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Calif. decisions might change legal fee limits, compliance lawyer says

This is incorrect, according to a Jan. 18 FTC advisory opinion. The agency said a 2019 FTC comment that discusses the rule put forth similar guidance.

“Some courts have read the commission’s statements in a 2019 Rule Confirmation notice regarding the Holder Rule as mandating a different result,” the FTC wrote in January. “Insofar as these decisions conclude that the Holder Rule precludes state law from providing for costs or attorneys’ fees against the holder, they misconstrue the commission’s statements. Neither the rule itself nor the 2019 Rule Confirmation notice say that the Holder Rule invalidates state law or that there is a federal interest in limiting state remedies.”

A similar controversy over the Holder Rule’s meaning was decided in favor of a California borrower two months after the FTC’s advisory opinion.

The California Fifth Circuit Court of Appeals on March 22 ruled in favor of plaintiffs Digna Reyes and Sylvester Fulton IV, who alleged to the trial court that they bought a lemon of a used vehicle from a dealership in 2016 but were unable to return the vehicle.

Reyes and Fulton settled the case for $11,196 and the vehicle. They filed a motion for $6,629.41 in costs and expenses and $53,134.50 in legal fees from Beneficial State Bank. The trial court awarded the costs but denied the fees.

“Attorney fees are what kills you,” Henrick said in April.

A California trial court had approved the costs but not the fees, prompting Reyes and Fulton to appeal to the Fifth Circuit.

“The FTC presumably could have promulgated the Holder Rule as a direct, substantive rule of law, rather than as a mandatory provision in contracts,” the Fifth Circuit opinion by then-acting Presiding Justice Charles Poochigian states. “But it did not. And because the Holder Rule manifests solely as contract language, it is inherently subject to all the ways in which litigation outcomes might differ from what is expressly contemplated by a contract. One such example is when a state statute overrides a contractual provision.”

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