McDaniel v. Fulton National Bank of Atlanta, Civ. A. No. C 74-244 A.

• Citation: 395 F. Supp. 422
• Decision Date: 13 May 1975
• Docket Number: Civ. A. No. C 74-244 A.
• Parties: Robert P. McDANIEL, Plaintiff, v. The FULTON NATIONAL BANK OF ATLANTA, Defendant.
• Court: U.S. District Court — Northern District of Georgia

395 F. Supp. 422

Robert P. McDANIEL, Plaintiff, v. The FULTON NATIONAL BANK OF ATLANTA, Defendant.

Civ. A. No. C 74-244 A.

United States District Court, N. D. Georgia, Atlanta Division.

December 18, 1974.

Supplemental Opinion May 13, 1975.

E. Lundy Baety, Hill, Jones & Farrington, Atlanta, Ga., for plaintiff.

Richard R. Cheatham, Neal J. Fink, Marion H. Allen, Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Atlanta, Ga., for defendant.

ORDER

JAMES C. HILL, District Judge.

On December 9, 1974, the Court remanded this Truth-in-Lending action to the Special Master for consideration of plaintiff's claim under Regulation Z, 12 CFR sec. 226.8(b)(7). The Special Master in his original recommendations to this Court had not considered this claim. It now appears, however, that, in the interest of justice, the Court should rule on those questions considered by the Special Master in his report of September 19, 1974. Judge William L. Norton, acting as Special Master under Local Court Rule 250, recommended that judgment be granted to defendant and the petition be dismissed. Specifically, he found that reference to the Rule of 78's as the method of rebate of finance charges in event of prepayment of the loan is sufficient disclosure to satisfy the Truth-in-Lending Act, 15 U.S.C. Sec. 1601 et seq.; and that the right of the lender to accelerate the unpaid balance of the indebtedness in event of default is not, under the facts of this case, a charge which must be disclosed on the face of the disclosure statement. The recommendations of the Special Master in those holdings are approved and adopted as the order of this Court and incorporated as part of this order.

Plaintiff objects to the Special Master's recommendations on the issue of acceleration as being contrary to the law of this District as well as other districts. In support he cites Hall v. Sheraton Galleries, Inc., C.A. No. 19159 (N. D.Ga. June 4, 1974); Pollack v. Avco Financial Services, Inc., C.A. No. C74-248 (N.D.Ga.) (Special Master's recommendations not approved as order of this Court); Johnson v. McCrackin-Sturman Ford, Inc., 381 F.Supp. 153 (W.D.Pa.1974); and Garza v. Chicago Health Clubs, 347 F.Supp. 955 (N.D. Ill.1972).

While at first blush Garza and Johnson seem to support plaintiff's position, they are not controlling because of the difference between Georgia law and the law of the state involved in those cases. As was ably pointed out by the Special Master, in Georgia no additional amount is to be paid by the debtor in the event of default and ensuing acceleration. The debtor's balance due is adjusted by any unearned Finance Charge or unearned credit life insurance premium and the debtor is charged only for the actual earned portions thereof. In addition as Judge Norton stated in his recommendations:

Because, in Georgia see Garrett v. G. A. C. Finance Corp., 129 Ga.App. 96 198 S.E.2d 717 (1973), the rebate upon acceleration is required to be computed under the consent ratio method rather than the direct ratio or actuarial method, if the annual percentage rate were computed over the term of the loan to date of prepayment (less than the full term), the annual percentage rate would be lower than disclosed at the outset of the transaction, the effect being an "acceleration bonus" rather than any default "charge." (page 17)

In both Garza and Johnson the courts dealt with a situation where there would be no rebate of any interest. Thus, the interest to be paid upon acceleration that had not been earned could well be considered an additional charge. Since this is not the situation in Georgia, these cases are not applicable to the situation sub judice.

The Pollack case, also cited as authority for plaintiff's position, is not binding on this Court. The recommendations of the Special Master were never reviewed, approved or adopted as the order of the Court.¹ The reasoning behind the recommendations, however, may be persuasive. To the extent that these recommendations are based on Garza and Johnson this Court does not feel that they present a true picture of the situation in light of Georiga law. Since this Court has found Garza and Johnson inapplicable to the case at hand, it cannot be persuaded by reasoning based upon these two decisions.

