Medina v. Performance Automotive Group, Inc.

Filing 26

ORDER signed by Judge Lawrence K. Karlton on 1/23/12 ORDERING that Plaintiff's MOTION to REMAND 15 is GRANTED. Plaintiff's Request for costs and fees is GRANTED. Defendant shall pay Plaintiffs $3,000. The Court lacks subject matter jurisdiction to hear Defendant's Motion to Compel arbitration and to Strike Class action claims before the Court. The matter is REMANDED to the Sacramento County Superior Court. Copy of remand order sent. CASE CLOSED. (Mena-Sanchez, L)

1
2
3
4
5
6
7
UNITED STATES DISTRICT COURT
8
EASTERN DISTRICT OF CALIFORNIA
9
10
11

ISAAC S. MEDINA, individually
and on behalf of all others
similarly situated,

12

NO. CIV. S-11-2809 LKK/KJN
Plaintiffs,

13
v.

O R D E R

14
15
16
17

PERFORMANCE AUTOMOTIVE GROUP,
INC., a California Corporation,
dba ELK GROVE FORD; PATELCO
CREDIT UNION, a California
Corporation; CHRYSLER GROUP,
LLC; and DOES 1 through 10,
inclusive,

18
Defendants.
/

19
20

This case arises out of Defendant Performance Automotive

21

Group,

Inc.'s

sale

of

a

vehicle

to

Plaintiff.

Plaintiff

22

specifically contests Defendant's alleged practice of backdating

23

multiple Retail Installment Sale Contracts in the process of a

24

single transaction, and Defendant's alleged failure to make proper

25

disclosures and representations during the course of his sales

26

transaction in particular.

1

Pending before the court are Plaintiff's motion to remand,

2

Pl's Mot., ECF No. 15, and Defendants' motion to compel arbitration

3

and to strike class action claims, Defs' Mot., ECF No. 8. For the

4

reasons set forth herein, the court GRANTS Plaintiff's motion to

5

remand, and thus, the court lacks the subject matter jurisdiction

6

to hear Defendant's motion to compel arbitration and to strike

7

class action claims.

8
9
10

I. BACKGROUND
A. Plaintiff’s Complaint
On September 9, 2011, Plaintiff Isaac S. Medina filed a

11

claim, individually and on behalf of all others similarly

12

situated, against Defendant Performance Automotive Group, Inc.

13

(“Elk Grove Ford”), Defendant Patelco Credit Union, Defendant

14

Chrysler Group, LLC, and other unnamed defendants in the

15

Superior Court of Sacramento County, alleging unlawful and

16

deceptive business practices in violation of California’s

17

financial disclosure laws. Def’s Not., Ex. A (Pl’s Compl.).

18

As a basis for his class action claims, Plaintiff alleges

19

that, over the past four years, many customers have purchased a

20

vehicle from Defendant Elk Grove Ford and entered into multiple

21

Retail Installment Sale Contracts ("RISC") for the vehicle,

22

where the final RISC that the consumer entered into was

23

illegally backdated to the date of the first RISC. Id. at 1.

24

Plaintiff alleges that, by backdating the final RISCs, Elk Grove

25

Ford failed to make proper financial disclosures on the RISCs

26

and that consumers are illegally charged an undisclosed interest
2

1

amount from the date of the initial RISC, instead of the

2

consummation date of the final RISC, which results in

3

undisclosed and illegal finance charges. Id.

4

As the basis for his individual claims, Plaintiff alleges

5

that, during the transaction for the purchase of a car,

6

Defendant Elk Grove: (1) failed to properly disclose that a

7

portion of his down payment was being deferred until a later

8

date; (2) falsely represented the amount of the down payment in

9

his contract; (3) misrepresented the vehicle's features or

10

equipment; (4) failed to provide Plaintiff with a copy of his

11

signed credit application; and (5) failed to provide Plaintiff

12

other disclosures required under California law. Id. at 1-2.

