Hon. Thomas J. Whelan, United District Judge
Pending before the Court is Plaintiff Jose Aguayo's motion for partial summary
The Court decides the matter on the papers submitted and without oral argument. See Civ. L.R. 7.1(d.1). For the reasons discussed below, the Court
The parties are aware of the relevant facts. In August 2003, Plaintiff Jose Aguayo purchased a Ford Expedition for personal use from a dealership in California. Aguayo signed a conditional sale contract, which shortly thereafter was assigned to Defendant U.S. Bank. (Aguayo Dec. [Doc. 138], Ex. 1 [Doc. 138-1] at 1.) Aguayo later defaulted on the loan, and U.S. Bank repossessed the vehicle. (Id. ¶ 3.)
After repossessing the vehicle, U.S. Bank sent Aguayo a post-repossession notice ("NOI"). (Aguayo Dec., Ex. 2 [Doc. 138-2] at 1.) The NOI advised Aguayo that the vehicle had been repossessed and would be sold. The NOI also stated "if we get less money than you owe, you still owe us the difference." (Id.) U.S. Bank subsequently sold the vehicle and sought to recover the deficiency balance against Aguayo. (Aguayo Dec., Ex. 3 [Doc. 138-3] at 1.)
In this lawsuit, Aguayo challenges U.S. Bank's attempt to recover the deficiency balance against himself and the class on the basis that the NOI failed to provide certain notices required under California's Rees-Levering Automobile Sales Finance Act, Cal. Civil Code §§ 2981 et seq. Aguayo pursues the claim under California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code §§ 17200 et seq.
Summary judgment is appropriate under Rule 56(c) where the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 343 (9th Cir.1995). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. Id. at 322-23, 106 S.Ct. 2548. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.
If the moving party meets this initial burden, the nonmoving party cannot defeat summary judgment merely by demonstrating "that there is some metaphysical doubt as to the material facts." In re Citric Acid Litig., 191 F.3d 1090, 1094 (9th Cir.1999)(citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir.1995) (citing Anderson, 477 U.S. at 252, 106 S.Ct. 2505) ("The mere existence of a scintilla of evidence in support of the nonmoving party's position is not sufficient."). Rather, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by `the depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Ford Motor Credit Co. v. Daugherty, 270 Fed.Appx. 500, 501 (9th Cir.2008) (citing Celotex, 477 U.S. at 324, 106 S.Ct. 2548).
In evaluating a summary-judgment motion, "[t]he district court may limit its review to the documents submitted for the purpose of summary judgment and those parts of the record specifically referenced therein." Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir. 2001). Therefore, the court is not obligated "to scour the record in search of a genuine issue of triable fact." Simmons v. Navajo Cnty., 609 F.3d 1011, 1017 (9th Cir.2010) (citing Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir.1996)). Additionally, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. See Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. "Credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, [when] he [or she] is ruling on a motion for summary judgment." Anderson, 477 U.S. at 255, 106 S.Ct. 2505.
Aguayo's motion argues the following: (1) U.S. Bank's NOIs violated California Civil Code § 2983.2(a)(2) because they "failed to include `all the conditions precedent' to reinstatement;" (2) because the NOIs did not comply with the statute, "plaintiff and others to whom USB sent those forms of NOIs did not ever owe any deficiencies following USB's disposition of their repossessed vehicles;" and (3) U.S. Bank violated the UCL. (MSJP & A [Doc. 137-10] 1-2.) Aguayo also seeks a declaration that U.S. Bank's deficiency claims against him and the class are invalid, void, and unenforceable, and that that the class members are not liable to U.S. Bank for the deficiency balances. (Id. at 17.) Finally, Aguayo requests an order enjoining U.S. Bank from continuing to collect deficiency payments from Aguayo and class members, and recording on its internal records that deficiency payments are owed. (Id.)
U.S. Bank's amended opposition raises the following arguments in opposition: (1) Aguayo's claims are barred by the doctrine of conflict preemption; (2) Aguayo fails to plead or prove that he and the class members purchased their vehicles for personal use; and (3) U.S. Bank's collection of deficiency payments was not unlawful because Rees-Levering only bars a creditor from obtaining a judgment for the deficiency. (See Amended Opp. [Doc. 181].)
