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Davis v. Ford Motor Credit Co.

November 19, 2009


APPEAL from a judgment and postjudgment order of the Superior Court of Los Angeles County, Carolyn B. Kuhl, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC361652).

The opinion of the court was delivered by: Klein, P. J.


Plaintiff and appellant Robert Davis (Davis) appeals a judgment of dismissal following the sustaining without leave to amend of a demurrer interposed by defendant and appellant Ford Motor Credit Company LLC (Ford) to Davis's original complaint.

Ford also appeals, seeking review of a postjudgment order denying its motion for attorney fees.

This litigation relates to Ford's billing practices under a retail installment sales contract. Ford's practice is to apply a customer's payment to an earlier missed installment, rather than to the current month's installment. As a result, the current month's installment is unpaid, triggering a new late fee for the current month. Davis's theory is that these successive late fees are prohibited by the Rees-Levering Motor Vehicle Sales and Finance Act (Rees-Levering) (Civ. Code, § 2981 et seq., § 2982, subd. (k)), and are actionable under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.) (hereafter, section 17200) and under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq., § 1770, subd. (a)(14)).

We conclude the alleged conduct of Ford in charging successive late fees for successive late payments does not violate Civil Code section 2982, subdivision (k)'s prohibition on charging more than one late fee per delinquent installment. For example, if an on-time payment received during the month of April is allocated to March because the March payment was missed, the result of allocating said payment to March is that the April payment was missed, so as to trigger a new late fee for the month of April. Under those circumstances, the consumer has not been charged more than one late fee for the missed March payment. Rather, the first late fee is for the payment missed in March, and the second late fee represents the payment missed in April. Because Davis failed to allege a statutory violation under Rees-Levering, he has failed to allege Ford's billing practice is unlawful under the UCL.

We further conclude Davis cannot allege Ford's billing practice is an unfair business practice within the meaning of the UCL. Guided by Camacho v. Automobile Club of Southern California (2006) 142 Cal.App.4th 1394, which clarified the definition of "unfair" within the meaning of the UCL, we hold Davis cannot allege an unfair business practice because the alleged injury is one he reasonably could have avoided. (Id. at pp. 1403, 1406.) Simply stated, Davis could have avoided the imposition of successive late fees for successive months by making his monthly payments timely, or within the 10-day grace period, in accordance with his obligations under the contract.

Although Ford was the prevailing party, it cannot recover its attorney fees pursuant to Rees-Levering's reciprocal attorney fee provision (Civ. Code, § 2983.4) because the alleged Rees-Levering violation was merely a predicate to the UCL claims, and a prevailing defendant cannot recover attorney fees under the UCL.

Therefore, the judgment of dismissal, as well as the postjudgment order denying Ford's motion for attorney fees, are affirmed.


1. The Complaint; Pertinent Allegations

On November 8, 2006, Davis, individually and on behalf of others similarly situated, filed suit against Ford alleging as follows:

In February 2004, Davis entered into a retail installment sales contract with Worthington Ford, Inc. (the dealer) for the purchase of a 2002 Ford Taurus for personal and family purposes.*fn1 The dealer sold and assigned said retail installment sales contract to Ford.

Under the contract, Davis was required to make periodic installment payments in a specific preset amount for the life of the contract. For each installment that was in default for a period of not less than 10 days, Ford was entitled to assess a delinquency charge in an amount not to exceed five percent of the delinquent installment, which amount may be collected only once on any installment, regardless of the period during which it remains in default. (Civ. Code, § 2982, subd. (k).)*fn2

Ford "applied certain of [Davis's] regular on-time installment payments against past due installments to trigger multiple late charges where there was only one late payment, and has engaged and continues to engage in the same practice with respect to the members of the Class."

Based on these allegations, Davis sought to plead the following six causes of action:

(1) Violation of the CLRA, specifically, Civil Code section 1770, subdivision (a)(14), based on Ford's representation that it is entitled to apply on-time monthly installments against prior outstanding installments so as to trigger multiple late payments and multiple late fees, contrary to the letter and spirit of the retail installment sales contracts which permit only one late fee per late installment payment.

