Pay attention to that demand letter

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Most of you are aware of the decision by the California Court of Appeal in Benson v. Southern California Auto Sales, Inc. (2015) 239 Cal.App.4th 1198, holding that a plaintiff cannot maintain a suit for damages if the defendant made an appropriate and timely correction offer under the Consumers Legal Remedies Act, or CLRA. The CLRA provides dealers with a “safe harbor” to settle a CLRA claim before suit is filed if an appropriate correction, repair, replacement, or other remedy is given, or agreed to be given within a reasonable time, to the consumer within 30 days after receipt of the notice of violation[1].

Before his suit was filed, Robert Benson’s attorneys sent a demand letter to the dealership where he had purchased a used car, claiming the dealership violated the CLRA and demanded that the dealer rescind the purchase contract, return the car payments made, pay a $5,000 penalty, unspecified incidental damages, pay off the outstanding loan balance, and pay attorney’s fees and investigative costs in exchange for the return of the subject vehicle. The dealer timely responded, offering to rescind the contract and return all payments made, satisfy the remaining loan balance, pay $2,500 for incidental damages and attorney’s fees, and waive any claim for mileage in exchange for the return of the vehicle and execution of a mutual settlement and release agreement. Shortly before trial a settlement was reached between the parties, with the amount of attorney’s fees and costs to be decided by a fee motion. In the fee motion, Benson’s attorneys sought $171,915 in fees and $10,358 in costs. The trial court denied the fee motion because the dealer offered Benson an appropriate correction under the CLRA before the suit was filed. Even though Benson’s complaint contained other causes of action aside from the CLRA, the court found these additional claims were “inextricably intertwined with the CLRA claim and based upon the same conduct.” The Court of Appeal affirmed the trial court’s ruling.

Benson should be relied upon by dealers when evaluating a CLRA demand letter. The two prongs that are necessary to use Benson as a shield to litigation are: (1) the timeliness of the response; and (2) offering an appropriate correction.

Civil Code§ 1782 is clear that the dealer must respond within 30 days after receivingthe CLRA demand, so it is imperative that you not delay investigating the merits of the claim. Often a CLRA claim will allege that the dealer did not disclose prior repairs of collision damage. It is likely that you will have one or more vehicle history reports in the deal file with no reports of accident damage. But don’t stop your investigation there—consider the qualifications of the technician who performed the safety/CPO inspection. Was your technician trained to look for evidence of prior repairs, such as overspray or variations in the paint color or texture, inconsistencies in body panel gaps, or chipped paint on fender bolts or hood hinge nuts?

If the results of your investigation leave you with some doubts regarding the true history of the vehicle and you want to resolve the dispute before a lawsuit is filed, your response must offer an appropriate correction, repair, replacement or other remedy. But what does “appropriate” mean, and who determines what is appropriate? The determination of appropriateness of a correction is left to the trial court to decide, based upon a global assessment of the evidence.

The Benson trial court found the buyback offer made by the dealer plus a reasonable sum to his attorneys “for assembling a couple of largely boilerplate letters” was an appropriate correction. Similarly, if your investigation leads you to believe that a buyback of the vehicle is in the best interest of the dealership, it is important that you timely respond with a clear description of the correction being offered.

In Goglin v. BMW of North America, LLC, et al., (2016) 4 Cal.App.5th 462, a case decided after Benson, the CLRA demand sought to unwind the transaction, refund all payments, reimburse her reasonable expenses, pay off her existing loan balance, and enter into a stipulated injunction requiring the dealer to disclose collision damage in writing prior to sale and disclose if the BMW CPO program actually allows the sale of vehicles with prior collision damage.

The dealer offered to repurchase the vehicle for all costs incurred by Goglin, pay off her existing loan, reimburse her for her down payment and all loan payments made, and her reasonable attorney fees, less an offset for depreciation due to her use of the vehicle. The dealer’s offer was expressly contingent upon Goglin agreeing to a general release including a waiver of Civil Code§ 1542, and to dismiss the dealer from any lawsuit she may have filed. Goglin refused to sign the release, claiming the applicable consumer protection laws do not require consumers to waive their rights in order to have a dealer comply with its statutory obligations. Litigation followed and the dispute was ultimately settled, with Goglin’s attorney fees to be decided by a fee motion. Her attorney sought $200,249.19 in attorney fees and costs.

BMW and the dealer argued that Goglin was not entitled to recover attorney fees or costs because she refused to accept the prelitigation settlement offer. The trial court did not agree and awarded both attorney fees (albeit with a slight reduction in the hourly rate) and costs. On Appeal, the Court held that the dealer’s prelitigation settlement offer contained unfavorable extraneous terms—the broad release of claims and a confidentiality clause—and therefore her rejection of the offer was not unreasonable. Moreover, the Court of Appeal distinguished Goglin’s claim from Benson, because Benson sought to recover attorney fees and costs under the CLRA, while Goglin’s fee motion was based upon the Song-Beverly Consumer Warranty Act, which does not have a comparable prelitigation notice requirement.

After Goglin, we now see CLRA demands including additional settlement terms, such as penalties and injunctive relief in an effort to dissuade dealers from extending an appropriate correction, and claimant’s counsel will object to any additional terms included by the dealer in its offer. We further see CLRA demands containing language that a settlement of the prelitigation CLRA claim will not waive the prosecution of a complaint with alternate theories of liability, specifically including a violation of theSong-Beverly Consumer Warranty Act, against the dealer. Therefore, dealers should investigate the merits of a CLRA demand early and work with counsel to timely respond with an appropriate correction that complies with Benson and Goglin.

[1]Civil Code§1782(b).