Bowen v. First Family Financial Services

• Decision Date: 22 November 2000
• Docket Number: Docket No. 97-01279-CV-S-N,No. 98-6492,98-6492
• Citation: 233 F.3d 1331
• Parties: (11th Cir. 2000) OZIE BOWEN, on behalf of himself and all others similarly situated, Plaintiffs-Appellants, v. FIRST FAMILY FINANCIAL SERVICES, INC., Defendant-Appellee. D.C
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1331

233 F.3d 1331 (11th Cir. 2000)

OZIE BOWEN, on behalf of himself and all others similarly situated, Plaintiffs-Appellants, v. FIRST FAMILY FINANCIAL SERVICES, INC., Defendant-Appellee.

No. 98-6492

D.C. Docket No. 97-01279-CV-S-N

IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

November 22, 2000

[Copyrighted Material Omitted] Appeal from the United States District Court for the Middle District of Alabama

Before EDMONDSON, CARNES and WATSON^*, Circuit Judges.

CARNES, Circuit Judge:

The plaintiffs, Ozie Bowen and Ethel Ford, filed a putative class action lawsuit against First Family Financial Services, Inc. ("First Family"), claiming that the lender's practice of requiring customers to sign arbitration agreements before obtaining a consumer loan violates the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. 1691 et seq. According to the plaintiffs, that statute prohibits a creditor from conditioning the extension of credit on a customer's agreement to forego his right to judicial remedies under the Truth in Lending Act ("TILA"), 15 U.S.C. 1601 et seq., and an arbitration clause contravenes that prohibition. The magistrate judge, acting by consent as the district court,¹ concluded that the plaintiffs had not alleged a violation of the ECOA, and that the arbitration agreement signed by plaintiffs was fully enforceable pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. 1 et seq. The plaintiffs appealed.

The plaintiffs have standing to challenge the legality of First Family's requirement that customers sign arbitration agreements as a condition of credit, because they were required to and did sign such an agreement in order to obtain credit from First Family. On the merits of that issue we agree with the district court that such a requirement does not violate the ECOA. As to the separate questions of whether arbitration agreements are generally unenforceable under the TILA, and whether this one is unenforceable for some other reason, we conclude that the plaintiffs lack standing to raise those issues, because there has been no attempt to enforce the agreement against them, and they have not established that there is a substantial likelihood that it will be enforced against them in the future.

I. BACKGROUND

In 1996, Bowen and Ford, the plaintiffs, separately obtained small loans from First Family, and as part of their transactions, each of them was required to sign a two-page document entitled in bold lettering: "ARBITRATION AGREEMENT." The agreement provides that First Family and the consumer "agree to arbitrate, under the following terms, all claims and disputes between you and us, except as provided otherwise in this agreement." In a more specific provision, the agreement states that it applies to "all claims and disputes arising out of, in connection with, or relating to: ... any claim or dispute based on a federal or state statute."

In August of 1997, Bowen and Ford filed this putative class action. They contend that the TILA grants consumers a non- waivable right to obtain judicial, as distinguished from arbitral, redress of statutory violations, including the right to do so through a class action. That is the basis of their claim that First Family's requirement that they sign the arbitration agreement violated the ECOA, specifically 15 U.S.C. 1691(a)(3), because it forced them to waive their right to litigate TILA claims in order to obtain credit. The complaint sought actual and statutory damages, as well as declaratory and injunctive relief. Notably, other than their challenge to the arbitration agreement requirement, the plaintiffs did not claim that First Family had violated a substantive provision of the ECOA, the TILA, or any other provision of the Consumer Credit Protection Act, 15 U.S.C. 1601-1693r.

The district court granted First Family's motion for judgment on the pleadings. In its order, the court first concluded that the plaintiffs had failed to plead how they exercised a right under the Consumer Credit Protection Act or how First Family had discriminated against them in response to their exercising such a right. Also, the district court was "not persuaded" that the "right" on which the plaintiffs based their ECOA claim - the right to judicial redress, and particularly, the right to pursue a class action for violations of the TILA - was a "right" under the Consumer Credit Protection Act within the meaning of 1691(a)(3). The court then concluded there was no conflict between the TILA and the FAA that would render the arbitration agreement unenforceable. Consequently, the court granted First Family's motion for judgment on the pleadings and dismissed the case with prejudice.

