Opinion
Case No. 8:01CV151
February 20, 2002
MEMORANDUM AND ORDER
This matter is before the Court on the parties' cross-motions for summary judgment: Plaintiff Martha L. Carter's Motion for Summary Judgment and Request for Oral Argument (Filing No. 60); Defendant Ford Motor Credit Co.'s Motion for Summary Judgment (Filing No. 73); and Defendant Atchley Ford, Inc.'s Motion for Summary Judgment (Filing No. 77). Briefs have been received, and all parties have filed evidence in support of their positions (Filing Nos. 61 and 82; 74; and 78).
UNCONTROVERTED FACTS
Atchley sold a 2000 Ford Focus automobile naming the Plaintiff, Martha Carter, as the buyer. Atchley accessed Martha Carter's personal credit history from a computer terminal located in Atchley's office on or about November 18, 2000, using a forged credit application. After checking Martha Carter's credit history, Atchley prepared a credit contract for Martha Carter's purchase of the automobile identifying Martha Carter as the debtor and the responsible party. Defendant Ford Motor Credit Co. ("FMCC") purchased the retail installment contract dated November 24, 2000, from Atchley. The retail installment contract identifies Martha Carter as the buyer and Atchley as the creditor.
Dale Carter, Martha Carter's son, forged Martha Carter's signature on the credit application and on the contract. Dale Carter gave these forged documents to Atchley's sales representative, Richard Jackson, and there is no evidence that Jackson knew the signatures on the documents were forgeries. The signatures on the paperwork submitted by Dale Carter to Atchley, and subsequently to FMCC, at least on cursory inspection, looked like the signature on Martha Carter's photo identification. Atchley relied on the signatures as giving the consent necessary to access Martha Carter's credit history and to purchase and finance the Ford Focus in her name.
Martha Carter had no knowledge of the transaction until approximately December 14, 2000, when she received congratulatory correspondence from FMCC on the purchase of her new car. Immediately, she contacted Atchley by going to their showroom. She also telephoned FMCC's service center in Irving, Texas. The Defendants initially believed that Martha Carter was experiencing "buyer's remorse," and they directed her to contact the police if she believed there was fraud in the transaction. Martha Carter did so, and after an Omaha Police Department investigation was concluded and the automobile was repossessed and sold at auction, FMCC closed Martha Carter's account.
Atchley confessed liability to common law rescission on or about October 9, 2001, through filing a pleading entitled "Confession of Liability to Common Law Rescission" (Filing 41). Atchley does not dispute liability for common law rescission, but Atchley contests liability and damages under the federal and state statutes that are the basis of Martha Carter's Complaint, specifically the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et. seq.; Fair Credit Reporting Act, 15 U.S.C. § 1681 et. seq.; the Computer Fraud Act, 18 U.S.C. § 1030 et. seq.; and the Nebraska Consumer Protection Act, Neb. Rev. Stat. § 15-1601 et. seq. FMCC contests liability and damages on all causes of action and legal theories alleged in the Complaint. Atchley has agreed to indemnify and hold harmless FMCC pursuant to the parties' Dealer Agreement.
Martha Carter seeks summary judgment on all claims except the state law claim under the Nebraska Consumer Protection Act. Defendants seek summary judgment on all claims and request dismissal from the case.
TRUTH IN LENDING ACT ("TILA")
TILA is a remedial act intended to protect consumers, and courts have liberally construed its provisions in favor of consumers. 15 U.S.C. § 1601(a); See Belmont v. Associates Nat'l Bank, 119 F. Supp.2d 149, 158 (2000) and cases therein, including Ellis v. General Motors Acceptance Corp., 160 F.3d 703, 707 (11th Cir. 1998); Begala v. PNC Bank, Ohio, Nat'l Ass'n, 163 F.3d 948, 950 (6th Cir. 1998), cert. denied 528 U.S. 868 (1999), and N.C. Freed Co. v. Board of Governors of Fed. Reserve System, 473 F.2d 1210, 1214 (2nd Cir 1973). TILA compels certain creditors to disclose specific terms of a credit agreement with a consumer in the manner prescribed by statute, and it governs several types of credit relationships, including open-ended credit, closed-ended credit, and mortgage transactions. TILA at 15 U.S.C. § 1601 et. seq. .
