A federal judge has thrown out most of a lawsuit, including Truth in Lending and racketeering claims, against a Maryland dealership in a dispute based on the financing of a new Chevrolet Equinox.
But U.S. District Judge Paul Grimm allowed Monica Sterling to pursue fraud and consumer-protection allegations and part of her Fair Credit Reporting Act claim against Ourisman Chevrolet of Bowie Inc. in Bowie, Md.
Sterling went to the dealership in September 2012 to trade in her 2007 TrailBlazer LT, according to the decision. She chose a new Traverse, and an Ourisman employee quoted her monthly payments of $650. A second employee explained the paperwork, asked for bank statements and a tax form, then told her the Traverse was $10,000 more than she had been quoted but that the store could sell her an Equinox for $650 a month.
She left and returned the next day with the documents. She met with the second employee, who told her the Equinox would cost $800 a month, not the $650 he had quoted her the day before. She replied she would pay only $650. A third employee later told her the store could sell her the Equinox for $650 as expected but that she had to make a $1,000 deposit and an $800 payment before the transaction was final. She signed the vehicle sales contract and other paperwork, agreeing to trade in the TrailBlazer and agreeing to the finance terms.
About two weeks later, the store told her it needed an IRS form 4506-T, which she signed. But five days later she was told that financing was denied and that she needed to return the Equinox, which she did. The store said it would mail back the deposit minus a usage charge.
Meanwhile, the dealership had sold the TrailBlazer, although Sterling was still incurring late fees for not making payments on it after she traded it in. The dealership bought the TrailBlazer back and returned it to Sterling, telling her she owned the store $1,400. She sued.
The plaintiff’s lawyer, Tyler King of Washington, D.C., said Sterling did not get her deposit back.
The dealership said in court papers that without financing, the sale was not completed. It asked the judge to dismiss all federal and state law claims. He agreed in part.
For example, the judge threw out claims under the Fair Debt Collection Practices Act and its Maryland counterpart because the dealership’s principal business is selling vehicles, not collecting debts. Similarly, he said the dealership was not a creditor under those laws.
As for the truth-in-lending claims, the judge held the suit didn’t properly assert that the contract terms were misrepresented and that the dealership failed to make required disclosures.
He threw out part of the Fair Credit Reporting Act claim because the dealership had a legitimate reason to obtain Sterling’s credit report. But he let stand an allegation under the act that the store took the “adverse action of denying credit based on either her credit report or her failure to file her tax return.”
The RICO claim, based on the Racketeer Influenced and Corrupt Organizations Act, fell short because there was no evidence that the dealership engaged in a “pattern of racketeering” or that the loan rate was unreasonable or usurious, the judge said. Also torpedoed were claims of negligence, breach of contract and violation of Maryland Motor Vehicle Administration rules.
The judge let stand a civil fraud claim, for which Sterling seeks punitive damages, and allegations under Maryland’s consumer protection statute, which allows triple damages.
Dealership lawyer Amy Leone of Rockville, Md., said the dealership will file an answer to the claims that remain and that it will deny all the allegations.
Ally Financial Inc., an original co-defendant, earlier had been dropped from the case.
Where it stands: Washington state attorney general wins injunction, monitors compliance.
Washington state law requires that dealerships pay off consumer trade-ins by the end of the second business day after each transaction.
Three of the dealerships are operating under Chapter 11 bankruptcy protection: Gilbert Chrysler-Jeep-Dodge-Ram in Walla Walla, Wash.; Gilbert Auto Nissan in Moses Lake., Wash.; and Gilbert Auto Ford in Moscow, Idaho.
A fourth store, Gilbert Auto Honda in College Place, Wash., isn't in bankruptcy, and a company spokeswoman said settlement discussions concerning that store are under way.
She also said the Gilbert group and its owner are complying with the injunction.
The attorney general's case also accuses the defendants of dealer law violations related to separate lawsuits by American Honda Finance Corp., which claims it is owed more than $4.2 million for floorplan and construction loans, and by Nissan Motor Acceptance Corp., which claims a $1.3 million out-of-trust position.
"This is probably the worst I've seen, but I've only been doing this for 20 years," said Mary Lobdell, senior counsel in the attorney general's office. "Let it be a warning. What a mess."
The attorney general's lawsuit, filed in Walla Walla County Superior Court, details 42 transactions at the four stores between January 2011 and February 2013 in which trade-ins were not paid off in time.
Lobdell said owner Gilbert was named in the attorney general's lawsuit because the consumer protection law allows personal liability for anyone who "directs and controls unfair and deceptive" conduct.
In a statement about the bankruptcy, filed March 13, Gilbert said no stores will close and no employees will lose jobs. He said he expects the reorganization to take 90 to 120 days.
Lobdell said her agency didn't sue the group's Gilbert Chevrolet in Pendleton, Ore., because there was no evidence that Washington residents suffered injuries from any misconduct there. The dealership is in bankruptcy, and GM Financial is among its creditors, court documents show.
Bankruptcy law doesn't prevent Washington state from exercising its regulatory and enforcement powers and allows the state to calculate losses to consumers, Lobdell said, but the state can't collect damages while the dealerships are in bankruptcy protection.
"It's vigorously disputed how much is owed," she said, adding that her office is also receiving complaints about refunds on service contracts the dealerships sold.
Nissan Motor Acceptance lawyer Andrew Elliott of San Francisco declined to discuss details of the case but said the bankruptcy stay does not shield Gilbert, who personally guaranteed the loans, because he hasn't filed for bankruptcy protection.