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Gomez-Dehines v. Auto Gallery, Inc.

United States District Court, D. Nevada

April 28, 2014

AUTO GALLERY, INC., Defendant.


ANDREW P. GORDON, District Judge.


On August 17, 2011, Maria Trejo de Zamora ("Trejo de Zamora") and Isela Gomez-Dehines ("Gomez-Dehines") (collectively, "Plaintiffs") purchased a used Nissan Xterra (the "Vehicle") from defendant Auto Gallery, Inc. ("Auto Gallery"). The Sales Contract mandated 15 monthly payments of $718.08 for a total of $10, 771.30, which in turn comprises a purchase price of $7, 771.30 and a "finance charge" of $3, 000.00. (Dkt. No. 17 at 32.) The initial payment was due on September 1, 2011.

Plaintiffs made payments of $1, 000 in the months of September 2011, October 2011, November 2011, and January 2012. They failed to make a payment in December 2011. All of these payments were late except for in September. On February 15, 2012, Plaintiffs made a late payment of $4, 200. The parties dispute whether they agreed to modify the Sales Agreement on that date such that the total balance was reduced by $1, 500 and due in its entirety by April 1, 2012. Plaintiffs next made a $500 payment on April 4, 2012, which turned out to be the last payment they submitted to Auto Gallery. On July 5, 2012, Auto Gallery repossessed the vehicle. The other relevant facts, undisputed and otherwise, are discussed below as necessary.

On July 31, 2012, Plaintiffs filed their Complaint. (Dkt. No. 1.) They assert ten claims for relief under the federal Truth in Lending Act ("TILA" or the "Act"), Articles 3 and 9 of the Uniform Commercial Code (as adopted in Nevada), the Federal Trade Commission's used motor vehicle trade regulation rule, the Nevada statutes for "retail installment contracts, " and "consumer fraud, " fraudulent misrepresentation, conversion, breach of contract, and declaratory judgment.

Plaintiffs have moved for summary judgment on eight claims, omitting the claims under the FTC rule and for declaratory judgment. (Dkt. No. 17.) For the reasons set forth below, the Court grants in part and denies in part the motion.


A. First Claim - Truth in Lending Act

The Act requires that "creditors" disclose certain information in consumer credit transactions. 15 U.S.C. § 1638. In pertinent part, a "creditor" is defined as:

a person who both (1) regularly extends ... consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of indebtedness[.]"

Id. § 1602(g) (emphasis added). As relevant to auto lending, "[a] person regularly extends consumer credit only if it extended credit... more than 25 times... in the preceding calendar year." 12 C.F.R. § 226.2(a)(17)(v).

Whether a person "regularly extends" credit is a question of fact. See Boncyk v. Cavanaugh Motors, 673 F.2d 256, 259 (9th Cir. 1981). Plaintiffs have put forth no evidence to prove that Auto Gallery extended credit more than 25 times in the calendar year preceding their August 18, 2011 contract with Auto Gallery. A genuine issue of material of fact remains as to whether Auto Gallery is a "creditor" under the Act. Summary judgment is therefore denied on this claim. FED.R.CIV.P.56(a).

B. Second Claim - NRS Chapter 97, Retail Installment Sales of Goods and Services

1. Mandatory Contract Form - NRS § 97.299, NAC § 97.120

Before it was repealed in March 2012, NAC § 97.120[1] provided the mandatory contract form for vehicle sales transactions that were (i) governed by the provisions of NRS § 97.299; and (ii) used add-on interest.[2] NRS § 97.299 provides:

The Commissioner of Financial Institutions shall prescribe, by regulation, forms for the application for credit and contracts to be used in the sale of vehicles if:
(a) The sale involves the taking of a security interest to secure all or part of the purchase price of the vehicle;
(b) The application for credit is made to or through the seller of the vehicle;
(c) The seller is a dealer; and
(d) The sale is not a commercial transaction.

There is no question that Auto Gallery took a security interest in the Vehicle and that the sale was not a commercial transaction. See NRS § 97.299(5)(a). In relevant part, a "dealer" is "any person who... [f]or compensation, money or other thing of value sells... an interest in a vehicle subject to registration under this chapter[.]" NRS § 482.080(1)(a). Vehicles subject to registration are those that are intended to be operated upon any highway in the state of Nevada. NRS § 482.205. There is no genuine dispute that Plaintiffs intended to drive the Vehicle on Nevada highways. Auto Gallery is thus a "dealer."

