Sorchaga v. Ride Auto, LLC, A16-0855

• Decision Date: 21 March 2018
• Docket Number: A16-0855
• Citation: 909 N.W.2d 550
• Parties: Esmeralda SORCHAGA, Respondent, v. RIDE AUTO, LLC, et al., Appellants.
• Court: Minnesota Supreme Court

909 N.W.2d 550

Esmeralda SORCHAGA, Respondent,

v.RIDE AUTO, LLC, et al., Appellants.

A16-0855

Supreme Court of Minnesota.

Filed: March 21, 2018

Rehearing Denied May 3, 2018

Todd Murray, Friedman Iverson, Minneapolis, Minnesota, for respondent.

Robert J. Bruno, Robert J. Bruno, Ltd., Burnsville, Minnesota; and Mark A. Olson, Olson Law Office, Burnsville, Minnesota, for appellants.

Edward F. Kautzer, Ruvelson & Kautzer, Ltd., Roseville, Minnesota, for amicus curiae Northland Independent Auto Dealers Association.

OPINION

GILDEA, Chief Justice.

In this case we are asked to determine whether a seller’s fraudulent statements about the condition and fitness of a vehicle being sold prevent the seller from enforcing disclaimers in purchase documents stating that the buyer purchased the vehicle "as is." The court of appeals concluded that under Minn. Stat. § 336.2-316 (2016), the seller’s fraudulent statements prevented the seller from enforcing the "as is" disclaimers. The court also concluded that the district court did not err when it awarded relief on both fraud and breach of warranty theories. Because we conclude that fraudulent statements about the fitness of a vehicle for the purpose for which it was purchased make "as is" disclaimers ineffective and Sorchaga did not doubly recovery, we affirm.

FACTS

This action arises from respondent Esmeralda Sorchaga’s purchase of a pickup truck from appellant Ride Auto, LLC. Ride Auto purchased the truck from a salvage yard for $6,770, knowing that the truck needed engine repairs. Ride Auto made cosmetic and mechanical repairs sufficient to ensure that the truck would look appealing and drive short distances and then offered it for sale.

Sorchaga was interested in purchasing the truck and took it for a test drive. The length of the test drive was very short because the truck was low on fuel. But during the test drive, Sorchaga noticed that the check-engine light was on. Ride Auto’s salesman told Sorchaga that the light was on because the truck had a faulty oxygen sensor

. He said that the problem could be easily fixed, and that it would not affect the truck’s longevity. The salesman also told Sorchaga that she could drive the truck with the check-engine light on, and if she purchased the truck, she could return to Ride Auto after a couple days to have the truck fixed. Sorchaga also expressed concern about the smoke coming from the tailpipe of the truck. The salesman told her that the truck emitted smoke as it warmed up because the truck had a diesel engine.

Sorchaga asked whether Ride Auto could hook the truck up to a scanner to determine why the check-engine light was on. An owner of Ride Auto stated that Ride Auto could not do that because its mechanic was uncertified. The salesman then told Sorchaga again that a faulty oxygen sensor was the reason the check-engine light was on.

As part of the sales process, Ride Auto told Sorchaga that she would get a third-party warranty, the ASC Vehicle Protection Plan (ASC agreement). Specifically, Ride Auto’s owner told Sorchaga that she would be given the ASC agreement at no cost, and it would allow her to have the truck inspected anywhere. The salesman added that the ASC agreement would also cover needed repairs to the truck at no cost to Sorchaga.

In reliance on these statements from Ride Auto, Sorchaga agreed to buy the truck for $12,950.68 and signed a purchase agreement. The agreement stated that the truck had a salvage title and that the check-engine light was on. The agreement disclaimed all warranties and stated that Sorchaga purchased the truck "AS IS, NO WARRANTY." Sorchaga also signed a buyer’s guide, which stated that the truck was sold "AS IS—NO WARRANTY." She also signed a handwritten addendum on the purchase agreement noting the vehicle’s check engine light was illuminated and the vehicle had a salvage title.

Immediately after Sorchaga purchased the truck, she experienced problems with it. For example, the truck would not travel faster than 40 miles an hour, and Sorchaga was stopped by police while she was driving the truck because it emitted "excessive smoke." When Sorchaga returned to Ride Auto for assistance, Ride Auto refused to repair the truck, even though Sorchaga came back within just a few days of her purchase. And when she called ASC, Sorchaga was told that the warranty in the ASC agreement she had been provided did not apply because the truck was a salvage vehicle.

Eight days after purchase, Sorchaga had the truck towed to a dealer and inspected, at a cost of $1,415. The dealer concluded the truck should not be driven, and recommended a full engine replacement at a cost of approximately $20,000.

