First Wisconsin Nat. Bank v. Nicolaou

• Citation: 335 N.W.2d 390,113 Wis.2d 524
• Decision Date: 01 July 1983
• Docket Number: No. 82-003,82-003
• Parties: FIRST WISCONSIN NATIONAL BANK, as Assignee of Russ Darrow of Madison, Inc., a Wisconsin corporation, Plaintiff-Respondent and Cross-Appellant, v. Basil and Catherine NICOLAOU, Defendants-Appellants and Cross-Resondents.
• Court: United States State Supreme Court of Wisconsin

Page 390

335 N.W.2d 390

113 Wis.2d 524

FIRST WISCONSIN NATIONAL BANK, as Assignee of Russ Darrow of

Madison, Inc., a Wisconsin corporation, Plaintiff-Respondent and Cross-Appellant, v. Basil and Catherine NICOLAOU, Defendants-Appellants and Cross-Resondents.

No. 82-003.

Supreme Court of Wisconsin.

Argued April 25, 1983.

Decided July 1, 1983.

John H. Lederer (argued), Madison, for appellants and cross-respondents; Ronald R. Ragatz, DeWitt, Sundby, Huggett & Schumacher, S.C., Madison, on brief.

James R. Cole (argued), Madison, for respondent and cross-appellant; Steven J. Kirschner and Ross & Stevens, S.C., Madison, on brief.

CALLOW, Justice.

This is an appeal and cross-appeal from a judgment of the Dane county circuit court, Reserve Judge William C. Sachtjen, which awarded appellants damages and attorney fees under the Wisconsin Consumer Act (WCA). ¹ This appeal was certified by the court of appeals and accepted by this court pursuant to sec. (Rule) 809.61, Stats.

On May 29, 1976, Basil and Catherine Nicolaou purchased a van from a dealer in Madison, Wisconsin. They financed the purchase through the dealer, executing an installment sale contract and security agreement. The dealer later assigned its rights under the contract to First Wisconsin National Bank (Bank).

Shortly after purchasing the van, the Nicolaous moved to Alaska. When their employment arrangements did not work out, they left Alaska for California. The Nicolaous violated the contract by making both moves without the knowledge or consent of the Bank. In addition, they fell behind in their payments. The Bank unsuccessfully attempted to contact the Nicolaous regarding their default on October 22, 1976. On November 12, 1976, the Bank sent them a notice of right to cure default but received no reply. The Bank located the Nicolaous in California on January 3, 1977, and ordered a collection agency to repossess the van as soon as possible. On January 4, 1977, the collection agency repossessed the van without legal process or the Nicolaous' consent.

The van was returned to Wisconsin and sold. The Bank then commenced an action for a deficiency judgment. The Nicolaous counterclaimed that the self-help repossession ordered by the Bank violated the WCA--specifically, sec. 425.206, Stats., 1975, ² (hereinafter all references in this opinion are to the 1975 statutes unless otherwise indicated) and therefore, they were entitled to relief in accordance with sec. 425.305. ³ The Nicolaous alleged that, by the terms of the contract, Wisconsin law governed its enforcement. Both sides moved for summary judgment. The trial court granted the Bank's motion and denied the Nicolaous' motion, ruling that California law applied. Judgment was entered on December 2, 1977, for the Bank in the amount of $2,500, plus costs and disbursements. The Nicolaous appealed. The court of appeals reversed the judgment and remanded the matter for further proceedings. First Wisconsin National Bank of Madison v. Nicolaou, 85 Wis.2d 393, 270 N.W.2d 582 (Ct.App.1978). The appellate court held that Wisconsin law applied to the repossession because the contract expressly provided that its validity, construction, and enforcement were to be "governed by the internal laws of Wisconsin." ⁴ The conflict of law provisions of sec. 421.201(5), do not constitute internal law and, therefore, were not adopted by the contract. Id. at 398, 270 N.W.2d 582. The court concluded that under Wisconsin law the Bank was required to resort to legal process to repossess the van in California. Id. at 400, 270 N.W.2d 582. Its failure to do so was a violation of the WCA. The Bank filed a petition seeking review of the court of appeals' decision. This court dismissed the petition for review, holding it was not timely filed. First Wisconsin National Bank of Madison v. Nicholaou [sic, Nicolaou], 87 Wis.2d 360, 274 N.W.2d 704 (1979). The matter was remanded to the trial court.

