NELSON v. PEARSON FORD CO.,
Filed 7/15/10
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH
APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
REGINALD NELSON,
Plaintiff
and Appellant
v.
PEARSON FORD CO.,
Defendant
and Appellant.
D054369
(Super. Ct. No. GIC881178)
APPEALS from a judgment and order of
the Superior Court of San Diego
County, John S. Meyer, Judge.
Affirmed in part, reversed in part and remanded with directions.
Rosner, Barry & Babbitt, Hallen
D. Rosner and Christopher P. Barry for Plaintiff and Appellant.
Horvitz & Levy, Lisa Perrochet,
S. Thomas Todd, Bradley Scott Pauley, Tharpe & Howell, Christopher S.
Maile, Soojin Kang, Geller & Stewart and Michael S. Geller for Defendant
and Appellant.
Manning, Leaver, Bruder &
Berberich and Halbert B. Rasmussen for California New Car Dealers Association
as Amicus Curiae on behalf of Defendant and Appellant.
In this case, Pearson Ford Co., an
automobile dealer, backdated a contract it had entered into with Reginald
Nelson, the vehicle buyer. Backdating
the contract rendered inaccurate the disclosed annual percentage rate (APR),
and resulted in Nelson paying interest for a time period that no contract
existed. Pearson Ford also failed to
list in the contract Nelson's purchase of automobile liability insurance, and
erroneously added the insurance premium to the sales price of the vehicle.
Nelson sued Pearson Ford alleging
violations of the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981
et seq.), California's unfair
competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), and the
Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.) (All undesignated statutory references are to
the Civil Code.) The trial court
certified the matter as a class action, with two classes: the backdating class and the insurance class. After a bench
trial, the trial court found Pearson Ford not liable under the ASFA to the
backdating class, but liable under the ASFA to the insurance class. It also found Pearson Ford liable to both
classes under the UCL, but not the CLRA.
The trial court issued certain remedies under the ASFA and the UCL, and
awarded Nelson his attorney fees and costs under the ASFA. Both parties appeal.
Nelson asserts the trial court erred
in finding Pearson Ford not liable to the backdating class under the ASFA, and
not liable under the CLRA. Nelson also
contends the trial court erred in the remedies it awarded under the UCL. On cross-appeal, Pearson Ford asserts it
complied with the ASFA as to both classes, the class representative (Nelson)
lacked standing under the UCL, and the trial court erred in the remedies it
awarded under the ASFA and the UCL.
Pearson Ford also contends the trial court erred in finding the Code of Civil Procedure
section 998 offer it made to Nelson invalid; accordingly, it asserts that the
attorney fee and costs award should be reversed.
We
conclude that the portion of the judgment finding Pearson Ford not liable to
the backdating class under the ASFA and the CLRA must be reversed. We agree with Pearson Ford that the trial
court erred in the remedies it awarded under the ASFA and the UCL, and that the
court erred in issuing a permanent injunction under the UCL as to the insurance
class. We agree with Nelson that the portion of the judgment
returning to Pearson Ford any sums remaining after the payment of all valid
claims must be reversed, and direct the trial court to comply with Code of
Civil Procedure section 384 as to both classes.
We remand the matter to determine, consistent with the views expressed
in this opinion, appropriate statutory remedies for: both classes under the ASFA; the insurance
class under the ASFA and the UCL; and the backdating class under the CLRA. Finally, we agree with the trial court's conclusion regarding
the invalidity of Pearson Ford's Code of Civil Procedure section 998 offer.
FACTUAL AND PROCEDURAL BACKGROUND
Nelson agreed to purchase a used
1998 Infiniti 130 (the car) from Pearson Ford for $9,995. On October 2, 2004, Nelson
submitted a credit application, and Pearson Ford prepared a conditional sale or
retail installment sale contract (the original contract) for Nelson's
signature. (All undesignated dates are
in 2004.) That same day, Nelson signed
the original contract and took possession of the car. Under the original contract, Pearson Ford had
the right to rescind the transaction within 10 days if it could not sell
Nelson's loan to an institutional lender.
At the time of the purchase, Nelson
did not have automobile insurance.
