Meyers v. Clearview Dodge Sales, Inc.

• Decision Date: 27 September 1976
• Docket Number: No. 75-1303,75-1303
• Citation: 539 F.2d 511
• Parties: Cheryl A. MEYERS, Plaintiff-Appellee-Cross Appellant, v. CLEARVIEW DODGE SALES, INC., Defendant-Appellant-Cross Appellee, Chrysler Credit Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 511

539 F.2d 511

Cheryl A. MEYERS, Plaintiff-Appellee-Cross Appellant, v. CLEARVIEW DODGE SALES, INC., Defendant-Appellant-Cross Appellee Chrysler Credit Corporation, Defendant-Appellant.

No. 75-1303.

United States Court of Appeals Fifth Circuit.

Sept. 27, 1976.

Robert E. McDonald, Metairie, La., for Clearview Dodge Sales.

Charles A. Snyder, James K. Irvin, New Orleans, La., for Chrysler Credit.

Sewell K. Loggins, Douglas N. Campbell, Atlanta, Ga., amici curiae for Beneficial Finance Co.

Patrick D. Breeden, New Orleans, La., for Cheryl Meyers.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before WISDOM and MORGAN, Circuit Judges, and LYNNE, District Judge.

LYNNE, District Judge:

This is an appeal from an award of statutory penalties and attorneys' fees to appellee, Cheryl A. Meyers, by the United States District Court for the Eastern District of Louisiana, for various violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z thereunder, 12 C.F.R. § 226.1 et seq., by appellants Clearview Dodge Sales, Inc. (Clearview), and Chrysler Credit Corporation (Chrysler Credit) in the credit sale of an automobile. The case presents a number of significant questions concerning the interpretation of several provisions of the Act and Regulation Z.

On June 23, 1972 Cheryl Meyers (Meyers) visited the showroom of Clearview, was shown various automobiles, and agreed to purchase a 1972 Dodge Swinger if proper financing was available. Having made her selection, appellee signed a Retail Buyer's Order, describing the automobile, its sales price, the general credit terms, and other conditions of the sale. However, the sale was not finalized at this point in the transaction. Since Clearview did not finance credit sales itself, it had to obtain credit approval for appellee from one of the four or five institutional lenders with which it regularly dealt. Therefore, Meyers also filled out and signed a credit application to be used by Clearview in its attempts to secure financing for her purchase. This credit application was submitted to Chrysler Credit for its approval, and following a credit check, Chrysler Credit agreed to purchase the appellee's note and installment contract from Clearview if later presented to it properly executed. Clearview then notified appellee that her credit had been approved, and using the information from the retail buyer's order, prepared a combination contract, disclosure statement, chattel mortgage and promissory note on a form supplied by Chrysler Credit. Appellee returned to Clearview's place of business on June 26, 1972, to sign the retail installment contract and pick up her car.

The document Meyers signed consummating this credit transaction was a standard Chrysler Credit form entitled "Sale and Chattel Mortgage." According to this document, Clearview appears as the seller and mortgagee of the car. However, the installment contract was immediately sold to Chrysler Credit at a discount, according to the terms of the "Vehicle Financing and Repurchase Plan" in effect between appellants. Chrysler Credit was not identified as a creditor, or otherwise, on the face of this document.

On April 13, 1973, appellee commenced this action against Clearview, as a credit arranger, and Chrysler Credit, as a credit extender, contending that five disclosures mandated by the Truth in Lending Act and Regulation Z had not been made and that both defendants were liable to her for statutory penalties and attorney's fees. The case was submitted to the district court on cross motions for summary judgment and stipulated facts. On October 31, 1974, the court below granted plaintiff's motion for summary judgment and found appellants jointly and severally liable to the plaintiff for the statutory penalty and attorney's fees. Meyers v. Clearview Dodge Sales, Inc., 384 F.Supp. 722 (E.D.La.1974).

The district court found that both appellants were "creditors" as defined by the Act and Regulation Z, and were therefore jointly responsible for making the required disclosures. Chrysler Credit alone appeals this determination. We agree.

