April 2014- The CarLawyer


By Thomas B. Hudson and Nicole Frush Munro

Well, it isn’t spring yet (actually it is, it just doesn’t feel like it), but it has to warm up any day now.  At least we’ve thawed out enough to write this article.  Take a minute and look at what we’ve come up with this month with our collection of selected legislative and regulatory highlights.  We also recap of some of the many auto sale and financing lawsuits we follow each month. Remember – what we report here does not capture every recent development. We select those we think might be particularly important or interesting to dealers.

We include items from other states. Why? We want you to be able to see new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws.  If Attorneys General or plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon appear in your state.

Note that this column does not offer legal advice. Always check with your own lawyer to learn how what we report might apply to you, or if you have any questions.

This Month’s CARLAWYER© Compliance Tip

When we review deal jackets, we frequently discover two, three or four arbitration agreements in the various deal documents.  We’ll see one in the retail installment sales contract, one in the buyers order and one in one or more F&I products like GAP or a service contract.  Courts don’t like it when they encounter multiple arbitration agreements and have refused to enforce any of the agreements when they do.  The compliance tip?  Go count the number of arbitration agreements in your deal jackets.  If you find more than one, schedule a visit with your lawyer.

Federal Developments

On March 21, the Federal Trade Commission entered into a proposed consent order with Courtesy Auto Group, Inc., resolving allegations that the Massachusetts-based dealership violated the FTC Act and the Consumer Leasing Act by advertising that consumers could lease a vehicle for $0 down with specific monthly payments when, in fact, the advertised amounts excluded substantial fees and failed to clearly and conspicuously disclose certain lease-related terms. The proposed consent order prohibits the dealership from misrepresenting the cost of leasing a vehicle, the cost of purchasing a vehicle with financing, or any other material fact about the price, sale, financing, or leasing of a vehicle. The dealership also is prohibited from stating the amount of any payment, or that any or no payment is required at lease inception, without clearly and conspicuously disclosing the terms required by the Consumer Leasing Act.

On March 6, the Consumer Financial Protection Bureau’s Office of Servicemember Affairs released a report providing a snapshot of complaints the CFPB has received from servicemembers, veterans, and their families from July 21, 2011 through February 1, 2014. The report covers more than 14,000 complaints from military consumers. The report details the monetary relief amounts and non-monetary relief that military consumers have received since July 2011. According to the report, mortgages, debt collection, and credit cards are the top three complaint categories among military consumers. The CFPB released its first report on military consumer complaints in the spring of 2013.

On March 5, the FTC released a summary of its debt collection activities in 2013. The FTC provided this summary to the CFPB on February 21 in order to assist the CFPB in preparing its annual report to Congress on the Fair Debt Collection Practices Act. The FTC noted that its debt collection program is a 3-pronged effort: (1) law enforcement; (2) education and public outreach; and (3) research and policy initiatives. According to the FTC’s summary, law enforcement investigations and litigation comprise a substantial portion of the FTC’s debt collection activities. The summary discusses cases that represent a concerted effort by the FTC to target unlawful debt collection practices, including false threats, harassment or abuse, and attempts to collect on “phantom” payday loan debts. The FTC states that one of its highest priorities continues to be targeting debt collectors that engage in deceptive, unfair, or abusive conduct. “Phantom” debt collectors engage in unfair, abusive, or deceptive conduct by attempting to collect on debts that either do not exist or are not owed to the debt collector. The FTC also noted its concern about (1) the collection of a debt that is beyond the applicable statute of limitations; (2) whether communications are actionable under the FDCPA if they are part of a legal pleading; (3) unlawful arbitration tactics; and (4) collection tactics that pressure consumers into abandoning their rights under the FDCPA, such as debt collection from consumers while they are receiving treatment at a medical facility.

On February 27, the FTC released its report on the top consumer complaints for 2013. The FTC received more than two million complaints overall in 2013 through its Consumer Sentinel Network. Identity theft continues to top the list of consumer complaints, with 14 percent of complaints falling into this category. Seven percent of complaints fell in the “banks and lenders” category.  Only four percent of complaints were “auto related.” The report details national data and provides a state-by-state accounting of top complaint categories and a listing of the metropolitan areas that generated the most complaints.

State Enforcement

On March 6, Florida Attorney General Pam Bondi announced a settlement with Gatorland Toyota, resolving allegations that the dealer’s former sales representatives engaged in high-pressure sales tactics and failed to clearly and conspicuously disclose the cost of products and services associated with the purchase and lease of a vehicle.