Pearson Ford contacted an insurance broker who came to the dealership to
sell Nelson an insurance policy. Nelson
signed a "Due Bill" stating that he agreed to purchase the insurance
for $250, and that the price of the insurance was "included in the total
price of $10,245.00 as shown on line 1(A) of my contract."
On October 8, Pearson Ford called
Nelson and asked him to return to the dealership to fill out more paperwork,
which Nelson did the same day. Nelson
signed an "Acknowledgment of Rewritten Contract" stating that the
original contract date was October 2, but that "the original
contract . . . has been mutually rescinded and no longer
has any legal effect," and the rewritten contract date was October 8. The Acknowledgment stated that, under the
rewritten contract, the term of the loan, the monthly payment, and the total
finance charges had changed in a certain amount. The Acknowledgment also stated: "I understand I am entitled to a
complete refund of all consideration previously paid by
me . . . " and "I hereby freely and voluntarily
elect to enter into a different contract for the purchase of the
vehicle . . . ."
On October 8, plaintiff signed a
second retail installment sale contract (the second contract) consistent with
the agreed-upon terms listed in the Acknowledgement. The parties backdated the second contract to
October 2, the date they signed the original contract.
The original contract and the second
contract listed the APR as 21 percent.
However, interest started accruing on the second contract on October 2,
six days before the parties signed it.
This made the 21 percent APR listed in the second contract inaccurate. Because the parties signed the second
contract on October 8, this decreased the actual number of days to the first
payment due date from 45 to 39 days, making the correct APR 21.23 percent. The interest for those six days (October 2 to
October 8) was $19.53, and the interest over the 36-month loan period on that
figure was $7.47. Thus, Nelson paid an
additional $27 finance charge. The
second contract disclosed the total finance charge as $2,082.36, which included
the $27, but the $27 was not separately itemized.
Additionally, both contracts
improperly added the $250 insurance premium to the cash price of the car. This mistake caused Nelson to erroneously pay
$30 in additional sales tax and financing charges on the insurance premium.
On March 2, 2007, Nelson filed this class action
alleging that Pearson Ford violated the ASFA, the UCL, and the CLRA as to two
classes of individuals. Class 1 (the
backdating class) consisted of:
"All persons who between March 2, 2003, and March 27, 2008, (1)
purchased a vehicle from Pearson Ford Co. for personal use, and (2) on a later
date executed an Acknowledgment of Rewritten Contract, and (3) signed a
subsequent or second contract for the purchase of the same vehicle, which
contract was dated the date of the original purchase contract and involved
financing at an annual percentage rate greater than 0.00%." Class 1 had about 1,500 members. Class 2 (the insurance class) consisted of: "All persons who between March 2, 2003,
and March 27, 2008, executed a Retail Installment Sale Contract with Pearson
Ford Co. that included in the 'Cash Price of Motor Vehicle' on Line 1.A.1 of
the contract the cost of insurance."
Class 2 had about nine members.
On the first day of trial, the
parties agreed there were no triable issues of material fact. Accordingly, the court indicated it would
revisit previously filed motions for summary judgment or adjudication. The parties then tried this matter to the
court based on certain stipulated documents and facts. The court ultimately concluded that there
were no triable issues of material fact.
The
trial court entered judgment finding no violation of the CLRA. Although it found a "technical
violation" of the ASFA as to the backdating class, it determined that
Pearson Ford substantially complied with the ASFA, and denied any relief to the
backdating class under the ASFA.
Nevertheless, the court found Pearson Ford liable to the backdating
class under the UCL, granted injunctive relief and set restitution in the
amount of $50 per class member. For the
insurance class, the court found that Pearson Ford violated the ASFA and the
UCL by failing to disclose the cost of insurance and adding the insurance cost
to the cash price of the car. It also
enjoined Pearson Ford from adding the price of insurance to the cash price of a
vehicle in the future. Both parties
appealed. The trial court granted
Nelson's motion for attorney fees and costs in the amount of $368,418.50 and
$8,453, respectively. It denied Pearson
Ford's motion for attorney fees and costs.
The trial court later granted Nelson additional attorney fees and costs
in the amount of $21,144.50 and $3,342.60, respectively. Pearson Ford also appeals those orders. We granted the application of the California
New Car Dealers Association to file an amicus curiae brief on behalf of Pearson
Ford.
