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Cannon v. Cherry Hill Toyota

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY


July 26, 1999

LOETTA CANNON, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFFS,
V.
CHERRY HILL TOYOTA, INC.,
DEFENDANT.

The opinion of the court was delivered by: Simandle, District Judge:

Honorable Jerome B. Simandle

OPINION

This matter is before the court on the motion of defendant, Cherry Hill Toyota, Inc. ("Cherry Hill Toyota") for reconsideration, under Local Civil Rule 7.1(g), of the court's March 26, 1999 Opinion and Order granting plaintiff Loetta Cannon's motion for class certification, Cannon v. Cherry Hill Toyota, Inc., 184 F.R.D. 540 (D.N.J. 1999), and on Cherry Hill Toyota's motion for a declaratory judgment that the federal Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq. (the statutory basis for Count One of Cannon's Complaint), pre-empts New Jersey's Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-2 et seq. (the statutory basis for Counts Two and Three of Cannon's Complaint). During oral argument on these motions on July 16, 1999, the court also discussed with counsel a slight modification of the class definition as a result of Cherry Hill Toyota's discontinuance in March 1997 of the conduct that gave rise to the claims asserted in this litigation. For the reasons set forth below, the court denies Cherry Hill Toyota's motion for reconsideration and its motion for declaratory judgment, and announces a slight modification of the class definition.

BACKGROUND

On July 30, 1996, Cannon purchased a used automobile from Cherry Hill Toyota. In addition to the vehicle, Cannon purchased, through Cherry Hill Toyota, an optional mechanical breakdown protection ("MBP") package from Interstate, Inc. Cannon financed the entire transaction through Cherry Hill Toyota. The transaction was memorialized in a retail sales installment contract, which reflects a charge of $1,167.21 for the MBP in a section entitled "Amounts Paid to Others On Your Behalf."

On July 29, 1997, Cannon commenced this case by filing a putative Class Action Complaint against Cherry Hill Toyota under TILA and the CFA. Cannon alleges that Cherry Hill Toyota's representation in the "Amounts Paid to Others On Your Behalf" section of the retail sales installment contract that it paid $1,167.21 to Interstate, Inc. for MBP on her behalf was false and misleading because Cherry Hill Toyota retained a substantial portion of that amount for itself without disclosing to Cannon that it was doing so. (Complaint at ¶¶ 17-18.) Cannon further alleges that Cherry Hill Toyota routinely makes false and misleading representations to consumers about the amount of money it pays to third parties for MBP on their behalf because Cherry Hill Toyota routinely retains a portion of the price it charges consumers for MBP while affirmatively misrepresenting and failing to disclose the true distribution of those funds on its retail sales installment contracts. (Complaint at ¶¶ 19-21.)

Cannon claims that Cherry Hill Toyota violated TILA (Count One) and the CFA (Count Two) by failing to disclose that it was adding a mark-up or surcharge to the actual cost of the service warranty Cherry Hill Toyota purchased for her from Interstate and its affirmative misrepresentation of the amount actually paid to Interstate on the retail sales installment contract. Cannon also claims that Cherry Hill Toyota violated the CFA by affirmatively misrepresenting to her that the vehicle she purchased had front wheel drive when, in fact, it did not (Count Three).

Cherry Hill Toyota moved to dismiss Counts One and Two of Cannon's Complaint for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). On May 11, 1998, the court denied Cherry Hill Toyota's motion to dismiss.

Cannon then moved for class certification under Federal Rule of Civil Procedure 23. On March 26, 1999, the court granted Cannon's motion for class certification and certified the following class:

All consumers who purchased since July 1991 a service contract or extended warranty from Cherry Hill Toyota in connection with the purchase of a vehicle which was documented in a form retail installment agreement. Cannon v. Cherry Hill Toyota, Inc., 184 F.R.D. at 547. *fn1

On April 6, 1999, Cherry Hill Toyota filed the instant motion for reconsideration of the court's March 26, 1999 Opinion and Order granting Cannon's motion for class certification. In its moving papers, Cherry Hill Toyota informed the court that Cannon had filed for bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania under Chapter 7 of the Bankruptcy Code on June 4, 1998, more than three weeks before she filed her motion for class certification on June 28, 1998. Neither party had disclosed this fact to the court in the course of their briefing on the class certification motion.

