Miller v. Nissan Motor Acceptance Corp.

Decision Date22 March 2004
Docket NumberNo. 02-2573.,No. 02-2432.,02-2432.,02-2573.
PartiesBrian S. MILLER; Michael Rose; Michelle Rose, H/W, on Behalf of Themselves and all Others Similarly Situated v. NISSAN MOTOR ACCEPTANCE CORP. Nissan Motor Acceptance Corporation ("NMAC"), Appellant Brian S. MILLER; Michael Rose; and Michelle Rose, Appellants.
CourtU.S. Court of Appeals — Third Circuit

Darryl J. May, (Argued), Raymond A. Quaglia, Amy B. Carver, Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, PA, for Appellant/Cross-Appellee, NMAC.

Cary L. Flitter, (Argued), Lundy, Flitter, Beldecos & Berger, P.C., Narberth, PA, Michael D. Donovan, Donovan Searles, LLC, Philadelphia, PA, Kirby, McInerney & Squire, LLP, New York, NY, for Appellees/Cross-Appellants, Miller and Rose.

Before ALITO and McKEE, Circuit Judges, and SCHWARZER, District Judge.*

OPINION

McKEE, Circuit Judge.

In these cross-appeals, we are presented with a number of questions concerning certain requirements of the Consumer Leasing Act ("CLA"), 15 U.S.C. §§ 1667-1667e, as they apply to automobile leases. As we will explain in some detail, when the plaintiffs/lessees terminated their leases prior to the expiration of the terms of their respective leases, the lessor required that they pay the balance of the remaining monthly payments due under their leases rather than charge them the early termination fee in accordance with a formula contained in their leases. The lessees paid that charge and then instituted suit claiming that the method for determining the early termination charges they actually paid violated the disclosure requirements of the CLA § 1667a. The lessees also claimed that the early termination charge they actually paid violated the substantive reasonableness requirements of CLA § 1667b(b), and that the method for calculating the early termination charge contained in their leases violated the substantive requirements of the CLA as well as its disclosure requirement.1

The district court agreed with the lessees' disclosure claims. It also agreed that the method for calculating an early termination charge that was contained in the leases violated the CLA reasonableness requirement. However, it disagreed that the early termination charge actually paid violated the CLA's reasonableness requirement.

We agree that the leases violated the CLA's disclosure requirements because the method for determining the early termination charges actually assessed was not contained in the respective leases. We also agree that the method for determining the early termination charges actually assessed did not violate the CLA's reasonableness requirement. However, since we conclude that the lessees had no standing to challenge the early termination charge that was never applied to them, we will not address lessees' challenge to that formula.

I. BACKGROUND

Brian Miller executed a 36-month closed-end lease with Nissan Motor Acceptance Corporation ("NMAC") for a 1997 Nissan Altima on December 26, 1996. Pursuant to that lease he agreed to make monthly payments of $267 through December 1999. Michael and Michelle Rose executed a 39-month closed-end lease with NMAC for a 1996 Nissan Altima GXE on March 25, 1996. They agreed to make monthly payments of $237.87 through June 1999.2

Both leases contain a "Paragraph 18," captioned: "Early Termination Liability," which provides in relevant part:

At any time after 12 monthly payments have been paid, I [the lessee] may terminate this lease on the due date of a monthly lease payment if this lease is not in default as disclosed in paragraph 19 ["Default"], and I have given you [NMAC] 30 days written notice. Except as otherwise provided in paragraph 22 [concerning NMAC's acceptance of insurance settlement if the vehicle is lost through theft or destruction], if I terminate early, in addition to the amounts indicated in items a through d of paragraph 17 ["Termination Liability"], I must pay you an Early Termination Charge which is determined as follows: First, all monthly lease payments, which under the terms of this lease, are not yet due and the residual value of the Vehicle are discounted to present value by the Constant Yield Method at the rate implicit in this lease (the "Adjusted Lease Balance"). This amount is then reduced by the Realized Value (and insurance) proceeds which you receive for the Vehicle....

NMAC refers to the formula in Paragraph 18 as either the "paragraph 18 formula," or the "early termination formula."

