## Facts

- Frank Deloach leased a 2013 BMW through BMW Financial Services NA, LLC (BMW Financial), beginning with an odometer reading of 4,293 miles.
- Deloach failed to make required lease payments, and BMW Financial repossessed the vehicle.
- After repossession, the odometer showed 94 miles, and BMW Financial concluded the odometer had been tampered with.
- BMW Financial filed suit against Deloach for breach of the lease and for odometer tampering, including a federal claim under 49 U.S.C. §§ 32701 et seq., which allows treble damages for tampering with intent to defraud.
- BMW Financial sold the repossessed vehicle at auction for about $25,000.
- Deloach did not respond to the lawsuit, and on August 13, 2015, BMW Financial obtained a default judgment for $114,677, most of which reflected treble damages tied to the odometer-tampering claim.
- Because BMW Financial did not properly flag Deloach’s account as being in active litigation, its systems treated the matter as a routine delinquent account with a balance of about $24,000 and sent it to a collection agency, Firstsource Advantage.
- Deloach’s father negotiated with Firstsource and reached a written settlement for $14,000 in exchange for a complete release of claims; the settlement was executed on August 17, 2015, four days after entry of the default judgment.
- BMW Financial did not learn of the settlement until after it had obtained the default judgment and then attempted to repudiate or rescind the settlement as the product of its own mistake.
- Deloach moved to compel BMW Financial to acknowledge satisfaction of the default judgment based on the settlement and payment; the trial court granted the motion, and BMW Financial appealed.

## Issues

1. Whether BMW Financial could rescind a written settlement based on unilateral mistake where BMW Financial’s own internal error caused a litigated account to be sent to its collection agency.
2. Whether substantial evidence supported the trial court’s finding that the collection agency acted within the scope of authority to settle the account for $14,000 and issue a complete release.
3. Whether enforcing the $14,000 settlement, despite a $114,677 default judgment largely driven by treble damages, was so unfair as to justify rescission on an unconscionability theory.

## Decision

- The California Court of Appeal, Fourth Appellate District, Division Three, affirmed the order compelling acknowledgment of satisfaction of judgment.
- The court held that substantial evidence supported the trial court’s findings that the collection agency acted within authorized settlement parameters and that BMW Financial was bound by the settlement and release.
- The court concluded BMW Financial bore the risk of its own mistake in failing to flag the account as being in litigation and could not use that mistake to unwind the settlement.
- The court rejected BMW Financial’s claim that enforcement was unconscionable, noting the default judgment amount was largely attributable to treble (penal) damages rather than purely compensatory loss.

## Legal Principles

- Rescission for unilateral mistake is disfavored; a party seeking to avoid a contract based on unilateral mistake generally must show (among other elements) that it did not bear the risk of the mistake and that enforcement would be unconscionable (or that the other party knew or had reason to know of the mistake).
- A principal is bound by agreements made by its agent when the agent acts within the scope of actual authority, including authority defined by preapproved settlement ranges for collection activity.
- When a party’s own administrative failure causes the mistaken situation (such as misrouting a litigated account into ordinary collections), the risk of that mistake may properly rest on that party.
- A large disparity between a settlement amount and a judgment amount, without more, does not establish unconscionability, especially when much of the judgment reflects treble or other penal components.
- On appeal, factual determinations supporting enforcement of a settlement (such as scope of authority, risk allocation, and unconscionability) are reviewed for substantial evidence.

## Conclusion

The Court of Appeal held BMW Financial to the $14,000 settlement its collection agency executed within authorized parameters and affirmed an order compelling BMW Financial to acknowledge satisfaction of the $114,677 default judgment, because BMW Financial bore the risk of its own internal mistake and enforcement of the settlement was not unconscionable.


BMW Financial Services NA, LLC v. Deloach, 2017 WL 1832250 (2017)