Business Banking Groups File Amicus Brief with California Supreme Court in Case Involving Whether FTC Holder Rule Collection Limit Includes Attorney Fees | Ballard Spahr srl


The American Bankers Association, the American Financial Services Association, the California Financial Services Association and the 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 claimant can recover in proceedings 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 collection to “amounts paid by the debtor” under the contract includes the consumer’s legal fees. Pulliam created a split between the California Appellate Districts, the Court of Appeals for Pulliam finding that the Holder Rule limit does not include attorneys’ fees and the appellate courts of two other districts that rendered decisions reaching the opposite conclusion.

Officially titled “Trade Regulatory Rule Regarding the Preservation of Consumer Claims and Defenses,” the Holder Rule requires sellers who arrange or offer credit to finance the purchase of consumer goods or services to include a “Notice to the holder” specified in the credit agreement. The notice must state that any contract holder is subject to all claims and defenses that the consumer may assert against the seller of the goods or services financed, and that the “recovery [under the contract] must not exceed the amounts paid by the debtor [under the contract]. “

In Pulliam, after purchasing a vehicle under a retail contract with the dealership, the plaintiff sued the dealership and auto finance company to which the dealership assigned the contract. The plaintiff made various claims based on its discovery that the vehicle lacked cruise control and other features featured in the advertisements. The jury ruled in favor of the plaintiff in its allegation of violation of the implied warranty of merchantability under the California Song-Beverly Consumer Warranty Act and, in a judgment rendered jointly and severally against the dealer and the company. auto finance, awarded him approximately $ 22,000 in damages. On post-trial motions, the court awarded the plaintiff almost $ 170,000 in attorney fees.

On appeal, the auto finance company argued that it was not liable for the plaintiff’s attorney fees under the licensee rule. First, the Court of Appeal observed that the dictionary definition of “recovery” “focuses on damages, that is, the return of the money that was withdrawn from the plaintiff, and does not expressly deal with attorney fees ”. Based on its review of the legislative history of the Holder Rule, the court concluded that the Holder Rule’s limit on recovery applied to consequential damages and not legal fees.

In their amicus brief, the trade groups argue in support of the defendant finance company that the Holder Rule’s collection limit caps all monetary collections, including legal fees. They put forward the following main arguments:

  • The ordinary and colloquial meaning of “recovery” includes all money awarded by a judgment, including legal fees.
  • The Supreme Court should ignore the political arguments put forward by the plaintiff and the Court of Appeal, such that full recovery of attorney’s fees is necessary to induce contract holders to settle quickly rather than prolong the litigation and entail high litigation costs for consumers. It is for the FTC, not the court, to decide whether cost recovery will promote settlement. Such policy arguments cannot overcome the plain language of the holder rule.
  • The Supreme Court should defer to the FTC’s conclusion set out in its May 2019 opinion that if a licensee’s liability for attorney fees is based on claims against the seller that are preserved by the notice of the cardholder’s rule, then the amount the consumer can recover, including any recovery based on attorney’s fees, cannot exceed the amount the consumer has paid under the contract. (The notice announced the FTC’s decision to keep the cardholder rule unchanged following a systemic review, and the FTC provided its conclusion in response to comments received as part of the review that sought to determine whether the limitation of the collection rule to “amounts paid by the debtor” prevents consumers from recovering attorneys’ fees above this limit.)
  • California law that would allow a plaintiff who prevails in a cause of action against a Holder Rule defendant to seek attorney fees is preempted as a matter of conflict and hurdle preemption.

The presentation on the case has concluded and the Court has advised counsel that it may set a date for oral argument.

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