Opinion
01 CIV 3393 (DLC)
January 22, 2002
James Beaumont, New York, NY. Plaintiff, Pro Se
Attorney(s) for the Defendant, Christine B. Cesare, Mark B. Kravitz, Bryan Cave L.L.P. New York, NY. Debra L. Wabnik, Simmons, Jannace Stagg, L.L.P., East Meadow, NY.
MEMORANDUM OPINION and ORDER
On April 23, 2001, plaintiff James Beaumont ("Beaumont"), alleging claims under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., moved by order to show cause for a preliminary injunction prohibiting Citibank and Chase from rebilling him for past due charges. On August 2, 2001, Magistrate Judge Pitman issued a Report ("Report") recommending that the plaintiff's motion for a preliminary injunction be denied. Beaumont objected to Judge Pitman's Report and Chase and Citibank responded to his objections.
On November 5, 2001, Beaumont notified the Court that he was submitting a summary judgment motion that would make it unnecessary for the Court to rule on his motion for a preliminary injunction. The plaintiff was asked to submit this request in writing. On November 13, 2001, the plaintiff submitted a motion for summary judgment "in order to preserve the status quo by prohibiting defendants from any attempt at reversing the refunds already permanent to plaintiff's credit card." Construing Beaumont's notification and submission of the motion as a withdrawal of his objections, the Court adopted Judge Pitman's Report. After the plaintiff, in a letter dated November 27, 2001, clarified his intention not to withdraw his objections to the Report, the Court granted his motion for reconsideration of his motion for a preliminary injunction. After considering the plaintiff's objections and for the reasons that follow, plaintiff's objections are denied and Judge Pitman's Report is adopted.
BACKGROUND
In 1999, Beaumont used his Chase and Citibank credit cards to purchase certain goods and services from Purchase Plus Buyers Group, Inc. ("PPBG"). PPBG is alleged to have operated an illegal pyramid or Ponzi scheme. Beaumont disputes charges of approximately $12,100 on his Chase Visa account and $9,700 on his Citibank Visa account. He maintains that he returned the purchases giving rise to these charges to PPBG and that PPBG accepted the returns on October 24, 2000. In a letter dated October 26, 2000, Beaumont notified defendant Citibank that he was disputing these charges because PPBG "never provided the product(s) and services that it promised." He notified defendant Chase of the dispute on or about November 2, 2000. Chase and Citibank temporarily credited Beaumont's accounts on November 13, 2000 and January 5, 2001, respectively, and requested credits for these amounts from PPBG. PPBG's bank refused to issue credits and initiated an arbitration with regard to the Chase debt. Chase was informed on June 26, 2001, that the arbitration had been resolved in PPBG's favor.
Participants in a pyramid scheme are rewarded through the recruitment of new participants. These new participants make financial contributions, often by purchasing goods and services, which are then used to provide returns to the earlier participants. See Hirsch v. Arthur Anderson Co., 72 F.3d 1085, 1088 n. 3 (2d Cir. 1995); see also United States v. Gold Unlimited, Inc., 177 F.3d 472, 475 (6th Cir. 1999).
Beaumont also states that he informed the defendants by October 20, 2000.
There is no indication that PPBG initiated arbitration with regard to the Citibank debt.
Beaumont now claims that the defendants' reinstatement of these charges would constitute a violation of the TILA. He seeks a preliminary injunction to prevent defendants from rebilling his accounts for the disputed amounts. Judge Pitman found that Beaumont would not suffer irreparable harm in the absence of a preliminary injunction pending resolution of his claim under 15 U.S.C. § 1666 ("Section 1666"). Beaumont's potential remedy, were he successful in his Section 1666 claim, would be limited to the defendants' forfeiture of $100 of the disputed amount. Judge Pitman determined that, in light of the plaintiff's current financial situation, failure to enjoin the defendants from rebilling $100 would not cause the plaintiff to suffer the consequences he asserts as his irreparable injury, to wit, to declare bankruptcy or to experience an alcoholic relapse. Finding no irreparable harm, Judge Pitman declined to address Beaumont's likelihood of success on the merits of his Section 1666 claim.
Judge Pitman did not determine whether Beaumont would be entitled to preliminary relief under 15 U.S.C. § 1666i because Beaumont indicated at oral argument that he was seeking injunctive relief solely under Section 1666.
DISCUSSION
A reviewing court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). The Court reviews de novo those portions of the Report to which an objection has been made. Id.; see also United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997).Beaumont argues that the credits of November 13, 2000 and January 5, 2001, to his accounts became permanent because
(1) PPBG did not object to the credits within ninety days after Beaumont notified the defendants of the dispute (and PPBG's bank does not have the legal right to contest the credits for PPBG);
(2) the credits came from PPBG funds (and thus that Chase and Citibank, who functioned merely as transfer agents, had not lost any money) ; and
(3) Chase and Citibank management assured him that the credits would become permanent forty-five days after issuance.
Because Beaumont objects to the Report on the ground that he is not indebted to Chase and Citibank, the Court will review de novo his claim that he will suffer irreparable harm if the defendants begin collection on the disputed charges pending resolution of the dispute over Beaumont's liability for the underlying debt.