13

Because Plaintiff's RISC was assigned by Elk Grove Ford to

14

Defendant Patelco Credit Union ("Patelco") after the date of

15

purchase, Plaintiff alleges that Patelco is subject to all

16

claims and defenses of Plaintiff against Elk Grove Ford. Id. at

17

2.

18

Plaintiff brings his suit under: (1) the Automobile Sales

19

Finances Act ("ASFA"), CAL. CIV. CODE § 2981, et seq.; (2) the

20

Consumers Legal Remedies Act ("CLRA"), CAL. CIV. CODE § 1750, et

21

seq.; (3) the Unfair Competition Law ("UCL"), CAL. BUS. & PROF.

22

CODE § 17200, et seq.; and (4) the Song-Beverly Consumer Warranty

23

Act, CAL. CIV. CODE § 1790, et seq. See id. at 2, 17-29.

24

In paragraphs 100 and 101 of his second cause of action,

25

titled "Action for Rescission of Conditional Sales Contract for

26

the Sale of Goods Pursuant to Civil Code § 1689(b) for Violation
3

1

of the Automobile Sales Finance Act, [Cal.] Civil Code Section

2

2981, et seq.", Plaintiff alleges:

3
4
5
6
7
8
9
10
11

By backdating the subsequent RISC to the date of
the now-rescinded original RISC, thereby charging
interest before consummation, Elk Grove Ford
violated Civil Code Section 2982(a), which requires
all conditional sales contracts to comply with the
disclosure requirements of Regulation Z. . . . By
backdating the final RISC to the date of the
original RISC, Elk Grove Ford overstated the
payment that was due for the annual percentage rate
shown on the contract. The actual annual percentage
rate, based on a contract consummation date of the
final RISC, may have varied from the disclosed
annual percentage rate by more than Regulation Z
permits. Likewise, the actual finance charges,
based on a contract consummation date of the final
RISC, may have varied from the disclosed finance
charge by more than Regulation Z permits.

12

Id. at 20.

13

B. Removal to District Court

14

On October 24, 2011, Defendant Performance Automotive

15

Group, Inc. d.b.a. Elk Grove Ford (“Elk Grove Ford”) filed a

16

notice of removal, arguing that the district court has federal

17

question jurisdiction in this case because: (1) the California

18

Automobile Sales Finance Act (“ASFA”) “simply requires

19

compliance with a federal statute, Regulation Z . . . [which] is

20

issued by the . . . Federal Reserve System to implement the

21

federal Truth in Lending Act”; and (2) the Retail Installment

22

Sale Contract that is the subject of Plaintiff’s claims

23

“contains an arbitration clause requiring all disputes relating

24

to the contract to be arbitrated, and that the arbitration

25

clause ‘shall be governed by the Federal Arbitration Act’.”

26

Def’s Not., ECF No. 2, at 2-3.
4

1

On November 16, 2011, Plaintiff filed the motion to remand

2

presently before the court, arguing, inter alia, that a passing

3

reference to a single, irrelevant federal regulation does not

4

constitute a “substantial” enough federal question to confer

5

subject matter jurisdiction on the district court; that the

6

Federal Arbitration Act never creates federal question

7

jurisdiction; and that Plaintiff should be reimbursed for the

8

fees and costs expended as a result of the Defendant's notice of

9

removal. See Pl's Mot., ECF No. 15.

10

On December 5, 2011, Defendant opposed Plaintiff's motion

11

to remand. Def's Opp'n, ECF No. 17. In addition to arguments

12

regarding the ASFA and the Federal Arbitration Act, Defendant

13

argued that "in order to establish liability against Patelco

14

Credit Union . . . [Plaintiff] must prove that it is liable as

15

the assignee of the subject contract under the Federal Trade

16

Commission's Holder Rule." Id. at 2.1

17

C. Motion to Compel Arbitration & Motion to Strike Class Action

18

Claims

19
20

On October 28, 2011, Defendants filed a motion to compel
arbitration and a motion to strike Plaintiff's class action

