Opinion
C.A. No. 98C-02-275-WTQ.
Date Submitted: December 3, 1999.
Date Decided: January 19, 2000.
Letter Opinion and Order on the State's Motion for Partial Summary Judgment — MOTION GRANTED in part and DENIED in part .
Olha N.M. Rybakoff, Esquire Patricia A. Dailey, Esquire Richard W. Hubbard, Esquire Department of Justice Carvel State Office Building 820 N. French Street Wilmington, DE 19801
James E. Liguori, Esquire Gregory A. Morris, Esquire Liguori, Morris Redding 46 The Green Dover, DE 19901
Dear Counsel:
This is the Court's Letter Opinion and Order on Plaintiff State of Delaware's Motion for Summary Judgment. For the reasons stated herein, the State's Motion is GRANTED in part and DENIED in part.
FACTS
This is a consumer fraud case. 3-D Auto World, Incorporated ("3-D") operates used car dealerships in Harrington, Delaware. 3-D has two locations, one on Clark Street and another on DuPont Highway. 3-D is owned by Gino and Cynthia Decinti. 3-D's business is to sell and finance the sale of automobiles. 3-D's main salesperson during the relevant time periods was Gino Decinti ("Decinti"). (Decinti Dep. at 62).
The State and 3-D have stipulated to the dismissal of Cynthia Decinti from this lawsuit. It is undisputed that Gino Decinti is a 50% owner of 3-D.
3-D would finance the sale of some vehicles through third party lenders. (Decinti Dep. at 67). 3-D financed other vehicles in-house. Id. 3-D's in-house financing procedures are the subject of this consumer fraud action. The State alleges that beginning in February 1995, the Defendants, through Decinti, regularly represented to the public that the vehicles for sale at 3-D were available for sale with the option of zero percent financing. A car dealer cannot charge interest without being subject to banking regulations. ( See 5 Del. C. § 2902, dealing with financing the sale of motor vehicles, "a license must be issued for a person to be engaged in the business of a sales finance company"). Mr. Decinti understood this fact. He stated in his deposition that he could not charge interest because he was not a bank. (Decinti Dep. at 104, 117). Decinti claimed on his contracts that he charged no interest for his transactions. Rather, he would charge what he called a "carrying charge" or a "collection charge" in the sale of vehicles. Decinti admits that if someone paid cash for a vehicle, he could get a better deal than if he could not pay in full. Id. at 103, 109. What was described as a carrying charge amounted to approximately 20% of the unpaid balance of the purchase price. (Decinti Dep. at 103). Decinti states that the reason for the costs added was for the costs of his office, the recording of payments, the tracking of the payments, keeping of the payments, and for repossession costs. Id. at 107, 126-27.
The State alleges that even though 3-D stated in its advertisement and promotional materials that its interest rates were zero, the interest rates actually charged were well in excess of zero. Decinti denies that he never advertised or had signs in his place of business that indicated that he charged zero percent interest. (Decinti Dep. at 105). But, Decinti does admit that all of his contracts say "Zero Percent Interest" on them. Id.
The State claims that after a purchaser selected a vehicle for sale, the paperwork would contain hundreds of dollars in discrepancies between the quoted sales price and the final cost of the vehicle. Decinti asserts that there were no hidden charges in the deal after negotiation was complete. Id. at 104. The State also claims that 3-D, though the actions of Gino Decinti, knew or should have known that its conduct was prohibited by 6 Del. C. § 2513, the Unlawful Practice section of the Consumer Fraud Subchapter of the Prohibited Trade Practice Statute. The State also alleges that this conduct occurred "on at least fifty separate occasions." (Compl. at para. 10).
