362 F.3d 209 | 3rd Cir. | 2004
SCHW ARZER, District Judge [*]
BRIAN S. MILLER; MICHAEL ROSE;
MICHELLE ROSE, H/W, ON BEHALF
OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED DARRYL J. MAY, ESQ. (Argued)
RAYMOND A. QUAGLIA, ESQ.
v. AMY B. CARVER, ESQ. Ballard Spahr Andrews & Ingersoll, LLP NISSAN MOTOR ACCEPTANCE 1735 Market Street, 51st Floor CORP. Philadelphia, PA 19103 Attorneys for Appellant/Cross-Appellee,
NMAC
Nissan Motor Acceptance Corporation ("NMAC"), CARY L. FLITTER, ESQ. (Argued) Lundy, Flitter, Beldecos & Berger, P.C. Appellant in No. 02-2432 450 N. Narberth Avenue Narberth, PA 19072
MICHAEL D. DONOVAN, ESQ.
Brian S. Miller; Michael Rose; and Donovan Searles, LLC Michelle Rose, 1845 Walnut Street Philadelphia, PA 19103 Appellants in No. 02-2573 Kirby, McInerney & Squire, LLP 830 Third Avenue
Appeal from the United States District Court [*] The Hon. William W. Schwarzer, for the Eastern District of Pennsylvania United States District Judge for the (Civ. No. 99-cv-04953) Northern District of California, sitting by District Judge: Hon. Stewart Dalzell designation. well as its disclosure requirement. [1] New York, NY 10022 Attorneys for Appellees/Cross- The district court agreed with the Appellants, lessees’ disclosure claims. It also agreed Miller and Rose that the method for calculating an early
termination charge that was contained in the leases violated the CLA reasonableness requirement. However, it disagreed that
OPINION the early termination charge actually paid violated the CLA’s reasonableness requirement.
McKEE, Circuit Judge. We agree that the leases violated In these cross-appeals, we are the CLA ’s disclosure requirements presented with a number of questions because the method for determining the concerning certain requirements of the early termination charges actually assessed Consumer Leasing Act (“CLA”), 15 was not contained in the respective leases. U.S.C. §§ 1667-1667e, as they apply to We also agree that the method for automobile leases. As we will explain in determining the early termination charges some detail, when the plaintiffs/lessees actually assessed did not violate the CLA’s terminated their leases prior to the reasonableness requirement. However, expiration of the terms of their respective since we conclude that the lessees had no leases, the lessor required that they pay the standing to challenge the early termination balance of the remaining monthly charge that was never applied to them, we payments due under their leases rather than will not address lessees’ challenge to that charge them the early termination fee in formula. accordance with a formula contained in I. BACKGROUND their leases. The lessees paid that charge Brian Miller executed a 36-month and then instituted suit claiming that the closed-end lease with Nissan Motor method for determining the early Acceptance Corporation (“NMAC”) for a termination charges they actually paid 1997 Nissan Altima on December 26, violated the disclosure requirements of the 1996. Pursuant to that lease he agreed to CLA § 1667a. The lessees also claimed that the early termination charge they actually paid violated the substantive [1] The lessees also asserted a number of reasonableness requirements of CLA § state law claims against the lessor. 1667b(b), and that the method for However, as will be explained, those calculating the early termination charge claims are not before us because the contained in their leases violated the district court entered judgment under substantive requirements of the CLA as Fed.R.Civ.P. 54(b) as to the CLA claims and suspended adjudication of the state law claims.
make monthly payments of $267 through and I have given you December 1999. Michael and M ichelle [NMAC] 30 days written Rose executed a 39-month closed-end notice. Except as otherwise lease with NMAC for a 1996 Nissan provided in paragraph 22 Altima GXE on March 25, 1996. They [ c o n c e r n i n g N M A C ’ s agreed to make monthly payments of acceptance of insurance $237.87 through June 1999. [2]
settlement if the vehicle is Both leases contain a “Paragraph lost through theft o r 18,” captioned: “Early Termination destruction], if I terminate Liability,” which provides in relevant part: early, in addition to the
At any time after 12 amounts indicated in items a monthly payments have through d of paragraph 17 been paid, I [the lessee] may [“Termination Liability”], I terminate this lease on the must pay you an Early due date of a monthly lease Termination Charge which payment if this lease is not is determined as follows: in default as disclosed in First, all monthly lease paragraph 19 [“Default”], payments, which under the
terms of this lease, are not yet due and the residual value of the Vehicle are [2] “A closed-end lease is a lease in which discounted to present value the lessee is not responsible for the by the Constant Yield difference if the actual value of the vehicle Method at the rate implicit at the scheduled end of the lease is less in this lease (the “Adjusted than the residual value, but the lessee may Lease Balance”). This be responsible for excess wear and excess amount is then reduced by mileage charges and for other lease the Realized Value (and requirements.” Applebaum v. Nissan insurance) proceeds which Motor Acceptance Corporation , 226 F.3d you receive for the Vehicle. 214, 216 n.1 (3d Cir. 2000) (citation and . . . internal bracket and quotations omitted). In contrast, an open-end lease “is one in
NMAC refers to the formula in Paragraph which the lessee’s liability at the end of the 18 as either the “paragraph 18 formula,” or lease term is based on the difference the “early termination formula.” between the residual value and its realized Miller and the Roses claim that they value.” Id . at 223. The residual value of a made inquiries and took actions with vehicle is the projected value of the respect to early termination of their vehicle at the end of the lease that is respective leases. Miller claimed that he assigned at the beginning of the lease. Id. telephoned NM AC in March 1999 to at 222 (citation omitted). request the amount he would owe if he Paragraph 18 would have been. Miller terminated his lease early. [3] Miller said
paid this lesser charge. that a NMAC representative gave him a The Roses terminated their lease on figure so high that he gave no March 23, 1999, less than three months c o n s i d era tion w hatev er to e a r l y before its scheduled expiration, by turning termination. However, on March 4, 1999, over their leased Nissan vehicle to a NMAC mailed Miller a letter which Mitsubishi dealership as part of a trade-in contained a quote that was considerably for a Mitsubushi vehicle. NMAC did not lower than the phone quote. The letter apply the Paragraph 18 formula to the stated that paying all of the remaining Roses either. Rather, it only charged the payments that would have been due under sum of their two remaining monthly the lease – $3,064.81, including taxes and payments, which was less than the amount disposition fees – would be a less they would have owed under the Paragraph expensive option for Miller. 18 formula. The Roses paid this charge
