Larry Miles joins the FAA's Gary Jestice in presenting the Master Pilot Award to Cal Worthington.

Larry Miles joined the FAA in presenting the prestigious Master Pilot Award to Cal Worthington in a special award ceremony at the McClellan Aerospace Museum on January 29, 2012.  The FAA honored Cal for 70 years of safe and violation-free flying.

Cal spoke about his 70 years of flying experience, including an extended recollection of his 29 missions during WWII.  A recepient of the Distinguished Flying Cross, Cal recalled some of his most harrowing missions, including being the lead pilot for the 8th Air Force in several raids over Berlin.

“As a pilot of over 40 years myself, I am honored to be able to join with the FAA in honoring Cal for this remarkable aviation achievement,” Larry said.   Larry went on to describe some of his many hours flying with Cal, including a challenging flight in a King Air repossessed from a drug-dealer, taking off from San Jose Airport as the ground shook and the tower closed during the Loma Prieta earthquake, and a memorable landing in Anchorage in a Lear 24 that slid across the runway covered in sheer ice.

“From WWII to flying his Lear, Cal has always kept the safety of his crew and passengers foremost,” Larry said.

In addition to being a commercial rated, multi-engine instrument pilot, Larry has a significant aviation practice, including serving as a panel attorney for the Airplane Owners and Pilots Association (“AOPA”).

Larry Miles, senior attorney with The Miles Law Firm, recently won an important decision for the California auction industry involving the question of whether auto auctioneers are employees or independent contractors.  Arguing that auto auctioneers are sufficiently unique in their skills and independent in their work to justify being deemed independent contractors,  Miles persuaded the Employment Development Department administrative law judge to reject EDD efforts to classify the auctioneers as employees of the auto auction.

The important decision comes on the heels of a new state law, SB 459, that imposes new penalties for businesses that “willfully” misclassify workers as independent contractors.  In addition to penalties of potentially $5,000 to $25,000 per infraction, the new statute requires the offending employer to announce their “willfull” misclassification on their website for a year.  The new penalties are in addition to existing taxes and penalties that are due upon a redetermination by EDD.  The state Labor and Workforce Development Agency will enforce the new law effective January 1.

The silver lining for employers in the increased focus on misclassification of workers is the IRS’ recent announcement of an “amnesty” on penalties and interest attributable to a misclassification problem.  The “Voluntary Worker Classification Settlement Program” is available for employers who meet the eligibility requirements, which include 1) consistent prior treatment of the workers as independent contractors, 2) issuance of 1099’s for the workers in controversy, and 3) not already the subject of audit by the IRS or a state agency.  Under the program, the IRS will waive certain penalties and interest in consideration of the employer treating the workers as employees going forward and paying a little over 1% of the wages paid to the contractor for the past three years.  Consult the IRS’ website for further information regarding this program.

The new law raises the stakes for an innocent misclassification of a worker as an independent contractor.  Employers should consult with counsel if they have any questions regarding their current classification of any workers as an independent contractor.

In the Pearson Ford decision last year, the California Court of Appeal, 4^th District, held that an auto dealer who placed the original date of the sale on a rewritten contract was “backdating” a contract in violation of certain state and federal laws.  However, prior to the publication of Pearson Ford  on July 15, 2010, retired Judge Dallas Holmes issued an earlier decision in the Raceway Ford case on April 16, 2010, rejecting the backdating legal theory.  Instead, Judge Holmes agreed with the dealership that the rewritten contract constituted a “novation” of the original contract.

A legal “novation” is when a second contract is substituted for the original contract to reflect or correct terms in the initial drafting of the document.  The substituted contract remains effective as of the date the first contract was entered into.  The “novation” theory is distinct from the
conflicting legal theory that views the first contract as having been rescinded and the “second” contract as a completely new contract requiring that it be dated as of the date the rewritten contract was signed.

Because the Pearson Ford case was issued after Judge Holmes rendered his decision, the Judge “vacated” his decision, that is he reissued it saying that he felt legally compelled to change his decision as a result of the Pearson Ford opinion.   However, the dealer appealed to the Appellate Court, arguing that the trial Court had waited too long to change its mind and was legally obligated to enter its initial decision in favor of the dealership.  The Appellate Court agreed, and ordered the Trial Judge to reinstate his initial decision in favor of the dealership.

