Corbett v. Hayward Dodge, Inc.

• Decision Date: 22 June 2004
• Docket Number: No. A103942.,A103942.
• Citation: 119 Cal.App.4th 915,14 Cal.Rptr.3d 741
• Court: California Court of Appeals Court of Appeals
• Parties: Thomas CORBETT, Plaintiff and Respondent, v. HAYWARD DODGE, INC., Defendant and Appellant.

14 Cal.Rptr.3d 741

119 Cal.App.4th 915

Thomas CORBETT, Plaintiff and Respondent, v. HAYWARD DODGE, INC., Defendant and Appellant.

No. A103942.

Court of Appeal, First District, Division Two.

June 22, 2004.

Review Denied September 22, 2004.^*

Laura K. Christa, Laurence Jackson, Los Angeles, Christa & Jackson, for Defendant and Appellant.

Sharon L. Kinsey, Soquel, Kinsey Consumer Law Center, for Plaintiff and Respondent.

LAMBDEN, J.

Hayward Dodge, Inc. (Hayward Dodge) appeals from the trial court's denial of its request for attorney fees pursuant to Civil Code section 1780, subdivision (d), following the court's granting its summary judgment motion against the fourth amended complaint of Thomas Corbett (Corbett). Hayward Dodge complains that the trial court applied a subjective standard of bad faith when the statute required an objective test of whether a reasonable attorney would have believed the claims had merit. Further, it argues the court should have awarded fees under either test. In addition, Hayward Dodge maintains that the court erred in placing the burden of proof on it. We reject Hayward Dodge's contentions and uphold the trial court's denial of fees.

BACKGROUND

On April 17, 2000, Corbett, individually and on behalf of all others similarly situated, filed a complaint for damages and for an injunction against Bank of America, N.A., Bancamerica Auto Finance Corporation, Bank of America Corporation (collectively, Bank of America) and Hayward Dodge. He alleged fraud by concealment, intentional misrepresentation, contract interference, and violation of the Consumers Legal Remedies Act (CLRA), Civil Code section 1750 et seq. On May 19, 2000, Corbett filed a first amended complaint adding class allegations pursuant to the CLRA.

On August 27, 2001, the court denied without prejudice Corbett's motion for class certification for failure to set forth evidence in support of his motion and granted him leave to file his third amended complaint. Corbett filed his new pleading, adding a cause of action for violating the unfair competition law (UCL), Business and Professions Code section 17200 et seq.

The trial court refused to permit a class claim regarding the UCL claim, and Corbett filed a petition for peremptory writ of mandate in this court. We issued an order to show cause. In Corbett v. Superior Court (2002) 101 Cal.App.4th 649, 125 Cal.Rptr.2d 46 we reversed the lower court's ruling that Corbett could not, as a matter of law, pursue a class action for his UCL claim.

On January 7, 2002, Corbett filed a fourth amended complaint, which is the operative pleading, for damages and for injunctive and declaratory relief. He alleged that he purchased a motor vehicle under a five-year simple interest motor vehicle installment contract and security agreement, financed by Bank of America. According to the pleading, Hayward Dodge arranged the financing. Corbett was unaware that Bank of America had approved his loan application at an interest rate of approximately 12.50 percent, but Hayward Dodge prepared the loan documents for an interest rate of 17.50 percent. Bank of America and Hayward Dodge shared the difference between the interest rate approved and the interest rate charged. Neither Bank of America nor Hayward Dodge disclosed any of this information to the consumer. Corbett alleged on behalf of himself and all other consumers who had similarly been harmed by this deceptive business practice causes of action for violating the CLRA, fraud, intentional interference with prospective contract, and violating the UCL.

Hayward Dodge demurred, and the court overruled the demurrer. In late 2002, the parties agreed that Corbett would dismiss with prejudice Corbett's claims of fraud and interference with contract claims. The parties agreed to waive claims for fees and costs as to these causes of action.

