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

Filing 88

ORDER: Granting Motion for Summary Judgment 74 . See, formal Order and Opinion. Signed on 3/30/2019 by Judge Ann L. Aiken. (rdr)

IN THE UNITED STATES DISTRJCT COURT
FOR THE DISTRJCT OF OREGON
EUGENE DIVISION

JOSEPH FRANK MENDOZA,
CAROL JOCKS, DAWN CAVEYE
and GINA and DANA DALTON,
individually and on behalf of all others
similarly situated,

Case No. 6:16-CV-01264-AA
OPINION AND ORDER

Plaintiff,
V.

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

AIKEN, District Judge:
Plaintiffs bring this putative class action suit against Lithia Motors, Inc., et al. ("Lithia"),
asserting various claims including violations of Oregon's Unlawful Trade Practices Act
("UTPA"), and Oregon's financial elder abuse statute. The named plaintiffs all purchased vehicles
and other goods or services from one or more of the named defendants. In the process of those
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sales, the Plaintiffs allege that Lithia did not appropriately disclose its specific fees associated with
the arrangement of financing or the profit margins related to the sale of third-party products and
services. Defendants now move for summary judgement (doc. 74) in their favor on plaintiffs'
remaining claims. For the reasons set forth herein, defendants Motion for Summary Judgment is
GRANTED.

BACKGROUND
The factual background of this case has been thoroughly outlined in the two previous orders
by this court dealing with defendants' previous motions to dismiss pursuant to Fed. R. Civ. Pro.
12(b)( 6). (docs. 21 and 68) Briefly:
[o]nor aboutJune 6, 2016, plaintiff Joseph Frank Mendoza purchased a vehicle from Lithia
at its Volkswagen of Salem dealership. The dealership arranged for vehicle financing with
an interest rate of 3.94%, a higher rate than provided by the lender. In doing so, Lithia
retained what plaintiffs termed a kickback in connection with the arrangement of financing.
Lithia also sold Mr. Mendoza products and services obtained tlu-ough third parties.
Specifically, Mr. Mendoza paid Lithia $2,495.00 for a vehicle service contract and $695.00
for gap insurance; both amounts exceeded Lithia's actual purchase price. Lithia purchased
the service contract for $995 and the gap insurance for $278 and retained the difference as
profit. Lithia did not disclose its specific fees associated with the mrangement of financing
or the profit margins related to the sale of third-party products and services.
In February 2013, plaintiffs Carol and Martin Jocks purchased a vehicle from a Lithia
dealership in Klamath Falls, Oregon. Then, in August 2013, the Jocks purchased another
vehicle from the same dealership. Carol Jocks was over the age of sixty-five at the time of
the purchases. Because the facts surrounding both transactions are identical or substantially
similar, I will limit discussion to the latter of the two. In August 2013, Lithia arranged for
vehicle financing at an interest rate of 3 .99%, a higher rate than provided by the lender. In
doing so, Lithia retained a fee in connection with the arrangement of financing. Lithia also
sold the Jocks products and services obtained tlu-ough third parties. For example, the Jocks
purchased a lifetime oil service for $899, credit life insurance for $2.644.05, and gap
insurance for $435; each charge exceeds Lithia' s actual purchase price. Lithia purchased
the lifetime oil service for $449.50, credit life insurance for $1,718.63, and gap insurance
for $285; Lithia then sold these products to the Jocks and retained the difference as profit.
Lithia did not disclose its specific fees associated with the arrangement of financing or the
profit margins related to the sale of third-party products and services.
Plaintiffs Caveye and Dalton also purchased vehicles from Lithia, in November 2014 and
May 2016 respectively. The circumstances surrounding these purchases are largely similar
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to those mentioned above. In both instances, Lithia an·anged for financing and sold thirdparty products/services to plaintiffs. In both instances, Lithia retained and did not disclose
fees associated with the arrangement of financing or profits related to the sale of third-party
products and services.
Mendoza v. Lithia Motors, Inc., 2018 WL 1513650, at *1-2 (D. Or. Mar. 27, 2018)

