Front Line Motor Cars v. Webb

35 Cal.App.5th 153

247 Cal.Rptr.3d 32

FRONT LINE MOTOR CARS, Plaintiff and Appellant,

v.Kathleen K. WEBB, as Acting Director, etc., Defendant and Respondent.

G056061

Court of Appeal, Fourth District, Division 3, California.

Filed May 13, 2019

Prenovost, Normandin, Bergh & Dawe, Michael G. Dawe, Charles "Mike" Michaelis, and Nichole M. Wong, Santa Ana, for Plaintiff and Appellant.

Xavier Becerra, Attorney General, Chris A. Knudsen, Senior Assistant Attorney General, and Kenneth C. Jones, Deputy Attorney General, for Defendant and Respondent.

OPINION

IKOLA, J.

In two unrelated transactions, Front Line Motor Cars (Dealer), a used car dealer licensed by the Department of Motor Vehicles (DMV), repossessed cars after the buyers failed to obtain financing.¹ Dealer then refused to return the buyers’ down payments. The buyers complained to DMV. DMV instructed Dealer to refund the buyers’ down payments. Dealer refused, asserting its actions were proper under the Rees-Levering Motor Vehicles Sales and Finance Act ( Civ. Code, § 2981 et seq. ; the Act) and that DMV lacked the power to sanction Dealer.²

DMV then brought a disciplinary action against Dealer. DMV accused Dealer of violating sections 2982.5, 2982.7, and 2982.9, which are the only sections of the Act which require a seller to refund a buyer’s down payment upon the buyer’s failure to obtain financing. After an administrative hearing, DMV adopted the administrative law judge’s proposed order that Dealer’s license be conditionally revoked for two years due to Dealer’s violation of the Act. Dealer petitioned the superior court for a writ of administrative mandate, which the superior court denied.

On appeal Dealer repeats the same arguments it made below. Dealer is wrong. The Act does not sanction Dealer’s predatory conduct nor does it leave DMV powerless to stop such abuse. As we shall explain, under the unique facts in this case (which reveal Dealer lacked a good faith intent to enter into bona fide credit sales with the buyers), the transactions involved seller-assisted loans subject to section 2982.5 of the Act, which expressly required Dealer to return the buyers’ down payments.³

Accordingly, we affirm the judgment.⁴

FACTS

DMV’s Accusation

Vehicle Code section 11705, subdivision (a)(12) authorizes DMV, upon notice and hearing, to suspend or revoke the license of a dealer who violates the Act. DMV’s accusation against Dealer alleged Dealer failed to return the buyers’ down payments after the buyers were unable to obtain financing in accordance with the contractual terms. The accusation alleged Dealer violated sections 2982.5, subdivision (b), 2982.7, and 2982.9 of the Act, and prayed for revocation or suspension of Dealer’s license and an order that Dealer pay restitution to persons who suffered financial loss.

Administrative Hearing

At the hearing before an administrative law judge (ALJ), the testimony and documentary evidence showed the following.

Twyla Davis purchased a car from Dealer. At Dealer’s office, Davis applied for financing from First Credit Finance (Financier). Davis paid a $ 2,000 down payment and was obligated under the retail installment sale contract to pay an additional deferred down payment of $ 500 two weeks later. One week after Davis signed the contract, Dealer told her she was to return the car because financing had been denied. Three or four days after hearing from Dealer, and on the same day she received the declination letter from Financier, Dealer repossessed the car. Davis asked Dealer to refund her down payment. Dealer refused, telling Davis she would have to sue Dealer in court for the money.

Zaneicesha Phillips paid Dealer a $ 3,800 down payment and was obligated under the retail installment sale contract to pay an additional deferred down payment of $ 500. She had constant mechanical trouble with the car and tried to return it, but Dealer refused, saying the deal was "finalized." After the car was repossessed and Dealer’s manager told Phillips the loan was denied, Phillips requested a refund of her down payment. The manager "laughed and said, ‘No way, ... your loss ... take us to court.’ "

Davis and Phillips filed separate complaints against Dealer with DMV. Wendell Lauderdale, a DMV investigator, and his partner interviewed Dealer’s owner, Omar Torres. Torres stated the Davis and Phillips sales were unwound due to an inability to obtain financing. Torres stated he did not plan to refund Phillips’ down payment and that he had resold the car to another customer. He further stated he did not plan to refund Davis’ down payment and intended to resell the car to another buyer. Torres showed Lauderdale a copy of section 2983.3 (concerning acceleration of maturity and rights of reinstatement following repossession) and of the installment sale contract (which Torres had partially highlighted with pink marker). Torres believed these documents gave him the "legal right to do what he did" and "not refund monies." Torres declared this "was a civil matter and [he] would gladly litigate with the customers if necessary." Lauderdale replied that, as a criminal investigator, he did not wish to "hurt" Torres but wanted to give him an opportunity to pay back Davis and Phillips.