21
22
23
24
25
26

1

It is, of course, inappropriate to raise new arguments in
a closing brief. Cf. Carbino v. West, 168 F.3d 32, 34 (Fed. Cir.
1999)(“issues initially raised in a reply brief should not be
entertained”); Frazier v. Bailey, 957 F.2d 920, 932 n.14 (1st Cir.
1992)(“arguments raised in a reply brief are insufficient to
preserve a claim for appeal”); Reynolds v. East Dyer Dev. Co., 882
F.2d 1249, 1253 n.2 (7th Cir. 1989)(“it is improper to present new
arguments in a reply brief”). Given the ease of dealing with the
matter, the court will overlook the impropriety.
5

1

claims, Defs' Mot., ECF No. 8, which Plaintiff opposes, Pl's

2

Opp'n, ECF No. 16.

3
4

II. STANDARD GOVERNING A MOTION TO REMAND
Absent diversity jurisdiction, a defendant may only remove

5

a complaint filed in state court when “a federal question is

6

presented on the face of the plaintiff’s properly pleaded

7

complaint.”

8

107 S.Ct. 2425, 96 L.Ed.2d 318 (1987); see Harris v. Provident

9

Life & Accident Ins. Co., 26 F.3d 930, 933-34 (9th Cir. 1994)

Caterpillar, Inc. v. Williams, 482 U.S. 386, 392,

When a case is removed to federal court

10

(quoting Caterpillar).

11

there is a strong presumption against federal jurisdiction, and

12

the removing defendant always has the burden of proving that

13

removal is proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th

14

Cir. 1992).

15

Upon removal, the district court must determine whether it

16

has subject matter jurisdiction and, if not, it must remand.

17

Lyons v. Alaska Teamsters Employer Serv. Corp., 188 F.3d 1170,

18

1171 (9th Cir. 1999). A defendant may remove any state court

19

action to federal district court if the latter court has

20

original jurisdiction under a claim or right “arising under the

21

Constitution, treaties or laws of the United States." 28 U.S.C.

22

§ 1441; see also 28 U.S.C. § 1331.

23

Whether a cause of action arises under the Constitution,

24

treaties or laws of the United States must be determined solely

25

from what is contained in the plaintiff's well-pleaded

26

complaint. Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724,
6

1

58 L.Ed. 1218 (1914). Federal jurisdiction is not proper when

2

the federal question only arises through the defendant's defense

3

or the plaintiff's necessary response thereto. Id.; Christianson

4

v. Colt Indus. Operating Corp., 486 U.S. 800, 809, 108 S.Ct.

5

2166, 100 L.Ed.2d 811 (1988).

6
7
8
9

III. ANALYSIS
A. Motion to Remand
Defendants assert that the district court has original
jurisdiction over this matter, pursuant to 28 U.S.C. § 1331.

10

There are two ways in which a federal court may obtain

11

jurisdiction under § 1331. Christianson v. Colt Indus. Operating

12

Corp., 486 U.S. 800, 809, 108 S.Ct. 2166, 100 L.Ed.2d 811

13

(1988).

14

where federal law creates a cause of action within the

15

constraints of the well-pleaded complaint. Franchise Tax Bd. of

16

Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 8-9, 103

17

S.Ct. 2841, 77 L.Ed.2d 420 (1983).

18

raises four causes of action based on California statutes: two

19

causes of action are based on an alleged violation of the

20

Consumer Legal Remedies Act; one cause of action is premised on

21

an alleged violation of the Automobile Sales Finance Act

22

(“ASFA”); and one cause of action is based upon an alleged

23

violation of the Unfair Business Acts and Practices.

24

these causes of action are based on state law, as opposed to

25

federal law, the first method of establishing § 1331

26

jurisdiction under the Christianson test is not met.

First, jurisdiction under § 1331 extends to cases

7

Here, Plaintiffs’ complaint

Because

1

Under the second prong of the Christianson test,

2

jurisdiction is proper where the district court has examined all

3

of the theories under which a plaintiff may recover on a certain

4

claim and determines that the resolution of a substantial

5

question of federal law is necessary for recovery on that claim.

6

See Christianson, 486 U.S. at 809, 108 S.Ct. 2166; Franchise Tax

7

Bd., 463 U.S. at 28, 103 S.Ct. 2841.

