In re Ferrell

• Decision Date: 22 August 2008
• Docket Number: No. 06-17243.,06-17243.
• Citation: 539 F.3d 1186
• Parties: In the Matter of Bobby FERRELL, Jr., Debtor, Kathleen A. McDonald, Appellant, v. Checks-N-Advance, Inc., Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

539 F.3d 1186

In the Matter of Bobby FERRELL, Jr., Debtor,

Kathleen A. McDonald, Appellant, v. Checks-N-Advance, Inc., Appellee.

No. 06-17243.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 18, 2008.

Filed August 22, 2008.

Christopher P. Burke, Esq., Las Vegas, NV, for plaintiff-appellant Kathleen McDonald, Chapter 13 Trustee for the Bankruptcy Estate of Bobby Ferrel, Jr.

Jean Constantine-Davis, Nina F. Simon, Deborah Zuckerman, AARP Foundation Litigation, Washington, DC; Stuart Rossman, National Consumer Law Center, Boston, MA; Dan L. Wulz, Clark County Legal Services Program, Inc., Las Vegas, NV, for amici curiae National Consumer Law Center, AARP, and Clark County Legal Services Program, Inc. in support of appellant.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Marlar, Montali, and Smith, Bankruptcy Judges, Presiding. BAP No. NV-05-01420-MaMoS.

Before: JEROME FARRIS, CARLOS T. BEA, and EUGENE E. SILER, JR.,^* Circuit Judges.

PER CURIAM:

Chapter 13 bankruptcy trustee Kathleen McDonald appeals the bankruptcy appellate panel's denial of her request for actual damages, statutory damages, attorneys' fees, and costs under the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and for attorneys' fees and costs under Nevada law. This appeal raises an issue of first impression for this circuit: whether statutory damages are available for violations of 15 U.S.C. §§ 1632(a) and 1638(b)(1). We hold that they are not. We also reject the Trustee's claim for actual damages and for attorneys' fees and costs.¹

BACKGROUND

On June 27, 2002, Bobby Ferrel, Jr. obtained a "pay-day loan"² from Checks-N-Advance, Inc.³ An unsigned promissory note from Checks-N-Advance specified that Ferrel⁴ received $300 as a pay-day advance. Ferrel was obligated to repay the $300 and a $45 financing fee by July 4, 2002. The stated annual percentage rate of interest was 782.143%. The "finance charge," "annual percentage rate," "amount financed," and "total of payments" appeared in the same font and size on the promissory note. McDonald claims that Ferrel did not receive disclosures required by the Truth in Lending Act before consummating the transaction.

Ferrel filed for Chapter 13 bankruptcy on February 7, 2003. Kathleen McDonald was appointed as trustee. The Trustee, not the unpaid creditor, filed a creditor's proof of claim on behalf of Check-N-Advance for the unpaid loan. She then initiated an adversary proceeding by filing a complaint requesting that the bankruptcy court disallow the claim. In the complaint, McDonald claimed the loan agreement: (1) failed to provide TILA-required disclosures prior to consummation of the transaction in violation of 15 U.S.C. § 1638(b); (2) failed "properly and conspicuously" to disclose the finance charge and the annual percentage rate in violation of 15 U.S.C. § 1632(a) and its implementing regulations; and (3) violated Nevada state consumer loan law, NRS § 604.164.3, which requires the same disclosures as TILA. McDonald sought damages and attorneys' fees and costs under TILA, as well as attorneys' fees and costs under Nevada law.

Checks-N-Advance did not respond to the Trustee's complaint. The bankruptcy court found Check-N-Advance violated the Truth in Lending Act and entered default judgment in favor of the Trustee by granting the objection to the proof of claim. Taking the factual allegations in the complaint as true, the bankruptcy court denied relief, however, on the Trustee's Truth in Lending Act claims. The court held that Checks-N-Advance violated 15 U.S.C. §§ 1632(a), 1638(b)(1), and Regulation Z (12 C.F.R. § 226.17(a)(2), (b)).⁵ However, relying on Brown v. Payday Check Advance, Inc., 202 F.3d 987 (7th Cir.2000), it denied the Trustee's request for statutory damages for violations of §§ 1632(a) and 1638(b)(1)⁶ and Regulation Z. The court further found that the Trustee failed to demonstrate actual damages. It also rejected the Trustee's state law claims.

The Trustee appealed to the bankruptcy appellate panel, which affirmed the bankruptcy court in a reasoned decision. McDonald v. Checks-N-Advance (In re Ferrell), 358 B.R. 777 (9th Cir. BAP 2006). The BAP based its decision on a close analysis of the text and legislative history of the Truth in Lending Act, and rejected the Trustee's request for statutory damages. Id. at 784-87. It acknowledged and followed both Brown and Baker v. Sunny Chevrolet, Inc., 349 F.3d 862 (6th Cir. 2003). Id. at 785. The BAP also dismissed the Trustee's claim for actual damages, for failure to prove Ferrel relied to his detriment on the faulty loan agreement citing In re Smith, 289 F.3d 1155 (9th Cir.2002) (per curiam). Id. at 790. The BAP rejected the Trustee's claim for attorneys' fees and costs pursuant to Nevada law. Id. at 792-93. It concluded that the Trustee did not meet the requirements for relief under Nevada law, and that the Trustee procedurally defaulted under Fed. R.Civ.P. 54(c). Id. by failing to plead the Nevada statute under which she sought attorneys' fees. The Trustee timely appealed.

