In re Warren

• Decision Date: 20 January 1975
• Docket Number: No. 60657.,60657.
• Citation: 387 F. Supp. 1395
• Parties: In the Matter of Billy Joe WARREN, Bankrupt. William P. MEEHAN, Trustee, Plaintiff-Appellee, v. NELSONVILLE MOBILE HOME SALES et al., Defendants-Appellants.
• Court: U.S. District Court — Southern District of Ohio

387 F. Supp. 1395

In the Matter of Billy Joe WARREN, Bankrupt.

William P. MEEHAN, Trustee, Plaintiff-Appellee, v. NELSONVILLE MOBILE HOME SALES et al., Defendants-Appellants.

No. 60657.

United States District Court, S. D. Ohio, E. D.

January 20, 1975.

COPYRIGHT MATERIAL OMITTED

Craig Stewart, Denis J. Murphy, Patcher, Murphy & Allison, Columbus, Ohio, for plaintiff-appellee.

Lawrence J. Burns, Cunningham, Burns & Gibbs Co., L. P. A., Columbus, Ohio, for defendants-appellants.

OPINION AND ORDER

KINNEARY, Chief Judge.

This is an appeal from an Order of the bankruptcy court granting the trustee a judgment on a cause of action arising under the Truth in Lending Act, 15 U.S.C. § 1601 et seq.

Plaintiff-appellee, William P. Meehan, is the trustee in bankruptcy for the estate of the bankrupts, Billy Joe and Jacalyn Marie Warren. Defendants-appellants are Nelsonville Mobile Home Sales and the First National Bank of Nelsonville.

The bankruptcy court made the following finding of uncontroverted fact:

On February 16, 1973, Billy Joe and Jacalyn Marie Warren purchased a 1973 Hillcrest Mobile Home from Nelsonville Mobile Home Sales. Two documents pertinent to the transaction have been furnished to the Court. One is a "Retail Installment Sale — Note — Security Agreement and Disclosure Statement" (Attached hereto as Exhibit A); the other is a "Purchase Agreement, UCC § 2-201" (Attached hereto as Exhibit B). Each is a one sheet document with printing on both sides. In the upper right hand corner of the face of each document is the date, "2-16-73." On the reverse side of the combined note, security agreement and disclosure statement is an assignment of the note from Nelsonville Mobile Home Sales to First National Bank of Nelsonville, Ohio dated February 17, 1972.

Mr. and Mrs. Warren took delivery of the mobile home, made four payments, and on September 12, 1973 filed petitions in bankruptcy in this Court. After the first meeting of creditors William P. Meehan was appointed by the Court as trustee in bankruptcy for both bankrupts and on October 16, 1973, Craig Stewart, Esq., attorney for the trustee wrote to the attorney for the First National Bank of Nelsonville, Michael Nolan, Esq., and stated:

Dear Mike:

This confirms our previous telephone conversation wherein I released the mobile home to the First National Bank of Nelsonville, Ohio. Your client may repossess or renegotiate. This was conditioned upon your representation that there was approximately a $6000 plus payoff, that your client is properly secured on the mobile home, and that you would send me all documents requested which show the current balance and the lien.

Very truly yours /s/ Craig

No application to abandon the mobile home has yet been filed by the trustee in this Court and no order of abandonment has been issued by the Court.

On October 26, 1973, William P. Meehan, the trustee, filed a complaint in this Court naming Nelsonville Mobile Home Sales and First National Bank of Nelsonville as defendants. In the complaint he alleged that the sales company and the bank had violated the Federal Truth in Lending Act by not including the credit life insurance premium in the finance charge and thus disclosing to the Warrens a lower "finance charge" and "annual percentage rate" than were actually imposed upon them in the transaction of February 16, 1973.

. . . . . .

The document used by Nelsonville Mobile Home Sales, Inc. on February 16, 1973 to make the required Federal disclosures to Mr. and Mrs. Warren was a combined "Retail Installment Sale-Note-Security Agreement and Disclosure Statement" (Exhibit A). This form is clearly divided into four parts: a cost disclosure, insurance disclosure, description of goods, and note and purchase money security agreement. In the cost disclosure section of the document a charge of $1113.00 is made for "Insur." and this charge is included in the "Amount Financed." The same portion of the document discloses a "Finance Charge" of $5575.28 and an "Annual Percentage Rate" of 10.70%.

The "Insurance Disclosure" portion of the document contains the following language:

. . . Credit Life and/or Disability Insurance are not required for credit. Such insurance is available at a cost of $600.00 for the term of the credit.