Dissuaded in part by what he “under protest.” It is agreed that the considered two pricey early termination method of paying early termination quotes, Miller said that he decided not to liability by paying only the amount of the terminate his lease until November 1999. remaining monthly payments is not At that time, Miller terminated his lease in contained in either lease agreement. the process of trading-in the leased vehicle Miller and the Roses (“the for a new lease on another Nissan vehicle. Plaintiffs”) claim that NMAC uses inflated However, NM AC did not apply the residual values for its leased vehicles. Paragraph 18 formula to that trade-in. They contend that if NMAC had used Instead, NM AC charged Miller only his bona fide residual values and charged final month’s lease payment, which was them for early termination pursuant to the less than the charge derived under Paragraph 18 formula, they would have
been charged less than they were actually charged, or nothing at all, for early termination. Their theory about the [3] NM AC claims that Miller’s call was “a inflated residual values is as follows: lawyer-staged phone call rather that a bona They submit that the early fide early termination request.” NMAC’s termination charges under the Paragraph Reply Br. and Answering Br. as Cross- 18 formula are astonishingly high in part Appellee, at 1. NMAC further claims that because of NMAC’s undisclosed practice Miller never had any intention of of using inflated or “subvented” residual terminating his lease in March of 1999 and values in calculating lease payments. 4,5 that Miller made the phone call to NMAC from his lawyer’s office for litigation purposes only. See NMAC’s Reply Br. at They claim that the relationship between artificially high residual value. This the residual value and the lease payments results in an artificially low estimate of the is simple. The total payments over the life amount of depreciation the car will of the lease are determined by lease experience during the term of the lease. depreciation and lease charges. The lease Put another way, NMAC assumes, for charges are analogous to interest purposes of computing lease payments, payments. The lease depreciation pays for that the car will be worth more at the end the depreciation of the leased vehicle over of the lease (because it experienced less the life of the lease and reflects that the depreciation) than it actually expects will car will be worth less at the end of the be the case. lease than it was at the beginning. The However, Plaintiffs claim that less depreciation NMAC assumes the car NMAC does not disclose that it inflates the will undergo during the life of the lease, residual values used to compute lease the smaller the lease depreciation payments. They also claim that NMAC component of the monthly lease payments does not disclose the actual residual values will be. In order to reduce lease payments NMAC has assigned to the lessee’s car. and price Nissan vehicles more Therefore, according to the Plaintiffs, competitively with other manufacturers’ lessees can not ascertain if the assumed cars, NMAC can, and does, use an residual value is inflated.
Plaintiffs concede, however, that since NMAC is responsible for the customer’s monthly payments under a difference between the residual and lease. NMAC’s Br. as Appellant, at 29 realized values (a “closed lease”), the n.12. “A higher residual value results in inflated residual values make no practical less scheduled depreciation over the term or economic difference to lessees whose of the lease, and hence lower monthly leases go to maturity. [6] However, they say payments.” Id . that a problem arises with inflated residual values when a lessee seeks to terminate the [5] NMAC claims that, contrary to the lease early. Under the Paragraph 18 Plaintiffs’ characterizations, subvention (or inflating residual values) is not a uniform practice. NMAC says that the formula, the early termination charge is payments through maturity would have based, in part, on the difference between been only $9,276.93. Pursuant to the the assigned, though undisclosed, residual Paragraph 18 formula, surrounding the car value and the realized value upon the sale two months early would have required the of the vehicle. Miller and the Roses Roses to pay NMAC $1,801.07 more than allege that under the Paragraph 18 formula keeping it to the end of the term. NMAC shifts to the early terminating Plaintiffs claim that even though lessee the risk, otherwise borne by NMAC, NMAC’s early termination formula that the vehicle will turn out to be worth recoups for NMAC the difference between less than the residual value that was used the residual value and the realized value of to compute the lease payments. the car, NMAC’s controller admitted that
According to Plaintiffs, where the the cause of Nissan’s unrecouped residual value is inflated, NMAC’s depreciation, if any, is not the early contractual early termination formula termination, but the terms of the lease causes an early terminating lessee to pay agreement itself. more upon returning the car than if the Finally, Plaintiffs contend that the lessee had made all of the payments for the charges produced by NM AC’s early full term of the lease. In Miller’s case, the termination formula are so outrageously early termination charge under the high that NMAC hesitated to apply the Paragraph 18 formula as of November Paragraph 18 formula in their cases. 1999 (one month early) was $5,336.95. Instead, NMAC demanded that Plaintiffs Miller claimed that when added to the 35 pay the accelerated sum of all future, monthly payments of $267 each that he unearned lease payments, undiscounted, had already paid ($9,345), NMAC’s even though NMAC got the cars back Paragraph 18 formula called for him to pay early. They claim that NMAC explained a total of $14,681.95. Full performance that its standard practice is to compute the under the lease, in contrast, required Miller early termination liability under the to pay only $9,612. Accordingly, under Paragraph 18 formula, compare it to the the Paragraph 18 formula, Miller was sum of all unearned lease payments due required to pay $5,069.95 to return his car under the lease as if the lessees held the one month early. car to term, then assess the lesser of the
In the Roses’ case, the Paragraph 18 two charges. They call NMAC’s method formula called for them to pay $2,282.28 of charging the early terminating lessee the as a charge to terminate the lease early. total of remaining lease payments the When this charge is added to the monthly “Alternative Charge” or “Alternative Formula.” [7] However Plaintiffs claim that payments they had already made, totaling $8,796 ($237.87 x 37), the Roses would have been required to pay a total of about $11,078. Just two months later at the [7] We will adopt the term “Alternate natural end of their lease, their total Formula” in referring to this method here. NMAC is not entitled to the accelerated § 1667b(a) named after our decision in sum of the remaining lease payments and Applebaum v. Nissan Motor Acceptance it is therefore not relevant that the Corp ., 226 F.3d 214 (3d Cir. 2000). Count arbitrarily chosen Alternative Formula is II alleges substantive violations of the less than the charge under the Paragraph CLA, 15 U.S.C. § 1667b(b), and 18 formula. Regulation M. Count III is a common-law
