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United Consumer Financial Services Co. v. Carbo

October 22, 2009

UNITED CONSUMER FINANCIAL SERVICES COMPANY, PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
v.
WILLIAM CARBO, INDIVIDUALLY, AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
v.
A&M MERCHANDISING, INC.; J&N DISTRIBUTING CO., INC.; FDR ENT., INC./TRI COUNTY KIRBY; XCEL ENTERPRISES, L.L.C.; AKVAC, L.L.C.; UNION COUNTY KIRBY CO.; A&C DISTRIBUTING CO., INC.; OMEGA TRADING, INC.; ADVANCE KIRBY; N.J. EASY-VAC. CO.; MSB MARKETING; BCK DISTRIBUTORS, INC.; OMNI CONCEPTS, INC.; J AND N DISTRIBUTING CO.; J.W. MARKETING & DIST., INC.; JMC GENERATION SYSTEM, L.L.C.; PRESTIGE MERCHANDISING CO., INC.; K QUALITY CORP.; BES ASSOC., INC.; ALL CITY VACUUM, INC.; POCONO KIRBY; TPR ENTERPRISES; RAS MANAGEMENT, INC.; GENERATION THREE; BROOKDALE MERCHANDISING; BROOKLYN/QUEENS MERCHANDISING; R-W MERCHANDISING; LBA DISTRIBUTORS; MGM DISTRIBUTORS; K.Q. SYSTEMS; KIRBY CENTER OF ORANGE COUNTY; AND K&M DISTRIBUTING COMPANY, THIRD-PARTY DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS, AND NORTHERN MARKETING GROUP, INC.; SULCO INDUSTRIES, INC.; INTERSTATE MARKETING, INC.; A&B INTERNATIONAL; E.C.M.A., INC.; D&M HOME CARE PRODUCTS ENT.; KIRBY OF NEWBURG; VINI MERCHANDISING, INC.; AAACTION KIRBY, INC.; A&H MERCHANDISING, INC.; D. WOOD MERCHANDISING, INC.; MB MERCHANDISING, INC.; KIRBY OF ROCKLAND; F.Y.F. ENT. D/B/A BERLIN KIRBY; NKA ENTERPRISES; JBK KIRBY DISTRIBUTING; A&T INTERNATIONAL, INC.; LBS ENTERPRISES; HUDSON VALLEY KIRBY; ANECSA SUCCESS CORP.; PREMIERE II SERIES, INC.; INTERCITY MARKETING, INC.; RHM MARKETING, INC.; K&J ASSOCIATES; D.M.C. ENTERPRISES, INC.; D.J. ENTERPRISES; J.D.K. DISTRIBUTORS; AVKKO ENTERPRISES; SOUTH BAY DISTRIBUTING; D.C. DISTRIBUTORS; K.D.C. ASSOCIATE KIRBY, INC.; JDF & ASSOCIATES, INC.; DOMESTIC TECHNOLOGIES; E.J. LIM ENTERPRISES, INC.; P.M.C. ENTERPRISES; AND A.V. ASSOCIATES, THIRD-PARTY DEFENDANTS.



On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3438-02.

The opinion of the court was delivered by: Grall, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued May 19, 2009

Before Judges Skillman, Graves and Grall.

This appeal is from orders entered on claims pursued by a certified class consisting of consumers who entered into substantially similar retail installment sales contracts with distributors who sell Kirby vacuum cleaners door-to-door.*fn1 The trial court's rulings on class certification, liability, injunctive relief, damages, counsel fees and pre- and post-judgment interest were made on a series of motions decided between May 21, 2004 and June 6, 2007. None of the issues were tried.

Plaintiff United Consumer Financial Services Company (UCFSC), which accepts assignments of retail installment contracts obtained by door-to-door sellers of Kirbys, commenced the litigation to collect the amount defendant William Carbo owed on his retail installment contract with door-to-door seller A&M Merchandising, Inc. (A&M). Carbo filed a counterclaim against UCFSC and a third-party complaint against A&M, and he obtained class certification authorizing the identification of additional Kirby distributors who used similar contracts and the consumers who accepted them.