II. DISCUSSION

Judgment on the pleadings involves issues of law, and our review is de novo. See Mergens v. Dreyfoos, 166 F.3d 1114, 1116-17 (11th Cir. 1999).

A. The ECOA Claim

Enacted as part of the Consumer Credit Protection Act, see 15 U.S.C. 1601-1693r, the ECOA proscribes discrimination in the extension of credit by making it:

unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction -

(1) on the basis of race, color, religion, national origin, sex or marital status, or

age (provided the applicant has the capacity to contract);

(2) because all or part of the applicant's income derives from any public assistance program; or

(3) because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act].

15 U.S.C. 1691(a) (emphasis added). If a creditor violates 1691(a), the ECOA provides that the aggrieved applicant, either through an individual suit or a class action, shall recover any actual damages sustained by the applicant, punitive damages, reasonable attorney's fees and costs, and any necessary equitable relief. See id. 1691e.

The TILA is part of the Consumer Credit Protection Act, and it imposes disclosure obligations upon creditors and authorizes consumers to recover both actual and statutory damages when a creditor makes inaccurate or inadequate disclosures. See 15 U.S.C. 1601 et seq. The "right under [the Consumer Credit Protection Act]" upon which the plaintiffs base their 1691(a)(3) ECOA claim is the purported right under the TILA to litigate, both individually and as a class action, statutory claims for disclosure violations. They contend that First Family discriminated against them "with respect to any aspect of a credit transaction" by requiring them, as a condition of obtaining credit, to agree in advance to arbitrate any claims under the Consumer Credit Protection Act, including any claims under the TILA .

In order to establish a violation of 1691(a)(3), a plaintiff must show that: (1) he exercised in good faith (2) a right under the Consumer Credit Protection Act, and (3) as a result, the creditor discriminated against him with respect to the credit transaction. See 15 U.S.C. 1691(a)(3). An initial premise of the plaintiffs' argument in this case is that the TILA grants consumers a non-waivable right to litigate, individually and through a class action, any claims arising under the statute. This right to litigate TILA claims, the plaintiffs maintain, is prospectively waived by the arbitration agreements that First Family requires credit applicants to sign. Because a credit applicant would be denied credit if he declined to sign the arbitration agreement in order to preserve his right to litigate under the TILA, the plaintiffs argue that First Family discriminates against applicants based on a good faith exercise of their rights under the Consumer Credit Protection Act, in violation of 1691(a)(3) of the ECOA and its implementing regulation, Regulation B, 12 C.F.R. 202.4. But how were these plaintiffs discriminated against, and for exercising what rights?

If the purported non-waivable right to litigate, instead of arbitrate, claims under the TILA exists, the complaint contains no allegation describing how these plaintiffs exercised that right. The basis for their ECOA claim is the arbitration agreement, but there is no allegation in the complaint that the plaintiffs voiced any objection to signing the arbitration agreement. In this respect, the cases cited by the plaintiffs, Bryson v. Bank of New York, 584 F. Supp. 1306 (S.D.N.Y. 1984) and Owens v. Magee Fin. Serv. of Bogalusa, Inc., 476 F. Supp. 758 (E.D. La. 1979), are distinguishable. In Owens, the plaintiff was extended credit only after agreeing to abandon her TILA claims in a pending lawsuit that had arisen from a previous credit transaction with the defendant. See Owens, 476 F. Supp. at 768. In Bryson, the plaintiff was denied credit after he inquired into whether the written disclosure provided by the creditor accurately reflected its policy of requiring credit life insurance, a disclosure specifically required by the TILA. See Bryson, 584 F. Supp. at 1318-19. Pursuing TILA claims in a lawsuit and specifically inquiring into a disclosure that is required by the TILA can both reasonably be viewed as an exercises of rights under the TILA.

Even if the complaint alleged that the plaintiffs objected to the arbitration agreement and even if we assume that such an objection somehow constitutes the requisite exercise of their rights, it is unclear what discrimination the plaintiffs suffered as result of that exercise of their rights. There is no allegation that either Bowen or Ford were refused a loan. To the contrary, the complaint alleges that both of them received a loan. Nor is there any allegation that either plaintiff paid a higher interest rate as a result of having objected to the arbitration clause - if they did object to it.

In order to establish the discrimination element of a 1691(a)(3) claim, it may be necessary for the plaintiff to show either that the creditor refused to extend credit to the applicant or that it extended credit but on less favorable terms. In Bryson, for example, the plaintiff was...