Rounds v. Community Nat. Bank in Monmouth, 78-1048.
| Decision Date | 03 August 1978 |
| Docket Number | No. 78-1048.,78-1048. |
| Citation | 454 F. Supp. 883 |
| Parties | James E. ROUNDS and Raymond E. Burger, Wage Earner Trustee for James E. Rounds, Plaintiffs, v. COMMUNITY NATIONAL BANK IN MONMOUTH and Monmouth Mobile Homes, Inc., Defendants. |
| Court | U.S. District Court — Southern District of Illinois |
Barry M. Barash, Galesburg, Ill., for plaintiffs.
George H. Brinkmann, Monmouth, Ill., David L. Thompson, Rock Island, Ill., for defendants.
DECISION AND ORDER
The complaint herein was filed by James E. Rounds and Raymond E. Burger, as wage earner trustee for Rounds, hereinafter "plaintiff," except where the context requires more explicit identification, against Community National Bank in Monmouth and Monmouth Mobile Homes, Inc., hereinafter the "Bank" and the "dealer," respectively, for recovery of the statutory penalty for alleged violations of the Truth in Lending Act. 15 U.S.C. § 1601, et seq. The complaint is fully summarized below in appropriate context.
The Bank filed a motion to strike the complaint as to it. Subsequently thereto, and while that motion was still pending, the Bank filed a counterclaim for judgment upon the contract of indebtedness which underlies the complaint and a cross-complaint against the dealer for a judgment for the Bank's exoneration in the event of a judgment against it upon the complaint. The Bank also filed a petition for reclamation of its security.
The latter petition rests upon the following facts and allegations. The complaint alleges that Rounds filed a petition for voluntary relief on August 18, 1977, under Chapter XIII of the Bankruptcy Act, which led to confirmation of a plan of arrangement and the appointment of Burger as wage earner trustee by the Bankruptcy Court on October 27, 1977. Paragraph 3 of the Bank's counterclaim alleges that the confirmed plan provided that Rounds was to pay the indebtedness to the Bank pursuant to the underlying contract and outside the confirmed plan. The counterclaim, filed May 15, 1978, further alleges that Rounds failed to make the payments due in March and April, 1978, and that he is therefore in default. The counterclaim, therefore, prays judgment against plaintiff for the unpaid balance of the contract and other charges and expenses related to Rounds's alleged default. The reclamation petition, filed at the same time in this cause, prays that the Bank be granted leave to withdraw from its acceptance of the confirmed plan and to repossess the security.
Plaintiff filed a motion to strike the counterclaim, for the reason that the counterclaim is not compulsory and not authorized by 15 U.S.C. § 1640(h), and the dealer filed a motion, likewise grounded upon Section 1640(h), to strike the cross-complaint.
Those motions are now before the court.
As a preface to consideration of the thrust of the Bank's motion to strike, the heterogenic allegations of complaint herein are summarized as follows. On April 5, 1977, Rounds purchased a used mobile home from the dealer, that purchase being evidenced by a written purchase agreement (Exhibit A to Complaint); that the dealer, in the ordinary course of its business, regularly extends credit or arranges for the extension of credit; that the dealer arranged with the Bank for the extension of credit; that "Bank or dealer," on April 26, 1977, caused debtor to execute a retail installment contract (Exhibit B); that the dealer assigned the installment contract to the bank, which caused a lien to be endorsed upon the title to the vehicle; that Rounds never received a copy of that contract; and that TILA was violated, in that:
a. "Bank and dealer" failed to make the required disclosures on a single sheet of paper;
b. Dealer failed to disclose that the contract would be assigned to the Bank;
c. "Bank" included a charge for credit life insurance in the "finance charge," and that the finance charge is thus overstated and therefore inaccurate;1 and
d. That by reason of the premises summarized in "c" above, the annual percentage rate is inaccurately stated.2
The Bank's motion to strike the complaint as to it is even more prolix than is the complaint. In certain contexts that motion is directed to the legal question whether a claim for TILA violations is stated. In another context it is grounded upon the position that the complaint, with the exhibits attached thereto, reveals that a part of the complaint rests upon an obvious misstatement or a misapprehension of fact.
