Opinion
G052968
12-12-2017
STEPHANIE M. DURAN, Plaintiff and Respondent, v. QUANTUM AUTO SALES, INC., et al., Defendants and Appellants.
Madison Harbor, Jenos Firouznam-Heidari and Fariema Nazemi for Defendants and Appellants. Rosner, Barry & Babbitt, Hallen D. Rosner and Shay Dinata-Hanson for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00657740) OPINION Appeal from a judgment of the Superior Court of Orange County, Gregory H. Lewis, Judge. Affirmed in part; Reversed in part and remanded. Madison Harbor, Jenos Firouznam-Heidari and Fariema Nazemi for Defendants and Appellants. Rosner, Barry & Babbitt, Hallen D. Rosner and Shay Dinata-Hanson for Plaintiff and Respondent.
Eighteen-year-old Stephanie M. Duran purchased a 2003 Audi TT from the Quantum Auto Sales, Inc. (Quantum) for $11,995, using the dealership's financing services. She later learned the vehicle was actually worth $3,000 due to damages sustained in several undisclosed prior collisions and transmission problems. Before filing a complaint for damages based on the Consumer Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq., all further statutory references are to the Civil Code), Duran complied with the CLRA's requirement she notify Quantum about the alleged violations and demand it "correct, repair, replace, or otherwise rectify" those violations. (§ 1782, subd. (a)(1) & (2).) Under the CLRA, this pre-filing notice and demand letter gave Quantum the opportunity to voluntarily remedy its mistake, and if it made an appropriate correction offer, Duran would be precluded from maintaining an "action for damages." (§ 1782, subd. (b).) In this case, Quantum sent Duran a settlement offer, which she rejected, and the trial court later determined the proposed deal was not an appropriate CLRA correction offer.
Duran's lawsuit sought damages and equitable remedies under the CLRA. It also alleged claims for fraud, deceit, violation of the California Automobile Sales Finance Act (ASFA; § 2981 et seq.), and the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.). A jury awarded Duran $41,800 in punitive damages, rescission, and restitution. It concluded Quantum made intentional misrepresentations in the vehicle's sale, violating CLRA and ASFA. The court issued an injunction against Quantum, prohibiting it from misrepresenting that the Motor Vehicle Title Information System (MVTIS) report showed a vehicle's history of no accidents and collision damage. The court also awarded attorney fees and costs.
This order is the subject of a separate appeal, addressed in our currently filed opinion Duran v. Quantum (Dec. 12, 2017, G053712) [nonpub. opn].
In this appeal, Quantum and Veros Credit (the finance company that was assigned Duran's car sales contract), argue that because Duran rejected the correction offer she was not entitled to recover any damages at trial under the CLRA. They maintain the court abused its discretion in concluding there was not an "appropriate" correction offer. Alternatively, Veros argues it cannot be liable to Duran under any theory of law. We conclude the contentions lack merit, however, a portion of the judgment awarding damages must be reversed and remanded for a new hearing. As we explain below, the trial court erred by making Quantum and Veros jointly and severally liable for refunding Duran's car payments and down payment. Duran's recovery against Veros must be reduced to the amount of money the trial court calculates she actually paid Veros.
FACTS
Duran had always dreamed of someday owning an Audi TT Convertible. As a child, she owned a Hot Wheels version of this Audi model, and when it came time for her to purchase a car, she searched for this particular style online. When she found one for sale at Quantum, she called the dealership and spoke to sales representative, Mike Prieto. He said the advertised vehicle was no longer available, but he had a 2003 Audi TT for "[$]11,995 for bad credit, good credit a little cheaper."
Before purchasing the vehicle, Duran asked Prieto if the car had been in any accidents or suffered damages. He represented the vehicle was in excellent condition, there were no prior accidents, and there was only one prior owner, who had taken good care of it. He showed Duran the MVTIS report, explaining "this was a report . . . indicating that there were no accidents on the car, no damage, nothing like that."
Duran learned the truth of the matter approximately three months later. Experiencing transmission problems, Duran took the vehicle to CarMax. Jimmy Mendoza inspected the vehicle and ran an Autocheck report. He told her the car was worth $3,000 because it had been in collisions and there was extensive damage to the body and unibody frame. He opined she needed to replace the driver-side quarter panel. He also reported it was going to cost $4,000 to repair the transmission.
In addition, Duran discovered Quantum purchased the car at a dealer auction, not from one prior responsible owner. Prieto failed to mention or show Duran page two of the MVTIS report, containing the written disclaimer the report would not show significant vehicle damage unless the title has been branded as a total loss, salvage, or junk. The car had been in several collisions.
Duran's expert, Rocco Avellini, later inspected the vehicle and testified to the following: (1) the driver-side quarter panel needed to be replaced; (2) there was an improper repair to the rear body panel; (3) there was structural damage to the rear of the vehicle; (4) he saw poor repairs and welds to the vehicle; (5) he noticed panel separation between the rear body panel, and rear floor panel, and (6) there were clamp marks on the pinch welds of the vehicle from the vehicle being put on a frame rack to pull the vehicle back into alignment after the accident. Avellini opined the vehicle was involved in two accidents, one impacted the rear of the vehicle, and the other involved a collision to the right front and right side of the vehicle. He concluded the car would possibly "not react properly in another accident."
Duran also discovered she had been defrauded during the vehicle's financing. Before purchasing the car, she noticed the convertible top and radio were broken. Duran recalled saying that she did not want to purchase any additional items. Prieto assured her the two broken parts could be fixed free of additional charges. She executed the Retail Installment Sales Contract (Contract), paying $11,995 for the car. The Contract did not list Guaranteed Auto Protection (GAP) insurance in the itemized list of the amount financed. However, Quantum charged her $495 for GAP insurance and created a second contract including the charge. Duran did not sign the second contract, but Veros purchased it from Quantum. Duran did not sign an agreement to purchase GAP insurance and was never given a copy of GAP insurance documents. She was unaware of the additional charges in the Contract. To make matters worse, when Duran asked Quantum to fix the radio and convertible top, it was unable to do so.
Duran hired an attorney, who sent Quantum a pre-filing letter on June 13, 2013, demanding damages pursuant to CLRA. While waiting for a response, Duran filed a lawsuit seeking injunctive CLRA relief against Quantum, Veros, and Western Surety Company (who issued a bond to Quantum and was liable for its actions). The lawsuit also included claims for violations of ASFA, UCL, fraud, and deceit.
On June 25, 2013, Quantum responded to the CLRA pre-filing letter with a settlement offer. Quantum agreed to rescind the Contract and reimburse Duran for her out-of-pocket losses and any payments made on the vehicle. This offer was conditioned on Duran's agreement to return the vehicle in "substantially the same condition in which she received it" and sign a "Settlement and Mutual Release Agreement" (Settlement Agreement). Quantum did not provide her with a copy of the proposed Settlement Agreement. However, it promised that after she signed the Settlement Agreement, Quantum would provide "proof that all of the obligations under the [Contract] for the vehicle [had] been satisfied."
