Allen v. RJC Inv., Inc., CV 17-166-BLG-TJC

CourtU.S. District Court — District of Montana
Writing for the CourtTIMOTHY J. CAVAN United States Magistrate Judge
PartiesTRAVIS WILLIAM ALLEN, Plaintiff, v. RJC INVESTMENT, INC., Defendant.
Decision Date19 March 2019
Docket NumberCV 17-166-BLG-TJC


CV 17-166-BLG-TJC


March 19, 2019


Travis William Allen ("Allen") brought this action under the Truth in Lending Act seeking an offset in debt and an award of finance charges and fees he paid under a contract and security agreement with Defendant RJC Investment, Inc. ("RJC"). (Doc.1.) Allen also seeks a declaratory judgment that RJC cannot judicially enforce the contract because RJC violated the Montana Mortgage Act's licensing requirements. (Doc. 1.) RJC has filed a counterclaim against Allen, seeking damages for breach of contract and attorney's fees. (Doc. 6.)

Pending is Allen's motion for summary judgment as to all counts in his complaint. (Docs. 19.) The motion is fully briefed and ripe for decision. Having considered the parties' arguments and for the following reasons, the Court orders that Plaintiffs' motion is GRANTED in part and DENIED in part.


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On June 21, 2013, Allen entered into an installment sale contract and security agreement with Cherry Creek Development, Inc. for the purchase of a mobile home. (Doc. 24 at ¶1.) Allen also executed a promissory note to pay Cherry Creek $69,900 in accordance with the terms of the contract. (Doc. 1-2.) Cherry Creek subsequently assigned its interest in the contract and promissory note to RJC. (Doc. 24 at ¶¶ 3, 4.) Allen's monthly payment obligation under the contract was $711.00. (Doc. 14-2.) The contract also provided that a late fee of $50.00 would be assessed on any payment made five days past the due date. (Docs. 14-2, 24 at ¶ 5.) After executing the contract, Allen defaulted on his payment obligations multiple times. (Doc. 24 at ¶6.) As a result, he was charged numerous late fees in the amount of $50.00 each. (Docs. 20-1, 24 at ¶ 6.)

On December 22, 2017, Allen brought this action against RJC asserting violations of the Truth in Lending Act ("TIL Act"). (Doc. 1.) He claims RJC violated the TIL Act by assessing premature and excessive late fees under the contract (Count I), and by failing to make required disclosures when the contract was executed (Count II). Allen also alleges the contract is not enforceable because RJC was not a licensed lender as required by the Montana Mortgage Act (Count III). Allen requests that the Court grant him recovery of all finance charges and fees paid on the contract, declare that he may offset any amount owed to RJC by

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the statutory damages limit of $4,000, and declare the contract judicially unenforceable. (Doc. 1 at 6.)

RJC filed its answer and counterclaim against Allen on February 26, 2018. (Doc. 5.) RJC denies Allen's allegations in its answer, and asserts three causes of actions against him in a counterclaim: breach of contract, breach of the implied covenant of good faith and fair dealing, and attorney's fees. Id. RJC also raises a variety of affirmative defenses. Id.

On August 10, 2018, Allen filed a motion for summary judgment. (Doc. 17, 19.). Allen does not specify in his motion the claim(s) on which summary judgment is sought, but generally "moves the Court . . . to enter summary judgment in this matter." (Doc. 17.) Fed. R. Civ. P. 56(a) provides that "[a] party may move for summary judgment, identifying each claim or defense - or the part of each claim or defense - on which summary judgment is sought." Nevertheless, the Court will construe the motion as a requesting summary judgment as to all counts in Allen's complaint.


A. Summary Judgment

A court will grant summary judgment if the movant can show "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party has the initial burden to

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submit evidence demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Material facts are those which may affect the outcome of the case. Anderson, 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable fact-finder to return a verdict for the nonmoving party. Id. If the movant meets its initial responsibility, the burden shifts to the nonmoving party to establish a genuine issue of material fact exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

B. Truth in Lending Act

Congress enacted the TIL Act to promote and achieve "the informed use of credit," which "results from an awareness of the costs thereof by consumers." 15 U.S.C. § 1601. It encourages fair and transparent credit extension practices by requiring credit term disclosures and prohibiting lending abuses. Eby v. Reb Realty, Inc., 495 F.2d 646, 647 (9th Cir. 1974); 15 U.S.C. § 1601(a). Courts should liberally construe the Act in favor of consumers to implement its purpose. In re Ramsey v. Vista Mortgage Group, 176 B.R. 183, 187 (9th Cir. 1994) (citing Eby, 495 F.2d at 650).

