Poulin v. Balise Auto Sales Inc.

• Decision Date: 22 July 2011
• Docket Number: Docket No. 10–1779–cv.
• Citation: 647 F.3d 36
• Parties: Sharron POULIN, Individually and on Behalf of All Others Similarly Situated, Latisha Frazier, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants,v.BALISE AUTO SALES, INC., d/b/a Balise Ready Credit, Auto Credit Express, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

647 F.3d 36

Sharron POULIN, Individually and on Behalf of All Others Similarly Situated, Latisha Frazier, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants,

v.BALISE AUTO SALES, INC., d/b/a Balise Ready Credit, Auto Credit Express, Inc., Defendants–Appellees.

Docket No. 10–1779–cv.

United States Court of Appeals, Second Circuit.

Argued: March 1, 2011.Decided: July 22, 2011.

Daniel S. Blinn, Consumer Law Group, LLC, Rocky Hill, CT, for Plaintiffs–Appellants.John B. Farley, (Kevin J. Greene, on the brief), Halloran & Sage LLP, Hartford, CT, for Defendants–Appellees.Before: RAGGI and LEVAL, Circuit Judges, and CEDARBAUM, District Judge.^*CEDARBAUM, District Judge:

Sharron Poulin and Latisha Frazier appeal from a judgment of the United States District Court for the District of Connecticut (Haight, J.) dismissing their putative class-action complaint for failure to state a claim upon which relief can be granted. Plaintiffs seek to represent a class of customers with poor credit who purchased used automobiles from defendant Balise Auto Sales, Inc. (“Balise”) under retail installment contracts that were subsequently assigned to defendant Auto Credit Express, Inc. (“ACE”). The complaint asserts that defendants violated the Truth in Lending Act, 15 U.S.C. § 1601, et seq. (“TILA”), and various state laws by burying hidden finance charges in the prices that plaintiffs were charged for these automobiles. The complaint alleges that Balise advertised the newer, more valuable used cars in its inventory at market prices, as measured by a particular used car buying guide, but sold the older, less valuable used cars to subprime credit customers for prices substantially higher than the market prices listed in the same guide.

Essentially, the complaint alleges that plaintiffs and those similarly situated received a bad bargain. But TILA is a disclosure statute, not a fair pricing law. Because the complaint does not contain any allegation from which it could plausibly be inferred that defendants failed to disclose a finance charge to plaintiffs, the judgment of the district court is affirmed.

Background

According to the complaint, Balise operates car dealerships in Connecticut, Massachusetts, and Rhode Island, and advertises itself as a business that caters to the needs of consumers who have difficulty obtaining automotive loans. ACE accepts Balise's assignment of sales contracts for cars that Balise has sold to customers with poor credit. The two companies are owned by the same or related interests and controlled by the same individuals.

In marketing and pricing the cars in its inventory, Balise distinguishes between newer and older model years. For a newer car, Balise advertises a retail price that roughly tracks the amount at which the NADA Official Used Car Guide, Eastern Edition (“NADA Guide”) values the model. For an older car, however, Balise does not advertise any retail price at all. When prospective buyers with poor credit approach Balise about purchasing a car, it steers them toward one of the older cars. Balise sells the older cars at prices that are substantially higher than the market values given in the NADA Guide.

The named plaintiffs' buying experience is typical of a Balise customer with poor credit. In October 2006, Frazier purchased a 1998 Chevrolet Venture from the dealership for $7,995. The NADA Guide lists the market value of this model as $4,000. In February 2008, Poulin purchased a 1998 Saturn SL2 from Balise for $8,440. The NADA Guide lists the market value of this model as $3,900. Both Frazier and Poulin executed retail installment contracts which Balise subsequently assigned to ACE.

On October 22, 2008, Frazier and Poulin commenced a putative class action accusing Balise and ACE of violating 15 U.S.C. § 1638(a)(3), a TILA provision requiring a creditor to disclose any finance charge it imposes on a consumer. They also allege the violation of various state laws. Although the complaint does not state the finance charges actually disclosed, it asserts that Balise and ACE are deceptively burying the cost of credit within the purchase prices of the cars that Balise sells to customers with poor credit. Plaintiffs theorize that, for each of these cars, the portion of the purchase price in excess of the model's NADA Guide value is not actually part of the cost of the car itself, but rather a hidden finance charge intended to compensate for the increased risk of lending to customers with poor credit. The complaint does not allege that Balise prices its older cars differently for customers with good credit or customers paying in cash. Indeed, the complaint is entirely silent as to whether such customers purchase cars from Balise's older inventory at all.

The named plaintiffs purport to assert these claims on their own behalf and on behalf of two groups of car purchasers. The “TILA Class,” represented by Poulin, consists of individuals who, within the applicable statute of limitations, purchased a motor vehicle from Balise at a purchase price at least 35% greater than the NADA Guide value for the model purchased. The “Connecticut Class,” represented by Poulin and Frazier, consists of individuals who, without regard to time limitation, purchased motor vehicles from Balise under the same circumstances.

Defendants moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. On April 5, 2010, the district court granted the motion. See Poulin v. Balise Auto Sales, Inc., No. 3:08–Cv–01618, 2010 WL 1370862 (D.Conn. Apr. 5, 2010). The court first held that the complaint failed to state a viable claim under TILA. Then, once the complaint had been shorn of its sole federal claim, the court declined to exercise supplemental jurisdiction over the state law claims. See United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Cave v. E. Meadow Union Free Sch. Dist., 514 F.3d 240, 250 (2d Cir.2008).

This timely appeal followed.

Discussion

We review de novo a district court's grant of a motion to dismiss pursuant to Rule 12(b)(6). Matson v. Bd. of Educ. of the City Sch. Dist. of N.Y., 631 F.3d 57, 63 (2d Cir.2011).

TILA's declared purpose is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a). “TILA endeavors to enable consumers to evaluate credit offers separately from the purchase of merchandise, and thereby to create an active market providing more efficient credit prices.” Cornist v. B.J.T. Auto Sales, Inc., 272 F.3d 322, 326 (6th Cir.2001).

To that end, TILA requires creditors to disclose any “finance charge” that they impose on consumers in a credit transaction. 15 U.S.C. § 1638(a)(3). The statute defines the term finance charge in an earlier section: “[T]he amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction.” 15 U.S.C. § 1605(a).

The definition of a finance charge in TILA's implementing regulations (known collectively as “Regulation Z”) uses...