On July 3, 2013, Duran sent two letters. The first letter explained that Quantum's June 25 settlement offer did not contain an appropriate correction offer under the CLRA because it required Duran to release her claim for CLRA injunctive relief and damages available from her non-CLRA causes of action.
In the second letter, Duran offered to settle all claims against Quantum in exchange for the following: (1) refund of the $1,000 down payment; (2) refund of $2,656.15 in payments to date; (3) reimbursement for replacement tires $172.80; (4) full payoff of the lien; (5) recovery of any other additional incidental or consequential damages; and (6) payment of reasonable attorney fees and costs (amount dependent on whether settlement was resolved quickly). In addition, Duran asked Quantum to agree to an injunction "that includes implementing policies and procedures, and provide training to its employees, to ensure that Quantum does not engage in the following illegal conduct: (1) misrepresenting the quality and condition of a vehicle; (2) stating a vehicle had not been in any accidents when it had; (3) utilizing the MVTIS report to induce a consumer's reliance on the dealership's representation that a vehicle had not been in any accidents; (4) failing to provide a consumer with a copy of his/her credit report; (5) charging $495 for a GAP policy that was not provided to the consumer; (6) adding a $495 aftermarket option fee to the cash price of the vehicle; and/or (7) charging a $495 finance charge (a condition to obtain financing) disguised as a GAP policy." In exchange for all of the above, Duran agreed to return the vehicle to Quantum and then the parties could negotiate payment of fees and costs. Approximately one week later, Quantum rejected Duran's settlement offer.
At the end of July 2013, Veros assigned the Contract back to Quantum. Quantum and Western Surety filed an "Application to Deposit Funds" with the court and deposited $4,156.15, which they claimed constituted tender to the CLRA claim. Quantum alleged the $4,156.15, represented Duran's $1,000 down payment, $2,656.15 in payments to Veros, and $500 for incidental expenses. The deposit did not allocate any funds to pay off the loan or for litigation fees and costs.
In response to in limine motions before trial, the court ruled Duran complied with the CLRA pre-filing letter/demand requirement. It also ruled Duran "received a response which was ineffective to meet [her] demand . . . ."
Before jury deliberations, Quantum proposed a special jury instruction asking the jury to decide the question of whether it prepared an appropriate CLRA correction offer and therefore was not liable. The trial court refused to give the instruction. It reasoned, "[U]nder the circumstances of multiple causes of action joined with the [CLRA], an unqualified response by [Quantum] would have been necessary without attendant provisions to curtail any other cause of action which was filed, and in this case [there were many non-CLRA causes of action]." It added, Quantum's offer contained several appropriate remedies. "[B]ut the response went further in that the crippling nature of the response was that it was an . . . offer to settle all causes of action and all suits by way of the settlement and mutual release. [¶] Now, I believe the June 25th letter of [Quantum] and the July 12th letter to allow Quantum . . . to wholly negate the effect of the [CLRA] in the presence of attendant other causes of action appears to this court to be a subterfuge and not in good faith, not a good faith notice -- response to the notice provided by CLRA. After closing argument, Quantum renewed its request to have the jury decide if the correction offer was appropriate and provided a complete defense to the action. The court again refused the request.
The jury awarded Duran $41,800 in punitive damages, rescission, and restitution. The judgment stated the parties stipulated "rescission and restitution" would consist of the following: (1) "Defendants" would refund to Duran $1,856.30 in payments, her $1,000 down payment, and $172 for incidental costs; (2) "Defendants [would] payoff the outstanding loan for [the vehicle], approximately $11,467.70 at time of trial" and (3) Duran was obligated to return the vehicle to "Quantum or Veros." Based on this stipulation, the court ordered Duran would recover the car loan payments and down payment from "Quantum and Veros jointly, severally, or in the alternative for rescission and restitution." It ordered Quantum to pay Duran her incidental costs and the punitive damages. The judgment stated Quantum and Veros would be responsible for paying off the outstanding loan amount ($11,467.70). In addition to those remedies, the court issued an injunction to stop Quantum from making false and misleading statements about the MVTIS report in an effort to entice consumers to purchase vehicles that have prior accident damage.
We interpret this portion of the judgment to mean payment would be made to the current holder of the loan to extinguish the loan. This amount would not be paid to Duran.
On November 24, 2015, Quantum and Veros filed post-judgment motions for a new trial, to vacate the judgment, and for judgment notwithstanding the verdict on the well-worn argument the correction offer was appropriate. Unpersuaded, the trial court denied the motions.
DISCUSSION
Quantum and Veros (collectively referred to in the singular as Quantum unless the context requires otherwise) make the following five main contentions on appeal: (1) the court abused its discretion in ruling Quantum's correction offer was inappropriate; (2) the correction offer mandates reversal of the entire judgment, including equitable relief; (3) Duran's premature complaint mandates reversal; (4) Veros is not liable under any theory of recovery; and (5) there was instructional error. We will address each contention separately.
I. Applicable Law
A different panel of this court published a case describing the purpose and legislative history of CLRA's conditional remedy scheme. "[CLRA's] remedies are non-exclusive (§ 1752), and the Legislature intended that it be 'liberally construed' to promote its purposes, 'which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.' (§ 1760.) According to the legislative history from 1970, the year of its enactment, the law was designed 'to provide affirmative remedies for consumers which will protect them from unscrupulous business practices while insulating responsible businessmen from spurious or vexatious lawsuits.' [Citation.]" (Benson v. Southern California Auto Sales, Inc. (2015) 239 Cal.App.4th 1198, 1205-1206 (Benson).)
Due to the nature of Quantum's arguments on appeal, we find it instructive to review the CLRA's statutory scheme. The CLRA is comprised of four chapters. The first two chapters contain general provisions and definitions. Chapter 3 contains only one statutory provision, which lists the proscribed acts (§ 1770). Chapter 4, titled "Remedies and Procedures" contains the following three provision: (1) section 1780, discussing a consumer's individual action; (2) section 1781, permitting the consumer to bring a class action to recover the same remedies listed in section 1780 and discussing notice requirements and other conditions for class representation; and (3) section 1782 (at issue in this case), discussing "preliminary notices and demands," "defenses," "injunctive relief," and "evidence."
The CLRA contemplates monetary, equitable damages, or a combination of both for a consumer bringing an individual or class action: "Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by [s]ection 1770 may bring an action against that person to recover or obtain any of the following:
"(1) Actual damages, but in no case shall the total award of damages in a class action be less than one thousand dollars ($1,000).
"(2) An order enjoining the methods, acts, or practices.
"(3) Restitution of property.
"(4) Punitive damages.
"(5) Any other relief that the court deems proper." (§ 1780, subd. (a).)
In addition, section 1780, subdivision (e), requires a court to award court costs and attorney fees to "a prevailing plaintiff in litigation filed pursuant to this section."
