Tuesday, August 30, 2016

FYI: Fla App Ct (4th DCA) Holds Victory Must Be Complete to Obtain Attorney's Fees Under FDUTPA

The District Court of Appeal of Florida, Fourth District, recently held that in order to recover fees for prevailing on a Florida Deceptive and Unfair Trade Practices Act (FDUTPA) claim, a party must prevail not only on the FDUTPA claim but also on all pleaded legal theories such that it obtains a judgment in its favor on the entire case.

 

A copy of the opinion is available at:  Link to Opinion

 

A borrower filed a lawsuit against a lender's counsel, alleging that the lender's counsel's conduct violated FDUTPA and the Florida Consumer Collection Practices Act (FCCPA).  The trial court entered a judgment in favor of the borrower on the FCCPA claim but granted summary judgment in favor of the lender's counsel on the FDUTPA claim. 

 

The trial court's judgment was affirmed on appeal, and both parties moved for appellate attorney's fees.  The borrower was initially awarded appellate attorney's fees under the FCCPA, and the lender's counsel was initially awarded appellate attorney's fees under FDUTPA.

 

The borrower moved for rehearing on the award of appellate attorney's fees to the lender's counsel for prevailing on the FDUTPA claim.

 

As you may recall, § 501.2105, Florida Statutes, governs fee entitlement under FDUTPA.  Section 501.2105(1) provides, in relevant part, that "the prevailing party [in FDUTPA litigation], after judgment in the trial court and exhaustion of all appeals, if any, may receive his or her reasonable attorney's fees and costs from the nonprevailing party."  See § 501.2105(1), Fla. Stats.

 

The Appellate Court began its analysis by noting that the Florida Supreme Court has instructed  that "to recover attorney's fees in a FDUTPA action, a party must prevail in the litigation; meaning that the party must receive a favorable judgment from a trial court with regard to the legal action, including the exhaustion of all appeals."  See Diamond Aircraft Indus., Inc. v. Horowitch, 107 So. 3d 362, 368 (Fla. 2013) (citing Heindel v. Southside Chrysler-Plymouth, Inc., 476 So. 2d 266, 270 (Fla. 1st DCA 1985)). 

 

The Court carefully examined the Heindel approach to awarding FDUTPA attorney's fees, which reads the statute's reference to a "judgment" in "civil litigation" to refer to the entire case containing a FDUTPA claim, such that the "prevailing party" must obtain a favorable judgment in the entire case, not just on the FDUTPA claim, in order to recover FDUPTA attorney's fees.

 

Going further, the Appellate Court analyzed Hendry Tractor Co. v. Fernandez, 432 So. 2d 1315 (Fla. 1983), which the First District Court of Appeal had relied upon in reaching its Heindel decision. 

 

In Hendry Tractor, the plaintiffs had brought alternative counts for negligence and breach of warranty/strict liability.  The jury found the defendants liable for negligence, but not for breach of warranty/strict liability, and awarded damages on the negligence claim.  The trial court had awarded costs to the plaintiffs on the negligence claim but also awarded costs to the defendants under § 57.041, Fla. Stats., for prevailing on the breach of warranty/strict liability claims. 

 

At the time of the Hendry Tractor decision, Section 57.041(1) provided that "the party recovering judgment shall recover all his or her legal costs and charges which shall be included in the judgment."  See § 57.041(1), Fla. Stats. (1979).

 

There, the Florida Supreme Court reversed the award of costs to the Hendry Tractor defendants, holding that the "net judgment was, without doubt, rendered in favor of the plaintiffs," and that plaintiffs were "clearly the parties recovering judgment and should be awarded costs."  See Hendry Tractor, 432 So. 2d at 1316. 

 

Similarly, in rejecting the lender's counsel's argument that it was entitled to prevailing party FUDTPA attorney's fees like the defendant in Diamond Aircraft, the Appellate Court noted that unlike in the instant case, the Diamond Aircraft defendant had ultimately prevailed on all claims, not just the FUDTPA claim, such that the Diamond Aircraft plaintiff had recovered nothing.

 

After completing its review of the relevant case law, the Appellate Court explicitly approved the net judgment rule articulated in Heindel and Hendry Tractor, holding that where a case involves multiple counts directed at the same conduct, "a party must (1) recover judgment on the chapter 501, part II claim, and (2) recover a net judgment in the entire case" in order to recover its attorney's fees under FDUTPA.  See Heindel, 476 So. 2d at 270. 

