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nowReL ovtansee CD NOTIEY “CAG/SaK, Commonwealth v. Venturcap Investment oli@ VN et al. LAD AAD, ? Suffolk County Superior Court Action No. 1784CV03081-BLS1 ~PLA] say. : Decision and Order Regarding Commonwealth's Motion for Partial Summary Judgment (Docket Entry No. 19): \ Piaintiff Commonwealth of Massachusetts (‘Commonwealth’), by and through its ‘Attorney General, Maura Healey, filed this enforcement action in September 2017 against defendants Venturcap Investment Group V, LLC, doing business as JD Byrider, i and Venturcap Financial Group, LLC, doing business as CNAC (collectively, “JD Byrider” or “Defendants’) pursuant to authority granted to the Attorney General by G.L. c. 93A, § 4.! The Commonwealth seeks restitution, civil penalties, and reimbursement | of its costs and expenses as remedies for JD Byrider’s purportedly unfair and deceptive || acts and practices in the sale of used cars to Massachusetts consumers.” : The Commonwealth's claims against JD Byrider are set out in the three counts of its | ‘Complaint (°Complaint,” Docket Entry No. 1). Each claim focuses on certain, particular automobile sales practices that the Commonwealth says JD Byrider employed in. | violation of G.L. ¢. 934, § 2, and various Massachusetts consumer regulations. More - |! specifically, Count | of the Complaint alleges, in relevant part, that JD Byrider made certain “false and deceptive statements and omissions of fact in its advertising and sales presentations’ to consumers, including purportedly false and deceptive statements and omissions regarding the “sales price of JD Byrider's cars,” the “condition | of JD Byrider’s cars,” and the “financing terms available.” Complaint, ff 92-93. Count il of the Complaint alleges, in relevant part, that JD Byrider unfairly and deceptively structured sales transactions with consumers that JD Byrider knew, or should have known, were “doomed to fail,” including by “[alpproving loan applications where the estimated budget [prepared by JD Byrider] shows consumers cannot or are not likely to afford the required payments,” and by “[mJanipulating and/or underestimating consumer expenses in the budget analysis [prepared by JD Byrider] to extend financing to | consumers who otherwise would not qualify.” /d., $I 97-99. Count Il of the Complaint alleges, in relevant part, that JD Byrider engaged in “oppressive or otherwise unconscionable acts or practices” in selling used automobiles to consumers, including | by “lojmitting and actively preventing consumers from learning the terms of the + GL. c. S3A, § 4, provides, in relevant part, that "[w]henever the attorney general has reason to believe that any person is using or is about to use any method, act, or practice deciared by section two to be Uniawl, and that proceedings would be in the public interest, he may bring an action in the name of the ‘commonwealth against such person...” ? Because it is undisputed that JD Byrider discontinued the acts and practices complained of by the CCommorwealth at or around the time this action was commenced, the Commonwealth no longer seeks | the injunctive relief that it previously prayed for in its Complaint. financing and car price during the sales and application process,” and by “[mlaking false of misleading statements during the closing ... related to consumers’ ability to afford the loari and that JD Byrider's interest rates are competitive.” /d., | 104-105. JD Byrider, for its part, does not contest that it previously engaged in certain of the business practices that the Commonwealth complains of, but disputes that those practices were in any way “unfair or deceptive.” The case came before the Court most recently on the Commonwealth's Motion for Partial Summary Judgment (the “Motion”). The Motion seeks summary judgment on the issue of liability only as to Count Il of the Commonwealth's Complaint, which alleges that JD Byrider unfairly and deceptively structured sales transactions with consumers that it knew, or should have known, were “doomed to fail.” JD Byrider opposes the Motion. ‘The Court conducted a hearing on the Commonwealth's Motion on December 11, 2019. All parties appeared and argued. Upon consideration of the written submissions of the parties and the oral arguments of counsel, the Commonwealth's Motion is ALLOWED for the reasons summarized, briefly, below. Factual Background The following material facts, as revealed by the summary judgment record, are effectively undisputed.® JD Byrider is a “Buy Here Pay Here” used car dealership with three Massachusetts locations in Brockton, Dartmouth, and Springfield. SOM, {ff 1, 6. It is a franchisee of Indiana-based Byrider Franchising, LLC. Id. ] 9. JD Byrider previously operated another sales location in the Dorchester section of Boston that closed in November 2018. {d., 17. JD Byrider is known as a “Buy Here Pay Here” dealership because it provides financing for the cars that it sells through its in-house lender, CNAC. /d., M12, 5. Since 2011, not a single customer has purchased a vehicle from JD Byrider for cash. /d., 14. Instead, during this time period, customers have purchased cars from the company exclusively by means of financing offered through CNAC, which takes the form of a'written retail installment sale contract ("RISC"). /d., 15. During the relevant time period (prior to approximately October 2017, hereinafter the: “Relevant Time Period”), virtually all of vehicles offered for sale by JD Byrider had an identical sales price of approximately $12,000, regardless of age or condition. /d., 14. According to JD Byrider Vice-President Trevor Wiggins, ‘lelverything [was] very , uniform.” Id, JD Byrider provided financing to its customers, through CNAC, at a fixed, *° The undisputed facts recited herein generally are taken from the Consolidated Statement of Materials Facts ("SON") filed in conjunction with the Commonwealth's Motion, fou non-negotiable interest rate of 19.95%. /d.,]20. All JD Byrider consumers receive the same 19.95% interest rate, regardless of their credit score. /d., [21. From January 1, 2011 through February 2, 2016, JD Byrider paid an average of $4,863 to acquire the vehicles it sold to consumers, /d., 1] 33. ‘The vehicles sold by JD Byrider during this time period had been driven an average of 98,913 miles. Id. 1134. JD Byrider engaged in several different forms of advertising to consumers during the Relevant Time Period. JD Byrider's television advertisements prominently mentioned “affordable payments,” and represented that “[olur goal is to get you on the road and | keep you there affordably." /d., ff] 42-43. JD Byrider also operates a website, www.jdbyrider.com. During the Relevant Time Period, JD Byrider’s website promised that “[wJe always make sure your budget will fit your car payment before you sign the paperwork, so you can feel confident you can succeed.” /d., {| 48. As of March 2016, JD Byrider’s website also stated that the affordable payments offered by JD Byrider “are based on your lifestyle so they'll fit into your budget.” Id., .47. JD Byrider also sent promotional e-mails to consumers during the Relevant Time Period. /d., [ 48. JD Byrider's promotional e-mails included statements such as “Affordable Payments: We review your budget with our exclusive lender, CAC, in order to customize an affordable payment " and “[t]he next step ... is a meeting in which we prepare a thorough budget analysis and you make your selection from our inventory.” id., 49. In other public facing documents and in its internal policies, JD Byrider further ‘stated that it only closed deals “that are affordable and that are designed for customer success.” /d., 1140. In selling cars to consumers during the Relevant Time Period, JD Byrider sales representatives used a standardized sales process. /d., | 50. JD Byrider’s standard sales process included an introductory sales presentation to each prospective customer using a flip chart that introduced the customer to JD Byrider’s car sales, financing, and service contract program (the “Flip Chart’). /d., | 51. JD Byrider’s Flip Chart was designed for an A-frame stand, with one page facing the consumer and the other facing the sales representative. Jd., 52. JD Byrider expected its sales representatives to present every page of the Flip Chart to a prospective customer. /d., | 53. Prior to February 2018, the Flip Chart represented that JD Byrider provided "A Better Car, An Affordable Payment and Better Car Care.” /d., | 53. The Flip Chart also represented that ‘[iIn house financing representatives from CNAC work to get you affordable initial and ongoing payments.” /d., | 56. The sales representative's side of the JD Byrider Flip Chart set out a number of scripted “sales probes” that the sales representative could use while conversing with a Prospective customer. /d., 57. Prior to February 2018, the sales probe regarding 3 “Affordable Payments” prompted sales representatives to tell customers that “[wJe make sure your payments are affordable, or we don't do the deal,” and “[wJe work on your , budget and we can approve you right here." Id., 160. During the Relevant Time Period, JD Byrider conducted a customer “budget analysis” {the “Budget Analysis) in connection with every RISC.* Id., ] 62. In conducting the Budget Analysis, JD Byrider interviewed the consumer and reviewed any associated Paperwork. /d., | 63. JD Byrider purportedly used the Budget Analysis to determine whether the consumer could afford the payments on the used motor vehicle that he/she ° intended to purchase from JD Byrider. /d., {] 64. -In order to complete each Budget Analysis, JD Byrider used the "Discover System," a software program, to input information directly into the Budget Analysis form. /d,, 467. The Budget Analysis form compared the consumer's net income to his or her expenses and to calculate the ratio of the consumer's “Expenses to Income” (‘ETI’). Id. | 68. To pass the Budget Analysis, a consumer's ETI supposedly had to be less than 100%, meaning that the consumer's income had to exceed the consumer's expenses. /d., | 69. JD Byrider obtained a consumer's credit report as part of the finance underwriting process, but it did not consider the consumer's credit score in deciding whether to approve him or her forfinancing. Id., 173. JD Byrider's Budget Analysis did not, in fact, accurately assess a consumer's ability to afford the payments on a motor vehicle purchased from JD Byrider. The Budget . Analysis form included fields for the anticipated JD Byrider car payment, as well as the consumer's household expenses, including