NELSON v. PEARSON FORD CO

recover from the seller the total amount paid, pursuant to the terms of the contract, by the buyer to the seller or his assignee." (Stats. 1961, ch. 1626, § 4, pp. 3534, 3537, eff. Jan. 1, 1962, italics added.)

In turn, paragraph 4 of section 2983.1 sets forth the buyer's choice of remedies if a contract is unenforceable under section 2983: "When a conditional sale contract is not enforceable under Section 2983 or 2983.1, the buyer may elect to retain the motor vehicle and continue the contract in force or may, with reasonable diligence, elect to rescind the contract and return the motor vehicle. The value of the motor vehicle so returned shall be credited as restitution by the buyer without any decrease which results from the passage of time in the cash price of the motor vehicle as such price appears on the conditional sale contract." (Stats. 1961, ch. 1626, § 4, pp. 3534, 3538, eff. Jan. 1, 1962, italics added.) The first paragraph of section 2983.1 is similar to former section 2982, subdivision (f), but the option to retain the vehicle and continue the contract in force, or rescind the contract and return the vehicle appears for the first time in the ASFA. (Compare Stats. 1949, ch. 1594, § 1 pp. 2842, 2843-2844 with Stats. 1961, ch. 1626, § 4, pp. 3534, 3538, eff. Jan. 1, 1962.) Although the Legislature subsequently amended sections 2983 and 2983.1, the above cited language did not change. (Stats. 1967, ch. 815, § 1, p. 2239; Stats. 1979, ch. 805, §§ 23, 24, p. 2794; Stats. 1981, ch. 1075, §§ 18, 19, pp. 4132-133, operative Oct. 1, 1982.)

With this background, we address Pearson Ford's contentions. First, Pearson Ford asserts the ASFA does not allow the insurance class members to obtain return of all money paid, even if they elect to continue their contracts, essentially giving the insurance class members a free vehicle. Pearson Ford contends that section 2983 must be read along with section 2983.1. Thus, when the Legislature stated "the buyer may recover from the seller the total amount paid, pursuant to the terms of the contract . . .," the buyer can recover its payments only if he or she elects to rescind the contract. (§ 2983, italics added.) Nelson disputes this interpretation, claiming it renders section 2983 meaningless. We conclude that Pearson Ford has the better argument.

First, the General Motors court disapproved that portion of Williams suggesting that buyers could retain their vehicles and also recover the sums paid for purchase of the vehicle. ( General Motors, supra, 54 Cal.2d at pp. 112-113, quoting Williams, supra, 140 Cal.App.2d at p. Supp. 979.) The General Motors court stated that "buyer[s] cannot both recover the consideration with which [they] parted and keep the vehicle; [they] cannot simultaneously avoid the conditional sale contract and assert rights in the conditionally sold car." ( General Motors, supra, at p. 112.)

Second, as we already noted, section 2983 is similar to former section 2982, subdivision (e), both stating that where a violation renders a contract unenforceable "the buyer may recover from the seller" the total amount paid on the contract. (§ 2983; General Motors, supra, 54 Cal.2d at p. 109, fn. 3.) The Court of Appeal in Katsaros v. O. E. Saugstad Co. (1961) 197 Cal.App.2d 745 [ 17 Cal.Rptr. 453] ( Katsaros) interpreted former section 2982, subdivision (e), concluding that the vehicle must be returned as a condition of recovery of all payments made, noting that the "object of the statute is to protect the buyer, not to provide him with a windfall." ( Katsaros, at p. 749.) The Katsaros court cited the Report as support for its conclusion. ( Ibid.)

Thus, it appears the Legislature created the rescission option in section 2983.1 to codify the legal principles discussed by the General Motors and Katsaros courts. Notably, these legal principles track the Civil Code, which requires a party seeking rescission to "[r]estore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so." (§ 1691, subd. (b).)

It also appears the Legislature intended sections 2983 and 2983.1 be read together. Section 2983 states that "the buyer may recover from the seller the total amount paid, pursuant to the terms of the contract . . ." (§ 2983, italics added), not that the buyer "shall" recover. Section 2983.1 then describes the circumstances under which buyers "may" recover what they paid, i.e., when they elect to rescind their contracts and return their vehicles. The last sentence of section 2983.1 allows buyers to obtain restitution for their returned vehicles. The restitution award could allow buyers to recover from sellers the total amount they paid under their contracts, or a lesser amount.

Nelson's interpretation of sections 2983 and 2983.1 ignores the restitution provision in section 2983.1. Nelson appears to advocate that buyers electing to rescind their contracts could recover from sellers everything they paid under their contracts, return their vehicles, and obtain restitution from the sellers for the value of the returned vehicles. This surely results in a windfall to buyers. Nothing in the legislative history of the ASFA or the prior case law supports this interpretation.

In summary, we conclude the trial court erred to the extent it found that the ASFA allowed the insurance class members to recover from Pearson Ford what they paid under their contracts, and keep their vehicles.

