The opinion of the court was delivered by: Honorable Jerome B. Simandle
This class action consumer fraud case is before the Court on the parties' cross-motions for partial summary judgment pursuant to Rule 56, Fed. R. Civ. P. Plaintiff Loetta Cannon ("Cannon"), on behalf of herself and all others similarly situated, has sued the defendant car dealership, Cherry Hill Toyota, Inc. ("Cherry Hill") alleging violations of the federal Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq. and the New Jersey Consumer Fraud Act ("NJCFA"), N.J.S.A. §§ 56:8-2 et seq. The gravamen of plaintiff's complaint is that Cherry Hill violated TILA and the NJCFA because it made material misrepresentations on form contracts used in connection with the sale of extended automobile warranties, stating that the entire charge for the warranty was paid to others when in fact Cherry Hill Toyota retained a substantial portion for itself as profit or commission.
Cherry Hill has filed the present motion for partial summary judgment seeking dismissal of Counts One and Two, or in the alternative striking plaintiff's demand for actual damages under TILA in Count One and treble damages under the NJCFA in Counts Two and Three of the Complaint. Plaintiff's motion for partial summary judgment conversely seeks judgment in her favor on Counts One and Two.
The main issue for decision in the present cross-motions is whether plaintiff must show detrimental reliance on the offending contract as a prerequisite to recovery under either TILA or NJCFA, or both. More specifically, now that all discovery in the case has concluded, the Court must determine whether there is any evidence of actual damages under TILA, or of "ascertainable loss" under NJCFA, caused by these violations. For reasons now discussed, this Court finds that the plaintiff must make a showing of detrimental reliance in order to obtain "actual damages" under TILA, and must make a similar showing of "ascertainable loss" in order to obtain any damages under NJCFA. As explained in further detail below, plaintiff fails to create a genuine dispute as to whether she suffered actual or ascertainable damages, and the Court will enter partial summary judgment in defendant's favor on Counts One and Two. However, although plaintiff is not entitled to actual or ascertainable damages in this case, defendant's conduct nonetheless violated TILA and NJCFA, and thus plaintiff is entitled to recover statutory damages under TILA and attorneys' fees, as explained below.
In order to set the present motions in context, a brief summary of the procedural history of this case follows. On July 29, 1997, Cannon filed a three-count class action complaint against Cherry Hill asserting violation of TILA (Count One), and the NJCFA (Counts Two and Three). On October 7, 1997 plaintiff amended her complaint to assert a new claim under TILA. On October 14, 1997, Cherry Hill filed a motion for partial summary judgment seeking dismissal of Counts One and Two. By Order dated May 11, 1998 the Court struck plaintiff's Amended Complaint and denied Cherry Hill's motion to dismiss Counts One and Two. This Court certified the Cannon class by Order dated March 26, 1999. Cannon v. Cherry Hill Toyota, Inc., 184 F.R.D. 540 (D.N.J. 1999). Defendant filed a motion for reconsideration on April 6, 1999, and the Court temporarily stayed its March 26 Order. On June 3, 1999 defendant filed an additional motion seeking a declaratory judgment that plaintiff's NJCFA claims are preempted by TILA. The Court denied the reconsideration and declaratory judgment motions on July 26, 1999. *fn1 Defendant appealed, and by Order dated September 1, 1999 this Court denied defendant's motion to stay the proceedings pending appeal. The Third Circuit subsequently dismissed defendant's appeal for lack of jurisdiction on January 19, 2000.
As the Court has noted in a published Opinion in this case, plaintiff's complaint stems from her on July 30, 1996 purchase of a used automobile from Cherry Hill Toyota. Cannon, 184 F.R.D. at 542. In addition to the vehicle, Cannon purchased, through defendant, 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 contract section entitled "Amounts Paid to Others on Your Behalf." Id.
