This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1468

 

Ford Motor Credit Company,
Respondent,

vs.

Lydia Majors, on behalf of herself
and all others similarly situated,
Appellant.

 

Filed May 3, 2005

Affirmed in part, reversed in part, and remanded

Peterson, Judge

 

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, 445 Minnesota Street, Suite 1400, St. Paul, MN  55101-2131 (for amicus curiae State of Minnesota)

 

            Considered and decided by Kalitowski, Presiding Judge; Peterson, Judge; and Crippen, Judge.*

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

Appellant Lydia Majors bought and financed the purchase of a car through Walser Automotive Group, Inc., a car dealership.  Walser then assigned Majors’ financing contract to respondent Ford Motor Credit Company (FMCC) at a discount.  After Majors encountered problems with the car, she attempted to rescind the contract.  FMCC then brought an action against Majors for a deficiency, and Majors counterclaimed.  Majors’ counterclaim alleged (1) an individual breach-of-warranty claim, and (2) putative-class claims under the Minnesota Prevention of Consumer Fraud Act and the Minnesota Uniform Deceptive Trade Practices Act based on the dealership’s failure to disclose its markup on the loan.  Majors appeals from the dismissal of her counterclaim under Minn. R. Civ. P. 12.02(e) for failure to state a claim.  Because we conclude that Majors’ counterclaim states a breach-of-warranty claim but fails to state a claim for relief under the consumer-protection statutes, we affirm in part, reverse in part, and remand.  

FACTS

            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

When 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 (Minn. 2004).  Dismissal is proper only if there are no facts consistent with the pleader’s theory that support granting the relief requested.  Brakke v. Hilgers, 374 N.W.2d 553, 555 (Minn. App. 1985).  Conversely, dismissal is improper if it is possible to grant relief on any evidence that might be produced, consistent with the pleader’s theory.  Wiegand, 683 N.W.2d at 811.  A reviewing court must treat the allegations in the complaint as true and make all assumptions and inferences in favor of the nonmoving party.  Id.; St. James Capital Corp. v. Pallet Recycling Assocs. of N. Am., Inc., 589 N.W.2d 511, 514 (Minn. App. 1999).  Whether the pleader can prove the facts alleged is immaterial.  Stead-Bowers v. Langley, 636 N.W.2d 334, 338 (Minn. App. 2001), review denied (Minn. Feb. 19, 2002).  The standard of review is de novo.  Id.

I

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.

Consumer-protection 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 (Minn. 1993); see also Wiegand, 683 N.W.2d at 812 (discussing policy and purpose underlying the MCFA); State by Humphrey v. Phillis Morris, Inc., 551 N.W.2d 490, 496 (Minn. 1996) (stating that the DTPA is broadly construed to enhance consumer protection).

Both the DTPA and the MCFA define violations based on conduct by the defendant and do not require reliance by the plaintiff.  Minn. Stat. §§ 325D.44, 325F.69; see Group Health Plan, Inc. v. Phillip Morris, Inc., 621 N.W.2d 2, 12 (Minn. 2001) (construing misrepresentation-in-sales statutes).  Therefore, to state a claim under the MCFA or the DTPA, a “plaintiff need only plead that the defendant engaged in conduct prohibited by the statutes and that the plaintiff was damaged thereby.”  Group Health Plan, 621 N.W.2d at 12.  Allegations that the plaintiff relied on the defendant’s conduct are not required to plead a violation.  Id. at 12-13 (holding that legislature eliminated requirements of pleading and proving traditional common-law reliance as an element of claim for statutory misrepresentation in sales action).  Although causation remains an element of the claim, a plaintiff need prove only a “causal nexus” between his or her damages and the alleged wrongful conduct.  Id. at 13-14.  The causal nexus may be established by direct or circumstantial evidence probative of the relationship between the claimed damages and the alleged wrongful conduct.  Id.at 14. 

A.         The Minnesota Prevention of Consumer Fraud Act

The 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 (Minn. 1983) (stating that the MCFA applies to investment contracts), superseded in part by rule on other grounds as stated in Lennartson v. Anoka-Hennepin Indep. Sch. Dist. No. 11, 662 N.W.2d 125 (Minn. 2003).  Minn. Stat. § 8.31, subd. 3a (2004), authorizes a private action for damages for violation of the MCFA.  