I (do) (do not) desire Cr. Life & Physical Damage $513.00 /s/ Billy J. Warren (underlined material handwritten)

The bankruptcy court held that Billy Joe Warren's written indication of his desire to purchase credit life insurance was not specifically dated as required by Regulation Z, 12 C.F.R. 226.4(a)(5) and the Truth in Lending Act. Failure to comply with Regulation Z requires the credit life charge to be included in the finance charge on the disclosure statement. 15 U.S.C. § 1605(b). It was not; therefore, the finance charge was understated by $600.00 on the disclosure statement. The disclosed annual percentage rate was 10.70%, but the actual rate, with the addition of the $600.00 credit life charge, was 12.75%. The bankruptcy court further found that both Nelsonville Mobile Home Sales and the First National Bank of Nelsonville are creditors within the meaning of the Truth in Lending Act, 15 U.S.C. § 1602(f), and are jointly liable in the amount of $1,000 damages, attorney's fees, and costs. 15 U.S.C. § 1640.

Appellants' brief raises three issues on appeal:

1. Did the bankruptcy court have jurisdiction to adjudicate the Truth in Lending cause of action?

2. Is the trustee a proper party to bring this action?

3. Did a violation of the Truth in Lending Act occur?

Each of these issues will be considered separately below.

I

Appellants answered the complaint and submitted the case for decision by the bankruptcy court without objecting to that court's jurisdiction. The first time appellants raised the jurisdictional issue was in their brief in this Court.¹ Plaintiff argues that appellants waived any objection they had to the bankruptcy court's jurisdiction. Appellants contend that the bankruptcy court was wholly without jurisdiction, and that jurisdiction cannot be conferred by consent or waiver.

An action to enforce a Truth in Lending Act liability may be brought in a United States District Court or "in any other court of competent jurisdiction . . .." 15 U.S.C. § 1681p. There is no provision in the Truth in Lending Act for jurisdiction in the bankruptcy court.

Section 2a(7) of the Bankruptcy Act, 11 U.S.C. § 11a(7), provides, in relevant part:

. . . courts of bankruptcy . . . are hereby invested . . . with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in proceedings under this title . . ., to —

. . . . . .

(7) Cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided . . .; and where in a controversy arising in a proceeding under this title an adverse party does not interpose objection to the summary jurisdiction of the court of bankruptcy, by answer or motion filed before the expiration of the time prescribed by law or rule of court or fixed or extended by order of court for the filing of an answer to the petition, motion or other pleading to which he is adverse, he shall be deemed to have consented to such jurisdiction; . . .

Prior to the enactment of the Bankruptcy Act of 1898 the bankruptcy courts had broad powers in law and equity to determine controversies relating to the estates of bankrupts. In 1898 the broad jurisdictional grant was limited by the addition of the phrase "except as herein provided." See, Williams v. Austrian, 331 U.S. 642, 648-649, 658, 67 S.Ct. 1443, 91 L.Ed. 1718 (1947). The exception refers to § 23 of the Bankruptcy Act, 11 U.S.C. § 46, which provides, in relevant part:

(a) The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings under this title, between receivers and trustees as such and adverse claimants, concerning the property acquired or claimed by the receivers or trustees, in the same manner and to the same extent as though such proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.

(b) Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this title had not been instituted, unless by consent of the defendant . . ..

Thus, § 23 withdraws from the bankruptcy courts jurisdiction of plenary suits which prior to bankruptcy the bankrupt might have brought in State courts. The bankruptcy court, however, has summary jurisdiction of proceedings under the Bankruptcy Act. The question for decision is whether, under § 2a(7) of the Bankruptcy Act, an adverse party may waive his right to a plenary suit and consent to the summary adjudication of a right of action in the bankruptcy court.

The Court will first consider the distinction between summary proceedings and plenary actions. It is mainly an historical one. The principal difference today is that summary proceedings are tried to the court, whereas there is a right to a jury trial in most plenary actions. Copenhaver, Summary Jurisdiction, 41 Journal of the National Conference of Referees in Bankruptcy 108 (1967). It is said that summary proceedings are quicker and less formal, while plenary actions are ordinary civil suits with summons, formal pleadings and trial. 2 Collier on Bankruptcy ¶ 23.02, pp. 440-441 (14th ed. 1973). See, Katchen v. Landy, 382 U.S. 323, 326-327, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966); Tamasha Town & Country Club v. McAlester Construction Finance Corp., 252 F.Supp. 80, 85 (S.D.Cal.1966). With the promulgation of the new Bankruptcy Rules the procedures observed in bankruptcy courts are uniform and very much similar to the procedures required by the Federal Rules of Civil Procedure. Of course, the bankruptcy...