Procedura11y, on June 24, 2016, plaintiffs filed this class action suit, subsequently filed an
amended complaint on September 1, 2016. On January 11, 2017, the Court granted in part
defendants' first Motion to Dismiss (doc. 15) certain claims pursuant to Fed. R. Civ. Proc. l 2(b)(6).
(doc. 21) Plaintiffs were granted leave to amend on the remaining claims. Plaintiffs filed a second
Amended Complaint on February 10, 2017, and the Court then granted plaintiffs leave to file a
Third Amended Complaint, which was entered on the docket on June 23, 2017. (doc. 41) On March
27, 2018, the Court granted in part and denied in part defendants' second Motion to Dismiss (doc.
48), dismissing plaintiffs claims relating to federal Truth in Lending Act and certain claims
brought under Oregon's UPTA. Defendants subsequently filed the present Motion for Summary
Judgment (doc. 74) on plaintiffs' three remaining claims.
STANDARD OF REVIEW

Summary judgment is appropriate if "there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56(a). The moving
party has the burden of establishing the absence of a genuine issue of material fact. Id.; Celotex
Corp. v. Catrett, 477 U.S. 317,323 (1986). If the moving party shows the absence ofa genuine

issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which
show a genuine issue for trial. Id. at 324. "Summary judgment is inappropriate if reasonable
jurors, drawing a11 inferences in favor of the nonmoving party, could return a verdict in the
nonmoving party's favor." Diaz v. Eagle Produce Ltd. Partnership, 521 F.3d 1201, 1207 (9th Cir.
2008).
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Special rules of construction apply when evaluating a summary judgment motion: (I) all
reasonable doubts as to the existence of genuine issues of material fact should be resolved against
the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in
the light most favorable to the nonmoving party. T. W. Elec., 809 F.2d at 630. "Summary judgment
is inappropriate if reasonable jurors, drawing all inferences in favor of the
nonmoving patty, could return a verdict in the nonmoving party's favor." Diaz v. Eagle Produce
Ltd P'ship, 521F.3dl201, 1207 (9th Cir. 2008).
DISCUSSION

Plaintiffs remaining claims involve allegations that defendants violated the UPTA and
Oregon's Financial elder abuse statute. Specifically, plaintiffs allege that defendants failed to
comply with the disclosure requirements of the UPTA, and that in failing to make those
disclosures, defendants wrongfully appropriated money from elderly persons. I address each claim
in tum.
I.

Oregon UPTA Claims
A.

Claim Under OAR 137-020-0020(3)(k)

First, plaintiffs have alleged that defendants violated Or. Rev. Stat. § 646.608(l)(u) which
makes it a violation of the UPTA 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).
Plaintiffs rely on OAR 137-020-0020(3)(k) titled "Undisclosed Fee Payments," which provides
that:
[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.

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The pmties do not dispute that defendants did not disclose the fees earned for the sale of the thirdparty products at issue in this case. Instead the dispute between the parties is ultimately whether
OAR 137-020-0020(3)(k) controls only referral payments, or if the rule touches every third-party
non-employee payment.
Plaintiffs contend that the scope of Rule OAR 137-020-0020(3)(k) encompasses any and
all payments made to a non-employee third-party, referral and otherwise, if they exceed $100 in
amount.

Conversely, defendants assert that profits on third party products such as service

contracts, gap insurance, and credit life insurance, which are at issues in this case, are not the focus
of this rule. They argue, the rule applies only to referral fees, otherwise known as bird-dog
payments. These are payments of any amount "paid by a dealership to a third party who referred
a customer to the dealership" but are distinct from fees earned for the sale of third-party products.
Defs.' Mot. Summ. J. at 9; 2nd Nichols Deel at ,r 4. These bird-dog fees are typically paid to thirdparty brokers and lead generators as an inducement and reward for referring customers to
dealerships. 2nd Nichols Deel at ,r 5.
At the summm·y judgment stage, the Court is persuaded by defendants' argument in
interpreting this rule as applying to referral fees alone. First, the section is titled "Undisclosed Fee
Payments," and the text of the of the rule itself directly references referral fees, otherwise known
as bird-dog payments. Defendants also offer declarations from Craig Nichols, who served as a
member of the advisory committee that originally drafted and later revised the rule. 1 Mr. Nichols

