Watson v. Branch County Bank

• Decision Date: 12 August 1974
• Docket Number: No. K-89-72 C.A.,K-89-72 C.A.
• Parties: Edward and Shirley Ann WATSON, as Individuals and on behalf of all others similarly situated, Plaintiffs, v. BRANCH COUNTY BANK, Individually and on behalf of all others similarly situated, and Security National Bank, Battle Creek, Michigan, Defendants.
• Court: U.S. District Court — Western District of Michigan

380 F. Supp. 945

Edward and Shirley Ann WATSON, as Individuals and on behalf of all others similarly situated, Plaintiffs, v. BRANCH COUNTY BANK, Individually and on behalf of all others similarly situated, and Security National Bank, Battle Creek, Michigan, Defendants.

No. K-89-72 C.A.

United States District Court, W. D. Michigan, S. D.

August 12, 1974.

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William L. Coash, Legal Aid Society of Calhoun County, Battle Creek, Mich., for plaintiffs.

Richard F. Biringer, Coldwater, Mich., Grant J. Gruel, Grand Rapids, Mich., for Branch County Bank.

William R. Worth, Battle Creek, Mich., for Security National Bank.

MEMORANDUM OPINION AND ORDER

FOX, Chief Judge.

This is a challenge to the constitutionality of the self-help repossession and disposition provisions of the Uniform Commercial Code, Sections 9-503 and 9-504, enacted in Michigan, M.C.L.A. Secs. 440.9503 and 440.9504, M.S.A. Secs. 19.9503 and 19.9504 hereafter cited as UCC 9-503 and 9-504¹ as applied to automobiles.

Each of the named plaintiffs is an owner of an automobile which was subject to a security interest held by one of the named defendants, and which was repossessed without previous notice and opportunity for judicial hearing, as authorized by UCC 9-503 and 9-504. Defendants Branch County Bank of Coldwater, Michigan, Security National Bank and Michigan National Bank are corporations organized under the laws of Michigan. Each is licensed under the Motor Vehicle Sales Finance Act, M.C. L.A. Sec. 492.101 et seq., M.S.A. Sec. 23.628(1) et seq.

The plaintiffs allege that self-help repossession of automobiles subject to security agreements by the named defendants as authorized by UCC 9-503 and 9-504 deprives them of their property without due process of law contrary to the Fourteenth Amendment of the United States Constitution² and the implementing civil rights statute, 42 U.S.C. Sec. 1983.³ The plaintiffs seek a declaration pursuant to 28 U.S.C. Secs. 2201 and 2202 that UCC 9-503 and 9-504 are unconstitutional. They also seek injunctive relief, inter alia, restraining the named defendants from repossessing automobiles on which they hold security agreements without prior notice and opportunity for judicial hearing. Jurisdiction is properly alleged under 28 U.S.C. Secs. 1343(3) and (4).⁴

The parties have filed extensive stipulations of fact. The plaintiffs seek to maintain the suit as a class action, and have moved for summary judgment. Each defendant has filed a motion to dismiss on the grounds that the court lacks jurisdiction and that this case is not a proper class action. Insofar as the motions to dismiss allege that there is insufficient state action to bring the plaintiffs' claims within the Fourteenth Amendment and 42 U.S.C. Sec. 1983, it is proper to treat them as being motions to dismiss for failure to state a claim on which relief can be granted. Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). Since the defendants allege in their Memorandum of Law in Support of Motion to Dismiss that the plaintiffs have not been denied due process of law, and the Memorandum has been incorporated into the motions by reference, the court will treat the defendants' motions as for summary judgment under Rule 56. The court finds no material issues of fact to be resolved by further hearings. The foregoing Opinion and Order is based on the pleadings, stipulations, affidavits and exhibits on file.

I.

The facts in the cases of the named plaintiffs are relatively simple. The plaintiffs Edward and Shirley Ann Watson are joint owners of a 1966 Buick, subject to a security interest held by defendant Branch County Bank. The plaintiffs purchased the vehicle for about $700, made a substantial down payment, and borrowed $484.64 from the Branch County Bank. The security agreement between the Watsons and the Bank provided: "In the event Buyer defaults in the payment of any amounts due hereunder, or in the performance of any other obligations hereunder, or if a proceeding in bankruptcy, receivership or insolvency is instituted by or against Buyer, then Seller may declare the full amount hereunder immediately due and payable without notice or demand, and shall have all of the remedies of a secured party under the Michigan Uniform Commercial Code and any other applicable laws." On August 3, 1972, plaintiffs' vehicle was peacefully repossessed from the driveway, in accordance with M.C.L.A. Sec. 440.9503. The plaintiffs did not receive notice of a judicial hearing before repossession, but they did receive notice of repossession and notice of the proposed sale. At the time of repossession, the plaintiffs still owed $170.88 to the Bank. It appears from the affidavit filed by the plaintiffs that they have a child which has a chronic bronchial condition which requires visits to the doctor's office for care. The plaintiffs' residence is approximately ten blocks from the nearest bus line and during the time that the plaintiffs were without their automobile, Mrs. Watson had to use a taxi cab or make requests of friends for transportation in order to get the child to the doctor.

