Adiel v. CHASE FEDERAL S & L ASS'N

• Decision Date: 30 January 1986
• Docket Number: No. 79-1073-CIV-EPS.,79-1073-CIV-EPS.
• Parties: Rehavam ADIEL, et al., Plaintiffs, v. CHASE FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant.
• Court: U.S. District Court — Southern District of Florida

630 F. Supp. 131

Rehavam ADIEL, et al., Plaintiffs, v. CHASE FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant.

No. 79-1073-CIV-EPS.

United States District Court, S.D. Florida, Miami Division.

January 30, 1986.

Sidney Syna and Earl D. Waldin, Jr., Miami, Fla., for plaintiffs.

Harvey Gurland, Miami, Fla., for defendant.

MEMORANDUM OPINION & ORDER ON DAMAGES

SPELLMAN, District Judge.

I

This suit, for an alleged violation of the Truth in Lending Act, 15 U.S.C. § 1601, et seq., was originally filed as a class action in the Circuit Court of the Eleventh Judicial Circuit of Florida in and for Dade County. The Defendant, Chase Federal Savings and Loan Association, (CHASE), removed the case to this Court. On June 2, 1981, this Court certified the class as follows:

Those purchasers of homes at the Lakeridge complex whose purchases were financed by the Defendant and which purchasers purchased said homes for his, hers or their family dwelling and utilized it for said purpose.

The parties were able to stipulate to the material facts in issue. Lakeridge, a Florida partnership, the builder and seller of these single family homes, executed identical purchase agreements with each Plaintiff and attached similar form mortgage riders to each purchase agreement. Along with these agreements, the Plaintiffs individually submitted mortgage loan applications to Chase. After receiving each application, Chase unilaterally inserted a clause indicating that the application was for the assumption of an existing mortgage on the lot in question, which mortgage had been executed by the builder to Chase. Chase evaluated each application, sent form letters to each Plaintiff approving the application, and stated that each had been approved for assumption of the earlier loans to Lakeridge. Chase also mailed to the Plaintiffs a standard policies and procedure form. At the time of closing, the Plaintiffs were charged three loan points on their respective mortgages. These were paid to Lakeridge for reimbursement for its previous loan points paid at the closing of the construction mortgage.

The mortgages between the Plaintiffs and Chase were for a term of 28 years, the same as were the Lakeridge mortgages, and required regular monthly payments, for principal and interest. Neither Chase nor anyone else in the chain of transactions presented the federal truth-in-lending documents to the Plaintiffs. The Chase officer claimed that he did not believe that the disclosure statements were required. He did not apparently consider the transactions to be refinancing or new financing.

In late 1981 and 1982, the parties filed cross-motions for Summary Judgment in which they debated the applicability of C.F.R. § 226.8 of the Act. By Order of May 25, 1985, this Court entered Summary Judgment for the Plaintiff and found that the mortgages qualified as "new transactions" under 12 C.F.R. § 226.8(a), (j). Adiel v. Chase Federal Savings and Loan Assoc., 586 F.Supp. 866 (S.D.Fla.1984).

Thereafter, the Court scheduled an evidentiary hearing on damages which was in turn followed by an Order directing the parties to submit memoranda of law on the damages issue. In essence, the arguments are as follows. The Plaintiffs submit that Ransom v. S. & S. Food Center Inc., 700 F.2d 670 (11th Cir.1983) is controlling on the question of monetary damages in the instant case and that the actual damages awarded to the class members should be the dollar amount of the loan points per transaction. They contend that this Court should award actual damages per transaction and that this should be shared among the number of purchasers/mortgagors to the transaction. In addition, they insist that the Plaintiffs are entitled to statutory damages of one percent (1%) limitation of the Defendant's net worth. The Defendants, on the other hand, claim that the Plaintiffs have failed to prove that they have sustained any actual damages as the result of Chase's violation of the Truth in Lending Act. They would like this Court to conclude at best that the Plaintiffs should be awarded only nominal statutory damages in the amount of $1.00 under the Act.

This Court incorporates herein the findings recited in its Opinion and Order entering Summary Judgment for the Plaintiffs. Adiel v. Chase Federal Savings and Loan, 586 F.Supp. 866 (S.D.Fla.1984). This Court, having conducted an evidentiary hearing, having heard the arguments of counsel and read the respective memoranda of law, and being otherwise duly advised, finds that the Plaintiffs are entitled to an award of statutory damages.

II

15 U.S.C. § 1640 in pertinent part provides:

(a) Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part or part D or E of this subchapter with respect to any person is liable to such person in an amount equal to the sum of—

(1) any actual damage sustained by such person as a result of the failure.

To recover actual damages, each member of the class must prove that "he or she would have gotten credit on more favorable terms but for the violation." McCoy v. Salem Mortgage Co., 74 F.R.D. 8, 12 (E.D. Mich.1976). Relying on McCoy, the Court in Vickers v. Home Federal Savings and Loan Assoc., 62 A.D.2d 1171, 404 N.Y.S.2d 201, 202 (Sup.Ct.1978) explained the showing necessary for a Plaintiff to recover actual damages under the Act.

A plaintiff claiming actual damages must establish a causal connection between the inaccurate disclosure and his injury by demonstrating that he relied on the inaccurate disclosure and thereby was effectively prevented from obtaining better credit terms elsewhere.

This "but for" test operates to effectuate the very purpose of the Truth in Lending Act expressed in part in 15 U.S.C. § 1601:¹

(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 the 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, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.

At the hearing on damages, this Court afforded the Plaintiffs an opportunity to present evidence of the actual damages each member claimed he or she had sustained because Chase had failed to furnish the Regulation Z Disclosure Form.² The Plaintiffs submitted documentary evidence indicating the amount of loan points that Lakeridge had paid to Chase and the amount that the Plaintiffs had paid to Lakeridge and maintained that these loan points constituted their actual damages.

This Court, however, finds that the Plaintiffs have not met the requisite showing that they could have obtained credit on more favorable terms but for the alleged violation of the Act. In accord with the actual damages provision of 15 U.S.C. § 1640(a), each member of the class must come forward to prove his or her actual damages. See Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114, 118 (5th Cir.1975). In the instant case, the Plaintiffs have not complied with such requirements. In sum, they can not establish the "causal nexus" necessary for an award of actual damages.

III

The legislative history of the Act indicates that Congress was aware of the difficulty of establishing that causal link between the financing institution's non-compliance with the Act and the Plaintiffs' purported damages.³ Courts have not only commented on this obstacle, but have also construed it to be the very impetus behind the legislative decision to construct a workable scheme of statutory damages. The court in Riggs v. Government Employees Financial Corp., 623 F.2d 68, 71 (9th Cir. 1980) made it explicit that "the liquidated nature of Section 1640(a)(2)(A) damages is consistent with a remedial objective, for when an uninformed consumer loses the opportunity to secure better terms elsewhere, actual damages may be difficult to ascertain." See also McCoy v. Salem Mfg. Co., 74 F.R.D. 8, 12 (E.D.Mich.1976).

The portion of the Act which enables a court to award statutory damages arising out of a Truth-in-Lending violation is clearly bifurcated. While 15 U.S.C. § 1640(a)(2)(A) provides for recovery in an individual action, Section 1640(a)(2)(B) pertains to the class action context. It reads:

(B) in the case of a class action, such amount as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery in such action shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the creditor;

Although there is no minimum statutory recovery for class actions, the provision does set a maximum.

The statute also directs the court to consider five factors when setting the award:

In determining the amount of award in any class action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the

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