Opinion
Civil Action No. 3:04-1463-BM.
November 23, 2005
ORDER
This action was referred to the undersigned United States Magistrate Judge by order of reference filed March 23, 2005, 28 U.S.C. § 696(c), and was tried non-jury May 9, 2005. At trial, the pro se Plaintiff Michael Cornelius ("Plaintiff") confirmed that he was only proceeding on three causes of action against the Defendant SmartCars, Inc. ("Defendant"): fraud, breach of contract, and a violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601, et. seq. See Transcript, p. 5. Following the trial, the parties were allowed to submit proposed findings of fact and conclusions of law.
After receiving the evidence, hearing the testimony, and reviewing the exhibits as well as the applicable law, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Rule 52, Fed.R.Civ.P. To the extent any findings of fact constitute conclusions of law, they are adopted as such, and to the extent any conclusions of law constitute findings of fact, they are also so adopted.
Findings of Fact
On March 29, 2004, Plaintiff went to the Defendant's dealership and began discussions with Maurice Ransom, a salesman for the Defendant, about purchasing a Dodge pick-up truck.Transcript, pp. 6-7, 10. The vehicle was for sale for $15,875.00. Transcript, pp. 6-7. Plaintiff advised Ransom that he was not interested in purchasing a warranty for the vehicle.Transcript, pp. 7-8. However, after running Plaintiff's credit report, Marcus Rose, the Defendant's finance manager, told him that he would be required to purchase a warranty in order to qualify for financing, and that the annual percentage rate for his loan would be 18.99%. Transcript, pp. 9-11. The cost of the warranty, which was included in the amount financed, was $1, 695.00, on which the Defendant would have made between approximately $800 to $1,000. Transcript, p. 56. Under this loan, Plaintiff's monthly payments would have been $460.09 for 60 months. Transcript, p. 65; Joint Exhibit 12. Rose further told the Plaintiff that, after he financed the warranty, he would have thirty (30) days to cancel the warranty, at which time he could get a refund back of the entire cost of the warranty ($1,695). Transcript, p. 11.
Although Plaintiff testified that he thought the salesman's name was Mark West, his actual name is Maurice Ransom.Transcript, p. 10. Ransom is no longer employed by the Defendant and did not testify at the trial. Transcript, p. 53.
A copy of Plaintiff's credit report was admitted into evidence. Joint Exhibit 29.
Rose also did not testify at the trial. He died unexpectedly in August 2004, not long after the transaction at issue. Transcript, p. 52.
Plaintiff testified that he was also required to purchase gap insurance in the amount of $495. Transcript, pp. 11-12; Joint Exhibit 6. Lisa Darnell, the Defendant's business manager, testified that "[g]ap insurance is an extra insurance that's purchased if the vehicle is totaled or stolen and there's a deficiency balance, the gap insurance will pay the deficiency so it's not reported negatively on your credit." Transcript, p. 55. Darnell testified that the Defendant would have made approximately $376 from the sale of gap insurance to the Plaintiff. Transcript, p. 55.
Plaintiff purchased the car and signed a Retail Installment Contract and Security Agreement dated March 30, 2004, which showed the purchase price of the automobile to be $16,374 and a service contract price of $1,695, for a total cash price of $18,069. Joint Exhibit 6. The contract also separately listed the purchase of gap insurance in the amount of $495. Joint Exhibit 6.
The total price included $300.00 for taxes and $199.00 for "certification". Joint Exhibit 6.
About ten (10) days after Plaintiff purchased the automobile, he was going out of town and called to inquire about the warranty since he had not received any paperwork. Transcript, p. 13. This call was within the time period that Rose told the Plaintiff he would need to cancel the warranty in order to get his refund. Plaintiff testified that "the warranty people" told him they had not received any paperwork, and that although he called about three more times within three weeks of purchasing the vehicle to inquire about the warranty, each time he was told that the paperwork had not been received. Transcript, pp. 13, 15.
