An Iowa Supreme Court May 2, 2014 decision may affect Iowa Automotive dealers and their customers. Many dealerships promote their business through the use of plate frames. The Iowa Supreme Court has put a small hiccup in the use of plate frames for dealerships and all Iowans.
Under Iowa Code 321.37(3), “It is unlawful for the owner of a vehicle to place any frame around or over the registration plate which does not permit full view of all numerals and letters printed on the registration plate.” The Court determined that “all numerals and letters” includes the county information on the bottom of Iowa plates. Based on that decision, police can stop a vehicle and issue citations for any license plate in which numerals or letters are covered or partially covered. This decision may give police “probable cause” to stop a vehicle without evidence of other violations.
Arenson Law Group, PC, urges dealerships to look at your advertising plate frames. Don’t be the reason that your customer gets stopped. The dissenting Iowa Supreme Court Justice, Justice Appel, warned: “For the thousands of Iowans who have a frame that promotes a sports team, or an auto dealer, or have a nice (or not so nice) slogan, beware!”
In 2009, GM and Chrysler terminated over 100 franchises during the course of their bankruptcies. In two class action lawsuits, which include some Iowa dealers, franchise-owners claimed that the termination of their franchises created an illegal “taking.” Under the U.S. Constitution, the government cannot take property without just compensation. These dealerships argued that because the government would only provide GM and Chrysler with financial assistance if they terminated these franchises, then the federal government was engaging in an illegal taking.
Here, the dealerships have alleged that the termination is a regulatory taking, i.e. one that does not completely cut off ownership rights, but is overly burdensome. It either requires the owner to suffer a “physical invasion of his property” or “prohibit all economically beneficial or productive use.” Contracts (like franchise agreements) can be “taken,” just like real and personal property. However, if this case is successful, it will be the first time that the regulatory taking approach is applied to contract rights.
The takings allegation requires that the dealerships must have suffered economic loss and that the governmental taking must have been the cause of that loss. According to the court, the dealerships are struggling with this aspect of the case because they attribute the loss to the overall bankruptcy more so than any government action. Nonetheless, the dealerships were given the opportunity to amend their complaint so they can adjust their argument.
The government attempted to dismiss these suits for failure to state a claim, but the United States Court of Federal Claims denied the dismissal. In April 2104, the United States Court of Appeals for the Federal Circuit again denied the government’s pleas to dismiss. At this point, it is unclear whether the dealerships will prevail. Arenson Law Group, PC will continue to keep a close watch on this case because it may affect dealerships and their dealings with manufacturers.
We recently blogged about “Operation Steer Clear,” where the FTC targeted automobile dealerships for false or misleading advertising. The FTC charged a number of dealers with violations leading to litigation and consent agreements. For more on the federal crackdown, see our blog by clicking here.
Iowa Law Update: More Headaches
Iowa dealers must comply with the Iowa Consumer Fraud Act and the Iowa Consumer Credit Code (ICCC), which incorporates the Truth in Lending Act at the state level. Because these laws are meant to protect consumers, the court, and law enforcement generally, will construe the code liberally so that consumers receive the maximum protections possible under the law.
Iowa consumer protection laws are enforced by the Attorney General and some protection laws fall under the Iowa Criminal Code. Like the FTC, the Attorney General can seek injunctions and a fine of up to $40,000 for each occurrence. Iowa also has special protections for elderly citizens and veterans; there is an additional $5,000 fine provision if the violation is against an older person (defined in the code as over age 65). As of 2009, Iowa also provides a private cause of action for consumers. This means that, in addition to the state action, the consumers with claims may also sue the dealership individually for damages.
Here’s the BrakeDown: What to do, What to do?
Know that Iowa Code Chapter 322 makes compliance with the ICCC a condition of maintaining your dealer license. Although the consumer protection laws in Iowa and at the federal level focus on fraud and financing, they apply throughout the car-buying experience. The consumer’s first interaction with a dealership is usually through its advertising. Therefore, the consumer protection laws extend to advertising as well as the negotiations and sales after the customer walks in the door.
From a defense perspective, note that a “misrepresentation” is only a violation if it relates to a “material fact.” A material fact is a fact that, if the buyer had known or understood it, would have caused the buyer to act differently during the sale. For example, a material fact might be one that would change the price the customer is willing to pay or whether the customer would even purchase the vehicle. If you question whether the information is a “material fact,” then it probably is. Further, liability for a violation of the consumer protection laws does not depend on whether the dealership had an intent to deceive their customers. Occasionally, an ad that you think is crystal-clear may be confusing or misleading to a potential customer. Be careful and review your ads!
Of course, in the government’s overzealousness to protect consumers, it may drag automobile dealerships into litigation where the dealership did not even know it was to deceiving its customers. These advertising concerns can be avoided if experienced auto dealer counsel reviews advertising that you deem to be questionable. The NADA specifically recommended that dealerships ensure “their legal counsel review all advertising.”