Opinion
Cause No. 1:04-cv-00597-DFH-VSS.
January 26, 2005
Clifford W. Shepard, for Plaintiff.
ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This case arises from the use of an imprecise verb tense in a printed form for consumer credit transactions. Plaintiff William Mize bought a used van from Joe's Auto Sales, Inc. ("Joe's") on credit in January 2004. Mize signed a security agreement setting forth the purchase and credit arrangement with Joe's. The agreement used a printed form, with the appropriate blanks filled in by Joe's. Mize contends the form contained an error in the printed descriptive explanation for the "Total of Payments" portion of the agreement. Mize contends that this alleged error violated the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601, et seq. and the implementing Regulation Z, 12 C.F.R. § 226, et seq., as well as the Indiana Uniform Consumer Credit Code, Ind. Code § 24-4.5-1-1, et seq.
Joe's has moved for partial summary judgment on the TILA claim. Mize has moved for summary judgment on all claims. For the reasons discussed below, the court grants defendant Joe's motion for partial summary judgment on the TILA claim and denies Mize's motion. The undisputed facts show that there is no violation of TILA, and even if there had been an error, statutory damages under TILA are unavailable for the alleged violation. Mize has not claimed actual damages. The court therefore dismisses the TILA claim with prejudice and relinquishes supplemental jurisdiction over Mize's state law claim.
Joe's has filed a third party complaint against the company that sold the form seeking judgment for any damages that might be awarded against it pursuant to TILA. The court's final judgment also relinquishes supplemental jurisdiction over the third party complaint.
Undisputed Facts
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, affidavits, and other materials demonstrate that there exists "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When deciding a motion for summary judgment, the court considers those facts that are undisputed and views additional evidence, and all reasonable inferences drawn therefrom, in the light reasonably most favorable to the non-moving party. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Baron v. City of Highland Park, 195 F.3d 333, 337-38 (7th Cir. 1999).The parties stipulated to the material facts in this case. In January 2004, Plaintiff William Mize bought a van from defendant Joe's Auto Sales. The cash price for the van was $3,995.00. Joe's extended credit to Mize to purchase the van under the Motor Vehicle Installment Contract ("Installment Contract"). Complaint, Ex. B. The Installment Contract was a printed form that Joe's had acquired from the third party defendant, which sells dealer forms such as the Installment Contract at issue here.
The "Total of Payments" is listed as $3919.10. The subject of this litigation is the verb tense in the descriptive explanation contained in the "Total of Payments" portion of the Installment Contract. The explanation reads: "The amount you will have to pay after you have made all payments as originally scheduled," rather than "The amount you will have paid," as suggested in Regulation Z, 12 C.F.R. § 226.18(h).
Discussion
I. Truth in Lending Act Claim
The general purpose of TILA is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601(a); Szumny v. American General Finance, Inc., 246 F.3d 1065, 1070 (7th Cir. 2001). TILA and Regulation Z, issued by the Federal Reserve Board to implement TILA, require creditors to make certain disclosures in connection with consumer credit transactions. 15 U.S.C. § 1638; 12 C.F.R. § 226.18.
TILA protects individual consumers from being misled about the cost of credit. The private civil actions authorized by TILA create a system of private attorneys general to help enforce the TILA and its goals, which include deterrence of socially undesirable lending practices and the standardization of terminology used in connection with credit transactions. Bizier v. Globe Financial Services, Inc., 654 F.2d 1, 2 (1st Cir. 1981); Smith v. Chapman, 614 F.2d 968, 971-72 (5th Cir. 1980) (insisting on strict compliance with TILA, but noting that "[s]trict compliance does not necessarily mean punctilious compliance if, with minor deviations from the language described in the Act, there is still a substantial, clear disclosure of the fact or information demanded by the applicable statute or regulation").
In this case, plaintiff Mize claims that the verb tense in the form Joe's used violated 15 U.S.C. § 1638(a)(8) and 12 C.F.R. § 226.18(h). Section 1638(a)(8) requires a creditor in closed-end credit transactions, such as Mize's credit transaction with Joe's, to provide "Descriptive explanations of the terms `amount financed', `finance charge', `annual percentage rate', `total of payments', and total sales price' as specified by the [Federal Reserve Board]." For the descriptive explanation of the term "Total of Payments," Regulation Z provides in relevant part:
For each transaction, the creditor shall disclose . . . [t]he total of payments, using that term, and a descriptive explanation such as "the amount you will have paid when you have made all scheduled payments."12 C.F.R. § 226.18(h). The Installment Contract in this case used the term "Total of Payments," as mandated by § 1638(a)(8). The parties agree that the amount stated was correct.
