Monday, December 22, 2014

FYI: Cal App Ct Holds Doctrine of "Substantial Compliance" Did Not Apply to Specific Disclosure Required Under State Law

The California Court of Appeal, Fourth District, recently reversed the dismissal of an alleged California Vehicle Licensing Act (“CVLA”) violation for supposed failure to give a statutory notice in the exact language prescribed by the Act, holding that the doctrine of substantial compliance does not apply to technical violations of the CVLA.

A copy of this opinion is available at: http://www.courts.ca.gov/opinions/documents/D063937.PDF.

As you may recall, California’s Vehicle Licensing Act (the “VLA”) requires that lessors of vehicles which have been repossessed give the lessees a notice that contains the following statement:

The amount you owe for early termination will be no more than the difference between the Gross Early Termination Amount stated above and (1) the appraised value of the vehicle or (2) if there is no appraisal, either the price received for the vehicle upon disposition or a greater amount established by the lessor or the lease contract. 

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.”  

California Civil Code § 2987(d)(2)(B).

In 2011, Lessor repossessed an automobile from Lessee.  Following the repossession, Lessor sent Lessee a notice that attempted to comply with the requirements of Civil Code section 2987, subdivision (d)(2)(B).  However, Lessor’s notice deleted the phrase “to establish the value of the vehicle for the purpose of figuring how much you owe on the lease.”

Lessee filed a putative class action complaint against Lessor, based on this omission.  Lessee alleged Lessor’s collection or attempts to collect the deficiencies violated the Rosenthal Act and the UCL and had damaged her and other class members.

Lessor demurred to the complaint and argued that its notice substantially complied with the requirements of section 2987, subdivision (d)(2), and, therefore, it was authorized to collect deficiencies from lessees to whom it had sent the notice.  The trial court applied the doctrine of substantial compliance and determined that Lessor was not liable for a violation of the CVLA.  Accordingly, the trial court sustained Lessor’s demurrer and entered an order of dismissal with prejudice.

As you may recall, substantial compliance “means actual compliance in respect to the substance essential to every reasonable objective of the statute.  Where there is compliance as to all matters of substance technical deviations are not to be given the stature of noncompliance.  Substance prevails over form.  When the plaintiff embarks [on a course of substantial compliance], every reasonable objective of [the statute at issue] has been satisfied.” (Cal- Air Conditioning, Inc. v. Auburn Union School Dist. (1993) 21 Cal.App.4th 655, 668.)

The dismissal was entered on January 10, 2013.  On February 26, 2013, at the request of Lessor, the trial court set aside the January 10, 2013 dismissal and entered a judgment of dismissal with costs on February 26, 2013.  On March 19, 2013, Lessor served Lessee with notice of entry of the order setting aside the January 10, 2013 dismissal and entering judgment of dismissal with costs.  On May 15, 2013, Lessee filed a notice of appeal from the February 26, 2013 judgment.

On appeal, Lessor initially argued that Lessee’s notice of appeal was untimely because it was filed more than 60 days after the trial court’s January 10, 2013 order of dismissal.

Generally, a notice of appeal from a judgment must be filed on or before the earliest of: (1) 60 days after the trial court's mailing of the notice of entry of judgment, (2) 60 days after a party's service of the notice of entry of judgment, or (3) 180 days after the entry of judgment.  (Cal. Rules of Court, rule 8.104(a)(1)-(3).)  When a judgment is vacated and then reinstated, the time to appeal the judgment begins to run after reinstatement.  (Lantz v. Vai (1926) 199 Cal. 190, 193; Matera v. McLeod (2006) 145 Cal.App.4th 44, 58.)

The Court of Appeal found that the appeal was timely filed because notice of appeal was filed within sixty days of the February 26, 2013 judgment of dismissal.  The Court of Appeal concluded that the trial court had vacated the January 10, 2013 order of dismissal based upon the plain terms of its ruling:  “It is hereby ordered that: [¶] 1. The Order of Dismissal entered on or about January 9, 2013 be set aside; [¶] 2. A Judgment of Dismissal be entered in its place; [¶] 3. Defendant [Lessor] be awarded costs in the amount of $517.75.”

The Court of Appeal then reversed the trial court’s judgment of dismissal and found that the doctrine of substantial compliance does not apply to the CVLA. 

The Court of Appeal noted that the CVLA only excused noncompliance under certain circumstances.  Specifically, 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.  (Civil Code § 2987(d)(3)(A)-(D).)

The Court of Appeal applied the longstanding statutory interpretation principle “expressio unius exclusius alterius est” (to express one thing is to exclude others).  With respect to the CVLA, the Court of Appeal determined that the express exception to strict enforcement of one part of the CVLA gives rise to the inference that the Legislature intended that the remaining requirements of the CVLA to be strictly enforced.

Thus, the Court of Appeal found that the doctrine of substantial compliance did not apply to the CVLA as a matter of statutory interpretation.

The Court of Appeal also held that practical considerations weighed against applying the doctrine of substantial compliance to the VLA.  The Court reasoned that as a consequence of employing prescribed language, the Legislature 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 California courts confronted with a similar abbreviated notice.  The Court saw no need to take on that burden or risk or to create precedent for imposing them on other courts throughout the state.

The Court of Appeal also held that the consequence to lessors of strict enforcement of the CVLA was not unfair and provided 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 Civil Code § 2987(d)(3).)

The Court of Appeal did not address whether the violation of the CVLA could support liability under either the Rosenthal Act or the Unfair Competition Law. 

However, the Court of Appeal did note that the Rosenthal Act limits the remedies available to consumers.  In particular, section 1788.30 states in pertinent part: "(a) Any debt collector who violates this title with respect to any debtor shall be liable to that debtor only in an individual action, and his liability therein to that debtor shall be in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.”

The Court of Appeal also noted that under the Unfair Competition Law a private plaintiff's remedies are “generally limited to injunctive relief and restitution.”  Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 179; see Bus. & Prof. Code, §§ 17203, 17206.



Eric Tsai
McGinnis Wutscher Beiramee LLP

Emerald Plaza
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San Diego, CA 92101
Direct: (619) 955-6989
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Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon


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