Steinmetz v. Toyota Motor Credit Corp.

• Citation: 963 F.Supp. 1294
• Decision Date: 05 May 1997
• Docket Number: No. CV 96-4862 (ADS).,CV 96-4862 (ADS).
• Parties: Alan M. STEINMETZ, on behalf of himself and all others similarly situated, Plaintiff, v. TOYOTA MOTOR CREDIT CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of New York

963 F.Supp. 1294

Alan M. STEINMETZ, on behalf of himself and all others similarly situated, Plaintiff, v. TOYOTA MOTOR CREDIT CORPORATION, Defendant.

No. CV 96-4862 (ADS).

United States District Court, E.D. New York.

May 5, 1997.

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Kaufman Malchman Kirby & Squire, L.L.P., New York City (Roger W. Kirby, Ira M. Press, of counsel), for Plaintiff.

Bernstein Liebhard & Lifshitz, New York City (Mel E. Lifshitz, of counsel), for Plaintiff.

Mayer, Brown & Platt, New York City (Robert Shwarts, Michelle Odorizzi, of counsel), for Defendant.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge:

This lawsuit is brought by the plaintiff, Alan Steinmetz, ("Steinmetz" or the "plaintiff") on behalf of a putative class of lessees against the defendant Toyota Motor Credit Corporation ("Toyota" or the "defendant") based on the defendant's allegedly unlawful leasing practices with respect to the security deposits that lessees are required to advance. Presently before the Court is Toyota's motion to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6).

I. Background

The following facts are taken from the Complaint. The plaintiff is a resident of Nassau County. The defendant is a California corporation which provides, among other services, financing in conjunction with leases offered by Toyota and Lexus dealerships nationwide including in New York. In connection with these lease transactions, Toyota operates as "both an assignee and an original lessor" in that it supplies the lease forms to the car dealers and extends and approves lessees' credit. Compl. ¶ 10. Further all lease payments are made directly to Toyota.

On January 22, 1993, Steinmetz entered into a lease agreement with an Inwood, New York based dealer known as "Five Town Toyota, Ltd." (the "Lease"). The Lease, which was on a Toyota form, was assigned to the defendant in accordance with its standard operating procedure and is scheduled to terminate at an unspecified time this year. In the Lease is a requirement that the lessee, in this case the plaintiff, pay a security deposit of $325 at the outset. The Lease further requires 48 monthly payments of $325 each for a total of $15,600. Upon executing the lease, the plaintiff paid the initial $325 monthly lease payment, a $325 security deposit and a $110 license fee. According to the Complaint, the funds paid for the security deposit were commingled with other Toyota moneys.

With respect to the security deposit, the Lease provides:

You may use the security deposit to pay all amounts that you should pay under this Lease, but do not. If you perform all of your obligations under this Lease, the security deposit will be returned to you at the end of the Lease Term. No interest will accrue or be paid to you on he security deposit unless otherwise required by law.

Compl. ¶ 36, Lease ¶ 32.

Steinmetz claims that once the lessees transfer the security deposits to the defendant, they are used:

in a manner that causes the deposits to increase in value through interest or other investment, or permits defendant otherwise to profit or enjoy other economic benefits from its possession of such deposits ("profits"). In some instances defendant converts the security deposit at lease inception, using, directly or as collateral, the Lessees' money to purchase the vehicle which is then leased to the Lessee. In other instances defendant realizes an "Earned Income Credit" from the security deposits that are deposited and held in the defendant's bank account, thereby reducing bank charges due on its accounts.

Compl. ¶ 39. According to the plaintiff, Toyota does not remit these profits to the lessees and does not apply them to reduce the secured obligation. Further, the Lease does not state that Toyota is entitled to retain these profits. Although the Lease does provide that there will be certain "Lease Charges" as a component of "Monthly Rental Payments," these charges do not include the profits on the security deposits "which defendant misappropriates." Compl. ¶ 44.

Based on these allegations, allegedly acting on behalf of a class of similarly situated lessees, Steinmetz asserts six causes of action for violation of: (1) the Consumer Leasing Act ("CLA"), 15 U.S.C. § 1667a and Regulation M, 12 C.F.R. § 213.4; (2) New York U.C.C. § 9-207(2)(c); (3) New York General Obligations Law § 7-101; (4) New York General Business Law § 349; (5) conversion; and (6) unjust enrichment.

