Ninth Circuit Requires Increased Disclosures Related To The Sale Of “Certified” Pre-Owned Vehicles In Gonzales v. Carmax Auto Superstores, LLC (2016) 840 F.3d 644

May 25 2017

By: Gregory K. Sabo and Chelsea L. Zwart
May 25, 2017

In Gonzales v. CarMax Auto Superstores, LLC (2016) 840 F.3d 644, the Ninth Circuit Court of Appeals held that to comply with California’s Car Buyer’s Bill of Rights, Unfair Competition Law (“UCL”), and Consumer’s Legal Remedies Act (“CLRA”), a dealer selling a “certified” pre-owed vehicle must indicate the pass/fail result of each component inspected, not simply provide the buyer with a completed inspection form listing which parts were inspected.

In Gonzales, the plaintiff brought suit claiming violations of the UCL and CLRA after purchasing a “certified” used vehicle from CarMax, and alleging that the deal failed to comply with California Vehicle Code §11713.18(a)(6), which requires a dealer to provide consumers with a “completed inspection report” prior to the sale of a “certified” used vehicle.

At the time of the sale, CarMax provided the plaintiff with two checklists showing the vehicle components that had been inspected and a certificate that the vehicle had passed CarMax’s “rigorous 125-point verification inspection.” However, neither checklist actually indicated the condition of each individual component inspected or whether each individual component satisfactorily passed inspection.

CarMax brought a motion for summary judgment in federal court arguing that the checklists complied with the statute and the district court agreed. On appeal, the Ninth Circuit Court of Appeals not only reversed the district court’s order, but in a highly unusual move, ordered judgment entered in favor of the plaintiff.

The Gonzales Court held that for a dealer to comply with California Vehicle Code §11713.18(a)(6), it must indicate the pass/fail result of each component inspected, not just check-off that an inspection occurred. In so holding, the Court reasoned that CarMax’s certificate stating that a vehicle passed its inspection certification program did not sufficiently inform the consumer as to the specific status of the vehicle as a whole or the components thereof, because the standards for the certification program are unknown. Thus, it could be that certain components failed, but those components were not required to pass for the vehicle as a whole to be deemed “certified”. The Court stated that in order for the consumer-protection and transparency-promoting purposes of the statute to be fulfilled, the correct interpretation of “completed inspection report” is one that “guarantees consumers the right to know whether the individual components of a car have been found functional as the result of an inspection.”

In light of this holding, California dealerships should immediately address their certification inspection checklists as needed to mitigate exposure under Gonzales. The case is now the only citable precedent on point for this issue and it will be very easy for consumer attorneys to bring these cases, and prevail, should they discover an “incomplete” “certified” pre-owed vehicle checklist in their clients’ files. Plaintiffs would then be entitled to rescission and attorneys’ fees under the CLRA, making this an easy avenue of recovery.

Additionally, dealerships should be sure to instruct their staff that not only do the “certified” pre-owed checklists need to be filled out completely for each individual component inspected so that the condition of each component is conveyed to the buyer, they also need to furnish the customer with a copy of the checklist and should require the customer to sign an acknowledgement of receipt.