The State has filed a Motion for Partial Summary Judgment in this case contending that (1) the Defendants' practice of adding a 20% surcharge to all automobile sales transactions financed "in-house" by Defendants as "zero percent interest" transactions constitutes a finance charge as a matter of law; (2) that the Defendants' failure to disclose their finance charge or interest, and/or their representation that such finance charge or interest was zero percent is an unfair or deceptive act or practice in violation of the Consumer Fraud Act; and (3) that Gino Decinti is individually liable for consumer fraud because he was actively involved in the day-to-day business and he personally calculated and directed the insertion of surcharges into every automobile transaction financed in-house at 3-D Auto World.
STANDARD OF REVIEW
When considering a Motion for Summary Judgment, the Court's function is to examine the record to determine whether genuine issues of material fact exist. Oliver B. Cannon Sons, Inc. v. Dorr-Oliver, Inc., Del. Super., 312 A.2d 322, 325 (1973). If, after viewing the record in a light most favorable to the non-moving party, the Court finds that there are no genuine issues of material fact. Summary Judgment will be appropriate. Id. Summary Judgment will not be granted if the record indicates that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances. Ebersole v. Lowengrub, Del. Supr., 4 Storey 463, 180 A.2d 467 (1962).
1. Were the surcharges added into automobile sales transactions financed in house by 3-D finance charges as a matter of law?
The informed use of credit results from consumer awareness of its costs. Lawson v. Reeves, Ala. Supr., 537 So.2d 15, 16 (1988). Because there are no Delaware cases that address the immediate question at bar, both sides rely on cases that apply the Federal law established in the Truth in Lending Act. The purpose of the Truth in Lending Act 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." Mourning v. Family Publications Service Inc., 411 U.S. 356, 364-65 (1973) (quoting 15 U.S.C. § 1601)). The Federal statute requires lenders to make a clear and accurate disclosure of all finance charges imposed on the customer. Sampler v. City Chevrolet Buick Geo Inc., D. Ill., 10 F. Supp.2d 934, 937 (1998). Under the Truth in Lending Act, the "cash price" may include accessories related to the sale, but it cannot include interest or a time price differential. See Rowe Auto Trailer Sales, Inc. v. King, Ark. Supr., 517 S.W.2d 946, 947 (1975).
As pointed out by the State, one of the means of circumventing the disclosure requirements of the Truth in Lending Act was to "bury" the costs of the credit in the price of the goods sold. Mourning, 411 U.S. at 366. The United States Supreme Court gave the following example to describe how merchants "bury" finance charges to avoid the disclosure requirements of the Truth in Lending Act:
For example, two merchants might buy watches at wholesale for $20 which normally sell at retail for $40. Both might sell immediately to a consumer who agreed to pay $1 per week for 52 weeks. In one case, the merchant might claim that the price of the watch was $40 and that the remaining $12 constituted a charge for extending credit to the consumer. From the consumer's point of view, the credit charge represents the cost which he must pay for the privilege of deferring payment of the debt he has incurred. From the creditor's point of view, much simplified, the charge may represent the return which he might have earned had he been able to invest the proceeds from the sale of the watch from the date of the sale until the date of payment. The second merchant might claim that the price of the watch was $52 and that credit was free. The second merchant, like the first, has forgone the profits which he might have achieved by investing the sale proceeds from the day of the sale on. The second merchant may be said to have "buried" this cost in the price of the item sold. By whatever name, the $12 differential between the total payments and the price at which the merchandise could have been acquired is the cost of deferring payment.Mourning, 411 U.S. at 366 n. 26.
The State's contention is basically that Decinti was "burying" the interest charge in the price of the vehicle. 3-D argues that the use of a carrying charge and the language under Regulation Z allows for a carrying charge to not be considered as interest. Regulation Z was promulgated by the Federal Reserve Board to implement the Truth in Lending Act. 3-D gives the case of Sampler as support for the proposition that:
The official staff commentary to Regulation Z provides that certain charges are exempt from TILA disclosure requirements even if they fall within the regulatory definition of a finance charge. It explains that "[c]harges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash price of the property or service sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition." Official Staff Commentary to 12 C.F.R. § 226.4(b)(6) at § 226.4(a)(2) (Supp.I).Sampler, 10 F. Supp.2d at 937.
