Arizona Court of Appeals, Division One holds that a lender who relied on fraudulent vehicle title did not establish title provider owed a duty of care in negligent misrepresentation case.

State law allows the Arizona Department of Transportation (“ADOT”) and its Motor Vehicle Division (“MVD”) to contract with authorized third-party title companies to provide vehicle titles, registrations, and license plates to Arizona drivers.

In 2023, an individual obtained an Arizona certificate of title from one such third-party title provider by presenting what turned out to be a fraudulently altered Georgia title for a stolen Ford F-150. The individual then used the Arizona title to secure a loan. The lender verified the title’s validity with ADOT and placed a lien on it. When the fraud was discovered, ADOT canceled the Arizona title and the lien; law enforcement seized the vehicle, and the individual borrower defaulted on the loan.

The lender sued the title provider in justice court, alleging it had negligently issued the Arizona title without properly investigating the application through the National Motor Vehicle Title Information System, and that it knew of an ongoing fraud scheme involving similar vehicles. It later reframed its claim as negligent misrepresentation.

The justice court dismissed the tort action and the lender appealed to the superior court, reframing its claim as negligent misrepresentation. The superior court reversed, holding that the title provider owed a duty of care to those who would reasonably rely on the title’s accuracy, such as the lender. The title provider then petitioned the Arizona Court of Appeals for special-action relief from the superior court’s appellate ruling. The Court accepted special-action jurisdiction because appellate relief had been exhausted when the matter was appealed to the superior court.

The court of appeals vacated the superior court’s order and remanded for further proceedings. It held that the title provider did not owe the lender a legal duty of care because the lender was not an intended or known recipient of the information that the title provider provided by issuing the Arizona title.

The Court explained that the Restatement (Second) of Torts § 552 governs negligent misrepresentation claims in Arizona. Under that section, an information supplier, such as the title provider, only owes a duty of care to the known or intended recipients of the information it supplies—not to every potential downstream user. An information supplier subject to a “public duty” to provide information may also be liable to members of the class the duty was created to benefit and protect.

The Court found that neither theory of liability applied here. The lender did not allege that it communicated directly with the title provider, or that the title provider knew the borrower would use the Arizona title to secure a loan. Because the lender was merely a member of the broader class of persons who might eventually rely on the title, it fell outside the limited class of known or intended recipients to whom a duty could attach.

Nor did the title provider owe a “public duty” simply by virtue of its contract with ADOT and MVD and the lender did not establish that the title provider was legally required to issue titles for the public’s benefit.

Last, the Court found that the title provider could not be held liable under the lender’s theory that it had actual knowledge of an ongoing fraud scheme when it issued the title. The Court explained that the existence of a duty is a threshold legal question that does not turn on a defendant’s knowledge of specific risks

Judge Williams authored the opinion, in which Judges Jacobs and Catlett joined.

Posted by: Payslie M. Bowman