I often come across the issue of whether a dealer or auction house can be liable for fraud for bragging about its own goods — the legal term for which is “puffing.”
Think of a dealer saying that an ancient coin is “flawless.” Obviously not literally true, but it is an expression of a sort of opinion concerning the coin’s unusual state of preservation.
A famous New York judge named Learned Hand classed such boasts among the “kinds of talk which no sensible man takes seriously,” and for the most part, courts have been able to distinguish with commonsense analyses whether or not statements by sellers are the sort that a buyer should reasonably rely upon when buying goods.
Recently, the Indiana Supreme Court reaffirmed this longstanding rule in a case involving the classic “puffing” opportunity — the used car.
At issue was a dealer’s advertisement describing a car as a “Sporty Car at a Great Value Price.” After purchase, the buyer discovered that the car had extensive mechanical problems rendering it unusable. The buyer sued, alleging that the advertisement was actionable deception and fraud.
The trial court ruled in favor of the dealer, but the court of appeals reversed, concluding that calling the car a “Sporty Car at a Great Value Price” could implicitly represent that “it is a good car for the price and that, at a minimum, it is safe to operate.”
However, the Indiana Supreme Court restored the original ruling, holding that the statement was an opinion, “not a representation of fact, and thus cannot be the basis of deception or fraud claims.”
The Indiana Supreme Court also recognized that a contrary holding would significantly impede legitimate advertising and force sellers to list nothing but a product’s “name, rank, and serial number” to avoid civil or criminal liability.
However, there has to be a limit to puffing. Moody’s, the credit rating company, was sued by investors in some highly rated companies that turned out to have been insolvent at the time Moody’s rated them.
The plaintiffs showed the court that Moody’s had, over many years, touted itself as an independent company publishing accurate and impartial opinions, regardless of the fact that it often was paid by the very companies it was analyzing.
For example, its 2005 annual report stated “the market’s trust in and reliance upon Moody’s” are part of the “raw materials that support our business,” and that “Independence. Performance. Transparency ... are the watchwords by which stakeholders judge Moody’s.”
Moody’s also was fond of citing its code of professional conduct, which “protect[s] the quality, integrity and independence of the rating process.”
Meaningless puffing? That’s what Moody’s attorneys told the judge: “Generalizations regarding integrity, independence and risk management amount to no more than puffery.” The judge didn’t buy it.
One caveat: When a term has an established meaning in an industry, a dealer using it must be careful. I’m thinking of “finest known,” which probably constitutes puffery when referring to a Picasso, but not to a coin.
Armen R. Vartian is an attorney and author of A Legal Guide to Buying and Selling Art and Collectibles. Contact him at www.vartianlaw.com.