The class prevailed on claims alleging violations of the Door-to-Door Retail Installment Sales Act, N.J.S.A. 17:16C-61.1 to -61.9; the Retail Installment Sales Act, N.J.S.A. 17:16C-1 to -61; and the Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:12-14 to -18. Pursuant to N.J.S.A. 56:12-17, each of the 16,845 class members was awarded a civil penalty of $100, without pre- or post-judgment interest, and is exempt from payment of interest due during the three-year period of a preliminary injunction that restrained enforcement of the contracts. UCFSC and the distributors are jointly and severally liable for the civil penalty. In addition, they must pay class counsel $25,852.10 for costs and a fee of $1,008,583.20, which includes fifty-percent enhancement of the lodestar. Injunctive relief was also awarded; the permanent injunction bars use of the contract in its present form.*fn2 An order implementing the judgment was entered on June 6, 2007.

Class claims alleging violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, and the Licensed Lenders Act, N.J.S.A. 17:11C-1 to -50; fraud; breach of contract; violation of the covenant of good faith and fair dealing; and unjust enrichment were dismissed. UCFSC's claim against Carbo was settled and dismissed after the class claims were resolved.

UCFSC appeals and the third-party defendant distributors cross-appeal; both challenge rulings in favor of the class. Carbo cross-appeals claiming error based on the dismissal of class claims and the denial of rescission and pre- and post-judgment interest.

The facts material to the class claims are not in dispute. The retail installment sales contracts entered into by the members of the class and their respective distributors are substantially the same, and the consumers were given substantially similar notices and forms relating to their right to cancel the contract within three business days of the purchase.

The contracts are in a form prescribed by UCFSC for use by the distributors from whom it accepts assignments. They permit "assignment to [UCFSC]" which is then "considered a creditor" of the consumer. Each contract reserves the distributor's right to cancel the sale if it is "not assigned to [UCFSC], or any other creditor." UCFSC also gives the distributor a manual that includes guidance on completion of the form contracts and notices.

Carbo purchased his Kirby and signed his retail installment sales contract with A&M through a door-to-door seller on September 16, 2000. The price of his Kirby, excluding sales tax, was $1600; with the interest chargeable under the retail installment sales contract, a total of $2259 was due if all payments were made timely and without penalty. The contract authorizes a $20 charge if a check submitted as payment "is dishonored for any reason" and a $10 penalty for late payments.

Carbo's first language is Spanish, and both of the salesmen who visited Carbo's home spoke Spanish. The form contract they entered into was printed in Spanish, and Carbo received one copy of that contract printed in that language.

The contract Carbo signed advises that he may cancel the transaction at any time prior to midnight of the third business day. That advice is printed in capital letters and ten-point bold type directly below the space provided for his signature. In addition, immediately below, there are two identical "notice[s] of cancellation," one which Carbo could use if he opted to cancel and one he could retain. These "notices of cancellation" describe what Carbo had to do to cancel and the seller's obligation to accept, refund the payment and terminate any security interest.

The "notice of cancellation" provides no information identifying the contract or the sale other than the name and address of the buyer and seller. The product and price are stated only in the contract.

As noted above, the contracts and "notices of cancellation" given to the 16,845 class members are substantially similar to Carbo's in all material respects. When the contracts and "notices of cancellation" were printed in a language other than English, that language was used throughout.

UCFSC designed its contracts and "notices of cancellation" to conform with rules adopted by the Federal Trade Commission (FTC), 16 C.F.R. §§ 429.1 to 429.3. UCFSC's manual for distributors advises that "individual state law applies when it is more favorable to the consumer," but the UCFSC forms prepared for use in New Jersey include no special terms, notices or cancellation forms.

There is no evidence that any consumer was dissatisfied with the Kirby purchased, attempted to exercise and was denied the right to rescind or was charged a fee for submitting a check or other instrument for payment that was subsequently dishonored.

I.

We first consider the challenge to class certification. The distributors, other than A&M, contend that the trial court erred in authorizing Carbo to maintain a class action against them because they were not involved in his transaction in any way. We reject that argument substantially for the reasons stated in written opinions filed with orders dated May 21, 2004, June 23, 2005 and March 9 and May 30, 2007.*fn3

Class certification is a matter committed to the sound exercise of the trial court's discretion. See Muise v. GPU, Inc., 371 N.J. Super. 13, 29 (App. Div. 2004) (noting that the Supreme Court applied this standard of review to a ruling on class certification in In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 436-37 (1983)). Rule 4:32-1 must be liberally construed, and a class action is the favored means of adjudicating numerous claims involving a common nucleus of facts for which each individual's recovery will be small. Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 103-06 (2007).

