Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Md.: Consumer’s deceptive trade practices claims against used car dealers can proceed, (Jan 21, 2014)

By Linda O’Brien, J.D., LL.M.

A consumer alleged sufficient facts to pursue Maryland Consumer Protection Act (MCPA) claims against an automobile dealer and its parent company for engaging in unfair or deceptive trade practices by failing disclose that previously-owned vehicles sold to consumers were used as short-term rentals, the federal district court in Baltimore has ruled (Bailey v. Atlantic Automotive Corp., January 17, 2014, Garbis, M.). However, the consumer’s RICO claims were dismissed.

In 2009, Olivia Buckner Bailey purchased a previously owned vehicle from Heritage Chevrolet-Buick that was not identified as having been a prior short-term rental. Subsequent to her purchase, she discovered that the vehicle had in fact been used commercially for short-term rental. Bailey filed a class action suit against Heritage; its parent company, Atlantic Automotive Corporation; and 20 of Atlantic’s automotive dealer subsidiaries that sell previously owned cars in the course of their business. Bailey alleged that Heritage, Atlantic, and the other dealers engaged in a concerted and fraudulent scheme to sell prior short-term rental vehicles to consumers without disclosing that information, in violation of the MCPA and RICO, among other claims. Heritage and Atlantic moved to dismiss the complaint.

Deceptive trade practices. To sue under the MCPA, a private party must establish actual injury or loss which must be objectively identifiable as measured by the amount the consumer spent or lost as a result of his or her reliance on the seller’s misrepresentation. Bailey alleged that Heritage purposefully concealed the prior short-term rental status of the vehicle purchased by her because such status decreased the vehicle’s market value and made it more difficult to sell. Also, she alleged that she paid more for the vehicle that it was worth.

The court determined that Bailey adequately pleaded a plausible claim under the MCPA. Her allegations—that she was overcharged for a vehicle that was misrepresented to have been formerly used as a consumer vehicle—were sufficient to show that she suffered an actual loss.

Racketeering activity. Bailey’s RICO conspiracy claims against Heritage and Atlantic were dismissed. Bailey had alleged that Heritage, Atlantic, and the other dealers conspired to engage in a pattern of racketeering activity—namely, employing a fraudulent scheme to sell prior short-term rental vehicles without disclosure of that fact to purchases and using the U.S. mails and electronic or telephonic communications in the execution of the scheme. Under the intracorporate conspiracy doctrine, Atlantic was legally incapable of conspiring with its wholly-owned subsidiaries, and Bailey failed to present evidence that the independent personal stake exception applied, according to the court.

In rejecting the defendants’ argument that Bailey failed to adequately plead a cognizable RICO injury, the court found that Bailey’s claims that she suffered an actual loss at the time of her purchase in reliance upon the misrepresentation that she was not buying a former short-term rental vehicle was sufficient to show a cognizable injury to her property as a result of the alleged RICO violations.

However, Bailey failed to present a plausible claim that the alleged RICO persons and association-in-fact enterprise were distinct, according to the court. Atlantic, Heritage, and the other dealers were not meaningfully distinct from the trade association they formed, given the common ownership of the companies and that the subsidiaries simply carried on the business of the parent company. Additionally, Bailey failed to allege facts showing a pattern of racketeering activity. She alleged only one instance of specific fraudulent conduct directed at her, and her conclusory allegations that defendants engaged in numerous acts of mail and/or wire fraud was insufficient to show a pattern of racketeering activity. Accordingly, the RICO claims were dismissed.

Other dealers. Finally, Bailey’s conspiracy claims against the 20 dealer subsidiaries of Atlantic were also dismissed under the intracorporate conspiracy doctrine. Without a cognizable conspiracy claim, Bailey lacked standing to sue the dealer defendants with whom she had no direct commercial dealings, the court concluded.

The case is No. MJG-13-1243.

Attorneys: Benjamin Howard Carney (Gordon and Wolf Chartered) and Mark Harris Steinbach (O’Toole, Rothwell & Steinbach) for Olivia Buckner Bailey. Brian L. Moffet (Gordon Feinblatt LLC) for Atlantic Automotive Corp., Heritage Chevrolet-Buick, Inc., Heritage Imports, Inc., Heritage of Owings Mills II, Inc., I. Heritage, Inc., Heritage of Owings Mills, Inc., Griffith Auto Group, Inc., Heritage of Bel Air, Inc., Herb Gordon Auto Group, Inc., Tischer Autopark, Inc., Heritage of Westminster, Inc., and Annapolis Motors, LLC.

Companies: Atlantic Automotive Corp.; Heritage Chevrolet-Buick, Inc.; Heritage Imports, Inc.; Heritage of Owings Mills II, Inc.; I. Heritage, Inc.; Heritage of Owings Mills, Inc.; Griffith Auto Group, Inc.; Heritage of Bel Air, Inc.; Herb Gordon Auto Group, Inc.; Tischer Autopark, Inc.; Heritage of Westminster, Inc.; Annapolis Motors, LLC.

Cases: RICO StateUnfairTradePractices MarylandNews