In this appeal, the focus of Quantum's statutory analysis is on section 1782. The lengthy title of this provision indicates it covers four distinct topics as follows: (1) "preliminary notices and demands"; (2) "defenses"; (3) "injunctive relief"; and (4) "evidence."
Subdivision (a) of section 1782 is devoted to the topic of "preliminary notices and demands." This subdivision imposes a condition on a consumer's ability to sue for damages (similar to those statutes requiring exhaustion of administrative remedies). This subdivision mandates that 30 days before "commencement of an action for damages" the consumer must both "notify" the merchant involved in the section 1770 violations, and "demand" the merchant correct those mistakes. (§ 1782, subd. (a)(1) & (2).)
The CLRA's affirmative "defenses" are discussed in section 1782, subdivisions (b) and (c), for personal and class actions respectively. These provisions provide the merchant with a way to avoid liability. If the merchant violating the CLRA gives the consumer a timely and appropriate correction offer, "no action for damages may be maintained" under section 1780 (consumer's personal action) or under section 1781 (consumer's class action). (§ 1782, subds. (b) & (c).) The merchant can raise these affirmative defenses in response to "the commencement of an action for damages" or after the consumer adds a request for damages to an existing "action for injunctive relief" under CLRA. (§ 1782, subds. (a) & (d).)
"Under section 1782, subdivision (b), no action for damages may be maintained 'if an appropriate correction, repair, replacement, or other remedy is given, or agreed to be given within a reasonable time, to the consumer within 30 days after receipt of the notice.' This section was added early in the legislative process to insure that the consumer must give the merchant an opportunity to correct his mistake. [Citation.]" (Benson, supra, 239 Cal.App.4th at p. 1206.)
With respect to the consumer's class action for damages, section 1782, subdivision (c), provides merchants with an affirmative defense if they take the corrective action described in subdivision (b) and also prove their compliance with the following conditions: (1) they have identified or made reasonable efforts to identify similarly situated consumers; (2) the merchant has notified the class of consumers they may request corrective action; (3) "[t]he correction, repair, replacement, or other remedy requested by the consumers has been, or, in a reasonable time, shall be, given[]" and (4) the merchant has or will soon "cease to engage, in the [wrongful] methods, act, or practices."
The next subdivision of section 1782 discusses a different topic, i.e., a consumer's "action for injunctive relief." (§ 1782, subd. (d).) It clearly states the consumer need not comply with the pre-filing notice and demand requirements needed to pursue an "action for damages" found in subdivision (a).
Finally, subdivision (e) of section 1782 changes the topic again and discusses the limited circumstances a corrective offer can be used as "evidence" at trial. A corrective offer, like an offer to compromise, is inadmissible and cannot be considered an admission. (§ 1782, subd (e).) However, a defendant can introduce evidence of the offer to establish good faith or show compliance with the statutory rule. (Ibid.)
In summary, subdivisions (a), (b), (c), and (d) of section 1782 all relate to offers to compromise in the context of a consumer's "action for damages" (both as an individual and class representative). Subdivision (d) of section 1782 describes the procedures for an "action for injunctive relief" not requiring a pre-filing notice and demand and, thus, not anticipating or requiring an offer for corrective action.
The Legislators anticipated consumers commencing an "action for damages" may also wish to pursue an "action for injunctive relief." Recognizing the two actions proceed on different procedural pathways, the legislators included in the statute directions for joining an "action for damages" with an existing lawsuit for injunctive relief. When the required 30 days has passed for "commencement of an action for damages," the consumer can amend the complaint "without leave of court to include a request for damages." (§ 1782, subds. (a) & (d).) The consumer's lawsuit can seek all CLRA remedies outlined in section 1780.
However, the statute warns, "The appropriate provisions of subdivision (b) or (c) shall be applicable if the complaint for injunctive relief is amended to request damages." As explained above, those two subdivisions describe the affirmative defenses available to merchants in personal and class "actions for damages." Thus, this provision advises those affirmative defenses are available after the CLRA damages claims are added to an existing complaint (through, for example, a demurrer, motion to dismiss or summary judgment motion). (See e.g., Vasic v. PatentHealth, L.L.C. (S.D. Cal. 2016) 171 F.Supp.3d 1034, 1041.) However, nothing in those subdivisions disturbs the consumer's authority to continue pursuing a CLRA claim for injunctive relief to remedy a public wrong. Because injunctive relief is not conditioned on a proper pre-filing notice/demand letter, the existence of an appropriate corrective offer has no relevance.
We found two cases instructive on the different legal paths available to consumers under the CLRA. First, there is Benson, supra, 239 Cal.App.4th 1198. That case involved a car purchaser who sued the dealership, owner, and finance company (collectively referred to as defendants) for violations of CLRA, ASFA, UCL, and other tort claims. (Benson, supra, 239 Cal.App.4th at p. 1204.)
As required by CLRA, the purchaser sent defendants a pre-filing notice demanding damages and the defendants made a correction offer. (Benson, supra, 239 Cal.App.4th at p. 1205.) The purchaser rejected the offer and amended his existing complaint seeking CLRA injunctive relief and non-CLRA remedies, to add claims for CLRA damages. Before trial, the dealership stipulated to a $34,500 judgment against it "'on the complaint,'" plus waiver of the loan on the condition the purchaser return the vehicle and execute a release for all the defendants. (Id. at p. 1204.) The settlement agreement allowed the purchaser to make a motion for attorney fees but also allowed the defendants to contest the motion "'on any grounds available to them.'" (Id. at p. 1205.) Specifically, "the settlement agreement allowed defendants to contend they were the prevailing parties 'in light of the pre-litigation offer per the CLRA.'" (Ibid.)
The trial court denied the purchaser's motion for attorney fees and costs under CLRA on the grounds defendants' made an appropriate corrective offer. (Benson, supra, 239 Cal.App.4th at p. 1205.) On appeal, the purchaser challenged the court's finding the correction was adequate, arguing it unreasonably required him to release all his non-CLRA claims. (Id. at pp. 1209-1210.)
This court framed the focus of the appeal as follows: "The issue on appeal is twofold. First, was [the car dealership's] . . . offer an appropriate correction in response to Benson's notice, and, second, if it was, does the fact that Benson could not maintain an action for CLRA damages preclude him from seeking court costs and attorney fees under the statute?" (Benson, supra, 239 Cal.App.4th at p. 1206.) Applying an abuse of discretion standard, this court concluded substantial evidence supported the trial court's determination of appropriateness of the correction offer. (Id. at p. 1211.) This court held attorney fees were unavailable because when a merchant makes an appropriate corrective offer, the consumer cannot maintain a "suit for damages" and, therefore, should also not be permitted to collect attorney fees for pursuing "such a suit." (Id. at p. 1212.) We clarified analysis of these two issues was based on the premise the purchaser's CLRA action was an "action for damages," not injunctive relief, due to the lack of "briefing or argument" on that particular topic. (Id. at p. 1213.) Therefore, the holding was limited to situations where the consumer was pursuing only damages and/or rescission of the contract.
