Bantolina v. Aloha Motors, Inc.

• Citation: 419 F. Supp. 1116
• Decision Date: 26 August 1976
• Docket Number: Civ. No. 75-0295.
• Parties: Irenio C. BANTOLINA and Gloria B. Bantolina, Individually and on behalf of all persons similarly situated, Plaintiffs, v. ALOHA MOTORS, INC., a duly authorized corporation, and First Hawaiian Bank, a duly authorized corporation, Defendants.
• Court: U.S. District Court — District of Hawaii

419 F. Supp. 1116

Irenio C. BANTOLINA and Gloria B. Bantolina, Individually and on behalf of all persons similarly situated, Plaintiffs, v. ALOHA MOTORS, INC., a duly authorized corporation, and First Hawaiian Bank, a duly authorized corporation, Defendants.

Civ. No. 75-0295.

United States District Court, D. Hawaii.

August 26, 1976.

Linda-Mei Leong, Karen M. Radius, John Harris Paer, Legal Aid Society of Hawaii, Honolulu, Hawaii, for plaintiffs.

Vernon F. L. Char, Denis C. H. Leong, Damon, Shigekane, Key & Char, Honolulu, Hawaii, for Aloha Motors, Inc. Nicholas C. Dreher, Cades, Schutte, Fleming & Wright, Honolulu, Hawaii, for First Hawaiian Bank.

DECISION

WONG, District Judge.

Statement of the Case

Irenio and Gloria Bantolina, the plaintiffs herein, purchased an automobile from Aloha Motors, Inc. (Aloha) on November 25, 1974. The terms of the purchase and certain disclosures required by the Truth in Lending Act were contained in a "Retail Installment Contract and Open End Credit Plan" provided to plaintiffs at the time of the purchase.

The contract was assigned by Aloha Motors, Inc. to First Hawaiian Bank (First Hawaiian). The manner in which Aloha and First Hawaiian managed the Bantolinas' credit purchase was allegedly typical of defendants' common business practice at the time.

Plaintiffs allege that Aloha provided 786 customers with these disclosure statements and thereafter presented each of these 786 contracts to First Hawaiian for assignment and that First Hawaiian accepted each contract. First Hawaiian then sent each customer a standard-form periodic billing statement.

Plaintiffs have now moved that this Court enter an order determining that this suit shall be maintained as a class action on behalf of plaintiffs and all persons similarly situated. Plaintiffs have further moved that this Court define the class as all natural persons in the State of Hawaii who, within the calendar year prior to the filing of the instant complaint, purchased an automobile in a consumer credit transaction from Aloha Motors, Inc. wherein the disclosure statement provided to each consumer used the standard form "Retail Installment Contract and Open End Credit Plan" and further where each contract was then assigned to First Hawaiian.

The issue of certifying a class for truth-in-lending litigation is one of first impression in this district in light of a recent amendment to the Truth in Lending Act. For the reasons which follow, this Court believes that a reading of the Truth in Lending Act together with Fed.R.Civ.P. 23 necessitates the certification of a class action in the instant case.

Discussion

Before 1974, "the clear trend of authority for actions alleging a violation" of the Truth in Lending Act held that ". . . class actions are inappropriate."¹ In October of that year, however, § 130(a) of the Act, 15 U.S.C. § 1640(a), dealing with civil liability for a failure to disclose, was amended to include class actions specifically.

The question here is whether the amendment to § 1640(a), when considered together with Fed.R.Civ.P. 23, allows this Court, in exercising its broad discretion,² to certify the plaintiffs as representatives of a class seeking relief under the Act.

Rule 23(a), Prerequisites to a Class Action, states four standards to determine whether an action may be maintained as a class action. These are: (1) that the class is so numerous that joinder of all members is impracticable; (2) that there are questions of law or fact common to the class; (3) that the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) that the representative parties will fairly and adequately protect the interests of the class.

Defendants have not seriously disputed, and this Court does not doubt, that plaintiffs have met the requirements stated in subdivisions (1), (2), or (3). Defendants strongly urge, however, that the representative parties cannot fairly and adequately protect the interests of the class as required in subdivision (4). In addition, defendants urge that plaintiffs have also failed to satisfy one of the subdivisions of Rule 23(b), Class Actions Maintainable.

