Opinion
No. 96-CV-447-WEA-HTS.
August 24, 2004
ORDER
This matter comes before the Court on the Motion for Summary Judgment, filed by Defendant, Ford Motor Company, pursuant to Fed.R.Civ.P. 56(c). Plaintiff, Carla Higginbotham, in conjunction with other plaintiffs whose claims are not addressed by this order, responded to the motion. The Court has considered the parties's submissions and finds as follows.
Plaintiff Higginbotham's action against Ford Motor Credit ("Ford") stems from her lease of a car and her subsequent early termination of that lease. Plaintiff and the putative class allege that the early termination provisions of the lease she entered into with Ford violated the terms of the Consumer Leasing Act ("CLA"), 15 U.S.C. § 1667b. She alleges that the lease entered into with Ford improperly shifted the burden that the residual value of the vehicle was inflated to the lessee and that the residual value was not the best available estimate of the car's value at the end of the lease term. Plaintiff further alleges that when she terminated her lease with Ford early that its failure to discount the residual value of the vehicle to present value was unreasonable under the CLA.
Plaintiff entered into a thirty-six (36) month lease on February 10, 1994. The lease was terminated on May 2, 1995, and at the time of termination Plaintiff was behind in her lease payments. The monthly payment on the lease was $469.99, and the lease stated a residual value of $8,738.00. The car was sold by Ford for $11,000, and thereafter Ford sought to recover $6,831.87 from Plaintiff. Plaintiff did not pay the amount disputed and filed this putative class action suit. Defendant seeks summary judgment on all of Plaintiff's claims.
Following the filing of the instant motion and Plaintiff's response thereto the United States Court of Appeals for the Eleventh Circuit issued a decision that is outcome determinative as to Plaintiff Higginbotham's claims. In Baez v. Banc One Leasing Corp., 348 F.3d 972 (11th Cir. 2004), the court affirmed in part the ruling of the District of Georgia, Torres v. Banc One Leasing Corp, 226 F.Supp.2d 1345 (N.D.Ga. 2002), granting summary judgment to a lessor under facts virtually indistinguishable from those in the instant action. In Torres, the district court action, the court concluded that the lessor's early termination provision as applied was not unreasonable under 15 U.S.C. § 1667b(b).
Material facts, that is. Clearly the parties, certain of the lease terms and other issues not material to the outcome of this case differ between Torres and the instant action.
Mr. Torres entered into a sixty (60) month lease for a Ford Escort that was to run from March 20, 1999 until March of 2004. In December 2000, Mr. Torres terminated his lease thirty-nine (39) months early. Banc One issued an invoice to Mr. Torres seeking $6,365.97, representing depreciation payments ($9,253.53) plus the residual value of the vehicle ($4,537.50), plus fees ($74.94) minus the sale proceeds ($7,500.00). This amount was calculated pursuant to the early termination provisions of Mr. Torres' lease. He did not pay and filed suit under the Consumer Leasing Act and Georgia state law.
Ms. Higginbotham's lease provides for early termination charges calculated as: the difference between (1) the adjusted balance subject to lease charges, comprised of unpaid depreciation at the time of termination plus the estimated residual value of the vehicle, and (2) the realized value of the vehicle when sold by the lessor plus (3) all other amounts due under the lease. In Torres the formula called for payment of any amounts: (1) currently due or overdue plus (2) the remaining monthly payments plus (3) the residual value minus (4) any unearned rent minus (5) the realized value. Although expressed in different terms, the formulas are essentially the same. The adjusted balance subject to lease charges minus the realized amount of the sale in Ms. Higginbotham's case is the equivalent of (2) the remaining monthly payments plus (3) the residual value minus (4) the unearned rent minus (5) the realized value in Torres. "All other amounts due under the lease" in Ms. Higginbotham's lease is the equivalent of the amounts due or overdue at the time of termination in Torres.
The Consumer Leasing Act requires all early termination charges to be specified in the lease. 15 U.S.C. § 1667b(b). Additionally, the charges must be reasonable in light of the anticipated or actual harm caused by the early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. ( Id.) Plaintiff and Bank One agree as to the mechanics of the calculation of the early termination formula in Banc One's lease. The parties also agree as to the amount of charges produced by that formula in this case. Plaintiff contends that the early termination formula violates the Act because it makes an early terminating lessee responsible for covering any shortfall in the vehicle's actual realized value as against the projected end of lease residual value.
The court's analysis focused on the contends of Regulation M, promulgated by the Federal Reserve Board under Congressional authority for purposes of implementing the CLA. The court concluded that Regulation M specifically permits early termination charges based on the difference in residual and realized values in closed-end leases. Id. at 1349.
The court concluded that because Mr. Torres terminated so early in his lease and because automobile depreciation is not actually linear but is treated as such by the terms of the lease, an early termination provision based on the difference in realized and residual value was reasonable.
When Plaintiff terminated his lease early, Banc One was deprived of the chance to make up the full amount of depreciation on the vehicle because the depreciation at the beginning of the lease was greater than the amount of depreciation payments Plaintiff made on the lease. The early termination charge in Banc One's lease is designed to recapture the depreciation lost at the beginning of the lease via the lower depreciation payments. It does this by adding the rest of the equal depreciation payments to the residual value of the vehicle. It also makes Plaintiff responsible for the difference in the realized and residual value of the vehicle. It also makes plaintiff responsible for the depreciation he consumed without payment during the first 21 months of the lease. This Court holds Banc One's early termination formula is reasonable since it allows a lessor to recover the depreciation lost due to early termination. As the charge itself is reasonable in light of the loss caused by Plaintiff's early termination, summary judgment for Banc One is proper.Id. at 1350. Given the facts of this case and because the early termination provision is essentially identical to that at issue in Torres, the Court concludes that Ford's early termination provision in the Higginbotham lease was reasonable as well.