The limitation of the Benson case's holding was recently discussed by the Federal Ninth Circuit court in Gonzales v. CarMax Auto Superstores, LLC (9th Cir. 2017) 845 F.3d 916, 917-918 (Gonzales). In that case, a defrauded car purchaser sought injunctive relief and attorney fees under CLRA. (Gonzales, supra, 845 F.3d at p. 917.) Relevant to the case before us, the Gonzales court considered the issue of whether Gonzales was barred from collecting attorney fees because CarMax proffered an appropriate correction pursuant to section 1782 of the CLRA. (Id. at p. 918.)
The Gonzales case held, "We conclude that Gonzales is not barred from recovering attorney's fees under [s]ection 1782 of the CLRA. . . . [¶] . . . CarMax's correction offer, whether it was appropriate or not, does not bar Gonzales from recovering attorney's fees. [¶] . . . [¶] The California Court of Appeal has 'interpreted section 1782 to create a requirement analogous to exhaustion of administrative remedies' and therefore has concluded that '[a]ttorney fees are not recoverable in actions for damages under the CLRA unless the response to the notice letter is not an appropriate one or no response is forthcoming within the statutory time period. [(Benson, supra, 239 Cal.App.4th 1198 . . . .)] The Benson court, however, explicitly declined to 'address the requirements for an attorney fee award based on a request for injunctive relief.' [Citation.] [¶] In addition to actual and punitive damages, the CLRA explicitly authorizes injunctive relief, restitution, and '[a]ny other relief that the court deems proper.' [Citation.] In the present case, Gonzales' [complaint] did 'not seek damages of any kind' on his CLRA claim, but rather sought only an 'injunction prohibiting acts or practices which violate the CLRA.' As the California Supreme Court noted, 'section 1782, subdivision (d), contemplates the filing of a CLRA action for injunctive relief alone, and such actions are not subject to the requirements of subdivisions (a) and (b) of notice and allowance for voluntary correction,' which apply only to an action for damages. [(Meyer v. Sprint Spectrum L.P. [(2009)] 45 Cal.4th 634.)] Because Gonzales sought only injunctive relief for violation of the CLRA, CarMax's correction offer does not bar Gonzales from recovering attorney's fees." (Gonzales, supra, 845 F.3d at pp. 917-918, italics added, bold omitted.)
In summary, Benson held a consumer was barred from recovering attorney fees because the car dealership offered an appropriate correction for the consumer's "action for damages." (Benson, supra, 239 Cal.App.4th at p. 1212.) In contrast, the Gonzales case held a consumer seeking only injunctive relief could recover attorney fees regardless of whether the correction offer was appropriate or not. (Gonzales, supra, 845 F.3d at p. 918.) II. The CLRA Correction Offer
As we consider Quantum's correction offer it is important to keep in mind an appropriate offer provides the merchant with an affirmative defense only to the consumer's personal or class "action for damages." (§ 1782, subd. (a).) If the merchant does not provide an appropriate offer, the consumer can maintain such action separately or join it with "[a CLRA] action for injunctive relief" after passage of the required 30-day waiting period. (§ 1782, subd. (d).)
In this case, Quantum's pre-litigation offer went far beyond a willingness to take corrective action as contemplated by the drafters of the CLRA. We recognize Quantum agreed to fix its mistake by rescinding the Contract, reimbursing Duran for her out-of-pocket losses, and giving her $500 for incidental costs. Certainly these remedies were all entirely appropriate under the CLRA.
What made the offer improper was that Quantum did not simply volunteer to correct its mistake and put Duran financially back to where she started. Quantum demanded several things in exchange for remedying its illegal car scam. Quantum commanded that Duran agree to (1) perform tasks that were unreasonable and contrary to the purpose of CLRA, (2) abandon her concurrent CLRA "action for injunctive relief," and (3) release Quantum from her other non-CLRA claims. We conclude an appropriate corrective offer only gives the merchant an opportunity to avoid litigation by fixing its mistakes. It cannot be used as a weapon to force a consumer to compromise on the issues or prematurely settle the case for less than what would make her whole. As we will now explain, the trial court did not abuse its discretion in recognizing the purported correction offer was simply an unequitable and one-sided settlement offer, made in bad faith, in a misguided attempt to the take advantage of the affirmative defenses offered by the CLRA. We will address each of Quantum's improper demands in turn. A. Return of Vehicle in Same Condition
The purported offer required Duran to return the vehicle 'in substantially the same condition it was sold [to her], with minimal wear and tear." Quantum did not explain why Duran could not simply return the vehicle "as is." We conclude there are several reasons why this requirement in the correction offer supported the court's conclusion it was unacceptable.
The phrases "substantially the same condition" and "minimal" were not defined and, in the context of this unique case, could be subject to later dispute by the parties. Duran, and the trial court, are left to guess about what qualifies as "substantially the same condition" in a case where the dealership completely misrepresented the actual condition of the vehicle. Could Duran return the vehicle with a faulty transmission because it was sold to her that way? Equally troubling is the vague term "minimal." It could be interpreted to mean any trivial alteration to an already substantially damaged vehicle, i.e., a stain on the floor mat. This type of demand is not in step with the type of corrective action contemplated by the CLRA. The nebulous terms unreasonably opened the door to possible gamesmanship by the dealership, who had already proven to be untrustworthy and deceitful.
Second, this particular term supports the trial court's conclusion Quantum's intent was to settle the case rather than take the appropriate steps to correct its mistakes required for relief under CLRA. Settlement offers serve a completely different purpose than a CLRA corrective offer. A settlement contemplates both parties will make concessions and compromises in exchange for other benefits, such as avoiding the cost of further litigation and securing a particular outcome. The purpose and intent of a CLRA corrective offer is to give merchants a narrow window (30 days) of opportunity to voluntarily agree to correct their mistakes and avoid the costs of further litigation. To qualify for this unique remedy, the wrongdoer certainly cannot ask the innocent party to suffer additional harm. Here, Quantum conditioned its corrective action (rescission and repayment) on Duran's ability to return the vehicle in essentially a re-sellable condition (an arguably futile act given its low value and need to spend an additional $4,000 to fix the transmission). This demand in the offer placed an additional burden on Duran and was not the type of corrective action called for by CLRA. B. Undisclosed Settlement/Release Agreement
In addition to the vehicle's return in a certain condition, Quantum offered to take corrective action on the condition Duran sign an undisclosed Settlement and Mutual Release Agreement. We conclude it was unreasonable to expect Duran to execute the agreement without it being further described or explained. The title of the proposed agreement clearly suggested it contained both settlement and release requirements, and as discussed above, settlement terms are often at odds with the purpose of CLRA corrective offers. The aggrieved consumer need not agree to anything less than complete correction of the mistake. Moreover, often the unknown terms of an agreement later become the subject of disagreement between the parties, frustrating CLRA's goal of a speedy pre-litigation resolution. There was no way for the consumer to determine if the undisclosed agreement contained fair and appropriate provisions or it was being offered with a genuine intent to facilitate corrective action. For this reason alone, the correction offer was inappropriate.
