In re Ford

• Decision Date: 15 December 2016
• Docket Number: S222211
• Citation: 2 Cal.5th 161,211 Cal.Rptr.3d 244,385 P.3d 397
• Court: California Supreme Court
• Parties: RACEWAY FORD CASES.

2 Cal.5th 161

385 P.3d 397

211 Cal.Rptr.3d 244

RACEWAY FORD CASES.

S222211

Supreme Court of California

Filed December 15, 2016

Rosner, Barry & Babbitt, Hallen D. Rosner, San Diego, Christopher P. Barry, Angela J. Patrick and Lacee B. Smith, San Diego, for Plaintiffs and Appellants.

Arthur D. Levy for Consumers for Auto Reliability and Safety, Consumer Federation of California, CALPIRG and Consumer Action as Amici Curiae on behalf of Plaintiffs and Appellants.

Callahan, Thompson, Sherman & Caudill, Atkinson, Andelson, Loya, Ruud & Romo, Kellie S. Christianson, Irvine, and Yvette N. Siegel for Defendant and Respondent.

Arent Fox and Halbert B. Rasmussen, Los Angeles, for National Automobile Dealers Association as Amicus Curiae on behalf of Defendant and Respondent.

Greines, Martin, Stein & Richland, Robert A. Olson and David E. Hackett, Los Angeles, for California New Car Dealers Association as Amicus Curiae on behalf of Defendant and Respondent.

Severson & Werson, Jan T. Chilton and Mark J. Kenney, San Francisco, for American Financial Services Association and California Financial Services Association as Amici Curiae on behalf of Defendant and Respondent.

Liu, J.

The Automobile Sales Finance Act (ASFA), also known as the Rees-Levering Motor Vehicle Sales and Finance Act (Civ. Code, § 2981 et seq. ) is a consumer protection statute that governs the sale of vehicles where the buyer finances all or part of the car's purchase price. We granted review to determine (1) whether defendant Raceway Ford, Inc. (Raceway) violated ASFA when, after agreeing to an initial finance contract, it would enter into a subsequent finance contract with a buyer and backdate the second contract to the date of the first contract; and (2) whether Raceway violated ASFA when a computer error caused Raceway to incorrectly include smog-related fees in buyers' purchase contracts.

We conclude (1) that Raceway's practice of backdating contracts did not violate ASFA and (2) that Raceway did violate ASFA when it disclosed inaccurate smog fees, but plaintiffs are not entitled to a remedy under ASFA because the violation was due to an "accidental or bona fide error in computation." (Civ. Code, § 2983, subd. (a).)

I.

ASFA, which took effect on January 1, 1962, "is a consumer protection law governing the sale of cars in which the buyer finances some, or all, of the car's purchase price." (Rojas v. Platinum Auto Group, Inc. (2013) 212 Cal.App.4th 997, 1002, 151 Cal.Rptr.3d 562.) "The act replaced the 1945 Automobile Sales Act and was designed to provide a more comprehensive protection for the unsophisticated motor vehicle customer." (Hernandez v. Atlantic Finance Co. (1980) 105 Cal.App.3d 65, 69, 164 Cal.Rptr. 279 (Hernandez ).) The act was "clearly designed to protect the purchaser of a motor vehicle from economic hazards which the Assembly Interim Committee on Finance and Insurance and the courts had found prevalent under the old act...." (Ibid . ) The Assembly interim committee was concerned with specific abuses by dealers, including "excessive interest charges; lack of full disclosures to the buyer; taking of security in addition to the car to assure repayment; the use of more than one document in connection with the sale and financing; and lack of protection in the event of default and repossession." (Kunert v. Mission Financial Services Corp. (2003) 110 Cal.App.4th 242, 257–258, 1 Cal.Rptr.3d 589 ; see Assem. Interim Com. on Finance and Ins. Final Rep. (Dec. 1960), 1 Appen. to Assem. J. (1961 Reg. Sess.) pp. 8–29 (Final Report).) In determining whether the act applies to a particular transaction "we look to the substance of the transaction and do not allow mere form to dictate the result." (Bermudez v. Fulton Auto Depot, LLC (2009) 179 Cal.App.4th 1318, 1323, 102 Cal.Rptr.3d 413 (Bermudez ).) Whether the act "appl[ies] to a particular transaction, is determined in light of the policies of the Act." (Salenga v. Mitsubishi Motors Credit of America, Inc. (2010) 183 Cal.App.4th 986, 998, 107 Cal.Rptr.3d 836, disapproved on other grounds in Aryeh v. Canon Business Solutions Inc. (2013) 55 Cal.4th 1185, 1196–1197, 151 Cal.Rptr.3d 827, 292 P.3d 871.)