1

Plaintiffs also submit declarations of attorneys who were involved in the revision of this
rule. See Gear Deel., Roberts Deel. and Walgeuldm Deel. Defendants dispute whether the Court
can or should wholly examine these declarations for various reasons. In sum, however, plaintiffs
m·gue that at the time revisions were made to the rule, there was no intent make the rule more
limiting. However, the Court is persuaded that the rule as originally drafted was meant to apply
to referral fees only, and therefore it was not limited during the 2015 revisions. Rather, it was
merely clarified by the Official Commentary which is discussed further in this opinion.
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notes that at the time the rule was originally drafted and adopted it was intended to "regulate only
the disclosure of bird-dog fees, not any other payments by a dealership to a third party." 2nd
Nichols Deel. at ,r 5. Indeed, Mr. Nichols further points out that O.A.R. 137-020-0020(3)(k) was
adopted specifically out of concern about referral fees, which were common at the time and could
cost consumers as much $500. I st Nichols Deel. at ,r 6. He goes on that the rule was meant to
ensure the payments were itemized on customer facing paperwork. Id.
The interpretation that the rule applies only to referral fees is buttressed by the official
commentary, added in 2015, to the OAR, which states:
OFFICIAL COMMENTARY: This rule is intended to apply to a payment of more
than $ 100 made to a single individual or business entity. For example, if two
um-elated individuals refer a purchaser to a specific dealership, each individual may
receive a payment of $7 5 and the dealer does not need to specifically itemize the
payments. However, the dealer may not make a payment of $7 5 to a dealership and
$75 to the owner of the dealership and fail to itemize the $150 payment on the
purchase order, lease agreement and retail installment contract.
O.A.R. 137-020-0020(3)(k), Official Commentary.
While plaintiffs suggest that the Official Commentary indicates that the rule is intended to
apply to any payment, rather than a referral payment, the Court finds that the Official Commentary
is no more than an articulation that the $ 100 limit on fees for "refer[ing] a purchaser to specific
dealership" applies to multiple individuals within one business entity. Id. (emphasis added) The

commentary utilizes an explanatory third-party payment hypothetical in which the payment,
tellingly, is a referral. The Official Commentary of the rule does not apply it to any payment of
more than $100 made to an individual or business entity, but rather it gives a specific example
outlining the requirement as applied to a $75 payment to a dealership and $75 payment to the
owner of the dealership that needs to be itemized as $150 referral payment. The Commentary is
clarifying the personal as opposed to the business aspect of the referral payment, not applying the

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itemization requirement to all third-party payments as is suggested by plaintiffs. The Official
Commentary is no more than an elaboration of the contours of the $100 payment limit and more
appropriately comports with an understanding that OAR 137-020-0020(3)(k) governs only referral
payments.
Further, plaintiffs' interpretation of the rule would impose an expansive itemization
requirement upon dealers.

If OAR 137-020-0020(3)(k) required itemization of all fees and

payments to the third-parties (other than "bird-dog" payments), Oregon car dealers would be
required to itemize a litany of payments on the customer's documents, thus volunteering the profits
made on any third-party product associated with the sale. The dealer's personal cost of the very
vehicle itself, being a third-party payment, would presumably fall under this expansive disclosure
requirement.
For all these reasons, the Court holds that OAR 137-020-0020(3)(k) only requires
disclosure of referral fees paid to a non-employee third-party in the amount of $100 dollars or
more. Thus, the Court grants Summary Judgment in defendants favor on this claim.

B.

Claim Arising Under OAR 137-020-0020(3)(u)

Plaintiffs have also asserted a claim arising under§ 646.608(1)(u) pursuant to OAR 137020 0020(3)(u), titled "Yield Spread Premium Disclosure," which provides that an auto dealer
"shall clearly and conspicuously disclose in writing . . . that the dealer or broker may receive
additional compensation from the consumer for arranging the sale of the retail installment contract
which may be in the form of a fee or additional loan points." OAR 137-020-0020(3)(u)(A)(l). A
"yield spread premium" relates to transactions involving some "difference between a higher
interest rate quoted to a consumer by a dealer or broker and the buy rate offered to the dealer or
broker by a financial organization." OAR 137-020-0020(2)(ii) The term "clearly and

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conspicuously" is defined by rule in relevant part:

