Pulliam v. HNL Auto. Inc.
| Decision Date | 26 May 2022 |
| Docket Number | S267576 |
| Citation | 13 Cal.5th 127,509 P.3d 998,293 Cal.Rptr.3d 649 |
| Parties | Tania PULLIAM, Plaintiff and Respondent, v. HNL AUTOMOTIVE INC. et al., Defendants and Appellants. |
| Court | California Supreme Court |
McCreary, Duncan J. McCreary ; McGuireWoods, Leslie M. Werlin, Tanya L. Greene, Jamie D. Wells and Anthony Q. Le, San Francisco, for Defendants and Appellants.
Madison Law, Jenos Firouznam-Heidari, James S. Sifers and Brett K. Wiseman, Irvine, for Westlake Services, LLC, as Amicus Curiae on behalf of Defendant and Appellant TD Auto Finance LLC.
Severson & Werson and Jan T. Chilton, San Francisco, for American Bankers Association, American Financial Services Association, California Financial Services Association and Consumer Bankers Association as Amici Curiae on behalf of Defendant and Appellant TD Auto Finance LLC.
U.S. Chamber Litigation Center, Janet Galeria ; Akin Gump Strauss Hauer & Feld, Aileen McGrath, San Francisco, and Sina Safvati for Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Appellant TD Auto Finance LLC.
Rosner, Barry & Babbit, Hallen D. Rosner, Arlyn L. Escalante, San Diego, Serena D. Aisenman and Michael A. Klitzke, San Diego, for Plaintiff and Respondent.
Eliza J. Duggan and Seth E. Mermin for UC Berkeley Center for Consumer Law and Economic Justice, Centers for Public Interest Law at the University of San Diego, Consumers for Auto Reliability and Safety, Consumer Federation of California, East Bay Community Law Center, Housing and Economic Rights Advocates, National Consumer Law Center and Public Law Center as Amici Curiae on behalf of Plaintiff and Respondent.
The Federal Trade Commission's "Holder Rule" requires consumer credit contracts to include specific language permitting a consumer to assert against third party creditors all claims and defenses that could be asserted against the seller of a good or service. ( 16 C.F.R. § 433.2(a) (1975).) The required notice further states that "recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder." (Ibid ., capitalization omitted here and hereafter.)
Tania Pulliam (Pulliam) purchased a used vehicle from HNL Automotive Inc. (the dealership) pursuant to an installment sales contract that included this notice. The contract was subsequently assigned to TD Auto Finance (TDAF; now merged into TD Bank), which became the "holder" of the contract. ( Pulliam v. HNL Automotive Inc. (2021) 60 Cal.App.5th 396, 402, 274 Cal.Rptr.3d 547 ( Pulliam ).) Pulliam filed suit against the dealership and TDAF alleging misconduct by the dealership in the sale of the car. A jury found for Pulliam on one of her causes of action — breach of the implied warranty of merchantability under the Song-Beverly Consumer Warranty Act (Song-Beverly Act; Civ. Code, § 1790 et seq. ) — and awarded her $21,957.25 in damages. Pulliam filed a posttrial motion seeking attorney's fees in the amount of $169,602 under the Song-Beverly Act. (See Civ. Code, § 1794, subd. (d).) TDAF argued that it could not be liable for attorney's fees based on the provision of the Holder Rule limiting recovery to the "amount[ ] paid by the debtor" under the contract. ( 16 C.F.R. § 433.2(a) (1975).) The trial court disagreed and granted Pulliam's motion. The Court of Appeal affirmed. ( Pulliam , at p. 401, 274 Cal.Rptr.3d 547.)
We granted review to address whether "recovery" under the Holder Rule (hereafter sometimes Rule) includes attorney's fees and limits the amount of fees plaintiffs can recover from holders to amounts paid under the contract. The Courts of Appeal are divided on this issue. (Compare Pulliam , supra , 60 Cal.App.5th at p. 401, 274 Cal.Rptr.3d 547 [] with Lafferty v. Wells Fargo Bank, N.A. (2018) 25 Cal.App.5th 398, 418–419, 235 Cal.Rptr.3d 842 ( Lafferty ) [] and Spikener v. Ally Financial, Inc. (2020) 50 Cal.App.5th 151, 159–163, 263 Cal.Rptr.3d 726 ( Spikener ) [].)
