Amicus Curiae Brief — TD Bank, N.A., Petitioner v. Tania Pulliam, et al.

No. 22-288

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In The

Supreme Court of the United States

---------------------------------♦--------------------------------TD BANK, N.A.,

Petitioner,

v.

TANIA PULLIAM, et al.,

Respondents.

---------------------------------♦--------------------------------On Petition For A Writ Of Certiorari

To The Supreme Court Of California

---------------------------------♦--------------------------------BRIEF OF AMICI CURIAE

AMERICAN BANKERS ASSOCIATION,

AMERICAN FINANCIAL SERVICES ASSOCIATION,

CONSUMER BANKERS ASSOCIATION, AND

CALIFORNIA FINANCIAL SERVICES ASSOCIATION

IN SUPPORT OF PETITIONER

---------------------------------♦--------------------------------JAN T. CHILTON

Counsel of Record

SCOTT J. HYMAN

SEVERSON & WERSON,

A PROFESSIONAL CORPORATION

595 Market Street, Suite 2600

San Francisco, CA 94105

(415) 398-3344

jtc@severson.com

Counsel for Amici Curiae

October 26, 2022

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COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

TABLE OF CONTENTS

Page

INTEREST OF AMICI CURIAE .........................

1

SUMMARY OF ARGUMENT ..............................

4

ARGUMENT ........................................................

6

I.

The Petition Raises A Question That Is Vital To The Resolution Of Thousands Of

Cases Annually On Which There Is A

Clear Split Of Authority ............................

6

II.

The Court Should Grant Certiorari To

Rein In Administrative Agency Usurpation Of The Judicial Power To Interpret

Regulations ................................................ 13

III.

The Court Should Grant Certiorari Because The Decision Below Is Clearly

Wrong ........................................................ 20

CONCLUSION..................................................... 24

ii

TABLE OF AUTHORITIES

Page

CASES

Am. Alternative Ins. Co. v. Sentry Select Ins. Co.,

176 F. Supp. 2d 550 (E.D. Va. 2001)........................20

Bank Markazi v. Peterson,

578 U.S. 212 (2016) ........................................... 13, 14

Benson v. S. California Auto Sales, Inc.,

239 Cal. App. 4th 1198, 192 Cal. Rptr. 3d 67

(2015) .......................................................................10

Evans v. Jeff D.,

475 U.S. 717 (1986) .................................................23

FCC v. Fox Television Stations, Inc.,

556 U.S. 502 (2009) ........................................... 18, 19

Flannery v. Prentice,

26 Cal. 4th 572, 28 P.3d 860 (2001) .................. 22, 24

Food Mktg. Inst. v. Argus Leader Media,

___ U.S. ___, 139 S. Ct. 2356 (2019) ........................21

Greene v. United States,

376 U.S. 149 (1964) .................................................21

Kisor v. Wilkie,

___ U.S. ___, 139 S. Ct. 2400 (2019) ...... 14, 18, 19, 20

Lafferty v. Wells Fargo Bank,

213 Cal. App. 4th 545, 153 Cal. Rptr. 3d 240

(2013) .......................................................................22

Lafferty v. Wells Fargo Bank, N.A.,

25 Cal. App. 5th 398, 235 Cal. Rptr. 3d 842

(2018) .......................................................................12

iii

TABLE OF AUTHORITIES—Continued

Page

Marbury v. Madison,

1 Cranch 137 (1803) ................................................13

McGirt v. Oklahoma,

___ U.S. ___, 140 S. Ct. 2452 (2020) ........................21

Melendez v. Westlake Servs., LLC,

74 Cal. App. 5th 586, 290 Cal. Rptr. 3d 11

(2022) .......................................................................12

Motor Vehicle Mfrs. Assn. of United States, Inc.

v. State Farm Mut. Automobile Ins. Co.,

463 U.S. 29 (1983) ...................................................18

NLRB v. Nat. Gas Util. Dist.,

402 U.S. 600 (1971) .................................................20

Pennsylvania v. Del. Valley Citizens’ Council,

478 U.S. 546 (1986) .................................................24

Perez v. Mortg. Bankers Ass’n,

575 U.S. 92 (2015) ....................................... 17, 18, 19

Reyes v. Beneficial State Bank,

76 Cal. App. 5th 596, 291 Cal. Rptr. 3d 657

(2022) .......................................................................12

Shayler v. 1310 PCH, LLC,

No. 21-56130, ___ F.4th ___,

2022 WL 13743415 (9th Cir. Oct. 24, 2022)............10

Spikener v. Ally Financial, Inc.,

50 Cal. App. 5th 151, 263 Cal. Rptr. 3d 726

(2020) .......................................................................12

iv

TABLE OF AUTHORITIES—Continued

Page

Venegas v. Mitchell,

495 U.S. 82 (1990) ...................................................23

W. Air Lines, Inc. v. Bd. of Equalization,

480 U.S. 123 (1987) .................................................20

STATUTES

5 U.S.C. § 553 ........................................................ 14, 17

49 U.S.C. § 32710 ..........................................................8

Cal. Civ. Code,

§ 1780.........................................................................8

§ 1794............................................................. 8, 23, 24

§ 2983.4......................................................................9

Fla. Stat.

