Alaska SC: Seller's misrepresentation not subject to good-faith defense

Jessica M. Karmasek Apr. 10, 2012, 8:21am

JUNEAU, Alaska (Legal Newsline) - The Alaska Supreme Court ruled last month that under the state's Unfair Trade Practices and Consumer Protection Act a misrepresentation by a seller of the model year of a used motor home is not subject to a good-faith defense.

The Court, in its March 30 ruling, said the act "clearly implies" that unknowing affirmative misrepresentations of material facts will give rise to liability.

Plaintiff Robert Borgen bought a used Travelaire motor home from A&M Motors Inc. in September 2004.

The motor home was previously owned by Thom and Linda Janidlo, who traded in the vehicle to A&M Motors about two weeks before Borgen bought it.

When Thom Janidlo traded in the motor home, he indicated it was a 2002 model.

However, at some point, someone changed the model year to 2003 on the documents at A&M Motors.

According to court documents, the motor home's title showed that it was 2003 model, but the vehicle identification number, or VIN, indicated that it was a 2002 model.

Motor homes typically have two VINs, one on the chassis and one on the coach.

Experts testified during the case's trial that the tenth digit of a VIN of a chassis indicates the model year of the chassis. However, they were unclear as to whether the same holds true for the VIN of a coach.

In any case, the VIN on the chassis is the VIN on the vehicle's title, but a motor home's model year is determined by the model year of the coach. In this case, the tenth digit of both VINs was a two.

Still, A&M Motors sold the Travelaire to Borgen as a 2003 model.

In August 2005, after Borgen discovered documents in the motor home indicating it was actually a 2002 model, he contacted A&M Motors to complain. The only compensation they offered him was a $1,000 service contract.

Borgen eventually sued A&M Motors, salesman Geno Hensley and sales manager Mike Morelli, alleging misrepresentation, violation of the UTPA and breach of contract.

The defendants filed a joint opposition, asserting they were entitled to rely on the vehicle title, which showed that the motor home was a 2003 model, when they sold it as a 2003 model.

In response, Borgen contended that the defendants were not entitled to rely on the title because Janidlo told them it was a 2002 model.

The state's Third Judicial District Superior Court, in a Dec. 24, 2008 decision, granted summary judgment to Hensley and Morelli on the breach of contract claim. But it denied summary judgment to the parties on all of the other claims, finding that material issues of fact prevented entry of summary judgment.

In its decision, the superior court interpreted a past state Supreme Court opinion to mean that a mistaken but good-faith belief cannot be the basis of a UTPA claim.

The case eventually went to trial against A&M Motors and Morelli in August 2010.

The jury decided that A&M Motors had not engaged in an unfair or deceptive act in its dealings with Borgen and that it had not breached its contract with Borgen.

However, it also decided that A&M Motors had misrepresented the model year, that it knew or should have known that the statement was false or misleading, and that the misrepresentation was a legal cause of harm to Borgen.

The jury found that Borgen suffered $3,097.50 in damages.

After a failed request for a new trial, Borgen appealed the lower court's ruling to the state Supreme Court.

The Court affirmed the judgment in favor of Morelli; however, it vacated the judgment entered in favor of Borgen against A&M Motors.

Instead, it remanded the case with directions to enter a new judgment in favor of Borgen against A&M Motors under the UTPA.

"A&M Motors' argument that Borgen should be precluded from arguing that the jury's special verdict as to misrepresentation does not entitle him to judgment as a matter of law under the UTPA has no merit. Borgen has consistently presented a claim for misrepresentation under the Act," wrote Senior Justice Warren Matthews, who sat by assignment.

"The instruction would, if given, have required the jury to find a violation of the UTPA if the jury found that the model year of the motor home was misrepresented. Moreover, the jury was not asked to choose between liability under the UTPA and liability under a common law theory of misrepresentation.

"The jury was not instructed that a finding of misrepresentation would not lead to liability under the UTPA, nor was it instructed that only if it found that A&M Motors had engaged in an unfair or deceptive act would it be liable under the UTPA. In fact, the instructions given by the court did not at any point mention the UTPA."

However, the Court said A&M Motors was correct in observing that the court instructed the jury that "(a) good faith, but mistaken belief cannot be the basis for a finding of an unfair or deceptive act or practice" and that the court did not similarly permit good faith to serve as a defense to misrepresentation.

"A&M Motors is also right in its argument that there was sufficient evidence to support a jury conclusion that it had acted with a good-faith but mistaken belief as to the model year of the motor home," Matthews wrote in the Court's 39-page decision.

"But these points highlight rather than resolve the legal question as to whether a claim of misrepresentation brought under one of the subparagraphs of subsection .471(b) of the Act is subject to a good-faith defense."

That subparagraph implies that affirmative acts of misrepresentation need not be knowing; "knowingly" only applies to acts of concealment, suppression or omission, the Court said.

"Permitting a defense of good faith would generally excuse unknowing affirmative misrepresentations, and thus would conflict with the evident legislative intent to impose liability for them," Matthews wrote.

"Borgen is therefore correct that the elements of his case for misrepresentation under section .471 were that (1) A&M Motors misrepresented the model year of the motor home by representing that it was a 2003 model when in fact it was a 2002 model; (2) that this misrepresentation was material; and (3) that it caused him damage."

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