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Jones v. Pohanka Auto North, Inc.

United States District Court, D. Maryland

September 2, 2014


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For Eunice Jones, On her own Behalf and on Behalf of All Other Consumers Similarly Situated, Barbara Jones, On her own Behalf and on Behalf of All Other Consumers Similarly Situated, Plaintiffs: Mark Harris Steinbach, O Toole Rothwell, Washington, DC; Martin Eugene Wolf, Gordon, Wolf & Carney, Chts., Towson, MD; Richard S Gordon, Benjamin Howard Carney, Gordon, Wolf & Carney, Chtd, Towson, MD.

For Pohanka Auto North, Inc., Pohanka Chevrolet, Inc., Pohanka Hyundai, Inc., Pohanka Imports, Inc., Pohanka MB, Inc., Pohanka NMH, Inc., Pohanka of Clarksville, Inc., Pohanka of Salisbury, Inc., Pohanka Oldsmobile-GMC Truck, Inc., Pohanka SHO, Inc., Pohanka TM, Inc., Defendants: Gerard J Gaeng, LEAD ATTORNEY, James Edward Crossan, Rosenberg Martin Greenberg LLP, Baltimore, MD.

For SunTrust Bank, Defendant: Brian L Moffet, John Jun Young Lee, LEAD ATTORNEYS, Gordon Feinblatt LLC, Baltimore, MD.

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DEBORAH K. CHASANOW, United States District Judge.

Presently pending and ready for resolution in this putative class action is the motion to dismiss filed by the remaining eleven Defendants: Pohanka Auto North, Inc.; Pohanka Chevrolet, Inc.; Pohanka Hyundai, Inc.; Pohanka Imports, Inc.; Pohanka MB, Inc.; Pohanka NMH, Inc.; Pohanka of Clarksville, Inc.; Pohanka of Salisbury, Inc.; Pohanka Oldsmobile-GMC Truck, Inc.; Pohanka SHO, Inc.; and Pohanka TM, Inc. (ECF No. 17). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted.

I. Background

A. Factual Background

On August 15, 2008, proposed Named Plaintiffs Eunice and Barbara Jones (" Plaintiffs" ) purchased from Pohanka Isuzu a used 2007 Mercedes-Benz C230 for $35,153.20, with financing they obtained by executing a Retail Installment Sale Contract (" RISC" or " credit contract" ). (ECF No. 1-2). Defendants represent -- and Plaintiffs do not challenge - that Pohanka Isuzu is now closed and that it was operated by Defendant Pohanka Auto North, Inc. (" Pohanka Auto North" ). (ECF No. 17-1, at 9). The RISC lists Eunice and Barbara Jones as the Buyers and Pohanka Isuzu as the " Creditor-Seller." ( Id. at 1). The total price of the vehicle included a $750 charge for an optional debt cancellation agreement, which Plaintiffs purchased. ( Id. at 1; see also ECF No. 1-3).[1] The " Applicable Law" section of the contract stated:

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Federal law and Maryland law apply to this contract. This contract shall be subject to the Credit Grantor Closed End Credit Provisions (Subtitle 10) of Title 12 of the Commercial Law Article of the Maryland Code.

( ECF No. 1-2, at 4). The contract also contained a " Holder Notice" that stated:

Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.

( Id. ) (emphasis removed). Plaintiffs' credit contract, including the GAP Agreement, was assigned to SunTrust, which is identified as the " lienholder" in the GAP Agreement. (ECF No. 1-3, at 1).

Plaintiffs contend that the debt cancellation agreement that they entered into is not a " true" debt cancellation agreement under Maryland Credit Grantor Closed End Credit Provisions (" CLEC" ), Md. Code Ann., Com. Law § 12-1001 et seq. Under CLEC, a debt cancellation agreement requires a lender to cancel the remaining loan balance when a car is totaled and the insurance payout does not cover the entire outstanding balance. The debt cancellation agreement that was part of Plaintiffs' contract differed from the statutory definition of " debt cancellation agreement" under CLEC. Plaintiffs' debt cancellation agreement - which they believe was " phony" - stated:

If the Insurance Company providing physical damage coverage on the Vehicle described above determines that Vehicle is a Total Loss, then You will be responsible for paying only the following to the Lienholder you make payments to under the Contract:
1. A) The Value of the Vehicle as determined by the physical damage insurance company on the Date of Loss or the Nada Retail Value of the Vehicle, whichever is greater, plus any physical damage insurance deductible over $1,000 which reduces that settlement, or
B) If there is no physical damage insurance in effect on the Date of Loss, the average retail price of the Vehicle on the Date of Loss based on a current edition of the NADA Used Vehicle Price Guide.

( ECF No. 1-3, at 1). According to the complaint, " [t]he phony GAP Agreements purchased by Plaintiffs and the Class, [] only agree to relieve the borrower of the obligation to pay the difference between the 'Value of the Vehicle' and the amount owed on the financing contract," which Plaintiffs presumably believe will be less than the remaining loan balance in the event of total loss. ( Id. ). Plaintiffs assert that if they " had purchased and financed a true 'debt cancellation agreement' as defined by Maryland's credit statutes . . . Plaintiffs would not have had any obligation to make any payments toward the remaining loan balance on their vehicle loan for the [vehicle] after a total loss or theft, after the application of the insurance proceeds." (ECF No. 1 ¶ 41). Plaintiffs aver that " because the GAP agreement is not a true debt cancellation agreement, it does not relieve them of that potential obligation -- but they [were] still required to pay $750 for [the GAP Agreement]." ( Id. ).

