In Duran v. Quantum Auto Sales, Inc., 2017 WL 6333871, at *8 (Cal.App. 4 Dist., 2017), the Court of Appeal held in an unpublished decision that a car dealer’s Benson-tender did not insulate the dealer from liability.
In this case, Quantum’s pre-litigation offer went far beyond a willingness to take corrective action as contemplated by the drafters of the CLRA. We recognize Quantum agreed to fix its mistake by rescinding the Contract, reimbursing Duran for her out-of-pocket losses, and giving her $500 for incidental costs. Certainly these remedies were all entirely appropriate under the CLRA. What made the offer improper was that Quantum did not simply volunteer to correct its mistake and put Duran financially back to where she started. Quantum demanded several things in exchange for remedying its illegal car scam. Quantum commanded that Duran agree to (1) perform tasks that were unreasonable and contrary to the purpose of CLRA, (2) abandon her concurrent CLRA “action for injunctive relief,” and (3) release Quantum from her other non-CLRA claims. We conclude an appropriate corrective offer only gives the merchant an opportunity to avoid litigation by fixing its mistakes. It cannot be used as a weapon to force a consumer to compromise on the issues or prematurely settle the case for less than what would make her whole. As we will now explain, the trial court did not abuse its discretion in recognizing the purported correction offer was simply an unequitable and one-sided settlement offer, made in bad faith, in a misguided attempt to the take advantage of the affirmative defenses offered by the CLRA. We will address each of Quantum’s improper demands in turn.
The Court of Appeal also held that the Holder’s tender of the RISC back to the dealer did not divest the Holder of liability under the FTC Holder Rule
Veros does not suggest what policy or purpose would be served by giving a creditor-assignee such an easy exit strategy. The notice provides “any holder ” is subject to all claims and defenses the consumer has against the original seller. “Therefore, any effort by an intermediary assignee to play ‘hot potato’ with a consumer credit contract will not be effective. If a holder acquired the contract from the seller, the holder is potentially liable to the consumer for return of all monies it received under the contract. The FTC Holder Rule seeks to place the burden on the seller and its assignee.” (Szwak, The FTC “Holder” Rule (2006) 60 Consumer Fin. L.Q. Rep. 361 (hereafter Szwak).) The Holder Rule takes away the financers’ traditional status as a holder in due course and subjects it to any potential claims and defenses the purchaser has against the seller. “Based on a simple public policy determination, as between an innocent consumer and a third party financer, the latter is generally in a vastly superior position to: (1) return the cost to the seller, where it properly belongs; (2) exert an influence over the behavior of the seller in the first place; and (3) to the extent the financer cannot return the cost (as in the case of fly-by-night dealers), “internalize” the cost by spreading it among all consumers as an increase in the price of credit. Knowing that it bears the cost of seller misconduct, the creditor ‘will simply not accept the risks generated by the truly unscrupulous merchant. The market will be policed in this fashion and all parties will benefit accordingly.’ ” (Szwak, supra, 60 Consumer Fin. L.Q. Rep. 361, fns. omitted.) Having determined the trial court properly held Veros liable for damages under the Holder Rule, we recognize the award must nevertheless be reversed because it required Veros to pay more than what was permissible under the Holder Rule. The FTC expressly determined recovery against “any holder” could not “exceed amounts paid” under the contract. (16 C.F.R. § 433.2, capitalization and bold omitted; Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 563 (Lafferty).) It appears the judgment is for a total sum exceeding the amount Duran actually paid to Veros.