The common nucleus of fact in this class action is the content and form of the contract and notices prepared by UCFSC and used in each transaction. The distributors are each joined in the action based on their use of the UCFSC-approved documents in one or more separate transactions with one or more members of the class. The link that each distributor has with a member of the class is the UCFSC-approved documents that are the source of the class claims. Courts of other states considering class claims based on a single business protocol established by one co-defendant have permitted the class claims to proceed against multiple defendants who have used the co-defendant's protocol in separate transactions with different members of the class. See, e.g., Weld v. Glaxo Wellcome, Inc., 746 N.E.2d 522, 529-31 (Mass. 2001) (finding "juridical links" adequate to permit a plaintiff who dealt with only one drug manufacturer that participated in a protocol developed by CVS to pursue class claims against other drug manufacturers who participated in the same CVS protocol in dealing with other members of the class). The trial court relied on that precedent, and given this State's liberal rules governing class actions, Iliadis, supra, 191 N.J. at 103-06, and standing, James v. Arms Tech., Inc., 359 N.J. Super. 291, 320-21 (App. Div. 2003), we cannot conclude that the trial court abused its discretion. The argument presented by the distributors to the contrary requires no additional discussion beyond that provided by the trial court. R. 2:11-3(e)(1)(E).

II.

UCFSC and the distributors object to the trial court's grant of summary judgment in favor of the class on various violations of the Door-to-Door Retail Installment Sales Act (DDRISA), N.J.S.A. 17:16C-61.1 to -61.9. In accordance with Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995), we consider whether the class was entitled to judgment as a matter of law. In this case, that determination depends not only upon whether UCFSC and the distributors violated DDRISA but also whether the provisions of DDRISA at issue can be enforced or are preempted by regulations adopted by the FTC, 16 C.F.R. §§ 429.1 to 429.3.

A.

The Legislature enacted DDRISA in recognition of "often unethical persuasion of certain door-to-door sellers" and to enable all consumers who make a purchase in that circumstance "to reconsider . . . within a reasonable period." N.J.S.A. 17:16C-61.3. Thus, DDRISA mandates a "cooling-off period" during which the consumer has a statutory right to rescind the transaction. Ibid. The protection is prophylactic; it applies to all covered sales regardless of the quality of the product or the tactics employed. N.J.S.A. 17:16C-61.5. To give effect to the right, DDRISA requires the seller to give the buyer notice of the right and how it can be exercised, in a specified form, at the time of the transaction. N.J.S.A. 17:16C-61.6.

Four years after the enactment of DDRISA in 1968, L. 1968, c. 223, the FTC, in the exercise of its authority pursuant to 15 U.S.C.A. § 45, adopted rules mandating a similar "cooling-off period" and similarly obligating sellers to give consumers notice of their rights to cancel. 16 C.F.R. §§ 429.0 to 429.2; 37 Fed. Reg. No. 22934 (Oct. 26, 1972); see generally Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 966 (D.C. Cir. 1985) (discussing the authority delegated to the FTC), cert. denied, 475 U.S. 1011, 106 S.Ct. 1185, 89 L.Ed. 2d 301 (1986); Crystal v. West & Callahan, Inc., 614 A.2d 560, 564-65 (Md. 1992) (discussing the history of the FTC's action to regulate door-to-door sales and its impact upon state law).

The New Jersey Legislature has not opted to revise DDRISA to mirror the FTC rule. While the FTC rules and DDRISA are similar, they are not identical, and where there are differences, preemption is a preliminary question.

By force of the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2; Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152, 102 S.Ct. 3014, 3022, 73 L.Ed. 2d 664, 674 (1982), Congress and federal agencies acting within the scope of their authority may supersede or "preempt" state laws regulating the same conduct. Dewey v. R.J. Reynolds Tobacco Co., 121 N.J. 69, 77 (1990); see La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 369, 106 S.Ct. 1890, 1898-99, 90 L.Ed. 2d 369, 382 (1986); R.F. v. Abbott Labs., 162 N.J. 596, 619 (2000). Or, the federal government may share regulation of the field, allowing the states to act. See Rice v. Santa Fe Elevator Corp., 331 U.S. 218, ...


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