Plaintiff further testified that within that same period of time, Rose called and told him that he could lower his interest rate to 15.95% by going through a different bank, but that Plaintiff would need to sign a new contract. Transcript, p. 15. Darnell testified that the Defendant does not benefit from the amount of interest paid by a consumer and, therefore, would not have made less money if Plaintiff was given a lower interest rate. Transcript, pp. 58-59. Rose again advised Plaintiff that he would have to have the warranty, but that his manager was going to allow Plaintiff to eliminate the gap insurance. Transcript, pp. 16, 42. Rose also told the Plaintiff that the cost of the warranty was now already included in the purchase price, and that the contract needed to be backdated. Transcript, pp. 17, 40-41. Plaintiff testified he was told that the warranty cost had to be included in the purchase price because the bank required a warranty, but would not finance the warranty. Transcript, p. 24. Rose told him that they would therefore include the warranty cost in the cost of the vehicle and not show it separately. Transcript, pp. 24, 49.
Since the bank required the paperwork prior to issuing its check, Darnell testified that the "final" written contract had to be entered prior to April 9, 2005, the date on the bank's check.Transcript, pp. 59-60; Joint Exhibits 7, 19. Therefore, Defendant contends that these conversations took place at the latest prior to April 9 2005.
Based on the evidence submitted and discussed, infra, it is not clear whether gap insurance could have even been obtained on the vehicle, since the vehicle was ultimately sold for over its market value. See Transcript, pp. 83-84. However, there is no evidence in the record of this subject being discussed with the Plaintiff. He was simply told that the Defendant would no longer require him to purchase the insurance.
The "book-out" sheet for the automobile purchased by the Plaintiff shows a NADA value of $12,250. Transcript, p. 67;Joint Exhibit 20. After adding value for options listed on the vehicle and subtracting for excess mileage, the NADA total value was $13,650. Plaintiff testified that although the options of powers seats (listed at $175) and running boards (listed at $125) were listed on the book-out sheet, they are not options on his vehicle. Transcript, p. 22; Joint Exhibit 20. Therefore, the actual NADA value is reduced by an additional $300, to $13,350. Darnell testified that the NADA trade value is the value you would get if you traded the automobile in, and that the financial value or retail value is generally 115% of the NADA value, which would be $15,352.50 ($13,350 × 115%). Transcript, p. 68; Joint Exhibit 20. However, Darnell also testified that the financial value or retail value can go up to 125%, which would be $16,687.50 ($13,350 x 125%). Transcript, p. 68; Joint Exhibit 20. Hence, even using the top retail value of 125% over NADA trade value, the actual purchase price of the vehicle as shown on the second contract was still almost $1,000 more than the actual value of the vehicle.
The total NADA price is not completely shown on the document submitted to the Court as Joint Exhibit 20. The Court arrived at the total NADA price by adding the options listed and subtracting the excess mileage from the NADA trade price. See Joint Exhibit 20.
Plaintiff signed a new Retail Installment Contract and Security Agreement dated to March 31, 2004, which showed the vehicle price as $18,069 and "n.a." for the service contract, for a total cash price of $18,069. Joint Exhibit 7. This contract also showed the lower interest rate of 15.95%, with 60 monthly payments of $415.57. Joint Exhibit 7.
Shortly after purchasing the automobile, Plaintiff wrote to the Defendant's General Manager on May 1, 2004, complaining about still not having received his service warranty. Transcript, p. 45; Joint Exhibit 15. On May 5, 2004, the Defendant's President wrote the Plaintiff and told him,
To address your complaint, it is simply a matter of SmartCars, Inc. selling you an extended warranty and attempting to have its selling price financed. Our approval from the bank did not include financing for the warranty. You signed a new contract which did not include the warranty and you declined the warranty since you could not finance it or pay for it in cash.Joint Exhibit 16.
On May 8, 2004, Plaintiff wrote to InterState Net Bank, which financed his car, to inquire about why the bank had not been willing to finance the service warranty. Joint Exhibit 17. After not obtaining the service warranty, Plaintiff filed this action.