On May 7, 1999, the court heard oral argument on Cherry Hill Toyota's motion for reconsideration of the court's March 26, 1999 Opinion and Order granting Cannon's motion for class certification. At the oral argument, Cannon's counsel confirmed the following facts relating to Cannon's bankruptcy. Cannon filed for bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania under Chapter 7 of the Bankruptcy Code on June 4, 1998. Cannon listed the vehicle she purchased from Cherry Hill Toyota as an asset and identified Toyota Motor Credit Corporation ("TMCC")(the assignee of the loan she obtained through Cherry Hill Toyota) as a creditor on her bankruptcy petition, but because she intended to retain possession of the vehicle despite her bankruptcy, Cannon continued to make payments to TMCC on her automobile loan in June and July 1998. Cannon identified her pending lawsuit against Cherry Hill Toyota as an exempt asset. The meeting of bankruptcy creditors was held on July 9, 1998. On that date, the bankruptcy trustee filed a report of no assets. Neither the bankruptcy trustee nor TMCC filed a timely objection to the exemption of Cannon's lawsuit against Cherry Hill Toyota within thirty days of the meeting of creditors. On September 17, 1998, the bankruptcy court approved Cannon's petition and discharged her debts, including her debt to TMCC. In January 1999, Cannon voluntarily relinquished possession of the vehicle she purchased from Cherry Hill Toyota. Cherry Hill Toyota, and Cherry Hill Toyota canceled the MBP warranty she had purchased.

Because the court believed that Cannon's counsel should have informed the court about Cannon's bankruptcy filing during the briefing of Cannon's motion for class certification and that the court should have been afforded the opportunity to consider whether Cannon's bankruptcy, the discharge of her indebtedness to TMCC, the repossession of the vehicle she purchased from Cherry Hill Toyota and the cancellation of her MBP warranty affected her Article III standing to pursue this litigation, the typicality of her claims against Cherry Hill Toyota under Rule 23(a)(3), and her adequacy as a class representative under Rule 23(a)(4) before deciding Cannon's motion for class certification, the court, in an Order filed on May 10, 1999, stayed its March 26, 1999 Order granting Cannon's motion for class certification and ordered supplemental briefing on the aforementioned issues of concern to the court. The court also stayed the class-wide discovery that Magistrate Judge Robert B. Kugler had authorized in his April 22, 1999 Case Management Order, and dictated a briefing schedule for Cherry Hill Toyota's motion for a declaratory judgment that Cannon's TILA claim pre-empts her CFA claim.

After receiving and reviewing the supplemental briefs on Cherry Hill Toyota's motion for reconsideration and the briefs on Cherry Hill Toyota's motion for declaratory judgment and considering the arguments of counsel, the court now addresses the merits of Cherry Hill Toyota's motions.

DISCUSSION

A. Cherry Hill Toyota's Motion for Reconsideration

A motion for reargument under Local Civil Rule 7.1(g) will be granted only when "dispositive factual matters or controlling decisions of law" were presented to the court but not considered. McGarry v. Resolution Trust Corp., 909 F. Supp. 241, 244 (D.N.J. 1995) (citing Pelham v. United States, 661 F. Supp. 1063, 1065 (D.N.J. 1987)). "The standard of review involved in a motion for reargument is quite high, and therefore relief under this rule is granted very sparingly." United States v. Jones, 158 F.R.D. 309, 314 (D.N.J. 1994) (citing Maldonado v. Lucca, 636 F. Supp. 621, 630 (D.N.J. 1986)). The rule "does not contemplate a Court looking to matters which were not originally presented but which have since been provided for consideration." Florham Park Chevron, Inc. v. Chevron U.S.A., Inc., 680 F. Supp. 159, 162 (D.N.J. 1988). The rule "explicitly invites counsel to draw the court's attention to decisions which may have been overlooked by the court, not those which were overlooked by counsel." Polizzi Meats, Inc. v. Aetna Life & Cas. Co., 931 F. Supp. 328, 339 (D.N.J. 1996).

The instant motion for reconsideration is a unique exception to the well-established general rule that a court should not re-examine its ruling on a decided motion on the basis of information not originally presented to the court in connection with the underlying motion. Where the underlying motion pertains to class certification, however, the court may consider matters that may be material to class representation, as such orders may be altered or amended in the interests of justice under Rule 23(c)(1). Cherry Hill Toyota's motion for reconsideration is predicated on the court's failure to consider the potential impact of Cannon's bankruptcy filing on her motion for class certification under Rule 23 -- an issue the court did not consider in granting Cannon's motion for class certification because neither party brought it to the court's attention in their briefing of that motion.

