Tuesday, April 30, 2013

FYI: Cal App Ct Reverses Denial of Class Cert as to Alleged Violations of NOI Requirements in Rees-Levering Act

The California Court of Appeal, Fourth District, recently concluded in part that the lower court improperly denied class certification based on lack of commonality among class members who received "Notices of Intention" allowing them to reinstate their motor vehicle sale contracts, ruling that the lower court improperly relied on a specific statutory exception to reinstatement under California's Rees-Levering Act.


In so ruling, the Court explained that the lower court should have instead focused on the creditor's failure to give timely notice of the exception in its Notice of Intention, which was required to identify "all the conditions precedent" to reinstatement but which failed to do so. 


A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/D060057.PDF.


Plaintiff ("Consumer") purchased an automobile from a car dealer under a conditional sale contract requiring monthly payments.  As part of the transaction, Consumer filled out a credit application.   Shortly after the sale, the car dealer sold and assigned the contract to defendant financial  institution ("Creditor").   After missing numerous payments, Consumer eventually stopped making any payments on the car and voluntarily surrendered the vehicle to Creditor.


Creditor later sent Consumer a "Notice of Intention to Dispose of Motor Vehicle" ("NOI"), notifying her that it intended to sell the vehicle.  The NOI stated that Consumer had the right either to redeem the vehicle by paying the total outstanding amount due, roughly $19,000, or to reinstate the installment contract and obtain possession of the vehicle.   Specifically referring to the reinstatement right, the NOI stated that Consumer had to pay over $1,000 within 15 days of the notice, or request an extension, and "You must also pay any payment, fees, or charges that comes due within the reinstatement period."   The NOI advised Consumer to contact Creditor for the exact amount she was required to pay.


When Consumer did not redeem the vehicle or reinstate the contract, Creditor sold the vehicle, notifying Consumer of the amount of the sale and the deficiency balance of over $5000, and informing her that "You are required to pay the remaining balance and demand is hereby made upon you to contact [Creditor] by: [date]. . . . If you do not respond to this legal demand as requested, we may be obligated to institute litigation to liquidate this balance, and you may be assessed all cost and fees."  Consumer sent Creditor $25 toward the deficiency balance.  Her credit report subsequently reflected the loan default and voluntary surrender of the vehicle, and that a deficiency of over $3,000 was written off.


Consumer filed a class-action lawsuit against Creditor, alleging among other things that Creditor violated California's Unfair Competition Law ("UCL") by failing to provide disclosures required by California's Rees-Levering Act ("RLA").  Specifically, Consumer alleged that Creditor failed to provide required details in its NOI as to:  (a) the amounts Consumer had to pay to cure the default, including amounts due after the date of the NOI but before the end of the notice period; and  (b) the names and addresses of the third parties that had to be paid in order to reinstate the contract.  Among other things, the complaint sought both a determination that Creditor lost the right to a deficiency as a result of its alleged noncompliance with the RLA and restitution to class members based on invalid deficiency claims. 


Filing a cross-complaint against Consumer for breach of the installment contract, Creditor moved for summary judgment and/or summary adjudication, arguing that Creditor had a valid legal basis under the RLA to have denied her reinstatement right based on supposedly false statements she made on her credit application.  The court denied Creditor's motion based on the existence of triable facts as to whether Consumer's statements on her credit application were truthful. 


Consumer then filed a motion to certify the proposed class, arguing in part that the class met the commonality requirement because Creditor failed to issue NOIs specifically identifying all conditions precedent to reinstatement.   Creditor in turn argued that individual issues predominated because eight different versions of the NOI were sent to the class members, some of which denied class members a reinstatement right, thus raising different legal and factual issues as to Creditor's compliance with the RLA. 


Concluding that individual issues of fact predominated, the lower court ultimately denied class certification, stating that it was unclear whether there were grounds to deny reinstatement as to each individual member under section 2983.3(b)(1) of the RLA.   In so doing, the lower court effectively rejected Consumer's assertion that the different versions of the NOI were all defective in the same way in that they failed to specify the amounts required to pay charges and other fees that came due after the notice period set forth in the NOI. 


As you may recall, a violation of the RLA is actionable under California's UCL as an unfair competitive practice.  See Cal. Bus. & Prof. Code § 17200 et seq. The RLA in turn allows for reinstatement of an automobile sale contract, unless certain exceptions apply, by providing in part:  "[i]f after default by the buyer, the seller or holder repossesses or voluntarily accepts surrender of the motor vehicle, any person liable on the contract shall have a right to reinstate the contract and the seller or holder shall not accelerate the maturity of any part or all of the contract prior to expiration of the right to reinstate, unless the seller or holder reasonably and in good faith determines that any of the following has occurred . . . . The buyer or any other person liable on the contract by omission or commission intentionally provided false or misleading information of material importance on his or her credit application."  Cal. Civ. Code § 2983.3; 2983.3(b)(1).  See also Cal. Civ. Code § 2983.3(b)(2)-(5).


In addition, the RLA sets forth strict deadlines and notice requirements if the seller intends to seek a deficiency.  Specifically, the RLA provides that "[buyers] shall be liable for any deficiency after disposition of the repossessed or surrendered motor vehicle only if the [NOI] is given within 60 days of repossession or surrender and does all of the following: . . .  (2) States either that there is a conditional right to reinstate the contract until the expiration of 15 days from the date of giving the [NOI] and all the conditions precedent thereto or that there is no right of reinstatement and provides a statement of reasons therefor."   Cal. Civ. Code § 2983.2(a)(2). 


As to whether common issues predominated in this case, the Appellate Court noted among other things that, generally, "if the defendant's liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages." The Appellate Court also stressed that its review of the denial of class certification was limited to the specific reasons given by the lower court for its ruling.  See Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1021-22 (2012); Fireside Bank v. Superior Court, 40 Cal. 4th 1069 (2007); Kaldenbach v. Mutual of Omaha Life Ins. Co., 278 Cal.App.4th 830, 843-44 (2009). 


Noting that the proposed class included only individuals who received NOIs allowing reinstatement, the Appellate Court pointed out that the lower court relied on the exception in Section 2983.3(b)(1) in stating that individual issues predominated since it was "unclear whether there were grounds to deny reinstatement as to each individual class member."  In so doing, the Appellate Court concluded that the lower court's denial of class certification was improperly based on the assumption that Creditor could assert the statutory exception related to Consumer's credit application as an affirmative defense to the UCL claim alleged by class members who were in fact given the right to reinstate.  


Reading Section 2983.2 and 2983.3 together, the Appellate Court explained that there was no room for reading additional exceptions into the statutory scheme "to allow a creditor who failed to give timely notice of a statutory exception to the mandatory reinstatement right to later alter its position and retroactively deny reinstatement."  Juarez v. Arcadia Financial, Ltd., 152 Cal.App.4th 889, 899-912 (2007)(holding that the NOI must provide the buyer with all information as to how to cure the default, including all relevant information the creditor has the ability to discern but may not have in its possession).  In so ruling, the Appellate Court rejected Creditor's assertion that a denial of its right to a deficiency would violate its due process rights, explaining that the 60-day limitation on a seller's remedies did not amount to a constitutional violation.


Thus concluding that the lower court's stated reliance on the statutory exception in Section 2983.3(b)(1) was improper in this case, the Appellate Court reversed and remanded.



Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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Email: RWutscher@mwbllp.com


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