Williams v. American Honda Finance Corp. , 479 Mass. 656 ( 2018 )

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
SJC-12367
RACHEL C. WILLIAMS1 vs. AMERICAN HONDA FINANCE CORPORATION.
Suffolk. December 7, 2017. - June 5, 2018.
Present: Gants, C.J., Gaziano, Lowy, Cypher, & Kafker, JJ.
Motor Vehicle Instalment Sales, Repossession, Notice. Uniform
Commercial Code, Notice. Words, "Fair market value."
Certification of questions of law to the Supreme Judicial
Court by the United States Court of Appeals for the First
Circuit.
John J. Roddy (Elizabeth A. Ryan also present) for the
plaintiff.
Eric S. Mattson, of Illinois (Tracy McDevitt Waugh also
present) for the defendant.
Fredrick S. Levin, John C. Redding, & Ali M. Abugheida, for
American Financial Services Association, amicus curiae,
submitted a brief.
Stuart T. Rossman, for National Consumer Law Center, amicus
curiae, submitted a brief.
KAFKER, J. The primary issue presented in this case is how
to establish the fair market value of a repossessed automobile
1 Individually and on behalf of all others similarly
situated.
2
pursuant to G. L. c. 255B, § 20B. Under § 20B, a creditor who
repossesses and sells a vehicle is entitled to recover from the
debtor the deficiency, if any, that remains after deducting the
"fair market value" of the vehicle from the debtor's unpaid
balance. The plaintiff in this case, Rachel Williams, defaulted
on her automobile loan, causing the defendant, American Honda
Finance Corporation (Honda), to repossess and sell the vehicle
that served as collateral for the loan. The price for the
repossessed vehicle was determined at an auction open to
licensed dealers. Honda then used that amount to establish the
fair market value of the repossessed automobile and likewise
referenced the auction sale amount in presale and postsale
notices to the debtor. Williams then sued Honda, alleging that
the fair market value of her repossessed automobile was the fair
market retail value of the automobile and Honda's notices to her
were insufficient under Massachusetts law because of the manner
in which Honda described and calculated her deficiency. The
United States District Court for the District of Massachusetts
granted summary judgment to Honda, and the plaintiff appealed.
Unsure of the meaning of the statute, the United States
Court of Appeals for the First Circuit certified to this court
three questions related to the calculation of "fair market
value" under § 20B, and the notices that are required with
respect to this calculation. The court first asks whether the
3
fair market value of the collateral under § 20B is the fair
market retail value of the collateral. The second and third
questions then relate to the contents of the presale and
postsale notices that must be sent to the debtors.
We conclude that the Legislature required that deficiency
calculations for repossessed vehicles be determined based on the
fair market value of the vehicle, but did not dictate the
creditor's market choice in the first instance and left the
ultimate determination of fair market value to the courts in
contested cases, taking into account both creditor and debtor
interests, and the means, methods, and markets used to sell the
vehicle. As will be explained infra, estimated retail value as
provided in periodically published trade journals has a very
limited role in the statute, essentially establishing a
rebuttable evidentiary presumption that allows a debtor to put
the fair market value as originally determined by the creditor
to the test in contested cases. The approach to determining
fair market value and deficiencies that we delineate respects
the plain language of the statute, the legislative history, and
the practical realities of the automobile repossession market.
Had the Legislature intended to impose a fair market retail
value standard, it would have simply said so in the statute or
the legislative history, and it did not.
4
Finally, in response to the second and third questions,
concerning the notice that is required, we answer that the
presale and postsale notices provided to the debtor must
expressly describe the deficiency as the difference between the
amount owed on the loan and the fair market value of the
vehicle, not the difference between the amount owed and the sale
proceeds or the amount owed and the fair market retail value of
the vehicle.
1. Background. The relevant facts and procedural history
are as follows.
Honda resells tens of thousands of used motor vehicles
every year -- some after a repossession, but most after they
have been returned to Honda at the end of a lease. To sell all
of these vehicles, Honda uses a process that the plaintiff has
admitted is "designed to obtain the highest possible price."
The first step in this process involves an independent auction
company rating the vehicle's condition on a scale from zero to
five, with zero representing the "very worst" and five the "very
best." With the vehicle's grade in mind, a Honda employee
consults the Black Book to help establish a baseline value for
vehicles it resells. The Black Book is a guidebook used in the
collections, customer service, and credit industry. Honda
determines a "floor price" -- the minimum it intends to accept
when it sells the vehicle -- based in part on the Black Book's
5
estimated values for a vehicle of the same make, model, year,
mileage, and condition. After a floor price is set, the vehicle
is sold, along with vehicles from other manufacturers, at a
biweekly auction that is open to licensed dealers.
Honda uses auctions rather than a retail channel to sell
these vehicles for a variety of reasons. Honda is not licensed
to sell at retail, and selling at retail may interfere with the
legal rights of independent Honda dealers. It also would take
Honda a longer time to sell these vehicles at retail than
selling at the dealer auctions. This is significant because
automobiles depreciate rapidly and the longer a creditor retains
possession of a vehicle, the less it will be worth when it is
eventually sold.
Honda financed the purchase of the plaintiff's vehicle in
2007. Four years later, after the plaintiff defaulted on her
loan, Honda repossessed the vehicle.2 Honda then provided the
plaintiff with the following notice:
"We have [your vehicle] because you broke promises in
our agreement, and we will sell it at a private sale
sometime after October 11, 2011.
"The money received from the sale (after paying our
costs) will reduce the amount you owe. If the auction
proceeds are less than what you owe, you will still owe us
the difference. If we receive more money than you owe, you
will receive a refund, unless we must pay it to someone
2 The plaintiff's account with Honda was delinquent at least
twenty-four times before Honda repossessed the vehicle.
6
else. If you would like a written explanation on how the
amount you owe was determined, or need additional
information about the sale, please send your request to the
address below.
"You can get the property back at any time before we
sell it by paying the full payoff amount, including our
expenses. As of today, the payoff amount is $13,366.78,
which is subject to change due to the addition of
applicable fees and/or finance charges."
The plaintiff's repossessed vehicle was sold according to the
auction process. The independent auction company determined
that the plaintiff's vehicle was in below average condition.
For Honda, this meant that the vehicle was in "rough" condition
for purposes of the Black Book. According to the Black Book,
the estimated wholesale value for this vehicle in "rough"
condition was $7,750 and the estimated retail value was $9,800.
With these values in mind, Honda set the floor price for the
plaintiff's vehicle at $8,700 and ultimately sold the vehicle
for $8,900. The plaintiff's outstanding balance was $12,858.70,
and Honda incurred repossession and auction expenses of $754.62,
leaving the plaintiff with a postsale deficiency of $4,713.32.
After the auction, Honda notified the plaintiff that her vehicle
was sold for $8,900 and provided her with a calculation of the
deficiency that she owed. There is no indication that Honda,
once it sold the vehicle and calculated the deficiency, intended
to file a lawsuit to collect the deficiency. Indeed, Honda has
7
brought only five or fewer such lawsuits in the past few years
despite selling thousands of repossessed automobiles.
