59 F.R.D. 99 | E.D.N.Y | 1973
This action is brought under the provisions of the Truth-in-Lending Act (“Act”), 15 U.S.C. § 1601 et seq., Consumer Credit Protection Act of May 29, 1968, 82 Stat. 146, and Federal Reserve Regulation Z (12 C.F.R. § 226) promulgated thereunder, and also pursuant to Article 10, § 401 et seq. of the New York Personal Property Law, McKinney’s Consol.Laws, c. 41, under the pendent jurisdiction of this court.
Plaintiff Kristiansen, a credit customer of the defendant Mullins, a retail furniture chain store, undertakes to sue for herself and as a representative of other Mullins’ credit customers similarly situated, seeking redress for certain violations of the Act. Specifically, her complaint sets forth violations consisting of the following failures to disclose or reveal in Mullins’ credit contracts with its customers since July 1, 1969: (1) the finance charge as an annual percentage rate, computed in accordance with 15 U. S.C. §§ 1605 and 1606 as required by 15 U.S.C. § 1638(a)(7); (2) the sum of all periodic payments or to denote that sum “total of payments,” as required by 12 C.F.R. §§ 226.8(b)(3) and 226.8(c); (3) the information required by the Act and regulations issued thereunder in a clear manner, or to state all numerical amounts and percentages in at least 10-point type, .075-inch computer type, elite size typewritten numerals, or legible handwriting, as required by 15 U.S.C. § 1631(a) and 12 C.F.R. § 226.6(a); and (4) the language required by 12 C.F.R. § 226.8(b) and (c).
The purpose of the Truth-in-Lending Act is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” 15 U.S.C. § 1601. It applies to both open-end credit plans and closed-end credit sales, such as those herein involved.
Plaintiff alleges that Mullins is and has been a furniture seller and creditor within the meaning of the Act, and has since July 1, 1969 (the effective date of the Act) engaged in a large number of closed-end transactions (instalment credit sales) covered by the Act. She further claims that in all of these transactions from July 1, 1969 until the filing of the complaint on August 20, 1970 and
I
Mullins contends that Congressional intent to preclude class actions in all Truth-in-Lending cases is manifested by the Act’s award of damages, coupled with a reasonable attorney’s fee to the injured debtor, an incentive altogether sufficient to protect the small consumer.
Mullins further argues that a class action is not maintainable under Rule 23 because there is no showing that the class is too numerous to permit joinder, or that there are questions of law or fact common to the class, or that plaintiff’s claim is typical, or that she can adequately represent the class. Mullins claims additionally that a class action would be uneconomical, difficult to manage and in conflict with the basic purpose of Rule 23, citing as an example, Union Carbide & Carbon Corp. v. Nisley, 300 F.2d 561 (10th Cir. 1961), cert. denied, 371 U.S. 801, 83 S.Ct. 13, 9 L.Ed.2d 46 (1963). To proceed in a class action plaintiff must satisfy the four requirements of Rule 23(a)
“(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which*105 would as a practical matter be disposi-tive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.”
As to subdivision (A), it is questionable whether it was meant as a vehicle for class actions asserting the kind of monetary liability here in issue.
Referring to (b)(1)(B), we again fail to comprehend how separate actions would dispose of the interests of other non-member parties to the adjudication involving these contracts, or impair their ability to protect their interests, except insofar as one may claim that they would be bound by the princi-pie of stare decisis. This reason, however, not being uniquely relevant to a class suit as distinguished from many other actions, is not persuasive,
Subdivision (b)(2) is obviously inapplicable. We come, therefore, to subdivision (b)(3). A class action is authorized under (b)(3) if:
“the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superi- or to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.”
It has been acknowledged by the Advisory Committee that class action treatment is not necessarily required in situations to which the subdivision relates, although it may nevertheless be convenient and desirable.
Rule 23(b)(3) does not require that all members of the class be identically situated, and at this stage of the proceedings it is premature in view of the predominance of the common questions of law and fact, for the court to preclude the action from proceeding as a class action. See Green v. Wolf Corp., 406 F.2d 291, 298 (2d Cir. 1968), cert. denied, 395 U.S. 977, 89 S. Ct. 2131, 23 L.Ed.2d 766 (1969). The difference which may exist among the individual members of the class may, indeed, be very slight and, at best, will justify only a subdivision into separate classes rather than defeat the class action itself. Notice to members of the potential class under Rule 23(c) apparently will present no problem since the consumers are identifiable by the contracts. At all events, under the flexibility of Rule 23, the parties may, after completing their pretrial discovery proceedings, apply to the court for such relief as they may deem advisable, including an amendment of the court’s order under Rule 23(e)(4). In the meantime, the court concludes that the plaintiff can adequately represent the class, see Siegel v. Chicken Delight, Inc., 271 F.Supp. 722 (N.D.Cal.1967), that Mullins’ objections to a class suit have not been sustained, and that therefore plaintiff has satisfied the prerequisites set forth in Rule 23(a) and 23(b)(3).
