may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
IN COURT OF APPEALS
Motor Credit Company,
Lydia Majors, on behalf of herself
and all others similarly situated,
Hennepin County District Court
File No. CT02016135
Vernle C. Durocher, Eric A. Ruzicka, Thomas L. Nuss, Dorsey & Whitney, LLP, Suite 1500, 50 South Sixth Street, Minneapolis, MN 55402-1498 (for respondent)
Richard J. Fuller, Seymour J. Mansfield, Mansfield, Tanick & Cohen, P.A., 1700 U.S. Bank Plaza South, 220 South Sixth Street, Minneapolis, MN 55402-4511; and
William H. Crowder, Susan F. Bedor, Gregory L. Paulson, Crowder, Bedor & Paulson, LLP, 555 West Seventh Street, Suite 201, St. Paul, MN 55102 (for appellant)
Mike Hatch, Attorney General,
Prentiss E. Cox, Assistant Attorney General,
Considered and decided by Kalitowski, Presiding Judge; Peterson, Judge; and Crippen, Judge.*
In November 2000, Majors entered into a retail installment contract with Walser Automotive Group, Inc., to purchase an automobile. After negotiating the purchase price, a Walser representative offered to arrange financing for Majors and asked her to execute an agreement allowing Walser to obtain a credit report and to submit a credit application on her behalf to ten finance companies, including FMCC.
After FMCC received the credit report on Majors, it agreed to buy an assignment of her contract at an annual percentage rate (APR) of 15%. FMCC periodically establishes the minimum APR at which it will agree to accept an assignment of a retail installment contract. That minimum APR is known as the “buy rate.” FMCC then distributes its buy rate to dealers through dealer bulletins. The bulletins include charts establishing the buy rate for potential customers at various credit-risk levels. Potential customers score within a given risk level based on their credit report and financial circumstances. FMCC allows dealers to set a higher interest rate than the buy rate, but it requires them not to disclose the buy rate to third parties, including potential customers. FMCC’s credit policy is intended to give dealers an incentive to refer business to FMCC.
Walser assigned the contract to FMCC at the 15% buy rate. Walser’s credit manager then informed Majors that Walser had obtained financing for her through FMCC and quoted her an annual percentage rate of 19.75%, to which Majors agreed. Walser thus retained a “markup” equal to the difference between the 15% buy rate and the 19.75% APR to which Majors agreed. FMCC collected the increased finance charge from Majors and returned the markup to Walser. The contract expressly stated the price of the car, the finance charge, and the APR.
Majors had problems with the car and decided to return it. She then sought to rescind the contract and stopped making monthly payments. FMCC sold the car at an auction and sued Majors to recover a $7,761.93 deficiency. Majors answered the complaint and filed a counterclaim that included an individual claim for breach of warranty and putative-class claims for violations of the Minnesota Prevention of Consumer Fraud Act, the Minnesota Uniform Deceptive Trade Practices Act, and the Fair Credit Reporting Act.
For her individual counterclaim, Majors alleged that Walser “breached both written and implied warranties in connection with the vehicle.” Majors also alleged that Walser’s conduct violated several statutory provisions and entitled her to damages, for which FMCC was responsible under Minn. Stat. § 336.9-404 (2004). But Majors did not allege the factual basis for her claim.
For her putative-class claims, Majors alleged that a Walser representative offered to arrange financing for her and asked her to execute an agreement allowing Walser to submit applications for credit on her behalf to ten finance companies. Majors further alleged that “[i]t was [her] understanding that Walser would attempt to obtain for her financing at the lowest possible available market rate.” Majors did not allege that Walser promised to obtain the lowest possible market rate, that she qualified for a rate lower than the one Walser offered her, or that Walser agreed to forgo a markup on the loan. Instead, she alleged that Walser’s failure to disclose the terms of the assignment agreement was fraudulent or deceptive because it had “a tendency to deceive or confuse significant numbers of consumers by leading them to believe that the interest rates quoted by Walser and other automobile dealers were, in fact, the lowest rate for which they qualified through FMCC.”
FMCC moved to dismiss Majors’ counterclaim under Minn. R. Civ. P. 12.02(e). The district court granted FMCC’s motion in its entirety, reasoning that Majors had not sufficiently pleaded either her warranty claim or her putative-class claims. Majors then moved to amend her answer and counterclaim, but the court denied the motion reasoning that it was untimely and that an amendment would prejudice FMCC.
