Davidson v. United Auto Credit Corp.
| Decision Date | 19 May 2021 |
| Docket Number | 1:20-cv-1263 (LMB/JFA) |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | JERRY DAVIDSON, individually, and on behalf of all others similarly situated, Plaintiff, v. UNITED AUTO CREDIT CORPORATION, a California corporation, Defendant. |
Before the Court is defendant United Auto Credit Corporation ("defendant" or "United")'s Motion to Dismiss Plaintiff's Second Amended Class Action Complaint Pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Motion to Dismiss") [Dkt. No. 66], to which Jerry Davidson ("plaintiff" or "Davidson") has responded. The Motion to Dismiss has been fully briefed and oral argument has been held. For the reasons discussed below, defendant's Motion to Dismiss will be granted.
The parties do not dispute the facts alleged in the Second Amended Complaint ("SAC"), and agree that the dispositive issue is whether defendant's Retail Installment Contract and Security Agreement (the "Contract" or "Installment Contract"), through which plaintiff, who was an active member of the United States military, financed his purchase of a 2011 GMC Acadia SUV on October 13, 2018, is covered by the Military Lending Act ("MLA"), 10 U.S.C. § 987 et seq.
Plaintiff describes United as one of the ten largest non-prime automobile lenders in the United States, having over 4,500 auto dealer customers and financing over $350 million in auto loans to more than 53,000 borrowers. He alleges that United has violated multiple provisions of the MLA. Specifically, the SAC alleges that defendant violated § 987(c)(1) by failing to make mandatory disclosures of various fees including a $250 processing fee, a $350 fee for Guaranteed Asset Protection ("GAP") insurance, and a $129.61 charge for prepaid interest (Count I); violated § 987(c)(1) by failing to disclose the true cost of credit because the true military annual percentage rate ("MAPR") for plaintiff was 26.31% and not 22.99% as written in the Contract (Count II); and violated § 987(e)(3) by requiring borrowers to submit to arbitration (Count III). Plaintiff seeks certification for three different classes, a declaration that the Installment Contracts are void, relief from the void Installment Contracts in the form of rescission, restitution or reformation, statutory damages of $500 per violation, actual and punitive damages, attorneys' fees and costs under 10 U.S.C. § 987(f)(5)(B), injunctive relief, and pre- and post-judgment interest.
Plaintiff filed the initial complaint in the Central District of California on April 1, 2020. After cycling through three district judges and being twice amended, this civil action was transferred to this district. Defendant then refiled its previously filed Motion to Dismiss, which is pending before this Court.
Federal Rule of Civil Procedure 12(b)(6) requires dismissal when a "plaintiff's allegations fail to state a claim upon which relief can be granted." Adams v. NaphCare, Inc., 244 F. Supp. 3d 546, 548 (E.D. Va. 2017). A complaint must be more than speculative and must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). "[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a causeof action will not do." Id. (internal quotation marks and citations omitted). Although when deciding a motion to dismiss, a court assumes that the facts alleged in the complaint are true and resolves factual disputes in the plaintiff's favor, Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222 (4th Cir. 2009), it "is not bound by the complaint's legal conclusions," conclusory allegations, or unwarranted inferences. Id. Moreover, a court is not limited to the facts presented in the complaint and may consider documents attached to the defendant's motion where they are "integral to and explicitly relied on in the complaint." Phillips v. LCI Intern, Inc., 190 F.3d 609, 618 (4th Cir. 1999); see also Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004). Courts are not required to accept as true allegations that contradict exhibits attached to the complaint. Canal Ins. Co. v. Barker, No. 3:07cv339, 2007 WL 3551508, at *2 (E.D. Va. Nov. 15, 2007), aff'd, 358 F. App'x 470 (4th Cir. 2009) ().
