Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Lone consumer in Ford dealership class action states sufficient fraud claims, (Sep 17, 2014)

By Greg Hammond, J.D.

A Ford dealership could not dodge claims that it violated California’s Unfair Competition law (UCL) and Consumer Legal Remedies Act (CLRA) by misrepresenting to a consumer that he could not refuse to sign a second contract and unwind a transaction, after he did not qualify for financing. In partially reversing and remanding the lower court’s decision, the California Court of Appeals in Riverside determined that a business practice that meets the standard for liability for common law fraud also establishes liability under the UCL (Raceway Ford Cases, September 16, 2014, Hollenhorst, T.).

Background. Raceway Ford is an automobile dealership that sometimes acts as a creditor, by extending financing for the sale of its vehicles. Once a financing contract is signed with Raceway, the dealership typically attempts to assign the contract to a commercial lender. In the event commercial lenders are unwilling to accept assignment of a particular contract, Raceway sometimes contacts customers and requests to renegotiate the terms of the sale and financing.

Consumers filed an 18 count complaint against Raceway Ford, alleging—in part—violations of California’s unfair competition and deceptive acts laws. Specifically, a class of consumers alleged that Raceway’s practice of backdating second or subsequent contracts, after the first contract was renegotiated, violated the UCL and CLRA. In addition, Francisco Salcedo—an individual Raceway customer—alleged that the dealership violated the two statutes by falsely telling him that he could not refuse to sign a second contract, after he failed to qualify for financing and his trade-in vehicle was “lost.”

The trial court found in favor of Raceway on the class action claims, awarding the dealership over $1.5 million in attorney’s fees. Although the trial court failed to acknowledge Salcedo’s individual UCL and CLRA, claims, it found in favor of his common law fraud claim. The consumers appealed the court’s decision.

Salcedo’s claims. According to the court, the lower court never addressed Salcedo’s UCL and CLRA claims, after finding in favor of his common law fraud claim. However, the court noted, “it is uncontroversial that a business practice that meets the standard for liability for common law fraud would also suffice to establish liability under the ‘unlawful’ or ‘fraudulent’ prongs of the UCL.” Further, it determined that Raceway’s false representation that Salcedo had to purchase an alternative vehicle, and could not unwind the transaction, violated the CLRA, which prohibits representations that a transaction involves obligations that it—in fact—does not have or involve, or which are prohibited by law. The lower court’s ruling with regard to Salcedo’s UCL and CLRA claims was therefore reversed and remanded.

Backdating claims. In support of its appeal, the class argued that Raceway’s backdating practice violated the CLRA’s ban on representations “that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law.” The court disagreed with the consumers’ assertion that they were obligated to pay a finance charge they were not actually required to pay, as Federal Reserve Board Regulation Z, issued to implement the Truth In Lending Act, does not prohibit the parties from contracting for interest calculated from a date prior to the consummation of a contract. Further, the court found that because “preconsummation interest” is not illegal or prohibited, the class failed to demonstrate injury in fact, and therefore lacked standing under the UCL. Consequently, the trial court’s decision with regard to the class’ UCL and CLRA claims was affirmed.

The case numbers are E054517, E056595.

Attorneys: Hallen D. Rosner, Christopher P. Barry, and Angela J. Smith (Rosner, Barry & Babbitt) for plaintiffs and appellants. Kellie S. Christianson (Callahan, Thompson, Sherman & Caudill) for Raceway Ford, Inc.

Companies: Raceway Ford, Inc.

Cases: StateUnfairTradePractices CaliforniaNews