 

Applying the net judgment rule to the case at hand, the Appellate Court determined that the lender's counsel was not entitled to recover their appellate attorney's fees under FDUTPA, as the lender's counsel had not recovered a net judgment on the entire case, since a judgment had been entered against them under the FCCPA. 

 

Accordingly, the Appellate Court withdrew its previous order granting appellate attorney's fees to the lender's counsel for prevailing on the FUDTPA claim, and entered a new opinion denying appellate attorney's fees to the lender's counsel.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
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Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, August 28, 2016

FYI: 4th Cir Holds Time-Barred Proof of Claim Does Not Violate FDCPA

In a split decision, the U.S. Court of Appeals for the Fourth Circuit recently held that "filing a proof of claim in a Chapter 13 bankruptcy based on a debt that is time-barred does not violate the Fair Debt Collection Practices Act when the statute of limitations does not extinguish the debt."

 

A copy of the opinion is available at:  Link to Opinion

 

This action involved two consolidated adversary proceedings. In both underlying bankruptcies, a debt buyer filed proofs of claim on loans that were beyond Maryland's three-year statute of limitations. The debtors filed adversary proceedings seeking disallowance of the claims as time-barred plus damages, costs, and attorneys' fees under the FDCPA.

 

The debt buyer stipulated that the debts were time-barred and that the claims could be disallowed, but it moved to dismiss the FDCPA claims. The bankruptcy court dismissed the claims on the grounds that filing a proof of claim is not debt collection activity within the meaning of the FDCPA. The debtors then appealed the bankruptcy court's ruling directly to the Fourth Circuit.

 

The Fourth Circuit first determined that the filing of a proof of claim is "debt collection" as defined under the FDCPA, even if there is no direct demand for payment, and even though the bankruptcy court may disallow the claim. The Court disagreed that treating a proof of claim as an attempt to collect a debt would conflict with the automatic stay, explaining that the automatic stay only prohibits debt collection outside of the debtor's bankruptcy proceeding.

 

The Court then examined whether a time-barred debt could be a "claim" under the Bankruptcy Code. The Fourth Circuit noted that the Bankruptcy Code provides a very broad definition of the term "claim," referring to a right of payment recognized under state law.

 

The Fourth Circuit also noted that, in Maryland, the statute of limitations merely bars the remedy and does not operate to extinguish the debt.  In addition, the Maryland statute of limitations can be revived if the debtor sufficiently acknowledges the debt. The Court thus found that Maryland law recognizes a right to payment on time-barred debt, and thus the holder of a time-barred debt may file a proof of claim in bankruptcy.

 

The Court next explained that a debt need not be enforceable in court to be a claim in bankruptcy. Under the Bankruptcy Code, debts that are contingent or unmatured can be claims even though they would not be enforceable in court.

 

Also, the Fourth Circuit noted that, although the Bankruptcy Code provides that time-barred debts are to be disallowed, it does not prohibit the filing of them. The Court noted that the 2012 amendments to the Bankruptcy Code made it easier to determine the timeliness of a proof of claim because creditors are now required to list the last transaction date, the last payment date, and the charge-off date. According to the Court, this provision suggests that the Bankruptcy Code contemplates that untimely claims will be filed, objected to by the trustee, disallowed, and then discharged.

 

The Court explained that, once discharged, the creditor may not engage in any further effort to collect the debt. On the other hand, if a debt is unscheduled and no proof of claim is filed, then that debt is not discharged and the creditor can continue to seek payment.

 

The Fourth Circuit was not convinced by the debtors' argument that overburdened trustees are unable to sufficiently examine and object to each time-barred claim.  The Court also noted that Chapter 13 debtors are rarely required to pay more due to the allowance of additional unsecured claims.  Although other unsecured creditors will receive a smaller share of payments when time-barred claims are included in the plan, the debtor's payments are generally unaffected. As a result, the Court did not agree that imposition of liability under the FDCPA was the best way to address time-barred claims that evade objection.

 

The Fourth Circuit then examined some important differences between collection litigation and the bankruptcy process.

 

First, in bankruptcy a creditor is required to provide specific information, such as the date of last payment, that makes it easier to detect a time-barred proof of claim. Second, the debtor in bankruptcy is protected by a trustee and, in most cases, by counsel. Third, a Chapter 13 debtor voluntarily commences a bankruptcy case, while a defendant in a collection suit is unwillingly sued.

