Green v. Levis Motors, Inc.

• Decision Date: 22 June 1999
• Docket Number: No. 98-30443,98-30443
• Citation: 179 F.3d 286
• Parties: Wilmore GREEN, III; Marsha W. Green, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. LEVIS MOTORS, INC., et al., Defendants, Levis Motors, Inc., doing business as Levis Mitsubishi; John Does, 1-10; Hancock Bank of Louisiana; ABC Insurance; XYZ Insurance Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 286

179 F.3d 286

Wilmore GREEN, III; Marsha W. Green, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. LEVIS MOTORS, INC., et al., Defendants Levis Motors, Inc., doing business as Levis Mitsubishi; John Does, 1-10; Hancock Bank of Louisiana; ABC Insurance; XYZ Insurance Co. Defendants-Appellees.

No. 98-30443.

United States Court of Appeals Fifth Circuit.

June 22, 1999.

Daniel A. Edelman, Cathleen M. Combs, James O. Latturner, Sheila A. O'Laughlin, Edelman & Combs, Chicago, IL, Garth Jonathan Ridge, Baton Rouge, LA, for Plaintiffs-Appellants.

James Rodney Chastain, Jr., Christine J. Lipsey, Breazeale, Sachse & Wilson, Baton Rouge, LA, for Levis Motors, Inc.

David S. Willenzik, Anthony Joseph Rollo, Jr., McGlinchey Stafford, Kerry J. Miller, Frilot, Partridge, Kohnke & Clements, New Orleans, LA, for Hancock Bank of Louisiana.

Appeal from the United States District Court for the Middle District of Louisiana.

Before KING, Chief Judge, and REYNALDO G. GARZA and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Wilmore and Marsha Green have sued their car dealer and the bank that holds their retail installment contract for a violation of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. The district court granted summary judgment for both Levis Motors, Inc. d/b/a Levis Mitsubishi (the car dealer) and Hancock Bank of Louisiana (the holder of the installment contract). The district court erred in granting summary judgment for Levis Motors, but correctly granted summary judgment for Hancock. We therefore reverse in part, affirm in part and remand for further proceedings.

I

The core facts in this case are not in dispute. On or about August 31, 1995, (and this date is important), Wilmore and Marsha Green purchased a used car from Levis Motors. To finance this purchase, the Greens entered a retail installment contract ("RIC") with Levis Motors. As required by the Truth in Lending Act ("TILA"), the contract disclosed the "amount financed" and, in conjunction with the disclosure of this amount, purported to itemize an amount paid to the state of Louisiana for licensing fees. See 15 U.S.C. § 1638(a)(2)(B)(iii) (West 1998). The relevant portion of the contract reads as follows:

                                 Itemization of Amount Financed
                (1)  Cash Price                                      $  11,332.34
                (2)   (a)  Cash Downpayment                          $     700.00
                      (b)  Net Trade"In Allowance                    $        n/a
                (3)  Unpaid Balance                                  $  10,632.34
                                              * * *
                (5)  Amount Paid to Public Officials For
                                              * * *
                      (c)  License Fee                               $      40.00
                

The issues in this case surround the amount listed as "Paid to Public Officials For License Fee." Although the RIC lists the amount paid to Louisiana as $40, the state only charged $22 for licensing involved with the Greens' car. Levis Motors retained the $18 balance. Apparently, the practice of tacking on dealer charges to amounts paid to third parties is common in the automotive sales industry, and the balance retained is referred to as an "upcharge."

According to Levis Motors, the $40 amount was a standard licensing fee that it applied to the sale of all its cars. In some of the sales, the actual amount charged by Louisiana exceeded the $40 listed, and in others (such as the sale to the Greens) the state charged less than $40. (Louisiana bases its licensing fee on the sale price of the automobile and the length of time the license remains valid.) The Greens have alleged that Levis Motors violated the TILA because of the RIC's inaccuracy in disclosing the amount paid to third parties.

After executing the RIC with the Greens, Levis Motors assigned the contract to Hancock. Another provision of the RIC plays an important role in evaluating the potential liability of Hancock. That provision, which the FTC requires for all consumer credit contracts, see 16 C.F.R. § 433.2 (1998), states the following:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

(This clause is referred to below as the "FTC clause.") The Greens sued both Levis Motors and Hancock for violating the TILA. The history of the various, relevant regulations and agency interpretations is somewhat complex. Therefore, we first turn to the applicable code law before addressing the district court's reasoning and the parties' arguments.

