Category Archives: Automotive Law

Prior Damage Disclosure: How does As-Is Fit in for the Dealer.

 

 

Let’s face it. Disclosing prior damage to a vehicle in a dealer’s inventory is a nightmare. Under Kentucky law,  and in its simplest terms, the seller of a motor vehicle, be it an individual or dealer, is required to disclose all damage to the vehicle of which the seller has direct knowledge that result in repairs in excess of $2000.00. This duty applies to all repairs except for wheels, tires and glass that occur while it is in the seller’s possession and prior to delivery to the buyer. The disclosure has to be in writing, signed by the buyer. KRS 186A.540. As most readers know, the legislature upped the amount of damage to $2000 in the 2017 legislative session.

So how does this statute square with an As-Is clause in a contract. In Evans v. JNT, Inc. 2015 WL 4967254 the Kentucky Court of Appeals dealt with a case that involved the damage disclosure statute and the As-Is clause in a contract. Almost every lawsuit that I have seen filed against a dealership made the following claims: 1) breach of contract;2) intentional misrepresentation; 3) negligent misrepresentation; 4) breach of express and implied warranties’ and of course, violation of the Kentucky Consumer Protection Act  and failure to disclose prior damage. These claims are cookie cutter for consumer attorneys and quite frankly, are a handful to defend.

The Evans decision chalked one up for the good guys. At least partially. In short,  Evans  found that an As-Is clause protects the seller from claims involving express or implied warranties, breach of contract and negligent representation. It didn’t protect the seller from intentional misrepresentation or KCPA claims, however. Additionally, the court held that KRS 186A.540 creates an affirmative duty on the seller to disclose all damage of which it has direct knowledge including cumulative damage and warranty repairs regardless of whether or not the repairs were billed to the seller.

The use of of AS-IS clauses in a sales contract is an absolute must for a dealership to use. As you can see, it insulates the dealership from many claims but it will not help avoid fraud claims. It puts more of a burden on the buyer to prove fraud, but it doesn’t prevent them.

So what does all this mean? Practically speaking, disclose damage, use AS-IS clauses and never use the words “perfect condition” when describing a vehicle. “As far as I know” are the buzz words to use.

New To The Game? It Can Be Done. I Can Help?

Breaking into the retail auto industry from the outside, as the Automotive News article discusses, can be a very difficult thing to do. Sellers retain brokers. Dealers talk among themselves. And deals are cut without any marketing of the dealership to the outside world. It can be done as this article points out.

If you are in need of an attorney to guide you through the intricacies of buying or selling a dealership, either new or used, call me. I can help.

 

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New Legislation Regarding Damage Disclosure to Motor Vehicles

KY LEGISLATIVE UPDATE

To All Dealers:

KADA priority issue (HB 294) on damage disclosure, is scheduled to be heard by the House Transportation Committee on Tuesday, February 21st.  (See details below)

Please contact your state legislators and ask them to co-sponsor/support this bill.

You can find your legislator by going to the link below:

http://www.lrc.ky.gov/

HB 294 – Introduced by Representative Suzanne Miles – co-sponsors D. Hale and DJ Johnson – An ACT relating to the disclosure of damages by motor vehicle dealers – Amends KRS 186A.540 and KRS 190.0491 to clarify that sellers and dealers must disclose accident damage to a motor vehicle, raise the damage threshold for reporting from $1,000 to $2,000; exempt wheels, tires and glass from the calculation of the damage reporting threshold:

  • Increases the damage disclosure threshold from $1,000 to $2,000
  • Exclude repair estimates from the language of the bill
  • Exclude repair for wheels, tires and glass
  • Provides for updates to the legislation effecting both used and new vehicles

Talking Points:

  • Currently motor vehicle dealers are required to disclose repairs in excess of $1,000 to a prospective purchaser of a vehicle.
  • This amount has not been updated since 2000.  Net rate of inflation in that period has been 39.4%.
  • Vehicles have become more complicated to repair and parts prices have increased with this complexity.
  • Reconditioning of an automobile for sale primarily include cosmetic repairs that do not impact drivability or long term value. 
  • The replacement and painting of a bumper cover plus the replacement of a cracked windshield will easily exceed the $1,000 threshold. 
  • HB 294 increases the threshold from $1,000 to $2,000 reflecting cost increases over the past 16 years. 
  • In addition, HB 294 exempts the replacement of tires, wheels and glass from the calculation.  This provides a clearer picture of the vehicle repairs, rather than including consumable items like tires and components that are not directly tied to the value of the vehicle but are costly and easily replaced.
  • This bill passed both Transportation Committees in 2016, but became entangled in unrelated floor amendments in the Senate during the closing days of the Session.Christopher-Spedding-header3

Employee Embezzlement: A Fox Guarding the Henhouse

A Fox Guarding the Henhouse:

A story broke today where a long time bookkeeper employee for a small business was arrested for embezzling over $1,000,000 from the company. The employee was considered “family” by the company. The moral of the story is this.

  • Require two signatures for all checks
  • Require your bookkeeper to take at least one vacation per year and while on vacation have an audit done on your books; and
  • Be proactive if you are the business owner.

My experience in law enforcement, retail loss prevention and as a criminal defense attorney have conclusively shown me that once an employee steals from a company once, it becomes an addiction and the theft can be devastating. Remember, nobody cares about YOUR company as much as YOU do.

Please click on the link below to see the story.

http://www.wkyt.com/content/news/KSP-Jessamine-Co-bookkeeper-embezelled-more-than-1M-from-company-387682381.html

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If you find yourself faced with an employee embezzlement issue, consider contacting my office.

For more information: http://speddinglawoffice.com/automotive-law/

Hyundai Workers on Strike

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Hyundai Korea Workers have  gone on strike again. This could have a huge impact on inventory that American dealers will have to offer their customers. Automotive News reports that some of Hyundai’s most popular models could be in short supply as a result of the strike.  Dealers should keep this in mind in their advertising strategies as well as the composition of their allocation in the (hopefully) short-term.

Hyundai is one of the up and coming products, continuing to grow in popularity  in the United States with some believing that it could be the next “Toyota”. 

This strike is another example of  the problems that the labor unions can have on  the imports of vehicles from Korea. Ideally, Korea will improve its relations with its workers to avoid the effect it can have on our dealers here in the U.S.

Keep an eye out on the status of this labor shortage and plan accordingly if you are a Hyundai dealer in the U.S. Hopefully it will be a short-term problem.

Please see the article from Automotive News below for more important information about this development. speddinglawoffices_automotivelaw1

Continue reading Hyundai Workers on Strike

Arbitration Agreements: To Use or Not to Use

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Arbitration Agreements:

I have spoken at length with many auto dealers regarding the use of arbitration agreements as part of the sales or leasing transaction with a customer. The question they all ask is, whether or not they should use them. My answer is, and always will be, YES!!!!

I have personally represented clients that DO use these agreements and I have never lost.

Litigious Customers:

Whether or not you believe it, the public views car dealers are viewed with a certain level of suspicion. That suspicion kicks in at the time that the customer first makes contact with your sales team. Unfortunately, it has become a natural phenomenon.

That being said, one of the considerations that a dealer should always keep in mind is that there are consumers out there who are just looking for a reason to sue a dealership. Often, we don’t recognize this and conduct ourselves in a manner that can further exacerbate the situation with customers and give them ammunition to sue the dealer. You can avoid this!

Use a Stand Alone Form.

First and foremost, while many contracts and Buyer’s orders contain an arbitration clause buried in the “small print” that a customer must sign in order to purchase a vehicle, it is still amazing how many dealerships don’t use these agreements at all. This is all fine and good. However, my advice to my clients is: use a stand alone form.

Many of my dealerships simply purchase a form from somewhere like KADA or NADA. While this is a step in the right direction, these form arbitration agreements are not tailored to each individual state. This results in the document having no force or effect. Leading to the agreement being set aside as not complying with state law. You, as a dealer, do not want that!