Although the court does not understand why Cherry Hill Toyota's counsel did not bring the matter to the court's attention before the court issued its ruling on Cannon's class certification motion, the court is more disturbed by Cannon's own counsels' failure to disclose the fact of their client's bankruptcy filing to the court in connection with her motion for class certification.

During oral argument on this motion and in their supplemental brief, Cannon's counsel explained that they did not consider their client's bankruptcy filing to be material to the class certification motion, but conceded that their decision may have been a misjudgment and apologized for it. The court accepts the explanation and the apology, but does consider the omission a misjudgment. *fn2 Without belaboring the point, the materiality of Cannon's bankruptcy filing on her class certification motion was a matter for the court to decide, not a matter for her counsel to decide. Indeed, some courts have held that a plaintiff whose financial condition renders him or her unable to bear the financial burden of a class action cannot be an adequate class representative. See Herbert Newberg and Alba Conte, Newberg on Class Actions § 3.37 at 3-194, n.509 (3d ed. 1992). The discharge of the indebtedness and the repossession of the vehicle are also potentially pertinent to the typicality of plaintiff's claims under Rule 23(a)(3), as noted above.

Thus, although it is unusual for a court to re-examine a ruling on a decided motion on the basis of information that was not originally presented to the court on the underlying motion, the court's obligation to ascertain the nature of a class representative's relationship to the class has caused this court to re-examine its ruling on Cannon's class certification motion in light of its new knowledge about Cannon's bankruptcy filing and the subsequent discharge of her debt to TMCC, repossession of the car she purchased from Cherry Hill Toyota, and cancellation of her MBP warranty. Upon reexamination, however, the court is convinced that these events do not deprive Cannon of Article III standing to pursue this litigation, render her claims against Cherry Hill Toyota atypical of those of other class members, or render her an inadequate class representative.

Standing

In order to have standing, a plaintiff must: (1) have suffered an "injury in fact," i.e., an invasion of a legally protected interest that is both (a) concrete and particularized and (b) actual or imminent, as opposed to conjectural or hypothetical; that was (2) caused by or fairly attributable to the challenged action of the defendant; and that is (3) likely redressable by a favorable decision. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).

Cannon's bankruptcy filing does not deprive her of standing to pursue her TILA and CFA claims against Cherry Hill Toyota. In Rowland v. Norvus Financial Corp., 949 F. Supp. 1447, 1453-54 (D. Hawaii 1996), the court held that the plaintiff lacked standing to pursue a previously filed TILA claim as a result of his subsequent filing of Chapter 7 bankruptcy petition because he could not demonstrate that the claim was exempt from the bankruptcy or that the bankruptcy trustee had abandoned the claim. The court acknowledged that "[i]f a Chapter 7 debtor claims his TILA cause of action under the bankruptcy exemption, then the debtor has standing to bring the TILA action." Id. at 1454.

In the present case, Cannon listed her lawsuit against Cherry Hill Toyota as an exempt asset on her Chapter 7 petition. Neither the bankruptcy trustee nor Cherry Hill Toyota filed a timely objection to Cannon's exemption of her lawsuit against Cherry Hill Toyota. Thus, Cannon retains standing to pursue her TILA and CFA claims against Cherry Hill Toyota, notwithstanding her bankruptcy filing.

Neither does the discharge of Cannon's underlying debt to TMCC deprive her of standing to pursue her TILA and CFA claims against Cherry Hill Toyota. TILA expressly provides that a consumer may pursue a TILA claim even though he or she has defaulted on the underlying debt. 15 U.S.C. § 1640(h). Indeed, a consumer may pursue a TILA claim even where the creditor has voluntarily released the consumer from liability on the underlying debt. Lacy v. General Fin. Corp., 651 F.2d 1026, 1029 (5th Cir. 1981). Not only will federal courts permit a consumer whose debt has been discharged in bankruptcy to pursue a TILA claim against the creditor, courts generally do not permit the creditor to setoff the unpaid amount of the discharged debt against any damages obtained by the consumer in a TILA action. See Newton v. Beneficial Finance Co. of New Orleans, 558 F.2d 731 (5th Cir. 1977). *fn3

