Moving Party: Defendant International Fidelity Insurance Company (“IFIC”)

Resp. Party: Plaintiff Michelle M. Nichols (“plaintiff”)

Defendant International Fidelity Insurance Company’s demurrer to plaintiff’s complaint is OVERRULED.

BACKGROUND:

Plaintiff commenced this action on 5/27/13 against various defendants for: (1) violation of the Song-Beverly Act; (2) recission for violation of the Automobile Sales Finance Act; (3) violation of the CLRA; (4) violation of Bus. & Prof. Code § 17200; (5) fraudulent misrepresentation; (6) negligent misrepresentation; and (7) violation of Vehicle Code § 11711.

Plaintiff alleges that in September 2012 she leased a vehicle from defendant Century West. (Compl., ¶¶ 12-14.) Despite representations that plaintiff could return the vehicle if it did not fit in her garage, defendants refused to cancel the lease when she tried to return the vehicle. (Id., ¶¶ 13, 15-16.) Plaintiff was able to trade in the vehicle for a new one, and alleges that Century West’s salesman stated she could make monthly payments that were nearly identical to what she had been paying for the first vehicle. (Id., ¶¶ 17-19.) Plaintiff later learned that the payments would be more than $140.00 more per month. (Id., ¶ 20.) Plaintiff alleges that there were discrepancies in the lease documents. (Id., ¶¶ 22-33.) Plaintiff alleges that she was not made aware of a balloon payment, and that Century’s employee assured her not to worry about it. (Id., ¶¶ 34-37.)

At some point after October 2012 the contract was assigned to BMW Financial Services, and BMW Financial Services became liable for all claims against Century West with respect to the vehicle. (Compl., ¶¶ 38-40.) Plaintiff alleges that the vehicle has suffered from a series of defects which have not been corrected despite attempts at repair. (Id., ¶¶ 42-43.) Plaintiff requested a buy-back, but this request was denied. (Id., ¶¶ 44-47.)

ANALYSIS:

Defendant International Fidelity Insurance Company (“IFIC”) demurs to the seventh cause of action in plaintiff’s complaint on the ground that plaintiff fails to statue sufficient facts to support this cause of action.

Plaintiff’s seventh cause of action seeks relief for a violation of Vehicle Code section 11711. Vehicle Code section 11711 provides, in relevant part:

If any person (1) shall suffer any loss or damage by reason of any fraud practiced on him or fraudulent representation made to him by a licensed dealer or one of such dealer’s salesmen acting for the dealer, in his behalf, or within the scope of the employment of such salesman and such person has possession of a written instrument furnished by the licensee, containing stipulated provisions and guarantees which the person believes have been violated by the licensee, . . . then any such person shall have a right of action against such dealer, his salesman, and the surety upon the dealer’s bond, in an amount not to exceed the value of the vehicle purchased from or sold to the dealer.

(Veh. Code, § 11711(a).)

Plaintiff alleges that Century West obtained a surety bond in the amount of $50,000.00 from IFIC and that this bond was in effect at the time of the alleged incident. (Compl., ¶¶ 123-124.) Plaintiff alleges that she is a purchaser and that Century West committed fraud against her. (See id., ¶¶ 12-37, 107-113, 126-127.)

IFIC argues that this claim fails because plaintiff’s claims have not yet been proven and that there is no obligation under the bond until this occurs.

IFIC relies on Rojas v. Platinum Auto Group Inc. (2013) 212 Cal.App.4th 997 to support this argument. This case is inapposite because it did not address the issue of whether a claim for fraud must be fully proven before a purchaser can assert a claim against a surety under section 11711. In a footnote, the court noted that a surety had been named as a respondent in the appeal and that the trial court had sustained the surety’s demurrer after finding that the plaintiff had not stated a valid claim against the principal. (See id. at p. 1000, fn. 3.) The court did not address the merits of the trial court’s decision, however, because the plaintiff had failed to provide a sufficient record and legal argument to support the appeal of the trial court’s ruling. (Ibid.)

Chase v. National Indemnity Co. (1954) 129 Cal.App.2d 853 the other case cited by defendant, is also inapposite because it pertained to an insurance policy for equipment, and not a surety bond under section 11711. The case cited in Chase, Perry v. Magneson (1929) 207 Cal. 167, likewise did not pertain to a surety bond under section 11711, and instead addressed the issue of whether the plaintiff was entitled to recover interest on the judgment against the surety. (See id. at pp. 622-623.)

Plaintiff argues that the surety must be included in the lawsuit against the principal pursuant to Code of Civil Procedure section 996.430. This is also not the law. Section 996.430 provides only that the principal and surety must be joined in an action to enforce a liability on a bond. (Code Civ. Proc., § 996.430(a).) This does not mean that the surety must be joined in any underlying action against the principal. Nothing in this section provides that a claim to enforce the bond against a surety must be included with a claim alleging the underlying fraud for which the surety may be liable.