Auto Gallery indirectly[3] contends that the contract form requirement was inapplicable because "Plaintiffs made no application for credit from Auto Gallery." (Dkt. No. 18 at 21.) Auto Gallery asserts that Plaintiff Gomez submitted a credit application to Nationwide Nevada, which was rejected, and that "Auto Gallery did not request either a credit application or a credit check of the Plaintiffs.... This was not a bank or third-party financed transaction - it was a "Buy Here; Pay Here" transaction. ( Id. )

Auto Gallery's argument fails because it construes "application for credit" too narrowly. The Sales Contract includes a "finance charge" of $3, 000. (Dkt. No. 17 at 32.) A "finance charge" is "the cost of credit indicated in a dollar amount." NRS § 97.031. So, Auto Gallery granted credit to Plaintiffs. The definition of "credit" supports this conclusion: "the right granted by a seller to a buyer to defer payment of debt or to incur debt and defer its payment." NRS § 97.026. Plaintiffs incurred debt under the Sales Contract (the cost of the Vehicle plus the finance charge) and deferred payment over 15 months. Regardless of whether Plaintiffs formally applied for credit - by submitting a document titled "credit application" or otherwise - or whether Auto Gallery formally inquired into Plaintiffs' credit through a credit reporting agency, Auto Gallery's decision to grant credit to Plaintiffs itself demonstrates that Plaintiffs applied for credit to Auto Gallery. To hold otherwise would exalt form over substance.

Moreover, Auto Gallery's argument directly contradicts the declaration of Pejman Zahedi, the owner of Auto Gallery. Zahedi avers that "[i]n conjunction with their proposed purchase of a Nissan Xterra, on August 3, 2011, I had Ms. Gomez complete an Application for Secured Credit' to Nationwide Nevada, attempting to finance $8, 644.02." (Dkt. No. 18-1 ¶ 7.) Zahedi admits that Plaintiff Gomez made an application for credit through Auto Gallery, which is sufficient under NRS § 97.299(1)(b). Plaintiffs ultimately purchased that same Nissan Xterra only two weeks after making the credit application. ( Id. ¶¶ 11-12, 21.)

Thus, the contract form requirement of NRS § 97.299 applied. Auto Gallery is correct that because it charged add-on interest rather than simple interest, the form mandated by NAC § 97.110 was not required. But the next section of the then-current Nevada Administrative Code mandated a contract form for vehicle sales applying add-on interest, a form which Auto Gallery undisputedly failed to use. NAC § 97.120. Although Plaintiffs did not raise the failure to use the NAC § 97.120 contract form in their motion for summary judgment (as they limited their argument to NAC § 97.110), the Court may grant summary judgment "on grounds not raised by a party" as long as the Court provides "notice and a reasonable time to respond." FED.R.CIV.P. 56(f)(2).

The Court gives Plaintiffs and Auto Gallery 30 days from the entry of this Order to respond to the Court's stated belief that NAC § 97.120 applied to the transaction. If Auto Gallery does not respond, summary judgment will be entered on this claim in Plaintiffs' favor. As a consequence, Auto Gallery would be

barred from the recovery of any finance charge, official fees, or any charge for delinquency or collection under or in connection with the [Sales Contract]...; but [Auto Gallery]... may nevertheless recover from [Plaintiffs] an amount equal to the cash price of the [Vehicle] and the cost to [Auto Gallery]... of any insurance included in the transaction.

NRS § 97.305.

2. Mandatory Contract Terms and Disclosures - NRS §§ 97.185, 97.225, 97.299

a. Aggregate Amount of Official Fees

Plaintiffs contend that Auto Gallery violated NRS § 97.185(1)(e) by "failing to include the aggregate amount of official fees in the written contract." (Dkt.No. 17 at 11.) NRS § 97.185(1)(e) mandates that retail installment contracts must contain "[t]he aggregate amount of official fees." Not only must these contracts contain this aggregate amount, but it must be disclosed within a particular sequence:

The [retail installment] contract also must contain the following items, which must be set forth substantially in the sequence appearing below :
(a) The cash sale price of each item of goods or services.
(b) The amount of the buyer's down payment, identifying the amounts paid in money and ...

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