Despite Raceway Ford’s initial victory, it seems likely that the case will be appealed to the same Appellate Court that decided  Pearson Ford, raising the specter that the Raceway Ford decision could force the Fourth District to reconsider its Pearson  decision, distinguish the two cases, or
reaffirm Pearson.  Raceway Ford’s lawyers have been arguing that the Appellate Court wrongly decided Pearson, and that the Trial Judge in the Raceway Ford case had it right.  The Raceway Ford decision could put the brakes on at least a half dozen similar lawsuits against dealers throughout the state as legal analysts wait for the Fourth District to provide further guidance.

Meanwhile, the General Manager of Raceway Ford has created a website attacking the plaintiffs’ law firm, the Rosner Law Firm of San Diego. See http://halrosner.com.  The dealership says that it has spent over a million dollars in the Raceway Ford defense, and that it intends to recover its attorney fees from the plaintiffs, encouraging the losing plaintiffs who might be on the hook for the fees to sue their attorney for legal malpractice.

Stay tuned for continuing developments in this remarkable litigation.

Larry Miles

Founder Larry Miles urged calmness and compromise in a Viewpoint Opinion published in the Sacramento Bee on August 6, 2011.  Recalling Franklin Roosevelt’s famous exhortation, “The only thing we have to fear is fear itself,” Miles observed that the economic recovery has been impaired because of the fear created by politicians who care more about their “extreme positions” than the country’s health. The full Op-Ed article is set forth below with a link to the Bee here:  Viewpoints: Ideological fights to the death are not helping in … .

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Larry Miles  is vice president  of the San Juan Unified School District Board  of Education. Miles was a Democratic candidate for Assembly District 5 in  2010.

California law has a “commissioned sales” exemption to the general overtime statute.  The commissioned sales exemption exempts from the overtime compensation requirement “any employee whose earnings exceed one and one-half (1 1/2) times the minimum wage if more than half of that employee’s compensation represents commissions.”    The case revolved around Labor Code 204.1 which permits California car dealers to pay commission wages once a month, an exception to the general requirement that wages be paid not less than twice a month in California.  Section 204.1 defines “Commission wages” as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”    The Court wrestled with the question of whether CarMax’s payments to the salesman of about $150 constituted commission wages “based proportionately on the amount or value” of CarMax’s property or services sold.

The employee argued that CarMax’s flat payment made without regard to the price of the vehicle sold did not meet the statutory definition of “commissioned wages,” relying on several cases including Keyes Motors, Inc. v. Division of Labor Standards Enforcement, 197 Cal. App. 3d 557 (1987) (held: service mechanics not exempt from overtime law).   The employee argued that since the flat payment was made without regard to the value of the vehicle sold, it was not a commission.  The CarMax Court rejected this contention, finding that there was an alternative prong to the test – the amount (number) of the property or services sold by the employee.  The Court further rejected the claim that the flat payment constituted payments for  ”piece work,” observing that the employee was engaged in the “sale of property,” consistent with the statutory requirement.

The Court concluded by noting that the employee’s compensation would rise and fall in direct proportion to the number of vehicles sold, and thus satisfying the commissioned sales exemption to the state’s overtime law.

     Americredit Financial Services v. Penrod 

In the more controversial decision, the 9th Circuit Court of Appeal held in Americredit Financial Services, Inc. v. Penrod that a Chapter 13 debtor could “strip” away the negative equity that had been financed on the purchase of a vehicle and have it treated as unsecured debt. The Court’s decision is at odds with the eight other federal circuits which have decided that the negative equity is part of the purchase price for the vehicle and that the entire amount due under the contract should be treated as a secured debt.

The significance of the Americredit decision is that Chapter 13 debtors in the western United States, the area encompassed by the 9th Circuit, will be able to buy a car, get their negative equity paid off by their hapless dealer, and then eliminate that portion of their car loan while retaining their vehicle.

