Ransom v. S & S Food Center, Inc. of Florida, 81-7773

• Decision Date: 17 March 1983
• Docket Number: No. 81-7773,81-7773
• Citation: 700 F.2d 670
• Parties: Howard F. RANSOM and Hazel B. Ransom, Plaintiffs-Appellees, Cross-Appellants, v. S & S FOOD CENTER, INC. OF FLORIDA, d/b/a Rich Plan of Pensacola, Defendant- Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 670

700 F.2d 670

Howard F. RANSOM and Hazel B. Ransom, Plaintiffs-Appellees Cross-Appellants, v. S & S FOOD CENTER, INC. OF FLORIDA, d/b/a Rich Plan of Pensacola, Defendant- Appellant, Cross-Appellee.

No. 81-7773.

United States Court of Appeals Eleventh Circuit.

March 17, 1983.

Rehearing and Rehearing En Banc Denied April 26, 1983.

Joseph J. Lyman, Washington, D.C., for S & S Food Center Inc. of Fla.

Grodsky & Wilson, Irvin Grodsky, Mobile, Ala., for Howard F. and Hazel B. Ransom.

Appeals from the United States District Court for the Southern District of Alabama.

Before HENDERSON and HATCHETT, Circuit Judges, and TUTTLE, Senior Circuit Judge.

TUTTLE, Senior Circuit Judge:

The defendants below, S & S Food Center and Rich Plan Corporation, appeal from a judgment finding them liable to the plaintiffs under the Truth-in-Lending Act and the Alabama Consumer Finance Act.

I. PROCEEDINGS BELOW

On July 21, 1975, the named plaintiffs purchased a Food Plan from S & S Food Center, Inc., a franchisee of a national organization, Rich Plan Corporation (the defendant-appellants are hereafter jointly referred to as "S & S"). The Plan, purchased under credit installment, embraced two contracts: 1) the purchase of a bulk food order; and 2) the purchase of a service contract designated as "Food Freezer Service Agreement" ("FFSA") providing various warranties and services with respect to the food purchases. Neither of the plans could be purchased without the other, and the charge for the FFSA was made whether the purchase was by cash or credit; the overwhelming majority of the purchases were by credit. At the time of the signing of the food order contract, the Ransoms delivered two checks to S & S, one as a down payment and one as the first of four monthly payments. Both checks bounced. Nevertheless, the Ransoms remained liable to the defendants on the two contracts.

The plaintiffs brought this action on July 20, 1976, alleging that the charge for the FFSA in fact constituted a finance charge under the Truth-in-Lending Act ("TILA") (15 U.S.C. Sec. 1601 et seq.) and the Alabama Consumer Finance Act (5 Ala.Code Sec. 316 et seq.). The plaintiffs charged the defendants with a violation of TILA disclosure provisions and Alabama usury laws.

On October 29, 1976, the plaintiffs were granted leave to file an amended complaint to maintain a class action. The class was certified, but on March 24, 1978, the court granted defendants' motion to decertify the class respecting state claims.

On January 10, 1979, the plaintiffs' motion for summary judgment as to liability was granted and Findings of Fact and Conclusions of Law were entered. The district court found that the "services" provided by the FFSA were not materially different from those already purchased in the food contract.

On January 23, 1980, Judge Hand recused himself and withdrew from the case, and the case was reassigned to Judge Thomas, who adopted all of Judge Hand's orders. On June 19, 1981, the court granted plaintiffs' motion for judgment as to damages. This appeal followed.

II. STATEMENT OF ISSUES

A. Whether the orders issued by Judge Hand prior to his disqualification under 28 U.S.C. Sec. 455(b) are void although later adopted by Judge Thomas after his independent review.

B. Substantive Liability

1. Whether a creditor was required to disclose as a finance charge charges imposed uniformly in both cash and credit transactions before the 1980 amendment to TILA.

2. Whether S & S is collaterally estopped from challenging its liability by Berryhill v. Rich Plan of Pensacola, 578 F.2d 1092 (5th Cir.1978).

C. Whether the district court erred in allowing the Ransoms to amend their complaint to provide for a class action after the statute of limitations had run for the filing of individual claims.

D. Whether the assessment of damages against the defendants exceeded the amount authorized by Alabama law.

E. Whether the assessment of damages against the defendants exceeded the amount authorized in class action suits under TILA.

