Burley v. Bastrop Loan Co., Inc.

• Decision Date: 11 February 1976
• Docket Number: Civ. A. No. 75-0432.
• Citation: 407 F. Supp. 773
• Parties: Clifton BURLEY v. BASTROP LOAN COMPANY, INC.
• Court: U.S. District Court — Western District of Louisiana

407 F. Supp. 773

Clifton BURLEY v. BASTROP LOAN COMPANY, INC.

Civ. A. No. 75-0432.

United States District Court, W. D. Louisiana, Monroe Division.

December 30, 1975.

Supplemental Opinion February 11, 1976.

Donald Juneau, New Orleans, La., for plaintiff.

James Hobbs, Jones, Blackwell, Chambliss, Hobbs & Henry, West Monroe, La., for defendant.

RULING AND ORDER

DAWKINS, Senior District Judge.

This is a case arising under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R., Part 226, promulgated by the Federal Reserve Board under that Act.

Plaintiff was a loan customer of defendant, the Bastrop Loan Company. On March 21, 1975, defendant filed suit in the Fourth Judicial District Court of Louisiana, Morehouse Parish, against plaintiff and his wife, now deceased, for collection of the balance due upon a promissory note. The note was secured by a chattel mortgage of even date, covering certain movable property, and also by a special mortgage upon plaintiff's residential property. Plaintiff petitioned this Court for removal of the case under the federal question removal statute, 28 U.S.C. § 1441, alleging that the case was one arising under 15 U.S.C. § 1640(e) and 28 U.S.C. § 1337. We granted the Loan Company's motion to remand ex parte and denied plaintiff's motion for a rehearing. Burley v. Bastrop Loan Co., 392 F.Supp. 970 (W.D.La., 1975).

Plaintiff, through counsel, then sent to counsel for the Loan Company a letter of rescission of the loan obligation, on the grounds that the Loan Company had failed to make the required disclosures to its customer under the Act and Regulation Z. A few days later, plaintiff filed this plenary action here under the Truth-in-Lending Act.

Plaintiff now has moved for summary judgment, which we granted on August 1, 1975. We held then that the Loan Company had failed to disclose to plaintiff the acceleration clause on the face of its promissory note, in violation of 15 U.S.C. § 1639(a)(7) and 12 C.F.R. § 226.8(b)(4). The disclosure statement executed by plaintiff on July 15, 1972, contained no language at all to warn him that the Loan Company could declare the entire unpaid balance due and payable should plaintiff default in his payments, although such was set out in the promissory note. This is a clear violation of 12 C.F.R. § 226.8(b)(4), which requires that "the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments" be revealed on the disclosure statement. Chief Judge Heebe, of the United States District Court for the Eastern District of Louisiana, has held that the absence of such a disclosure renders the creditor liable for damages under the Act. Meyers v. Clearview Dodge Sales, Inc., 384 F.Supp. 722 (E.D.La., 1974). See also Johnson v. McCrackin-Sturman Ford, Inc., 381 F.Supp. 153 (W.D.Pa., 1974), Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955 (N.D.Ill., 1972).

Defendant urges upon us Barksdale v. Peoples Financial Corp., 393 F.Supp. 112 (N.D.Ga., 1975), as supporting its position that there need be no disclosure of acceleration. Barksdale is distinguishable in that it involved an acceleration clause which provided for a rebate of all unearned interest. Meyers and the matter sub judice, on the other hand, concern acceleration of all interest, whether earned or not as of the date of default. Such acceleration clauses are enforceable and nonusurious in Louisiana. Unity Plan Finance Co. v. Green, 179 La. 1070, 155 So. 900 (1934). The Barksdale acceleration clause did not impose a § 226.8(b)(4) "charge," whereas the one before us requires that plaintiff pay the unrebated interest on the obligation if he should default in his payments. Defendant also cites Barrett v. Vernie Jones Ford, Inc., 395 F.Supp. 904 (N.D. Ga., 1975), in support of its position that failure to advise the loan customer of an acceleration clause is not a violation of 12 C.F.R. § 226.8(b)(4) if there is no change in the total amount due on the note. But Barrett rejected that sophistry, as do we. In Barrett the Court held that since "the note makes no provision for rebate of unearned interest upon acceleration, the diminution of the period over which the finance charge would be spread constitutes a `charge' which is passed on to the consumer as a result of default." Barrett, supra, at 907. Barrett has been followed by another judge of the same Court, and is in keeping with the rationale of Meyers and Garza on this subject. McDaniel v. Fulton National Bank, 395 F.Supp. 422 (N.D.Ga., 1975).

