If a plaintiff’s lawyer sends you a demand letter, you should immediately send it to your own lawyer for a response. A decision that the Appellate Division of the Los Angeles County Superior Court handed down last month shows why.

Express Auto Sales sold a car to Marco Munoz and his co-buyer. Munoz made a down payment in cash, part of which included two deferred payments that he would make after he took possession of the car. He took possession, and soon became dissatisfied with the car, claiming that the paint was fading, a passenger door wouldn’t open, and the air conditioning malfunctioned.

The alleged problems with the car itself weren’t Express Auto Sales’ only headache. Munoz’s deferred down payments hadn’t been itemized on the Retail Installment Sales Contract (RISC), as the Automotive Sales Finance Act (ASFA) requires. Munoz’s lawyer sent the dealership a letter notifying it that it had failed to properly itemize the deferred down payment in violation of the ASFA, and demanding a remedy for that violation under the Consumers Legal Remedies Act (CLRA) within thirty (30) days. Twelve days later, Express Auto Sales responded, denying the statutory violation and stating that a corrected RISC was enclosed under the ASFA.

Munoz and his lawyer disagreed, and Munoz and his co-buyer promptly sued. Express Auto defended the suit by arguing, in part, that it had timely corrected any problem with the RISC, and the trial court ruled in the dealership’s favor.

But Munoz appealed, and the Appellate Division reversed Express Auto Sales’ trial court victory. The ASFA prescribes the form and format required for every RISC and specifically requires dealers to disclose sale and financing details on the RISC, including itemization of the amount of a buyer’s down payment. If an auto dealer violates the law, the ASFA provides a “safe harbor” provision by allowing various time periods to correct violations, with durations varying for correction depending on whether the violation was willful.

At trial, Judge Elizabeth Feffer found that Express Auto Sales timely corrected the contract under Section 2984 of the ASFA by making corrections within 10 days of receiving notice from Munoz and Orozco’s lawyer. Judge Feffer also found that plaintiffs, in their demand letter, waived any untimeliness by giving the defendants 30 days to correct violations.

Section 2984 provides, in pertinent part:

Any failure to comply with any provision of [ASFA] may be corrected by the holder, provided, however, that a wilful violation may not be corrected unless it is a violation appearing on the face of the contract and is corrected within 30 days of the execution of the contract or within 20 days of its sale, assignment or pledge, whichever is later, provided that the 20-day period shall commence with the initial sale, assignment or pledge of the contract, and provided that any other violation appearing on the face of the contract may be corrected only within such time periods. A correction which will increase the amount of the contract balance or the amount of any installment as such amounts appear on the conditional sale contract shall not be effective unless the buyer concurs in writing to the correction. If notified in writing by the buyer of such a failure to comply with any provision of this chapter, the correction shall be made within 10 days of notice. Where any provision of a conditional sale contract fails to comply with any provision of this chapter, the correction shall be made by mailing or delivering a corrected copy of the contract to the buyer.

The Appellate Division’s Judge Ricciardulli reversed, concluding that willful violations may not be corrected unless the violation is corrected within 30 days of execution or 20 days of sales. A non-willful violation may be corrected at any time, but not later than 10 days of notice in writing from the buyer of a failure to comply with the ASFA. The trial court did not make an express finding that the violation was willful. In the absence of such finding, Judge Ricciardulli concluded that the court could affirm the trial court only if the court could imply a finding of non-willfulness that is supported by substantial evidence. The court determined that no such evidence was presented at trial and reversed the trial court.

The court further found that a 30 day letter is an insufficient basis on which to find a waiver of the 10 day safe harbor, even if it applied, which it did not.

The Plaintiffs, represented by Rosner, Barry & Babbitt, also argued that the dealer was not entitled to correct the RISC under the ASFA because that right belongs only to the holder of the RISC. But the court declined to address that argument because it agreed with the Plaintiffs’ first argument that the trial court improperly found that the dealer timely corrected the RISC.

Until that issue is decided, dealers should assume that ASFA’s Section 2984 safe harbor applies to them and immediately engage their attorney when they are presented with a letter or other communication from a consumer or consumer’s attorney complaining of ASFA violations if they wish to take advantage of Section 2984’s safe harbors.