A party seeking a preliminary injunction is required to demonstrate that absent injunctive relief, it will suffer irreparable harm, and that either (a) it is likely to succeed on the merits, or (b) there are sufficiently serious questions going to the merits to make them a fair ground for litigation, and that the balance of hardships tips decidedly in favor of the moving party. Otokoyama Co. v. Wine of Japan Imp., Inc., 175 F.3d 266, 270 (2d Cir. 1999). Whether a plaintiff has shown that irreparable harm would result from a failure to grant preliminary relief will depend, in part, on the ultimate relief sought because the purpose of a preliminary injunction is to preserve the status quo. Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989).
Judge Pitman correctly described Section 1666. Section 1666 sets out the procedures credit card issuers must follow in resolving billing disputes with cardholders. If the card issuer does not follow these procedures, it does not forfeit the right to collect the entire debt. Instead, it forfeits the right to collect a maximum of $50 of the disputed debt plus accrued finance charges on that amount, and may be subject to a penalty of an amount equal to twice the finance charges on the disputed amount up to $1000. 15 U.S.C. § 1666 (e); see also Am. Express Co. v. Koerner, 452 U.S. 233, 237 (1981); Belmont v. Assocs. Nat. Bank (Del.), 119 F. Supp.2d 149, 164 (E.D.N.Y. 2000).
Therefore, even if Beaumont succeeds on his Section 1666 claim, he will win at most a reduction of $100 in the amount owed to the banks. As a result, a preliminary injunction could issue only to the extent of this final relief — $50 per defendant plus finance charges. As Judge Pitman noted, failure to win such a reduction pending a final judgment on his Section 1666 claim will not constitute irreparable harm. Even if the defendants sought to collect from him the entirety of the disputed amount, an unwarranted collection of $100 would result in an increase in his monthly credit card payments of less than ten dollars. The Court adopts Judge Pitman's finding that the plaintiff has not shown that the presence of even ten dollars of additional debt per month is likely to force the plaintiff into bankruptcy or place him in danger of a relapse.
If successful, Beaumont may also be entitled to an award of twice the finance charges, but that award would be a penalty, not the defendants' forfeiture of part of the amount due.
While a billing dispute under Section 1666 is pending, a creditor may not attempt to collect any portion of the disputed amount. 12 C.F.R. § 226.13(d)(1). The card issuer may, however, attempt to collect the debt after it has conducted a reasonable investigation, determined that the disputed amounts are, in fact, owed by the cardholder, notified the cardholder and allowed the cardholder a reasonable time to pay without incurring additional finance charges. Id. § 226.13(g).
As noted, Beaumont has moved for a preliminary injunction under Section 1666. Since he is proceeding pro se, it is appropriate to determine also whether he is entitled to a preliminary injunction under Section 1666i ("Section 1666i") of Title 15. Section 1666i allows a cardholder to assert against the card issuer defenses that arise out of transactions in which the card is used as the method of payment. If Beaumont is successful in asserting a defense under Section 1666i, the defendants may be prohibited from reinstating the charges. In re Standard Financial Mgmt. Corp., 94 B.R. 231, 237 (D. Mass. 1988), abrogation on other grounds recognized by Moratzka v. Visa U.S.A. (In re Calstar, Inc.), 159 B.R. 247, 254 (D. Minn. 1993); see also Ioane v. Alter, 96 Civ. 20629 (SW), 1997 WL 767526, at 4 (N.D. Cal. Nov. 21, 1997). Thus, Beaumont's final relief under Section 1666i could include relief from liability for some or all of the underlying charges.
The extent of Beaumont's final relief will depend on the success of the defenses he asserts. In addition, the amount of claims or defenses a cardholder may assert under Section 1666i "may not exceed the amount of credit outstanding with respect to such transaction at the time the cardholder first notifies the card issuer or the person honoring the credit card of such claim or defense." 15 U.S.C. § 1666i(b).
Beaumont will not suffer irreparable harm in the absence of a preliminary injunction on a Section 1666i claim, however, because Beaumont is entitled even without such an injunction to withhold an amount equal to the disputed charges pending resolution of this lawsuit. When a cardholder asserts a defense he may have against a merchant to collection by the card issuer, the cardholder also has the right, under TILA's implementing regulations, to "withhold payment up to the amount of credit outstanding for the property or services that gave rise to the dispute." 12 C.F.R. § 226.12(c)(1). Although Section 226.12(c)(1) would not prohibit defendants from indicating the amount of the disputed charges on Beaumont's monthly statements, it would provide him with a valid defense to a collection action on those charges.
The implementing regulations for Section 1666, TILA's billing dispute procedures, specifically allow card issuers to indicate the disputed amount on the cardholder's monthly statement. 12 C.P.R. § 226.13(d)(1) n. 30. Though no such provision is in effect for Section 1666i, nothing in Section 1666i would seem to prohibit such a result.
CONCLUSION
The Court adopts Judge Pitman's determination that failure to grant preliminary relief pending resolution of Beaumont's Section 1666 claim will not result in irreparable harm. In addition, failure to enjoin the defendants pending resolution of Beaumont's Section 1666i claim will not cause irreparable harm because the defendants are prevented by regulation from collecting on the disputed amounts pending resolution of this lawsuit. Plaintiff's motion for a preliminary injunction is denied.
SO ORDERED