Contributors

Christian Scali

Founder and Managing Shareholder

Front Line Motor Cars v. Webb (2019) 35 Cal. App. 5th 153.

Earlier in 2019, a published decision served as a reminder of the Department of Motor Vehicles’ (“DMV”) licensing board’s dedication to ensuring that license holders comply with applicable law, and refrain from actions it views as abusive of consumers. In Front Line Motor Cars v. Webb, 35 Cal. App. 5th 153 (2019)) the DMV prevailed on appeal in a challenge to its conditional revocation of a used car dealer’s license. The licensing board conditionally revoked the license on the basis that the dealer had violated the Rees Levering Auto Sales Finance Act (“Rees-Levering”) by refusing to return the purchaser’s down payments after it could not obtain financing on conditional sales contracts. The Dealer filed a writ petition challenging the DMV licensing board’s revocation of its license in Orange County Superior Court, lost, and appealed from the denial of its writ.

The appellate court focused its review on Civil Code section 2982.5, subsection d, the portion of Rees-Levering pertaining to seller assisted loans, rather than section 2982.5, subsection b, pertaining to bona fide credit sales. (Both types of transactions require that a down payment be returned where financing is denied and the seller refuses to proceed with the transaction. The significant difference between these transactions is that a dealer can receive a commission for bona fide credit sale made pursuant to a conditional sales contract, but cannot receive such a commission in a seller assisted loan transaction.) A bona fide credit sale under the Rees-Levering Auto Sales Finance Act requires the seller to rescind if it cannot obtain financing and does not wish to finance the transaction itself. The Court found that the dealer never intended to make credit sales, because it did not return the down payments in a large number of transactions and breached the terms of the conditional sales contracts itself, which required the return of the down payments. The Court reasoned that the foregoing, when coupled with the dealer’s knowledge of the financial services industry, and his invitations to consumers to sue him in response to their request for a return of their down payment, indicated he only intended to be bound by the provisions of the conditional sales contracts if financing was obtained from a third-party. The Court thus concluded these transactions were really seller assisted loans, where the dealer intended only to contract with the purchaser if the financing was secured. On that basis the Court of Appeal affirmed the conditional revocation of the dealer license, finding that the dealer violated Rees-Levering’s provisions on seller assisted loan transactions which require that down payments be returned when the financing cannot be secured.

As interesting as one may find the Court’s hyper-technical analysis of the applicable statutory provisions, the most generally applicable moral of this story is that the DMV is aggressive. Due to its power to revoke a license, a DMV enforcement action can literally mean the death of a dealership. What’s more surprising, is that a DMV administrative disciplinary proceeding, or “accusation” that could result in the revocation of a license can be initiated with the provision of notice by certified mail. In other words, do not simply expect legal service from the DMV to come through an agent for service of process. DMV can and does send certified mail to the address on the dealer’s license, the showroom, pursuant to Government Code section 11505. Ensuring mail protocols are followed and that those that sign for mail are held accountable for placing mail before those that need to see it, can literally ensure that a dealer retains the ability to operate.

Part 2 >