Court: District Court, W.D. Michigan; March 10, 2002; Federal District Court
Jamie Kilbourn initiated a proposed class action against Candy Ford-Mercury, alleging violations of the Truth in Lending Act (TILA) and several Michigan state laws due to the dealership charging her more than the advertised price for a vehicle purchased on credit. Specifically, Count Eight of her complaint claims Candy Ford violated TILA § 1638(b) by failing to provide timely cost-of-credit disclosures prior to the transaction. Candy Ford filed a motion to dismiss this count, arguing that statutory damages are not applicable for TILA § 1638(b) violations and that Kilbourn cannot demonstrate detrimental reliance necessary for actual damages in delayed disclosure cases. Additionally, Candy Ford contends that Kilbourn cannot prove that credit customers paid more than the advertised price due to their credit status. Kilbourn claims that the price difference constituted a hidden finance charge, which cash customers would not incur. On June 6, 2000, Kilbourn purchased a 1996 Pontiac Grand Am for $11,642.50, despite it being advertised at $9,900, and received a $500 rebate, resulting in a total payment exceeding the advertised price by $1,242.50. Kilbourn's First Amended Complaint, filed on October 19, 2001, alleges multiple instances of similar overcharging and failure to provide required disclosures to credit customers. The court will first evaluate Candy Ford’s arguments regarding the cost-of-credit disclosure claim, followed by the motion for summary judgment on the hidden finance charge claim, and will conclude with a determination on class certification.
Summary judgment is appropriate when there are no genuine disputes over material facts and the moving party is entitled to judgment as a matter of law, per Fed. R. Civ. P. 56. Material facts, necessary for applying the law, are defined by substantive law (Anderson v. Liberty Lobby, Inc.). A genuine dispute exists if a reasonable jury could rule for the non-moving party, with the court required to interpret all evidence in favor of that party. Summary judgment can still be granted if the evidence as a whole does not support a rational finding for the non-moving party (Agristor Financial Corp. v. Van Sickle).
Count Eight of Kilbourn’s Amended Class Action Complaint claims that Candy Ford did not provide timely cost-of-credit disclosures as mandated by 15 U.S.C. § 1638(b) and Regulation Z, 12 C.F.R. § 226.17(b). Candy Ford argues that providing Kilbourn with a retail installment sales contract (RISC) for review and a copy afterward meets the requirements. However, § 1638(b) requires disclosures to be made before credit is extended, and applicable regulations stipulate that disclosures must be clear, conspicuous, and in a form the consumer can keep.
The court emphasizes that the TILA is remedial and should be liberally construed in favor of consumers (Begala v. PNC Bank). It rejects Candy Ford's argument that showing disclosures before signing suffices, reiterating that consumers must receive a copy of the disclosures to retain and review prior to signing. Previous cases also support this interpretation, indicating that merely displaying the disclosures does not fulfill the regulatory requirements and limits the consumer's ability to compare credit terms (Wachtel v. West). The purpose of providing a copy is to facilitate informed decision-making and comparison shopping for credit.
Disclosures related to consumer transactions are typically made shortly before the transaction is finalized, allowing consumers the opportunity to seek better terms. Candy Ford contends that prior to a 1981 regulation change, consumers were entitled to receive a “duplicate” of the disclosure statement at the time disclosures were made, which had to occur before the transaction's completion. The revised regulation eliminated the duplicate requirement and separated form and timing stipulations, implying they no longer needed to be considered together. Ford asserts that compliance with the regulation can be achieved by providing consumers with a written disclosure to review before signing and a copy after signing, thus meeting the timing and form requirements.
However, the court finds these arguments unpersuasive, aligning instead with the reasoning in cases like Lozada and Polk, which maintain that the form and timing requirements are interdependent, serving the overarching goal of the Truth in Lending Act (TILA). The court emphasizes that consumers must receive written disclosures prior to entering a contract, clarifying that the disclosures referenced in the regulation are not distinct from one another, contradicting Ford’s interpretation. This interpretation also aligns with TILA’s policy, benefitting consumers by ensuring they have the terms of credit in a tangible form for comparison purposes. Additionally, Ford argues that Kilbourn’s claim for statutory damages should be dismissed, as TILA §1640 specifies damages are not applicable for violations of §1638(b), with §1640(a)(2)(B) detailing damages for §1638 violations.