 

The Fourth Circuit concluded that the protections afforded to a debtor in a chapter 13 bankruptcy diminish the concern that a time-barred proof of claim is "unfair" or "misleading" in the way that a collection suit on a time-barred debt might be. The Court further noted that the debtor potentially benefits from having the debt treated within the debtor's bankruptcy case, because the discharge will apply to disallowed claims or to claims included within a completed plan.

           

Finally, the Court explained that treatment of a time-barred proof of claim under the FDCPA should not change regardless of whether the debt is unscheduled, scheduled as disputed, or scheduled as undisputed.

 

The debtors conceded that a creditor would not violate the FDCPA by filing a proof of claim on a debt that is scheduled as undisputed, as the scheduling of a debt as undisputed acts as an invitation to the creditor to participate in the bankruptcy plan. But the debtors argued that creditors who are debt collectors should be subject to liability under the FDCPA for filing proofs of claim on time-barred debts that a debtor scheduled as disputed.

 

The Fourth Circuit disagreed, holding that a disputed debt is more likely to be objected to and disallowed. For time-barred proofs of claims on unscheduled debts, the Court found that FDCPA liability should not attach because of the previously-described interests in discharge and collective treatment of claims.

           

The dissenting opinion cited the United States Court of Appeals for the Eleventh Circuit's opinion in Crawford v. LVNV Funding, LLC and contended that the FDCPA's prohibition on collection suits on time-barred debts should apply equally to proofs of claim on unscheduled debts in bankruptcy. The dissent was not persuaded that the trustees provide adequate protection, noting that a time-barred proof of claim wastes the time of the attentive trustee and takes advantage of the distracted trustee. The dissent also opined that if trustees caught and objected to every time-barred proof of claim then there would be no incentive to purchase stale debts for the purpose of asserting them in Chapter 13 bankruptcies.

 

The dissent took issue with the majority's opinion that debtors benefit from the filing of time-barred proofs of claim when they are discharged, either after being disallowed or after being paid in the debtor's plan with no additional money required from the debtor. While noting that the ideal debtor would remember and list as disputed every time-barred debt, the FDCPA protects the unsophisticated debtor who is unlikely to do so. For time-barred debts that go unaddressed in the bankruptcy and are thus not included in a discharge, the dissent believed that the FDCPA's general restrictions on collection and its imposition of liability for filing a collection suit on a time-barred debt served as adequate protection.

 

The dissent also addressed whether the Bankruptcy Code and the FDCPA are in conflict, a topic that he majority did not need to reach because it found that the FDCPA does not apply to the filing of proofs of claim such as the ones involved in this case. The dissent disagreed with the Second and Ninth Circuits, which have held that the Bankruptcy Code precludes the filing of certain FDCPA claims. Instead, the dissent would, on the facts presented in this case, follow the Third, Seventh, and Eleventh Circuits in finding that the Bankruptcy Code and the FDCPA are compatible. The dissent cited the Eleventh Circuit's recent opinion in Johnson v. Midland Funding LLC, which held that creditors who are debt collectors can comply with both the Bankruptcy Code and the FDCPA by not filing proofs of claim on time-barred debts.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: ND Cal Holds Alleged "Invasion of Privacy" Sufficient for TCPA Standing

The U.S. District Court for the Northern District of California recently held that a mobile phone app designed to send messages to a phone user's contacts did not violate the federal Telephone Consumer Protection Act ("TCPA"), because the phone user selected the message recipients and had to take several affirmative steps for the app to send the unwanted messages.

 

In so ruling, the Court also held that the plaintiff had Article III standing because his TCPA claim did not simply allege a procedural violation, and instead alleged that he suffered concrete harm because the mobile app provider supposedly invaded his privacy

 

A copy of the opinion is available here:  Link to Opinion

 

A phone user received an allegedly unwanted text message with a hyperlink.  The defendant company sent the message to advertise its mobile app.  The phone user alleged he had never been a user of the app nor downloaded the app onto any device.

 

The app allows users to communicate with and see the location of the contacts in their phone.  The app requires users to download it on their phone.  After downloading the app and creating an account, users are asked, "Want to see others on your map?"  Users who click the "Yes" button are asked permission for the company to access their contacts.  Users who allow permission are then brought to a screen to "Add Member[s]," with certain "Recommended" members selected through an algorithm. 

 

Each "Recommended" contact appears with a checkmark next to it.  An "Invite" button showing the number of selected invitations is at the bottom of this screen.  The app does not inform users how or when invitations will be sent.  The app states that it has full control over the content of the text message and when it will send the message, if the app sends it at all.

