Auto Dealership Defense
The automobile dealership business has and continues to become more complex. At Bromagen, Rathet, Klee & Smith, P.A. we have years of experience in multiple areas of commercial litigation and transactional law with specific application to the automobile industry. Areas of involvement on behalf of dealerships include warranty issues, general liability issues, personal injury claims, employment law and litigation, consumer matters, advertising issues, privacy laws and regulations and general state and federal compliance, regulation and law and bankruptcy court issues.
Bromagen, Rathet, Klee, & Smith, P.A. offers automobile dealers a wide variety of legal services. With offices in Ft. Lauderdale, Jacksonville and Tampa area, we cover dealerships throughout Florida while offering the personal attention and responsiveness you expect from a local firm.
Bromagen, Rathet, Klee & Smith, P.A. have been a frequent contributor to Dealership magazine, preparing articles on a broad variety of legal topics affecting dealerships of all sizes. Our attorneys have decades of combined experience in handling legal issues involving the automotive industry and dealerships, including:
- Drafting and review of dealers’ buy/sell agreements
- Review of vendor contracts
- Employment law guidance and dispute resolution
- Regulatory compliance
- Environmental issues
- Defense of consumer actions / lemon law and warranty defense
- Administrative law matters
- Negligence and general liability claims
- Contract litigation
Recently our firm has successfully represented client in actions including: representing a dealership in a claim brought by a bankruptcy trustee based upon a purchase of a vehicle by a consumer involved in a fraudulent investment scheme, representation of a dealer in an employment discrimination case brought by a former dealership employee, and representation of a dealership in a class action case brought by consumers under consumer protection statutes including the Equal Credit Opportunity Act, the Truth in Lending Act, and the Fair Credit Reporting Act and successful arbitrations of breach of warranty claims.
Recent Arbitration Decisions
Consumer purchased a 2008 Ford F-350 on October 3, 2007 from a dealer that he used for business purposes. The Consumer signed the dealer’s Retail Purchase Agreement that disclaimed any warranties. The Consumer brought the vehicle to dealer on a few occasions for warranty repairs for a coolant leak, transmission jerk and slipping while driving. The dealer tested the vehicle for any computer codes indicating a problem; test drove the vehicle and found that the vehicle shifted properly. The dealer found evidence of driving at excessive speeds and an aftermarket programmer. The Consumer refused to pick up the vehicle, abandoned it and it was repossessed.
The Arbitrator found the dealer disclaimers clear, conspicuous and in accordance with Florida law. The Arbitrator ruled that the Consumer had no basis for any breach of contract or breach of warranty claims as a matter of law against the dealer. The Consumer also failed to prove any legal or factual basis to revoke his acceptance of the vehicle or any deceptive act by the dealer.
TILA Law Update
Creditors must take great care to comply with the Truth-in-Lending Act (TILA). A creditor must prepare accurate disclosures and provide them to consumers exactly as required by TILA in order to avoid regulatory fines or possibly being sued. Although TILA has been around for quite some time, many dealers are still getting it wrong because the requirements, though simple, are very specific.
An adverse action notice is required when adverse action is taken, and the notice must contain specific information, such as the name and address of the creditor and a description of the action taken. In addition, the notification must contain either specific reasons for the action taken, or a "disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification." The Fair Credit Reporting Act also has the parallel requirement to send an adverse action notice. Federal courts have been issuing rulings expanding on the necessity of car dealers to provide notice of adverse action under the Equal Credit Opportunity Act and the FCRA.
The TILA requires financial disclosures in a "timely manner" (prior to consummation of deal), regulates advertising disclosures regarding credit, requires proper disclosure of "negative equity" as additional amount financed, does NOT specify a 3-day right to rescind a car purchase and also requires dealerships to sell vehicles for the same price to credit customer as cash customers.
The FCRA regulates "permissible use" of consumer credit reports, makes dealer liable for employee's misuse of customer's credit information, prohibits "mouse type" in dealership ads, regulates direct mail "credit offers", does NOT require a customer's signature in order to pull a credit bureau, reasonable expectation of credit transaction, customer must indicate they want to finance transaction for "permissible use" and also allows a customer to view the credit report obtained by the dealership.
As the 7th Circuit Court found in the Treadway v. Gateway Chevrolet Oldsmobile decision in 2004, even casual discussion about credit with a consumer could create a moment of liability for a dealer. Dealers are subject to growing regulatory controls, requirements and monitoring by those who would profit from loose business processes and lax compliance efforts.
In addition to actual damages, certain types of violations of the federal TILA can result in statutory damages. A recent Nevada case is a good example. In that case, a Chapter 13 trustee sued a payday lender for statutory damages for violating the TILA by failing to provide the debtor required disclosures prior to consummation of the transaction, in violation of 15 U.S.C. § 1638(b)(1), and failing to disclose the finance charge and annual percentage rate properly and conspicuously, in violation of 15 U.S.C. § 1632(a). The payday lender did not respond to the complaint, so the bankruptcy court disallowed the lender's proof of claim and found that it violated TILA but refused to award statutory or actual damages. The circuit court agreed that TILA limits liability for statutory damages to certain TILA violations, and the list of TILA violations did not include Section 1638(b)(1) or Section 1632(a). Moreover, the circuit court agreed that the trustee was not entitled to actual damages where she did not prove that the debtor detrimentally relied on the faulty loan documents. See In re Ferrell (McDonald v. Checks-N-Advance, Inc.), 2008 WL 3876602 (9th Cir. (9th Cir. BAP (Bankr. D. Nev.)) August 22, 2008).
The Federal Trade Commission's "Holder Rule" requires language in all consumer credit sale contracts to inform consumers that any claims or defenses they have against the seller of the goods may be asserted against any "holder" of the credit contract. The TILA says that an assignee/holder of a consumer credit contract will be liable for the seller's TILA violation only if the violation is apparent on the face of the disclosure statement.
Recently, the Eleventh Circuit joined the Seventh Circuit concluding that the FTC Holder Rule does not trump the protection afforded to assignees under the TILA. In Ellis v. General Motors Acceptance Corporation, 160 F.3d 703; 1998 U.S. App. LEXIS 28456, the plaintiff bought a used 1993 Saturn, with an extended warranty. They later found out that although the contract said $1,195 was paid to a third party, the car dealer actually retained a substantial portion of this amount. Instead of suing the car dealer, they brought a class action complaint against General Motors Acceptance Corporation (GMAC). They argued that the car dealer misrepresented the amount paid to others in violation of the TILA and pursuant to the FTC Holder Rule language in their contract, GMAC waived the assignee protections afforded by TILA. And while Plaintiff conceded that a regulation couldn't trump the plain language of a statute, they claimed that GMAC assumed greater liability under the Holder Rule language in the contract. GMAC countered that the FTC mandates this provision of the contract; theforere, there was no voluntary waiver of the protections provided by TILA. GMAC argued that a contrary finding by the court would elevate the FTC Holder Rule over the protection that Congress provided assignees under TILA. The court agreed, ruling that the contractual language required by the FTC regulation, by itself, could not subject GMAC to liability. Ellis v. General Motors Acceptance Corporation, 1998 U.S. App. LEXIS 28456 (11th Cir. (N.D. AL) November 13, 1998).