DISCUSSION
We
address the appeals simultaneously because they present intertwined arguments
regarding liability under the ASFA, the UCL, and the CLRA. We separately discuss the federal Truth in
Lending Act (TILA, 15 U.S.C. § 1601 et seq.) as this legislation serves as
a backdrop for liability under the ASFA.
The parties do not contest the trial
court's conclusion that there were no triable issues of material fact; rather,
they dispute the trial court's application of the various statutes to the
facts. We independently review the
interpretation of the governing statutes, and application of the statutes to
the undisputed facts. (
I.
The
purpose of the TILA is to assure consumers a meaningful disclosure of credit
provisions, enabling the consumer to compare more readily various available
credit terms and to avoid the uninformed use of credit. (Mourning
v. Family Publications Service, Inc. (1973) 411 U.S. 356, 364.) To effectuate its purposes, the TILA
delegated broad regulatory and rulemaking power to the Federal Reserve
Board. (15 U.S.C. §§ 1602(a) & 1604;
see Bone v. Hibernia Bank (9th Cir.
1974) 493 F.2d 135, 138.) Acting under
this authority, the Federal Reserve Board issued Regulation Z. (12 C.F.R. § 226.1 et seq.) Courts have strictly enforced the
requirements of the TILA and those of Regulation Z to promote the TILA's
purpose of protecting consumers. (
Cir. 1995) 65 F.3d 475, 479-480.)
The
TILA requires a lender to disclose, among other things, the amount financed,
the finance charge, and the APR. (15
U.S.C. § 1638.) In turn, Regulation
Z sets out certain guidelines for creditors to follow when disclosing this
information to the consumer. (12 C.F.R.
§§ 226.18 & 226.22.) Regulation
Z defines the APR as "a measure of the cost of credit, expressed as a
yearly rate, that relates the amount and timing of value received by the consumer
to the amount and timing of payments made." (12 C.F.R. § 226.22(a)(1).) As "the single most useful disclosure
mandated by the Act," the APR "is a derived figure, calculated from
(i) the amount of the finance charge, (ii) the amount of credit extended, and
(iii) the term of the extension of credit - the time period between the date
interest starts accruing and the date of the last payment." (Krenisky
v. Rollins Protective Services Co. (2nd Cir. 1984) 728 F.2d 64, 66 (
disclosed APR must be accurate to within 0.125 percent of the properly
calculated APR. (15 U.S.C.
§ 1606(c); 12 C.F.R. § 226.22(a)(2).)
The
time between the date the contract takes effect and the first payment is called
"the first period." (12 C.F.R.
§ 226.17(c)(4).) As the
length of the first period alters the APR:
"If the transaction date and the accrual date do not coincide, the
effective interest rate will be lower than the rate derived from the
transaction date if the accrual date is later, and higher if the accrual date
is earlier. If two creditors claim to be
charging identical annual rates but one commences accruing finance charges
months prior to the date of the transaction, he charges a higher effective
annual rate although the disclosed rates are identical." (Krenisky,
supra, 728 F.2d at p. 66.) When calculating the APR under Regulation Z,
"[t]he term of the transaction begins on the date of its consummation,
except that if the finance charge or any portion of it is earned beginning on a
later date, the term begins on the later date." (12 C.F.R. Pt. 226 App. J(b)(2).) Consummation is defined as "the time
that a consumer becomes contractually obligated on a credit
transaction." (12 C.F.R.
§ 226.2(a)(13).) Several courts
have decided that accrual dates prior to the date of consummation are
prohibited. (Krenisky, supra, 728 F.2d
at p. 67, fn. 3; Rucker v. Sheehy
Alexandria, Inc. (E.D. Va. 2002) 228 F.Supp.2d 711, 717 (
In
Rucker I, a federal district court
addressed a situation factually on all fours with the present action. In that case, the plaintiff had engaged in a
"spot delivery" transaction for a car, whereby she executed a retail
installment sales contract, buyer's order, and bailment agreement on April 3,
and took possession of the car. (
The buyer's order and bailment agreement made clear that the transaction
was a spot delivery, because the sale was contingent upon receiving financing
within five days of the agreement. (
The dealer was able to secure financing only under different terms, and
the plaintiff returned to the dealership on April 13, to sign a second
agreement that incorporated the new terms.
