Court of Appeal hands a victory to dealers who timely make reasonable offers to settle CLRA demands

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In Benson v. Southern California Auto Sales, Inc., Case No. G050484, the Court of Appeal held a car dealer’s offer of rescission, $2,500 in attorney’s fees and a requirement that plaintiff release all other claims was “appropriate” and sufficient to cutoff a plaintiff’s ability to recover damages or attorney’s fees. (The court indicated this ruling would not necessarily apply to a claim seeking injunctive relief.) In this brave new post-Benson world not only can car dealers insist with confidence that a plaintiff release all claims as part of the settlement of a CLRA demand but can point to this written legal opinion quantifying $2,500 as reasonable amount for attorney’s fees incurred in pursuing a CLRA claim. This quantification of reasonable attorney’s fees should provide especially welcome relief from the previously plaintiff favorable climate where plaintiff’s attorneys routinely demanded upwards of $15,000 in attorney’s fees when negotiating settlement of CLRA claims before a complaint was even filed.

The Consumers Legal Remedies Act, or “CLRA,” provides remedies for numerous categories of misrepresentations made during the course of a consumer transaction. The CLRA's provision of attorney's fees for the prevailing party makes it a favorite claim of plaintiff's lawyers where even a minor technical violation in a sales document can serve as grounds to recover a large attorney's fees award. As a prerequisite to bringing an action for damages under the CLRA a plaintiff must send a demand letter, or "presuit notice." A dealer then has 30 days after the notice to agree to give the complaining consumer an appropriate "correction, repair, replacement, or other remedy" (Cal.Civ.Code § 1782(b)). If the consumer rejects the offer, and a court later determines the offer was an appropriate correction, his claim for damages under the CLRA is barred.

In Benson, Plaintiff alleged the used Infiniti he purchased from Southern California Auto Sales, Inc. ("SCAS") had undisclosed frame damage, that he paid more than the advertised price for the car, and that a deferred down payment was not properly disclosed on the sale contract. The plaintiff sent the dealer two CLRA demand letters and filed a lawsuit before the 30 days had expired alleging multiple causes of action, including a claim for injunctive relief under the CLRA. The dealership sent a timely response to the CLRA letters offering rescission, $2,500 for attorney's fees and costs, and demanding a mutual settlement and release of all claims. Benson rejected the dealership's offer and amended the complaint to include money damages under the CLRA claim. The case settled with the parties agreeing to have the issue of attorney's fees decided by motion.

Plaintiff requested the trial court award $182,000 in fees and costs. The trial court denied Benson's motion for attorney's fees reasoning that Benson could not maintain a cause of action for damages under the CLRA because SCAS timely offered him an "appropriate correction" (rescission plus $2,500 in fees) under the statute. Benson appealed the trial court's denial of his attorney's fees arguing that SCAS's offer was not appropriate because it included a settlement and release of all claims, not just his CLRA claim.

The Court of Appeal observed that the policy behind the presuit letter is to provide an opportunity to resolve the consumer's complaint without resorting to litigation. The Court of Appeal then reasoned that because the additional claims didn’t add any value to the claim that prompted the CLRA notice it was reasonable to include the release of those claims as part of dealership's correction offer, observing that "SCAS would have been foolish indeed to correct the CLRA claim if eight other virtually identical claims were going forward notwithstanding the correction."

This decision underscores the importance of acting promptly when receiving a CLRA demand letter and, upon determination that the claim should be settled, making the settlement offer (e.g., rescission plus attorney’s fees as in Benson) within 30 days of receipt of the letter. A customer who rejects the offer faces the realistic prospect of being later barred from maintaining a damages claim in recovering his attorney’s fees.