Watkins v. Simmons and Clark, Inc.

• Decision Date: 24 March 1980
• Docket Number: No. 77-1516,77-1516
• Parties: Ronnie WATKINS, Plaintiff-Appellant, v. SIMMONS AND CLARK, INC., Defendant-Appellee. . Cause
• Court: U.S. Court of Appeals — Sixth Circuit

Page 398

618 F.2d 398

61 A.L.R.Fed. 592

Ronnie WATKINS, Plaintiff-Appellant, v. SIMMONS AND CLARK, INC., Defendant-Appellee.

No. 77-1516.

United States Court of Appeals Sixth Circuit.

Cause Argued June 18, 1979.

Decided and Filed Jan. 8, 1980.

Rehearing and Rehearing En Banc Denied March 24, 1980.

David W. Sinclair, Anthony Lutostanski, Detroit, Mich., for plaintiff-appellant.

Steven A. Siman, Troy, Mich., Clark, Hardy, Lewis, Fine & Asher, Thomas Hardy, Birmingham, Mich., for defendant-appellee.

Before EDWARDS, Chief Judge, KEITH and BROWN, Circuit Judges. ^*

KEITH, Circuit Judge.

On December 26, 1975, appellant, Ronnie Watkins, purchased a diamond ring on an installment basis from Simmons & Clark, Inc., ¹ at a cost of $249.00. On January 22, 1976, Watkins filed the present action in federal district court alleging that the retail credit sales contract which he was required to sign in connection with the purchase did not comply with the disclosure requirements of the Federal-Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq., and Federal Reserve Regulation Z, 12 C.F.R. § 226 et seq., promulgated pursuant to the Act.

In addition to himself, Watkins sought to represent a class estimated to consist of approximately 1,000 other purchasers, each of whom had entered into retail credit transactions with Simmons & Clark in which the same credit sales form was used.

The district court decided the case on cross-motions for summary judgment and on appellant's motion to certify the matter as a class action under Rule 23 of the Federal Rules of Civil Procedure. While the district court found in favor of appellant on the merits, it refused to certify the class, holding, inter alia, that in the circumstances of this case, "the class action is not superior to other available methods of adjudication, and therefore even if compliance with the prerequisites of Rule 23(a) could arguably be shown here, the case does not satisfy the requirements of 23(b)." ² Plaintiff appeals, claiming that the court abused its discretion in refusing to certify the class. We affirm Judge Philip Pratt.

I

Since its original enactment in 1968, Section 130 of the Truth-in-Lending Act, 15 U.S.C. § 1640, ³ has permitted consumers to bring civil actions against creditors who fail to disclose the information required by the Act or the accompanying regulations. The Act permits a party who establishes a violation but fails to prove any actual monetary damages resulting therefrom to collect court costs and reasonable attorney's fees, plus twice the amount of the finance charge, but not less than $100.00 nor more than $1,000.00.

The clear purpose of this statutorily mandated minimum recovery was to encourage lawsuits by individual consumers as a means of enforcing creditor compliance with the Act. However, as originally enacted in 1968, § 1640(a) made no specific provision for class actions.

Because of the potentially devastating impact that the statutorily mandated minimum recovery could have on creditors, courts were initially reluctant to certify class actions for Truth-in-Lending Act violations. See Ratner v. Chemical Bank, 329 F.Supp. 270; 54 F.R.D. 412, 414, 416 (S.D.N.Y.1972); Rogers v. Coburn Finance Corp. of Dekalb, 54 F.R.D. 417, 419 (N.D.Ga.1972); Shields v. First National Bank of Arizona, 56 F.R.D. 442, 446 (D.Ariz.1972); Shields v. Valley National Bank of Arizona, 56 F.R.D. 448 (D.Ariz.1972); Wilcox v. Commerce Bank, 55 F.R.D. 134, 138 (D.Kan.1972); Kriger v. European Health Spa, 56 F.R.D. 104, 106 (E.D.Wis.1972); Buford v. American Finance Co., 333 F.Supp. 1243, 1251 (N.D.Ga.1971). As a rationale for avoiding class certification, the vast majority of courts, particularly where the plaintiff had sustained no monetary damages, concluded that a class action was not "superior to other available methods for the fair and efficient adjudication of the controversy," Rule 23(b)(3), F.R.C.Pro. ⁴

In 1974, however, Congress amended the Act by adding the following subsections to § 1640(a):

"(2)(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 in such action shall not be more than the lesser of $500,000 or 1 percentum of the net worth of the creditor; and

(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.

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."