We next turn to the portion of section 2983.1 that allows buyers rescinding their contracts and returning their vehicles to obtain restitution for the value of the returned vehicles "without any decrease which results from the passage of time in the cash price of the motor vehicle as such price appears on the conditional sale contract." (§ 2983.1, 4th par.) Pearson Ford asserts the trial court erred by not providing an offset for the buyer's use of any returned vehicles. Nelson does not address the offset issue. We discuss Pearson Ford's contention to provide guidance to the trial court on remand.

As a threshold matter, the clear language of section 2983.1 allows consumers to obtain restitution when they rescind their contracts and return their vehicles, but disallows an offset resulting from the passage of time. Accordingly, section 2983.1 begs the question whether the Legislature intended to disallow any offset for the buyer's use of the vehicle. Had the Legislature intended to disallow any offset, it could have eliminated the passage of time language and simply stated: "The value of the motor vehicle so returned shall be credited as restitution in full by the buyer." The Legislature did not do so; rather, it carefully proscribed an offset resulting from the passage of time.

This harks back to the variety of offsets discussed in General Motors. Namely, the Supreme Court in General Motors allowed a seller's offset "`in an amount representing the depreciation in value of the car occasioned by the use made of it by the buyer while in his possession, which necessarily excludes any allowance for depreciation resulting from a general decline in the market value of such automobile during the period in question,' [citation]." ( General Motors, supra, 54 Cal.2d at p. Ill, italics added, quoting Williams, supra, 140 Cal.App.2d at p. Supp. 980.) Thus, it appears the Legislature adopted the offset approved by our high court in General Motors. By not allowing an offset for the passage of time the Legislature was trying to avoid situations where a new vehicle loses value when it is driven off the dealer's lot and immediately becomes a used vehicle. (The Report, supra, at p. 34.) In the almost 50 years that section 2983.1 has been in existence, there are no published cases addressing the offset.

We also adopt the offset for the buyer's use of the vehicle. Accordingly, on remand those class members electing to rescind their contracts and return their vehicles are entitled to restitution. The restitution amount must not be decreased for depreciation resulting from a general decline in the market value of their vehicles resulting from the passage of time. The restitution amount, however, may be decreased for depreciation in the value of the vehicles occasioned by the buyers' use of the vehicles. Any seller's offset of this nature may not exceed the amount which the buyers are entitled to recover under their contracts.

We believe the court has broad discretion to consider the equities when setting the offset amount, if any. For example, a buyer might return to a dealer a few days after purchasing a car based on a violation of the ASFA, but the dealer refuses to remedy the situation forcing the buyer to sue. While the action is pending, the buyer has no choice but to use the car. If the buyer prevails and opts to return the vehicle, the dealer's unwillingness to address the violation should be considered in setting any offset for the buyer's use of the vehicle. Discretion in setting the offset amount encourages buyers to immediately return to the dealer when a violation of the ASFA is suspected, and encourages dealers to quickly remedy any ASFA violations.

III. The UCL

Pearson Ford argues that Nelson lacked standing to sue under the UCL, but assuming he had standing the trial court erred in the remedies it awarded. Nelson also contends the trial court erred in the remedies it awarded. We reject Pearson Ford's argument that Nelson lacked standing, and separately address the parties' respective appeals regarding the remedies awarded by the trial court under the UCL.

A. Liability

The UCL defines "unlawful competition" to include an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. . . ." (Bus. Prof. Code, § 17200.) "By proscribing `any unlawful' business practice, `[Business Professions Code] section 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable." ( Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [ 83 Cal.Rptr.2d 548, 973 P.2d 527].) After the 2004 amendment of the UCL by Proposition 64, a private person has standing to sue only if he or she "`has suffered injury in fact and has lost money or property as a result of [such] unfair competition.'" ( In re Tobacco II Cases (2009) 46 Cal.4th 298, 306 [ 93 Cal.Rptr.3d 559, 207 P.3d 20], italics added ( Tobacco II), quoting Bus. Prof. Code, § 17204.) In the context of a class action, only the class representatives must meet Proposition 64's standing requirements of actual injury and causation. ( Tobacco II, supra, at pp. 315-316.)

The actual payment of money by a plaintiff, as wrongfully required by a defendant, "constitute[] an `injury in fact' for purposes of Business and Professions Code section 17204. [Citations.]" ( Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1347 [ 90 Cal.Rptr.3d 589] ( Troyk).) Causation for UCL standing purposes is satisfied if "a causal connection [exists] between the harm suffered and the unlawful business activity." ( Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099 [ 61 Cal.Rptr.3d 716] ( Daro); accord, Troyk, supra, at p. 1349.) However, "[t]hat causal connection is broken when a complaining party would suffer the same harm whether or not a defendant complied with the law." ( Daro, supra, at p. 1099.)