Mize has based his claim, however, on the use of the future tense rather than the future perfect tense. The explanation under the heading stated: "The amount you will have to pay after you have made all payments as originally scheduled." Read in isolation, the use of the future tense could subject the explanation to an absurd reading — that a borrower who has made "all payments as originally scheduled" would then be legally obligated to make another payment equal to the sum of "all payments as originally scheduled," effectively doubling the debt. See Pl. Opp. Br. at 11-12 (advocating this reading). Of course, that reading would be flatly inconsistent with the concept of the "total of payments," and it is not the necessary reading of the printed sentence. The language easily permits the correct understanding, which is that the "Total of Payments" is the sum of all scheduled payments. The parties agree that the explanation would have been more precise if it had read: "The amount you will have paid after you have made all payments as originally scheduled," which tracks the language suggested — but not mandated — by the regulation, § 226.18(h). There is no allegation that the choice of the imprecise verb tense actually misled or injured Mize in any way. Yet such is the stuff of some TILA litigation. As the Seventh Circuit has taught, "Subject to narrow exceptions, `hypertechnicality reigns' in the application of TILA." Smith v. Cash Store Management, Inc., 195 F.3d 325, 328 (7th Cir. 1999), quoting Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 941 (7th Cir. 1995).
There is considerable irony, of course, in the fact that TILA itself is not a model of clarity, as the Supreme Court has observed. See Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. ___, ___ n. 7, 125 S.Ct. 460, 468 (2004) (noting that the Supreme Court's "five separate writings . . . demonstrate that § 1640(a)(2)(A) is hardly a model of the careful drafter's art").
Joe's offers two persuasive grounds for summary judgment: (1) that the explanation using the less precise verb tense could not mislead or confuse a reasonable consumer and thus did not violate TILA as a matter of law; and (2) that Mize has not claimed actual damages and would not be entitled to statutory damages in any event for errors contained in descriptive explanations.
A. "Reasonable Person" Standard
"A creditor's TILA disclosures must meet an objective standard, providing the relevant information in a form that a `reasonable person' would understand." Carmichael v. The Payment Center, Inc., 336 F.3d 636, 641 (7th Cir. 2003), quoting Rendler v. Corus Bank, N.A., 272 F.3d 992, 999 (7th Cir. 2001); accord, Smith v. Check-N-Go of Illinois, Inc., 200 F.3d 511, 514-15 (7th Cir. 1999) (the "legal standard under the Truth in Lending Act is the objective `reasonable person' approach"), quoting Smith v. Cash Store Management, Inc., 195 F.3d 325, 327-28 (7th Cir. 1999). Joe's argues that the descriptive explanation for "Total of Payments" did not violate TILA because a reasonable person in Mize's position would have understood the disclosure. The court agrees.
The Seventh Circuit has taught that the "sufficiency of TILA-mandated disclosures is to be viewed from the standpoint of an ordinary consumer, not the perspective of a Federal Reserve Board member, federal judge, or English professor." Smith, 195 F.3d at 327-28, quoting Cemail v. Viking Dodge, 982 F. Supp. 1296, 1302 (N.D. Ill. 1997). To prevail in this case, Mize must show that a reasonable jury could conclude that a reasonable, ordinary consumer could read the TILA disclosure of "Total of Payments" and conclude that, after having paid Joe's $3,919.10 in 39 installment payments on a loan of $3,294.70, he would still be obligated to pay Joe's another $3,919.10. See Pl. Opp. Br. at 11-12 (advocating this reading). A reasonable consumer would not reach that conclusion. A reasonable jury could not find otherwise. Only from the irrelevant perspective of a grammarian — more precisely, an unfair caricature of a grammarian — could someone find that a reasonable person would not understand the disclosure in this case.
While on the subject of literal readings and hypertechnicality, the court must note the following sentence at page 4 of plaintiff's brief, Docket No. 36: "Because Defendant violated 15 U.S.C. §§ 1638(a)(6), 1638(a)(8), and 1638(b)(1) of the TILA; Reg. Z., 12 C.F.R. § 226.18(h); and the IUCCC by virtue of its violations of the TILA and Reg. Z, Defendant is entitled to an award of statutory damages, attorney's fees, and costs under both federal and state law." The second reference to "Defendant" is obviously an error that would not mislead a reader who is awake. If the court applied to plaintiff's brief the strict approach that plaintiff advocates under TILA, that error could be deemed a binding judicial admission that would authorize entry of final judgment. On the same subject, note plaintiff's introduction of the language of Regulation Z at page 9 of his opening brief: "In closed-end transactions such as Ms. Brackin's transaction with Best Auto, the Federal Reserve Board has mandated. . . ." If a lender gave a consumer a disclosure form prepared for another person in another transaction with a different lender, much as plaintiff has done by submitting a brief borrowed from another case without proof-reading, the wrath of TILA would be swift and sure.
