Mims v. Dixie Finance Corp.

• Decision Date: 04 November 1976
• Docket Number: No. C75-627A.,C75-627A.
• Citation: 426 F. Supp. 627
• Parties: Sylvia MIMS, Plaintiff, v. DIXIE FINANCE CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Georgia

426 F. Supp. 627

Sylvia MIMS, Plaintiff, v. DIXIE FINANCE CORPORATION, Defendant.

No. C75-627A.

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

May 6, 1976.

Order November 4, 1976.

Joseph H. King, Jr., Atlanta, Ga., for plaintiff.

Steven Gottlieb, Savannah, Ga., for Doris Alston Moore, amicus curiae.

Richard K. Greenstein, Robert E. Stagg and Robert N. Dokson, Atlanta, Ga., for Atlanta Legal Aid Society, Inc., amicus curiae.

Charles M. Baird, Atlanta, Ga., for Ga. Legal Services Programs, Inc., amicus curiae.

Andrew J. Britton, Hansell, Post, Brandon & Dorsey, Atlanta, Ga., for defendant.

Before EDENFIELD, HENDERSON, MOYE, O'KELLEY, FREEMAN and HILL, District Judges.

ORDER

MOYE, District Judge.

This truth-in-lending action is presently before the Court on (1) the Special Master's recommendation filed April 22, 1976, that plaintiff's motion to dismiss the defendant's compulsory counterclaim on the note be denied; (2) the Special Master's recommendation filed April 8, 1976, that the defendant's motion for summary judgment be granted and the plaintiff's motion for summary judgment be denied; and (3) defendant's objections filed April 26, 1976, concerning the Special Master's amendment filed April 20, 1976, to his original recommendation filed April 8, 1976.

(1) The Court hereby approves and adopts the recommendation of the Special Master that a counterclaim for the balance of the underlying obligation in a truth-in-lending action is a compulsory counterclaim under Fed.R.Civ.P. 13(a). Plaintiff's motion filed October 29, 1975, to dismiss the defendant's compulsory counterclaim on the note is ORDERED DENIED. In so doing, the Court overrules the line of cases in this Court beginning with Roberts v. National School of Radio and Television Broadcasting, 374 F.Supp. 1266 (N.D.Ga.1974). In addition, the Court notes that this change in the law works no hardship on those lenders previously barred from asserting amounts due on the loan as a compulsory counterclaim where the case has already proceeded to a final judgment. Principles of res judicata or collateral estoppel will not bar the submission of these claims on the note in the state courts since prior to today's ruling those claims could not have been litigated in the federal courts by virtue of the Roberts case, supra.

(2) The Court hereby approves and adopts the recommendations of the Special Master filed April 8, 1976, with respect to the following rulings: (a) Voluntariness of the Insurance Authorization (plaintiff estopped from denying voluntariness), (b) Waiver of Tort Claim as finance charge (no truth-in-lending violation), (c) Waiver and assignment of homestead or exemption rights as a security interest (no violation of truth-in-lending act); (d) Disclosure of Finance Charge as Total Finance Charge (no truth-in-lending violation). Defendant's motion for summary judgment filed October 20, 1975, is hereby ORDERED GRANTED. Plaintiff's motion for summary judgment filed September 29, 1975, is hereby ORDERED DENIED.

(3) The defendant's objections filed April 26, 1976, concerning the Court's adoption of $25 in attorney fees for plaintiff's abuse of discovery and defendant's request for $100 in attorney fees are hereby ORDERED DENIED.

The sole remaining issue in this case is defendant's counterclaim on the note. The Special Master will entertain motions for summary judgment within 30 days on this counterclaim as noted in his recommendation filed April 22, 1976.

Attached to this Order as an Appendix are the Special Master's recommendations entered April 8, 1976, and April 22, 1976.

ORDER

This truth in lending action is before the Court on the Special Master's Second Amendment to Recommendation. This Court hereby adopts and approves this second amendment. The recommendation as amended is hereby made an Appendix to this Order.

