APPEAL from a judgment of the Superior Court of San Joaquin County, Carter P. Holly, Judge. (Super. Ct. No. CV030892)
The opinion of the court was delivered by: Hoch , J.
CERTIFIED FOR PUBLICATION
This case involves claims by the buyer of an allegedly defective motor home against a lender to whom the installment sale contract was assigned by the dealer. At the heart of the controversy is a question that has divided courts in several jurisdictions: What is the meaning of the contract provision required by title 16, section 433.2, of the Code of Federal Regulations?*fn1 Commonly referred to as the Holder Rule, it is required by the Federal Trade Commission (FTC) for every consumer installment sale contract that is assigned to a lender. The Holder Rule requires the following language in 10-point (or larger) and bold typeface: "NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."
Here, Patrick and Mary Lafferty (the Laffertys) bought a motor home from Geweke Auto & RV Group (Geweke) that was financed with an installment contract. Shortly after the sale, Geweke assigned the contract to Wells Fargo Bank (Wells Fargo) in accordance with the terms of a separate dealer agreement. The Laffertys allege the motor home was defective from the start. After months passed without the demanded repairs being made, the Laffertys disclaimed their ownership interest in the vehicle and sued Geweke. The Laffertys also sued Wells Fargo on the ground the Holder Rule allows them to assert all claims against the lender they otherwise had against the dealer.
The trial court concluded the Holder Rule did not allow the Laffertys to assert claims against a lender that pertained only to the responsibilities of the seller. Finding no other consumer laws supported the Laffertys' claims against Wells Fargo, the trial court entered judgment in favor of Wells Fargo. The trial court also awarded attorney fees to Wells Fargo.
On appeal, the Laffertys contend (1) the Holder Rule allows them to assert any claims against Wells Fargo they might otherwise have against Geweke, (2) their breach of contract action for a defective motor home lies against Wells Fargo both as a party to the contract and as a third party beneficiary of the dealer agreement, (3) federal law does not preempt their causes of action for negligence and negligent defamation of credit, (4) Wells Fargo violated the Consumer Legal Remedies Act (CLRA) (Civ. Code, § 1770 et seq.); the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.); the Tanner Consumer Protection Act (Civ. Code, § 1793.22); and engaged in unfair business practices; and (5) Wells Fargo was not entitled to attorney fees.
We hold that the plain meaning of the Holder Rule allows the Laffertys to assert all claims against Wells Fargo they might otherwise have against Geweke. Under the Holder Rule, however, the Laffertys may recover no more than what they actually paid toward the installment contract. Although the Holder Rule allows the same claims against a lender that might be brought against the seller, it does not create any causes of action. Thus, we examine whether the Laffertys have causes of action against Wells Fargo that arise from other sources. We conclude the Laffertys' operative complaint states causes of action against Wells Fargo under the CLRA and for negligence. However, the Laffertys' claim of negligent defamation of credit is preempted by federal law. As to their cause of action for declaratory and injunctive relief, the Laffertys lack standing to assert the claim.
We find the Laffertys have forfeited their causes of action for breach of warranty, breach of contract, breach of the covenant of good faith and fair dealing, violation of the Song-Beverly Act, violation of the Tanner Consumer Protection Act, and unfair business practices. Since we reverse the judgment, we also reverse the award of attorney fees because Wells Fargo is no longer necessarily the prevailing party in this action.
Purchase of the Motor Home
On November 1, 2005, the Laffertys bought a motor home manufactured by Fleetwood Motor Homes (Fleetwood) from Geweke. Pursuant to the terms of the installment contract, the Laffertys agreed to pay a total of $389,929 for the motor home over the course of 239 months.*fn2 The Laffertys also paid $4,000 to Geweke for a separate extended service contract with Phoenix American Warranty Company, Inc. (Phoenix American).*fn3
Geweke assigned the installment contract to Wells Fargo in accordance with the terms of a dealer agreement entered into between Wells Fargo and Geweke.
Problems With the Motor Home
After taking possession of the motor home, the Laffertys immediately took the vehicle for a seven-day trip. Upon their return, they brought the motor home to Geweke complaining of electrical failures and cosmetic issues. No repairs were performed for more than two weeks. Because the Laffertys had a Thanksgiving trip planned, they took the unrepaired motor home from November 23 through December 1, and then returned the vehicle to Geweke for completion of the original repairs and for resolution of additional electrical and mechanical failures that occurred during the second trip.
