Henson v. Columbus Bank and Trust Co.

• Decision Date: 20 July 1981
• Docket Number: No. 79-1260,79-1260
• Citation: 651 F.2d 320
• Parties: Kenneth M. HENSON, Plaintiff-Appellant-Cross Appellee, v. COLUMBUS BANK AND TRUST COMPANY, Defendant-Appellee-Cross Appellant. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 320

651 F.2d 320

Kenneth M. HENSON, Plaintiff-Appellant-Cross Appellee, v. COLUMBUS BANK AND TRUST COMPANY, Defendant-Appellee-Cross Appellant.

No. 79-1260.

United States Court of Appeals, Fifth Circuit.

Unit B

July 20, 1981.

Kenneth M. Henson, Sr., Columbus, Ga., H. Holcombe Perry, Albany, Ga., Tom W. Daniel, Perry, Ga., for plaintiff-appellant-cross appellee.

W. M. Page, Columbus, Ga., W. Rhett Tanner, Atlanta, Ga., for defendant-appellee-cross appellant.

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

Before TJOFLAT, VANCE and FRANK M. JOHNSON, Jr., Circuit Judges.

PER CURIAM:

This is an appeal and cross-appeal from a final judgment in a Truth-In-Lending ¹ ("TIL") case. In all, five issues are raised: (1) whether a Georgia court decision was res judicata as to plaintiff's TIL claim; (2) whether the district court abused its discretion by declining to exercise pendent jurisdiction over claims based on Georgia usury law; (3) whether the district court misinstructed the jury concerning the meaning of commercial credit; (4) whether the district court erred in finding that there were eleven rather than fifty-five separate TIL transactions; and (5) whether the district court abused its discretion in awarding attorneys' fees without holding a hearing. We conclude that the district court erred by not exercising pendent jurisdiction and by failing to hold a hearing on the attorneys' fee issue. We otherwise affirm the district court's judgment.

I The Facts

Kenneth Henson, plaintiff below, borrowed money from the Columbus Bank and Trust Company (Bank) on eleven occasions between 1968 and 1971. All of the notes were secured by a security deed on Henson's residence; some were also secured by Henson's stock holdings.

The Bank set the interest on each demand note at 1/2 point above its then current prime interest rate. Whenever the Bank's prime rate changed, the interest rate on Henson's notes was altered accordingly. The Bank notified Henson by mail each time the rate changed.

Henson based his TIL claim on five events. First, on July 5, 1974, the Bank sent Henson a letter, relating to eleven loans, informing him that "effective today we are increasing the rate on your demand loans by 1/2 of 1%." Record, vol. I, at 29. This letter disclosed neither the new nor the old finance charge and failed to include a description of the collateral securing the loans, as required by 15 U.S.C. § 1639(a)(4), (5) and (8) (1976). The other four TIL events were four quarterly billings of each of the eleven loans. (Hence, there are potentially 55 TIL Act violations.) The billings failed to disclose either the current interest rate or the amount of time Henson had to make payment without suffering penalty charges, as required by 15 U.S.C. § 1639(a)(6) and (7) (1976).

On May 30, 1975, Henson paid the Bank the principal and accumulated interest on the demand notes. Then, on June 25, 1975, he brought this TIL action. Henson's complaint contained five counts; only two are relevant to this appeal. In the first count, Henson alleged that the Bank violated the TIL Act by failing to make the required disclosures in both the July 5, 1974 letter increasing the interest on his notes, and in the four quarterly billings for interest. In the second count, Henson alleged that the Bank's interest rate exceeded the maximum permitted under Georgia's usury law. The district court declined to exercise pendent jurisdiction over the state-law claim and on January 10, 1977, dismissed it without prejudice.

Thereafter, Henson brought suit on these loan transactions in the Muscogee County, Georgia, Superior Court. The parties disagree concerning whether Henson's complaint presented the same TIL claim then pending in the district court; they do agree that the complaint presented the state-law usury claim previously dismissed by the district court. The Bank moved for summary dismissal on several grounds; only one, that the statute of limitations had run, is relevant to this appeal. The Superior Court ruled in favor of the Bank and dismissed the action. Record, vol. II, at 628.

Henson appealed this decision to the Georgia Court of Appeals. The Court of Appeals affirmed the Superior Court, holding that "the trial court did not err in dismissing Counts I (the TIL Act claim) and III as we agree that each was barred by the applicable statute of limitations." Henson v. Columbus Bank & Trust Co., 144 Ga.App. 80, 85, 240 S.E.2d 284, 288 (1977).