Torres has a bachelor’s degree in finance and a master’s degree in business administration. Prior to becoming a car dealer, he worked for 14 years in the automobile finance industry. In that capacity, he would review a "credit application, time on the job, income, debt-to-income ratio, [and] loan-to-value ratio." He would "go beyond the credit score and look at the actual trade lines," and the applicant’s total debt, creditworthiness, and ability to pay. He was "intricately knowledgeable" in the field.

Torres resold the vehicles he repossessed from Davis and Phillips to other buyers.

In response to questioning by DMV’s counsel, Torres estimated that about 25 percent of Dealer’s sales called for a deferred down payment. When DMV’s counsel asked whether 90 percent of these transactions resulted in a repossession and resale of the vehicle, Torres replied, "No." But when DMV’s counsel asked whether 80 percent of these transactions resulted in a repossession and resale of the vehicle, Torres could not deny it, replying, "I have no idea."

DMV’s Decision

DMV adopted the ALJ’s proposed decision as the final decision. The ALJ’s factual findings included: Davis purchased a car from Dealer "pursuant to a conditional sales contract which required an approval of funding for the contract to be completed" (fn. omitted), and paid Dealer $ 2,000 as a down payment. Dealer submitted a loan application to Financier on Davis’ behalf. Six days later, Financier notified Davis it could not approve her application because her income was below its minimum requirement and her employment could not be verified. That same day, Dealer sent a tow truck to Davis’ home and removed the car. Despite Davis’ attempt to obtain a refund, no part of her down payment was refunded.

Phillips purchased a car from Dealer "pursuant to a conditional sales contract which required an approval of funding for the contract to be completed," and paid Dealer $ 3,800 as a down payment. Dealer submitted a loan application to Financier on Phillips’ behalf. Financier notified Phillips it could not approve her application because Financier lacked certain documentation and information needed to complete the financing. Phillips learned from Dealer that Financier had denied her loan application only after the car had been towed away. Less than 30 days after Phillips purchased the car, Dealer "removed the car from Phillips’ place of employment. [Dealer] subsequently sold the car to another buyer." Despite Phillips’ request for a refund, no part of her down payment was refunded.

"Torres testified at the hearing. He asserted that [Dealer] ha[d] no legal obligation to return the down payments to Davis or Phillips after retrieving the vehicles. Torres contended that [Dealer] was legally entitled to retrieve the vehicles because the buyers had not provided valid employment or salary information on the credit application. ... [Dealer] asserted that Davis had committed fraud by falsely claiming she was employed by Maxim Healthcare Services on her credit application. Davis testified credibly that the information she provided on her credit application was truthful and that she was employed at Maxim Healthcare Services when she applied for credit. [Dealer] failed to present sufficient evidence to refute Davis’ testimony."

"After performing credit checks, [Financier] decided not to grant credit to Davis and Phillips and sent notice that it was denying their applications for vehicle financing." Financier "clearly acted as a lender in these transactions, rather than a third party investor."

Dealer wrongfully refused to return the buyers’ down payments after the buyers failed to obtain financing. Dealer "did not establish that it suffered any financial detriment in regard to the sale of the [cars]. After [Dealer] unwound the sales and took back the vehicles, the cars were returned to [Dealer’s] inventory to be resold to other purchasers. [Dealer] failed to establish a valid basis for its refusal to refund the down payments ...."

The ALJ’s legal conclusions included: DMV had cause to discipline Dealer for violating sections 2982.5, subdivision (b), 2982.7, and 2982.9. Dealer relied on Kunert v. Mission Financial Services Corp. (2003) 110 Cal.App.4th 242, 1 Cal.Rptr.3d 589 ( Kunert ), but Kunert is distinguishable. The facts here clearly establish a seller assisted loan under section 2982.5. Dealer "does not acknowledge any wrongdoing whatsoever and has not established rehabilitation." The "public can only be protected by revocation stayed and issuance of a probationary license."

The ALJ’s proposed decision, adopted in its entirety by DMV, ordered Dealer’s license revoked, then stayed the revocation for two years on condition, inter alia, that Dealer be on a probationary...