After Sorchaga received the results from the dealer’s inspection of the truck, she brought this action against Ride Auto and its surety bond holder, Western Surety Company. Sorchaga alleged breach of the implied warranty of merchantability, violation of the federal Magnuson-Moss Warranty Act,¹ and fraud. Ride Auto and Western moved for summary judgment, arguing that Sorchaga was not entitled to any relief based on the disclaimer of warranty language in the purchase agreement, her opportunity to inspect the vehicle, and the repeated statements in the purchase agreement and the ASC agreement that Sorchaga understood she was buying the truck "as is." The district court denied the motion for summary judgment, and the case proceeded to trial before the court.

At the completion of trial, the district court ordered judgment for Sorchaga on all counts. The court found that "[t]he employees of Ride Auto made misrepresentations and false representations to [Sorchaga] with respect to the condition, value, quality or fitness of the truck for any purpose for which a truck is purchased." Specifically, the court found that Ride Auto’s owner knew that the truck had serious engine damage, but that he did not correct his salesman’s statements that a faulty oxygen sensor was the reason the check-engine light was on. The court also found that "[t]he employees and owners of Ride Auto made knowingly false representations to the plaintiff as to the issues with the truck and how the ASC Warranty would cover those issues, even though they were aware that the ASC Warranty did not cover a vehicle with salvaged title." The court awarded Sorchaga $14,366.03 in damages based on the price she paid for the truck and the cost of the dealer’s inspection, and $21,949.35 in attorney fees and litigation expenses.

Ride Auto and Western appealed, and the court of appeals affirmed. Sorchaga v. Ride Auto, LLC , 893 N.W.2d 360, 380 (Minn. App. 2017). With respect to the breach of implied warranty claim, the court of appeals considered "[w]hether a merchant’s fraudulent misrepresentation about the condition of goods to a consumer precludes the merchant from disclaiming the implied warranty of merchantability." Id. at 373. The court construed Minn. Stat. § 336.2-316 to include fraud as a "circumstance" that prevents exclusion of the implied warranty of merchantability, notwithstanding "as is" language. Id. at 375. The court also rejected Ride Auto and Western’s argument that the district court improperly awarded relief to Sorchaga on both fraud and contract theories. Id. at 377–78. We granted Ride Auto and Western’s petition for review on both of these issues.²

ANALYSIS

On appeal, Ride Auto and Western argue that the court of appeals erred in concluding that fraud prevented them from enforcing the disclaimers of warranties in the purchase documents. They also contend that the district court erred in awarding Sorchaga damages under both fraud and breach of warranty theories. We consider each issue in turn.

I.

We turn first to Ride Auto and Western’s argument that the disclaimers in the purchase documents stating that Sorchaga purchased the truck "as is" bar her recovery. The court of appeals rejected this contention based on its interpretation of Minn. Stat. §§ 336.2-314 and 336.2-316 (2016). Minnesota Statutes § 336.2-314 implies a warranty of merchantability in all contracts for the sale of goods unless the parties exclude or modify the implied warranty. Parties may exclude the implied warranty of merchantability with a written and conspicuous disclaimer. Minn. Stat. § 336.2-316(2). Such a disclaimer is far-reaching: "unless the circumstances indicate otherwise , all implied warranties are excluded by expressions like ‘as is.’ " Minn. Stat. § 336.2-316(3)(a) (emphasis added). The purchase agreement noted three times that Sorchaga purchased the truck "as is." And the buyer’s guide that Sorchaga signed also stated that she purchased the truck "as is." The question here is whether Ride Auto’s fraud is a "circumstance" that "indicate[s] otherwise," thus making the "as is" disclaimer ineffective.

The parties disagree on the meaning of "unless the circumstances indicate otherwise," Minn. Stat. § 336.2-316(3)(a). Ride Auto and Western argue that the clause is unambiguous and refers only to circumstances that may contradict or limit the "as is" language that follows. Specifically, they assert that the circumstances the statute addresses are limited to those used to show that the parties did not intend to exclude all warranties in spite of "as is" language.³ Sorchaga contends that the phrase is ambiguous because the UCC does not define what circumstances prevent exclusion of implied warranties. She further contends that the statutory language provides no context for what circumstances may indicate that an implied warranty was not excluded by a disclaimer. Therefore, Sorchaga asserts, the phrase should be construed to include all of the circumstances surrounding the transaction, including a seller’s fraudulent statement.

The parties’ dispute presents an issue of statutory interpretation that we review de novo. Lee v. Lee , 775 N.W.2d 631, 637 (Minn. 2009). When interpreting a statute, we first ask whether its language is clear and free from ambiguity. Gilbertson v. Williams Dingmann, LLC ...