We find instructive Sanford v. Rasnick (2016) 246 Cal.App.4th 1121 (Sanford). That case concerned the validity of a cost-shifting Civil Procedure section 998 offer (hereafter 998 offer). The court determined the 998 offer was invalidated because it contained the condition that one of the parties agree to enter into an undisclosed "'settlement agreement and general release.'" (Id. at p. 1130.) "[C]ase law does allow for releases. [Citations.] [¶] But a release is not a settlement agreement, and the [parties] have cited no case, and we have found none, holding that a valid . . . 998 offer can include a settlement agreement, let alone one undescribed and unexplained." (Ibid.)
The Sanford court reasoned, "As most experienced trial lawyers and judges appreciate, the terms of a settlement agreement can be the subject of much negotiation. And the terms can be problematical. For example, settlement agreements typically contain a waiver of all claims 'known and unknown,' a provision that has been held to invalidate a . . . 998 offer. [Citations.] [¶] . . . [¶] [A]nd as every lawyer who has settled a case will appreciate, the issue as to . . . section 1542 in a release can be the subject of much discussion. [¶] Here, the required 'settlement agreement' was not described or revealed, [the party being offered the 998 offer] having no understanding what he would have to agree to. [H]e was left to guess at what terms [the opposing party] might insist upon, and he had to accept or reject the offer without knowing what those terms were. This omission made it essentially certain that, had [he] accepted their offer, the parties would have wound up in a disagreement over what terms could be included in the settlement agreement.'" (Sanford, supra, 246 Cal.App.4th at p. 1131.) "Disputes would erupt and become routine over what offers can and cannot place into these jack-in-the-box settlement agreements hidden in their 998 offers." (Id. at p. 1132.)
This reasoning applies equally to CLRA corrective offers. The prospect of future disagreements over the undisclosed settlement and release terms is at odds with the designed purpose of the offer, i.e., to resolve the "action of damages" before the complaint is filed. Moreover, there would be no way for the trial court to determine if the undisclosed terms would qualify as an appropriate correction or involved another ploy by the dealership to defraud the consumer. An appropriate correction offer requires a high degree of certainty to eliminate any risk of bad faith, gamesmanship, and subterfuge. There is a legally rational need to require certain, definite, and specific terms in a correction offer, because like section 998 offers, the legal consequences of the offer to the opposing party are especially significant. An appropriate corrective offer gives the merchant a complete affirmative defense to the consumer's action for damages and related attorney fees under the CLRA. C. Release of Non-CLRA Claims
Relying on the Benson case, Quantum argues its demand for release of non-CLRA claims does not render its offer inappropriate because Duran failed to show any of those claims added any extra value. It points out the CLRA gives consumers the right to seek additional remedies not additional causes of action offering the same remedies as the CLRA. As mentioned, the Benson case focused on a purchaser who brought an action for damages. In that case, we determined the purchaser's other eight causes of action offered the same monetary relief he would have recovered "'with the CLRA claim and based on the same conduct.'" (Benson, supra, 239 Cal.App.4th at p. 1210.) "The CLRA prohibits deception and permits recovery of punitive damages, so the two fraud claims added nothing to Benson's potential recovery. The ASFA claim allowed Benson to get his money back, a CLRA remedy [defendant] was offering. The Vehicle Code claims did not permit any extra recovery, and the UCL and [False Advertising Law] FAL claims permitted restitution [citation], which, again, [defendant] was offering. The Song-Beverly Consumer Warranty Act permits a buyer to recover damages, 'includ[ing] the rights of replacement or reimbursement'—exactly what Benson would have recovered under the CLRA. [Citation.]" (Ibid.) The purchaser was not entitled to more than a single recovery for each item of compensable damages and, therefore, a correction offer conditioned on release of non-CLRA causes of action would be appropriate. (Id. at pp. 1209-1210.)
We did not mention the additional remedy of injunctive relief was available under the UCL and FAL because the case was premised on the fact Benson commenced only an action for damages, not injunctive relief, due to the lack of briefing on that topic.
Duran's complaint contained similar causes of action with one important distinction. In her case, the non-CLRA causes of action added "extra value" because they sought the additional remedies of injunctive relief with corresponding attorney fees. Under the UCL, Duran requested an order "enjoining Quantum from engaging in acts or practices that violate the [UCL]." To summarize, Duran requested an injunction to address Quantum's pre-sale misrepresentations about the condition of the vehicle, its failure to provide customers with a credit report, and its unfair sale tactics of adding aftermarket charges without the consumer's knowledge or consent. Duran requested this remedy to address a perceived public wrong, along with attorney fees incurred for pursuing such an action on behalf of future consumers.
In addition to seeking an order enjoining Quantum from engaging in actions violating the UCL, Duran requested "equitable monetary relief so as to preclude the retention of all ill-gotten monies by Quantum." In Duran's ASFA claim, in addition to rescission and a refund of all money paid under the Contract, Duran "reserve[d] the right to be excused from payment of all finance charges, both past and future."
None of the above items were remedies available under Duran's CLRA "action for damages." In particular, the UCL and ASFA claims added remedies beyond the demands made part of Duran's "action for damages," which prompted her pre-filing notice/demand and evoked the correction offer. Because Quantum denied any wrongdoing, its corrective offer did not suggest the dealership would be willing to voluntarily agree to being enjoined from future misconduct. Consequently, Quantum's demand that she abandon non-CLRA claims offering the remedies of injunctive relief and other damages rendered the correction offer inappropriate.
We note Quantum's request that Duran release non-CLRA causes of action belonged in a settlement offer not a corrective offer to fix its mistakes. The intended and limited purpose of a corrective offer and the related affirmative defenses are to provide an "efficient and economical procedure" for merchants to remedy their wrongful acts and avoid drawn-out litigation. It was never intended to force consumers to abandon an action for injunctive relief to remedy a perceived public wrong. D. Release of CLRA Claims
Quantum argues an appropriate correction offer may require settlement of a party's CLRA injunction claims without any promise to take future corrective action in that regard. Quantum suggests the trial court, in ruling the corrective offer was inappropriate due to the requirement Duran abandon her claim for injunctive relief, was based on a misreading of section 1751's anti-waiver provision. It asserts this court, in Benson, correctly upheld a correction offer that required the consumer to execute a settlement and release "dismissing all [CLRA] claims" despite the anti-waiver provision. These contentions lack merit for different reasons.
"[CLRA] embeds in its statutory scheme a provision prohibiting waivers by consumers of any of [the strong remedial provisions for violations of the statute]. [S]ection 1751 warns: 'Any waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.' [¶] [T]he Legislature has ensured that the rights afforded to California citizens against unfair practices cannot be diminished or avoided by contract." (America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11 (America Online).)
