4.5 Plaintiff's Memorandum in Support of Motion for Summary Adjudication of Declaratory Relief Cause of Action

SUPERIOR COURT OF THE STATE OF CALIFORNIACOUNTY OF SANTA CLARA

CARMEN MIRANDA,

Individually, and on behalf of others similarly situated, and on behalf of the general public,

Plaintiff,

v.

FORD MOTOR CREDIT COMPANY; and DOES 1 through 20, inclusive,

Defendants.

))))))))))))))))

CASE NO.

PLAINTIFF'S MEMORANDUM OF POINTSAND AUTHORITIES IN SUPPORT OF MOTION FOR SUMMARY ADJUDICATIONOF DECLARATORY RELIEF CAUSE OF ACTION

Date:Time: Judge:

Complaint Filed: Trial Date:

TABLE OF CONTENTS

I. INTRODUCTIONII. STATEMENT OF FACTS

III. ARGUMENT

A. SUMMARY ADJUDICATION IS APPROPRIATE FOR A DECLARATORY RELIEF CAUSE OF ACTION

1. The Standard for Granting Summary Adjudication.

2. The Elements of Declaratory Relief.B. PLAINTIFF IS ENTITLED TO A DECLARATION

THAT SHE IS NOT LIABLE TO FORD CREDIT FOR ANY DEFICIENCY

1. The Rees-Levering Act Precludes Any Deficiency Liability.

2. The Absolute Bar Rule Requires Strict Compliance With Statutory Notice Requirements.

3. Plaintiff Does Not Seek A Retroactive Application of the Statute.

C. PLAINTIFF IS ENTITLED TO DECLARATORY RELIEF CONCERNING THE RIGHTS OF POTENTIAL CLASS MEMBERS

IV. CONCLUSION

TABLE OF AUTHORITIES

Federal Cases

Carter v. Wells Fargo Bank 511 F.2d 1203, (9th Cir. 1975)

In Re Kirkland 915 F.2d 1236 (9th Cir. 1990)

Nixdorf Computer, Inc. v. Jet Forwarding, Inc. 579 F.2d 1175 (9th Cir. 1978)

Parsons v. Southwest Bank 124 B.R. 818 (S.D. Cal. 1991)

State Cases

American National Bank v. Perma-Tile Roof Company 200 Cal.App.3d 889 (1988)

Atlas Thrift v. Horan, 27 Cal.App.3d 999 (1972)

Backes v. Village Corner, Inc. 197 Cal.App.3d 209 (1987)

Bank of America v. Lallana 19 Cal.4th 203 (1998)

Barber v. Leroy 40 Cal.App.3d 336 Cal.Rptr. 272 (1974).

Brown v. West Covina Toyota 26 Cal.App.4th 555 (1994)

C.I.T. Corporation v. Anwright Corp. 191 Cal.App.3d 1420 (1987)

Californians for Native Salmon and Steelhead Association v. Department of Forestry

221 Cal.App.3d 1419 (1990)

Canadian Commercial Bank v. Ascher Findley Company 229 Cal.App.3d 1139 (1991)

City of Torrance v. Workers' Compensation Appeals Board 32 Cal.3d 371 (1982)

Connolly v. Bank of Sonoma County 184 Cal.App.3d 1119 (1986)

Crocker National Bank v. Emerald 221 Cal.App.3d 852 (1990)

Diamond v. Multimedia Systems, Inc. v. Superior Court 19 Cal.4th 1036, 1046-47 (1999), cert. denied, 119 S.Ct. 2338

(1999)

Earl v. Loveless, Inc. v. Gabele supra, 2 Cal.App.4th at 33

El Dorado Bank v. Lytle 147 Cal.App.3d Supp. 17 (1983)

Employment Development Dept. v. Superior Court 30 Cal.3d 256 (1981)

Ford Motor Credit Company v. Price 163 Cal.App.3d 745 (1985)

Hernandez v. Atlantic Finance Co. 105 Cal.App.3d 65 (1980)

Home Sav. & Loan Assn. v. Superior Court

42 Cal.App.3d 1006 (1975)

Home Sav. & Loan Assn. v. Superior Court 54 Cal.App.3d 208 (1976)

Hughes v. Board of Architectural Examiners 17 Cal.4th 763 (1998)

Kobzoff v. Los Angeles County Harbor/UCLA Medical Center 19 Cal.4th 851 (1998)

Lennane v. Franchise Tax Board 9 Cal.4th 263 (1994)

People v. Grant 20 Cal.4th 150 (1999)

Redwood Coast Watersheds Alliance v. State Board of Forestry & Fire Protection

70 Cal.App.4th 962 (1999)

Save our Forest & Ranchlands v. County of San Diego 50 Cal.App.4th 1757 (1996)

Southern California Edison Co. v. Superior Court 37 Cal.App.4th 839 (1995)

Strauch v. Superior Court 107 Cal.App.3d 45 (1980)

Tapia v. Superior Court 53 Cal.3d 282 (1991)

Union Safe Deposit Bank v. Floyd 76 Cal.App.4th 25 (1999)

United Bank and Trust Company of California v. Brown 203 Cal. 359 (1928)

Venice Town Council, Inc. v. City of Los Angeles 47 Cal.App.4th 1547 (1996)

Western Security Bank v. Superior Court 15 Cal.4th 232 (1997)

Zetterberg v. State Dept. of Public Health 43 Cal.App.3d 657 (1974)

State Statutes

Civil Code

§ 2981 1§ 2983.2(a)(1)

§ 2983.2(a)(9)§ 2983.3(a)(9)§ 2983.8

Code of Civil Procedure

§ 437c(c)§ 437c(o)(1)§ 437c(f)§ 1060§ 1062

Commercial Code

§ 9504 §9504(3)Other Authorities5 Witkin, Cal. Procedure

(3d ed. 1985), Pleading, §811

I. INTRODUCTION

Under California law, when a creditor repossesses collateral under a secured loan transaction, the borrower is liable for a deficiency, (i.e., the difference between the outstanding balance on theloan and the proceeds from the sale of the collateral), only if the creditor has provided notice of the disposition in strict compliance with the law. This "absolute bar" rule has been firmly embedded in the California Uniform Commercial Code for decades. See Commercial Code § 9504; Union Safe Deposit Bank v. Floyd, 76 Cal.App.4th 25, 30-31 (1999) and citations therein; Atlas Thrift v. Horan, 27 Cal.App.3d 999, 1009 (1972). It has also been part of the Rees-Levering Automobile Sales Financing Act, Civil Code § 2981, et seq., ("the Rees-Levering Act") since it was first enacted in 1962. Civil Code § 2983.2(a)of the Rees-Levering Act explicitly provides that, after the repossessionor voluntary surrender of a vehicle, the borrower will be liable for a

deficiency "only if" a timely notice is given containing "all of" of the disclosures enumerated by the statute (hereinafter the "Statutory Notice"). Civil Code § 2983.2(a) (emphasis added).

For motor vehicle transactions governed by the Rees-Levering Act, the required Statutory Notice must comply with both Rees-Levering and the notice provisions of the Commercial Code. Bank of America v. Lallana, 19 Cal.4th 203, 210 (1998). It is well-established that the Statutory Notice provisions require strict compliance. Bank of America v. Lallana, supra, 19 Cal.4th at 214-215; see also Union Safe Deposit Bank, supra, 76 Cal.App.4th at 32 ("California law requires strictcompliance with the notice requirement"); Crocker National Bank v. Emerald, 221 Cal.App.3d 852, 862 (1990) ("'The right to a deficiency judgment is conditional and depends on strict compliance with the statutory requirements.'") (citations omitted). California courts have repeatedly reaffirmed that the consequence of a creditor's failure to comply strictly with the notice requirements is that no deficiency is owed by the borrower. "The rule and requirement are simple. If the secured creditor wishes a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment."Bank of America v. Lallana, supra, 19 Cal.4th at 215 (citations omitted) (emphasis added).

Effective January 1, 1997, the Legislature amended Civil Code § 2983.2(a) of the Rees-Levering Act to require a disclosure in the Statutory Notice that the borrower will be liable for the deficiency balance and interest following the disposition of the borrower's vehicle.Civil Code § 2983.2(a)(9). The undisputed facts in this case establish that, for several months after January 1, 1997, defendant Ford Motor Credit Company ("Ford Credit") failed and/or refused to comply with the amended statute, and instead issued Statutory Notices that did notcontain the disclosure mandated by Civil Code § 2983.3(a)(9) to thousands of borrowers throughout California, including plaintiff Carmen Miranda ("Miranda"). See Plaintiff's Separate Statement of Undisputed Material Facts In Support of Motion for Summary Adjudication (hereinafter "Plaintiff's Sep. Stmt."), 5, 10, 11. Thereafter,in direct violation of the explicit provisions of the Rees-Levering Act, Ford Credit has engaged in a practice of collecting and/or attempting tocollect deficiencies from borrowers, including Miranda, who were issued defective Statutory Notices, and who are therefore not liable for any deficiency as a matter of law. Indeed, even in the face of this action challenging its unlawful activity, Ford Credit has adopted a formal policy of proceeding with these collection efforts.1 Plaintiff's

1 Plaintiff’s First Amended Complaint in this action alleges causes of action for violations of the Rees-Levering Act, an accounting, violations of Business and Professions Code § 17200, et seq., and for declaratory relief. On behalf of herself and

Sep. Stmt. 13. In a separate action filed in this Court by a creditor seeking a deficiency judgment against a borrower, the Honorable Gregory H. Ward has already ruled that a creditor's failure to include the disclosure required by Civil Code § 2983.2(a)(9) precludes recoveryof any deficiency judgment. In Chrysler Financial Corp. v. Mendoza, Santa Clara Superior Court Case No. DC97 358332, Judge Ward set aside a default judgment entered against the borrower, finding that theStatutory Notice issued by Chrysler Financial did not contain any disclosure of the borrower's liability as required by Civil Code § 2983.2(a)(9), and therefore, Chrysler was not entitled to recover any deficiency. A copy of Judge Ward's Order, filed on January 27, 1999, is attached as Exhibit A to Plaintiff's Request for Judicial Notice ("RJN"). Chrysler appealed the Order to the Appellate Department of this Court,which summarily affirmed on November 19, 1999, after full briefing and oral argument. See Plaintiff's RJN, Exhibit B.