§ 681.112....................................................................9

N.Y. Gen. Bus. Law

§ 349 ..........................................................................9

N.Y. Pers. Prop. Law

§ 302 ........................................................................22

Tex. Bus. & Com. Code

§ 17.50........................................................................9

Wash. Rev. Code

§ 4.84.185.................................................................24

v

TABLE OF AUTHORITIES—Continued

Page

OTHER AUTHORITIES

Alaska R. Civ. P. 82 .....................................................24

ALI, Principles of the Law of Aggregate Litig.,

§ 3.13 cmt. b (2010) .................................................10

16 C.F.R. § 433.2 ..................................................... 3, 19

T. Cooley, Constitutional Limitations (1868) .............14

FTC, 16 CFR Part 433: Request for Comments,

80 Fed. Reg. 75018 (Dec. 1, 2015) ...........................15

FTC Advisory Opn. (May 3, 2012) ..............................22

FTC, Confirmation of Trade Regulation Rule

Concerning Preservation of Consumers’ Claims

and Defenses, 84 Fed. Reg. 18711 (May 2,

2019) ................................................................ passim

FTC, Commission Statement on the Holder

Rule and Attorneys’ Fees and Costs (Jan. 18,

2022) ................................................................ passim

Hon. Brett M. Kavanaugh, The Courts and the

Administrative State, 64 Case W. Res. L. Rev.

711 (2014) ................................................................18

1

The American Bankers Association (“ABA”),

American Financial Services Association (“AFSA”),

Consumer Bankers Association (“CBA”), and California Financial Services Association (“CFSA”) respectfully submit this brief as amici curiae in support of TD

Bank, N.A.’s (“TD Bank’s”) Petition for a Writ of Certiorari.1

---------------------------------♦---------------------------------

INTEREST OF AMICI CURIAE

1. The ABA is the largest national trade association of the banking industry in the country. It represents banks and holding companies of all sizes in each

of the fifty states and the District of Columbia. The

ABA also represents savings associations, trust companies, and savings banks. ABA members hold approximately 95% of the United States banking industry’s

domestic assets. The ABA frequently appears in litigation, as either a party or amicus curiae, to protect and

promote the interests of the banking industry, its members, and its customers.

At least 10 days before the due date for this brief, counsel

of record for both parties received notice of amici curiae’s intention to file this brief. Both parties have consented to the filing of

this brief. No counsel for a party authored this brief in whole or

in part, and no counsel or party made a monetary contribution

intended to fund the preparation or submission of this brief. No

person other than the amicus organizations, their members, or

their counsel made a monetary contribution to the preparation or

submission of this brief.

1

2

2. Founded in 1916, AFSA is the national trade

association for the consumer credit industry, protecting access to credit and consumer choice. AFSA members provide consumers with many kinds of credit,

including traditional installment loans, mortgages, direct and indirect vehicle financing, payment cards, and

retail sales finance. AFSA has a broad membership,

ranging from large international financial services

firms to single-office, independently owned consumer

finance companies.

For over 100 years, AFSA has represented financial services companies that hold leadership positions

in their markets and conform to the highest standards

of customer service and ethical business practices.

AFSA supports financial education for consumers of all

ages. AFSA advocates before legislative, executive, and

judicial bodies on issues affecting its members’ interests.

3. CBA is the only member-driven trade association focused exclusively on retail banking. CBA members operate in all 50 states, serve more than 150

million Americans, and hold two thirds of the country’s

total depository assets. CBA’s members include the nation’s largest retail banks, with 85% holding over $10

billion in assets. Since 1919, CBA members have provided financing to consumers to help them buy homes,

automobiles and other goods, pay tuition for education,

or start a small business.

4. CFSA represents major national and international corporations and independent lenders with

3

operations in the State of California that provide a

broad range of financial services, including consumer

and commercial loans, retail installment financing,

automobile and mobile home financing, home purchase

and home equity loans, credit cards, and lines of credit.

CFSA was established to promote laws and regulations that protect consumers while preserving their

access to credit options, and to support and encourage

responsible industry practices. CFSA acts as a unified

voice of the finance industry in lobbying the Legislature, interfacing with industry regulators, and representing the industry in court.

5. The amici have a vital interest in the outcome

of this case. The amici’s members make loans and purchase retail installment contracts that are subject to

the Federal Trade Commission’s Holder in Due Course

Rule (“Holder Rule”; 16 C.F.R. § 433.2). Like TD Bank,

they have been, and likely will be, sued under the

Holder Rule on contract, tort, and statutory claims

based on alleged misconduct by the sellers of the goods

whose purchase they financed. As explained below, resolution of the issue raised by TD Bank’s petition is

critical to disposition of those suits. In 2016, AFSA submitted comments to the FTC on that issue in connection with the FTC’s regulatory review of the Holder

Rule. The amici filed an amicus brief in the California

Supreme Court, supporting T.D. Auto Finance (which

has since merged into TD Bank).

---------------------------------♦---------------------------------

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SUMMARY OF ARGUMENT

The Court should grant the petition and hear this

case on the merits to resolve a clear split over whether

the Holder Rule limits recovery of attorney fees

against the holder of a consumer credit contract (“creditor”). As a federal regulation, the Holder Rule should

be applied uniformly throughout the country. But, in

fact, California’s interpretation of this federal law differs markedly from the holdings of other states’ courts

on the same issue.