On September 24, 2009, this Court granted U.S. Bank's motion to dismiss the case based on the finding that the National Banking Act ("NBA") expressly preempted the Rees-Levering Act. Aguayo appealed, and the Ninth Circuit reversed. The court held section 2893.2 of the Rees-Levering Act is not preempted because it falls within the Office of the Comptroller of the Currency's ("OCC") savings clause, and the NOIs are not credit-related documents. Aguayo v. U.S. Bank, 653 F.3d 912, 925-926 (9th Cir.2011). The court also rejected U.S. Bank's contention that Rees-Levering does "not fall under the umbrella of its `right to collect debts'" and explained that "Section 2983.2 of the Rees-Levering Act is a state law, directed toward a lender's debt collection, requiring that the lender inform the borrower of the full amount of his or her `indebtedness evidenced by the contract' or `liability,' Cal. Civ.Code § 2983.2(a)(1),(8), and therefore falls squarely within the OCC savings clause." Id. at 924-925.
U.S. Bank's amended opposition again raises conflict preemption, the third time since remand. U.S. Bank contends the Court should consider its argument because Aguayo's motion now concedes that Rees-Levering requires national banks to offer reinstatement. (Amended Opp. 18.) Aguayo does not dispute this contention, but responds that the preemption issue should not be reconsidered because the "circumstances" of his claim have not changed. (Amended Reply [Doc. 183] 9.) Although the nature of Aguayo's claim has not changed, the Court agrees that the previous orders did not consider the precise issue U.S. Bank raises: whether the reinstatement requirement conflicts with U.S. Bank's federal lending power. (See Recon. MTD Order [Doc. 94] 1-2; MSJ Order [Doc. 135] 6 n.3.)
Conflict preemption arises when "compliance with both federal and state regulations is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). "State regulation of banking [however] is permissible when it `does not prevent or significantly interfere with the national bank's exercise of its powers.'" Bank of America v. City & County of San Francisco, 309 F.3d 551, 558-559 (9th Cir.2002), quoting Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 33, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996). U.S. Bank does not contend that compliance with both federal and state regulations is a physical impossibility. Instead, it contends Rees-Levering's reinstatement requirement "significantly interfere[s] with national banks' exercise of their lending power by purporting to require banks to continue the lending relationship after default, when the bank might otherwise prefer to cut its losses with that borrower." (Amended Opp. 23.)
U.S. Bank's argument overstates the effect of section 2983.2(a). Failure to comply with the reinstatement requirement only prevents the bank from pursuing the borrower for a deficiency, which is a state-based debt-collection remedy:
See Cal. Civ.Code § 2983.2(a). Under this language, if U.S. Bank does not offer reinstatement, it is only precluded from recovering the deficiency against the borrower. Thus, at most, the reinstatement requirement "interferes" with the bank's state debt-collection remedy, not its federal lending power.
U.S. Bank suggests, however, that preventing it from collecting the deficiency is tantamount to preventing the bank from being repaid, an even worse impairment to its lending power: "From a lender's perspective, a state law that eliminates a bank's right to be repaid for a loan is a far greater `impairment' than a state law that prohibits the bank from making that loan in the first place." (Amend. Opp. 24 n.9.) There are at least two problems with this contention.
First, U.S. Bank's contention that Rees-Levering "eliminates" the bank's right to be repaid lacks merit. Although the bank is prohibited from recovering the deficiency, nothing in the statute prevents the bank from pursuing other debt-collection remedies available under California law.
Second, U.S. Bank's challenge to Rees-Levering is particularly ironic given that the bank's right to pursue a deficiency is an extraordinary remedy derived entirely from Rees-Levering. In general, California law prohibits lenders from seeking deficiency judgments against consumers. See Cal.Code Civ. Proc. § 580b (prohibiting the deficiency judgment in the sale of real property); Cal. Civ.Code § 1801 et seq. (prohibiting the availability of any deficiency judgment under a retail instalment contract for goods covered by the Act). The same was once true for lenders, such as U.S. Bank, in automobile sales contracts. See e.g., Johnson v. Kaeser, 196 Cal. 686, 694, 239 P. 324 (1925) (surveying a "well-settled" line of cases vesting the seller with the right to "exercise an election" between repossession and judicial relief); James v. Allen, 23 Cal.App.2d 205, 207, 72 P.2d 570 (1937) quoting 37 A.L.R. 91 ("[I]n the absence of statutory provisions to the contrary, under the ordinary contract of conditional sale which does not expressly confer upon the seller the right to recover the balance of the purchase price after reselling the property for a sum less than that remaining unpaid, if the seller, as owner, takes possession of the property upon default of the buyer, and as such owner sells or otherwise uses the property, he cannot recover any portion of the unpaid purchase price."). In 1957, California amended the Automobile Sales Act to authorize post-repossession deficiency judgments in conditional sales contracts for automobile loans. See Ch. 613, § 1 [1957] Cal. Stats. 1822. This extraordinary remedy was later passed on to the Rees-Levering Act, the very statute U.S. Bank now claims is preempted. Accordingly, it would seem that if U.S. Bank prevailed on this motion, it would no longer be entitled to obtain a deficiency since the right is grounded in Rees-Levering.