For example, in Troyk, an insured filed a class action against his automobile insurer alleging the insurer violated the UCL by requiring him to pay a service charge for payment of his automobile insurance policy premium and, because the service charge was not stated in his policy, the insurer violated Insurance Code section 381, subdivision (f), requiring that this be done. ( Troyk, supra, 111 Cal.App.4th at p. 1314.) Although the Troyk court found that the insurer had violated the Insurance Code as alleged ( id., at p. 1334), it concluded that causation under the UCL did not exist because the plaintiff did not show that had the insurer disclosed the monthly service charges in the policy documents as required by the Insurance Code, he would not have paid them. ( 171 Cal.App.4th at p. 1350.) Significantly, the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.

Here, the trial court impliedly found that Pearson Ford had violated the UCL as to both classes through its violations of the ASFA, and we have affirmed that Pearson Ford is liable for its violations of the ASFA. ( See, ante, pt. II.A.2.) Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of its unfair competition under the UCL. (Bus. Prof. Code, § 17204.) Relying on Troyk, Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract (1) charged him preconsummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid preconsummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid preconsummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

B. UCL Remedies

1. General Legal Principles

The focus of the UCL is "on the defendant's conduct, rather than the plaintiff's damages, in service of the statute's larger purpose of protecting the general public against unscrupulous business practices." ( Tobacco II, supra, 46 Cal.4th at p. 312.) The remedies available under the UCL are limited to injunctive, restitutionary and related relief (Bus. Prof. Code, § 17203; State of California v. Altus Finance (2005) 36 Cal.4th 1284, 1303 [ 32 Cal.Rptr.3d 498, 116 P.3d 1175]), and are "cumulative . . . to the remedies or penalties available under all other laws of this state" (Bus. Prof. Code, § 17205). However, restitutionary or injunctive relief is not mandatory; rather, equitable considerations may guide the court's discretion in fashioning a remedy for a UCL violation. ( Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 180 [ 96 Cal.Rptr.2d 518, 999 P.2d 706] ( Cortez).)

Under the UCL, a trial court has broad equitable power to award restitution after considering "the equities on both sides of a dispute." ( Cortez, supra, 23 Cal.4th at p. 180.) However, "[a] court cannot, under the equitable powers of [Business and Professions Code] section 17203, award whatever form of monetary relief it believes might deter unfair practices." ( Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1148 [ 131 Cal.Rptr.2d 29, 63 P.3d 937] ( Korea Supply).) The "object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest." ( Id. at p. 1149.) Additionally, "disgorgement of money obtained through an unfair business practice is an available remedy in a representative action only to the extent that it constitutes restitution." ( Id. at p. 1145.) "While it may be that an order of restitution will also serve to deter future improper conduct, in the absence of a measurable loss [Business and Professions Code section 17203] does not allow the imposition of a monetary sanction merely to achieve this deterrent effect." ( Day v. AT T Corp. (1998) 63 Cal.App.4th 325, 339 [ 74 Cal.Rptr.2d 55].)

The trial court also has broad power under the UCL to "enjoin on-going wrongful business conduct in whatever context such activity might occur." ( Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 111 [ 101 Cal.Rptr. 745, 496 P.2d 817], fn. omitted; see Bus. Prof. Code, § 17203.) To obtain injunctive relief, the plaintiff must show that the wrongful conduct alleged in the complaint is ongoing or likely to recur. ( Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 464-466 [ 30 Cal.Rptr.3d 210].) The trial court's decision on the propriety of granting injunctive relief is reviewed for abuse of discretion. ( Salazar v. Eastin (1995) 9 Cal.4th 836, 850 [ 39 Cal.Rptr.2d 21, 890 P.2d 43].)

2. Nelson's Appeal Regarding Restitutionary Remedies to the Backdating Class

Based on its conclusion that Pearson Ford is liable under the UCL for engaging in an unlawful business practice the trial court awarded each member of the backdating class restitution in the amount of $50. Nelson appeals, arguing the trial court erroneously ignored or arbitrarily threw out the parties' stipulation to use statistical sampling to calculate restitution under the UCL, and awarded an approximate midpoint between the stipulated amount ($63.14) and what Pearson Ford argued for ($43.40). Pearson Ford asserts that it agreed to the sampling methodology, but did not agree to be bound by the resulting number. We agree with Pearson Ford.

The parties initially agreed in principle that the amount of restitution paid to each class member would be determined through statistical sampling. The court took a recess to allow the parties to consult with an expert regarding the appropriate sample size. The parties agreed that Nelson's expert would review a randomly selected sample of 176 contracts, and that defense counsel would review the resulting spreadsheet. Before the hearing adjourned, Nelson's counsel expressed his hope that defense counsel would stipulate to the number calculated by his expert. The trial court agreed that a stipulation would be preferable.