Creditors who fail to comply with specific requirements under the Truth in Lending Act (TILA) are liable for actual damages and, in individual actions, can be awarded up to twice the finance charge related to the transaction. In class actions, recovery is limited to either $500,000 or 1% of the creditor's net worth, with no guaranteed minimum for individual class members. The liability for disclosure failures is restricted to certain enumerated sections of TILA, specifically excluding violations of section 1638(b) from the eligibility for statutory damages, as supported by the Seventh Circuit in Brown v. Payday Check Advance, Inc. The court affirmed that only the violations explicitly listed in section 1640(a) can lead to statutory damages, emphasizing that Congress intended to limit damages to specified provisions, thereby rejecting broader interpretations that would allow for claims based on related sections. Consequently, omissions from the list in section 1640(a) indicate that no statutory damages are available for those unlisted violations.
Several courts have interpreted 15 U.S.C. § 1640 to restrict statutory damages to specific violations, primarily referencing cases such as Molenbeek, Turk, Nigh, Tripp, and Peter, which hold that damages are not available for violations of certain subsections, including § 1638(b). However, the case Lozada v. Dale Baker Oldsmobile, Inc. diverges from this interpretation, asserting that the broad language of § 1640 allows for statutory damages for any TILA requirement unless explicitly excluded. Lozada argues that the list of exceptions in § 1640 is not comprehensive, and thus violations of § 1638(b) should still be eligible for damages.
In reviewing these competing interpretations, the court finds that the Lozada decision conflicts with the statutory language, which refers to compliance with enumerated subsections, implying that only specific violations are actionable for statutory damages. The legislative history supports limiting liability to essential disclosure elements related to credit transactions, as intended by the 1980 amendments to the TILA.
Consequently, the court grants Candy Ford’s motion for summary judgment on Kilbourn’s claim for statutory damages and denies Kilbourn's cross-motion. Furthermore, Kilbourn’s claim for actual damages under Count Eight is dismissed as her counsel confirmed she is not pursuing those damages. Candy Ford also seeks summary judgment on Kilbourn's claims concerning hidden finance charges (Counts One, Four, Five, and Six) and unjust enrichment (Count Seven), while Kilbourn has moved for summary judgment on the same counts.
Kilbourn claims she paid $1,242.50 more than the advertised price for her vehicle due to an undisclosed finance charge imposed as a credit customer, alleging a violation of the Truth in Lending Act (TILA) by Candy Ford. She contends that the dealership charged credit customers more than cash customers without proper disclosure. Candy Ford counters that it has charged cash customers more than advertised and credit customers less, denying a policy of overcharging credit customers. Under TILA, creditors must disclose the "amount financed," "finance charge," and the finance charge as an "annual percentage rate." The finance charge includes all charges by the creditor that are not also applicable in comparable cash transactions. Regulation Z similarly defines the finance charge, emphasizing that any fees imposed on credit customers but not on cash customers must be disclosed. To prove her claim, Kilbourn must demonstrate a causal link between the higher price and the extension of credit. The legal standard requires either direct evidence or circumstantial evidence showing a systematic disparity in pricing between cash and credit transactions. Price differences that consistently favor cash customers over credit customers weaken claims of legitimate market variations. Kilbourn has provided both circumstantial and direct evidence suggesting that Candy Ford raised prices for credit customers specifically due to their payment method.