U.S. Bank nevertheless argues that its conflict preemption argument is supported by Barnett Bank, 517 U.S. at 25, 116 S.Ct. 1103, Rose v. Chase Bank USA, N.A., 513 F.3d 1032 (9th Cir.2008), and Parks v. MBNA, Am. Bank, N.A., 54 Cal.4th 376, 142 Cal.Rptr.3d 837, 278 P.3d 1193 (2012). U.S. Bank's reliance on these cases is misplaced. The state statutes at issue in Barnett, Rose, and Parks sought to regulate federal powers granted to national banks, which were already subject to federal regulation. Barnett involved a Florida statute
In contrast, the challenged Rees-Levering provision governs a state "power" or remedy, not a federal power. Aguayo, 653 F.3d at 923, citing Adams v. S. Cal. First Nat'l Bank, 492 F.2d 324, 330 nn. 11-12 (9th Cir.1973). This is confirmed by the fact that there is "no federal law governing self-help repossession." Aguayo, 653 F.3d at 924. For these reasons, Barnett Bank, Rose and Parks do not support U.S. Bank's preemption argument.
Rees-Levering applies to persons who purchased their vehicles for primarily personal use. Cal. Civ.Code § 2981(k). U.S. Bank argues Aguayo's motion should be denied because he has "neither alleged nor proved" that he purchased the vehicle for such purposes, and thus failed to establish an essential "element" of his claim. (Amended Opp. 11-12.)
Attached to Aguayo's motion is his conditional sales contract. (See Aguayo Dec., Ex. 1.) The contract contains a box, which Aguayo selected, indicating that the primary purpose for which he purchased the vehicle was "personal, family or household" use. (Id. at 1.) The contract is evidence that Aguayo purchased the vehicle for primarily personal use, placing him within the purview of the Rees-Levering Act. Because U.S. Bank has not produced any contrary evidence, there is no dispute that Aguayo purchased the vehicle primarily for personal use.
Next, U.S. Bank contends Aguayo failed to demonstrate that absent class members purchased the vehicles for personal use because some members may have purchased their vehicles for primarily business use. (Amended Opp. 12.) U.S. Bank bases this contention on the following claims: (1) certain conditional sales contracts listed a business entity as the buyer; and (2) testimony from customer service representatives that post-repossession calls often involved concerned customers complaining that "they needed to get their vehicles back for use in their small businesses." (Id. at 14-16.) These facts, without more, fail to raise a triable issue of material fact.
In Ballard v. Equifax Check Servs., Inc., 158 F.Supp.2d 1163, 1172 (E.D.Cal.2001), plaintiff sought summary judgment on his claim that defendant's practice of sending letters demanding an unauthorized $20.00 service charge violated the FDCPA. Id. at 1167. Similar to U.S. Bank's argument here, the defendant opposed the motion, arguing the plaintiff failed to establish the transactions were consumer in nature and, thus, within the scope of the FDCPA. Id. at 1170. The court found evidence that the defendant categorized checks as either "personal" or "business" in its computerized database raised a "rebuttable presumption that the underlying transactions were personal in nature." Id. at 1172-73. The court reasoned that the personal nature of the transaction did not prevent the court from deciding the motion in plaintiff's favor, but explained that defendant would be permitted to proffer evidence to rebut the presumption on an individual basis during the damages stage of the litigation. Id. at 1173.
Moreover, U.S. Bank's argument disregards that class members, by definition, are limited to those who purchased their vehicles primarily for personal use. (Class Cert. Order 16.) U.S. Bank's argument is therefore tantamount to a challenge to the number of class members who will ultimately be entitled to damages. See Ballard 158 F.Supp.2d at 1171. To the extent U.S. Bank has evidence indicating that certain borrowers misrepresented the primary purpose for their purchases and, therefore, are not members of the class, U.S. Bank may present its evidence during the damages phase of the litigation.
Aguayo contends the NOIs sent to him and the class members failed to include the specific disclosure requirements of section 2983.2(a)(2). U.S. Bank does not respond to this argument.
U.S. Bank's NOIs included a reinstatement block containing an itemization of the amount of deficiency up to the date of the notice and the sum of those items under the heading "Reinstatement." (Aguayo Dec., Ex. 2 at 2.) Following the sum of the total deficiency, the notice states: "Plus payments and expenses that may become due or incurred during the period stated above." (Id.)