The Special Master's recommendations in Hall were adopted by the Court, and therefore, deserve careful consideration. This Court, however, feels that Hall is not controlling. It should be first noted that the decision in Hall was a progeny of Garza, and there was no attempt in Hall to distinguish the variations of fact and law in the two cases. Again, the philosophy of Hall cannot apply in this case where the Court has held Garza and Johnson inapplicable. Further, the recommendations of the Special Master in Hall were summarily approved by the Court only after it appeared that neither party desired to contest the Special Master's findings. Finally, in Hall and Garza there was a question of whether or not the collection of attorney's fees upon default was an additional charge when it did not appear on the face of the disclosure statement. That issue, in itself perhaps enough to create a violation of the Act, (it is not necessary to decide that question here) does not appear in the instant case. As previously stated, an acceleration of the loan by the creditor here would not obligate plaintiff to pay any additional charge that did not appear on the face of the disclosure sheet. Accordingly, this Court does not feel obligated to follow the reasoning of Hall in light of its reliance on Garza and the difference between the facts and law of Garza and the case sub judice.

Since the recommendations of the Special Master, the question of whether or not an acceleration is a charge that must be disclosed under the provisions of 226.8(b) (4) has been considered by the Honorable Alexander A. Lawrence, Chief Judge, Southern District of Georgia. In Grant v. Imperial Motors, C.A. No. 3146 (S.D.Ga. Dec. 4, 1974), Judge Lawrence concluded that the right of acceleration is not a charge that needs to be disclosed. He concluded that Garza and its progenies are not valid precedent under Georgia law. This Court agrees with Judge Lawrence's analysis of the issue.

It is therefore ordered that the recommendations of the Special Master are adopted as the order of this Court insofar as they find no violation of the Truth-in-Lending Act under defendant's disclosure of the "Rule of 78's" and no violation in the failure to disclose the right of acceleration as a charge under 12 C.F.R. 226.8(b)(4). The Court does remand the case to the Special Master for further consideration as outlined in the Court's order of December 9, 1974.

It is so ordered this 18 day of December, 1974.

SUPPLEMENTAL OPINION

This is an action under the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. Plaintiff has alleged three specific violations of the Act; to wit: 1 the alleged inadequate reference of the Rule of 78's as the method of rebate of finance charges in event of prepayment of the loan, 2 the alleged failure to disclose the right to accelerate the unpaid balance in event of default as constituting a charge in violation of Regulation Z, 12 C.F.R. § 226.8(b)(4), and 3 the failure to disclose the method of rebate in the event of acceleration of the loan in violation of Regulation Z, 12 C. F.R. § 226.8(b)(7).

In a previous order dated December 18, 1974, the Court considered the first two allegations and found no substance to them. The action was then resubmitted to a Special Master for consideration of the third allegation. The case is now before the Court on the Special Master's recommendations as to the third allegation.

It is noted, however, that since the Court's original order, Chief Judge Newell Edenfield of this District has considered the question contained in the second allegation. Barrett et al. v. Vernie Jones Ford, Inc. et al., 395 F.Supp. 904 (N.D.Ga.1975).¹ Judge Edenfield held that § 226.8(b)(4) requires a creditor to properly disclose an acceleration clause when, by its terms, it authorizes the creditor to demand immediate payment of future installments including unearned interest and finance charges upon default. Thus that order conflicts in many respects with this Court's previous ruling in this action. Since no final judgment has been entered here² the Court feels that it is prudent and wise to reconsider its previous ruling and clearly state what it now feels to be the correct rule on this issue.

Anticipating this reconsideration, counsel for both parties have supplied the Court with additional briefs on the acceleration issue. The Court notes, however, that reconsideration of the December 18th order is limited to the allegation that defendant violated § 226.8(b)(4) in failing to disclose the right of acceleration.

The Court finds that the factual situation is not in dispute. On or about June 6, 1973, plaintiff purchased a new automobile from Beaudry Ford, Inc.³ and executed a conditional sales contract which was assigned by Beaudry Ford to defendant. This contract conformed with and was made pursuant to the Georgia Motor Vehicle Sales Finance Act, Ga.Code Ann. § 96-1001 et seq., and had attached to it a disclosure statement pursuant to the Truth in Lending Act. The back of the disclosure statement contained the following clause:

In the event of a default hereunder, all unpaid installments and indebtedness secured hereby may, at the option of Seller and without demand or notice of any kind, be declared and thereupon immediately shall become due and payable . . ..

In its previous order in this action, the Court rejected the reasoning of Garza v. Chicago Health Clubs, 347 F. Supp. 955 (N.D.Ill.1972) and its progenies that held that the right of acceleration is a charge that must be disclosed pursuant to § 226.8(b)(4). Then relying upon Garrett v. G. A. C. Finance Corp., 129 Ga.App. 96, 198 S.E.2d 717 (1973), the Court held that...