The U.S. Court of Appeals for the First Circuit recently held that, at least under the Massachusetts version of the UCC, automobile post-repossession and post-sale notices must expressly advise the borrower that any deficiency will be calculated using the difference between the amount owed on the loan and the fair market value of the vehicle instead of the difference between the amount owed on the loan and the auction sale price.
In so ruling, the Court held that the defendant’s compliance with the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency was not sufficient to avoid liability.
A copy of the opinion in Williams v. American Honda Finance Corporation is available at: Link to Opinion.
The plaintiff filed a putative class action alleging that an auto finance company defendant violated Massachusetts consumer protection laws by failing to provide her with adequate loan deficiency notifications after she defaulted on her automobile loan.
The defendant allegedly repossessed the automobile and sent the plaintiff a post-repossession notice advising her that the defendant intended to sell the automobile at auction. The notice informed the plaintiff that: “[t]he money received from the sale (after paying our costs) will reduce the amount you owe. If the auction proceeds are less than what you owe, you will still owe us the difference.”
The car sold for $8,900 at auction. After the auction, the defendant sent another notice to the plaintiff advising that it calculated her deficiency by subtracting the auction sale price from the outstanding loan balance.
The plaintiff alleged that the notices violated the Massachusetts version of the Uniform Commercial Code and the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A, § 2(A), because they calculated the plaintiff’s deficiency liability using the automobile sale price at auction instead of the automobile’s fair market value.
The trial court entered summary judgment in favor of the defendant finding that the notice tracked the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency and because the plaintiff did not provide any evidence that the fair market value exceeded the auction proceeds. The plaintiff appealed.
The First Circuit first certified the matter to the Massachusetts Supreme Judicial Court because the claims depended on questions of Massachusetts law. Relevant to the First Circuit’s opinion, the Supreme Judicial Court held that post-repossession and post-sale notices like the notices the defendant sent to the plaintiff must “expressly describe the deficiency as the difference between the amount owed on the loan and the fair market value of the vehicle.”
Initially, the First Circuit affirmed the trial court’s ruling that the plaintiff did not demonstrate that the fair market value exceeded the auction proceeds because she failed to offer sufficient evidence to meet her burden of proof on this issue.
The First Circuit then turned to whether the defendant’s post-repossession and post-sale notices complied with Massachusetts law. Applying the new Supreme Judicial Court standard here, the First Circuit had little trouble concluding that the notices the defendant sent to the plaintiff did not comply because they described the deficiency as the difference between the amount owed and the money received from the sale when the notices must describe the deficiency as the difference between the amount owed and the automobile’s fair market value.
The First Circuit rejected the defendant’s argument that fair market value is the same as the auction price here and that its notices, which used the safe-harbor language in Mass. Gen. Laws ch. 106, § 9-614(3), therefore “conveyed the fair market value concept” because the Supreme Judicial Court “made it clear that a creditor’s use of the UCC safe-harbor language in deficiency notifications is inadequate under Massachusetts law.”
The First Circuit also rejected the defendant’s argument that applying the Supreme Judicial Court’s holding to it after it sent the notices violated its “constitutional right to due process” because the defendant failed to raise this issue in the trial court proceeding or on appeal before the Supreme Judicial Court’s ruling. The defendant therefore waived this argument.
Thus, the First Circuit determined that the trial court’s entry of summary judgment in favor of the defendant was improper and remanded for further proceedings consistent with its opinion.