A North Carolina district court granted Mercedes-Benz’s default judgment based on three counterclaims against the plaintiff: breach of contract, violation of the FCRA and fraud after he filed an identity theft claim due to repossession of his vehicle for failure to make payments.
12/06/2023 2:05 P.M.
6 minute read
In a North Carolina district court decision, Mercedes-Benz Financial Services (MBFS) won a default judgment against the plaintiff, Antoine Scott, after he failed to make regular payments on his vehicle and filed an identity theft claim and fake incident report when MBFS repossessed his car.
Antoine Scott (plaintiff) purchased a 2015 Mercedes-Benz vehicle on July 9, 2020, from Hendrick Motors of Charlotte. On that same day, Hendrick Motors fully assigned its interest in the Retail Installment Sales Contract to MBFS, where the plaintiff agreed to finance the vehicle under the contract’s terms and conditions. According to the contract, the plaintiff committed to making 72 monthly payments, beginning Aug. 24, 2020, with a total financing amount of $44,975.17.
The conflict escalated when the plaintiff failed to make the initial payment due Aug. 24, prompting MBFS to issue notices regarding the overdue payment. Despite multiple attempts to address the issue in the letter, the plaintiff allegedly disregarded the letters MBFS sent. Subsequently, MBFS issued a Notice of Default and Right to Cure & Intention to Repossess, and repossessed the vehicle in October 2020, informing the plaintiff of a $12,823.70 deficiency under the contract.
Under the contract, the plaintiff also agreed to pay or reimburse MBFS’ attorney’s fees and costs incurred relative to the enforcement of the plaintiff’s payment obligations.
Despite MBFS’ request that the plaintiff satisfy the deficiency amount owed under the contract, the plaintiff refused to do so. MBFS suffered damages due to the plaintiff’s failure to fulfill his obligations under the contract.
Identity Theft Claim
After this, the plaintiff claimed to be a victim of identity theft. He then filed a complaint with the Consumer Financial Protection Bureau, alleging repeated attempts to communicate with MBFS regarding the purported identity theft and requested MBFS delete or remove his account from his credit report.
In his complaint to the CFPB, the plaintiff claimed to have repeatedly communicated with MBFS regarding being a victim of identity theft and that, despite sending letters and faxing a police report, MBFS refused to remove the “fraudulent” account from his credit report.
In response, MBFS sent the plaintiff a letter on Jan. 26, 2022, confirming receipt of the CFPB claim. MBFS placed a “Do Not Call” alert on the plaintiff’s account because the plaintiff had demanded “that MBFS cease and desist all communications regarding the account.” As a result, all MBFS’ collection efforts on the account were “effectively cancelled.”
Additionally, MBFS investigated the identity theft claim, sending the plaintiff an Identity Theft Packet for him to complete and return. MBFS then discovered that the Incident Report the plaintiff submitted in response was fraudulent. The report, supposedly from the Charlotte-Mecklenburg Police Department, was deemed spurious. In addition, “because [the plaintiff] used the fake Incident Report as grounds for the legal claims asserted in this action, MBFS unnecessarily incurred attorney’s fees, costs, and expenses in defending itself against [the plaintiff]’s claims.”
In defending against the plaintiff’s claims and enforcing its contractual rights, MBFS paid attorney’s fees totaling $10,688 and costs and expenses totaling $845.69.
Default Judgment and Counterclaims
As a result of the plaintiff’s refusal to address the above deficiency, MBFS filed a counterclaim on Aug. 5, 2022, citing a breach of contract, violation of the Fair Credit Reporting Act, and fraud. After the time to serve a responsive pleading had passed, MBFS filed a motion requesting that the Clerk of Court, pursuant to Rule 55(a) of the Federal Rules of Civil Procedure, enter the plaintiff’s default due to his failure to plead or otherwise defend the counterclaim filed by MBFS against him.
The court, upon the plaintiff’s default on Oct. 13, 2022, deemed the well-pleaded facts in the counterclaim admitted. “Rule 55 of the Federal Rules of Civil Procedure authorizes the entry of a default judgment when a defendant fails to plead or otherwise defend in accordance with the Rules.” CFTC v. PMC Strategy, LLC, 903 F. Supp. 2d 368, 375 (W.D.N.C. 2012).
MBFS then asserted three counterclaims against the plaintiff, and the court found that default judgment must be entered on each of these claims.
1) Breach of Contract
For this counterclaim, the plaintiff admitted to breaching the contract by missing the first payment and subsequent installments beginning Aug. 24, 2020, resulting in a $12,823.70 deficiency. As a result, MBFS sought $1,920 in attorney’s fees, well within the 15% statutory cap allowed by North Carolina law.
MBDS also sought to recover the $402 filing fee as well as pre- and post-judgment interest on the deficiency amount, in accordance with N.C.G.S. Section 24-5.
The court subsequently awarded the requested amounts to MBFS for its breach of contract counterclaim.
2) Violation of FCRA
On the FCRA counterclaim, the court found that the plaintiff had filed the complaint in bad faith and “needlessly required MBFS to incur attorney’s fees and costs to defend the claims.”
The court stated that, “While ‘bad faith’ is not defined under the FCRA, ‘as ordinarily used in the attorney’s fee context, [the term] requires a showing either that the party subjectively acted in bad faith—knowing that he had no viable claim—or that he filed an action or paper that was frivolous, unreasonable, or without foundation.’” Clemons v. Cutler Ridge Auto., LLC, No. 6-21648-CIV-KING/BANDSTRA, 2008 WL 11409007, at *4 (S.D. Fla. June 24, 2008).
The court found that the plaintiff knew he had no viable FCRA claim before he filed the complaint. As established by the manager of the police department’s Records Management Division, the plaintiff never reported a claimed “identity theft” and, in order to conceal that fact, he prepared and submitted the fake incident report to MBFS.
Notably, MBFS had been billed for 33.4 hours of legal services related to the plaintiff’s claims, and for these services, MBFS paid $320 per hour, which the court found is a reasonable rate given the experience and expertise of MBFS’ counsel.
As a result, MBFS was awarded attorney’s fees totaling $8,768, along with $443.69 for expenses, in accordance with FCRA provisions.
3) Fraud Counterclaim
Finally, addressing the fraud counterclaim, the court found that the plaintiff’s fabrication of a fake police incident report, allegedly to evade debt, was “willful and wanton conduct deserving of punitive measures.”
In order to recover on a fraud claim, the following elements must be established:
“(1) a false representation or concealment of a material fact, (2) which is reasonably calculated to deceive, (3) which is made with intent to deceive, (4) which does in fact deceive, (5) and which results in damage to the injured party. Forbis v. Neal, 649 S.E.2d 382, 387 (N.C. 2007). Additionally, the plaintiff must establish that any reliance on the false representations was reasonable.”
The court found all of these elements were satisfied.
Accordingly, the court awarded MBFS $500 in compensatory damages and $1,000 in punitive damages.
The case serves as a cautionary tale of the complexities involved in financial disputes, highlighting the importance of transparency and integrity in contractual dealings.