rent or mortgage payments, groceries, clothing, hobbies, and other expenses. /d.,{]74. The Budget Analysis also had a field for the consumer's monthly net, take-home income. /d., 175. The Discover System, however, auto-populated preset values for certain expenses on the Budget Analysis form (the “Preset Expenses"), /d., | 77. Preset Expenses included groceries, the anticipated car payment, gas and auto repairs, and clothing. /d.,{]78. These expenses were “hard-coded” into the Discover System, meaning that the numbers used in the Budget Analysis did not vary regardless of the consumer's actual expenses for these items. id., 177. JD Byrider never conducted a survey to determine how the expenses that were hard-coded into the Discover System compared to the average cost for these items in Massachusetts. id, 181. For example, the Preset Expense in the Discover System for groceries was only $100 per month, per person in the household. /d., {| 85. This amount was less than one-third of the actual single person food expense for U.S. households as calculated by the U.S. Bureau of Labor Statistics ("BLS") as of 2017. /d., 91. Similarly, the Preset Expense * Use of the Budget Analysis is one of the sales practices that JD Byrider discontinued shortly after this action was filed in September 2017. 4 in the Discover System for clothing was between $43 to $45 per month for each prospective borrower on the RISC agreement. /d., {| 93-94. This amount was approximately one-half of the actual single person clothing expense for U.S. households as calculated by the BLS as of 2017. Id., 195. JD Byrider's Budget Analysis also excluded entire categories of typical consumer expenses. /d., 1104. For example, the Budget Analysis form did not include expense fields for laundry expenses, tax payments, or home maintenance or repairs. /d., {] 105. See also Joint Appendix, Exhibit 2 to Exhibit C at JDB0004688 (sample Budget Analysis | form). JD Byrider's Budget Analysis also ignored the consumer's other debts, such as outstanding student loans or credit card debts, if the consumer reported to JD Byrider that he or she was not making payments on those obligations. SOM, ffl 106-107. When a.JD Byrider customer proved unable to make his or her required monthly car payments, the customer's car usually was repossessed by, or voluntarily surrendered to, JD Byrider. /d., 1 135. According to JD Byrider, involuntary repossessions and voluntary surrenders accounted for 27.1% of the RISC contracts issued by JD Byrider in 2013; 27.1% of the RISC contracts issued by JD Byrider in 2014; and 27.7% of the RISC contracts issued by JD Byrider in 2015. /d. Of the 5,724 cars that JD Byrider sold in Massachusetts between 2013 and 2016, 1,478 subsequently were repossessed by, or voluntarily surrendered to, JD Byrider. /d., W].137-140. JD Byrider subsequently resold a number of the repossessed or returned vehicles to other consumers. Id., 1144. Discussion ‘Summary judgment is appropriate when, viewing’ the evidence in the light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cargill, Inc. v. Beaver Coal & Oil Co., 424 Mass. 356, 358 (1997). A party who does not bear the burden of proof at trial may demonstrate the absence of a genuine issue of material fact either by submitting affirmative evidence negating an essential element of the nonmoving party's case, or by showing that the non-moving party has no reasonable expectation of proving an essential element of his or her case at trial. See Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991). ‘The Commonwealth argues that it is entitled to summary judgment in its favor as to JD Byrider's liability on Count Il, which alleges that JD Byrider, during the Relevant Time Period, violated G.L. c. 934, § 2, by structuring sales transactions with consumers that JD Byrider knew, or should have known, were “doomed to fail.” Specifically, the Commonwealth asserts that JD Byrider affirmatively represented through its advertising and sales presentations to consumers that it only entered into sales transactions that 5 were “affordable” and “designed for customer success,” while its allegedly unfair and deceptive sales practices, including its use of the questionable Budget Analysis, caused many consumers to agree to purchase motor vehicles that were beyond their means. This conduct, the Commonwealth argues, violated G.L. c, 93A, § 2, as a matter of law. The Court agrees. General Laws c. 93A, § 2(a), makes unlawful any “unfair or deceptive acts or practices | in the conduct of any trade or commerce” in the Commonwealth of Massachusetts. The | statute's purpose is “to improve the commercial relationship between consumers and |: business persons and to encourage more equitable behavior in the marketplace by imposfing] liability on persons seeking to profit from unfair practices.” Herman v. Admit |! One Ticket Agency LLC, 454 Mass. 611, 615 (2009) (citation and internal quotation marks omitted). Chapter 93A creates new substantive rights, and in particular cases, “makfes] conduct unlawful which was not unlawful under the common law or any prior statute.” Kattar v. Demoulas, 433 Mass. 1, 12 (2000) ("Kattar’), quoting Commonwealth v, DeCotis, 366 Mass, 234, 244 n.8 (1974), The provisions of G.L, c. 93A do not define precisely what conduct qualifies as “unfair or deceptive.” The Massachusetts Supreme Judicial Court ("SJC”), however, has ‘observed that “[{Jhere is no limit to human inventiveness in this field.” Kattar, 433 :, Mass. at 13, quoting Levings v. Forbes & Wallace, inc., 8 Mass. App. Ct. 498, 503 (1979). What is “unfair or deceptive” depends on “the particular circumstances and context in which the term is applied." Commonwealth v. Fremont Inv, & Loan, 452 Mass. 733, 743 (2008) (‘Fremont’). As a general matter, a practice can be considered “unfair or deceptive” if it is “within at least the penumbra of some common-law, | statutory, or other established concept of unfairness.” PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975). In the advertising context, a statement or tepresentation is “deceptive” if it “has the capacity to. mislead consumers, acting Teasonably under the circumstances, to act differently from the way they otherwise would have acted (i.e., to entice a reasonable consumer to purchase the product).” Aspinall v. Phillip Morris Cos., 442 Mass. 381, 396 '(2004) (“Aspinal’). A ruling that particular conduct violates G.L. c..93A "is a legal, not a factual, determination.” R.W. Granger & Sons v. J & S Insulation, Inc., 435 Mass. 66, 73 (2001). In this case, the Court has no difficulty concluding from the undisputed summary judgment record that JD Byrider violated G.L. ¢. 93A, § 2, during the Relevant Time ° Period, by falsely representing to consumers that it only entered into sales transactions , that were “affordable” and “designed for customer success,” when the true circumstances were quite different. It is clear from the evidence that JD Byrider's deeply-flawed Budget Analysis did not, and could not, reasonably be expected to provide either JD Byrider or the customer with an accurate assessment of the customer's financial ability to purchase a motor vehicle from JD Byrider. The inputs to 6- | r that Budget Analysis frequently bore little relation to the customer's actual financial situation, which had the effect of rendering the output highly unreliable. JD Byrider nonetheless used its Budget Analysis as a sales tool to persuade customers who objectively lacked the necessary resources to go forward with their purchases even though JD Byrider knew, or should have known, that such customers had a high risk of defaulting on the required loan payments. The SJC has expressly held, in analogous circumstances, that such conduct can consfitute an unfair act that is prohibited by G.L. ¢. 9A, See Fremont, 452 Mass. at 748-749 (‘the origination of a home mortgage loan that the lender should recognize at the outset the borrower is not likely to be able to repay’ found to be a violation of G.L. c. 93A). See also Drakopoulos v. U.S, Bank Nat’! Ass'n, 465 Mass. 775, 786 (2013) (clarifying that “[tJhe holding of Fremont was that IG.L. c.] 93A prohibits the origination of a home mortgage loan that the lender should recognize at the outset that the borrower is not likely to be able to repay’) (citations and internal quotation marks omitted). ‘The Court accordingly rules that, although JD Byrider stopped using its Budget Analysis in October 2017, its sales practices prior to that date, as complained of in Count Il of the Commonwealth's Complaint, undeniably “ha[d] the capacity to mislead consumers” in their decisions to purchase used motor vehicles from JD Byrider and, therefore, violated GL. c. 93, § 2.5 Aspinall, 442 Mass. at 396. * In making this ruling, the Court has considered and expressly rejects JD Byrider’s argument that entry ‘of summary judgment on Count Il of the Commonwealth's Complaint is inappropriate because JD Byrider has disputed “almost five dozen” of the facts contained in the parties’ Statement of Facts. See Defendants’ Opposition to Plaintiff's Motion for Partial Summary Judgment (‘Defendants' Opp”) at 6. AS explained above, the undisputed material facts ‘matter are more than sufficient to support the Court's ruling. See Beatty v. NP Corp., 31 Mass. App. Ct. 606, 607 (1991) (“That some facts are in dispute will not necessarily defeat a motion for summary judgment. The point is that the disputed issue of fact must be materia”) ‘The Court similarly has considered and rejects JD Byrider’s further argument that the entry of summary Judgment on Count I! is inappropriate because the Commonwealth has “failled] to establish causation or proximate causation” linking JD Byrider’s unfair or deceptive conduct with any actual consumer losses. ‘See Defendants’ Opp. at 11-13. Proof of causation or loss is not an element of a claim by the Attorney General under G.L. ¢. 934, § 4, See Commonwealth v. Fall River Motor Sales, Inc., 409 Mass. 302, 312 ° (1991) (noting in action under G.L. c. 93A, § 4, alleging misleading advertising practices by automobile dealership, that “fhe violation, by definition, caused injury to the public, and there was no need for the judge to have, or to consider, proof of any actual or specific injury’). ayy Order For the foregoing reasons, IT IS HEREBY ORDERED that the Commonwealth's Motion for Partial Summary Judgment (Docket Entry No. 19) is ALLOWED. Judgment Shall | enter in favor of the Commonwealth on Count il of its Complaint on the issue of labilty \ only. ea Brian A/Davis Associate Justice of the Superior Court | Date: January 17, 2020