Danger of oral representations – careful what you say!

$256M Jury Award to Nissan Dealership for Fraud in California Trial

A jury in Orange County Superior Court in California awarded a California dealership (“Superior Automotive Group”) $256 million against Nissan Motor Acceptance Corp. (“NMAC”) in a lawsuit alleging fraud in the cancellation of a Nissan motor vehicle dealership eight years ago.

In 2009, Superior Automotive became delinquent to NMAC for $1.6 million in flooring loans for 30-40 vehicles. NMAC sued the dealership for breach of contract and was awarded $40 million. In 2010, the dealership countersued NMAC alleging that despite the delinquencies, NMAC represented that it would continue to work with the dealership because many other dealerships were suffering from the downturn in the economy.

The first trial resulted in a favorable verdict for NMAC but the dealership appealed on the grounds that the trial court improperly invoked the parol evidence rule and excluded evidence of oral statements by NMAC through pretrial motions in limine. The Court of Appeal affirmed in part and reversed in part, sending the case back to the trial court for retrial of the dealership’s claims against NMAC for negligent and intentional misrepresentation, promissory fraud, fraudulent concealment and violation of the Automobile Dealers Day in Court Act (15 U.S.C. § 1221, et seq.).

The critical oral statements were rendered by the President of NMAC to the dealership during a meeting in 2008 where NMAC purportedly said that it would not treat the dealership’s inability to comply with the 2-day/10-day rule as an event of default under the wholesale financing agreement between the parties. In particular, the oral statement attributed to NMAC was “Don’t worry about it. Do the best that you can and just keep’ – he got into cutting expenses, make sure you’re doing this.”

On remand, the jury in the second trial was able to consider evidence of the allegedly fraudulent representations by NMAC and rendered a verdict in favor of the dealership. Evidence presented in the second trial included testimony that NMAC was under corporate pressure by its parent company, Nissan Motor Co., to conserve cash during the economic crisis which led NMAC to call delinquent loans.

NMAC will appeal the verdict if it holds up in post-trial motions.

Lesson learned: In every business context, be very careful not to make oral statements that may be construed to modify the written terms and conditions of your contracts. Although most written contracts contain an “integration” or “entire agreement” clause to rule out any oral modifications to the rights and obligations of the parties, this case is an example of how oral statements may be admitted at trial when claims of fraud are asserted. The best practice is to educate your executives and employees of the danger of oral representations and to make sure everything is done (or confirmed) in writing to avoid the risk of unwittingly modifying your written contract. No good deed goes unpunished, as they say – while you may be sympathetic to the economic or personal plight of the other party to your contract, beware that words of comfort may be construed against you in a trial. It is fine to convey a sense of understanding, but always have your guard up and remind your employees to always confirm oral conversations in writing to avoid ambiguities and to minimize the risk of modifying your written contracts.

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