Vickers v. Interstate Dodge, Inc.

Decision Date29 September 2004
Docket NumberNo. 2004-109.,2004-109.
Citation882 So.2d 1236
PartiesBobby G. VICKERS and Casey R. Vickers v. INTERSTATE DODGE, et al.
CourtLouisiana Supreme Court

Appeal from the 28th Judicial District Court, Lasalle Parish, No. 31,692, J.P. Mauffray, Jr., D.J.

COPYRIGHT MATERIAL OMITTED

L. David Cromwell, Joseph S. Woodley, Pettiette, Armand, Dunkelman, Woodley, Byrd & Cromwell, L.L.P., Shreveport, LA, for Third Party Appellant: Bank One, National Association.

Donald C. Brown, Woodley, Williams Law Firm, LLC, Lake Charles, LA, for Defendant/Appellant: Interstate Dodge, Inc.

R. Joseph Wilson, Gaharan & Wilson, Jena, LA, for Plaintiffs/Appellees Bobby G. Vickers Casey R. Vickers.

Court composed of JOHN D. SAUNDERS, MICHAEL G. SULLIVAN, and ELIZABETH A. PICKETT, Judges.

SULLIVAN, Judge.

This suit arises out of the purchase of a truck from Interstate Dodge, Inc. (Interstate) which was financed by Bank One, NA (Bank One). Interstate and Bank One appeal the trial court's judgment in favor of Bobby G. and Casey R. Vickers. For the following reasons, we reverse in part, affirm in part, and render.

Facts

On December 29, 1999, brothers Bobby and Casey Vickers purchased a 2000 Dodge Dakota truck from Interstate. To make the purchase, Bobby traded in a 1997 Ford truck and he and Casey executed a "COMBINATION PROMISSORY NOTE TRUTH IN LENDING DISCLOSURE STATEMENT AND SECURITY AGREEMENT" (the Note) in favor of Interstate which was assigned to Bank One. The Note is a multi-copy form with copies that are imprinted when the original is written on. The original of the Note indicates that Bobby elected to purchase credit life insurance by placing his initials on a designated line. However, Bobby's initials are not on Bobby and Casey's copy of the Note nor are they on Interstate's copy of the Note.

Bobby and Casey filed suit, alleging that Bobby's initials were forged and that Interstate and Bank One violated the Louisiana Motor Vehicle Sales Finance Act (LMVSFA), La.R.S. 6:969.1-6:969.41, which incorporates the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1667, and the disclosure requirements of Regulation Z of the Code of Federal Regulations, 12 C.F.R. §§ 226.1-226.36. They also alleged that the transaction violated the Louisiana Unfair Trade Practices and Consumer Protection Act (LUTPA), La.R.S. 51:1401-1414.

After a trial on the merits, the trial court determined that Bobby's initials were a forgery and that the transaction violated the LMVSFA, the TILA, Regulation Z, and the LUTPA. Pursuant to La.R.S. 6:969.33, the trial court refunded the finance charge of $8,062.76 and awarded a civil penalty of $24,188.28 and attorney fees of $10,625.00. The trial court also awarded nominal damages of $300.00 to each of them under the LUTPA. The trial court further determined that Interstate and Bank One were solidarily liable for this violation and that Interstate was contractually obligated to indemnify Bank One.

Interstate and Bank One appealed, assigning a number of errors. Bobby and Casey answered the appeal, seeking an increase in attorney fees for work done on this appeal.

Disclosures

The LMVSFA, formerly the Motor Vehicle Sales Finance Act, was enacted to regulate entities engaged in the business of lending money and companies which warehouse or hold installment contracts. Terrebonne Bank & Trust Co. v. Lacombe, 464 So.2d 753 (La.App. 1 Cir.1984). As noted above, it incorporates a portion of the TILA and Regulation Z. Congress passed the TILA to provide consumers with meaningful disclosure of credit terms to allow them to compare the various credit terms available in credit transactions in order to avoid the uninformed use of credit and to protect them against inaccurate and unfair credit billing and credit card practices. 15 U.S.C. § 1601. Regulation Z was enacted to implement the TILA. 12 C.F.R. § 226.1(a).

