In November the California Third Court of Appeals issued an unpublished decision that affects the vehicle finance industry, Stettner v. Mercedes-Benz Financial Services USA, LLC. Unpublished opinions are prohibited from being cited by counsel in memoranda of law and are not binding on inferior courts. Last Friday Alston & Bird submitted a request for publication on behalf of the American Financial Services Association (AFSA).

Summary of Stettner v. Mercedes-Benz Financial Services USA, LLC 

In this case, the plaintiffs were lessees who alleged that Mercedes-Benz Financial Services (MBFS) wrongfully collected tax on a vehicle turn-in fee (or disposition fee) at lease-end.  The plaintiffs alleged that disposition fees were exempt from taxation under California Department of Tax and Fee Administration’s (CDTFA) regulations. Though California’s Revenue and Taxation Code afforded plaintiffs the right to file refund claims with the CDTFA, the plaintiffs did not do so before filing suit.  Instead, plaintiffs sued both the CDTFA and MBFS, and sought a public injunction barring MBFS from collecting tax on turn-in fees and compelling it to file refund claims on behalf of lessees from whom it had collected tax.

California Court of Appeal Decision 

In the unpublished decision, the Court of Appeals affirmed the trial court’s sustaining of MBFS’s and the CDTFA’s demurrers without leave to amend. The Court held that plaintiffs’ failure to exhaust their administrative remedies before filing suit barred their suit in its entirety.  Additionally the Court held this was not the rare situation where a customer could sue the retailer charged with collecting the tax directly, because there had been no prior determination that the tax was wrongfully collected.

Request for Publication 

Through Alston & Bird, AFSA requested publication so that this important opinion, which modifies an existing rule of law, can provide a legal framework for determining when California courts should resolve taxability challenges in the context of vehicle lease agreements. Publication would establish a clear rule that plaintiffs-lessees’ only remedy to challenge a tax assessment is to pay the disputed tax and file a refund claim with the CDTFA; it will also help curb frivolous lawsuits over this issue. AFSA appreciates Alston & Bird’s work to continue to ensure vehicle finance companies can operate under clear rules of law.