Mendoza et al v. Lithia Motors, Inc. et al

Filing 21

ORDER: Granting in Part Denying in Part with leave to renew 15 Motion to Dismiss for Failure to State a Claim. Plaintiffs' allegations defeat defendants' motion based on the statute of limitations at this stage of the proceeding s. However, plaintiffs' allegations regarding third-party products and services do not support claims under Or. Rev. Stat. §§ 646.608(l)(e),(g), and (k) and those claims are DISMISSED. Further, plaintiffs' theories of ascertainabl e loss and causation with respect to vehicle financing and third-party products and services are unclear and do not state a claim for violation of the UTPA. Within thirty (30) days, plaintiffs shall move to amend their complaint to clarify the nature of the losses they suffered and explain how their losses were caused by each defendant's conduct. See, formal Opinion. Signed on 1/11/2017 by Judge Ann L. Aiken. (rdr)

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON

JOSEPH FRANK MENDOZA, MARTIN and
CAROL JOCKS, DONALD and ANGELA
GARRISON, DAVID and ANGELITA
JARMAN, individually and on behalf of all
others similarly situated,

Case No. 6: 16-cv-O 1264-AA
OPINION AND ORDER

Plaintiffs,
v.
LITHIA MOTORS, INC., LITHIA
FINANCIAL CORPORATION, SALEM-V,
LLC d/b/a VOLKSWAGEN OF SALEM, and
LITHIA KLAMATH, INC. d/b/a LITHIA
KLAMATH FALLS AUTO CENTER,
Defendants.

AIKEN, District Judge:
Plaintiffs bring this putative class action suit against defendants alleging violations of the
federal Truth in Lending Act (TILA), Oregon's Unlawful Trade Practices Act (UTPA), and
Oregon's financial elder abuse statute. Plaintiffs allege that defendants failed to comply with the
disclosure requirements of both TILA and the UTPA, and that in failing to make those

1 - OPINION AND ORDER

disclosures, defendants wrongfully appropriated money from elderly persons. Defendants now
move to dismiss ce11ain claims pursuant to Fed. R. Civ. Proc. 12(b)(6) for failure to state a claim
upon which relief can be granted. For the reasons discussed below, defendants' motion is granted
in part and denied in pait and plaintiff is allowed to seek leave to amend.
I. BACKGROUND
The following facts are taken from plaintiffs' First Amended Complaint; they are
accepted as true and construed in the light most favorable to plaintiffs for purposes of this
motion. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th Cir. 2012).
The named plaintiffs are residents of Oregon who purchased vehicles and other goods or
services from one or more of the defendants, all of which are headquaitered in Oregon. First Am.
Comp!. iiii 1-8, 16-31.
In August 2013, plaintiffs Carol and Mmtin Jocks purchased a vehicle from a Lithia
dealership in Klamath Falls, Oregon. Carol Jocks was over the age of sixty-five at the time.
Lithia arranged for vehicle financing at an interest rate of 3.99%, a rate higher than the interest
rate quoted by the loan provider. First Am. Comp!.

ii 21. The loan provider then paid defendants

an undisclosed amount of money based on the difference between the quoted interest rate and the
interest rate agreed to by the Jocks. The Jocks apparently also purchased an extended service
waiTanty contract for $2,644.05. 1 The dealership paid the third-party provider of the contract an
undisclosed, non-itemized amount of more than $100. Defendants either retained a large

1

In the Complaint, plaintiffs allege that the Jocks purchased "a credit life policy for
$2,644.05," while refe1Ting to the same purchase as a service contract. First Am. Comp!. ii 20. In
their motion to dismiss, defendants posit that plaintiffs' reference to a "service contract" was a
typographical error. In their reply, plaintiffs acknowledge that the Jocks did not purchase a credit
life policy but do not clarify whether the Jocks purchased an extended warranty. Pis.' Response
at 7. Because the Cou11 accepts the factual allegations as true at this stage of the proceedings, I
accept the allegation that the Jocks purchased an extended service warranty for $2,644.05.
2 - OPINION AND ORDER

percentage of the wananty price as profit or received a large payment, or "kickback," from the
third party. First Am. Comp!. 'if 20.
In August 2013, plaintiffs Angela and Donald Garrison also purchased a vehicle from a
Lithia dealership in Klamath Falls, Oregon. Lithia arranged for vehicle financing with an interest
rate of 3.99%, which was higher than the interest rate quoted by the loan provider. The loan
provider then made a payment to defendants based on the difference between the quoted interest
rate and the interest rate to which the Garrisons agreed. First Am. Comp!.