Kilbourn presents evidence of 58 transactions in 2000 where credit purchasers paid more than the advertised price for vehicles, with price differences ranging from $6,891 to $29. In contrast, Candy Ford provides evidence of two cash transactions with price premiums and 15 credit transactions where purchasers paid less than the advertised price. Candy Ford highlights that in 19 of Kilbourn's identified transactions, the price difference was equal to or less than the "dealer incurred charge" applied to both cash and credit customers. Kilbourn's evidence is insufficient to establish that Candy Ford consistently charged credit customers more than cash customers, as it fails to eliminate alternative explanations, such as negotiating skills or market conditions, for the observed price disparities. Furthermore, Kilbourn only identifies 39 instances where a credit customer paid more without reference to the standard charge. Candy Ford's evidence of 15 cases of credit customers paying less negates the presence of a significant disparity. The variability in transaction details, including negotiation tactics and additional purchases, accounts for the differences in pricing. Candy Ford's salesmen had the discretion to negotiate prices without knowing customers' payment methods or whether the price was advertised as a sale, suggesting that any higher prices paid by credit customers were not due to their payment method. Kilbourn testified that she was informed by salesmen that she paid more due to her special financing needs. However, Candy Ford disputes this, with Mark Pellegrino stating Kilbourn did not show him an advertisement during the purchase. This inconsistency creates a factual dispute that prevents summary judgment for either side. If Kilbourn's claim is substantiated, it could indicate a violation of the Truth in Lending Act (TILA) as defined by the Sixth Circuit, despite the disclosure being made directly to her rather than a third party, as it was neither properly formatted nor accurate per statutory requirements.
Kilbourn and the proposed class entered into retail installment sales contracts with Candy Ford for vehicle purchases. The claim for unjust enrichment is deemed invalid, as Kilbourn’s counsel conceded to abandoning it, leading to a granted summary judgment in favor of Candy Ford on this issue.
For class certification, the Supreme Court mandates a thorough evaluation of Rule 23 prerequisites, which include numerosity, commonality, typicality, and adequacy of representation. Kilbourn seeks to certify two classes under Fed. R. Civ. P. 23(b)(2) and (b)(3). The first class pertains to alleged violations of the Truth in Lending Act (TILA) regarding overcharging credit customers, specifically for contracts executed between March 2, 2000, and March 2, 2001. The second class mirrors the first but extends to contracts executed in the six years before March 2, 2001.
The court denies class certification due to failure to meet the numerosity and typicality criteria. Numerosity requires that the class size makes individual joinder impracticable, assessed through factors like class size, member identification, and the capability of members to pursue individual claims. While a class of 40 or more is typically sufficient to establish numerosity, Kilbourn did not demonstrate this requirement adequately, leading to the rejection of her class action claims.
Kilbourn presents evidence of 58 transactions where Candy Ford charged credit customers prices for vehicles exceeding the advertised amounts. Of these, 42 transactions fall within the TILA one-year statute of limitations, while 16 customers are included in both the proposed classes. Kilbourn provides 58 Applications for Michigan Title from 2000, comparing actual purchase prices to advertised prices. She suggests that the actual number of overcharged consumers is likely higher, constrained only by available vehicle stock numbers for comparison. Limitations arise from the absence of vehicle identification in many ads, preventing a full assessment of overcharges.
Candy Ford argues that some class members may have negotiated for additional terms unrelated to hidden charges, raising concerns about an overly broad class definition. The court references Rockey v. Courtesy Motors, Inc., emphasizing the need for a refined class definition that specifies hidden finance charges for credit customers, excluding those who paid for additional services.
Kilbourn proposes an amended class definition targeting consumers charged an "as is" price exceeding the advertised price, aiming to filter out those who paid for extras. However, she faces challenges in proving numerosity, as some of the identified customers likely paid more due to additional services, not solely because they were credit customers. Additionally, in 19 transactions, the price difference equated to or was less than a $498 dealer charge, which complicates the assertion that these increases stemmed from hidden finance charges prohibited by TILA.
Regarding typicality under Rule 23(a)(3), it requires that the claims of representative parties be typical of the class. Kilbourn's claims must arise from the same conduct causing injury to other class members, thus sharing a common legal theory. The analysis indicates that Kilbourn has not sufficiently demonstrated numerosity or typicality for class certification.
Kilbourn's challenge to typicality in her claims arises from the nature of the evidence she presents. The court found there is a material question regarding whether Candy Ford salesmen informed her that her status as a credit customer resulted in a higher price for her car. However, this specific evidence only supports Kilbourn's individual claim of an undisclosed finance charge and does not extend to the claims of other class members, indicating that Kilbourn and the proposed class are not similarly situated. Furthermore, the court determined that Kilbourn lacked sufficient circumstantial evidence of a systemic overcharging pattern, as she identified only 58 instances out of numerous transactions where credit customers paid more than advertised prices. The price differences varied significantly, with some transactions showing standard charges applied equally to both credit and cash customers, and others demonstrating that credit customers sometimes paid less than advertised. Consequently, the evidence does not establish a consistent practice of overcharging credit customers, undermining the typicality of Kilbourn’s claims.
