King v. Central Bank

• Decision Date: 06 January 1977
• Docket Number: S.F. 23465
• Citation: 18 Cal.3d 840,135 Cal.Rptr. 771,558 P.2d 857
• Parties: , 558 P.2d 857 Jessie KING et al., Plaintiffs and Appellants, v. CENTRAL BANK, Defendant and Respondent. In Bank
• Court: California Supreme Court

Page 771

135 Cal.Rptr. 771

18 Cal.3d 840, 558 P.2d 857

Jessie KING et al., Plaintiffs and Appellants, v. CENTRAL BANK, Defendant and Respondent.

S.F. 23465.

Supreme Court of California,

In Bank.

January 6, 1977.

James R. McCall and Robert A. Goldstein, Oakland, for plaintiffs and appellants.

Raymond J. Leonardini, Armando Albert Zavala, Joseph Garcia, and Richard G. Fathy, by Richard G. Fathy, Staff Counsel, State Dept. of Consumer Affairs, Sacramento, Daniel M. Luevano, Rosalyn M. Chapman, John E. McDermott, Patricia M. Tenoso, Cary S. Reisman, Los Angeles, and Toby Rothschild, Long Beach, as amici curiae on behalf of plaintiffs and appellants.

Roy C. Zukerman, Fountain Valley, C. Robert MacKay, Hayward, Severson, Werson, Berke & Melchior, James B. Werson, D. Ronald Ryland and Jan T. Chilton, San Francisco, for defendant and respondent.

Feldman, Waldman & Kline, Jeffrey W. Shopoff, San Francisco and Jane S. Kumin, Berkeley, as amici curiae on behalf of defendant and respondent.

RICHARDSON, Associate Justice.

We consider the application of the Unruh Act (Civ.Code, § 1801, et seq.) and the federal Truth-in-Lending Act (TILA) (15 U.S.C. § 1601 et seq.) to certain aspects of the financing and sale of automobile insurance. According to the complaint herein, defendant Central Bank, National Association (Bank), is engaged in financing automobile insurance policies through its subsidiary, Coast Program, and defendant John P. Roberts Co., Inc. (Roberts). Roberts is a licensed broker engaged in selling insurance on credit under the name 'State All Insurance.' On January 15, 1973, plaintiffs allegedly purchased from defendants an automobile insurance policy on credit.

Plaintiffs' complaint contains two causes of action. The first, a class action brought under the Unruh Act, alleges a violation of the act's finance charge limitations (Civ.Code, § 1805.1) and its disclosure requirements (Id., §§ 1803.2, subd. (c), 1803.3, subd. (a)). Asserting a material variance between the maximum legal finance charge permissible under the Unruh Act and that collected in the instant transaction, plaintiffs seek to recover the finance charges paid, and to enjoin defendants' allegedly unlawful practices. The second cause of action alleges various violations of TILA's disclosure provisions and seeks recovery of civil penalties and attorneys fees. (See 15 U.S.C. § 1640.)

Defendants demurred generally upon the ground that neither the Unruh Act nor TILA applied to the insurance transaction. Roberts' demurrer was overruled, and the merits of plaintiffs' action against Roberts are not presently before us. Bank's demurrer was ultimately sustained without leave to amend, and judgment of dismissal was entered in Bank's favor. Plaintiffs have appealed. As will appear, we have concluded that the complaint against Bank properly stated causes of action under both the Unruh Act and TILA.

Traditionally, in assessing the sufficiency of plaintiffs' complaint against a general demurrer, we treat the demurrer as admitting all material facts properly pleaded. (Scott v. City of Indian Wells (1972) 6 Cal.3d 541, 549, 99 Cal.Rptr. 745, 492 P.2d 1137; Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713, 63 Cal.Rptr. 724, 433 P.2d 732.) Further, in reviewing an order sustaining a demurrer without leave to amend, 'the allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties.' (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 244--245, 74 Cal.Rptr. 398, 401, 449 P.2d 462, 465; see also Scott v. City of Indian Wells, supra; MacLeod v. Tribune Publishing Co. (1959) 52 Cal.2d 536, 542, 343 P.2d 36; Lemoge Electric v. County of San Mateo (1956) 46 Cal.2d 659. 664, 297 P.2d 638; Code Civ.Proc., § 452.) Mindful of these two interpretive rules we examine the trial court's ruling as to plaintiffs' two causes of action.

1. The Application of the Unruh Act

The Unruh Act was enacted in 1959 for the purpose of correcting various abuses incident to the rapid and widespread growth of the consumer credit industry. (Morgan v. Reasor Corp. (1968) 69 Cal.2d 881, 889, 897--898, 73 Cal.Rptr. 398, 447 P.2d 638; Comment (1970) 58 Cal.L.Rev. 210; Report of the Subcommittee on Lending and Fiscal Agencies, 2 Appendix to Assem. J. (1959 Reg. Sess.) p. 9.) The act proscribes a variety of unfair practices such as the unauthorized alteration of retail installment contracts, the assessment of excessive finance charges, inadequate disclosure of information to consumers, and unfair garnishment and repossession practices. Violation of the act may result in the imposition of criminal penalties (Civ.Code, § 1812.6), forfeiture of finance or delinquency charges (Id., § 1812.7), and punitive damages (Id., § 1812.9).

