Insights

No one ever said that justice is swift. A court action takes time, with initial pleadings, discovery, and generally loads of pre-trial motions. Just getting to the point where a trial court rules on all of the plaintiff's claims can take years and, in some cases, more than one trial court.

Generally, federal courts exist to hear claims that arise under federal law. Often, however, a plaintiff asserts both federal and state law claims in one action filed in federal court because the claims are sufficiently related. Occasionally, the federal court disposes of the federal law claims on a motion to dismiss or a motion for summary judgment and is left with only state law claims. Then the federal court must decide what to do with the remaining claims over which it would not have had jurisdiction but for the federal law claims, which now no longer exist. A recent case by a car buyer against a dealer asserting federal claims under the Truth in Lending Act and state law claims under the Connecticut Unfair Trade Practices Act provides a good example of how the concept of jurisdiction works.

On December 31, 2014, Marisol Morales agreed to buy a new 2015 Nissan Altima from Barberino Brothers, Inc., for a cash price of $31,322. The manufacturer's suggested retail price for the car was $24,150. Barberino subtracted $3,500 from the $31,322 cash sale price for the car that Morales traded in as part of a promotion in which Barberino agreed to provide a $3,500 discount for any trade-in, regardless of the trade-in's actual value, which in Morales's case was close to $0. In cases where Barberino gives the $3,500 discount, the buyer agrees not to negotiate the sale price, and Barberino adds $3,500 to the sale price. Therefore, Morales effectively got nothing for her trade-in. On March 2, 2015, Morales sued Barberino for violating the federal Truth in Lending Act and the Connecticut Unfair Trade Practices Act. Barberino moved for summary judgment, and the U.S. District Court for the District of Connecticut granted the motion.

Morales claimed that Barberino violated TILA by failing to accurately itemize the amount financed and failing to accurately disclose the finance charge in the retail installment contract she signed. Both arguments were based on the fact that Barberino inflated the cash price of the car Morales bought to compensate for the trade-in discount it gave her for a car with almost no value. First, the court found that Barberino accurately disclosed the finance charge. Morales claimed that the increase in the sale price of the car to compensate for the trade-in discount constituted an undisclosed finance charge. The court disagreed, noting that because Barberino increased the sales prices of its cars to offset the trade-in allowances in both cash and credit transactions, the increase did not amount to a finance charge. Second, the court found that Barberino accurately itemized the amount financed. The court noted that although Morales agreed to a bad bargain, the itemization of amount financed represented a true and accurate description of the terms she agreed to, in keeping with TILA's purpose of assuring accurate disclosure by a creditor. As the court stated: "Although there may be a tension between Barberino's shamelessly admitted practice and the letter or spirit of consumer protection laws, it is simply not a TILA violation." After the court dismissed Morales's federal claims, it declined to exercise jurisdiction over her state law claims.

So, what does this mean for Morales? The court's dismissal was without prejudice to her right to file suit in the appropriate Connecticut court. And the fact that she was unsuccessful on her TILA claims has no bearing on whether or not she will be successful on her CUTPA claims. As the court noted, TILA's purpose is "to assure the meaningful disclosure of credit terms,'" but the Connecticut Department of Consumer Protection regulation that Morales claimed Barberino violated, which she asserts constituted a violation of the CUTPA, has less to do with disclosure and more to do with what the regulator deems unfair and deceptive. That regulation provides:

It shall be an unfair and deceptive act or practice for a new car dealer or used car dealer to advertise in any manner the price which will be paid by such dealer for trade-in vehicles unless the price of the vehicle sold by such dealer to the owner of the trade-in vehicle is within the range of prices at which the dealer usually sells such vehicles and is not increased because of the amount paid for the trade-in vehicle.

So, a year and a half after Morales bought her car and more than a year after she filed suit in federal court, she needs to start over by asserting her state law claims in state court. What's clear is that, absent a settlement, a state court, rather than a federal court, will have the opportunity to decide whether a dealer operating in its state has violated its state laws or regulations. What's also fairly clear is that Morales will win her case. In the time since this case was filed, let's hope that it became clear to Barberino that it needs to scrap the type of trade-in promotion that got it in hot water with Morales. Otherwise, Barberino will become intimately familiar with the state courts that are more than happy to hear cases filed by other disgruntled buyers.

Morales v. Barberino Brothers, Inc., 2016 U.S. Dist. LEXIS 59726 (D. Conn. May 5, 2016).