In 2006, the Department of Defense ("DoD") submitted a report to Congress calling for "statutory protections . . . necessary to protect Service members from unfair, deceptive lending practices and usurious interest rates and to require uniform disclosure of credit costs and terms regarding lending practices." Department of Defense, Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents 46 (Aug. 9, 2006), http://archive.defense.gov/pubs/pdfs/Report_to_Congress_final.pdf ("2006 Report"). The report concluded that "[p]redatory lending practices are prevalent and target military personnel," and that they "undermine[] military readiness, harm[] the morale of troops and their families, andadd[] to the cost of fielding an all volunteer fighting force." Id. at 4, 53; see also Huntco Pawn Holdings, LLC v. U.S. Dep't of Def., 240 F. Supp. 3d 206, 211 (D.D.C. 2016). "In response, Congress enacted the MLA," which creates requirements and prohibits certain practices of "creditor[s] who extend[] consumer credit to . . . covered member[s] of the armed forces." Huntco Pawn Holdings, LLC, 240 F. Supp. at 211; 10 U.S.C. § 987(a). The MLA requires lenders to provide more robust disclosures to protect military consumers and redefines "annual percentage rate," which originated under the Truth in Lending Act ("TILA"), to include a variety of fees, credit insurance premiums, and charges for ancillary products. The MAPR defines "interest" as including:
all cost elements associated with the extension of credit, including fees, service charges, renewal charges, credit insurance premiums, any ancillary product sold with any extension of credit to a servicemember or the servicemember's dependent, as applicable, and any other charge or premium with respect to the extension of consumer credit.
10 U.S.C. § 987(i)(3). Additionally, the MLA makes it "unlawful for any creditor to extend consumer credit to a covered member or a dependent of such a member with respect to which . . . (3) the creditor requires the borrower to submit to arbitration or imposes onerous legal notice provisions in the case of a dispute." 10 U.S.C. § 987(e)(3). Under implementing regulations, creditors must also provide specific written and oral disclosures pursuant to 32 C.F.R. § 232.6 relating to the cost of credit, such as a statement of the MAPR and a clear description of payment obligations. A lender who violates the MLA is subject to civil liability, including actual damages "not less than $500 for each violation," punitive damages, costs, and attorney fees. 10 U.S.C. § 987(f)(5).
The MLA directs the Secretary of Defense to "prescribe regulations to carry out" the MLA, including defining "consumer credit" under the statute. 10 U.S.C. § 987(h). The DoD first adopted MLA implementing regulations in 2007. Limitations on Terms of Consumer CreditExtended to Service Members and Dependents, 72 Fed. Reg. 50580 (Aug. 31, 2007). On June 17, 2013, the DoD issued an Advanced Notice of Proposed Rulemaking ("Advanced Notice"), "regarding enhancement of the protections that apply to consumer credit extended to members of the armed forces and their dependents" and solicited "comment on the need to revise the Department's existing regulation that, in general, imposes certain limits on and requires certain disclosures relating to the provision of consumer credit to a covered borrower." Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 78 Fed. Reg. 36134-01, 36134 (June 17, 2013). The Advanced Notice contained an excerpt from the Conference Report on a bill entitled National Defense Authorization Act for Fiscal Year 2013, which explained that "[a] recent report by the Consumer Federation of America, The Military Lending Act Five Years Later, . . . . found that many predatory lenders have modified their products to avoid coverage by the Department's rules implementing section 987." 78 Fed. Reg. at 36134; Huntco Pawn Holdings, LLC, 240 F. Supp. 3d at 213. On September 29, 2014, the DoD issued a Notice of Proposed Rulemaking for proposed amendments to the 2007 Rule, Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 79 Fed. Reg. 58602 (Sept. 29. 2014). in which the DoD stated that it "believe[d] that a wider range of credit products offered or extended to Service members reasonably could—and should—be subject to the protections of the MLA, and that the extremely narrow definition of 'consumer credit' permits creditors to structure credit products in order to reduce or avoid altogether the obligations of the MLA." Id. at 58603.
More specifically, the Department propose[d] to amend its regulation so that, in general, consumer credit covered under the MLA would be defined consistently with credit that for decades has been subject to the protections under the Truth in Lending Act (TILA), namely: Credit offered or extended to a covered borrower primarily for personal, family, or household purpose, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments."
Id. at 58610. On July 22, 2015, the DoD issued the final version of the rule, which adopted the Proposed Rule's expanded definition of ...
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