8

involves a "substantial question of federal law" is a case-

9

specific inquiry into whether "it appears that some substantial,

Whether a complaint

10

disputed question of federal law is a necessary element of one

11

of the well-pleaded state claims, or that one or the other claim

12

is 'really' one of federal law."

13

13, 103 S.Ct. 2841. That is, a substantial federal question

14

exists where "a substantial, disputed question of federal law is

15

a necessary element of the well-pleaded state claim" or where

16

the plaintiff's right to relief depends on the resolution of a

17

substantial, disputed question of federal law.

18

Raymond James Fin. Servs., 340 F.3d 1033, 1042 (9th Cir. 2003)

19

(emphasis in original).

20

Franchise Tax Bd., 463 U.S. at

Lippitt v.

Here, Defendant Elk Grove Ford argues that resolution of

21

Regulation Z, implementing the federal Truth in Lending Act

22

(“TILA”); the Federal Arbitration Act; and the Federal Trade

23

Commission's Holder Rule are all necessary for recovery on

24

Plaintiff’s claims.

25

i. Federal Trade Commission’s Holder Rule

26

Defendant assumes that Plaintiff’s claims against Patelco
8

1

Credit Union are “based entirely on the Federal Trade

2

Commission’s Holder Clause Rule.”

3

Defendant’s argument fails in this regard.

4

Def’s Mot., ECF No. 17, at 4.

Plaintiff’s complaint does not refer to the Federal Trade

5

Commission’s Holder Clause Rule in pursuing claims against

6

Patelco, as the current holder of his sales contract, and

7

California law provides independent grounds for asserting claims

8

against the holder of a sales contract.

9
10
11
12

California Civil Code § 2983.5(a) provides:
An assignee of the seller’s right is subject to all
equities and defenses of the buyer against the
seller, notwithstanding an agreement to the
contrary, but the assignee’s liability may not
exceed the amount of the debt owing to the assignee
at the time of the assignment.

13
14

CAL. CIV. CODE § 2983.5(a).

15

of Plaintiff’s actual contract with Defendant Elk Grove Ford

16

provides in bold type, “Any holder of this consumer credit

17

contract is subject to all claims and defenses which the debtor

18

could assert against the seller of goods or services obtained

19

pursuant hereto.”

20

Furthermore, the express provisions

Def’s Not., ECF No. 2, at Ex. 3.

Therefore, Plaintiff could pursue a claim against Patelco

21

based on the express provisions of his contract, thus relying

22

upon state common law principles regarding the interpretation of

23

contractual provisions, or Plaintiff could pursue a claim

24

against Patelco based on the California Civil Code.

25
26

Because there are state law grounds upon which Plaintiff
can pursue a claim against Patelco, Plaintiff’s claims against
9

1

Patelco do not rely upon resolution of a substantial question of

2

federal law.

3

and Defendant has failed to meet its burden of establishing

4

federal jurisdiction premised upon the FTC’s Holder Rule.

Thus, the second prong of Christianson is not met

5

ii.

6

Even though Plaintiff’s claim regarding the backdating of

7

RISCs is specifically premised upon the ASFA, Defendant argues

8

that “[d]etermination of whether the backdating allegation

9

amounts to a violation of Regulation Z, and thereby a violation

Regulation Z

10

of the ASFA . . . turns on a federal question of law.”

11

Opp’n, ECF No. 17, 5.

12

Def’s

The ASFA does reference Regulation Z, which implements the
See CAL. CIV. CODE § 2982 (“A

13

Truth in Lending Act (“TILA”).

14

conditional sale contract subject to this chapter shall contain

15

the disclosures required by Regulation Z, whether or not

16

Regulation Z applies to the transaction”); CAL. CIV. CODE §

17

2982(m) (“any information required to be disclosed in a

18

conditional sale contract under this chapter may be disclosed in

19

any manner, method, or terminology required or permitted under

20

Regulation Z”).

21

was incorporated into and made a part of the state law does not

22

automatically transform an ASFA claim into a federal claim.

