PEOPLE v.
Filed
7/13/10
CERTIFIED FOR PUBLICATION
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
THE PEOPLE,
Plaintiff and Respondent,
v.
TOMMY ANGEL MESA,
Defendant and Appellant.
D056280
(Super. Ct.
No. RIF137046)
Story continued from part I…..
The trial court also erred in its restitution order. Pearson Ford's unfair practice of adding the
insurance premium to the price of the purchased vehicle resulted in the class
members erroneously paying sales tax on the insurance premiums. At trial, the court heard evidence that the
sales tax charged on the $250 insurance premium increased the cost of Nelson's
car by about $30. The insurance premium
went to the insurance broker, the sales tax went to the state, and the finance
charge on the sales tax went to the lender.
Based on this evidence, the trial court awarded the members of the
insurance class all the money they had paid for their vehicles as of the date
of the judgment. This is not appropriate
restitutionary relief under the UCL as it does not
accomplish the statutory objective of restoring to the victims' sums acquired
through Pearson Ford's unfair practices.
(Korea Supply,
supra, 29 Cal.4th at p. 1149.) Accordingly, to the extent the trial court used the UCL as a
basis to award
the members of the insurance class all the money they had paid for their
vehicles as of the date of the judgment, the judgment is reversed. The matter is remanded to the trial court to
consider an appropriate remedy to the insurance class under the UCL. We express no opinion on what type of
restitution order is appropriate, and leave the matter to the sound discretion
of the trial court.
4. Nelson's Appeal Regarding Distribution of Unpaid Residuals
Code
of Civil Procedure section 384 provides guidelines for courts to use in shaping
class remedies. Subdivision (b) of this
statute declares that unless the defendant is a public entity or public
employee, "prior to the entry of any judgment in a class action . . . the court shall determine
the total amount that will be payable to all class members, if all class
members are paid the amount to which they are entitled pursuant to the
judgment. The court shall also set a
date when the parties shall report to the court the total amount that was
actually paid to the class members.
After the report is received, the court shall amend the judgment to
direct the defendant to pay the sum of the unpaid residue, plus interest on that
sum at the legal rate of interest from the date of entry of the initial
judgment" in any manner the court determines is consistent with the
objectives and purposes of the underlying cause of action.
In
subdivision (a) of Code of Civil Procedure section 384, the Legislature
explains that its intent in enacting the statute was "to ensure that the
unpaid residuals in class action litigation are distributed, to the extent
possible, in a manner designed either to further the purposes of the underlying
causes of action, or to promote justice for all Californians." The principles expressed in Code of Civil
Procedure section 384 apply whenever there are unclaimed funds after a class
action settlement or judgment. (Cundiff
California, Inc. (2008) 167 Cal.App.4th 718, 731 [refund checks not cashed
or undeliverable after judgment ordering distribution on "claims
made" basis].)
Here,
the judgment states: "In the event
that any escrow or other fund(s) are ordered to be established for the
administration of claims, Pearson Ford Co. shall not forfeit any unclaimed
amounts and any and all amounts remaining after the payment of all timely and
valid claims shall be returned to Pearson
Ford Co. . . ."
(Italics added.) Although it is
not clear whether the trial court intended this provision to apply to both
classes, we interpret it that way.
Nelson
challenges this portion of the judgment, claiming that Code of Civil Procedure
section 384 applied and that the trial court erred in creating a reversionary
interest for Pearson Ford in the remainder of the class recovery fund. Pearson Ford agrees that the trial court did
not have the authority to require that unpaid residue from the insurance class
revert to Pearson Ford because recovery to the insurance class was under both
the ASFA and the UCL, and the ASFA has no provision giving the trial court the
discretion to ignore Code of Civil Procedure section 384. It argues, however, that the trial court had
the authority to disregard Code of Civil Procedure section 384 as to the
backdating class because recovery to this class was solely under the UCL. Pearson Ford contends that the court's broad
equitable powers under the UCL allowed the court to treat the backdating class
differently than Code of Civil Procedure section 384 required.
Assuming,
without deciding, that the trial court has the discretion to ignore Code of
Civil Procedure section 384 where class recovery is solely under the UCL, we
reject Pearson Ford's argument based on our conclusion that the trial court
erred when it found Pearson Ford not liable to the backdating class under the
ASFA. (Ante, part II.A.2.a.)