We elect to follow the last cited rulings since they seem to us to be in harmony with the spirit of the Truth-in-Lending Act "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601.

Here plaintiff was not given information as to the added cost of the loan resulting from defendant's acceleration of unearned interest, and therefore was unable successfully to compare credit terms. Burgess v. Charlottesville Savings and Loan Association, 477 F.2d 40 (4th Cir., 1973). Although plaintiff alleged other violations of the Act, nondisclosure of the acceleration clause is undisputed and is sufficient to subject defendant to liability. Powers v. Sims and Levin Realtors, 396 F.Supp. 12 (E.D. Va., 1975).

In our ruling of August 1, 1975, we held that plaintiff was not entitled to recover the statutory damages of $1,000 under 15 U.S.C. § 1640(a)(2)(A), because of the running of the one-year statute of limitations in 15 U.S.C. § 1640(e). Sosa v. Fite, 498 F.2d 114, 121 n. 9 (5th Cir., 1974); Stevens v. Rock Springs National Bank, 497 F.2d 307 (10th Cir., 1974); Wachtel v. West, 476 F.2d 1062 (6th Cir.), cert. denied 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973). Accordingly, we requested counsel for both parties to submit briefs as to what remedies still are available to plaintiff. We particularly called for briefing as to whether plaintiff was entitled to reasonable attorney's fees here.

Plaintiff seeks rescission of the loan obligation under 15 U.S.C. § 1635. This provision clearly is applicable to the facts of this case, since the obligation was secured by a mortgage upon plaintiff's residence. Plaintiff's counsel dispatched the letter of rescission to defendant's counsel on April 29, 1975. Defendant did not cancel the mortgages upon plaintiff's movable and real property, nor did it return all interest payments and downpayments to plaintiff within ten days of receipt of the letter. Indeed, the Loan Company still maintains its lawsuit in State Court for the balance due upon the note. Title 15 U.S.C. § 1635(b) and 12 C.F.R. § 226.9(d) require a creditor, within ten days after receipt of a notice of rescission, to "return to the customer any money or property given as earnest money, downpayment or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction." Ordinarily, the customer has three business days from the close of the transaction to rescind the transaction. 12 C.F.R. § 226.9(a). However, where the creditor fails to make the required disclosures, the right of rescission continues for three years from consummation of the transaction. 15 U.S.C. § 1635(f); cf. Sosa v. Fite, 498 F.2d 114, 117 (5th Cir., 1974). Thus a loan customer may bring an action for judicial rescission under 28 U.S.C. § 1337 even if he is time-barred from suing for damages under 15 U.S.C. § 1640. Sosa v. Fite, 465 F.2d 1227 (5th Cir., 1972).

On remand of the first Sosa appeal, the District Court granted rescission, but entered a judgment in favor of the creditors for the balance due and imposed a judgment lien upon Sosa's real property. Later the Fifth Circuit Court of Appeals reversed the grant of a judicial lien. Sosa v. Fite, 498 F.2d 114 (5th Cir., 1974). Holding that the creditors' failure to perform their statutory duties under 15 U.S.C. § 1635(b), by returning the downpayment and earnest money and canceling the mortgages, absolved Mrs. Sosa from tendering back the loan proceeds she received, the Court further ruled that ownership of the loan proceeds vested in Mrs. Sosa without any obligation on her part to return them:

"It is true that the statute contemplates an orderly progression of specific events, culminating in the debtor's tender and the creditor's recoupment, which never came to pass in this case. Specifically, section 1635(b) envisions responsive action on the creditor's part to a rescission notice, after which the debtor then becomes obligated to tender either the property or a sum reflecting its reasonable value. This precise statutory scheme was abhorted sic in this case due to the creditors' failure to comply with statutory requirements, hence Sosa's responsibility to make the specific statutory tender was excused by the creditors' omissions.

"To hold otherwise would create a gross anomaly, for no tender in the exact scheme envisioned by the statute could ever be effected by a debtor in the most egregious of circumstances, namely when a creditor steadfastly refused to perform his express obligations upon receiving the notice of rescission. Congress scarcely could have contemplated such a disruptive commercial stand-off. We therefore conclude that under the circumstances of this case the debtor's obligation to restore the creditor to the status quo ante was discharged by an offer accompanying notice of rescission, since the creditor within ten days of notification failed to return all monies previously paid by the debtor or to reflect dissolution of the security interest.

"Our disposition of this case is not altered by the recent decision in Ljepya v. M. L. S. C. Properties, N.D.Cal. 1973, 353 F.Supp. 866. In that case, the court permitted a borrower to rescind a tainted loan transaction

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