Defendant argues that the charges were not hidden finance charges, but are actually a "cost of doing business" and were disclosed to all consumers so they could make an informed economic choice concerning their purchases. First, this Court notes that the State's case is not brought under the Federal Truth in Lending Act, but rather under the State Consumer Fraud Act. The differentiating language in Regulation Z does not necessarily apply for the purposes of the State's case. In this situation, the battle over whether interest was being charged seems to be Decinti's preference for form over substance. Decinti knew that he could not charge interest and only a bank could charge interest. The record is clear that Decinti knew that he could not charge a finance charge without a license. So, as a way to get around not being able to charge interest, Decinti just called the added cost over the life of the loan a carrying charge and added money on to the price of the cars that he sold. He extended credit and charged a price for extending that credit that was somewhere in the neighborhood of 20% of the cost of the amount borrowed. Interest, in this context, is defined as "the compensation fixed by agreement or allowed by law for the use or detention of money, or for the loss of money by one who is entitled to its use; esp., the amount of money owed to a lender in return for the use of borrowed money. — Also termed finance charge." Blacks L. Dictionary 816 (7th ed. 1999) (emphasis in original). The record is clear that Decinti was burying the interest payment within the cost of the loan. The 20% charge was more than the cost of doing business. The State's Motion for Partial Summary Judgment, asking this Court to rule as a matter of law that the "carrying charge" in fact amounted to interest, is GRANTED.
2. Was the Defendants' failure to disclose its finance charge or interest, and/or its representation that such finance charge or interest was zero percent, an unfair or deceptive act or practice in violation of the Consumer Fraud Act? 6 Del. C. § 2513 protects against "any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression of any material fact. . . ." Id. The State claims that the cases discussed in its brief establish that the Defendants' practice of imposing a "carrying charge" would violate Federal law. It appears that proposition could be true. For instance, in Killings v. Jeff's Motor's, Inc., 5th Cir., 490 F.2d 865, 865-66 (1974), under the Truth in Lending Act, the Fifth Circuit recognized the trial Court's finding that under the Federal Act, a finance charge listed as "zero percent" when the total of the monthly payments was more than the cash price amounted to a violation of the Act. In that case, the buyer gave a statement stating there was no finance or annual percentage rate charged. Id. The parties in that case stipulated the dealer had purchased the car for $760 and that for extra clean cars of the same make and year as the appellant's the Official Used Car Market Guide Weekly Black Book showed an average Alabama retail price of $1780 during the week that the transaction was consummated. Id. The consumer was required to pay 24 installments of $75.72 to pay off the balance of an $1805.28 deferred payment. Id. The District Court determined that there was a finance charge violation and that was not challenged on appeal. Id. Similarly, the Alabama Supreme Court has held that a claim for relief exists under the Truth In Lending Act for non-disclosure of hidden finance charges, when the installment sales contract does not disclose an annual percentage rate, but the stated price exceeds the actual value of the item sold. Lawson, 537 A.2d at 17. The buyer is required to prove by competent evidence the difference between the actual value of the item sold and the stated sales price. Id.
The Statute in pertinent part states:
§ 2513 Unlawful practice. (a) The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale, lease or advertisement of any merchandise, whether or not any person has in fact been misled, deceived or damaged thereby, is an unlawful practice.
