Nevada Legislature Limits DMV Bond Claims to “Consumers “and Some Hidden Dangers You Should Know

In 2011, the Nevada Supreme Court held in Western Surety Company v. ADCO Credit, Inc., 251 P.3d 714 (Nev. 2011) that a defrauded finance company was within the meaning of the phrase “any person” in NRS 482.345, thereby making the finance company a proper claimant under a Nevada Motor Vehicle Dealer License Bond. Id. at 715. The Nevada Supreme Court rejected the surety’s argument that the term “any person” was limited to consumer victims. In finding for the finance company the Nevada Supreme Court relied on what it believed was the plain meaning of the term “person” from the dictionary, which included “a corporation, a partnership, an estate, or legal entity … recognized by law as have rights and duties.” Id. at 716.

CHANGE OF STATUTE 

In response, in 2013 the Nevada legislature changed the statute from “any person” to “any consumer” with “consumer” being defined as “any person who comes into possession of a vehicle as a final user for any purpose other than offering it for sale.”

In making this change, the legislature expressly overturned the court’s interpretation of the bond statute. As noted in the Legislative Digest prefacing the change:

under existing case law in Nevada, the phrase “any person,” as used in NRS 482.345(6), has been interpreted literally to allow any individual person or group of persons (including a finance company) who is injured by the actions of a broker, manufacturer, distributor, dealer or rebuilder of motor vehicles to apply for compensation from the bond that section requires to be procured and filed. (Western Sur. Co. v. ADCO Credit, Inc., 127 Nev. Adv. Op. No. 8, 251 P.3d 714 (Mar. 17, 2011)) This bill amends NRS 482.3333, 482.345 and 482.346 to provide that bonds procured pursuant to NRS 482.3333 and 482.345 and deposits made in lieu of such bonds pursuant to NRS 482.346 may be used to compensate only a consumer, for any loss or damage established, and no other person.

So at this point in time, the law limits bond claims to consumers.

HIDDEN DANGER

Currently, there is a rising theme of plaintiff attorneys using the DMV bond statute to turn very small claims into significantly large claims using complex consumer protection laws. Plaintiff attorneys are attempting to turn suits on small technical infractions into class actions seeking hundreds of thousands of dollars in damages, or significantly increase damages for what appear to be minor claims. The strategy is to delay notifying the surety or rely on the surety’s tender of defense to an unsuspecting principal.

Tendered counsel unwittingly sees the claim as small and inconsequential, falling directly into the trap. By the time the surety is notified of the issues, the trap is sprung, and claims turn from $1,500 to $50,000 or more.

The best practice is to either ensure that the claim is not a set-up by a thorough initial evaluation or contact an experienced attorney early in the claims process, if not immediately, who is familiar with the strategies of plaintiffs to avoid being caught unaware.

ANOTHER HIDDEN DANGER – UNKNOWN JUDGMENTS

A consumer may bring an action against the principal, without naming the surety, and any judgment against the principal is binding on the surety, NRS 482.345 (7)(a)(1). A default judgment is binding only if the surety was given notice and an opportunity to defend at least 20 days before the judgment is entered, NRS 482.345 (7) (b) (2).

A consumer may also apply to the Director of the DMV for compensation under the bond. The Director may determine the amount of compensation and the surety shall make the payment, or direct the surety to pay a settlement between the claimant and principal. NRS 482.345 (7) (b) and (7) (c)

The DMV statutory provisions which allow judgment against a surety without meaningful notice appear unconstitutional, and conflict with Nevada Supreme Court precedent and statutory law.  Here are a couple of examples.

First, the DMV statute for service of process conflicts with other pre-existing Nevada law.  In Nevada, all foreign insurance companies that conduct business in the state “must appoint the [Insurance] Commissioner, and the [Insurance] Commissioner’s successors in office, as its attorney to receive service of legal process issued against the insurer in this state.” NRS 680A.250 (1). “The appointment must be irrevocable, must bind the insurer and any successor in interest to the assets or liabilities of the insurer, and must remain in effect as long as there is in force any contract of the insurer in this state or any obligation of the insurer arising out of its transactions in this state.” NRS 680A.250 (2). “Service of such process against a foreign or alien insurer must be made only by service thereof upon the Commissioner.” NRS 680A.250 (3) (emphasis added). Service of process is complete only when a copy has been mailed by the Insurance Commissioner to the person designated by the insurer in NRS 680A.250 (5). NRS 680.260(2). This method is the only way a foreign surety can be served in Nevada. Transamerica Ins. Co. v. C.B. Concrete Co., 99 Nev. 677, 678-79 n.1, 669 P.2d 246, 246-47 n.1 (1983).  “Before a defendant files a responsive pleading such as an answer, that defendant may move to dismiss for lack of personal jurisdiction, insufficiency of process, and/or insufficiency of service of process.” Hansen v. Eight Judicial District Court ex rel. County of Clark, 116 Nev. 650, 656 (2000). Since AZ Civil failed to properly serve, a motion to quash service should be filed.

However, the DMV statute states that “The surety issuing the bond shall appoint the Secretary of State as its agent to accept service of notice or process for the surety in any action upon the bond brought in a court of competent jurisdiction or brought before the Director.”   (Emphasis added). This statute clearly conflicts with NRS 680 A.250 (1) and Nevada Supreme Court precedent referenced above.

Second, the DMV statute presents serious constitutional concerns of due process.  Arguably, the surety can be held liable for a judgment of which it was not aware. Allowing this to stand constitutes an unlawful taking of the surety’s property.  Sureties are allowed to intervene in cases of its principal to protect interests.  Capitol Indem. Corp. V. State, Dept. of Business and Industry, Consumer Affairs Div., 122 Nev. 815; 138 P.3d 516 (2006).  Certainly, a surety should be allowed to defend its own interests as well in DMV matters.

Be careful out there.