Opinion
No. 99 C 3449
February 10, 2000
MEMORANDUM ORDER AND OPINION
After failing to find financing for a vehicle purchased by Elwood Leguillou, Lynch Ford repossessed the vehicle. In response, Leguillou filed the instant six Count Complaint. In his Complaint, Leguillou alleges: a violation of the Truth in Lending Act (Count I), a violation of the Equal Credit Opportunity Act (Count II), a violation of the Fair Debt Collection Practices Act (Count III), a violation of the Illinois Commercial Code (Count IV), a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Count V), and a violation of the Uniform Deceptive Trade Practices Act (Count VI). Pursuant to Federal Rule of Civil Procedure 12(b)(6) defendant Lynch Ford has brought a Motion to Dismiss Counts I, II, and III of the Complaint. For the reasons set forth below, the motion is granted. Since we decline to exercise jurisdiction over the state law claims in Counts IV, V, and VI, this case is hereby dismissed.
BACKGROUND
For the purposes of this motion the following facts, which come from Leguillou's Complaint, are taken as true. In the beginning of March of 1999, Leguillou saw an advertisement placed by Lynch Auto Group in the Sun Times offering instant credit. The advertisement indicated that "we can help almost any credit situation." On March 12, 1999, Leguillou went to the Lynch Auto Group and inquired about purchasing a Chrysler. After a credit check, the Lynch representative told Leguillou that he did not qualify to purchase a Chrysler due to his poor credit history. The Chrysler representative suggested that Leguillou return later to speak with a Ford salesman.
On March 19, 1999, Leguillou returned to Lynch Auto to speak to Mr. Mayuga, a Ford representative. Mayuga told Leguillou of a Lynch special offer of "0.9% financing or $1,000." Leguillou responded that, because of his poor credit rating, he did not believe he would qualify for 0.9% financing. Mayuga then offered financing at 11.9%. Leguillou then looked for a car and found a 1999 Ford Ranger priced at $15,565.00. Mayuga told Leguillou that "If we shake, we got a deal." They shook hands, and then Leguillou went to speak with the finance manager at Lynch.
That same day Leguillou signed a retail installment contract which indicated that "by signing this contract, you choose to buy the vehicle on credit under the agreements on the front and back of this contract." The retail installment contract stated an annual percentage rate of 11.90%, an amount financed of $15,943.57, and a finance charge of $5,392.43.
Leguillou also signed the vehicle purchase order. The back of the vehicle purchase order contained the following paragraph.
Failure to Obtain Proposed Financing. Seller and Purchaser intend that the retail installment contract for ordered motor vehicle executed between Seller and Purchaser will be assigned to a sales finance agency of the Seller's choice. If financing cannot be obtained within 5 business days for purchaser according to the proposals in the retail installment contract executed between Seller and Purchaser, either Seller or Purchaser may cancel the agreement shown on the face of this Order and the retail installment contract. In the event of such a cancellation if the vehicle hereunder has been delivered to Purchaser, Purchaser shall, within 2 days of such notice, return the motor vehicle to Seller's place of business and Seller shall return to the purchaser all of the purchaser's deposit less Seller's cost of repairing damages occurring to the vehicle while in the Purchaser's possession and this contract shall then be null and void.
After finishing the paperwork, the finance manager told Leguillou that the deal was completed and the car belonged to him. Leguillou suggested that he leave the truck at Lynch until April 1, 1999, because he would not have a parking space. After much encouragement from Mayuga, Leguillou took the truck with him.
On March 27, 1999, Leguillou received a letter from Fairlane Credit, LLC dated March 24, 1997. This letter informed Leguillou that financing was not available at 11.9%, but approval could be granted on other terms. Leguillou was instructed to pick up information about a different interest rate at the place where he purchased the vehicle. The letter disclosed that the credit agency could not discriminate against applicants on the basis of race, color, religion, nation origin, sex, marital status, or age. Further, the letter informed Leguillou that he had a right to a written statement of the reasons for Fairlane's decision to deny him credit and informed Leguillou of the credit reporting agencies which it used to get Leguillou's credit history.
Lynch demanded the return of the vehicle. Leguillou refused to return the vehicle, and Lynch Ford repossessed the vehicle from his place of business on April 18, 1999.
Leguillou thereafter filed a six Count Complaint. In Count I he alleges a violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1638 (a)(4), and Regulation Z, 12 C.F.R. § 226.5 and 226.8(b). In Count II he alleges a violation of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 (d), and Regulation B, 12 C.F.R. § 202.9. In Count III Leguillou alleges a violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 (6)(A). In Count IV he alleges a violation of Section 9-503 of the Illinois Commercial Code, 810 ILCS 5/9-503. In Count V Leguillou alleges a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/10, and a violation of the Illinois Constitution. In Count VI he alleges a violation of the Uniform Deceptive Trade Practices Act, 815 ILCS 505/2.