The plaintiff commenced a putative class action in the
Superior Court against Honda, claiming that the notices it sent
to her and other debtors violated the Uniform Commercial Code
and constituted an unfair and deceptive act or practice in
violation of G. L. c. 93A. The plaintiff challenges Honda's
presale notice because it did not use the term "fair market
value" in describing her deficiency. The plaintiff also
challenges the postsale notice, arguing that it is insufficient
because it calculated her deficiency as the difference between
her unpaid balance and the auction proceeds.
Honda removed the case to the United States District Court
for the District of Massachusetts. Following discovery, both
parties moved for summary judgment. A magistrate judge
recommended granting summary judgment in favor of Honda,
concluding that under G. L. c. 255B, § 20B, the plaintiff's
deficiency must be calculated using the fair market value of the
collateral and that Honda's notices complied with the Uniform
Commercial Code because there was no evidence that Honda sold
the vehicle for less than its fair market value. The district
court judge adopted this recommendation and entered judgment in
favor of Honda.
8
The plaintiff appealed to the United States Court of
Appeals for the First Circuit. Having determined that the
outcome of the case depended on unsettled questions of
Massachusetts law, the First Circuit on its own motion certified
three questions to this court. We address each question in
turn.
2. Discussion. a. Question one. The first certified
question asks:
"1. Whether the 'fair market value' of collateral under
[G. L. c. 255B, § 20B,] is the fair market retail value of
that collateral" (emphasis in original)?
For the reasons detailed infra, we answer this question, "No."
i. Statutory language. "[T]he primary source of insight
into the intent of the Legislature is the language of the
statute." International Fid. Ins. Co. v. Wilson, 387 Mass. 841,
853 (1983). "Where the language is clear and unambiguous, it is
to be given its 'ordinary meaning,'" as long as "this
meaning . . . [is] reasonable and supported by the purpose and
history of the statute" (citations omitted). Commonwealth v.
Mogelinski, 466 Mass. 627, 633 (2013).
By its plain language, G. L. c. 255B, § 20B, calculates the
deficiency that the creditor can obtain from a defaulting debtor
based on the fair market value of the collateral.3 Once the
3 General Laws c. 255B, § 20B (e), provides:
9
creditor repossesses and sells the collateral, the creditor
"shall be entitled to recover from the debtor the deficiency, if
any, resulting from deducting the fair market value of the
collateral from the unpaid balance due" in addition to any
"reasonable repossession and storage costs." G. L. c. 255B,
§ 20B (e) (1).
"Fair market value" was not a novel or undefined term when
the Legislature used it in enacting G. L. c. 255B, § 20B, in
1973. As we have repeatedly held, fair market value is "the
highest price which a hypothetical willing buyer would pay to a
hypothetical willing seller in an assumed free and open market"
(citation omitted). Epstein v. Boston Hous. Auth., 317 Mass.
297, 299 (1944). See Boston Gas Co. v. Assessors of Boston, 458
Mass. 715, 717 (2011), quoting Boston Gas Co. v. Assessors of
Boston, 334 Mass. 549, 566 (1956) ("the price an owner willing
"(e) (1) If the unpaid balance of the consumer credit
transaction at the time of default was [$2,000] or more the
creditor shall be entitled to recover from the debtor the
deficiency, if any, resulting from deducting the fair
market value of the collateral from the unpaid balance due
and shall also be entitled to any reasonable repossession
and storage costs, provided he has complied with all
provisions of this section.
"(2) In 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."
10
but not under compulsion to sell ought to receive from one
willing but not under compulsion to buy"); Bradley v. Hooker,
175 Mass. 142, 143 (1900) ("the highest price that a normal
purchaser not under peculiar compulsion will pay at the time and
place in question in order to get the thing"). In the instant
case, the collateral was sold in an automobile auction open to
licensed dealers. The price set in such an open market is
compelling, albeit not conclusive evidence, of the fair market
value of the repossessed automobile. Compare Matter of Excello
Press, Inc., 890 F.2d 896, 904-905 (7th Cir. 1989) ("The product
of a commercially reasonable sale is the fair market
value. . . . The price obtained in a commercially reasonable
sale is not evidence of the market value, which can be
discounted or thrown out. It is the market value"). In the
instant case, it is also admitted that the auction process was
"designed to obtain the highest possible price."
The statute goes one step further to protect debtors in the
event that the creditor sues to recover the remaining
deficiency. Section 20B (e) (2) provides that, "[i]n a
proceeding for a deficiency the fair market value of the
collateral shall be a question for the court to determine."
When making this determination, the statute introduces an
evidentiary presumption that "[p]eriodically published trade
estimates of the retail value of goods shall, to the extent they
11
are recognized in the particular trade or business, be presumed
to be the fair market value of the collateral." G. L. c. 255B,
§ 20B (e) (2). This presumption puts the creditor's original
determination of fair market value, and thus the means or market
selected by the creditor to sell the vehicle and establish the
fair market value, to the test. It does so by using retail data
readily available to debtors and creditors.
A presumption is an evidentiary tool that accepts a certain
fact as proven in the absence of contradictory evidence. See
Mass. G. Evid. § 301(d) (2018). A presumption "imposes on the
party against whom it is directed the burden of production to
rebut or meet that presumption." Id. "If that party fails to
come forward with evidence to rebut or meet that presumption,
the fact is to be taken by the fact finder as established." Id.
If, however, that party introduces evidence that meets or rebuts
the presumption, "the presumption shall have no further force or
effect." Id. In effect, a presumption simply imposes a burden
of production on a party as to some fact to be proved. See
Mass. G. Evid. § 301(d) & note.
The estimated retail value of the vehicle thus has a very
limited role in the statute. When the deficiency or the fair
market value is disputed, there is a rebuttable presumption that
the estimated retail value is fair market value. This
presumption places the burden on the creditor to prove the fair
12
market value of the vehicle. The fair market value of the
vehicle, however, is just that: the highest price that a
willing buyer would pay Honda in a fair market for the vehicle.
See Epstein, 317 Mass. at 299. And fair market value, not fair
market retail value, is what the statute provides that the court
must determine. The statute does not dictate use of a
particular market. If contested, a court must determine the
fair market value based on all the facts and circumstances,
including the goods to be sold, the relevant markets, the
particular creditors and debtors, and the rebuttable
presumption. See generally Rapson, Deficient Treatment of
Deficiency Claims: Gilmore Would Have Repented, 75 Wash. U.
L.Q. 491, 522-523 (1997) (discussing different factors that go
into consideration of fair market value). See also In re
Roberts, 210 B.R. 325, 330-331 (N.D. Iowa 1997) (exclusive
reliance on industry guides alone is disfavored and may
contradict court's duty to value specific collateral at issue).
Indeed, if the Legislature had intended fair market value
to be fair market retail value, it would have simply said so, as
other provisions in the General Laws demonstrate that the
Legislature is capable of specifying retail or wholesale markets
and values in statutes when it intends to do so. See, e.g.,
13
G. L. c. 127, § 67 ("wholesale market price"); G. L. c. 159C,
§ 5A (a) ("retail market value of the goods or services").4
Our interpretation of the statutory language leads to the
conclusion that fair market value, not fair market retail value,
is to be used when calculating a deficiency under G. L. c. 255B,
§ 20B.
ii. Legislative history. The limited legislative history
available supports the plain language interpretation of fair
market value and does not even mention fair market retail value.5
4 Other examples include G. L. c. 6, § 197 ("wholesale
market price of such device prevailing at the time of sale");
G. L. c. 127, § 58 ("shall conform as nearly as may be to the
wholesale market rates for similar goods"); and G. L. c. 64H,
§ 1 (referencing "retail sales market in the commonwealth" and
"every person engaged in the making of retail sales at
auction").