II . DISTRICT COURT unjust enrichment claim against NMAC. PROCEEDINGS Count IV seeks declaratory and injunctive Plaintiffs filed a complaint and an relief. Count V seeks damages, both amended complaint as a class action, with actual and treble, pursuant to the the parties agreeing to determine liability Pennsylvania Unfair Trade Practices and before class certification. The essence of Consumer Protection Law, 73 P A . C ONS . the amended complaint is that NMAC S TAT . A NN . § 201-1 et seq . Count VI violated the CLA by making the residual seeks damages pursuant to Article 2A of the Uniform Commercial Code, alleging value one component of the equation by which early termination liability is that the early termination formula is a calculated under the Paragraph 18 formula. provision for liquidated damages that is unreasonable as written. They claim that the formula thereby shifts to early terminating lessees, the risk that Following discovery, the district the residual value in the lease is court granted summary judgment to overstated. They allege that the risk is NMAC on a portion of Count II. The ordinarily borne by NMAC under what court found that the method of determining purport to be “closed end leases.” The early termination charges by charging amended complaint alleged that this risk Plaintiffs the remaining lease payments shifting is unreasonable because it bears was reasonable and, therefore, did not no relationship to the harm that NMAC violate the substantive provisions of the incurs as a result of early termination. The CLA, i.e., 15 U.S.C. § 1667b(b). amended complaint also alleged that the However, the district court also held that the Paragraph 18 early termination formula inflated residual values used for lowering lessees’ monthly lease payments also was unreasonable under CLA § 1667b(b). violate the CLA. Accordingly, the district court granted
More particularly, Count I is a summary judgment on that portion of disclosure claim alleging that the Count II to Plaintiffs and awarded them Paragraph 18 formula violates the statutory (as opposed to actual) damages of disclosure requirements of the CLA, 15 $100. The district court also entered U.S.C. § 1667a and Federal Reserve summary judgment in favor of Plaintiffs Regulation M, 12 C.F.R. § 213. The on Count I, the § 1667a disclosure claim, Count I disclosure claim is referred to as and on Count IV. It then suspended an Applebaum claim, which is a CLA adjudication of Counts III, V and VI, the state law claims, and granted Rule 54(b) disclosure claim brought under 15 U.S.C. certification as to claims brought in Counts enable the lessee to compare I and II, the federal CLA claims. Miller v. more readily the various Nissan Motor Acceptance Corp. , No. lease terms available to him, Civ.A. 99-4953, 2000 WL 1599244 limit balloon payments in (E.D.Pa. Oct. 27, 2000). consumer leasing, enable
Cross-appeals followed. However, comparison of lease terms in a Bench Opinion, issued on September with credit terms where 24, 2001, we dismissed the appeals for appropriate, and to assure lack of appellate jurisdiction after holding meaningful and accurate that the district court improvidently disclosures of lease terms in granted Rule 54(b) certification. We advertisements. reached that conclusion because the federal claims certified by the district court Id . at 217-18 (quoting 15 U.S.C. § were inextricably intertwined with the 1601(b )). “T he S enate Report Count I disclosure claim which had not accompanying the CLA explained that been completely adjudicated. Miller v. ‘[t]he purpose of the legislation is to Nissan Motor Acceptance Corp. , Nos. 01- provide consumers with meaningful 1038/1114 (3d Cir. Sept. 24, 2001). information about the component and
Thereafter, the district court fully aggregate costs of consumer leases, so adjudicated the Count I Applebaum they can make better informed choices disclosure claim in favor of Plaintiffs and between leases, and between leases and once again granted Rule 54(b) certification credit sales.’” Id . at 218 (citation omitted). on the CLA claims. Both NMAC and the “The Federal Reserve Board has Plaintiffs have filed appeals from that been given the authority to issue rules ruling. implementing the CLA, see 15 U.S.C. § 1604, and the Board has exercised that
III. THE CONSUMER LEASING ACT authority by promulgating ‘Regulation M,’ “In 1976, in response to an 12 C.F.R. § 213 et seq .” Id . “The Board’s emerging trend toward automobile leasing, staff has also issued official commentary Congress passed the Consumer Leasing regarding these provisions.” Id . “In Ford Act, 15 U.S.C. §§ 1667-1667e, as Chapter Motor Credit Co. v. Milhollin , 444 U.S. 5 of the Truth in Lending Act (“TILA”), 555, 568 (1980), the Supreme Court 15 U.S.C. § 1607 et seq .” Applebaum , 226 instructed that the Board’s interpretation of F.3d at 217. the TILA and Regulation M should be
The CLA was intended ‘to accepted so long as they are ‘not a s s u r e a m e a n i n g f u l irrational.’” Id . disclosure of the terms of The CLA contains a section leases of personal property captioned “Consumer lease disclosures” for personal, family, or that provides, in pertinent part, as follows: household purposes so as to Each lessor shall give a
lessee prior to the 15 U.S.C. § 1667a(4) and (11). The CLA consummation of the also contains a section captioned “Lessee’s lease a dated written liability on expiration or termination of statement on which lease” which provides, in pertinent part, as the lessor and the follows: lessee are identified Penalties or other charges setting out accurately for delinquency, default or and in a clear and early termination may be conspicuous manner specified in the lease but t h e f o l l o w i n g only at an amount which is inf ormation wit h reasonable in the light of the respect to that lease, anticipated or actual harm as applicable: caused by the delinquency,
****************** default or early termination, (4) The amount of other the difficulties of proof of charges payable by the loss, and the inconvenience lessee not included in the o r n o n f e a s i b i l i t y o f p e r i o d i c p a y m e n t s , a otherwise obtain ing an description of the charges adequate remedy. and that the lessee shall be
15 U.S.C. § 1667b(b). [8] liable for the differential, if any, between the anticipated fair market value of the Regulation M, which was in effect leased property and its appraised value at the termination of the lease, if [8] The section of the CLA immediately the lessee has such liability; preceding § 1667b(b) concerns a lessee’s ****************** liability upon the expiration of an open- (11) A statement of the end lease, i.e., one where the lessee’s conditions under which the liability upon expiration is based on the lessee o r l es so r m ay difference between residual and realized terminate the lease prior to value. In such a lease, § 1667b(a) the end of the term and the explicitly provides that “[t]here shall be a amount or method of rebuttable presumption that the estimated determining any penalty or residual value is unreasonable to the o t h e r c h a r g e f o r extent that the estimated residual value delinquency, default, late exceeds the actual residual value by more p a y m e n t s , o r e a r l y than three times the average payment termination. allocable to a monthly period under the lease.” (emphasis added).