APPENDIX

SYLVIA MIMS, ) ) Plaintiff ) ) CIVIL ACTION Vs. ) ) NO. C75-627A DIXIE FINANCE CORPORATION, ) ) Defendant )

RECOMMENDATION OF SPECIAL MASTER

Before the Court in this truth in lending action is plaintiff's motion for reconsideration of this Court's Order dated May 10, 1976. This recommendation will treat all issues raised by plaintiff except the issue as to the discovery abuse. Plaintiff's attorney has informed this Special Master that plaintiff withdraws that issue. This recommendation will be divided as follows:

I. THE DEFENDANT'S COUNTERCLAIM II. THE TRUTH IN LENDING CLAIMS A. REQUIREMENT OF INSURANCE B. WAIVER AND ASSIGNMENT OF EXEMPTION C. USE OF TERM "TOTAL FINANCE CHARGE" III. CONCLUSION

I. DEFENDANT'S COUNTERCLAIM

Plaintiff contends that this court, sitting en banc, improperly allowed the defendant's counterclaim for the debt created by the consumer credit transaction upon which plaintiff's truth in lending action is based. In so doing, the court overruled the line of cases in this court beginning with Roberts v. National School of Radio and Television Broadcasting, 374 F.Supp. 1266 (N.D.Ga. 1974). Good recent discussions of whether the lender's counterclaim is compulsory in a truth in lending action are to be found in two federal district court cases decided after this court's earlier order in this case. These two cases are Rollins v. Sears, Roebuck & Co., (E.D.La.1976) 71 F.R.D. 540, and Zeltzer v. Carte Blanche Corp., (W.D. Pa.1976) 414 F.Supp. 1221. They are summarized at 45 U.S. Law Week 2029 (July 20, 1976). Rollins rejected Roberts, while Zeltzer followed it.

The questions to be answered and tests to be applied in determining whether the counterclaim is to be allowed are well set out in Roberts. The first question is whether the counterclaim is compulsory under traditional tests. The second question is whether the public policy considerations persuade the court to disallow an otherwise compulsory counterclaim.

This court is virtually compelled to hold that the counterclaim is compulsory under traditional tests. See, Spartan Grain & Mill Co. v. Ayers, 517 F.2d 214 (5th Cir. 1975). In that case, the Fifth Circuit obviously perceived the claim and the counterclaim to arise out of the same transaction. Superfluously, this Special Master notes that he shares in that perception.

It is doubtful that this court's perception of public policy considerations should persuade it not to entertain an otherwise compulsory counterclaim. The Supreme Court has admonished the federal judiciary that it should not, without legislative guidance, substantially reallocate the burdens of litigation. See, Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). To suspend the Federal Rules of Civil Procedure, which were promulgated by the Supreme Court and approved by Congress, in order to effectuate a strong judicial or congressional policy would be incautious of that admonition.

However, as a matter of interest, this Special Master notes that entertaining the counterclaims has not proved very burdensome. This Special Master has found that he must be quite versed in the state law governing the consumer credit transactions in order to rule on the truth in lending claims. Indeed, about the only fact necessary to the counterclaim and not necessary to the truth in lending action is how much the plaintiff has paid to date. There is usually no genuine dispute about this fact.

Further, as a matter of interest, this Special Master notes that entertaining the counterclaims will reduce the number of truth in lending suits filed in this court. Many of these suits are filed by delinquent debtors. Their major targets are consumer finance companies licensed under the Georgia Industrial Loan Act. The delinquent debtors and their attorneys generally will be loath to file truth in lending cases in face of the counterclaim.

It may be, as the Atlanta Legal Aid Society, amicus curiae, states, that reducing the truth in lending actions harms the public interest, especially the interest of the poor. Or it may be, as the Federal Reserve Board staff indicated in a recent letter^* transmitting to the Senate proposed amendments to the Act, that much of the present truth in lending litigation is needless, abusive, and overly burdensome to the courts. But this court is excused from this debate, which is properly commended to Congress. This court's duty in truth in lending litigation is to adjudicate the claims and counterclaims, as best it can, within the limits of its jurisdiction and the framework of its rules.

II. THE TRUTH IN LENDING CLAIMS

A. REQUIREMENT OF CREDIT INSURANCE

Plaintiff contends that defendant improperly failed to include in the finance charge the charges for credit insurance. Plaintiff contends that these insurance charges should have been included in the finance charge because credit insurance was required. Regulation Z § 226.4(a)(5) states that the credit insurance charges must be included in the finance charge unless:

(i) the insurance coverage is not required and this fact is clearly and conspicuously disclosed in writing to the customer; and

(ii) any customer desiring such insurance coverage gives specific dated and separately signed affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance.

In this case, the insurance authorization disclosed:

The purchase of credit insurance is not required by lender in order for borrower to obtain this loan. Such insurance may be obtained by the borrower at his option. . . .

. . . . .

I (or we), borrower herein, having first examined the premium cost for credit insurance do hereby elect to purchase the insurance as checked with a mark in the above boxes if any. . . .

This authorization was dated and signed by plaintiff.

Plaintiff contends that the recitals as to insurance are not true. As proof that insurance was required, she submits her affidavit that she applied for a loan, returned the next day, and was presented with the entire contract,...