 

The phone user brought a class action complaint alleging violations of the TCPA and the California unfair competition law.  The mobile application company moved to dismiss both claims. 

 

As a preliminary matter, the District Court determined that the phone user sufficiently alleged that he suffered a concrete injury and consequently had standing to bring the case. 

 

As you may recall, Article III standing requires that a plaintiff "have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). The "injury in fact must be both concrete and particularized." Id. at 1548. The Supreme Court recently made clear that, "Article III standing requires a concrete injury even in the context of a statutory violation," and a plaintiff does not "automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right." Id. at 1549. That is, a plaintiff cannot "allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III." Id.

 

The Court reasoned that the phone user supposedly suffered a necessary concrete injury because he alleged an invasion of privacy.

 

The Court also rejected the defendant's efforts to distinguish two other court rulings allowing TCPA standing on grounds that the alleged conduct in the other cases was more pervasive than here.  The Court explained that "such distinctions go only to the extent of the injury, not whether there was a concrete injury at all."

 

The Court then turned to the merits of the TCPA claim.  The Court noted the established rule that a text message is a "call" under the TCPA.  The relevant TCPA section makes it unlawful to "to make any call… using any automatic telephone dialing system or an artificial or prerecorded voice… to any telephone number assigned to a … cellular telephone service."  47 U.S.C. § 227(b)(1)(A)(iii).  

 

The Court noted that the determination of liability depended on whether the mobile app company "made" the unwanted call or used an "automatic telephone dialing system" as intended by the TCPA.   In making this determination, the Court relied on the Federal Communications Commission's ("FCC") analysis in In the Matter of Rules & Regulations Implementing the Telephone Consumer Protection Act of 1991, 30 F.C.C. Rcd. 7961. 

 

The FCC explained who "makes" a call by distinguishing the practices of two mobile application companies.  According to the FCC, one company "made" a call under the TCPA by designing a mostly automated app that sent invitational texts of its own choosing to every contact in the app user's contact list with little or no input by the phone user. 

 

The other company did not "make" a call under the TCPA because it designed a user-action based app that required the phone user to: 1) tap a button that invites contacts to use the app; 2) determine whether to invite all contacts or individually select contacts; and 3) choose to send the invitational text message by tapping another button. 

 

Put differently, the FCC concluded that the phone user's affirmative steps stripped the user-action based app company from the status of "maker" of the call under the TCPA.  This held true even if the app still controlled the content of the text message.

 

The District Court here followed the FCC's analysis and determined that the defendant mobile application company did not "make" a call because its app required affirmative steps by phone users, namely granting the app access to their contacts, selecting the invitees, and tapping an additional invite button.   It was immaterial, for the purposes of who "makes" a call under the TCPA, whether an app informs the user how invitations will be sent. 

 

The Court stated that the goal of the TCPA is to prevent an invasion of privacy and the person who chooses to send an unwanted invitation is responsible for the invasion regardless of the form of the invitation.  The app's "recommended" invitee feature was not material to the result because the phone user must first take the affirmative step to share contacts with the app and then has the option to deselect "recommended" invitees.  For added measure, the Court noted, the phone user must press the "Invite" button after selecting invitees.

 

As to the California unfair competition law claim, the plaintiff phone user conceded that the California statutory claim required a violation of the TCPA.  Accordingly, the Court summarily dismissed the state claim. 

 

Accordingly, the District Court dismissed the phone user's entire complaint with prejudice.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, August 24, 2016

FYI: 6th Cir Confirms No TILA Right to Cancel for Failure to Disclose Assignment of Loan

The U.S. Court of Appeal for the Sixth Circuit recently confirmed that a mortgagee's alleged failure to notify borrowers of an assignment of the loan does not give rise to a right to cancel under the federal Truth In Lending Act (TILA).

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee initiated a foreclosure action, and the borrowers responded with a "notice of rescission" to the mortgagee and the mortgagee's counsel, alleging that the mortgagee had violated the federal Truth in Lending Act and that mortgagee lacked standing to foreclose.

 

Prior to the foreclosure sale, the borrowers sued the mortgagee and the mortgagee's counsel in state court, reiterating the allegations in their notice of rescission.  The mortgagee removed the case to federal court, where the parties agreed to dismiss the mortgagee's counsel from the lawsuit. 

 

The trial court subsequently granted the mortgagee's motion for summary judgment, from which borrowers appealed.