at the time of the Plaintiffs’ leases, [9] termination or end of the lease term, if required that lessors’ disclosures “be made such liability exists,” 12 C.F.R. § clearly, conspicuously, in meaningful 213(g)(13). sequence, and in accordance with the IV. DISCUSSION further requirements of this section.” 12 As noted, both sides to this dispute C.F.R. § 213.4(a)(1). The Official Staff have appealed the district court’s adjudication of the CLA claims. Briefly Commentary for this provision explained that “clearly, conspicuously, and in stated, the parties’ arguments are as meaningful sequence” required “that the follows: NMAC argues (1) that the district court’s grant of summary judgment disclosu re s be in a reaso n a b ly understandable form.” 12 C.F.R. Pt. 213, on the CLA § 1667a disclosure claim (the ¶ 4(a)(1). The Commentary stated, “while Applebaum claim) was error; (2) that the regulation requires no particular Plaintiffs do not have standing to mathematical progression or format, the challenge the Paragraph 18 formula; (3) disclosures must be presented in a way that but if they do have standing, that the does not obscure the relationship of the district court erred in ruling that the terms to each other.” Id. Regulation M Paragraph 18 formula for early termination mandated that various disclosures be made is unreasonable and violates the CLA § with respect to lease provisions imposing 1667b(b). an early termination penalty including: (1) Plaintiffs argue that the district court erred in finding that the formula “[a] statement of the conditions under which the lessee or lessor may terminate NMAC actually applied on early the lease prior to the end of the lease term termination, i.e., making them pay the and the amount or method of determining remaining lease payments due on their the amount of any penalty or other charge respective leases (referred to by NMAC as for early termination, 12 C.F.R. § t h e i r “ U n s a t i s f i e d C o n t r a c t
Obligations”), [10] was reasonable and 213(g)(12), and (2) “[a] statement that the lessee shall be liable for the difference consistent with the CLA § 1667b(b). between the estimated value of the Each argument is discussed separately property and its realized value at early below.
A. The § 1667a disclosure claims. Count I of Plaintiffs’ amended complaint asserted three disclosure claims. [9] Regulation M was revised in 1996. Plaintiffs claim (1) that the “Alternative Applebaum , 226 F.3d at 218 n.3. Formula” NMAC charged for terminating Although the revisions became effective on October 31, 1996, compliance was optional until October 1, 1997. Id . The early, i.e., having them pay the sum of the to either (1) the full contract price, remaining monthly payments on their disclosed as the Total of Monthly respective leases, should have been Payments, or (2) if lessee terminated early, disclosed in their leases; (2) that the the monthly payments paid at time of amount of the residual value should have termination, plus an early termination been disclosed; and (3) that the fact that charge calculated under the Paragraph 18 under the Paragraph 18 formula, an early formula. But, says NMAC, where the terminating lessee would be responsible monthly lease payments made prior to for the difference between residual and early termination, combined with the realized value should have been disclosed. Paragraph 18 formula early termination The district court granted summary charge would be greater than the disclosed judgment in favor of the Plaintiffs on each Total of Monthly Payments, the use of the component of their disclosure claims. [11]
early termination charge would result in 1. The “Alternative Formula” claim. [12] NMAC receiving more than the leases’ The district court found that NMAC total contract obligation as measured by violated § 1667a and Regulation M the Total of Monthly payments. because it used a different early Therefore, says NMAC, when it relied termination formula than disclosed under instead on the Alternative Formula, it only the lease. NMAC argues that was error received a sum equal to the Total of because it claims that the amount that was Monthly Payments, which does not violate actually charged was readily ascertainable either the CLA or Regulation M. from what was disclosed. H o w e v e r , g iv e n N M A C ’ s
CLA § 1667a(11) requires that a disclosure obligation under the CLA, its lessor provide a lessee with a statement defense of this practice amounts to setting forth, inter alia , “the amount or nonsense. The issue is not whether the method of determining any penalty or Alternative Formula produced an early other charge for . . . early termination.” 15 termination charge that was reasonable U.S.C. § 1667a(11). NM AC submits that under § 1667b(b), but whether it was the Alternative Formula was disclosed in disclosed in the lease. Clearly, it was not. the lease. It argues that, at the inception of Nothing in the lease suggests that there are Plaintiffs’ leases, in return for Plaintiffs’ two different methods by which NMAC use of the leased cars, NMAC was entitled can determine an early termination charge.
