CarMax to Face Jury for Allegedly Not Disclosing Pickup Defect

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By Martina Barash

Vehicle resellers like CarMax Auto Superstores California LLC may not have to check for recalls under federal law, but that doesn’t exempt them from a state-law duty to disclose defects, a federal court in California held.

A jury will have to decide several issues in the case, which arose when a cruise-control part allegedly caused a California man’s 2002 Ford F-150 pickup truck to burst into flames while parked, the U.S. District Court for the Northern District of California said Nov. 10 ( First Am. Specialty Ins. Co. v. Carmax Auto Superstores Cal., LLC , 2017 BL 404722, N.D. Cal., No. C 16-05951 WHA, 11/10/17 ).

The fire damaged the man’s garage and house as well as the pickup, according to the court. His insurer, First American Specialty Insurance Co., paid $267,000 in claims and sued Ford Motor Co. and CarMax California.

New car dealers can’t sell vehicles under recall that haven’t been fixed. But the role of used-car dealers and rental companies has been controversial.

Congress prohibited rental companies from renting vehicles with safety defects in December 2015 after several years of effort by advocates. But congressional efforts to prevent sales of recalled used cars without fixes haven’t succeeded.

A recent study by two consumer-safety groups showed that 27 percent of CarMax Inc. vehicles in three states had unfixed recalls. CarMax, a major used-car retailer, responded that it takes several steps to disclose vehicles’ recall status to consumers.

Here, First American alleged CarMax California failed to inform Anthony Santos that the F-150 had an outstanding recall for its speed control deactivation switch when it sold him the car in February 2006. It asserted a claim for negligence, which also included negligent-misrepresentation allegations.

CarMax California’s argument that it owed Santos no duty of care on the basic negligence claim failed, the court said. And the elements of negligent misrepresentation were also for the jury to decide, including the reasonableness of the company’s representation that the vehicle was in top condition, the court said.

Ford settled with First American, according to the court.

Edward W. Hess, who practices in Santa Ana, represented First American.

Schlicter & Shonack LLP represented CarMax California and another CarMax company that obtained summary judgment because it wasn’t involved in the sale.

To contact the reporter on this story: Martina Barash in Washington at MBarash@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

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