A proposed class-action suit challenging the validity of the GAP coverage sold by Pohanka group dealerships has been tossed by a federal judge in Baltimore.
The plaintiffs’ GAP coverage was never triggered because the vehicle they purchased from Pohanka was never stolen or totaled. Thus they suffered no financial loss, U.S. District Judge Deborah Chasanow said in dismissing the case.
Mother and daughter Eunice and Barbara Jones bought the vehicle, a used 2007 Mercedes-Benz C230, in 2008 for $35,153 from Pohanka Isuzu in Prince George’s County, Md., near Washington. The total price on the retail installment sales contract included $750 for an optional “debt cancellation agreement,” Maryland’s term for GAP coverage.
According to the decision, under Maryland law, if a vehicle protected by a debt cancellation agreement is totaled or stolen, the lender is required to cancel -- that is, pay the borrower -- whatever balance remains on his auto loan after the insurance proceeds have been applied.
The Joneses’ agreement, however, covers only the difference between the loan balance and whichever is more, the insurance proceeds or the NADA Used Car Guide value. If the NADA value is higher than the insurance payout, they would receive less money.
For example: Assume a customer owes $10,000, the insurer values the vehicle at $8,000 and the NADA value is $9,000. If the vehicle is totaled or stolen, the customer will get only $1,000. Under the state law, the customer would get $2,000.
The Joneses sued the Isuzu store, now closed, and other dealerships in the Pohanka Automotive Group for alleged violations of the Maryland Credit Grantor Closed End Credit Law, civil conspiracy, breach of contract and unjust enrichment.
The suit contended that because the debt cancellation agreement was “phony,” state law prohibits it from being financed.
It attempted to hold the dealership group and all its dealerships liable because they “developed and agreed to implement a fraudulent scheme and conspiracy to market, sell and finance GAP agreements.”
But in her decision, Chasanow ruled that the plaintiffs lack legal standing to sue any dealership except the Isuzu store where they bought and financed the car.
As for the claim against the Isuzu store, Chasanow said: “The plaintiffs have suffered no loss of their vehicle, that is, no theft or total destruction of the collateral securing the loan, and cannot allege any failure by the defendant to honor the debt cancellation agreement.”
And because the retail installment sales contract incorporated Maryland’s credit law, that law would trump any inconsistency in the GAP agreement, she said.
In addition, Chasanow found no basis for the breach of contract claim because there was no evidence of fraudulent misrepresentations or omissions by the store in making the retail installment sales contract.
Honoring credit law
Pohanka’s lawyer, Gerard Gaeng of Baltimore, said the decision means Maryland dealerships won’t be liable for any inconsistent GAP language in their contracts if they honor claims as the credit law requires.
“GAP administrators ought to resolve claims in Maryland in accordance with the statutory definition,” Gaeng said.
The plaintiffs’ lawyers did not respond to requests for comment. However, Gaeng said they did not appeal by the deadline.