The issue is important. Attorney fees are the driving force in the resolution of the tens of thousands of

Holder Rule cases that are filed annually, mostly in

state court. Under the California Supreme Court’s

reasoning in this case, consumers will be able to recover uncapped attorney fees from innocent creditors

in virtually all Holder Rule cases since comparatively

few state statutes allow attorney fee awards exclusively against the seller and not a derivatively liable

creditor.

This case presents an appropriate vehicle for the

Court to resolve the stark division of authority on this

question. Moreover, it may be the Court’s only opportunity to do so for the foreseeable future, as most

Holder Rule cases settle, are arbitrated or involve

stakes that do not warrant an appeal, let alone to this

Court. The unique set of circumstances that brought

this case here is unlikely to recur in the foreseeable

future.

5

Certiorari should also be granted in this case to

rein in the FTC which improperly sought to exercise

the judicial power of resolving the split in court decisions interpreting the Holder Rule and did so by issuing a “Statement,” while the case was pending before

the California Supreme Court, which, without explanation, reversed the interpretation that the FTC had

given the Holder Rule just three years before at the

conclusion of a notice-and-comment rulemaking proceeding regarding the Holder Rule.

Finally, the petition should be granted because the

California Supreme Court’s opinion below is plainly

wrong. It wrongly applies California, not federal, rules

of construction in interpreting the Holder Rule. The

California Supreme Court’s opinion wrongly finds the

Holder Rule ambiguous; whereas, the FTC has declared the contrary is true. It incorrectly finds that

“recovery” includes only “damages,” not attorney fee

awards despite the FTC’s twice-stated contrary conclusion. And the California Supreme Court wrongly followed the FTC’s about-face “Statement” in construing

a fee award on a claim that can be brought against the

creditor only because of the Holder Rule as not being a

“recovery hereunder.”

---------------------------------♦---------------------------------

6

ARGUMENT

I.

The Petition Raises A Question That Is Vital

To The Resolution Of Thousands Of Cases

Annually On Which There Is A Clear Split Of

Authority

Applying to the financed sale of most consumer

goods, the Holder Rule affects more of this nation’s

commerce and state court litigation than almost any

other federal regulation.

1. In July 2022, consumers purchased durable

goods, the most frequently financed type of consumer

purchases, at an annual rate of more than $2 trillion.2

Of consumer durable goods, automobiles are normally

the most expensive and most likely to give rise to litigation. In 2021, about 81% of the $358.7 billion of new

car sales and 34.5% of the $245.9 billion of used car

sales to consumers were financed directly by loans or

indirectly through retail installment sales contracts

(“RISCs”) subject to the Holder Rule.3 About $199

U.S. Bureau of Economic Analysis, Personal Consumption

Expenditures: Durable Goods [PCEDG], retrieved from FRED,

Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/

PCEDG, Sept. 26, 2022.

3

U.S. Bureau of Economic Analysis, Personal consumption

expenditures: Durable goods: Table 2.4.5. Personal Consumption

Expenditures by Type of Product: Annual, retrieved from FRED,

Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/

DNMVRC1A027NBEA, Sept. 27, 2022; https://carsurance.net/

insights/auto-loan-statistics/ (last visited Sept. 27, 2022);

https://www.statista.com/statistics/453075/share-of-used-vehicleswith-financing-usa/#:~:text=In%20the%20first%20quarter%20of,

the%20United%20States%20were%20financed (last visited Sept.

27, 2022).

2

7

million in new auto loans were originated during the

second quarter of 2022.4

Though representing only a small fraction of the

millions of financed sales of cars (or other durable

goods), thousands of cases involving financed car sales

are filed each year.5 Nearly all of these suits are filed

in state court as they allege state law claims, and the

seller and buyer typically are citizens of the same

state. In most of these cases, the buyer sues the creditor under the Holder Rule as well as the seller that he

or she accuses of wrongdoing. However, with increasing frequency, buyers sue only the creditor under the

Holder Rule, not naming the seller.

2. The issue TD Bank’s petition raises is of crucial importance to all of these thousands of cases annually. See FTC, Commission Statement on the Holder

Rule and Attorneys’ Fees and Costs, 1 (Jan. 18, 2022)

Fed. Reserve Bank of New York, Research & Statistic

Group, Household Debt and Credit (2022:Q2; released Aug. 2022),

pp. 1, 3 (underlying data) The statistic includes leases which are

not subject to the Holder Rule.

5

About 34,400 lawsuits over new car sales were filed in California state courts from 2018 through 2021, yet they represented

only 0.5% of the 7 million new cars sold and registered in the state

the same period. https://pirg.org/edfund/media-center/new-reportreveals-most-commonly-sued-car-manufacturers-under-californialemon-law/#:~:text=Among%20the%20more%20than%207,lawsuit

%20filed%20in%20state%20courts (last visited Sept. 27, 2022);

see also U.S. Bureau of Economic Analysis, Total Vehicle Sales

[TOTALSA], retrieved from FRED, Federal Reserve Bank of St.

Louis; https://fred.stlouisfed.org/series/TOTALSA, September 26,

2022.

4

8

(“FTC Statement”) (“This issue has arisen repeatedly

in court cases. . . .”).