5 The dissent accuses the court of largely ignoring the
relevant legislative history in this case. Post at . Quite
the contrary, it is the dissent that only selectively references
portions of the legislative history. The dissent relies on the
recommendation from the Consumers' Council (council), an
executive agency that would propose multiple bills each
legislative session, and this reliance is misplaced for several
reasons. First, the dissent's position that the council "first
recommended for legislative action" the bill that the
Legislature eventually enacted, see post at - , is simply
wrong. The council's recommendation recycled proposals from
earlier legislative sessions, and the bill that eventually
passed the House, see 1973 House Doc. No. 6884, was the product
of at least three separate proposed bills that were being
considered by the committee. Id. The dissent wholly ignores
the three years of proposed legislation that preceded the
council's recommendation, some of which contained provisions
14
The Legislature enacted the current provisions in G. L.
c. 255B, §§ 20A and 20B, in 1973. St. 1973, c. 629. The
Legislature began considering proposals to amend these
provisions as early as 1970. See 1970 House Doc. No. 3814 ("An
Act restricting deficiency judgments in motor vehicle
installment sales"). From 1970 to 1973, the Legislature
considered at least eight different bills to amend §§ 20A and
20B.6
There were at least five different proposals for how to
calculate or limit deficiencies.7 Most significantly, none of
that were eventually enacted. See note 6, infra (list of
proposed legislation predating council's recommendation).
Additionally, the council's proposal does not mention fair
market value, fair market retail value, or even the rebuttable
presumption of estimated retail value, the key language that the
court is interpreting in this case. See 1973 House Doc. No. 66.
Instead, the council's proposal contained a completely different
mechanism for calculating deficiencies that does not involve
fair market value or the estimated retail value. Therefore, the
dissent's treatment of the council's recommendation as
conclusive as to legislative intent, see post at , is
erroneous and misleading.
See 1973 House Doc. No. 6884; 1973 House Doc. No. 66; 1972
6
House Doc. No. 6111; 1971 House Doc. No. 5470; 1971 House Doc.
No. 2767; 1970 House Doc. No. 5533; 1970 House Doc. No. 4574;
1970 House Doc. No. 3814. Several additional bills filed during
this period appear to be refilings of earlier proposals. See
1973 House Doc. No. 2833 (refiling of 1972 House Doc. No. 6111);
1972 House Doc. No. 2775 (refiling of 1971 House Doc. No. 5470).
One bill proposed abolishing deficiencies altogether,
7
limiting the creditor's recovery to the proceeds of the sale of
15
these prior proposals considered using the estimated retail
value of the collateral. At least one proposed bill, however,
used the fair market value of the collateral without any
reference to retail value. See 1970 House Doc. No. 5533 ("buyer
shall not be liable for any deficiency or part of a deficiency
which results from a difference between the proceeds of the sale
and the fair market value of the motor vehicle at the time of
repossession or surrender").
The current method for calculating deficiencies in § 20B
was not proposed in the Legislature until 1973. See 1973 House
Doc. No. 6884. It appears that the Legislature took this
approach from the National Consumer Act (NCA), a draft model act
proposed by the National Consumer Law Center in 1970 that uses
almost the same language as G. L. c. 255B, § 20B. As the
comments to the NCA suggest, this approach to calculating
deficiencies is "the more equitable approach" that properly
balances the concerns of creditors left with large unpaid
the collateral. See 1971 House Doc. No. 2767. Two separate
bills proposed prohibiting a creditor from collecting a
deficiency where the cash price of the collateral was below a
certain amount. See 1971 House Doc. No. 5470 (debtor not liable
where cash price was equal to or less than $4,000); 1970 House
Doc. No. 4574 (debtor not liable where cash price was equal to
or less than $2,000). Another proposal provided that the debtor
would not be liable "for any deficiency or part of a deficiency
which results from a difference between the proceeds of the sale
and the fair market value of the collateral at the time of
repossession or surrender." 1970 House Doc. No. 5533.
16
balances when a consumer defaults after purchase and the
interest in shielding consumers from unnecessary or
unnecessarily inflated deficiency claims. See NCA § 5.211
comment (1970). See also Rubin, Deficiency Judgments: A
Louisiana Overview, 69 La. L. Rev. 783, 786 (2009) (rules
regulating deficiencies balance interests of debtors, creditors,
and public policy). The approach to calculating fair market
value discussed supra preserves and protects that balance.
Regardless, nothing in the legislative history imposes a fair
market retail value standard.
iii. Automobile repossession market. Our interpretation
of the statutory language and legislative history is also
consistent with the practical realities of the automobile
repossession market. As evidenced by an extensive study of the
automobile repossession market by the Federal Trade Commission
in the 1970s, creditors have an incentive to obtain the highest
possible price for collateral that they repossess. Federal
Trade Commission, Trade Regulation; Credit Practices; Final
Rule, 49 Fed. Reg. 7740, 7783 (Mar. 1, 1984).8 This study also
concluded that using fair market retail value to calculate
deficiencies "has several defects that make it completely
impractical." See Federal Trade Commission, Report of the
8 As discussed supra, G. L. c. 255B, § 20B, was enacted in
1973. See St. 1973, c. 629.
17
Presiding Officer on Proposed Trade Regulation Rule: Credit
Practices, at 238 (1978) (FTC Report). The commercial realities
of today's market, as described in the record, confirm both of
these propositions.
Creditors generally do not sue to collect the deficiency.
See FTC Report, supra at 220 ("Testimony and evidence presented
by many witnesses at the hearings showed that deficiency
judgments were not often sought and that recoveries of
deficiencies did not provide creditors with a significant amount
of revenue"). See also id. at 221-222 ("Creditor-repossessors
on an average filed no more than one suit for every five cars
repossessed . . ."); J.J. White & R.S. Summers, Uniform
Commercial Code § 25-10, at 919 (4th ed. 1995) ("In many cases
in which cars are repossessed and resold -- perhaps in the large
majority -- no claim for deficiency is filed"). Indeed, Honda
has filed lawsuits to collect the deficiencies fewer than five
times over the past few years even though it sells tens of
thousands of motor vehicles each year, of which approximately
twenty to thirty per cent are repossessed vehicles. It is also
unlikely that the creditor will recover much, if any, of the
resulting deficiency. See National Consumer Law Center,
Repossessions § 12.1.1 (9th ed. 2017) ("Creditors know they are
able to collect only a small percentage of deficiency
judgments"). The FTC found that creditors only collected
18
between five and fifteen per cent of these deficiencies. See 49
Fed. Reg. at 7783. In this case, the evidence suggests that
Honda has collected less than ten per cent of the deficiency
judgments that it does obtain.9 These realities all incentivize
a creditor to maximize the sale price. Thus, for the creditor,
the repossession and disposition of the collateral is almost
always the last opportunity to minimize the loss caused by a
consumer defaulting. See Matter of Excello Press, Inc., 890
F.2d at 901 ("[W]hy would [a secured party] forgo a dollar today
for the chance to enforce a deficiency judgment tomorrow?").