In this case, however, the protections under the Truth in Lending Act are not perfectly analogous to the State Consumer Fraud Act on this point. This proceeding is under the Delaware statute. The State Act's purpose is to "protect consumers and legitimate business enterprises from unfair or deceptive merchandising practices in the conduct of any trade or commerce." Stephenson v. Capano Development, Inc., Del. Supr., 462 A.2d 1069, 1073 (1983) (citing Young v. Joyce, Del. Supr., 351 A.2d 857, 880 (1975)). The only intent element of the Act is that, in omitting or concealing a material fact, the Defendant must have intended that others rely on the omission or concealment. Id. at 1074 (citing In re Brandywine Volkswagen, Ltd., Del. Super., 306 A.2d 24, 29, aff'd sub nom., Brandywine Volkswagen Ltd. v. State Dept. of Community Affairs and Economic Development, Division of Consumer Affairs, Del. Supr., 312 A.2d 632 (1973)). An unlawful practice under § 2513(a) is committed regardless of actual reliance. Id. Furthermore, misrepresentation under the statute does not require proof of intent to induce action or inaction by the Plaintiff. Id. In all other respects, the statute must be interpreted in the light of established common law definitions and concepts of fraud and deceit. Id.
In this case, Decinti states that he did not deceive anyone. In earthy, street sales language, he explained his practice:
A: It's like a collections charge or a carrying charge. What it is is when the person comes in to buy a car, you have a certain price, or something like that. If it's 3,995, or whatever like that, if you have the 3,995, we can talk or we can go down. If you got 3,500, we could talk, just figure out what kind of price you want to pay for this car.
The collection charge is like an expense for me to have the girls, or whatever, to carry this duration of a, what is, what I am trying to say is, is we have to come to an agreement to buy this car. You don't have 3,995, you might have zero down, and I still like you. You might have $1,000 down, or whatever like that. They say, I want this car, I try to take them to this car. They don't want this car, so we go right back to this car. They want to know, Gino, what's it going to cost me to get this car? I say, now, so we sit down, we talk terms, or whatever. I figure out, like, if it's 3,995, or whatever, you got $1,000 down, which, well, let's say $4,000, you got $1,000 down leaves $3,000 balance. I will charge 20 percent of the unpaid balance. It all depends on what the balance would be, that's, like you said, if you have zero balance, you don't have to pay no carrying charge. If you got 3,000 left, you would pay 600 for the duration of the loan.
First of all, you are going to have to tell me, Can you pay me $40 a week?, can you pay me $50 a week?, or whatever. It would be how long that you could pay for this car. So, now the price of the car would be 639, would be 4500. So, what I am trying to say is if the car was 4,000 and you got, and you want to work out a deal with me to try to come down to 3,500, there is nothing to say that I could bring this $4,000 car, to step it up to 4500. You don't have all the money, you don't have all the money to buy this car, but you want this car, and I'd like for you to have this car, so we come to an agreement to what this car is really going to be.
So, when he finally, when I finally show him everything on paper, do all this, we come to an agreement on what the payment plan is going to be, everything, then I would pass it over to the girls, and the girls would write it up.
Decinti Dep. at 103-104.
[W]hoever is assuming this, is trying to say that I am hiding something, that I am trying to hide this. How can I hide it from here to there when this girl is writing up this contract. The only thing the girl knows, she never seen the deal, she never even seen me talk to the customer because she is out there. All she is going to say is, Okay, do you understand what Gino has told you? Do you understand what the price of the car is? Do you understand all this? They go through paper by paper to disclose everything, mileage. If you don't pay in two weeks, you are going to get repo'd. If you don't do all this, boom. . . . All the contracts are signed.
Decinti Dep. at 113.
Decinti's defense seems to be that there was effective full disclosure since the charge was clearly shown as a discrete item on the contract. Decinti contends in effect: What difference does it make to the buyer whether you call it interest or not as long as it's out in the open as an added charge? See Plaintiff's Opening Brief, Ex. C (Dkt. No. 64). The actual paperwork ( Id. Ex. B) is slightly more obscure than Decinti might suggest, but it is open to his argument of voluntary agreement nevertheless.
