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.
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.
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.
Manning Leaver authors the 16th edition of the Dealer Managment Guide, a legal guide used extensively by California new car dealers for legal and regulatory compliance.
This is an article by John Glenn regarding the importance of dealership appraisals.
This is an article by Joseph E. Berberich which discusses representations and warranties typically made in an automobile dealership buy-sell agreement.
This is an article by Brent W. Smith concerning issues that come up in buy-in transactions.
This is an article by Kip Prahl concerning the impact of underground hydraulic hoists in the buying and selling of automobile dealerships.
This is an article by Floyd Clem, C.P.A., regarding the differences between an asset and a stock purchase of an automobile dealership.)
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.
This is an article by Joseph E. Berberich concerning the importance of knowing about factory plans or possible other points in a dealership’s geographic region.
This is an article by Dave Bullock, C.P.A., concerning the impact of LIFO on buy-sell agreements.
This is an article by Brent W. Smith concerning the use of a "friendly foreclosure" to acquire the assets of a financially troubled dealership.
This is an article by Joseph E. Berberich concerning the way in which COBRA insurance factors into buy-sell agreements.
This is an article by former partner Halbert B. Rasmussen concerning the importance of handling the computer equipment in a buy-sell.
This is an article by Ted Kobyashi, C.P.A., examining reasons for creating a dealership as a limited liability company.
This is an article by Penny Reeves regarding issues that come up in a buy-in process.
This is an article by Gary Sparks, C.P.A., that discusses the many uses there are for dealership appraisals.
This is an article by Joseph E. Berberich regarding the importance of examining and handling various contracts and leases to which a dealership may be a party in connection with the buy-sell process.
This is article by Paul Fields concerning valuation of automobile dealership equipment.
This is an article by Boyd Hudson examining covenants not to compete and consulting agreements in the automobile dealership buy-sell process.
This is an article by Ron Seko, C.P.A., concerning the valuation of automobile dealerships.
This is an article by Kent Schmidt regarding the process of selling an automobile dealership and valuations.
This is an article by Penny L. Reeves concerning the impact of the Americans with Disabilities Act on the parties to a buy-sell agreement.
This is an article by Halbert B. Rasmussen concerning employee issues in the buy-sell process.
This is an article by Robert D. Daniels that deals with the subject of buying a dealership out of the bankruptcy court.
This is an article by Scott E. Crawford, C.P.A., of Ernst & Young regarding public ownership of automobile dealership and the impact of this consolidation.
This is an article by former partner Halbert B. Rasmussen regarding the purchase of automobile dealerships by public companies—an excellent review of the process.
This is an article by Joseph E. Berberich about what can happen if the bulk sale laws are not complied with.
This is an article by David S. Bullock, C.P.A. addressing the impact of the 1997 Tax Act on buy-sell agreements and also a discussion on estate and gift tax relief.