There are also practical problems with imposing a retail
market price. In the motor vehicle industry, retail sales
require capital, facilities, and personnel, which creditors
often lack. FTC Report, supra at 229-231. Moreover, selling a
9 The dissent's concern about, and heavy reliance upon, the
"cooperative, perhaps unwitting, consumer," post at note 1, who
would default on instalment payments but then pay the entire
outstanding balance after repossession and sale but before the
creditor sues to collect the debt, has absolutely no support in
either this record or the extensive record considered by the
Federal Trade Commission when it rejected a fair market retail
value standard on policy grounds. See Federal Trade Commission,
Trade Regulation; Credit Practices; Final Rule, 49 Fed. Reg.
7740, 7783 (Mar. 1, 1984). The record supports the exact
opposite conclusion, that defaulting debtors who have had their
automobiles repossessed do not "simply pay" the deficiency.
See, e.g., id. (creditors on average collect five to fifteen per
cent of deficiencies); National Consumer Law Center,
Repossessions § 12.1.1 (9th ed. 2017) ("Creditors know they are
able to collect only a small percentage of deficiency
judgments").
19
repossessed motor vehicle at retail entails further costs, such
as storage, overhead, and most importantly, reconditioning of
the vehicle for sale at retail. Id. at 247 (noting "convincing
evidence that many repossessed automobiles, and probably the
overwhelming majority, require extensive reconditioning or
repair to make them suitable for sale at retail"). As the FTC
noted, when the creditors who repossess vehicles are retailers,
they will usually sell the vehicle at retail. See 49 Fed. Reg.
at 7784. When they are not retailers, however, the retail
market may be neither practical nor fair.10 Indeed, Honda is not
10The dissent's fair market retail value standard has been
described, after exhaustive study, as "manifestly and patently
unfair to creditors." Federal Trade Commission, Report of the
Presiding Officer on Proposed Trade Regulation Rule: Credit
Practices, at 239 (1978). The dissent nonetheless contends that
the Legislature intended to impose this commercially
unreasonable standard, a standard that has "no generally
accepted meaning," id. at 237, and that is not mentioned
anywhere in the General Laws or our case law. In an attempt to
support this highly unusual standard, the dissent argues that
the Legislature would not have gone from a commercially
reasonable standard to a fair market value standard as described
by the court, as the two standards are too similar in the
dissent's view. Post at - . The dissent then goes further
and misreads the court's decision as stating that the court has
concluded that these two standards are the same. Id. at .
This is incorrect. We recognize that there is great overlap
between "fair market value" and "commercially reasonable," but
emphasize that there are meaningful differences between a
commercially reasonable standard and a fair market value
standard. For example, under the Uniform Commercial Code, the
fact that a creditor could have obtained a higher price does not
necessarily mean that a disposition was commercially
unreasonable. See G. L. c. 106, § 9-627 (a). Under a fair
market value standard, however, the creditor must obtain "the
20
licensed to sell on the retail market and may interfere with the
legal rights of independent Honda dealers.
Finally, the fact that industry guides, such as the Black
Book used by Honda, provide different estimated prices simply
reflects the reality that consumers, wholesalers, and retailers
each add varying amounts of value to the vehicle that are built
into the different sale prices that each can obtain from
consumers. See Lawless & Ferris, Economics and the Rhetoric of
Valuation, 5 J. Bankr. L. & Prac. 3, 5 (1995) ("The reasons for
the price difference result from the manner in which the retail
and wholesale automobile markets operate, not because the same
automobile can have two different values"). For example, the
difference between the estimated retail value of an automobile
and the estimated wholesale value of an automobile is often a
result of the costs of retailing. See id. at 18 ("inflated
retail price includes value-adding activities by the retailer").
See also FTC Report, supra at 230-231.
Imposing a fair market retail value on sales by all
creditors would also appear to have unintended consequences. It
highest price which a hypothetical willing buyer would pay to a
hypothetical willing seller in an assumed free and open market"
or credit the debtor with that amount. Epstein v. Boston Hous.
Auth., 317 Mass. 297, 299 (1944). Regardless, reframing and
refining a commercially reasonable standard to be a fair market
value standard is quite different from imposing a commercially
unreasonable standard, the approach recommended by the dissent.
21
would likely increase the cost of borrowing because many
creditors lack the means, and some, like Honda, the legal right,
to sell repossessed vehicles at retail. See 49 Fed. Reg. at
7784. In the end, these costs would invariably be passed on to
all consumers. The result would likely be more expensive
financing even for the vast majority of borrowers who pay off
their vehicle loans.
In sum, the Legislature did not dictate a particular market
and left the determination of fair market value to the courts in
contested cases. The plain language of the statute, the
legislative history, and the realities of the automobile
repossession market all support this approach to the
determination of fair market value.
b. Questions two and three. Questions two and three are
closely related, as each asks whether the notice required by the
Uniform Commercial Code can be sufficient even if it does not
describe the debtor's deficiency as the difference between the
outstanding balance and the fair market value of the collateral.
Specifically, these questions ask:
"2. Whether, and in what circumstances, a pre-sale notice
is 'sufficient' under [the Uniform Commercial Code, G. L.
c. 106, § 9-614 (4) and (5)], and 'reasonable' under [the
Uniform Commercial Code, G. L. c. 106, § 9-611 (b)], where
the notice does not describe the consumer's deficiency
liability as the difference between what the consumer owes
and the 'fair market value' of the collateral, and the
transaction is governed by [G. L. c. 255B]?
22
"3. Whether, and in what circumstances, a post-sale
deficiency explanation is 'sufficient' under [the Uniform
Commercial Code, G. L. c. 106, § 9-616,] where the
deficiency is not calculated based on the 'fair market
value' of the collateral, and the transaction is governed
by [G. L. c. 255B]?"
We conclude that the notice that is required by the Uniform
Commercial Code is never sufficient where the deficiency is not
calculated based on the fair market value of the collateral and
the notice fails to accurately describe how the deficiency is
calculated.
The Uniform Commercial Code provisions in G. L. c. 106,
§§ 9-600, generally govern defaults in secured transactions.
General Laws c. 106, § 9-614, requires that notice be given to a
debtor prior to the disposition of repossessed collateral, and
G. L. c. 106, § 9-616, requires that notice be provided after
the collateral is sold. Under each section, the notices must
include certain information to be sufficient, including a
description of any deficiency that the debtor will owe. See
G. L. c. 106, § 9-614 (1) (B); G. L. c. 106, § 9-616 (b) (1).
The Uniform Commercial Code also provides standard form
language, including the following statement for presale notices:
"The money that we get from the sale (after paying our costs)
will reduce the amount you owe. If we get less money than you
owe, you (will or will not, as applicable) still owe us the
difference. If we get more money than you owe, you will get the
23
extra money, unless we must pay it to someone else." G. L.
c. 106, § 9-614 (3). A notification following the above form
"is sufficient, even if additional information appears at the
end of the form." G. L. c. 106, § 9-614 (4).