The plaintiffs Barbara and James Grabbert are joint owners of a 1969 Chevrolet that was subject to a security interest held by defendant Michigan National Bank. The security agreement between Barbara and James Grabbert and the Bank required the former to maintain insurance on their vehicle. The agreement also provided that upon default the Bank could "exercise from time to time any rights and remedies, including the right to immediate possession of the goods, available to it under applicable law." The agreement further provided, "All rights and obligations of the parties hereto concerning the retaking, retention, redemption, and resale of the goods and the disposition of the proceeds thereof, shall be governed by the applicable provisions of the Uniform Commercial Code as adopted in the State of Michigan." Before repossession of the Grabberts' automobile, the Allstate Insurance Company, with whom the Grabberts had insurance, informed Michigan National Bank that the insurance on the Grabbert vehicle had been cancelled. It appears from the affidavits and exhibits that the Grabberts' policy had been cancelled by Allstate in error. Nonetheless, on June 23, 1972, Michigan National Bank repossessed the Grabbert vehicle from the employees' parking lot at Mr. Grabbert's place of work, the Lakeview General Hospital. The Battle Creek Township police phoned Mr. Grabbert at work to inform him that his car had been repossessed and that he should not report it stolen. The vehicle was peacefully repossessed in accordance with M.C.L.A. Sec. 440.9503, and the plaintiffs did not have a judicial hearing at any time prior to repossession. Although the Bank was informed of Allstate's error, it required the Grabberts to pay the entire outstanding balance on their loan, approximately $800.00, as a condition of the return of the car. To do this, the Grabberts had to secure a new loan from a small loan company at a substantially higher rate of interest than they had been charged on the original loan with Michigan National.⁵

Plaintiff Johnny Gatson purchased a 1971 Buick from Esmer French, d/b/a French's Auto Sales, on or about December 20, 1971. He signed an automobile purchase money security agreement establishing a security interest in the automobile in favor of French. French assigned the contract and security interest to the defendant Security National Bank of Battle Creek. The security agreement provided in part: "Upon . . . default and at any time thereafter Seller may declare all obligations secured hereby immediately due and payable and shall have the remedies of a Seller under the Uniform Commercial Code." Subsequent to the making of the contract, the Bank received only two regular monthly payments of $125.57 each on March 7 and May 19, 1972. On July 7, 1972, two agents of the Bank observed the Gatson vehicle parked on Michigan Avenue in the City of Battle Creek during normal business hours. After determining that it was the Gatson vehicle, the agents of the Bank placed an order for a wrecker to come to the scene to remove the vehicle to premises controlled by the Bank. While the Bank's agents were waiting for a wrecker, a police car operated by an officer of the Battle Creek Police Department drove by. One of the Bank's agents flagged the car down, and told the officer that they were repossessing the Gatson vehicle. The officer got out of his car and remained on the scene, standing on the sidewalk a few feet from the Gatson vehicle. The Gatson car had been driven to the place where identified by the Bank's agents by Frieda Miller (now Frieda Gatson) with the consent of plaintiff Gatson. Subsequent to the arrival of the officer on the scene, she returned to the car and was advised by the agents of the Bank that they were taking possession of the car by reason of Gatson's claimed default in payments. At first Ms. Miller refused to give up the keys, but she did so after being informed that the wrecker had been called. It is stipulated that the police took no part in the physical repossession except as might be inferred from the physical presence of the officer at the scene. The agents of the Bank did not tell Ms. Miller that the police could intervene if she did not give them the keys. It is also stipulated that the vehicle was peacefully repossessed without a breach of the peace, and that the Bank did not seek judicial authorization for the removal of the vehicle from the actual or constructive possession of the plaintiff Gatson. After the Gatson vehicle was driven away by the Bank's agents, it was driven to a fenced and locked parking lot owned and maintained by the Bank (where the vehicle has been ever since).

The statutes upon which the defendants rely are a part of Michigan's comprehensive regulation of the...