Pardo v. Mecum Auction Inc.

Citations: 77 F. Supp. 3d 703; 2014 U.S. Dist. LEXIS 177504; 2014 WL 7403286Docket: No. 12 C 08410

Court: District Court, N.D. Illinois; December 28, 2014; Federal District Court

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Defendant Mecum Auction's motion to dismiss has been partially granted and partially denied. Specifically, fraud and misrepresentation claims (Counts I, III, and IV) are dismissed with prejudice, while the breach of contract and rescission claims (Counts II and VI) remain. A status hearing is scheduled for January 28, 2015.

The Second Amended Complaint (SAC) reveals that plaintiff Isaac Pardo purchased a purported 1967 Corvette coupe at Mecum's auction on June 25, 2011, which was misrepresented as part of a rare "Black Collection." After winning the auction with a bid of $68,500, Pardo discovered the vehicle was actually a 1964 Corvette that had been altered to resemble a 1967 model, including fraudulent vehicle identification numbers and tags. Mecum had provided misleading advertising and an NCRS certificate certifying the vehicle's authenticity, which Pardo relied upon in his bidding decision.

Following the auction, Pardo was informed by Corvette experts that the car was not a 1967 model, leading him to question its legitimacy. Despite his inquiries, Mecum allegedly threatened him with a breach-of-contract lawsuit. Pardo paid for the car and its shipping but later confirmed it was a counterfeit. Mecum and Mullís, aware of the fraudulent nature of the sale, delayed providing Pardo with the car's title, ultimately delivering a title in November 2011 that lacked transparency regarding the sale price and transfer history.

Mecum and Mullís are accused in a complaint of manipulating the chain of title to shield themselves from a lawsuit by Pardo and evade potential criminal charges related to the fraudulent sale of a counterfeit vehicle in Illinois, which was later transferred to New York. Pardo's claims against Mecum include violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), breach of contract, fraudulent and negligent misrepresentation, and rescission. Key evidence includes Pardo's contract with Mecum and the certificate of title, which are integral to the pleadings. Mecum seeks to dismiss all claims, arguing that Pardo fails to meet the heightened pleading standards for fraud and misrepresentation under Fed. R. Civ. P. 9(b) and does not specify any false statements regarding negligent misrepresentation. Mecum contends that Pardo's allegations are undermined by attached exhibits showing that he purchased the Corvette "as is" and received the correct title. The court must evaluate the sufficiency of the complaint in favor of Pardo, requiring it to present enough facts for claims to be plausible rather than merely conceivable. Under Rule 9(b), fraud allegations must be stated with particularity, detailing the who, what, when, where, and how of the alleged fraud. Mecum claims that Pardo's allegations lack specifics regarding the statements made in advertisements and by auction representatives. Pardo counters that the assertion that Mecum misrepresented the vehicle as a black 1967 Corvette Coupe suffices for the fraud claims. The court agrees with Pardo regarding the sufficiency of allegations concerning misrepresentations in advertising and auction materials.

Mecum acknowledged that it advertised and auctioned a black 1967 Corvette coupe at the 2011 Bloomington Gold Auction but is accused of misrepresenting the car as a 1967 model when it was actually a modified 1964 Corvette. The complaint asserts that Mecum's marketing materials were misleading, although it maintains that Pardo’s claims regarding oral statements made at the auction lack sufficient detail to substantiate fraud allegations. Aside from a National Corvette Restorers Society (NCRS) certificate, Pardo has not provided specifics about any alleged misstatements made by Mecum agents during the auction, hindering Mecum's ability to defend against these claims. The NCRS certificate, which Pardo settled claims against, does not support his assertion that it represented the car as a black 1967 Corvette; it merely certifies that a 1967 Corvette had the same VIN as Pardo's car, failing to prove it was the same vehicle. Furthermore, Pardo's fraud claims are undermined by his own disclaimer of reliance on Mecum’s representations, as stated in the Bidder Registration, which indicates that all purchases are 'as is' based on the buyer's own examination. Pardo argues the contract should not be used against his fraud claims since it was referenced for breach of contract, but he does not dispute its authenticity or its status as a contract. His assertion that the contract acknowledges representations made during the auction does not effectively counter Mecum's argument, and he cites no Illinois law to support the idea that his reliance claim is valid despite the clear contractual disclaimer. Illinois law supports that 'as is' disclaimers negate claims for breach of warranties and oral misrepresentations.

