Weaver, In re, s. 79-1618
| Decision Date | 08 December 1980 |
| Docket Number | Nos. 79-1618,79-1619,s. 79-1618 |
| Citation | 632 F.2d 461 |
| Parties | In re Larry Ellis WEAVER, Debtor. Joe M. FLOURNOY, Chapter XIII Trustee, Appellant, v. TRUST COMPANY OF COLUMBUS, Appellee. In re Betty Jean ADAMS, Debtor. Joe M. FLOURNOY, Chapter XIII Trustee, Appellant, v. TRUST COMPANY OF COLUMBUS, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Ron S. Iddins, Columbus, Ga., for appellant.
Swearingen, Childs & Philips, P. C., Richard A. Childs, Columbus, Ga., for appellee.
Appeals from the United States District Court for the Middle District of Georgia.
Before KRAVITCH, HENDERSON and REAVLEY, Circuit Judges.
At issue in these two consolidated cases are identical claims of truth-in-lending violations. We first hold that a Chapter XIII trustee is authorized to bring a truth-in-lending claim against a creditor on behalf of the wage earner. Concluding that a truth-in-lending violation was proved, we reverse the district court's ruling in favor of appellee Trust Company of Columbus.
The disputed causes of action arose out of separate promissory notes executed by Weaver and Adams in favor of the Trust Company of Columbus. The Adams note was dated August 3, 1977; the Weaver note November 18, 1977. Relevant to this action, each note contained two errors on the truth-in-lending disclosure: (1) a $7.50 charge was designated only with the identification "C.A."; (2) the charge so characterized was not included in the finance charge. Rather, the $7.50 amount was simply added into the total payments disclosure. 1
On January 12, 1978, appellee sent correction letters to both Adams and Weaver. Each letter was identified as a Truth-in-Lending Correction Disclosure 2 and simply defined the designation "C.A." as Collateral Appraisal. The letter was silent as to whether the charge should have been included in the finance charge. Moreover, the letter did not notify the borrower that the $7.50 charge would not have to be paid. 3
Subsequently, both borrowers filed Chapter XIII proceedings in bankruptcy court. In each case appellee submitted a claim based upon the note. In each case the trustee countered with a charge of truth-in-lending violations. 4 The district court affirmed the bankruptcy court's ruling that although the truth-in-lending disclosure form on each note inadequately described the collateral appraisal charge for the purpose of the Truth-in-Lending Act, 15 U.S.C. § 1606 et seq., the correction letter was adequate to correct the violation.
The threshold issue is whether the Bankruptcy Act 5 authorizes a Chapter XIII trustee to bring a truth-in-lending claim on behalf of the wage earner against a creditor. 6 This court has recently held in the context of straight bankruptcy that a truth-in-lending claim is "property" of the debtor which passes to the trustee under section 70(a) of the Bankruptcy Act (11 U.S.C. § 110(a)). Matter of Wood, # 79-1504 (5th Cir. 1980). 7 Whether a Chapter XIII trustee is a proper party to bring a truth-in-lending claim, however, is apparently a question of first impression in the circuit courts. 8
Chapter XIII of the Bankruptcy Act permits a wage earner to pay his debts in full out of his future earnings. Unlike straight bankruptcy, where the debtor's nonexempt assets are distributed to creditors and the debts are thereby extinguished, the debtor under Chapter XIII retains his assets, and the creditors are paid solely out of future earnings. 9 As the Supreme Court has stated:
Congress clearly intended to encourage wage earners to pay their debts in full, rather than to go into straight bankruptcy or composition, by offering two inducements: (1) avoidance of an adjudication of bankruptcy with its attendant stigma; and, at the same time, (2) temporary freedom during the extension from garnishments, attachments and other harassment by creditors.
Perry v. Commerce Loan Co., 383 U.S. 392, 395, 86 S.Ct. 852, 854, 15 L.Ed.2d 827 (1966).
Appellee concedes that a trustee in straight bankruptcy is authorized to bring a truth-in-lending claim on behalf of the debtor; he argues, however, that the differences between Chapter XIII and straight bankruptcy compel a different result here. In straight bankruptcy the trustee obtains title to the debtor's property and liquidates the estate for the benefit of the creditors. The trustee's powers encompass the right to institute actions to collect debts owed to the debtor and to distribute the proceeds to the creditors. By contrast, under Chapter XIII title to the debtor's property vests in the trustee upon adjudication, section 70(a) of the Act (11 U.S.C. § 110(a)), but revests in the debtor upon confirmation of the plan, section 70(i) (11 U.S.C. § 110(i)). The trustee does not liquidate the debtor's assets in order to pay the creditors; creditors are paid solely out of the debtor's future earnings.