ASFA applies to a "conditional sale contract," that is, "[a] contract for the sale of a motor vehicle ... under which possession is delivered to the buyer" and either "(A) [t]he title vests in the buyer thereafter only upon the payment of all or a part of the price, or the performance of any other condition," or "(B) [a] lien on the property is to vest in the seller as security for the payment of part or all of the price, or for the performance of any other condition." (Civ. Code, § 2981, subd. (a) ; all undesignated statutory references are to this code.) Every conditional sale contract must contain "in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle, including any promissory notes or any other evidences of indebtedness." (§ 2981.9.) When selling a vehicle to a buyer who finances some or all of the purchase, a car dealer must disclose the amount financed in compliance with the specific itemization required by section 2982, subdivision (a) (section 2982(a)), including a breakdown of the cash price and the downpayment. These disclosure requirements are designed "to enable the buyer to know just what his deal is." (Final Rep., supra , 1 Appen. to Assem. J. at p. 32; see Stasher v. Harger – Haldeman (1962) 58 Cal.2d 23, 29, 22 Cal.Rptr. 657, 372 P.2d 649 (Stasher ) [" ‘ "The obvious purpose of the statute is to protect purchasers of motor vehicles against excessive charges by requiring full disclosure of all items of cost." ’ "].)

In addition to the disclosures listed in section 2982(a), the introductory paragraph of section 2982 says that "[a] conditional sale contract subject to this chapter shall contain the disclosures required by Regulation Z, whether or not Regulation Z applies to the transaction." (§ 2982.) Regulation Z (12 C.F.R. § 226.1 et seq. (2016) ) was issued by the Federal Reserve Board pursuant to the Truth in Lending Act (TILA; 15 U.S.C. § 1601 et seq. ). Its purpose "is to assure that a consumer will be in a position to ‘compare more readily the various credit terms available to him and avoid the uninformed use of credit.’ " (Drennan v. Security Pac. Nat. Bank (1981) 28 Cal.3d 764, 770, 170 Cal.Rptr. 904, 621 P.2d 1318.) The core disclosures required by Regulation Z are the finance charge and the annual percentage rate (APR) of the transaction. (15 U.S.C. § 1638(a)(4) ; 12 C.F.R. § 226.18(e) (2016).) The finance charge is "the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." (12 C.F.R. § 226.4(a) (2016).) The APR is "a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made." (12 C.F.R. § 226.22(a)(1) (2016).)

A buyer is entitled to rescission and restitution for certain violations of ASFA. Section 2983, subdivision (a) says: "Except as provided in subdivision (b), if the seller, except as the result of an accidental or bona fide error in computation, violates any provision of Section 2981.9, or of subdivision (a), (j), or (k) of Section 2982, the conditional sale contract shall not be enforceable, except by a bona fide purchaser, assignee, or pledgee for value, or until after the violation is corrected as provided in Section 2984, and, if the violation is not corrected, the buyer may recover from the seller the total amount paid, pursuant to the terms of the contract, by the buyer to the seller or his or her assignee." And section 2983.1, subdivision (d) says: "When a conditional sale contract is not enforceable under Section 2983 or this section, the buyer may elect to retain the motor vehicle and continue the contract in force, or may, with reasonable diligence, elect to rescind the contract and return the motor vehicle."

II.

Plaintiffs are consumers who purchased vehicles from Raceway, an automobile dealership. The plaintiffs alleged 18 causes of action, including claims on behalf of several separate classes, and other claims on behalf of certain individual plaintiffs. The claims at issue in this appeal relate to two plaintiff classes labeled as "Class One" and "Class Two" in the complaint.

Class One's claims concern Raceway's practice of backdating certain finance contracts.

In addition to selling vehicles, Raceway offered financing to its customers and would attempt to assign the finance contract to a commercial lender. According to the sale and financing contracts signed by Raceway's customers, if Raceway could not find a lender willing to take on the finance contract on the terms Raceway had negotiated with the customer within 10 days, Raceway had the right to unilaterally rescind the contract. In some instances, after the customer had taken possession of the vehicle, Raceway was in fact unable to find a willing lender. In those cases, Raceway contacted the customer and requested to change the terms of the sale and financing. Raceway then entered into a second contract with the customer for the same vehicle under different terms. Before late 2004, it was Raceway's practice to backdate the later contract to the initial date of the sale. In addition to signing the second contract, the customer would sign an "Acknowledgment of Rescinded Contract" or "Acknowledgment of Rewritten Contract," which was also backdated to the date of the initial sale.

The trial court certified Class One as consisting of "[a]ll persons who, since January 12, 2001, (1) purchased a vehicle from Raceway Ford, for personal use, (2) on a later date rescinded their original purchase contract, and (3) signed a subsequent or second contract for the...