By this motion, plaintiff seeks summary adjudication of her fourthcause of action for declaratory relief. Specifically, plaintiff seeks this Court's declaration that:

As a matter of law, because Ford Credit issued Statutory Notices to plaintiff Miranda and to other members of the proposed class on dates after January 1, 1997 that did not contain the disclosuremandated by Civil Code § 2983.2(a)(9), neither Miranda nor any other member of the proposed class who was issued such a Statutory Notice is liable to Ford Credit for any deficiency following the disposition of his or her vehicle.2

Plaintiff is entitled to summary adjudication because her declaratory relief cause of action presents an actual controversy as to the parties' respective rights and obligations under the Rees-Levering Act, and the undisputed facts establish that plaintiff is entitled to declaratory judgment as a matter of law. It is well-established that an issue of statutory interpretation is not only an appropriate subject for declaratory relief, but one which is particularly well-suited for resolution by declaratory judgment. See Venice Town Council, Inc. v. City of Los Angeles, 47 Cal.App.4th 1547, 1566 (1996); Californians for Native Salmon and Steelhead Association v. Department of Forestry,

a proposed class, plaintiff seeks class certification, declaratory relief, injunctive relief,restitution, compensatory damages, an accounting, pre-judgment interest, and attorneys’ fees, costs and expenses.

2 Plaintiff does not seek this declaratory relief as to any individual against whom, as of the date of declaratory relief, Ford Credit has already obtained a judgment in a separate action.

221 Cal.App.3d 1419, 1426 (1990). Plaintiff's declaratory relief cause of action presents issues of law that are clearly in controversy and that can and should be resolved by judicial declaration. Accordingly, for the reasons set forth below, plaintiff requests that the Court grant summary adjudication of her fourth cause of action, and issue declaratory relief as requested.

II. STATEMENT OF FACTS

In May, 1996, plaintiff Carmen Miranda ("Miranda") purchased and financed a used 1995 Nissan Sentra from Frontier Ford, a car dealership in the San Jose area. Plaintiff's Sep. Stmt. 1 . The financing for Miranda's purchase of the vehicle was arranged by the dealership, and provided by defendant Ford Credit. Plaintiff's Sep. Stmt. 2.

In March 1997, Ford Credit repossessed the vehicle from Miranda for reasons of non-payment. Plaintiff's Sep. Stmt. 3. Following the repossession, Ford Credit issued a Statutory Notice to Miranda informing her that the vehicle had been repossessed, and that following a 15-day period, Ford Credit intended to sell the vehicle. Plaintiff's Sep. Stmt. 4.

The Statutory Notice, although ostensibly provided pursuant to

the Rees-Levering Act, Civil Code § 2983.2(a), was defective in that it did not contain the disclosure mandated by § 2983.2(a)(9), which requires that the borrower be notified of his or her liability for a deficiency balance and interest. Plaintiff's Sep. Stmt. 5. Specifically, subsection (a)(9) of § 2983.2, which went into effect on January 1, 1997, requires that the Statutory Notice inform borrowers that "upon disposition of the motor vehicle, they will be liable for the deficiency balance plus interest at the contract rate, or at the legal rate of interest pursuant to Section 3289 if there is no contract rate of interest, from the date of disposition of the motor vehicle to the date ofentry of judgment." Civil Code § 2983.2(a)(9). A copy of the Statutory Notice issued to Miranda is attached as Exhibit D to the Declaration of Mark A. Chavez, filed herewith. It is apparent from the face of the document, and cannot be disputed, that it does not contain the disclosure mandated by Civil Code § 2983.2(a)(9).

Nevertheless, after Ford Credit sold Miranda's vehicle, it sent her collection letters demanding that she pay an approximately $7,200 deficiency balance it claimed she owed. Plaintiff's Sep. Stmt. 6. WhenMiranda did not respond, Ford Credit filed a lawsuit in Santa Clara Municipal Court seeking to collect the alleged deficiency balance, and obtained a default judgment against her in the amount of approximately $9,300. Plaintiff's Sep. Stmt. 7, 8; Plaintiff's Request for

Judicial Notice, Exhibits C and D. After Miranda obtained counsel, Ford Credit agreed to vacate the default judgment, and to dismiss its action.Plaintiff's Sep. Stmt. 9. It dismissed the case without prejudice, however, and has steadfastly maintained in this action that Miranda and all other borrowers who were issued the defective Statutory Notices owe deficiency balances.

Miranda was only one of many California borrowers to whom FordCredit issued defective Statutory Notices. For a period of at least six months commencing on January 1, 1997, Ford Credit issued Statutory Notices to thousands of borrowers throughout California that did not contain the disclosure mandated by § 2983.2(a)(9). Plaintiff's Sep. Stmt. 10-12. Although the borrowers who received such defective notices were not liable, as a matter of law, for any deficiency after the disposition of their vehicle, (see Civil Code § 2983.2(a); § 2983.8), Ford Credit has nevertheless continued to collect deficiency balances from such borrowers. Plaintiff's Sep. Stmt. 13.

III. ARGUMENTSUMMARY ADJUDICATION IS APPROPRIATE FOR A

DECLARATORY RELIEF CAUSE OF ACTION

The Standard for Granting Summary Adjudication.Code of Civil Procedure § 437c(f) authorizes either party to an

action to file a motion for summary adjudication as to "one or more causes of action" on the grounds that "the cause of action has no meritor that there is no affirmative defense thereto, or that there is no meritto an affirmative defense as to any cause of action, or both, . . . ." Code Civ. Proc. § 437c(f). Summary adjudication shall be granted if "there is no triable issue as to any material fact and the moving party is entitled to judgment as a matter of law." Code Civ. Proc. § 437c(c).

The burdens on the respective parties when the plaintiff is the moving party on a motion for summary adjudication are set forth in Section 437c(o)(1), as follows:

A plaintiff or cross-complainant has met his or her burden of showing that there is no defense to a cause of action if that partyhas proved each element of the cause of action entitling the party to judgment on that cause of action. Once the plaintiff has met that burden, the burden shifts to the defendant or cross-defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The defendant or cross-defendant may not rely upon the mere allegations or denials of its pleadings to show that triable issue ofmaterial fact exists but, instead, shall set forth the specific facts

showing that a triable issue of material fact exists as to that cause or action or defense thereto.

Code Civ. Proc. § 437c(o)(1).

In this case, the undisputed facts establish that plaintiff is entitled to judgment as a matter of law on her declaratory relief cause of action. Ford Credit cannot establish triable issue of fact, and has no defense as a matter of law.

The Elements of Declaratory Relief.The grounds for a cause of action for declaratory relief are

codified in Code of Civil Procedure § 1060, which provides in part as follows:

Any person interested under a written instrument, . . . or under a contract, or who desires a declaration of his or her rightsor duties with respect to another, . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court . . . for a declaration of his or her rights . . . He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights and duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment.

Code of Civil Procedure § 1060 (emphasis added).

Code of Civil Procedure § 1062 specifically provides that declaratory relief is a cumulative remedy, which does not restrict any other remedy to which the party may be entitled, nor preclude any additional relief based on the same facts. Code of Civil Procedure § 1062; see also Venice Town Council, Inc. v. City of Los Angeles, supra, 47 Cal.App.4th at 1565-66 (although cause of action for declaratory relief was potentially cumulative to other relief, allegations were sufficient to entitle plaintiffs to relief); Californians for Native Salmon and Steelhead Association v. Department of Forestry, supra, 221 Cal.App.3d at 1429 (declaratory relief is a cumulative remedy).

There is essentially only one element to a declaratory relief cause of action – "the existence of an actual, present controversy over a proper subject." Californians for Native Salmon and Steelhead Association, supra, 221 Cal.App.3d at 1426, citing 5 Witkin, Cal. Procedure (3d ed. 1985), Pleading, §811. The standard courts apply

in determining whether declaratory relief is appropriate was recently summarized in Redwood Coast Watersheds Alliance v. State Board of Forestry & Fire Protection, 70 Cal.App.4th 962 (1999):

The standard for the granting of declaratory relief is well-established. '[T]he controversy must be of a character which admits of specific and conclusive relief by judgment within the field of judicial determination, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, and not suggest, what the parties may ormay not do.'