On the contrary, the lease provides that early termination charges are to be [11] Our standard of review on an appeal determined only in accordance with the from the entry of summary judgment is Paragraph 18 formula. Therefore, we plenary. Hines v. Consolidated Rail Corp ., agree that NMAC violated § 1667a(11). 926 F.2d 262, 267 (3d Cir. 1991). See Channell v. CitiCorp Nat’l Servs., Inc. , 89 F.3d 379 (7th Cir. 1996). [12] Referred to by NMAC as the In Channell , the lessor disclosed in “Unsatisfied Contract Obligation.” its car lease that its early termination NMAC argues that Applebaum was formula used the “Rule of 78s” to compute wrongly decided because the model forms the amount of unearned interest to be promulgated by the Federal Reserve Board credited upon early termination of a at the time the leases were entered into did consumer lease. However, instead the not require disclosure of the residual value. lessor used the actuarial method. Id. at However, Applebaum is binding on this
panel and controls. [13] Accordingly, we 383. The court of appeals held that this violated the CLA even though the hold that NMAC violated § 1667a by not undisclosed method benefitted the lessee. disclosing the residual value of Plaintiffs’ Id . Similarly, in Highsmith v. Chrysler leased cars. Credit Corp. , 18 F.3d 434 (7th Cir. 1994), 3. The differential claim. the lessee brought a disclosure claim In their amended complaint, against the lessor for omitting from its Plaintiffs alleged that NMAC violated § disclosed early termination formula certain 1667a(4) because NM CA did not disclose elements that were used to reduce the that they, as lessees, would be liable for amount of the early termination formula. the difference between the residual and Id. at 438. The court of appeals ruled that realized values under the early termination the lessor’s failure “to disclose any portion formula. Section 1667a(4) requires “clear of the formula that a lessor actually used and conspicious” disclosure, inter alia , of for calculating the early termination the fact “that the lessee shall be liable for the differential, if any, between the charge, will give rise to a technical violation of the disclosure provision found anticipated fair market value of the leased in 15 U.S.C. § 1667a(11) and Regulation property and its actual appraised value at M.” Id. at 439. the termination of the lease, if the lessee
2. The residual value ( Applebaum ) has such liability.” 15 U.S.C. § 1667a(4). claim. The district court found that the In Applebaum , we held that the “anticipated fair market value of the leased “requirement to disclose in a ‘clear and property . . . at the time of termination” is conspicuous manner’ the method of the residual value and that the “fact of the determining the amount of an early liability for the differential is disclosed.” termination charge [under the CLA and 2000 WL 1599244 at *14-15. However, Regulation M] includes the obligation to the district court also found that NMAC disclose the value of a variable, such as must disclose the residual value at the residual value , that is used in calculating inception of the lease. the charge.” 226 F.3d at 223 (emphasis This holding is nothing more than added). It is undisputed that Plaintiffs’ leases did not disclose the residual value of their leased vehicles. Consequently, the [13] See , IOP 9.1; Jaguar Cars, Inc. v. district court found that NMAC’s leases Royal Oaks Motor Car Co. ., 46 F.3d 258, violated the CLA. 266 n.6 (3d Cir. 1995). the logical extension of its analysis of the court that Plaintiffs did not have standing residual value claim, viz., that Applebaum to challenge the Paragraph 18 formula for requires disclosure of the residual value. early termination because the formula was In any event, NMAC argues, as it did on not applied to them. As noted, they were the residual value claim, that the district charged only the sum of the remaining court’s holding on the differential value payments under their respective leases. claim was error because Applebaum was The district court rejected NMAC’s wrongly decided. However, as noted, standing argument. It held: Applebaum is binding, and we therefore It is certainly true that reject NMAC’s argument. neither Miller nor the Roses
We thus affirm the district court’s paid an early termination grant of summary judgment to Plaintiffs on charge that was directly Count I. c a l c u la t e d u s i n g th e
B. The § 1667b(b) reasonableness Paragraph 18 fo rmu la. However, we cannot ignore claims. 1. Standing to Challenge the the fact that the amount that Paragraph 18 Formula. the Roses and Miller paid In Count II of their amended did result indirectly from the complaint, Plaintiffs alleged, inter alia , Paragraph 18 calculation. that the Paragraph 18 formula violated the The undisputed evidence reasonableness requirements of § shows that NMAC decided 1667b(b). [14] NMAC argued in the district
what to charge early t e r m i n a t i n g l e s s e e s , including Miller and the Roses, by calculating both [14] As noted earlier, § 1667b(b) provides: the sum of the remaining payments charge and the
Penalties or other charges Paragraph 18 formula, and for delinquency, default or then selecting the lesser of early termination may be these actually to levy upon specified in the lease but the lessee. Thus, while the only at an amount which is dollar figure Miller and the reasonable in the light of the Roses paid was not arrived anticipated or actual harm caused by the delinquency, default or early termination, the difficulties of proof of 15 U.S.C. § 1667b(b). loss, and the inconvenience o r n o n f e a s i b i l i t y o f otherwise obtain ing an adequate remedy.
at using Paragraph 2000 WL 1599244 at *23 (emphasis in 1 8 , t h e a m o u nt original). After holding that Miller and the derived from the Roses had standing, the district court held P a r a g r a p h 1 8 that the Paragraph 18 formula for early c a l c u l a t i o n termination was unreasonable under § nevertheless helped 1667b(b). Not unexpectedly, in its to determine what appeal, NMAC renews its argument that they in fact paid. If the Plaintiffs do not have standing to the Paragraph 18 challenge the Paragraph 18 formula formula had resulted because it was not applied to them when in a number lower they terminated their leases. than the sum of the “In essence the question of standing remaining payments, is whether the litigant is entitled to have then the Paragraph the court decide the merits of the dispute 18 formula amount or of particular issues.” Trump Hotels & would have been Casino Resorts, Inc. v. M irage Resorts levied on them. Inc. , 140 F.3d 478, 484 (3d Cir. 1998)
(quoting Warth v. Seldin , 422 U.S. 490, We therefore find that 498 (1975)). “Standing ‘subsumes a blend NMAC’s position that the of constitutional requirements and Paragraph 18 formula was prudential considerations.’” Id . (quoting not used to calculate the Valley Forge Christian College v. Roses’ and M iller’s liability Americans United for Separation of is without merit. Thus, to Church and State, Inc. , 454 U.S. 464, 471 the extent that the Paragraph (1982)). “Obviously, satisfying the Article 1 8 f o r m u l a w a s III ‘case or controversy’ requirement is the unreasonable under the ‘irreducible constitutional minimum’ of CLA, [Miller and the Roses] standing.” Id . (quoting Lujan v. Defenders suffered injury thereby and of Wildlife , 504 U.S. 555, 560 (1992)). have standing to pursue Article III constitutional their claim. [15] standing contains three
elements: (1) the Plaintiff must have suffered an injury in fact – an invasion of a [15] This court exercises “plenary review legally protected interest of standing . . . issues, but review[s] for which is (a) concrete and clear error the factual elements underlying particularized and (b) actual the district court’s determination of or imminent, not conjectural standing.” General Instrument Corp. v. or hypothetical; (2) there Nu-Tek Electronics & Mfg., Inc. , 197 F.3d must be a causal connection 83, 86 (3d Cir. 1999). between the injury even when the Plaintiff has and the conduct alleged redressable injury complained of – the sufficient to meet the injury has to be fairly requirements of Article III, tracea ble to th e the federal courts will not challenged action of adjudicate abstract questions the defendant and not of wide public significance t h e r e s u l t o f w h i c h a m o u n t t o independent action g e n e ra liz ed gr ievan c e s of some third party s h a r e d a n d m o s t not before the court; appropriately addressed in and (3) it must be the representative branches; likely, as opposed to and (3) the Plaintiff’s merely speculative, complaint must fall within that the injury will be the zone of interests to be r e d r e ss e d b y a protected or regulated by the favorable decision. statute or constitutional
guarantee in question. Id. at 484-85 (citing Lujan , at 560-61). “In addition to the ‘immutable Id . (quoting Valley Forge Christian requirements of Article III,’ the federal College , 454 U.S. at 474-75) (internal judiciary has also adhered to a set of quotation marks omitted). prudential principles that bear on the In light of these general principles, question of standing.” [16] Id . at 485
we agree that the claim that the Plaintiffs (quoting Bennett v. Spear , 520 U.S. 154 lack standing to challenge the Paragraph (1997)). These principles are: 18 formula has considerable force. They
(1) the Plaintiff generally never paid the early termination charge must assert his own legal pursuant to the Paragraph 18 formula. rights and interests, and Therefore, they were not harmed by it, cannot rest his claim to even assuming it is unreasonable and relief on the legal rights or violates § 1667b(b). They nevertheless interests of third parties; (2) suffered no “injury in fact” because of it.
