An appeal has blocked distribution of discount coupons to people and businesses that bought or leased new and used vehicles in Louisiana between 1988 and 1997.
The coupons, which could be applied to future purchases, leases, repairs or parts from the vast majority of dealerships in the state, were part of a proposed settlement in a class-action suit.
The suit accused the Louisiana Automobile Dealers Association and more than 300 dealerships of fraud, conspiracy and antitrust violations stemming from their collection of ad valorem taxes on 2.9 million vehicles.
The ad valorem tax was a local property tax assessed on motor vehicles held in inventory. The tax was allowed under a 1987 law conceived, drafted and lobbied for by the state dealer group.
Individual parishes, equivalent to counties, charged the taxes on dealer inventories, and most dealerships tacked them on after lease and purchase prices were negotiated.
The law was amended in 1995 to require dealers to identify the tax separately on purchase agreements. Under current law, the tax is no longer passed on to customers. In-stead, the dealers get a dollar-for-dollar credit against their state income tax liability, says Claude Reynaud, Louisiana Automobile Dealers Association general counsel.
The defendants denied any wrongdoing in listing the ad valorem tax on buyer invoices above the negotiated sales price and asserted they were merely following state law at the time. The tax averaged $30 to $34 per vehicle and totaled about $90 million over the period.
Reynaud said dealers were divided on whether to settle, but they accepted the agreement rather than face the risk of trial. 'We were looking at an industry-threatening decision if the plaintiffs hit a home run,' he said, referring to the potential of a $270 million verdict under the triple-damage provision of federal antitrust law.
U.S. District Judge Donald Walter in Shreveport approved the settlement in January.
Under the plan, claimants would get a certificate based on the actual or estimated amount of ad valorem tax each paid. More than 937,000 settlement notices were mailed to Louisiana residents - equal to one for every two households - and the settlement proposal was advertised in 102 in-state newspapers, in southern and St. Louis regional editions of USA Today and in the military newspaper Stars and Stripes.
More than 450,000 claims have been submitted, and 'we're getting calls every day' from people asking the whereabouts of their promised coupons, said Keith Welch of Shreveport, one of the plaintiffs' lawyers.
Under the settlement, claimants could:
Apply three times the face value of their certificates, up to $500, to buy or lease a new or used vehicle from any of the settling dealerships, which represent 90 percent of the state's new-car dealerships.
Apply twice the face value of their certificates for parts or service at participating dealers, up to a maximum of $400 or 25 percent of the cost of the service or parts.
The certificates would be transferable and good for five years.
Reynaud said dealers' actual liability is likely to be less because objections have been filed to almost 100,000 of the claims. For example, he said there are no records to verify some alleged transactions, while other cars were bought or leased after some dealers stopped tacking on the tax.
'The reaction of dealers across the board is diverse,' he said. Some believe the coupons will spur sales and service, while others worry about absorbing the cost.
Several groups of purchasers objected to the settlement at a hearing before Walter, but only one group, led by New Orleans lawyer Richard Martinez, appealed to the 5th U.S. Circuit Court of Appeals.
A lawyer working on the Martinez appeal, Jeffrey Ormsby of New Orleans, called the settlement inequitable.
'We had a problem with noncash relief,' as well as the attorney fees of $6,457,000 for the plaintiffs' lawyers, Ormsby said.
But Welch said the Martinez group 'did not put on any evidence and did not cross-examine any of our witnesses' at the hearing.
The Martinez group has until May 18 to file its appellate brief, according to Welch, who said the plaintiffs will ask the court to expedite the appeal.
As for about 330 Louisiana dealerships, Reynaud of the state dealer group said the appeal leaves them up in the air.
'The worst effect is the uncertainty over the settlement,' he said. 'They've already incurred over $1 million in costs for the claim administrator,' and a trial would prove expensive and could lead to much higher liability if the plaintiffs win.