Acree v. General Motors Acceptance Corp.

• Decision Date: 20 September 2001
• Docket Number: No. C034059.,No. C032862.,C032862.,C034059.
• Citation: 92 Cal.App.4th 385,112 Cal.Rptr.2d 99
• Court: California Court of Appeals Court of Appeals
• Parties: Paul C. ACREE et al., Plaintiffs and Respondents, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant and Appellant.

112 Cal.Rptr.2d 99

92 Cal.App.4th 385

Paul C. ACREE et al., Plaintiffs and Respondents, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant and Appellant.

No. C032862.

No. C034059.

Court of Appeal, Third District.

September 20, 2001.

Rehearing Denied October 17, 2001.

Review Denied January 16, 2002.

Severson & Werson, Edmund T. King II, Jan T. Chilton, John B. Sullivan, San Francisco, for Defendant and Appellant.

Farrow, Bramson, Baskin & Plutzik, Robert M. Bramson, Barry Baskin, Daniel E. Birkhaeuser, Jennifer S. Rosenberg, Kathryn A. Schofield, Walnut Creek; Lovitt & Hannan, Ronald Lovitt, J. Thomas Hannan; Chavez & Gertler and Mark A. Chavez, San Francisco, for Plaintiffs and Respondents.

DAVIS, J.

In this class action lawsuit alleging contractual breach and unfair business practices, General Motors Acceptance Corporation (GMAC) appeals from the part of the judgment finding a breach of contract and from the trial court's orders denying its motions to vacate the judgment and for judgment notwithstanding the verdict (No. C032862); GMAC also appeals from an order awarding attorney fees and costs to the plaintiff class (plaintiffs) (No. C034059).¹ This action concerns GMAC's practice of buying property damage insurance when automobile loan borrowers fail to do so themselves. Plaintiffs also appealed from the judgment, but have abandoned their appeal.

On appeal from the judgment and posttrial orders, GMAC contends that the accelerated method it used to compute earned insurance premiums was objectively and commercially reasonable as a matter of law, and that plaintiffs failed to prove proximately caused damage. We disagree. In doing so, we examine the nature of the implied covenant of good faith and fair dealing in the context of discretionary contractual power, as well as the issue of proving individual damages in the context of a class action lawsuit.

On appeal from the attorney fee and cost order, GMAC contends that plaintiffs were not prevailing parties under Civil Code section 1717, that the trial court awarded excessive fees, and that the trial court erred in awarding costs. We disagree. In doing so, we discuss the section 1717 legal standard in the context of a class action, and we also conclude that GMAC may not obtain the cost of a transcript it prepared for an unsuccessful appeal that it later used in a successful appeal.

Accordingly, we affirm the judgment, the posttrial orders, and the attorney fee and cost order.

BACKGROUND

GMAC, a wholly owned subsidiary of General Motors Corporation, finances automobile purchases. A purchaser who buys an automobile on credit typically signs a conditional sales agreement granting the seller or its assignee a security interest in the automobile.

The standard conditional sales agreement accepted by GMAC (hereafter sales agreement or standard sales agreement) requires the borrower to maintain physical damage insurance on the automobile during the term of the sales agreement. When a borrower fails to maintain such insurance, or when a lapse in insurance coverage is detected, GMAC generally notifies the borrower and warns that it will purchase such insurance if the borrower does not; this insurance is known as collateral protection insurance (CPI).

GMAC purchases CPI from Motors Insurance Company (MIC), a wholly owned subsidiary with GMAC as its only customer. In effect this makes GMAC the insurance administrator.

GMAC purchases CPI to cover the remaining term of the sales agreement. This is known as a remaining-term policy. The borrower may pay the entire premium immediately, or add the premium to the sales agreement balance and pay it off over the remaining term of the agreement with an added finance charge.

Nearly half of the CPI policies that go into effect are cancelled during their first year. Nearly a third of purchased CPI policies do not go into effect at all because the borrower notifies GMAC, within 10 days of notification of GMAC's CPI purchase, that the borrower has insurance; these policies are "flat-cancelled" and the borrower is not charged for them; the flat-cancelled borrowers were excluded from the class.

When a remaining-term CPI policy goes into effect and is cancelled before the end of its term, the borrower is refunded the unearned premium, or credited with the unearned premium if GMAC has not yet received full payment. In calculating the unearned premium to be refunded or credited, GMAC uses an accelerated method whereby more of the total premium is earned at the beginning of the policy period; thus, a CPI policy cancelled halfway through its term would result in significantly less than half of the premium being refunded or credited. This method can be contrasted, for example, with another method commonly used—the pro rata-by-time method—in which a halfway cancellation would result in half the premium being refunded or credited (i.e., proportional over time).

