- December 16, 2016 -

 

For years CNCDA and dealer compliance attorneys have warned about the potential liability for backdating and misstating fees on automobile sales contracts. One dealer has fought two cases through the appellate courts for most of the 21st century and finally, on December 15, 2016, the California Supreme Court issued its long-awaited ruling on the Raceway Ford Cases.

 

 In an era where it seems so many court decisions haven't gone the way of dealers, yesterday's unanimous decision in favor of the dealership was both a surprising and sweeping victory that affirmed the 2014 decision in the Court of Appeal.   Raceway Ford was the first California Supreme Court case focusing extensively on the Automobile Sales Finance Act (“ASFA”) in over 50 years.  CNCDA filed a friend of the court brief in the case supporting the dealership’s position.

     

The Raceway plaintiffs asserted individual and class claims arising from the dealership’s alleged practice of backdating rewritten contracts to the date of the original contract, and incorrectly charging purchasers of diesel vehicles inapplicable smog fees.  The Supreme Court, expressly overruled the 2010 appellate court decision in Nelson v. Pearson Ford Co. and held that (1) backdating does not violate the ASFA in all circumstances, (2) backdating does not result in an “illegal finance charge,” (3) backdating does not violate the Single Document Rule, which is intended to prohibit side agreements not included in the operative contract, and (4) incorrect charges to customers resulting from a computer glitch do not entitle the customer to a rescission or unwinding of the contract under the ASFA.  The Supreme Court also confirmed the trial court’s large attorney fee award in favor of the dealership and against plaintiffs in regard to the backdating claims and remanded to the trial court the issue of attorneys’ fees in regard to the smog fee claims.  The ultimate amount of attorneys’ fees awarded to the dealership could be in the neighborhood of $1.5 million.  Perhaps most importantly, the Supreme Court confirmed that the purpose of the ASFA is to protect consumers from dealer misconduct, while also avoiding a windfall for plaintiffs.

     

The Raceway Supreme Court decision is not only a broad victory for dealerships, but also for common-sense.  The Legislature enacted the ASFA in order to protect consumers from nefarious practices, not to create windfalls for unscrupulous plaintiffs and their attorneys based on minor technical disclosure issues.  The decision will bolster dealerships’ efforts to defend against not only backdating claims but also a wide variety of other claims that relied on Nelson’s overbroad application of the ASFA...