Jones v. TransOhio Sav. Ass'n

• Decision Date: 12 June 1984
• Docket Number: No. 83-3490,83-3490
• Citation: 747 F.2d 1037
• Parties: Richard M. JONES, et al., Plaintiffs-Appellants, v. The TRANSOHIO SAVINGS ASSOCIATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1037

747 F.2d 1037

Richard M. JONES, et al., Plaintiffs-Appellants, v. The TRANSOHIO SAVINGS ASSOCIATION, Defendant-Appellee.

No. 83-3490.

United States Court of Appeals Sixth Circuit.

June 12, 1984.

Decided Oct. 10, 1984.

Steven M. Weiss, argued, Bruner & Shafran, Cleveland, Ohio, for plaintiffs-appellants.

Brett J. Bacon, argued, Thompson, Hine & Flory, David J. Naftzinger, Cleveland, Ohio, for defendant-appellee.

Before ENGEL and MERRITT, Circuit Judges, and WEICK, Senior Circuit Judge.

WEICK, Senior Circuit Judge.

Richard M. and Donna S. Jones, on behalf of themselves and others similarly situated, Plaintiffs-Appellants, have appealed from the judgment of the United States District Court for the Northern District of Ohio, Eastern Division, dismissing their class action against The TransOhio Savings Association (TransOhio), Defendant-Appellee, filed pursuant to the Truth in Lending Act, 15 U.S.C. Sec. 1601, et seq. (hereinafter, TILA).

On June 15, 1971, Appellants Richard and Donna Jones entered into a loan agreement with Appellee's assignor, The Union Savings Association, to finance the purchase of their home. On that date, the Joneses executed and delivered to Union Savings a promissory note and mortgage securing the same, and acknowledged receipt of a statement purporting to satisfy the disclosure requirements of Regulation Z, 12 C.F.R. Sec. 226.1, et seq., as promulgated by the Federal Reserve Board pursuant to TILA. Union Savings furnished to the Joneses a completed copy of the disclosure statement, but not a copy of the executed promissory note, or the mortgage securing the same. Subsequent to consummation of the transaction, the note and mortgage were assigned by Union Savings to Appellee TransOhio Savings Association.

A printed copy of the promissory note signed by Appellants is appended to our opinion as Exhibit 1. The promissory note is one page long, written in fine print difficult to read, let alone to understand, and would require someone with legal training and experience to interpret as well as to apply. Paragraph 10 of the twelve paragraph promissory note provides as follows:

The holder hereof, at any time after two (2) years from the date of this note, and from time to time thereafter, may upon not less than thirty (30) days' written notice to the undersigned, decrease or increase the interest rate then in effect by not more than one per cent (1%) per annum, provided that after receipt of such notice the undersigned may within a three (3) months' period prepay the balance then remaining unpaid without the payment of any penalty.

Furthermore, Paragraph 11 of the promissory note contains a cognovit provision by which Appellants waive issuance and service of process, and all defenses and rights of appeal, and thereby authorize confession of judgment against them. Cf. D.H. Overmyer Co., Inc. of Ohio v. Frick Co., 405 U.S. 174, 188, 92 S.Ct. 775, 783, 31 L.Ed.2d 124 (1972) (similar Ohio cognovit provision).

By contrast, the disclosure statement prepared by Union Savings Association describes the annual percentage rate and monthly installment payments in fixed terms only, and does not disclose or refer to the variable interest rate feature of the note, or the impact of the variable interest rate on monthly installments. Nor does the disclosure statement refer to the cognovit provision.

On or about October 29, 1982, Appellee TransOhio Savings notified the Joneses that it was raising the loan's interest rate one per cent (1%) per annum from seven per cent (7%) to eight per cent (8%). Apparently at this time the Joneses first discovered that their disclosure statement was inaccurate and misleading. Some two weeks thereafter, on November 12, 1982, Appellants Richard and Donna Jones filed a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure in the United States District Court for the Northern District of Ohio, on behalf of themselves and an entire class of approximately fourteen hundred (1400) persons similarly situated who are the obligors on approximately seven hundred (700) mortgage notes. Jurisdiction was based on 15 U.S.C. Sec. 1640(e), and 28 U.S.C. Sec. 1337(a), which provide in relevant part, respectively, as follows (e) Any action under this section may be brought in in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation.

and

(a) The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce....

