Opinion
Case No. 5:98 CV 2513.
January 27, 2000.
MEMORANDUM OF OPINION AND ORDER
In 1995 and again in 1998, plaintiff Myrtle Martin entered installment contracts with defendant Rose Hill Securities Company ("Rose Hill") for pre-need burial goods and services. Martin alleges that Rose Hill's inclusion of processing fees in the principle balance of these contracts violated the Ohio Retail Sales Installment Act, the Ohio Consumer Sales Practice Act and the Truth-in-Lending Act ("TILA"), and that Rose Hill's business practices constitute fraud. The Court's original jurisdiction over the subject matter jurisdiction of this case is based on the presence of only one federal claim, i.e., the TILA claim.
Martin moves for partial summary judgment on all claims except the fraud claim (Doc. No. 5). Rose Hill moves for summary judgment on all claims (Doc. No. 7). For the following reasons, defendant's motion for summary judgment is GRANTED with respect to the TILA claim, and the remaining state claims are DISMISSED WITHOUT PREJUDICE.
I. Facts
In 1995, Myrtle Martin entered a contract with Rose Hill for the purchase of a burial plot and a granite memorial at Rose Hill Burial Park. Under the terms of the contract, Martin was required to make 48 monthly payments of $33.24. The total sales price, including finance charges, was $1595.52. A processing fee of $45 was added to the "principle balance" of the contract, upon which Martin paid interest.
In 1998, near the fulfillment of Martin's obligations under the 1995 contract, Rose Hill solicited Martin to purchase additional goods and services. On February 10, 1998, Martin entered a second installment contract to purchase pre-need opening and closing services. The balance remaining on the 1995 contract was transferred to the 1998 contract, Martin was credited with $834.04 of equity, and the 1995 contract was "voided" by the Rose Hill representative. The 1998 contract provided for monthly payments of $33.55 for a total payment $1207.80. The 1998 contract contained a $55 processing fee which Rose Hill included as a part of the "principle balance," upon which Martin paid interest.
The contract contained a liquidated damages clause, stating:
Upon default of any amounts due Seller from Purchaser for a period of 30 days or longer . . . Seller shall have the right to cancel all or any party of this agreement, as related to any unused Interment Rights, and to retain all monies paid as liquidated damages and not as a penalty."Complaint, Exhibit 2, ¶ 10. The contract also provided:
If this Agreement is canceled, Seller may retain as liquidated damages al monies paid hereunder to Seller allocable to Interment Rights, which shall be Seller's exclusive remedy against purchaser.Id., ¶ 11. Both contracts are retail installment contracts that fall under the auspices of TILA.
II.
Martin claims that the imposition of processing fees violates TILA. 15 U.S.C. § 1601 et seq. The Federal Reserve Board has implemented TILA through Regulation Z, at 12 C.F.R. § 226 et seq. TILA requires that a creditor disclose several elements of a credit transaction in very specific ways. These elements include the amount financed, the finance charge and the annual percentage rate. TILA defines the amount financed as
(1) Determining the principal loan amount or the cash price (subtracting any down payment); (2) adding any other amounts that are financed by the creditor and are not part of the finance charge; and 3) Subtracting any prepaid finance charge.12 C.F.R. § 226.18(b).
TILA defines `cash price' as "the price at which a creditor, in the ordinary course of business, offers to sell for cash the property or service that is the subject of the transaction." 12 C.F.R. § 226.2(9). This includes "the price of accessories, services related to the sale, service contracts and taxes and fees for license, title, and registration" but "does not include any finance charge." Id.
`Finance charge' is defined as "the cost of consumer credit as a dollar amount." 12 C.F.R. § 226.4(a). It must include "any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction." Id.
Martin argues that the processing fees should have been disclosed as a finance charge — not as an element of the amount financed. Rose Hill counters that the processing fee was part of the cash price because it was imposed on cash as well as credit transactions. Thus, the processing fee was not "incident to or a condition of the extension of credit" as a finance charge is defined under TILA.