Under the FTC Statement and the California

Supreme Court’s opinion in this case, a consumer will

be able to recover uncapped attorney fees from the

creditor in nearly all Holder Rule cases. Both the

Statement and the opinion state that the Holder Rule’s

second sentence does not limit attorney fee recovery

against the creditor unless “a ‘consumer is awarded

fees in a suit solely against the seller, or the law allows

awards only against a seller that has engaged in specified [wrongful] conduct.’ ” Pet. App., 34 (quoting FTC

Statement, p. 3). Those two exceptions are null sets.

In a suit “solely against the seller,” the creditor is

not a defendant and cannot be held liable at all. So, the

Holder Rule never comes into play. The other exception

will rarely apply. Comparatively few statutes allow an

award of attorney fees “only against a seller.” The California Supreme Court cited none. Most state and federal statutes under which buyers normally sue allow

an award of attorney fees as part of a prevailing plaintiff ’s recovery without specifying against whom the

award is allowed.6

See, e.g., 49 U.S.C. § 32710(b) (Federal Odometer Act: “The

court shall award costs and a reasonable attorney’s fee to the person when a judgment is entered for that person.”); Cal. Civ. Code,

§ 1780(e) (Consumers Legal Remedies Act: “The court shall award

court costs and attorney’s fees to a prevailing plaintiff in litigation

filed pursuant to this section.”), § 1794(d) (Song-Beverly Warranty Act: “If the buyer prevails in an action under this section,

the buyer shall be allowed by the court to recover as part of the

6

9

Thus, in practice, a creditor will be held liable for

uncapped attorney fees in any action brought against

it under the Holder Rule in a state that follows the

FTC Statement or the California Supreme Court’s decision in this case.

3. Like most civil litigation, the vast majority of

these cases settle before trial. Attorney fee liability or

limitation plays an outsized role in the settlement process. Potential liability for uncapped attorney fees

puts enormous, often irresistible, pressure on creditors

to settle these suits early, even when the suits are of

dubious merit.7 The reason is simple: a single loss, like

TD Bank’s in this case, results in an attorney fee award

many times the consumer’s damages, outweighing any

benefit the creditor might otherwise obtain by successfully defending many other similar suits. Early

judgment a sum equal to the aggregate amount of costs and expenses, including attorney’s fees. . . .”), § 2983.4 (Automobile

Sales Finance Act: “Reasonable attorney’s fees and costs shall

be awarded to the prevailing party in any action on a contract”

subject to the Act.); Fla. Stat., § 681.112(1) (Motor Vehicle Sales

Warranties: “The court shall award a consumer who prevails in

[an] action [under this chapter] the amount of any pecuniary loss,

litigation costs, reasonable attorney’s fees, and appropriate equitable relief.”), N.Y. Gen. Bus. Law, § 349 (UDAP: “The court

may award reasonable attorney’s fees to a prevailing plaintiff.”);

Tex. Bus. & Com. Code, § 17.50(d) (Deceptive Trade PracticesConsumer Protection Act: “Each consumer who prevails shall be

awarded court costs and reasonable and necessary attorneys’

fees.”).

7

The settlement pressure is particularly strong when, for

whatever reason, the seller is not actively defending the case, as

then the only percipient witnesses to the sale, often are unavailable or difficult to locate.

10

settlement of Holder Rule cases of even dubious merit,

in turn, encourages the filing of more dubious suits.

When able to recover unlimited attorney fees from

creditors, consumer attorneys are motivated to resist

early settlement in order to increase claimed fees.8

Awarding attorney fees by the lodestar plus multiplier

method, as California and most other states do, gives

attorneys “a financial incentive to extend the litigation

so that the attorneys can accrue additional hours (and

thus, additional fees).” ALI, Principles of the Law of

Aggregate Litig., § 3.13 cmt. b (2010); see also Benson

v. S. California Auto Sales, Inc., 239 Cal. App. 4th 1198,

1205, 1212-13, 192 Cal. Rptr. 3d 67, 71, 77 (2015)

(plaintiff sought $171,915 in attorney fees though defendant offered appropriate correction less than 30

days after receiving notice of the claim); Shayler v.

1310 PCH, LLC, No. 21-56130, ___ F.4th ___, 2022 WL

13743415, at *2 (9th Cir. Oct. 24, 2022) (cataloging

abuses stemming from uncapped attorney fee awards

in ADA suits). Extending litigation to increase attorney fees unnecessarily clogs court dockets and harms

consumers as well as creditors.

According to one FTC commenter, car buyers’ attorneys

“try to capitalize on by front loading attorneys’ fees and then demanding that all fees be paid as part of the settlement, regardless

of whether reasonable, necessary, or legitimately incurred. Unfortunately, it has become somewhat routine for attorneys in

these cases to generate as much in attorneys’ fees as possible . . .

before a lawsuit is even filed. Once filed, hundreds of pages of

‘canned’ discovery requests (often irrelevant and inapplicable) are

served by plaintiff ’s counsel to further drive up fees.” CU Direct

Corp., Holder Rule Review (FTC File No. P164800) Ltr., p. 2 (Feb.

12, 2016).

