Court of Appeal (Cal.) Finds Defunct Dealer’s Surety Liable for Plaintiff’s Attorneys’ Fees under CLRA

In a decision that is important to auto finance companies liable under the FTC Holder Rule where the assigning dealer is defunct, the Fifth District Court of Appeal held in Pierce v. Western Sur. Co., — Cal.Rptr.3d —-, 2012 WL 2362579 (Cal.App. 5 Dist.), that an Automobile Dealer Surety Bond also covered the attorneys’ fees incurred by a consumer Plaintiff’s counsel pursuant to consumer protection statutes. The facts were as follows:In September 2008, Pierce purchased a 2005 truck from Autorama for approximately $19,700. In March 2009, Pierce filed the underlying complaint for fraud and deceit, negligence, and violation of several consumer protection statutes against Autorama and Western Surety. Pierce alleged that, at the time of purchase, Autorama failed to disclose that the truck had sustained material prior wreck damage. Pierce further alleged that Autorama charged Pierce substantially more than the advertised price of the truck and misrepresented that it would pay off the balance owed on Pierce’s trade-in vehicle. Pierce also made a claim against Western Surety on the motor vehicle dealer bond. Autorama went out of business shortly after the complaint was filed and Pierce took a default judgment against it. Thereafter, Pierce attempted to settle his claim with Western Surety through multiple offers. However, Western Surety summarily rejected these offers and proceeded with discovery requests.  In June 2010, Western Surety settled the issue of the balance owed on Pierce’s trade-in vehicle with the lender. Pierce then served a Code of Civil Procedure section 998 offer to compromise for $10,000, excluding attorney fees and costs, on Western Surety. Western Surety accepted this offer. On Pierce’s motion, the trial court awarded attorney fees to Pierce in an amount not to exceed the remaining balance on the bond. The court noted that section 11711 does not provide for an award of attorney fees to a consumer who is the victim of a motor vehicle dealer’s fraud. Nevertheless, because the surety’s liability is commensurate with the principal’s and the original sales contract had included an attorney fees clause, the court found that Pierce had the right to recover against Western Surety to the same extent that Pierce could have recovered against the dealer. The court further noted Pierce was entitled to attorney fees as the prevailing party on the causes of action under the Consumer Legal Remedies Act, the Song–Beverly Consumer Warranty Act, and the Automobile Sales Finance Act. The Court of Appeal held that since the Surety’s liability was commensurate with the Dealer’s, and the Dealer could be liable for attorneys’ fees under the CLRA, the Surety could be liable for attorneys’ fees.  The Court of Appeal explained:

The court reasoned that, because the contract between Pierce and Autorama contained an attorney fees provision, Autorama would have been liable for attorney fees if successfully sued by Pierce and therefore Western Surety was also liable for attorney fees. However, there is a critical distinction between the construction contract cases and the situation here. Unlike the construction bonds, the Western Surety bond was not securing the covenants of the contract. Rather, the Western Surety bond was only securing loss due to Autorama’s fraud.  ¶  The liability of a surety on a bond issued in conformity with sections 11710 and 11711 is determined from the express terms of the bond read in light of those statutes. The statutory provisions are incorporated into the bond. Liability must be found within that bond or not at all. ( Schmitt, supra, 230 Cal.App.3d at p. 258, 281 Cal.Rptr. 261; National Technical Systems, supra, 97 Cal.App.4th at p. 426, 118 Cal.Rptr.2d 465.) ¶  Here, the bond provided coverage for any monetary loss incurred by a purchaser, seller, or governmental agency as a result of Autorama’s fraud or fraudulent representations within the meaning of that term as explained in section 11711 not exceeding the sum of $50,000. Under section 11711, any right of action based on such fraud could not exceed the value of the vehicle purchased from or sold to Autorama. . . The trial court further noted that the consumer protection statutes that Pierce sued Autorama under, the Song–Beverly Consumer Warranty Act, the Automobile Sales Finance Act, and the Consumer Legal Remedies Act, each include a mandatory attorney fees provision for a prevailing plaintiff. The court concluded that, because Pierce was clearly the prevailing party under these causes of action, he was entitled to attorney fees against Western Surety as well as Autorama. ¶  Under the Song–Beverly Consumer Warranty Act (Civ.Code, § 1790 et seq.), every retail sale of consumer goods includes an implied warranty by the manufacturer and the retail seller that the goods are merchantable unless sold “ ‘as is’ “ or “ ‘with all faults.’ “ ( Mexia v. Rinker Boat Co., Inc. (2009) 174 Cal.App.4th 1297, 1303, 95 Cal.Rptr.3d 285.) “When there has been a breach of the implied warranty of merchantability, a buyer ‘may bring an action for the recovery of damages and other legal and equitable relief.’ “ ( Mocek v. Alfa Leisure, Inc. (2003) 114 Cal.App.4th 402, 406, 7 Cal.Rptr.3d 546.) However, liability for breach of the implied warranty of merchantability is not equivalent to loss or damage by reason of fraud or fraudulent misrepresentation. Therefore, the Western Surety bond did not provide coverage for violations of this act. ¶  Similarly, the Western Surety bond did not provide coverage for violations of the Automobile Sales Finance Act (Civ.Code, § 2981 et seq.). This act protects motor vehicle purchasers from abusive selling practices and excessive charges by requiring full disclosure of all items of cost. ( Nelson v. Pearson Ford Co. (2010) 186 Cal.App.4th 983, 999–1000, 112 Cal.Rptr.3d 607.) 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.’ “ ( Id. at p. 1000, 112 Cal.Rptr.3d 607.) An action under this act is on the contract for violation of the full disclosure requirements, not for loss based on fraudulent representations.  ¶  However, fraudulent representations are among the prohibited acts set forth in the Consumer Legal Remedies Act (CLRA). (Civ.Code, § 1750 et seq.) The CLRA “ ‘ “established a nonexclusive statutory remedy for ‘unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.’ “ ‘ “ ( Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856, 869, 118 Cal.Rptr.2d 770.) The purposes of the act are “to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.” (Civ.Code, § 1760.) ¶  Any consumer who suffers any damage as a result of the deceptive business practices enumerated in Civil Code section 1770 may bring an action to recover actual damages, injunctive relief, restitution, punitive damages, and any other relief the court deems proper. (Civ .Code, § 1780.) Additionally, attorney fees are to be awarded to a prevailing plaintiff. (Civ.Code, § 1780, subd. (e).) . . .Western Surety asserts that, because most CLRA violations are not also section 11711 violations, Pierce is not entitled to attorney fees. Western Surety argues that there is no indication that section 11711 incorporates the CLRA. ¶  However, in this situation attorney fees are not awarded under section 11711. Rather, the award is under the CLRA. Western Surety’s liability is commensurate with that of the principal, Autorama, limited by the express terms of the bond and any applicable statutes. Autorama’s fraudulent conduct was a violation of the CLRA and also fell within the conduct secured by Western Surety under section 11711. Therefore, as the surety, Western Surety is liable for attorney fees that can be awarded to Pierce as the prevailing plaintiff under the CLRA.  ¶  This conclusion is not inconsistent with section 11711. While section 11711 does not provide for attorney fees, it does not prohibit an award of attorney fees either. Further, contrary to Western Surety’s position, the fact that one effort to amend section 11711 to make attorney fees recoverable was unsuccessful does not indicate a legislative intent to prohibit attorney fees. “[E]ven when the Legislature amends a bill to add a provision, and then deletes that provision in a subsequent version of the bill, this failure to enact the provision is of little assistance in determining the intent of the Legislature.” ( American Financial Services Assn. v. City of Oakland (2005) 34 Cal.4th 1239, 1261–1262, 23 Cal.Rptr.3d 453, 104 P.3d 813.) The Legislature’s failure to provide for attorney fees cannot be interpreted as the intent to prohibit attorney fees under all circumstances. ¶  As noted above, section 11711 limits the amount of damages payable by Western Surety to the value of the vehicle purchased from Autorama. Nevertheless, a prevailing party is also entitled to costs incurred in pursuing the claim. (Code Civ. Proc., § 1032, subd. (b) .) When authorized by contract, statute, or law, attorney fees are allowable as costs. (Code Civ. Proc., § 1033.5, subd. (a)(10).) Here, the attorney fees are authorized by the CLRA. Further, Western Surety’s obligation to pay costs under Code of Civil Procedure section 1032 is based on its status as a litigant, not for breach of the condition of the bond. ( Harris v. Northwestern National Ins. Co. (1992) 6 Cal.App.4th 1061, 1065–1066, 8 Cal.Rptr.2d 234.) Accordingly, the award of attorney fees as an item of costs is not limited by the section 11711 cap on damages. ¶  In sum, section 11711 does not provide for attorney fees. Therefore, attorney fees are not recoverable based on that section. However, a surety that issues a bond pursuant to section 11711 is subject to general surety law. Under Civil Code section 2808, a surety’s liability is commensurate with that of the principal within the express terms of the bond and any applicable statutes. Thus, if the principal would have been liable for attorney fees based on conduct secured by the bond, the surety is liable for such fees.