Pearson v. Easy Living, Inc.

• Decision Date: 14 July 1981
• Docket Number: No. C-1-80-264.,C-1-80-264.
• Citation: 534 F. Supp. 884
• Parties: Charles PEARSON, et al., Plaintiffs, v. EASY LIVING, INC., Defendant.
• Court: U.S. District Court — Southern District of Ohio

534 F. Supp. 884

Charles PEARSON, et al., Plaintiffs, v. EASY LIVING, INC., Defendant.

No. C-1-80-264.

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

July 14, 1981.

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Alphonse A. Gerhardstein, Cincinnati, Ohio, for plaintiffs.

John A. Rebel, Cincinnati, Ohio, for defendant.

MEMORANDUM

HOGAN, Senior District Judge.

This is a Truth-in-Lending Act (hereinafter TILA) case filed by the plaintiffs pursuant to 15 U.S.C. § 1640. There are several legal issues to be resolved concerning whether Easy Living, Inc. (hereinafter Easy Living or defendant) violated the disclosure requirements of TILA and 12 C.F.R. § 226 (hereinafter Regulation Z). The case is before us on cross-motions for summary judgment.¹

I.

On May 18, 1979, plaintiffs Charles and Lena Pearson entered a contract with Easy Living. This contract served the dual purpose of refinancing a loan for furniture previously purchased from Easy Living and extending credit for some additional merchandise. The new merchandise included an electric range, a freezer and a folding rocking chair. The items being refinanced were a washer, a dryer, box springs and a mattress. The carryover balance from the previous contract was $688.77. The price of the new items was $731.50. Joint credit life insurance was purchased, as was property insurance, totalling $150.71. The total amount financed was $1,570.98. The finance charge was $269.10. The annual rate of interest was 17.25%.

On November 9, 1979, Charles Pearson entered another contract with Easy Living. This agreement was strictly a refinancing arrangement. Several items totalling $3,868.21 were refinanced. Insurance increased the amount financed to $4,374.81. The finance charge was $660.87 with an annual rate of interest of 15.63%.

On May 16, 1980, the plaintiffs filed this action alleging that the agreements of May 18, 1979 and November 9, 1979 failed to comply with the disclosure requirements of TILA and Regulation Z. The complaint outlined five violations in each contract.² After filing its answer, Easy Living filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).³ In addition to opposing this motion, the plaintiffs filed a motion for summary judgment. In responding to that motion, Easy Living raised many of the issues before us today. As stated previously, we treat these motions as cross-motions for summary judgment.

II.

A.

Summary judgment is authorized by Fed.R.Civ.P. 56(c) where the movant shows conclusively that no genuine issue of fact exists and the evidence with all the inferences drawn therefrom must be read in the light most favorable to the nonmoving party. Smith v. Hudson, 600 F.2d 60 (6th Cir.) cert. dism'd., 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). The objective of Rule 56 is to separate the sham and insubstantial from the real and genuine issues by allowing the trial court to pierce the allegations of the pleadings and dispose of a case in advance of a hearing on the merits when no genuine issues of fact exist. Bryant v. Kentucky, 490 F.2d 1273 (6th Cir. 1974). Summary judgments are granted with extreme caution for they deny the parties their day in court. Smith v. Hudson, id. Because of the nature of their records, TILA cases are particularly susceptible to summary disposition, however. See, e.g., Rudisell v. Fifth Third Bank, 622 F.2d 243 (6th Cir. 1980); Smith v. Chapman, 614 F.2d 968 (5th Cir. 1980). Since we find at least one of the plaintiffs' claims to be meritorious, we grant the plaintiffs' motion for summary judgment.

B.

There are a host of issues to be addressed in this case. The crucial issues relate to whether Easy Living violated TILA and potential defenses to such violation. Easy Living has, however, raised a plethora of tangential defenses and issues. We shall attempt to combine our discussion of related issues where possible. The pertinent issues in this case are as follows:

1) Is this action justiciable under Article III of the United States Constitution; in other words, do the plaintiffs have standing to bring this action, and does the action relate to an administrative question as opposed to a judicial question? (Justiciability also encompasses the concept of mootness, but that will be addressed more efficiently in the second issue.)

2) What is the effect of the consent judgment in Tomes v. Easy Living, Inc., No. A8001572 (C.P.Ct., Hamilton Co.), a class action (plaintiffs were class members) enjoining Easy Living from taking a security interest in goods under a refinancing contract where state law limits such a security interest; vis-a-vis, does that consent decree moot the instant case or have a res judicata effect and, therefore, bar this action?

