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Mendoza v. Lithia Motors, Inc.

United States District Court, D. Oregon, Eugene Division

March 27, 2018

JOSEPH FRANK MENDOZA, MARTIN and CAROL JOCKS, DAWN CAVEYE and GINA and DANA DALTON, individually and on behalf of all others similarly situated, Plaintiffs,
v.
LITHIA MOTORS, INC., LITHIA FINANCIAL CORPORATION, SALEM-V, LLC d/b/a VOLKSWAGEN OF SALEM, LITHIA KLAMATH, INC. d/b/a LI THIA KLAMATH FALLS AUTO CENTER, and LITHIA MEDFORD HON, INC. Defendants.

          OPINION AND ORDER

          Ann Aiken United States District Judge

         Plaintiffs bring this putative class action suit against defendants Lithia Motors, Inc., et al. ("Lithia"), asserting various claims, including common law fraud, violations of the federal Truth in Lending Act ("TILA"), Oregon's Unlawful Trade Practices Act ("UTPA"), and Oregon's financial elder abuse statute. On June 19, 2017, 1 granted plaintiffs' Motion for Leave to File Third Amended Complaint ("TAC") (doc. 40). Defendants now move to dismiss certain claims contained therein. For the reasons discussed below, Lithia's motion is GRANTED IN PART and DENIED IN PART.

         BACKGROUND

         The following facts are taken from plaintiffs' TAC; 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 or California, who purchased vehicles and other goods or services from one or more of the defendants, all of which are headquartered in Oregon.

         On or about June 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 term a kickback in connection with the arrangement of financing. Lithia also sold Mr. Mendoza products and services obtained through 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 arrangement 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 through 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 to those mentioned above. In both instances, Lithia arranged for financing and sold third-party 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.

         On June 24, 2016, plaintiffs filed this class action suit. On September 22, 2016, defendants moved to dismiss plaintiffs' claims. In ruling on defendants' motion, I dismissed various claims by plaintiff, but I also granted plaintiffs leave to amend their complaint. Since the original filing, I have granted plaintiffs leave to amend on three separate occasions. Now, in response to plaintiffs' TAC, defendants again move to dismiss certain claims, all of which are discussed below.

         LEGAL STANDARD

         Under Rule 12(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 court 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." Tombly, 550 U.S. at 555.

         DISCUSSION

         I. TILA Disclosure Requirements

         Plaintiffs allege that Lithia failed to meet the disclosure requirements under TILA in relation to two courses of conduct: (1) sale of third party products and (2) arrangement of financing.

         As a general matter, the pmpose of TILA is to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 USC § 1601(a). In accordance with this puipose, TILA requires creditors to, among other things, make certain disclosures to borrowers. A complete list of the items TILA requires a creditor to disclose is found in both the statute and what is commonly known as Regulation Z. See, e.g., 15 U.S.C. § 1638(a); 12 C.F.R. § 226.18. The list of required disclosures includes items such as the "amount financed, " the "finance charge, " and the "annual percentage rate." 15 U.S.C. § 1638(a); 12 C.F.R. § 226.18. Additionally, and of particular relevance to this case, TILA requires creditors to disclose "each amount that is or will be paid to third persons by the creditor on the consumer's behalf, together with an identification of or reference to the third person." 15 U.S.C. § l638(b)(iii); 12 C.F.R. § 226.l8(c)(iii).

         A. Sale of Third Party Products

          First, with respect to the sales of third-party products, plaintiffs allege that defendants "failed to properly disclose to consumers that a portion of the amount paid was retained by Lithia." Third Am. Compl. ¶ 94. Plaintiffs further allege that "Lithia did not itemize each amount that is or will be paid to third persons by the creditor on the consumer's behalf, together with an identification of or reference to the third persons." Id.

         More simply stated, plaintiffs allege that Lithia failed to disclose that certain amounts, identified in the retail installment contracts as "amounts paid to others, " were actually retained by Lithia. Id. The issue before me, then, is whether such a failure to disclose is impermissible under TILA. Importantly, the Federal Reserve has issued specific guidance to creditors in relation to requirements imposed by 15 U.S.C, ยง 1638(b) ...


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