General Laws c. 255B, § 20B (d), provides that the Uniform
Commercial Code applies "unless displaced by the provisions of
[§ 20B] and [§ 20A]." General Laws c. 255B, § 20B, calculates
the deficiency using the fair market value of the vehicle,
whereas the Uniform Commercial Code calculates deficiencies
using the proceeds of a "commercially reasonable" sale. See
G. L. c. 106, § 9-615. Because the Uniform Commercial Code and
G. L. c. 255B, § 20B, calculate deficiencies differently, the
use of the Uniform Commercial Code safe harbor language is
inconsistent with Massachusetts law. The notice that is
required by G. L. c. 106, § 9-614, and G. L. c. 106, § 9-616,
must describe the deficiency as the difference between the fair
market value of the collateral and the debtor's outstanding
balance because this is what is required by § 20B.
Therefore, when creditors are providing notice prior to
disposing of the collateral under § 9-614 (3), the notice should
include language similar to the following statement:
"The fair market value of your vehicle will be used to
reduce the amount you owe, which is your outstanding
balance plus the reasonable costs of repossessing and
selling the vehicle. If the fair market value of your
vehicle is less than you owe, you (will or will not, as
24
applicable) still owe us the difference. If the fair
market value of your vehicle is more than you owe, you will
get the extra money, unless we must pay it to someone
else." (Emphasis added.)
Additionally, when providing notice of the deficiency after the
sale under § 9-616, the notice should clearly identify the fair
market value of the vehicle in the calculation of the
deficiency. This statement replaces the description of "the
amount of proceeds of the disposition" that is currently
required by § 9-616 (c) (2). Ultimately, the notice required by
the Uniform Commercial Code will only be considered sufficient
if it accurately describes the deficiency under G. L. c. 255B,
§ 20B.
3. Conclusion. In transactions governed by G. L. c. 255B,
a debtor's deficiency liability must be calculated as the
difference between the debtor's unpaid balance and the fair
market value of the repossessed collateral. In determining fair
market value, the Legislature did not dictate the creditor's
market choice in the first instance and left the ultimate
determination of fair market value to the courts in contested
cases, taking into account both creditor and debtor interests,
the means, methods, and markets used to sell the vehicle, and a
rebuttable presumption of estimated retail value as provided in
periodically published trade journals to put the market choice
and valuation of the creditor to the test. In presale notices
25
and postsale deficiency explanations, creditors must describe
and calculate the debtor's deficiency as based on "the fair
market value" of the vehicle.
The Reporter of Decisions is directed to furnish attested
copies of this opinion to the clerk of this court. The clerk in
turn will transmit one copy, under the seal of the court, to the
clerk of the United States Court of Appeals for the First
Circuit, as the answers to the questions certified, and will
also transmit a copy to each party.
GANTS, C.J. (dissenting). I respectfully dissent.
Most American consumers purchase their motor vehicles on
credit, in many cases by entering into a retail instalment
contract. See Federal Reserve, Report on the Economic Well-
Being of U.S. Households in 2015, at 42 (2016). Under a typical
retail instalment contract, the consumer makes an initial down
payment and promises to pay the remainder of the purchase price,
plus interest and fees, in regular instalments. The consumer
can keep the vehicle as long as he or she continues to make
these payments or otherwise repays the loan in full; if the
consumer falls behind on payments or stops making them, the
creditor can repossess the vehicle and sell it to satisfy the
unpaid debt. If, after the vehicle is sold, some part of the
debt remains unpaid, the consumer may be liable for that
deficiency.
In Massachusetts, this process of repossession and sale is
governed by the Retail Instalment Sales of Motor Vehicles Act
(act), G. L. c. 255B, §§ 20A and 20B, and the Uniform Commercial
Code (UCC), G. L. c. 106, §§ 9-601 to 9-628. Under § 20B of the
act, a creditor who repossesses and sells a vehicle may be
entitled to recover from the consumer the deficiency, if any,
that remains after deducting the "fair market value" of the
vehicle from the consumer's unpaid balance. G. L. c. 255B,
§ 20B (e) (1). Section 20B also establishes a presumption, in
2
deficiency proceedings, that trade estimates of retail value --
such as those found in the Black Book -- reflect the vehicle's
"fair market value." G. L. c. 255B, § 20B (e) (2).
Based on this presumption, and on the commercial realities
that underlie this statute, as well as its purpose and
legislative history, I would hold that the "fair market value"
of a vehicle under § 20B is the fair market retail value of that
vehicle. The court, however, concludes that the term "fair
market value" in § 20B does not necessarily mean retail value,
and that it is only presumed to have that meaning when a
creditor sues a consumer for a deficiency. See ante at . I
do not agree with this interpretation for three reasons.
First, the court's interpretation of § 20B disregards the
commercial realities of the motor vehicle market. The United
States Court of Appeals for the First Circuit has asked us
"[w]hether the 'fair market value' of collateral under [G. L.
c. 255B, § 20B,] is the fair market retail value of that
collateral," recognizing that, in the motor vehicle market,
prices hinge on whether the vehicle is sold at wholesale or at
retail. Here, for example, at the time that the plaintiff's
vehicle was sold, the Black Book listed the wholesale value for
a comparable vehicle as $7,750, and its retail value as $9,800.
In response, the court answers that "fair market value" means
fair market value. Ante at . This is not a helpful answer
3
to the First Circuit's reported question. Nor will it aid a
judge or jury asked to determine the amount of a deficiency at
trial. It is hardly helpful to recite the classic definition of
"fair market value," stating that it is the "highest price that
a willing buyer would pay . . . in a fair market for the
vehicle," when that price will depend on whether that willing
buyer is a wholesale dealer or a retail consumer. Ante at .
And the court's additional guidance -- that "[i]f contested, a
court must determine the fair market value based on all the
facts and circumstances, including the goods to be sold, the
relevant markets, the particular creditors and debtors, and the
rebuttable presumption" -- will not be any more illuminating to
a judge or jury. Id.
The Legislature recognized the commercial realities of the
motor vehicle market when it established a presumption in
§ 20B (e) (2), providing that in deficiency proceedings,
"[p]eriodically published trade estimates of the retail value of
goods shall . . . be presumed to be the fair market value of the
collateral" (emphasis added). Consequently, where the creditor
sues the consumer because he or she has failed to pay a
deficiency, the presumptive fair market value of the vehicle is
the retail value listed in trade estimates, such as those found
in the Black Book. And in the absence of other evidence
rebutting that presumptive value, the deficiency judgment must
4
deduct this retail value from the unpaid balance. See Epstein
v. Boston Hous. Auth., 317 Mass. 297, 302-303 (1944) (where
presumption is unrebutted, it "retain[s] its force as a rule of
law requiring the judge" to apply presumption). See also 9 J.H.
Wigmore, Evidence § 2487(c), at 295 (Chadbourn rev. ed. 1981)
("[A] presumption creates for the opponent a duty of producing
evidence, in default of which he loses as a matter of legal
ruling").
