SC Senate bill sparks clash of consumers, car dealers, lawyers and Supreme Court

Last year, the S.C. Supreme Court issued a 3-2 ruling in a class action lawsuit that forced an Upstate car dealer to pay out $2.8 million in refunds and damages to thousands of customers who had bought vehicles from 2002 to 2006.

That ruling upheld a Pickens County jury verdict that found a local car dealer, Hendrick Honda, had charged improper closing fees to 5,300 customers over four years. The ruling had a sweeping ramification:

It allowed some 200 similar pending class action lawsuits to go forward against more than 200 other car dealers across South Carolina. If the dealers were to lose those lawsuits, the businesses could each be liable for millions of dollars in refunds to thousands of customers. Those lawsuits had been on hold until the Supreme Court ruled in the Hendrick case.

South Carolina car dealers – who employ an estimated 30,000 workers, sell 125,000 vehicles annually and do some $10 billion worth of business a year – are naturally shaken by the threat to their industry.

But the dealers have an ally in the Legislature.

State Sen. Larry Martin, chairman of the Senate Judiciary Committee, has filed a bill to nullify all of those pending lawsuits.

“It is rare,” Martin said, referring to the unusual nature of his effort to kill some 200 pending class action lawsuits against 211 dealers. “But this is not about reversing the Supreme Court decision.”

What his bill is about, said Martin, R-Pickens, is doing the right thing and following the interpretation of state law laid down in the dissent – not the majority opinion – of the Supreme Court’s Hendrick opinion.

The three-justice majority opinion said a 2000 state law that allows car dealers to charge a closing fee requires dealers to base that fee on actual, itemized costs to the dealer. A two-justice dissent argued that the majority interpretation of the 2000 law goes too far and that dealers can’t be held liable if their closing fees don’t correspond to actual costs.

In most car purchases, the buyer sees the item on the bill referred to only as “closing fees,” which can vary from $99 to more than $600. Most dealers charge closing fees; some don’t.

Bill would nullify lawsuits

Martin said the Supreme Court majority opinion was just plain wrong because the 2000 state law about closing fees didn’t spell out that the fees had to match actual expenses.

“It’s just not fair. It is without dispute that the dealers have complied with the law, but they are being punished for following the law,” Martin said in an interview last week. “This type of claim could literally bankrupt some of these dealers.”

In its opinion, the three-justice majority roundly rejected Martin’s interpretation. The majority specifically found that state law requires car dealers’ closing fees “be directly related to the services rendered and expenses incurred in closing the purchase of a vehicle.”

Martin’s bill would:

▪ Reverse the majority opinion and not require closing fees to be based on actual costs.

▪ Abolish consumers’ rights to band together and file class action, or group, lawsuits against the car dealers over closing fees.

▪ Nullify all 200 pending lawsuits against dealers.

Hendrick Honda has already paid $2.8 million in refunds and damages to some 5,300 customers. Martin said he’s not trying to get those customers to surrender the money they won. But Martin doesn’t want any more refunds to be made, so he wrote his bill to apply to “any pending and unresolved” lawsuit filed against dealers over closing fees.

‘Happy’ customers

Martin’s bill has attracted 25 co-sponsors – more than half of the 46-member Senate.

Supporter Sen. Shane Massey, R-Edgefield, lambasted the Supreme Court majority opinion at a recent Judiciary hearing. “They completely misinterpreted the law... I don’t want to send a message to the court or anybody that we accept that opinion.”

In recent hearings on the bill by the Judiciary Committee, State Sen. Brad Hutto, D-Orangeburg, a 10-year Senate veteran, has emerged as Martin’s main opponent, battling Martin point for point.

At a Jan. 7 hearing, Martin said people who buy cars in South Carolina “are happy customers” who didn’t know they were unhappy until lawyers began filing class action lawsuits.

“To subject all these dealers, all their happy customers, to this massive litigation – that’s patently unfair,” Martin said.

Hutto then quipped that Hendrick Honda customers who got refunds had a different view. “They were happy when they got those checks. ... If they are entitled to (a refund), they are entitled to one.”

In an interview and at hearings, Hutto made these points:

▪ Legal scholars say a legislature doesn’t have the authority to make retroactive changes in the law so as to kill pending lawsuits. “If the legislature has the authority to make retroactive changes, then we effectively become the court of last resort for people who are disgruntled with the decisions of the Supreme Court.”

The Legislature has the authority to change the law going forward, but not going back, Hutto said.

▪ Class action lawsuits are an effective way for individual consumers to challenge closing fees because lawyers can’t afford to take on individual cases where a judgment might not be sizable. “Instead of having 50 people bring an action against car dealer A, those 50 people would have to go out and file a separate action. It would be a burden for each consumer to go out and find lawyers who were willing to do that.”

Besides, Hutto said, car dealers can file class action lawsuits against car manufacturers, so it ought to be fair for consumers to band together to file lawsuits against dealers.

In the Hendrick lawsuit, lawyers for car buyer Julie Freeman argued the closing fee was just a way to pad the dealer’s profits and was illegal because it bore little relation to actual expenses. Lawyers for the dealer countered with these arguments: For years, the law gave dealers the right to add a closing fee; Hendrick had legitimate expenses associated with the fees; and in any event, the law didn’t require Hendrick to account for every closing fee expense.

Sims Floyd, executive vice president of the S.C. Automobile Dealers Association, said Martin’s legislation simply clarifies the 2000 state law dealing with closing fees. Dealers have complied with that law for 16 years with only one formal complaint made to the S.C. Department of Consumer Affairs about the fees, Floyd said.

“Obviously, these lawsuits have not and are not about actual consumer issues,” Floyd said. “Businesses have to be able to rely on the simple printed word of the law.”

But Sue Berkowitz, director of the citizen advocacy group Appleseed Legal Justice Center, said her group is happy with the the Supreme Court majority ruling.

“The closing fee had nothing to do with closing costs. It just had to do with getting more money out of the consumer,” Berkowitz said. “We were thrilled with the decision. People were taken advantage of.”

Martin said he in no way favors allowing car dealers to gouge consumers with souped-up closing fees.

But in this case, dealers thought they were doing right by the law and now, just because lawyers have devised a clever way to bring group lawsuits, dealers stand to be on the hook for millions, Martin said.

“I hate to see businesses victimized,” Martin said.

But Brady Thomas, one of the lawyers who won the Hendrick lawsuit and who is involved in the ongoing lawsuits, said hundreds of thousands of people stand to get refunds from car dealers if their class action lawsuits aren’t killed by the Legislature. “The real victim are the customers who are being told they are paying a closing fee to reimburse costs when it doesn’t have anything to do with costs,” Thomas said.

The Judiciary Committee will hold a hearing on the bill on Tuesday at 3 p.m. in the Senate office building on the State House grounds.

This story was originally published January 17, 2016 at 12:52 AM with the headline "SC Senate bill sparks clash of consumers, car dealers, lawyers and Supreme Court."