(Id. at pp. 713-714.) The court found that the transaction was
consummated, in accordance with the TILA and Regulation Z, "not when the
consumer [took] possession of the product, but at the 'time that [the] consumer
[became] contractually obligated on a credit transaction'
[citations]." (Id. at p. 716.) Based on the
April 13 consummation date, the court concluded that the APR disclosed in the
April 13 contract was inaccurate because it had been improperly calculated from
April 3, the nominal date of the April 13 agreement. (Id.
at pp. 716-717.) Using the improper
accrual date of April 3 in the April 13 agreement violated the TILA because it
led to a disclosed APR of 24.95 percent, whereas a properly calculated APR,
using an accrual date of April 13, was 25.35 percent. (Id.
at p. 717.) The difference in the APRs
was 0.4 percent, which was outside the 0.125 percent tolerance allowed by the
TILA. (Ibid.)
Although
the Rucker I court noted that this
seemed "to be no more than a minor technical error," it awarded
statutory damages for the improper disclosure of the APR. (Rucker
I, supra, 228 F.Supp.2d at p.
717.) The court stated that: "Even if consumers were aware of the
sensitivity of the APR to changes in interest accrual dates, they would need to
perform complex calculations to gauge the difference between the APR calculated
on the nominal date of a backdated agreement versus the actual date of
consummation. There is no reason for
consumers to bear this burden. The
implementing regulations simplify matters by prohibiting earlier accrual dates
which would result in understated APRs.
This renders the disclosures more comparable and helps to 'assure a
meaningful disclosure' of the APR.
[Citation.]" (
wanted "to recover payment from the consumer for the use of the car prior
to the second agreement, it should explicitly provide for some rent to be paid
for this time period in the original conditional contract." (Id.
at p. 719, fn. omitted.)
The
Rucker I court revisited its opinion
on the automobile dealer's motions to amend the judgment or for relief from
judgment. (Rucker v. Sheehy Alexandria, Inc. (E.D. Va. 2003) 244 F.Supp.2d
618, 620 (Rucker II).) In Rucker
II, the court rejected the automobile dealer's argument that the use of
April 3 in calculating the disclosed APR was proper because the parties agreed
that April 3 was the effective date of the agreement, stating the argument
simply could not "be squared with the requirements of Regulation
Z." (Id. at p. 623.) The court
emphasized that the inaccurately stated APR violated the TILA, not the
backdating of the second contract. (
II.
A. Liability
1. The Statutory Scheme
The
California Legislature enacted the ASFA in 1961 with an operative date of January
1, 1962 to
increase protection for the unsophisticated motor vehicle consumer and provide
additional incentives to dealers to comply with the law. (Stats. 1961, ch. 1626, pp. 3534-3541;
Cal.App.3d 604, 608.) The ASFA serves to
protect motor vehicle purchasers from abusive selling practices and excessive
charges by requiring full disclosure of all items of cost. (Stasher
v. Harger-Haldeman (1962) 58 Cal.2d 23, 29 (Stasher)). Under the
ASFA, every conditional sale contract must contain "in a
single document all of the agreements of the buyer and seller with respect to
the total cost and the terms of payment for the motor vehicle, including any
promissory notes or any other evidences of indebtedness." (§ 2981.9, the single document
rule.) Conditional sale contracts must
also contain all disclosures and notices required under section 2982, in
addition to the disclosures required by Regulation Z. (§ 2982.)
Subdivision (a) of section 2982
requires certain disclosures, which must be labeled "itemization of the
amount financed," including, among other things, the cash price, the total
cash price (which is the sum of other required disclosures), the amount of any
insurance premiums included in the contract, the amount financed, and "[t]he amount of any administrative
finance charge, labeled 'prepaid finance charge.'" (§ 2982, subds. (a)(1)(A), (a)(1)(L),
(a)(3), (a)(7) & (a)(8).) "The
disclosures required by subdivision (a) [of section 2982] may be itemized or
subtotaled to a greater extent than as required by that subdivision and shall
be made together and in the sequence set forth in that subdivision." (§ 2982.)