Plaintiff Higginbotham terminated her thirty-six month lease owing more than twenty-four months in payments. Her monthly payments totaled $469.99, and had she not terminated early she would have paid $11,279.26 to Ford during the remainder of the lease. The lease-stated residual value of her vehicle was $9738.00 and the car was sold for $11,000.00 following her early termination. Ford originally sought $6,831.87 from Ms. Higginbotham pursuant to the early termination provision in the lease, although it ceased efforts to collect after this action was filed.
As in Torres, the depreciation in Ms. Higginbotham's lease was not recouped in linear fashion, despite the fact that a vehicle's greatest depreciation occurs at the beginning of a lease. As in Torres, given that Ms. Higginbotham terminated her lease so early, the realized value on her vehicle exceeded the residual value by more than one thousand dollars. Accordingly, the argument that the early termination formula is unreasonable is without merit and Defendant is entitled to summary judgment.
In Torres, the court also considered whether a lessor was required to discount the residual value of the vehicle to present value when determining early termination charges. Id. at 1350-51. The court concluded that no such discounting was required, which decision was affirmed by the Eleventh Circuit.
The residual amount of the vehicle was part of the cost Plaintiff financed with his lease, much like principal on a loan. Plaintiff paid "rent charges," which are akin to interest, based on the adjusted capitalized cost of the vehicle which included its residual value. Like principal on a loan, Plaintiff is not entitled to a discount of this amount when he ends his lease with Banc One early. Plaintiff's argument is based on a fundamental misunderstanding of what the early termination charge is designed to accomplish. The leasing company is not being paid for the residual amount of the vehicle. It is being paid for the loss of value of the vehicle in excess of the depreciation payments made by the consumer prior to early termination. The total of the remaining depreciation payments must be added to the residual value to determine the total potential depreciation remaining. From this figure, the realized value is subtracted to get an approximation of the actual depreciation during the consumer's use of the vehicle for which he has not paid. Thus, the resulting figure closely corresponds to the actual damages suffered by the lessor due to early termination. The lessor is not being paid early for the residual value of the vehicle; it is being paid in full for the depreciation that has already occurred. The argument that the residual value should be reduced to present cash value reflects a fundamental misunderstanding of what is accomplished by the early termination formula.Id. at 1350-51. The formula at issue in the instant case is no different from that at issue in Torres, and accordingly, there is no basis in this case for concluding that Ford was required to discount residual value to the present value for purposes of determining the early termination fee.
Plaintiff's final claim under the CLA alleges that the residual value in her lease was not the best available estimate of the vehicle's value at lease end. Plaintiff, however, points to no requirement in the CLA that the residual value be the best available estimate. As found above, the fee was not unreasonable, and therefore, her claims must fail. Furthermore, to the extent Plaintiff Higginbotham is attempting to argue that the residual value contained in her lease with Ford was inflated she is prohibited from doing so. Defendant argued, without rebuttal from Plaintiff, that the issue of whether the residual value was inflated was conclusively decided by the Illinois state court and that Plaintiff voluntarily abandoned her appeal of that decision. Although she argues that this claim is not contingent on a finding of inflated residual value, as noted above, there is no independent requirement that a lessor use the best available method of calculating residual value, only that early termination charges, which generally are calculated based in part on the residual value, are reasonable.
This action was stayed pending the outcome of an action in which Ms. Higginbotham had intervened in the Circuit Court of Cook County, Illinois, also against Ford. Those proceedings terminated with a judgment in favor of Ford, which states as follows:
Ford Credit's Motion for Partial Summary Judgment on All Claims of Intervenor Carla Higginbotham Based on Alleged Inflation of Residual Value is Granted and judgment is entered in favor of Ford Credit on such claims. The Court finds that the residual value in Carla Higginbotham's lease was not inflated. . . .
Ms. Higginbotham appealed the ruling but dismissed her appeal voluntarily prior to any ruling.
Plaintiff also asserts a claim for unjust enrichment. This claim must fail as well. In the First Amended Complaint Plaintiff alleges that "Ford's liquidated damage clause results in a windfall to Ford whenever the residual value is more than the actual value of the automobile at the end of the lease." [First Amended Complaint at ¶ 80]. The Court has determined that the early termination provision in this case was not unreasonable. Furthermore, when Plaintiff terminated her lease early the residual value was not less than the realized value. Finally, Plaintiff did not pay Ford the amount it sought under the early termination provision, and accordingly, with regard to Plaintiff, Ford has not been unjustly enriched. Defendant is entitled to summary judgment on this claim as well.
In light of the Court's above rulings, the Court concludes that Plaintiff's third claim, for injunctive and declaratory relief must fail as well. The Court has concluded that the lease termination provisions did not violate the CLA, and accordingly, there is no basis for concluding that Plaintiff Higginbotham is entitled to declaratory or injunctive relief.
For the reasons stated herein, Defendant Ford's Motion for Summary Judgment as to Defendant Higginbotham is GRANTED. The Clerk is hereby directed to enter judgment accordingly.
DONE AND ORDERED.