For example, let’s say that a customer pays $10,000 for a car but is “buried” in his trade by $3,000. The dealership pays off the $3,000 owed on the trade and puts it on the contract as “negative equity.” The deal goes out the door with the customer owing $13,000. Two weeks later the customer files a Chapter 13 and schedules the plan to pay-off just the $10,000, with the amount attributable to the negative equity treated as unsecured debt.

Four 9th Circuit Judges vigorously objected to the decision and thought that the entire 9th Circuit panel of Judges should reconsider the decision, noting that the 9th Circuit opinion was at odds with all eight of the remaining Circuits.

     Martinez v. Kia
In Martinez v. Kia Motors America, Inc, 2011 Cal. App. LEXIS 230, the California Court of Appeal held that a consumer does not have to retain a vehicle to pursue a violation of the state’s lemon law. In the Martinez case, the customer had complained of a problem and was told that her repairs were not covered under warranty. She then abandoned the vehicle at the dealership because it was inoperable and she couldn’t afford to repair it. The vehicle was repossessed and then Kia discovered that the vehicle’s alternator had been over-charging, creating the problems of which Mrs. Martinez had complained. Kia tried to defend the case on the theory that the consumer no longer owned or possessed the vehicle, but the Appeals Court rejected the argument.

1.         Dealership Employment Arbitration Agreement Cannot Preclude Labor Claim.   In a case just issued on February 24, 2011, the California Supreme Court held that a dealership employment arbitration agreement cannot preclude an employee from filing a Labor Commission claim.  In Sonic-Calabasasa v. Moreno, 2011 Cal. LEXIS 1831, the Court held that sound public policy supported finding that the employee had a right to file his complaint with the Labor Commissioner.  The Court went on to hold, however, that the normal “appeal” process to Superior Court could be replaced with arbitration.

 2.         Court Finds Dealer Liable for “Back-Dating” of Sales Contracts.   Arguably the most significant case impacting California auto dealers in 2010 involved a common industry practice relating to the re-signing of contracts.  In Nelson v. Pearson Ford,  186 Cal. App. 4th 983 (4th Dist. 2010),  the Court essentially found that the way most California dealers had been doing “re-writes” of contracts after a “spot delivery” to a consumer was a violation of California’s Automobile Sales Finance Act.  In the July 2010 decision by California’s 4th District Court of Appeal, the Court held that a dealership violated several laws by back dating the retail installment sales contract and failing to properly itemize the purchase of insurance on the contract.  The case also illuminated some class action issues, including discussion of a flawed Offer to Compromise.

The Court held that a “back dated” contract re-written six days after the first contract violated California’s so-called “Single Document Rule,” the federal Truth in Lending Act (“TILA”) and the Consumer Legal Remedies Act (“CLRA”).  The Court found that the back dating violated the Single Document Rule because one could not look at the rewritten contract and determine that it was actually signed six days later than indicated.  The Court found that a person would have to look at a separate document, the Acknowledgement of Rewritten Contract, to make that determination.

The Court also held that the dealer violated TILA by calculating the interest for a period that was six days prior to the time of the second contract.

Finally, the Court decided that the dealer’s failure to properly itemize the insurance premium on the contract, as opposed to breaking it down on a “Due-Bill”, violated both the Automobile Sales Finance Act and the CLRA.

The Court granted class action status to two classes: a class of customers who had their contracts back dated, and a second class of customers who failed to have their insurance premium properly itemized. The Court gave the back dating class restitution of $50 each, which amounted to $222,785.  It also gave the insurance consumers the right to rescind their purchase, less an amount attributable to their use of the vehicle.  The Court awarded plaintiff’s attorneys fees and costs of $401,358.

The dealer argued that he should not have to pay Plaintiffs’ attorneys fees because of a Code of Civil Procedure 998 Offer to Settle in the amount of $500,000 which the Plaintiffs rejected.  However, the Court concluded that the CCP 998 Offer to settle was flawed because it was a lump sum settlement, instead of divided between the two classes.

3.         Dealer Not Liable For Excess Over-Charge of Vehicle License Fee.    In Fulton Auto Depot, 179 Cal. App. 4th 1318, 102 Cal. Rptr. 3d 413 (3d Dist. 2009), the Court held that an inaccurate estimate of vehicle license fees did not necessarily violate the Automobile Sales Finance Act so long as the dealer made the appropriate refund of any excess charge.  The Third District California Court of Appeal rejected plaintiffs’ argument that the dealer and the credit union note holder violated the Automobile Sales Finance Act (ASFA) by overestimating the DMV license fee and failing to submit the vehicle to a smog check for which buyers were charged in the purchase contract. 

