Cannon v. Cherry Hill Toyota, Inc.

161 F. Supp.2d 362 (D. N.J. 2001)

Opinion Date: August 29, 2001
Business Law
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CONSUMER FRAUD ACT; TRUTH IN LENDING—Under the federal Truth in Lending Act, a consumer must prove reliance on the alleged violative act, but under the Consumer Fraud Act, the consumer need only show an ascertainable loss resulting from the alleged violative act.

A consumer filed a class action suit against an automobile dealer. The consumer had purchased a used vehicle and a related optional mechanical breakdown protection package from a third party supplier. The entire transaction was financed through the car dealership. A retail sales installment contract was executed and it showed that the entire amount of money for the maintenance package was “Paid to Others on Your Behalf.” The consumer alleged that the dealership’s representation about paying the entire amount to the maintenance warranty company was false and misleading because the dealership retained a portion of the amount for itself without disclosing to the consumer that it was doing so. The consumer alleged that the dealership made the same false and misleading representations to other consumers as well. In essence, the consumer claimed that the dealership failed to disclose that it was adding a mark-up to the actual cost of the service warranty and that such failure to disclose such information violated the Truth In Lending Act (TILA) and the New Jersey Consumer Fraud Act (CFA). The main issue before the Court was whether the consumer was required to show detrimental reliance on the “offending” contract. Also, the Court was required to determine whether there was any evidence of actual damages under TILA, or of “ascertainable loss” under CFA, caused by the alleged violations. There was no question that the dealership violated TILA because it did not state correctly the amount paid to third persons by the dealer on the consumer’s behalf. The dealership attempted to raise a “good faith” defense because it had “reasonable grounds to believe that its duty to inform consumers of its profits on warranties was ‘permissive not mandatory’ under a reasonable interpretation of then-prevailing [Federal Reserve Board] commentary.” The Court, in prior unrelated cases, had already rejected “this very argument as ‘preposterous.’ There was no dispute that the dealership withheld relevant information and violated TILA. Therefore, the Court found “as a matter of law” that the dealership was liable to the consumer for such violation. This then required the Court to answer the question as to whether the consumer was entitled to damages on the TILA claim. The Court held that the Third Circuit had not yet addressed the issue as to whether a consumer must establish detrimental reliance on an inaccurate disclosure as a prerequisite to collecting damages. Therefore, it followed what it believed to be the “majority of courts” that hold that detrimental reliance is an element in a TILA claim for actual damages. Basically, this is because the statute provides that a consumer is entitled only to “any actual damage sustained ... as a result” of a TILA violation. According to the Court, the plain meaning of this is that a consumer must establish a causal relationship between the alleged fraud and the loss. Here, the consumer failed to provide evidence that she relied to her detriment on the disclosure statement. In essence, she failed to show that she would have sought a lower price on the warranty or that she would have succeeded in finding a lower price, had she known that the dealership was retaining a commission. Nonetheless, under TILA, the consumer was entitled to statutory damages because in TILA cases, a consumer “need not prove that [s]he suffered actual monetary damages in order to recover statutory damages and attorney’s fees.”

“The failure to disclose, prior to sale, the existence in terms of any written warranty, service contract, or repair insurance offered by [a] dealer in connection with the sale of a used motor vehicle” is a violation of the CFA. Consequently, the dealership’s failure to correctly disclose its profits on the warranty was a facial violation of that Act. However, “simply showing a violation of CFA is not enough to entitle a plaintiff for damages under that Act.” Further, CFA does not provide for recovery of statutory damages where a consumer cannot show actual harm. Further, unlike TILA, CFA requires that “in order to recover any damages, a plaintiff must show that she has suffered an ascertainable loss as a result of the defendant’s unlawful commercial practice.” In addition, the Court rejected the consumer’s argument that “ascertainable loss” under CFA is a broader concept than “actual damages” under TILA. Instead, the Court held that CFA requires a consumer “to bear the ultimate burden of showing a causal link between the offending practice and the claimed loss, with the amount of ascertainable loss to be demonstrated to a reasonable degree of certainty.” According to the Court, the “as a result of” language clearly requires a showing of cause and effect.

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