Appeals court rules CarMax must face allegations it broke California laws in sale of recalled car.

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Lawsuit Says CarMax Had Duty to Disclose Used Car Recall
Appeals court rules CarMax must face allegations it broke California laws in sale of recalled car.

— A CarMax lawsuit alleges a California dealer sold a used car that had been recalled but hadn't been repaired, even though CarMax advertised the Hyundai Elantra as passing a 125-point quality inspection.

It's a subject that has gained attention because there is no federal law that requires a used car under a safety recall be repaired before it's sold.

Plaintiff Tammy Gutierrez says she purchased a 2008 Hyundai Elantra in May 2013 from a California CarMax dealership where the company said the Elantra came with a 30-day limited warranty. According to the plaintiff, CarMax sales staff told her the Elantra was in great condition because it passed a "rigorous 125-point quality inspection."

Gutierrez says CarMax never told her the car had been recalled for a stop light switch and never repaired. The plaintiff doesn't say she experienced a problem with the switch or the switch was defective.

Gutierrez says she didn't know about the recall until her transmission started making noise and having acceleration problems. She took the Hyundai back to CarMax where she was told the transmission problem was a known defect for which Hyundai had issued a technical service bulletin.

The transmission was replaced for free, but the plaintiff says the repair order said the stop light switch was also replaced because of a recall.

This is when the plaintiff discovered the car had been recalled, and more than a year later she filed a lawsuit by claiming CarMax didn't replace the switch and didn't mention the recall when she purchased the Elantra.

Gutierrez sued CarMax Auto Superstores California alleging breaches of express and implied warranties, intentional and negligent misrepresentation, breach of contract, unfair competition under a Business and Professions Code and violation of the Consumer Legal Remedies Act.

The lawsuit was dismissed three times and on the third amended lawsuit, the court dismissed it without leave to amend. However, Gutierrez appealed and in a 2-1 ruling, the appeals court overturned the dismissal by the lower court.

The court ruled the plaintiff made a valid claim that CarMax may have violated California's Unfair Competition Law and the Consumer Legal Remedies Act. The case will now go back to the lower court to be debated.

CarMax has been in trouble before for selling used cars with unrepaired safety recalls, but consumer advocates claim federal actions taken against the company have been hollow.

In 2014, the Center for Auto Safety (CAS) and multiple consumer organizations filed a petition with the Federal Trade Commission concerning CarMax selling used vehicles that had been recalled but never repaired.

CarMax has always claimed it doesn't have the legal right to make recall repairs, but CAS says the company could simply take a recalled vehicle to an authorized dealership for repairs before the car is sold. Consumer advocates also argue CarMax can do what others do and access recall records online to determine if a vehicle is under recall.

The FTC responded to the petition, but not in ways the consumer organizations hoped for. Instead of demanding that CarMax repair recalled cars before selling them, the FTC said the company cannot advertise a car as safe unless consumers are clearly informed the car has been recalled but not repaired.

The FTC found CarMax TV commercials did include a message in small print at the bottom of the screen that said, “Some CarMax vehicles are subject to open safety recalls.” However, the government said the message in tiny print appeared for only three seconds, while the rest of the screen was full of the benefits of buying a used car from CarMax.

Federal investigators said that little three-second message wasn't enough to adequately warn consumers about cars with unrepaired recalls.

What occurred between the FTC and CarMax is similar to the outcome reached by the FTC with General Motors. The automaker was hit with a 20-year consent order over claims that GM and two large dealerships sold "certified" used cars with safety defects.

GM and the two dealerships, Jim Koons Management and Lithia Motors Inc., agreed to settle the FTC complaints after admitting they marketed and sold cars with open (unrepaired) recalls.

GM advertised the safety and security of buying a "Certified Pre-Owned Vehicle" that passed a 172-point "vehicle inspection and reconditioning process," even if the cars had serious safety defects.

Under the 20-year FTC consent order, GM is banned from claiming its used vehicles are safe if the cars still have unrepaired safety recalls, or unless GM clearly discloses the existence of the recalls in close proximity to the inspection claims.


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