DISCUSSION

I. Standard of Review

We review independently "the bankruptcy court's rulings on appeal from the BAP." Miller v. Cardinale (In re Deville), 361 F.3d 539, 547 (9th Cir.2004). We review the bankruptcy court's conclusions of law de novo, and its findings of fact for clear error. Hanf v. Summers (In re Summers), 332 F.3d 1240, 1242 (9th Cir.2003).

II. Statutory Scheme

Congress enacted the Truth in Lending Act in 1968 to strengthen the "informed use of credit" by requiring meaningful disclosure of credit terms to consumers. 15 U.S.C. § 1601(a). The purpose of the Act is to:

assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.

Id. "In order to effectuate this purpose" we construe the Act's provisions liberally in favor of the consumer. Jackson v. Grant, 890 F.2d 118, 120 (9th Cir.1989). "To insure that the consumer is protected . . . [the TILA and accompanying regulations must] be absolutely complied with and strictly enforced." Id. (alteration in original) (internal quotation and citation omitted).

Section 1638(a) sets forth the disclosures that creditors must make in closed-end consumer credit transactions,⁷ including pay-day loans. See 15 U.S.C. § 1638(a). Among other items, creditors must disclose the annual percentage rate of interest and finance charge. 15 U.S.C §§ 1638(a)(3), (4). Section 1638(b)(1) requires creditors to make these disclosures "before the credit is extended." Section 1632(a) imposes an extra obligation on creditors to disclose "[t]he terms `annual percentage rate' and `finance charge' . . . more conspicuously than other terms, data, or information provided in connection with a transaction." Congress added this requirement to the Act in 1980. It previously was a requirement only in Regulation Z. See S.Rep. No. 96-73, at 14 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 292.

The Truth in Lending Act provides a cause of action for consumers to obtain actual or statutory damages for a creditor's failure to comply with certain requirements of the Act. 15 U.S.C. § 1640(a).⁸ The Act broadly states that "any creditor who fails to comply with any requirement imposed under [part B] . . . or part D or E . . . is liable to" any consumer doing business with the creditor. 15 U.S.C. § 1640(a) (emphasis added). A consumer may recover "any actual damage sustained . . . as a result of the failure." Id. § 1640(a)(1). A consumer may also obtain statutory damages totaling "twice the amount of any finance charge in connection with the transaction" from a creditor who fails to comply with certain provisions of the Act. Id. § 1640(a)(2)(A)(i).⁹ However, there are exceptions to the recovery of statutory damages. The scope of these exceptions presents an issue of first impression. To resolve this question, we address only whether violations of §§ 1632(a) or 1638(b)(1)¹⁰ warrant statutory damages under § 1640(a)(2). We hold that they do not.

III. The Trustee is not Entitled to Statutory Damages for Violations of 15 U.S.C. § 1638(b)(1)

The Trustee contends that she may recover statutory damages for Checks-N-Advance's failure to comply with the disclosure timing rule of § 1638(b)(1). Relying on Lozada v. Dale Baker Oldsmobile, Inc., 145 F.Supp.2d 878 (W.D.Mich.2001), overruled by Baker v. Sunny Chevrolet, 349 F.3d 862 (6th Cir.2003), the Trustee argues that § 1638(b)(1) is not covered by § 1640(a)'s exceptions to statutory damages. We decline to follow Lozada.

The exceptions to § 1640(a)'s statutory damages are broader than the Trustee contends. The Act states that:

In connection with the disclosures referred to in section 1638 of this title, a creditor shall . . . [be liable for statutory damages] only for failing to comply with the requirements . . . of paragraph (2) (insofar as it requires a disclosure of the "amount financed"), (3), (4), (5), (6), or (9) of section 1638(a) of this title . . . .

15 U.S.C. § 1640(a) (emphasis added). The language "[i]n connection with the disclosures referred to in section 1638" encompasses more than just the disclosure rules of 1638. The use of the word "only" then limits recovery for violations of any of these disclosures to a closed list of violations of § 1638(a)(2) (only regarding the "amount financed"), (3), (4), (5), (6), or (9).¹¹ This accords with Congress's desire to "narrow a creditor's civil liability for statutory penalties to only those disclosure[s] which are of central importance in understanding a credit transaction's costs or terms." S.Rep. No. 96-73, at 7 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 285.¹² Reading the rule more broadly would not accord with Congress's intent to "eliminate litigation which is based on violations...