'if'il

25-27. The

Ganisons did not purchase an extended vehicle service wairnnty.
In December 2015, plaintiffs David and Angelita Jarman likewise purchased a vehicle at
a Lithia dealership in Klamath Falls, Oregon. The dealership arranged for vehicle financing with
an interest rate of 5.34%, which, again, was higher than the interest rate quoted by the loan
provider. The loan provider then paid defendants an undisclosed amount of money based on the
difference in the interest rates. First Am. Comp!. 'if'il 28-29. The Ja1mans also purchased an
extended vehicle service warranty for $1,616.00. The dealership paid a third party more than
$100 for the warranty contract, and defendants either retained a large portion the warranty
payment or received a large "kickback" payment from the third-party. First Am. Comp!.

'if 29.

On June 3, 2016, plaintiff Joseph Frank Mendoza purchased a vehicle from Volkswagen
of Salem, a dealership allegedly owned by Lithia Motors, Inc. The dealership airnnged for
vehicle financing with an interest rate of 3.94%, a higher rate than that quoted by the loan
provider. First An1. Comp!. 'if 17. Mendoza also paid $2,495.00 for an extended warranty, and
defendants paid the warranty provider an undisclosed, non-itemized amount of more than $100.
Defendants either retained a percentage of the purchase price as profit or received a "kickback"
from the third-patiy provider. First Am. Comp!. 'if 16.

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On June 24, 2016, plaintiffs filed this action.
II. DISCUSSION
Under Rule l 2(b)( 6), a complaint must contain sufficient factual allegations, which, if
assumed to be true, "state a claim for relief that is plausible on its face." Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face if the factual allegations in
the complaint allow a comt to reasonably infer the defendant's liability based on the alleged
conduct. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The factual allegations in the complaint
must present more than "the mere possibility of misconduct," id. at 679, and more than a
"formulaic recitation of the elements of a cause of action," Twombly, 550 U.S. at 555.

A.

Timeliness of Claims Asserted by the Jocks and the Garrisons

Defendants first move to dismiss as untimely the TILA and UTP A claims brought by the
Jocks and the Garrisons.
Under TILA, plaintiffs are required to bring an action "within one year from the date of
the occurrence of the violation." 15 U.S.C. § 1640(e). Generally, the "date of the occu!Tence of
the violation" is the date on which the transaction was completed. King v. State of Cal., 784 F.2d
910, 915 (9th Cir. 1986). However, TILA's one-year limitation is subject to equitable tolling,
which "may, in appropriate circumstances, suspend the limitations period until the bo!Tower
discovers or had reasonable opportunity to discover the fraud or nondisclosures that fom1 the
basis of the TILA action." Id.
Similarly, Oregon's UTPA provides, "Actions brought under this section must be
commenced within one year after the discovery of the unlawful method, act or practice,"
effectively incorporating the discovery rule into the statute. Or. Rev. Stat. § 646.638(6); Pearson

v. Philip 1'1forris, Inc., 358 Or. 88, 137, 361 P.3d 3 (2015) (because the limitation period under

4 - OPINION AND ORDER

the UTPA "is tied to the plaintiffs 'discovery' of the unlawfol conduct, it runs in this case from
when the plaintiffs and the members of the plaintiff class either actually knew or should have
known" of the defendant's alleged misrepresentation).
It is undisputed that the Jocks and the Garrisons purchased their vehicles in August of

2013 and did not file suit until 2016, well beyond the one-year limitations period. However,
plaintiffs argue that the Jocks and Garrisons did not know of and could not have reasonably
discovered defendants' alleged TILA and UTPA violations in 2013, because defendants
concealed info1mation necessary to discover the violations. Plaintiffs farther argue that no
amount of due diligence would have allowed them to discover the claims at the time they
purchased the vehicles, given defendants' concealment of pertinent information. Defendants
maintain that plaintiffs must plead facts justifying the application of equitable tolling and the
discovery rule, and that they fail to allege when and how they discovered the alleged violations.
At this stage of the proceedings, I must accept plaintiffs' allegations as true and construe
all inferences in their favor. They allege that defendants concealed information regarding the true
nature of defendants' financial atTat1gements with loan providers and other third parties, thus
preventing plaintiffs from discovering the details of those arrangements. Giving plaintiffs the
deference due under Rule l 2(b )(6), I find that they allege adequate facts demonstrating that
equitable tolling and the discovery rule could apply, depending on the specific facts of this case.
Accordingly, defendants' motion to dismiss the TILA and UTPA claims brought by the Jocks
and Garrisons is denied, with leave to renew after discovery.

