Porter v. Household Finance Corp. of Columbus

• Decision Date: 25 November 1974
• Docket Number: Civ. A. No. C 2 74-47.
• Citation: 385 F. Supp. 336
• Parties: Stephen Herbert PORTER, Bankrupt, Donald M. Drake, Trustee, Plaintiff, v. HOUSEHOLD FINANCE CORPORATION OF COLUMBUS, Defendant.
• Court: U.S. District Court — Southern District of Ohio

385 F. Supp. 336

Stephen Herbert PORTER, Bankrupt, Donald M. Drake, Trustee, Plaintiff, v. HOUSEHOLD FINANCE CORPORATION OF COLUMBUS, Defendant.

Civ. A. No. C 2 74-47.

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

November 25, 1974.

COPYRIGHT MATERIAL OMITTED

Ruth Freed, Columbus, Ohio, for bankrupt.

Denis J. Murphy, Craig M. Stewart, Patchen, Murphy & Allison, Columbus, Ohio, for plaintiff.

Robert W. Werth, John C. Elam, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for defendant.

OPINION AND ORDER

KINNEARY, Chief Judge.

This is an action under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., to recover damages for failure to make disclosures required by the Act.¹

This matter is before the Court on the cross-motions of the parties for summary judgment.

Plaintiff Donald M. Drake is the trustee of the bankruptcy estate of Stephen Herbert Porter. Drake will hereinafter be referred to as the "Trustee." Porter will hereinafter be referred to as the "Bankrupt."

Defendant Household Finance Corporation of Columbus will hereinafter be referred to as "HFC."

The undisputed facts are as follows.² On June 15, 1973, the bankrupt, Stephen H. Porter, and his wife borrowed $770.18 from HFC. A truth-in-lending disclosure statement was contemporaneously executed. The statement was dated 06/15/73 and showed:

                   finance charge            $ 225.68
                   amount financed             783.14
                   creditors life charge        12.96
                   principal amount of
                     loan                      770.18
                   annual percentage rate       23.788%
                

Porter signed a printed request for credit life insurance coverage. The printed form stated that HFC does not require credit life insurance. Porter's signature requesting credit life insurance is within the disclosure box dated 06/15/73; but no date appears proximate to the signature. The insurance was for the term of the loan.

There are no material disputed facts. Three legal issues are presented: (1) Does the bankrupt's cause of action against HFC pass to the trustee in bankruptcy under § 70a of the Bankruptcy Act?; (2) Did Porter give "specific dated and separately signed affirmative written indication" of his desire for credit life insurance coverage?; and (3) Is a lender (HFC) obligated to disclose the term of credit life insurance on the truth-in-lending disclosure statement?

I

Section 70a of the Bankruptcy Act provides that the trustee of the bankrupt's estate is vested with the title of the bankrupt to "all of the following kinds of property":

(3) powers which he might have exercised for his own benefit, but not those which he might have exercised solely for some other person; . . .

(5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequestered . . ..

(6) rights of action arising upon contracts, or usury, or the unlawful taking or detention of or injury to his property . . . .

Under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., a creditor is required to make disclosures to a prospective debtor about the cost of credit. The Act's purpose is to require uniform, mandatory disclosure of credit information so that consumers can make the best informed decision on the use of credit. If the creditor fails to make all of the disclosures required by the Act, the debtor may sue his creditor and recover a civil penalty of twice the amount of the finance charge. 15 U.S.C. § 1640.³

Plaintiff contends that the bankrupt's cause of action under 15 U.S.C. § 1640 passes to him under § 70a(3), (5), (6) of the Bankruptcy Act as (3) a "power", (5) "a right of action . . . which might have been levied upon and sold under judicial process" and/or (6) a right of action "arising upon contracts, or usury."

The language of § 70a must be construed in the light of the twin purposes of the Bankruptcy Act: First, to distribute the bankrupt's assets among his creditors; and, Second, to give the bankrupt a fresh start. Kokoszka v. Belford, 417 U.S. 642, at p. 646, 94 S.Ct. 2431, at p. 2434, 41 L.Ed.2d 374 (1974); Lines v. Frederick, 400 U.S. 18, 20, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970); Burlingham v. Crouse, 228 U.S. 459, 473, 33 S.Ct. 564, 57 L.Ed. 920 (1913). Assets which are rooted in a bankrupt's past financial plight are generally distributable to his creditors, while assets which accrue in or look to his economic rehabilitation in the future are exempt and do not pass under § 70a.