After Majors learned that FMCC had recently announced that it would change its contracts “to make it clearer that consumers can negotiate finance rates and that dealers may retain part of the finance charge,” she brought a motion under Minn. R. Civ. P. 60.02(b) to vacate the judgment based on newly discovered evidence. The district court denied the motion summarily. This appeal follows.
D E C I S I O N
reviewing the dismissal of a pleading for failure to state a claim, an
appellate court must determine only whether the pleading sets forth a legally
sufficient claim for relief. Wiegand v. Walser Auto. Groups, Inc., 683
N.W.2d 807, 811 (
Majors argues that Walser’s failure to disclose its markup is a deceptive trade practice under the Minnesota Prevention of Consumer Fraud Act (MCFA), Minn. Stat. §§ 325F.68-.70 (2004), and the Minnesota Uniform Deceptive Trade Practices Act (DTPA), Minn. Stat. §§ 325D.43-.48 (2004), because a markup is a material fact in the context of a financial transaction and the failure to disclose it tends to mislead or confuse unsophisticated consumers. Specifically, Majors argues that Walser committed a deceptive trade practice by (1) failing to disclose “the fact that she qualified for a lower interest rate from FMCC” and (2) “engaging in conduct which reasonably led her to believe that she was, in fact, being offered credit at the lowest possible rate for which she qualified.” We disagree.
statutes are remedial in nature and must be liberally construed in favor of
protecting consumers. State by Humphrey v. Alpine Air Prods., Inc.,
490 N.W.2d 888, 892 (Minn. App. 1992), aff’d,
500 N.W.2d 788 (
the DTPA and the MCFA define violations based on conduct by the defendant and
do not require reliance by the plaintiff.
MCFA makes it unlawful for “any person [to use] any fraud, false pretense,
false promise, misrepresentation, misleading statement or deceptive practice,
with the intent that others rely thereon in connection with the sale of any
merchandise, whether or not any person has in fact been misled, deceived, or damaged
thereby.” Minn. Stat. § 325F.69,
subd. 1. Financing
contracts constitute “merchandise” for purposes of the MCFA. See
Jenson v. Touche Ross & Co., 335 N.W.2d 720, 728 (
The MCFA is not a strict
liability statute. Jenson, 335 N.W.2d at 728.
degree of culpability is therefore required before liability may be
Majors’ counterclaim alleges:
21. After agreeing on a purchase price of $12,450.00 . . . , Walser’s representative offered to arrange financing and requested Ms. Majors to execute an agreement allowing Walser to obtain a credit report on Ms. Majors and submit, on her behalf, applications to [ten] finance companies, including [FMCC].
22. It was [Majors’] understanding that Walser would attempt to obtain for her financing at the lowest possible available market rate.
The district court concluded that the counterclaim failed to state a claim for relief under the MCFA because (1) it did not allege that Walser misrepresented the terms of her contract or otherwise engaged in prohibited conduct, (2) it did not allege a sufficient nexus between Walser’s conduct and Majors’ alleged injury, and (3) Walser had no duty to disclose material information.
Majors argues that Walser engaged in conduct prohibited by the MCFA because “the circumstances surrounding the transaction were such as would lead significant numbers of consumers to mistakenly belief they were receiving the lowest interest rate for which they qualified.” But the only “surrounding circumstance” alleged in connection with the financing of Majors’ contract is Walser’s request for authorization to submit a credit application on Majors’ behalf to ten finance companies. The counterclaim does not allege that Walser represented that it would submit credit applications to all ten companies, that it would attempt to obtain the lowest possible interest rate for Majors, or that it would not charge a markup over the rate available to Walser; it alleges only that Walser requested authorization to submit credit applications on Majors’ behalf to ten finance companies. Because the mere request for authorization to submit credit applications, without more, is not a practice likely to deceive a large segment of the consumers to whom it is directed, Majors’ counterclaim fails to state a claim for relief under the MCFA.
