Lien Holders Must Receive Notice of Seizure But Consequential Damages Are Unlikely

In situations when a vehicle is seized by a law enforcement agency, the rights of lienholders are often overlooked. In the TD Auto Fin. LLC v. County of Putnam (2023) lawsuit, the court emphasized the critical importance of providing proper notice to lienholders but any consequential damages will require evidence and not conjecture. This lawsuit involved a vehicle seizure in connection with a criminal arrest, and the failure of the county to notify TD Auto, the lienholder, of the seizure. The opinion discussed significant due process issues as well as the protection of secured interests in seized property.

Background: Seizure of the 2020 GMC Sierra

The lawsuit arose when a Connecticut car dealership sold a 2020 GMC Sierra to a customer through a retail installment contract. TD Auto, the financial services company, secured and  perfected a valid lien on the vehicle. However, the customer was arrested by the Putnam County Sheriff’s Department on serious felony charges, including criminal possession of a controlled substance. In connection with the arrest, the sheriff’s department seized the vehicle, holding it as evidence and presumably with the intent to pursue forfeiture once the evidentiary hold was removed.

The vehicle was towed to a secured lot controlled by Putnam County. Despite the serious legal and financial interests TD Auto held in the vehicle, no hearing was conducted to assess the propriety of the seizure, nor was TD Auto ever notified of the impoundment at that time. This failure to provide notice set the stage for a protracted legal battle between TD Auto and the county.

No Notice to the Lienholder: A Breach of Rights

Following the vehicle’s seizure, the county argued and later asserted a de facto possessory lien over the GMC Sierra. While the County impounded the vehicle, the customer defaulted on the retail installment contract, as of November 16, 2020. The situation became further complicated by the fact that TD Auto learned of  the seizure three months later, on February 25, 2021, when the customer personally contacted the financier. [It is critical for lienholders to take swift action when it learns that a vehicle has been seized by a governmental agency to protect against any argument of laches.]

The county’s failure to provide notice to TD Auto violated the lienholder’s rights under due process principles. Despite the customer being notified that the vehicle could be subject to civil forfeiture, TD Auto received no such notice and had no opportunity to participate in a Krimstock hearing (a hearing process designed to review vehicle seizures by law enforcement) or any other proceedings regarding the vehicle’s seizure or potential forfeiture. This lack of communication deprived TD Auto of the opportunity to act in its own interest, either by repossessing the vehicle or by participating in the legal proceedings that followed.

TD Auto’s Claim for Damages

When TD Auto finally learned of the seizure, the company sought three distinct forms of damages:

1. Return of the Vehicle: First, TD Auto requested the immediate return of the 2020 GMC Sierra. As the lienholder, TD Auto was entitled to repossess the vehicle under the terms of the retail installment contract, especially since the customer was in default. The seizure and impoundment by the county prevented TD Auto from exercising this right.
2. Depreciation Damages: TD Auto also sought compensatory damages for the depreciation of the vehicle while it was held in the county’s possession. Vehicles naturally lose value over time, and the extended period during which the Sierra was impounded without TD Auto’s knowledge contributed to a significant loss in the vehicle’s market value.
3. Hypothetical Reinvestment Losses: Additionally, TD Auto argued that, had it been properly notified and allowed to repossess the vehicle, it could have auctioned the 2020 GMC Sierra and reinvested the proceeds into another retail installment contract. The financial services company claimed that the failure to repossess the vehicle in a timely manner resulted in a lost opportunity for reinvestment, and sought damages based on this hypothetical financial scenario.

The court ultimately returned the vehicle to TD Auto but left the issue of damages unresolved. The lawsuit was returned for further discovery and discussion regarding the amount of damages TD Auto was entitled to for the vehicle’s depreciation and the lost opportunity for reinvestment.

The Court’s Ruling: Protection of Lienholder Rights

The court’s decision to send the matter back for further discovery on the issue of damages reflects the importance of preserving the argument when there is such a willfull failure of notice of the seizure and the potential of forfeiture. Although the vehicle was eventually returned to TD Auto, the court recognized that the return of the vehicle did not fully compensate the financial services company for the losses it incurred due to the county’s failure to provide timely notice and allow TD Auto to participate in any potential forfeiture proceedings.

This lawsuit highlights the critical importance of lienholders being provided with proper notice when a vehicle in which they have a financial interest is seized by law enforcement. Under due process principles, lienholders must be given an opportunity to protect their rights and participate in legal proceedings related to the vehicle. In the absence of such notice, as demonstrated in this lawsuit, lienholders may seek consequential damages to recover their financial losses.

Implications of the Lawsuit

The TD Auto lawsuit has several broader implications for lienholders, vehicle financing companies, and law enforcement agencies:

1. Notice Requirements: Law enforcement agencies have a duty to notify all interested parties, including lienholders, when a vehicle is seized. The failure to provide notice, as in this lawsuit, can lead to significant legal and financial repercussions. It is essential for governmental agencies to establish clear protocols for notifying lienholders in a timely and effective manner to avoid disputes and potential claims for damages.
2. Lienholder Rights in Civil Forfeiture: The lawsuit underscores the need for lienholders to be involved in civil forfeiture proceedings. In this situation, TD Auto was not given an opportunity to participate in a Krimstock hearing or any forfeiture action, despite its substantial financial interest in the vehicle. Lienholders have the right to protect their interests and must be included in legal proceedings that may affect those interests.
3. Consequential Damages: The lawsuit raises important questions about the types of damages lienholders can recover when their rights are violated. TD Auto’s claims for depreciation and lost reinvestment opportunities reflect the complex financial losses that can result from a failure to provide proper notice. The court’s decision to allow further discovery on the issue of damages signals that lienholders may be entitled to recover consequential damages beyond the mere return of the seized vehicle.

Conclusion

The TD Auto Fin. LLC v. County of Putnam lawsuit serves as a clear reminder that lienholders are entitled to proper notice and participation in legal proceedings involving seized vehicles. When these rights are violated, as they were in this lawsuit, lienholders have the right to seek damages for their financial losses. The court’s decision emphasizes the importance of protecting lienholder rights and ensuring that all parties are included in the legal process. For law enforcement and lienholders alike, this lawsuit is a critical example of the consequences that can arise from failing to adhere to due process and notice requirements.