The MCFA is not a strict liability statute.  Jenson, 335 N.W.2d at 728.  Some degree of culpability is therefore required before liability may be imposed.  Id.  To be actionable under the MCFA, a statement must be literally false, or true but likely to mislead “a large segment of its audience.”  See Ott v. Target Corp., 153 F. Supp. 2d 1055, 1069 & n.10 (D. Minn. 2001) (interpreting the Minnesota False Statement in Advertisement Act (MFSAA), Minn. Stat. § 325F.67 (2000)).  An omission or misrepresentation through silence is actionable under the MCFA if the information is material and there is a duty to disclose based on a relationship of trust or confidence or an unequal access to information.  Cashman v. Allied Prods. Corp., 761 F.2d 1250, 1255 (8th Cir. 1985) (approving jury instruction stating that “[s]ilence . . . may be a misrepresentation if it relates to a material fact and there is a duty to disclose the matter” and that duty to disclose “may arise out of a relationship of trust or confidence, an inequality of bargaining position, an awareness that the undisclosed fact would prevent a previous representation from being misleading or an unequal access to information”). 

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.

Prohibited Conduct

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.[1] 

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.

The 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.  Id. at subpt C, § 226.18 (d)(1) (“[t]he finance charge must be shown on the disclosures only as a total amount; the elements of the finance charge must not be itemized in the segregated disclosures”) (emphasis added).  Thus, when a retail installment contract fully discloses the total amount the consumer is required to pay, the dealer discount or markup is immaterial.  Neither TILA nor the consumer-protection statutes imposes on dealers the duty to disclose that Majors seeks to create.  See In re Mexico Money Transfer Litigation, 267 F.3d 743, 749 (7th Cir. 2001) (holding that failure to disclose profit earned on wire transfer by retaining difference between retail currency-exchange rate and wholesale rate did not constitute fraud); Noel v. Fleet Fin., Inc., 34 F. Supp. 2d 451, 457 (E.D. Mich. 1998) (holding that lender not required by TILA to disclose yield spread premiums as separate component of finance charge), aff’d sub nom., Nixon v. Fleet Fin., Inc., 208 F. 3d 214 (6th Cir 2000); Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp. 2d 894 (S.D. Miss. 1998) (dismissing consumer-fraud and deceptive-business-practices claims based on agreement between automobile dealer and finance company whereby finance company paid dealer commission equal to part of interest charged in contract).     

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. 

B.         The Minnesota Uniform Deceptive Trade Practices Act

The 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.”  Id., subd. 1(13) (emphasis added).    

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.

II

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 Minn. 391, 394, 122 N.W.2d 26, 29 (1963).  The supreme court has noted that “[t]he functions of a pleading today are simply to give fair notice to the adverse party of the incident giving rise to the suit with sufficient clarity to disclose the pleader’s theory upon which his claim for relief is based, to permit the application of the doctrine of res judicata, and to determine whether the case must be tried by the jury or the court.”  Id.

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 U.S. 41, 47, 78 S. Ct. 99, 103 (1957) (interpreting Fed. R. Civ. P. 12(b)(6), which is identical to Minn. R. Civ. P. 12.02(e)) (quotation omitted); see also Payton v. Rush Presbyterian-St. Luke’s Med. Ctr., 184 F.3d 623, 627 (7th Cir. 1999) (stating that a pleading must contain only enough information “to allow the defendants to understand the gravamen of the plaintiff's complaint”) (quotation omitted).  This “simplified” notice pleading “is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the [r]ules [of civil procedure] to disclose more precisely the basis of both claim and defense and to define more narrowly the disputed facts and issues.”  Conley, 355 U.S. at 47-48, 78 S. Ct. at 103.  A pleading should thus not be dismissed for failure to state a claim “unless it appears beyond doubt that the plaintiff can prove no set of facts  in support of his claim which would entitle him to relief.”  Id.at 45-46, 78 S. Ct. at 102 (emphasis added). 

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.