Conclusions of Law (Fraud Claim)
In South Carolina, in order to prove fraud the Plaintiff has to prove all nine elements of the alleged fraud. Dixon v. Ford, 608 S.E.2d 879, 884 (S.C.Ct.App. 2005). "The elements of an action for fraud based upon a representation include: (1) a representation; (2) falsity; (3) its materiality; (4) knowledge of the falsity or a reckless disregard of its truth or falsity; (5) intent that the representation be acted upon; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance upon the truth; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximate injury." Id. (quotingRedwend Ltd. P'ship v. Edwards, 581 S.E.2d 496, 503-504 (S.C.Ct.App. 2003), cert. denied, March 18, 2004. "Each and every one of these elements must be proven by clear, cogent, and convincing evidence." Regions Bank v. Schumauch, 582 S.E.2d 432, 445 (S.C.Ct.App. 2003).In this case, the Court finds based on the evidence that Rose made a representation to the Plaintiff that he was purchasing an extended warranty at the time Plaintiff entered into the second contract. Transcript, pp. 14-16, 40-42. This representation was false, since there is no dispute that the Plaintiff never received an extended warranty. With regard to its materiality, it is undisputed that the extended warranty is valued at $1,695. Plaintiff originally testified that he did not want to purchase the warranty, and may have been intending to cancel the warranty within 30 days and receive a refund of the entire purchase price.Transcript, pp. 11, 23, 28, 36-37. In any event, the second contract reflected that a service warranty had not been purchased, despite Rose's representation to the contrary, and the Court finds that Rose told the Plaintiff a warranty was included in the price being paid for the vehicle as shown on the contract in order to induce Plaintiff to agree to sign the new contract showing the higher purchase price.Joint Exhibits 6-7; Transcript, pp. 15-22. Therefore, Plaintiff has shown materiality, knowledge of the falsity, and intent. See Redwend Ltd. P'ship, 581 S.E.2d at 502-503 [Exception to parole evidence rule allows use of extrinsic evidence by the party attacking an instrument on the ground of fraud].
With regard to Plaintiff's ignorance, Plaintiff testified that he thought he was purchasing an extended warranty, and the Court finds this testimony to be credible. Indeed, it is difficult to discern why the Plaintiff or anyone else would have agreed to sign a second contract allowing the Defendant to increase the price of a car which had already been purchased by $1,695 (which just happened to be the exact amount of the cost of the warranty) without any other type of benefit being received. Defendant argues that the reason the second contract was offered was because it had found a lower interest rate for the Plaintiff. However, the interest rate was offered through a financing company, and no explanation has been given as to why the Plaintiff or any consumer would have paid the dealership more for the automobile in order to receive this financing, instead of just paying the same price for the car and financing it at the lower rate. No testimony has been offered that the lower interest rate was conditioned upon a higher selling price. Further, Plaintiff's immediate attempts to obtain information about his service contract lends additional support and credibility to his testimony concerning what he had been told by Rose. Transcript, pp. 13, 15, 45; Joint Exhibits 15 17. The Court also finds that Plaintiff relied upon Rose's representation when he agreed to enter into the new agreement.Joint Exhibits 6-7; Transcript, pp. 15-22.
It is undisputed that Defendant originally agreed to sell the car to the Plaintiff for $15,875. The original Vehicle Service Contract Application, which was signed by the Plaintiff and Rose on March 30, 2004, shows the vehicle sales price as $15,875 and the cost of the service contract as $1,695. Joint Exhibit 8. The Application for Certificate of Title/Registration also shows the original purchase price as $15,875. Joint Exhibit 9. Plaintiff also submitted a copy of the Sticker Sheet showing a price of $15,875, and a copy of the Buyers Order showing a selling price of $15,875. Joint Exhibits 1 and 5.
With regard to Plaintiff's right to rely, "[t]he right to rely must be determined in light of the plaintiff's duty to use reasonable prudence and diligence under the circumstances in identifying the truth with respect to the representations made to him." Dixon, 608 S.E.2d at 884. (citations omitted). Defendant argues that Plaintiff did not have the right to rely on any oral statements made by Rose when the written contract clearly set out that the warranty was listed as "na". Hence, Defendant contends that Plaintiff could have easily determined for himself that the warranty was not included by reading the contract. The Court does not agree.
The principle of the right of reliance upon representations is closely bound up with a duty on the part of the plaintiff to use some measure of protection and precaution to safeguard his own interest. Thomas v. Am. Workmen, 14 S.E.2d 886, 888 (S.C. 1941). It is largely because the law of fraud requires [a claimant] to prove his ignorance of the falsity of the representation and his right to rely on the falsity that the courts long ago established the rule that ordinarily one cannot complain of fraud in the misrepresentation of the contents of a written instrument signed by him when the truth could have been ascertained by reading the instrument, and that one entering into a written contract must read it and avail himself of every reasonable opportunity to understand its content and meaning.Regions Bank v. Schmauch, 582 S.E.2d 432, 445 (S.C.Ct.App. 2003) (citing PPG Indus., Inc. v. Orangeburg Paint Decorating Ctr., Inc., 375 S.E.2d 331, 333 (S.C.Ct.App. 1988)). Here, while the contract itself did reflect that no warranty was being purchased, the evidence shows Rose told Plaintiff that this was a way to get the bank to finance the purchase price of the vehicle as well as the cost of the warranty. Plaintiff had a right to rely on this statement, which was made by the Defendant's own finance manager. Plaintiff's testimony on this issue is further bolstered by the fact that the sales price was increased by the exact amount of the cost of the warranty. Therefore, Plaintiff had a right to rely on this statement.