The reasoning of Carmichael v. Payment Center is especially instructive here. In that case, the defendant lent the plaintiffs $69,000 for home remodeling. The promissory note called for a series of 12 monthly payments of $709.74, followed by a final balloon payment in the 13th month of all remaining principal and interest. The defendant gave the plaintiffs a TILA statement containing two glaring errors: it overstated the finance charge as $188,716.76, and overstated the total of payments as $257,716,76. The actual amounts under the loan were small fractions of these dollar figures. Plaintiffs did not attempt to argue that these errors gave rise to liability. They argued instead that the defendant had violated § 1638(a)(6) by failing to disclose the "amount" of the 13th payment.
The TILA statement in Carmichael described the 13th payment's amount as "the balance of the unpaid principal and interest to be paid in full" instead of a dollar figure. Carmichael, 336 F.3d at 639. The Seventh Circuit affirmed summary judgment for the lender, reasoning from Regulation Z that the "amount" requirement of § 1638(a)(6) could be satisfied in ways other than a dollar figure; that is, a dollar figure was not mandatory. Id. at 640. The court then examined whether the description of the 13th payment's amount satisfied TILA by "providing the relevant information in a form that a `reasonable person' would understand." Carmichael, 336 F.3d at 641, citing Rendler, 272 F.3d at 999. The court concluded that a reasonable person in plaintiff's position would have comprehended what "the balance of the unpaid principal and interest to be paid in full" actually meant, regardless of the errors in the numbers used for the finance charge and total of payments. "Had he, or someone on his behalf, made the calculations, our reasonable consumer could have learned that the precise number was $68,727.37." Carmichael, 336 F.3d at 641.
The circumstances here are similar to those in Carmichael. A jury would have to reject Mize's tortured reading of the printed form and would have to find that Joe's properly disclosed the "Total of Payments." No reasonable consumer would believe that the "Total of Payments" amount was in fact only half the total amount he would be obligated to pay, so that he would have to make "all payments as originally scheduled" and then make another payment equal to the sum of those payments. TILA uses a reasonable person standard; it does not require the use of language that is absolutely immune from even the most tortured reading. As with the word "amount" in § 1638(a)(6), there is more than one way to satisfy the requirement of a descriptive explanation for the term "Total of Payments." Regulation Z suggests specific language for the descriptive explanation, but it does not mandate the use of that specific language. 12 C.F.R. § 226.18(h) (directing use of language "such as" the following). Accordingly, the court concludes as a matter of law that the descriptive explanation of "Total of Payments" at issue in this case did not violate 15 U.S.C. § 1638(a)(8) and 12 C.F.R. § 226.18(h).
The numbers in the Installment Contract were correct and internally consistent. The Installment Contract stated correctly that the loan to Mize was for $3,294.70, that the total sale price, including the downpayment, was $4,909.10, that the finance charge was $624.40, and that Mize's payment schedule was 39 payments of $100 plus a final payment of $19.10. Multiplying the 39 payments by $100 per payment and adding a final payment of $19.10 gives a total payment of $3,919.10. This amount was typed below the term "Total of Payments." Complaint, Ex. B.
Joe's has also moved for summary judgment on the basis of the bona fide error defense set forth in 15 U.S.C. § 1640(c), which requires a defendant to prove "maintenance of procedures reasonably adapted to avoid any such error." Joe's argues that it reasonably relied on a commercially available form to comply with TILA. The sparse factual record in this case is not sufficient to carry Joe's burden of proof on the affirmative defense, at least as a matter of law, on the assumption that the form violated TILA. See generally Palmer v. Wilson, 502 F.2d 860,861 (9th Cir. 1974) (rejecting defense where disclosure violations were in printed standardized forms and omissions and misstatements were part of defendant's usual credit practice); Smith v. Chapman, 436 F. Supp. 58, 65 (W.D. Tex. 1977), aff'd, 614 F.2d 968 (5th Cir. 1980) (rejecting bona fide error defense where same violations appeared in printed forms used in 374 contracts); Sambolin v. Klein Sales Co., 422 F. Supp. 625, 628 (S.D.N.Y. 1976) ("Absent factual allegations which would indicate otherwise, it can be said as a matter of law that the use of a non-complying form by a principal of the defendant is the failure to maintain `procedures reasonably adapted to avoid any such error'").