23

See, e.g., Merrell Dow Pharm. v. Thompson, 478 U.S. 804, 813,

24

106 S.Ct. 3229, 3234-35 (1986) (“the mere presence of a federal

25

issue in a state cause of action does not automatically confer

26

federal-question jurisdiction”); Britz v. Cowan, 192 F.3d 1101,

However, the fact that the federal provisions

10

1

1103 (7th Cir. 1999) (Posner, J.) (“[A] state cannot expand

2

federal jurisdiction by deciding to copy a federal law. . . . If

3

it incorporates federal law into state law and then gets the

4

federal law wrong, it has made a mistake of state law”).

5

the fact that the disclosure requirements of Regulation Z are

6

incorporated into the ASFA does not, in itself, confer federal

7

jurisdiction over Plaintiff’s ASFA claim.

8
9

Thus,

In support of its argument, Defendant asserts that
“plaintiff alleges backdating a contract can result in an

10

inaccurate calculation of the APR, which may violate Regulation

11

Z and thereby also violate the ASFA.”

12

at 5.

13

Percentage Rate in a particular sales transaction does not raise

14

a substantial question of federal law, but is, instead, based on

15

a straightforward numerical calculation.

16

226.14.

17

starting date on the contract in order to calculate an accurate

18

APR relies upon an interpretation of state law, not Regulation

19

Z.

20

1065-66 (11th Cir. 2004) (“Regulation Z also provides that, when

21

determining the point at which a consumer becomes contractually

22

obligated to a credit agreement, state law should govern.”)

23

(citing 12 C.F.R. § 226, Official Staff Commentary 2(a)(13)).

24

Thus, the need to evaluate the accuracy of the APR in

25

Plaintiff’s contract does not confer federal question

26

jurisdiction over Plaintiff’s ASFA claim.

Def’s Opp’n, ECF No. 17,

However, the accuracy of the calculation of the Annual

See 12 C.F.R. §

Furthermore, determining which date to use as the

See Bragg v. Bill Heard Chevrolet, Inc., 374 F.3d 1060,

11

1

Finally, Defendants argue that “a determination of federal

2

law is determinative of plaintiff’s state law claims” and that

3

“if defendants complied with federal law, plaintiff’s state law

4

claims must fail.”

5

by Defendants that Defendants complied with federal law is a

6

defense to Plaintiff’s claims, and not a necessary element in

7

establishing Plaintiff’s prima facie case.

8

issue presented in that defense is not sufficient to confer

9

federal question jurisdiction over this case.

Def’s Opp’n, ECF No. 17, at 7.

An argument

As such, the federal

See Taylor v.

10

Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 58 L.Ed. 1218

11

(1914).

12

For the foregoing reasons, Defendants fail to meet their

13

burden of establishing that the court has jurisdiction over this

14

case based on Plaintiff’s ASFA claim.

15

iii. Federal Arbitration Act

16

The court does not have subject matter jurisdiction over

17

Plaintiff’s claims based on either the FTC’s Holder Rule or

18

Regulation Z.

19

of federal subject matter jurisdiction in this case is based

20

upon the Federal Arbitration Act, due to the existence of an

21

arbitration clause in Plaintiff’s contract.

22

Federal Arbitration Act cannot, by itself, establish federal

23

question jurisdiction.

24

Const. Corp., 460 U.S. 1, 26 n.32, 103 S.Ct. 927 (1983) (“The

25

Arbitration Act is something of an anomaly in the field of

26

federal-court jurisdiction.

Defendant’s only remaining argument for assertion

However, the

Moses H. Cone Memorial Hosp. v. Mercury

It creates a body of federal
12

1

substantive law establishing and regulating the duty to honor an

2

agreement to arbitrate, yet it does not create any independent

3

federal-question jurisdiction under 28 U.S.C. § 1331.”).

4

court, therefore, does not have federal question jurisdiction

5

over this case merely due to the arbitration agreement in

6

Plaintiff’s contract.

7

The

For the foregoing reasons, Defendant has failed to meet its

8

burden of establishing federal jurisdiction in this matter and

9

removal was improper.