Id. at 968, quoting Zetterberg v. State Dept. of Public Health, 43 Cal.App.3d 657, 661-662 (1974). "Declaratory relief must be granted when the facts justifying that course are sufficiently alleged. Any doubt should be resolved in favor of granting declaratory relief." Venice Town Council, Inc., supra, 47 Cal.App.4th at 1565; Californians for Native Salmon, supra, 221 Cal.App.3d at 1427 (declaratory relief must be granted when the facts justifying relief are sufficiently alleged;"any doubt should be resolved in favor of granting declaratory relief").

Declaratory relief is an equitable remedy, and is "'unusual in thatit may be brought to determine and declare rights before any actual invasion of those rights has occurred.'" Californians for Native Salmon,221 Cal.App.3d at 1426 (citations omitted). It is well-established that "[a] controversy over an interpretation of a statute, and the duties thatstatute imposes, is a proper basis for a declaratory relief claim." Redwood Coast Watersheds Alliance, supra, 70 Cal.App.4th at 969. See also Venice Town Council, 47 Cal.App.4th at 1566 ("The proper interpretation of a statute is a particularly appropriate subject for judicial resolution."); Californians for Native Salmon, 221 Cal.App.3d at 1426 ("Declaratory relief is appropriate to obtain judicial clarification ofthe parties' rights and obligations under applicable law."). The interpretation of rights and duties under a contract is also a proper subject for declaratory relief. Code Civ. Proc. § 1060; Southern California Edison Co. v. Superior Court, 37 Cal.App.4th 839, 846-47 (1995).

A declaratory relief cause of action may be properly resolved on a motion for summary adjudication. Southern California Edison Co. v. Superior Court, supra, 37 Cal.App.4th at 846. The fact that the cause of action raises the same issues that are involved in other causes of action does not bar summary adjudication. Id., at 846-47.

PLAINTIFF IS ENTITLED TO A DECLARATION THAT SHE IS NOTLIABLE TO FORD CREDIT FOR ANY DEFICIENCY

The Rees-Levering Act Precludes Any Deficiency Liability.The Rees-Levering Act regulates automobile sales financing

transactions in California. Civil Code §2981, et seq. It was enacted in 1962, replacing the older 1945 Automobile Sales Act, and "was designed to provide a more comprehensive protection for the unsophisticated motor vehicle purchaser." Hernandez v. Atlantic Finance Co., 105 Cal.App.3d 65, 69 (1980); Brown v. West Covina Toyota, 26 Cal.App.4th 555, 563 (1994).

Among other provisions, the Rees-Levering Act requires that a borrower under a conditional sales contract be provided a written notice of the lender's intent to dispose of a repossessed or surrenderedmotor vehicle (the "Statutory Notice"), and explicitly provides that the borrower shall not be liable for any deficiency balance or deficiency judgment following the disposition of his or her vehicle unless the lender has provided a Statutory Notice that strictly complies with the requirements of the statute. See Civil Code §§ 2983.2(a), 2983.8; Bank of America v. Lallana, supra, 19 Cal.4th at 206 (to obtain a deficiency judgment in a transaction governed by the Rees-Levering Act, the creditor must comply with the statute's notice requirements). This "absolute bar" rule is set forth in two separate sections of the statute. Civil Code § 2983.2(a) provides in relevant part as follows:

Except where the motor vehicle has been seized as described in paragraph (6) of subdivision (b) of Section 2983.3 [relating to seizures by public agencies], any provision in any conditional sale contract for the sale of a motor vehicle to the contrary notwithstanding, at least 15 days' written notice of intent to dispose of a motor vehicle shall be given to all persons liable on the contract. . . . Except as otherwise provided in Section 2983.8,those persons shall be liable for any deficiency after disposition of the repossessed or surrendered motor vehicle only if the notice prescribed by this section is given within 60 days of repossession or surrender and does all of the following: . . .

Civil Code § 2983.2(a) (emphasis added). The section then lists nine separate disclosures that must be made in the Statutory Notice. Civil Code § 2983.2(a)(1)-(9). By the explicit terms of the statute, if any of the nine disclosures is omitted or otherwise deficient, the borrower is not liable for any deficiency following the disposition of his or her vehicle. Civil Code § 2983.2(a).

Section 2983.8 of the statute further expresses the absolute bar rule by specifically barring any deficiency judgment against the borrower unless the lender affirmatively demonstrates its compliance with the statute.

Notwithstanding Section 2983.2 or any other provision of law, nodeficiency judgment shall lie in any event in any of the following instances:

* * *

(b) After any sale or other disposition of a motor vehicle unless the court has determined that the sale or other disposition was inconformity with the provisions of this chapter and the relevant provisions of Division 9 (commencing with Section 9101) of the Commercial Code, including section 9504. The determination may be made upon an affidavit unless the court requires a hearing in a particular case.

Civil Code § 2983.8 (emphasis added).

The California Supreme Court recently reviewed and applied these provisions in Bank of America v. Lallana, supra, 19 Cal.4th at 203, an analogous case arising under the Rees-Levering Act and involving a defective Statutory Notice. The Court held that in transactions governed by the Rees-Levering Act, the lender must comply with the notice requirements of both Civil Code § 2983.2 and Commercial Code § 9504, and reiterated that the lender's strict compliance with the Statutory Notice requirements is a condition precedent to recovery of any deficiency.

[W]e hold that to obtain a deficiency judgment, a secured creditor who sells a defaulting debtor's repossessed care must doso in a manner that complies not only with all the provisions of the Rees-Levering Act but also with any relevant provisions in Division 9 of the California Uniform Commercial Code.

Id., 19 Cal.4th at 210 (emphasis added). The Court went on to hold that because the creditor in that case had given the borrower notice of a private sale, but had thereafter sold the car under circumstances thatconstituted a public sale, it had failed to comply with the Statutory Notice requirements of Commercial Code § 9504, and was therefore precluded under the terms of the Rees-Levering Act from obtaining anydeficiency whatsoever from the borrower. Id., at 211-214. The Court concluded its opinion by quoting a long-standing rule of California law: "'[T]he rule and requirement are simple. If the secured creditor wishes

a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment.'" Bank of America v. Lallana, supra, 19 Cal.4th at 215, quoting Backes v. Village Corner, Inc., 197 Cal.App.3d 209, 216 (1987).3 See also El Dorado Bank v. Lytle, 147 Cal.App.3d Supp. 17, 19-21 (1983) (bank that had failed to complywith Rees-Levering Act notice requirements was precluded from recovering any deficiency from borrower).

The Supreme Court has repeatedly instructed that when the language of a statute is unambiguous, its plain meaning governs. This primary rule of statutory construction was recently summarized by the Court in Diamond v. Multimedia Systems, Inc. v. Superior Court, 19 Cal.4th 1036, 1046-47 (1999), cert. denied, 119 S. Ct. 2338 (1999):

As with any statutory construction inquiry, we must look first to the language of the statute. 'To determine legislative intent, a court begins with the words of the statute, because they generally provide the most reliable indicator of legislative intent.'. . . If it is clear and unambiguous our inquiry ends. There is no need for judicial construction and a court should not indulge in it.. . . 'If there is no ambiguity in the language, we presume the Legislature meant what it said and the plain meaning of the statute governs.'

Id., 19 Cal.4th at 1046-47 (citations omitted). See also Kobzoff v. Los Angeles County Harbor/UCLA Medical Center, 19 Cal.4th 851, 859-60 (1998) (under settled canons of statutory construction, the Court looks first to the statute's words and gives them their usual and ordinary meaning; "[i]f the plain language of a statute is unambiguous, no courtneed, or should, go beyond that pure expression of legislative intent") (citations omitted); Lennane v. Franchise Tax Board, 9 Cal.4th 263, 268 (1994) ("[w]here the statute is clear, courts will not 'interpret away clear language in favor of an ambiguity that does not exist'") (citation omitted).

In this case, the relevant provisions of the Rees-Levering Act are clear and unambiguous. A borrower under a conditional sales contract governed by the Rees-Levering Act is liable for a deficiency after the

3 This language originated in Atlas Thrift Company v. Horan, supra, 27 Cal.App.3d at 1009, and has been quoted and reaffirmed by courts in many subsequent cases. See, e.g., C.I.T. Corporation v. Anwright Corp. , 191 Cal.App.3d 1420, 1424 (1987); Crocker National Bank v. Emerald, supra, 221 Cal.App.3d at 859; Canadian Commercial Bank v. Ascher Findley Company, 229 Cal.App.3d 1139, 1149 (1991); Earl of Loveless, Inc. v. Gabele, 2 Cal.App.4th 27, 33 (1991); Backes v. Village Corner,Inc., supra, 197 Cal.App.3d at 215-216.

repossession and disposition of his or her vehicle "only if" the borrower has been given a written notice, within the prescribed time, that contains "all of" the mandated disclosures. Civil Code § 2983.2(a)(1)-(9). There is no ambiguity in this language, and the Legislature is presumed "to have meant what it said." Lennane, supra, 9 Cal.4th at 268.

The undisputed facts establish that the Statutory Notice issued by Ford Credit to plaintiff Miranda was defective and failed to comply with the provisions of the Rees-Levering Act because it did not contain the disclosure required by subsection (a)(9) of Civil Code § 2983.2, which was added to the statute by legislation adopted in 1996 and made effective on January 1, 1997. The Historical and Statutory Notes for the amendment describe the disclosure required by subsection (a)(9) as "relating to informing relevant persons of their liability for a deficiency balance and interest." See West's Ann. Civil Code § 2983.2, Historical and Statutory Notes, 1996 Legislation.