At the next hearing, Nelson's counsel represented that his expert calculated the preconsummation interest and the finance charge for the preconsummation interest (interest on interest) charged for the sampled contracts, and calculated an average of $43.40 for preconsummation interest, and an average finance charge incurred on that amount of $19.75, resulting in total restitution of about $63.14 for each class member. Defense counsel informed the court that the parties disputed whether a finance charge over the life of the loan should be allowed in the recovery because it was unknown whether every class member paid off his or her loan over the life of the loan. After hearing argument on this issue, the court stated: "Would it be beyond the realm of possibility to end this by stipulating or agreeing to $50? Make a determination arbitrarily — maybe not arbitrarily, but by using some common sense that probably have [ sic] the people paid the loan off when it was due. Interest plus finance charge. I mean, it's interpolated anyway. Why not just make it $50? That's what I'm going to do."

Nelson claims the restitution amount should be increased to $63.14, and Pearson Ford claims the amount should be lowered to $43.40. We reject both contentions as neither party has shown the trial court abused its discretion in awarding $50. The record clearly shows that the parties agreed to a methodology to determine the restitutionary amount, with Pearson Ford tacitly agreeing with the calculated average of $43.40 for preconsummation interest. The parties, however, never stipulated that the restitutionary award would include a finance charge for the preconsummation interest.

As defense counsel explained to the court, the representative sampling determined an average duration for the preconsummation interest period, but no analysis was done to determine an amortization period for the finance charge. When the court inquired whether it would be reasonable to assume that "half the people paid off their loans, defense counsel stated he did not know whether that was a reasonable assumption. The court believed it was a reasonable assumption, and essentially divided in half the calculated average finance charge of $19.75, added this to $43.40 and rounded the figure to $50. The parties have provided no reasoned argument explaining how the trial court abused its discretion under the circumstances.

We disagree with Nelson's assertion that this issue is rendered moot based on our conclusion that the trial court erred in finding Pearson Ford substantially complied with the ASFA as to the backdating class. Remedies available under the UCL are cumulative to the remedies available under all other laws of this state. (Bus. Prof. Code, § 17205.) "Therefore, the fact that there are alternative remedies under a specific statute does not preclude a UCL remedy, unless the statute itself provides that the remedy is to be exclusive." ( State of California v. Altus Finance, supra, 36 Cal.4th at p. 1303.) Here, nothing in the ASFA indicates that its remedies are exclusive; accordingly, the trial court had the authority to order restitution under the UCL in conjunction with any remedies under the ASFA.

3. Pearson Ford's Appeal Regarding Restitutionary Remedies to the Insurance Class

Citing the ASFA and the UCL, the trial court awarded the members of the insurance class all the money they had paid for their vehicles as of the date of the judgment. The trial court also gave the class members the option to retain their vehicles and continue their contracts in force, or to rescind their contracts and return their vehicles to Pearson Ford.

Pearson Ford appeals claiming the trial court erred by awarding Nelson all the money he had paid for his car, and allowing him to keep the car, owing only the monthly payments that came due after judgment was entered. It contends that the award was not restitutionary, and thus improper under the UCL. Nelson does not address the propriety of this remedy to the insurance class under the UCL.

"Rescission is an equitable remedy." ( Gill v. Rich (2005) 128 Cal.App.4th 1254, 1264 [ 28 Cal.Rptr.3d 52].) Its purpose is to restore both parties to their former position as far as possible. ( Gardiner Solder Co. v. SupAlloy Corp., Inc. (1991) 232 Cal.App.3d 1537, 1544 [ 284 Cal.Rptr. 206].) Restitution may refer to the disgorging of something which has been taken or compensation for injury done. ( People ex rel. Kennedy v. Beaumont Investment, Ltd. (2003) 111 Cal.App.4th 102, 134 [ 3 Cal.Rptr.3d 429].) In a UCL action, restitution generally compels a defendant to return money obtained through an unfair business practice. ( People ex rel. Kennedy, at p. 134.) Rescission and restitution are distinct remedies. ( Gardiner Solder Co. v. SupAlloy Corp., Inc., supra, 111 Cal.App.3d at p. 1544.) While rescission may be followed by restitution in an appropriate contract action (§ 1692), rescission is not a necessary predicate to granting restitution in a statutory action under the UCL. ( People ex rel. Kennedy v. Beaumont Investment, Ltd., supra, 111 Cal.App.4th at pp. 132-133.) We have found no authority supporting the remedy of rescission in a UCL action. Thus, to the extent the trial court used the UCL as a basis to support its order giving the insurance class members the option to retain their vehicle, or rescind their contracts and return their vehicles, the judgment is reversed.

