Alert

June 14, 2017

Massachusetts Deficiency Balance Question Headed to State Supreme Court

The Massachusetts Motor Vehicle Retail Installment Sales Act (Chapter 255B of the General Laws, the "MVRISA") imposes certain consumer protections when a vehicle is repossessed and sold. These protections displace standard UCC Article 9 provisions in three key regards:

  • First, no deficiency balance may be sought if the consumer's unpaid balance was $ 2,000 or less at the time of default.
  • Second, if a deficiency balance is permissible it must be calculated by subtracting the "fair market value" of the collateral from the unpaid balance due.
  • Finally, the only permissible costs that may be added to this calculation are reasonable vehicle repossession and storage costs.

(255B M.G.L.A. §§ 20B(d) and (e)(1))

What constitutes the "fair market value" of the vehicle is undefined in the statute. The MVRISA does note, cryptically, that "[i]n a proceeding for a deficiency the fair market value of the collateral shall be a question for the court to determine. Periodically published trade estimates of the retail value of goods shall, to the extent they are recognized in the particular trade or business, be presumed to be the fair market value of the collateral." (255B M.G.L.A. § 20B(e)(2)) This provision does not specify, however, whether it is the retail value of the collateral, or one of the other values (wholesale, trade-in, etc.) from such a trade publication, that should be used.

Surprisingly, these additional requirements have been the subject of very little regulatory interpretation and virtually no litigation. That is about to change.

On June 8, 2017, the U.S. Court of Appeals for the First Circuit issued a decision in Williams v. American Honda Finance Corporation, 2017 U.S. App. LEXIS 10238. The decision, which considered the plaintiff's appeal from the district court's grant of summary judgment in favor of AHFC (See Williams v. American Honda Finance Corporation, 2016 U.S. Dist. LEXIS 20063 (D. Mass. January 27, 2016)), certified three questions to the Massachusetts Supreme Court. Specifically, the Massachusetts Supreme Court was instructed to answer whether:

  • The fair market value used to calculate the deficiency balance is the fair market retail value of the collateral?
  • A pre-sale notice of a vehicle that conforms to UCC Article 9 requirements - but does not reference the potential deficiency as based on the fair market value of the vehicle - is reasonable and sufficient under the UCC?
  • A post-sale accounting and deficiency explanation is sufficient under the UCC if it does not calculate the deficiency amount based on the fair market value of the collateral?

In support of AHFC's motion to dismiss, the district court decision noted that AHFC had provided evidence that the collateral vehicle was "in rough, below average condition for a car its age..." and that the plaintiff had provided no evidence in support of a value higher than the NADA "rough trade in value," which was an amount almost equal to what the vehicle fetched at auction. This rationale could be undone if the Massachusetts Supreme Court determines that the "retail" value of a vehicle is the correct basis for determining a deficiency balance without regard to the vehicle's condition at the time of sale.

In light of these implications, this case bears watching in the coming months.

  Opinion