DISCUSSION
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) tests whether the plaintiff has stated a claim, not whether the plaintiff will prevail on the merits. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). In deciding a motion to dismiss, the court must assume all facts in the complaint to be true, construe the allegations liberally, and view the allegations in a light most favorable to the plaintiff. Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645, 648 (7th Cir. 1997). The court may dismiss a complaint for failure to state a claim under Rule 12(b)(6) only if it is clear that no relief could be granted under any set of facts consistent with the allegations. Hishon v. King Spalding, 467 U.S. 69, 73 (1984).
I. Count I: The Alleged Violation of the Truth in Lending Act
Leguillou alleges that Lynch violated TILA because the original disclosed credit terms were not implemented. Since they were never implemented, Leguillou argues that the terms could not have been accurate.
Congress enacted TILA "to assure meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601 (a); Brown v. Marquette Sav. Loan Ass'n, 686 F.2d 608, 612 (7th Cir. 1982). Creditors must clearly and accurately reveal to consumers the cost of credit, including all finance charges. 15 U.S.C. § 1605, 1638, 1632; 12 C.F.R. § 226.18 (1995). The stringent disclosure requirements are designed to prevent creditors from circumventing TILA's objectives by burying the cost of credit in the price of the goods sold. Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 364, 93 S.Ct. 1652, 1658, 36 L.Ed.2d 318 (1973). The disclosures made prior to the consummation of a credit transaction must accurately reflect the cost of the transaction. 15 U.S.C. § 1601, 1638; 12 C.F.R. § 226.17 (b); Jasper v. New Rogers Pontiac. Inc., No. 99 C 5195, 1999 WL 1024522 (N.D. Ill. Nov. 5, 1999).
Defendant contends that all of the disclosures were accurate when Leguillou signed the contract. This contention means that we must determine when the parties formed a binding credit transaction. Quake Const. Inc., v. American Airlines, Inc., 141 Ill.2d 281, 288, 565 N.E.2d 990 (1990). Under the facts here, the plaintiff was contractually bound by the price and credit terms stated in the retail installment contract upon signing the retail installment contract. When Leguillou left the dealership with the automobile, he had a right to possession of the automobile. Leguillou would have become the owner when he paid for the car.
The provision of the retail installment contract at issue here allowed either party to void the agreement in the event that financing could not be obtained. That provision is a condition subsequent to the contract. The contract was not conditional on acquiring financing, however, either party had the option of canceling the contract if financing could not be obtained.
Disclosures must be accurate at the time a deal is consummated.Graves v. Tru-Link Fence Co., 905 F. Supp. 515, 520 (N.D. Ill. 1995). Thus, the required disclosures here must have been accurate when Leguillou signed the retail installment contact. The disclosures were accurate when Leguillou signed the contract. Leguillou does not allege that the disclosures would have been inaccurate if he had been offered credit at 11.9%. Thus, there is no TILA violation.
Plaintiff relies on Judge Holderman's decision in Williams v. Thomas Pontiac to show that a factually similar claim has survived a motion to dismiss. Williams, No. 99 C 882, 1999 WL 787488 (N.D. Ill. 1999). Williams signed an agreement and took possession of an automobile. The dealership was unable to obtain financing, but it had inaccurately informed Williams that her financing had been approved. Further, the provision in Williams' contract indicated that the dealership must notify her of a failure to obtain financing within three days, but the dealership took longer to inform her of the failure to obtain credit. The time lag between when the dealership contractually indicated that it would inform Williams of its failure to obtain financing and when the dealership actually informed Williams was critical to Judge Holderman's determination that sufficient facts were alleged to defeat a motion to dismiss.
The facts alleged in the instant Complaint show that Leguillou was treated differently than Williams. In this case, Fairlane made its decision not to extend Leguillou credit within the contractually mandated period of five business days. Further, Leguillou was well aware of his potential credit difficulties. Based on the facts alleged in the Complaint, no TILA violation occurred.
Plaintiff entered into a fully binding contract with Lynch Ford. A condition subsequent was used to cancel the contract. This set of facts does not undermine the validity of the original TILA disclosures. Accurate disclosures do not become violations because they are rendered inaccurate by subsequent events. "If information disclosed in accordance with [TILA] is subsequently rendered inaccurate as the result of any act, occurrence, or agreement subsequent to the delivery of the required disclosures, the inaccuracy resulting therefrom does not constitute a violation of this part." 15 U.S.C. § 1634. Since the disclosure was accurate when the contract was completed, the lack of available financing at 11.9% does not render the disclosures actionable. Thus, Leguillou fails to state a claim under TILA and this Count is dismissed.
II. Count II: The Alleged Violation of the Equal Credit Opportunity Act
Leguillou alleges that Lynch violated ECOA because Lynch never issued a disclosure explaining Fairlane's decision not to extend credit. Under ECOA, every applicant who receives an adverse action on a credit decision is entitled to a statement of the reasons for such action. 15 U.S.C. § 1691 (d)(2). Since Fairlane's disclosure satisfied any duty to disclose, this count is dismissed.