Where the Legislature has established trade estimates of
retail value as the presumed fair market value of the collateral
in a deficiency proceeding, I believe it must have intended that
"fair market value" be the retail value. Indeed, if the
Legislature had intended the term "fair market value" to mean
something other than retail value, it would make no sense --
given that trade estimates typically include retail, wholesale,
and trade-in values -- to choose trade estimates of retail value
as a presumptive starting point. National Consumer Law Center,
Repossessions § 10.9.5.1, at 341-342 (9th ed. 2017). To be
sure, the presumption in § 20B (e) (2) is rebuttable, but only
with evidence that the trade estimates do not reflect the
collateral's actual fair market retail value, for example,
because the condition of the vehicle is especially poor. The
creditor can provide an alternative measure of retail value, but
5
the ultimate value to be determined must still be the fair
market retail value.
The court takes the position that § 20B "does not dictate
use of a particular market" and that the term "fair market
value" need not categorically refer to either wholesale or
retail value. Ante at . I agree with the court that the
determination of actual fair market value in any given
deficiency proceeding will depend on the specific facts. Ante
at . But the meaning of the term itself is a legal question,
which the First Circuit has asked us to resolve. See Wright vs.
United States, U.S. Ct. App., Nos. 90-5089 & 90-5096 (Fed. Cir.
Feb. 12, 1991) ("How fair market value is defined is a legal
question; what constitutes fair market value in a particular
case is a factual matter"). "[F]air market value is . . . to be
determined [not] in a rarefied realm of abstract calculation,
but from the perspective of a hypothetical buyer in the real
world," Portland Natural Gas Transmission Sys. v. 19.2 Acres of
Land, 195 F. Supp. 2d 314, 321 (D. Mass. 2002), and in the real
world, the value of a vehicle typically depends -- as we can see
from the Black Book and other trade manuals -- on whether it is
sold in a wholesale market or in a retail market.
Second, the court's interpretation of § 20B would have
practical results that I am confident the Legislature did not
intend. Under the court's reading, a consumer's deficiency is
6
presumed to be based on retail value only at a deficiency
proceeding, but not where the consumer decides to voluntarily
pay the deficiency. Not only does this interpretation create a
significant difference between the amount the creditor could
demand from the consumer and the amount it would likely be
awarded at a deficiency proceeding in a court of law, but it
would also provide an incentive for a consumer to refuse to pay
a deficiency, knowing that the creditor would likely be entitled
to receive less at a deficiency proceeding.1 I do not believe
that in enacting this presumption the Legislature intended to
penalize consumers who pay their debts and reward those who do
not. See Attorney Gen. v. School Comm. of Essex, 387 Mass. 326,
336 (1982) ("We assume the Legislature intended to act
reasonably").
To illustrate the practical results of the court's
1
interpretation, consider this example: if a consumer's vehicle
is repossessed because of an unpaid balance of $20,000, and is
sold at an auction for $8,000 when its estimated Black Book
retail value is $10,000, under this reading the creditor could
demand a deficiency of $12,000. The cooperative, perhaps
unwitting, consumer would simply pay the $12,000. The
uncooperative, perhaps more savvy, consumer who refuses to pay
may be sued by the creditor for the deficiency, but in such a
lawsuit he or she would benefit from the statutory presumption
of the estimated Black Book retail value and, unless that
presumption was rebutted by the creditor, would be ordered to
pay only $10,000 in a deficiency judgment. Thus, a consumer who
just pays the deficiency when asked will likely pay more than a
consumer who waits to be sued.
7
Third, the court's interpretation is at odds with the
purpose and history of the act. In order to ascertain the
meaning of § 20B (e), it is crucial to understand the statutory
scheme that it replaced and the reasons behind this change.
Because the court has largely ignored this history, I summarize
it here.
The predecessor to the current § 20B of the act was first
enacted in 1966, together with an amended § 20A. St. 1966,
c. 284, § 3. As originally enacted, these twin provisions gave
creditors wide latitude in the repossession and sale of vehicles
purchased under retail instalment contracts. Notice of the
intent to repossess was not required: a creditor could either
notify the consumer fourteen days before repossessing, in which
case the creditor was entitled to the reasonable costs of
repossession, storage, and sale, or it could simply repossess
without prior notice, in which case it would forgo recovery of
those costs. See former G. L. c. 255B, § 20A (A), (C) (1)-(2),
inserted by St. 1966, c. 284, § 3. Following repossession, the
consumer could redeem the collateral only by paying the full
amount due under the contract. See former G. L. c. 255B, § 20B
(B)-(C), inserted by St. 1966, c. 284, § 3. If the consumer
failed to redeem, and the collateral was sold, the act
contemplated that the consumer would be liable for any
deficiency, see former G. L. c. 255B, § 20A (D), inserted by
8
St. 1966, c. 284, § 3, but was silent as to how that deficiency
would be calculated. As a result, the background rules of the
Uniform Commercial Code (UCC) applied, and the creditor could
claim a deficiency equal to the difference between the
outstanding loan balance and the sale proceeds as long as the
sale was "commercially reasonable." See former G. L. c. 106, §
9-504 (1)-(3), inserted by St. 1957, c. 765, § 1. See generally
Queenan, The New Consumer Repossession Law, 58 Mass. L. Q. 412,
416-417 (1973) (Queenan).
Sections 20A and 20B were substantially amended in 1973,
see St. 1973, c. 629, § 2, at a time when public concern over
abusive consumer credit practices was mounting. Consumer
instalment credit had swelled nationwide, more than doubling
from $42 billion outstanding in 1960 to $102 billion in 1970.
Federal Reserve, Financial and Business Statistics, 59 Fed. Res.
Bull. A56 (1973). Consumers in 1970 shouldered more than $35
billion of debt in order to finance the purchase of motor
vehicles -- more than one-half of the vehicles purchased in the
United States were purchased on credit -- and another $31
billion for other consumer goods. See id.; United States Bureau
of the Census, Statistical Abstract of the United States 549
(94th ed. 1973). When consumers defaulted on these loans,
creditors had a broad range of remedies to choose from,
including repossession of the collateral and lawsuits for
9
deficiency, which typically resulted in default judgments
against consumers because of their failure to appear. See
National Commission on Consumer Finance, Consumer Credit in the
United States 23-42 (1972). Some creditors engaged in
especially aggressive repossession tactics, seizing collateral
in the middle of the night or under false pretenses. See, e.g.,
Whaley v. United States, 324 F.2d 356, 356-357 (9th Cir. 1963),
cert. denied, 376 U.S. 911 (1964) (private repossessor
impersonated Federal law enforcement agent); Boland v. Essex
County Bank & Trust Co., 361 F. Supp. 917, 921 (D. Mass. 1973)
(repossessions involved "stealthful reclamation of motor
vehicles during the nighttime"). See also Firmin & Simpson,
Business As Usual: An Empirical Study of Automobile Deficiency
Judgment Suits in the District of Columbia, 3 Conn. L. Rev. 511,
512 & n.5 (1971) (Firmin & Simpson) (in study of 106 motor
vehicle deficiency suits in District of Columbia courts, ninety-
five per cent of repossessions were carried out between midnight
and 6 A.M.).
With the rapid growth of consumer credit, various efforts
were undertaken to protect consumers from overreaching
creditors. In a pair of landmark decisions, the United States
Supreme Court took substantial steps to limit creditors'
remedies, holding that creditors could not, absent notice or a
hearing, enforce debts by garnishing debtors' wages, Sniadach v.