Following this appeal, Henson returned to federal district court and moved the court to reconsider its dismissal of his state-law usury claim. According to Henson, the district court should not have dismissed this claim when it did because the statute of limitations had run and therefore barred its subsequent litigation in the Georgia courts. Under these circumstances, Henson argued, the court was duty-bound to exercise pendent jurisdiction. The district court denied the motion, however, without stating its reasons.

The case proceeded to trial. The Bank conceded it had failed to make adequate TIL disclosures in its communications with Henson, which left two contested issues: first, whether Henson's loans were commercial loans, and thus exempt from TIL Act coverage; and second, if not exempt, whether the court should assess penalties for each of fifty-five inadequate communications the Bank had with Henson, see supra at 2, or, rather, assess penalties for each of the eleven loan transactions. The district court determined that there were, as a matter of law, only eleven actionable transactions. The issue of whether the loans were commercial loans was to be submitted to the jury.

At trial, Henson testified concerning the loans and both Henson and the Bank introduced voluminous documentary evidence. When both sides had concluded their presentations, the district judge submitted the issue of whether the loans were commercial to the jury. The court instructed the jury that the plaintiff had the burden of proving that "the particular loan that you are considering at the moment represented credit which was extended to him ... primarily for personal, family household or agricultural purposes and not primarily for business, commercial or other purposes." Record, vol. 6 at 10. The jury found that the plaintiff met his burden on only seven of the eleven loans. Because the TIL Act specifies that the penalty for failing to make required disclosures is twice the finance charge, up to a maximum of $1,000 per transaction, and because the finance charge on each loan exceeded $500, the district court assessed seven $1,000 penalties.

Henson's victory was costly. In the course of the litigation, Henson engaged two law firms and, counting himself, six attorneys. These six attorneys petitioned the court for attorneys' fees. They submitted affidavits showing that almost 1,000 hours had been spent on prosecuting the federal aspects of the case. At their requested $50 an hour, this would have yielded an award of approximately $50,000. The attorneys requested a hearing; the district court refused to grant one and set the fees, collectively, at $4,773. The court based this figure on its belief that the case could have been handled in 150 hours. At $50 an hour, this would yield an award of $7,500. The court then reduced this amount by 4/11, to take into account the four loans the jury found outside the coverage of the TIL Act.

Henson now appeals the district court's judgment. He contends that the district court should have exercised pendent jurisdiction over the state-law usury claim; that the court's instructions to the jury were erroneous and resulted in four loans being incorrectly characterized as commercial; that there were fifty-five rather than eleven actionable TIL transactions; and that the court should have held a hearing on attorneys' fees. The Bank cross-appeals, contending that the district court should have granted its motion for summary judgment because the favorable state-court decision was res judicata as to the TIL claims.

We think the district court erred in its refusal to grant Henson's motion for reconsideration on the pendent jurisdiction issue and also erred in refusing to hold a hearing on attorney's fees, and we remand the case for such a hearing. In all other respects, we affirm the judgment.

II Res Judicata

The Bank contends on cross-appeal that the district court should have held the state-court judgment res judicata with respect to Henson's TIL claim. The Bank's theory is that Henson unsuccessfully litigated the TIL claim in the Georgia courts; the Georgia judgment, therefore, is a final disposition on the merits and is res judicata in federal court. Henson counters with two arguments: first, the TIL claim was not part of the cause litigated in the Georgia courts and, hence, the Georgia courts would not give preclusive effect to the prior decision in considering the TIL claim; and second, even if Georgia courts would give preclusive effect to the prior judgment, it would be based on the time bar of the applicable statute of limitations, which under established principles has no force in the courts of other jurisdictions.

We first consider Henson's theory that the TIL claim was not part of his state-court cause of action. A review of the state-court complaint, and of the Georgia Court of Appeals decision, however, makes clear that Henson's TIL claim was litigated in state court. The first count of the complaint, in pertinent part, states as follows:

CB&T (the Bank) violated the Truth in Lending Act in that said transmittal (the July 5, 1974, letter increasing the interest rate) constituted a new transaction and was not accompanied or preceded by the disclosures required by said Act.

CB&T further violated the Truth in Lending Act in that said periodic billings for interest were not accompanied or preceded by disclosures required by said Act.

Record, vol. 3, at 722....