Pulliam v. TD Auto Trade Finance

FTC HOLDER RULE
Pulliam v. TD Auto Trade Finance
Date: Nov. 16, 2021

Issues: Does the FTC Holder Rule limit recovery of attorney fees and damages? 

Case Summary: The American Bankers Association, American Financial Services Association, California Financial Services Association, and Consumer Bankers Association (Amici), filed a brief in the California Supreme Court supporting TD Auto Trade Finance. The brief urged the court to rule the FTC’s Holder Rule includes attorney fee awards.

Under the FTC Holder Rule (16 C.F.R. § 433.2), every consumer credit contract for the
purchase of goods or services must contain a two-sentence provision. The first sentence subjects holder of the contract to liability on claims or defenses the consumer may have against the seller. The second sentence limits the consumer’s “recovery” against a holder on those claims and defenses to sums the consumer has paid under the contract.

In July 2016, Tania Pulliam bought a “certified pre-owned” 2015 Nissan Altima from HNL Automotive and the transaction was financed by TD Auto Finance (defendants) under a retail installment sales contract. The vehicle did not have cruise control or six-way power-adjustable seats as advertised and did not meet the Nissan’s certified pre-owned requirements. A jury awarded Pulliam around $22,000 after finding the defendants violated the implied warranty of merchantability. Pulliam then sought around $170,000 in attorney fees, asserting the defendants are liable for attorney’s fees in addition to the amounts she paid under the contract. The trial court found for Pulliam. On appeal, Pulliam argued the Holder Rule only limits compensatory damages, while the defendants contended the rule limits both recovery of damages and attorney fees. The appeals court affirmed the trial court’s decision.

The brief argued the Holder Rule is unambiguous because the ordinary meaning of “recovery” includes attorney fee awards. FTC previously asserted in an advisory opinion the Holder Rule’s plain language applies. As the Holder Rule limits the debtor’s “recovery” against the holder, the brief argued “recovery” is a broad term including all money obtained by judgment or decree, including attorney fee awards. 

The brief also argued the court should defer to FTC’s confirmation—a regulation clarifying the Holder Rule. Previously, FTC declined to modify the Holder Rule to allow recovery of attorney fees above the amount the debtor paid under the contract. According to Amici, the court should apply the Supreme Court’s decision in Kisor v. Wilkie, which narrowed Auer deference. The brief highlighted the confirmation laid out FTC’s authoritative position on the Holder Rule’s meaning and implicated FTC’s substantive expertise. Further, the confirmation was not an “ad hoc statement” nor a “litigating position, post-hoc rationalization or defense of past FTC action.” Finally, the confirmation did not create an unfair surprise to regulated parties. For these reasons, the brief concluded the confirmation satisfies Auer deference. 

Bottom Line: The Pulliam decision created a split among California’s appellate districts. The Courts of Appeal in two other districts issued decisions concluding the Holder Rule’s limit on recovery does include attorney’s fees—Lafferty v. Wells Fargo Bank (2018) and Spikener v. Ally Financial (2020). The California Supreme Court has not yet scheduled oral argument.