The lower court further found the following specific violations of the disclosure requirements of the Truth in Lending Act and Regulation Z:

(1) the failure to disclose the "finder's fee" paid to Clearview by Chrysler Credit as an element of the finance charge as required by section 226.4(a)(3) of Regulation Z;

(2) the failure to itemize the amounts charged for "tag, title and fees" and for "Documentary Service Fee" under the "other charges" portion of the disclosure statement as required by section 226.4(b) of Regulation Z; and

(3) the failure to disclose the creditor's right of acceleration as a "default, delinquency, or similar charge payable in the event of late payment" as required by section 128(a)(9) of the Act, 15 U.S.C. § 1638(a)(9), and section 226.8(b)(4) of Regulation Z.

Both appellants contest these findings. We affirm the district court's finding with respect to violation (2) above. However, we reverse as to findings (1) and (3).

On cross-appeal, appellee challenges the district court's determinations (1) that the creditor's confession-of-judgment provision need not be disclosed as a section 226.2(gg) "security interest," and (2) that appellee is entitled to but a single award of the statutory penalty. We agree that these findings are correct, and affirm both holdings.

The appellee also seeks an award of attorney's fees for work done on appeal. In accordance with Thomas v. Meyers-Dickson Furniture Company, 479 F.2d 740, 748 (5th Cir. 1973), we conclude that attorney's fees are authorized for appellate legal work, and direct the district court to award such fees it determines to be reasonable.

I. Chrysler Credit Corporation: Creditor or Subsequent Assignee.

Appellant Chrysler Credit insists that the district court erred in classifying it a creditor in this consumer credit transaction. It strenuously argues that Clearview extended credit to Meyers, and that it was merely a " subsequent assignee" of the original creditor. Appellee, on the other hand, contends that both appellants are creditors and should be separately liable for failing to make the required disclosures. Chrysler Credit seeks to be classified as a "subsequent assignee" in order to avail itself of the limited protection of 15 U.S.C. § 1641. ¹

Therefore, the first issue raised by this appeal is whether, under the undisputed facts of this case, Chrysler Credit is an original creditor in this transaction or a "subsequent assignee" creditor. The district court correctly concluded that Chrysler Credit's status turned entirely upon the characterization of Clearview's role in this credit transaction. The Act and Regulation Z define a "creditor" as one "who in the ordinary course of business regularly extends or arranges for the extension of consumer credit, or offers to extend or arrange for the extension of such credit. . . ." Regulation Z, 226.2(s), 12 C.F.R. § 226.2(s) (1976). ² To "arrange for the extension of credit"

means to provide or offer to provide consumer credit which is or will be extended by another person under a business or other relationship pursuant to which the person arranging such credit receives or will receive a fee, compensation, or other consideration for such service or has knowledge of the credit terms and participates in the preparation of the contract documents required in connection with the extension of credit. ³

As the appellant correctly states, these definitions increase the number of persons generally responsible for making truth-in-lending disclosures by categorizing as creditors additional persons, i. e., credit arrangers, who do not fit the traditional definition of "creditor." Therefore, in some consumer credit transactions there are multiple "creditors," a credit arranger and a credit extender. Where there is a credit arranger there must obviously be a credit extender, and both are original creditors under the act and Regulation Z. Neither the Act nor Regulation Z define "subsequent assignee," but it is clear that an original creditor cannot be a subsequent assignee.

The district court found that both Clearview and Chrysler Credit were "creditors" in this transaction, and we agree to the extent that we view them as joint creditors, since there was in essence but one credit transaction; however, each is obligated to make the disclosures mandated by the Act and Regulations. It is undisputed that Clearview is in the business of selling automobiles and does not ordinarily finance credit sales itself. Instead, when the purchaser has not made financing arrangements of his own, Clearview takes a financial statement and submits it to several institutional creditors with whom it regularly deals for approval of the purchaser's credit. If any one of the lenders approves the customer's credit, Clearview completes the sale and immediately assigns the commercial papers to an approving lender. This practice of prearranging the assignment of commercial paper is a regular and essential part of Clearview's business and is, as the district court concluded, tantamount to arranging for the extension of credit. Meyers, supra, at 728. Consequently, in this factual setting, both appellants are "creditors" under the Act, Clearview as the credit arranger and Chrysler Credit as the credit extender.

Chrysler Credit argues, however, that additional undisputed facts support a conclusion that it is merely a "subsequent assignee" within the meaning of that term in section 1641 of the Act. Appellant insists that Clearview is the original creditor in this transaction, since at the moment the transaction was consummated Clearview was the holder of the note and chattel mortgage, and consequently the only one to whom appellee was obligated. However, appellant's argument elevates form over substance in an effort to avoid the realities...