Applying Pearson Ford's argument, since recovery to the backdating class
was under both the ASFA and the UCL the court did not have the discretion to
disregard Code of Civil Procedure section 384 as to the backdating class.
Accordingly,
that portion of the judgment returning to Pearson Ford any sums remaining after
the payment of all valid claims, is reversed.
On remand the trial court is directed to comply with Code of Civil
Procedure section 384 as to both classes.
5. Pearson Ford's Appeal Regarding Injunctive Remedies for Both
Classes
For
the backdating class, the trial court permanently enjoined Pearson Ford from
calculating the APR for purposes of disclosure on a subsequent or second retail
installment sale contract using an accrual date earlier than the
"consummation date," meaning that time that the consumer becomes
contractually obligated on the credit transaction. For the insurance class, the trial court
permanently enjoined Pearson Ford "from adding the price of insurance to
the cash price of the vehicle . . . ." The trial court "required and
ordered" Pearson Ford to "[d]isclose the
cost of insurance included in a Retail Installment Sale Contract" on a
separate line in that section of the contract itemizing the amount financed.
Pearson
Ford challenges the injunctions on the narrow ground that Nelson presented
insufficient evidence for the court to conclude that a reasonable probability
existed that it would repeat its unlawful conduct. We agree with Pearson Ford as to the
insurance class, but conclude sufficient evidence supported the injunction as
to the backdating class.
"An
injunction cannot issue in a vacuum based on the proponents' fears about
something that may happen in the future.
It must be supported by actual evidence that there is a realistic
prospect that the party enjoined intends to engage in the prohibited
activity. [Citations.]" (Korean
represented that Pearson Ford consummated about 12,000 transactions during the
5-year class period. Out of those
transactions, about 300 customers financed their insurance premium. Out of the 300 transactions, 10 customers
(3.33 percent) had the cost of the insurance improperly added to the cash price
of the vehicle. Nelson did not dispute
these representations at trial, or present any evidence showing Pearson Ford
had a policy of adding insurance to the cash price of vehicles. Based on this record, the trial court could
not have reasonably concluded that Pearson Ford had an ongoing practice of
adding insurance to the cash price of vehicles.
Additionally, Nelson did not address Pearson Ford's argument regarding
the propriety of injunctive relief for the insurance class in his respondent's
brief, effectively conceding the issue.
Because substantial evidence does not support the trial court's implied
finding that Pearson Ford's act of adding insurance to the cash price of
vehicles is ongoing or likely to recur, we conclude the trial court abused its
discretion by granting injunctive relief for the insurance class.
In
contrast, Nelson presented evidence that Pearson Ford had a policy of backdating
contracts, and that Pearson Ford purportedly changed its policy, and
discontinued the practice in between the third quarter of 2005 and the fourth
quarter of 2006. Defense counsel
admitted, however, that after Pearson Ford changed its policy of backdating
contracts, its employees backdated 228 contracts, 156 in 2006 and 72 in
2007. Based on this evidence, the trial
court could reasonably conclude that despite Pearson Ford's purported change in
policy, Pearson Ford continued to backdate contracts and improperly collect
pre-consummation interest. Accordingly,
there was sufficient evidence of on-going conduct to support the issuance of a
permanent injunction for the backdating class.
IV.
A. Liability
The
Legislature enacted the CLRA in 1970 to provide individual consumers with a
remedy against merchants employing certain deceptive practices in connection
with the sale of goods or services, noting the difficultly consumers faced
proving a fraud claim. (Assem. Com. on
Judiciary, Questions & Answers re Assem.
Bill No. 292 (1970 Reg. Sess.) May 18, 1970.) The purpose
of the statutory scheme is "to protect consumers against unfair and
deceptive business practices and to provide efficient and economical procedures
to secure such protection." (§ 1760.) The
Legislature intended the CLRA be "liberally construed and applied to
promote its underlying purposes, which are to protect consumers against unfair
and deceptive business practices and to provide efficient and economical
procedures to secure such protection."