B.

Oregon Unlawfiil Trade Practices Act (UTPA) Claims

Plaintiffs' UTPA allegations are based on defendants' failure to disclose fee "kickbacks"
received from loan providers when arranging vehicle financing and the payments received from

5 - OPINION AND ORDER

third parties for ananging the sale of third-patty goods or services. Pis.' Response at 17; First
Am. Comp!.

'if'il 61, 62. To bring a private cause of action under the UTP A, a plaintiff is required

to show that "(1) the defendant committed an unlawful trade practice; (2) plaintiff suffered an
ascertainable loss of money or propetty; and (3) plaintiff's injury (ascertainable loss) was the
result of the unlawful trade practice." Pearson, 358 Or. at 127, 361P.3d3.
Defendants move to dismiss all of plaintiffs' UTP A claims on grounds that plaintiffs fail
to allege and cannot show that they suffered ascettainable loss as a result of defendants' alleged
misrepresentations. Defendants also move to dismiss plaintiffs' claims relating to third-patty
good or services on grounds that no UTPA provision requires them to itemize and disclose
profits associated with third-patty goods and services.

1.

UTPA Ascertainable Loss and Causation

An ascertainable loss is one that is economic in nature and involves "money or property,
real or personal," such that the loss is "objectively verifiable." Pearson, 358 Or. at 117, 361 P.3d
3 (quoting Or. Rev. Stat. § 646.638(1)). Noneconomic damages which are not objectively
verifiable, such as physical pain or emotional distress, do not constitute ascertainable losses
under the UTPA. Id. Fmthcr, the loss must be "a result of," or caused by, the unlawful trade
practice. Id.
Plaintiffs allege that they suffered ascertainable loss as a result of defendants' failure to
disclose the existence and amounts of the alleged "kickback" payments defendants received for
ananging vehicle financing and the purchase of third-party products or services. Plaintiffs
suggest that their loss equals the amount that defendants received as kickbacks or retained as
profit. First Am. Comp!.

'if 65; Pis.' Response at 17. Defendants maintain that plaintiffs cannot

establish that defendants' misrepresentations caused their ascertainable loss, because plaintiffs

6 - OPINION AND ORDER

do not allege that they relied on defendants' misrepresentations. Plaintiffs counter that they need
not allege or prove reliance, because they allege the concealment of pertinent facts rather than an
affomative misrepresentation of those facts. Sanders v. Francis, 277 Or. 593, 598, 561 P.2d
1003 (1977) ("Especially when the representation takes the form of a 'failure to disclose' ... it
would be aiiificial to require a pleading that plaintiff had 'relied' on that non-disclosure.").
When asked whether the causation element of the UTPA "equates with a requirement that
a plaintiff prove reliance," the Oregon Supreme Court has answered, "It depends." Pearson, 358
Or. at 126, 361 P.3d 3. Specifically, the Couti explained that "[w]hether reliance is required to
establish causation tums on the nature of the unlawful trade practice and the asce1iainable loss
alleged." Id. In other words, the couti must examine the causative link between the alleged
misrepresentation or non-disclosure and the alleged loss to determine whether the plaintiffs
theory of damages requires reliance on the alleged misconduct to establish causation.
In Pearson, for example, the plaintiffs alleged that the manufacturer of Marlboro Light
cigarettes "both affirmatively misrepresented that its 'light' cigarettes would inherently deliver
low tar and nicotine and failed to disclose that, in order to receive lower tar and nicotine, the
smoker would have to smoke the 'light' cigarettes in a particular way." Id. at 126-27, 361P.3d3.
The Court found that the plaintiffs' theory of loss was based on their expectation of receiving
lower levels of tar and nicotine when purchasing "light" cigarettes and on the harm they suffered
when they discovered that the cigarettes did not have those properties. Id. at 127, 361 P.3d 3.
Thus, the Court held, the plaintiffs' harm could have been caused only if the plaintiffs relied on
the manufacturer's misrepresentations and/or concealment of facts regarding the tar and nicotine
levels of light cigarettes. Id. ("Under that theory, proof of reliance on the alleged
misrepresentation was integral to plaintiffs' class claim.").