We turn first to Quantum's discussion of the CLRA anti-waiver provision. We agree with Quantum's lengthy argument and conclusion the anti-waiver provision does not apply to consumers entering into pre-trial settlement agreements. There is ample case authority holding CLRA's anti-waiver provision does not allow a consumer to waive the provisions in advance of the defendant's misconduct, such as by signing a contract agreeing to a class action waiver for CLRA claims. (See America Online, supra, 90 Cal.App.4th at p. 13.) The anti-waiver provision does not apply to settlement agreements entered into after the "transaction" involving defendant's misconduct. After all, the purpose of the pre-filing notice requirement "is to provide and facilitate pre-complaint settlements of consumer actions wherever possible and to establish a limited period during which such settlement may be accomplished." (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 41 (Outboard Marine).)
However, this entire argument misses the mark. The question before us is not whether Duran could settle her claims after the defendant's misconduct. No such settlement was reached in this case and we do not render advisory opinions. The limited issue to be decided is whether Quantum's corrective offer, requiring Duran to waive her injunction claim before it would rescind the contract and refund her money was appropriate under the CLRA. We conclude it was not. As mentioned, the CLRA does not require or force the consumer to accept an unfavorable compromise or settlement.
"[T]he evident purpose of the injunctive relief provision of the CLRA is not to resolve a private dispute but to remedy a public wrong. Whatever the individual motive of the party requesting injunctive relief, the benefits of granting injunctive relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered." (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1080.)
For this reason, the statutory scheme encourages the consumer to accept a merchant's corrective offer on his or her "action for damages" but contemplates the consumer can and will continue pursuing injunctive relief. To facilitate this goal, the statute specifically authorizes a consumer to immediately file the lawsuit on "an action for injunctive relief" (§ 1782, subd. (d)), without waiting 30 days for the merchant to consider fixing its mistakes for the consumer's individual benefit. And, the CLRA's affirmative defenses, arising from an appropriate corrective offer, have no relevance to a lawsuit seeking injunctive relief. (Gonzales, supra, 845 F.3d at p. 918.)
In conclusion, the CLRA's anti-waiver provision would not prohibit a voluntary settlement between the parties before trial. This provision has no relevance to the determination of whether Quantum's settlement offer qualifies as "an appropriate correction, repair, replacement, or other remedy" in response to Duran's pre-filing notice and demand for remedies. (Gonzales, supra, 845 F.3d at p. 918.) And contrary to Quantum's contention, the trial court's ruling was not based on the anti-waiver provision. Rather, the trial court properly recognized Quantum made its corrective offer relating to Duran's "action for damages" conditional on her abandonment of her separate "action for injunctive relief." The offer exceeded its intended remedial purpose and sought a settlement of an additional unrelated claim.
We turn next to Quantum's assertion Benson held a corrective offer could demand its release from the consumer's CLRA action for injunctive relief despite the anti-waiver clause. It misread the case. The only time the anti-waiver provision was mentioned in the Benson case was in the context of whether it was appropriate for a correction offer to demand waiver of non-CLRA claims. (Benson, supra, 239 Cal.App.4th at p. 1209.) The Benson case stated the following: "Benson asserts that requiring him to give up these claims violates the CLRA prohibition against waiver of claims. There is no such prohibition. The CLRA prohibits waiving CLRA claims (§ 1751); it says nothing about waiving other kinds of claims." (Id. at p. 1210.)
There was no suggestion anywhere in the Benson opinion that a correction offer could demand waiver of a consumer's CLRA injunction claim (or for that matter non-CLRA injunction remedies). As clarified earlier, the scope of our legal analysis in Benson was limited to situations where the consumer was pursuing an action for damages, not injunctive relief. The opinion contained no analysis of the appropriateness of a corrective offer if the consumer was also seeking injunctive relief. Indeed, in Benson we expressly rejected the claim the anti-waiver provision had any application in the case because the dealership had only asked the consumer to waive non-CLRA claims offering the same remedies as the CLRA action for damages. (Benson, supra, 239 Cal.App.4th at p. 1209.) III. Premature Complaint Issue
Assuming it prevailed on the previous issue, Quantum's next argues the judgment must be reversed because there was an appropriate correction offer and a premature complaint. Because we ruled against Quantum on the appropriateness issue, we are left to decide whether Duran's complaint was premature, and if this factor alone mandates reversal.
Based on our ruling the corrective offer was inappropriate, we need not address Quantum's numerous arguments relating to the correct application of the CLRA's affirmative defenses. (§ 1782, subds. (b) & (c).)
Section 1782, subdivision (a), requires a consumer to wait 30 days before commencement of an "action for damages." Quantum asserts the original complaint, filed before the 30-day waiting period, sought equitable relief that included the remedies of rescission and restitution in addition to injunctive relief. It recognizes Duran could seek an injunction, but that remedies of rescission and restitution fall within the definition of an "action for damages." Because the complaint included those damages before the 30-day waiting period, it was prematurely filed.
The statute does not define "action for damages." The provisions describing the pre-filing notice/demand and corresponding corrective offer do not mention specific remedies. They are broadly written to cover any "appropriate correction, repair, replacement, or other remedy . . . ." (§ 1782, subd. (b).) As applied in this case, certainly the equitable remedies of rescission and restitution would have been an appropriate correction.
However, we need not engage in statutory analysis to determine if a CLRA "action for damages" includes the equitable remedies of rescission and restitution because Quantum failed to adequately brief the issue. If we assume, for the sake of argument, Duran's original complaint (with restitution and rescission claims) was prematurely filed, Quantum did not discuss the more important and dispositive issue of "so what?" It appears Quantum never challenged the "premature complaint" and the trial court was never asked to rule on its viability. Quantum does not maintain a "premature CLRA complaint" raises a jurisdictional concern that we can consider in the first instance on appeal.
Moreover, because the correction offer in this case was not appropriate, the affirmative defenses were unavailable to Quantum. Consequently, Duran was authorized to amend her complaint and add every remedy related to her action for damages after 30 days "without leave of court." (§ 1782, subd. (d).) Quantum does not suggest how it was prejudiced by a "premature complaint" in light of Duran's right to amend her complaint, effectively curing any procedural mistake. Duran would be barred from recovery on her action for damages only if the corrective offer had been appropriate. It was not.
The cases Quantum cited do not assist its arguments. To the contrary, Outboard Marine, supra, 52 Cal.App.3d at page 41, held a defendant could waive the pre-filing notice provisions and challenges to a prematurely filed complaint. In that case, the merchant filed a demurrer challenging the consumer's CLRA damages claim on the grounds he prematurely filed the complaint several months before sending the required pre-filing notice and demand. (Id. at pp. 38-39.) As noted by Quantum, the court rejected the consumer's argument he need only substantially comply with the pre-filing notice requirement. (Id. at p. 40.) However, the court also determined the demurrer was properly overruled because the merchant "effectively waived the notice provisions of the act by its letter" sent to the consumer with an acknowledgement it received the consumer letter and it was "'treating'" it "'as a preliminary notice and demand under [section] 1782[, subdivision] (a).'" (Id. at p. 41.)
