A credit union is on the hook for a large chunk of an unpaid trial award a closed Buick-GMC store owed the buyer of a used Nissan Altima, the Arizona Court of Appeals has ruled.
The holder provision in Jamie Hayward's retail installment sales contract makes the Arizona Community Credit Union liable for the money she had paid on her loan, even though she'd already collected a larger amount from the shuttered Steve Coury Buick-Pontiac-GMC in Camp Verde, Ariz., the court said.
Hayward bought the used 2006 Altima from the dealership in 2011, trading in a Pontiac Vibe valued at $10,700, according to court documents. The store assigned her loan to the credit union.
Under the Altima's purchase agreement, the dealership agreed to pay off her $10,621 lien on the Vibe but didn't do so after an employee stole the car. Hayward was left with a damaged credit rating and a collection lawsuit by the Vibe's lender.
Hayward successfully sued the dealership for breach of contract and consumer fraud violations. At trial she won an $80,719 award, including $16,997 in compensatory damages and $50,000 in punitive damages, plus attorney fees and court costs.
She was able to collect only $23,781 through garnishments before the dealership went into bankruptcy protection, leaving $56,938 unpaid, court documents show.
Hayward then sued the credit union for breach of contract under the retail installment sales contract's holder liability provision. That provision stated the lender was liable for "all claims" she could assert against the store. A Maricopa County judge dismissed the case because the money she had collected exceeded the compensatory damage part of the trial award.
But that ruling was wrong, the appellate court said in a unanimous opinion written by Judge Diane Johnsen.
Under the Federal Trade Commission's Holder Rule, the credit union is liable for up to the amount Hayward paid on the Altima's sales contract, the court held. She claimed that was about $27,700.
Although the trial court judgment itemized compensatory damages, punitive damages, attorney fees and court costs, neither the retail installment sales contract nor the judgment specified the order in which a partial recovery -- in this case, the garnished $23,781 -- should be applied, the court said. It also found no legal requirement that the garnishment amount must be allocated first toward the compensatory damages part of the total judgment.
"Under both the contract and the federal regulation, it is undisputed that the holder of installment debt is subject to a claim for compensatory damages the debtor could bring against the seller," Johnsen wrote in the decision. "A holder may not avoid that obligation simply because a debtor who obtained a judgment against the seller for both compensatory and punitive damages manages to partially satisfy that judgment."
Hayward's lawyer, Hyung Choi of Chandler, Ariz., and credit union lawyer Matthew Kleiner of Phoenix declined to comment on the case.