The complaint alleged that concealment of the variable interest rate provision and the note by Appellee and its assignor was fraudulent, and was detrimentally relied upon by Appellants. ¹ Relief sought included damages and a permanent injunction to prevent Appellee from raising Appellants' mortgage interest rates.

On December 9, 1982, TransOhio Savings Association filed a motion to dismiss the action pursuant to F.R.Civ.P. 12(b)(1) and 12(b)(6). In support of its motion, Appellee argued that the applicable one year statute of limitations in Sec. 1640(e), supra, expired on June 14, 1972, and, therefore, that the district court lacked subject matter jurisdiction over the complaint, or in the alternative, that Appellants had stated a claim for which no relief could be granted. The district court granted Appellee's motion in a reported Memorandum of Opinion and Order dated July 1, 1983, 569 F.Supp. 1188, and it entered judgment thereon the same date dismissing the complaint. Although the district court found that the disclosure statement violated TILA and Regulation Z, supra, by omitting the variable interest provision, it nevertheless reluctantly concluded that dismissal of the complaint was mandated by Wachtel v. West, 476 F.2d 1062, 1065 (6th Cir.), cert. denied, 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973), in which this Court, with one judge dissenting, held that an action under 15 U.S.C. Sec. 1640(e) for failure to make disclosures required by TILA must be brought within one year from the time when the lender and borrower originally contracted for the extension of credit, or at the latest, from when the parties performed their contract.

On appeal, the Joneses argue that dismissal by the district court was improper because the fraudulent concealment by Appellee and its assignor alleged in their complaint tolls the statute of limitations, or because the statute of limitations should not begin to run until Appellants discovered or had a reasonable opportunity to discover the TILA violation when TransOhio Savings Association elected to raise the interest rate pursuant to Paragraph 10 of the note, supra. In support of the dismissal, Appellee argues that 15 U.S.C. Sec. 1640(e) is jurisdictional and not subject to tolling, and in any event, that there was no fraudulent concealment. For the reasons hereinafter stated, we reverse.

I.

The equitable maxim that "no man may take advantage of his own wrong," older than the country itself, is deeply rooted in our federal jurisprudence. As stated by Mr. Justice Miller in Insurance Co. v. Wilkinson, 80 U.S. (13 Wall.) 222, 233, 20 L.Ed. 617 (1871):

The principle is that where one party has by his representations or his conduct induced the other party to a transaction to give him an advantage which it would be against equity and good conscience for him to assert, he would not in a court of justice be permitted to avail himself of that advantage ... where the technical advantage thus obtained is set up and relied on to defeat the ends of justice or establish a dishonest claim.

Repeatedly throughout our judicial history, the Supreme Court has approved the application of equitable tolling to statutes of limitations to prevent unjust results in cases arising at law as well as at equity. See Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L.Ed. 636 (1874) (Bankruptcy Act of 1867); Exploration Co., Ltd. v. United States, 247 U.S. 435, 38 S.Ct. 571, 62 L.Ed 1200 (1918) (Act of March 3, 1891, 26 Stat. 1093, to vacate land patents); Holmberg v. Armbrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946) (Federal Farm Loan Act); Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959) (Federal Employers' Liability Act). Cf. Zipes v. Trans World Airlines, 455 U.S. 385, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982) (Title VII time requirement for filing charges with Equal Employment Opportunity Commission).

In determining whether equitable tolling is appropriate, "the basic inquiry is whether congressional purposes is effectuated by tolling the statute of limitations in given circumstances." Burnett v. New York Central R.R. Co., 380 U.S. 424, 427, 85 S.Ct. 1050, 1054, 13 L.Ed.2d 941 (1965). The purpose of TILA is set forth in 15 U.S.C. Sec. 1601 as follows:

Sec. 1601. Congressional findings and declaration of purpose

(a) The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit ....

Thus, TILA's purpose is twofold: to facilitate the consumer's acquisition of the best credit terms available; and to protect the consumer from divergent and at times fraudulent practices stemming from the uniformed use of credit. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 363, 93 S.Ct. 1652, 1657, 36 L.Ed.2d 318 (1973) (citing H.R.Rep. No. 1040, 90th Cong., 1st Sess., 13; S.Rep. No. 392, 90th Cong., 1st Sess., 1-2 (1967)).

Appellee...