Lynch qualifies as a creditor under ECOA, and must comply with some of the mandates. "Any person who regularly arranges for the extension, renewal, or continuation of credit" is charged with issuing a statement to applicants explaining why credit was denied. 15 U.S.C. § 1691 a(e). The Official Staff Interpretation to ECOA indicates that "for certain purposes, the term `creditor' includes persons such as real estate brokers who do not participate in credit decisions but who regularly refer applicants to creditors or who select or offer to select creditor to whom credit requests can be made. These persons must comply with § 202.4, the general rule prohibiting discrimination, and with § 202.5(a), on discouraging applications." 12 C.F.R. pt. 202 Supp. I, Official Staff Interpretations. Lynch Ford regularly refers applicants to creditors and selects creditors to whom credit applications can be made. Thus, Lynch is included in the definition of creditor found in ECOA. However, no provision of ECOA requires a creditor who does not participate in the credit decision to separately report to the applicant.
Further, the ECOA states that "where a creditor has been requested by a third party to make a specific extension of credit directly or indirectly to an applicant, the notification and statement of reasons required by this subsection may be made directly by such creditor, or indirectly through the third party, provided in either case that the identity of the creditor is disclosed." 15 U.S.C. § 1691 (d)(4). This section foresees that multiple entities may be involved, but only requires one notification to the applicant.
Thus, we hold that if only one credit agency is used, only one notification and one statement of reasons is necessary to satisfy the ECOA reporting requirement. Leguillou was informed of the credit decision by Fairlane. Thus, Lynch's duty was satisfied and Count II is dismissed because it fails to state a claim upon which relief can be granted.
III. Count III: The Alleged Violation of the Fair Debt Collection Practices Act
Leguillou alleges that Lynch violated the FDCPA when it repossessed his vehicle without holding a security interest. This claim is dismissed because Lynch did not rely on a security interest. Lynch Ford was the owner and had a contractual right to possess the vehicle after the contract was canceled.
The FDCPA was enacted to eliminate abusive debt collection practices by debt collectors. 15 U.S.C. § 1692 (e). The FDCPA sets standards for interactions between debtors and collectors. At issue here is the FDCPA prohibition against repossessing property if "there is no present right to possession of the property claimed as collateral through an enforceable security interest." 15 U.S.C. § 1692f(6)(A).
Leguillou alleges that a debt was created by the original contract. Even if no debt was legally created, Leguillou argues that he believed Lynch's representations that a contract was fully formed. Further, Leguillou alleges that the repossession agency is governed by the FDCPA and that Lynch is liable for the actions of the repossession agency under general vicarious liability principles. Plaintiff is unable to cite any precedent applying this novel interpretation of the FDCPA.
According to the contract signed by Leguillou, Lynch could cancel the contract if financing could not be obtained. Leguillou had a contractual obligation to return the vehicle to Lynch within two days of receiving notice of the cancellation. Leguillou does not argue that the contractual provision was invalid. Thus, Lynch's right to the vehicle and its ownership of the vehicle is undisputed.
Leguillou appears to be arguing that Lynch did not have a right to repossess the vehicle because Fairlane's letter indicated that other terms might be available. This does not change the fact that, once the credit application was rejected, Lynch had a contractually derived right to cancel the contract. Leguillou no longer had any legal interest in the vehicle. Lynch was not exercising a creditor's right to repossess a vehicle which secured a debt; Lynch was only repossessing its own vehicle. The FDCPA was meant to protect the rights of debtors. However, since Leguillou never actually owned the car, he never became a "debtor" for FDCPA purposes.
In Williams, Judge Holderman considered a similar claim and found that the dealership was not responsible for the "allegedly illegal acts of its debt-collector agent who reposed her automobile. Williams, 1999 WL at *4. Leguillou distinguishes Judge Holderman's analysis by citing two cases which he claims support vicarious liability in this situation. The first case,Simpson v. Merchants Recovery Bureau, Inc. held that a sua sponte summary judgment was improper because the plaintiff did not have notice or an opportunity to respond. Simpson, 171 F.3d 546 (7th Cir. 1999). Plaintiff argues that this holding means that we should not dismiss his vicarious liability claims without allowing him an opportunity to present evidence supporting the theory. We are not dismissing Leguillou's claim on vicarious liability grounds, however, we are dismissing it because this situation is not governed by the FDCPA.
The second case cited by Leguillou is Randle v. G.C. Services, L.P., 25 F. Supp.2d 849 (N.D. Ill. 1998). In Randle, Judge Gettleman held that agency principles apply to hold a limited partner of a debt collection agency liable. Neither case cited, nor any precedent this Court was able to find applies the FDCPA in a situation similar to the instant case.
Lynch Ford owned the automobile. Since they were not recovering property serving as a security interest, the FDCPA provides plaintiff no relief. No set of facts could exist which would state a FDCPA claim. Thus, Count III is dismissed.
CONCLUSION
The 12(b)(6) Motion to Dismiss brought by Lynch Ford is granted as to Counts I, II, and III because those Counts fail to state a claim upon which relief can be granted. Because we decline to exercise jurisdiction over the state law claims contained in Counts IV, V and VI, we dismiss those Counts. This case is terminated.
It is so ordered.