Defendant dealer overestimated the DMV license fees by $2.00 and did not smog the vehicle before delivery to plaintiff.  After approximately four months, plaintiffs returned to the dealer to inquire why they had not received their registration from DMV.  The dealer immediately smogged the vehicle and processed the registration paperwork.  In their suit to rescind the contract plaintiffs argued that neither the dealer nor the holder corrected the erroneous charges on their sales contract within the ASFA’s safe harbor period. 

The court noted that the dealer had entered the word “estimate” next to the license fee charge on the sales contract.  The court also found that Vehicle Code §11713.4 allows dealers to estimate the DMV licensing fee.  With respect to the smog fee, the court noted that plaintiffs based their case on violating ASFA (arguing that the dealer made an untruthful statement on the sales purchase contract) not on violating §24007.   The court rejected plaintiffs’ contention that the dealer violated ASFA, noting that the dealer did eventually smog the vehicle, that doing so was a requirement for the sales transfer to be effective, and that therefore, the $58.25 charge stated on the sales contract for a smog fee was not an untruthful statement. 

4.         Auto Sales Contract Arbitration Provision Fails On Class Action, Waivor Claims.  The automotive industry has not been insulated from the class action warfare that has impacted so many other areas of the law.  In Amberlee Fisher v. DCH Temec-ULA Imports, LLC. 187 Cal. App. 4^th 601, 114 Cal. Rptr. 3d 24 (4^th Dist. 2010), the Court held that a mandatory arbitration provision contained in the standard Retail Installment Sales Contract could not compel class action arbitration of a claim falling under California’s Consumer Legal Remedies Act (“CLRA”).  The Court found that the consumer could not waive a statutory right to class action status under the CLRA.

Another arbitration case, Adolph v. Coastal Auto Sales, Inc., 184 Cal. App. 4^th 1443, 110 Cal Rptr. 3d 104 (4^th Dist. 2010), reminds us that a dealer cannot delay in trying to enforce a contract arbitration clause.  In the Coastal Auto Sales case, the Court found that the dealer had waived the contractual arbitration clause by participating in the civil suit for a protracted period of time, including engaging in discovery. 

5.         Unlicensed Salesperson Can Still Sue Dealer for Commissions.   In a state that has almost a zero-tolerance for lawsuits filed by unlicensed people, the Court in Wald v. TruSpeed Motorcars, LLC. 184 Cal. App. 4^th 378 (4^th Dist. 2010), held that an unlicensed salesperson could still file suit against the dealer for commissions owed.  The Court found that the dealer was not in the class of persons protected by the licensing statute and would be unjustly enriched by precluding the unlicensed salesperson from suing.  More to the point, the Court correctly observed that the dealer has a legal responsibility to ensure his salespeople are properly licensed.

6.         Court Holds Res-Judicata Prevents Using Unfair Competition Law To Set Aside Previous Judgments.   A six year legal war involving legally defective Notices of Intent to sell repossessed vehicles that previously went to the California Supreme Court finally appears to have had the last battle fought.  In Fireside Bank Cases v. Superior Court of Santa Clara, 187 Cal. App. 4^th 1120, 115 Cal. Rptr. 3d 80 (6^th Dist. 2010), the Court held that earlier deficiency judgments obtained by Fireside Bank against defaulting consumers could not be set aside under a theory that the judgments violated California’s Unfair Competition law.  The case was the “good news” to a lengthy history of “bad news” for the defendant; the final straw in a legal contest that went to the Supreme Court on certain critical class action issues, including the issue of one-way intervention and the order of determination of class certification versus adjudication on the merits.  For car dealers and finance companies, the Fireside case, along with a cadre of other class action cases brought against large financial institutions, presents an expensive lesson in the nuances of following every technical aspect of California’s Automobile Sales Finance Act, especially as regards notices to consumers served after repossession.