2. Analysis
a. The Backdating Class
The trial
court found Pearson Ford not liable for a violation of the ASFA, stating that
"although [Pearson Ford's] conduct constituted technical violations of
Civil Code §§ 2981.9 [the single document rule], 2982, 2982(a), and
2982(a)(7), the [Contract] at issue was facially accurate and agreed to by the
parties, and therefore, [Pearson Ford] substantially complied with [the
ASFA]." Nelson contends the trial
court erred when it found that Pearson Ford had substantially complied with the
ASFA, and that Pearson Ford should be found liable to the backdating class
under the ASFA. On cross-appeal, Pearson
Ford asserts it fully complied with the ASFA as a matter of law, but even assuming it did
not, it substantially complied. As we
shall explain, we agree that Pearson Ford violated the disclosure requirements
of subdivision (a) of section 2982, and the single document rule as to both
classes. These violations rendered the
second contract unenforceable under section 2983.
As a threshold matter, Nelson argues
that Pearson Ford's violation of Regulation Z rendered the second contract
unenforceable. While we agree that
Pearson Ford violated Regulation Z, this violation does not render the contract
unenforceable under the ASFA.
"Section 226.22(a) of Regulation
Z provides that the annual percentage rate for other than open end credit
transactions shall be determined in accordance with either the actuarial method
or the United States Rule method."
(12 C.F.R. Pt. 226(a)(1), App. J (2010).) "The term of the transaction begins on
the date of its consummation." (12
C.F.R. Pt. 226(b)(2), App. J (2010).)
"Consummation means the time that a consumer becomes contractually
obligated on a credit transaction."
(12 C.F.R. § 226.2(a)(13); see, Veh. Code, § 5901, subd. (d)
["A sale is deemed completed and consummated when the purchaser of the
vehicle has paid the purchase price, or, in lieu thereof, has signed a purchase
contract or security agreement, and has taken physical possession or delivery
of the vehicle"].)
Thus, Regulation Z requires that the
APR be calculated from the date the consumer becomes obligated, not the date
the consumer makes the down payment and drives the car away. (Rucker
I, supra, 228 F.Supp.2d at p.
717.) Additionally, Regulation Z
mandates that the
disclosed APR be accurate to within 0.125 percent of the properly calculated
APR. (12 C.F.R.
§ 226.22(a)(2).) The first
unlettered paragraph of section 2982 incorporates Regulation Z into the ASFA,
stating: "A conditional sale
contract subject to this chapter shall contain the disclosures required by
Regulation Z, whether or not Regulation Z applies to the transaction."
Here, Pearson Ford used the
actuarial method to improperly calculate the APR from the day Nelson took
possession of the car. Using the
improper consummation date of October 2, the second contract listed the APR as
21 percent, use of the correct consummation date of October 8 results in an APR
of 21.23 percent. The 0.23 difference
exceeded the 0.125 percent tolerance allowed by Regulation Z. (15 U.S.C. § 1606(c); 12 C.F.R.
§ 226.22(a)(2).) Thus, Pearson Ford
failed to comply with Regulation Z.
Pearson Ford's violation of
Regulation Z, however, does not render the second contract unenforceable. The Legislature added a reference to
Regulation Z to section 2982 in 1981 (Stats. 1981, ch. 1075, p. 4125,
§ 14, operative Oct. 1, 1982), to bring the ASFA and several other
statutes, into conformity with federal disclosure requirements. (Historical and Statutory Notes, 9B West's
Ann. Civ. Code (2009 ed.) foll. § 1803.2, p. 200.) The Legislature simultaneously amended
sections 2983 and 2983.1, but failed to specify that a failure to comply with
Regulation Z would also render the contract unenforceable. (Stats. 1981, ch. 1075, pp. 4132-4133
§§ 18, 19, operative Oct. 1, 1982.)
Under section 2983, only violations of section 2981.9, or subdivisions
(a), (j), or (k) of section 2982, make the contract unenforceable. The language of these statutes is clear that
only the violation of specific disclosure
requirements renders the contract unenforceable.
While Nelson questions the wisdom of
requiring compliance with Regulation Z, but not affording a remedy to the
consumer when a dealer fails to comply, we cannot say that the failure to
afford a remedy resulted from a legislative oversight. Rather, it appears that the failure to
provide a remedy for a violation of Regulation Z was deliberate. In any event, as we shall discuss, Pearson
Ford violated section 2981.9 and subdivision (a) of section 2982, which do
provide a remedy.
