Opinion
Case No. 1:00-CV-446
April 5, 2001
OPINION
Plaintiff Michael Person has brought this action against Defendant Courtesy Motors, Inc. alleging violations of the Truth-in-Lending Act ("TILA," 15 U.S.C. § 1601 et seq.) (Count I), the Michigan Consumer Protection Act ("MCPA," Mich. Comp. Laws § 445.901 et seq.) (Count II), breach of contract (Count III), and fraud (Count IV). The allegations concern the Plaintiff's purchase of a 1998 Toyota Camry from Defendant in June 2000 and the financing arrangements for the vehicle purchase. This matter is now before the Court on the parties' cross-motions for summary judgment as to the TILA claims.
I. FACTS
Plaintiff and Defendant's motions for partial summary judgment reveal the following facts pertinent to the motions.
On June 1, 2000, Plaintiff went to the Defendant automobile dealership for the purpose of purchasing an automobile on credit. (Plaintiff's (verified) Complaint at ¶ 11.) He then completed a credit application and was told by representatives of the dealership that he had been approved for an auto loan. ( Id.) On the same date, Plaintiff purchased a 1998 Toyota Camry from Defendant.
( Id. at ¶ 12.) Plaintiff paid a $300 down payment for the vehicle. ( Id. at ¶ 13.) Notwithstanding, in order to represent to the finance company that Plaintiff had made a larger down payment, Defendant "sold" a 1991 Buick Lesabre to Plaintiff for $300 and then had Plaintiff use the vehicle for a $2,000 trade-in. ( Id. at ¶ 13.) Plaintiff never took possession of the Buick and no improvements were made to the vehicle before the trade-in. To offset the higher down payment credit given Plaintiff, Defendant then raised the sale price of the Camry by $1,700. ( Id. at ¶ 14.) This resulted in an additional sales tax of $102, which amount was not disclosed as part of the finance charge in Defendant's TILA disclosures (contained in a Retail Installment Contract and Security Agreement). ( Id. at ¶ 14 and Exhibit A.) Both Plaintiff and Defendant approved the Retail Installment Contract and Security Agreement on June 1, 2000. ( Id. at ¶ 16.)
This Retail Installment Contract and Security Agreement ("RISC"), on its face, does not require any third-party financing. ( See id.; Exhibit A.) In early June 2000, Plaintiff received a phone call from a finance company which expressed an interest in purchasing the RISC. ( Id. at ¶ 22.) During the call, Plaintiff explained the trade-in transaction to the finance company. Following the conversation, Defendant called Plaintiff and asked him to return to the dealership to execute additional papers relating to financing because he had "screwed up" in his interview with the finance company. ( Id. at ¶¶ 23-24.) When Plaintiff returned, he was told to sign a second RISC, but the dealership refused to provide him a copy of the second RISC. ( Id. at ¶¶ 24-25.) According to Defendant, Plaintiff was also told that he could continue to operate under the first RISC. (Defendant's Answer at ¶ 24.) Plaintiff thereafter refused to sign the second RISC.
Both parties' briefs appear to agree that they both have continued to operate under the terms of the first RISC and that Defendant has not taken any action to repossess the vehicle or any other action inconsistent with the terms of the RISC. Shortly after this suit was filed, Defendant mailed a letter to Plaintiff expressing an intention to continue to operate under the terms of the RISC since the RISC had not been assigned. ( See Plaintiffs' Exhibit A to Reply Brief, Dkt. No. 34.)
II. STANDARD FOR SUMMARY JUDGMENT
These motions are brought pursuant to Federal Rule of Civil Procedure 56. Under the language of Rule 56(c), summary judgment is proper if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The initial burden is on the movant to specify the basis upon which summary judgment should be granted and to identify portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The burden then shifts to the non-movant to come forward with specific facts, supported by the evidence in the record, upon which a reasonable jury could find there to be a genuine fact issue for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). If, after adequate time for discovery, the non-movant fails to make a showing sufficient to establish the existence of a material disputed fact, summary judgment is appropriate. Celotex Corp., 477 U.S. at 323.
III. LEGAL ANALYSIS
Plaintiff's Complaint alleges three claims under TILA: first, that the Defendant violated TILA by failing to disclose the additional sales tax as part of the finance charge; second, that the Defendant violated TILA by failing to provide Plaintiff with a copy of the second RISC; and third, that the Defendant violated TILA by failing to disclose that the credit offered was conditioned upon assignment to a finance company.