On July 29, 1997, Cannon commenced this action by filing a putative Class Action Complaint. Cannon alleges that Cherry Hill's representation in the "Amounts Paid to Others" section was false and misleading because Cherry Hill retained a portion of that amount for itself without disclosing to Cannon that it was doing so. Cannon further alleges that Cherry Hill routinely makes false and misleading representations to consumers about the amount of money it pays to third parties for MBP on consumers' behalf because Cherry Hill consistently retains a portion of the price while affirmatively misrepresenting and failing to disclose the true distribution of those funds. Id.
Cannon maintains that Cherry Hill's failure to disclose that it was adding a mark-up or "upcharge" to the actual cost of the service warranty, and that defendant's affirmative misrepresentation of the amount actually paid to Interstate on the retail sales installment contract, as to which she financed the entire amount, violates the Truth in Lending Act ("TILA") (Count One), and the New Jersey Consumer Fraud Act ("NJCFA") (Count Two). Cannon also claims that Cherry Hill violated the NJCFA by affirmatively representing to her that the vehicle she bought had front wheel drive when it in fact had rear-wheel drive (Count Three). Id. (Count Three is not a subject of these motions.)
It is important to bear in mind that the present cross-motions pertain only to plaintiff Cannon's individual claims, but may have some bearing on her suitability to act as class representative for approximately 2,300 individuals with claims similar to hers. Within this scope the Court turns to consider the present cross-motions.
A. Summary Judgment Standard
The standard for granting summary judgment is a stringent one. A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996); Kowalski v. L & F Prods., 82 F.3d 1283, 1288 (3d Cir. 1996); Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983), cert. denied, 465 U.S. 1091 (1984). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
Supreme Court decisions mandate that "[w]hen the nonmoving party bears the burden of persuasion at trial, the moving party may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry its burden of persuasion at trial." Brewer v. Quaker State Oil Refining Corp., 72 F.3d 326, 329-330 (3d Cir. 1995) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1987)). However, "the nonmoving party creates a genuine issue of material fact if it provides sufficient evidence to allow a reasonable jury to find for him at trial." Brewer, 72 F.3d at 330 (citing Anderson, 477 U.S. at 248). Once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50.
The standard by which the court decides a summary judgment motion does not change when the parties file cross-motions. Weissman v. United States Postal Service, 19 F. Supp.2d 254 (D.N.J. 1998). When ruling on cross-motions for summary judgment, the court must consider the motions independently, Williams v. Philadelphia Hous. Auth., 834 F. Supp. 794, 797 (E.D. Pa. 1993), aff'd, 27 F.3d 560 (3d Cir. 1994), and view the evidence on each motion in the light most favorable to the party opposing the motion, see Matsushita, 475 U.S. at 587.
Plaintiff's Count One states a claim under the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"). TILA requires the lender or creditor, this case Cherry Hill Toyota, to provide "a written itemization of the amount financed," including "each amount that is or will be paid to third persons by the creditor [the dealer here] on the consumer's behalf, together with an identification of or reference to the third person." 15 U.S.C. § 1638(a)(2)(B)(iii). The amount to be paid to Interstate on Cannon's behalf is not stated correctly in the written itemization of the amount financed that Cannon received. It is true that the consumer is not entitled to the statement unless he makes a written request for it, § 1638(a)(2)(B); 12 C.F.R. § 226.18(c)(2), and there is no indication that Cannon did. But the creditor is allowed to skip this stage and simply provide the itemization of the amount financed without being asked for it. 12 C.F.R. Pt. 226, Supp. I § 18(c)(1). That appears to be what happened in this case. Cherry Hill furnished the itemization, and the itemization contains a false representation. Namely, the itemization failed to disclose that Cherry Hill retained a portion of the warranty price, and that the amount paid to "third person" is therefore actually much less than the stated amount.This Court noted in the context of class certification that there do not appear to be any questions of law or fact in this case other than the precise measure of damages suffered by each individual class member. Cannon, 184 F.R.D. at 546. Using the form contracts described above, Cherry Hill sold extended warranties on credit to an estimated 2,300 individuals during the relevant time period. Because these form contracts failed to inform the consumers that Cherry Hill would retain a portion of the warranty price, at first glance this would seem to be an open and shut case, the only question being the proper measure of damages.