10
Family Fin. Corp. of Bay View, 395 U.S. 337, 342 (1969), or by
seizing collateral under a writ of replevin, Fuentes v. Shevin,
407 U.S. 67, 96 (1972). See Clark & Landers, Sniadach, Fuentes
and Beyond: The Creditor Meets the Constitution, 59 Va. L. Rev.
355, 355-362 (1973). Meanwhile, the Federal Trade Commission
(FTC) in 1973 launched a two-year investigation into the
consumer credit industry, during which it identified several
patterns of abusive practices. See Federal Trade Commission,
Annual Report 29 (1974). In particular, the FTC found that
"many creditors abuse the deficiency judgment mechanism by
selling repossessed goods at prices substantially below their
fair market retail value." 40 Fed. Reg. 16,347, 16,348 (1975).
The FTC's findings were consistent with several empirical
studies from the time, which indicated that repossessed motor
vehicles were sold for little more than one-half of their retail
value.2 Although creditors attributed these low resale values to
2 Researchers in three separate studies concluded that
repossessed motor vehicles were sold, on average, for only fifty
to sixty-five per cent of their retail value, as listed in trade
manuals. See Note, I Can Get It for You Wholesale: The
Lingering Problem of Automobile Deficiency Judgments, 27 Stan.
L. Rev. 1081, 1084-1085 (1975) (study of 216 motor vehicle
deficiency suits filed in Alameda County, California); Firmin &
Simpson, Business As Usual: An Empirical Study of Automobile
Deficiency Judgment Suits in the District of Columbia, 3 Conn.
L. Rev. 511, 512, 518 (1971) (study of 106 motor vehicle
deficiency suits filed in the District of Columbia); Schuman,
Profit on Default: An Archival Study of Automobile Repossession
11
the poor condition of repossessed vehicles -- as well as to the
fact that many creditors lacked the facilities or resources to
sell directly to the retail market -- consumer advocates claimed
that creditors profited from the practice. See Federal Trade
Commission, Report of the Presiding Officer on Proposed Trade
Regulation Rule: Credit Practices 224-237 (1978). Some dealers
and finance companies were believed to engage in the practice of
"churning" vehicles, whereby the same vehicle would be
repossessed, sold at a low price to the original dealer, sold
again at a higher price to another consumer, then repossessed
again upon default, and so on, repeating the process of
repossession and sale several times, with hefty deficiency
judgments obtained against each new defaulting consumer.3 See
id. at 233-234. See also Firmin & Simpson, supra at 517-518
and Resale, 22 Stan. L. Rev. 20, 31 (1969) (study of eighty-
three motor vehicle deficiency suits filed in Connecticut).
3 To give an example of how the "churning" process works,
suppose a consumer purchases a motor vehicle from a dealer for
$30,000, financing the full amount through a retail instalment
contract. The dealer then assigns that contract to an
affiliated finance company. When the consumer defaults, her
unpaid balance is $20,000. The finance company repossesses the
vehicle and sells it back to the dealer for $15,000, then sues
the consumer, recovering a deficiency of $5,000. Meanwhile, the
dealer sells that same vehicle to another consumer for $25,000.
As a result, the finance company is made whole, having received
the $15,000 in sale proceeds and a $5,000 deficiency judgment,
in full satisfaction of the debt, while its affiliated dealer
makes a $10,000 profit, having purchased the vehicle at
wholesale for $15,000 and sold it at retail for $25,000. This
process can be repeated several times with the same vehicle.
12
(creditors who engaged in "churning" were found to sell and
finance same vehicle at least three times).
Against this background, the Massachusetts Legislature in
1973 undertook to strengthen the rights of consumers in consumer
credit transactions. "An Act relative to taking possession of
collateral and deficiency judgments," St. 1973, c. 629, was
first recommended for legislative action by the Massachusetts
Consumers' Council (council), an independent agency charged with
acting as a public advocate for consumer interests. See St.
1963, c. 773. As the council explained in its recommendation,
"[the] proposed legislation" was intended to "clarify and secure
a debtor's rights." 1973 House Doc. No. 59. Specifically, the
council stated that "[the] proposed bill," by limiting
creditors' rights to repossess collateral and recover
deficiencies from consumers, "will stop the practice of constant
sale, repossession, deficiency judgment, resale, etc., now
engaged in by some unscrupulous merchants, and will greatly
enhance the protection afforded the unsuspecting consumer." Id.4
4 The original version of the 1973 legislation proposed by
the Massachusetts Consumers' Council (council) would have
required a judicial determination before a creditor could
repossess collateral and would have also eliminated the
consumer's deficiency liability where the "cash price" of the
repossessed collateral was $4,000 or less. See 1973 House Doc.
No. 59; 1973 House Doc. No. 66, § 4. It was an amended version
of the council's proposed bill, based also on two other bills on
the same topic, which was subsequently enacted without
13
As eventually enacted, the 1973 legislation "impose[d]
substantially greater restrictions on the rights of secured
creditors in consumer credit transactions," amending not only
the laws governing motor vehicle retail instalment sales, G. L.
c. 255B, §§ 20A and 20B, but also the laws governing loans
secured by consumer goods, G. L. c. 255, §§ 13I and 13J, and
other retail instalment sales and services, G. L. c. 255D, §§ 21
and 22. Queenan, supra at 412.
The 1973 legislation amended §§ 20A and 20B of the act to
benefit consumers in five significant ways. First, it
strengthened notice requirements. Section 20A, as amended, no
longer gives creditors a choice whether to notify consumers
before repossession; rather, it provides that a creditor cannot
take possession of a vehicle unless the creditor gives the
consumer notice, in writing, conspicuously stating the
consumer's rights upon default, including the right to redeem
the collateral after repossession. G. L. c. 255B, § 20A (b)-
(c). Second, the 1973 legislation limited the remedies
available to creditors in the event of default. Section 20A now
provides that, after giving notice of the intent to repossess, a
creditor must wait at least twenty-one days before repossessing
the vehicle or bringing an action against the consumer. G. L.
substantial change. See 1973 House Doc. No. 6884; St. 1973,
c. 629.
14
c. 255B, § 20A (d). During that period, a creditor also may not
accelerate the debt; thus, whereas previously a consumer could
cure the default only by paying the full debt, under the amended
§ 20A, a consumer need only make the overdue payments to cure
the default and avoid repossession. G. L. c. 255B, § 20A (d)-
(e). Third, § 20B now limits creditors' right to repossess,
allowing repossessions without a prior hearing only where they
can be carried out "without use of force [or] breach of peace,"
and, if repossession requires entry onto the consumer's
property, only with the consumer's consent. G. L. c. 255B,
§ 20B (a). Fourth, the amended § 20B extends from fifteen to
twenty days the period during which the consumer may redeem the
collateral after repossession. Compare G. L. c. 255B,
§ 20B (c), with former G. L. c. 255B, § 20B (A), inserted by
St. 1966, c. 284, § 3.