On December 23, 2005, Geweke called the Laffertys and informed them they would be required to authorize $1,300 for a "failure analysis" to determine whether some of the problems were caused by operator error. The Laffertys declined to authorize the payment. On January 11, 2006, they wrote to Fleetwood describing the situation, quoting a provision of Fleetwood's "on-line warranty statement," and stating: "The RV is and has been at the dealership for the last 42 days. Due to the nature of the failures, principally electrical in nature the RV is considered an unsafe vehicle and may fall under California Lemon laws." On February 7, 2006, the Laffertys informed Wells Fargo they would stop making payments until the motor home was repaired.
On April 25, 2006, the Laffertys' attorney wrote to Fleetwood explaining, "the Laffertys relinquished their ownership interest" in the motor home, "[t]he finality of the return is not under discussion," and "[t]he remaining question is how much money they will receive in compensation for their unfortunate experience." Without discussing the merits of any potential claims, counsel identified four possible defendants, i.e., Fleetwood, Geweke, Wells Fargo, and Phoenix American. The letter concluded: "It may be that you better than anyone else, can coordinate a resolution among the concerned parties. If so, I invite you to proceed. However, when and if it becomes clear that rapid progress towards resolution is not occurring, I intend to pursue the remedies necessary to conclude the matter favorably."
In June 2006, Geweke informed the Laffertys the motor home was repaired. Apparently, this was not the case. The Laffertys declined to pick up the motor home and stopped making payments. Wells Fargo took possession of the motor home in accordance with the terms of the installment contract, but took no action to collect any amount of money from the Laffertys. Wells Fargo did report to various consumer credit reporting agencies that the Laffertys had defaulted on their agreement to pay for the motor home.
In November 2006, the Laffertys sued Fleetwood, Geweke, Wells Fargo, and Phoenix American, alleging seven causes of action for breach of warranty, breach of contract, breach of the covenant of good faith and fair dealing, violation of the CLRA, violation of the Song-Beverly Act, violation of the Tanner Consumer Protection Act, and negligence. The original complaint was amended twice. The operative second amended complaint added five causes of action for insurance bad faith, unfair business practices, fraud, negligent credit defamation, and declaratory and injunctive relief. Wells Fargo was named as a defendant in all but the insurance bad faith and fraud causes of action.
As against Wells Fargo, the causes of action for breach of warranty, breach of contract, breach of the covenant of good faith and fair dealing, violation of the CLRA, violation of the Song-Beverly Act, violation of the Tanner Consumer Protection Act, and unfair business practices were premised on the fact that Wells Fargo was the assignee of the installment contract entered into between the Laffertys and Geweke. According to the complaint, "the FTC 'Holder Rule' and California state law mak[e] such a holder and/or assignee financer subject to any claims or defenses that might be asserted against the seller and/or manufacturer of the motor home."
With respect to the negligence cause of action, the Laffertys alleged defendants owed a duty "to diligently, competently and timely complete repairs to the motor home in a workmanlike manner, and failed to do so." The Laffertys further alleged they "notified defendants Fleetwood, Geweke and Wells Fargo of their breach of warranty in January 2005 [sic: 2006]. They notified defendants again on April 25, 2006 that they had elected to return the motor home. [Citation.] The defendants and each of them, have refused to accept return of the motor home and to act accordingly in conformity to law." The Laffertys also alleged that Wells Fargo "falsely reported to various credit rating agencies that [they] had defaulted in their obligation, and failed to report that payment of the amounts that Wells Fargo claimed were due, were in fact legitimately disputed in relation to a breach of warranty." This conduct, alleged the Laffertys, violated Wells Fargo's fiduciary relationship with and breached its duty of care to them.
With respect to the negligent credit defamation cause of action, the Laffertys alleged that Wells Fargo "falsely reported to various credit rating agencies that [they] had defaulted in their obligations, failing to report that payment of the amounts which Wells Fargo claimed were due, were in fact legitimately disputed in relation to a breach of warranty." This conduct, alleged the Laffertys, "wrongfully defamed, slandered and libeled [their] credit rating, impairing and harming it to the extent that, subsequent to communication of the erroneous report published by . . . Wells Fargo, [they] have been unable to conduct normal credit related consumer transactions."
