Assuring DMS-Generated Contracts Comply with Law Who Bears the Risk? BY LAURENCE SMITH, ESQ., DAY PITNEY, LLP Of significant value to auto dealers are the form agreements, such as retail purchase agreements and retail lease agreements (collectively, “Buyer’s Orders”), generated by their dealer management system (DMS) software. Buyer’s Orders generated by DMS software often vary by state and contain state-specific statutory references, which create the reasonable expectation that those Buyer’s Orders comply with the laws of the state in which they are intended to be used. This expectation is reinforced if the DMS vendor controls the forms of Buyer’s Order, and the dealer is not at liberty to revise them without the approval and, perhaps, intervention of the DMS vendor. It is imperative that Buyer’s Orders comply with applicable state law for a variety of reasons. If Buyer’s Orders do not comply with the law, the dealer utilizing them risks being investigated by the state attorney general and may suffer damage to its reputation and goodwill. Furthermore, the consequences of non-compliance may be significant since a Buyer’s Order is used in each sale or lease of a vehicle by a dealership, which means that any problem with the underlying form of Buyer’s Order will likely affect a large percentage of dealership customers. Additionally, for certain violations of law, state consumer fraud, or consumer protection statutes may impose statutory damages that exceed the actual loss sustained by a customer as a result of the Buyer’s Order not complying with law in some respect. See, e.g., the New Jersey Consumer Fraud Act codified at N.J.S.A. 56:8-1 et seq. If a Buyer’s Order generated by DMS software does not comply with the law, who should bear the risk and consequences of non-compliance: the DMS vendor or the dealer? The predictable response of a DMS vendor, perhaps reflected in the form of master agreement that it utilizes with dealers, is that the dealer is responsible for ensuring it conducts business in compliance with law, and that obligation extends to the contracts that the dealer uses in its day-to-day operations. At first blush, it seems reasonable for a DMS vendor to maintain this position; the fact that the DMS software is the conduit for many dealership transactions should not, from the DMS vendor’s perspective, absolve the dealer of the obligation, common to all business owners, to operate its business in compliance with law. However, upon closer analysis, a compelling argument can be made that it is inequitable to foist upon a dealer the risk that a DMS-generated Buyer’s Order does not comply with the law. DMS software is the lifeblood of a dealership. A dealership relies upon the software to perform or enable many critical functions and pays a substantial fee for that functionality. Just as a dealer should not be required to troubleshoot a software defect that prevents the DMS from communicating properly with a factory or generating accurate financial statements, the dealer should not be required to ascertain whether a Buyer’s Order generated by DMS software complies with the law. Especially for a dealer with sister stores in other states, 22 NEW JERSEY auto retailer
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