Finally, the repossession of the car Cannon purchased from the Cherry Hill Toyota and the cancellation of her MBP warranty do not deprive Cannon of standing to pursue her TILA and CFA claims against Cherry Hill Toyota. Cannon's claims are not based upon ownership of the car or the existence of the warranty; rather, they are based on alleged misrepresentations in the retail sales installment contract at the time of sale. Continued ownership of the car or maintenance of the MBP warranty are beside the point because the alleged TILA and CFA violations were complete before Cannon drove her car off the lot. Indeed, many class members may no longer own the cars they purchased from Cherry Hill Toyota or maintain the extended warranties they financed in the same credit transaction.

Typicality

As the court stated in its original ruling on Cannon's class certification motion:

Rule 23(a)(3) requires that the representative parties' claims be typical of the claims of the remainder of the class. The representative parties' claims are generally found to be typical if they arise from the same course of conduct that gives rise to the claims of the other class members and if the claims are based on the same legal theory. See Baby Neal, 43 F.3d at 57-58; Ettinger v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 122 F.R.D. 177, 181 (E.D. Pa. 1988). When the same unlawful conduct was directed at or affected both the named plaintiffs and the members of the putative class, the typicality requirement is usually met, irrespective of varying fact patterns that may underlie individual claims. See Baby Neal, 43 F.3d at 58; Ettinger, 122 F.R.D. at 181; see also Herbert Newberg & Alba Conte, Newberg on Class Actions § 3.13 (3d ed. 1992). Cannon, 184 F.R.D. at 544.

Neither Cannon's bankruptcy nor the subsequent discharge of her debt to TMCC, repossession of the car she purchased from Cherry Hill Toyota and cancellation of her MBP warranty change the court's conclusion that Cannon's TILA and CFA claims are typical of those of the remaining class members. Cherry Hill Toyota's alleged misrepresentation on the retail sales installment contract of the amount actually paid to a third party for a service contract or extended warranty remains the basis of the TILA and CFA claims of all class members, including Cannon. None of the events arising out of Cannon's bankruptcy petition impact upon the facts or law upon which she will rely to establish her claims against Cherry Hill Toyota, and the claims of the remaining class members arise out of the same alleged course of conduct and are based on the same legal theories.

Adequacy of Representation

As the court stated in its original ruling on Cannon's class certification motion:

Rule 23(a)(4) requires that the representative parties "fairly and adequately protect the interests of the class." The Rule 23(a)(4) analysis involves a two-pronged inquiry: (1) whether the named plaintiffs' counsel is competent by qualification and experience to conduct the litigation, and (2) whether the named plaintiffs' interests are antagonistic to those of the class. Stephenson, 177 F.R.D. at 286 (citing Weiss v. York Hosp., 745 F.2d 786, 811 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985)). Cannon, 184 F.R.D. at 544-45.

As noted earlier in this Opinion, there are courts that have held that a plaintiff whose financial condition renders him or her unable to bear the financial burden of a class action cannot be an adequate class representative. See Herbert Newberg and Alba Conte, Newberg on Class Actions § 3.37 at 3-194, n. 509 (3d ed. 1992). In this case, however, Cherry Hill Toyota has made no showing that Cannon is unable to bear the financial burden of this class action litigation. Class counsel have confirmed that they are bearing this burden and that Ms. Cannon is not obligated to reimburse these fees and expenses in the event this litigation is unsuccessful; if her claim is successful, her obligation to reimburse counsel fees and costs is deemed satisfied by whatever amount is awarded under the relevant fee-shifting statutes. In other words, since Loetta Cannon bears no burden of expending sums out- of-pocket for maintaining this action, her financial ability to do so is not relevant to her suitability as a class representative.

In Cobb v. Monarch Finance Corp., 913 F. Supp. 1164, 1173 (N.D. Ill. 1995), the court found that the plaintiff, who filed for bankruptcy before repaying certain loans in full and who expected to have the balance of those debts discharged, was nevertheless an adequate representative in a TILA class action arising out of those loans. The court noted that the plaintiff had properly exempted her cause of action against the creditor from her bankruptcy estate, and rejected the argument that the prospective discharge of her underlying debt rendered her an inadequate representative. Id. This analysis applies with equal force in this case. Some class members may have fully paid off the indebtedness they incurred when they purchased a car from Cherry Hill Toyota, others may still be in the process of paying off their loans, and still others may have defaulted, suffered repossession of the cars, or filed for bankruptcy protection and obtained a discharge of their indebtedness. The court sees no impediment to Cannon's serving as the representative of all of these class members.