The Statutory Notice Ford Credit issued to Miranda in March, 1997 does not contain the disclosure required by Civil Code § 2983.2(a)(9). Plaintiff's Sep. Stmt. 5. Accordingly, under the plain terms of the Rees-Levering Act, Civil Code § 2983.2(a) and § 2983.8, and as Judge Ward recognized in Chrysler Financial Corp. v. Mendoza, supra, Case No. DC97358332, Miranda is not liable to Ford Credit for any deficiencyafter the disposition of her repossessed vehicle.

The Absolute Bar Rule Requires Strict Compliance With Statutory Notice Requirements.

The absolute bar rule embodied in the Rees-Levering Act is not unique to automobile financing transactions; it is a well-established principle that applies generally to secured lending transactions governed by the California Uniform Commercial Code. Commercial Code § 9504; Bank of America v. Lallana, supra, 2 Cal.4th at 215; Union Safe Deposit Bank, supra, 76 Cal.App.4th at 29. In applying the provisions of the UCC, California courts have repeatedly and consistently held that strict compliance with the Statutory Notice requirements is mandatory, and that failure to comply results in an absolute bar to the recovery of any deficiency. Union Safe Deposit Bank, supra, 76 Cal.App.4th at 29. Courts have shown no hesitation whatsoever in enforcing the rule, regardless of the amount of the claimed deficiency or the lender's asserted justification for non-compliance, and have repeatedly rejected pleas to create judicial exceptions. Most importantly, the courts have explicitly rejected any defense of "substantial compliance" and any suggestion that some proof of damage or loss to the borrower is a prerequisite to application of the rule.

The absolute bar rule was summarized by the court in Canadian Commercial Bank v. Ascher Findley Company, 229 Cal.App.3d 1139 (1991), as follows:

California Uniform Commercial Code section 9504, (hereinafter section 9504), subdivision (1), provides that, after default, a secured party may sell, lease, or otherwise dispose of any or all of the collateral securing the indebtedness. Following the disposition of the collateral, the debtor is liable for any deficiency. (Id. at subd. (2).) Section 9504 requires that notice of the disposition of the collateral be given to the debtor, and that any such disposition be conducted in a commercially reasonable manner. (Id. at subd. (3).) (1) A commercially reasonable disposition is presumed to be in good faith and at thegreatest possible market rate. . . . (2a) The requirements of section 9504 are strictly construed. "If the secured creditor wishes a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment." (Atlas Thrift Co. v. Horan (1972) 27 Cal.App.3d 999, 1009 [104 Cal.Rptr. 315, 59 A.L.R.3d 389].) (3) (2b) Failure to comply with either the notice requirement or the requirement of commercial reasonableness will act as an absolute bar to a deficiency judgment.

Id. at 1149 (emphasis added).4

The purposes of the notice requirement in Commercial Code § 9504 include, inter alia, affording the debtor an opportunity to discharge the debt and redeem the collateral. Bank of America v. Lallana, supra, 19 Cal.4th at 214. In order to ensure that these purposes are served, without the necessity of an individual inquiry in each case, the law simply provides that "[f]ailure to comply with this notice requirement results in the loss of any right to a deficiency judgment." Union Safe Deposit Bank, supra, 76 Cal.App.4th at 29. See also Bank of America v. Lallana, 19 Cal.4th at 215 ("[i]f the secured creditor wishes a deficiency judgment he must obey the law"); Canadian Commercial Bank, supra, 229 Cal.App.3d at 1156 (court 4 In a footnote, the court went on to note that amendments to the section 9504 effective on January 1, 1991 abrogated the “absolute bar” rule in limited circumstances in which the creditor has not acted in a commercially reasonable manner in the sale of the collateral. “However, the absolute bar rule continues to be applicable in those instances in which notice is not given to the debtor.” Canadian Commercial Bank, supra, 229 Cal.App.3d at 1149, n. 8.

reversed deficiency judgment of more than $2.8 million because creditor failed to comply with the notice requirements of § 9504); American National Bank v. Perma-Tile Roof Company, 200 Cal.App.3d 889, 895 (1988) ("California courts also follow the American majority rule with regard to the failure of a secured party to comply with the notice provisions of section 9504. Where the secured party fails to comply with the notice requirements of section 9504, it is barred from obtaining a deficiency judgment."); Connolly v. Bank of Sonoma County, 184 Cal.App.3d 1119, 1122 (1986) (creditor denied recovery of$130,000 deficiency for failure to give proper notice; "[i]t is well-established in California that failure to comply with the notice requirement precludes the secured part from recovering a deficiency judgment against the 'debtor.'")

Federal courts applying California law have also enforced the absolute bar rule without reservation. See, e.g., Parsons v. Southwest Bank, 124 B.R. 818, 819-820 (S.D. Cal. 1991) (California follows the majority rule that compliance with notice requirements is a condition precedent to obtaining a deficiency judgment; commercial reasonableness of the sale is not a substitute for compliance with the mandatory notice requirements); Nixdorf Computer, Inc. v. Jet Forwarding, Inc., 579 F.2d 1175, 1177-1178 (9th Cir. 1978) (under California law, Commercial Code § 9504 precludes a security holder from recovering any deficiency if it has failed to comply with the noticeprovisions); Carter v. Wells Fargo Bank, 511 F.2d 1203, (9th Cir. 1975) (bank's failure to provide notice of the sale of collateral precluded recovery of any deficiency).

The courts have expressly rejected any notion that the notice requirements in the Commercial Code may be satisfied by substantial compliance. For example, in Ford Motor Credit Company v. Price, 163 Cal.App.3d 745 (1985), an action involving the repossession and disposition of industrial machinery, the same creditor that is the defendant in this action, Ford Credit, had provided notice of a public sale to the debtor, but had published the public notice of the sale in the wrong county, Santa Clara rather than San Francisco, where the sale actually occurred. Ford Credit argued to the court, just as it has in this case, that the specifics of the notice requirements in the statute were not mandatory, and that it should have been allowed to present evidence of "substantial compliance." Id. at 748. The court rejected the argument, holding that the Legislature had intended the statute to mean what it said, and had purposefully established definitive standards that were inconsistent with any "substantial compliance" argument. Id. at 750-751. "Accordingly, we find that the public notice requirements of section 9504, subdivision (3), are mandatory and that

a creditor's failure to comply therewith, will preclude recovery of a deficiency judgment." Id. at 751.

A similar substantial compliance argument was made in C.I.T. Corporation v. Anwright Corp., 191 Cal.App.3d 1420 (1987). In that case, the creditor provided notice of public sale, stating the date, time,and an address ("Coast Machinery, 2431 Chico Avenue, S. El Monte, CA"). Id. at 1422. The sale was held at the date and time specified, but at a location approximately two to six blocks away from that designated in the notice ("Coast Machinery, 9642 Rush Street, S. El Monte"). Ibid. Employees were posted at the Chico Street address to direct bidders to the Rush Street address. Ibid. The creditor argued that it had substantially complied with the code requirements, and thatthe notice had been "more than adequate" to provide actual notice of the sale. Id. at 1422-23. The court rejected the arguments, holding that the requirements of § 9504 are not subject to a doctrine of substantial compliance. See also Union Safe Deposit Bank, supra, 76 Cal.App.4th at 32 ("California law requires strict compliance with the notice requirement"); Earl v. Loveless, Inc. v. Gabele, supra, 2 Cal.App.4th at 33 ("[t]he right to a deficiency judgment is conditional and depends on strict compliance with the statutory requirements"); Crocker National Bank v. Emerald, supra, 221 Cal.App.3d 852, 862 (1990) ("'The right to a deficiency judgment is conditional and dependson strict compliance with the statutory requirements.'"),quoting Backes v. Village Corner, Inc., supra, 197 Cal.App.3d at 216.

The courts have also rejected arguments that the absolute bar rule is dependent upon a showing of damage or loss to the borrower. In In re Kirkland, 915 F.2d 1236 (9th Cir. 1990), for example, the Ninth Circuit affirmed the bankruptcy court's denial of a $1.3 million deficiency to the creditor, Security Pacific National Bank, on the grounds that the debtors, guarantors on the original loan, had not beengiven notice of the sale of two pieces of collateral. The court rejected arguments by Security Pacific that the absolute bar rule should not apply because the sale of collateral had been done in a commercially reasonable manner and the guarantors had suffered no damage.

We find no merit in Security Pacific's argument. California courts consistently have adhered to a simply maxim: "[i]f the secured creditor wishes a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment," Atlas Thrift Co. v. Horan, 27 Cal.App.3d 999, 1009, 104 Cal.Rptr. 716. Nor do California courts, contrary to Security Pacific's suggestion, allow the creditor's substantial compliance or good faith to mitigate the severity of this remedy. See Ford Motor Credit Co. v. Price, 163 Cal.App.3d 745, 210 Cal.Rptr. 17

(1985). Finally, California courts have never required the debtor to show injury. Instead, the burden of proving compliance with Commercial Code §9504(3) is placed entirely on the creditor. See, e.g., Barber v. Leroy, 40 Cal.App.3d 336, 115 Cal.Rptr. 272 (1974).

