Pulliam v.TD Auto Trade Finance

FTC HOLDER RULE
Pulliam v. TD Auto Trade Finance
Date: Oct. 26, 2022

Issues: Whether the Federal Trade Commission’s (FTC) Holder Rule limit recovery of attorney fees and damages.

Case Summary: The American Bankers Association, the American Financial Services Association, the Consumer Bankers Association and the California Financial Services Association (Amici) filed an Amicus Brief urging the U.S. Supreme Court to grant TD Auto Trade Finance’s (TD) petition to review their case and hold the Holder Rule limits the recovery of attorney fees.

In July 2016, Tania Pulliam purchased a 2015 “certified pre-owned” Nissan Altima from HNL Automotive. TD financed the transaction 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 Nissan’s certified pre-owned requirements. A jury awarded Pulliam approximately $22,000 after finding the defendants violated the implied warranty of merchantability. Pulliam then sought approximately $170,000 in attorney fees, asserting the defendants were liable for attorney fees in addition to the amounts she paid under the contract. The trial court found for Pulliam.

On appeal, Pulliam argued the FTC Holder Rule only limits compensatory damages, while TD contended the rule limits both recovery of damages and attorney fees. Under the 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 the 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. The appeals court affirmed the trial court’s decision.

The California Supreme Court unanimously ruled the FTC Holder Rule’s recovery limit does not include attorney fees if state law provides for attorney fees against a holder. The court found the phrase “recovery hereunder by the debtor” was ambiguous, finding the phrase could refer to money the debtor keeps (like damages), or also to money the debtor receives and passes along to its counsel (such as attorneys’ fees). Further, the court considered the impact of FTC’s 2019 Rule Confirmation and 2022 Advisory Opinion. The court explained that FTC did not mention attorney fees until its 2019 Rule Confirmation, which suggests FTC only intended the Holder Rule to limit damages awards.

In its certiorari petition, TD urged the U.S. Supreme Court to review its case because: the California Supreme Court’s decision conflicts with decisions of other state courts of last resort; the California Supreme Court’s interpretation of the Holder Rule is wrong; the question presented is exceptionally important; and this case is an ideal vehicle to resolve the question presented.

Amici filed an amicus brief urging the Supreme Court grant review and hold the Holder Rule caps the recovery of attorney fees. Amici argued: the petition raises a question that is vital to the resolution of thousands of cases annually on which there is a clear split of authority; the Court should grant certiorari to rein in administrative agency usurpation of the judicial power to interpret regulations; and the Court should grant certiorari because the decision is clearly wrong. Further, Amici asserted the state court’s opinion makes a fundamental error in following state law rules and citing state court authority in construing the Holder Rule, a federal regulation. According to Amici, the meaning of a federal statute is a question of federal law that must be decided using the rules of construction outlined in the Supreme Court’s decisions.

Bottom Line: The decision potentially increases the amount of money a plaintiff can recover from a dealer seller under the FTC Holder Rule.

Download the amicus brief to read the full text.