In summary, the court finds that Cannon continues to have standing to pursue this litigation, that her claims against Cherry Hill Toyota remain typical of those of the class, and that she is still an adequate class representative despite her bankruptcy filing and the subsequent discharge of her indebtedness to TMCC, repossession of the car she purchased from Cherry Hill Toyota and cancellation of her MBP warranty. For these reasons, the court denies Cherry Hill Toyota's motion for reconsideration.

B. Cherry Hill Toyota's Motion for Declaratory Judgment

Cherry Hill Toyota also moves for a declaratory judgment that Cannon's claims under the CFA are pre-empted by TILA. Granting this motion would have a dramatic impact on the scope of this litigation, reducing the size of the class to approximately one-sixth of its present size *fn4 and capping the total amount of damages recoverable to the lesser of %500,000 or 1% of Cherry Hill Toyota's net worth. *fn5

The power of Congress to pre-empt state law derives from the Supremacy Clause of Article VI of the Constitution, which provides that the laws of the United States "shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any state to the Contrary notwithstanding." U.S. Const. Art. VI, cl. 2. There are three types of pre-emption: express, implied and conflict pre-emption. Hawkins v. Leslie's Pool Mart, Inc., F.3d , 1999 WL 498060 at *2 (3d Cir. July 15, 1999). "First, Congress can define explicitly the extent to which its enactments pre-empt state law." English v. General Electric Co., 496 U.S. 72, 78 (1990). "Second, in the absence of explicit statutory language, state law is preempted where it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively." Id. at 79. "Finally, state law is pre-empted to the extent that it actually conflicts with federal law," such as "where it is impossible for a private party to comply with both state and federal requirements" or "where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id.

In any pre-emption case, and particularly in one like the present case in which Congress has legislated in a field traditionally occupied by the states, a court begins its analysis with the assumption that Congress did not intend to pre-empt state law "unless that was the clear and manifest purpose of Congress." Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996). Congressional purpose, "as revealed not only in the text, but through the reviewing court's reasoned understanding of the way in which Congress intended the statute and its surrounding regulatory scheme to affect business, consumers, and the law," is the "ultimate touchstone" in every pre-emption case. Id. at 485-86.

"When Congress has considered the issue of pre-emption and has included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a reliable indicium of congressional intent with respect to state authority, there is no need to infer congressional intent to pre-empt state laws from the substantive provisions of the legislation." Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517 (1992). "Congress' enactment of a provision defining the pre-emptive reach of a statute implies that matters beyond that reach are not pre-empted." Id.

In TILA, Congress enacted a specific provision defining the statute's pre-emptive reach. In pertinent part, TILA provides as follows:

this part [part A] and parts B and C of this subchapter [subchapter I] do not annul, alter or affect the laws of any state relating to the disclosure of information in connection with credit transactions, except to the extent that those laws are inconsistent with the provisions of this subchapter and then only to the extent of the inconsistency. 15 U.S.C. § 1610(a)(1).

Congress' enactment of this provision is a reliable indication that Congress did not intend to pre-empt state laws except to the extent that they are "inconsistent" with TILA, and then "only to the extent of the inconsistency." As in Hawkins, if Congress' true intention was to preclude state remedies pertaining to the disclosure of information in connection with credit transactions, it could have done so but has chosen not to do so. See Hawkins, supra, 1999 WL 498060 at *3 (citing Medtronic, supra, 518 U.S. at 498-88).

Congress did not explicitly define "inconsistent" as that term is used in § 1610(a)(1). In the court's view, however, Congress effectively codified in this provision the common law doctrine of conflict preemption. When, as in the present case, Congress has neither explicitly pre-empted state law nor exclusively occupied a field in such a way as to leave no room for state supplementation, "[c]onflict may arise either because `compliance with both federal and state regulations is a physical impossibility,' or because the state law stands `as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" In re Reading Co., 115 F.3d 1111, 1117 (3d Cir. 1997)(quoting California Federal Dav. And Loan Ass'n v. Guerra, 479 U.S. 272, 281 (1987)).