TILA achieves its remedial goals by a system of strict liability in favor of the consumers when mandated disclosures have not been made. 15 U.S.C. § 1640(a). A creditor who fails to comply with TILA in any respect is liable to the consumer under the statute regardless of the nature of the violation or the creditor's intent. Thomka v. A.Z. Chevrolet Inc., 619 F.2d 246, 249-50 (3d Cir. 1980). "[O]nce the court finds a violation, no matter how technical, it has no discretion with respect to liability." Grant v. Imperial Motors, 539 F.2d 506, 510 (5th Cir. 1976).Smith v. Fidelity Consumer Discount Co., 898 F.2d 896, 898 (3rd Cir. 1990) (emphasis added).
This case involves a closed-ended credit transaction that is governed by 15 U.S.C. § 1638. That section requires that a creditor in a consumer credit transaction, other than an open-end credit plan, must disclose information relating to each of fourteen items listed in section 1638 to the consumer, if the items apply to the transaction. See also 12 C.F.R. § 226. The Act also states that absent statutory direction to the contrary, "the disclosures required under subsection (a) of this section shall be made before the credit is extended." 15 U.S.C. § 1638(b). Congress gave authority to the Federal Reserve Board to promulgate regulations to carry out TILA, which it has done, and which are collectively known as "Regulation Z." 15 U.S.C. § 1604; 12 C.F.R. § 226.1 to 226.33 and accompanying Appendices.
Section 1638 provides in part:
For each consumer credit transaction other than under an open end credit plan, the creditor shall disclose each of the following items, to the extent applicable:
(1) The identity of the creditor required to make the disclosure;
(2) The "amount financed" . . .
(3) The "finance charge" . . .
(4) The "finance charge" expressed as an "annual percentage rate" . . .
(5) The sum of the amount financed and the finance charge, which shall be termed the "total of payments;"
(6) The number, amount, and due dates or period of payments scheduled to repay the total of payments;
(7) In a sale of property . . . the "total sale price" . . .
(8) Descriptive explanations . . . [of key terms];
(9) Where the credit is secured, . . . that the security interest has been taken . . .;
(10) Any dollar charge or percentage amount which may be imposed by a creditor solely on account of a late payment, other than a deferral or extension charge;
(11) A statement indicating whether or not the consumer is entitled to a rebate of any finance charge upon refinancing or prepayment . . .;
(12) A statement that the consumer should refer to the appropriate contract documents for any information . . . about non payment, default, . . . right[s] . . . . and penalties;
(13) In a residential mortgage . . ., a statement . . . whether a[n] . . . assignee of the consumer may assume the debt obligation on its original terms and conditions;
(14) In the case of any variable interest rate residential mortgage transaction, . . . . a statement that the periodic payments may increase or decrease substantially. . . .
For additional detail, see Regulation Z at 12 C.F.R. § 226.18.
The section of Regulation Z that controls closed-end credit agreements states:
[A] creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures required under § 226.18. . . .12 C.F.R. § 226.17(a), footnotes omitted. Regulation Z requires that "[t]he creditor shall make disclosures before consummation of the transaction." 12 C.F.R. § 226.17(b). "`Consummation' means the time that a consumer becomes contractually obligated on a credit transaction." Id. at § 226.2(a)(13).
Martha Carter contends that the Defendants violated TILA and Regulation Z because they did not provide her with the written disclosures required by the Act before extending credit and concluding the sale of the Ford Focus. The accuracy of the disclosures that Atchley made to Dale Carter are not in dispute, nor is the fact that Dale Carter deceived Atchley into believing that Martha Carter had actually received the disclosures. Rather, Martha Carter contends that whether Atchley intended to make the required disclosures is immaterial because strict compliance with the written disclosure provisions of the Act is required, citing Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155, 157 (C.D. Ill, 1993).