As to the cross-motions for partial summary judgment, Plaintiff argues that it is entitled to summary judgment as to all three of its TILA claims. Defendant likewise maintains that it is entitled to summary judgment as to all of the TILA claims. (Defendant's request for summary judgment as to the third TILA claim is contained in its Brief in Opposition to Plaintiff's Supplemental Motion for Partial Summary Judgment.)
Defendant has in its briefing abandoned one of its arguments i.e., that the sales tax violation was within the "tolerance for error" permitted by 15 U.S.C. § 1605(f). Defendant conceded that this argument fails because section 1605(f) does not apply to this transaction and under 12 C.F.R. § 226.18(d)(2), which does apply, the sales tax exceeds the regulation's $10 "tolerance for error."
A. Overview of TILA
TILA was enacted in 1968 and requires that lenders disclose certain credit terms accurately to consumers. In enacting TILA, Congress specifically described its purpose as follows:
It is the purpose of this title 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). See also Purtle v. Eldridge Auto Sales, Inc., 91 F.3d 797, 799-800 (6th Cir. 1996). TILA is not, however, a general fraud statute. It imposes liability on creditors regardless of whether the non-disclosure or false disclosure was intentional unless a specific statutory defense applies. Purtle, 91 F.3d at 800-801. However, it does so only with respect to the disclosures required by TILA and Regulation Z. See 15 U.S.C. § 1638 and 12 C.F.R. § 226.18. Regulation Z (which was promulgated by the Federal Reserve Board under the specific direction of Congress to provide guidance as to TILA) is entitled to great deference from the federal courts. Smathers v. Fulton Federal Sav. and Loan Ass'n, 653 F.2d 977, 980-981 (5th Cir. 1981). Nevertheless, to the extent that the interpretation of TILA in light of the statutory language and Regulation Z is unclear, the Act should be construed liberally in favor of the consumer. Jones v. TransOhio Savings Ass'n, 747 F.2d 1037, 1040 (6th Cir. 1984).
B. Sales Tax Issue
It is not disputed that the $102 sales tax figure was not disclosed as part of the finance charge. The legal question presented as to the sales tax is whether under TILA, in light of the above described circumstances, the sales tax figure should be considered the "finance charge" or "the amount financed." See 15 U.S.C. § 1605(a).
Section 1605(a) defines the "finance charge" as follows:
[T]he amount of money of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction.15 U.S.C. § 1605(a).
Under Regulation Z, the term "finance charge" is similarly defined as follows:
(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.12 C.F.R. § 226.4(a).
While there is little if any helpful case authority on this issue, resort to precedent is not necessary in light of the clear language of the statute and regulation. The litmus test for determining a finance charge is whether the amount would be paid in a comparable cash transaction. Thus, the sales tax on the Camry itself was part of the amount financed and not part of the finance charge because cash purchasers are expected to pay the sales tax as part of their purchase. However, the sales tax on the Buick is just the opposite. The transaction as to the Buick, whether itself legal or illegal, was a transparent attempt by the dealership to manipulate lending practices so as to make Plaintiff eligible for financing. Since it lacked as its purpose the transfer of the vehicle for Defendant's possession or use (and was only a transfer for the purpose of securing financing), the costs of the transfer are properly deemed a finance charge and are not deemed part of the amount financed.
Therefore, Plaintiff is entitled to partial summary judgment establishing Defendant's liability under TILA for failing to disclose the sales tax as part of the finance charge. The issue of damages for this TILA violation is reserved for trial.
C. Non-Disclosure of Terms of the Second RISC
Both parties have requested summary judgment on the issue of whether the Defendant violated TILA by failing to provide a copy of the second RISC to Plaintiff while requesting that Plaintiff approve the second RISC. Title 15 U.S.C. § 1638(b)(1) provides that TILA financial disclosures must be made "before the credit is extended" Similarly, Regulation Z requires that these disclosures be made "before consummation of the transaction." 12 C.F.R. § 226.17(b). The legal question posed in the briefing is whether the facts of this case — that a RISC was proposed without disclosure of financing information and with no later consummation of the transaction — allow or mandate recovery under this requirement of TILA.
Regulation Z provides explicit guidance on this subject in its Official Staff Comments, which provide as follows:
2(a)(13) "Consummation".
1. State law governs. When a contractual obligation on the consumer's part is created is a matter to be determined under applicable law; Regulation Z does not make this determination. Consummation does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a nonrefundable fee) unless, of course, applicable law holds otherwise.
