December 19, 2014
The following is our summary of the Supreme Court’s actions on petitions for review in civil cases from the Court’s conference on Wednesday, December 17, 2014. The summary includes those civil cases in which (1) review has been granted, (2) review has been denied but one or more justices has voted for review, or (3) the Court has ordered depublished an opinion of the Court of Appeal.
Raceway Ford Cases, S222211—Review Granted—December 17, 2014
This case presents the following issues: (1) Does the inclusion of inapplicable smog check and smog certification fees in an automobile purchase contract violate the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.)? (2) Does backdating a second or subsequent finance agreement for the purchase of a vehicle to the date of the first finance agreement violate the ASFA?
Auto purchasers brought an action against an automobile dealership under the ASFA, the Unfair Competition Law (UCL), and the Consumers Legal Remedies Act (CLRA). After a bench trial, the trial court entered judgment in favor of one purchaser on a fraud claim but in favor of the defendant dealership on all other claims. The court later withdrew its decision and entered judgment for the purchasers on their backdated contract claims. The Court of Appeal granted the defendant dealership’s petition for a writ of mandate. The trial court then vacated it its prior judgment, entered judgment for the dealership, and awarded it fees and costs. The plaintiff car buyers appealed and the defendant dealership cross-appealed.
In a published opinion, Raceway Ford Cases (2014) 229 Cal.App.4th 1119, the Court of Appeal, Fourth Appellate District, Division Two, reversed the trial court’s ruling with respect to the plaintiffs’ “backdating” claims and remanded for further proceedings. The key determination in the plaintiffs’ backdating cause of action is defining the appropriate start-date of the term used for calculating the annual percentage rate of the second contract’s credit transaction. The Court of Appeal held the trial court overlooked a key distinction in this determination and thus erred in categorically ruling in the defendant’s favor.
Under the Federal Reserve Board’s Regulation Z, which implements the federal Truth in Lending Act (TILA) (15 U.S.C.A. § 1601 et seq.; 12 C.F.R. § 226.1 et seq.), a transaction is consummated when the consumer becomes contractually obligated on a credit transaction—this event is distinct from when the consumer becomes obligated by the purchase of the vehicle. Accordingly, “the two obligations are analytically separate . . . no matter whether they coincide or not.” Here, the trial court conflated these two occurrences by assuming the appropriate start-date coincided with the date of sale. However, under Regulation Z’s definition of “consummation,” the appropriate start-date of a subsequent contract is triggered by the consumer’s act of signing that contract. Despite finding the trial court’s ruling on this cause of action in error, the Court of Appeal did not rule in favor of the plaintiffs. This is because it acknowledged that Regulation Z provides certain exceptions and also allows for a small margin of error with respect to a calculation of APR. Consequently, since one of the enumerated exceptions may apply to the plaintiffs’ transactions, and since the defendant’s asserted error might fall within the scope of Regulation Z’s acceptable margin of error, the Court of Appeal remanded for further inquiry.
Second, the Court of Appeal held that even if, on remand, the plaintiffs can successfully establish their backdating cause of action, it is unclear whether they will have a remedy under the ASFA. The plaintiffs argued the court should award damages under Nelson v. Pearson Ford Co. (2010) 186 Cal.App.4th 983, which held that backdating violations between a dealership and buyer contravene both section 2981.9 and subdivision (a) of section 2982 of the ASFA. Nelson held the appropriate remedy for backdating violations is to treat the contract as unenforceable and order the remedies of restitution and rescission. But the Court of Appeal here rejected Nelson on multiple grounds and held neither section 2981.9 nor section 2982 were implicated by such inaccurately disclosed APRs. Given this determination, the court affirmed the trial court’s decision and held the contract should not be rendered unenforceable. In addition, the court rejected the plaintiff’s attempt to recover under the CLRA and the UCL. The court held the plaintiffs (1) could not establish the defendants engaged in any activity proscribed by the CLRA and (2) did not have standing to sue under the UCL.
Finally, with respect to the plaintiffs’ asserted cause of action regarding the erroneous charging of smog fees, the Court of Appeal affirmed the trial court’s ruling in favor of the defendant. The court determined that section 2982, subdivision (a), of the ASFA had not been violated. That provision governs the formalities of contracts, not their substance. Accordingly, even though the defendants erroneously charged the plaintiffs for services not provided, section 2982 was not implicated because the erroneous charges were accurately described and set forth in the contract. Consequently, the plaintiffs’ asserted cause of action under the ASFA failed.
Review Denied (with dissenting justices)