The defendant moves to dismiss the complaint on two grounds. Initially, Toyota argues that Steinmetz has failed to allege a claim for which relief can be granted. In the alternative, the defendant maintains that even if the plaintiff's claims were otherwise valid, they are nevertheless barred as the result of a class action settlement and Final Judgment entered in the case of Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993) (final judgment). Steinmetz opposes Toyota's motion, and also cross moves for leave to file an amended complaint pursuant to Fed.R.Civ.P. 15 in the event that the defendant's motion is granted.

II. Discussion

A. Rule 12(b)(6) standard

A complaint is to be dismissed under Fed. R.Civ.P. 12(b)(6) for failure to state a claim, if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); accord Gagliardi v. Village of Pawling, 18 F.3d 188, 191 (2d Cir.1994); Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991). In addition, such a motion is addressed solely to the face of a pleading, and "[t]he court's function ... is not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985).

In assessing the sufficiency of a pleading on a motion to dismiss, "all factual allegations in the complaint must be taken as true," La Bounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991), and all reasonable inferences must be construed in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1099 (2d Cir.1988), cert. denied sub nom., Soifer v. Bankers Trust Co., 490 U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989).

The Court is also mindful that under the modern rules of pleading, the plaintiff need only aver "a short and plain statement showing that the pleader is entitled to relief," Fed.R.Civ.P. 8(a)(2), and that "[a]ll pleadings shall be so construed as to do substantial justice." Fed.R.Civ.P. 8(f).

B. Toyota's motion to dismiss

The defendant initially argues that the plaintiff's claims hinge on a "single, faulty premise," namely that New York law requires leasing companies that retain security deposits in non-interest bearing accounts pay lessees their share of whatever benefits they receive. Toyota maintains that because New York General Obligations Law is the exclusive statutory provision governing the transactions at issue, and does not impose such a requirement, the various other causes of action contained in the Complaint must fail. Alternatively, even if the plaintiff's claims were otherwise valid, the defendant contends that this action is nevertheless barred by the class action settlement in Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993). To facilitate the analysis, the Court will address the latter argument first.

1. The Mortimer class action settlement

The defendant asserts that the plaintiff's claims are barred by the final judgment entered in Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993) in connection with a class action settlement. At the outset, the Court notes that it may take judicial notice of court orders without converting this motion to one for summary judgment. See, e.g., Mullis v. United States Bankruptcy Court, 828 F.2d 1385, 1388 n. 9 (9th Cir.1987), cert. denied, 486 U.S. 1040, 108 S.Ct. 2031, 100 L.Ed.2d 616 (1988) (recognizing that a court may take judicial notice of pleadings and orders on a motion to dismiss); General Time Corp. v. Bulk Materials, Inc., 826 F.Supp. 471, 473 n. 1 (M.D.Ga.1993); 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1364 (1990).

Article IV, Section 1 of the United States Constitution provides that:

Full faith and Credit shall be given in each State to the public Acts, Records, and Judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.

U.S. Const. Art. IV section 1. Similarly, pursuant to 28 U.S.C. § 1738:

[J]udicial proceedings ... shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State ... from which they are taken.

Section 1738 "`require[s] all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so.'" Kelleran v. Andrijevic, 825 F.2d 692, 694 (2d Cir.1987), cert. denied, 484 U.S. 1007, 108 S.Ct. 701, 98 L.Ed.2d 652 (1988), quoting, Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415-16, 66 L.Ed.2d 308 (1980). The Supreme Court has recently stated that this rule applies to a state court class action judgment incorporating a settlement agreement releasing the defendants from pending claims. Matsushita Elec. Indus. Co. v. Epstein, ___ U.S. ___, ___ - ___, 116 S.Ct. 873, 877-78, 134 L.Ed.2d 6 (1996).

According to the Notice of Proposed Class Action Settlement in Mortimer, the Final Judgment, see Affidavit of Robert Shwarts, Dec. 12, 1996, Exh. B., released the defendants from all...