In Grayot v. Bank of Stockton, No. C097061, 2023 WL 8797493, at *3–4 (Cal. Ct. App. Dec. 20, 2023), the Court of Appeal held that an assignee of an automobile retail installment sales contract could not deprive itself of “holder” status under the FTC Holder Rule contained in the RISC by re-tendering assignment of the RISC back to the assignor after a claim had been lodged against both the seller and the assignee by the buyer.

The Bank’s assertion that it is not liable because it is no longer the holder is based on the fact that a holder is understood to be the person or entity in possession of an instrument. (See Cal. U. Com. Code, § 1201, subd. (b)(21)(A) [“the person in possession of a negotiable instrument that is payable either to bearer or, to an identified person that is the person in possession”].) It interprets the Holder Rule to only permit claims against the current holder of the instrument, regardless of whether the defendant was the holder when it received the payments that form the basis of the lawsuit. This argument ignores how the rule functions, which is to provide notice within the instrument itself of the abrogation of the holder in due course rule. (16 C.F.R. § 433.2(a).) “ ‘The clear and unambiguous language of the contractual provision notifies all potential holders that, if they accept an assignment of the contract, they will be “stepping into the seller’s shoes.” The creditor/assignee will become “subject to” any claims or defenses the debtor can assert against the seller.’ ” (Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 560.) “ ‘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.’ ” (Hernandez v. Apple Auto Wholesalers of Waterbury LLC (D.Conn. Sept. 30, 2022, No. 3:17-cv-1857) 2022 U.S. Dist. LEXIS 179567, *31-32.)  The respondent’s brief asserts there is a “lack of uniformity across the nation as to whether the Holder Rule applies to more than current holders,” but cites no authority concluding a defendant was not liable because it was no longer a holder. Indeed, despite the fact the Holder Rule was promulgated more than 45 years ago, the Bank cites no authority interpreting it in the manner it suggests. Our own research has yielded no authority evincing such an understanding; only authority evincing the opposite. (See, e.g., Melendez v. Westlake Services, LLC (2022) 74 Cal.App.5th 586, 589 [affirming award of fees against former holder who assigned contract back to seller during litigation]; Resolution Trust Corp. v. Cook (Tex.Ct.App. 1992) 840 S.W.2d 42, 45, 49 [affirming judgment against two savings associations and their receiver and conservator despite transfer of note from one savings association to the other].) Furthermore, we find the Bank’s attempts to distinguish those authorities that address this issue unconvincing.  In Associates Home Equity Services, Inc. v. Troup (N.J.Super.Ct.App.Div. 2001) 343 N.J.Super. 254 [778 A.2d 529], a New Jersey appellate court rejected an argument that assignment of a note rendered the Holder Rule inapplicable. (Id. at pp. 276-277.) The court explained, “ECM [(East Coast Mortgage Corp.)], as ‘a potential holder’ had notice that if it procured the purchase money loan arranged by Wishnia, it may be stepping into Wishnia’s shoes. We cannot accept the proposition that the FTC contemplated that such result would not attach simply because of a subsequent assignment of the loan, especially when, as here, it is claimed that ECM actively participated with Wishnia, the seller, in placing the loan with the Troups.” (Id. at p. 277, emphasis added.) The Bank asserts that only the italicized language was the basis for the court’s ruling and misrepresents the ruling as remanding the case because fact issues existed regarding whether it actively participated in the wrongful conduct. (See, e.g., id. at p. 275 [“there is at the very least a fact issue concerning whether ECM’s note constituted a ‘purchase money loan’ ”].) Associates Home Equity Services, Inc. v. Troup does in fact interpret the Holder Rule in the manner urged by Grayot. It is also not the only authority to do so. In Hernandez v. Apple Auto Wholesalers of Waterbury, LLC (2021) 338 Conn. 803, 806 [259 A.3d 1157] (Hernandez), the Supreme Court of Connecticut interpreted Connecticut General Statutes § 52-572g, subd. (a), which provides in relevant part that “[a]ny holder in due course of a promissory note, contract or other instrument … executed by a buyer in connection with a credit transaction covering consumer goods … shall be subject to all of the claims and defenses which the buyer has against the seller arising out of the transaction … limited to the amount of indebtedness then outstanding in connection with the credit transaction, provided the buyer shall have made a prior written demand on the seller with respect to the transaction.” As that court explained, “ ‘[t]he word “any” has a diversity of meanings and may be employed to indicate “all” or “every” as well as “some” or “one” ‘; [citation]; the word ‘holder’ does not. It has a decidedly singular meaning in the law: ‘[s]omeone who has legal possession of a negotiable instrument and is entitled to receive payment on it.’ Blacks Law Dictionary (11th Ed. 2019), p. 879.” (Hernandez, supra, at p. 823.) Thus, the phrase “any holder” “can only mean any person in legal possession of the instrument, not a person formerly in possession of it.” (Id. at p. 824.) The Bank argues this means Hernandez supports its position. It does not. As the Hernandez court explained, this “does not mean that it requires continued possession of it for liability to remain attached…. We read the word ‘shall’ in the phrase ‘shall be subject to’ as creating a mandatory duty and the phrase ‘provided the buyer shall have made a prior written demand on the seller’ as creating a condition precedent for the imposition of that duty such that[,] once[ ] written demand is made on the seller, the holder’s liability attaches.” (Ibid., emphasis added.) After liability attaches, “the assignee cannot avoid liability by reassigning the promissory note, contract or other instrument back to the seller.” (Id. at p. 822.) To support its conclusion, the court quoted at length from an unpublished California case that concluded a creditor-assignee cannot avoid liability under the Holder Rule by reassigning the debt instrument after the misconduct has occurred and it has been named as a defendant. (Id. at pp. 824-825.)  In granting the Bank’s motion for summary judgment, the trial court explained it did not find Hernandez persuasive because it was “not aware of any corollary California authority that would allow liability on plaintiff’s causes of action to attach at the demand letter.” The trial court misunderstood Hernandez. The Connecticut statute at issue required the buyer to make a demand on a seller in order to abrogate the traditional holder in due course rule. Here, the traditional holder in due course rule is abrogated by the legal effect of the Holder Rule notice in the contract without any additional requirements. Additionally, “ ‘[t]he Holder Rule does not create any new claims or defenses for the consumer; it simply protects the consumer’s existing claims and defenses.’ ” (Lafferty v. Wells Fargo Bank, supra, 213 Cal.App.4th at p. 560.) As such, if the Bank is liable, that liability attached before it reassigned the contract back to the dealership and we agree with Hernandez that continued possession is not required for liability to remain attached.2 (Hernandez, supra, 338 Conn. at p. 824.) The trial court erred in concluding otherwise.