Although Plaintiffs did not actually suffer any loss on their used Mercedes-Benz (thus the allegedly " phony" debt cancellation agreement was not applied in their case), they contend that " Maryland law

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does not permit the financing of the phony GAP Agreements in question -- or the charging or collection of charges for such phony GAP Agreements -- it only permits creditors to finance and charge and collect for true debt cancellations agreements which cancel the outstanding debt remaining on an account." ( Id. ¶ 43). Plaintiffs allege that eleven dealerships associated with one another under the non-incorporated Pohanka Automotive Group umbrella in order to advertise as one entity. ( Id. ¶ 8). Plaintiffs contend that the entities that are part of the Pohanka Automotive Group aided and abetted one another and conspired regularly to sell and finance, and regularly sold and financed, " the form GAP Agreements which did not constitute true debt cancellation agreements eligible for financing under Maryland's credit statutes." ( Id. ¶ 47). According to the complaint, the Pohanka Automotive Group agreed to assign credit contracts financing the GAP Agreements to SunTrust Bank. ( Id. ¶ 48). Plaintiffs assert that Pohanka Isuzu is a name under which the Pohanka Defendants associate " in order to conduct their conspiracy." ( Id. ¶ 51).

The complaint identifies multiple transactions in which " the Pohanka Automotive Group and its co-conspirators financed phony GAP Agreements in a similar manner" to Plaintiffs' transaction. (ECF No. 1, at 17-21). Plaintiffs aver that " [t]he Pohanka Automotive Group repeatedly undertook similar actions in the course of their conspiracy. Each and every Pohanka Defendant took part in the sale and financing of GAP Agreements to Class members in violation of CLEC, and directly sold illegal GAP Agreements to Class members in numerous similar transactions." (ECF No. 1 ¶ 56). The complaint avers that the Pohanka Automotive Group and SunTrust Bank have conspired to collect and have collected from Named Plaintiffs and class members interest, costs, fees, and other charges which Plaintiffs maintain are uncollectible " and must be forfeited on each credit contract due to the financing of the phony GAP Agreements." ( Id. ¶ 58).

B. Procedural Background

Plaintiffs filed a putative class action complaint on October 31, 2013 against the eleven Defendants identified above and SunTrust Bank. (ECF No. 1). The complaint alleges four counts including: (Count I) violations of CLEC; (Count II) breach of contract; and (Count IV) restitution and unjust enrichment. Plaintiffs also seek declaratory and injunctive relief (count III). On January 9, 2014, SunTrust filed a motion to dismiss or to strike class allegations. (ECF No. 18). Plaintiffs subsequently accepted Rule 68 offer of judgment from SunTrust Bank and the undersigned issued an order on February 26, 2014 entering judgment for Plaintiffs on the terms set forth in the Rule 68 Offer of Judgment dated February 10, 2014. (ECF No. 23). On March 13, 2014, an order was entered certifying as final the judgment entered on February 26, 2014 as to all claims of Plaintiffs against Defendant SunTrust Bank. (ECF No. 26).[2]

The eleven remaining Defendants also moved to dismiss on January 9, 2014. (ECF No. 17). Plaintiffs opposed the motion (ECF No. 24), and Defendants replied (ECF No. 30).

II. Standard of Review

The purpose of a motion to dismiss under Rule 12(b)(6) is to test the sufficiency of the complaint. Presley v.

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City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006). A plaintiff's complaint need only satisfy the standard of Rule 8(a), which requires a " short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). " Rule 8(a)(2) still requires a 'showing,' rather than a blanket assertion, of entitlement to relief." Bell A. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). That showing must consist of more than " a formulaic recitation of the elements of a cause of action" or " naked assertion[s] devoid of further factual enhancement." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citations omitted).

At this stage, all well-pleaded allegations in a complaint must be considered as true, Albright v. Oliver, 510 U.S. 266, 268, 114 S.Ct. 807, 127 L.Ed.2d 114 (1994), and all factual allegations must be construed in the light most favorable to the plaintiff. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999) ( citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)). In evaluating the complaint, unsupported legal allegations need not be accepted. Revene v. Charles Cnty. Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989). Legal conclusions couched as factual allegations are insufficient, Iqbal, 556 U.S. at 678, as are conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979).

III. Analysis

A. Standing

Defendants challenge Plaintiffs' standing to bring claims against the dealership defendants with whom Plaintiffs did not transact. Specifically, Plaintiffs entered into their financing contract with a single dealership, Pohanka Isuzu, operated by Pohanka Auto North at the time. ( See ECF No. 1-2). The Pohanka Defendants [3] argue that Plaintiffs lack standing to assert any claims against them. (ECF No. 17-1, at 39). Thus, even assuming Plaintiffs suffered an injury arising from the financing of a " phony" debt cancellation agreement, Pohanka Defendants maintain that it cannot be attributed to them because they were not in contractual privity with the Joneses (thus they were not " credit grantors" as to Plaintiffs' transaction under CLEC).

Article III standing is a threshold jurisdictional requirement. See Central Wesleyan College v. W.R. Grace & Co., 6 F.3d 177, 188 (4th Cir. 1993) (" standing is a jurisdictional issue, and courts should attempt to resolve such issues as soon as possible." ). The Supreme Court has consistently required that a litigant have " standing" to challenge the action sought to be adjudicated in federal court. Valley Forge, 454 U.S. at 471. " In order to have standing, a plaintiff must demonstrate some actual or threatened injury as a result of the putatively illegal conduct of the named defendant, and must show that the injury can be fairly traced to the challenged action and that the injury is likely to be redressed by a favorable decision." Herlihy v. ...

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