Although there is a paucity of case law on the issue of standing in this context, two cases support NMAC’s position, viz., [16] Article III constitutional standing is a Kedziora v. Citicorp Nat’l Servs., Inc. , 780 threshold issue that must be addressed F.Supp. 516 (N.D.Ill. 1991), aff’d sub before considering issues of prudential nom. in relevant part, Channell v. Citicorp standing. Joint Stock Society v. UDV Nat’l. Servs., Inc. , 89 F.3d 379 (7th Cir. North America, Inc. , 266 F.3d 164, 175 1996), and Highsmith v. Chrysler Credit (3d Cir. 2001). Corp. , 18 F.3d 434 (7th Cir. 1994). In that proposition. County of Oakland was Kedziora , the lessees defaulted on their 60- an antitrust case and the standing issue month car lease after 22 months and discussed therein centered on the contours of the Illinois Brick doctrine. [17] Quite thereby incurred a substantial termination charge. However, they attempted to simply, the question raised in County of challenge the reasonableness of an early Oakland – whether an intermediate user termination formula applicable to defaults who pays illegal antitrust overcharges that within the first 12 months of the lease are passed along to end users has antitrust under § 1667b(b). The district court held standing – has nothing to do with the issue that the lessees lacked standing to challenge the formula applicable within the first 12 months because it “caused him [17] In Illinois Brick Co. v. Illinois , 431 or her no actual injury because it never U.S. 720, 730-731 (1977), the Court held became applicable to him or her.” 780 that persons who are not direct purchasers F.Supp. at 523. In Highsmith , the court of from the defendant antitrust violator appeals held that a lessee who had not cannot maintain an antitrust action. In terminated his lease, or even alleged that Illinois Brick , it was alleged that concrete he intended to terminate his lease, had no block manufacturers had engaged in a standing to challenge the reasonableness of conspiracy to fix the price of concrete an early termination provision in his car block. The concrete block manufacturers lease because “the early termination clause sold the concrete block to masonry has not been applied to him and he has contractors who, in turn, sold the concrete suffered no harm from it.” 18 F.3d at 437. block to general contractors, who used the Both of these cases, although not on all concrete block to build masonry structures fours with Plaintiffs’ suit, lend support to which were incorporated into buildings NM AC’s argument. which the general contractors sold to the Plaintiffs initial standing argument State of Illinois. The Court held that the is that, because their leases contained the State of Illinois could not bring an antitrust Paragraph 18 formula, they were bound by action against the concrete block it and therefore they have standing to manufacturers wh ose p rodu ct was challenge it. They cite County of Oakland incorporated into the buildings it bought. v. City of Detroit , 866 F.2d 839, 845 (6th That holding is based largely upon the Cir. 1989), which they say stands for the difficulty of establishing the extent to proposition that “[a] contracting party has which an indirect purchaser was actually standing to challenge the reasonableness of injured by the underlying antitrust a clause which, by its terms, applies to him violation and the difficulty inherent in as enforcement vel non may cause him prorating the fixed-price overcharge economic harm.” Miller/Roses’ Br. as among the number of entities in the chain Appellees, at 17. However, we do not of manufacture and distribution. 431 U.S. believe that County of Oakland stands for at 732-733. of whether a lessee who pays an early of class certification and a finding that the termination charge has standing to early termination provision violated the challenge a formula for calculating an disclosure requirements of the CLA. early termination fee that was never Therefore, the magistrate judge’s standing applied to him/her. discussion does not have much force. In
Plaintiffs also look to two other fact, we believe that it is plainly wrong. cases to support their standing. However, Article III constitutional standing requires neither case supports their argument. In that an injury in fact must be “actual or Lundquist v. Security Pacific Automotive imminent, not conjectural or speculative.” Financial Servs. Corp. , 1992 WL 475651 Trump Hotels , 140 F.3d at 484 (citation (D.Conn. June 9, 1992), aff’d 993 F.2d 11 omitted). The magistrate judge’s (2d Cir. 1993), the lessee filed a class discussion in Lundquist is purely action challenging, inter alia , the speculative. The magistrate judge reasonableness of an early termination reasoned that: if the lessee decides to provision in an automobile lease. The default and if she returns the car, she lessor moved to dismiss the § 1667b(b) would be liable for the early termination reasonableness challenge under Rule charges. Damage was, therefore, neither 12(b)(6), arguing that because the lease actual nor imminent. had not been terminated, the lessee lacked The second case Plaintiffs rely upon standing because she had not suffered any is Johnson v. Steven Sims Subaru, Inc. , injury. A magistrate judge held that the U.S. Dist. Lexis 11694 (N.D.Ill. 1993). lessee did have standing because Plaintiffs claim that Johnson holds that a
[t]he Plaintiff is a party to lessee has standing to challenge early the lease and bound by its termination provisions in his/her auto lease terms. If the Plaintiff before suffering adverse consequences. decides to default on the Johnson does, in fact, say that. 1993 lease, she will be subject to U.S.Dist.Lexis 11694, at *5-11. The t h e e a r l y t e r m i n ati o n lessee in Johnson , like the lessee in charges. There is an Lundquist , had not terminated the lease. immediate threat of injury to However, the lessee in Johnson had her because if she returns written a letter to the lessor saying that she the car she would be subject wanted to terminate early but could not t o t h o s e a l l e g e d l y afford the early termination charges. A unreasonable charges. magistrate judge found that the lessee had