 

As you may recall, Congress added subsection (g) to 15 U.S.C. § 1641 in the Helping Families Save their Homes Act of 2009.  Pub. L. 111-22, 123 Stat. 1658.  Section 1641(g) provides that "not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned, the new owner or assignee of the debt shall notify the borrower in writing of such transfer."  See 15 U.S.C. § 1641(g). 

 

In reaching its decision, the Sixth Circuit addressed four alleged errors below raised by the borrowers:

 

First, the borrowers alleged that the mortgagee waived its right to remove the case to federal court by filing papers in state court, which included two written objections to borrowers' motions and an answer to the complaint. 

 

Rejecting this argument, the Appellate Court held that the mortgagee's counsel's filings in state court did not constitute a waiver, as waiver of the right to remove "must be clear and unequivocal."  See Regis Assocs. v. Rank Hotels (Mgmt.) Ltd., 894 F.2d 193, 195 (6th Cir. 1990).  Here, the defensive actions taken by the mortgagee's counsel did not constitute a "clear and unequivocal" waiver.  The Sixth Circuit noted that the Federal Rules of Civil Procedure contemplate the filing of an answer prior to the time for filing a removal motion.  See Fed. R. Civ. P. 81(c)(2). 

 

Going further, the Court noted that even if the mortgagee's counsel had waived its right to remove, this waiver would not be binding on the mortgagee, as the "rule of unanimity" requires that each defendant consent to removal.  See 28 U.S.C. Section 1446(b)(2)(A); Loftis v. United Parcel Serv., Inc., 342 F.3d 509, 516 (6th Cir. 2003).

 

Next, the borrowers alleged that they had the right to rescind the loan under TILA due to mortgagee's failure to notify them of the assignment of the deed of trust.  The borrowers asserted that TILA's right of rescission should be applicable to a violation of § 1641(g).

 

Here, the Sixth Circuit held that the notice requirement of § 1641(g) applies only to an assignment of the underlying debt, not to the debt instrument itself, which in this case was the deed of trust. 

 

Section 1641(g) would apply to the transfer of the note, but the Court noted that the note here was transferred in 2006, more than three years before § 1641(g) became law.  At the time of the 2006 note transfer, there was no notice requirement in effect. 

 

Moreover, the Court stated, even if the mortgagee had violated § 1641(g) through its assignment of the deed of trust in 2012, the borrowers still would not be permitted to rescind the loan, but rather would be limited to recovering money damages in an amount between $400 and $4,000 (although more could be recovered upon a showing of actual damages exceeding $4,000 due to the failure to notify).  See 15 U.S.C. § 1640(a)(2)(A)(iv), (e). 

 

In addition, the Court added that although the initial loan agreement in December 2005 constituted a consumer credit transaction subject to § 1635(a) of the Truth in Lending Act, the assignment of the deed of trust from MERS to the mortgagee in 2012 did not constitute a consumer credit transaction, as neither party to the 2012 assignment was a consumer, nor was either party extended credit.  The Sixth Circuit noted that the borrowers were not a party to the 2012 assignment from MERS to the mortgagee, and this assignment did not affect the terms of the borrowers' mortgage loan.

 

Third, the borrowers argued that mortgagee lacked standing because the loan documentation was allegedly inadmissible hearsay evidence. 

 

The Sixth Circuit upheld the mortgagee's standing, holding that mortgagee's loan documentation was not hearsay under the "verbal acts" doctrine, as the relevant documentation, in the form of writings and statements, such as contracts, "affect the legal rights of the parties" and thus are not hearsay.  See Fed. R. Evid. 801(c).  Nor was authentication an issue, the Court held, as the documents were recorded in the public records.  See Fed. R. Evid. 902(1).  The Court held that the endorsements on the note and allonge were sufficient to prove mortgagee's standing. 

 

Finally, the borrowers alleged that the mortgagee forfeited its right to foreclose when it failed to bring a compulsory breach of contract counterclaim in response to the borrowers' Truth in Lending Act complaint. 

 

Here, the Sixth Circuit held that the mortgagee did not forfeit its right to foreclose by failing to bring a counterclaim because foreclosure is not a judicial remedy in Tennessee, and thus there was no reason to bring a counterclaim.  In Tennessee, a trustee may conduct a foreclosure sale without filing any court papers.