Atchley contends that TILA is wholly inapplicable to this case because a transaction between Martha Carter and Atchley was never consummated. Atchley agrees that "[c]onsummation of the transaction" is the act that triggers the disclosure requirement under the Act, see 12 C.F.R. § 226.17(b). However, Atchley argues that because Dale Carter forged Martha Carter's signature, Martha Carter was never contractually obligated to Atchley, and consequently, there was no "transaction" to be governed by TILA. Atchley concludes that "[t]his consumer protection statute was not designed to protect the thief." Atchley's Brief in Support of Motion for Summary Judgment at 7.
The Court agrees that TILA was not enacted for the protection of thieves. Rather, TILA was enacted for the protection of consumers, and Martha Carter is one type of consumer for whom TILA's protections were designed. See 12 C.F.R. § 226.1. At least one other court has analyzed whether a consumer who is not an obligor is entitled to the protections of the Act. In Belmont v. Associates Nat. Bank (Delaware), 119 F. Supp.2d 149 (E.D.N.Y. 2000), the court considered whether a credit card company had violated TILA by erroneously billing a debtor's father for credit charges, even though the father had removed his name from the son's credit account several years earlier. The creditor argued that if the plaintiff was not obligated on the account as the plaintiff claimed, then the plaintiff should not be entitled to the protections accorded to "obligor[s]" under TILA. Id. at 163-164, 15 U.S.C. § 1666-1666a. The court rejected the defendant's argument stating:
Given the remedial nature of TILA, Congress's intent to protect consumers, and the courts' mandate that TILA be liberally construed, . . . the term "obligor[s]" must necessarily be construed to include those whom the creditor claims are obligors, as well as individuals who are in fact obligors in the contract law sense. Otherwise, there would be a lacuna in the statute, and an important area in the statute's remedial scheme would be left unprotected. A consumer who believes that he is not obligated under a credit account, and promptly notifies the creditor of the mistake through a proper notice of billing error, deserves the broad protections that Congress intended under the Act.Id. at 163-164.
Just like the plaintiff in Belmont, Martha Carter believed she was not obligated under the credit agreement and she promptly notified the creditor when she learned of the mistake. Although Martha Carter immediately alerted both Atchley and FMCC of the mistake, it was not until the Defendants had proof positive of Dale Carter's fraudulent machinations that Atchley offered to rescind the contract bearing Martha Carter's name.
Because this Court finds that she is entitled to the protections of the Act, there is really no dispute that she must succeed on the liability aspect of her TILA claim against Atchley. Atchley does not contend that Martha Carter received the disclosures that it was required to pursuant to provide 15 U.S.C. § 1638 and Regulation Z, nor does Atchley argue that she had any type of constructive notice. Having found that Martha Carter is entitled to the protections of the Act, the Court finds as a matter of law that Atchley is liable to Martha Carter for violating TILA by failing to provide her with the disclosures required under 15 U.S.C. § 1638(a).
To the extent that Martha Carter seeks to hold FMCC vicariously liable under TILA for Atchley's failure to disclose, her claim must fail. FMCC is an assignee of Atchley's retail installment contract and not a "creditor" under TILA and Regulation Z. See 15 U.S.C. § 1602(f) (1998); 12 C.F.R. § 226.2, Supp. I, Commentary 2(a)(17)(i)-2 (2000). Thus, under the facts presented here, FMCC is expressly excluded from TILA liability as a matter of law. See Kizel v. Southview Chevrolet Co., 892 F. Supp. 1211 (D. Minn. 1995).