II
Actions under the Act, according to Section 1640(e), must be brought “within one year from the date of the occurrence of the violation.” Since the complaint was filed on August 20, 1970, all contracts entered into after August 20, 1969 fall within the requisite period of limitations. Plaintiff, however, seeks to extend the class to those entering into contracts with defendant from July 1, 1969 to August 20, 1969. Plaintiff argues that a creditor’s obligation to a consumer to make the required disclosures occurs the moment the contract is entered into and continues as long as the contract is in effect. She further contends that this continuation of the failure to disclose results in a continuation of the consumer’s injury until the termination of the contract. Defendant, on the other hand, asserts that any violation that may have “occurred” more than one year from the institution of
In the present ease there is no showing that defendant continually reaped illegal benefits, or that plaintiff continually sustained injuries during the entire period covered by the contract, resulting from the failure to make the required disclosures. One may speculate that had disclosures been made to the plaintiff during the term of the contract, she, being thus made aware of the various credit terms available for comparison, might have terminated her contract with the defendant and purchased elsewhere on better terms. But this is sheer speculation. Assuming she could show any damages resulting from the continuing nature of the failure to disclose, it is hardly likely that such damages would exceed twice the amount of the defendant’s finance charges prescribed by Section 1640. [The violation in this case occurred when, upon the execution of the contract, the defendant failed to make the required disclosures and not, it seems to us, at any time thereafter^ There is nothing in either the letter or the spirit of the Act which imposes upon the creditor a continuing duty during the entire term of the contract to disclose what he has failed to disclose the first time the contract was executed. To reach a different conclusion would expand the class to those making the last instalment payment under the longest term sales contract entered into within one year after the filing of the complaint in August, 1970, and would thus increase the defendant’s liability beyond what may be described as a harsh penalty unrelated to damages suffered.
Ill
Plaintiff’s fourth, fifth and sixth causes of action are predicated upon the New York Retail Instalment Sales Act, § 402 of the New York Personal Property Law (“New York Act’’). Subdivision 3(b)(1) of this section (effective July 1,
Section 414(2) of the New York Act states: “In case of failure by any per-son to comply with the provisions of this article, the buyer shall have the right to recover from such person an amount equal to the credit service charge or service charge imposed and the amount of any delinquency, collection, extension, deferral or refinance charge imposed.”
These are state causes of action, pursuant to which plaintiff seeks additional damages under the pendent jurisdiction of this court. When the state and federal claims derive from a common nucleus of operative fact and the relationship between the federal claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional or federal case, the court clearly has pendent jurisdiction. United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); 3A Moore’s Federal Practice [f 18.07, at 81.
Defendant’s objections to the joinder of the state cause are apparently addressed to the absence of authority on the part of the plaintiff to institute a Truth-in-Lending class action in the New York courts as decided in Hall v. Coburn Corporation of America, 26 N.Y.2d 396, 311 N.Y.S.2d 281, 259 N.E. 2d 720 (1970). The threshold question is whether a federal court is bound to apply state decisional law barring the application of a class action to a state truth-in-lending claim properly before the federal court. In its resolution we are confronted with the principles enunciated in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938),
“ . . . When a situation is covered by one of the Federal Rules, the question facing the court is a far cry from the typical, relatively unguided Erie choice: the court has been instructed to apply the Federal Rule, and can refuse to do so only if the Advisory Committee, this Court, and Congress erred in their prima facie judgment that the Rule in question transgresses neither the terms of the Enabling Act nor constitutional restrictions.” 380 U.S. at 471, 85 S.Ct. at 1144.
And again:
“ . . . To hold that a Federal Rule of Civil Procedure must cease to function whenever it alters the mode of enforcing state-created rights would be to disembowel either the Constitution’s grant of power over federal procedure or Congress’ attempt to exercise that power in the Enabling Act.” Id. at 473-74, 85 S. Ct. at 1145.
In a concurring opinion Mr. Justice Harlan laid down a more stringent Erie test requiring an inquiry “if the choice of rule would substantially affect those primary decisions respecting human conduct which our constitutional system leaves to state regulation. If so, Erie and the Constitution require that the state rule prevail, even in the face of a conflicting federal rule.” Id. at 475, 85 S. Ct. at 1146. See Hart and Wechsler, The Federal Court and the Federal System 678 (1953).
The legal context of the federal and state Acts is the same. Under Hall v. Coburn, supra, only the method of enforcement in the state action differs. It is true that class action treatment enlarges the amount of the potential recovery against a defendant in a single action, and thus it could be contended that the choice of the federal rule infringed upon the substantive rights of a defendant. But such a conclusion would have to be predicated upon the premise that a delinquent defendant has a substantive right to be exempt from class actions or from the joinder in one action of similar claims, an assumption which we must reject.