 

Accordingly, the trial court's summary judgment ruling in favor of the mortgagee was affirmed on all counts.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, August 21, 2016

FYI: Cal App Ct (2nd Dist) Rejects Claim That Post-Dated Checks Were Undisclosed "Deferred Downpayments"

The Court of Appeal of the State of California, Second District, recently held that the California Rees-Levering Motor Vehicle Sales and Finance Act, Calif. Civil Code, § 2981, et seq. ("Rees-Levering Act") does not require a post-dated check provided at the time of sale to be categorized as a "deferred down payment" on the sales contract.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff purchased a car from the defendant car dealer using three checks as down payment.  Two of the checks were dated the day after the contract was signed, and one check was dated about two weeks later.

 

The car dealer entered the three check down payment on the line of the sales contract describing it as a down payment as opposed to a deferred down payment. The car dealer informally agreed to briefly hold the checks as a favor to the plaintiff. 

 

After several months of owning the car, the plaintiff sought to rescind the contract based on violations of the Rees-Levering Act. The court ruled in favor of the car dealer and auto finance company and the plaintiff appealed.   

 

The plaintiff argued that the car dealer's failed to disclose a deferred down payment in supposed violation of the Rees-Levering Act, as some or all of the checks were agreed to be held until a later date.  See § 2983 (a)(6)(D) and (c).  In addition, the plaintiff argued if the court were to conclude that a held check is different from a deferred down payment, there would be a violation of the Rees-Levering Act because the agreement to hold the checks would supposedly violate the single document rule.  See Section 2981.9.

 

As you may recall, section 2981 of the Rees-Levering Act defines "down payment" as "a payment that the buyer pays or agrees to pay to the seller in the cash or property value or money's worth at or prior to delivery by the seller to the buyer of the motor vehicle described in the conditional sale contract."  See Section 2981. 

 

The term "down payments" also includes "the amount of any portion of the down payment the payment of which is deferred until not later than the due date of the second otherwise scheduled payment, if the amount of the deferred down payment is not subject to a finance charge. The term does not include any administrative finance charge charged, received or collected by the seller as provided in this chapter." (§ 2981, subd. (f).)

 

Section 2982(a)(6)(D) requires disclosure for deferred down payment, and 2982(c) requires that the deferred down payment schedule be disclosed as required under the federal Truth In Lending Act. 

 

Here, the plaintiff's monthly payments were set to begin after the date on the post-dated check.  None of the checks were deferred to a later due date than the second scheduled payment.  Therefore, the Appellate Court held, the held checks fell under the definition of down payment in section 2981(f).  The Court also noted that the plaintiff did not provide any evidence that holding the checks affected any aspects of the purchase transaction -- it did not increase the purchase price, the amount financed, the annual percentage rate, monthly payments, payment schedule or the final payment. 

 

The Court also noted that the plaintiff made her down payment at the time of the purchase and there was nothing left for her to do after that.  Unlike the car buyers in in two other "deferred down payment" cases in which violations of the Rees-Levering Act were found, the here plaintiff did not make her down payments in installments.  See Rojas v. Platinum Auto Group, 212 Cal. App. 4th 997 (2013) and Munoz v. Express Auto Sales, 222 Cal. App. 4th Supp.1 (2014).  

 

The plaintiff also relied on Highway Trailer of Cal. Inc. v. Frankel, 250 Cal. App. 2d 733 (1967), in which the court held that a post-dated check that was not accurately represented in a contract should not listed as cash down payment.  

 

Here, the Appellate Court noted that Highway Trailer of Cal. Inc. relied on an earlier version of the Rees-Levering Act under which deferred payments were not mentioned.  Accordingly, the Appellate Court refused to read Highway Trailer to suggest that a check, as a matter of law, cannot be listed on a contract as a down payment under the Rees-Levering Act. 

 

After reviewing statutory language, legislative history and case law, the Appellate Court here could not find that a post-dated check must be categorized as deferred down payment under the Rees-Levering Act. 

 

The plaintiff also argued that the car dealer violated the single document rule in the Rees-Levering Act section 2981.9.  This provision requires all agreements of the buyer and seller with respect to the terms of the payment be disclosed in the contract. 

 

The plaintiff argued that because the car dealer agreed that one check would be deposited until a later date, and that agreement was not stated in the contract, the contract violated the single document rule.  The Appellate Court disagreed, refusing to rule that an informal agreement to accommodate a customer by not immediately depositing a check constitutes a "term of payment" requiring disclosure under section 2981.9. 

 

Accordingly, the Appellate Court affirmed the trial court's ruling. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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