Furthermore, to the extent a reviewing court finds that Congressional intent is not clearly revealed by the statutory language, it should defer to the implementing agency's interpretation of the statute, so long as that interpretation is reasonable. Health Maintenance Organization of New Jersey v. Whitman, 72 F.3d 1123, 1128 (3d Cir. 1995)(citing Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 843 (1984)). As the agency charged with implementing TILA, the Federal Reserve Board ("FRB") has promulgated a regulation defining "inconsistent" as that term is used in the statute. It provides, in pertinent part:

A State law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of the Federal law. A State law is contradictory if it requires the use of the same term to represent a different amount or a different meaning than the Federal law, or if it requires the use of a term different from that required in the Federal law to describe the same item. 12 C.F.R. § 226.28(a).

This interpretation, which the court finds to be reasonable, comports with a conflict pre-emption analysis.

Cherry Hill Toyota argues that the CFA is inconsistent with TILA in a manner that requires pre-emption in three respects. First, to the extent the CFA required Cherry Hill Toyota to disclose the fact that it retained a portion of the money Cannon paid for the MBP warranty, Cherry Hill Toyota contends that the CFA is inconsistent with a Federal Reserve Board Official Staff Commentary that provides, in pertinent part:

2. Charges added to the amounts paid to others. A sum is sometimes added to the amount of a fee charged to a consumer for a service provided by a third party (such as for an extended warranty or a service contract) that is payable in the same amount in comparable cash and credit transactions. In the credit transaction, the amount is retained by the creditor. Given the flexibility permitted in meeting the requirements of the amount financed itemization, the creditor in such case may reflect that the creditor has retained a portion of the amount paid to others. For example, the creditor could add to the category "amount paid to others" language such as "(we may be retaining a portion of this amount)." 12 C.F.R. Pt. 226, Supp. I § 18(c)(1)(iii)(2).

Cherry Hill Toyota contends that this language permits but does not require it to disclose that it retains a portion of amount listed in the "Amounts Paid to Others on Your Behalf" section of a retail sales installment contract, pre-empting the CFA to the extent it requires a mandatory disclosure.

This court, however, has already rejected Cherry Hill Toyota's "permissive not mandatory" interpretation of the FRB Official Commentary in denying Cherry Hill Toyota's motion to dismiss Counts One and Two of Cannon's Complaint for failure to state a claim upon which relief can be granted. See Cannon v. Cherry Hill Toyota, Civil Action No. 97-3722 (JBS), slip op. at 6-8 (D.N.J. May 11, 1998). The court noted that Chief Judge Posner characterized the very interpretation of the FRB Official Commentary that Cherry Hill Toyota advances here as "preposterous" in a similar case arising in Illinois. Id. at 7 (quoting Gibson v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283, 285-86 (7th Cir. 1997)). Accordingly, this court finds no inconsistency between TILA and the CFA on this point and, therefore, no pre-emption.

In a related argument, Cherry Hill Toyota contends that the CFA is inconsistent with TILA in a manner that requires pre-emption because the CFA does not contain a "good faith" defense shielding creditors who commit a violation while acting in reliance on a rule, regulation or interpretation of the FRB that is later amended, rescinded or invalidated, as TILA does. See 15 U.S.C. § 1640(f). Relying on Brown v. Coleman Investments, Inc., 993 F. Supp. 439, 444-46 (M.D. La. 1998), where the court applied the "good faith" defense of § 1640(f) and granted summary judgment to the defendant car dealer in a similar case based on the defendant's reliance on the FRB Official Commentary discussed above, Cherry Hill Toyota claims that it is shielded from liability in the instant case. This court, however, does not agree with the Brown court's analysis of the applicability of § 1640(f).