Despite the clarity of the issues for decision here, defendant attempts to muddy the waters by asserting arguments that this Court has already rejected. Specifically, defendant argues that it is not liable under TILA because it is entitled to a "good faith defense." Section 1640(f) of the Truth in Lending Act provides a good faith defense to acts done or omissions made in "good faith conformity with any interpretation or approval by an official or employer of the Federal Reserve System . . . ." 15 U.S.C. § 1640(f).
Defendant maintains that it is entitled to a good faith defense under § 1640(f) because it had reasonable grounds to believe that its duty to inform consumers of its profits on warranties was "permissive not mandatory" under a reasonable interpretation of then-prevailing FRB commentary at 12 C.F.R. § 226.18 (Comment 226.18(c)(iii)(2)). (See Def. Reply Br. at 2-4, and Letter of Nancy McDonald, Esq., dated July 27, 2001.) This Court has already adopted Seventh Circuit Chief Judge Richard Posner's characterization of this very argument as "preposterous" in the factually similar case of Gibson v. Ben Watson Chevrolet-Geo, Inc., 112 F.3d 283, 285-86 (7th Cir. 1997). (July 26, 1999 Op. at 21-22.) As Judge Posner observed:
The commentary (a part of the Federal Reserve Board's Regulation Z) addresses the situation in which the creditor retains a portion of the fee charged to a customer for a service provided by a third party, such as an extended warranty. It provides that "the creditor in such cases 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). The commentary, being limited to the case in which the fee "is payable in the same amount in comparable cash and credit transactions," id., has no bearing on the claim that the dealers in these cases are hiding a finance charge. But as to the other possible violation, the failure to itemize accurately, the defendants contend that the words "may" and "could" show that they can if they want disclose that they are retaining some of the fee, but that they are not required to do so. In other words, they read the commentary to say: "You may conceal the fact that you are pocketing part of the fee that is ostensibly for a third party, but if you are a commercial saint and would prefer to tell the truth, you may do that too." So interpreted, however, the commentary not only would be preposterous; it would contradict the statute. The only sensible reading of the commentary is as authorizing the dealer to disclose only the fact that he is retaining a portion of the charge, rather than the exact amount of the retention. Even this is a considerable stretch of the statute; and it is as far as, if not farther than, the statute will stretch. Id. (emphasis added).
This Opinion will mark the second time the Court has specifically rejected defendant's "good faith" argument. In the Court's Opinion on Defendant's Motion for Reconsideration of the Class Certification Order, I clearly rejected defendant's "permissive not mandatory" position: "the `good faith' defense of § 1640(f) is not available to Cherry Hill Toyota under these circumstances." (July 26, 1999 Op. at 23.) This conclusion has not changed. In the future, defendant is advised not to submit arguments that have already been disposed of, there having been no intervening change of facts or law.
Having determined that defendant is not protected by a good faith defense, the Court next turns to the issue of whether defendant is liable as a matter of law under TILA. It is undisputed that defendant retained a portion of the amounts charged for service contracts. (See Horton Aff., Pl. Ex. F; Pl. Mat. Facts ¶¶ 6-9.) Further, defendant misrepresented that the "Amounts Paid to Others on Your Behalf" for the MBP was $1,167.21, when in fact it retained an undisclosed substantial markup for itself. Further it is beyond dispute that defendant used the same or substantially similar form contracts when it transacted with each of the class members, none of which made the required disclosure. (See id. and Horton Aff. B-D.) As no material facts remain in dispute concerning defendant's use of form contracts that withheld relevant information from consumers and violated the TILA statute, the Court finds as a matter of law that defendant is liable to plaintiff for violation of TILA at 15 U.S.C. § 1638(a)(2)(B)(iii), supra.