The TILA requires that payments for insurance made pursuant to a consumer credit loan be included in the finance charge unless the lender discloses that the insurance is not required to qualify for the loan and the borrower gives affirmative written indication of his desire to purchase the insurance after being informed that the insurance is not required and the cost of the insurance has been disclosed to him in writing. 16 U.S.C. § 1605(b); 12 C.F.R. § 226.4(d). The LMVSFA incorporates Section 1605(b) by allowing a creditor to offer the purchase of "consumer credit insurance" to a borrower on an optional basis, if the creditor discloses "to the consumer at the time of contracting his option to purchase such insurance coverage, and ... make[s] such disclosures as are required by Regulation Z, 12 C.F.R. 226.1 et seq." La.R.S. 6:969.25. "Consumer credit insurance" includes credit life insurance. La.R.S. 6:969.6(6) and 6:969.25(B).

The Note signed by Bobby and Casey combines a promissory note with disclosures required by the TILA and Regulation Z and a security agreement on the vehicle purchased. It begins with the date, the buyer/borrower's personal information and acknowledgments that the buyer/borrower is financing the purchase of the described vehicle from the named dealer and that the agreement is being assigned to Bank One. Next are two boxes side-by-side which are entitled "DISCLOSURES REQUIRED UNDER THE FEDERAL TRUTH IN LENDING ACT AND REGULATION." Together, these boxes are known as the "federal box." The left side of the federal box contains an "Itemization of the Amount Financed" in the transaction; the right side of the federal box contains information concerning the finance charge, which is stated to be "[t]he dollar amount my credit sale will cost me."

Following the federal box is a section entitled "INSURANCE," which contains disclosures regarding property insurance and "Credit Insurance" and includes the following:

Credit Insurance: Credit Life and Credit Disability Insurance are not required in order to obtain this credit sale and will not be provided unless I initial below. I(We) have the option of voluntarily electing to purchase credit insurance through you:

Cost of Credit Life Insurance $ 2529.35 I(We) want voluntary credit life insurance: _________ (Initials)

Cost of Credit Disability Insurance $ N/A I(We) want voluntary credit disability insurance: _________ (Initials)

Unless otherwise indicated, credit life and credit disability insurance coverage is for the term of this credit sale.

(Emphasis added.) A solid black line separates the Insurance section from the remainder of the Note.

Bobby and Casey contend that the Note violates the TILA because without Bobby's forged initials the credit life insurance premium should have been included in the finance charge but was not. Instead, the premium was included in the amount financed itemization. Specifically, Bobby and Casey urge that the requirements of 12 C.F.R. § 226.4(d) were violated in this transaction. Section 226.4(d) provides that the credit life insurance premium:

[M]ay be excluded from the finance charge if the following conditions are met:

(i) The insurance coverage is not required by the creditor, and this fact is disclosed in writing.

(ii) The premium for the initial term of insurance coverage is disclosed....

(iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph....

Bobby and Casey completed an application for credit life insurance, which was included in the documentation they had to complete for the purchase of the truck. Interstate and Bank One contend that the disclosures in the Note, together with Bobby and Casey's completion of the application for credit life insurance, satisfy the requirements of Section 226.4(d). Bobby and Casey contend that, without one of them electing to purchase voluntary credit life insurance as provided in the Insurance section of the Note, the inclusion of credit life insurance in the Amount Financed, rather than the Finance Charge, violated Section 226.4(d).

The general form requirements for disclosures required in a transaction of this type1 require that disclosures be made "clearly and conspicuously in writing." 12 C.F.R. § 226.17(a). The general rule for disclosures is that they must be grouped together and separated from other disclosures which may be required by state law. Id.; Palmucci v. GMAC, 618 F.Supp. 460 (D.C.Conn.1985). There are four exceptions to this rule. 12 C.F.R. § 226.17(a)(1). One is Section 226.18(n), which provides that "the creditor shall disclose... [t]he items required by Sec. 226.4(d) in order to exclude certain insurance premiums ... from the finance charge." Thus, the insurance disclosure required by Section 226.4(d) may be, but is not required to be, disclosed with the other disclosures required by Section 226.17. As described above, the insurance disclosures in the Note are separate from the other disclosures required by Section 226.17. However, the premium for credit life insurance is included in the amount financed itemization of the federal box and is also stated in the Insurance section.

In Palmucci, 618 F.Supp. 460, the plaintiffs argued that the inclusion of the insurance premium in the amount financed itemization and not in the insurance section of the retail installment contract, which contained the other required insurance disclosures, was a violation of the TILA. The court determined that this "splitting" of the disclosure of the cost of the insurance from the other two required disclosures was not error. The court's reasoning in Palmucci is pertinent here because Interstate and Bank One's argument is essentially the same: the insurance disclosures in the Note and the application for credit life insurance authorization are "split." The court explained:

It is inappropriate to characterize as "split" a disclosure in which the insurance box, which contains two of the three required disclosures, incorporates by cross-reference the third requirement, the...

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