Nelson argues that Pearson Ford
violated the disclosure requirements of subdivision (a) section 2982 because it
failed to separately itemize the $19.53 in pre-consummation interest in the
second contract, and this violation rendered the second contract
unenforceable. He admits, however, that
pre-consummation interest is not listed as a required disclosure in the
"itemization of the amount financed" set forth in subdivision (a) of
section 2982. Nonetheless, relying on
130 Cal.App.4th 950 (Thompson), he
contends pre-consummation interest is an illegal charge and that Pearson Ford
cannot escape liability because the contract does not contain a separate line
for it to disclose this illegal charge.
We agree.
In Thompson, the trial court found violations of the ASFA, the UCL,
and the CLRA, and issued a permanent injunction against a dealer prohibiting it
from including over-allowances on trade-in vehicles in the cash price of the
vehicles it sold. (Thompson, supra, 130
Cal.App.4th at p. 963.) An
over-allowance is "'the difference in the amount owed and the actual cash
value of a trade-in vehicle.'" (
(2007) 156 Cal.App.4th 359, 362.) The
buyer in Thompson owed more on the
traded-in vehicle than what the vehicle was worth, resulting in negative equity
in the sales transaction. (
of the propriety of the permanent injunction.
(Ibid.) We agreed that the dealer had violated the
ASFA by incorrectly disclosing the cash price of the vehicle, the value of the
traded-in vehicle, and the total down payment as required by subdivisions
(a)(1)(A), (a)(6)(C), and (a)(6)(G) of section 2982, respectively. (Thompson,
supra, at pp. 972, 978-979.)
Significantly, the contract in
required by subdivision (a) of section 2982.
Nonetheless, we concluded that the contract violated the ASFA because
the dealer had manipulated the numbers that the ASFA required it to disclose in
a manner that hid negative equity and deceived the consumer. (Thompson,
supra, 130 Cal.App.4th at pp. 973,
977, & 979, fn. 21.) In doing so, we
rejected the dealer's argument that the contract did not have a line entitled
"over-allowance" on which it could disclose the amount. We concluded that "creating an
over-allowance by artificially inflating the true value of a trade-in vehicle
to eliminate negative equity solely to obtain financing results in an unlawful
credit practice under the ASFA." (
the ASFA protect against "inaccurate
and unfair credit practices." (
italics in original.)
Similarly here, the second contract
contained all the disclosures required by subdivision (a) of section 2982,
including the amount financed.
(§ 2982, subd. (a)(8).)
However, Pearson Ford's act of backdating the second contract resulted
in Nelson paying a finance charge before consummation of the contract. (See Regulation Z; Veh. Code, § 5901,
subd. (d).) Accordingly, the backdating
of the second contract caused Nelson to pay interest on a contract that did not
exist. We consider this pre-consummation
interest to be an illegal finance charge.
consent to the backdating of the second contract does not protect Pearson Ford
because it hid from Nelson the costs associated with backdating the second
contract. While it may have been logical
for Pearson Ford to backdate the contract because Nelson used the car for six
days before consummating the transaction, there were other methods it could use
in the event an original contract is voided due to the failure to obtain
financing. (See, e.g.,
include a rental fee if financing falls through].) Pearson Ford's violation of
subdivision (a) of section 2982 rendered the contract unenforceable under
section 2983.
To avoid this result, Pearson Ford
asserts the trial court properly applied the doctrine of substantial
compliance, citing the trial court's statement that "on its face
everything is disclosed and everything is right on. . . . [T]he problem is that the contract was
backdated." Nelson claims the court
erroneously applied the substantial compliance doctrine because the ASFA is a
mandatory statutory scheme that excuses computation errors and allows the
correction of certain violations.
(§§ 2983 [excusing "accidental or bona fide"
computational errors] & 2984 [allowing for correction of violations
appearing on the face of the contract within certain time periods].)