Useful Tips:

Here are a few tips I can give in crafting an arbitration agreement:

1.     Use a separate document containing the arbitration clause. If, for some reason you cannot use a stand alone document, then make sure the provision in your other documents are present in bold type and  attract the attention of the Buyer. Explain the agreement to them and make sure that there is a separate signature line for the customer to sign within that agreement. This should be separate from any other signature line found in the contract, buyer’s order, etc.;

2.    Make sure that the arbitration agreement specifies where the arbitration is to take place. For example, if in Kentucky, set forth in the agreement that “any arbitration that takes place must occur in _____________ County , Kentucky, pursuant to the laws of the Commonwealth of Kentucky.” If you do not include this language and the lawyer suing you knows what they are doing, the lawyer will assert that the arbitration agreement is void and the court will most likely agree;

3.    MAKE SURE THAT YOU HAVE THE AGREEMENT SIGNED BY BOTH THE CUSTOMER AND THE DEALERSHIP!!! I cannot emphasize this enough. I cannot tell you how many times I have reviewed documents where F&I has not had the customer sign the agreement. If the agreement isn’t signed, it isn’t worth the paper it is written on:

4.   Most importantly, if you are sued, MAKE SURE that your legal counsel asks the Court to compel arbitration in their response to the suit.  If you don’t ask, no one is going to give it to you.

These are but a few tidbits for the dealer to take into consideration when dealing with arbitration agreements. I cannot emphasize enough the importance of using arbitration agreements in your practice of selling or leasing vehicles. The cost it will save is enormous. Like lawyers, a car dealership’s worst nightmare is to have the case be presented to a jury. This has to be avoided if at all possible.  Also remember that standard exclusions in most dealer’s insurance policy will include language excluding claims of fraud. In 21 years of practice, I have never seen a complaint that didn’t include allegations of fraud.

Most dealerships don’t like spending money on document review. I can assure you that the money you spend up front on this issue will save you money on the back-end.

Your job is to sell cars and service for the customer, not be bogged down in litigation.  A few simple things can help prevent you from being bogged down in the middle of a dangerous situation that could have enormous implications for the dealerships.

If you have any questions, please call me at 859-270-1255. Most dealerships take care of the customer. But there are always customers and lawyers looking to make a quick buck and lawyers love to go after dealerships.

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If you find yourself faced with an arbitration question or issue, consider contacting my office.  For more information: http://speddinglawoffice.com/automotive-law/

Volkswagen Recall

Volkswagen agreed to a $14.7 billion dollar settlement  to emissions cheating scandal:

Volkswagen Recall: The settlement is only a preliminary step in the case; the automaker still faces possible criminal charges, as well as civil penalties for Clean Air Act violations. The Department of Justice is investigating possible criminal charges against both the company and individuals, said Deputy Attorney General Sally Yates.

Volkswagen’s wrongdoing constituted “the most flagrant violations of our consumer and environmental laws in our country’s history,” said Yates. “We cannot undo the damage that’s been done to our air quality, but we can offset that damage.”

http://money.cnn.com/2016/06/28/news/companies/volkswagen-fine/

HOW DOES THIS EFFECT DEALERS?

In a nutshell, it is unknown and there is friction between the dealers and VW. For more information, please take a look at the links below.

http://www.autonews.com/article/20160606/OEM/306069960/manufacturers-and-dealers-must-resolve-recall-cost-disputes

http://www.autonews.com/article/20160425/RETAIL07/304259957/vw-dealers-want-remedy-done-right

In short, this situation is a mess and will most certainly affect the brand, and in turn affect dealership sales.  Unfortunately, there are no clear-cut answers at this point. The most effective way to ward off litigation is to have open communication with your customers and maintain a good “bedside manner”.  Clear communication will go a long way with your customer base as well as retain the good will that you have worked so hard to build.

People will forgive and forget VW’s mistake the same way they did the Ford Pinto scandal in the ’70’s although that situation and this could be considered comparing “apples to oranges”

In any event, VW dealers should be diligent in their efforts to lessen the blow that this will have on their business. Like any other situation, good people, good communication and hard work will prevail.

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If you are a car dealer and have concerns about legal matters, please contact my office.  For more information, see: http://speddinglawoffice.com/automotive-law/