Mich. store faces trial in suit over negative equity

Westborn Chrysler-Dodge Inc., outside Detroit, violated Michigan law by failing to itemize a customer’s negative equity on new-car loan documents. It also breached its lender agreement by refusing to buy back the loan contract after the customer contested the deal, a Michigan Court of Appeals panel has ruled.

The unanimous three-judge panel ordered a lower court to determine damages on both the customer’s and lender’s claims against the dealership. It also ruled that the customer, Joseph Durocher, is entitled to a trial on claims that he should have been able to rescind the purchase based on fraudulent misrepresentation of the deal.

However, the panel upheld dismissal of other claims, including truth-in-lending violations.

Sticker shock

Durocher bought a new Jeep Wrangler in February 2011 through Chrysler’s A Plan for employees. The fixed employee purchase price was $24,338, according to court documents. Westborn, of Dearborn, Mich., acquired the Wrangler through a dealer trade. Durocher purchased it sight-unseen, and took delivery of it without a window sticker, according to his suit.

His trade-in vehicle, a 2007 Dodge Magnum, had $7,287.53 in negative equity. The retail installment sales contract on the Wrangler, prepared by Westborn, showed a loan amount of $32,780. The dealership sold the contract to Chief Financial Federal Credit Union.

Durocher received the window sticker about two months later, which allegedly alerted him to price problems on the retail installment sales contract, according to his suit.

His lawyer wrote to Westborn and Chrysler in a failed effort to revoke acceptance of the Jeep. The lender, in turn, demanded that Westborn repurchase the loan, telling the store that “unfortunately, Mr. Durocher claims that the contract does not reflect the transaction that he entered into.”

Durocher sued Westborn and the lender, and the lender filed a cross-claim against Westborn. The store denied liability, and a lower court judge threw out the suit.

Entitled to a trial

The Court of Appeals disagreed in large part.

“Durocher argues that he suffered damages because if the purchase had been conducted as Westborn represented, then he would have paid less for the Jeep. Westborn claims that Durocher was informed of the $7,287.53 in negative equity from the Magnum, so the negative equity was appropriately included in the price of the vehicle,” the Court of Appeals said.

It held that Durocher was entitled to prevail on the merits on his retail installment sales claim because the contract failed to separately list the cash price and the amount allowed for the trade.

The court also said a trial is necessary to resolve a factual dispute about whether the dealership fraudulently told Durocher that it would absorb the negative equity. Similarly the court said he’s entitled to a trial on whether he can rescind the deal based on misrepresentation.

At the same time, the court found no violations of the federal truth-in-lending and state motor vehicle installment sales laws.

And although Durocher tried to revoke acceptance within a reasonable amount of time, he drove the Jeep more than 14,000 miles between the date he sought revocation and the date he gave a deposition in the suit, the court said, noting that he acknowledge owning other vehicles he could have driven during that period. That undermined his revocation claim.

Loan repurchase

Finally, the court ruled that the dealership was obligated to repurchase the loan on the lender’s demand because combining the cash price and negative equity on the retail installment sales contract violated state law.

Dealership lawyer Kristen Baiardi of Detroit said Westborn hasn’t decided yet whether to appeal further.

“We have confidence in our position on the merits legally,” Baiardi said. “We have confidence a jury would see it our way if we go back to the trial court.”

Even if Durocher were to win at trial, damages would be negligible, she said.

Plaintiff’s lawyer, Alan Speck of Taylor, Mich., said he was not authorized to discuss the case because the litigation is still open.

You can reach Eric Freedman at freedma5@msu.edu

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