Gambardella v. G. Fox & Co.

• Decision Date: 09 August 1983
• Docket Number: D,No. 1188,1188
• Citation: 716 F.2d 104
• Court: U.S. Court of Appeals — Second Circuit
• Parties: David GAMBARDELLA, et al., Plaintiffs-Appellees, v. G. FOX & CO., Defendant-Appellant. ocket 83-7063.

Page 104

716 F.2d 104

David GAMBARDELLA, et al., Plaintiffs-Appellees, v. G. FOX & CO., Defendant-Appellant.

No. 1188, Docket 83-7063.

United States Court of Appeals, Second Circuit.

Argued April 28, 1983.

Decided Aug. 9, 1983.

Bourke G. Spellacy, Hartford, Conn. (Updike, Kelly & Spellacy, P.C., Hartford, Conn., Sharon L. Aresco, Emily G. Holcombe, Deborah A. Monteith, Hartford, Conn., of counsel), for defendant-appellant.

David M. Lesser, New Haven, Conn. (Clendenen & Lesser, P.C., William H. Clendenen, Jr., New Haven, Conn., of counsel), for plaintiffs-appellees.

Before LUMBARD, NEWMAN and PRATT, Circuit Judges.

LUMBARD, Circuit Judge:

G. Fox & Co. (G. Fox), a department store chain, appeals from orders of the District Court for the District of Connecticut, Cabranes, J., granting Mr. and Mrs. David Gambardella summary judgment, and awarding them statutory damages of $100 and attorney's fees of $6,222, in their action against G. Fox alleging violations of federal and state truth-in-lending laws. The Gambardellas, Connecticut residents, have an open-end credit account with G. Fox. The Gambardellas allege that the monthly account statements G. Fox sent them between September 23, 1980 and September 22, 1981 violated the federal Truth in Lending Act (TILA), 15 U.S.C. Secs. 1601 et seq., and coordinate Connecticut statutes, Conn.Gen.Stat. Secs. 36-393 et seq., in numerous respects. Judge Cabranes, on September 20, 1982, granted the Gambardellas summary judgment on two alleged violations, thus finding it unnecessary to rule upon four additional claims. We believe that G. Fox's account statements complied with applicable laws both in those points ruled upon by Judge Cabranes and those not ruled upon. We therefore reverse the judgment, vacate the award of attorney's fees, and remand with directions to dismiss the complaint.

Congress has authorized the Federal Reserve Board (FRB) to exempt from compliance with TILA, and with the implementing regulations promulgated by the FRB, 12 C.F.R. Secs. 226.1 et seq. (Regulation Z), "any class of credit transactions within any State" that the FRB determines to be subject to enforceable state law requirements "substantially similar" to federal disclosure requirements. 15 U.S.C. Sec. 1633. Accordingly, the FRB in 1970 exempted from compliance with TILA and Regulation Z most classes of credit transactions in Connecticut, including open end credit accounts. 12 C.F.R. Sec. 226.55(e). Under the exemption the federal disclosure requirements applicable to Connecticut credit transactions are those imposed by Connecticut's Truth-in-Lending Act, Conn.Gen.Stat. Secs. 36-393 et seq., and implementing regulations promulgated by Connecticut's Banking Commissioner, except to the extent that state law requires disclosures not required by federal law. 12 C.F.R. Sec. 226.12(c)(2). See Ives v. W.T. Grant Co., 522 F.2d 749, 753 (2d Cir.1975); Grey v. European Health Spas, Inc., 428 F.Supp. 841, 843 n. 1 (D.Conn.1977). Since Connecticut law is the law applicable to the Gambardellas' claims, primary citation in this opinion will be made to Connecticut statutes and regulations, and parallel citations, in parentheses, will be made to the corresponding provisions of federal law. The federal and state laws are, however, substantially identical, and are directed toward the same goals, and thus judicial and administrative interpretations of TILA and Regulation Z are relevant here. See Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 2 (1st Cir.1981).

In 1980 Congress substantially amended TILA by enacting the Truth in Lending Simplification and Reform Act (TILSRA), passed as Title VI of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub.L. No. 96-221, Sec. 601, 94 Stat. 168 (1980). Because G. Fox issued all of the challenged account statements prior to TILSRA's effective date of October 1, 1982, ¹ this case must be decided under TILA, Regulation Z, and Connecticut law as they stood prior to TILSRA's enactment.