Miller and the Roses claim that they made inquiries and took actions with respect to early termination of their respective leases. Miller claimed that he telephoned NMAC in March 1999 to request the amount he would owe if he terminated his lease early.3 Miller said that a NMAC representative gave him a figure so high that he gave no consideration whatever to early termination. However, on March 4, 1999, NMAC mailed Miller a letter which contained a quote that was considerably lower than the phone quote. The letter stated that paying all of the remaining payments that would have been due under the lease — $3,064.81, including taxes and disposition fees — would be a less expensive option for Miller.

Dissuaded in part by what he considered two pricey early termination quotes, Miller said that he decided not to terminate his lease until November 1999. At that time, Miller terminated his lease in the process of trading-in the leased vehicle for a new lease on another Nissan vehicle. However, NMAC did not apply the Paragraph 18 formula to that trade-in. Instead, NMAC charged Miller only his final month's lease payment, which was less than the charge derived under Paragraph 18 would have been. Miller paid this lesser charge.

The Roses terminated their lease on March 23, 1999, less than three months before its scheduled expiration, by turning over their leased Nissan vehicle to a Mitsubishi dealership as part of a trade-in for a Mitsubishi vehicle. NMAC did not apply the Paragraph 18 formula to the Roses either. Rather, it only charged the sum of their two remaining monthly payments, which was less than the amount they would have owed under the Paragraph 18 formula. The Roses paid this charge "under protest." It is agreed that the method of paying early termination liability by paying only the amount of the remaining monthly payments is not contained in either lease agreement.

Miller and the Roses ("the Plaintiffs") claim that NMAC uses inflated residual values for its leased vehicles. They contend that if NMAC had used bona fide residual values and charged them for early termination pursuant to the Paragraph 18 formula, they would have been charged less than they were actually charged, or nothing at all, for early termination. Their theory about the inflated residual values is as follows:

They submit that the early termination charges under the Paragraph 18 formula are astonishingly high in part because of NMAC's undisclosed practice of using inflated or "subvented" residual values in calculating lease payments.4,5 They claim that the relationship between the residual value and the lease payments is simple. The total payments over the life of the lease are determined by lease depreciation and lease charges. The lease charges are analogous to interest payments. The lease depreciation pays for the depreciation of the leased vehicle over the life of the lease and reflects that the car will be worth less at the end of the lease than it was at the beginning. The less depreciation NMAC assumes the car will undergo during the life of the lease, the smaller the lease depreciation component of the monthly lease payments will be. In order to reduce lease payments and price Nissan vehicles more competitively with other manufacturers' cars, NMAC can, and does, use an artificially high residual value. This results in an artificially low estimate of the amount of depreciation the car will experience during the term of the lease. Put another way, NMAC assumes, for purposes of computing lease payments, that the car will be worth more at the end of the lease (because it experienced less depreciation) than it actually expects will be the case.

However, Plaintiffs claim that NMAC does not disclose that it inflates the residual values used to compute lease payments. They also claim that NMAC does not disclose the actual residual values NMAC has assigned to the lessee's car. Therefore, according to the Plaintiffs, lessees can not ascertain if the assumed residual value is inflated.

Plaintiffs concede, however, that since NMAC is responsible for the difference between the residual and realized values (a "closed lease"), the inflated residual values make no practical or economic difference to lessees whose leases go to maturity.6 However, they say that a problem arises with inflated residual values when a lessee seeks to terminate the lease early. Under the Paragraph 18 formula, the early termination charge is based, in part, on the difference between the assigned, though undisclosed, residual value and the realized value upon the sale of the vehicle. Miller and the Roses allege that under the Paragraph 18 formula NMAC shifts to the early terminating lessee the risk, otherwise borne by NMAC, that the vehicle will turn out to be worth less than the residual value that was used to compute the lease payments.

According to Plaintiffs, where the residual value is inflated, NMAC's contractual early termination formula causes an early terminating lessee to pay more upon returning the car than if the lessee had made all of the payments for the full term of the lease. In Miller's case, the early termination charge under the Paragraph 18 formula as of November 1999 (one month early) was $5,336.95. Miller claimed that when added to the 35 monthly payments of $267 each that he had already paid ($9,345), NMAC's Paragraph 18 formula called for him to pay a total of $14,681.95. Full performance...

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