SLO: (805) 546-8785 | Paso Robles: (805) 226-4148

Automobile Dealers and Manufacturers

An Unwaivable Right under the Consumer Legal Remedies Act, Revisited

I previously summarized a decision out of the California Court of Appeals, Fourth Appellate District, Fisher v. DCH Temecula Imports LLC, in which the court held that a consumer’s right to bring a class action under the California Legal Remedies Act (the “CLRA”) constitutes an unwaivable statutory right.  In this blog, I will discuss a parallel case from the California Court of Appeals, Second Appellate District, Sanchez v. Valencia Holding Co., LLC, that has been simultaneously working its way through the courts.  A review of my prior September 21, 2010 entry would be helpful to understanding this update: Unwaivable Right.

Read More
Do You Need a Driver’s License to Buy or Lease a Vehicle in California?

At some point, dealers are likely to find themselves confronted with the question of whether they must verify that a potential buyer or lessee has a valid driver’s license. While the question is complex and without an entirely clear answer, dealers can take certain precautions which will decrease their chances of incurring future liability.

Read More
Desperate Times, Desperate Measures

The continuing economic downturn is impacting more than dealership profit margins.  It has recently come to our attention that lenders are employing desperate measures in an attempt to force dealers to buy back their contracts.  More specifically, lenders are clinging to any arguments that they can make, however credible, that dealers are in default on their contracts.  Some examples are instructive and will serve to put dealerships on notice of recurring lender tactics.

Read More
A recent California case holds that a consumer's right to bring a class action under the California Legal Remedies Act constitutes an unwaivable statutory right.

Last month, in Fisher v. DCH Temecula Imports LLC, No. 3E047802, 2010 WL 3192912 (Cal. Ct. App. August 13, 2010), a case certified for publication, the California Fourth Appellate District held that a consumer’s right to bring a class action under the California Legal Remedies Act (“CLRA”) constitutes an unwaivable statutory right.  

Read More
When Upselling Becomes Unlawful Under the Automotive Repair Act

The California Automotive Repair Act (the “Act”), codified as California Business and Professions Code section 9800 et seq., was enacted by the California Legislature in 1971 in an attempt to regulate automotive repair dealers, namely those who engage in the business of repairing or diagnosing malfunctions of motor vehicles. 

Read More
LOST IN TRANSLATION

    On July 2, 1964, the Civil Rights Act (“Act”) of 1964 was signed into law.  Title VI of the Act provides that “[n]o person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefit of, or be subjected to discrimination under any program or activity receiving Federal Financial Assistance.  In 1974, the Supreme Court decided Lau v. Nichols, (1974) 414 U.S. 563, the cornerstone of language access advocacy.  The Court held that a San Francisco school district violated Title VI when it failed to provide adequate instruction for Chinese students who did not speak English, finding that the Title VI prohibition against discrimination based on national original includes discrimination based on limited English proficiency (“LEP”).

    While the Act only applies to public and private entities receiving federal financial assistance, the California State Legislature (“Legislature”) followed suit and enacted a number of statutes mandating language access.  In 1976, less than one year after Lau v. Nichols, the Legislature enacted California Civil Code section 1632 which requires the following:

Any person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, in the course of entering into a [contract], shall deliver to the other party to the contract or agreement and prior to the extension thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, which includes a translation of every term and condition in that contract or agreement.

    The courts have repeatedly made clear that California Civil Code section 1632 applies to automobile sales contracts.  In a recent unpublished case, Alarcon v. Fireside Bank, (2010) Case Nos. A117148 and A118566, the First Appellate District Court held that a dealer who negotiated the sales contract in Spanish but failed to provide a completely filled-in copy of the contract translated into Spanish, violated California Civil Code section 1632.  Consequently, pursuant to section 1632(k), the consumer was given the opportunity to rescind the contract.  In Reyes v. Superior Court, (1981) 118 Cal. App. 3d 159, the court held that a borrower in an automobile loan transaction who is entitled to a Spanish translation of his loan contract pursuant to section 1632 is also entitled to a Spanish translation of any deficiency and repossession notice involving the loan contract sent to him pursuant to the requirements of the Automobile Sales Finance Act. 