Regarding the Michigan Pricing and Advertising Act (MPAA) and the Michigan Consumer Protection Act (MCPA), the court referenced 28 U.S.C. § 1367, which allows district courts to decline supplemental jurisdiction under certain conditions. Although Kilbourn's federal claims remain, they have diminished in significance compared to her substantial claims under the MPAA and MCPA, which raise complex state law issues about marketing and pricing practices in Michigan. The court noted that the state law claims now dominate the case, leading to potential complexities regarding compliance with advertising practices by car dealers.
A car dealer's attempt to impose a "dealer incurred charge" raises questions of state law, particularly regarding the potential misleading nature of the term when it may be used to inflate gross profit. These issues are best resolved by state courts, and as a result, the court declines to exercise supplemental jurisdiction over Kilbourn’s claims under the Motor Vehicle Advertising Act (MPAA) and the Motor Consumer Protection Act (MCPA), rendering the parties' cross-motions for summary judgment on those claims moot.
The court grants summary judgment to Candy Ford on Kilbourn's claim for untimely disclosure (Count Eight) regarding both statutory and actual damages, as well as on the claim for unjust enrichment (Count Seven). However, summary judgment is denied for both parties on Counts One, Four, Five, and Six, which pertain to Kilbourn’s individual claim of an undisclosed finance charge. Kilbourn's motion for class certification is also denied, and the claims in Counts Two and Three under the MPAA and MCPA are dismissed without prejudice.
Candy Ford's counsel withdrew a previous argument for dismissal of Count Eight due to insufficient factual support, incorporating remaining arguments into a motion for partial summary judgment. The dealer asserts compliance with the Truth in Lending Act (TILA) and contends that this compliance extends to claims under the Michigan Vehicle Installment Sales Contract (MVISC) and the Michigan Vehicle Sales Finance Act (MVSFA). Furthermore, Candy Ford argues that Kilbourn's claim under the Michigan Consumer Protection Act (MCPA) relies on a violation of the MVSFA and thus must fail.
The dispute over whether an advertisement Kilbourn referenced was available at the time she claimed is deemed immaterial, as the prior week's advertised price was still lower than the purchase price. Legislation is anticipated to limit creditor civil liability for statutory penalties to significant disclosures in credit transactions, potentially reducing litigation over technical violations. The proposed changes aim to focus liability on crucial disclosures while maintaining civil liability for actual damages and administrative obligations under the Act.
In closed-end credit transactions, a statutory penalty ranging from $100 to $1,000 applies solely to specific disclosure requirements, including the finance charge details and payment terms, but not to more technical requirements. Count One of the complaint alleges a violation of the Truth in Lending Act (TILA) for failing to disclose a hidden finance charge. Counts Four and Five assert violations of the Motor Vehicle Installment Sales Contract (MVISC) and the Motor Vehicle Sales Finance Act (MVSFA) for understating the finance charge and improperly including an overcharge in the cash price. Count Six claims a violation of the Michigan Consumer Protection Act (MCRA) related to finance charge disclosure under the MVSFA. Compliance with TILA also satisfies the requirements of MVISCA and MVSFA. Kilbourn's MCRA claim hinges on a violation of the MVSFA, indicating that her state law claims are contingent upon her TILA claim. During the hearing, it was noted that many transactions involved vehicles sold at prices lower than those listed in the Buyer Order Sheet, which served merely as a negotiation starting point. Kilbourn's counsel acknowledged that multiple credit customers likely paid less than the advertised price, but specific totals were indeterminate due to the lack of stock identification numbers in many advertisements. This factual dispute prevents a summary judgment in Kilbourn's favor but undermines her argument for class certification, as her individual claim differs from the class she aims to represent. The advertised prices referenced by Kilbourn were from a flyer corresponding to the week of purchase.
