Automotive law

California Auto Dealer Firm

The state and federal laws and regulations with which automobile dealers must comply are complicated and become more complicated each year. Moreover, some factories continually put pressure on dealers by setting unreasonable performance benchmarks, imposing unreasonable facility requirements, adopting unfair incentive programs and ignoring the market consequences to existing dealers of making changes in dealer representation. 

The consequences of non-compliance with laws and regulations and lack of awareness of when the actions of overreaching factories can be challenged can be substantial and expensive. We have over 15 years of experience immersed in the laws and regulations affecting every aspect of dealership business and have been consulted by bill sponsors on proposed revisions to some of these laws. We bring this depth of experience to our representation of dealers and other automotive industry clients, including surety bonding companies, finance companies, Internet marketing companies, wholesalers, parts manufacturers and brokers.

We provide the following full range of services to our dealer clients:

  • Franchise protests and litigation;
  • F&I/Truth-In-Lending litigation, including class actions and arbitrations;
  • Regulatory and advertising advice and counsel, including without limitation, F&I, ECOA, GLBA, FTC, Red Flags, TILA and state truth-in-lending, truth-in-leasing laws;
  • DMV, BAR, CARB and BOE investigations, accusations and audit representation;
  • Labor and employment advice and counsel, litigation and arbitrations, including class actions;
  • Breach of warranty/product defect and wrongful death litigation;
  • Operations and process advice and counsel;
  • Commercial lease negotiation and drafting;
  • Buy/sell agreements, and litigation arising from breaches of same;
  • Anti-trust and other business to business claims alleging non-competitive behavior or unfair competition;
  • Commercial litigation, including lawsuits concerning secured transactions and actions on guarantees; and
  • Business advice and counsel and lawsuits.

Many laws affecting dealers and automotive industry companies frequently change and savvy consumer and employee advocates seek to take advantage of these changes in the law to bring massive class actions against dealers, seeing them as an easy target. Don’t be a target. If you need assistance or legal representation, contact us for more information or to schedule an appointment. Our attorneys are helping you to avoid litigation when it’s possible and protecting you when it isn’t.

Learn more about our outside general counsel services.

Dealer advocates against the factory

We advocate and negotiate on behalf of dealers involving disputes with a franchisor or “factory.” If necessary, we prosecute or defend Protests and Petitions filed with the California New Motor Vehicle Board. These actions include relocations, “add points” and terminations, as well as actions in which the factory attempts to impose chargebacks after a warranty or incentive audit.

When factories attempt to impose unreasonable facility demands on dealers, including providing new or exclusive sales and service facilities, committing to new signage and remodeling and/or relocating the dealership to a larger, more visible location, we advise dealers on their rights and assist them in protecting their rights and investment.

When factories attempt to “build a record” of poor sales performance or below average CSI scores and attempt to impose an amendment or addendum to your agreement requiring you to meet minimum sales and/or CSI performance indices in a given period of time, we advise dealers on their rights and obligations to best position themselves and protect their interests.

When factories “notice the market” about a change in market representation, e.g., establishment of a new dealership of the same line-make in an area serviced by a dealer, and the new dealership may severely damage business, we advise dealers on their rights and the deadlines to respond.

When factories suggest that a dealer’s chosen successor or proposed buyer will not be approved, we advise our dealer clients on whether and how to challenge that decision and how to best position themselves.

When factories conduct warranty audits and state that they intend to charge back significant sums of money as a result of alleged discrepancies purportedly uncovered in the audit, we advise dealers on how to protect themselves against improper chargebacks.

When a dealer receives a notice of termination, we advise dealers on their rights and chances of success on a Protest of that action. Should a dealer decide to challenge the decision, we fight the factory with a specialized team tailored for the success of that case.

We advise dealers on their rights when the factory fails to provide adequate or reasonable allocation of vehicles or attempts to “dump” vehicles on a dealer.

F&I individual and class action litigation

We are on the forefront of developing successful strategies for defense against individual consumer and class action F&I litigation. If a case should be settled pre-litigation or early on in a case, we advise the dealer and attempt to best position the dealer for a favorable settlement. If the case cannot be settled, we strive to provide an economical and efficient defense to these cases.

We have litigated and defended numerous F&I class actions, including cases involving the following claims:

  • Government fee lumping;
  • Tire Fees;
  • Optional DMV Electronic Filing Fee;
  • Backdating;
  • 10-day payoff;
  • Single Document Rule;
  • “Rolling in” of negative equity in lease agreements;
  • “Rolling in” of negative equity in retail installment sale contracts; and
  • Advertising representative actions.

Our lawyers have successfully defeated class claims early in the inception of class lawsuits, saving our dealer clients hundreds of thousands of dollars in defense costs and potentially millions of dollars in adverse verdicts.

Moreover, our lawyers have been on the forefront of the evolving arbitration issue in California, involving class action waivers and the arbitrability of claims under the arbitration provision in the LAW553-CA-ARB form. Our lawyers have argued in trial courts and the court of appeal and have been consulted on briefing and argument strategies on the pinnacle cases in this area of the law. Our lawyers are frequent lecturers and authors of legal articles on arbitration.

Advertising and compliance advice and counsel

Automobile advertising is regulated at the state and federal level. Advertising laws are complex and highly technical. We review dealer print, television and radio ads for legal compliance before they run.

