Commonwealth v. Credit Acceptance Corp.
| Decision Date | 15 March 2021 |
| Docket Number | Docket: 2084CV01954-BLS2 |
| Parties | COMMONWEALTH v. CREDIT ACCEPTANCE CORPORATION |
| Court | Massachusetts Superior Court |
Dates: March 15, 2021
Present: Kenneth W. Salinger Justice of the Superior Court
County: SUFFOLK, ss.
Credit Acceptance Corporation makes high-interest loans to high-risk car buyers. The Commonwealth claims that CAC made unfair or deceptive loans to Massachusetts consumers, engaged in unfair acts or practices in trying to collect on loans and repossess vehicles, and sold bundles of car loans to Massachusetts investors based on false or misleading statements.
CAC’s business model is to work through automobile dealers rather than transact directly with car buyers. The dealer and customer agree on a purchase price for the vehicle, how much the buyer will pay up front, and what balance they will pay over time. The dealer submits the buyer’s application to borrow that balance to CAC, through an automated system that sets the loan terms and generates a loan contract, required disclosures, and related documents. The loan contract is between the dealer and the customer. As soon as those parties execute the contract, however, the dealer assigns it to CAC, which pays the dealer an agreed-upon percentage of the loan amount up-front or over time. CAC administers the contract and collects amounts due from the consumer. If the consumer defaults then CAC may repossess and sell the vehicle.
CAC has moved to dismiss four of the Commonwealth’s seven claims. The Commonwealth has moved for partial summary judgment as to liability on three claims. The Court rules as follows on these motions.
? Count Two: The Commonwealth has standing to sue CAC for allegedly violating a state regulation that limits the frequency of telephone calls by creditors to collect a debt. The regulation does not violate the Free Speech clause of the First Amendment to the United States Constitution. Nor is the regulation so vague that enforcing it would violate the constitutionalrequirementsofdueprocess.But the merits of the claim turn on conflicting expert opinions and thus cannot be resolved on summary judgment.
? Counts Three and Four: The Court will deny CAC’s motion to dismiss the claim that sent notices about repossession that violated the Uniform Commercial Code; the Commonwealth has standing to assert this claim, and the alleged violation of G.L c. 255B can give rise to liability enforceable under the UCC. Since the summary judgment record proves that CAC sent unlawful, misleading notices, the Court will allow the Commonwealth’s request for summary judgment as to liability under the UCC and under G.L. c. 93A.
? Counts Five and Six: The Court will deny CAC’s motion to dismiss the two claims that CAC effectively charged and failed to disclose usurious interest rates. The complaint plausibly suggests that dealers increased the interest rate on car loans by hiking up purchase prices for higher-risk buyers and requiring buyers to enter into vehicle service contracts (“VSCs”) as a condition of obtaining a CAC loan. The Commonwealth states viable claims that CAC may be: (i) directly liable for failing to disclose the true effective finance charge; (ii) liable, at least for equitable remedies, as assignee of a loan charging a usurious interest rate; and (iii) vicarious liable with respect to the VSC claim, as the complaint plausibly suggests that dealers were acting as CAC’s agent in selling VSCs.
? Count Seven: Finally, the Court will deny CAC’s motion to dismiss the claim that it violated c. 93A by offering and selling securitized car loans based on deceptive statements. The Commonwealth has stated a viable claim. The complaint plausibly alleges that the challenged statements were false because they misrepresented CAC’s actual intentions regarding the credit characteristics of the loans that it would add to a particular note after the closing date. Whether the alleged misrepresentations were material cannot be resolved on a motion to dismiss.
1. Excessive Phone Calls Claim—Summary Judgment. The Commonwealth seeks partial summary judgment as to liability on count two, which alleges that CAC committed unfair acts by making unlawfully frequent contacts with borrowers by telephone. Communications with a debtor are unfair if they are undertaken “with unreasonable frequency.” G.L. c. 93, § 49(c). Creditors may not initiate more than two telephone communications with a debtor during any seven day period. See 940 C.M.R. § 7.04(1)(f). This Call Regulation applies “whether the telephonic message is live, via text message, or via recorded audio message.” Armata v. Target Corp., 480 Mass. 14, 20 (2018). It therefore “applies to any attempted telephonic communication by a creditor to a debtor in an effort to collect a debt, so long as … the creditor is able to reach the debtor or to leave a voicemail message for the debtor.” Id. at 15–16. A violation of § 7.04(1)(f) will constitute a violation of G.L. c. 93A. See 940 C.M.R. § 3.16(3).
