California courts continue to impose strict restrictions on CLRA correction offers

2019 cases affecting auto dealers: Part 3

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Valdez v. Seidner-Miller, Inc. (2019) 33 Cal.App.5th 600.

Many California automobile dealers will recall the Court of Appeal’s holding in the 2015 case Benson v. Southern California Auto Sales, Inc. (2015) 239 Cal.App.4th 1198, wherein the court concluded that attorneys’ fees and costs are not awardable to a plaintiff after a dealership offers an appropriate and timely correction in response to a Consumer Legal Remedies Act (“CLRA”) demand. Since then, California courts have continued to identify situations they deem are distinguishable from Benson, chipping away at the dealer-friendly holding in Benson.

Most recently, in Valdez v. Seidner-Miller, Inc., the Court of Appeal further limited Benson by holding that an offer made in response to a CLRA demand must be limited to remedying only the CLRA claim and does not bar remedies under any other claim arising from the same allegations of wrongdoing, effectively neutering Benson. In Valdez, the dealership timely responded to a pre-litigation CLRA demand by offering to rescind the sales contract, provide restitution for the down payment and monthly payments remitted, pay off the outstanding loan balance, and pay the requested attorneys’ fees and costs. The dealership’s proposed settlement agreement required Plaintiff to return the subject vehicle in the same condition it was delivered at the time of sale, normal wear and tear excepted, and also contained a release of all known and unknown claims along with a covenant not to sue. The parties were ultimately unable to agree on the terms of a settlement agreement and Valdez filed suit against the dealership for violations of the CLRA, Civil Code section 1632, and the Unfair Competition Law (“UCL”), in addition to a cause of action for fraud.

The dealership then filed a motion for summary judgment relying upon the Benson decision. The trial court granted the dealership’s motion, finding that the dealership provided Plaintiff with a timely and appropriate offer to correct the alleged CLRA violation. The trial court also dismissed Plaintiff’s other causes of action, ruling that they were “inextricably intertwined” with Plaintiff’s CLRA claim.

On Plaintiff’s appeal, the primary issues were whether the dealership’s correction offer was timely and appropriate under the CLRA, and whether such a correction offer barred a lawsuit by Plaintiff for violations of Civil Code section 1632, the UCL, and for fraud, based on the same facts as the CLRA claim. The Court of Appeal reversed the trial court, holding that an “appropriate correction” offer made pursuant to the CLRA cannot include limitations on a consumer’s right to sue under other legal theories and cannot require that the subject vehicle pass a subjective inspection by the dealership at the time of surrender. The court further explained that an “appropriate correction” offer under the CLRA would only bar a claim for damages under the CLRA; such an offer does not prevent a consumer from pursuing other remedies based upon alleged violations of other statutes and regulations. According to the Court, the remedies provided under the CLRA are not exclusive and shall be in addition to any other procedures or remedies provided by any other statues or regulations. The Court opined, “[the dealership] could have made an appropriate correction offer had it offered simply to refund Valdez’s down payment and monthly payments, pay off the outstanding loan balance, and pay attorney’s fees and costs. Although Valdez would have still been able to pursue his other claims, nothing would have prevented [the dealership] from attempting to negotiate a separate settlement of those claims.” Valdez, 33 Cal.App.5th at 616.

In the wake of Valdez, if a dealership chooses to respond to a pre-litigation CLRA demand with an offer to repurchase the vehicle, the dealership may still face the uncertainty of a lawsuit for injunctive relief, civil penalties, and/or punitive damages. If your dealership was recently served with a CLRA demand letter, you should consult your attorney to evaluate that demand, determine whether other legal theories may survive a CLRA settlement, and to develop strategies for responding to the demand and for the dealership’s defense in the matter.

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