Kenney v. Landis Financial Group, Inc.

• Decision Date: 12 June 1974
• Docket Number: No. 71-C-32-CR.,71-C-32-CR.
• Citation: 376 F. Supp. 852
• Parties: Wally KENNEY, on behalf of himself and all other persons similarly situated, Plaintiff, v. LANDIS FINANCIAL GROUP, INC., Defendant.
• Court: U.S. District Court — Northern District of Iowa

376 F. Supp. 852

Wally KENNEY, on behalf of himself and all other persons similarly situated, Plaintiff, v. LANDIS FINANCIAL GROUP, INC., Defendant.

No. 71-C-32-CR.

United States District Court, N. D. Iowa, Cedar Rapids Division.

June 12, 1974.

Everett Meeker, Washington, Iowa, Lex Hawkins, Glenn L. Norris, Des Moines, Iowa, for plaintiff.

Donald A. Wine, Ronald L. Hersbergen, Des Moines, Iowa, Edward J. Heiser, Jr., Richard C. Ninneman, Milwaukee, Wis., for defendant.

ORDER

McMANUS, Chief Judge.

This action for alleged violations of the Federal Truth-in-Lending Act (FTLA), 15 U.S.C. § 1601, was tried to the court.

Although the court has previously granted summary judgment or dismissal with regard to the majority of paragraphs in plaintiff's amended complaint, trial to the court was necessary to resolve the question of jurisdiction, affirmative defenses, factual issues relating to Paragraphs 8, 29 and 30 of plaintiff's amended complaint, and defendant's entitlement to recover on its counterclaim.

Jurisdiction

The court has jurisdiction of this action pursuant to 15 U.S.C. § 1640(e) only if the underlying transaction qualifies as a consumer credit transaction and not one for "business or commercial purposes." 15 U.S.C. § 1603(1).

15 U.S.C. § 1602(h) provides,

"The adjective `consumer', used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, household, or agricultural purposes."

Plaintiff testified that his purpose in obtaining the loan from defendant was to purchase a new washer and dryer for his family's use as evidenced by the fact that at the time he applied for the loan he gave defendant's employee a slip of paper containing the price and model numbers of the appliances he intended to purchase from Jerry and Bill's Tires and Appliances in Washington, Iowa. Plaintiff further testified that he decided to contact his attorney about the loan only after he got home and his wife pointed out that the annual interest rate on the loan was 29.7%.

Defendant, however, argues that plaintiff's purpose in obtaining the loan was to finance this lawsuit as evidenced by his failure to purchase the washer and dryer and the fact that he testified in his deposition that he was considering suing Collins Employees' Credit Union for FTLA violations similar to those alleged in this action prior to obtaining the loan from defendant and intended to use part of the proceeds of the loan for purposes other than what he indicated to defendant.

From reviewing the record, the evidence on this question appears extremely close. The court is especially bothered by the contradictions between plaintiff's deposition taken on March 19, 1973 and his testimony at trial which in the court's estimation tend to reduce his credibility. Plaintiff's more vivid recollection of the facts surrounding the transaction 10 months after the taking of his deposition is contrary to the general situation wherein a person's ability to recall facts lessens with the passage of time. The court further finds it difficult to believe that a person in plaintiff's precarious financial condition who had discussed bankruptcy with his attorney and had had the experience of obtaining numerous loans, would be totally oblivious to the interest rate which defendant charged on its loan to him and which was stated on the documents which defendant gave him. Finally, the court considers significant plaintiff's testimony in his deposition that prior to obtaining the loan from defendant he had discussed filing a lawsuit against another creditor for FTLA violations similar to those involved in this action.

On the basis of these facts, and from reviewing the entire record, it is the court's view that plaintiff has failed to establish by a preponderance of the evidence that the transaction in question was a consumer credit transaction and not one for business or commercial purposes. Accordingly, this action must be dismissed for lack of jurisdiction and all summary judgments heretofore entered should be vacated.

Defendant's Counterclaim

Although plaintiff's complaint has been dismissed, the court has ancillary jurisdiction over defendant's counterclaim without the need for any independent jurisdictional basis since it is a compulsory counterclaim arising out of the same transaction or occurrence as plaintiff's claim. 6 Wright & Miller, Federal Practice & Procedure § 1409, at 39 (1971).

In its counterclaim, defendant seeks to recover the entire total of payments of $864.00 past due under the loan it made to plaintiff on July 29, 1971 plus all accrued delinquency charges as of the date of judgment.

Plaintiff admits that the note has not been paid but asserts two affirmative defenses based on alleged violations of Chapt. 536 of the Iowa Code (1973): (1) the note is void because it provides for various charges not permitted under Chapt. 536 in violation of § 536.13(6); (2) the defendant filled in blank spaces on the forms after the transaction was consummated, in violation of § 536.12.

Plaintiff's first defense is based upon this court's ruling of March 30, 1972 that defendant's use of the Rule of 78ths to compute rebates upon prepayment violates § 536.13(6) and § 536.13(7)(c) since the latter section requires use of the actuarial method to compute rebates.

At trial, defendant's expert Dr. Johnson testified that in his opinion § 536.13(7)(c) stated the Rule of 78ths method for computing rebates. Def...