Contributors

Eric P. Weiss

Principal

The facts

In November of 2014, plaintiff Andre Pompey purchased a recreational vehicle (“RV”) from JD’s RV (“Dealership”). Defendant Bank of Stockton (“Bank”) financed the purchase. The sales contract inaccurately reflected the downpayment as $19,100 in cash instead of $1,000 in cash and $18,100 in trade-in value. Two weeks after delivery, Pompey discovered that the RV leaked.

Plaintiff prevails in the trial court

On February 27, 2017, Pompey filed a lawsuit against the Dealership and the Bank alleging several causes of action including one based a violation of the Automobile Sales Finance Act (“ASFA”) due to the incorrect downpayment disclosure. Failure to make these written disclosures as required by law allows the plaintiff a choice of remedies: either continuing the contract in force, or recovering the full amount paid to the dealership and/or its assignee (in this case, the Bank) and returning the vehicle. (Civil Code §§ 2983, 2983.1.) Pompey chose the latter.

Pompey moved for summary adjudication on the ASFA cause of action. The defendants opposed the motion on the grounds that the remedy chosen by Pompey (rescission-and-restitution) is the equivalent of a “penalty” and, as such, the claim was barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340(a) which governs “[a]n action upon a statute for a penalty or forfeiture.” Since the complaint was filed more than one year after the incorrect disclosures, Defendants argued that the AFSA cause of action should be dismissed. Pompey contended that the four-year statute of limitations in Code of Civil Procedure section 337(a) applied since this was an “action upon any contract . . . in writing.”

The trial court granted the Pompey’s motion and, in so doing, disagreed with Defendants’ argument that the remedy chosen by AFSA was considered a “penalty” and subject to the one-year statute of limitations. The court entered judgment requiring the Bank to accept the return of the RV and pay the plaintiff $42,263.64. Because of the FTC’s “holder rule” the Bank became liable for the Dealership’s wrongdoing.

The Court of Appeal reverses the trial court

The Court of Appeal, Fifth Appellate District, reviewed the case and determined that the rescission and restitution remedy under the ASFA is a penalty. Thus, according to the Court, the one-year statute of limitations for actions upon a statute for a penalty or forfeiture applied. The Court reasoned that the ASFA imposes liability without regard to wrongdoing or blameworthiness of either the consumer of the dealership. The statute imposes liability regardless of whether the consumer suffered actual damages. These factors, along with the legislative history of AFSA, indicate the remedy was intended as a penalty.

Although there is no binding authority that the current relevant provisions of the ASFA constitute a penalty, the Court relied on an older opinion, Stone v. James (1956) 142 Cal.App.2d 738, which determined that the one-year statute of limitations applied to a similar rescission and restitution provision under the predecessor statute of the ASFA, the 1945 Automotive Sales Act. The Pompey opinion is the first to hold that the one-year statute of limitations applies to this remedy under the ASFA.

Pompey may be the first opinion on this issue as it relates to the ASFA, but it is not the first time that Courts of Appeal have wrestled with the statute of limitations question. In fact, in 2011 our Co-Founder, Christian Scali petitioned the California Supreme Court in the case of Santa Maria Ford v. Martinez to review a trial court’s order ruling that the four-year statute of limitations applies to rescission and restitution claims under the ASFA. In so doing, Chris argued that the Supreme Court should follow the precedent of the Stone v. James case and find that the one-year statute of limitations applies. The Supreme Court denied review in Chris’ case as it was a petition based on a denial of a writ of mandate (99% of which are summarily denied). But Scali has been vindicated by the Court of Appeal’s decision in Pompey.

What this means?

As noted above, the AFSA provides consumers with a choice of remedies. A consumer can either seek damages or the consumer can, as Pompey did, opt for recovering the full amount paid in exchange for return of the vehicle (i.e., rescission and restitution). If the consumer opts for rescission and restitution, a lawsuit must be filed within one year of the consumer’s knowledge of the wrongful conduct.

Regardless, to avoid liability under the AFSA, dealerships should thoroughly review all contract documents to ensure that all of the information is correct and all of the necessary disclosures are provided to the consumer.