State laws commonly give powerful protection to mechanics who work on cars and garage keepers who store them, recognizing that they often need special powers to help them get paid.
Typically, these laws entitle them to retain possession of the car until they have been paid in full. If not paid after a specified minimum time, they are then free to sell the car to the highest bidder, and the purchaser gets good title to the car. The sale proceeds go to the mechanic or garage keeper to cover the amounts due and the expenses of the sale, and any excess is paid to the previous owner.
A new case serves as a great example of how much power this gives the mechanic or garage keeper, and how easily things can go awry.
According to the complaint filed in New York court, here is what happened. John Straus was the grandson of one of the principal owners of Macy’s, and a car collector. He owned a 1931 Model J Duesenberg, s/n 2467, engine J418, that his father purchased new. It was a custom-ordered formal town car, and the only Duesenberg that was bodied by F. R. Wood & Son, Inc., a small New York coachbuilder. It was in original condition, and had only 7,085 miles on the odometer. He also owned a 1930 Rolls-Royce Phantom I convertible, s/n S484MR, that he purchased used in 1942. Both cars were stored for over 50 years at the Windsor Garage in Manhattan. Straus also owned other cars that were stored at the nearby Wayne Garage. Both garages were owned and operated by the same company.
Throughout these years, Straus would let his storage bills accumulate and bring them current from time to time with large payments. The owners and managers were aware of that, and never made an issue of it. In later years, Straus developed dementia, and his rent payments become more sporadic.
In April 2005, Straus noticed a past due invoice from the Windsor Garage for over $22,000. He sent a check for the exact amount shown due. The manager returned the check to him, explaining that the balance was actually over $36,000 and instructing him to pay that amount with the notation of his account number. However, the account number given in the letter was for the Wayne Garage account, which was one digit different. Straus sent another check in the higher exact amount, with the account notation requested.
The manager accepted the check, but applied it toward the Wayne Garage account, thereby leaving the Windsor Garage account delinquent. Shortly after, Straus received a notice from the owner’s lien service company stating that his Windsor Garage account was past due by over $16,000, and that if not paid by May 2, the cars would be auctioned off on May 27. Straus assumed that the notice and his payment has crossed in the mail, and did nothing further.
On May 27, the Duesenberg was sold to Chapman, LLC, an entity owned by the garage owners. The bill of sale states that the sale price was $0, and nothing was paid or credited to Straus’s storage bill.
Straus did not receive any notice about the sale of the Rolls-Royce, but it was apparently sold at about the same time. The buyer turned out to be the garage’s director of maintenance.
Curiously, the garage kept charging Straus for storage fees through October, at which point a letter was sent demanding payment of his outstanding bills and threatening to sell the cars if payment was not promptly made.
In December, about $39,000 was finally credited to the outstanding bill. This was about the same time that Chapman, LLC, sold the Duesenberg to a company owned by Jay Leno for $180,000. It is claimed that Chapman wanted $300,000 for the Duesenberg, but that was negotiated down to the final sale price.
Straus died in May 2008. His daughters began administration of his estate, discovered these events, and made demands for the return of both cars. They recently filed suit against a lengthy list of parties, including the garage owners and managers, the director of maintenance, and Jay Leno and his company.
The lawsuit seeks the return of the cars or the payment of their value, asserted to be $1.2 million for the Duesenberg and $500,000 for the Rolls-Royce, and additional damages for fraud and similar claims, including a claim of fraud against Jay Leno (discussed below). Shortly after the suit was filed, the director of maintenance committed suicide. None of the defendants have yet responded to the lawsuit, so we don’t know their side of the story.
The sale has to be right
The main issues focus on the legitimacy of the sale of the cars. To start, the Estate takes the position that Straus did actually pay what was owed, and that the cars can’t be sold if nothing was owed. This issue will require sorting out the bills, the rejection of the first check, and the claimed misapplication of the second check. We can’t predict how that will come out, but the claim makes good sense. If Straus offered (tendered) payment, the garage can’t refuse to accept it and sell the cars instead.
New York law doesn’t specify a lot of details, but it does give four important ones: (1) appropriate notice must be given before the cars can be sold; (2) the cars must be sold at a public auction to the highest bidder; (3) any sale proceeds over the amount owed must be paid to the owner; and (4) a failure to strictly follow the rules is a conversion of the cars, basically the civil law equivalent of theft.
The Estate asserts that the Duesenberg notices were inappropriate on technical grounds, and that none were given as to the Rolls. It raises several questions about the sale of the Duesenberg. First off, can there even be an auction when the highest bid was $0? How can a sale be made when no bid was made? And if no one bid on this car, then how public could the sale have been? You would have bid $1, wouldn’t you? The Estate questions whether there even was a sale of the Rolls. And it claims the entire sale process was a fraud intended to steal the cars from Straus.
The outcome is hard to predict because of many unforeseeable twists and turns, but the ultimate answer looks like this to “Legal Files”: If the Estate invalidates the sales, the garage will be deemed to have converted the cars. If so, the garage would not have been able to transfer title to the purchasers, and Straus would still own the cars.
If the Estate can’t invalidate the sales but does establish that they were improper or mishandled badly, the Estate could recover the full value of the cars. But the interesting question then would be, from whom? The garage sold the Duesenberg to Chapman, LLC, which later sold it to Leno. It could turn out that the Estate is entitled to recover the full value from the garage and Chapman, but Leno keeps the car for the $180,000 he paid.
Leno fraud claim
Although some news reports have been to the contrary, the Estate has not alleged that Jay Leno conspired with the garage owners ahead of the sale. The fraud claim against Leno is something different.
The Estate alleges that Leno learned about the Duesenberg years previously, and tried to buy it from Straus, who refused to sell it. Nonetheless, Leno kept in touch with him, hoping to be there when Straus changed his mind. Concerned that someone else might get to the car, the Estate claims that Leno spread the false story that the garage had been remodeled and that the new elevator was so small that the car could no longer be removed from the garage.
The Estate further alleges that this scheme kept other potential purchasers from bidding on the car or negotiating with Chapman after it acquired it, thereby letting Leno buy the Duesenberg cheaply.
This claim seems to be tough to prove. First off, the Estate is going to have to produce potential buyers who knew about the sale but didn’t bother, because they thought they couldn’t get the car out of the garage. Second, the claim doesn’t square up with the claims that the garage didn’t conduct a fair auction, and that it concocted the entire scheme to defraud the Estate. And third, it doesn’t give Chapman enough credit. If Chapman wanted $300,000 for the Duesenberg but couldn’t get anyone else to offer anything substantial because Leno made them all think the car was stuck in the garage, Chapman could have easily moved it to another storage location, debunked Leno’s story, and sold the car for much more than the $180,000 paid.
Protecting yourself
This should generate entertaining reading as the lawsuit progresses, but readers can take a useful lesson away even at this preliminary point.
Mechanics and garage keepers are given very strong rights under most states’ laws. They have the right to hold onto your car until they have been paid. If they don’t get paid, they can sell your car to the highest bidder. The laws usually don’t impose much of an obligation on them to get the highest price possible. All they have to do is give proper notices to you, perhaps advertise in some limited manner, and then conduct a public auction. If no one shows up, they or anyone else who does bid can end up owning your car for a song.
Readers should be aware of these laws whenever they take their cars in for significant repairs. Just think of the horror story-you give your car to a shop for a time and materials restoration, one thing leads to the next, it takes forever, the bill gets astronomical, you get into a billing dispute with the shop about your partially restored car, the shop stops work, and you get a letter threatening to sell your pile of disassembled parts if you don’t pay up. That seems like a real good reason to have a very well-written contract before the work starts.