Articles and alerts

The following articles are written by our attorneys and various other professionals. They are not to be taken as legal, accounting, tax, or other advice. You should consult your own professionals for such advice. Some of the material may not be up to date because of legislative, regulatory, or court case changes. Much of the material, however, remains timely. You should check with your own legal counsel, or other professional, for any updating of the information provided in the article.

Successful Attacks on ASFA Class-Wide Rescission

Gary H Prudian

In recent years, dealerships across California have been hit with class action lawsuits under the Automobile Sales Finance Act (“ASFA”) for alleged contractual disclosure violations.  These disclosure violations generally cause no damage at all to consumers.  Nonetheless, under the ASFA, a contract may be deemed unenforceable as a result, and the customer could elect to rescind the contract.  A customer electing to do so is entitled to a refund of all payments made on the vehicle, and a full release from the lien, in exchange for returning the vehicle.[i]  When applied to class action claims involving thousands of transactions over a four year period, class-wide rescission could cause a dealership to incur millions of dollars in damages – a potentially catastrophic amount.  Fortunately, we have had success convincing courts that the remedy of rescission was not intended for, and is not appropriate, for use in class actions.

[i] The dealership may be entitled to an offset for use, see infra.

Making a dealership sale viable: personal goodwill sales price allocations

Sid Tobiason, CPA and Diane Anderson Murphy, ASA

The discussion surrounding a dealership business sale typically begins with a focus on net sales proceeds (proceeds after paying all debts and taxes). The tax cost of a sale is driven by several factors: the dealership’s entity structure, its tax attributes, and shareholder and employment agreements. These factors can either be favorable or unfavorable from a tax perspective.

California franchise law helps dealers resist export and resale claims chargebacks

Joseph E. Berberich

In 2013 the California New Car Dealers Association (CNCDA) was successful in having a new California Vehicle Code statute enacted that will help dealers defend themselves from factory chargeback claims for vehicles that are exported or resold outside the United States. Effective January 1, 2014, Vehicle Code Section 11713.3(y) provides that it is unlawful for a manufacturer or distributer to:

...take or threaten to take any adverse action against a dealer pursuant to an export or sale-for-resale prohibition because the dealer sold or leased a vehicle to a customer who either exported the vehicle to a foreign country or resold the vehicle in violation of the prohibition, unless the export or sale-for-resale prohibition policy was provided to the dealer in writing prior to the sale or lease, and the dealer knew or reasonably should have known of the customer's intent to export or resell the vehicle in violation of the prohibition at the time of sale or lease. If the dealer causes the vehicle to be registered in this or any other state, and collects or causes to be collected any applicable sales or use tax due to this state, a rebuttable presumption is established that the dealer did not have reason to know of the customer's intent to export or resell the vehicle.

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Need a partner or investor? Consider an LLC

This is an article by Halbert B. Rasmussen concerning the flexibility of the use of a limited liability company for automobile dealerships, or for separate operations of a dealership such as a body shop.