In re Kirkland, 915 F.2d at 1242 (emphasis added).

Similarly, in Canadian Commercial Bank, supra, 229 Cal.App.3d at 1156, the court held that the borrowers in a secured loan transaction "need not prove a 'loss' from the [collateral] disposition in order to invoke the protections of section 9504. . . . [S]uch proof has never been required by California courts with respect to section 9504." Id. at 1156. In the two most recent cases addressing the absolute bar rule, Bank of America v. Lallana, supra, 19 Cal.4th at 203, and Union Safe Deposit Bank, supra, 76 Cal.App.4th at 25, both of which involved fairly technical deficiencies (i.e., the disclosure of public versus private sales), the respective courts did not even inquire into whether the violations had any actual effect on the debtor. The issue simply was not relevant. See Bank of America, 19 Cal.4th at 214-215; Union Safe Deposit Bank, 76 Cal.App.4th at 31-33. Rather, as the court in Union Safe noted, the Legislature chose to adopt specific rules, rather than vague standards, in order to prevent litigation over individual circumstances. Id. at 31. Thus, the rule is that, in order to obtain a deficiency judgment, it is the creditor that "clearly bears the burden to plead and/or to prove compliance" with the statutory notice requirements. American National Bank, supra, 200 Cal.App.3d at 896.

Plaintiff Does Not Seek A Retroactive Application of the Statute.Ford Credit has argued in its own summary judgment motions

that it has a complete defense to this action because plaintiff seeks an impermissible "retroactive" application of Civil Code §2983.2(a)(9). In other words, although the statute mandating the subsection (a)(9) disclosure went into effect on January 1, 1997, and although Ford Credit issued a Statutory Notice to Miranda after that date, in March, 1997, that did not contain the mandated disclosure, Ford Credit claims that the statute did not apply because Miranda's contract was entered into in 1996.

This argument is based on a fundamental misunderstanding of the concept of retroactivity. The California Supreme Court has repeatedly emphasized that a law is "retroactive" only if it changes thelegal consequences of past conduct. The Court recently reiterated this principle in People v. Grant, 20 Cal.4th 150 (1999):

In general, application of a law is retroactive only if it attaches new legal consequences to, or increases a party's liability for, an event, transaction, or conduct that was completed before the law's effective date. . . . Thus, the critical question for determining retroactivity usually is whether the last act or event necessary to trigger application of the statute occurred before orafter the statute's effective date. . . . A law is not retroactive 'merely because some of the facts or conditions upon which its application depends came into existence prior to its enactment.'

Id., at 157 (emphasis added) (citations omitted); see also See Hughes v. Board of Architectural Examiners, 17 Cal.4th 763, 793 (1998) ("A statute is retroactive if it substantially changes the legal effect of past events."); Western Security Bank v. Superior Court, 15 Cal.4th 232, 243(1997) ("A statute has retrospective effect when it substantially changes the legal consequences of past events."). In this case, the conduct of Ford Credit that is at issue, and that triggered application ofCivil Code §2983.2(a)(9), is the issuance of Statutory Notices to Miranda and other borrowers on dates after January 1, 1997. This conduct occurred after, not before, the effective date of the statute. Thus, plaintiff does not seek a retroactive application of the statute, but rather a prospective application.

Courts have properly recognized that procedural laws apply prospectively to procedures to be followed in the future. The Supreme Court addressed this issue at some length in Tapia v. Superior Court, 53 Cal.3d 282 (1991), a case addressing the issue of whether Proposition 115 applied to the prosecution of crimes committed before its effective date. Emphasizing that the crucial issue was whether the law changed "the legal consequences of an act completed before [the law's] effective date," id., at 288, the Court held that the provisions of Proposition 115 that increased the penalties for certain crimes could not be applied to crimes committed before the measure's effective date. Id., at 298. With respect to procedural provisions that governed the conduct of trials, however, the Court held that application to crimescommitted before the effective date was not a retrospective application.

Even though applied to the prosecution of a crime committed before the law's effective date, a law addressing the conduct of trials still addresses conduct in the future. This is a principle thatcourts in this state have consistently recognized. Such a statute 'is not made retroactive merely because it draws upon facts existing prior to its enactment. . . . [Instead,] [t]he effect of such statutes is actually prospective in nature since they relate to the procedure to be followed in the future.' . . . For this reason, we

have said that 'it is a misnomer to designate [such statutes] as having retrospective effect.

Tapia, supra, 53 Cal.3d at 288 (citations omitted) (emphasis added). See also Save our Forest & Ranchlands v. County of San Diego, 50 Cal.App.4th 1757, 1765 (1996) (new rule limiting time to bring motion for attorneys' fees applied to motions made after its effective date; such application was prospective only, even as to pre-existing cases); Strauch v. Superior Court, 107 Cal.App.3d 45 (1980) (statute that imposed requirement of filing certification of merit in malpractice actions was prospective, even as applied to causes of action that accrued before the statute's effective date).

In any event, Ford Credit was required under the terms of its standard form contract with Miranda and under controlling CaliforniaSupreme Court authority, to comply with the provisions of Civil Code § 2983.2(a) in effect in March, 1997, when it repossessed Miranda's vehicle. Ford Credit's contract with Miranda contains a "Default" provision setting forth its rights and obligations in the event of default by the borrower. The provision states that, prior to selling any repossessed motor vehicle, the lender will give "notice as provided by law." Plaintiff's Sep. Stmt. 14.

In a case directly on point, United Bank and Trust Company of California v. Brown, 203 Cal. 359 (1928), the California Supreme Court interpreted such language, and specifically held that when a secured creditor contracts to provide notice as "required by law" in the event of default by the borrower, the law applicable is that in effect at the time of the default and enforcement, and not any prior law that may have existed at the time the contract was signed.

. . . [T]he appellant seems to have lost sight of a quite well-established principle applicable to the interpretation of written instruments of the character of these trust deeds in so far as the remedies provided therein for their enforcement are concerned. That principle is this: That when parties to such instruments provide therein that as to the method of their enforcement it shall be in accordance with law generally or with the terms of a particular procedural statute, the provisions in such instrument thus providing must be interpreted to mean the law or the statute in the form in which it exists at the time of such enforcement.

Id. at 362 (emphasis added). See also City of Torrance v. Workers' Compensation Appeals Board, 32 Cal.3d 371 (1982) (reaffirming and applying United Bank and Trust).

Thus, Ford Credit was required by both statute and by contract tocomply with Civil Code § 2983.2(a)(9) for all Statutory Notices it issued after the statute's effective date of January 1, 1997.

PLAINTIFF IS ENTITLED TO DECLARATORY RELIEF CONCERNINGTHE RIGHTS OF POTENTIAL CLASS MEMBERS

There is a long-standing rule under California law that when a defendant in a proposed class action seeks any determination on the merits of the action prior to class certification, it thereby waives any right to argue that resolution of the merits in plaintiff's favor is premature in advance of class certification. See Employment Development Dept. v. Superior Court, 30 Cal.3d 256 (1981); Civil Service Employees Ins. Co. v. Superior Court, 22 Cal.3d 362 (1978).

This rule was first articulated by the California Supreme Court in Civil Service Employees, supra, a case filed as a class action against aninsurance company. After preliminary discovery on the size of the proposed class and identity of the class members, the plaintiff filed a motion for class certification. Id., 22 Cal.3d at 368-69. One week later,the plaintiff filed a motion for summary adjudication which asked the court to resolve the principal legal issue presented in the case. Id. at 369. After hearings on the motions, the court issued two orders on thesame day, one which granted summary adjudication in the plaintiff's favor, and one which certified the case as a class action. Id. at 369-70.

On a petition for writ of mandate, the defendant argued that the trial court lacked authority to rule on the merits of a plaintiff's substantive claim in a class action prior to class certification and notification to the class members. The defendant relied on two earlier Court of Appeal decisions, Home Sav. & Loan Assn. v. Superior Court, 42 Cal.App.3d 1006 (1975) ("Home I") and Home Sav. & Loan Assn. v. Superior Court, 54 Cal.App.3d 208 (1976) ("Home II"), which had concluded "that a defendant in a class action has a due process right to secure a determination of the issues relating to the suitability of the action as a class matter as well as the composition of the class and theform of notice to the members, prior to determination of the merits of the action." Civil Service Employees Ins. Co., supra, 22 Cal.3d at 372 (citation omitted). The reasoning of the Home decisions was that, "unless a decision on the merits is postponed until after the class issues are decided, a defendant is subject to 'one-way intervention,' which would allow potential class members to elect whether to join in the action depending upon the outcome of the decision on the merits." Id., 22 Cal.3d at 372 (citation omitted).

In Civil Service Employees Ins. Co., however, the Supreme Court held that, even assuming the reasoning of the Home decisions was

sound, an issue it did not reach, the defendant in that action had waived any right to object to a pre-certification ruling on summary adjudication by failing to object to the timing of the motion, and instead arguing the issues on the merits. "Not until the defendant's argument on the merits had been rejected by the trial court did the defendant complain of the procedural posture of the case and raise thedue process argument upon which it now relies." Id., 22 Cal.3d at 373. As the Court recognized, "there are many reasons why a defendant may be willing, and indeed even eager, to forego class notification prior to adjudication of some, or even all, of the principal legal issues ina case." Id., at 373. "Having chosen to submit the issue to the trial court on the merits," however, the defendant could not later complain that the ruling was premature or "fundamentally unfair." Id. at 374.