This background was provided by the Kizel Court:
Prior to October, 1982, TILA defined a "creditor" as one: [W]ho regularly extend[s], or arrange[s] for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales of property or services, or otherwise. See 15 U.S.C. § 1602(f) (1980) (repealed). Using this definition, the courts determined that financial institutions which purchased consumer credit contracts from automobile dealers were "creditors" subject to TILA disclosure requirements . . . Congress, however, revised this definition, effective October 1, 1982, when it enacted the Truth-in-Lending Simplification and Reform Act. See Pub.L. No. 96-221. Subsequent to this enactment, during the time this case occurred, only the automobile dealership was the TILA "creditor" in dealer-originated credit sale transactions that are assigned to banks. See 15 U.S.C. § 1602(f) (1994); 12 C.F.R. § 226.2, Supp. I, Commentary 2(a)(17)(i)-2 at pp. 290-91 (1994). This change was emphasized when the Federal Reserve Board staff issued its official commentary to Regulation Z and revised the definition of creditor to "reflect the statutory amendments to the act that were intended to eliminate the problem of multiple creditors in a transaction." See 12 C.F.R. § 226.2, Commentary 2(a)(17)(i), Supp. I, at p. 296 (1994). It is well-established that a Federal Reserve Board staff opinion construing the Truth-in-Lending Act or Regulation Z is dispositive absent a showing that the opinion is demonstrably irrational. Ford Motor Credit Co. v. Milhollin et al., 444 U.S. 555, 565, 100 S.Ct. 790, 796-97, 63 L.Ed.2d 22 (1980); First National Bank of Council Bluffs, Iowa v. Office of Comptroller of Currency, 956 F.2d 1456, 1460 (8th Cir. 1992).
Even though Martha Carter specifically does not seek summary judgment on the issue of damages, the Defendants have moved for summary judgment on all claims. The statute governing actual damages under TILA provides:
Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part . . . with respect to any person is liable to such person in an amount equal to . . . (1) any actual damages sustained by such person as a result of the failure.15 U.S.C. § 1640(a)(1). In order to recover actual damages, a plaintiff must establish that she relied to her detriment on the inaccurate disclosure. Peters v. Jim Lupient Oldsmobile, 220 F.3d 915, 917 (8th Cir. 2000). There is no way that Martha Carter can show that she relied to her detriment on the disclosures, accurate or inaccurate, made by Atchley. Martha Carter never read the disclosures, and she did not rely on the disclosures because she did not know about he credit contract. For this reason, the court finds as a matter of law that Martha Carter is not entitled to recover actual damages under TILA.
In requiring a showing of detrimental reliance, the Eighth Circuit is in harmony with the majority of cases that have considered the issue. See Turner v. Beneficial Corp., 242 F.3d 1023, 1026 (11th Cir. 2001) (en banc); Perrone v. General Motors Acceptance Corp., 232 F.3d 433, 436-40 (5th Cir. 2000); Stout v. J.D. Byrider, 228 F.3d 709, 718 (6th Cir. 2000); Bizier v. Globe Financial Services, Inc., 654 F.2d 1, 4 (1st Cir. 1981) (dicta); Vickers v. Home Fed. Sav. Loan Assoc., 62 A.D.2d 1171, 404 N.Y.S.2d 201, 202 (1978). But see Lopez v. Orlor, 176 F.R.D. 35, 40 (D.Conn. 1997); Sutliff v. County Sav. Loan Co., 533 F. Supp. 1307, 1313 (N.D.Ohio. 1982); In re Russell, 72 B.R. 855, 857 (Bankr.E.D.Pa. 1987).
In addition to actual damages, TILA provides three other remedies. First, TILA authorizes federal agencies' enforcement power to adjust the consumer's account to eliminate any unjust finance charges. 15 U.S.C. § 1607(a),(c),(e)(1). Second, TILA imposes criminal liability on persons who knowingly and willingly violate the statute. 15 U.S.C. § 1611. Finally, TILA creates a private cause of action for statutory damages in favor of an individual, which may be assessed in addition to any actual damages. 15 U.S.C. § 1640(a)(2)(A)("twice the amount of any finance charge in connection with the transaction"). The third remedy of this group is the only one applicable here.
Courts have recognized that detrimental reliance may be difficult to prove, and for that reason, Congress also provided statutory damages as a remedy for TILA violations. 15 U.S.C. § 1640(a)(2)(A). "[S]tatutory damages provide at least a partial remedy for all material TILA violations." Turner v. Beneficial Corp., 242 F.3d 1023, 1026 (11th Cir. 2001) (en banc) (overruling Ransom v. S S Food Center, Inc. of Florida, 700 F.2d 670, 677 (11th Cir. 1983)). The Court finds as a matter of law that Martha Carter is entitled to statutory damages from Atchley based on its violation of TILA, but because there remain genuine issues of material fact about the measure and amount of statutory damages, summary judgment is not appropriate on this claim.
