Apportionment Was Not Necessary Due To Intertwined Claims, Multiplier Was Appropriate Given Plaintiff’s Counsel’s Contingency Risk, And – Contrary To Lafferty And Spikener – 2/5 DCA Determined That The Holder Rule Does Not Limit The Attorney Fees A Plaintiff May Recover From A Creditor-Assignee.
For a great discussion on the Holder Rule cap and its applicability to attorney fees, we commend Pulliam v. HNL Automotive Inc. et al., Case No. B293435 (2d Dist., Div. 5 January 29, 2021) (published) to our readers.
In Pulliam, a Song-Beverly Act (California’s lemon law) plaintiff was awarded $169,602 in attorney fees, consisting of a $141,335 lodestar plus a .2 multiplier, after prevailing at jury trial and being awarded $21,957.25 in damages against dealership and the finance company that accepted assignment of the retail installment sales contract for her purchase of a “Certified Pre-Owned” 2015 Nissan Altima.
Defendants appealed – arguing: (1) plaintiff’s counsel failed to provide evidence of their hourly rates, (2) the trial court erred in refusing to apportion attorney’s fees between plaintiff’s successful and unsuccessful causes of action, (3) the trial court erred in applying a lodestar multiplier because the lawsuit was not exceptionally difficult and plaintiff’s counsel was not exceptionally skilled, and (4) finance company was not liable for attorney’s fees under title 16, section 433.2 of the Code of Federal Regulations (2020) (the Holder Rule) because its liability could not exceed the amount plaintiff paid to it.
The 2/5 DCA, in a 3-0 opinion authored by Justice Rubin, affirmed – finding no abuse of discretion, and concluding the Holder Rule does not limit the attorney fees a plaintiff may recover from a creditor-assignee. First, plaintiff’s counsel attached a declaration – which included a copy of the firm’s invoice identifying the timekeepers, the work performed, and the timekeepers’ hourly rates – to plaintiff’s fee motion. Additionally, plaintiff’s counsel’s declaration described the firm’s rates and the qualifications of each timekeeper, along with a national survey of prevailing rates among consumer protection attorneys – including California attorneys. Second, the record supported the trial court’s view that apportionment of the fees was not possible because the successful and unsuccessful claims involved a common core of facts and intertwined theories. Third, the panel found the multiplier was modest and accounted for the risk plaintiff’s counsel took in litigating the case against defendants whom the court found made the case challenging and protracted.
Finally, as to the Holder Rule – promulgated by the Federal Trade Commission in 1975 as a consumer protection measure to abrogate the holder in due course rule for consumer installment sales contracts funded by a commercial lender – the panel found its cap does not apply to attorney fees. The final sentence of the Holder Rule states that recovery by the debtor shall not exceed the amounts paid by the debtor under the installment sales contract. Finance company asserted that this cap limited plaintiff’s recovery of both damages and attorney fees from it to the amount she paid under the installment contract – relying on Lafferty v. Wells Fargo Bank, N.A., 25 Cal.App.5th 398 (2018) [discussed in our July 20, 2018 post] and Spikener v. Ally Financial, Inc., 50 Cal.App.5th 151 (2020) [discussed in our June 11, 2020 post]. However, as the panel pointed out, many opinions on this issue have been contradictory, and it concluded that to include attorney’s fees in the Holder Rule’s limitation on recovery would be out of sync with its objective of reallocating the costs of the seller’s misconduct from the consumer back to the seller and creditor. Additionally, the California Legislature had taken a similar view in enacting Civil Code § 1459.5 – intending to repeal Lafferty and allow recovery of fees in excess of the Holder Rule’s cap. As to financial company’s argument that, as held in Spikener, the FTC’s Rule Confirmation (holding fees are included in the cap) is entitled to deference and preempts § 1459.5, the panel disagreed – finding the FTC’s Confirmation did not meet the four-marker test set forth in Kisor v. Wilkie, 139 S. Ct. 2400 (2019) for determining when regulatory deference is appropriate. “[I]n considering deference, ‘a court must make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight. [Citations.]’” (Id. at p. 2416.)
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