With regard to Plaintiff's consequent and proximate injury, the Court finds that Plaintiff was injured by paying $1,695 more for the vehicle than he originally contracted for, with no warranty being provided, and has also been injured by paying interest on that amount since the inception of his loan. Therefore, the Court finds that the Plaintiff has shown the nine elements of fraud in this case.
Finally, Defendant argues that, even assuming Plaintiff can show fraud, Plaintiff's own conduct in agreeing to participate with Rose in a scheme to defraud the lender in this transaction should preclude any recovery. The doctrine of "unclean hands" precludes a Plaintiff from recovering in equity if he acted unfairly in a matter that is the subject of the litigation to the prejudice of the Defendant. Arnold v. City of Spartanburg, 23 S.E.2d 735 (S.C. 1943); Worldcom, Inc. v. Boyne, 68 Fed.Appx. 447, 451 (4th Cir. 2003); Buchanan Home and Auto Supply Co., Inc., 544 F.Supp. 242, 245 (D.S.C. 1981)[Although there is argument that the unclean hands defense is available only in equity actions, "[w]hether designated as the principle underlying clean hands or as equitable estoppel, the defense applied inTempo is equally applicable in the instant case [an action at law] where it would be grossly inequitable to allow plaintiff to recover."]; cf. Fina Oil and Chemical Co. v. Pester Marketing Co., No. 95-1367, 1997 WL 225900 at *35 (D.Kan. 1997)[Allowing defense of unclean hands to an action at law under Kansas law]; but see Haft v. Dart Group Corp., 841 F.Supp. 549, 576 (D.Del. 1993) ["Courts have emphasized that the "unclean hands" defense is a narrow one. (Citation omitted). That is, because the maxim is equitable, it applies to bar only equitable relief."]; In Re Napster, Inc. Copyright Litigation, 191 F.Supp.2d 1087, 1110 (N.D.Ca. 2002)["The situation would be markedly different had plaintiffs sought only legal relief. In such a case, [Defendant] would be the party trying to bring equity into play and its unclean hands might bar equitable defenses."]
Tempo Music, Inc. v. Myers, 407 F.2d 503, 507 (4th Cir. 1969).
However, while the Court agrees that Plaintiff's conduct in this matter was less than stellar, it was as a joint participant with Rose, the Defendant's own finance manager. Further, and significantly for purposes of an "unclean hands" defense, the Defendant has not shown that it has been prejudiced by the Plaintiff's conduct. To the contrary, although the Defendant argued at trial that it was prejudiced because it would have made a profit of between $800 to $1,000 on the purchase of the warranty contract if Plaintiff had purchased a warranty, the evidence shows that the Defendant actually made more money by increasing the price of the car in the second contract by $1,695, allowing it to keep the entire amount. See Transcript, p. 83. The evidence shows a gross profit on this sale to the Defendant in the amount of $3,508.47, with a net profit of $2,875.47.Joint Exhibit 14. See Powell v. Floyd, No. 97-2686, 1999 WL 812315 at **5 (4th Cir. Oct. 12, 1999)["We must remember that as a general matter, the defendant seeking the application of the unclean hands doctrine must demonstrate that he has been injured by the plaintiff's conduct."](citing Arnold v. City of Spartanburg, supra).