F. Cross Appeal--Whether the trial court abused its discretion in decertifying the state law class action claims.

III. DISCUSSION OF ISSUES

A. Judge Hand's Recusal

Following his summary judgment ruling on defendants' liability (but prior to a ruling on damages), Judge Hand disqualified himself from this case on the basis of the Fifth Circuit's interpretation of 28 U.S.C. Sec. 455 ¹ in Potashnick v. Port City Construction Co., 609 F.2d 1101 (5th Cir.1980). In Potashnick, the court held that Judge Hand was required to disqualify himself because one of the parties was represented by a law firm ("Hand, Arendall") in which his father was a partner. Since that same law firm represented the defendants in the present case, Judge Hand took appropriate recusal action.

Judge Thomas took over the case and issued the following order on June 19, 1981:

The Court has reviewed the entire file and rulings heretofore entered by Judge William B. Hand prior to his disqualification pursuant to the Fifth Circuit ruling in Potashnick ... After reviewing the entire file and Judge Hand's rulings, I adopt and affirm all of the same as the rulings of this Court.

Judge Thomas denied defendants' motion: 1) to vacate the above order, 2) to vacate all of Judge Hand's rulings, and 3) for a new trial.

S & S attacks Judge Thomas's conclusion that Judge Hand's acts were only voidable, not void. It notes that the disqualifications required by 28 U.S.C. Sec. 455(b) are non-waivable and, as such, any actions taken by a judge in violation of that section are necessarily void.

S & S also quotes Potashnick for the notion that inconvenience to the parties is always outweighed by the "... need to protect the dignity and integrity of the judicial process." 609 F.2d at 1112. S & S urges that this Court's ruling on this issue should not be affected simply because the present case proceeded for three and one-half years before Judge Hand recognized his statutory duties.

The Ransoms argue: 1) that the appellants are estopped from urging Judge Hand's disqualification as a ground for voiding his actions, and 2) that Judge Thomas's adoption of Judge Hand's orders can stand as an independent ruling since it was based on a full review of the evidence.

The appellees quote Potashnick ("... a litigant should not be permitted to utilize a disqualification issue as part of his trial strategy." 609 F.2d at 115) and urge that the Potashnick court envisioned a balancing of the parties' interests. Appellees note that: 1) S & S selected Hand, Arendall to represent them after they knew Judge Hand had been assigned to the case, and 2) they, the plaintiffs, were informed by the clerk of the potential conflict and given the opportunity to object to Judge Hand's handling of the case; no objection was made. The plaintiffs argue that the defendants should, under these circumstances, be estopped from escaping Judge Hand's adverse rulings.

Although this is an appealing argument in view of appellants having themselves employed Judge Hand's father's firm, we prefer to affirm the lower court ruling on this issue on appellees' second argument. No authority has been cited to us that requires the judge who succeeds a recused judge to rehear all previously-heard matters. The defendants' argument that all prior rulings are void is "frivolous," because those issues were decided not by Judge Hand, but by Judge Thomas after a review of the totality of the record. See, e.g., Walker v. Wilkinson, 3 F.2d 867, 869 (5th Cir.1925).

B. Finance Charges Under TILA

The term "finance charge" under the TILA, 15 U.S.C. Sec. 1605(a), consists of 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 ..." (emphasis added).

Applying the statutory definition to the facts of this case, the trial court stated:

6. The Defendants engaged in a home solicitation sales or marketing program, the product of which is frozen food. However, as a condition precedent to the consumer's right to purchase frozen food, the consumer must first purchase a Food and Freezer Service Agreement, failing which the consumer would not be permitted to buy frozen food. (Deposition of Gene Fomas, pp. 77-78, and Plaintiffs Ex. No. 6).

7. Based on the above factual circumstances this Court finds that the Defendants have imposed upon the Plaintiffs a direct or indirect charge as an incident to the extension of credit by requiring that Plaintiffs purchase a Food and Freezer Service Agreement before they would have the right to purchase frozen foods. (R. 548).

Although the literal reading of the language of the statute "incident to the extension of credit," leaves little doubt but that the signing of the FFSA here was in fact an incident to the extension of the credit allowed to the Ransoms, the appellants contend that the language should not be read literally but should be read in a manner consistent with the later amendment to the statute when the following was added to the above-quoted definition of finance charge: "The finance charge does not include charges of a type payable in a comparable cash transaction." In brief, appellants contend that interpretative letters of the staff of the Federal Reserve Board even prior to this amendment to the statute construed the law as not applying where even though a charge was truly incident to the extension of credit it was also required in the event that the underlying contract was for cash instead of credit. Appellants contend that the amendment of 1980 was the result of an effort by Congress to make clear what had been the proper construction of the statute up to that time.

The appellees respond that no matter how strong an argument can be made for construing the words "incident to the extension of credit" as being limited by a proviso that a charge is not incident...