Fifth, and of most relevance here, the 1973 legislation
significantly narrowed the scope of consumers' deficiency
liability. Although under the UCC a consumer would have been
liable for any deficiency following a "commercially reasonable"
sale of the collateral, see former G. L. c. 106, § 9-504 (2)-
(3), inserted by St. 1957, c. 765, § 1, § 20B was amended to
provide that a consumer whose unpaid balance is $2,000 or less
cannot be held liable for any deficiency. G. L. c. 255B, § 20B
(d). Section 20B was also amended to change the rules for
15
calculating a consumer's deficiency. Whereas under the UCC, the
consumer's deficiency would have been the difference between the
unpaid balance and the proceeds from a "commercially reasonable"
sale, see former G. L. c. 106, § 9-504 (1)-(2), inserted by St.
1957, c. 765, § 1, § 20B now specifically states that the
deficiency is the difference between the unpaid balance and "the
fair market value of the collateral." G. L. c. 255B, § 20B (e)
(1).
It is evident from the statutory evolution of § 20B, as
well as its legislative history and historical context, that it
was intended broadly to protect the rights of consumers and,
more specifically, to protect consumers from potential abuse by
creditors who would repossess their vehicles, sell them at
distressed prices, and then claim large deficiencies.
Consistent with this legislative purpose, the term "fair market
value" in § 20B (e) (1) must be read to mean the fair market
retail value of the vehicle. Calculating a consumer's
deficiency based on retail value, rather than auction proceeds,
diminishes the risk of abuse and specifically the risk of
"churning," not only because it incentivizes creditors to sell
the repossessed vehicle for the highest possible price, but also
because -- in cases where the creditor fails to do so -- it
16
places the cost of that failure on the creditor, shielding
consumers from excessive deficiency claims.5
It is also evident that, in making these amendments, the
Legislature intended to displace the UCC provisions governing
deficiency liability. Any doubt on this issue was resolved in
2001, when the Legislature made explicit that it intended to
displace the UCC in this respect, adding to § 20B the language,
"[n]otwithstanding the provisions of [UCC, G. L. c. 106, §§ 9-
601 to 9-628]." St. 2001, c. 26, § 48. The court appears to
adopt Honda's view that § 20B (e) (1) must be read together with
the UCC, and that the term "fair market value" refers to the
proceeds of a "commercially reasonable" sale, citing Matter of
Excello Press, Inc., 890 F.2d 896, 904-905 (7th Cir. 1989), for
the proposition that "[t]he product of a commercially reasonable
sale is the fair market value." Ante at .6 But if the
5 The court takes issue with my reading of the legislative
history of § 20B, claiming that it "selectively references
portions of the legislative history," that is, the proposal from
the council and its accompanying recommendation. Ante at note
5. See 1973 House Doc. No. 59; 1973 House Doc. No. 66. The
court is correct that by 1973 the Legislature had considered
several different proposals on the issue of consumer
deficiencies, and that none of the proposed bills -- including
the council's proposal -- referenced retail value. Ante at note
5. And I do not claim otherwise. See note 4, supra. I rely on
the council's proposal only to the extent that, in its
accompanying recommendation, it sheds light on the consumer
protection concerns that motivated the amendments.
6 In addition, the court declares that "[t]he fair market
value of the vehicle . . . is just that: the highest price that
17
Legislature had intended a consumer's deficiency to be
calculated based on the proceeds of a "commercially reasonable"
sale, as was already the case under the UCC, why would it have
bothered to enact § 20B (e) (1) at all? The court offers no
explanation for why the Legislature would have enacted this
provision if it intended only to preserve the status quo, or why
it chose to use the term "fair market value," rather than keep
the "commercially reasonable" language already found in the UCC,
G. L. c. 106, § 9-610, if, in practice, it meant the same thing.
The court's failure to do so is especially perplexing given that
it later acknowledges, in its answer to the First Circuit's
second and third questions, that the two standards are not the
same. Ante at ("the Uniform Commercial Code and G. L. c.
255B, § 20B, calculate deficiencies differently").
Unsurprisingly, the court's interpretation of § 20B (e) (1)
is also at odds with contemporary understandings of the statute
when it was amended in 1973. James F. Queenan, Jr., a
commercial law practitioner and later a United States Bankruptcy
a willing buyer would pay Honda in a fair market for the
vehicle" (emphasis added). Ante at . But, as the court has
emphasized, Honda sells all its repossessed vehicles at auction
and does not have access to the retail market. Ante at . In
declaring that the fair market value of the vehicle is the
highest price paid to Honda, then, the court implicitly declares
that the fair market value is the wholesale value that Honda
obtains at auction, as long as the auction is commercially
reasonable.
18
Court judge, summarized the 1973 amendments to §§ 20A and 20B
immediately after their approval, writing:
"Under the Uniform Commercial Code a secured party may
claim a deficiency based upon the proceeds of the resale
less expenses so long as the resale is 'commercially
reasonable.' Now as to consumer goods the amount of the
deficiency is computed solely with reference to the 'fair
market value of the collateral' less 'reasonable
repossession and storage costs.' . . . No longer will a
secured party be entitled to rely on the wholesale price in
computing his deficiency." (Emphasis added; footnote
omitted.)
Queenan, supra at 417.
In support of its interpretation, the court contends that,
because creditors do not generally sue for deficiencies, and are
unlikely to recover them even if they do, Honda and other
creditors already have every incentive to obtain the highest
possible price for repossessed vehicles. Ante at - . The
court also contends that many creditors lack access to the
retail market and therefore, as a practical matter, cannot
obtain a price approximating retail value. Id. at . As an
empirical matter, this may very well be true. But legally, it
is irrelevant. To interpret the meaning of § 20B (e) (1), this
court need not evaluate the auction methods of Honda or any
other creditor. We need not inquire into the creditors'
incentives, or seek to ascertain the incidence of deficiency
suits or the subsequent likelihood of recovery. Ante at -
. All that we have been asked to determine is what the
19
Legislature intended in 1973, and in 1973 the Legislature
enacted § 20B to protect "unsuspecting consumer[s]" from
"unscrupulous merchants" engaged in "the practice of constant
sale, repossession, deficiency judgment, [and] resale," 1973
House Doc. No. 59, in the belief that crediting the consumer
with the fair market retail value of the vehicle was the fair
way to accomplish that goal.
Finally, the court also warns that, if deficiencies are
calculated based on fair market retail value, the costs of
borrowing would rise and "[i]n the end, these costs would
invariably be passed on to all consumers." Ante at . Even
if it were this court's task to determine whether this is the
case -- and it is not -- I am skeptical that this would be the
"invariable" consequence. If, as the court states, "the
repossession and disposition of the collateral is almost always
the last opportunity" for a creditor to recover a debt after
default, and creditors therefore have no real expectation of
recovering the deficiency, ante at , then it should not
matter much to creditors, when setting their interest rates, how
deficiencies are calculated. If deficiencies are rarely paid,
then reducing the amount of those deficiencies by the fair
market retail value of the vehicle would have little or no
impact on the interest rates that a creditor would charge for a
motor vehicle loan.
20
Consistent with the commercial realities underlying § 20B,
and with its purpose and history, I would hold that a consumer's
deficiency liability must be calculated as the difference
between the consumer's unpaid balance and the fair market retail
value of the vehicle. Accordingly, I would also hold that in
their presale and postsale deficiency explanations, creditors
must describe and calculate the consumer's deficiency liability
as such. I would therefore answer "Yes" in response to the
first certified question, and "Never" to the second and third
certified questions.