Furthermore, the Defendant here, like the Defendant inPowell, "is in no position to complain about unclean hands. The law clearly requires that the matter to which the Defendant seeks to apply the unclean hands doctrine must be one about which `he can in good conscience complain in equity.'" Powell, 1999 WL 812315 at **5. Rose originally discussed with Plaintiff how to purchase the service warranty and immediately obtain a refund for the warranty. However, when the bank would not allow Plaintiff to finance the warranty, Rose structured the deal (with Plaintiff's participation) in such a way as to still have the bank finance a warranty. At least that was the way it was explained to the Plaintiff, which led Plaintiff to agree to sign a new contract which actually increased the purchase price of his car by $1,695. The Court is also not impressed with Defendant's attempt to convince the Court that it was harmed by Plaintiff not purchasing the warranty, when in fact it made more money under the new contract. Accordingly, the Court finds that the Defendant cannot use the defense of unclean hands to shield itself from the consequences of its own agent's fraudulent misrepresentation. Lyon v. Campbell, 33 Fed.Appx. 659, 665 (4th Cir. 2002)["Application of unclean hands is largely in the discretion of the district court. . . ."],cert. denied, 537 U.S. 1000 (2002).
Under the findings of fact and conclusions of law enumerated hereinabove, the Court finds that Plaintiff has proven his fraud claim and is entitled to damages in the amount of the warranty he did not receive, as well as for the interest paid on this amount through the date of this judgment. Notwithstanding this finding, however, the Court does not find that Plaintiff should receive any additional damages in light of the fact that he was willing to allow the Defendant to misrepresent to the lender the amount that he was actually paying for the car.
Therefore, Plaintiff is entitled to damages on his fraud claim in the amount of $1,695, plus interest from March 31, 2004 through the date of this order in the amount $489.60, for a total amount of $2,184.60.
(Contract Claim)
With regard to Plaintiff's breach of contract claim, Plaintiff must show that the parties entered a contract, that the contract was breached, and that damages resulted from the breach. See Edens v. Goodyear Tire Rubber Co., 858 F.2d 198, 202 (4th Cir. 1988). It is undisputed in this case that the parties entered into a contract. Plaintiff contends that the contract was breached because Defendant failed to provide the service warranty. However, Plaintiff has failed to show that the Defendant breached the new Retail Installment Contract and Security Agreement entered by the parties. Joint Exhibit 7.
As previously discussed, the Court finds that Defendant's fraud resulted in Plaintiff entering into a new contract which did not provide a service warranty. However, since the contract itself did not include a service warranty, the Court finds that Plaintiff has not shown a breach of this contract, and this claim therefore fails. While Plaintiff may claim that he was fraudulently induced to enter into this contract, fraudulent inducement is a separate cause of action which has not been asserted in this case. First Federal Sav. and Loan Ass'n of South Carolina v. Chrysler Credit Corp., 981 F.2d 127, 134 (4th Cir. 1992)[Fraudulent inducement to enter into a contract is "correctly cast only as a separate cause of action for fraud."]. Plaintiff has asserted a separate cause of action for fraud.See discussion, supra.
(Truth in Lending Claim)
In order to show a violation of the TILA and recover damages, a consumer must show that he/she has suffered a loss because they relied on an inaccurate or incomplete Truth In Lending Disclosure statement. Kittrell v. RRR, L.L.C., 280 F.Supp.2d 517, 521 (E.D.Va. Sept. 9, 2003); Peters v. Jim Lupient Oldsmobile Co., 220 F.3d 915, 917 (8th Cir. 2000); Hodges v. Koons Buick Pontiac GMC, Inc., 180 F.Supp.2d 786, 791-793 (E.D.Va. 2001); Kramer v. Marine Midland Bank and Toyota of Rockland, Inc., 559 F.Supp. 273, 277-279 (S.D.N.Y. 1983). As previously discussed, Plaintiff contends that he did not receive a service warranty, and the evidence shows that a service contract was not in fact issued. However, the Retail Installment Contract and Security Agreement does not show that a service contract was purchased, nor do the Truth in Lending Disclosures reflect that such a warranty was issued. See Joint Exhibit 7 (Truth in Lending Disclosure Section). To the contrary, it indicates that the service warranty is "n.a." Joint Exhibit 7.Since there has been no showing that the disclosure statement was not accurate and complete, Plaintiff has not shown a violation of the TILA. Kittrell, 280 F.Supp.2d at 521;Peters, 220 F.3d at 917; Hodges, 180 F.Supp.2d at 791-793;Kramer, 559 F.Supp. at 277-279.
Conclusion
Based upon the findings of fact and conclusions of law enumerated hereinabove, the Court orders that judgment be entered against the Defendant in the amount of $2,184.60.
IT IS SO ORDERED.