Decinti also states in his deposition: "I didn't make nobody sign that contract." Id. at 108-09. It appears from the cited Exhibits B and C to Plaintiff's Opening Brief that the printed contract would state a lump sum cash sale price (cost of the car plus carrying charge plus administrative fee) and a separate handwritten page would detail the breakdown as to the component parts — cost of the car, carrying charge, and administrative fee.
The State argues that under the Consumer Fraud Act, a claim can be established either by 1) proof of a "deception, fraud, false pretense, false promise, misrepresentation" or 2) by proof of concealment, suppression or omission of a material fact with the intent that others rely on such concealment, suppression or omission. 6 Del. C. § 2513. As to part one, Decinti states that he was not trying to hide anything. He in fact states that he (or his business) disclosed everything. There seems to be at least a question of material fact as to whether a deception, fraud, false promise, false pretense or misrepresentation happened. As to part two, the Court has already ruled that there was a concealment or omission of the interest rate by calling it a carrying or collection charge. But, whether or not Decinti intended that others rely on the omission or concealment is a factual question. Although the reliance of the Plaintiff plays a very small role under the statute, it plays an intended role. Decinti's statements at his deposition clearly denote that he disputes that he intended others to rely on the omission or concealment of the interest payment. That is a factual question that this Court cannot decide on the current record on this Motion for Summary Judgment. Therefore, Summary Judgment is DENIED.
3. Is Gino Decinti individually liable for consumer fraud because he was actively involved in the day-to-day business, and he personally calculated and directed the insertion of surcharges into every automobile transaction financed in-house at 3-D Auto World?
The State argues that persons, including corporate officers, who engage in consumer fraud are individually liable for their conduct. Decinti does not address the State's contention in its papers. In Nash v. Hoopes, Del. Super., 332 A.2d 411, 413 (1975), the Superior Court allowed damages to be assessed against a Defendant individually even though the Defendant signed the contract at issue as the president of a corporation. Indeed, in 6 Del. C. § 2511(5) a "`Person' means an individual, corporation, government, or governmental subdivision or agency, business trust, estate, trust, partnership, unincorporated association, 2 or more of the forgoing having a joint or common interest, or any other legal or commercial entity." 3-D's main salesperson during the relevant time periods was Decinti. (Decinti Dep. at 62). There is no question in the record that Decinti is the person who effectuated the transactions and implemented the "carrying charge." Therefore, if 3-D is liable for consumer fraud, Decinti will also be held personally liable for his activity under the consumer fraud statute. But since 3-D's liability has not been determined, it seems premature to consider Decinti's personal liability.
CONCLUSION
For the foregoing reasons, partial Summary Judgment is GRANTED for the proposition that the surcharges added into automobile sales transactions financed in-house by 3-D were "interest" or "finance charges" as a matter of law (point 1 above). Summary Judgment is DENIED as the Motion relates to 3-D's and Decinti's ultimate liability under the Consumer Fraud Act (point 2 above). While it seems clear that Decinti can be held personally liable for his actions under the Consumer Fraud Act (point 3 above), the issue does not appear ripe for any particular ruling and, insofar as the Motion suggests there should be a present ruling as a matter of law, the Motion is premature and DENIED WITHOUT PREJUDICE. IT IS SO ORDERED. If the case proceeds to a jury trial, the jury can be instructed that Decinti can be personally liable for the sales transactions he conducted.
The Court does not know the seriousness of this case insofar as consumers are concerned. Specifically, it is not clear from the present record whether consumers were actually being cheated and, if so, how. It is clear from the present record that the business was not being conducted in the manner that it should be conducted. And it is obvious that schemes of easy credit at high interest can constitute a serious consumer abuse, aggravated further if the consumer did not know that to which he was being subjected. But, if there was full disclosure of the additional charges, insofar as consumer fraud is concerned, the case should be carefully examined. The uncertainty in the present record suggests some accommodation should be attempted looking to a resolution of the dispute. I urge both sides to make a realistic appraisal of the severity of the Defendants' actions.
Sincerely,
William T. Quillen