Recent Developments in Holder Liability for Attorney Fees and Social Media Immunity under Section 230

duane tyler
Duane Tyler, Head of Litigation at Moore Brewer Wolfe Jones Tyler & North.

In recent articles in this space, I discussed the evolving law on whether a holder of a retail installment sale contract is liable for a consumer’s attorney fees incurred when successfully suing the holder for the car dealer’s wrongful conduct, and the immunity from liability social media platforms, such as Twitter, Yelp and Facebook, have under Section 230.  Since those articles, courts have decided cases in both areas – one adding more confusion on the attorney fee issue and one confirming the broad scope of  Section 230 immunity.

Holder Liability for Consumer Attorney Fees

Over the past several years, the issue of a consumer’s right to attorney fees under the FTC Holder Rule (Part 433 of Title 16 of the Code of Federal Regulations) is like being on a roller coaster.  Since the passage of the FTC Holder Rule – which limits the amount a consumer can recover from a holder to the amount the consumer paid under the contract - California law allowed a consumer who successfully sues a holder to recover reasonable attorney fees without regard to the limits imposed by the FTC Holder Rule.  More often than not, the attorney fee award far exceeds the damages awarded to the consumer.

In July 2018, in the case of Lafferty v. Wells Fargo Bank, the Third Circuit Court of Appeal based in Sacramento ruled attorney fees are within the FTC Holder Rule’s limit on a consumer’s “recovery” in a holder case to the amount the consumer paid under the contract.  In response, in 2019, the California Legislature proposed  A.B. 1821 for the purpose of allowing attorney fees in holder cases without regard to the limits of the FTC Holder Rule.  The proposed statute provided: A plaintiff who prevails on a cause of action against a defendant named pursuant to [the FTC Holder Rule] … or pursuant to the contractual language required by [the FTC Holder Rule] … may claim attorney fees, costs, and expenses from that defendant to the fullest extent possible if the plaintiff had prevailed on that cause of action against the seller.

A.B. 1821 was eventually passed, effective January 1, 2020 and codified at California Civil Code section 1459.5.  However, before the effective date, the Federal Trade Commission published a comment interpreting the FTC Holder Rule to mean a consumer’s recovery against a holder, including attorney fees, cannot exceed the amount the consumer paid under the contract.  

Despite this FTC interpretation, Civil Code section 1459.5 went into effect on January 1, 2020, and as a result, consumers once again alleged in lawsuits that California law allowed them to recover all reasonable attorney fees incurred in a successful lawsuit against a holder.    

Six months later, in June 2020, the Fifth District Court of Appeal based in Fresno, in Spikener v. Ally Financial, Inc.  ruled that section 1459.5 was preempted by the FTC Holder Rule, meaning that attorney fees are included in the Holder Rule limits on a consumer’s recovery against a holder.

The last stop on this roller coaster ride is Pulliam v. HNL Automotive, Inc., decided on January 29, 2021 by the Second District Court of Appeal based in Los Angeles.  The Pulliam court concluded attorney fees are not within the definition of “recovery” in the FTC Holder Ruler despite the FTC’s interpretation of its Rule, and that the consumer was entitled to all reasonable attorney fees under Civil Code section 1459.5.

As it now stands, if your credit union is sued in a court in the Second District, you are exposed to an exorbitant attorney fee award if your member wins a case against a dealer and your credit union as the holder.  If your credit union is sued in a court in the Third or Fifth District, you do not face that risk.

California Rule of Court 8.500 (b) states the California Supreme Court “may order review of a Court of Appeal decision: (1) When necessary to secure uniformity of decision [among the Courts of Appeal]”.  As of today, the defendants in Pulliam have not sought review in the Supreme Court.  Hopefully, they will so that the conflicting decisions in Lafferty, Spikener, and Pulliam can be resolved.

Social Media Platforms’ immunity under Section 230 of the Communications Decency Act of 1996

Unlike the Holder Rule issue, there is no confusion or conflict on social media platforms’ broad immunity under Section 230.  In my previous article I discussed social media platforms’ immunity from a claim by a third party alleging a post defamed them.  In Murphy v. Twitter, Inc., the First District Court of Appeal based in San Francisco was faced with a lawsuit by a poster, rather than a third party, who was permanently suspended for violating Twitter’s hateful content rules.

The court explained that “Congress enacted the Communications Decency Act (“CDA”) for two basic policy reasons: to promote the free exchange of information and ideas over the Internet and to encourage voluntary monitoring for offensive or obscene material”.   It stated that Section 230 of the CDA protects social media platforms from liability from the user's claim that the platform violated its user agreement when it permanently suspended her account for violation of the platform’s hateful conduct rules after she posted several messages critical of transgender women.  The court concluded that lawsuits seeking to hold a social media platform liable for its exercise of a “publisher's traditional editorial functions — such as deciding whether to publish, withdraw, postpone or alter content” — are barred under Section 230.

While Twitter was the only named defendant, the Internet Association, Facebook, Inc., Glassdoor, Inc., Google LLC, and Reddit, Inc. all filed Briefs in support of Twitter and Section 230 immunity.  The takeaway here is that social media platforms understand the broad immunity they have under Section 230.  While this case did not involve a claim by a third party to remove a defamatory or offensive post, the decision in the case again turned on the social media platforms’ rules.  As stated in my earlier article, if you are faced with a defamatory or false post, the first and most critical step is to review the social media platform’s rules and hopefully find a rule that the post violates.  Otherwise, it is doubtful you will be successful in having the post removed. 

Article by Duane Tyler, Head of Litigation at Moore Brewer Wolfe Jones Tyler & North.


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