The trial court also erred in its restitution order. Pearson Ford's unfair practice of adding the insurance premium to the price of the purchased vehicle resulted in the class members erroneously paying sales tax on the insurance premiums. At trial, the court heard evidence that the sales tax charged on the $250 insurance premium increased the cost of Nelson's car by about $30. The insurance premium went to the insurance broker, the sales tax went to the state, and the finance charge on the sales tax went to the lender. Based on this evidence, the trial court awarded the members of the insurance class all the money they had paid for their vehicles as of the date of the judgment. This is not appropriate restitutionary relief under the UCL as it does not accomplish the statutory objective of restoring to the victims' sums acquired through Pearson Ford's unfair practices. ( Korea Supply, supra, 29 Cal.4th at p. 1149.) Accordingly, to the extent the trial court used the UCL as a basis to award the members of the insurance class all the money they had paid for their vehicles as of the date of the judgment, the judgment is reversed. The matter is remanded to the trial court to consider an appropriate remedy to the insurance class under the UCL. We express no opinion on what type of restitution order is appropriate, and leave the matter to the sound discretion of the trial court.

4. Nelson's Appeal Regarding Distribution of Unpaid Residuals

Code of Civil Procedure section 384 provides guidelines for courts to use in shaping class remedies. Subdivision (b) of this statute declares that unless the defendant is a public entity or public employee, "prior to the entry of any judgment in a class action . . . the court shall determine the total amount that will be payable to all class members, if all class members are paid the amount to which they are entitled pursuant to the judgment. The court shall also set a date when the parties shall report to the court the total amount that was actually paid to the class members. After the report is received, the court shall amend the judgment to direct the defendant to pay the sum of the unpaid residue, plus interest on that sum at the legal rate of interest from the date of entry of the initial judgment . . ." in any manner the court determines is consistent with the objectives and purposes of the underlying cause of action.

In subdivision (a) of Code of Civil Procedure section 384, the Legislature explains that its intent in enacting the statute was "to ensure that the unpaid residuals in class action litigation are distributed, to the extent possible, in a manner designed either to further the purposes of the underlying causes of action, or to promote justice for all Californians." The principles expressed in Code of Civil Procedure section 384 apply whenever there are unclaimed funds after a class action settlement or judgment. ( Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718, 731 [ 84 Cal.Rptr.3d 377] [refund checks not cashed or undeliverable after judgment ordering distribution on "claims made" basis].)

Here, the judgment states: "In the event that any escrow or other fund(s) are ordered to be established for the administration of claims, Pearson Ford Co. shall not forfeit any unclaimed amounts and any and all amounts remaining after the payment of all timely and valid claims shall be returned to Pearson Ford Co. . . ." (Italics added.) Although it is not clear whether the trial court intended this provision to apply to both classes, we interpret it that way.

Nelson challenges this portion of the judgment, claiming that Code of Civil Procedure section 384 applied and that the trial court erred in creating a reversionary interest for Pearson Ford in the remainder of the class recovery fund. Pearson Ford agrees that the trial court did not have the authority to require that unpaid residue from the insurance class revert to Pearson Ford because recovery to the insurance class was under both the ASFA and the UCL, and the ASFA has no provision giving the trial court the discretion to ignore Code of Civil Procedure section 384. It argues, however, that the trial court had the authority to disregard Code of Civil Procedure section 384 as to the backdating class because recovery to this class was solely under the UCL. Pearson Ford contends that the court's broad equitable powers under the UCL allowed the court to treat the backdating class differently than Code of Civil Procedure section 384 required.

Assuming, without deciding, that the trial court has the discretion to ignore Code of Civil Procedure section 384 where class recovery is solely under the UCL, we reject Pearson Ford's argument based on our conclusion that the trial court erred when it found Pearson Ford not liable to the backdating class under the ASFA. ( See, ante, pt. II.A.2.a.) Applying Pearson Ford's argument, since recovery to the backdating class was under both the ASFA and the UCL the court did not have the discretion to disregard Code of Civil Procedure section 384 as to the backdating class.

Accordingly, that portion of the judgment returning to Pearson Ford any sums remaining after the payment of all valid claims, is reversed. On remand the trial court is directed to comply with Code of Civil Procedure section 384 as to both classes.

5. Pearson Ford's Appeal Regarding Injunctive Remedies for Both Classes

For the backdating class, the trial court permanently enjoined Pearson Ford from calculating the APR for purposes of disclosure on a subsequent or second retail installment sale contract using an accrual date earlier than the "consummation date," meaning that time that the consumer becomes contractually obligated on the credit transaction. For the insurance class, the trial court permanently enjoined Pearson Ford "from adding the price of insurance to the cash price of the vehicle. . . ." The trial court "required and ordered" Pearson Ford to "[d]isclose the cost of insurance included in a Retail Installment Sale Contract" on a separate line in that section of the contract itemizing the amount financed.

Pearson Ford challenges the injunctions on the narrow ground that Nelson presented insufficient evidence for the court to conclude that a reasonable probability existed that it would repeat its unlawful conduct. We agree with Pearson Ford as to the insurance class, but conclude sufficient evidence supported the injunction as to the backdating class.