The underlying suit was filed as a class action in early 1993 by various GMAC borrowers for whom CPI had been purchased pursuant to the standard sales agreement. Plaintiffs claimed that GMAC charged exorbitantly for CPI by charging for certain coverages, expenses, policy lengths, and deductibles, and by calculating unearned premium refunds. Plaintiffs asked for an injunction, restitution, declaratory relief and damages. The class was subsequently certified.

GMAC filed a cross-complaint, seeking to collect amounts that members of the plaintiff class owed it under their standard sales agreements. The trial court denied GMAC's motion to certify a cross-defendant class, and GMAC unsuccessfully petitioned this court for a writ of mandate.

Trial began in May 1995. A jury determined plaintiffs' breach of contract claim. The rest of plaintiffs' claims—for violation of the unfair competition law (Bus. & Prof.Code, § 17200), unjust enrichment and declaratory relief—were deemed equitable in nature and the trial judge heard those simultaneously.

In a special verdict covering liability on the breach of contract claim, the jury found that GMAC breached the standard sales agreement by the accelerated method it used to compute unearned premium refunds. The jury also found that GMAC did not breach the standard sales agreement by charging for certain coverages, expenses, policy lengths, and deductibles regarding CPI.

In a special verdict on damages, the jury found that plaintiffs had suffered actual damages in the "total amount" of $1,863,187.16 on the contract breach.

On the remaining equitable claims, the trial court found that GMAC had engaged in two unfair business practices: imposing finance charges on a remaining-term CPI policy; and inadequately disclosing to borrowers the method it used to calculate premium refunds or credits. The trial court issued an injunction enjoining GMAC from engaging in these two practices. In a prior appeal (No. C024270), we reversed this injunction order in an unpublished decision (hereafter the Injunction Appeal).

In its judgment, the trial court added approximately $1.2 million in prejudgment interest to the damage figure found by the jury, for a total judgment of $3,074,307.65. The court denied the plaintiffs' equitable claims, and denied GMAC any relief on its cross-complaint. The court also denied GMAC's motions to vacate the judgment and for judgment notwithstanding the verdict.

In a postjudgment order, the trial court found plaintiffs to be the prevailing party and awarded them attorney fees of approximately $3.6 million and costs of about $155,000. The court also denied GMAC's cost request of $31,488 for a reporter's transcript that was originally prepared for its unsuccessful Reference Appeal but was incorporated by reference in the Injunction Appeal.

DISCUSSION

The Judgment Appeal (No. C032862)

1. The Accelerated Method for Computing Earned Premiums and Hence Premium Refunds

Under the standard sales agreement, when a borrower fails to maintain property damage insurance on the purchased automobile, GMAC is authorized to obtain CPI. As we noted in our opinion in the Injunction Appeal, the standard sales agreement leaves the specific terms of the CPI policy to GMAC's reasonable discretion, including the method for computing premium refunds or credits upon cancellation. Because the standard sales agreement does not expressly cover the method for calculating premium reimbursement but leaves that method to GMAC's discretion, the issue of whether GMAC breached the standard sales agreement involves whether GMAC breached the implied covenant of good faith and fair dealing. "`Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.' (Rest.2d Contracts, § 205.)"² This covenant particularly applies where, as here, the contract gives one party a discretionary power affecting the rights of the other.³

GMAC concedes the trial court properly instructed the jurors on the implied covenant, telling them in part:

"A contract may give one party a discretionary power affecting the rights of another party.... Th[is] discretionary power must be exercised in accordance with reasonable standards....

"In determining whether a party given a discretionary power has breached the implied promise of good faith and fair dealing, you may consider whether [¶] ... [¶][t]he party's conduct was objectively unreasonable. ..." (Italics added.)

"The meaning of the implied promise of good faith and fair dealing depends on the express terms of the contract and the legitimate expectations of the parties arising from those terms." (Italics added.)

GMAC maintains that it did not breach the implied covenant because the accelerated method for computing earned premiums and hence any premium refunds is objectively reasonable as a matter of law.

GMAC initially notes our statement in the Injunction Appeal opinion that GMAC uses "an accelerated earnings rate whereby more of the total premium is credited to the beginning...