Like Chief Judge Posner in Gibson, the Brown court rejected the "permissive not mandatory" interpretation of that FRB Official Commentary that Cherry Hill Toyota urges in this case, but found that the creditor was entitled to the "good faith" defense of § 1640(f) because some courts had agreed with that interpretation and because the creditor had no duty under the Brown court's reading of Fifth Circuit precedent to accurately forecast whether the Brown court would agree with that interpretation of the commentary. Id. at 445-46. By its own terms, however, the "good faith" defense of § 1640(f) applies only when the rule, regulation or interpretation of the FRB has been "amended, rescinded, or determined by judicial or other authority to be invalid for any reason." 15 U.S.C. § 1640(f). It does not apply when, as in Gibson, Brown and the instant case, the particular rule, regulation or interpretation of the FRB at issue has simply been misunderstood or erroneously interpreted by a creditor. Section 1640(f) "does not provide blanket protection for creditors' good faith mistakes, nor from reliance on erroneous judicial decisions." Lopez v. Orlor, 176 F.R.D. 35, 43 (D. Conn. 1997)(citing Hamilton v. Southern Discount Co., 656 F.2d 150, 152 (5th Cir. 1981)). Although some courts (including the Seventh Circuit in Gibson, the Brown court and this court) have rejected the "permissive not mandatory" interpretation of the FRB Official Commentary upon which Cherry Hill Toyota claims to have relied in this case, the FRB Official Commentary itself remains in full force and effect. Thus, the "good faith" defense of § 1640(f) is not available to Cherry Hill Toyota under these circumstances, rendering the unavailability of a "good faith" defense under the CFA under any circumstances a mere distinction without a difference, not an inconsistency that requires pre-emption in this case.

Finally, Cherry Hill Toyota contends that the CFA is inconsistent with TILA in a manner that requires pre-emption because the CFA does not limit the total amount of damages recoverable in a class action to the lesser of $500,000 or 1% of the creditor's net worth, as TILA does. See 15 U.S.C. § 1640(a)(2)(B). In support of this argument, Cherry Hill Toyota relies upon Brame v. Ray Bills Finance Corp., 85 F.R.D. 568 (N.D.N.Y. 1979), where the court declined to exercise pendent-party jurisdiction over state law claims brought in conjunction with TILA claims in a putative class action arising out of the creditor's alleged failure to make required disclosures in certain credit transactions, observing:

This Court believes that Congress has by implication negated the existence of federal-court jurisdiction over the State Banking Law claims asserted on behalf of the passive class members in this case. Congress has placed a ceiling upon recovery in a TILA class action to protect creditors from catastrophic judgments, and the permissible scope of pendent- party jurisdiction should be construed in light of this ceiling. The penalty provided by state law is substantially more severe than that imposed by federal law, and the granting of classwide relief on claims asserted under the State Banking Law . . . might very well cause financial ruin to a creditor. The granting of such relief would frustrate Congress' intent to bar such annihilating punishment by the placing of a limit on class recovery. Hence, the Court finds that it lacks power to entertain the state law claims of the unnamed class members. Id. at 593 (citations omitted).

Nowhere did the Brame court hold that TILA pre-empts the recoveries otherwise permitted under the applicable state law.

It is revealing that Cherry Hill Toyota relies upon a twenty- year old pendent-party jurisdiction case from another district to support its argument that § 1640(a)(2)(B)'s class action damages limitation pre-empts Cannon's CFA claims. Indeed, it highlights the absence of any reported decision in which a court has held that TILA pre-empts any state consumer protection law. Courts have, however, certified class actions involving claims under both TILA and state consumer protection statutes like the CFA under factual circumstances virtually identical to those presented in the instant case. See, e.g., Cirone-Shadow v. Union Nissan of Waukegan, 955 F. Supp. 938 (N.D. Ill. 1997)(class action alleging that car dealer's failure to disclose that dealer retained portion of amount listed on retail sales installment contract as paid to third party for extended warranty violated both TILA and the Illinois Consumer Fraud Act).

The court acknowledges that, in limiting the total amount of damages recoverable under TILA in a class action, Congress intended to protect creditors from huge damage awards in TILA cases. As the Brame court noted, Congress amended TILA in 1974 and again in 1976 in response to judicial reluctance to certify TILA class actions that would expose creditors to potentially crippling damage awards:

In 1974, Congress amended the TILA to meet the concerns expressed by the courts. It limited a creditor's liability in a class action to the lesser of $100,000.00 or one percent of the creditor's net worth, and provided that, as to each member of the class, no minimum recovery was to be applicable. In 1976, the ceiling on liability was raised to the lesser of $500,000.00 or one percent of the creditor's net worth. The purpose of these amendments was twofold: to protect small businesses from catastrophic judgments and to preserve the class action as a mechanism to enforce the provisions of the TILA. Congress wanted to insure that small creditors were not driven out of business, but also wanted a ceiling high enough so that creditors would me motivated to comply with the law. Brame, 85 F.R.D. at 574 (citations omitted).