(Ibid.) The CLRA sets forth 23 proscribed
"unfair methods of competition and unfair or deceptive acts or practices . . . ." (§ 1770, subd. (a).)
Here,
Nelson alleged that Pearson Ford violated six specific provisions of the
CLRA. The trial court concluded that
Pearson Ford did not violate the CLRA.
Nelson argues the trial court erred when it found Pearson Ford not
liable to either class under the CLRA because Pearson Ford's conduct violated
subdivision (a)(14) of section 1770, which makes it illegal to "[r]epresent[] that a transaction confers or involves rights,
remedies, or obligations which it does not have or involve, or which are
prohibited by law." We reject
Nelson's arguments as to the insurance class, but conclude the court erred as
to the backdating class.
We
start with the language of the statute to determine whether Nelson proved a
violation of subdivision (a)(14) of section 1770. The transaction involved the sale of a
vehicle and insurance for the vehicle.
Accordingly, the question presented is whether Pearson Ford made any
oral or written misrepresentations about any "rights, remedies, or
obligations" included in the sale, that the sale did not have or involve,
or which were prohibited by law. We
note, however, that "although a claim may be stated under the CLRA in
terms constituting fraudulent omissions, to be actionable the omission must be
contrary to a representation actually made by the defendant, or an omission of
a fact the defendant was obliged to disclose." (Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th
824, 835 (Daugherty);
(1975) 52 Cal.App.3d 30, 36 ["It is fundamental that every affirmative
misrepresentation of fact works a concealment of the true fact"].) Under the CLRA, plaintiffs must show actual
reliance on the misrepresentation and harm.
(§ 1780, subd.
(a); Buckland v. Threshold Enterprises,
Ltd. (2007) 155 Cal.App.4th 798, 809-810.)
Nelson
claims the second contract was deceptive because it did not contain his
agreement to purchase insurance.
Accordingly, he asserts the trial court erred when it found Pearson Ford
not liable under the CLRA to the insurance class. We disagree.
The
second contract did not contain any representations regarding insurance;
rather, it erroneously failed to reflect Nelson's agreement to purchase
insurance. This omission, however, did
not violate the CLRA because it was not contrary to a representation actually
made by Pearson Ford. (
transaction, correctly informed Nelson that he had purchased insurance. Additionally, Nelson testified that he knew
he had purchased insurance; thus, he cannot show reliance on the purported
misrepresentation. We reject Nelson's
contention that Pearson Ford's violation of the ASFA for the insurance class
resulted in a violation of the CLRA.
Unlike the UCL that borrows violations of other laws and makes those
unlawful practices actionable under the UCL (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505), the CLRA
prohibits 23 acts sounding in fraud. (§ 1770, subd. (a)(1)-(23).) Accordingly,
Pearson Ford's violation of the ASFA for the insurance class has no bearing on
whether it also violated the CLRA.
As to
the backdating class, Nelson claims the second contract: (1) misrepresented his obligations to pay
finance charges; and (2) included the representation that he was obligated to
pay a finance charge effective October 2, that was prohibited by law. We agree the first act did not violate
subdivision (a)(14) of section 1770, but conclude the
second act did.
Nelson
does not explain how the second contract misrepresented his obligation to pay
finance charges; rather, the second contract accurately stated the finance
changes he would incur based on the disclosed APR. Nelson testified in deposition that he
understood the finance charges.
Moreover, nothing prohibited Pearson Ford from adding finance charges to
the transaction. Nonetheless, Pearson
Ford violated the CLRA because the second contract represented it had a legal
right to collect finance charges effective October 2, an obligation prohibited
by Regulation Z. (Ante, part II.A.2.a.) Nelson
relied on the representation by paying finance charges effective October
2. Accordingly, Pearson Ford violated
subdivision (a)(14) of section 1770 by misrepresenting
an obligation that was prohibited by law.
In
summary, the trial court correctly found Pearson Ford not liable to the
insurance class under the CLRA, but erred when it found Pearson Ford not liable
to the backdating class under the CLRA.