In those contexts the motion will be treated as a motion for summary judgment. The requirements for so treating the motion are met. A hearing was scheduled upon the motion, at which plaintiff requested, and was granted, some 24 days thereafter to file any desired response to this and other motions then pending. That time has passed and no response was filed. Plaintiff's rights are protected by the procedure followed here.
The attenuated allegations of paragraph 11e of the complaint and paragraph 11f allege that the finance charge stated in the disclosure is overstated and that the annual percentage rate is incorrectly stated by reason of the alleged overstatement of the finance charge. A comparison of those allegations with the exhibits to the complaint reveals that they rest upon a misstatement or misapprehension as to the facts of the transaction.
The particular allegation is that the sum of $171 for credit life insurance premiums was included in the finance charge, resulting in the alleged overstatement of the finance charge and the incorrect statement as to the annual percentage rate. It is patent, upon the face of exhibit B to the complaint, that that $171 item is included in the amount financed, upon which amount the finance charge was computed. Thus, plaintiff's basic premise rests upon a misstatement of that patent fact.
That item was properly allocated to the amount financed figure. The face of the contract clearly and conspicuously stated that credit life insurance was not required to obtain credit, and Rounds did give a specifically dated and separately signed request that such insurance was desired by him in the loan transaction.
Under a section of the contract entitled "Insurance," figures were entered reflecting a premium for casualty insurance insuring the mobile home and the figure of $171 for "Group Credit Life Insurance Charge." That section concludes with the following statement:
That statement is immediately followed by entry of the date and the signature of Rounds as buyer.
The court is at a loss to determine upon what theory these allegations were stated. The premium was properly included as a part of the amount financed. Regulation Z requires that credit insurance charges are to be included as a part of the finance charge only if such insurance is required as a condition for extending credit. Such charges are not included in the finance charge if the instrument clearly and conspicuously discloses to the debtor that such insurance coverage is not required and if the debtor gives "specific dated and separately signed affirmative written" request for such insurance coverage after he has received written disclosure of the cost of such insurance.3 It is clear, upon the face of this instrument, that there was compliance with the Regulation. Judgment will therefore be entered dismissing paragraphs 11e and 11f of the complaint.
Paragraph 11c of the complaint alleges that the contract included an assignment to the holder of all refunds of insurance premiums. Paragraph 11d alleges that the defendants, or one of them, obtained a security interest in credit life insurance upon the life of Rounds. Plaintiff contends that the assignment of unearned premiums and the right to receive the proceeds of credit life insurance and the proceeds of casualty insurance upon the mobile home created security interests which were not properly disclosed to Rounds.
The plaintiff's contention that the assignment of unearned insurance premiums, which were advanced by the lender as a part of the principal loan, and the lender's right to receive the proceeds of such insurance to apply upon its loan, are security interests which were required to be disclosed pursuant to Section 1638(a)(10) is a novel contention which apparently presents an issue of first impression.
The decision most closely in point to the issue before this court is Mims v. Dixie Finance Corp., 426 F.Supp. 627 (N.D.Ga. 1976). In pertinent context, the plaintiff in Mims claimed that the creditor had failed to disclose its security interest in the plaintiff's waiver and assignment of her rights to homestead and rights to exemption of property from levy and sale under the provisions of the statutes of the State of Georgia. Three pertinent premises characterize the special master's report which the court adopted. Ibid. at 628. The first is that the character of a right which is claimed to create a security interest must be adjudged and determined by the application of state law. Id. at 632, et seq. The second is that TILA disclosures as to security interests must be so limited as to avoid the obscuration of required disclosures by the inclusion of the unnecessary and irrelevant description of other contract clauses and rights which do not create a security interest in the legal sense. Id. at 638. The third is that the term "security interest," as employed in TILA and the Regulation, must be limited by its definition to those contractual or statutory rights which create a...
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