Defendants observe that plaintiffs' memorandum in support of their motion for class certification reflects an attempt to qualify under subdivision (b)(3),³ the requirements of which are: (1) that the court find that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and (2) that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

Defendants argue that neither of these requirements has been met in the present case. In marshalling their catalog of alleged defects which makes class certification inappropriate in this case, defendants have first directed this Court's attention to the many preamendment cases which denied use of the device. The reasoning of those cases, defendants contend, has continued vitality for even postamendment litigation.

The preamendment denials of class certification were varied in their rationales. In Ratner v. Chemical Bank York Trust Co.,⁴ for example, Judge Frankel stated:

Defendant points out that (1) the incentive of class-action benefits is unnecessary in view of the Act's provisions for a $100 minimum recovery and payment of costs and a reasonable fee for counsel; and (2) the proposed recovery of $100 each for some 130,000 class members would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act. These points are cogent and persuasive.⁵

While conceding that the danger of "annihilating punishment" has been lessened by the amendment to the Act which limits damages and gives the court discretion in determining any class recovery,⁶ defendants nevertheless argue that the availability of a minimum statutory recovery, as well as reasonable attorney's fees and costs, obviates the need for the class-action incentive.

Defendants also argue that the class-action device is not superior within the meaning of Rule 23(b)(3) in that substantial benefits do not result⁷ and actual damages are not involved.⁸ Moreover, defendants allege that there are factual and legal questions in the instant case affecting only individual class members, and, therefore, common questions do not predominate over individual questions as also required by Rule 23(b)(3).

The 1974 amendment to the Act, defendants further argue, has not cured any of these deficiencies, but instead has created another reason for courts to deny class-action relief in truth-in-lending cases: the named plaintiffs have a conflict of interest with the unnamed represented class in that the named plaintiffs are not willing to accept their pro rata share of the class recovery but wish instead to receive whatever award they would have received in an individual suit.⁹

Plaintiffs, on the other hand, argue that any prior judicial misgivings about the appropriateness of the class-action device in truth in lending is more than overcome by the purpose and effect of the 1974 amendment and that the Rule 23 defects that defendants cite are insubstantial at best.

This Court turns first to the amendment here in question which is set forth in the margin.¹⁰ This Court agrees with the plaintiffs that the legislative history of the amendment clearly reveals a congressional intent to encourage the use of class actions as an important tool in enforcing Truth in Lending.¹¹

The possibility of class-action exposure is essential to the prophylactic intent of the Act, and is necessary to elevate truth-in-lending lawsuits "from the ineffective `nuisance' category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance."¹²

Fair and Adequate Representation

An appropriate point of embarkation in dealing with defendants' objections to the class device, and plaintiffs' response to them, is Judge Zirpoli's opinion in Weathersby v. Fireside Thrift Co.,¹³ a postamendment decision. In Weathersby, Judge Zirpoli denied class certification because: "This attempt puts several strains on the class action mechanism that cannot be reconciled with Rule 23."¹⁴

"The fundamental problem is the limitation on total recovery, which serves to penalize plaintiffs for representing a large class." The gist of this reasoning is that a class of more than 1,000 members would permit individual recoveries of less than the statutory minimum of $100. Thus if the court had to award the representatives their statutory awards, while at the same time limiting class members to a division of the pot, "the court would raise the possibility that it would award to plaintiffs money that would otherwise go to unnamed members of the class." As a result, Judge Zirpoli could not conclude that the named representatives "will fairly and adequately protect the interests of the class" as required by Rule 23(a)(4) or that the class action is superior to other available methods for the fair and efficient adjudication of the controversy as required by Rule 23(b)(3).¹⁵

In response to the plaintiffs' proposed solution in Weathersby that notice be sent to class members to permit them to opt out, the Weathersby court found "several fatal defects" in the proposal. First, it noted that the statute of limitations had run and thus the opt-out choice was not an option at all. Second, since any class member could be represented by counsel, a "race to the courthouse" would be encouraged by those seeking to share in the statutory recovery, to the detriment of those who may have borne a substantial amount of the responsibility or of those remaining members of the class. Third, it found that the proposed solution seemed likely to limit the...