Section 2983.2(a)(2) provides "there is a conditional right to reinstate the contract until the expiration of 15 days from the date of giving or mailing the notice and
Id. at 904-05, 61 Cal.Rptr.3d 382.
U.S. Bank does not dispute that its NOIs failed to include the following reinstatement conditions: (1) reinstatement
The UCL forbids unfair competition, including unlawful, unfair, and fraudulent business practices. Bus. & Prof. Code § 17200. In essence, the UCL "borrows" violations from other laws by treating them as independently actionable as unfair competition. See, e.g., Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1143, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003).
Aguayo's motion requests a finding that U.S. Bank's practice of seeking deficiency payments after sending the defective NOIs was an unlawful business practice under the UCL. (MSJ P & A 15-16.) U.S. Bank opposes arguing that its conduct was not unlawful because Rees-Levering does not extinguish the borrower's underlying debt, and instead only bars the lender from using legal action to obtain the deficiency balance. (Amended Opp. 4.) In support of its argument, U.S. Bank relies on Herrera v. LCS Financial Services Corp., 2009 WL 2912517 (N.D.Cal. 2009).
Herrera interpreted California Civil Code § 580b, an anti-deficiency provision for purchase-money mortgages. Id. There, the mortgage company sent the plaintiff-homeowner letters demanding payment of the deficiency after her home was foreclosed upon. Id. at *3. The plaintiff subsequently sued the mortgage company, claiming section 580b eliminated the underlying debt, thus rendering the mortgage company's attempts unlawful. Id.
Section 580b provided that "no deficiency judgment shall lie" from a homeowner's default of a purchase-money mortgage. Cal.Code. Civ. Proc. § 580b. Interpreting the "plain language" of the statute, Herrera determined that the statute does not eliminate the underlying debt, but only bars a mortgagee's ability to obtain a personal judgment against the mortgagor through judicial means. Herrera, 2009 WL 2912517 at *4. Thus, the court found the mortgagee's attempts to collect the deficiency balance were not unlawful so long as it did not use or threaten legal action. Id.
Herrera does not assist U.S. Bank because Rees-Levering is distinguishable from section 580b. Unlike section 580b, Rees-Levering contains two provisions regarding deficiency obligations. One of the sections, 2983.8(b), is similar to the provision in Herrera, as it provides "no deficiency judgment shall lie ... [a]fter any sale or other disposition of a motor vehicle unless the court has determined that the sale or other disposition was in conformity with the provisions of this chapter." Cal. Civ.Code. § 2983.8(b). As stated in Herrera, this language only eliminates a lender's recourse to the courts by barring it from seeking a personal judgment against the borrower.
However, the other Rees-Levering provision — section 2983.2(a) — provides that a borrower "shall be liable for any deficiency
The problem then for U.S. Bank is that it sent collection letters to Aguayo and the class members stating:
(Aguayo Dec., Ex. 3 at 2, emphasis added.) This language falsely suggested to Aguayo and the class that they were legally obligated to pay the deficiency amounts attributed to their accounts. In response, Aguayo made two $50 payments against his deficiency to the collection agency. (Aguayo Dec., Ex. 9 [Doc. 138-9] 2.) The class members similarly paid approximately $3.7 million toward their aggregate deficiencies. (Brewer Dec. [Doc. 137], Ex. A [Doc. 137-2] at 3.) The fact that U.S. Bank's collection efforts had not progressed to legal action is irrelevant because the letters were misleading to the extent they suggested Aguayo and class members were still liable for the deficiency, contrary to the explicit language of section 2983.2(a). Accordingly, the Court finds U.S. Bank violated the UCL.
Aguayo seeks a declaration that USB's deficiency claims against the class are invalid, void, and unenforceable, and that that the class members are not liable to USB for the deficiency balances. (MSJ P & A 17.) Because the NOIs U.S. Bank sent to Aguayo and the class members did not comply with section 2983.2(a), Aguayo is entitled to the declaratory relief requested.
Aguayo also seeks an order enjoining U.S. Bank from continuing to collect deficiency payments from Aguayo and class members, and recording in its internal records that deficiency payments are owed. (MSJ P & A 17.) Because Aguayo and the class members are not liable for the deficiencies, Aguayo is entitled to an injunction against U.S. Bank's continued collection efforts against Aguayo and class members. However, although U.S. Bank is barred from pursing deficiency claims against Aguayo and the class members, Aguayo has not identified any provision in Rees-Levering governing a lender's internal record keeping practices. Accordingly, Aguayo is not entitled to an injunction regarding U.S. Bank's internal recording keeping.
For the reasons stated above, the Court
In light of these findings, the Court
Aguayo's request for an injunction regarding U.S. Bank's internal record-keeping practices is