Nowhere in the legislative history of the 1974 and 1976 amendments of TILA, however, is there any indication that Congress intended to limit the amount of damages recoverable under state consumer protection laws. Indeed, there is no reference to or mention of state law causes of action anywhere in the legislative history of those amendments. Where Congress has expressed itself on the issue of TILA's pre-emption of state law in § 1610(a)(1), it has chosen to do so where the operation of state law would place inconsistent obligations upon the creditor in the disclosure of information. In the absence of any expression in § 1640(a)(2)(B) or its legislative history of Congressional intent to limit the amount of damages recoverable under state consumer protection laws, this court cannot find that § 1640(a)(2)(B) pre-empts Cannon's right under the CFA to recover treble damages for herself and all others similarly situated. Permitting such a recovery does not stand as an obstacle to the to the accomplishment and execution of the full purposes and objectives of Congress because there is no indication that Congress had any purpose or objective when it enacted § 1640(a)(2)(B) to protect creditors from damage awards of any size under state consumer protection laws. Congress's clearly stated intention to protect creditors from huge class action damage awards under TILA will not be frustrated or compromised by permitting potentially huge class action awards under a state consumer protection law that Congress expressed no intention to annul, alter or affect.

In summary, the court finds no inconsistency between TILA and the CFA that requires pre-emption in this case. Accordingly, the court denies Cherry Hill Toyota's motion for declaratory judgment.

C. Modification of the Class Definition

During oral argument, counsel agreed that slight modification of the class definition would be appropriate to reflect the fact that Cherry Hill Toyota discontinued the conduct that gave rise to the claims asserted in this litigation in or around March 1997. Specifically, Cherry Hill Toyota modified the retail sales installment contract form it was using to document credit transactions involving the sale of a third-party extended service contract or extended warranty in connection with the sale of a new or used automobile to reflect the fact that it would retain a portion of the amount charged for the third-party service contract or extended warranty. As presently worded, the class definition would include consumers whose credit transactions were documented on these modified forms, which comply with TILA and the CFA.

In order to eliminate those consumers from the class, the court will adopt the following modified class definition:

All consumers who purchased since July 1991 a service contract or extended warranty from Cherry Hill Toyota in connection with the purchase of a vehicle which was documented in a form retail installment agreement that did not reveal that Cherry Hill Toyota would retain a portion of the amount paid for the service contract or extended warranty.

CONCLUSION

For the foregoing reasons, the court denies Cherry Hill Toyota's motion for reconsideration and Cherry Hill Toyota's motion for declaratory judgment. The court also modifies the class definition in the manner described above. The accompanying Order is entered.

JEROME B. SIMANDLE U.S. District Judge

Dated: July 26, 1999

ORDER

THIS MATTER having come before the court on defendant Cherry Hill Toyota's motion, pursuant to Local Civil Rule 7.1(g), for reconsideration of the court's March 26, 1999 Opinion and Order granting plaintiff Loetta Cannon's motion for class certification under Federal Rule of Civil Procedure 23(a) and (b)(3), and on Cherry Hill Toyota's motion for a declaratory judgment that the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., pre-empts New Jersey's Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-2 et seq., and the court having reviewed the submissions of the parties and having heard argument from counsel on July 16, 1999, and for the reasons expressed in the accompanying Opinion;

IT IS on this 26th day of July, 1999 hereby ORDERED that Cherry Hill Toyota's motion for reconsideration of the court's March 26, 1999 Opinion and Order granting Cannon's motion for class certification is DENIED; and

IT IS FURTHER ORDERED that Cherry Hill Toyota's motion for a declaratory judgment is DENIED; and

IT IS FURTHER ORDERED that Cherry Hill Toyota shall submit any opposition to Cannon's motion for approval of the form and procedure for notice to class members by August 5, 1999; and

IT IS FURTHER ORDERED that the class definition set forth in the Opinion and Order of March 26, 1999 is modified as follows:

All consumers who purchased since July 1991 a service contract or extended warranty from Cherry Hill Toyota in connection with the purchase of a vehicle which was documented in a form retail installment agreement that did not reveal that Cherry Hill Toyota would retain a portion of the amount paid for the service contract or extended warranty.

JEROME B. SIMANDLE U.S. District Judge


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