2. Credit v. sale. Consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement. For example, when a consumer pays a nonrefundable deposit to purchase an automobile, a purchase contact may be created, but consummation for purposes of the regulation does not occur unless the consumer also contracts for financing at that time.Truth in Lending; Official Staff Commentary, 46 FR 50288, 50292 (October 9, 1981).
Consistent with the Official Staff Commentary, the Sixth Circuit Court of Appeals has said in its written decisions that the obligation to provide TILA disclosures does not arise until the consummation of the credit transaction as determined under state law. Purtle, 91 F.3d at 801; Rudisell v. Fifth Third Bank, 622 F.2d 243, 246 (6th Cir. 1980).
Under Michigan law, consummation of a credit transaction requires all of the usual incidents of a valid contract, including both mutuality of agreement and consideration. Thomas v. Leja, 468 N.W.2d 58, 60 (Mich.Ct.App. 1991); Franck v. Bederfield, 494 N.W.2d 840, 841 (Mich.Ct.App. 1992). In this case, since it is admitted that Plaintiff never agreed to the terms of the new RISC, a new contract was not consummated under Michigan law. This being the case, the Defendant is entitled to summary judgment on this claim since the obligation of disclosure, having not arisen, could not have been breached.
Therefore, summary judgment shall enter in Defendant's favor as to this TILA claim and said claim shall be dismissed.
D. Non-Disclosure of "Conditional" Lending
Plaintiff's final TILA claim is that the Defendant violated TILA by failing to disclose in the first RISC that the contract was "conditioned" upon assignment to a third-party lender. The parties have made cross-motions for summary judgment on this issue (the Defendant's cross-motion being contained in its Opposition to Plaintiff's Motion). Plaintiff's theory of liability is that the TILA disclosures as to the credit information are effectively false because the credit offered is fictional and is not actually intended to be extended. Plaintiff cites in favor of this theory an unpublished decision of the Northern District of Illinois Williams v. Thomas Pontiac, 1999 W.L. 787488 (N.D.Ill. 1999). In Williams, the consumer signed an auto purchase contract which was voidable in the event that it was not assigned to a third-party lender and was, at the time, reassured by the car dealer that the lending was approved. When the lending was not approved, the car dealer voided the financing, refused to accept loan payments and repossessed the auto as allowed by the purchase contract. In light of this scenario, the United States District Court for the Northern District of Illinois held that the plaintiff's complaint alleged a TILA claim because it disclosed financial terms which were not in fact offered to the consumer.
In this case, the operative facts are the opposite of those involved in the Illinois case. Unlike the Illinois case, there is no mirage-quality to the instant financing. The instant financing is legally assured by the RISC, which provides Defendant no ability to void the contract in the absence of an assignment. While the hope of an assignment was no doubt important to the Defendant, parol evidence about a hoped for assignment do not provide the Defendant an ability to escape from the clear contractual terms of the RISC. Thus, since the Defendant is bound by those terms and has acted consistently with its legal obligations, there was nothing improper under TILA about the financing disclosure, which communicated that Defendant was bound to such financing.
Therefore, summary judgment shall enter in Defendant's favor as to this TILA claim and said claim shall be dismissed.
CONCLUSION
In accordance with this Opinion, the parties' cross-motions for partial summary judgment shall be granted in part and denied in part. Summary judgment shall enter in favor of Plaintiff as to his TILA sales tax claim. Summary judgment shall enter in favor of Defendant as to the other TILA claims asserted and those claims shall be dismissed. A Partial Judgment shall enter consistent with this Opinion.
PARTIAL JUDGMENT
In accordance with the Court's Opinion of this date;IT IS HEREBY ORDERED that the Plaintiff's motions for partial summary judgment (Dkt. Nos. 12 and 27) and Defendant's motions for partial summary judgment (Dkt. Nos. 22 and 32) are GRANTED IN PART AND DENIED IN PART.
IT IS FURTHER ORDERED that summary judgment as to liability is entered in favor of Plaintiff as to his claim under the Truth-in-Lending Act that the Defendant failed to disclose that a sales tax fee of $102 was part of the finance charge for the financing of a 1998 Toyota Camry on June 1, 2000. The Court reserves for trial the issue of damages as to this violation.
IT IS FURTHER ORDERED that Defendant is granted summary judgment as to all other Truth-in-Lending Act claims asserted by Plaintiff and said claims are DISMISSED.