Automotive sales and finance companies often are sued in California under either the Auto Sales Finance Act (“ASFA”) or the Vehicle Leasing Act (“VLA”).  Occasionally, these cases raise claims involving sizeable actual damages, but more often than not, they rest on purely technical disclosure violations or other violations that produced little or no actual or monetary harm.

Under these statutes, one open question has been whether the so-called “substantial compliance” doctrine applies to such claims.  Under this doctrine, originally enunciated by the California Supreme Court in Stasher v. Harger-Haldeman, 58 Cal. 2d 23, 29 (1962), courts refuse to impose liability where there is “compliance in respect to the substance essential to every reasonable objective of the statute.”  Id. at 29 (emphasis added).  Plaintiffs often question the applicability of the defense, reasoning that Stasher involved an early auto sales disclosure statute that did not contain the detailed, technical requirements of the current ASFA and VLA.

Unfortunately, the substantial compliance rule has been eroded by recent decisions requiring strict technical compliance.  Notably, in a recent case, Flannery v. VW Credit, Inc. (4th Dist. Case No. D063937), decided on December 17, 2014, the California Court of Appeal held that a vehicle finance company lost its right to a post-repossession deficiency judgment by failing to use the exact notice language required by the VLA.  In Flannery, the notice contained all of the required language except for a phrase repeating the earlier-stated purpose of why the consumer may obtain an appraisal (to accurately determine the deficiency amount).  In so doing the Court reversed the trial court’s dismissal of the VLA claim under the substantial compliance defense, reasoning that because the VLA excuses certain calculation errors, the Legislature must have intended for all other VLA requirements to be strictly enforced.  The court also made more generally applicable policy arguments against the substantial compliance doctrine.

The Flannery decision follows a 2013 Court of Appeal opinion rejecting the substantial compliance defense under the ASFA.  See Rojas v. Platinum Auto Group, Inc., 212 Cal. App. 4th 997, 1005 (2013) (“[T]he purpose and history of [the ASFA] establish that appellant need not have suffered actual damage from Platinum’s violation of the statute’s disclosure requirements, and that Stasher’s substantial compliance rule has been statutorily removed.”).

It remains to be seen whether these two cases are the beginning of a consistent trend.  Other recent Court of Appeal decisions have ducked the issue, choosing to decide cases on other grounds.  Substantial compliance makes sense in light of standing case law from related contexts, such as claims under the Unfair Competition Law.  In the end, without substantial compliance, the plaintiff in Flannery was able to walk away without any deficiency balance because a notice that contained all required information under the VLA did not convey that information in technical compliance with the statute.  This seems to be exactly the sort of outcome the Supreme Court in Stasher sought to avoid.