Erica A. Stuckey

estuckey@carnaclaw.com

Read More
The Door-to-Door Sales Rule and Off-Site Automobile Sales

    Dealers should proceed with caution in blindly relying on the common assumption that there is no cooling-off period for automobile sales.  Under federal law, vehicle sales are not expressly exempted from what is commonly referred to as the Door-to-Door Sales Rule.  The law requires that sellers provide buyers with a limited right to cancel where the transaction amounts to a door-to-door sale.  A door-to-door sale is defined as “[a] sale, lease, or rental of consumer goods or services with a purchase price of $25 or more, whether under single or multiple contracts, in which the seller or his representative personally solicits the sale, including those in response to or following an invitation by the buyer, and the buyer’s agreement or offer to purchase is made at a place other than the place of business of the seller (e.g., sales at the buyer’s residence or at facilities rented on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants, or sales at the buyer’s workplace or in dormitory lounges)” (emphasis added).  16 C.F.R. 429.0 (2010).

    As discussed in the California New Car Dealers Association’s (CNCDA) May 2010 Bulletin, dealers must be wary when engaging in off-site sales.  While the Rule exempts “sellers of automobiles, vans, trucks or other motor vehicles sold at auctions, tent sales or other temporary places of business, provided that the seller is a seller of vehicles with a permanent place of business,” it does not categorically exempt all off-site sales.  16 C.F.R. 429.3 (2010).  In an effort to determine which common dealer activities may fall within the Door-to-Door Sales Rule, the CNCDA recently obtained clarification from the Federal Trade Commission (“FTC”).  The FTC advised the CNCDA that the Door-to-Door Sales Rule is inapplicable where off-site deliveries and brokered transactions are concerned but may be applicable in circumstances involving ongoing negotiations or co-buyer signatures.  More specifically, the Rule may apply where the dealer has a general agreement to sell the vehicle but completes the negotiations and contract off-site and/or when the dealer must have a second co-buyer sign the contract off-site.

Erica A. Stuckey    

estuckey@carnaclaw.com

 

 

Read More
A Pragmatic Approach to the Single Document Rule Cont’d

In a previous positing, I discussed the implications of the recent California Attorney General (“AG”) opinion on the California Automobile Sales Finance Act’s (CASFA) Single Document Rule for new car dealers.  I will now explore the legal reasoning behind the AG’s opinion and explain why I find it potentially problematic.   

 

In reaching his decision that all agreements between the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle need not be referenced on a single sheet of paper, the AG first applied well-established rules of statutory construction.  Looking to the usual and ordinary meaning of the words, the AG found that the term “single document” means “a separate or individual paper.”  The AG concluded that nothing in this definition requires that the entire document “be contained on one page or on one sheet of paper.”

 

The AG further supported his conclusion by appealing to the relevant case law.  In

Kroupa v. Sunrise Ford, the Court of Appeal held that three occurrences—consumer traded in two vehicles, consumers received a rebate from the dealer, consumer entered into a vehicle lease—constituted a single transaction that should have been memorialized in a single document.  Because the terms of the lease did not contain information about the rebate and the trade-ins, the Court found that the Single Document Rule had been violated.  The Court, however, failed to state that all the information relating to the three occurrences had to be contained on one sheet of paper.  In Morgan v. Reasor Corp., the California Supreme Court found a violation of the Single Document Rule where an installment contract and promissory note were not physically attached to each other.  The AG argued that this holding implies that separate pages physically attached to each other can constitute a single document.  Lastly, the Attorney General appealed to a recent California Supreme Court decision, Alan v. American Honda Motor Co., Inc.  While the Court’s decision did not directly involve the CAFSA, the Court interpreted a rule of court to include a single document requirement.  In interpreting the requirement, the Court stated that “[o]bviously a document can have multiple pages.”

 

The AG’s opening statements suggest that pragmatic considerations also played an instrumental role in informing his conclusion.  He notes that “taking all of the rules into account, an automobile sales contract must now be approximately 24 inches long (printed on both sides) in order to contain all required provisions in their required sizes.”  This is a gross understatement when viewed in the practical light of an automobile finance office on a Sunday afternoon.  Every closer must determine how far the law goes in regulating agreements that are silent as to the contract terms and amounts but might have some indirect affect on the total cost of the transaction.  These necessary agreements are frequently used by plaintiffs’ attorneys attempting to rescind auto sales contracts for violating the Single Document Rule.  I am referring, for example, to pay-off adjustments for trade-ins, damage indemnity agreements and GAP (guaranteed automobile protection) agreements. 

 

As I briefly mentioned in my previous posting, the AG’s opinion does not provide adequate justification for eliminating the requirement that all agreements between the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle be referenced on a single sheet of paper.  The AG relies merely on the absence of any such articulated requirement coupled with pragmatic considerations to support his rejection of the prevailing interpretation.  There is simply insufficient case law to determine with any degree of certainty how a court would rule on this issue. We are cautiously optimistic, however, that a court would reach a similar decision based on the same pragmatic considerations and lack of adverse authority.

