Minnesota's compulsory dealer bond law covers out-of-state transactions by dealers licensed in Minnesota and is not limited to in-state activities, an appeals panel has ruled.
The decision requires the surety company for a used-car dealer to cover a bad check issued to pay for a car he bought at a Wisconsin auction.
The Minnesota Court of Appeals said the clear language of the bond law coincides with a public policy intended 'to protect persons doing business with Minnesota-licensed car dealers from frauds and defaults by those dealers. The focus is on who caused a loss and not where the loss occurred.'
Eric Magnuson of Minneapolis, a lawyer for Metro Milwaukee Auto Auction of Caledonia, Wis., said, 'The bonding company squealed a lot, but there's nothing inherently unjust in insisting it live up to its obligations.'
Minnesota requires all licensed dealers to maintain a $50,000 indemnity bond. And only licensed dealers can participate in Metro's auctions, Magnuson said.
The case arose from a September 1997 transaction in which dealer Corey Coulson, doing business as Corey's Auto Sales of Houston, Minn., bought a 1997 Buick Riviera at a Metro auction. Coulson paid with a $19,620 check drawn on a Minnesota bank, the court said.
After the check bounced, Coulson paid Metro $10,000 by money order but failed to pay the balance. Metro did not recover the vehicle.
Metro filed a claim for the balance with Coulson's bonding company, Western Surety Co., which rejected it. Metro then sued Western and Coulson in Houston County, Minn., District Court.
Coulson defaulted on the lawsuit and Western was ordered to pay.
The Court of Appeals unanimously upheld the decision, saying Metro is entitled to recoup its loss plus attorney fees against the bonding company. The mandatory bond law is intended to protect the state, transferors, sellers and purchasers against 'any loss caused by the dealer's failure to perform its legal obligations,' including bad checks, Judge Gordon Shumaker said.
And neither that requirement nor Western's surety agreement limited the bond to Minnesota transactions, he said, adding, 'had the legislature intended to impose a geographical limitation or to restrict the class of beneficiaries, it could have, but it did not.'
The appeals court also turned down Western's argument that Coulson's misconduct fell outside the scope of the surety bond. State law creates civil liability for worthless checks, it said.
Western's attorney, Timothy Cook of Minneapolis, noted that courts in different states disagree on the scope of their dealer indemnity bonds. For example, he said courts in Iowa, Colorado and Oregon have ruled that bonds cover only in-state transactions, while the Minnesota decision is consistent with those in North Carolina, Alabama and Virginia.
Cook said Western is considering whether to ask the Minnesota Supreme Court to review the decision. 'We're looking at it now.'