The case is therefore remanded to the

10

Superior Court of Sacramento County.

11

ii.

12

Fees and Costs
Plaintiff has requested the costs and expenses of removal,

13

pursuant to 28 U.S.C. § 1447(c).

14

counsel for Plaintiff specifically requested $20,000 total.

15

Mins., ECF No. 25; see also Decl. Christopher Barry, ECF No. 15,

16

Attach. 2; Decl. Angela J. Smith, ECF No. 15, Attach. 3.

17

At the hearing on this motion,
See

When remanding a case to state court, district courts may

18

"require payment of just costs and any actual expense, including

19

attorneys fees, incurred as a result of the removal." 28 U.S.C.

20

§ 1447(c). The Supreme Court has held that attorneys’ fees

21

should not be awarded automatically on remand, nor is there a

22

strong presumption that fees should be awarded. Martin v.

23

Franklin Capital Corp., 546 U.S. 132, 136-37, 126 S.Ct. 704, 163

24

L.Ed.2d 547 (2005). Rather, the Court held that fees and costs

25

should only be awarded where "such an award is just." Id. at

26

138. Accordingly, the Court concluded that "the standard for
13

1

awarding fees should turn on the reasonableness of the removal."

2

Id. at 141. Specifically, "absent unusual circumstances, courts

3

may award attorney's fees under § 1447(c) only where the

4

removing party lacked an objectively reasonable basis for

5

seeking removal." Id. The Ninth Circuit has clarified that a

6

showing of bad faith on the part of the removing party is not

7

required to award attorneys' fees under § 1447(c), and that

8

"Congress has unambiguously left the award of fees to the

9

discretion of the district court." Gotro v. R&B Realty Group, 69

10

F.3d 1485, 1487 (9th Cir. 1995); Moore v. Permanente Medical

11

Group, Inc., 981 F.2d 443, 446-47 (9th Cir. 1992).

12

The court determines that the Defendant did not have an

13

objectively reasonable basis for seeking a federal forum in this

14

case.

15

it was unreasonable for Defendant to assume that any claim

16

brought under ASFA was, in fact, a federal claim.

17

arguments that liability against Patelco could only be proven by

18

reliance on the FTC’s Holder Rule disregarded both the

19

California Civil Code § 2983.5(a) and an express provision in

20

the sales contract at issue.

21

the Federal Arbitration Act to establish federal jurisdiction

22

was contrary to clearly established case law.

23

circumstances, defendants are required to pay reasonable costs

24

and expenses, including attorney’s fees, pursuant to 28 U.S.C. §

25

1447(c).

26

Although the ASFA incorporated Regulation Z by reference,

Defendant’s

Finally, Defendant’s reliance on

Under the

The court further determines that, based on an assessment
14

1

of the relative complexity of the questions presented in this

2

motion and the time and labor therefore required, Plaintiffs

3

should be awarded $3,000 for the costs incurred as a result of

4

removal in this case.

5

B. Motion to Compel Arbitration and to Strike Class Action

6

Claims

7

Because the court lacks subject matter jurisdiction in this

8

case, it is unable to hear Defendant’s motion to compel

9

arbitration and to strike class action claims.

Given the remand

10

in this case, Defendant’s motion to compel arbitration and to

11

strike class action claims are no longer before the court.

12

IV. CONCLUSION

13

Accordingly, the court orders as follows:

14

[1] Plaintiff’s motion to remand, ECF No. 15, is

15

GRANTED.

16

[2] Plaintiff’s request for costs and fees, pursuant

17

to 28 U.S.C. § 1447(c), is GRANTED.

18

pay Plaintiffs $3,000.

19

[3] The court lacks subject matter jurisdiction to

20

hear Defendant’s motion to compel arbitration and to

21

strike class action claims, ECF No. 8.

22

is, therefore, no longer before the court.

23

[4] The matter is REMANDED to the Superior Court of

24

Sacramento County. The clerk is directed to close the

25

case.

26

////
15

Defendants SHALL

This motion

1

IT IS SO ORDERED.

2

DATED: January 23, 2012.

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
16