As described by the California
Supreme Court in 1962, substantial compliance "means actual compliance in respect to the substance essential to every reasonable
objective of the statute. But when there
is such actual compliance as to all matters of substance then mere technical
imperfections of form or variations in mode of expression by the seller, or
such minima as obvious typographical errors, should not be given the stature of
noncompliance and thereby transformed into a windfall for an unscrupulous and
designing buyer." (
Assuming without deciding that the
concept of substantial compliance continues to apply to violations of the ASFA,
we cannot conclude that Pearson Ford substantially complied with the ASFA by
hiding an illegal charge in the second contract. This act did not constitute a technical defect
of form, nor can we say the act complied with reasonable objectives of the
statute, which is to provide protection for the unsophisticated motor vehicle
consumer. (Cerra v. Blackstone, supra,
172 Cal.App.3d at p. 608.)
The single document rule requires
that "all of the agreements of the buyer and seller with respect to the
total cost and the terms of payment for the motor vehicle" be contained in
a single document. (§ 2981.9.) Here, the parties executed two contracts
dated October 2; however, one must review the Acknowledgement to determine the
operative contract and discover that Pearson Ford falsely dated the second
contract. Without the Acknowledgement,
anyone reviewing the original contract and the second contract had no means of
determining: (1) the operative contract;
(2) the date the parties consummated the transaction, and thus, the correct
APR; or (3) that Nelson improperly paid a finance charge when no contract
existed.
Pearson Ford admits that a third
party needed to review the Acknowledgment to discover the inaccuracy in the second
contract, but asserts this is irrelevant because the parties knew they signed
the second contract on October 8, even though they dated it October 2. While it is true the parties agreed to
backdate the second contract, it does not necessarily follow that Nelson knew
the impact the contract date had in determining the APR, or that Pearson Ford
charged him interest for the six days that no contract existed. (Rucker
I, supra, 228 F.Supp.2d at p.
718.) The only way to determine the date the
parties consummated the transaction, the correct APR, and that Nelson
improperly paid a finance charge when no contract existed is to review the
three documents and perform some calculations.
Accordingly, the second contract violated the single document rule
because it did not contain "all of the agreements of the buyer and seller
with respect to the total cost and the terms of payment for the motor
vehicle . . . ."
(§ 2981.9.) Pearson
Ford's violation of the single document rule rendered the contract
unenforceable under section 2983.
We reject Pearson Ford's contention
that the second contract did not violate the single document rule because it
contained all of the agreements with respect to the total cost and terms of
payment. This argument ignores that the
consummation date is the beginning date to incur a finance charge, and an
essential fact in calculating an accurate APR.
As the Rucker I court
noted: "Once the backdated
contract is signed, there is no evidence on the face of the controlling legal
documents that the terms of the deal which the consumer signed actually changed
after [the consumer] took possession of the car. . . . [T]he potential for abuse is obvious in
transactions involving a spot delivery and backdating of a [retail installment
contract]." (
assertion that it complied with the letter and spirit of the single document
rule because the second contract contained all the required information. Unless dealers disclose correct information
the disclosure itself is meaningless and the informational purpose of the ASFA
is not served.
Nelson next argues that Pearson Ford
violated subdivision (j)(2) of section 2982 requiring that, except under
certain circumstances not applicable to the instant transaction, "[t]he
holder of the contract may not charge, collect, or receive a finance charge
that exceeds the disclosed finance
charge . . . ."
Here, however, Pearson Ford disclosed a specific dollar amount as the
finance charge in the contract, and Nelson presented no evidence that Pearson
Ford charged, collected or received a finance charge greater than the dollar amount actually disclosed. Accordingly, Pearson Ford did not violate
subdivision (j)(2) of section 2982.
Finally, Pearson
Ford contends the record does not support the trial court's conclusion that the
second contract violated subdivision (a)(7) of section 2982. We agree.
Subdivision (a)(7) of section 2982 required Pearson Ford to itemize
"[t]he amount of any administrative finance charge[] labeled 'prepaid
finance charge.'" Although the ASFA
does not define a "prepaid finance charge," Regulation Z defines the
term as "any finance charge paid separately in cash or by check before or
at consummation of a transaction, or withheld from the proceeds of the credit
at any time." (12 C.F.R.
§ 226.2(a)(23).) Nelson does not
address this issue in his appellate briefs, impliedly conceding that he did not
separately pay any finance charge by cash or by check before or at consummation
of the transaction, or that Pearson Ford withheld a finance charge from the
proceeds of Nelson's credit. (See, e.g.,
California School Employees Assn. v.
Santee School Dist. (1982) 129 Cal.App.3d 785, 787.)
To be continue as part II……
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