With these guidelines in mind the Court turns to the construction of § 70a. Plaintiff first asserts that the cause of action under the Truth-in-Lending Act is a "power" within the meaning of § 70a(3). Included within the term are powers known at common law as well as those arising under statutes. 4A Collier on Bankruptcy ¶ 70.13, p. 123 (14th ed.). A power is "an ability on the part of a person to produce a change in a given legal relation by doing or not doing a given legal act." Restatement, Second, Agency § 6. Restatement, Property § 3. Plaintiff does not suggest how the Truth-in-Lending Act creates a power in a debtor to change his legal relation to his creditor. Plaintiff cites no authority for his position.

By its clear terms the Truth-in-Lending Act provides for a cause of action in favor of the debtor when his creditor fails to comply with the Act, but it does not create a power in the debtor vis-à-vis his creditor. Accordingly, the Court holds that bankrupt's statutorily created interest does not pass to the trustee as a power under § 70a(3) of the Bankruptcy Act.

Property, including rights of action, passes to the trustee under § 70a(5) if either:

(1) The bankrupt could have transferred it by any means; or

(2) It might have been levied upon and sold under judicial process against the bankrupt, or otherwise seized, impounded, or sequestered.

Defendant argues that a debtor's right of action under the Truth-in-Lending Act cannot be transferred because the Act imposes a civil penalty, and actions for penalties do not survive and cannot be assigned.

The Truth-in-Lending Act establishes liquidated damages of twice the finance charge for a creditor's failure to disclose required information to the debtor. Congress labeled this damage a "civil penalty." Consumer Credit Protection Act, House Report No. 1040, 1968 U.S. Code Cong. & Admin.News pp. 1962, 1976, 1987. Mourning v. Family Publications Service, Inc., 411 U.S. 356, 361, 376, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973); Eovaldi v. First National Bank of Chicago, 57 F.R.D. 545, 548 (N.D.Ill. 1972). The Act also creates criminal liability for a creditor who willfully and knowingly gives false or inaccurate information or who willfully and knowingly fails to provide information he is required to disclose. 15 U.S.C. § 1611.

The federal rule is that suits for penalties and forfeitures do not survive the death of either a plaintiff or a defendant. Schreiber v. Sharpless, 110 U.S. 76, 80, 3 S.Ct. 423, 28 L.Ed. 65 (1884).⁴ Penal statutes are those that impose a punishment for crime. Actions for damages to a litigant's property are not penal even though they may be so labeled. The United States Supreme Court articulated the distinction between penal and damage actions in Huntington v. Attrill, 146 U.S. 657, 667-669, 13 S. Ct. 224, 227-228, 36 L.Ed. 1123 (1892):

Strictly and primarily, they penal statutes and penalties denote punishment, whether corporal or pecuniary, imposed and enforced by the state, for a crime or offense against its laws. Citations omitted. But they are commonly used as including any extraordinary liability to which the law subjects a wrongdoer in favor of the person wronged, not limited to the damages suffered. They are so elastic in meaning as even to be familiarly applied to cases of private contracts, wholly independent of statutes, as when we speak of the "penal sum" or "penalty" of a bond. . . .

Penal laws, strictly and properly, are those imposing punishment for an offense committed against the state, and which, by the English and American constitutions, the executive of the state has the power to pardon. Statutes giving a private action against the wrongdoer are sometimes spoken of as penal in their nature, but in such cases it has been pointed out that neither the liability imposed nor the remedy given is strictly penal.

* * * * * *

The test whether a law is penal, in the strict and primary sense, is whether the wrong sought to be redressed is a wrong to the public or a wrong to the individual, according to the familiar classification of Blackstone: "Wrongs are divisible into two sorts of species: private wrongs and public wrongs. The former are an infringement or privation of the private or civil rights belonging to individuals, considered as individuals, and are thereupon frequently termed `civil injuries:' the latter are a breach and violation of public rights and duties, which affect the whole community, considered as a community, and are distinguished by the harsher appellation of `crimes and misdemeanors.'"

Emphasis in original. See also, Id. at 673-674, 13 S.Ct. 224.

Thus, a liability is not penal merely because greater than "actual" damages are imposed. The true test is whether the wrong to be remedied or punished is primarily to an individual or to the State.

Anti-trust treble damage actions have been held to create a civil remedy and not to impose a penalty.⁵ See, e. g., Chattanooga Foundry & Pipe Works v. Atlanta, 203 U.S. 390, 397, 27 S.Ct. 65, 51 L.Ed. 241 (1906); Rogers v. Douglas Tobacco Board of Trade, 244 F.2d 471, 483 (5th Cir. 1957); Barnes Coal Corp. v. Retail Coal Merchants Association, 128 F.2d 645, 649 (4th Cir. 1942); Hicks v. Bekins Moving & Storage Co., 87 F.2d 583, 585 (9th Cir. 1937); Moore v. Backus, 78 F.2d 571, 575-576 (7th Cir. 1935); Sullivan v. Associated Billposters and Distributors, 6 F.2d 1000, 1009 (2d Cir. 1925); ...