Solevo v. Aldens, Inc.

• Decision Date: 29 May 1975
• Docket Number: No. N-74-313.,N-74-313.
• Citation: 395 F. Supp. 861
• Court: U.S. District Court — District of Connecticut
• Parties: Gennaro J. SOLEVO v. ALDENS, INC.

395 F. Supp. 861

Gennaro J. SOLEVO v. ALDENS, INC.

No. N-74-313.

United States District Court, D. Connecticut.

May 29, 1975.

Jonathan J. Einhorn, New Haven, Conn., for plaintiff.

William J. Egan, New Haven, Conn., for defendant.

MEMORANDUM OF DECISION ON DEFENDANT'S MOTIONS

NEWMAN, District Judge.

This case presents the question of the propriety of exercising pendent jurisdiction over a usury claim arising under state law, when the primary claim is based on alleged violations of federal truth-in-lending law. The suit results from an open-end credit agreement between plaintiff, a citizen of the State of Connecticut, and defendant, an Illinois corporation. Count I of the complaint charges the defendant with failure to make disclosures required by the truth-in-lending laws of the United States, 15 U.S.C. § 1601 et seq., and of the State of Connecticut, Conn.Gen.Stat. § 36-393, et seq., as incorporated into federal law, 15 U.S.C. § 1633, 12 C.F.R. § 226.12(c). Count II alleges in a pendent claim that the agreement imposes a rate of interest in excess of that permitted under Connecticut law, Conn.Gen.Stat. §§ 37-4, 42-133c. Defendant has moved to dismiss Count I for lack of subject matter jurisdiction, and Count II for failure to state a claim upon which relief may be granted. It also has moved to strike one paragraph of the complaint, and for a more definite statement of the truth-in-lending claim.

Plaintiff maintains that jurisdiction of the truth-in-lending claim is provided by 15 U.S.C. § 1640(e), which gives to federal district courts and to "any other court of competent jurisdiction" subject matter jurisdiction of federal truth-in-lending claims. Defendant premises its motion to dismiss this count of the complaint on plaintiff's reliance on Connecticut's truth-in-lending laws. While the complaint charges failure to comply with both state and federal disclosure requirements, Connecticut-regulated transactions have admittedly been given an exemption from federal truth-in-lending law, see 15 U.S.C. § 1633.

Defendant questions, in another context, whether this transaction is actually governed by Connecticut law, see discussion of Count II of the complaint, infra. If it is not a Connecticut transaction, then plaintiff's truth-in-lending claim is purely a question of federal law, and no question of jurisdiction under § 1640(e) arises. If it is Connecticut-regulated, there nonetheless remains a federal cause of action for violations of the state disclosure requirements as incorporated into federal law, 12 C.F.R. § 226.12(c); Wolf v. The H. P. Hallock Co., Civil No. 15,675 (D.Conn. Sept. 4, 1973); Ives v. W. T. Grant Co., Civil No. 15,125 (D.Conn. Feb. 16, 1973). Whether judged by state or federal standards, plaintiff's truth-in-lending claim is cognizable in this Court.

Count II of the complaint alleges violations of Connecticut's usury statutes, Conn.Gen.Stat. §§ 37-4, 42-133c. Although standing alone such a claim is not cognizable in this Court, plaintiff would append this state cause of action to his federal truth-in-lending suit. When a plaintiff's state and federal claims derive from a "common nucleus of operative fact," and "are such that he would ordinarily be expected to try them all in one judicial proceeding," then if the federal court finds the federal claim to be "substantial," it may take pendent jurisdiction over the state cause of action, United Mineworkers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). No pendent jurisdiction of a usury claim exists, though, if the truth-in-lending claim is "entirely without merit," Hughes v. Ford Motor Credit Co., 360 F.Supp. 15 (E.D.Ark.1973), or if there is an insufficient factual relationship between the alleged truth-in-lending violation and plaintiff's usury claim, see Jordan v. Montgomery Ward & Co., 317 F.Supp. 948 (D.Minn.1970), aff'd in part, rev'd in part on other grounds, 442 F.2d 78 (8th Cir. 1971); cf. Spens v. Citizens Fed. Savings & Loan Assn. of Chicago Hts., 364 F.Supp. 1161 (N.D. Ill.1973). At this early stage, however, neither the substantiality of the truth-in-lending allegations nor their factual relationship to the usury claim can be determined.