The Supreme Court later reaffirmed and elaborated on this rule in Employment Development Dept. v. Superior Court, supra, 30 Cal.3d at 256. That case was a class action against the EDD challenging the constitutionality of a former provision of the Unemployment Insurance Code. Id. at 259-260. The EDD filed a demurrer to the action, which was sustained by the trial court, but later reversed by the Court of Appeal. Id. at 260. After remand, the plaintiff filed a motion for class certification. The EDD opposed the motion on the grounds that certification could not be ordered because there had already been a determination on the merits. Id. at 261. The trial court granted plaintiff's motion, finding that the EDD had waived any right to have a pre-merit determination of the class certification issue. Id. at 261.

Ruling on the EDD's petition for writ of mandate, the Supreme Court affirmed the trial court's order. Initially, the Court cited its earlierdecision in Civil Service Employees Ins. Co., supra, 22 Cal.3d 362, for the holding that, "when a defendant fails to object to or acquiesces in adetermination of the merits before class certification or notification, it waives whatever right to a premerit determination of the class action issues it might have had." Employment Development Dept., supra, 30 Cal.3d at 262. The Court then held that the circumstances of the case presented an even "stronger case of waiver than Civil Service" because"here defendants' own demurrer precipitated a precertification ruling on the merits." Id. at 264. As the Court noted, the procedure chosen by the defendant was not necessarily to its detriment because it was obviously motivated by a desire to avoid discovery and litigation expenses, and had, initially, obtained a "speedy victory." Having chosen to chosen to seek such a determination, however, the defendant could not later complain about the timing of class certification. Id. at 264-65.

In this case, Ford Credit has similarly waived its right to object to a ruling on the merits in advance of class certification. In two prior motions, and in a motion currently pending before the Court, Ford Credit has sought determinations from this Court on the merits of plaintiff's action.5 In each of these motions, Ford Credit has sought rulings from the Court in its own favor on the merits of the claims presented. Accordingly, Ford Credit has waived any right to object to apre-certification finding in favor of the proposed class on plaintiff's declaratory relief cause of action.

The declaratory relief plaintiff seeks with respect to members of the proposed class presents an issue identical to that presented for Miranda individually – whether a Statutory Notice, issued after January 1, 1997, that did not contain the disclosure mandated by Civil Code § 2983.2(a)(9) precludes Ford Credit from demanding or collecting any deficiencies from borrowers who received such defective notices.6 Thisissue presents "an actual, present controversy over a proper subject," see Californians for Native Salmon and Steelhead Association, supra, 221 Cal.App.3d at 1426, and plaintiff is therefore entitled to declaratory relief.

CONCLUSION

For the foregoing reasons, plaintiff requests that the Court grant summary adjudication in her favor on her fourth cause of action, and issue declaratory relief in the manner requested.

Dated: February 7, 2000Attorneys for Plaintiff

4.6 Plaintiff's Reply Memorandum in Support of Motion for Summary Adjudication

SUPERIOR COURT OF THE STATE OF CALIFORNIACOUNTY OF SANTA CLARA

5 On October 20, 1999, Ford Credit filed a Motion for Determination That Plaintiff’s Claim Under The Consumers Legal Remedies Act Is Without Merit, a motion that was clearly addressed directed to the merits of the action, and that was ultimately granted in Ford Credit’s favor. See Order, filed herein on November 3, 1999 (J. Herlihy). On November 4, 1999, Ford Credit filed a Motion for Summary Judgment, which it took off calendar after plaintiff filed an opposition. 6 Although the class is not yet certified, the undisputed facts establish that there is a class of persons similarly situated to Miranda, who were issued defective notices during the relevant period, and whose liability for deficiency balances is in dispute.

CARMEN MIRANDA,

Individually, and on behalf of others similarly situated, and on behalf of the general public,

Plaintiff,

v.

FORD MOTOR CREDIT COMPANY; and DOES 1 through 20, inclusive,

Defendants.

))))))))))))))))))

CASE NO.

CLASS ACTION

PLAINTIFF'S REPLY MEMORANDUM IN SUPPORT OF MOTION FOR SUMMARY ADJUDICATION OF DECLARATORY RELIEF CAUSE OF ACTION

Date: Time: Dept. Judge:

Action Filed: Trial Date:

JURY TRIAL DEMANDED

I. INTRODUCTION

All of the arguments in Ford Credit's opposition are based on its continued adherence to the self-serving fallacy that it has a "vested" right to collect a deficiency from Miranda and other borrowers. See Ford Credit Memo., at 10:9-10. This proposition is patently false, and Ford Credit is unable to cite a single case in support of it.

Indeed, it is well-settled that a creditor's right to obtain a deficiency is never a vested right; it is always a conditional right, subject to the creditor's strict compliance with statutory notice requirements. See, e.g., Bank of America v. Lallana, 19 Cal.4th 203, 206 (1998) ("Under California law, a secured creditor who sells the collateral after the debtor's default may be entitled to a judgment for the difference between the amount owed and the proceeds of the sale.To obtain such a deficiency judgment, however, the creditor must satisfy certain statutory requirements. . . . " ) (emphasis added); Backes v. Village Corner, Inc., 197 Cal.App.3d 209, 213-213 (1988) ("[a] secured party who fails to give notice loses his conditional right toobtain a deficiency judgment") (emphasis added). Indeed, the principle that a creditor's failure to comply strictly with statutory noticerequirements bars recovery of any deficiency is established in an unbroken line of authority spanning more than 30 years. It has been reaffirmed in no less than thirteen published opinions, including the California Supreme Court's recent opinion in Bank of America v. Lallana, supra, 19 Cal.4th at 203, which, just like this case, applied the notice requirements in a transaction governed by the Rees-Levering

Act. Id. at 215. See also Ford & Vlahos v. ITT Commercial Finance Corp., 8 Cal.4th 122, 1232 (1995) (California follows "the venerable American legal rule" that a creditor must give formal legal notice before selling the debtor's property; such notice requirements "have existed in California for many decades"); Union Safe Deposit Bank v. Floyd, 76 Cal.App.4th 25 (1999) ("California law requires strict compliance with the notice requirement.")7

In the face of this overwhelming authority, Ford Credit's profferedexcuses for its failure to comply with the Rees-Levering Act are unavailing. Its assertion that application of Civil Code § 2983.2(a)(9) toa Statutory Notice issued to Miranda after the effective date of the statute would be "retroactive" because her contract was signed in 1996 is a non sequitur. Applying Civil Code § 2983.2(a)(9) to events occurring after its effective date is not a retroactive application.

Ford Credit's argument that Civil Code § 2983.2(a)(9) does not apply if the creditor does not seek interest on the deficiency is nothing more than invention out of whole cloth. It not only disregards, but affirmatively misrepresents, the plain meaning of the statute. It asks the Court to read a gaping exception into the statute which is not there, and which would be directly contrary to its explicit terms. See Kobzoff v. Los Angeles County Harbor/UCLA Medical Center, 19 Cal.4th 851, 859-60 (1998) ("[i]f the plain language of a statute is unambiguous, no court need, or should, go beyond that pure expression of legislative intent"). Accordingly, Ford Credit has no defense as a matter of law, and the Court should grant declaratory relief as requested.

II. ARGUMENT

PLAINTIFF HAS ESTABLISHED AN ACTUAL CONTROVERSYENTITLING HER TO DECLARATORY RELIEF

Ford Credit's assertion that there is no present controversy between itself and Miranda is not only wrong, but exceedingly disingenuous. In response to discovery, Ford Credit has unequivocally admitted that it contends that Miranda is liable for a deficiency balance.8 It has also conceded that it dismissed its prior action against

7 See Plaintiff’s Supplemental Request for Judicial Notice, ¶3.

8 See Ford Credit’s Responses to Plaintiff’s First Set of Requests for Admission, Ford Credit’s Response to Plaintiff’s Third Set of Form Interrogatories (Form Interrogatory 17.1), attached as Exhibits A and C to the Declaration of Mark A. Chavez, filed herein on February 24, 2000 in opposition to Ford Credit’s Motion for Summary Judgment. Request for Admission No. 7 states as follows: “Admit that YOU contend Carmen

her without prejudice, that it reported the deficiency to credit bureaus, and that its internal collection records currently reflect that Miranda owes a deficiency balance.9 In light of these facts, Ford Credit's purported subjective intentions, including whether it has "resolved not to pursue" its claim, (Ford Memo, at 4:4), have no legal relevance whatsoever.

Ford Credit contends Miranda owes a deficiency; Miranda contends she does not. This presents a classic "actual controversy," for which declaratory relief is clearly warranted. The fact that Miranda has refused to pay the deficiency Ford Credit contends she owes is alsoirrelevant. California courts have specifically held that declaratory relief "'may be brought to determine and declare rights before any actual invasion of those rights has occurred.'" Californians for Native Salmon and Steelhead Assoc. v. Department of Forestry, 221 Cal.App.3d 1419, 1426 (1990) (citation omitted).

