On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1593-03.
The opinion of the court was delivered by: Lefelt, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS
Before Judges Kestin, Lefelt and Alley.
Plaintiff Paul Psensky entered into a retail installment contract in 2002 with defendant automobile dealership, Island Honda, Inc., to purchase a 1998 Honda Civic. Island Honda assigned the contract to defendant American Honda Finance Corporation, a company which financed the vehicles sold by Island Honda. Plaintiff subsequently filed a class action against defendants, alleging among other claims that Island Honda violated the Consumer Fraud Act, N.J.S.A. 56:8-1 to -156, by misrepresenting and failing to disclose that it was charging a $215 registration and title fee that exceeded the amount actually paid to the Division of Motor Vehicles and by charging a $499 documentation preparation charge, in addition to a documentary tax of $29.94, that Island Honda failed to itemize as required by the pertinent State administrative regulations. Plaintiff claimed American Honda was liable for Island Honda's wrongdoing through the Federal Trade Commission (FTC) and the New Jersey Retail Installment Sales Act holder doctrines, as well as the holder provisions contained in the parties' retail installment contract. American Honda moved for summary judgment to dismiss plaintiff's complaint, arguing that no active wrongdoing was alleged against it and the Truth In Lending Act (TILA), 15 U.S.C.A. § 1601 to 1667f, trumped the FTC Holder Rule, 16 C.F.R. § 433.2(a) (2005), and preempted New Jersey's retail installment sales holder statute, N.J.S.A. 17:16C-38.2, even though plaintiff did not allege that either Island or American Honda violated the TILA. The trial judge denied American Honda's summary judgment motion. We granted interlocutory review and now reverse.
This appeal concerns only the derivative liability of American Honda and not the direct liability of Island Honda and its principal, defendant Andrew Lippi. Focusing on derivative liability only, we commence our analysis by detailing the holder provisions that are pertinent to the derivative claims advanced against American Honda.
Essentially, these provisions all subject an assignee of a creditor's consumer loan to the claims and defenses that can be asserted against the creditor. The FTC Holder Rule requires that the following notice be given to consumers: "Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. . . ." 16 C.F.R. § 433.2(a). In similar fashion, New Jersey provides, in pertinent part, that "[a]ny subsequent holder of a consumer note shall be subject to all claims and defenses of the retail buyer against the retail seller arising out of the transaction . . . ." N.J.S.A. 17:16C-38.2. The retail installment contract signed by the parties in this case allowed an assignment by the seller but specified that the "[b]uyer agrees that if this Contract is assigned by the Seller, Assignee shall have all rights of the Seller under this Contract."
American Honda's argument that the TILA supersedes or preempts all of the various holder provisions is based on the TILA provision limiting assignee liability. In relevant part, TILA specifically permits "any civil action" or certain administrative proceedings for a TILA disclosure violation to be brought against an assignee of a creditor "only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement." 15 U.S.C.A. § 1641(a). Under this provision, Congress allows plaintiffs to sue consumer loan assignees for TILA violations only when the violation is facially apparent on the disclosure document.
The trial judge in rejecting American Honda's preemption arguments found dispositive Scott v. Mayflower Home Improvement Corp., 363 N.J. Super. 145 (Law Div. 2001), and held that the TILA assignee defense provision "limits assignees' liabilities on only one set of claims, that is, those specified in TILA." Because plaintiff did not assert any TILA claim, the judge determined that the FTC Holder Rule still applied. The judge also concluded that American Honda, as an assignee, was not immunized from consumer fraud claims based on state law. We disagree with the breadth of the motion judge's conclusion for the following reasons.
The TILA requires that certain disclosures be made in loan documents and authorizes consumers to sue for violations of the statute. The TILA's purpose is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him [or her]." 15 U.S.C.A. § 1601(a).
Congress amended the TILA in 1980 to narrow considerably the scope of assignee liability in consumer loan transactions. Compare 15 U.S.C.A. § 1641 (1979), with § 1641(a) (1980); Ramadan v. Chase Manhattan Corp., 229 F.3d 194, 200 (3d Cir. 2000) (citing the legislative history at S. Rep. No. 96-73, at 2-3 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 281; Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 693 (7th Cir. 1998), cert. denied, 525 U.S. 1141, 119 S.Ct. 1032, 143 L.Ed. 2d 41 (1999). It was this 1980 amendment that limited the liability of voluntary assignees to violations "apparent on the face of the disclosure statement." 15 U.S.C.A. § 1641(a).
Under Article VI, Clause 2, of the United States Constitution, Congress may preempt state law "either by express provision, by implication, or by a conflict between federal and state law." N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654, 115 S.Ct. 1671, 1676, 131 L.Ed. 2d 695, 704 (1995). With regard to the TILA, Congress has preempted all state laws that are "inconsistent with the provisions of [TILA] and then only to the extent of the inconsistency." 15 U.S.C.A. § 1610(a)(1); see also Regulation Z, 12 C.F.R. § 226.28(a)(1) (2005).
Thus, not all state laws are preempted by the TILA. TILA preempts only those state laws that are inconsistent with the TILA. State and federal laws are inconsistent when "compliance with both federal and state regulation is a physical impossibility" or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Fid. Fed. Sav. ...