II

A

The statutory text upon which the Greens base their claim is found in 15 U.S.C. § 1638(a)(2)(B)(iii):

(a) Required disclosures by creditor

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:

* * *

(2)(B) In conjunction with the disclosure of the amount financed, a creditor shall provide a statement of the consumer's right to obtain, upon a written request, a written itemization of the amount financed.... Upon receiving an affirmative indication, the creditor shall provide, at the time other disclosures are required to be furnished, a written itemization of the amount financed. For the purposes of this subparagraph, "itemization of the amount financed" means a disclosure of the following items, to the extent applicable:

* * *

(iii) each amount that is or will be paid to third persons by the creditor on the consumer's behalf, together with an identification of or reference to the third person;

Instead of giving the Greens the option of requesting a written itemization of the amount financed, Levis Motors decided to supply this itemization automatically. ¹ An underlying issue in the Greens' case is whether Levis Motors's retention of an upcharge, without notification to the Greens that the upcharge was included in the amount listed as paid to a third party, violates this statutory provision.

At the time the Greens and Levis Motors executed the RIC, the only relevant regulatory provisions offering any guidance were 12 C.F.R. 226.18(c)(iii) (a section within "Regulation Z," 12 C.F.R. 226), and 12 C.F.R. Part 226, App. H-3 ("model form"). These two regulatory enactments have not changed since the time of the RIC's execution (August 31, 1995). Neither the regulation nor the model form provide any further guidance--with any relevance to this case--than that already present on the face of § 1638(a)(2)(B)(iii). The regulation states:

For each transaction, the creditor shall disclose the following information as applicable:

* * *

(c) Itemization of amount financed. (1) A separate written itemization of the amount financed, including:

* * *

(iii) Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor shall identify those persons. ²

12 C.F.R. § 226.18(c)(iii) (1999). Model form H-3 appears as follows:

                   Itemization of the Amount Financed of $ ______
                   $ ________  Amount given to you directly
                   $ ________  Amount paid on your account
                   Amount paid to others on your behalf
                   $ ________  to [public officials] [credit bureau] [appraiser] [insurance
                                 company]
                   $ ________  to [name of another creditor]
                   $ ________  to [other]
                   $ ________  Prepaid finance charge
                

These were the only relevant materials promulgated by the Federal Reserve Board ("FRB") (which is charged with elaborating on the TILA's text, see 15 U.S.C. § 1604) at the time the Greens entered the RIC. Nevertheless, some of Levis Motors's and Hancock's arguments rely on FRB interpretations proposed and issued after execution of the RIC. A description of these materials follows.

B

In December 1995, the FRB staff proposed an official staff interpretation of § 1638(a)(2)(B)(iii). See Truth in Lending, 60 Fed.Reg. 62764, 62765, 62769 (1995) (proposed Dec. 7, 1995). This proposed interpretation provides the following:

Creditor-imposed charges added to amounts paid to others. A creditor that offers an item for sale in both cash and credit transactions sometimes adds an amount (often referred to as an "upcharge") to a fee charged to a consumer by a third party for a service (such as for a maintenance or service contract) that is payable in an equal amount in both types of transactions, and retains that amount. At its option, the creditor may list the total charge (including the portion retained by it) as an amount paid to others, or it may choose to reflect the amounts in the manner in which they were actually paid to or retained by the appropriate parties.

Truth in Lending, 60 Fed.Reg. at 62769 (emphasis indicated by underlining added). The FRB never adopted this proposed interpretation. Instead, the FRB promulgated a somewhat more restrictive interpretation in April 1996:

Charges added to amounts paid to others. A sum is sometimes added to the amount of a fee charged to a consumer for a service provided by a third party (such as for an extended warranty or a service contract) that is payable in the same amount in comparable cash and credit transactions. In the credit transaction, the amount is retained by the creditor. Given the flexibility permitted in meeting the requirements of the amount financed itemization (see the commentary to § 226.18(c)), the creditor in such cases may reflect that the creditor has retained a portion of the amount paid to others. For example, the creditor could add to the category "amount paid to others" language such as "(we may be retaining a portion of this amount)."

Truth in Lending, 61 Fed.Reg. 14952, 14956 (1996) (effective April 1, 1996) (referred to below as the "FRB official interpretation") (emphasis indicated by underlining added). The FRB's accompanying explanation explains why this officially adopted...