7 - OPINION AND ORDER

Here, I do not find Pearson necessarily applicable. Unlike the plaintiffs in that case,
plaintiffs contend that their loss is not dependent on an affirmative misrepresentation or on the
concealment of facts inconsistent with the representation of goods or services. Pearson, 358 Or.
at 126, 361 P.3d 3 ("But if the purchaser did not care whether the product had a character or
quality as represented (or was not aware of the representation) and bought it for other reasons,
then the purchaser's expectations have not been frustrated. In that circumstance, the
misrepresentation cannot be said to have 'caused' the purchaser to suffer a loss in the form of the
purchase price."). For example, plaintiffs do not allege that defendants represented the vehicles,
financing airnngements, or warranty services as having ce1iain qualities and concealed the fact
that the goods and services did not have such qualities. Instead, plaintiffs contend that defendants
simply misrepresented, through concealment, the fact that defendants received kickbacks for
vehicle financing and for third-party products and services purchased by plaintiffs.
At the same time, I agree with defendants that plaintiffs' theories of loss and causation
are unclear, and that their allegations do support causation under the UTP A. Plaintiffs maintain
that their ascertainable losses equal the payments or kickbacks defendants received from loan
providers and other third parties; however, plaintiffs fail to explain how defendants' conduct
caused them to suffer losses in the amount of the payments or kickbacks. First Am. Comp!. if 65;
Pis.' Response at 17 if39, 20-21 1Jif50-52. Moreover, plaintiffs do not allege what they would
have done differently or how the vehicle transactions would have been different if defendants
had disclosed the alleged payments or kickbacks. Plaintiffs do not allege, for example, that they
would have declined to purchase the vehicles or would have obtained more favorable financing
rates had defendants disclosed the difference between the quoted financing rate and the one
received. Similarly, plaintiffs do not allege that they would have declined extended watTanties or

8 - OPINION AND ORDER

other third-party goods and services if defendants had disclosed the fact that they received
kickbacks or retained part of the purchase price as profit. In sum, plaintiffs fail to allege or
explain how defendants' concealment of facts caused them to suffer asce1iainable loss in an
amount equal to the payments or kickbacks defendants allegedly received. Therefore, I agree
that plaintiffs' allegations fail to support the element of causation.
However, rather than dismiss the UTPA claims, I will allow plaintiffs the oppo1iunity to
seek amendment of their complaint and allege more clearly their theories of loss and causation as
alleged against each defendant. See Fed. R. Civ. P. 15 (a)(2) (the court should freely allow
amendment "when justice so requires").

2.

Claims Relating to Third-Party Products

With respect to plaintiffs' claims relating to the purchase of third-party good or services,
plaintiffs allege that defendants either: 1) paid third-party providers an undisclosed amount of
money greater than $100 while retaining a portion of the purchase price as "profit"; or 2) paid
third-party providers the full amount of the waiwnty price and then received a "kickback"
payment from the third parties in exchange for arranging the sale. First Am. Comp!.

ir~

16, 20,

29, 61. Defendants move to dismiss these claims on grounds that the UTPA provisions cited by
plaintiffs do not apply to the alleged failures to disclose, and that no other UTPA provision
requires defendants to itemize and disclose profits associated with third-party goods and
services.
The UTP A sets out a large number of unlawful trade practices. In this case, plaintiffs
allege violations of§ 646.608(1 )(e), (g), (k), and (u). Those subsections provide:
(1) A person engages in an unlawful practice if in the course of the person's
business, vocation or occupation the person does any of the following:

***
9 - OPINION AND ORDER

(e) Represents that real estate, goods or services have sponsorship, approval,
characteristics, ingredients, uses, benefits, quantities or qualities that the real
estate, goods or services do not have[.]

***
(g) Represents that real estate, goods or services are of a particular standard,
quality, or grade, or that real estate or goods are of a pmiicular style or model,
if the real estate, goods or services are of another.

***
(k) Makes false or misleading representations concerning credit availability or
the nature of the transaction or obligation incurred.

***
(u) Engages in any other unfair or deceptive conduct in trade or commerce.
Or. Rev. Stat. § 646.608(l)(e), (g), (k),(u).
As discussed above, plaintiffs do not allege that defendants made representations that the
vehicles, warranties or other services had "sponsorship, approval, characteristics, ingredients,
uses, benefits, quantities or qualities" that they did not have, or that defendants' non-disclosures
constituted representations that the vehicles and services were "of a particular standard, quality,
or grade ... or of a particular style or model" when they were not. Rather, plaintiffs simply
allege that defendants failed to disclose the fees, payments, or kickbacks they received from loan
providers and third parties. The fact that defendant allegedly received kickbacks does not
implicate the characteristics or qualities of the financing arrangements or the warranty services
or contracts. Therefore, plaintiffs' allegations do not state claims under § 646.608(1 )(e) or (g).
Defendants also argue that § 646.608(l)(k) cannot support plaintiffs' UTPA claims,
because plaintiffs do not allege concealment of any fact relating to credit availability, the nature
of the credit transaction, or the credit obligation incurred by plaintiffs. I agree. Plaintiffs do not