FAIR CREDIT REPORTING ACT
Martha Carter also alleges that Defendants violated the Fair Credit Reporting Act ("FCRA") by accessing her credit files without her authorization, consent, or knowledge, because the Defendants knew that her authorization had not been obtained when they accessed her records. She is not contending that Atchley knew that the signature on the credit application was a forgery. Rather, she contends that Atchley's sales representative accessed her credit history before the company obtained a signature — real or forged — on the credit application.
The FCRA prohibits any "person" from "knowingly and willingly" obtaining consumer credit information under false pretenses, and it prohibits a "person" from using the consumer credit information for any improper use. See 15 U.S.C. § 1681q, and § 1681b(f). One of the expressly authorized uses is "in connection with a credit transaction involving the consumer on whom the information is to be furnished." 15 U.S.C. § 1681b(a)(3)(A).
Martha Carter contends that in accessing her credit records, Defendants acted in "willful noncompliance" of the Act, thereby entitling her to actual damages, punitive damages and attorneys fees under 15 U.S.C. § 1681(n). In support of her position, Martha Carter submitted a report from a credit reporting agency, CSC Services, relating to her credit history. Filing 63, Exhibit A. The CSC report indicates that Atchley and FMCC requested Martha Carter's credit history on November 18, 2000, but the sale was not concluded until November 24, 2000 — six days later.
The document also indicates that her credit history was accessed on June 22, 2000. Defendants offer no evidence relating to the alleged June 22, 2000 access. Plaintiff's Complaint does not allege a violation of the Fair Credit Reporting Act based on the June 22, 2000, event, and therefore, issues relating to that alleged access will not be considered here.
Atchley's sales representative, Richard Jackson, described the process as follows. After Dale Carter expressed an interest in the Focus, he said that he was buying the car for his mother. When Jackson requested more explanation, Dale Carter said, "my mother has been sick and she's not able to get around like she used to, and what she is going to do is she is going to buy the vehicle and I'm going to drive her to her necessary places to get — to help her out." Filing 61, Jackson Dep. at 51:16-23. Jackson's next task was to retrieve a credit history on the buyer. He obtained the information needed to obtain a credit report on Martha Carter from Dale Carter, including her name, social security number and address. Jackson referred to the document as both the "initial credit application" and the "rough draft," neither of which were executed by Martha Carter nor forged by Dale Carter. Id. at 54:1-56:14. Dale Carter purportedly took the credit application to a hospital and misrepresented to Jackson that he had secured his mother's signature on the credit application. Jackson recalls that they went to the hospital on the same day that the transaction was concluded, November 24, 2000. The Defendants do not dispute that they accessed Martha Carter's credit history report in November 2000, at or near the time of the sale of the car. Jackson Dep. at 99-102. Atchley contends that it relied upon the signature of Martha Lee Carter that was on the credit application as giving them the authorization required under the Act to access Martha Carter's credit history. FMCC's position is that its computer system pulled Martha Carter's credit history automatically, and that the system is programmed to do so when it receives an offer to purchase a retail installment credit contract from a dealer. Thus, FMCC maintains that it received an offer to purchase Martha Carter's retail installment credit contract from Atchley, and only in connection with that offering would the system have pulled Martha Carter's credit history.
Whether the unexecuted, "initial," credit application was used by Atchley and by FMCC to access Martha Carter's credit history or whether the forged, but executed, final credit application was used appears to be in dispute. The timing of the credit check, whether authorization was given, and if so, the nature of the authorization, all raise questions of fact that are material to the outcome of this issue. Because there are genuine issues of material fact relating to the existence of and type of authorization that Defendants' possessed at the time Atchley checked Martha Carter's credit history, summary judgment on these claims is denied.