The next question is whether plaintiff is entitled to damages upon her TILA claim. The Cannon class has requested actual damages equal to the total amount of "upcharges" retained by Cherry Hill Toyota, which plaintiff calculates to be $1,546,524.70. (Pl. Mat. Facts ¶¶ 10-14.) The provision governing actual damages reads:
Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part . . . with respect to any person is liable to such person in an amount equal to . . . (1) any actual damages sustained by such person as a result of the failure. 15 U.S.C. § 1640(a)(1).
In addition to allowing for actual damages, TILA provides three other remedies. First, TILA authorizes the Federal Trade Commission as its overall enforcement agency, 15 U.S.C. § 1607(c), and confers upon other federal agencies enforcement power over specific categories of lenders. 15 U.S.C. § 1607(a). Under this provision, the enforcing agency is required to adjust the consumer's account to eliminate any unjust finance charges. 15 U.S.C. § 1607(e)(1). Second, TILA imposes criminal liability on persons who knowingly and willingly violate the statute. 15 U.S.C. § 1611. Finally, TILA creates a private cause of action for statutory damages in favor of an individual, which may be assessed in addition to any actual damages. 15 U.S.C. § 1640(a)(2)(A)("twice the amount of any finance charge in connection with the transaction"). For class action suits arising out of the same TILA violation, Congress has placed a ceiling on statutory damages of the lesser of $500,000 or 1% of the defendant's net worth. 15 U.S.C. § 1640(a)(2)(B). As the Eleventh Circuit en banc recently 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) (overruling Ransom v. S & S Food Center, Inc. of Florida, 700 F.2d 670, 677 (11th Cir. 1983)).
In order to recover actual damages, plaintiff must establish that she relied to her detriment on the inaccurate disclosure. Although the Third Circuit has not addressed the issue, the majority of courts to have considered the issue have held that detrimental reliance is an element in a TILA claim for actual damages. See id. 242 F.3d at 1026; Perrone v. General Motors Acceptance Corp., 232 F.3d 433, 436-40 (5th Cir. 2000); Stout v. J.D. Byrider, 228 F.3d 709, 718 (6th Cir. 2000); Peters v. Jim Lupient Oldsmobile, 220 F.3d 915, 917 (8th Cir. 2000); Bizier v. Globe Financial Services, Inc., 654 F.2d 1, 4 (1st Cir. 1981) (dicta); Vickers v. Home Fed. Sav. & Loan Assoc., 404 N.Y.S.2d 201, 202 (1978). But see Lopez v. Orlor, 176 F.R.D. 35, 40 (D. Conn 1997); Sutliff v. County Sav. & Loan Co., 533 F. Supp. 1307, 1313 (N.D. Ohio 1982); In re Russell, 72 B.R. 855, 857 (Bankr. E.D. Pa. 1987).
The statute provides that a plaintiff is entitled only to "any actual damages sustained . . . as a result" of a TILA violation. The plain meaning of the "sustained as a result" is that, in order to recover actual damages, the plaintiff must establish a causal relationship between the fraud and the loss. In addition to the plain meaning, the legislative history of the Act supports this reading:
Section 130(a) of TILA allows a consumer to recover both actual and statutory damages in connection with TILA violations. Congress provided for statutory damages because actual damages in most cases would be nonexistent or extremely difficult to prove. To recover actual damages, consumers must show that they relied on an inaccurate or incomplete disclosure. 141 Cong. Rec. H9513, H9516, 104th Cong., 1st Sess. (Sept. 27, 1995) (Stmt. of Mr. McCollum) (co-author of legislation).
As the legislative history emphasizes, the Act requires the more burdensome showing of detrimental reliance in actions for actual damages. In order to elucidate the parties' burdens in the context of proving damages "sustained as a result" of the TILA violation, the Eighth Circuit has crafted a framework which requires that the plaintiff show: "(1) that she read the TILA disclosure statement; (2) that she understood the charges being disclosed; (3) had the disclosure statement been accurate, she would have sought a ...