"An injunction cannot issue in a vacuum based on the proponents' fears about something that may happen in the future. It must be supported by actual evidence that there is a realistic prospect that the party enjoined intends to engage in the prohibited activity. [Citations.]" ( Korean Philadelphia Presbyterian Church v. California Presbytery (2000) 77 Cal.App.4th 1069, 1084 [ 92 Cal.Rptr.2d 275].) As to the insurance class, defense counsel represented that Pearson Ford consummated about 12,000 transactions during the five-year class period. Out of those transactions, about 300 customers financed their insurance premium. Out of the 300 transactions, 10 customers (3.33 percent) had the cost of the insurance improperly added to the cash price of the vehicle. Nelson did not dispute these representations at trial, or present any evidence showing Pearson Ford had a policy of adding insurance to the cash price of vehicles. Based on this record, the trial court could not have reasonably concluded that Pearson Ford had an ongoing practice of adding insurance to the cash price of vehicles. Additionally, Nelson did not address Pearson Ford's argument regarding the propriety of injunctive relief for the insurance class in his respondent's brief, effectively conceding the issue. Because substantial evidence does not support the trial court's implied finding that Pearson Ford's act of adding insurance to the cash price of vehicles is ongoing or likely to recur, we conclude the trial court abused its discretion by granting injunctive relief for the insurance class.

In contrast, Nelson presented evidence that Pearson Ford had a policy of backdating contracts, and that Pearson Ford purportedly changed its policy, and discontinued the practice in between the third quarter of 2005 and the fourth quarter of 2006. Defense counsel admitted, however, that after Pearson Ford changed its policy of backdating contracts, its employees backdated 228 contracts, 156 in 2006 and 72 in 2007. Based on this evidence, the trial court could reasonably conclude that despite Pearson Ford's purported change in policy, Pearson Ford continued to backdate contracts and improperly collect preconsummation interest. Accordingly, there was sufficient evidence of ongoing conduct to support the issuance of a permanent injunction for the backdating class.

IV. The CLRA

A. Liability

The Legislature enacted the CLRA in 1970 to provide individual consumers with a remedy against merchants employing certain deceptive practices in connection with the sale of goods or services, noting the difficultly consumers faced proving a fraud claim. (Assem. Com. on Judiciary, Questions Answers regarding Assem. Bill No. 292 (1970 Reg. Sess.) May 18, 1970.) The purpose of the statutory scheme is "to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection." (§ 1760.) The Legislature intended the CLRA be "liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection." ( Ibid.) The CLRA sets forth 24 proscribed "unfair methods of competition and unfair or deceptive acts or practices. . . ." (§ 1770, subd. (a).)

Here, Nelson alleged that Pearson Ford violated six specific provisions of the CLRA. The trial court concluded that Pearson Ford did not violate the CLRA. Nelson argues the trial court erred when it found Pearson Ford not liable to either class under the CLRA because Pearson Ford's conduct violated subdivision (a)(14) of section 1770, which makes it illegal to "[r]epresent[] that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law." We reject Nelson's arguments as to the insurance class, but conclude the court erred as to the backdating class.

We start with the language of the statute to determine whether Nelson proved a violation of subdivision (a)(14) of section 1770. The transaction involved the sale of a vehicle and insurance for the vehicle. Accordingly, the question presented is whether Pearson Ford made any oral or written misrepresentations about any "rights, remedies, or obligations" included in the sale, that the sale did not have or involve, or which were prohibited by law. We note, however, that "although a claim may be stated under the CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose." ( Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 835 [ 51 Cal.Rptr.3d 118] ( Daugherty); see Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 36 [ 124 Cal.Rptr. 852] ["It is fundamental that every affirmative misrepresentation of fact works a concealment of the true fact."].) Under the CLRA, plaintiff's must show actual reliance on the misrepresentation and harm. (§ 1780, subd. (a); Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 809-810 [ 66 Cal.Rptr.3d 543].)

Nelson claims the second contract was deceptive because it did not contain his agreement to purchase insurance. Accordingly, he asserts the trial court erred when it found Pearson Ford not liable under the CLRA to the insurance class. We disagree.

The second contract did not contain any representations regarding insurance; rather, it erroneously failed to reflect Nelson's agreement to purchase insurance. This omission, however, did not violate the CLRA because it was not contrary to a representation actually made by Pearson Ford. ( Daugherty, supra, 144 Cal.App.4th at p. 835.) Moreover, the Due Bill, which was part of the transaction, correctly informed Nelson that he had purchased insurance. Additionally, Nelson testified that he knew he had purchased insurance; thus, he cannot show reliance on the purported misrepresentation. We reject Nelson's contention that Pearson Ford's violation of the ASFA for the insurance class resulted in a violation of the CLRA. Unlike the UCL that borrows violations of other laws and makes those unlawful practices actionable under the UCL ( Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505 [ 82 Cal.Rptr.2d 368]), the CLRA prohibits 24 acts sounding in fraud. (§ 1770, subd. (a)(1)-(24).) Accordingly, Pearson Ford's violation of the ASFA for the insurance class has no bearing on whether it also violated the CLRA.