The case cited by plaintiff, National Technical Systems v. Commercial Contractors Inc. (2001) 89 Cal.App.4th 1000, does not hold that plaintiff was required to join the claims against the surety in an underlying action against a principal. Instead, the court found that a party may only seek summary enforcement of a bond by way of a postjudgment motion pursuant to Code of Civil Procedure section 996.440 where the bond was given in an action or proceeding, and that a stop notice release bond given before an action was not “given in an action or proceeding.” (See id. at pp. 1007-1010.) The court noted that the surety had a right to be joined as a party and to defend the action pursuant to section 996.430, and that a plaintiff may subsequently file a separate action against the surety and principal to recover on the bond. (See id. at pp. 1004-1005, 1007, 1011. See also Milo Equipment Corp. v. Elsinore Valley Mun. Water Dist. (1988) 205 Cal.App.3d 1282, 1288 [“the Bond and Undertaking Law expressly provides that the liability on a bond may be enforced in a separate civil action”].)

Nonetheless, while plaintiff is not required to join the surety, she is not prohibited from doing so either. Further, joining the surety may lead to judicial economy; if the demurrer were granted and plaintiff were to get a judgment against Century West, she would have to file an independent action against IFIC to enforce the surety.

IFIC’s demurrer to the seventh cause of action is OVERRULED. IFIC to answer within 10 days.

Moving Party: Defendant BMW Financial Services N.A., LLC (“BMW FS” or “defendant”)

Resp. Party: Plaintiff Michelle M Nichols (“plaintiff”)

Defendant BMW FS’s motion to strike plaintiff’s requests for punitive damages is GRANTED.

BACKGROUND:

Plaintiff commenced this action on 5/27/13 against various defendants for: (1) violation of the Song-Beverly Act; (2) recission for violation of the Automobile Sales Finance Act; (3) violation of the CLRA; (4) violation of Bus. & Prof. Code § 17200; (5) fraudulent misrepresentation; (6) negligent misrepresentation; and (7) violation of Vehicle Code § 11711.

Plaintiff alleges that in September 2012 she leased a vehicle from defendant Century West. (Compl., ¶¶ 12-14.) Despite representations that plaintiff could return the vehicle if it did not fit in her garage, defendants refused to cancel the lease when she tried to return the vehicle. (Id., ¶¶ 13, 15-16.) Plaintiff was able to trade in the vehicle for a new one, and alleges that Century West’s salesman stated she could make monthly payments that were nearly identical to what she had been paying for the first vehicle. (Id., ¶¶ 17-19.) Plaintiff later learned that the payments would be more than $140.00 more per month. (Id., ¶ 20.) Plaintiff alleges that there were discrepancies in the purchase documents. (Id., ¶¶ 22-33.) Plaintiff alleges that she was not made aware of a balloon payment, and that Century’s employee assured her not to worry about it. (Id., ¶¶ 34-37.)

At some point after October 2012 the contract was assigned to BMW FS, and BMW FS became liable for all claims against Century West with respect to the vehicle. (Compl., ¶¶ 38-40.) Plaintiff alleges that the vehicle has suffered from a series of defects which have not been corrected despite attempts at repair. (Id., ¶¶ 42-43.) Plaintiff requested a buy-back, but this request was denied. (Id., ¶¶ 44-47.)

ANALYSIS:

BMW FS moves to strike plaintiff’s requests for punitive damages against it. Defendant argues that the plain language of the FTC Holder Rule limits plaintiff’s recovery against it only to what she paid under the sales contract. Plaintiff alleges the language of this rule in the complaint:

The Contract for the Vehicle included the following language:
NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF, RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

(Compl., ¶ 39. See also 16 C.F.R. § 433.2.) Plaintiff alleges that BMW FS is the holder of the contract. (Compl., ¶ 38.)

Defendant fails to provide any authority which holds that this language precludes a plaintiff from seeking punitive damages. Defendant cites to the Code of Federal Regulations, but these regulations only provide that a seller must include the above language in the consumer credit contract. (See 16 C.F.R. § 433.2.) Plaintiff, in her opposition, likewise fails to provide authority which holds that plaintiff may seek punitive damages against a creditor for the conduct of the seller where the creditor’s only liability is based on the FTC Holder Rule. Instead, plaintiff’s opposition reiterates that her claims against BMW FS are solely based on the Holder Rule. (See Opp. 4-7, 9. See also Compl., ¶¶ 38-41.)

At least one California case has held that the plain meaning of the FTC Holder Rule “allows the [plaintiffs] to assert all claims against [the holder] they might otherwise have against [the selller],” but that the plaintiffs “may recover no more than what they actually paid toward the . . . contract.” (Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 551.) “Although the Holder Rule allows the same claims against a lender that might be brought against the seller, it does not create any causes of action.” (Ibid.)

The holding that the amount of damages a plaintiff may recover against a creditor, where the creditor’s liability is based only on the Holder Rule, is limited to what the plaintiff actually paid toward the contract suggests that a plaintiff may not seek punitive or other damages. (See also Crews v. Altavista Motors, Inc. (W.D. Va. 1999) 65 F.Supp.338, 391 [“[T]he purpose of the Holder Rule is to provide both a shield and a (small) sword to consumers, thus enabling them with a level of self-protection against creditor claims that they would not otherwise have. The Holder Rule was not designed to act as a weapon to exact statutory and punitive damages against otherwise innocent creditors.”].) Because plaintiff’s only claims against BMW FS are based on the Holder Rule, plaintiff’s claim for damages against BMW FS are limited to what she actually paid toward the contract.

Accordingly, BMW FS’s motion to strike is GRANTED.