Seller Beware: Dealership’s Failure to Disclose Used Car Was a ‘Loaner’ Leads to Treble Damages and Attorneys Fee Award

In what appears to have been a case of first impression under New Jersey law, a Morris County judge ruled that a used car dealership’s failure to disclose that a used car was a loaner car and not merely a “one-owner, turned-back leased car” was actionable under the New Jersey Consumer Fraud Act.
In 2009, the plaintiff purchased a used 2008 Mercedes Benz ML 350 from defendant Millennium Mercedes Benz in Bridgewater, New Jersey, understanding that the car had been returned to the dealership by its original owner at the end of its lease. The first time it rained, however, the plaintiff could read the outline of the word “courtesy car” on the windshield, where the decal letters had previously been. The plaintiff claimed that he would not have purchased the car for that price had he known it was used as a loaner car. The plaintiff introduced expert testimony opining that a prior loaner car is worth 10 -15 percent less than a normal car.
The defendant contended that its representation that the vehicle had been returned on a lease was technically true because the dealership itself had leased it from Mercedes for use as a loaner car. The dealership further contended that the car’s use as a loaner was immaterial and therefore did not need to be disclosed.
At trial, the jury found that the dealership’s failure to disclose the car’s loaner status was an “unconscionable commercial practice,” justifying an award of treble damages and attorney fees.
The jury awarded a total of $30,000 in damages for the misrepresentation. The trial court awarded the plaintiff $45,000 in fees and costs.

While this appears to be a case of first impression in New Jersey it is not likely to be the last such case. Several states including California, Maine, and Wisconsin have statutes specifically requiring dealerships to disclose a vehicles prior use as a daily rental. Moreover, this issue has been the subject of several class actions in other states, including some cases where the dealership did disclose the vehicle’s prior status, but where consumers challenged the adequacy of the dealership’s disclosure.  Additionally, this issue is clearly on the radar of many states’ attorneys general, who have submitted comments to the Federal Trade Commission in support of a national requirement similar to Wisconsin’s expansive consumer right-to-know regulations.   For all of these reasons, car dealerships would be wise to revisit their disclosure practices with respect to loaner or rental cars.

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