Although it was enacted in 1968, the TIL Act has been amended multiple times. In re Ramsey, 176 B.R. at 186. Many of the modifications to the application of the Act are reflected in "Regulation Z" and the Home Ownership

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and Equity Protection Act1 ("HOEPA"). 12 C.F.R. Pt. 226; 15 U.S.C. § 1639. HOEPA amended the TIL Act to require additional disclosures for certain high-cost mortgages. 15 U.S.C. § 1639. Regulation Z was promulgated by the Board of Governors of the Federal Reserve System, the entity charged with prescribing regulations to implement the TIL Act. In re Ramsey, 176 B.R. at 186; 15 U.S.C. § 1604. The Board also published Official Staff Commentary to supplement Regulation Z and aid in its interpretation. Id. The Supreme Court has instructed courts to analyze truth in lending issues under the TIL Act with deference to Regulation Z and the Official Commentary. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980).


A. Count I: Did RJC charge premature and excessive late fees?

In Count I of his complaint, Allen asserts that RJC charged premature and excessive late fees. Under the TIL Act, a creditor may not charge a late fee in connection with a "high-cost mortgage" in excess of 4 percent of the amount past due unless specifically authorized in the loan documents. 15 U.S.C. § 1639(k)(1)(A)-(B). Further, a late fee cannot be imposed "before the end of the 15-day period beginning on the date the payment is due." 15 U.S.C. §

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1639(k)(1)(C); See also 12 C.F.R. § 1026.34(8). For mortgages greater than $50,000, a high cost mortgage is a consumer credit transaction secured by the debtor's principal dwelling that has an annual percentage rate exceeding the average prime offer rate by more than 6.5%. 15 U.S.C. § 1602 (bb)(1)(A); 12 C.F.R. § 1026.32. A creditor who fails to comply with these requirements is liable to the consumer for "the sum of all finance charges and fees paid by the consumer, unless the creditor demonstrates that the failure to comply is not material." 15 U.S.C. §1640(a)(4).

RJC does not challenge the applicability of these provisions to the contract, or that the late fee provisions in the contract violate Section 1639. Instead, it disputes whether its failure to comply with the requirements is material. (Doc. 23 at 6.) RJC argues the late fees were not material to Allen's decision to execute the contract because he was able to afford the charges, he did not object to the late fees, and he paid each late fee in full. Id. at 8. Allen disagrees with RJC's characterization of what constitutes material noncompliance. (Doc. 35 at 1.) He claims that materiality does not concern whether the late charges impacted his decision to execute the contract. Id. Instead, he argues, the question is whether RJC violated a material provision of the TIL Act. Id.

Congress incorporated a materiality defense into § 1640(a)(4) to prevent the penalization of "inadvertent violations where the error was based on a simple

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miscalculation or other mistake where the creditor maintained procedures to catch errors." In re Bryce, 491 B.R. 157, 177 (W.D. Wash. 2013) (citing H.R. Conf. Rep. No. 103-652 (1994). "The Conferees intend that miscalculations, computer malfunctions, and printing mistakes shall not be deemed material if the creditor maintained reasonable procedures to prevent such mistakes." In determining whether a creditor's failure to abide by the statute's prohibitions was material, "the Court can be guided by caselaw interpreting the bona fide error defense codified in 15 U.S.C. § 1640(c)." In re Bryce, 491 B.R. at 178. The Ninth Circuit has recognized that "clerical errors [] are the only violations [the bona fide error defense] was designed to excuse." Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir. 1974).

Here, RJC does not contend that it charged late fees in violation of the TIL Act because of a clerical mistake, but rather that its violation is immaterial because Allen was able to afford the fees and dutifully paid them. RJC's argument is contrary to the purpose of the TIL Act. It would relieve a creditor from the consequences of violating the Act with the simple assertion that the debtor can...

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