7.         Manufacturer Spanked for Delay In Lemon Law Compliance.   The Court in Lukather v. GM, 181 Cal. App. 4^th 1041, 104 Cal. Rptr. 3d 853 (2d Dist. 2010), spanked a manufacturer for failing to comply with California’s “lemon-law” statute on a timely basis.  The Court opined that GM had almost five weeks within which to make a timely response to the consumer’s demand for repurchase of an alleged “lemon” vehicle, rejecting GM’s contention that it had responded reasonably to the consumer.  The Court upheld damages, penalties, fees, and costs in the amount of $185,306, sending a clear message to manufacturers that they better hop on demands made under the Song-Beverly Warranty Act.  The only good news coming out of the case for GM was that the Court declined to award sanctions for a frivolous appeal.

8.         Finance Company Not Liable for Attorney Fees in “Quartz” Action.   In Hyduke’s Valley Motors v. Lobel Financial Corp., 189 Cal. App. 4^th 430, 117 Cal. Rptr. 3d 19 (4^th Dist. 2010), the Court held that a finance company was not liable for attorney fees to a wholesaler after losing a “Quartz” action over certain vehicles fraudulently sold by a dealer.  The Court found that there was no statutory or contractual basis to award fees, declining to find that the action was “on a contract” within the meaning of California Civil Code §1717.  The underlying disputed pitted a wholesaler who sold the vehicles to the dealer as against Lobel, who bought the installment sales contracts from the dealer in what has come to be known as a “Quartz Action,” after the holding in  Quartz of Southern California, Inc. v. Mullen Bros., Inc., 151 Cal.App.4th 901, 61 Cal. Rptr. 3d 54 (2d Dist. 2007).  The trial Court found in favor of the wholesaler.  The wholesaler thereafter sought to recover attorney fees from the finance company.

9.       Vehicle Salespeople Can Sell At “Commonly Controlled” Dealerships.  SB 1004-Huff passed in 2010 by the California Legislature will help dealers and vehicle salespeople by making it easier for salespeople to work for more than one dealership, so long as the dealerships are “commonly controlled”.  

In addition to helping dealers and salespeople on the actual dealership lot,  the legislation will also help eliminate uncertainty and frustration at the local auto auction.  Some mega-dealers and chains have one buyer who buys for several dealerships all under common ownership.  Under the former law such a practice might have been declared unlawful because the buyer could only “hang his license” at one of the dealerships and technically was precluded from buying for the other dealerships.  This practice will now clearly be permissible under the new law.

SB 1004 became effective January 1, 2011.

A two term member of the San Juan Unified School District Board of Education, Miles was named to the Board of Advisors by California School Board President President Martha Fluour. The Educational Legal Alliance is composed of school districts throughout California and other educational organizations. The Legal Alliance does educational impact litigation. Recent cases have included challenging California’s educational finance system and recent charter school decisions of the State Board of Education.

Miles was also named Vice-President for the San Juan School Board in December. Larry has previously served two terms as Board President.

“It is a pleasure to represent our long-time clients in these important auto dealership transactions,”  Mr. Miles noted.  “We are happy for them and also happy that such dealership sales activity may auger well for 2011.”

Mr. Miles has represented dozens of auto dealers in dealership buy-sells since 1986.

THE MILES LAW FIRM

“This is the natural extension of counselling our many auto industry clients on the many laws with which they have to comply,” said Larry Miles, the Firm’s senior attorney and principal instructor for AUTO WORLD LEGAL.  “Our online legal training will help dealers ensure that their employees are legally compliant with those laws.”

The web portal for AUTO LAW TRAINING is at www.autolawtraining.com.  The inaugural course is F&I 101, An Introduction to Legal Compliance in the Finance and Insurance Office.  Interested dealerships and prospective students can review this  “Free Sample Course,” which is the introductory session for F&I 101, and then check out the entire course coverage in F&I 101 by going to “Our Courses”.   A prospective student can enroll for any course by going to AUTO LAW TRAINING  portal which is accessed from the “Getting Started” page.

Dealers should contact AUTO LAW TRAINING directly at autolaw@autolawtraining.com to arrange for bulk enrollment discounts or prospective students can enroll directly through the AUTO WORLD LEGAL portal.