Spikener v. Ally Financial, Inc.Annotate this Case
Spikener purchased a car under a credit sales contract; the seller did not inform Spikener that the car had been in a major collision. Before Spikener learned about the collision, the contract was assigned to Ally. The Contract complied with the Holder Rule, 16 CFR 433.2, which requires consumer credit contracts to include a 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.” Plaintiff sued Ally under the California Consumers Legal Remedies Act (CLRA).
Ally agreed to rescind the contract and refund the amount Spikener had paid: $3,500. Spikener unsuccessfully sought $13,000 in attorney fees under CLRA’s fee-shifting provision. The court cited “Lafferty,” which held a debtor cannot recover damages and attorney fees for a Holder Rule claim that exceed the amount the debtor paid under the contract. The FTC construes the Holder Rule in the same manner. In response to Lafferty, Civil Code 1459.5, was enacted, providing that the Holder Rule’s limitation on recovery does not apply to attorney fees.
The court of appeal affirmed. The FTC’s construction of the Rule is entitled to deference; to the extent section 1459.5 authorizes recovery of attorney fees on a Holder Rule claim even if that results in a total recovery greater than the amount the plaintiff paid under the contract, it conflicts with, and is preempted by, the Holder Rule.