Ford Credit is also incorrect in asserting "a declaratory relief cause of action will not lie to determine issues raised in other causes ofaction before the court." Ford Memo, at 5:7-8. This assertion is simply wrong, and misrepresents the applicable law. All of the cases on which Ford Credit relies involve special rules for duty to defend and indemnity claims. In California Insurance Guarantee Assoc. v. SuperiorCourt, 231 Cal.App.3d 1617 (1991), the court applied the rule that, when an insurer's duty to defend an underlying tort action is at issue, "a separate declaratory action where the coverage question turn on facts to be litigated in the underlying action . . . is not permitted." Id. at 1627. The California Supreme Court itself has recognized that this isa special rule of limited application:

To eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief actionpending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action. California Insurance Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1627-1628, 283 Cal.Rptr. 104; General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465,

Miranda is liable to YOU for a deficiency balance remaining on the SUBJECT VEHICLE following its disposition and repossession.” Ford Credit’s Response was: “Admit.” See Chavez Decl., filed herein on February 24, 2000, Exhibit A. 9 See Ford Credit’s RFA and FI 17.1 Responses, Nos. 7-13; 15-18, Chavez Decl., Exhs. A and C. In its Response to FI 17.1 for Request for Admission No. 8, Ford Credit stated that its “current internal records show a balance due but also indicate that, at this time, Ford Credit is not pursuing its deficiency.” (Emphasis added). Chavez Decl., supra, Exh. C. See also Ford Credit’s Response to Plaintiff’s Separate Statement of Undisputed Material Facts in support of this motion, Nos. 6-9.

471, 65 Cal.Rptr. 750.) . . . This is the classic situation in which the declaratory relief action should be stayed.

Montrose Chemical Corp. of California v. Superior Court, 6 Cal.4th 287, 301-02 (1993).10

In CJL Construction , Inc. v. Universal Plumbing, 18 Cal.App.4th 376 (1993), the issue presented was whether a declaratory relief claimcould be used to determine the amount of a "Witt v. Jackson offset." Id. at 380. This issue arises in the "highly regulated and specialized form of litigation" involving Workers' Compensation and claims for offset when an employee's injuries are caused by the concurring negligence of both the employer and a third party. Id. at 385. The ruleapplied in CJL Construction is that the employer cannot be brought in as a cross-defendant on a claim for declaratory relief. Id. at 380. For obvious reasons, the rule is inapplicable here. Furthermore, although the holding of CJL Construction remains good law, part of the opinion inwhich the court cited some of the same cases on which Ford Credit relies was criticized in a later decision.

Furthermore, the cases cited in C.J.L. concerning the power of the court to dismiss a claim for declaratory relief where an adequateprocedural remedy at law exists are of considerable vintage and are inconsistent with the modern trend to permit a party to seek relief despite the existence of another procedural remedy. . . . [T]he modern rule permits the party to choose the type of relief it desires.

Difko Administration Inc. v. Superior Court, 24 Cal.App.4th 126, 132 (1994) (emphasis added).

Finally, Ford Credit's citation to Hood v. Superior Court, 33 Cal.App.4th 319 (1995) is particularly unavailing. In that case, after the moving party had been denied summary adjudication of issues, it amended its complaint and aggregated a series of "issues" into a purported cause of action for declaratory relief in a transparent attempt to get around the provisions of Code of Civil Procedure § 10 The Supreme Court in Montrose cites both California Ins. Guarantee Assn., supra, and an earlier case General of America Ins. Co. v. Lilly, 258 Cal.App.2d 465 (1968). The holding in California Ins. Guarantee Assn. was derived directly from the earlier Lilly case. The sentence from California Ins. Guarantee Assn. quoted by Ford Credit in its Memo. at 6, (“The availability of another form of relief that is adequate will usuallyjustify refusal to grant declaratory relief.”), is actually part of a longer passage quotedby the court from General of America Ins. Co. v. Lilly, supra, 258 Cal.App.2d at 471, a case which was specifically addressed to the issue of whether an insurer may bring a separate declaratory relief action to determine whether coverage exists for a previously filed tort action.

437c(f). The holding was simply that summary adjudication under the circumstances was improper. Id. at 324. The dicta from Hood quoted by Ford Credit is a direct quote from General of America Ins. Co. v. Lilly,supra, and derives from the special rule for duty to defend cases discussed above. Id. at 324. As the court in Southern California Edison Co. v. Superior Court, 37 Cal.App.4th 839 (1995), recognized in a later decision: "Hood does not stand for the proposition the trial court cannot grant summary adjudication of a properly pled cause of action for declaratory relief merely because the controversy between the parties spills over into other causes of action." Id. at 846.11 Declaratory relief is a cumulative remedy, and plaintiff is entitled to such relief as a matter of law. Code of Civ. Proc. §§ 1060, 1062. PLAINTIFF IS ENTITLED TO A DECLARATION THAT EXTENDS TO

THE PUTATIVE CLASS MEMBERS

Ford Credit misapprehends the rule of the Supreme Court decisions in Employment Development Dept. v. Superior Court, 30 Cal.3d 256 (1981) and Civil Service Employees Ins. Co. v. Superior Court, 22 Cal.3d 362 (1978). Plaintiff is not seeking an end run around class certification, but rather, application of the rule that when a defendant itself seeks a ruling on the merits in a class action prior to certification, "it waives whatever right to a premerit determination of the class issues it might have had." Employment Dev. Dept., supra, 30Cal.3d at 262. In other words, if the defendant seeks a ruling on the merits in its own favor, the plaintiff has the right to do the same, i.e., to seek a ruling on merits that will be binding in favor of the class pre-certification.

This is precisely the holding of Katz v. Carte Blanche Corp., 496 F.2d 747, 758 (3d Cir. 1974), which Ford Credit cites, but apparently misunderstands. Katz does not say a pre-certification determination onthe merits runs only to the individual plaintiff, and "leaves for later the determination whether that disposition will have any bearing on the class that plaintiff seeks to represent." Ford Memo, at 8. It says exactly the opposite – while a determination in favor of the defendant is not binding on class members, a determination in favor of the plaintiff, pre-certification, is binding on the defendant as to the claims of class members. Id. at 758-59; 760. That is precisely the point made

11Ford Credit suggests argues that plaintiff’s motion is flawed under “Hood and progeny.” Ford Memo, at 7:3. Hood has no progeny on the issue present here, and the only subsequent case to discuss the holding in Hood, Southern Cal. Edison, supra,37 Cal.App.4th at 846, rejected Ford Credit’s interpretation. Thus, to the extent Hood could be read in the manner Ford Credit suggests, it is inconsistent with the declaratory relief statute and other authority, and is simply bad dicta.

the Supreme Court in the EDD and Civil Service cases – if the defendant, in pursuit of its own interests, seeks a pre-certification resolution of the merits, it assumes the risk that the merits will be resolved against it, and binding in favor of the class, prior to certification. EDD, 30 Cal.3d at 264-265; Civil Service, 22 Cal.3d at 373-74.

In this case, the statement of declaratory relief that plaintiff seeks is:

As a matter of law, because Ford Credit issued Statutory Notices to plaintiff Miranda and to other members of the proposed class on dates after January 1, 1997 that did not contain the disclosuremandated by Civil Code § 2983.2(a)(9), neither Miranda nor any other member of the proposed class who was issued such a Statutory Notice is liable to Ford Credit for any deficiency following the disposition of his or her vehicle.

See Plaintiff's Notice of Motion. The facts on which plaintiff seeks this declaration are undisputed–-Ford Credit issued a Statutory Notice to Miranda, after January 1, 1997, that did not contain the § 2983.2(a)(9) disclosure; Ford Credit issued the same Statutory Notice to other borrowers on dates after January 1, 1997; Ford Credit contends that Miranda nevertheless owes a deficiency; and Ford Credit contends that other borrowers who were issued the same Statutory Notice also owe deficiencies. Ford Credit makes no attempt to dispute these facts, and in fact, has expressly admitted them.12 Thus, based on the undisputedfacts, the issue presented is solely one of law. That issue can, and should, be resolved in favor of plaintiff and the proposed class.13

PLAINTIFF DOES NOT SEEK A RETROACTIVE APPLICATION

This issue has been addressed at length in plaintiff's prior briefing, and given the present page limitations, will be addressed only briefly. Ford Credit's argument that Civil Code § 2983.2(a)(9) would be "retroactive" if applied to Miranda is simply wrong; it not only does not follow logically (because Miranda' notice was issued after the effective date of the statute), but ignores the very definition of retroactivity 12 See Plaintiff’s Separate Statement in support of this motion and Plaintiff’s Evidencecited therein; see also Ford Credit’s Responses to Plaintiff’s First Set of Requests for Admission, attached has Exhibit A to Plaintiff’s Evidence in opposition to Ford Credit’smotion. 13 Of course, the precise class definition and parameters of who will be included are issues that will be resolved on a motion for class certification. Summary adjudication of the declaratory relief claim, however, simply resolves an issue of law, which contrary to Ford Credit’s assertion, does not require any individual fact inquiries.

emphasized by the Supreme Court in numerous recent cases – "a statute is retroactive if it substantially changes the legal effect of past events." Hughes v. Board of Agricultural Examiners, 17 Cal.4th 763, 793 (1998). See also People v. Grant, 20 Cal.4th 150, 157 (1999) ("[T]he critical question for determining retroactivity usually is whetherthe last act or event necessary to trigger application of the statute occurred before or after the statute's effective date.")