In Adler v. William Blair & Co., the court dismissed Pardo’s common-law fraud claim due to a non-reliance clause in his subscription agreement, which stated his purchase was 'as is' and disclaimed reliance on any representations other than his own examination. Pardo did not contest the validity of this clause, thereby undermining his claims based on reliance on alleged misrepresentations by Mecum. His negligent misrepresentation claim also failed, as it required reliance on truthful statements, which contradicted the non-reliance clause.

Regarding the breach of contract claim, Mecum argued that Pardo's alleged breach—failure to provide title—was cured, as Pardo received the title, albeit late. However, Pardo contended that the title provided was 'fraudulent and illegal,' preventing him from registering or disposing of the vehicle. The court found that the mere attachment of the title did not resolve the breach claim, as factual questions remained about whether Mecum delivered 'proper and legal' title. The court noted uncertainties regarding the chain of title and Mecum's role in the transaction, which could affect its obligation to provide valid title to Pardo.

Pardo asserts that he is unable to register or assign the title for a vehicle purchased from Mecum because it was never properly endorsed to him. He questions whether the title Mecum transferred relates to the vehicle he bought or an authentic 1967 black Corvette, and whether it is legally sufficient for any vehicle. Mecum does not address Pardo's claim that it was contractually required to deliver proper title within 14 days, and the court finds that Pardo has adequately alleged this failure. The court dismisses Mecum's argument that title was delivered as it raises unresolved factual issues inappropriate for a motion to dismiss. Additionally, the court rejects Mecum's assertion that Pardo's claims are invalidated by the alignment of VIN and trim tags with documentation, arguing that the existence of a title issued in 2001 does not confirm the authenticity of Pardo's vehicle, which he alleges may have altered or fraudulent VIN tags. Pardo's core claim is that Mecum has not delivered legally sufficient title, not that he received the wrong car. 

Regarding rescission, Mecum does not contest this claim separately, and rescission is based on the existence of a valid contract. It serves as an equitable remedy to revert parties to their original state, applicable in cases of fraud or material breach. Pardo's claims for rescission and breach of contract are intertwined, as he has credibly alleged a significant failure by Mecum in delivering proper title.

Pardo can pursue both legal remedies for breach of contract and the equitable remedy of rescission at the pleading stage, despite their inconsistency, as established in Finke v. Woodard. However, he cannot be awarded both remedies, as they are fundamentally incompatible. Consequently, Mecum's motion to dismiss Pardo's fraud and misrepresentation claims (Counts I, III, and IV) is granted with prejudice and without leave to amend, as Pardo cannot amend his complaint to circumvent the contractual non-reliance clause. The motion to dismiss the breach of contract and rescission claims (Counts II and VI) is denied. Mecum does not assert that Pardo's negligent misrepresentation claim is precluded by the economic loss doctrine. In Illinois, damages for negligence are typically confined to personal injury and property damage, with economic losses generally non-recoverable in tort, as noted in Moorman Manufacturing Co. v. National Tank Co. Nevertheless, Illinois recognizes exceptions for negligent misrepresentation claims when the defendant is in the business of providing information for others' business transactions. The plaintiff must establish that the defendant is in such a business, provided false information, and that the information was intended to guide the plaintiff's business dealings. Mecum suggests a connection between 'Billy Bob’s' and Pardo, but this claim is not present in the pleadings and cannot be considered in the dismissal motion. Pardo contests this allegation. As rescission nullifies the contract, Pardo's request for compensatory damages within the rescission count is invalid, as rescission merely restores the parties to their pre-contractual positions.