In 1976, Congress again amended Section 1640 to raise the maximum dollar ceiling on class action recoveries from $100,000 to $500,000. ⁵

The legislative history of the 1974 amendment reveals that Congress acted to counter the manifest judicial unwillingness to impose class liability under the Act. Indeed, it appears that Congress felt constrained to encourage class actions in the truth-in-lending context because of the apparent inadequacy of the Federal Trade Commission's enforcement resources and because of a continuing problem of minimal voluntary compliance with the Act on the part of creditors. ⁶

The legislative history behind the 1976 amendment increasing the maximum dollar ceiling recovery in particular makes clear that Congress wished to encourage Truth-in-Lending class actions:

The setting of any ceiling on class action liability is meant to limit the exposure of creditors to vast judgments whose size would depend on the number of members who happened to fall within the class. The risk of any ceiling on class action recoveries is that, if it is too low, it acts as a positive disincentive to the bringing of such actions and thus frustrates the enforcement policy for which class actions are recognized. Under the present Truth in Lending Act, where the class action ceiling is $100,000, several courts have noted the incompatibility of that ceiling with the effective use of the class action device. Boggs v. Alto Trailer Sales, Inc. (No. 74-1605, 5th Cir., April 14, 1975); Weathersby v. Fireside Thrift Co., (No. 73-0563 AJZ, N.D.Calif., Feb. 25, 1975). The Committee wishes to avoid any implication that the ceiling on class action recovery is meant to discourage use of the class action device. The recommended $500,000 limit, coupled with the 1% formula, provides, we believe, a workable structure for private enforcement. Small businesses are protected by the 1% measure, while a potential half million dollar recovery ought to act as a significant deterrent to even the largest creditor. Creditors are also protected by the list of factors a court should consider in determining any class action award. ⁷

Congress has clearly provided for and tried in encourage class action suits under the Truth-in-Lending Act. In so doing, it has carefully circumscribed such actions so as to insure that they are not overly burdensome on small creditors and yet, at the same time, sufficiently potent to police large concerns.

Review of the legislative history surrounding these amendments convinces us that Congress did intend, by them, to encourage class actions and to use the threat of class action recoveries to force compliance with the Act. The fact that courts have recognized this congressional policy is reflected in the dramatic reversal of the judicial trend against the certification of classes in Truth-in-Lending actions. See Goldman v. First National Bank of Chicago, 532 F.2d 10 (7th Cir.), cert. denied, 429 U.S. 870, 97 S.Ct. 183, 50 L.Ed.2d 150 (1976); Redhouse v. Quality Ford, 523 F.2d 1 (10th Cir. 1975); Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114 (5th Cir. 1975); Agostine v. Sidcon Corp., 69 F.R.D. 437 (D.D.Pa.1975); Postow v. Oriental Building Assn., 390 F.Supp. 1130 (D.C.1976); Eovaldi v. First National Bank of Chicago, 71 F.R.D. 334 (N.D.Ill.1976); Chevalier v. Baind Savings Association, Inc., 72 F.R.D. 140 (E.D.Pa.1976); Vickers v. Federal Savings and Loan Association of East Rochester, 87 Misc.2d 880, 386 N.Y.S.2d 291 (1976); Kaminski v. Shamut Credit Union, 416 F.Supp. 1119 (D.Mass.1976).

II

Congress did not intend by the 1974 and 1976 amendments, to make the certification of class actions mandatory in every Truth-in-Lending lawsuit. Courts which have considered the question have properly recognized the permissive rather than mandatory nature of class actions and that the determination of whether to certify a class in the Truth-in-Lending context is still to be made on a case-by-case basis, bearing in mind the traditional prerequisites found in 23(a) and (b). See Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114 (5th Cir. 1975); Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974). The question before us, then, is whether the district court abused its discretion in refusing to certify the class.

In determining whether or not to certify a class action, a court must be guided by Rule 23. And while "(s)tudents of the Rule have been led generally to recognize that its broad and open-ended terms call for the exercise of some considerable discretion of a pragmatic nature," Ratner, supra, at 416, that discretion must often be limited by considerations in addition to those set forth in the Rule. As this Court has stated:

"Discretion in a legal sense necessarily is the responsible exercise of official conscience on all the facts of the purpose for which the power exists. Bowles v. Goebel, 151 F.2d 671, 674 (8th Cir. 1945). Thus in determining the proper scope of the exercise of discretion, the objective sought to be accomplished by the statute must be given great weight. Hecht Co. v. Bowles, 321 U.S. 321, 331, 64...