standing because if the lessee actually 1992 WL 475651 at *6. A district court terminated her lease she would become judge adopted the magistrate judge’s liable for the early termination charges. reasoning. However, the court of appeals However, we believe that did not discuss the standing issue on Johnson ’s standing analysis is just as appeal. Rather, it affirmed both the denial speculative as Lundquist ’s. We fail to see any Article III injury-in-fact based solely whether the charges they actually paid on a lessee saying that she prefers to were reasonable, “the district court terminate a lease and then refraining from necessarily had to consider whether the doing so. [18] Moreover, Johnson is a lease formula itself violated the CLA by m a g i s t r a t e j u d g e ’ s R e p o r t a nd residual-risk shifting or otherwise.” Recommendation, which, as NMAC is Miller/Roses Br. as Appellees, at 18. Therefore, conclude the Plaintiffs, the quick to point out, a district court judge in Paragraph 18 formula was applied to them the district where Johnson was decided, because NMAC charged them the balance has noted was never adopted by the district of lease payments due under the lease only court. The suit was settled before the after comparing the Paragraph 18 formula district court ruled on objections that were filed. NMAC’s Reply Br. at 26-27 to the balance of lease payments due. (quoting Demitropoulos v. Bank One Consequently, they contend that they have Milwaukee, N.A. , 915 F.Supp. 1399, 1415 standing to challenge the reasonableness of n.14 (N.D.Ill. 1996). the Paragraph 18 formula.
Plaintiffs make a number of We disagree. We do not believe additional arguments which they claim that the district court necessarily demonstrate their standing to challenge the considered whether the Paragraph 18 Paragraph 18 formula. First, they argue formula violated the CLA in determining that they have standing to challenge the whether the charges they actually paid for Paragraph 18 formula because the formula early termination were reasonable. The was used as a “benchmark” in determining district court merely noted that, because whether the early termination charges NMAC compared the charges under the actually paid were reasonable. And, argue Paragraph 18 formula to the charges under Plaintiffs, if the Paragraph 18 formula was the remaining payments method, the used as a “benchmark” to determine charges Plaintiffs actually paid resulted
indirectly from the Paragraph 18 formula. That is not the same as holding that the Paragraph 18 formula actually violates the [18] Our fairly narrow view of the standing
CLA.
issue here is confined to the specific Moreover, the fact that NMAC context of consumer car leases. Issues of compared the charges under the Paragraph standing can arise in so many varied 18 formula to the charges under the settings that we think it appropriate to remaining payments methods does not caution that our analysis ought not be mean that the Paragraph 18 formula was automatically extended to other situations indirectly applied to the Plaintiffs. On the where the possibility of injury may be contrary, the fact that NM AC chose not to sufficiently real to support standing, both charge Plaintiffs an early termination fee in the Article III context and the prudential based on the Paragraph 18 formula sense, even though no actual injury has yet actually shows that the Paragraph 18 was been inflicted. not applied to Plaintiffs. the remaining payments method. 2000 WL 1599244 at *22. That along with
Second, Plaintiffs argue that they allegations and averments by both parties have standing to challenge the Paragraph 18 formula because they alleged and allowed the district court to conclude that the Plaintiffs had standing because the produced evidence that if they had amount charged under the remaining received an honest residual value, instead payments method indirectly resulted from of NMAC’s inflated one, the Paragraph 18 the Paragraph 18 formula. formula would have yielded a figure lower than the charge they paid under the Moreover, an allegation that the remaining payments method, i.e., the so- Paragraph 18 formula would have called Alternative Formula charge. They generated a lower termination charge than claim that the district court found that had the remaining payments if NMAC had NMAC used an accepted industry standard used an accurate residual value method does not prove standing. As recited for the residual, specifically something called the “Auto Lease Guide,” the early above, the fact that NMAC used the remaining payments method because it termination charge under the Paragraph 18 was lower than the Paragraph 18 formula formula would have been $300 less than the sum of the remaining payments under shows that the Paragraph 18 formula was not applied to them and, therefore, they Miller’s lease. They also claim that the have no standing. As noted above, injury district court found that had NMAC used the “revenue-neutral residual” for the can not be conjectural. Essentially, Roses, the Paragraph 18 formula would Plaintiffs are relying upon a hypothetical have been $438.79, rather than the $480.00 to manufacture standing. We will not now remaining payments meth od they speculate about the amount of early ultimately paid. Accordingly, Plaintiffs termination charges that would have been contend that they demonstrated harm from produced using different residual values. NMAC’s use of both the Paragraph 18 Third, Plaintiffs argue that they formula and the remaining payments have standing because, in March 1999, method, and therefore have standing to Miller obtained a phone quote from challenge the reasonableness of the NMAC of over $3,000 for the cost of Paragraph 18 formula under § 1667b(b). terminating his lease about 9 months
These calculations do not prove early. Miller claims that the district court standing. In the first place, Plaintiffs are found that after receiving the $3,000 early being disingenuous in stating what the termination quote, he decided not to district court found. All that the district terminate until November 1999. court did in its standing discussion is recite However, the district court never made any that Plaintiffs claimed that had NMAC such finding. The district court merely used different residual values, the recited that Miller made a phone call to Paragraph 18 formula would have obtain an early termination quotation. 2000 produced a lower termination charge than WL 1599244 at *2. In any event, Miller never explains how a lessee has standing early termination charges at all, but were to challenge an early termination fee extra contractual charges imposed by simply because he/she obtains a quotation NMAC. Therefore, because they were of the early termination fee. See imposed extra-contractually, they contend Highsmith , 18 F.3d at 437 (suggesting that that the district court should have analyzed Plaintiff must at least allege that he intends the Alternative Formula charges under to terminate his lease in order to obtain basic contract law and the Uniform standing). Commercial Code (“UCC”).
