Ratulowski v. PNC Bank
| Decision Date | 10 May 2023 |
| Docket Number | 2:22-CV-004-PPS-APR |
| Parties | VINCENT I. RATULOWSKI, on behalf of himself and all others similarly situated, Plaintiff, v. PNC BANK, N.A., d/b/a PNC AUTO FINANCE, Defendant. |
| Court | U.S. District Court — Northern District of Indiana |
Plaintiff Vincent Ratulowski claims that PNC Bank knowingly collects and unlawfully retains unearned insurance fees that are sold as an add-on to automobile finance agreements. He brings three claims: one for breach of contract; a second under an obscure equitable concept known as “money had and received”; and finally, he seeks a declaratory judgment relating to the parties' rights and obligations under contracts of insurance. Ratulowski also brings class claims on behalf of both a Multi-State Class and Indiana Subclass consisting of similarly aggrieved auto finance customers. PNC has moved to dismiss Ratulowski's First Amended Complaint [DE 31; DE 32; DE 35; DE 44; DE 46; DE 47], and to strike the class allegations from the complaint. [DE 33; DE 34; DE 35 DE 45; DE 46; DE 48].
For the reasons explained below, Ratulowski will be allowed to proceed with his claim for breach of contract based on PNC's alleged breach of the express terms of his finance agreement and insurance addendum. And because Ratulowski will be permitted to proceed on that claim, his claims for “money had and received” and declaratory judgment will be dismissed. Finally, based on my findings set out below, Ratulowski is not a member of the Multi-State Class and Indiana Subclass defined in the First Amended Complaint. Accordingly, the motion to strike the class allegations will be granted. But Ratulowski will be given thirty days in which to file an amended complaint to narrow the class claims.
This is a case about “GAP fees”-shorthand for “Guaranteed Asset Protection” fees-and a creditor's legal obligation to remit any such fees paid by a customer but “unearned” by the creditor. Let's start by explaining what GAP fees are. Anybody who has visited a car lot is familiar with the idea of financing the purchase of a new car. But few are likely to understand the niceties of GAP coverage and the payment obligations attendant to such coverage in the event of an early payoff on a car loan. The typical vehicle finance agreement, like the one at the center of this case, is a contract under which the customer agrees to pay an auto dealer the price of a vehicle over a fixed period of time, with interest, through installment payments. [DE 26, ¶ 4.] Dealers then sell and assign those contracts to other entities (in this case PNC's auto finance company), and the payments are made directly from the customer to the finance company. Id.; see id., ¶¶ 27-28.
The basic idea behind GAP insurance is premised on the idea that most new cars rapidly depreciate as soon as they are driven off the lot. Suppose that someone buys a new car for $30,000 and finances all of it. Suppose further that he drives the car for a few months, puts 10,000 miles on it and then gets in an accident and totals it. He still would owe nearly $30,000 on the car to the bank that financed the deal, but the value of the vehicle at the time it was totaled might be only $25,000. The auto insurer will only pay for the value of the car at the time it was totaled-$25,000 in my example. And the owner will have to make up the difference ($5,000) to fully pay off the lender. GAP insurance is an add-on coverage offered at the time of the sale that, as the name suggests, bridges the gap between what a car is worth and what one still owes on it if the car gets totaled or stolen.
Ratulowski claims that he and members of a putative class and subclass were injured when they paid off their car loans early resulting in PNC obtaining “unearned GAP fees” that PNC did not refund. This practice allegedly violates “Automatic Refund Laws” in six states, which require automatic refunds for unearned GAP fees after an early payoff even when a customer does not request a refund. [DE 26, ¶¶ 1, 10, 12; see also id., ¶¶ 14, 34-35; DE 26-1 (Retail Installment Contract and Security Agreement); DE 26-2 (GAP Waiver Addendum Election Form).][1] The so-called “Automatic Refund States” include Alabama, Colorado, Indiana, Massachusetts, New Jersey, and Texas. See generally Ala. Code §§ 8-37-6(b), -2(3); Ala. Admin Code § 155-2-2-.13; 4 Colo. Code Regs. §§ 902-1:8(h), -1:8(1); Ind. Code §§ 24-4.5-2-202(f)(iii), (g), -107; Mass. Gen. Laws 255B § 16; N.J.S. § 17:16BB-6; N.J. Stat. 17:16BB-2; Tex. Fin. Code §§ 354.001(4) 354.007(e). [DE 26, ¶¶ 14, 34.]
