclosure requirements because, when the auction never holds title to the vehicle, it has no disclosure responsibilities.224 Nevertheless, this immunity for auction companies does not apply to the auction’s derivative liability for claims based upon the misconduct of its undisclosed principal or fraud claims for its own misconduct.225
Sometimes consumers purchase vehicles through online auctions. If the seller posted a false description of the vehicle on the auction’s website, the consumer certainly has a claim against the seller. However, a number of courts have held that a federal statute, 47 U.S.C. § 230, protects the auction itself from liability. That statute provides that no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another content provider.
Many states require that signatures on vehicle titles or other vehicle documents be notarized. If any of the documents involved in the transfer of the vehicle were notarized, the consumer’s attorney should investigate whether the notary might be liable to the consumer. Notary liability is particularly important because states typically require notaries to be bonded.230
If the wrongful acts or omissions of more than one entity combine to produce a single injury, it is necessary to determine whether—and how—to allocate liability among the wrongdoers. If two tortfeasors are jointly and severally liable the plaintiff may sue either of them or both of them, and may recover partly from one and partly from the other or in full from either.237
The strongest case for joint and several liability is concerted action.241 If persons combine to do wrong, “the act of one is the act of all,” and each wrongdoer is liable for the entire damages.242 A formal agreement need not be shown, unless a state statute so requires; “tacit agreement” may be implied from a course of conduct.243
Historically, if several independent acts resulted in one indivisible wrong, each wrongdoer was liable for the full amount of damages.248 The burden was on the defendants to show that damages could be apportioned to one or another wrongdoer.249 This rule is still the law in about fourteen states.250