The Outboard Marine court explained, "Unless otherwise provided by law, any person may waive the advantage of a law intended for his benefit. [Citation.] Waiver is the voluntary relinquishment of a known right. [Citation.] To constitute a waiver, it is essential that there be an existing right, benefit, or advantage, a knowledge, actual or constructive, of its existence, and an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right in question as to induce a reasonable belief that it has been relinquished. The doctrine of waiver is generally applicable to all the rights and privileges to which a person is legally entitled, including those conferred by statute unless otherwise prohibited by specific statutory provisions. [Citations.]" (Ibid.)
Here, Quantum sent a letter to Duran stating it had received the letter she believed complied with section 1782 and "[t]his letter shall serve as Quantum's response to the same." While Quantum did not say the letter fully complied with section 1782, it treated the letter as satisfying the purpose of the notice requirements of section 1782. Because Duran sent a copy of her proposed complaint, Quantum was aware of the alleged CLRA violations and could determine how best to offer appropriate corrections or replacements.
Finally, Quantum cites two federal district court cases (one published and one unpublished) in which the court granted motions to dismiss due to the consumer's failure to comply with the pre-filing notice requirements. These cases and the Outboard Marine case suggest the proper legal challenge to a prematurely filed complaint is before trial. Quantum did not demur or move to dismiss the complaint on the grounds it was prematurely filed. (See GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 872 [party cannot raise claim at appellate level as ground for reversal if claim was not brought to attention of trial court]; Rooz v. Kimmel (1997) 55 Cal.App.4th 573, 593 [party has duty to look after legal rights and bring infringement to trial court's attention].) None of Quantum's case authority supports its theory this issue may be raised for the first time on appeal or that the pre-filing error would be grounds to reverse a jury verdict and the court's final judgment. IV. The Holder Rule
After the jury returned its verdict, the parties stipulated that the trial court would determine whether Veros was liable to Duran pursuant to the Federal Trade Commission (FTC) Holder in Due Course Rule (the Holder Rule, 16 C.F.R. § 433.2). The court determined the Holder Rule applied, and ordered Veros and Quantum jointly liable for rescission and restitution damages ($2,856.30). It determined Veros was not jointly liable for incidental costs or punitive damages. The injunction was issued only against Quantum.
On appeal, Veros argues this ruling was incorrect because it assigned its interest in the Contract to Quantum on July 31, 2013 (after Duran's lawsuit was filed but before the jury's verdict). Veros asserts that because it no longer was the "holder" of Duran's debt obligation, it was excused from all liability to Duran. We agree with the trial court that this argument lacks merit, however, we conclude Veros's damages should have been limited to the amount of money it received from Duran while it was the "holder" of the finance agreement. Accordingly, this portion of the judgment is reversed and remanded to adjust damages to the amount permitted under the Holder Rule.
As discussed in more detail in our currently filed opinion Duran v. Quantum (Dec. 12, 2017, G053712) [nonpub. opn.], Veros is also responsible for the portion of attorney fees and costs related to the litigation of claims against it.
"The FTC adopted a rule [citation], which makes it an unfair or deceptive act or practice for a seller to take or receive a consumer credit application which does not contain the following provision in large, bold-face type: [¶] '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.' . . ." (Music Acceptance Corp. v. Lofing (1995) 32 Cal.App.4th 610, 626-627 (Music Acceptance).)
"The FTC enacted this rule because it believed it was 'an unfair practice for a seller to employ procedures in the course of arranging the financing of a consumer sale which separate[d] the buyer's duty to pay for goods or services from the seller's reciprocal duty to perform as promised.' [Citation.] The FTC explained: 'Our primary concern . . . has been the distribution or allocation of costs occasioned by seller misconduct in credit sale transactions. . . . The current commercial system which enables sellers and creditors to divorce a consumer's obligation to pay for goods and services from the seller's obligation to perform as promised, allocates all of these costs to the consumer/buyer.' [Citation.] [¶] In its 'Guidelines on Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses,' the FTC explained further: '[The] dramatic increase in consumer credit over the past [30] years has caused certain problems. Evolving doctrines and principles of contract law have not kept pace with changing social needs. One such legal doctrine which has worked to deprive consumers of the protection needed in credit sales is the so-called "holder in due course doctrine." Under this doctrine, the obligation to pay for goods or services is not conditioned upon the seller's corresponding duty to keep his promises.'" (Music Acceptance, supra, 32 Cal.App.4th at p. 627.)
"'Typically, the circumstances are as follows: A consumer relying in good faith on what the seller has represented to be a product's characteristics, service warranty, etc., makes a purchase on credit terms. The consumer then finds the product unsatisfactory; it fails to measure up to the claims made on its behalf by the seller, or the seller refuses to provide promised maintenance. The consumer, therefore, seeks relief from his debt obligations only to find that no relief is possible. His debt obligation, he is told, is not to the seller but to a third party whose claim to payment is legally unrelated to any promises made about the product. [¶] 'The seller may, prior to the sale, have arranged to have the debt instrument held by someone other than himself; he may have sold the debt instrument at a discount after the purchase." (Music Acceptance, supra, 32 Cal.App.4th at pp. 627-628.)
"'From the consumer's point of view, the timing and means by which the transfer was effected are irrelevant. He has been left without ready recourse. He must pay the full amount of his obligation. He has a product that yields less than its promised value. And he has been robbed of the only realistic leverage he possessed that might have forced the seller to provide satisfaction—his power to withhold payment.' [Citation.] [¶] As one court noted, before this rule was adopted '[t]he reciprocal duties of the buyer and seller which were mutually dependent under ordinary contract law became independent of one another. Thus, the buyer's duty to pay the creditor was not excused upon the seller's failure to perform. In abrogating the holder in due course rule in consumer credit transactions, the FTC preserved the consumer's claims and defenses against the creditor-assignee. The FTC rule was therefore designed to reallocate the cost of seller misconduct to the creditor. The commission felt the creditor was in a better position to absorb the loss or recover the cost from the guilty party—the seller.' [Citation.]" (Music Acceptance, supra, 32 Cal.App.4th at p. 628.)
When Duran learned she was the victim of an illegal car scam, Quantum had transferred her debt obligation to Veros. She was left without a "ready recourse" or any "realistic leverage" to have forced the dealership to correct its mistakes. Veros cites to no legal authority, and we found none, excusing a "holder" from liability simply because it reassigned the debt instrument to someone else before judgment was entered in the consumer's case. Instead, Quantum cites to case authority discussing the general policy in favor of the free transferability of all types of property, including contract rights. (See Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222 (Farmland).) This authority is inapt.