As noted at the outset, the complaint asserts claims for breach of contract, “money had and received,” and declaratory relief. It also seeks certification of a putative class consisting of persons who entered into finance agreements with GAP addendums in the six Automatic Refund States that were assigned to PNC, as well as certification of a putative subclass of persons who entered such agreements in the State of Indiana that were assigned to PNC. [DE 26, ¶¶ 14, 34, 49-79.]
Here's what happened to Mr. Ratulowski. In December 2015, Ratulowski was looking for a new car and decided to purchase a 2016 Chevrolet Cruze from a dealership in Highland. [Id., ¶ 25; DE 35-1.] He financed the purchase. The terms of the financing were set out in a Retail Installment Contract and Security Agreement expressly “governed by the law of Indiana” and applicable federal laws and regulations. [DE 35-1 at 3.] I will refer to this as his “finance agreement,” for short. The finance agreement obligated Ratulowski to repay the full amount financed in 75 monthly installments, starting January 10, 2016, and gave him the option to “prepay this Contract in full or in part at any time.” Id. at 2-3.
At the same time he financed the purchase of his Chevy Cruze, Ratulowski elected to buy GAP coverage. To that end, the finance agreement listed $506.00 for “GAP Protection” under “insurance premiums paid to insurance company(ies),” and included this amount in the “amount financed” by Ratulowski at the time of purchase. Id. at 2. This agreement was memorialized in a “GAP Waiver Addendum Election Form” appended to the finance agreement. [DE 26, ¶ 26; DE 35-2.] The GAP Addendum stated the total amount financed, the interest rate, and installment term, and included a box (which Ratulowski checked) titled “Yes, I elect the GAP Waiver.” [DE 35-2 at 2.] As described above, the GAP Addendum provides protection to a customer in the event the vehicle is totaled and an insurance payout does not cover the remaining amount the customer owes under a finance agreement. By checking the box on the GAP Addendum, Ratulowski purchased the GAP coverage, meaning that if a total loss of this type occurred (a “GAP event”), the creditor (ultimately, PNC) would waive the difference Ratulowski would otherwise owe. [DE 26, ¶¶ 6, 9, 27; DE 35-2 at 2.]
As addressed in greater detail below, the GAP Addendum contains two express terms concerning Ratulowski's rights in the event of a “termination” or “cancellation” of his GAP coverage. That's where the rubber really meets the road in this case. The parties fiercely dispute the effect of these provisions on Ratulowski's right to an automatic refund of any “unearned” GAP fees he paid PNC. Frankly, the dispute is understandable given the relevant language is puzzling, to say the least.
On one hand, the GAP Addendum contains an express “cancellation” provision. It says that GAP coverage “may be cancelled for a full refund within sixty (60) days of the Origination Date” of the finance agreement, but “in the event of a Total Loss, Constructive Loss or Unrecovered Theft of the covered Vehicle, the GAP Waiver Addendum fee will be deemed as fully earned and therefore, no refund will be due.” [DE 35-2 at 3 (emphasis added).] If a customer cancels their GAP coverage more than sixty days after the origination of the finance agreement, “any refund will be calculated using a pro-rata method unless otherwise required by state regulatory laws, less a $35 cancellation fee.” Id. On the other hand, the GAP Addendum also contains an express “termination” provision: “This GAP Waiver Addendum will terminate without notice if the following occur: (i) when the [finance agreement] terminates; (ii) upon cancellation of the [finance agreement] prior to its expiration; or (iii) in the event that vehicle listed on the front of this GAP Waiver Addendum is sold, assigned or transferred by you before the expiration of the [finance agreement].” Id. (emphasis added). The termination provision says nothing about a refund.
The issue came to a head when Ratulowski (and potentially thousands of others in the six states with Automatic Refund Laws) paid off the balances on their finance agreements early. In Ratulowski's case, this occurred in conjunction with the trade-in of his vehicle. In April 2020, he decided to trade in his Chevy Cruze to a different dealer in a different state (Gateway Motors in Nebraska). As is customary, Gateway Motors asked PNC what the payoff amount was. When PNC responded, it included in Ratulowski's early payoff quote the remaining amount of GAP fees for the full original term of the finance agreement. He then brought his Chevy Cruze to the dealership and authorized Gateway Motors to “make the payment to PNC on his behalf.” [DE 26, ¶¶ 12, 31-33.] Upon receipt of the payment from Gateway Motors, Ratulowski authorized PNC to “transfer title to the vehicle” to the dealer. Id. While Gateway Motors made the payments directly to PNC, Ratulowski avers that he “did not transfer or assign his right to a refund of unearned GAP fees to Gateway Motors,” and by “making the payment to PNC on [his] behalf, Gateway...
To continue reading
Request your trial