As to the backdating class, Nelson claims the second contract (1) misrepresented his obligations to pay finance charges; and (2) included the representation that he was obligated to pay a finance charge effective October 2, that was prohibited by law. We agree the first act did not violate subdivision (a)(14) of section 1770, but conclude the second act did.

Nelson does not explain how the second contract misrepresented his obligation to pay finance charges; rather, the second contract accurately stated the finance changes he would incur based on the disclosed APR. Nelson testified in deposition that he understood the finance charges. Moreover, nothing prohibited Pearson Ford from adding finance charges to the transaction. Nonetheless, Pearson Ford violated the CLRA because the second contract represented it had a legal right to collect finance charges effective October 2, an obligation prohibited by Regulation Z. ( See, ante, pt. II.A.2.a.) Nelson relied on the representation by paying finance charges effective October 2. Accordingly, Pearson Ford violated subdivision (a)(14) of section 1770 by misrepresenting an obligation that was prohibited by law.

In summary, the trial court correctly found Pearson Ford not liable to the insurance class under the CLRA, but erred when it found Pearson Ford not liable to the backdating class under the CLRA.

B. The CLRA Remedies

Any consumer who suffers damage as a result of the use or employment by any person of a method, act or practice declared to be unlawful by section 1770 may bring an action against that person to recover actual damages, injunctive relief, restitution of property, punitive damages, and any other relief the court deems proper. (§ 1780, subd. (a).) Remedies under the CLRA are not exclusive, but are in addition to any other procedures or remedies. (§ 1752.) Restitution must be supported by the evidence and be consistent with the purpose of restoring to the plaintiff the amount that the defendant wrongfully acquired. (See Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 694-700 fn. 22 [ 38 Cal.Rptr.3d 36].) The award of actual damages in a class action must be at least $1,000 (§ 1780, subd. (a)(1)), and a prevailing plaintiff is entitled to an award of attorney fees and costs (§ 1780, subd. (e)).

Based on our conclusion that Pearson Ford is liable to the backdating class under the CLRA, this matter must be remanded to the trial court to consider the appropriate remedy given the evidence presented by the parties. We express no opinion on what type of remedy is appropriate, and leave the matter to the sound discretion of the trial court.

V. Validity of Pearson Ford's Code of Civil Procedure Section 998 Offer

After the trial court certified this matter as a class action, Pearson Ford served a Code of Civil Procedure section 998 offer on Nelson that read: "In exchange for dismissal of this action and mutual releases of all claims, subject to approval by the Court, . . . Pearson Ford agrees to pay the sum of five hundred thousand dollars ($500,000.00); and . . . Pearson Ford will agree to an injunction to the effect that it will not add insurance to the cash price of a vehicle . . . and will date any rewritten contract on the same date it is signed. [¶] This Offer to Compromise is inclusive of all claims for damages, costs and expenses, attorney fees and interest in this action and shall serve as full and final satisfaction of all claims for damages, costs and expenses, attorney fees and interest in this action." The offer was "subject to approval by the Court."

After the trial court entered the judgment, both parties moved for an award of attorney fees and costs. Nelson argued that he should receive attorney fees because both classes prevailed in their claims under the ASFA. (§ 2983.4.) Pearson Ford claimed it was the prevailing party under the ASFA as to the backdating class. Pearson Ford also argued that Nelson had failed to obtain a judgment more favorable than its Code of Civil Procedure section 998 offer thereby requiring Nelson to pay its costs from the time of the Code of Civil Procedure section 998 offer, and requiring that Nelson not recover the costs he incurred after the time of the Code of Civil Procedure section 998 offer. (Code Civ. Proc., § 998, subd. (c)(1).) In making this argument, Pearson Ford estimated Nelson's pre-Code of Civil Procedure section 998 offer costs at $178,405, and Nelson's total recovery in the action at $222,785.91, the sum of which ($401,190.91) is less favorable than its Code of Civil Procedure section 998 offer.

The trial court concluded that Nelson was the prevailing party for both classes under the ASFA, and awarded Nelson reasonable attorney fees and costs in the amounts of $389,563 and $11,795.60, respectively. The trial court also denied Pearson Ford's request to recover its attorney fees and costs under Code of Civil Procedure section 998 on the ground the lump-sum Code of Civil Procedure section 998 offer to settle both class claims and Nelson's individual claims was invalid.

Pearson Ford does not challenge the trial court's conclusion that Nelson was the prevailing party for both classes under the ASFA, nor does it challenge the award amount. Instead, it argues that the trial court erred in finding the Code of Civil Procedure section 998 offer invalid. It asserts that if any part of the judgment survives our review, and assuming that the surviving judgment, excluding Nelson's postoffer attorney fees and costs, does not exceed $500,000, then the award of attorney fees and costs should be reversed and remanded for reconsideration to allow the trial court to determine whether the judgment exceeded Pearson Ford's Code of Civil Procedure section 998 offer.