8

11

4. As TD Bank’s petition shows, Pet., 13-19, there

is a stark split among the (mostly) state court decisions

on the issue the petition raises. Most courts have held

that the Holder Rule’s second sentence, limiting “recovery hereunder” applies to, and caps, a consumer’s

recovery of attorney fees from a creditor9 on claims of

seller wrongdoing that the Holder Rule allows the consumer to bring against the creditor. See Pet., 13-19.

The California Supreme Court’s contrary decision

in this case sows uncertainty in the many states yet to

rule on the issue. That uncertainty about the largest

element of monetary recovery makes settlement much

harder, pushing more cases to trial, and causing more

contested attorney fee motions and appeals from the

grant or denial of attorney fees. These unfortunate effects of the current uncertainty harm the parties as

well as the legal system. Settlement and recompense

is delayed for deserving claimants. More judicial resources must be devoted to these cases. Only consumer

attorneys profit.

5. As the petition explains, this case is a perfect

vehicle for decision of the issue the petition raises. Pet.,

34-35. Moreover, it will likely be the only opportunity,

for the foreseeable future, for the Court to address this

important question of federal law.

The Holder Rule concerns only the creditor’s liability on

claims against the seller. The Rule does not affect or limit the

seller’s direct liability for its wrongs or for the consumer’s attorney fees if recoverable under applicable state law.

9

12

As already stated, most Holder Rule cases settle

pretrial. Many that do not settle are sent to arbitration. The few that proceed to trial rarely result in a

judgment that justifies an appeal. When, as in this

case, an award of attorney fees is large enough to warrant an appeal, the creditor most often foregoes the appeal to avoid an even greater fee award if the appeal is

lost.

This case was the rare exception only because it

was the culmination of a multi-year, multi-faceted effort by Pulliam’s attorneys, a firm that specializes in

representing consumers in automobile cases, to overturn Lafferty v. Wells Fargo Bank, N.A., 25 Cal. App.

5th 398, 235 Cal. Rptr. 3d 842 (2018), which had held

that the Holder Rule caps attorney fee awards.10 The

rare alignment of circumstances that brought this case

before the Court is highly unlikely to recur in the foreseeable future. So, as a practical matter this is likely

to be the Court’s only opportunity to resolve the conflict among the state courts on this federal law issue of

overriding importance to the resolution of thousands

of cases annually.

See https://www.autofraudlegalcenter.com/. Pulliam’s attorneys represented the consumers in each of the post-Lafferty

California appellate decisions on this issue. See Reyes v. Beneficial

State Bank, 76 Cal. App. 5th 596, 291 Cal. Rptr. 3d 657 (2022);

Melendez v. Westlake Servs., LLC, 74 Cal. App. 5th 586, 290 Cal.

Rptr. 3d 11 (2022); Spikener v. Ally Financial, Inc., 50 Cal. App.

5th 151, 263 Cal. Rptr. 3d 726 (2020). They spearheaded an effort

in California’s Legislature to overturn Lafferty and, either directly or through consumer advocate associations, pushed the

FTC to issue its 2022 Statement.

10

13

II.

The Court Should Grant Certiorari To Rein

In Administrative Agency Usurpation Of The

Judicial Power To Interpret Regulations

The Court should also grant certiorari in this case

to build on the Court’s recent administrative law decisions and to rein in the FTC’s interference with the judiciary’s power to interpret administrative regulations

and its unexplained flip-flop in construing the Holder

Rule.

1. “Article III of the Constitution establishes an

independent Judiciary, a Third Branch of Government

with the ‘province and duty . . . to say what the law is’

in particular cases and controversies.” Marbury v.

Madison, 1 Cranch 137, 177 (1803). Neither Congress

nor the Executive Branch may “ ‘usurp a court’s power

to interpret and apply the law to the [circumstances]

before it.’ ” Bank Markazi v. Peterson, 578 U.S. 212, 225

(2016) (citation omitted). What is forbidden Congress

and the President is equally off limits for the FTC.

Yet that is precisely what the FTC sought to do

here. While this case was pending in the California Supreme Court, the FTC issued a Statement that was

plainly intended to direct the California Supreme

Court’s interpretation of the Holder Rule in this case.

See FTC Statement. In the Statement, the FTC also

purported to exercise a power to resolve the split in judicial decisions interpreting the Holder Rule, telling

the California Supreme Court which prior California

Court of Appeal decisions “correctly” interpreted the

14

Holder Rule, and which did not. See id. at 1, 3 & nn. 2,

6.

In both respects, the FTC infringed upon the

courts’ exclusive power to interpret the law, including

the FTC’s regulations. “If [FTC] disagrees with how

courts are interpreting an existing [regulation], it is

free to amend the [regulation] to establish a different

rule going forward. What it cannot do is issue ‘a mandate . . . to compel the courts to construe and apply [existing law], not according to the judicial, but according

to the [administrative agency’s] judgment.’ ” Kisor v.

Wilkie, ___ U.S. ___, 139 S. Ct. 2400, 2439 (2019) (Kavanaugh, J., dissenting) (quoting T. Cooley, Constitutional Limitations 95 (1868)); see also Bank Markazi,

578 U.S. at 225 n. 17.

The FTC’s Statement had its intended effect.

Though the California Supreme Court purported to

avoid the issue of deference, its opinion relies heavily

on the FTC Statement to support its interpretation of

the Holder Rule. See Pet. App., 30-35.

