Raceway Ford Cases
211 Cal. Rptr. 3d 244
| Cal. | 2016Background
- Raceway Ford sold vehicles and offered dealer-arranged financing; when a lender couldn’t be found within 10 days it sometimes rescinded the original contract and executed a second contract with different financing terms, then backdated the second contract (and an acknowledgment form) to the original sale date.
- Class One (≈1,100 members) challenged backdating, asserting it produced unlawful pre‑consummation interest and APR disclosure errors under the Automobile Sales Finance Act (ASFA, Civ. Code § 2981 et seq.).
- Class Two (≈48 members) alleged Raceway’s computer error caused diesel purchasers to be charged smog-related fees that apply only to gasoline vehicles; Raceway refunded fees plus interest after notice.
- Trial court initially found for Raceway on both issues (treating backdated APRs as permissible in many instances and the smog charges as a bona fide error remedied by refund). The Court of Appeal reversed on backdating (remanding for APR proceedings) but affirmed on smog fees.
- The California Supreme Court reviewed and (1) held backdating did not violate ASFA in the ways plaintiffs claimed, and (2) held the smog-fee inclusion violated ASFA but was excused by the statute’s “accidental or bona fide error in computation” defense because Raceway promptly refunded fees with interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether backdating second contracts caused an illegal finance charge by charging interest before the second-contract consummation date | Backdating caused plaintiffs to pay "pre-consummation" interest and thus an illegal finance charge under ASFA/Regulation Z | Interest that accrued under the original (first) contract may lawfully be included in the finance charge of a subsequent contract | Held for Raceway: including interest that accrued under the initial contract in the later contract’s finance charge is not an illegal finance charge |
| Whether backdating violated Regulation Z/ASFA APR disclosure rules (wrong consummation date) | APR should be calculated from date second contract was signed; backdating misstates APR and violates disclosure requirements | Many backdated APRs fell within Regulation Z tolerances or fit the irregular-first-period exception; not every backdate requires remedy | Held for Raceway in part: consummation date for APR is the second-contract date, but disclosed APRs here were not shown to be inaccurate beyond Regulation Z tolerances; remand ordered by Court of Appeal for APR calculations was unwarranted on plaintiffs’ theory |
| Whether backdating violated ASFA’s single‑document rule (§ 2981.9) by hiding terms and costing information across documents | Backdating forced review of multiple documents to determine operative contract, APR, and pre‑consummation charges, violating the single-document requirement | The operative (rewritten) contract contained required disclosures; acknowledgments added no substantive terms and explicitly voided the first contract | Held for Raceway: no violation of the single-document rule—the operative contract contained the necessary disclosures |
| Whether erroneous smog fees violated § 2982(a) and whether § 2983(a)’s "accidental or bona fide error in computation" defense applies | Smog fees were inaccurately disclosed and thus violated ASFA’s disclosure requirements | The fees were disclosed, the error was due to a programming/computation mistake, and Raceway refunded fees plus interest promptly; § 2983(a) bars rescission remedy for bona fide computational errors | Held: inclusion of smog fees violated § 2982(a), but Raceway established the § 2983(a) defense (bona fide/accidental error in computation) so ASFA rescission/restitution remedies were unavailable after refund with interest |
Key Cases Cited
- Nelson v. Pearson Ford Co., 186 Cal.App.4th 983 (Cal. Ct. App.) (dealer backdating caused pre‑consummation interest; court found illegal finance charge)
- Rucker v. Sheehy Alexandria, Inc., 244 F.Supp.2d 618 (E.D. Va.) (distinguishes finance charge from APR; APR must reflect true consummation date)
- Krenisky v. Rollins Protective Servs. Co., 728 F.2d 64 (4th Cir.) (irregular first-period APR tolerance and administrative‑convenience margins)
- Stasher v. Harger‑Haldeman, 58 Cal.2d 23 (Cal.) (ASFA is a consumer‑protection statute and remedies are a shield, not a sword)
- Thompson v. 10,000 RV Sales, Inc., 130 Cal.App.4th 950 (Cal. Ct. App.) (inaccurate itemized disclosures violate ASFA even if some disclosures appear on contract)
- Bermudez v. Fulton Auto Depot, LLC, 179 Cal.App.4th 1318 (Cal. Ct. App.) (ASFA applicability is determined by substance over form)