Vallies v. Sky Bank

Citation591 F.3d 152
Decision Date31 December 2009
Docket NumberNo. 08-4160.,08-4160.
PartiesLouis R. VALLIES, Individually and on behalf of all similarly situated vehicle buyers, Appellant v. SKY BANK, an Ohio bank, licensed to do business in the Commonwealth of Pennsylvania.
CourtU.S. Court of Appeals — Third Circuit

Before: SCIRICA, Chief Judge, RENDELL and ALDISERT, Circuit Judges.


SCIRICA, Chief Judge.

In this putative class action, the sole issue presented by this appeal is whether a plaintiff must prove detrimental reliance in order to recover actual damages sustained because of a disclosure violation under § 1640(a)1 of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-67. The District Court, following persuasive authority from our sister courts of appeals, concluded that detrimental reliance was required, and granted summary judgment for defendant because plaintiff failed to plead and could not prove detrimental reliance. We will affirm.


Louis Vallies brought a putative class action on behalf of consumers who had obtained loans from Sky Bank to finance purchases of motor vehicles,2 claiming Sky Bank violated TILA disclosure requirements, specifically 12 C.F.R. § 226.4(d).3

Vallies and Sky Bank had entered into a Loan Note and Security Agreement, which financed an automobile and other items, including a premium of $395 for Guaranteed Auto Protection ("GAP"), a form of debt cancellation insurance covering any loan deficiency which may remain in the event property insurance was insufficient to cover complete property loss. This charge was not calculated into the "finance charge" as required by TILA. In addition, instead of itemizing the GAP premium individually, the loan agreement combined it with a $1395 service contract charge, and disclosed the two generally as $1790 to be paid to National Auto, the service contract seller. At the same time, Vallies also signed the GAP Waiver Agreement with the automobile dealer, Phil Fitts Ford, which contained the statements required by TILA. Sky Bank was not a party to the GAP Waiver Agreement.

The District Court initially granted Sky Bank's motion to dismiss for failure to state a claim, holding that Sky Bank did not violate TILA because the necessary disclosures had been made to Vallies—not by Sky Bank, but by the automobile dealer Phil Fitts Ford, a third party. Alternatively, the District Court concluded that under TILA, each creditor is not required to make all relevant disclosures. We reversed and remanded, holding that "the creditor, and the creditor alone, is required to disclose ... required information." Vallies v. Sky Bank, 432 F.3d 493, 495 (3d Cir.2006). On remand, Sky Bank moved for summary judgment, asserting that it fulfilled its TILA obligations through an undisclosed agent. After the District Court denied summary judgment, the parties settled Vallies's statutory damage claims under 15 U.S.C. § 1640(a)(2) for the maximum statutory amount of $501,000. The District Court certified a class exclusively for settlement purposes and approved the settlement.

The settlement, however, explicitly did not cover Vallies's actual damage claims under 15 U.S.C. § 1640(a)(1). Sky Bank moved for summary judgment on these claims, arguing that Vallies cannot recover actual damages because he failed to plead and cannot prove detrimental reliance. The District Court held that to recover actual damages, Vallies must show "(1) he read the TILA disclosure statement; (2) he understood the charges being disclosed; (3) had the disclosure statement been accurate, he would have sought a lower price; and (4) he would have obtained a lower price." Mem. Order at 10. Finding that Vallies "got all of the required information and voluntarily elected to incur the debt cancellation insurance when he purchased his vehicle," the District Court concluded he could not satisfy the third or fourth element recited, and granted Sky Bank's motion for summary judgment. Id. Vallies now appeals.4


This case presents a question of statutory interpretation, and "[o]ur review of questions of statutory interpretation is plenary." DIRECTV Inc. v. Seijas, 508 F.3d 123, 125 (3d Cir.2007). Although we have not had an opportunity to examine this issue, we have previously noted that "[s]everal courts have held that detrimental reliance is an element of establishing actual damages under TILA." In re Cmty. Bank of N. Va., 418 F.3d 277, 302 n. 20 (3d Cir.2005). In fact, every court of appeals that has spoken on this issue has required a showing of detrimental reliance.5 Most district courts are in accord.6 Even Vallies concedes the great weight of authority favors the detrimental reliance standard. Accordingly, the core theme underlying Vallies's numerous arguments is that the weight of authority is wrong. In a thorough and well-reasoned opinion, the District Court rejected Vallies's challenges, correctly holding that a showing of detrimental reliance is necessary to recover actual damages for TILA disclosure violations.


The Truth in Lending Act provides a range of remedies to achieve its goals. First, it authorizes the Federal Trade Commission as its overall enforcement agency, 15 U.S.C. § 1607(c), and provides other federal agencies with enforcement power over certain categories of lenders, 15 U.S.C. § 1607(a). The enforcement agencies are authorized to remediate unlawful finance charges by requiring adjustments of consumers' accounts. 15 U.S.C. § 1607(e)(1). Second, TILA imposes criminal liability for knowing and willful violations. 15 U.S.C. § 1611. Finally, TILA creates a private cause of action for actual damages, 15 U.S.C. § 1640(a)(1), and also for statutory damages, 15 U.S.C. § 1640(a)(2). For class action suits arising out of the same TILA violation, Congress capped the recovery of statutory damages to the lesser of $500,000 or 1% of the defendant's net worth. 15 U.S.C. § 1640(a)(2)(B). As the Court of Appeals for the Eleventh Circuit observed, "[u]nder this regime, statutory damages provide at least a partial remedy for all material TILA violations; however, actual damages ensure that consumers who have suffered actual harm due to a lender's faulty disclosures can be fully compensated...." Turner v. Beneficial Corp., 242 F.3d 1023, 1026 (11th Cir.2001) (en banc). As noted, the parties here settled the statutory damage claims under § 1640(a)(2) for the maximum statutory amount, and the putative class is now seeking actual damages under § 1640(a)(1).

"[E]very exercise of statutory interpretation begins with an examination of the plain language of the statute." Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir.2001). The statute here provides in part:

Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part, including any requirement under section 1635 of this title, subsection (f) or (g) of section 1641 of this title, or part D or E of this subchapter with respect to any person is liable to such person in an amount equal to the sum of—

(1) any actual damage sustained by such person as a result of the failure; (2)

(A) (i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer lease under part E of this subchapter, 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000, or (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $400 or greater than $4,000; or

(B) in the case of a class action, such amount as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery under this subparagraph in any class action or series of class actions arising out of the same failure to comply by the same creditor shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the creditor;

(3) in the case of any successful action to enforce the foregoing liability or in any action in which a person is determined to have a right of rescission under section 1635 of this title, the costs of the action, together with a reasonable attorney's fee as determined by the court; and

(4) in the case of a failure to comply with any requirement under section 1639 of this title, an amount equal to the sum of all finance charges and fees paid by the consumer, unless the creditor demonstrates that the failure to comply is not material.

In determining the amount of award in any class action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor's failure of compliance was intentional....

15 U.S.C. § 1640(a)...

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