2. The FTC’s Statement is also an unexplained

reversal of the FTC’s more carefully considered interpretation issued less than three years earlier at the

conclusion of the FTC’s complete review of the Holder

Rule, conducted in full compliance with the Administrative Procedure Act’s (“APA’s”) notice and comment

requirements, 5 U.S.C. § 553(b)-(d), as part of its regular program of reviewing all its rules and guides every

decade to “ensure that they continue to achieve their

15

intended goals without unduly burdening commerce.”11

In 2015, the FTC published a request for comments

on the Holder Rule, specifically seeking suggested

modifications to the Rule to increase its benefits to

consumers. FTC, 16 CFR Part 433: Request for Comments, 80 Fed. Reg. 75018, 75019 (Dec. 1, 2015). In response to the request, the FTC received 19 public

comments, six of which addressed whether the

Holder Rule allows or should allow consumers to recover uncapped attorneys’ fees from a holder. FTC,

Confirmation of Trade Regulation Rule Concerning

Preservation of Consumers’ Claims and Defenses, 84

Fed. Reg. 18711, 18713 (May 2, 2019) (“2019 Rule Confirmation”).

The National Consumer Law Center (“NCLC”),

one of the four commenters that “supported having no

cap on recovery of attorneys’ fees,” “argued that liability for attorneys’ fees under fee-shifting statutes is

independent from an assignee’s derivative liability under the Holder Rule, and therefore is not capped by the

Rule’s limitation to ‘recovery hereunder.’ ”12 2019 Rule

Confirmation, 84 Fed. Reg. at 18713.

FTC, Regulatory Review Plan: Ensuring FTC Rules Are

Up-to-Date, Effective, and Not Overly Burdensome (Sept. 2011),

p. 1, publicly available at https://www.ftc.gov/system/files/documents/

one-stops/retrospective-review-ftc-rules-guides/regreview plan.pdf.

12

“The holder’s liability for the consumer’s attorney fees will

be based on a fee-shifting statute that requires the defendant to

pay fees. The holder’s liability for fees is not a derivative liability

from the seller, but is based on its own actions in refusing to

11

16

In May 2019, the FTC decided to retain the Holder

Rule without modification, 2019 Rule Confirmation,

pp. 18714-18715, and rejected the NCLC’s argument

about attorney fees, stating:

We conclude that if a federal or state law separately provides for recovery of attorneys’ fees

independent of claims or defenses arising

from the seller’s misconduct, nothing in the

Rule limits such recovery. Conversely, if the

holder’s liability for fees is based on claims

against the seller that are preserved by

the Holder Rule Notice, the payment that

the consumer may recover from the holder—

including any recovery based on attorneys’

fees—cannot exceed the amount the consumer paid under the contract. . . . The Commission does not believe that the record

supports modifying the Rule to authorize recovery of attorneys’ fees from the holder,

based on the seller’s conduct, if that recovery exceeds the amount paid by the consumer.

Id. at 18713 (emphasis added).

Less than three years later, the FTC abruptly reversed course. Gone from the 2022 FTC Statement is

the 2019 Rule Confirmation’s focus on “claims or defenses arising from the seller’s misconduct” and on

resolve the consumer’s claim. . . . [Para.] [A]ttorney fees are

awarded not because of the seller’s conduct but because of the

holder’s conduct. It is the holder who is refusing to settle the claim

and who insists on litigating the issues.” NCLC, Comments to the

Federal Trade Commission Holder Rule Review File No. P164800,

pp. 8-9 (Feb. 12, 2016).

17

“recovery of attorneys’ fees . . . based on the seller’s

conduct.” Instead, the FTC Statement adopts the

NCLC’s argument which the FTC had rejected in 2019.

The Statement says a consumer may recover uncapped

attorney fees from a holder “if the applicable law authorizes the consumer to recover costs or fees from parties that unsuccessfully oppose the consumer’s claims

or defenses” because the liability for fees is “supported

by a law that is independent of the Holder Rule” and

the fees are awarded “against a holder because of its

role in litigation.” FTC Statement, p. 3.

The FTC Statement was issued without any prior

public notice, request for comment, or public input. The

Holder Rule’s text had not changed. The FTC stated no

reason for its about face on this issue but tried instead

to pass it off as a “correct interpretation” of the 2019

Rule Confirmation. FTC Statement, p. 3 (“Some courts

have read the Commission’s statements in a 2019 Rule

Confirmation notice regarding the Holder Rule as

mandating a different result. . . . [T]hey misconstrue

the Commission’s statements.”).

3. Normally, an administrative agency may issue

an interpretative rule without following the APA’s notice and comment requirements. 5 U.S.C. § 553(b)(A),

(d)(2); Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 10001 (2015). The Court has not yet decided whether that

remains true when the new interpretative rule reverses an interpretation adopted as part of a noticeand-comment legislative rule-making proceeding, such

as the FTC’s 2019 Rule Confirmation. Nor has the

Court yet adopted the argument that acts of an

18

independent agency, like the FTC, should be more

closely scrutinized by the judiciary because they “have

not been supervised by the President in the way that

our constitutional structure would suggest.” Hon.

Brett M. Kavanaugh, The Courts and the Administrative State, 64 Case W. Res. L. Rev. 711, 731 (2014).

