What You ‘Know’ About the Cars You Sell

When selling a vehicle to a consumer, when does a dealership “knowingly” misrepresent the vehicle’s condition? And what omissions in describing a vehicle’s condition are “material” — that is, important — to the buyer? A recent appellate court opinion from Nevada deals with these questions.

Show Me the Carfax

Derrick Poole bought a certified used truck from Nevada Auto Dealership Investments LLC. The truck’s previous owner had been in an accident and repaired the truck before selling it to Nevada Auto.

The previous owner’s insurer prepared a collision estimate listing each repaired or replaced part, which included repair of the truck’s damaged frame and a “reconditioned” replacement for a damaged wheel. Nevada Auto did not disclose the existence of the collision estimate to Poole.

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A Nevada Auto salesperson allegedly told Poole that the truck had been in a “minor” collision and they would not sell the truck if the collision had been significant. Nevada Auto disclosed the collision by providing a Carfax report to Poole, but that report did not reveal the frame damage, the reconditioned wheel, or the repair costs.

Two years later, Poole learned of the extent of the damage when he tried to refinance the truck debt. Poole sued Nevada Auto and its surety company, Corepoint Insurance Co., for violating the Nevada Deceptive Trade Practices Act and for equitable relief for consumer fraud.

The trial court granted summary judgment for Nevada Auto and Corepoint. Poole appealed. He alleged that Nevada Auto:

• Knowingly failed to disclose a material fact in connection with the truck sale.
• Knowingly misrepresented the truck’s certification and its certified standard, quality, or grade.
• Knowingly made a false representation by describing the collision as “minor.”
• Knowingly misrepresented the truck’s mechanical condition by certifying the truck despite mechanical conditions that precluded certification.

It isn’t uncommon for state laws to use terms that are not defined, leaving courts to determine what they mean.

Nevada Auto and Corepoint argued that Poole presented no evidence that Nevada Auto intended to knowingly defraud him.

It isn’t uncommon for state laws to use terms that are not defined, leaving courts to determine what they mean. That was the case here.

I Know What I Know

Noting that the NDTPA does not define the terms “knowingly” or “material,” the Court of Appeals of Nevada defined those terms. The appellate court concluded that a “knowing” act or omission under the NDTPA does not require that the defendant intend to deceive with the act or omission, or even know of the prohibition against the act or omission, but simply that the defendant is aware of the existence of the facts that constitute the act or omission.

The appellate court also concluded that a fact is “material” if either (a) a reasonable person would attach importance to its existence or nonexistence in determining a choice of action in the transaction in question, or (b) the defendant knows or has reason to know that the consumer regards or is likely to regard the matter as important in determining a choice of action, although a reasonable person may not so regard it.

You can bet that the lawyer representing your unhappy buyer will claim that the dealership “knows” anything that is in its records.

Using these definitions, the appellate court concluded that Poole’s allegations presented a genuine issue of material fact under each of his claims. Accordingly, the appellate court reversed the trial court’s decision and remanded the case.

So, what does your dealership “know” about the condition of the vehicles it sells? And which of the things that it “knows” are “material”? You can bet that the lawyer representing your unhappy buyer will claim that the dealership “knows” anything that is in its records and that every smidgen of that information is “material.”

Dealers seeking to avoid lawsuits like this will opt for the highest possible degree of transparency in dealings with their buyers.

Catherine C. Worthington is a managing editor at CounselorLibrary.com LLC.

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