On December 31, 2002, Hayward Dodge filed a motion for summary judgment. The court granted the motion on March 11, 2003, finding that Hayward Dodge "made no affirmative misrepresentation in the loan application or purchase agreement. In the written disclosures, Hayward Dodge did not represent that the interest rate had been approved by the Bank of America or that the rate was the best possible. Hayward Dodge also disclosed to [Corbett] that it intended to assign the loan. [Corbett] does not recall any oral representations. . . ." The court ruled that Hayward Dodge did not have any duty to disclose a possible rebate from the bank or an assignment. In addition, the court noted that Corbett did not allege that Hayward Dodge represented that it would obtain the best available interest rate for the consumers and, even if such a claim were alleged, the court found that no written representations asserted this and Corbett did not recall any oral representations of this. The court entered judgment in favor of Hayward Dodge and against Corbett on May 16, 2003.¹

Hayward Dodge moved for an award of attorney fees pursuant to Civil Code section 1780, subdivision (d). Hayward Dodge maintained that Corbett had no basis to allege misrepresentations. On July 31, 2003, the court denied the motion for fees finding that Hayward Dodge "must demonstrate that the action was brought or maintained in bad faith. [Corbett's] theory in this case was that [Corbett] negotiated with Hayward Dodge and Hayward Dodge deceived [Corbett] regarding the efforts it would make on [Corbett's] behalf to obtain affordable financing." The court ruled that the pleading "stated a plausible claim against Hayward Dodge. Although the case may have been weak at all times, there is a distinction between weak cases that assert new theories and frivolous cases that are barred by established law. The Court notes that there is little authority concerning the interpretation of Civil Code § 1780(d) of the Consumer Legal Remedies Act. There is no authority dealing with the burden of proof, the appropriate standard of proof, or any elaboration of the meaning of `good faith' in the context of prosecution of a lawsuit under Civil Code § 1780(d). Certainly, the public policy reflected in allowing a prevailing plaintiff to recover fees as a matter of right, and requiring a finding of the absence of good faith for a prevailing defendant to recover fees suggests that the [L]egislature did not want the specter of attorney fee liability to dissuade the bringing of CLRA actions, provided they are brought in good faith. This leads the court to conclude that the matter of discerning when litigation is not brought in good faith appears to be addressed to the sound discretion of the Court. As such, the court cannot say this matter was frivolous or entirely without merit, particularly when the law was evolving on significant issues during the course of the lawsuit."

On July 30, 2003, the court amended the judgment to award costs in favor of Hayward Dodge in the sum of $5,418.55. Hayward Dodge filed a timely notice from the order denying its request for attorney fees.

DISCUSSION

Hayward Dodge requested attorney fees pursuant to Civil Code section 1780, subdivision (d). This provision provides: "The court shall award court costs and attorney's fees to a prevailing plaintiff in litigation filed pursuant to this section. Reasonable attorney's fees may be awarded to a prevailing defendant upon a finding by the court that the plaintiff's prosecution of the action was not in good faith." (Ibid.) The trial court denied the request for fees and Hayward Dodge contends that the trial court used an incorrect test and improperly imposed the burden of proof on it. We consider each of these arguments, as well as its contention that, under either test, it was entitled to fees.

I. Interpreting "Not in Good Faith"

The trial court may award reasonable attorney fees "to a prevailing defendant upon a finding by the court that the plaintiff's prosecution of the action was not in good faith." (Civ.Code, § 1780, subd. (d).) The trial court applied a subjective bad faith test and Hayward Dodge contends it erred as the court was required to use the standard of whether a reasonable attorney would not have found Corbett's claims meritorious.

The determination of the legal basis for an award of attorney fees is a question of law that we review de novo. (E.g., Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421, 424, 43 Cal.Rptr.2d 595.) We are not aware of any court that has interpreted the meaning of "not in good faith" as used in Civil Code section 1780, subdivision (d), and therefore this is a question of first impression.

"[O]ur first task in construing a statute is to ascertain the intent of the Legislature so as to effectuate the purpose of the law. In determining such intent, a court must look first to the words of the statute themselves, giving to the language its usual, ordinary import and according significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. . . . The words of the statute must be construed in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible." (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387, 241 Cal.Rptr. 67, 743 P.2d 1323.) "`Rules of statutory construction require courts to construe a statute to promote its purpose, render it reasonable, and avoid absurd consequences.'" (Ford v. Gouin (1992) 3 Cal.4th 339, 348, 11 Cal.Rptr.2d 30, 834 P.2d 724.) Exceptions to the general provisions of a statute are to be narrowly construed; only those circumstances that are within the words and reason of the exception may be included. (City of Lafayette v. East Bay Mun. Utility Dist. (1993) 16 Cal.App.4th 1005, 1017, 20 Cal.Rptr.2d 658.)

Hayward Dodge contends that not acting in good faith is not the same as acting in bad faith. It argues that the Legislature enacted Code...