Because we serve in the capacity as outside general counsel for some dealer clients, we continually monitor changes in the law and acceptable standards and practices at automobile dealerships. This allows us to remain immersed in the myriad state and federal laws that affect dealership operations and makes us an excellent resource for nearly any regulatory question from an automobile dealership. We advise our dealer clients regularly on F&I related practices and laws, ECOA, GLBA, FTC, Red Flags, TILA and state truth-in-lending and truth-in-leasing laws.

In addition, we conduct comprehensive and thorough reviews of business practices and forms, including the sales and F&I departments, and make recommendations for changes in dealership practices and forms to ensure compliance with the law so that our clients can stay ahead of the law and avoid being a target for expensive and time-consuming litigation.

Administrative representation

Dealers are regulated by the DMV, the BAR, the CARB and the BOE. From time to time these agencies conduct investigations and file accusations or initiate other administrative proceedings against dealers. Actions initiated by these agencies can have devastating consequences and often come with them the penalty of suspension of closure for a period of days, should the agency prevail. We have successfully resolved claims with these agencies on behalf of our dealer clients without ever having a dealer have to shut its doors for any period of time.

Labor and employment

Most dealerships are not unionized. But those that have unions need representation in connection with the drafting and revising of an MOU or to handle grievances or negotiate the union’s contract. We are available to provide these services to our dealer clients.

All California dealerships have to comply with wage and hour and employment laws. There is probably no other more fast-moving and changeable area of the law. And the penalties of non-compliance can be devastating. We review dealership employment practices, conduct HR audits, draft and review employee policies, employee handbooks and arbitration agreements and see that all applications and forms are in compliance. We also continually monitor the law concerning pay plans and keep our clients abreast of up to the minute changes in the law affecting how their employees must be compensated.

Additionally, our attorneys litigate harassment and discrimination claims, privacy claims and wage and hour claims, before arbitrators, hearing officers and judges. We have successfully represented dealer clients in defense of wage and hour class actions and individual employee actions, both in arbitration and in court.

Trade secrets and trade infringement

The retail automobile sales industry is fast-paced and competitive, resulting in high employee turn-over. We help our dealer clients develop and maintain effective policies and procedures to safeguard their trade secrets, e.g., customer lists and lease return dates, and assist them in redressing a competitor’s use of those trade secrets and their trademarks and other intellectual property when competitorsor former employees seeks to use this property for their own financial gain.

Breach of warranty and product defect litigation

Our lawyers are versed in the lemon laws and routinely defend dealers sued for purported warranty law violations. While the manufacturers defend many of these cases, manufacturers often refuse to defend claims involving breach of implied warranty on used vehicles or claims involving allegations of negligent repair and resulting personal injury or wrongful death. Our attorneys have successfully defended dealers on these claims, including wrongful death and asbestos cases brought against its dealer clients.

Operations and process advice and counsel 

Whether it is to develop and implement a Red Flags program, a protocol for inventory control or to develop a factory-compliant CPO program, our attorneys have the experience required to advise our dealer clients on operations and processes unique to the automotive industry.

Commercial lease negotiation and drafting

From time to time, our dealer clients need assistance in drafting or negotiating commercial leases and other commercial contracts. Our attorneys are available to assist our dealer clients with maximizing their rights in connection with the drafting and negotiation of such contracts.

Buy/Sell agreements and litigation arising from breaches of same

When the time comes to buy or sell a dealership, we prepare agreements and provide advice in such related areas as the purchase and sale or leasing of real estate, temporary management agreements, environmental matters, financing, buy-ins and other related issues unique to auto dealerships.

Additionally, we litigate disputes over buy/sell agreements either due to a breach or fraud in the inducement or other theory.

Anti-trust and business to business claims

Our attorneys have deep experience litigating all manner of business to business claims. For example, in addition to the types of litigation mentioned above, our attorneys have litigated:

  • Claims by dealers against captive finance companies and manufacturers for fraud and collusion;
  • Claims by wholesale parts distributors against parts manufacturer and other wholesale parts distributor for fraud and violation of state anti-trust laws;
  • Claims by purchaser of franchisor against seller of franchise and franchisor for fraud and rescission of the buy/sell;
  • Claims by vendor against company for breach or anticipatory repudiation of contract;
  • Claims by retail lender against dealers for recourse of entire loan portfolios;
  • Claims by credit union against dealer for quiet title and conversion; and
  • Claims by minority shareholders for involuntary dissolution of company.

Commercial litigation

Our attorneys are also well-versed in the law relating to secured transactions under Article 9 of the Commercial Code, including buyer’s and seller’s rights and rights and obligations on default and disposition of collateral. We have litigated claims by bank against guarantors of note and guarantor’s cross-claims for failure to act commercially reasonably in providing notice and disposing of collateral. We have also litigated claims for possession of collateral and recovery the loan obligation. Additionally, we have litigated claims involving breach of the terms of flooring lines of credit and capital loans in the bankruptcy courts, including proceedings for the sale of companies as debtors in possession.

Business advice and counsel 

We perform the legal work necessary for running a business, including formation and dissolution of corporations and partnerships, corporate minutes and resolutions and transfer of stock. We prepare buy-in agreements and shareholder agreements and advise on succession planning. We also review and draft contracts and help our clients structure their contractual relationships to their best advantage.