3) Is the November 9, 1979 transaction a credit sale or non-sale credit?

4) Does a parenthetical notation under amount financed showing (5 + 6 + 7e) where there are no lines 6 and 7e disclose the amount financed clearly and conspicuously in a meaningful sequence?

5) Does a parenthetical notation under deferred payment price showing (3 + 6 + 7e + 9) where there are no lines 6 and 7e violate TILA by failing to disclose the deferred payment price clearly and conspicuously in a meaningful sequence?

6) Does the failure to disclose the base finance charge and the service charge as components of the finance charge violate TILA?

7) Does the inclusion of the itemization of the finance charge on a separate page violate TILA?

8) Does the failure to limit in the disclosure the security interest retained in refinanced goods only to items which are not paid off in sequential order violate TILA?

9) Is the plaintiff precluded from bringing this action by laches or waiver?

10) Is any violation of the statute by Easy Living protected by the statutory affirmative defense of

a) correction under 15 U.S.C. § 1640(b),

b) bona fide error under 15 U.S.C. § 1640(c), or

c) good faith conformity with official interpretation under 15 U.S.C. § 1640(f).

11) To what recovery are the plaintiffs entitled; specifically, should attorney fees be granted in this case?

C.

TILA has the broad purpose of promoting the informed use of credit by consumers by assuring the meaningful disclosure of credit terms to them. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980); also Anderson Brothers Ford v. Valencia, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981). Because credit transactions defy exhaustive regulation by statute, expansive authority was delegated to the Federal Reserve Board (hereinafter FRB). In response, the FRB promulgated Regulation Z, 12 C.F.R. § 226 et seq., which provides a more complete outline of disclosure requirements. TILA is a remedial statute and should be given a broad, liberal construction so as to serve its purpose. See Flesher v. Household Finance Corp., 640 F.2d 861 (6th Cir. 1981); McGowan v. King, Inc., 569 F.2d 845 (5th Cir. 1978), but it is important for courts to protect the consumer from "informational overload." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980); James v. Ford Motor Credit Co., 638 F.2d 147 (1980); see also Anderson Brothers Ford v. Valencia, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981).

The standard of liability under TILA does not require that the failure to disclose or the garbled disclosure deceive the consumer. See McGowan v. King, Inc., 569 F.2d 845 (5th Cir. 1978). TILA uses an objective standard and no actual deception need be shown. Smith v. Chapman, 614 F.2d 968 (5th Cir. 1980); Charles v. Krauss Co., 572 F.2d 544 (5th Cir. 1978). It is not sufficient for a lender to comply with the spirit of TILA; strict compliance with the disclosure requirement is necessary. Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d 407 (7th Cir. 1980). The concept is that TILA deters socially undesirable lending practices, see Murphy v. Household Finance Corp., 560 F.2d 206 (6th Cir. 1977), by allowing consumers who are aware of the requirements and true terms to act where such terms are not clearly and conspicuously disclosed. Smith v. Chapman, 614 F.2d 968 (5th Cir. 1980). Once a violation is found, liability is imposed, absent a statutory defense. Charles v. Krauss Co., 572 F.2d 544 (5th Cir. 1978). With these general principles in mind, we proceed to the issues before us.

III.

The first issue before us is whether the case is justiciable under Article III of the United States Constitution. The defendant raises these arguments as to why this is not a justiciable controversy:

1) The plaintiffs do not have standing,

2) The question here is administrative in nature, and

3) The issue here is moot.

The defendant's first contention is that plaintiffs cannot show sufficient injury to themselves to satisfy the constitutional and prudential rules of standing. The standing concept assures federal courts that the controversy will be presented in an adversary context and that the party seeking relief has a personal stake in the outcome. See Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). This requirement is two-pronged, exercising both constitutional and prudential limitations on the exercise of federal judiciary power. Gladstone Realtors v. Billwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1607, 60 L.Ed.2d 66 (1979). Article III case or controversy language requires that the plaintiffs must show that they suffered some actual or threatened injury, and the prudential limitation on jurisdiction requires injury peculiar to one's self. See id.; also Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 97 S.Ct. 555, 50 L.Ed.2d 450 (1977); Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976).

Congress may, by legislation, expand standing to the full extent permitted by Article III, thus permitting

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