Lafferty v. Wells Fargo Bank, N.A.

• Decision Date: 19 July 2018
• Docket Number: C080535
• Citation: 235 Cal.Rptr.3d 842,25 Cal.App.5th 398
• Court: California Court of Appeals Court of Appeals
• Parties: Patrick LAFFERTY et al., Plaintiffs and Appellants, v. WELLS FARGO BANK, N.A., Defendant and Appellant.

25 Cal.App.5th 398

235 Cal.Rptr.3d 842

Patrick LAFFERTY et al., Plaintiffs and Appellants,

v.WELLS FARGO BANK, N.A., Defendant and Appellant.

C080535

Court of Appeal, Third District, California.

Filed July 19, 2018

As Modified on Denial of Rehearing August 17, 2018

LAW OFFICES OF TIMOTHY D. MURPHY and Timothy D. Murphy, Riverside, for Plaintiffs and Appellants.

SEVERSON & WERSON, Jan T. Chilton and Mark D. Lonergan, San Francisco, for Defendant and Appellant.

HOCH, J.

This is the third appeal that comes to us in this case, which arises out of Patrick and Mary Lafferty’s purchase of a defective motor home from Geweke Auto & RV Group (Geweke) with an installment loan funded by Wells Fargo Bank, N.A (Wells Fargo).

In Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 153 Cal.Rptr.3d 240 ( Lafferty I ), this court affirmed in part and reversed in part the action brought by the Laffertys against Wells Fargo. Our disposition in Lafferty I awarded costs on appeal to the Laffertys. ( Id. at p. 573, 153 Cal.Rptr.3d 240.) On remand after Lafferty I , the Laffertys moved for costs and attorney fees. The trial court granted costs in part but denied the Laffertys’ request for attorney fees as premature because some causes of action remained to be tried. The Laffertys appealed.

In Lafferty v. Wells Fargo Bank (March 26, 2015, C074843, 2015 WL 1383659) [nonpub. opn.] ( Lafferty II ), this court held the award of costs on appeal did not include an award of attorney fees. ( Lafferty II, supra , C074843.) Lafferty II also held the Laffertys’ request for attorney fees was prematurely filed. ( Ibid. ) After issuance of the remittitur in Lafferty II , the parties stipulated to a judgment that contained two key components: (1) their agreement the Laffertys had paid $68,000 to Wells Fargo under the loan for the motor home, and (2) Wells Fargo repaid $68,000 to the Laffertys. After entry of the stipulated judgment, the trial court awarded the Laffertys $40,596.93 in prejudgment interest and $8,384.33 in costs. The trial court denied the Laffertys’ motion for $1,980,070 in post-trial attorney fees, $464,220 in post-appeal attorney fees, and $16,816.15 in non-statutory costs. Wells Fargo appeals from the award of prejudgment interest and costs. And the Laffertys cross-appeal from the denial of their requests for attorney fees and nonstatutory costs.

The resolution of this appeal and cross-appeal turns on the meaning of title 16, section 433.2 of the Code of Federal Regulations, commonly known as the Holder Rule. The Holder Rule was promulgated by the Federal Trade Commission (FTC) for inclusion in every consumer installment sale contract that is funded by a commercial lender. ( Lafferty I, supra , 213 Cal.App.4th at p. 550, 153 Cal.Rptr.3d 240.) In pertinent part, the Holder Rule requires that the following notice be given to consumers:

"NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER." ( 16 C.F.R. § 433.2.)

On appeal, Wells Fargo contends the second sentence of the Holder Rule limits the Laffertys’ recovery, including prejudgment interest and costs, to the $68,000 they actually paid on the loan for the motor home. Thus, Wells Fargo argues for reversal of the award of prejudgment interest and costs awarded to the Laffertys in excess of the $68,000 Wells Fargo repaid to them.

On cross-appeal, the Laffertys argue that in addition to costs and prejudgment interest they were entitled to recover their attorney fees from Wells Fargo. Specifically, they rely on three California fee-shifting statutes. (Civ. Code, §§ 1717 & 1770; Code Civ. Proc., § 1021.5.) In a fallback argument, the Laffertys assert that if the Holder Rule "is applied as Wells Fargo advocates to limit costs, fees, and prejudgment interest," then the rule violates First Amendment, due process, and equal protection guarantees. In another fallback argument, the Laffertys argue the Holder Rule cap in this case amounts to $279,406.87. The Laffertys advance additional, related contentions we need not discuss given the disposition of the appeal and cross-appeal in this case.