The substantive law of the New York Act requires the same disclosures as the Federal Act. Enforcement of this State right by means of Federal Rule 23 does not affect any substantive defense a defendant might interpose to its enforcement.
IV
Finally, we turn to defendant’s motion to dismiss upon the ground that the complaint fails to state a claim upon which relief can be granted. Upon any such motion the court must take all well-pleaded allegations in the complaint as true and must deny the motion unless it appears that plaintiffs cannot possibly prove any facts in support of their claim. See Conley v. Gibson, 355 U.S. 41, 178 S.Ct. 99, 2 L.Ed.2d 80 (1957); Joseph v. Norman’s Health Club, Inc., Morse v. Same, Yost v. Same, Greco v. Same, 336 F.Supp. 307 (E.D.Missouri, 1971). No such inability appears in the present complaint.
The grounds for the motion are two-fold. First, defendant argues that any compliance with the spirit of the Act by a meaningful disclosure of credit terms, is sufficient to avoid liability, notwithstanding “the mere omission of certain technical language.” Congress did not, however, leave the implementation of meaningful disclosure to the creditor or the courts. Compliance with the specific provisions of the Act and the implementing Federal Reserve Board regulations is required. Since the complaint charges the defendant with specific violations of the Act, and the regulations, it states a claim for relief. See In the Matter of Zale Corporation, 4 CCH Consumer Credit Guide ¶[ 99,405 (Fed.Trade Comm.1971). Second, defendant contends that since the federal statute provides for more than twice the recovery permitted by the state statute, plaintiffs’ damage award as contemplated by the state statute would be included within the recovery authorized by the federal statute. Consequently, the defendant argues that plaintiffs would, if successful, recover twice if damages were permitted under both statutes; from this defendant argues that the state claim should be dismissed as duplicative. This argument relates not to the viability of the respective federal and state claims, but only to the amount recoverable should plaintiffs ultimately obtain a judgment in their favor. Whatever merit there may be to this contention,
Accordingly, defendant’s motion to dismiss is denied, and preliminarily this action will proceed as a class action as indicated above. However, before arriving at a final conclusion, the parties should proceed with all pretrial discovery proceedings, and the court will hold immediately thereafter, upon notice from counsel, a hearing to consider (1) the number of claimants included in the class; (2) whether plaintiff, Helen Kristiansen, can fairly and adequately protect the interests of the class; (3) the form, content, and administration of the class notice to be used, and the manner of its dissemination; (4) who should bear the cost of the notice and its dissemination; and (5) other matters that may be raised by counsel.
It is so ordered.
. Sections 1605, 1606, 1631(a) and 1638 (a) (7) of the Act and the regulations of the Federal Reserve Board set forth in Sections 226.6(a), 226.8(b)(3), and 226.-8(b) and (c) of the Code of Federal Regulations require the disclosures described in the complaint.
. Open-end credit sales present more difficult and complex problems for class actions than closed-end credit sales. See Ratner v. Chemical Bank New York Trust Company, 54 F.R.D. 412 (S.D.N.Y. 1972); Zachary v. Chase Manhattan Bank, N.A., 52 F.R.D. 532, S.D.N.Y., 1971; Wilcox v. Commerce Bank d/b/a BankAmericard, 55 F.R.D. 134 (D.Kansas, 1972) ; Shields v. First National Bank of Arizona, 56 F.R.D. 442 (D.Arizona, 1972); Goldman v. First National Bank of Chicago, 56 F.R.D. 587 (N.D. Ill., E.Div., 1972).
