The American Bankers Association, American Financial Services Association, California Financial Services Association, and Consumer Bankers Association have filed a joint amicus brief with the California Supreme Court in Pulliam v. HNL Automotive Inc., a case with significant implications for the amount of money a plaintiff can recover when proceeding against a dealer/seller under the FTC Holder Rule.

The question before the Supreme Court is whether the Holder Rule’s limit on a consumer’s recovery to the “amounts paid by the debtor” under the contract includes the consumer’s attorney’s fees.  Pulliam created a split among California’s appellate districts, with the Court of Appeal in Pulliam having concluded that the Holder Rule’s limit does not include attorney’s fee and Courts of Appeal in two other districts having issued decisions reaching the opposite conclusion.

Officially titled the “Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses,” the Holder Rule requires sellers that arrange for or offer credit to finance the purchase of consumer goods or services to include a specified “holder notice” in the credit contract.  The notice must state that any holder of the contract is subject to all claims and defenses the consumer could assert against the seller of the financed goods or services, and that the consumer’s “recovery [under the contract] shall not exceed amounts paid by the debtor [under the contract].”

In Pulliam, after purchasing a vehicle pursuant to a retail installment contract with the dealer, the plaintiff filed a lawsuit against the dealer and auto finance company to which the dealer had assigned the contract.  The plaintiff asserted various claims based on her discovery that the vehicle did  not have cruise control and other features shown in advertisements.  The jury found for the plaintiff on her claim of violation of the implied warranty of merchantability under California’s Song-Beverly Consumer Warranty Act and, in a judgment entered jointly and severally against the dealer and auto finance company, awarded her approximately $22,000 in damages.  On post-trial motions, the court awarded the plaintiff nearly $170,000 in attorney’s fees.

On appeal, the auto finance company argued that it was not liable for the plaintiff’s attorney’s fees under the Holder Rule.  As an initial matter, the Court of Appeal observed that the dictionary definition of “recovery” “focuses on damages, i.e. restoring money that was taken away from the plaintiff, and does not expressly address attorney’s fees.”  Based on its review of the Holder Rule’s legislative history, the court concluded that the Holder Rule’s limit on recovery applied to consequential damages and not attorney’s fees.

In their amicus brief, the trade groups argue in support of the defendant finance company that the Holder Rule’s recovery limit caps all monetary recovery, including attorney’s fees.  They make the following principal arguments:

  • The ordinary, common meaning of “recovery” encompasses all monetary sums awarded by a judgment, including any attorney’s fee award.
  • The Supreme Court should disregard policy arguments made by the plaintiff and Court of Appeal, such as that full recovery of attorney’s fees is needed to incentivize contract holders to settle early rather than prolong litigation and cause consumers to incur high litigation costs.  It is for the FTC, not the Court, to decide whether fee recovery will promote settlement.  Such policy arguments cannot overcome the Holder Rule’s plain language.
  • The Supreme Court should defer to the FTC’s conclusion set forth in its May 2019 notice that that if a holder’s liability for attorney’s fees is based on claims against the seller that are preserved by the Holder Rule Notice, then the amount the consumer can recover—including any recovery based on attorney’s fees—cannot exceed the amount the consumer paid under the contract.  (The notice announced the FTC’s decision to retain the Holder Rule without modification following a systemic review and the FTC provided its conclusion in response to comments received in connection with the review that addressed whether the Rule’s limitation on recovery to “amounts paid by the debtor” precludes consumers from recovering attorney’s fees above that cap.)
  • The California statute that would allow a plaintiff who prevails on a cause of action against a defendant pursuant to the Holder Rule to seek attorney’s fees is preempted as a matter of conflict and obstacle preemption.

Briefing in the case has been completed and the Court has advised counsel that it may set a date for oral argument.