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Heavy-handed auto dealers and deceptive creditors took it on the chin Thursday when an appellate panel handed Attorney General Eliot Spitzer unanimous victories in two important consumer protection cases. The Appellate Division, 3rd Department, held for the attorney general in a case where the auto industry was aggressively targeting pro se lemon law petitioners and one where a credit card issuer was accused of deceiving vulnerable customers. In both cases, the panel vindicated Albany Supreme Court Justice Joseph R. Cannizzaro, who died of cancer last summer at 51. DaimlerChrysler Corporation v. Spitzer, 98380, and Spitzer v. Applied Card Systems, 97985, both arose from actions initiated in Albany. In DaimlerChrysler, the lemon law decision written by Justice Anthony J. Carpinello, the 3rd Department upheld a ruling where Cannizzaro, for the first time, held that consumers are entitled to a refund or a new vehicle if a dealer fails to repair a defect after four attempts, even if the car is fixed by the time the owner gets a lemon law arbitration hearing. The case is rooted in a new policy adopted by Spitzer in 2002. For the prior 16 years, New York’s attorneys general had interpreted the lemon law to say that a consumer was not entitled to any relief if the defect was successfully addressed by the time of the arbitration hearing, no matter how many attempts were made. Spitzer, prompted by a 2000 opinion of the Appellate Division, 2nd Department ( Bay Ridge Toyota v. Lyons, 272 AD2d 397), reversed that policy, resulting in scores of arbitration rulings in favor of consumers and scores of lawsuits by auto manufacturers against their customers. Auto makers, instead of directly challenging the attorney general, went after consumers who had prevailed at arbitration hearings. They challenged the arbitration decisions under Article 75 of the Civil Practice Law and Rules, arguing that they had been decided under an improper standard. Typically, they filed those actions in Albany against pro se motorists, forcing consumers to either travel to the capital to defend an arbitration decision or simply wash their hands of the dispute and default. Many defaulted and the car companies won on an argument that had not been briefed or litigated. Spitzer had no standing to interfere — until DaimlerChrysler, General Motors and Saturn Corp. sued the attorney general and made him a party. Cannizzaro, in what the 3rd Department described as a “thoughtful and well-reasoned decision,” said that the interpretation urged by the auto companies was contrary to rulings by courts in Connecticut, Vermont, New Jersey, Delaware, Ohio and Wisconsin — states with lemon laws virtually and in some instances literally the same as New York’s (see 6 Misc 3d 228 [2004]). He also said the car companies “completely ignored” the only New York decision on point, a 1985 ruling by then Supreme Court and now Northern District Court Judge Lawrence E. Kahn. Kahn, in Bouchard v. Savoca, 129 Misc. 2d 506, basically said in 1985 that the statute should be read as it finally was by Spitzer in 2002. On appeal, the auto companies asked the 3rd Department to reverse Cannizzaro and enjoin Spitzer from administering the New Car Lemon Law arbitration process in accordance with his 2002 interpretation. But the 3rd Department agreed with Justice Cannizzaro on an issue that had separated the judge from several of his colleagues in the Albany County Court House. In prior cases, several judges in Albany had sided with the auto dealers. CONTRARY INTERPRETATION Writing for the panel, Carpinello said the interpretation urged by DaimlerChrysler is contrary to both the statutory language and concepts of fair play. “[T]he average consumer, who is typically obligated to make monthly car payments or rely on the car for employment, should not be forced to continue to drive a defective new vehicle until the date of adjudication simply to preserve his or her rights under the New Car Lemon Law,” Carpinello wrote. “Nor does the average consumer have the luxury of simply casting a new, albeit defective, vehicle aside while awaiting disposition of a New Car Lemon Law action or proceeding.” Carpinello added that most consumers have “no other realistic option but to persist in having a defect corrected even after a fourth failed attempt” — and should not be prejudiced by their necessary persistence. “Moreover, the legislative history consistently makes clear that a consumer’s ability to seek redress under the statute attaches, that is, a presumption of reasonable repair attempts arises, after a fourth unsuccessful repair attempt,” he wrote. Carpinello was joined on the panel by Justices Thomas E. Mercure, Edward O. Spain, Robert S. Rose and Anthony T. Kane. Assistant Attorney General Jane M. Azia argued for Spitzer. Justin E. Proper of The Rose Law Firm in Albany appeared for the appellants. Mark W. Blanchfield of Hiscock & Barclay in Albany argued for the state Dispute Resolution Association. Thomas G. Conway, bureau chief in the attorney general’s consumer frauds bureau, said the office reconsidered its longstanding interpretation of the lemon law as a result of the 2nd Department case two years earlier. In Bay Ridge Toyota, the appeals court directly addressed a different lemon law provision giving relief when a used car is out of service. In that situation, the 2nd Department held, the presumption that the vehicle is a lemon is not dependent on whether the car is operable at the time of the arbitration hearing. “Once that came down, we looked at the issue closely and decided we should change it,” Conway said. “What the manufacturers were arguing was that the consumer had to keep the car in a defective condition until the day of arbitration, forcing the consumer to make a choice of trying to get the car fixed so they could drive it or preserving their rights under the lemon law.” Proper was not immediately available for comment. CREDIT CARD CASE The credit card matter is a major win for debtors, Conway said. Applied Card Systems involves Cross Country Bank, which targets high-risk consumers who cannot obtain credit elsewhere. Cross Country Bank was sending direct mail solicitations to people without assets or positive credit credentials offering a $2,500 line of credit. But it did not make clear that each account was assessed a $100 application fee, a $50 annual fee, membership in virtually useless credit protection programs and other expenses that would reduce their available credit to less than $400. Then, in the mistaken belief that they had $2,500 available to spend, consumers would spend beyond the limits of their available credit, only to get hit with additional fees and high interest rates, according to court records. Applied Card Systems is a collection agency. Spitzer, like attorneys general in at least four other states — West Virginia, Texas, Wisconsin and Minnesota — went after Cross Country Bank and Applied Card Systems accusing them of deceptive marketing and abusive collection practices. Last year, Cannizzaro barred the companies from misrepresenting the credit limit and benefits and prohibited them from using “insulting, obscene and threatening” debt collection tactics. His injunction was the target of the appeal decided yesterday. Justice Karen K. Peters, writing for the 5-0 panel, agreed with Cannizzaro that neither the original disclosures nor revised versions distributed after a series of complaints were sufficient. The 3rd Department also flatly rejected the creditor’s argument that Spitzer was pre-empted by the federal Truth-in-Lending Act, and found the collection tactics far out of line. “[Applied Card Systems] employees were encouraged to use aggressive and illegal practices, and evidence demonstrated that the salary of both the collector and supervisor were determined by their success,” Peters wrote. “Affidavits further established that ACS collectors used rude and obscene language with consumers, repeatedly called them even when requested not to do so, misrepresented their identities to gain access, and made unauthorized debits to consumer accounts.” Justices Mercure, Carpinello, Kane and D. Bruce Crew III joined in the opinion. Conway said the attorney general is seeking $40 million in restitution. Assistant Attorney General Mark D. Fleischer represented Spitzer. Martin C. Bryce Jr. of Ballard, Spahr, Andrews & Ingersoll in Philadelphia defended the bank. Bryce was not immediately available for comment Thursday.

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