B. Statutory Damages Not Available
Even if the unfortunate choice of an imprecise verb tense in the descriptive explanation violated TILA, Joe's would still be entitled to summary judgment on the TILA claim. Mize has not come forward with any evidence of actual damages from the purported violation. TILA does not require proof of actual damages, of course, and it provides for statutory damages to promote strict compliance with the statute. See, e.g., Brown v. Marquette Sav. and Loan Ass'n, 686 F.2d 608, 614 (7th Cir. 1982). However, at least since enactment in 1980 of the Truth in Lending Simplification and Reform Act, Pub.L. 96-221, 94 Stat. 132, 168 (1980), statutory damages are not available for every violation of TILA. In this case, even if he could show that the language in the descriptive explanation of "total of payments" violated TILA, Mize would not be entitled to statutory damages under 15 U.S.C. § 1640(a) based on the reasoning of the Seventh Circuit in Brown v. Payday Check Advance, Inc., 202 F.3d 987 (7th Cir. 2000). The TILA claim therefore fails even if liability could be shown. The relevant statutory language provides:
(a) Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part, including any requirement under section 1635 of this title, or part D or E of this subchapter with respect to any person is liable to such person in an amount equal to the sum of —
(1) any actual damage sustained by such person as a result of the failure;
(2)(A) (i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer lease under part E of this subchapter, 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000, or (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or greater than $2,000; or
(B) in the case of a class action, such amount as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery under this subparagraph in any class action or series of class actions arising out of the same failure to comply by the same creditor shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the creditor;
* * *
In determining the amount of award in any class action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor's failure of compliance was intentional. * * * In connection with the disclosures referred to in section 1638 of this title, a creditor shall have a liability determined under paragraph (2) only for failing to comply with the requirements of section 1635 of this title or of paragraph (2) (insofar as it requires a disclosure of the "amount financed"), (3), (4), (5), (6), or (9) of section 1638(a) of this title, or for failing to comply with disclosure requirements under State law for any term which the Board has determined to be substantially the same in meaning under section 1610(a)(2) of this title as any of the terms referred to in any of those paragraphs of section 1638(a) of this title. * * *15 U.S.C. § 1640(a) (emphasis added).
For purposes of this discussion, the court assumes that plaintiff Mize could avoid summary judgment as to whether the descriptive explanation of "Total of Payments" violated § 1638(a)(8). Section 1638(a)(8) is missing from the list of provisions that could give rise to statutory damages under § 1640(a). The emphasized passage of § 1640(a) was added to TILA in 1980 "to curtail damages awards for picky and inconsequential formal errors." Brown, 202 F.3d at 991.
In Brown, the Seventh Circuit held in essence that in the quoted provision on statutory damages, "only" means "only." The Brown plaintiffs alleged violations of §§ 1632(a), 1638(a)(8), and 1638(b)(1), and they sought statutory damages under § 1640(a)(2). The court concluded that the word "only" confines statutory damages to a closed list of violations. Because the violations alleged by the plaintiffs did not fall within that list, the plaintiffs were not entitled to statutory damages. Brown, 202 F.3d at 991-92. The court also rejected the plaintiffs' attempt to use the "back door" theory — that failure to comply with §§ 1632(a), 1638(a)(8), and 1638(b)(1) also violated §§ 1638(a)(3), (a)(4), and other subsections on the list for which statutory damages are available. Under Brown, statutory damages are available only for violations of the subsections specifically enumerated in § 1640(a). Id. at 991-92.
Mize argues that Brown "does not appear to address some key issues of statutory construction which could completely change this Circuit's view of statutory damages for actions brought under TILA." Pl. Br. 36 at 15. He encourages this court to adopt the reasoning of Lozada v. Dale Baker Oldsmobile, Inc., 145 F. Supp. 2d 878, 888-89 (W.D. Mich. 2001), which held that statutory damages are available under § 1640(a)(2) for form and timing violations of § 1638(b)(1).