Even assuming that both these criteria are met, there are nonetheless reasons for declining to take jurisdiction of Count II. Gibbs makes clear that even where the power to exercise pendent jurisdiction exists, a court may, in its discretion, decline to do so. The Supreme Court reasoned that since the justification for the doctrine of pendent jurisdiction

lies in considerations of judicial economy, convenience and fairness to litigants; if these are not present a federal court should hestitate to exercise pendent jurisdiction over state claims . . .. 383 U.S. at 726, 86 S.Ct. at 1139.

Respect for judicial economy requires that plaintiffs with state and federal claims be allowed to raise both in a single forum. Where the state forum can hear only the state claim, then pendent jurisdiction is generally appropriate. Where both state and federal issues may be litigated in the state court, as § 1640(e) allows here, considerations of judicial economy are less pressing, and only a general preference for a federal forum for the federal cause of action, a policy arguably expressed in the statute giving federal jurisdiction to the primary claim, would dictate the exercise of pendent jurisdiction. See Hart & Wechsler, The Federal Courts and the Federal System, 2d ed. at 923.

In cases such as this, however, there is good reason not to credit such a preference. Gibbs recognizes the danger that a litigant may invoke the doctrine of pendent jurisdiction in order "to impose upon the court what is in effect only a state law case." 383 U.S. at 727, 86 S.Ct. at 1140. While it would perhaps be unfair to characterize the usury claim as "the real body" of the case, and the truth-in-lending claim as only its "appendage," id., the danger here is a comparable one, and in some respects more serious. For if pendent claims are routinely allowed in truth-in-lending cases, while a usury claim may not become the dominant part of any single federal suit, still such state causes of action may come to be the dominant part of federal court dockets, at least in districts such as this where truth-in-lending suits proliferate.

That such a projection is not mere conjecture is illustrated by the situation in the Northern District of Georgia, where 292 truth-in-lending cases were filed in the first half of fiscal year (FY) 1974 and 349 in the first half of FY 1975. Semi-Annual Report of the Director of the Administrative Office of the United States Courts 23 (1975). Though the District of Connecticut had only two such cases in the first six months of FY 1972 and five in the first six months of FY 1973, already our truth-in-lending filings have climbed to second in the nation, with 39 in the first half of FY 1974 and 78 in the first half of FY 1975, id.

While some notions of judicial economy may be served by the exercise of pendent jurisdiction in this rapidly growing number of cases, the results are more likely to be counterproductive. Like the Court in Hughes v. Ford Motor Credit Co., supra,

this Court is not inclined to permit the Truth in Lending Act to be used simply as a means to obtain a federal forum for ordinary debtor-creditor controversies between citizens of the same State or not involving the jurisdictional amount prescribed by 28 U. S.C. § 1332(a). 360 F.Supp. at 19.

Congress could not have intended such a result, and Gibbs gives federal district courts the discretion necessary to avoid it. Therefore, unless special circumstances warrant otherwise, this Court will refuse to take jurisdiction of state claims appended to federal truth-in-lending actions. Plaintiffs who wish to bring all their claims in a single forum may take advantage of the provision for concurrent jurisdiction in 15 U.S.C. § 1640(e) by pursuing those claims in state court.

Here no special circumstances warrant the exercise of pendent jurisdiction. In fact, the state claim raises special problems that, apart from the general considerations that counsel against exercise of pendent jurisdiction in any truth-in-lending action, demand that its invocation in this particular case be refused. Defendant pinpoints those problems in his motion to dismiss Count II.

Whether this agreement is to be tested by federal or state truth-in-lending standards is likely to make little substantive difference to decision on Count I, since § 1633 permits an exemption only where the two impose "substantially similar" disclosure requirements. But whether Connecticut law governs this transaction is a crucial question for plaintiff's usury claim. It is undisputed that the finance charges imposed by the agreement, 1.75% per month or 21% annually on balances of up to $350, exceed those permitted by Connecticut law. The general usury statute, Conn.Gen. Stat. § 37-4, forbids rates of interest higher than 12% per annum, and another Connecticut statute, § 42-133c, prohibits charges applied on an open-end credit plan in excess of one percent per month. Defendant argues, however, that this transaction is governed not by the laws of Connecticut, but by those of Illinois, which permit monthly charges on open-end credit accounts of up to 1.8%, Ill.Rev.Stat. Ch. 121½ § 528. It therefore moves to dismiss the usury count for failure to state a claim upon which relief may be granted.

In arguing that this transaction is regulated by the laws of Illinois, defendant relies in part on the final paragraph of the credit application, which states that

This Agreement shall be deemed a contract made in Illinois and I the applicant acknowledge and agree that the laws of the State of Illinois shall govern all credit terms and our respective rights and duties under this Agreement and its enforceability.

The parties to an agreement are generally entitled to...