1.1. Standing. CAC contends that the Attorney General lacks standing to sue CAC for past alleged violations of the Call Regulation because CAC is now in full compliance with this regulation and there is no evidence that any consumer “experienced an ascertainable loss” from being called too often. These arguments are without merit.
If a company stops engaging in unfair or deceptive acts or practices in violation of c. 93A, the Attorney General may still pursue an enforcement action seeking injunctive relief against any further violation. See Lowell Gas Co. v. Attorney General, 377 Mass. 37, 47 (1979). Though the complaint in this case does not specifically request injunctive relief for CAC’s alleged violation of the Call Regulation, that does not bar the Commonwealth from obtaining such relief if it prevails on count two. See Mass. R. Civ. P. 54(c) (); Marine Midland Bank v. Herriott, 10 Mass. App. Ct. 743, 745–746 (1980) ().
And the Attorney General may enforce c. 93A without having to allege, prove, or quantify any economic injury. She may obtain civil penalties against someone who engages in an unfair or deceptive act or practice in trade or commerce that they “knew or should have known” violated the statute, and higher penalties if the violation was “willful.” See G.L. c. 93A, § 4. The Attorney General is not required to allege or prove that any individual consumer suffered some compensable injury as a result of the claimed violation. See Commonwealth v. Fall River Motor Sales, Inc., 409 Mass. 302, 312 (1991); Commonwealth v. Chatham Development Co., Inc., 49 Mass. App. Ct. 525, 528-529, rev. denied, 432 Mass. 1107 (2000).
1.2. First Amendment Challenge. As a further defense to count two, CAC also asserts that the Call Regulation violates the First Amendment to the United States Constitution. This argument is unavailing. 1.2.1. Pending Federal Action. The Court will address the merits of this First Amendment defense, rather than await a decision in a pending federal action brought by CAC. Before filing this lawsuit, the Commonwealth had to give CAC at least five-days’ advance notice. See G.L. c. 93A, § 4, 2d para. When it did so, and before the Commonwealth could file this action, CAC raced to federal court and brought suit claiming that the Call Regulation is unconstitutional and therefore unenforceable. The Commonwealth filed this action seven days later.
CAC argues that the Court should stay any action on count two until the pending federal action is resolved. In the exercise of its discretion, the Court declines to do so.
Although the principle that CAC relies upon is often referred to as the first- filed or first-to-file “rule,” a court has discretion whether to apply it in any particular case. See Exxon Mobil Corp. v. Attorney General, 479 Mass. 312, 328 (2018), cert. denied sub nom. Exxon Mobil Corp. v. Healey, 139 S. Ct. 794 (2019). “Exceptions to the rule are not rare,” and a judge “has discretion to give preference to a later-filed action when that action will better serve the interests involved.” Id., quoting EMC Corp. v. Parallel Iron, LLC, 914 F. Supp. 2d 125, 127 (D.Mass. 2012) (Saylor, J.).
When entirely duplicative lawsuits are filed in different jurisdictions at materially different times, the later-filed action is usually stayed pending final resolution of the first-filed action. See, e.g., TPM Holdings, Inc. v. Intra-Gold Industries, Inc., 91 F.3d 1, 4 (1st Cir. 1996). However, the filing of a complaint in Federal court just a few days before a State court filing “hardly triggers a mechanical application of the first-filed rule.” Exxon Mobil, 479 Mass. at 329.
When, as in this case, “there is only a partial overlap in the subject matter of two actions, a judge has considerable discretion when deciding whether to grant a stay.” Id. at 329–330. Relevant considerations include “the extent of overlap, the likelihood of conflict, the comparative advantage and the interest of each forum in resolving the dispute.” TPM Holdings, supra. In the Court’s view, these considerations weigh against staying consideration of the Commonwealth’s claim under the Call Regulation.
Here, the overlap between the federal action and this case is quite limited. In its Federal action, CAC seeks a declaratory judgment that the Call Regulation is unconstitutional and an injunction barring its enforcement. The federal action thus concerns only one issue raised by count two of the Commonwealth’s complaint in this case, and has nothing to do with the six other claims asserted here. Even with respect to count two, the Federal action does not raise and cannot resolve whether the Attorney General has...
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