A. Claims Ruled Upon.

1. Amount of Payment Necessary to Avoid Additional Finance Charges.

G. Fox imposes a monthly finance charge upon the average daily balance in its customers' accounts. The finance charge is assessed at a rate of 1.25% upon the sum of the customer's daily balances during the monthly billing cycle divided by the number of days in the cycle. No finance charge is assessed, however, if the customer's balance at the start of the billing cycle is $3 or less. G. Fox informs customers of its finance charge policy with disclosures on both the front and the reverse of its account statements. ² The front advises customers: "TO AVOID ADDITIONAL FINANCE CHARGES PAY THE NEW BALANCE IN FULL BY THE PAYMENT DUE DATE"; the reverse, however, discloses that "No FINANCE CHARGE is assessed in any billing period in which the 'Previous Balance' ... is $3 or less." The terms "new balance" and "previous balance" are defined by regulation. New balance is the account balance at the close, and "previous balance" is the account balance at the start, of a billing cycle. Sec. 36-395-6(b)(1)(i), (ix), (Sec. 226.7(b)(1)(i), (ix)). Because the balances in an account at the close of a given billing cycle, and at the start of the immediately succeeding cycle, are the same, a customer's "new balance" at the close of a cycle is carried into the next billing cycle as his "previous balance." When this relationship between "new balance" and "previous balance" is kept in mind, a contradiction between G. Fox's two disclosures becomes apparent. The front states without qualification that the "new balance" disclosed on the periodic statement must be paid in full to avoid additional finance charges in the subsequent billing period. The reverse, however, reveals that additional finance charges will not be assessed, even if no payment is made, if the "new balance" is $3 or less. ³ The Gambardellas claim, and the district judge ruled, that this contradiction violates Connecticut regulations governing the disclosure of information in periodic statements. ⁴ We disagree.

Creditors who maintain open-end credit accounts must, at the close of each billing cycle, provide their customers with account statements disclosing the information specified in Conn.Bank.Reg. Sec. 36-395-6(b)(1), (Sec. 226.7(b)(1)). The required disclosures must be made "clearly, conspicuously, in meaningful sequence, ... and at the time and in the terminology prescribed." Sec. 36-395-5(a), (Sec. 226.6(a)). The creditor may, if it chooses, include in its periodic statements additional information or explanations but such additional information may not be "stated, utilized or placed so as to mislead or confuse the customer or contradict, obscure or detract attention from the information required to be disclosed." Sec. 36-395-5(b), (Sec. 226.6(c)). The district judge did not determine whether Sec. 36-395-6(b)(1) requires disclosure of the amount of payment necessary to avoid additional finance charges. Instead, the judge ruled that the contradiction between G. Fox's statements rendered them "unclear and misleading," and placed them in violation of the regulations, regardless of whether disclosure was required or voluntary. We believe the judge should have determined, before making his ruling, whether Sec. 36-395-6(b)(1) required G. Fox to disclose the information at issue. As Sec. 36-395-5(a) & (b) establish different standards of review for required and additional disclosures, analysis of the Gambardellas' claim would have been facilitated by such a determination. We conclude that the amount of payment necessary to avoid additional finance charges is an additional, and not a required, disclosure.

Our analysis necessarily begins with the express language of the statute and regulations. See Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 560, 100 S.Ct. 790, 794, 63 L.Ed.2d 22 (1980). Section 36-404(b)(9) & (10) of the Connecticut General Statutes (15 U.S.C. Sec. 1637(b)(9) & (10)), specifies the information creditors must reveal about additional finance charges. The statute is implemented in Conn.Bank.Reg. Sec. 36-395-6(b)(1)(ix), (12 C.F.R. Sec. 226.7(b)(1)(ix)) ("Section 9"), which requires disclosure of:

the closing date of the billing cycle and the outstanding balance in the account on that date, using the term "new balance", ... accompanied by the statement of the date by which, or the period, if any, within which, payment must be made to avoid additional finance charges, except that the creditor may, at his option, and without disclosure, impose no such additional finance charges if payment is received after such date or termination of such period.

Although this language clearly requires creditors to disclose (1) the closing date of the billing cycle, (2) the "new balance," and (3) the payment due date, neither it, nor any other provision of the state or federal regulations, expressly requires disclosure of the amount of payment necessary to avoid additional finance charges.

The absence of an express disclosure requirement in the regulations is significant, although not conclusive, evidence that disclosure is not required. Regulation Z "cannot speak explicitly to every credit disclosure issue," Milhollin, 444 U.S. at 560, 100 S.Ct. at 794, and courts therefore must be prepared, in appropriate cases, to infer from the statutory and regulatory schemes, and from TILA's underlying policies, disclosure requirements beyond those expressly stated in the regulations.

The regulatory scheme strongly suggests that disclosure of the amount of payment necessary to avoid finance charges is not required. Particular regard must be paid Sec. 36-395-6(b)(1)(v), (Sec. 226.7(b)(1)(v)), ("Section 5"), which requires creditors to disclose certain information about the methods used to compute finance charges. Section 5 requires disclosure of "each periodic rate ... that may be used to compute the finance charge, whether or not applied...