We conclude the Laffertys are limited under the plain meaning of the Holder Rule to recovering no more than the $68,000 they paid under terms of the loan with Wells Fargo. Consistent with Lafferty I , we continue to "hold—to the extent the Laffertys have causes of action against Geweke that are also valid against Wells Fargo by operation of the Holder Rule—their recovery is limited to the amount they have paid under the installment contract." ( 213 Cal.App.4th at p. 563, 153 Cal.Rptr.3d 240.) Consequently, the trial court properly denied the Laffertys’ request for attorney fees and nonstatutory costs in excess of their recovery of the amount they actually paid under the loan to Wells Fargo. In holding the Laffertys are limited in their recovery against Wells Fargo, we reject the Laffertys’ claims the Holder Rule violates the First Amendment, due process, or equal protection guarantees of the federal Constitution. However, we conclude the trial court did not err in awarding costs of suit and prejudgment interest to the Laffertys. The California statutes providing for costs and prejudgment interest apply to actions as a whole rather than to individual causes of action such as that provided by the Holder Rule.

Accordingly, we affirm the post-judgment orders of the trial court.

BACKGROUND

Lafferty I

The background for this case was set forth in Lafferty I , where we recounted that "[o]n November 1, 2005, the Laffertys bought a motor home manufactured by Fleetwood Motor Homes (Fleetwood) from Geweke. Pursuant to the terms of the installment contract, the Laffertys agreed to pay a total of $389,929 for the motor home over the course of 239 months. ... [¶] Geweke assigned the installment contract to Wells Fargo in accordance with the terms of a dealer agreement entered into between Wells Fargo and Geweke." ( Lafferty I, supra , 213 Cal.App.4th at p. 551, 153 Cal.Rptr.3d 240, fns. omitted.) The Laffertys experienced repeated problems with electrical and mechanical failures in their motor home. ( Id. at p. 552, 153 Cal.Rptr.3d 240.) After repeated failed attempts by Geweke to repair the motor home, the Laffertys left the motor home with Geweke and stopped making payments on the installment contract. ( Id. at p. 552, 153 Cal.Rptr.3d 240.) "Wells Fargo took possession of the motor home in accordance with the terms of the installment contract, but took no action to collect any amount of money from the Laffertys. Wells Fargo did report to various consumer credit reporting agencies that the Laffertys had defaulted on their agreement to pay for the motor home." ( Ibid. )

We reversed to allow the Laffertys to pursue causes of action against Wells Fargo under the Holder Rule based on claims they would have had against Geweke pursuant to the Consumers Legal Remedies Act (CLRA) ( Civ. Code, § 1770 et seq. ) and for common law negligence. ( Lafferty I, supra , 213 Cal.App.4th at p. 550, 153 Cal.Rptr.3d 240.) We affirmed the trial court’s dismissal of the Laffertys’ claims for negligent defamation of credit, breach of warranty, breach of contract, breach of the covenant of good faith and fair dealing, violation of the Song–Beverly Consumer Warranty Act ( Civ. Code, § 1790 et seq. ), violation of the Tanner Consumer Protection Act ( Civ. Code, § 1793.22 ), unfair business practices, and declaratory and injunctive relief. ( Lafferty I, supra , at p. 551, 153 Cal.Rptr.3d 240.) This court emphasized that "the plain meaning of the Holder Rule allows the Laffertys to assert all claims against Wells Fargo they might otherwise have against Geweke. Under the Holder Rule, however, the Laffertys may recover no more than what they actually paid toward the installment contract ." ( Id. at p. 551, 153 Cal.Rptr.3d 240, italics added.)

In pertinent part, our disposition in Lafferty I stated: "The judgment is reversed insofar as the trial court (1) sustained the demurrer to Patrick and Mary Laffertys’ causes of action for negligence and under the [CLRA] ( Civ. Code, § 1770 et seq. ), and (2) awarded attorney fees to Wells Fargo Bank. On remand, Patrick and Mary Lafferty may proceed to trial on these two causes of action against Wells Fargo Bank that the Laffertys would otherwise have had only against Geweke Auto & RV Group but for the Holder Rule, title 16, section 433.2, of the Code of Federal Regulations. Patrick and Mary Lafferty shall recover their costs on appeal." ( Lafferty I, supra , 213 Cal.App.4th at pp. 572-573, 153 Cal.Rptr.3d 240.)

Lafferty II

After the case was remanded, "the Laffertys filed in the trial court a memorandum of costs on appeal in which they sought $5,631.08 in costs and $232,110 in attorney fees. Wells Fargo filed a motion to tax costs and an opposition to the request for attorney fees. The trial court denied the attorney fees motion as premature, declined to issue a statement of decision, and awarded $2,495.29 in costs." ( Lafferty II , supra , C074843.) The Laffertys appealed and argued they should have been awarded attorney fees for their successful appeal in Lafferty I . ( Lafferty II , supra , C074843.) In an unpublished decision, we affirmed the trial court’s order "because costs on appeal do not include attorney fees." ( Ibid. ) We also agreed with the trial court that the Laffertys’ request for attorney fees was prematurely filed. ( Ibid. ) At the time, the Laffertys’ remaining causes of action were still awaiting trial. ( Ibid. )

After Lafferty II, the Parties Stipulated to a Judgment

After issuance of the remittitur in Lafferty II , the Laffertys had pending claims against Wells Fargo under the Holder Rule that were based on negligence and the CLRA. In May 2015, the parties...