Ford Credit dismisses the Supreme Court's definition of retroactivity as stating only a "general principle," and then asserts in passing that applying § 2983.2(a)(9) to Miranda would "change the legal effect of past events" because "it would mean that Ford Credit would have to perform new obligations in order to retain its right to recover a deficiency." Ford Memo, at 13:18-19. This argument is a complete non sequitur; it makes no sense. No legal consequence of any past event was in any way changed by the application of Civil Code § 2983.2(a)(9) to the notice Ford Credit issued to Miranda. Ford Credit had no "right" to recover a deficiency (vested, contractual or otherwise) until and unless it complied with the statutory requirementsof the Rees-Levering Act. Bank of America v. Lallana, supra, 19 Cal.4that 206; Civil Code § 2983.2(a).14 The event that triggered the application of Civil Code § 2983.2(a)(9) was Ford Credit's issuance of the notice; that event occurred after the effective date of the statute.15

The rule of United Bank and Trust Co. v. Brown, 203 Cal. 359 (1928) is simply this: when a creditor contracts to provide notice "as required by law" or words to that effect, the law that applies is that in effect at the time notice is given. Id. at 362. The fact that plaintiff has not pled a theory of contract recovery is irrelevant; plaintiff does not rely on United Bank for a breach of contract claim, but rather, for a ruleof interpretation set down by the Supreme Court. Ford Credit's attempt to distinguish United Bank by arguing that it involved a "procedural" rather than a "substantive" change is unavailing. The statute at issue in United Bank involved the requirements for a post-default notice, exactly the issue here. More importantly, the Supreme Court has rejected as out-dated the formulaic usage of the terms "substantive" and "procedural" to determine whether a statute has retroactive effect. "In determining whether such statutes changed 'the14In fact, by its own terms, the statute overrides “any provision in any conditional salecontract for the sale of a motor vehicle to the contrary notwithstanding.” Civil Code §2983.2(a). 15 Apparently recognizing the weaknesses in its own argument, Ford Credit shifts course in the middle of its brief, suggesting that perhaps the law in the effect at the time of default, rather than at the time of contracting, is the law that applies. Compare Ford Memo, at 1:19-20; Ford Memo at 13:24-25. Neither theory is correct. Furthermore, although Ford Credit asserts that plaintiff defaulted in December 1996, it has not provided any competent evidence of that fact.

legal effects of past events' [citation omitted] we sometimes used the terms 'substantive' and 'procedural.' [Citation omitted.] However, we also made it clear that it is the law's effect, not its form or label, which is important. Tapia v. Superior Court, 53 Cal.3d 282, 289 (1991).16

THE COURT SHOULD REJECT FORD CREDIT'S INVITATION TO RE-WRITE THE STATUTE

In its last argument, Ford Credit asserts that the Court should justignore the plain meaning and explicit terms of the statute, and rewrite it to Ford Credit's liking. Civil Code § 2983.2(a)(9) requires a disclosurethat:

(9) Informs those persons [borrowers] that upon disposition of the motor vehicle, they will be liable for the deficiency balance plus interest at the contract rate, or at the legal rate of interest pursuant to Section 3289 if there is no contract rate of interest, from the date of disposition of the motor vehicle to the date of entry of judgment.

Through the misleading use of quotations marks and sophistry, Ford Credit argues that this section applies only if the borrower "will be liable" for interest, and that "if a borrower 'will' not 'be liable' for interest, no notice need be given." Ford Memo, at 17:26. Therefore, according to Ford Credit, if the creditor at a later date does not actuallyseek interest from the borrower, the notice it gave at an earlier date did not have to contain the § 2983.2(a)(9) disclosure. This argument isabsurd on its face.

First and foremost, it flies in the face of all canons of statutory construction, including the primary rule that "the statute's plain meaning governs unless its words are ambiguous. If the plain language of a statute is unambiguous, no court need, or should, go beyond that pure expression of legislative intent." Kobzoff, supra, 19 Cal.4th at 861. If there is no ambiguity in the statute, courts "presumethat the Legislature meant what it said and the plain meaning of the statute governs." Diamond v. Multimedia Systems, Inc. v. Superior Court, 19 Cal.4th 1036, 1047 (1999).

16 In Tapia, the Court also rejected application of an older definition of a retroactive statute “as one which affects, rights, obligations, acts, transactions and conditions which are performed or exist prior to the adoption of the statute.” Tapia, 53 Cal.3d at 291 (citation omitted). This is essentially the definition on which Ford Credit relies, arguing that it would be subject to “new obligations.” The Court’s opinion in Tapia makes clear that this concept of retroactivity is invalid, and that the proper test is whether the statute changes the legal effect of past events.

In this case, the language of the statute is clear and unambiguous--a borrower is liable for a deficiency "only if" a notice was given containing "all of" of the listed disclosures. Civil Code § 2983.2(a). The statute does not say, or even imply, that the disclosureis required only if and when the lender actually intends to, or does, seek recovery of interest. If the Legislature had intended that the disclosure apply only under such circumstances, it certainly could have, and would have, said so in the simplest of terms. It did not. As the Supreme Court has repeatedly cautioned, "[i]t cannot be too often repeated that due respect for the political branches of our government requires us to interpret the laws in accordance with the expressed intention of the Legislature. This court has no power to rewrite the statute so as to make it conform to a presumed intention which is not expressed." Stop Youth Addiction, Inc. v. Lucky Stores, 17 Cal.4th 553, 578 (1998) (emphasis added; citations omitted).

Second, even assuming it were proper to refer to the legislative history, and plaintiff submits that it is unnecessary and therefore improper in this case, it does not support the argument Ford Credit advances. The single document on which Ford Credit relies reflects that there was concern about notifying borrowers of their potential liability for interest on the deficiency balance, and clarifying for both borrowers and the courts the rate of interest to be applied. There is no suggestion anywhere in the document that the proposed disclosure would be required only when, or if, the creditor actually seeks to recover interest at a later date. Moreover, other documents in the legislative history make clear that: (1) the Legislature was aware that existing law required a creditor to issue a specific post-repossession notice, and provided that failure to provide the notice as specified resulted in a complete forfeiture of the deficiency; (2) the amendment would expand the existing notice requirement; and (3) the purpose of the new disclosure was to better inform consumers of their potential liability or exposure for the deficiency balance and interest. See Plaintiff's Request for Judicial Notice, Exh. A. Regardless of whether the creditor opts at a later date to seek recovery of post-disposition interest, the consumer is liable (i.e., faces potential exposure) for that interest as a matter of law (assuming the creditor has otherwise complied with the Rees-Levering Act), and the Legislature intended, and expressly stated, that consumers should be so informed. It is not for the courts to second-guess that judgment.17

17 Ford Credit argument fails to appreciate the distinction between “liability” as a matter of law and “liability” under a judgment. Assuming the creditor has complied with Rees-Levering, borrowers “will be liable” for a deficiency balance and interest thereon, as a matter of law, regardless of whether the creditor actually seeks recovery of such amounts or portions thereof. For example, the borrower “will be

Moreover, Ford Credit's argument, taken to a logical extension, would excuse other violations of Civil Code § 2983.2(a). Is the creditor excused from providing an itemization of the contract balance and other amounts due upon redemption, as is required by subsection (1), if the borrower makes no attempt to redeem the vehicle? Is the creditor excused from disclosing the place at which the vehicle "will be returned" upon redemption or reinstatement, as required by subsection(4), if the borrower neither redeems nor reinstates, and the vehicle is never returned? Is the creditor excused from disclosing the name and address of the person to whom payment "shall be made," as required by subsection (5), if the borrower makes no payment? Clearly, any such result would be contrary to the unambiguous terms of the statute.

Finally, it is particularly disingenuous for Ford Credit to argue thata compliant notice to Miranda would have been "superfluous" and "misleading" because, in fact, Ford Credit sought and obtained an award of interest in its action against Miranda. See Plaintiff's RJN, filed herein on February 8, 2000, Exhs. C, D. The only reason Ford Credit did not attempt to enforce the judgment was because Miranda asserted her rights under the Rees-Levering Act. Moreover, Ford Creditregularly seeks to collect interest on deficiency balances from other borrowers through its collection agents.18 Indeed, one reason the exception Ford Credit suggests would not be workable in the statute is that, in many circumstances, the creditor may assign the alleged deficiency to a third party collection agent, and would thereafter have no knowledge of or control over whether the agent sought interest on the deficiency.

CONCLUSION

For the foregoing reasons, this Court should grant plaintiff's motion for summary adjudication of her fourth cause of action for declaratory relief.

liable” for a deficiency balance, even if the creditor later chooses to compromise its claim in order to collect a portion thereof.

18 In opposition to Ford Credit’s initial motion for summary judgment, plaintiff submitted copies of complaints and declarations in support of default judgments filedby Ford Credit collection agents in two cases against other borrowers in which Ford Credit specifically demanded interest on the alleged deficiency balance. These documents were produced by Ford Credit in response to discovery, and are merely exemplars of numerous other cases in which Ford Credit sought and obtained intereston deficiency balances. See Plaintiff’s RJN, filed herewith, ¶1; Plaintiff’s Evidence In Opposition to Defendant’s Motion for Summary Judgment, or in the Alternative, Summary Adjudication, filed herein (under seal) on November 18, 1999, Declaration of Alexander B. Trueblood, ¶10, Exhs. 7 and 8.

Dated: March 3, 2000

Attorney for Plaintiff

Attorney for Plaintiff