Appellee's argument treats the truth-in-lending claim as an independent cause of action on behalf of the estate, unrelated to the creditor's claim against the wage earner. We reject the implication that a truth-in-lending claim is unrelated to the underlying debt. In Plant v. Blazer Financial Services, Inc., 598 F.2d 1357 (5th Cir. 1979), in holding that suit on the underlying debt is a compulsory counterclaim in a truth-in-lending claim by the debtor, we reasoned that interests of judicial economy require all issues relating to the transaction be adjudicated in a single action. Plant concluded: "the obvious interrelationship of the claims and rights of the parties, coupled with the common factual basis of the claims, demonstrates a logical relationship between the claim and counterclaim." 598 F.2d at 1364.
The truth-in-lending claim in each of these cases was not brought to liquidate an asset of the debtor for the benefit of creditors; rather, this claim was brought against a creditor who had filed a claim against the wage earner and had been included in the plan. Thus, the truth-in-lending claim, is successful, would permit a deduction of the statutory penalty from the amount owed to appellee under the plan. 10 Under section 47(a)(8) of the Bankruptcy Act (11 U.S.C. § 75(a)(8)), a trustee is required to examine claims against the debtor and object to improper ones. Bankruptcy Rule 13-307(a) makes it clear that a Chapter XIII trustee's duty to examine and object to claims is identical to that of the trustee in straight bankruptcy. In addition, Rule 13-607 authorizes the Chapter XIII trustee to commence any action before any tribunal on behalf of the estate. 11
Moreover, the duty of the Chapter XIII trustee to object to invalid claims does not cease upon confirmation of the wage earner plan. Appellee urges, however, that section 70(i) of the Bankruptcy Act divests the trustee of title to the truth-in-lending claim of the debtor. Section 70(i) provides that title to the debtor's property, which passed to the trustee upon adjudication, revests in the debtor upon confirmation of the plan unless the order of confirmation specifies otherwise. This section reflects the fact that the trustee is empowered to pay creditors solely out of future earnings, and not out of any property which the wage earner may hold at the time of confirmation. Section 70(i) does not, however, relieve the trustee of his duty to examine and object to improper claims. Section 611 of the Bankruptcy Act grants to the bankruptcy court exclusive jurisdiction over the wage earner and his property until consummation of the entire proceeding, and under section 662 the trustee is not discharged until consummation of the plan. 12 In Matter of Henderson, 577 F.2d 997 (5th Cir. 1978), we held that a Chapter XIII trustee could object to claims under the Georgia Industrial Loan Act from twelve to seventeen months after confirmation of the wage earner plan. We see no meaningful distinction between the invalidation by the trustee of the entire claim of a creditor and a truth-in-lending action which would only reduce the amount owed to a creditor under the plan.
It is true that Bankruptcy Rule 13-607 does not preclude the debtor from prosecuting an action when the trustee does not do so. 13 See Advisory Committee's Note (reprinted at note 11 supra ). As a practical matter, however, if the trustee is not permitted to bring the truth-in-lending action, the debtor often will be precluded by the one-year statute of limitations. By contrast, section 11(e) grants the trustee two years in which to bring an action on behalf of the estate on any claim against which the appropriate statute of limitations has not expired at the date of adjudication. In addition, because he must examine claims against the debtor, the trustee is more likely than the debtor to detect truth-in-lending violations. Congress intended to secure compliance with the Truth-in-Lending Act through private suits against creditors. 14 Permitting Chapter XIII trustees to bring truth-in-lending actions promotes this deterrent policy of the Act.
We conclude that the trustee was authorized to bring these truth-in-lending actions on behalf of the wage earners. Such a holding, we believe, is consistent with the language of Chapter XIII, 15 furthers the purposes of the Truth-in-Lending Act, and promotes judicial economy.
The truth-in-lending statement at issue contained two separate violations of the Act. First, an item was inadequately described. Specifically, designation of the collateral appraisal fee as "C.A." did not clearly disclose the nature of the charge. 16 Second, the appraisal charge should have been included in the finance charge. 17 This is not a case in which a single error violates the Act in two different respects. Here, even if the collateral appraisal fee had been meaningfully described, the failure to include the charge in the amount financed or in the finance charge would have...
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