In re Smith
| Decision Date | 03 December 1998 |
| Docket Number | Bankruptcy No. 98 B 00323,Adversary No. 98 A 00827. |
| Citation | 227 BR 667 |
| Parties | In re Garfield SMITH, Debtor. Garfield SMITH, on behalf of himself and all other similarly situated, Plaintiff, v. VW CREDIT, INC. and Autobarn, Ltd., d/b/a Autobarn Motors, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Daniel Edelman, Cathleen Combs, James Latturner and Sheila O'Laughlin, Edelman & Combs, Chicago, IL, for Plaintiff.
R. Scott Alsterda, Jim Daniels, Ungaretti & Harris, Chicago, IL, James Daniels, Kansas City, MO; Jay L. Statland, Chicago, IL, for Defendants.
This Adversary proceeding is at least partially related to the bankruptcy proceeding filed by Garfield Smith ("Plaintiff" or "Debtor") under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 101 et seq., on January 6, 1998. The Adversary was filed by Debtor on April 22, 1998, as an objection and counterclaim to the proof of claim filed by VW Credit, Inc., on February 17, 1998.1 The four-count Complaint is pleaded as a class action filed to redress alleged violations against Plaintiff and others of the Truth in Lending Act ("TILA") and the Illinois Consumer Fraud Act.2 It alleges that Defendant Autobarn made a misrepresentation to Plaintiff and others as to the "Itemization of Amount Financed" column in its contract concerning amounts disbursed to entities that issue extended warranties in connection with motor vehicle installment purchases. The sales contracts were assigned to VW Credit. Plaintiff alleges that VW Credit knew or should have know that the amounts represented on the installment contracts as having been disbursed to the issuers of extended warranties were not in fact disbursed to those issuers. On August 3, 1998, Defendant VW Credit filed its Answer to Plaintiff's Complaint. Defendant Autobarn has never filed an Answer.
After this Adversary was filed, a panel of the Seventh Circuit Court of Appeals published a controlling decision which ended any possible cause of action under Count I herein. As the remaining three counts deal solely with violations of state regulations, Plaintiff moved voluntarily to dismiss the Adversary proceeding without prejudice and without notice to the alleged class.3 While Defendants certainly agree that the Adversary should be dismissed,4 both of them object to Plaintiff's voluntary dismissal of the Complaint. They argue, pursuant to Fed. R.Civ.P. 41(b) (), that voluntary dismissal of the Complaint without prejudice may be conditioned, and should be conditioned in this case, upon an award of attorneys' fees. For reasons stated below, Plaintiffs' Motion to Voluntarily Dismiss will be granted unconditionally, and defense objections are overruled.
During August of 1996, Debtor purchased a used 1991 Mazda from Autobarn, a car dealership located in Evanston, Illinois. VW Credit, a corporation with offices located in Deerfield, Illinois, was the assignee of the retail installment contract.
In conjunction with the auto purchase, Debtor also purchased an extended warranty or service contract, also known as mechanical breakdown insurance, for which he was charged $995. The "itemization of amount financed" column on the retail installment contract states that $995 was paid to the insurer on Debtor's behalf for mechanical breakdown insurance. Plaintiff alleges that, in actuality, only a small portion of this extended warranty charge was paid to the insurer, and Autobarn retained the balance of the charge. Plaintiff asserts that this practice is misleading and deceptive in that it misrepresents the amount disbursed to the insurer and suggests that cost for the warranty is non-negotiable when it allegedly is negotiable. Plaintiff contends that the result is an overcharge on cost of the warranty. Plaintiff argues that VW Credit is also liable as it was aware that amounts written on the retail installment contract misrepresented cost of the extended warranty. Further, as a result of the increased amount financed, VW Credit is said to have benefited by lending additional funds. The action seeks redress for Plaintiff and all other persons purported to be similarly affected in their transactions.
On July 20, 1998, three months after this action was filed, a panel of the Seventh Circuit Court of Appeals issued its opinion in two cases consolidated for opinion purposes in Taylor v. Quality Hyundai, Inc., 150 F.3d 689 (7th Cir.1998). The opinion held under TILA that Congress precluded assignee liability unless a violation is apparent on the face of the disclosure statement or other document. Id. at 691. Plaintiffs' Complaint here, like the pleading in Taylor, asserts that, because VW Credit had extensive experience in financing used car transactions, it knew full well that the amount identified as having been paid to the insurer was excessive. However, the Circuit opinion expressly rejected this argument, stating that "only violations that a reasonable person can spot on the face of the disclosure statement or other assigned documents will make the assignee liable under the TILA." Id. at 694. That ruling negated any chance of recovery against VW Credit under TILA and therefore precluded any recovery under Count I.
Plaintiff moved to dismiss his Complaint by motion filed August 14, 1998. On August 21, 1998, Plaintiff filed his amended motion, considered here under Fed.R.Civ.P. 41(a)(2) (Fed.R.Bankr.P. 7041) for voluntary dismissal of all counts of his Adversary Complaint without prejudice either as to the individual plaintiff or to the class, and without notice to the class.5 Plaintiff argues that federal jurisdiction no longer exists over his claims since the Count I claim has been found without merit by the higher court. As a result, he wishes to file his remaining claims set forth in Counts II, III, and IV in state court.
Although Defendants filed their own motions to dismiss the Adversary for failure to state a claim, they object to Plaintiff's motion for voluntary dismissal. Autobarn requests that the entire Adversary and all its counts be dismissed with prejudice. VW Credit argues that under Fed.R.Civ.P. 41(a)(2), (applicable because one Defendant has filed an Answer), and because Defendants have already filed motions to dismiss, the action should not be dismissed save upon court order imposing conditions to dismissal. It contends that the Court should not permit a voluntary dismissal without prejudice where "plain legal prejudice" would result to the defendant. VW Credit's Memorandum at 4. Further, VW Credit argues that costs and attorneys' fees should be assessed against Plaintiffs if the case is dismissed without prejudice.
Subject matter jurisdiction lies under 28 U.S.C. § 1334. This matter is before the Court pursuant to 28 U.S.C. § 157 and Local General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. Venue lies properly under 28 U.S.C. § 1409. To the extent this action was brought as a counterclaim by Plaintiff individually against the VW Credit Inc. claim, it constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(C) ().6
The two rules governing dismissal of this action are: Fed.R.Civ.P. 41(a) (applicable pursuant to Fed.R.Bankr.P. 7041) and Fed. R.Civ.P. 23(e) (applicable pursuant to Fed. R.Bankr.P. 7023).
Rule 41(a) governs voluntary dismissal of actions and provides:
Fed.R.Civ.P. Rule 41(a). (Emphasis added).
Fed.R.Civ.P. 23(e) (made applicable by Fed.R.Bankr.P. 7023) provides that a "class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." Although Rule 41(a)(1) is expressly subject to Rule 23(e), Rule 41(a)(2) is not, and dismissal here is and must be considered under Rule 41(a)(2).
Thus, the first issue is whether Plaintiff may voluntarily dismiss his action and whether conditions should be placed upon such a dismissal. The second issue is whether notice of the dismissal is required to be given to the purported class.
The purpose of Rule 41(a)(2) is to permit plaintiffs to seek...
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