(2) Violation of Rees-Levering (Civ. Code, § 2982, subd. (k)), so as to constitute an unlawful business practice under the UCL. (§ 17200.)

(3) Violation of the CLRA (Civ. Code, § 1770, subd. (a)(14)), so as to constitute an unlawful business practice under the UCL.

(4) Unlawful and unfair business practice within the meaning of the UCL, in that: Ford's billing practices cause consumer injury by the assessment of late charges far in excess of the amounts actually expended by Ford to collect its accounts; consumers cannot reasonably avoid the injury which flows from Ford's practice because Ford's interpretation is not apparent on the face of the contracts and consumers cannot shop around in advance to avoid this undisclosed interpretation; there are no countervailing benefits to consumers or competition from Ford's practice; Ford's practice systematically breaches the contracts of plaintiffs and violates the letter and spirit of and has the same effect as a violation of the Federal Trade Commission Act, title 15 United States Code section 45; and Ford's practice violates the letter and spirit and has the same effect as a violation of Rees-Levering, Civil Code section 2982, subdivision (k).

(5) Unfair and deceptive business practices within the meaning of the UCL.

(6) Money had and received and unjust enrichment based on the unwarranted late charges.*fn3

2. Ford's Demurrer

Ford demurred to the complaint in its entirety, asserting no cause of action was stated.

By way of background, the contract stated in pertinent part: "How we will apply payments. We may apply each payment to the earned and unpaid part of the Finance Charge, to the unpaid part of the Amount Financed and to other amounts you owe under this contract in any order we choose." (Italics added.)

Ford argued, inter alia, Rees-Levering did not prohibit its exercise of its contractual right to allocate payments it receives to the oldest outstanding installment and charging a late fee if, as a result, the current installment is not paid timely. "[Civil Code section 2982, subdivision (k)] bans assessment of multiple charges for a single late installment. It does not dictate how a creditor must allocate a payment received when two or more installments are due and unpaid. It does not prohibit [Ford's] practice of attributing payments to the oldest outstanding installment. [¶] Since [Ford] may allocate a payment to the oldest outstanding installment, its imposition of late fees is also in keeping with [the statute]. [Ford] charges only one late fee on any one installment. When multiple installments are due, each new payment is allocated to the oldest installment. If doing so leaves a newer installment unpaid, a late fee is assessed for that installment, but only one fee is assessed for any one installment." Ford emphasized, "[h]ad the Legislature intended to prohibit [Ford's] practice, it could and would have done so expressly, as it did in Civil Code section 2954.4 governing late fees on home mortgage loans. Section 2882(k) contains no similar language."

Ford further contended its practice did not violate the UCL, and that no claim was stated for violation of the CLRA because its representations were truthful, and further, Civil Code section 1770, subdivision (a)(14) was intended to proscribe pre-sale misrepresentations, such as false advertising, not post-sale, post-default exercises of creditors' remedies.

3. Davis's Opposition to the Demurrer

In opposition, Davis asserted, inter alia, "[Ford] is correct that [Civil Code section 2982(k)] does not specify how monthly installment payments may be applied and plaintiff does not, as [Ford] argues, claim that section 2982(k) requires any particular allocation of payments between principal and interest. . . . [Ford] can allocate an on-time April payment against a missing March payment, for example, applying the April payment to the outstanding interest from both the March and April payments and the remainder to unpaid principal under section 2982(k).

What defendant cannot do is then trigger a second late fee, since the only installment missed was March." (Certain italics added.)

4. Trial court's Ruling

On June 26, 2007, the matter was argued and taken under submission. On September 24, 2007, the trial court sustained the demurrer without leave to amend, and set forth its rationale in an extensive written ruling.

In essence, the trial court held: Civil Code section 2982, subdivision (k), permits a penalty to be charged for "each installment in default for a period of not less than 10 days." In the hypothetical pled in the complaint, when the consumer skips the September payment and makes an on time installment payment in October, Ford is entitled to apply the October payment to the September delinquency. As a consequence, the September delinquency is satisfied but the installment due for October is late. Thus, Ford is entitled to impose a late charge for the October installment, which installment is in default. In this situation, the consumer is not being charged more than one delinquency charge on a late installment -- one late fee is charged for ...

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