G) "Clear and conspicuous," including the terms "clearly" and "conspicuously,"
means that a message, statement, information, representation or term is conveyed
in a manner that is readily noticeable, will be easily nnderstood by the average
person, and is in a meaningful sequence. In order for a message to be considered
"clearly and conspicuous," it shall, at a minimum:
(A)
Not contradict or substantially alter any terms it purports to clarify, to
explain or which it otherwise relates; [and]
(B)
Be in direct proximity to the message, statement, information,
representation or term it clarifies, modifies or explains, or to which it otherwise
relates ...
OAR 137-020-0020(2)G)
The only vehicle purchase involving a yield spread premium was the Daltons', and thus
this claim is confined to those plaintiffs alone. Plaintiffs have alleged that defendants failed to
clearly and conspicuously disclose to the Daltons that defendants did receive additional
compensation for arranging the financing which was in the form of a fee or additional loan points.
As discussed in previous orders, the language defendants used in the retail installment
contract is not disputed: "[t]he Annual Percentage Rate may be negotiable with the [dealership],"
and the dealership "may assign this contract and retain [its] right to receive part of the finance
charge." Sacks Deel. Ex. 6. At this stage of the proceedings the Court goes beyond the pleadings
and examines other evidence submitted by the parties. Namely, defendants proffer multiple
documents which they argue also contains language that satisfies the disclosure requirements. In
addition to the language quoted from the retail installment contract, defendants also point to the
disclosure made in the in the "Credit and Financing" Section of the two-page delivery agreement
signed by the Daltons. It states:
Customer understands the annual percentage rate or lease money factor (APR
LMF), as applicable, may be negotiated with [the dealership]. Customer further
nnderstands that [the dealership] may retain a portion of the finance charge or
receive other compensation for arranging Customer's financing.

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Sacks Deel., Ex. 30. This language is mirrored in pencil sheet and vehicle closing statement which
were also provided for the Daltons review:
I understand that I may obtain my own financing. I also understand that the annual
percentage rate may be negotiated with the seller and that the seller may retain a
portion of the finance charge or receive other compensation for arranging my
financing
Sacks Deel. Exs. 18 and 24.
Plaintiffs argue that this language is deficient insofar as it 1) was not clearly and
conspicuously communicated and 2) does not conform to the specific language prescribed in the
OAR.
Regarding plaintiffs' complaint that these disclosures do not mirror the statute closely
enough, specifically that it is not disclosed that additional compensation would be from the
customer or in the form of a fee or additional loan points, the Comi notes that strict recitation of
the statute is not required to meet the clear and conspicuous standard. The language here discloses
to the buyer that the seller may retain a portion of the finance charge or receive other compensation
for arranging the financing.

This language is substantially similar to the OAR 137-020-

0020(3)(u)(A)(i), which, again, provides that a dealer must disclose that it "may receive additional
compensation from the consumer for arranging the sale of the retail installment contract which
may be in the form of a fee or additional loan points." Indeed, the retail installment contract
explicitly states that the dealership may retain the right "to receive part of the finance charge."
Sacks. Deel. Ex. 6. The Court holds that this language objectively would "easily be understood
the average person" and it does not contradict or substantially alter any terms it purports to clarify.
OAR 137-020-0020(3)(u)(A)(i)
Indeed, Ms. Dalton admitted in deposition to only glancing at these disclosures. Sacks
Deel. Ex. 31 at 5-6. Ms. Dalton agreed that the above language would mean that Volkswagon of
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Salem might retain a portion of the finance charge or receive other compensation for arranging the
financing on the purchase of their vehicle and that she would have understood that had she read
the disclosure at the time. Id. at 8-9.
The Court further holds that given the number of disclosures and their locations in various
short documents, the language was clearly and conspicuously disclosed in that it was conveyed
"in a manner that is readily noticeable and [... ] in a meaningful sequence." OAR 137-0200020(3)(u)(A)(i) Thus, the Court holds that these disclosures were "clear and conspicuous" and
were readily visible, logically placed in the documents containing them, and easily understandable.
Even construing the allegations in the light most favorable to the plaintiffs, the abovementioned facts regarding "clear and conspicuous disclosures" do not raise a genuine issue of
material fact and as such are subject summary judgment as well.
II.

Financial Abuse ofElders

Plaintiffs final claim deals with financial elder abuse stemming from Defendant' alleged
violations of OAR 137-020-0020(3)(k), in relation to the Jocks, who were senior citizens when
they purchased their vehicles from Volkswagen of Salem. 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).
Plaintiffs claim for elder abuse is premised on their claim that defendants violated the
requirements OAR 137-020-0020(3)(k) with respects to the Jocks' two vehicle purchases. The
Court has already granted summary judgement in defendants favor regarding that claim as well
the claims pursuant OAR 137-020-0020(3)(u). Therefore, there was no "wrongful taking," and
plaintiffs claim for elder abuse is subject to summary dismissal as well.

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CONCLUSION
For the reasons set fmth herein, Defendants' Motion for Summary Judgment (doc. 74) is
GRANTED. Accordingly, this action is dismissed.
IT IS SO ORDERED.
Dated this 30th day March of 2019.

Ann Aiken
United States District Judge

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