Court of Appeal (Cal.) Says Post-Repossession “NOI” Letter for Leased Vehicle Violates Vehicle Leasing Act

In Flannery v. VW Credit, Inc., — Cal.Rptr.3d —-, 2014 WL 7174376 (Cal.App. 2014), the Court of Appeal for the 4th Appellate District reversed a trial court’s sustaining of a demurrer without prejudice on a class action filed under California’s Vehicle Leasing Act. The VLA requires a statement be mailed to the debtor after repossession of a leased vehicle that states, ““ ‘You have the right to get a professional appraisal to establish the value of the vehicle for the purpose of figuring how much you owe on the lease. If you want an appraisal, you will have to arrange for it to be completed at least three days before the scheduled sale date of the vehicle. The appraiser has to be an independent person acceptable to the holder of the lease. You will have to pay for the appraiser. The appraised value will be considered final and binding on you and the holder of the lease.’ ” The notice VW sent Flannery did not contain all of the language required by the statute. VW’s notice deleted the phrase “to establish the value of the vehicle for the purpose of figuring how much you owe on the lease.” The Court of Appeal reversed, finding that the VLA was violated because the “substantial compliance” doctrine does not apply.

As we indicated at the outset, we have concluded that the doctrine of substantial compliance does not apply to the appraisal statement vehicle lessors are required to provide to lessees of repossessed vehicles by section 2987, subdivision (d)(2). We rely in the main on the court’s opinion in Rojas v. Platinum Auto Group, Inc. (2013) 212 Cal.App.4th 997 ( Rojas ) as well as the opinions in Malek and Imbler v. PacifiCare of Cal., Inc. (2002) 103 Cal.App.4th 567. ¶ . . . Provisions of the VLA give rise to a very similar statutory interpretation. By its terms section 2987 requires that, in addition to providing a lessee with the verbatim statement prescribed in section 2987, subdivision (d)(2), a repossessing seller must also provide a number of calculations with respect to amounts owed on the lease. (See § 2987, subd. (d)(2)(B).) Under section 2987, subdivision (d)(3), a lessee has no liability to a lessor for any deficiency if the lessor has not complied with the notice requirements of section 2987, subdivision (d), except if noncompliance involves a bona fide error in the calculations required by subdivision (d)(2)(B). A deficiency is enforceable, notwithstanding an erroneous calculation, if the lessee receives or gives notice of the erroneous calculations before the vehicle is sold. (§ 2987, subd. (d)(3)(A)-(D).) Thus, as in Rojas, here the express exception to strict enforcement of one part of the statute gives rise to the inference that the Legislature intended that the remaining requirements of the statute are to be strictly enforced. ( Rojas, supra, 212 Cal.App.4th at p. 1005.) ¶ In addition to the legislative inference that the notice requirements of the VLA, including the specified appraisal statement, are to be strictly enforced, practical jurisprudential considerations counsel against application of substantial compliance here. Our review of the legislative history of the VLA does not disclose any expressed goal in requiring use of the specific language required by the statute. Rather, we can only infer that the Legislature chose language which it believed would effectively convey to lessees their right to an independent appraisal. Plainly, as a consequence of employing prescribed language, the Legislature has relieved all vehicle lessors of the burden and risk of determining what is an appropriate notice to lessees of their appraisal rights. In this context, application of the doctrine of substantial compliance would shift that burden and the risk of interpretative error to us and to any other court confronted with a similar abbreviation of the prescribed statement. We see no need to take on that burden or risk or to create precedent for imposing them on other courts throughout the state. Our unwillingness to do so grows out of the fact that taking steps to assure the required text appears in the required notice is not, in our view, in any manner burdensome. Indeed, requiring strict compliance has the benefit of encouraging all lessors to take due care in assuring that their notices meet the straightforward requirements of the statute. ¶ Moreover, the consequences to lessors of strict enforcement of the VLA are not unfair and provide no undue benefit to lessees. The failure to provide notice simply prevents lessors who have repossessed and sold vehicles from also recovering a deficiency from lessees. (See § 2987, subd. (d)(3).) This is in marked contrast to the equitable considerations that in some measure led the court in Stasher, supra, to employ substantial compliance in applying an earlier and superseded version of Rees–Levering. In Stasher, the seller made a down payment error similar to the one considered in Rojas, but the buyers did not assert the defect for two and a half years, after they had paid almost the entire $4,600 purchase price and after they had driven the car a total of 63,000 miles. The court found that, in these circumstances, permitting rescission and the return of the purchase price would “give plaintiff an undeserved windfall at defendant’s expense and in disregard of the true intent of the Legislature.” ( Stasher, supra, 58 Cal.2d at p. 33.) A lessor’s inability to recover a deficiency following the sale of a repossessed vehicle provides lessee’s with no such undue windfall. ¶ Strict enforcement of the appraisal statement required by the VLA is also consistent with the holdings in Malek and Imbler. In Malek and Imbler, the courts held that arbitration provisions in health care service plans were not enforceable because they did not comply with a statutory requirement that the provisions be prominently displayed “immediately before the signature line.” (See Health & Saf.Code, § 1363.1.) In Malek, the court found that, although “in the appropriate case” substantial compliance with the statute might permit enforcement of an arbitration provision which did not meet all the requirements of the statute, the defendant’s arbitration clause did not, in any event, substantially comply because it did not assure a knowing waiver of the right to a jury trial. ( Malek, supra, 121 Cal.App.4th at pp. 72–73.) The court found that such a knowing waiver was one of the statutory goals of the governing statute. ¶ Most of the other cases that VW relies on in asserting application of the doctrine of substantial compliance involve markedly different statutory requirements with markedly different legislative goals. (See, e.g., Costa v. Superior Court (2006) 37 Cal.4th 986, 1014 [substantial compliance applies to constitutional and statutory provisions related to elections]; Cal–Air Conditioning, Inc. v. Auburn Union School District, supra, 21 Cal.App.4th at p. 662; Downtown Palo Alto Com. for Fair Assessment v. City Council (1986) 180 Cal.App.3d 384 [substantial compliance applies in public work and public contracting setting]; ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 11 [procedures governing objections to undertaking and bonds subject to substantial compliance].) None involve a statutory notice procedure that attempts to protect consumers by requiring that businesses give consumers a prescribed statement. . . . In sum then, contrary to the trial court’s ruling, Flannery has alleged a violation of the VLA and VW’s demurrer should have been overruled.