BMW, GM win dismissals, Mercedes settles in used-car dealer's lease buyout cases

A Calabasas, Calif., luxury used-vehicle dealership challenging automaker off-lease buyout policies in court has settled with Mercedes-Benz and seen its lawsuits against General Motors and BMW dismissed.

Calabasas Luxury Motorcars had objected to GM, BMW and Mercedes allegedly refusing to allow third-party retailers to buy or accept as trade-ins vehicles leased by the three automakers' customers. According to Calabasas, the brands have improperly limited this off-lease capability to their franchised dealers.

All three automakers argued the lessees don't own their leased vehicles and any right those customers have to buy their leased models is not transferable.

The three cases also explored whether two sections of California code implied a right for customers and third-party dealerships to arrange lease buyouts — an argument rejected by two federal judges but not ruled out by a third.

An attorney for Calabasas has not yet responded to an April 21 request for comment.

The most recent resolution in Calabasas' lease litigation campaign came April 10 when U.S. Central District of California Senior Judge Terry Hatter Jr. dismissed Calabasas' September 2022 lawsuit demanding an injunction against GM. Calabasas had asked the court to end GM's ban on third parties such as non-GM dealerships buying out vehicles leased by GM customers.

Hatter said he couldn't grant Calabasas' injunction because the retailer didn't explain why the issue couldn't be resolved with what he classified as a "legal remedy," such as monetary damages. Hatter said courts could only grant an "equitable remedy" such as an injunction if a legal remedy wasn't possible.

Hatter's latest decision addressed the second lawsuit brought against GM by Calabasas over the off-lease buyout issue. He dismissed the first case without prejudice in August 2022. That ruling included a conclusion that no right to trade in an off-lease General Motors vehicle at a third-party retailer existed in the California codes Calabasas had cited.

Calabasas quoted a California Vehicle Code passage outlining rules for situations involving a dealership that "purchases or obtains a vehicle in trade in a retail sale or lease transaction and the vehicle is subject to a prior credit or lease balance." The dealer must pay the lessor or legal owner "the agreed upon amount as provided in the written agreement to the lessor ... within 21 calendar days of purchasing or obtaining the vehicle in trade." That law suggests "the legal right to accept trade-in vehicles must exist," Calabasas said.

Calabasas also pointed to a portion of the California Civil Coderegarding a lessee's right to end a lease early. That section discusses a scenario where "the lessee terminates the lease and purchases the vehicle or trades in the vehicle in connection with the purchase or lease of another vehicle." This meant consumers could end their lease early when buying or leasing a different vehicle, "and when doing so, the money owed to the lessor is the payoff as amortized, based upon the financial structure of the lease," Calabasas said.

Hatter disagreed. Those laws "govern any trade-ins that might take place, but there is nothing in those statutes or, apparently, in case law, that requires trade-ins to take place," Hatter wrote. "Calabasas, again, provided no authority to support its argument."

Contacted for comment, GM deferred to GM Financial, which declined to discuss the cases.

Central District Judge Dolly Gee drew a similar conclusion as Hatter on March 23 when she threw out Calabasas' lawsuit against BMW.

The California Vehicle Code segment discussing dealerships receiving vehicles with a lease balance "does not ... imply that consumers have an absolute right to trade in a vehicle at the location of their choice, let alone that a competitor has a right to accept certain vehicles as trade-ins," Gee wrote.

And while California Civil Code gives lessees the right to end a lease early, it "does not guarantee a right to trade in a vehicle with an unaffiliated third-party dealer," she wrote. "Nothing in BMW's lease agreement prevents the termination of the lease, only that the purchase option may not be assigned without the lessor's prior written approval."

A BMW spokesman acknowledged Automotive News' request for comment and was working on the inquiry Tuesday.

But Gee and Hatter's findings appeared to contradict that of Central District Judge Fernando Olguin.

Olguin in September 2022 said Calabasas' unfair competition claim against Mercedes-Benz's off-lease policies withstood a motion to dismiss if based upon arguments besides Cartwright Act violations — such as the two California code sections, he said.

Mercedes and Calabasas went on to reach a settlement in December 2022; the court accepted it and closed the case Jan. 25.

Mercedes in February said it had no comment on the outcome, and Mercedes-Benz Financial Services spokeswoman Melinda Mernovage said Tuesday the captive doesn't comment on matters of litigation.

Ironically, Mercedes' off-lease policy might have been less restrictive than Calabasas thought when it filed the lawsuit.

According to Calabasas' lawsuit, a representative from a Mercedes dealership had told a Calabasas employee, "MB Dealers are the only ones allowed to payoff an MBFS Lease…No 3rd party payoffs."

But Mercedes Financial told the court it still permitted nonfranchised dealerships to buy out consumers' leases; it just ceased providing payoff quotes directly to the other retailers. But a customer could simply ask Mercedes for the payoff amount and share it with a third-party retailer, who could then buy the leased vehicle, according to a January 2022 filing by the captive finance company.

"MBFS still provides payoff quotes directly to its lessees, and MBFS still accepts payoff funds from any verified source, including non-franchise dealerships," Mercedes Financial told the court.

Mercedes has since begun providing quotes to third-party dealers again, according to Mernovage. The change took place in mid-2022.

Mernovage said Mercedes Financial monitors the effects of its policies and adjusts accordingly.

"To that end and unrelated to the Calabasas Luxury lawsuit, in order to provide the most seamless and efficient customer experience, MBFS made the decision to amend our policy and has returned to providing lease purchase option quotes to non-franchise dealers, when our lease customer provides authorization," she wrote in an email.