Out-of-State Dealer Who Sold Car on eBay to Oklahoma Resident Subject to Jurisdiction in Oklahoma: An Oklahoma resident bid on a car with a 30-day warranty listed for sale on eBay by a Tennessee dealership that was owned by a Tennessee resident. The owner sent an email to the Oklahoma bidder prior to the closing date of the auction suggesting that she contact him to negotiate a “buy it now” price. The bidder called the owner, but she did not opt to “buy it now.” After the bidder won the auction, the owner sent the purchase contract to the bidder in Oklahoma, where she signed the contract and returned it to Tennessee. After the vehicle was shipped to Oklahoma, the bidder determined that the vehicle was not in the condition advertised and sued the dealership and its owner in Oklahoma state court for fraud and violations of the Oklahoma Consumer Protection Act. The defendants moved to dismiss the case for lack of personal jurisdiction, claiming they did not have sufficient minimum contacts with Oklahoma. The trial court granted the motion, and the Oklahoma Supreme Court reversed and remanded, concluding that there were sufficient minimum contacts because the owner negotiated directly with the bidder, the vehicle was subject to a warranty while it was titled and driven in Oklahoma, and the defendants had sold cars to other residents of Oklahoma. See Guffey v. Ostonakulov, 2014 Okla. LEXIS 8 (Okla. February 11, 2014).

Fourteenth Amendment Claims against Repossession Company Allowed to Proceed Where Company May Have Acted in Concert with Police: Two employees of a repossession company attempted to repossess a truck from the owner’s home. A police officer ended up being called to the scene. Ultimately, more police officers arrived at the scene, the truck owner was arrested, and the repossession company employees removed the truck. The truck owner sued the police officer and the repossession company and its employees involved in the repossession, alleging, among other claims, that they violated his Fourteenth Amendment due process rights by unlawfully seizing his property. The defendants moved for summary judgment, and the U.S. District Court for the Northern District of New York denied the motion. The repossession company defendants argued that the Fourteenth Amendment claim against them must be dismissed because the private repossession did not rise to the level of state action. The court concluded that summary judgment on this claim was inappropriate because there were issues of material fact regarding whether the repossession company defendants acted under color of state law based on their interactions with the police. In support of their argument that they did not act in concert with the police during the repossession, the repossession company defendants argued that they had taken possession of the truck prior to the first police officer arriving and prior to the altercation that allegedly caused the truck owner’s arrest. The owner argued that it was only after the police arrived that the repossession company defendants were able to tow his truck off his property, and, but for the police, he would have continued to resist the repossession. See Boles v. The County of Montgomery, 2014 U.S. Dist. LEXIS 18265 (N.D.N.Y. February 13, 2014).

Breach of Contract Claim for Unwinding Spot Delivery Fails: A car buyer signed a retail installment sales contract and a conditional delivery agreement. The RISC, which contained a merger clause, listed the dealership as the seller/creditor, but it also stated that the dealership assigned its interest in the contract to a finance company. The CDA provided that the terms of the RISC were not binding until accepted by a designated finance source and that the RISC would be cancelled if the finance source rejected the terms. After the buyer’s financing was eventually denied, the dealership retrieved the car from the buyer. The buyer sued, and a jury ruled in favor of the dealership. The Court of Appeals of North Carolina affirmed. The buyer claimed that the dealership breached the RISC, and because the RISC contained a merger clause, the CDA should not have been considered. The appellate court determined that the RISC and the CDA were both components of an overall agreement between the parties, despite the fact that the RISC contained a merger provision. The appellate court also determined that there was no binding agreement between the parties in the event that the proposed finance company declined to extend credit. The appellate court also rejected the claim that the use of the CDA constituted an unfair and deceptive trade practice, noting that such agreements were expressly authorized in North Carolina. In addition, the appellate court rejected the conversion claim, finding no evidence that a certificate of title noting the buyer’s ownership was ever issued and noting language in the CDA that reflected that the parties did not intend for a transfer of ownership to occur until financing had been obtained. See Patterson v. University Ford, Inc., 2014 N.C. App. LEXIS 247 (N.C. App. March 4, 2014).

Assignee of Contract Governed by Maryland Credit Grantor Closed End Credit Law Must Comply with Statute when Enforcing Contract: A car buyer signed a finance contract with a dealership that then assigned the contract to a finance company. When the buyer defaulted, the finance company repossessed and sold her car and asserted a deficiency claim. The buyer sued the finance company, alleging that the repossession and sale of the car did not comply with the notice and accounting provisions of the Maryland Credit Grantor Closed End Credit Law (“CLEC”), the law designated in the contract as applicable to the transaction. The trial court dismissed the CLEC claims as barred by the statute of limitations and dismissed the breach of contract claims on the ground that the requirements of CLEC were not incorporated into the contract as to an assignee of the contract. The Court of Appeals of Maryland reversed and remanded. After determining that the buyer’s CLEC claims were not barred by the statute of limitations, the high court found that the finance company, as assignee of the buyer’s financing contract, was bound to comply with the CLEC provisions where the contract contained a notice in boldface print that stated that any holder of the contract is subject to all claims that the debtor could assert against the seller. See Patton v. Wells Fargo Financial Maryland, Inc., 2014 Md. LEXIS 72 (Md. February 24, 2014).

So there’s this month’s roundup! Stay legal, and we’ll see you next month.

Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners in the law firm of Hudson Cook, LLC. Tom has written several books, available at www.counselorlibrary.com. Tom is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot DeliverySpot Delivery, CARLAW and the books are produced by CounselorLibrary.com LLC. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2014, all rights reserved. Single publication rights only, to the Association. (3/14) HC# 4840-4785-7689.

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