As a threshold matter, we concluded that both classes were entitled to a judgment in their favor under the ASFA, and remanded the matter to the trial court to determine the appropriate remedy to both classes under the ASFA. (See, ante, pt. II.) On remand, the surviving judgment, excluding Nelson's postoffer attorney fees and costs, will likely exceed $500,000. Accordingly, Pearson Ford's contention regarding the validity of its Code of Civil Procedure section 998 offer is arguably moot. Nevertheless, in the event that the judgment on remand does not exceed $500,000, we address Pearson Ford's argument regarding the validity of its Code of Civil Procedure section 998 offer on its merits.

We shall assume, without deciding, the broad issue that valid settlement offers can be made under Code of Civil Procedure section 998 in a certified class action. Here, however, we agree with the trial court that the Code of Civil Procedure section 998 offer was invalid because it was a lump-sum offer to multiple classes, which are the equivalent of separate parties.

We review de novo the trial court's application of Code of Civil Procedure section 998 to the undisputed facts. ( Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 797 [ 101 Cal.Rptr.2d 167].) We start with the well-established principle that, in general, a Code of Civil Procedure section 998 offer to multiple plaintiff's is only valid if it is expressly apportioned between them and not conditioned on acceptance by all of them. ( Meissner v. Paulson (1989) 212 Cal.App.3d 785, 791 [ 260 Cal.Rptr. 826] ( Meissner).) In Meissner, the court observed that a typical problem with unallocated settlement offers to multiple plaintiff's is the impossibility of determining whether any one plaintiff received a less favorable result at trial than he would have received under the offer. ( Meissner, supra, 212 Cal.App.3d at p. 790; cf. Randles v. Lowry (1970) 4 Cal.App.3d 68, 74 [ 84 Cal.Rptr. 321].) The Meissner court concluded that an unallocated Code of Civil Procedure section 998 offer to multiple plaintiff's is void, even though it may be said, by analyzing the verdict in hindsight, that an individual plaintiff received a less favorable result than the plaintiff would have, had the plaintiff accepted the offer. ( Meissner, supra, at p. 791.)

Similarly here, where a single class representative refuses a lump-sum Code of Civil Procedure section 998 offer to two classes, it will be impossible to determine whether either class received a less favorable result at trial than it would have received under the offer. We can discern no basis for concluding that separate classes are different than separate parties, and Pearson Ford has not explained how the reasoning of Meissner should not apply to separate classes.

Pearson Ford's reliance on Peterson v. John Crane, Inc. (2007) 154 Cal.App.4th 498 [ 65 Cal.Rptr.3d 185] ( Peterson) and People ex rel. Lockyer v. Fremont General Corp. (2001) 89 Cal.App.4th 1260 [ 108 Cal.Rptr.2d 127] ( Fremont) is misplaced. In Peterson, a widow sued the defendant individually, as her deceased husband's successor in interest, and as her deceased husband's legal heir, seeking to recover for her husband's alleged asbestos-related disease. ( Peterson, supra, 154 Cal.App.4th at p. 501.) The Peterson court concluded there was only one plaintiff, despite the multiple roles she occupied in the litigation. ( Id. at pp. 506-507.) The Peterson court noted that the offer did not need to be apportioned because the proposed settlement sum was zero and proposed a mutual waiver of costs. ( Id. at p. 510, fn. 11.) Additionally, any finding regarding the liability of the defendant would resolve all claims regardless of what "hat" the plaintiff wore. Thus, there was no difficultly in determining which party obtained the more favorable result at trial. In Fremont, a lump-sum Code of Civil Procedure section 998 offer to a single plaintiff, the People, suing on behalf of both the government (for civil penalties) and individual consumers (for restitution) was valid, and any uncertainty about what to do with the money was not the type of uncertainty that invalidated the Code of Civil Procedure section 998 offer. ( Fremont, supra, 89 Cal.App.4th at pp. 1268-1270.) Again, any liability finding would resolve all claims made by the government or the individual consumers. Because Pearson Ford made the offer jointly without allocation, it is impossible to say that any one class received a less favorable result than it would have under the offer of compromise.

DISPOSITION

We reverse the judgment finding Pearson Ford not liable to the backdating class under the ASFA and the CLRA. We reverse the remedies awarded to the insurance class under the ASFA and the UCL, and the permanent injunction issued under the UCL as to the insurance class. We reverse the judgment returning to Pearson Ford any sums remaining after the payment of all valid claims. In all other aspects, the judgment is affirmed. The matter is remanded to determine, consistent with the views expressed in this opinion, appropriate statutory remedies to (1) both classes under the ASFA; (2) the insurance class under the ASFA and the UCL; and (3) the backdating class under the CLRA. On remand the trial court is directed to comply with Code of Civil Procedure section 384 as to both classes. The parties are to bear their own appeal costs.

McConnell, P. J., and O'Rourke, J., concurred.