Court of Appeal (N.C.) Says Auto Finance Co. Who Sold Repossessed-Frame Damaged Vehicle at Auction Not Liable to Subsequent Consumer/Purchaser, But Selling Dealer Was Liable under UDAP Statutes

In Sain v. Adams Auto Group, Inc., 2016 WL 47730, at *1 (N.C.App.,2016), the North Carolina Court of Appeal addressed an increasingly common factual situation.

Plaintiffs purchased a used 2010 Honda Civic automobile (“the vehicle”) from defendant, Adams Auto Group (“Adams”) on 18 January 2013. The vehicle was previously owned by the Freemans, who are not a party to this action. The Freemans had financed their purchase of the vehicle through defendant, Capital One. The vehicle was involved in a collision in June 2012. Capital One subsequently repossessed the vehicle after the Freemans declined to retake possession of the vehicle after it was repaired.   Capital One sold the vehicle to Adams at an Automotive Dealer Exchange Services of America (“ADESA”) auction in Charlotte, North Carolina on 20 September 2012. It was announced during the auction, and prior to sale, that the vehicle had sustained frame damage.  Plaintiffs purchased the vehicle from Adams for $15,843.70. The salesperson purportedly told Plaintiffs, to the best of his knowledge, the vehicle had not been involved in a collision or other occurrence to the extent that the cost of repairs exceeded 25% of the vehicle’s fair market value. Adams also provided a “Carfax report,” which stated the vehicle had two previous owners and no accident or damage had been reported to Carfax. Plaintiffs signed a Buyer’s guide “As Is—No Warranty” disclosure and agreement as part of their sales contract to purchase the vehicle.  The vehicle began to experience various mechanical problems sometime after the date of purchase. Plaintiffs took the vehicle to Hickory Used Car Superstore to explore trading it in for another vehicle. Plaintiffs allegedly first learned the vehicle had previously sustained frame damage through an “AutoCheck report” at this time.

The Court of Appeal found no liability on the part of Capital One, who sold the damaged vehicle at auction.

Nowhere in the order did the trial court conclude privity of contract was required for Plaintiffs to sufficiently allege claims for fraud or violation of the UDTPA. Contrary to Plaintiffs’ argument, the trial court’s order clearly shows it did not dismiss their claims against Capital One based on a lack of privity.   Plaintiffs’ amended complaint is wholly devoid of allegations tending to show Capital One made any direct statements to Plaintiffs, or Plaintiffs’ decision to purchase the vehicle was based on any actual misrepresentations or omissions made by Capital One. In their amended complaint, Plaintiffs aver Capital One misrepresented the vehicle’s condition at an ADESA auction. Plaintiffs did not purchase the vehicle at the auction. Plaintiffs do not contend they were present at the auction or had any knowledge of Capital One’s alleged misrepresentations when they decided to purchase the vehicle from Adams.

The Court of Appeal found, however, that the selling dealer could be liable under North Carolina’s UDAP statute.

It is a violation of the UDTPA for an employee of an auto dealership to make a statement to a customer leading the customer to believe the vehicle has not been involved in a collision, when the employee knows this to be untrue. Torrance, 119 N.C.App. at 556, 459 S.E.2d at 70. An auto dealer’s failure to “conduct a simple visual inspection of the car once a dealer knows of its involvement in an accident” may also subject the dealer to liability under the UDTPA “under certain circumstances.” Huff, 124 N.C.App. at 414, 477 S.E.2d at 89.  Here, Plaintiffs’ claim for unfair and deceptive practices is based on Adams’ alleged misrepresentation of the condition of the vehicle after purchasing it at auction, where it was announced prior to Adams’ purchase that the vehicle had frame damage. Plaintiffs also allege in their complaint Adams “should have determined or known that Plaintiff’s [sic] claims were in fact valid, and nevertheless thereafter refused, and continues to refuse to repair, rectify, or financially compensate [Plaintiffs.]”  Plaintiffs’ amended complaint, treating all factual allegations contained therein as true, sufficiently alleged a claim against defendant Adams for a violation of the UDTPA to survive Adams’ motion to dismiss. The portion of the trial court’s order dismissing Plaintiffs’ claim against Adams for unfair and deceptive trade practices is reversed and this cause remanded on that issue.

Plaintiff’s purchase of the vehicle “AS-IS”, however, negated any common law tort liability not the part of the dealer.

Here, it is undisputed that Plaintiffs purchased the vehicle “As Is—No Warranty[.]” Plaintiffs are “unable to establish the making of a false representation[,]” which Plaintiffs must prove to prevail on their fraud claim. Id. (emphasis omitted). The facts Plaintiffs alleged in their amended complaint do not assert a valid fraud claim against Adams.  Our review of the allegations and record also reveals no indication Adams knew of the vehicle’s extensive damage prior to purchasing it at auction. The CarFax report, which Adams shared with Plaintiffs, also failed to reveal any reported incidents of damage to the vehicle. “The required scienter for fraud is not present without both knowledge and an intent to deceive, manipulate, or defraud.” . . . Plaintiffs did not and cannot sufficiently allege the scienter requirement to support a fraud claim based on the facts at bar.  Plaintiffs cannot avoid responsibility for their agreement and prevail on their remaining claims against Adams, because they admittedly and expressly bought the car “as is,” with no warranty. This fact negates crucial elements of all of Plaintiffs’ remaining claims against Adams. The trial court properly dismissed Plaintiffs’ claims against Adams. This argument is overruled.