Even assuming that Walser’s request for authorization reasonably led Majors to believe that Walser would attempt to obtain the lowest possible interest rate for which she qualified, the counterclaim fails to state a claim because it does not allege that Walser did not in fact obtain the lowest possible rate for which Majors qualified. The counterclaim does not allege that Walser failed to apply to ten finance companies or that another lender would have offered Walser a lower rate than the rate FMCC offered it. Nor does it allege that Walser represented that it would not charge a markup over the rate available to it from FMCC or that FMCC would have extended credit directly to Majors at the buy rate. The district court correctly concluded that Majors’ claim that she could have obtained financing directly from FMCC at a rate of 15% was “a fiction.” The 15% buy rate was the minimum rate at which FMCC agreed to buy an assignment of the contract, not the minimum rate at which FMCC would have agreed to extend credit to Majors directly. The buy rate was, in effect, a wholesale rate available to dealers who arrange financing through FMCC, and the 19.75% rate Walser offered Majors was a retail rate. There is no allegation that FMCC would have directly extended credit to Majors at the buy rate or that Walser misrepresented or falsely implied that it would forego any markup and offer Majors the wholesale rate.
Majors essentially argues that because she did not know how the financing arrangement between FMCC and Walser worked, she was misled into thinking that the rate Walser offered her was the lowest rate for which she qualified. But Majors’ failure to understand how the financing arrangement worked does not establish that Walser misrepresented or falsely implied that it would not charge a markup on the wholesale rate. Although Walser’s request for authorization to submit a credit application to ten finance companies might have created the impression that it would attempt to obtain the lowest possible wholesalerate, Walser’s request did not suggest that Walser would not charge a markup over the wholesale rate. Thus, the counterclaim does not allege a sufficient nexus between Walser’s conduct and Majors’s alleged understanding that there would be no markup.
Duty to Disclose Material Information
Majors argues that Walser’s failure to disclose the markup was deceptive because Walser was required to disclose material information known to the seller but unknown to the buyer, even in the absence of a fiduciary duty. Majors, contends that, “the interest rate for which one qualifies” is a material aspect of a credit transaction because a significant number of consumers would attach significance to it in deciding on a course of action. The district court concluded that the counterclaim failed to state a claim for relief because the relation between a customer and an automobile dealer is arm’s length and does not create a fiduciary duty to disclose.
We agree with Majors that Walser had a duty to disclose material information despite the absence of a fiduciary relationship. See State by Hatch v. Fleet Mortgage Corp., 158 F. Supp. 2d 962, 967 (D. Minn. 2001) (stating that “while a duty to disclose may be required by common law fraud/ misrepresentation, it is not required for liability under more broadly drafted consumer protection statutes”). And Majors also correctly notes that “the interest rate for which one qualifies” is a material aspect of a credit transaction. Her claim fails, however, because the markup is not material information in a loan transaction, and, therefore, Majors could not submit evidence that would entitle her to relief under the theory that Walser committed a deceptive practice by failing to disclose material information.
Truth in Lending Act (TILA), which requires lenders to make a clear and
accurate disclosure of all “finance charges” imposed on the consumer in credit
transactions, 15 U.S.C. § 1638(a), does not require a seller-creditor to
disclose the assignment of a loan agreement at less than face value or “the
discount imposed on a credit transaction when it is assigned by a
seller-creditor to another party[,] . . . as long as the discount is not separately
imposed on the consumer.” 12 C.F.R. pt.
226, subpt. A, § 226.4 (a)(2) (Supp. I 2004) (official staff
interpretations). Even if a dealer
discount were a “finance charge” within the meaning of TILA, the required
disclosure must provide only a statement showing the total dollar amount the
credit will cost.
As required by TILA, the retail installment contract in this case provided full disclosure of all material terms, including the price of the car, the APR, the finance charge, the total cost of the purchase on credit, the total number of payments, and the amount of each payment. Majors was given all the information necessary to evaluate the terms of her bargain with Walser and was free to accept or reject it. Majors was not obligated to seek financing from Walser or prevented from seeking financing elsewhere. Although compliance with TILA does not necessarily establish compliance with consumer-protection statutes, TILA suggests that the discount or markup a dealer imposes on a credit transaction is not a material aspect of the transaction and, therefore, that the failure to disclose the markup is not deceptive or misleading.