But it is clear that since the FTC skirted the APA’s

notice-and-comment procedures in issuing it, the FTC

Statement “do[es] not have the force of law.” Kisor, 139

S. Ct. at 2420; Mortg. Bankers, 575 U.S. at 104 & n. 4.

The FTC Statement is also disentitled to deference

or persuasive force as it offends the arbitrary and capricious standard, one of “the most notable” of the

APA’s “constraints on agency decisionmaking.” Mortg.

Bankers, 575 U.S. at 106. Under that standard, this

Court insists that an agency “ ‘articulate a satisfactory

explanation for its action.’ ” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009) (quoting Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm

Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)). “[T]he

requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position.” Fox

Television Stations, 556 U.S. at 515. The FTC Statement fails this basic requirement, attempting to pass

off its about face as a “correct interpretation” of the

2019 Rule Confirmation. FTC Statement, p. 3.

Further, the arbitrary and capricious standard

“requires an agency to provide more substantial justification when ‘its new policy rests upon factual

19

findings that contradict those which underlay its prior

policy. . . .’ ” Mortg. Bankers, 575 U.S. at 106 (quoting

Fox Television Stations, 556 U.S. at 515). The FTC

Statement also flunks that test, providing no justification, let alone a “more substantial” one, for its new

interpretation that contradicts the 2019 Rule Confirmation.13

The FTC’s unexplained reversal of its interpretation of the Holder Rule is particularly pernicious because of the unique way the Holder Rule operates. The

FTC regulation only requires sellers or lenders to include a specific provision in their contracts, leaving it

to the courts—primarily, state courts—to enforce that

provision in private litigation between buyers and

creditors. See 16 C.F.R. § 433.2. The FTC pays no price

for skirting APA notice-and-comment requirements

because it never enforces the provision that its Statement interprets. See Kisor, 139 S. Ct. at 2420. Only

creditors pay the high price of the FTC’s highhandedness when state courts, like the California Supreme

Auer deference is justified in part on the theory that the

promulgating agency is in a “ ‘better position [to] reconstruct’ [an

ambiguous regulation’s] original meaning.” Kisor, 139 S. Ct. at

2412. But, here, the FTC made no attempt to reconstruct the

Holder Rule’s original meaning. In response to a FOIA request,

the FTC disclosed that, in formulating its Statement, it reviewed

no records or other information relating to the Holder Rule’s original meaning. There is even less justification for deference here

since “lots of time has passed between the [Holder R]ule’s issuance [in 1975] and [the FTC’s] interpretation [in 2022]—especially [since] the [2022] interpretation differs from one that has

come before.” Id.

13

20

Court, give the FTC Statement unwarranted deference

or persuasive effect. See Pet. App., 30-35.

The Court should grant certiorari to reassert the

judiciary’s “firm grip on the interpretive function,”

Kisor, 139 S. Ct. at 2421, and instruct state courts, in

particular, not to give unwarranted weight to federal

agency interpretative utterances that, like the FTC

Statement, represent unexplained, arbitrary and capricious departures from prior agency guidance.

III. The Court Should Grant Certiorari Because

The Decision Below Is Clearly Wrong

The Court should also grant certiorari because the

California Supreme Court’s decision is clearly wrong.

To begin with, the state court’s opinion makes a

fundamental error in following state law rules and

citing state court authority in construing the Holder

Rule, a federal regulation. See Pet. App., 12. “[T]he

meaning of words in a federal statute [or regulation] is

a question of federal law” that must be decided using

the rules of construction outlined in this Court’s decisions, not any potentially differing rules state courts

may follow in interpreting state statutes. W. Air Lines,

Inc. v. Bd. of Equalization, 480 U.S. 123, 129 (1987);

NLRB v. Nat. Gas Util. Dist., 402 U.S. 600, 603 (1971);

see Am. Alternative Ins. Co. v. Sentry Select Ins. Co., 176

F. Supp. 2d 550, 554 (E.D. Va. 2001) (“[W]ere this not

so, the anomalous result would be the prospect of conflicting state constructions of a federal statute that

21

was enacted by Congress to serve as a uniform solution

to a national problem. . . .”).

Under this Court’s precedents, “a court’s proper

starting point [in interpreting a statute or regulation14]

lies in a careful examination of the ordinary meaning

and structure of the law itself. Where, as here, that examination yields a clear answer, judges must stop.’ ”

Food Mktg. Inst. v. Argus Leader Media, ___ U.S. ___,

139 S. Ct. 2356, 2364 (2019) (citations omitted).

“There is no need to consult extratextual sources

when the meaning of a statute’s [or regulation’s] terms

is clear. Nor may extratextual sources overcome those

terms. The only role such materials can properly play

is to help ‘clear up . . . not create’ ambiguity about a

statute’s original meaning.” McGirt v. Oklahoma, ___

U.S. ___, 140 S. Ct. 2452, 2469 (2020) (citation omitted).

Legislative or regulatory history cannot “be used to

‘muddy’ the meaning of ‘clear statutory language.’ ”

Food Mktg. Inst., 139 S. Ct. at 2364.

Here, applying California principles of statutory

interpretation, the California Supreme Court skipped

too easily over the first step of carefully examining the

Holder Rule’s words, finding ambiguity where none exists, Pet. App., 12-15, and then combing the regulatory

history for clues to resolve the non-existent ambiguity,

id. at 16-25.