The Sixth Circuit, however, has rejected Lozada on this point and has followed the Seventh Circuit in Brown. Baker v. Sunny Chevrolet, Inc., 349 F.3d 862, 866-70 (6th Cir. 2003). Also, another plaintiff represented by Mize's attorney made a similar argument in this district before Judge Tinder, who examined and rejected it. Collins v. Ray Skillman Olds-GMC Truck, Inc., 2001 U.S. Dist. Lexis 22239, *10, 2001 WL 1711466, *3 (S.D. Ind. Dec. 3, 2001) (Tinder, J.). This court agrees with Judge Tinder's conclusion in Collins that Brown is controlling precedent. Arguments that the Seventh Circuit erred in Brown should be addressed to the Seventh Circuit rather than to district court within that circuit. See also Stevens v. Brookdale Dodge, Inc., 2002 U.S. Dist Lexis 25406, 2002 WL 31941158 (D. Minn. Dec. 27, 2002) (violation of § 1638(b)(1) would not authorize statutory damages).
This court follows Brown and concludes that statutory damages are available only for violations of the subsections specifically enumerated in § 1640(a). Since § 1638(a)(8) and § 226.18(h) are not listed in the enumerated subsections, Mize is not entitled to statutory damages for any violations of these provisions.
Mize also argues that he has shown violations of §§ 1638(a)(6) and 1638(b)(1), but he has presented no evidence to support these theories. Section 1638(a)(6) requires a creditor to disclose the "number, amount, and due dates or period of payments scheduled to repay the total of payments." Violations of § 1638(a)(6) can subject a defendant to statutory damages under § 1640(a). The Installment Contract correctly discloses the payment schedule, however: 39 payments of $100 biweekly beginning March 5, 2004, plus a final payment of $19 due on September 2, 2005. See Complaint, Ex. B. These disclosures meet the requirements of § 1638(a)(6). Under § 1638(b)(1), the disclosures mandated in § 1638(a) must be made before the credit is extended and must be conspicuously segregated from other information. There is no evidence here of any failure to segregate or to provide the TILA disclosures in a timely manner. Instead, Mize relies on the assumption that the form and timing requirements of § 1638(b)(1) are considered disclosure requirements under § 1638(a), a proposition that Brown rejected. 202 F.3d at 991.
In response to the motion for summary judgment, Mize has presented no evidence of actual damages resulting from the choice of verb tense in the descriptive explanation for "Total of Payments." Without evidence tending to show actual damages, Mize could not prevail on the TILA claim even if the descriptive explanation were deemed a violation. Accordingly, Joe's is entitled to summary judgment on Mize's TILA claim.
II. Indiana Uniform Consumer Credit Code
Mize also alleges that Joe's violated the IUCCC by virtue of its violations of TILA and Regulation Z. The IUCCC provides that "the lender shall disclose to the debtor to whom credit is extended with respect to a consumer loan the information required by the Federal Consumer Credit Protection Act." Ind. Code § 24-4.5-3-301. TILA is Title I of the federal Consumer Credit Protection Act, so a violation of TILA can also violate the IUCCC. Indiana Code § 24-4.5-5-203 provides remedies for some violations of the disclosure requirements.
Because the court is dismissing Mize's federal claim, the court must consider whether to continue to exercise supplemental jurisdiction over the state law claim against Joe's. See 28 U.S.C. § 1367(a). As a general rule, when all federal law claims are dismissed before trial — for example, on summary judgment — the supplemental claims should be left to the state courts. E.g., Korzen v. Local Union 705, 75 F.3d 285, 289 (7th Cir. 1996); accord, Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 943 (7th Cir. 1995) (questioning district court's decision to decide state law claims on the merits after dismissing TILA claims); see also 28 U.S.C. § 1367(c)(3).
Having concluded that Joe's is entitled to partial summary judgment on the TILA claim, the court in its discretion declines to exercise supplemental jurisdiction over the IUCCC claim against Joe's. Joe's has not moved for summary judgment on the state law claim. Whether Indiana courts would recognize a remedy for the verb tense in the descriptive explanation of the "Total of Payments" is a matter on which this court offers no prediction. The court will therefore relinquish supplemental jurisdiction of Mize's IUCCC claim.
Conclusion
The court grants defendant Joe's Auto Sales's motion for summary judgment on plaintiff's Truth in Lending Act claim. The undisputed facts show that defendant did not violate TILA. Even if a violation could be found, plaintiff has shown no actual damages, and statutory damages under TILA are unavailable for the only arguable violation that might be found. The court will enter final judgment dismissing the TILA claim with prejudice and relinquishing supplemental jurisdiction over plaintiff's Indiana Uniform Consumer Credit Code claim and the defendant's third party claim, pursuant to 28 U.S.C. § 1367(c)(3).
So ordered.