We conclude that the Holder Rule does not limit the award of attorney's fees where, as here, a buyer seeks fees from a holder under a state prevailing party statute. The Holder Rule's limitation extends only to "recovery hereunder." This caps fees only where a debtor asserts a claim for fees against a seller and the claim is extended to lie against a holder by virtue of the Holder Rule. Where state law provides for recovery of fees from a holder, the Rule's history and purpose as well as the Federal Trade Commission's repeated commentary make clear that nothing in the Rule limits the application of that law.
In July 2016, Pulliam bought a "Certified Pre-Owned" 2015 Nissan Altima from HNL Automotive Inc. pursuant to a retail sales contract that included the Holder Rule Notice (Notice). The dealership advertised the car as having cruise control and six-way power-adjustable seats. After buying the car, Pulliam learned that it did not meet the requirements of the Certified Pre-Owned program or have the advertised features she needed due to a disability.
In September 2016, Pulliam filed suit against the dealership and TDAF, which had accepted assignment of the contract. She alleged six causes of action based on the dealership's misconduct, including violation of the CLRA, breach of implied warranty under the Song-Beverly Act, fraud and deceit, negligent misrepresentation, violation of Business and Professions Code section 17200, and violation of Vehicle Code section 11711.
Following trial in April 2018, a jury found that the dealership failed to adequately package and label the car at issue and that the vehicle failed to conform to the promises of fact made on the label, in violation of the Song-Beverly Act. The jury awarded Pulliam $21,957.25 in damages. The court entered judgment in this amount jointly and severally against the dealership and TDAF.
Pulliam filed a posttrial motion seeking $169,602 in attorney's fees against both defendants under Civil Code section 1794, subdivision (d), which permits a buyer who prevails in an action under the Song-Beverly Act to recover attorney's fees. The dealership and TDAF raised several objections related to the amount of fees. TDAF also argued that it could not be liable for attorney's fees based on the Holder Rule's limitation on holder liability to amounts paid under the contract. The trial court rejected these arguments and granted Pulliam's motion.
The Court of Appeal affirmed the trial court's award, concluding that the Holder Rule does not limit liability for attorney's fees. ( Pulliam , supra , 60 Cal.App.5th at p. 401, 274 Cal.Rptr.3d 547.) We granted review.
The Federal Trade Commission (FTC) promulgated the Holder Rule in 1975 in response to rapid growth in consumer installment debt in the United States. ( Promulgation of Trade Regulation Rule and Statement of Basis and Purpose, 40 Fed.Reg. 53506–53507 (Nov. 18, 1975) ; Guidelines on Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses, 41 Fed.Reg. 20022 (May 14, 1976).) Before the Holder Rule, a third party who purchased a consumer's promissory note did so "free and clear of any claim or grievance that the consumer may have with respect to the seller." ( 40 Fed.Reg. 53506.) This "holder in due course rule" meant a creditor could seek payment from a buyer on goods never delivered or not delivered as promised while remaining immune from the buyer's claims of fraud, misrepresentation, or breach of contract or warranty against the seller.
The FTC recognized that the application of the holder in due course rule to consumer credit sales was "anomalous" because consumers are not "in an equivalent position [to commercial entities] to vindicate their rights against a payee." (40 Fed.Reg., supra , at p. 53507.) "Between an innocent consumer, whose dealings with an unreliable seller are, at most, episodic, and a finance institution qualifying as ‘a holder in due course,’ the financer is in a better position both to protect itself and to assume the risk of a seller's reliability." ( Id. at p. 53509.) The FTC recognized that "[c]reditors and sellers are in a position to engage in meaningful, arms-length, bargaining," which differentiates them from buyers who sign adhesion contracts with sellers. ( Id. at p. 53523.) Allocating the costs of seller misconduct to the creditor makes it much more likely that the "market will be policed" of "unscrupulous merchant[s]," that the market will reflect "a more accurate price for consumer goods," and that "all parties will benefit accordingly." ( Ibid . )
To effect this allocation, the Holder Rule requires that the following Notice appear in consumer credit contracts "[i]n connection with any sale or lease of goods or services to consumers, in or affecting commerce": ( 16 C.F.R. § 433.2(a) (1975).) This provision gives consumers the ability to "defend a creditor suit for payment of an obligation by raising a valid claim against the seller as a set-off" and to "maintain an affirmative action against a creditor who has received payments for a return of monies paid on account." (40 Fed.Reg., supra , at p. 53524.)
In 2015, the FTC requested public comment on "the overall costs and benefits, and regulatory and economic impact" of the Holder Rule "as part of the agency's regular review of all its regulations and guides." ( Rules and Regulations Under the Trade Regulation Rule Concerning...
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