An administrative agency’s legislative regulations are interpreted in the same manner as statutes. Greene v. United

States, 376 U.S. 149, 160 (1964).

14

22

In fact, the Holder Rule is not ambiguous. The

FTC has said so itself: “The Commission affirms that

the Rule is unambiguous, and its plain language

should be applied.” FTC Advisory Opn., p. 3 (May 3,

2012) (fn. omitted). Even more than most regulations,

the Holder Rule must be given its plain meaning to

serve its purpose. “Fundamentally, the Holder Rule

language for contracts constitutes a notice to consumers. To ensure the notice is conspicuous, the language

must be set forth in a typeface that is at least 10 points

in size, bold, and uses all capital letters. It would be

antithetical to the language and its typographic emphasis to hold that the Holder Rule language does not

mean what it says.” Lafferty v. Wells Fargo Bank, 213

Cal. App. 4th 545, 560, 153 Cal. Rptr. 3d 240, 251

(2013).

Contrary to the California Supreme Court’s view,

the Holder Rule’s use of the term “recovery” is not ambiguous. Considered in its regulatory context, the word

could not reasonably mean “damages,” as the state

court thought, since the FTC would have used “damages” in the Holder Rule if that is all it meant to limit

by the Rule’s second sentence or alternatively, exempted attorney fees and costs from the limit on recovery.15 See, e.g., N.Y. Pers. Prop. Law, § 302(9)(a), (b).

The court went farther astray in finding support for its

cramped interpretation of “recovery” in California’s rule that the

attorney, not the client, owns statutory fee awards. See Pet. App.,

13 (citing Flannery v. Prentice, 26 Cal. 4th 572, 575, 28 P.3d 860

(2001)). To the extent fee ownership is relevant, the Holder Rule,

a federal regulation, would follow federal law, not differing state

15

23

Though reaching opposite conclusions on other

matters, both of the FTC’s recent interpretations state

that the Holder Rule’s second sentence limits attorney

fees as well as damages. 2019 Rule Confirmation, 84

Fed. Reg. at 18713 (“[I]f the holder’s liability for fees is

based on claims against the seller . . . , the payment

that the consumer may recover from the holder—including any recovery based on attorneys’ fees—cannot

exceed the amount the consumer paid under the contract.”); FTC Statement, p. 3 (“The holder’s obligation

to pay costs or fee awards available exclusively against

the seller, . . . would be limited to the amount paid by

the consumer.”).

The only other term of the Holder Rule that the

California Supreme Court mentioned was “hereunder.”

Pet. App., 30. It did not analyze whether that word was

ambiguous, but instead moved directly to considering

the FTC’s two conflicting interpretations of the term,

adopting the NCLC’s argument which the FTC rejected in the 2019 Rule Confirmation but accepted in

the FTC Statement three years later. Id. at 31-35. That

argument is plainly wrong. When an attorney fee

award is one remedy under a state statute that would

not apply to the creditor but for the Holder Rule—as is

true of Civil Code § 1794(d), the statute at issue here—

the attorney fee recovery is just as much a recovery

“hereunder”—i.e., under the Holder Rule—as the

laws, on the subject. The client owns attorney fee awards under

federal law. Venegas v. Mitchell, 495 U.S. 82, 87 (1990); Evans v.

Jeff D., 475 U.S. 717, 730 n. 19 (1986).

24

recovery of any other remedy, such as damages, under

that statute.

Also, contrary to the NCLC argument, the purpose

of fee-shifting statutes like Civil Code § 1794(d) is “ ‘to

enable private parties to obtain legal help in seeking

redress for injuries resulting from the actual or threatened violation of specific . . . laws,’ ” not to punish a defendant for its role in, or failure to settle, the lawsuit.

Flannery, 26 Cal. 4th at 583 (quoting Pennsylvania v.

Del. Valley Citizens’ Council, 478 U.S. 546, 565

(1986)).16

In short, the California Supreme Court was wrong

on an important issue of federal law affecting thousands of lawsuits annually. The Court should grant

certiorari to review and reverse that erroneous decision.

---------------------------------♦---------------------------------

CONCLUSION

For the reasons stated above, the Court should

grant TD Bank’s petition and hold that the Holder

Rule caps the recovery of attorney fees as well as

By contrast, other types of laws allow attorney fee awards

based on a party’s litigation conduct, e.g., Wash. Rev. Code,

§ 4.84.185 (allowing fee award against a party asserting a claim

or defense that was frivolous and advanced without reasonable

cause), or without regard to the particular claim asserted, e.g.,

Alaska R. Civ. P. 82(a) (allowing a fee award to the prevailing

party in any civil action).

16

25

damages on claims the consumer may bring against

the creditor only under the Holder Rule.

Respectfully submitted,

JAN T. CHILTON

Counsel of Record

SCOTT J. HYMAN

SEVERSON & WERSON,

A PROFESSIONAL CORPORATION

595 Market Street, Suite 2600

San Francisco, CA 94105

(415) 398-3344

jtc@severson.com

Counsel for Amici Curiae

American Bankers Association,

American Financial Services

Association, Consumer Bankers

Association, and California

Financial Services Association

October 26, 2022