Arkansas Supreme Court Makes Lawyers Out of Dealers

How many dealers do you know who are also lawyers?  Not many – me either –  except in Arkansas where the Supreme Court found that a dealer who charged a documentary fee authorized by law for completing a buyer’s order and retail installment sale contract engaged in the unauthorized practice of law and owed a fiduciary duty to the buyer.
 
Charles and Carol Palasack bought a car from a dealership owned by Asbury Automotive Group, Inc. and paid an alleged documentary fee in connection with their car purchase. The Palasacks sued Asbury Automotive as part of a class, claiming that the dealership charged a documentary fee for completing legal documents.  The Palasacks alleged that Asbury violated the Arkansas Deceptive Trade Practices Act and was “unjustly enriched” because charging that fee for the preparing and filling in the blanks of legal documents constituted the illegal practice of law.

The actual charge to the Palasacks was not a documentary fee, but a charge for a service package, so the Palasacks were replaced as class representatives by Otis Campbell.

Asbury Automotive moved the court to dismiss the class claims, relying on an Arkansas statute enacted in 2001 that expressly allowed dealers to “charge documentary fees for services rendered to, for, or on behalf of a purchaser in preparing, handling, and processing documents relating to, and closing a retail installment transaction” involving both new and used motor vehicles. 

The lower court held Asbury engaged in the unauthorized practice of law when it charged a fee to complete standardized legal documents, including a retail buyer’s order and a Truth in Lending Disclosure.  In addition, the court found that the Arkansas law, now repealed, allowing dealers to charge documentary fees to prepare documents affecting legal rights was unconstitutional. 

Both Campbell and Asbury appealed on the issue of whether charging the fee constituted the unauthorized practice of law, whether the dealer owed a fiduciary duty to the buyer, and on other incidental issues. 

The Supreme Court upheld the circuit court’s finding that Asbury engaged in the unauthorized practice of law when charging a fee for the completion of standardized legal documents.  It likewise concluded that the dealers who engaged in the unauthorized practice of law owed a fiduciary duty of good faith and fair dealing to customers as if that dealer were a licensed attorney. 

A fiduciary duty is an obligation to act in the best interest of another party.  That means the dealer owed the buyer a duty of care to act in the buyer’s best interest.  So not only did the Arkansas Supreme Court treat the dealer’s actions as the practice of law, but the court placed the dealer in a fiduciary relationship with the customer – just like the lawyer/client relationship. 

Now, I’ve met a few dealers in my time, and although those folks may be good people, it would surprise me if any one of them felt that in a sale and financing transaction they “represented” the interest of the buyer rather than the dealership. 

Documentary fees are charged throughout the country.  These fees have been challenged as the unauthorized practice of law in several states, but I am not aware of any court treating the dealer as a fiduciary. 

While this case was pending, the Arkansas Legislature passed a law fixing the documentary fee issue.  Arkansas dealers may charge a service and handling fee for the handling, processing, storage of documents and other administrative and clerical services, provided the dealer gives a disclosure to buyers.  Dealers charging this fee have not been accused of the unauthorized practice of law – yet.  And, since the dealers are no longer charging documentary fees, they can rest easier knowing that they won’t be held to a fiduciary standard in their dealings with car buyers.