B. The CLRA Remedies
Any
consumer who suffers damage as a result of the use or employment by any person
of a method, act or practice declared to be unlawful by section 1770 may bring
an action against that person to recover actual damages, injunctive relief,
restitution of property, punitive damages, and any other relief the court deems
proper. (§ 1780, subd. (a).) Remedies under the CLRA are not exclusive,
but are in addition to any other procedures or remedies. (§ 1752.) Restitution must be supported by the evidence
and be consistent with the purpose of restoring to the plaintiff the amount
that the defendant wrongfully acquired.
(See Colgan
Tool Group, Inc. (2006) 135 Cal.App.4th 663,
694-700, fn. 22.) The
award of actual damages in a class action must be at least $1,000 (§ 1780,
subd. (a)(1)), and a prevailing plaintiff is entitled
to an award of attorney fees and costs (§ 1780, subd.
(e)).
Based
on our conclusion that Pearson Ford is liable to the backdating class under the
CLRA, this matter must be remanded to the trial court to consider the
appropriate remedy given the evidence presented by the parties. We express no opinion on what type of remedy
is appropriate, and leave the matter to the sound discretion of the trial
court.
V. Validity of Pearson Ford's Code of Civil Procedure Section 998 Offer
After
the trial court certified this matter as a class action, Pearson Ford served a
Code of Civil Procedure section 998 offer on Nelson that read: "In exchange for dismissal of this
action and mutual releases of all claims, subject to approval by the Court, . . . Pearson Ford agrees to pay the
sum of five hundred thousand dollars ($500,000.00); and . . . Pearson
Ford will agree to an injunction to the effect that it will not add insurance
to the cash price of a vehicle . . . and will date any
rewritten contract on the same date it is signed. [¶] This Offer to Compromise is inclusive of
all claims for damages, costs and expenses, attorney fees and interest in this
action and shall serve as full and final satisfaction of all claims for
damages, costs and expenses, attorney fees and interest in this action." The offer was "subject to approval by
the Court."
After
the trial court entered the judgment, both parties moved for an award of
attorney fees and costs. Nelson argued
that he should receive attorney fees because both classes prevailed in their
claims under the ASFA. (§ 2983.4.)
Pearson Ford claimed it was the prevailing party under the ASFA as to
the backdating class. Pearson Ford also
argued that Nelson had failed to obtain a judgment more favorable than its Code
of Civil Procedure section 998 offer thereby requiring Nelson to pay its costs
from the time of the Code of Civil Procedure section 998 offer, and requiring
that Nelson not recover the costs he incurred after the time of the Code of
Civil Procedure section 998 offer. (Code
Civ. Proc., § 998, subd.
(c)(1).) In making this argument,
Pearson Ford estimated Nelson's pre-Code of Civil Procedure section 998 offer
costs at $178,405, and Nelson's total recovery in the action at $222,785.91,
the sum of which ($401,190.91) is less favorable than its Code of Civil Procedure
section 998 offer.
The
trial court concluded that Nelson was the prevailing party for both classes
under the ASFA, and awarded Nelson reasonable attorney fees and costs in the
amounts of $389,563 and $11,795.60, respectively. The trial court also denied Pearson Ford's
request to recover its attorney fees and costs under Code of Civil Procedure
section 998 on the ground the lump-sum Code of Civil Procedure section 998
offer to settle both class claims and Nelson's individual claims was invalid.
Pearson
Ford does not challenge the trial court's conclusion that Nelson was the
prevailing party for both classes under the ASFA, nor does it challenge the
award amount. Instead, it argues that
the trial court erred in finding the Code of Civil Procedure section 998 offer
invalid. It asserts that if any part of
the judgment survives our review, and assuming that the surviving judgment,
excluding Nelson's post-offer attorney fees and costs, does not exceed
$500,000, then the award of attorney fees and costs should be reversed and
remanded for reconsideration to allow the trial court to determine whether the
judgment exceeded Pearson Ford's Code of Civil Procedure section 998 offer.
As a
threshold matter, we concluded that both classes were entitled to a judgment in
their favor under the ASFA, and remanded the matter to the trial court to
determine the appropriate remedy to both classes under the ASFA. (Ante,
part II.) On remand, the surviving
judgment, excluding Nelson's post-offer attorney fees and costs, will likely
exceed $500,000. Accordingly, Pearson
Ford's contention regarding the validity of its Code of Civil Procedure section
998 offer is arguably moot.