The act applies to any 'retail installment contract,' which is defined as a contract for a retail installment sale between 'buyer' and 'seller' providing for either (a) repayment in installments, subject to a finance charge or other consideration, or (b) payment in four or more installments. (Civ.Code, § 1802.6.) 'Seller' is defined as '. . . a person engaged in the business of selling goods Or furnishing services to retail buyers.' (Id., § 1802.3, italics added.) The term 'services' means '. . . work, labor and services, for other than a commercial or business use, Includig services furnished in connection with . . . the providing of insurance, . . .' (Id., § 1802.2, italics added.) We conclude, as developed below, that, under the facts alleged in this case, Bank's furnishing of Financing services in close connection with plaintiffs' installment purchase of automobile insurance may reasonably be construed to lie within the definition of 'services' under section 1802.2 and, accordingly, may be subject to regulation under the act.

Initially, we note that a 1959 opinion of the California Attorney General had concluded that a loan to finance payment of insurance premiums was not a 'service' under section 1802.2. (34 Ops.Cal.Atty.Gen. 288, 289 (1959).) While that opinion is entitled to 'great respect' (Wenke v. Hitchcock (1972) 6 Cal.3d 746, 751--752, 100 Cal.Rptr. 290, 493 P.2d 1154), it is noteworthy that the opinion did not focus upon, indeed ignored, the language of section 1802.2 which defines 'services' as including, specifically, 'services furnished in connection with . . . the providing of insurance, . . .' Instead, the opinion emphasized that the Unruh Act was intended to apply only to transactions involving a retail installment contract executed between retail buyers and sellers. We are persuaded, however, by reason of the act's interlocking definitions of 'retail installment contract,' 'seller,' and 'services,' mentioned above, that it is at least arguable that an agreement to finance an automobile insurance policy through installment payments constitutes a 'service' transaction covered by the act. As we stated in Morgan v. Reasor Corp., supra, 69 Cal.2d 881, 73 Cal.Rptr. 398, 447 P.2d 638, in rejecting an attempt to construe narrowly the act's definition of 'services': 'Section 1802.2 clearly includes All services provided for personal purposes, except for the specifically enumerated exceptions (not applicable here); obviously we do not assume that the Legislature intended exceptions other than those it explicitly specified.' (P. 888, 73 Cal.Rptr. p. 403, 447 P.2d p. 643, italics added by court.)

Nevertheless, we need not, and do not, decide at this time whether the Unruh Act applies to all routine insurance Financing transactions, for plaintiffs have alleged additional facts from which it reasonably may be inferred that defendant Bank actually engaged in Providing insurance to them, conduct which would have fallen within the act's scope, by reason of the definition of 'services' in section 1802.2. (We note, in passing, a 1967 opinion of the Attorney General which explains that the word 'services' in that section would include providing the insurance policy itself, as well as providing collateral services in connection therewith. (50 Ops.Cal.Atty.Gen. 110 (1967).) According to plaintiffs' complaint, both Bank and Roberts are 'engaged in the retail sale of insurance for credit,' and plaintiffs 'purchase(d)' an insurance policy from them. Further, while the above may be conclusionary language, plaintiffs alleged in addition that Bank's financing activities in several significant respects were intimately linked with the insurance purchase transaction. Bank allegedly furnished broker Roberts, on a regular basis, with printed contract forms containing the terms which govern credit sales of automobile insurance. These forms bore the name and address of Bank, and among other things, provided (1) for a down payment of at least 20 percent of the cost of the insurance, a sum paid to Bank in consideration for financing the insurance premium; (2) for assignment of the policy to the Bank as security, with Bank retaining the right to cancel the policy in the event of nonpayment; and (3) for payment of installments directly to Bank, rather than to Roberts. In addition, plaintiffs alleged that Robers regularly used these forms in its business, that it required purchasers of automobile insurance, such as plaintiffs, to finance their purchases through Bank, that Bank exercised substantial control over Roberts in determining which policies could be purchased on credit, and in establishing the terms of the policy and credit sale, that Roberts acted as a conduit for the placing of the installment contracts with Bank, and that Bank shared the profits from these contracts with Roberts and paid it a fee for all purchases procured by Roberts which met Bank's requirements.

The foregoing allegations, if proven, would support a finding that defendants Roberts and Bank were jointly engaged in the business of 'providing' automobile insurance within the meaning of section 1802.2. As we have previously observed, the...