Finally, with respect to the declaratory and injunctive relief cause of action, the Laffertys sought a declaration as to whether the dealer agreement entered into between Wells Fargo and Geweke insulated Wells Fargo from liability for "any claims or defenses" the Laffertys could assert against Fleetwood or Geweke under the Holder Rule. The Laffertys also sought a declaration as to whether their "revocation of acceptance of their Fleetwood motor home, and return of possession of it to the defendant dealer Geweke, nullifies any claim to a security interest in the motor home by defendant Wells Fargo under the installment sales contract which it purchased, and that Wells Fargo is consequently required to file a release of any notice of security interest(s) that it may have filed under [Uniform Commercial Code] Article 9 or otherwise." The Laffertys further requested an injunctive order "prohibit[ing] further conduct by any defendant to defame or harm their credit rating through the reporting of false or inaccurate information," and "prohibit[ing] unfair competitive practices as described herein, including the misrepresentation of warranties, the fraudulent sale of warranty and service contracts, and the wrongful refusal to discharge manufacturer's and seller's warranty obligations."
In July 2009, Wells Fargo demurred to the second amended complaint, asserting the Laffertys failed to allege facts sufficient to state causes of action for (1) violation of the CLRA, (2) negligence, (3) negligent credit defamation, and (4) declaratory and injunctive relief. The Laffertys opposed the motion.
On December 1, 2009, the trial court sustained the demurrer without leave to amend. Thereafter, Wells Fargo filed an answer to the six remaining causes of action, generally denying the allegations of the second amended complaint and asserting several affirmative defenses.
Wells Fargo's Summary Adjudication Motion
On June 29, 2010, Wells Fargo filed a motion for summary adjudication of the remaining six causes of action: breach of warranty; breach of contract; breach of the implied covenant of good faith and fair dealing; violation of the Song-Beverly Act; violation of the Tanner Consumer Protection Act; and unfair business practices. Wells Fargo argued summary adjudication was required based on the correct resolution of a "single issue of law" common to each of the remaining causes of action, i.e., Wells Fargo cannot be affirmatively sued for Geweke's alleged misconduct simply because the installment contract was assigned to Wells Fargo. Wells Fargo also objected to the evidence the Laffertys produced to create a factual dispute, pointing out that the Laffertys relied wholly on their own interrogatory responses, which "regurgitate" the allegations in the second amended complaint. Wells Fargo also objected to purported factual statements that were actually "pure argument" with "no evidence whatsoever."
On October 8, 2010, the trial court sustained all of Wells Fargo's evidentiary objections and entered summary judgment in favor of Wells Fargo. With respect to each cause of action, the trial court ruled that because the evidence relied upon by the Laffertys was "in all material respects repetitive of the allegations of their unverified Second Amended Complaint," they were "effectively relying on the allegations of their operative complaint to attempt to create a triable issue of material fact. They cannot do so."
The trial court also agreed with Wells Fargo that the Holder Rule limits claims by buyers against lenders that would otherwise lie only against the seller to cases in which little or no value was received by the buyer. The trial court reasoned: "That Geweke assigned the sales contract to Wells Fargo does not mean . . . that Wells Fargo affirmatively agreed that it would repair the [motor home] when the manufacturer or dealer failed to. The contractual 'Holder' language itself states that the Debtor's recovery shall not exceed amounts paid by the Debtor, which means that any affirmative relief [the Laffertys] have under the contract is limited to no more than what they have already paid on the contract. Further, [the Laffertys] provide no evidence that Wells Fargo affirmatively agreed to assume Geweke's warranty obligations. And such assumption would be contrary to normal commercial practice. [¶] Wells Fargo took a security interest in the [motor home]. [Citations.] Typically, the party who accepts assignment of a contract as collateral security for money loaned does not become a party to the contract or obligate itself to perform the assignor's scope of contractual performance. [Citation.] An assignment for security is not an assignment of 'all rights under the contract' and does not serve to delegate the assignor's obligations to perform to the assignee. [Citation.] 'The mere existence of a security interest . . . does not impose contract or tort liability upon the secured party for the debtor's acts or omissions.' [Citations.]"
The trial court rejected the Laffertys' cause of action for disparagement of their credit on grounds that claims "for credit disparagement are preempted by the federal Fair Credit Reporting Act (15 USC section 1681, et seq.)."
Following summary adjudication in favor of Wells Fargo, trial proceeded against Geweke.*fn4 Geweke did not appear for trial.*fn5 The Laffertys presented their case and received a judgment in the amount of $210,000.
Wells Fargo's Motion for Attorney Fees
On November 16, 2010, Wells Fargo moved for attorney fees under Civil Code section 1717. The Laffertys opposed the motion. The trial court awarded Wells Fargo $45,700 in attorney fees. Thereafter, judgment was ...