10 - OPINION AND ORDER

allege that defendants misrepresented any fact relating to credit, or that they misrepresented the
type of transactions entered into by plaintiffs, i.e., the fact that plaintiffs were entering into
financing agreements for the purchase of vehicles and, in some instances, extended warranties or
other services. The only "false or misleading representation" plaintiffs allege is the failure to
disclose the fees, payments, or kickbacks defendants received by third pmiies. The allegation that
defendants received kickbacks does not concern credit availability, the terms of the financing
agreements, or the obligations plaintiffs incurred as a result.
However, I find that plaintiffs' allegations, if amended to clarify causation, plausibly
assert a claim under§ 646.608(l)(u). This provision makes it a violation of the UTPA to engage
in "any other unfair or deceptive conduct in trade or commerce" as established via rule by the
Oregon Attorney General. Or. Rev. Stat. § 646.608(1)(u); see also id § 646.608(4). Plaintiffs
rely on Or. Admin. R. 137-020-0020(3)(k), which provides:
A dealer who sells or leases a motor vehicle to a consumer and makes any
payment to any non-employee third-party in conjunction with the sale or lease,
other than a referral fee of $100 or less (also known as a "bird-dog" payment),
must specifically itemize such payment on the consumer's purchase order, lease
agreement and retail installment contract.
Here, plaintiffs allege that defendants failed to disclose and itemize payments in excess of $100
made to third parties in exchange for plaintiffs' warranty contracts; this allegation mirrors the
required disclosure of "any payment to any non-employee third-party" under the rule. See First
Am. Comp.

~~

16, 20, 29. Construing plaintiffs' allegations in a light most favorable to them,

they asse1i a violation of this rule and state a claim under§ 646.608(1)(u) ..
In sum, I agree that plaintiffs' current allegations regarding third-party products do not
state a claim under § 646.608(1 )(e),(g), and (k), and I do not find that amendment would cure
these defects given plaintiffs' allegations that defendants concealed payments or kickbacks.

11 - OPINION AND ORDER

However, if amended to clarify causation, plaintiffs' allegations could suffice to state plausible
claims under§ 646.608(1)(u).

C.

Financial Abuse ofElders

Finally, plaintiffs allege that the Lithia defendants wrongfully appropriated money from
Carol Jocks, a person sixty-five years of age or older, in violation of Or. Rev. Stat. § 124.110(1 ).
To establish a claim for elder financial abuse, a plaintiff must show "(l) a taking or
appropriation (2) of money or property (3) that belongs to an elderly or incapacitated person, and
(4) the taking must be wrongful." Church v. Woods, 190 Or. App. 112, 117, 77 P.3d 1150
(2003). In bringing this claim, plaintiffs rely on defendants' alleged TILA and UPTA violations.
Defendants argue that the Jocks cannot establish a wrongful taking of money or property because
they cannot establish a timely TILA claim or UTP A violations.
As explained above, the TILA claim survives this motion to dismiss, and, depending on
the proposed amendments, the Jocks could assert a plausible UTPA claim. Accordingly, the
motion to dismiss the elder financial abuse claim is denied at this time with leave to renew.
III. CONCLUSION
For the reasons explained above, defendants' motion to dismiss (doc. 15) is GRANTED
in part and DENIED in pati with leave to renew. Plaintiffs' allegations defeat defendants' motion
based on the statute of limitations at this stage of the proceedings. However, plaintiffs'
allegations regarding third-party products and services do not support claims under Or. Rev. Stat.
§§ 646.608(l)(e),(g), and (k) and those claims are DISMISSED. Further, plaintiffs' theories of
ascertainable loss and causation with respect to vehicle financing and third-party products and
services are unclear and do not state a claim for violation of the UTPA.
Within thirty (30) days, plaintiffs shall move to amend their complaint to clarify the

12- OPINION AND ORDER

nature of the losses they suffered and explain how their losses were caused by each defendant's
conduct.
IT IS SO ORDERED.

Dated this

1l

m f January, 2017.

(LAkaLJ

Ann Aiken
United States District Judge

13 - OPINION AND ORDER