COMPUTER FRAUD ACT
Martha Carter also seeks summary judgment against Defendants on her claim that they violated the Fraud and Related Activity in Connection with Computers Act, 18 U.S.C. § 1030 et. seq. ("Computer Fraud Act"). The Act is primarily a criminal statute, but it also has a civil component. A consumer may maintain a civil action to obtain compensatory damages against any person who intentionally accesses a computer without authorization, or exceeds authorized access, to obtain information contained in a file of a consumer reporting agency on a consumer. Id. at § 1030(g).
Section 1030 requires that Martha Carter prove that Atchley and FMCC intentionally accessed her records without authorization or that the Defendants exceeded their authority in accessing her records. Martha Carter relies on the same evidence in support of this claim that she relies upon in support of her FCRA claim to demonstrate that Atchley and FMCC knew at the time that it accessed her consumer credit records that Atchley and FMCC did not have her authorization to do so. Because there are genuine issues of material fact relating to the existence of and type of authorization that the Defendants possessed at the time Atchley checked Martha Carter's credit history, summary judgment on the Computer Fraud and Abuse claim is also denied.
FMCC argues that it cannot be held vicariously liable under the Computer Fraud Act because the FTC Holder Rule does not allow debtors to proceed against assignees of these contracts unless the creditor has actually paid money out. The rule is explained in Ford Motor Credit Co. V. Morgan, 536 N.E.2d 587, 589-90 (1989):
[T]he FTC spelled out the avenues of relief under the [FTC Holder] rule as follows: "[A] consumer can (1) defend a creditor suit for payment of an obligation by raising a valid claim against a seller as a set-off, and (2) maintain an affirmative action against a creditor who has received payments for a return of monies paid on account." 40 Fed. Reg. at 53524. . . . The FTC re-emphasized this [the second] point in stating, "[c]onsumers will not be in a position to obtain an affirmative recovery from a creditor, unless they have actually commenced payments and received little or nothing of value from the seller." . . . Id. at 53527. . . . Thus, the function of the rule is to allow consumers to stop payments, and, in limited circumstances, not present here, where equity requires, to provide for a return of monies paid.Id. However, because the basis of liability is the protections of the Computer Fraud Act and not the contract, and because there are genuine issue of material fact as to whether FMCC is actually a "violator" under the Computer Fraud Act, FMCC's motion on this issue shall be denied. See Filing 74, Exhibit 10, Garner Affidavit (indicating that FMCC's own system accesses the consumer credit files after being prompted by the receipt of Atchley's offering).
NEBRASKA CONSUMER PROTECTION ACT
Although Martha Carter does not seek summary judgment on her state law claim, the Defendants do seek summary judgment on the claim. Martha Carter alleges that the Defendants violated Neb. Rev. Stat. § 59-1602 (Reissue 1999), which states, in relevant part:
[U]nfair or deceptive acts or practices in the conduct of any trade or commerce shall be unlawful.Id. at §§ 1609-1617. Defendants contend that Martha Carter has no proof that Dale Carter's deceptions were known to them, and absent some knowledge of the fraud perpetrated by Dale Carter upon all the parties to this action, there is no basis for making a claim under the Nebraska Consumer Protection Act.
The Court agrees that there simply is no proof that the Defendants engaged in unfair or deceptive practices, only that they were duped by Dale Carter. Accordingly, Defendants are entitled to summary judgment as a matter of law on Martha Carter's claim under the Nebraska Consumer Protection Act.
Based on the foregoing,
IT IS ORDERED:
Plaintiff Martha Carter's Motion for Summary Judgment (Filing 60) is granted in part and denied in part. The Motion is granted to the extent that she has established a violation of the Truth in Lending Act against Atchley Ford, and the motion is denied in all other respects;
Defendant Atchley Ford, Inc.'s Motion for Summary Judgment (Filing 77) is granted in part and denied in part. Atchley's Motion is granted as to Martha Carter's claim for actual damages under TILA, and as to her claim under the Nebraska Consumer Protection Act, and the motion is denied in all other respects; and
Ford Motor Credit Corp.'s Motion for Summary Judgment (Filing 73) is granted in part and denied in part. The motion is granted as to Martha Carter's TILA claim and her Nebraska Consumer Protection Act claim, and the motion is denied in all other respects.