 

Erica A. Stuckey

estuckey@carnaclaw.com

Read More
WHAT HAPPENS WHEN AN AUTOMOBILE DEALER CANNOT GET A CUSTOMER’S FINANCING APPROVED?

We have received a few inquiries lately asking what consumers’ rights are when an automobile dealer cannot get a buyer’s financing approved.  The short answer is that if a buyer cannot obtain a dealer-assisted loan, the conditional sales agreement is rescinded and all consideration must be returned to the buyer.  See Civil Code section 2982.9.

 

Can a dealer attempt to change the conditional sales contract to make it acceptable to another lender? 

 

The dealer can ask the buyer to pay a higher interest rate, make a larger down payment or obtain a co-signer, but the buyer is not obligated to do any of these things.  The buyer can simply drop off the car at the dealership and get all of his/her money back.  It makes no difference if the buyer has driven the new car for 10,000 miles; if a dealer cannot get the buyer financed under the terms and conditions of the original contract, the buyer gets all of his/her money back.

 

What happens if the buyer was trying to obtain a loan from someone other than the dealer but was unable to do so? 

 

If the dealer knows these facts and delivers the vehicle pursuant to a one-pay contract for which the buyer is unable to get approval from his/her credit union or bank, then the dealer has a duty to refund to the customer all the money he has received.

 

What happens when there is a trade-in involved? 

 

If the buyer leaves his/her motor vehicle with the seller as a down payment and it is not returned by the seller for whatever reason, the buyer may recover from the seller either the fair market value of the motor vehicle or its value as stated in the contract or purchase order, whichever is greater.

 

 

In this tight money market, financing is getting harder and harder to obtain.  Manufacturers have great incentives for those with perfect credit but little reward for the imperfect.   A dealer must be sure to qualify a buyer before delivery or he will find himself refunding the down payment and adding a used vehicle to his inventory.  

 

Erica A. Stuckey

estuckey@carnaclaw.com

Read More
A Pragmatic Approach to the Single Document Rule

The California Automobile Sales Finance Act (AFSA) protects consumers from excessive finance charges and hidden costs by requiring that automobile sales contracts disclose all items of cost. An extremely important provision of the AFSA is the Single Document Rule contained in Civil Code section 2981.9. Under the Single Document Rule ("SDR"), every conditional sales contract "shall contain in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle."

There has been much confusion over how to interpret the SDR. In a recent opinion, 8 Ops.Cal.Atty.Gen. (2009) (the "Opinion"), the California Attorney General rejected what had been the prevailing interpretation. Under the prevailing interpretation, all agreements need not be contained on a single piece of paper, but any agreement not so contained must be physically attached to and clearly cited on the face of the conditional sales contract form. The Opinion dismissed any requirement that all agreements be contained or referenced

in a single sheet of paper, finding that the SDR is satisfied if the document consists of multiple pages that are attached to each other and integrated such as through inclusive sequential numbering.

Appropriate procedure prior to the Opinion would require evidence of true incorporation by reference and integration of every collateral document into a single document. In order to minimize any SDR risk, the dealer would need to insert a description of the incorporated document followed by the words "attached to and made a part of this agreement." The dealer would then attach the original incorporated document to the original contract and then attach a copy of the document to each copy of the contract, including the customer’s copy, using staples or some other bonding agent. To be extra careful, the dealer would then place a corresponding statement on the first page of the attached document that "this document is attached to and made a part of," followed by the name and date of the contract form being used. The Opinion directs that it is now possible to satisfy the SDR requirement for automobile sales contracts if the document consists of multiple pages that are attached to each other and integrated by means such as inclusive sequential pages numbering (e.g. "1 of 4," "2 of 4," etc.).

While the process of selling an automobile would be greatly simplified if the Opinion were binding authority, there is reason for automobile dealers to proceed with caution in relying on the Opinion’s interpretation. We agree with the Attorney General’s finding that application of the rules of statutory construction and the relevant case law lead to the conclusion that the SDR does not require that all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle be contained on a single sheet of paper. It is, however, currently far less clear that the SDR does not mandate that all such agreements be referenced on a single sheet of paper. The Attorney General relies merely on the absence of any such articulated requirement coupled with pragmatic considerations to support his rejection of the prevailing interpretation. There is simply insufficient case law to determine with any degree of certainty how a court would rule on this issue. Stay tuned for my analysis of the Opinion for those interested in the legal reasoning

Erica A. Stuckey

estuckey@carnaclaw.com

Read More