In the Farmland case, our Supreme Court held there was nothing in the nature of patent licenses so personal that the parties must have intended they be nonassignable. (Farmland, supra, 48 Cal.2d at pp. 221-222.) Veros maintains there was nothing in the car financing documents of a personal nature to preclude its assignment. Perhaps this is true, but it does not answer the issue at hand. The question is not whether the finance documents could theoretically be re-assigned. The question is whether a creditor-assignee can avoid liability under the Holder Rule by re-assigning after the misconduct has occurred, after the lawsuit has been filed, and after it has been named a defendant.
Veros does not suggest what policy or purpose would be served by giving a creditor-assignee such an easy exit strategy. The notice provides "any holder" is subject to all claims and defenses the consumer has against the original seller. "Therefore, any effort by an intermediary assignee to play 'hot potato' with a consumer credit contract will not be effective. If a holder acquired the contract from the seller, the holder is potentially liable to the consumer for return of all monies it received under the contract. The FTC Holder Rule seeks to place the burden on the seller and its assignee." (Szwak, The FTC "Holder" Rule (2006) 60 Consumer Fin. L.Q. Rep. 361 (hereafter Szwak).)
The Holder Rule takes away the financers' traditional status as a holder in due course and subjects it to any potential claims and defenses the purchaser has against the seller. "Based on a simple public policy determination, as between an innocent consumer and a third party financer, the latter is generally in a vastly superior position to: (1) return the cost to the seller, where it properly belongs; (2) exert an influence over the behavior of the seller in the first place; and (3) to the extent the financer cannot return the cost (as in the case of fly-by-night dealers), "internalize" the cost by spreading it among all consumers as an increase in the price of credit. Knowing that it bears the cost of seller misconduct, the creditor 'will simply not accept the risks generated by the truly unscrupulous merchant. The market will be policed in this fashion and all parties will benefit accordingly.'" (Szwak, supra, 60 Consumer Fin. L.Q. Rep. 361, fns. omitted.)
Having determined the trial court properly held Veros liable for damages under the Holder Rule, we recognize the award must nevertheless be reversed because it required Veros to pay more than what was permissible under the Holder Rule. The FTC expressly determined recovery against "any holder" could not "exceed amounts paid" under the contract. (16 C.F.R. § 433.2, capitalization and bold omitted; Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 563 (Lafferty).) It appears the judgment is for a total sum exceeding the amount Duran actually paid to Veros.
As of the date of Duran's second demand letter in July 2013, she requested a refund of approximately $3,000 in payments she made for the vehicle. It is unclear whether Veros also collected the down payment, warranty, or insurance payments from Duran. "On appeal, we do not resolve such contested issues of fact." (Lafferty, supra, 213 Cal.App.4th at p. 563.) However, it appears the total sum is likely less than the amount ($14,324) imposed jointly and severally against both Quantum and Veros in the judgment.
It is also unclear in our record whether all the money was returned to Quantum or made part of the bond Quantum posted after it was reassigned the contract. These contested issues of facts must be resolved by the trial court on remand. --------
As aptly explained in the Lafferty decision, "Although the Holder Rule allows claims against sellers to be asserted against lenders, the Holder Rule does not itself provide a cause of action. More specifically, the [car purchaser] may assert causes of action against [the party assigned the finance agreement] under the Holder Rule only to the extent they have separately arising claims against [the car dealership]. '[P]rivate actions to vindicate rights asserted under the [FTC] may not be maintained.' [Citation.] Thus, the [car purchaser] must "borrow" a cause of action from another statute or common law source to assert a claim against [the party assigned the finance agreement]." (Lafferty, supra, 213 Cal.App.4th at p. 563.) Thus, borrowing the CLRA cause of action gave Duran a fair and equitable way to recover the money she paid to Veros for the worthless car, but the FTC did not intend to make Veros a deep-pocket guarantor for all damages caused by the dealer's wrongdoing.
Consequently, the portion of the judgment stating Veros and Quantum are held jointly and severally liable for both for rescission and restitution damages ($2,856.30) and the payoff of the outstanding loan ($11,467.70) must be reversed. On remand, the trial court must calculate what portion of the awarded damages represents the sum of money Duran paid to Veros. The judgment should thereafter reflect Veros must repay that amount of money and Quantum is solely responsible to pay the rest. V. Special Jury Instruction
Quantum complains the court refused to give the following special instruction: "If you find that Quantum . . . violated the [CLRA], you must find that Quantum . . . is not liable to . . . Duran if you find that, within 30 days after receiving . . . Duran's Notice of Violations of the [CLRA], Quantum . . . gave or offered to give within a reasonable time an appropriate correction, replacement, or other remedy to . . . Duran. [¶] In following this instruction, you must accept that the letter sent by . . . Duran's attorneys dated June 13, 2013, satisfies the requirement that notice be given to Quantum . . . by . . . Duran under the [CLRA]."
We find no error. First, the proposed instruction asks the jury to decide a legal question that must be decided by the trial court. The instruction is essentially a rewording of the CLRA's affirmative defenses to an "action for damages" described in subdivisions (b) and (c) of section 1782. Application of this affirmative defense is not a question for the jury. Quantum apparently forgot it argued and presented case authority holding application of CLRA's affirmative defenses is a discretionary decision made by the trial court. "We believe the determination of appropriateness of a correction offer under the CLRA should be left to the trial court's discretion. Appropriateness involves the kind of global assessment—based on 'the entirety of a case, a case [the trial court] inevitably will be more familiar with than the appellate courts that may subsequently encounter the case in the context of a few briefs, a few minutes of oral argument, and a cold and often limited record' [citation]—that calls for judicial discretion. [Citations.] . . . Accordingly the trial court should use its discretion, basing it on substantial evidence, to determine whether a correction was appropriate, subject, of course, to review for abuse of that discretion." (Benson, supra, 239 Cal.App.4th at p. 1207.) The trial court properly refused to give the proposed jury instruction.
We also reject Quantum's assertion the trial court erroneously denied Quantum's efforts to introduce a jury instruction regarding the "safe harbor defense found in section 1782, subdivision (e)." The CLRA (and in particular subdivision (e) of section 1782), does not provide for a "safe harbor defense." As described earlier, subdivision (e) describes only evidentiary rules on the use of "corrective offers" at trial. Quantum's proposed instruction, as mentioned above, did not refer to subdivision (e) or a safe harbor defense. Rather, it addressed CLRA's affirmative defense defenses to an "action for damages" described in subdivisions (b) and (c) of section 1782. Accordingly, we find there was no instructional error.
DISPOSITION
The judgment is affirmed insofar as it imposes liability on Quantum and Veros. The portion of the judgment determining the amount of damages is also affirmed, however, we must reverse the portion holding Quantum and Veros jointly and severally liable for rescission and restitution damages ($2,856.30). On remand, the trial court must apportion the amount damages due from Veros, as permitted under the FTC Holder Rule. Quantum will be liable for the remaining amount. Duran shall recover her costs on appeal against Appellants.
O'LEARY, P. J. WE CONCUR: ARONSON, J. IKOLA, J.