Although Rose Hill uses the same paperwork and charges the same fee for cash and credit transactions, Martin contends that it is the nature of the work performed that dictates whether a charge is incident to the extension of credit, not whether a creditor has elected to charge cash purchasers the same fee for different activities. Such differences in work include computation of the finance charge, recording the down payment and unpaid balance, and the preparation of TILA disclosures (the finance charge, the amount financed, the APR). According to Comment 4(a)(ii)(B) of the Official Staff Commentary of Regulation Z, "[f]ees for preparing a Truth in Lending disclosure statement, if permitted by law" are part of the finance charge and must be included as such. Therefore, Martin continues, part of the "processing fee" charged by Rose Hill was charged for preparation of TILA disclosures and, as such, must be disclosed as a finance charge rather than a part of the amount financed.
In support, Martin relies on an unreported case, Layell v. Home Loan and Investment Bank, F.S.B., Civil Case No. 3:98cv652, slip opinion, (E.D.Va. Apr., 22, 1999). In Layell, the district court reversed and remanded a case in which a bankruptcy court held that preparation of TILA documents in a real estate transaction could be excluded under the "lump sum" provision of Comment 4(c)(7)(2) of the Official Staff Commentary. Comment 4(c)(7)(2) provides:
If a lump sum charged for several services includes a charge that is not excludable [from the finance charge] a portion of the total should be allocated to that service and included in the finance charge. However, a lump sum charged for conducting or attending a closing (for example, by a lawyer or a title company) is excluded from the finance charge if the charge is primarily for the services related to items listed in § 226.4(c)(7) [which relate to real estate transactions] (for example, reviewing or completing documents), even if other incidental services such as explaining various documents or distributing funds for the parties are performed. The entire charge is excluded even if a fee for the incidental services would be a finance charge if it were imposed separately.Id. The district court, assuming that the TILA documents were not prepared free of charge, reversed and remanded the case to the trial court to determine which part of the lump sum had been paid for preparation of TILA documents. According to Martin, since part of the processing fee was for preparation of TILA documents, at least that part of the fee should be included in the finance charge under Comment 4(c)(7)(2).
The Court finds that the lump sum exception applies here. The actual TILA disclosures in the instant case are minimal (the same form can be used for both cash and credit transactions). In fact, Rose Hill was hard put to quantify the precise amount of each document preparation fee that is included in the whole. Defendant's Response to Interrogatory Nos. 20, 21. Martin makes no claim that the preparation of TILA disclosures was the most significant or even a large part of the document fee. According to the lump sum exception, even if a fee for incidental services would be considered a finance charge if imposed separately, as an incidental part of a lump sum it may be properly excluded from the finance charge. Rose Hill's charge for TILA disclosures, which consist of filling out one or two lines on the contract, appear to be merely an "incidental" part of the lump sum processing fee, and as such are exempt under the lump sum exemption. Accordingly, summary judgment is granted with respect to the TILA claim.
Because the sole federal claim in this five-count complaint has been dismissed, all the remaining claims are state law claims. Once federal issues have been dismissed from a case before trial, a district court should decline to exercise pendent jurisdiction over the state law claims unless unusual circumstances exist. See Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d 1244, 1254-55 (6th Cir. 1996) citing United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); 28 U.S.C. § 1367(c)(3). No unusual circumstances exist in this case. Accordingly, the Court declines to exercise pendent jurisdiction over the remaining state law claims.
III.
For these reasons, the Court grants summary judgment as to the Truth in Lending Act claim, which is dismissed with prejudice. The remaining state claims are dismissed without prejudice.
IT IS SO ORDERED.
JUDGMENT ENTRY
For the reasons stated in the Memorandum of Opinion and Order filed contemporaneously with this Judgment Entry, and pursuant to Federal Rule of Civil Procedure 58, it is hereby ORDERED, ADJUDGED AND DECREED that the above-captioned case is hereby terminated and dismissed as final.
IT IS SO ORDERED.