DTPA provides that a person engages in a deceptive trade practice when the person
causes a likelihood of confusion or misunderstanding as to, among others, the
source, affiliation, sponsorship, or approval of goods or services or
misrepresents the geographic origin or characteristics of goods or services. Minn. Stat. § 325D.44, subd. 1 (2)-(5). The DTPA contains a catchall provision that
prohibits “other conduct which similarly
creates a likelihood of confusion or of misunderstanding.”
The district court concluded that Majors failed to state a claim under the DTPA because the counterclaim “fail[s] to establish that Walser or FMCC engaged in conduct that created a likelihood of confusion or misunderstanding.” We agree. Walser’s conduct is not among the conduct that the DTPA expressly prohibits, and it does not come under the umbrella of the catchall provision because it does not “similarly” create a likelihood of confusion or misunderstanding as to the source, affiliation, origin, or characteristics of the goods and services that Walser offered Majors. The failure to disclose a markup on a retail sale is not similar to the conduct the DTPA prohibits.
Majors argues that Walser’s failure to disclose the markup was deceptive because it tended to mislead or confuse unsophisticated consumers. But, as the district court correctly concluded, “[a] consumer engaged in an arm’s length transaction with a retail seller is not entitled to assume that the retail seller is not making a profit on the financing part of the transaction.” See Balderos v. City Chevrolet, 214 F.3d 849, 853 (7th Cir. 2000) (stating that consumer “knows, or at least has no reason to doubt, that the dealer seeks a profit on the financing as well as on the underlying sale”); Baldwin, 32 F. Supp. 2d at 900 (stating that plaintiff “had no right to assume that she was getting the best deal possible or receiving the lowest rates charged by [the finance company]”). Interest is the cost or price of borrowing money, and the markup is nothing more than the dealer’s profit on a loan transaction. Walser’s failure to disclose the markup did not create a likelihood of confusion or misunderstanding.
Because Majors could produce no evidence consistent with her theory of the case that would entitle her to relief under the consumer-protection statutes, the district court properly dismissed the counterclaim for failure to state a claim.
The district court dismissed Majors’ individual breach-of-warranty claim, reasoning that Majors failed to allege sufficient facts in support of her claim. The answer and individual counterclaim alleged only that Walser “breached both written and implied warranties in connection with the vehicle financed in the above transaction” under several statutes, including the UCC and the consumer-protection statutes. The district court concluded that “[t]he allegations [in the answer and counterclaim] stand by themselves and are not supported by any facts regarding when, or how, the breach took place, whether Majors had to bring the vehicle back for repair numerous times, what part of the vehicle was involved and so on.”
Rule 8.01 of the Minnesota
Rules of Civil Procedure “permit[s] the pleading of events by way of a broad
general statement which may express conclusions rather than, as was required
under code pleading, by a statement of facts sufficient to constitute a cause
of action.” N. States Power Co. v. Franklin, 265
Accordingly, a pleading need
not spell out every element of a legal theory to provide notice. See
Hemenway v. Peabody Coal Co., 159 F.3d 255, 261 (7th Cir. 1998)(contrasting notice pleading with
heightened pleading, i.e., “the who, what, when, where and how” required for
fraud claims); see also Jackson v. Marion
County, 66 F.3d 151, 154 (7th Cir. 1995)(stating that a plaintiff can plead conclusions as long as those
conclusions provide the defendant with minimal notice of the claim). A
pleading need contain only a “short and plain statement of the claim that will
give the defendant fair notice of what the plaintiff’s claim is and the grounds
upon which it rests.” Conley v. Gibson, 355
We conclude that Majors’ counterclaim contained the bare minimum of information required to set forth a claim and to give FMCC fair notice of its basis. See Conley, 355 U.S. at 48, 77 S. Ct. at 103 (stating that federal rules “reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits”). Because we conclude that the counterclaim states a breach-of-warranty claim, we do not address Majors’ alternative arguments for reversal.
Affirmed in part, reversed in part, and remanded.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
In her reply brief, Majors alleges that Walser did not, in fact, submit applications to ten different finance companies and that FMCC informed Walser that it would extend credit to Majors directly at a 15% APR. But the counterclaim makes no such claims, and on review this court is limited to the pleadings. See Wiegand, 683 N.W.2d at 811 (discussing standard of review applied to a rule 12 dismissal).