. Class actions have not been permitted in the following reported cases: Ratner v. Chemical Bank New York Trust Company, supra; Buford v. American Finance Company, 333 F.Supp. 1243 (N.D. Ga., 1971) ; Rogers v. Coburn Finance Corp. of DeKalb, 54 F.R.D. 417 (N.D.Ga., 1972); Allerton v. Century Credit Corporation, 4 CCH Consumer Credit Guide ¶ 99,271 (S.D.Fla., April 12, 1971); Mourning v. Family Publications Service, Inc., 4 CCH Consumer Credit Guide ¶ 99,632 (S.D.Fla., November 27,1970, rev’d on other grounds, 449 F.2d 235 (5th Cir. 1971), rev’d on other grounds 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318, 1973); Gerlach v. Allstate Insurance Company, 338 F.Supp. 642 (S.D.Fla., 1972); Shields v. Valley National Bank of Arizona, 56 F.R.D. 448 (D.Ariz., 1972); Shields v. First National Bank of Arizona, supra; Wilcox v. Commerce Bank d/b/a Bank-Americard, supra; Garza v. Chicago Health Clubs, Inc., 56 F.R.D. 548 (N.D.Ill., 1972); Goldman v. First National Bank of Chicago, supra; Kenney v. Landis Financial Group, Inc., 349 F.Supp. 939 (N.D.Iowa 1972); Kriger v. European Health Spa, Inc. of Milwaukee, Wisconsin, 56 F.R.D. 104 (E.D.Wis., 1972). Class actions have been permitted in the following reported cases: La Mar v. H & B Novelty & Loan Company d/b/a H & B Loan Company et al., 55 F.R.D. 22 (D. Ore., 1972); Smith v. International Magazine Service of Mid Atlantic, Inc., 4 CCH Consumer Credit Guide ¶ 99,249 (N.D.W.Va., October 29, 1971); Martin and Alexander v. Family Publications Service, Inc., 4 CCH Consumer Credit Guide ¶ 99,267 (D.Vt., June 30, 1970) ; Katz v. Carte Blanche, 53 F.R.D. 539 (W.D.Pa., 1971); Berkman v. Westinghouse Electric Corporation, 4 CCH Consumer Credit Guide ¶ 99,270 (N.D.Ill., June 25, 1971); Richardson v. Time Premium Company, 4 CCH Consumer Credit Guide ¶ 99,273 (S.D.Fla., February 4, 1971); Joseph v. Norman’s Health Club, Inc., 336 F.Supp. 307 (E.D.Mo., 1971); Douglas v. Beneficial Finance Co. of Anchorage et al., 334 F.Supp. 1166 (D.Alaska, 1971), rev’d on other grounds, 469 F.2d 453 (9th Cir. 1972).
. Rule 23(a) : “One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.”
. Rule 23(b) :
“An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
(1)the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (O) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.”
. See Advisory Committee’s Note to Rule 23, 39 F.R.D. 100 (1966). Ratner v. Chemical Bank New York Trust Company, 54 F.R.D. at 415, and n. 5; Note, Proposed Rule 23: Class Actions Reclassified, 51 Va.L.Rev. 629, 646-47 (1965) ; Travers & Landers, The Consumer Class Action, 18 Kan.L.Rev. 811, 823-24 (1970). Rule 23(b)(1)(A) refers to “incompatible standards of conduct for the party opposing the class.” It does not seem intended to cover varying damage suits.
. “It may not be irrelevant to recall that as a practical matter countless people are being bound every day a a result of stare decisis following lawsuits in which they did not participate.” Frankel, Some Preliminary Observations Concerning Civil Rule 23, 43 F.R.D. 39, 46 (1967).
.“Subdivision (1) (3). In the situations to which this subdivision relates, class-action treatment is not as clearly called for as in those described above, but it may nevertheless be convenient and desirable depending upon the particular facts.” Advisory Committee’s Note to Rule 23, supra, at 102.
. “The basic public problem is the heavy cost of credit to consumers.” Hall v. Coburn Corporation of America, 26 N.Y. 2d 396, 403, 311 N.Y.S.24 281, 285, 259 N.E.2d 720, 723 (1970).
. Discarding the “cause of action” test of Hurn v. Oursler, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148 (1938), the court said : “. . . The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff’s claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.” United Mine Workers of America v. Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138.
. The rule enunciated in Erie applies equally to pendent jurisdiction as to diversity jurisdiction. See Mintz v. Allen, 254 F.Supp. 1012 (S.D.N.Y.1966); 3 Moore’s Federal Practice ¶ 0.305, at 3056, and Briskin v. Glickman, 267 F.Supp. 600 (S.D.N.Y.1967).
. In Hanna the Supreme Court abandoned the “outcome-determinative” test of Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), noting that every procedural variation is “outcome determinative.”
. The application of Rule 23 is simply a representative method of enforcing rights and privileges; it does not govern the nature and extent of information which must be disclosed by creditors in retail instalment contracts. Nor does Rule 23 (b) (3) bind as members of the class those who request to be excluded. See Rule 23(c) (2) ; and in this circuit notice is required in all class actions as a matter of due process. Eisen v. Carlisle & Jaequelin, supra, 391 F.2d at 564; Fowles v. American Export Lines, Inc., 300 F.Supp. 1293, 1295 (S.D.N.Y.1969).
. Insofar as it is suggested that this court should refrain from exercising its pendent jurisdiction altogether in this case, and thereby avoid any collision with New York State law, we note that Hall presented a somewhat different factual pattern and the suit was instituted in the State courts before July 1, 1969, the effective date of both the Federal Act and the State amendment, and hence before there was any patent basis for pendent jurisdiction. Moreover, while a class action may not be authorized in State court for truth-in-lending cases, that court does permit joinder of claims in order to avoid the expense of proving separate claims.
. It should be noted that since the State statute does not provide a floor or ceiling on the recovery, the amount recoverable under this statute may be less or greater than the amount recoverable under the Federal statute.