On April 16, 1979, the Nicolaous moved for relief on remand. Pursuant to a stipulation of the parties, the trial court vacated the December 2, 1977, judgment. Still at issue, however, was the amount of damages the Nicolaous were entitled to recover for the Bank's violation of the WCA. The Bank moved for leave to amend its reply to the Nicolaous' counterclaims. It sought to add the defense that its violation of the WCA was unintentional, resulting from a bona fide error within sec. 425.301(3), Stats. ⁵ The trial court denied the motion ruling that there was no need to amend the pleadings to raise the bona fide error defense because it had already been raised by the Nicolaous. ⁶

On December 22, 1980, the trial court filed a memorandum decision, holding that the Bank's violation of the WCA was unintentional resulting from a bona fide error. Thus the Bank's liability was limited to the extent provided by sec. 425.301(3), Stats. The Nicolaous were entitled to recover only the payments they had made on the contract ($1,393.08) pursuant to sec. 425.305(2), plus reasonable costs and attorney fees. On March 25, 1981, the Nicolaous petitioned for an award of attorney fees pursuant to sec. 425.308. ⁷ They requested $20,462.66, plus a 1.5 multiplier, for a total of $30,693.99. The trial court awarded the Nicolaous $8,500 in attorney fees, reducing the amount requested on three grounds. First, a multiplier is not sanctioned by Wisconsin law and, therefore, cannot be used to calculate attorney fees. Second, the Nicolaous cannot recover the attorney fees expended on the bona fide error defense because they did not prevail on that issue. Based on this ruling, the court reduced the potentially recoverable fees to $13,910.81. Finally, the court further reduced the award to $8,500 on the ground that attorney fees should bear some relation to the amount of damages recovered.

On November 25, 1981, the trial court entered a judgment awarding the Nicolaous damages totaling $9,893.08 ($1,393.08 in principal damages plus $8,500 for attorney fees, costs, and disbursements). The judgment also dismissed the Bank's complaint with prejudice and denied the Nicolaous recovery for the value of the van under sec. 425.305(1), Stats., and the attorney fees expended in litigating the bona fide error defense. The Nicolaous appealed and the Bank cross-appealed from parts of the judgment.

There are two issues presented on this appeal: (1) Whether a violation of the Wisconsin Consumer Act caused by a mistake of law may fall within the bona fide error defense under sec. 425.301(3), Stats.; and (2) whether the trial court's award of attorney fees was "sufficient to compensate" the customers' attorneys within sec. 425.308.

I. BONA FIDE ERROR

The WCA establishes several remedies for its violation which are to be liberally administered. ⁸ It does not, however, go so far as to mandate strict liability. Sec. 425.301(3), Stats., creates an exception to certain penalties of the WCA. This exception applies if the violator shows by a preponderance of the evidence that "the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."

This court has not previously construed sec. 425.301(3), Stats., to determine what constitutes a bona fide error. There is, however, some guiding authority. A provision of the Federal Truth in Lending Act (TILA) also creates a bona fide error defense. At the time this action arose, 15 U.S.C. sec. 1640(c) (1976) provided:

"A creditor may not be held liable in any action brought under this section for a violation of this subchapter if the creditor shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." (Emphasis added.)

The federal case law interpreting this provision must be accorded considerable weight in construing sec. 425.301(3). The language of 15 U.S.C. sec. 1640(c) is identical in pertinent part to sec. 425.301(3). Thus the federal cases are persuasive authority. Wisconsin Environmental Decade v. Public Service Commission, 79 Wis.2d 161, 174, 255 N.W.2d 917 (1977); In re Estate of Kersten, 71 Wis.2d 757, 763, 239 N.W.2d 86 (1976). Moreover, one of the purposes and policies of the WCA is "[t]o coordinate the regulation of consumer credit transactions with the policies of the federal consumer credit protection act." Sec. 421.102(2)(d). The TILA is part of the consumer credit protection act. Therefore, sec. 425.301(3) should be harmonized with related provisions of the TILA, particularly 15 U.S.C. sec. 1640(c).

The vast majority of federal courts have held that the bona fide error defense applies only to violations caused by unintentional acts such as inadvertent clerical errors. Errors of law, even if made in good faith, do not qualify for the defense. ⁹ Ratner v. Chemical Bank New York Trust Company, 329 F.Supp. 270, 281-82 (S.D.N.Y.1971); Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1167 (7th Cir.1974); Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir.1974); Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 250-51 (3d Cir.1980); McGowan v. King, Inc., 569 F.2d 845, 849 (5th Cir.1978); Ives v. W.T. Grant Company, 522 F.2d 749, 758 (2nd Cir.1975). ¹⁰ We agree with the foregoing authorities and adopt their holding as the proper construction of sec. 425.301(3), Stats. The fact that the bona fide error defense under the WCA covers a broader range of violations than the federal provision does not, as the Bank suggests, require that it be given a broader interpretation. The policies behind the WCA support the application of the federal precedent to sec. 425.301(3).

The basic purpose of the remedies set forth in Chapter 425, Stats., is to induce compliance with the WCA and thereby promote its underlying objects. ¹¹ Penalizing violations resulting from clerical errors ¹² would do little to achieve this...