Nevertheless, in the event that the judgment on remand does not exceed
$500,000, we address Pearson Ford's argument regarding the validity of its Code
of Civil Procedure section 998 offer on its merits.
We
shall assume, without deciding, the broad issue that valid settlement offers
can be made under Code of Civil Procedure section 998 in a certified class
action. Here, however, we agree with the
trial court that the Code of Civil Procedure section 998 offer was invalid
because it was a lump-sum offer to multiple classes, which are the equivalent
of separate parties.
We
review de novo the trial court's application of Code of Civil Procedure section
998 to the undisputed facts. (Barella
that, in general, a Code of Civil Procedure section 998 offer to multiple plaintiffs
is only valid if it is expressly apportioned between them and not conditioned
on acceptance by all of them. (Meissner
791 (Meissner).) In Meissner, the court observed that a typical problem with
unallocated settlement offers to multiple plaintiffs is the impossibility of
determining whether any one plaintiff received a less favorable result at trial
than he would have received under the offer.
(Meissner, supra,
212 Cal.App.3d at p. 790; cf. Randles v. Lowry (1970)
4 Cal.App.3d 68, 74.) The Meissner court
concluded that an unallocated Code of Civil Procedure section 998 offer to
multiple plaintiffs is void, even though it may be said, by analyzing the
verdict in hindsight, that an individual plaintiff received a less favorable
result than the plaintiff would have, had the plaintiff accepted the
offer. (Meissner,
Similarly
here, where a single class representative refuses a lump-sum Code of Civil
Procedure section 998 offer to two classes, it will be
impossible to determine whether either class received a less favorable result
at trial than it would have received under the offer. We can discern no basis for concluding that
separate classes are different than separate parties, and Pearson Ford has not
explained how the reasoning of Meissner should not apply to separate classes.
Pearson
Ford's reliance on Peterson v. John
Crane, Inc. (2007) 154 Cal.App.4th 498 (Peterson)
and People ex rel.
Lockyer v. Fremont General Corp. (2001) 89
Cal.App.4th 1260 (Fremont) is misplaced. In Peterson,
a widow sued defendant individually, as her deceased husband's
successor-in-interest, and as her deceased husband's legal heir, seeking to
recover for her husband's alleged asbestos-related disease. (Peterson, supra, 154
Cal.App.4th at p. 501.) The
one plaintiff, despite the multiple roles she occupied in the litigation. (Id. at pp. 506-507.)
The Peterson court noted that
the offer did not need to be apportioned because the proposed settlement sum
was zero and proposed a mutual waiver of costs.
(Id. at p.
510, fn. 11.) Additionally, any
finding regarding the liability of the defendant would resolve all claims
regardless of what "hat" the plaintiff wore. Thus, there was no difficultly in determining
which party obtained the more favorable result at trial. In Fremont,
a lump-sum Code of Civil Procedure section 998 offer to a single plaintiff, the
People, suing on behalf of both the government (for civil penalties) and individual
consumers (for restitution) was valid, and any uncertainty about what to do
with the money was not the type of uncertainty that invalidated the Code of
Civil Procedure section 998 offer. (Fremont,
all claims made by the government or the individual consumers. Because Pearson Ford made the offer jointly
without allocation, it is impossible to say that any one class received a less
favorable result than it would have under the offer of compromise.
DISPOSITION
We reverse the
judgment finding Pearson Ford not liable to the backdating class under the ASFA
and the CLRA. We reverse the remedies
awarded to the insurance class under the ASFA and the UCL, and the permanent
injunction issued under the UCL as to the insurance class. We reverse the judgment returning to Pearson Ford any sums
remaining after the payment of all valid claims. In all other aspects, the judgment is
affirmed. The matter is remanded to
determine, consistent with the views expressed in this opinion, appropriate
statutory remedies to: (1) both classes
under the ASFA; (2) the insurance class under the ASFA and the UCL; and (3) the
backdating class under the CLRA. On remand the trial court is
directed to comply with Code of Civil Procedure section 384 as to both
classes. The parties are to bear their
own appeal costs.
McINTYRE, J.
WE CONCUR:
McCONNELL, P. J.
O'ROURKE,
J.
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