Fourth, and finally, Plaintiffs However, this argument is suggest that because they have standing to conceptually flawed from the outset. The assert disclosure claims under § 1667a of claims that are the subject of these Rule the CLA, they have standing to assert 54(b) appeals are the Plaintiffs’ federal substantive claims under § 1667b of the claims that NMAC’s leases violated the CLA. However, standing to assert § 1667a CLA. Because Plaintiffs challenged the disclosure claims does not establish the Alternative Formula charges under the injury required to assert substantive claims CLA, we fail to see the relevance of state under § 1667b. A Plaintiff may have contract law and/or the UCC, and standing to challenge certain practices, but Plaintiffs have offered no authority to not others. See Pryor v. Nat’l Collegiate convince us their reliance on state law is Athletic Ass’n. , 288 F.3d 548, 561 (3d Cir. proper. Indeed, if taken to its logical 2002). conclusion, their argument suggests that
2. Reasonableness of the Alternative their Alternative Formula claim is really a Formula Charge. state law claim and not a federal law claim The Alternative Formula charges at all. In addition, Plaintiffs appear to be that NMAC assessed were the two trying to force the non-disclosure of the remaining months lease payments in the Alternative Formula under § 1667a(11) case of the Roses and the one month into a substantive violation under § payment remaining in the case of M iller. 1667b(b) using the wedge of contract law. The district court found that these “early In any event, Plaintiffs argue that if termination charges” were reasonable the district court had analyzed the under § 1667b(b). 2000 WL 1599244 at Alternative Formula charges under UCC *31-32. In their cross-appeal, Plaintiffs and/or contract law damages standards, argue that was error. they should have been granted summary
They first argue that the district judgment. They argue that, under those court erred by analyzing the Alternative standards, it was NMAC’s burden to offer Form ula un der t h e § 1 6 6 7 b(b) proof it was damaged by their early lease reasonableness standard because the terminations and the surrender of their Alternative Formula was not disclosed in vehicles before the leases had expired. In the lease. In Plaintiffs’ view, the their view, the Alternative Formula charge Alternative Formula charges were not was a liquidated damages formula and, therefore, the party seeking to enforce the both recover the leased property and liquidated damages has the burden of accelerate the remaining monthly establishing the reasonableness of the payments under the lease. Rather, a lessor formula. See Finkle v. Gulf & Western must chose between those two remedies. Mfg. Co. , 744 F.2d 1015, 1021 (3d Cir. In support of that proposition, they cite to 1984). However, since NMAC offered no Finkle , 744 F.2d at 1021-1022. Finkle proof of harm, Plaintiffs claim NMAC did does say that a lessor cannot both recover not establish the reasonableness of the the leased property and accelerate the liquidated damages. m onthly paym ents . However ,
Moreover, their claim that NMAC Finkle concerned a commercial property offered no proof of harm is incorrect. The lease and refers to a principle applicable to district court expressly found that c o m m e r c i a l p r o p e r t y le a s e s i n “NM AC’s harm. . . is the loss of the Pennsylvania. Mo reover, Finkle remaining monthly payments and the car is concerned non-renewal options under a returned for disposition sooner than lease for a commercial property. NMAC expected, thereby resulting in Depreciation is not a factor in that context. earlier than expected disposition costs and However, depreciation is a driving factor risks.” 2000 WL 1599244 at *32 under vehicle leases such as the ones (emphasis in original). The district court before us here. found that the Alternative Formula charge Finally, Plaintiffs argue that even if was reasonable “in light of” that actual the district court was correct that the harm. Id. Plaintiffs do not bother to Alte rn a tive Formu la c h arg e w as mention the district court’s finding that reasonable under § 1667b(b), the charges NMAC suffered this harm. should have been discounted to present
NMAC counters by arguing that it value. According to Plaintiffs, without was not its burden to prove that the discounting the Alternative Charge to Alternative Formula charges were present value, NMAC would be recovering reasonable. NMAC claims it was interest on sums that had already been Plaintiffs’ burden to prove that the charges repaid, putting NMAC in a better position were unreasonable under § 1667b(b) than if the lease had been fully performed. standards. See Kedziora , 780 F.Supp. at In the abstract, Plaintiffs are correct. 535 n.12 (Plaintiffs who seek to avoid Absent discounting, NMAC is receiving enforcement of lease term bear burden of unearned interest or rents. However, the proof). Plaintiffs respond by arguing that district court properly addressed this even if it is their burden to demonstrate argument in its opinion: unreasonableness, they have done so. The Roses terminated their They contend that even though they turned lease two months early, and their cars in prior to the expiration of their Miller only one month early, leases, NMAC is not entitled to charge and the discounting of the them anything, because a lessor cannot monthly payments would
logically be done at that amounted only to a “couple of bucks.” the rate implicit in Plaintiffs do not dispute this. the lease, pursuant to Consequently, we agree with the district Paragraph 18. The court’s conclusion that the de minimis rate implicit in the overage resulting from NMAC’s failure to R ose leas e w a s discount to present value does not make 5.99%, and the rate t h e Alt ernative Fo rmula C harg e implicit in the Miller unreasonable under § 1667b(b). lease was 7.6%. V. CONCLUSION For all of the above reasons, we T h u s , j u s t a s N M A C ’ s will affirm the district court’s grant of representative Robin summary judgment to Plaintiffs on their Norris testified, the Count I disclosure claims and on Count g a i n t o N M A C IV. We will also affirm the grant of resulting from its summary judgment to NMAC on the p r a c t ic e o f n o t reasonableness of the Alternative Formula discounting was “a component of Count II. However, we will couple of bucks” as reverse and vacate the grant of summary to the Rose and j u d g m e n t t o P l a in t i f fs o n t h e Miller leases. This reasonableness of the Paragraph 18 early termination formula component of Count slight overage is de m inim is and not II for lack of standing. enough, in the cases of Miller and the Roses, to render the early termin ation charge unreasonable in light of the harms to NMAC arising f r o m t h e e a rl y termination pursuant to § 1667b(b).
2000 WL 1599244 at *32. NMAC claims that it gained only a “couple of bucks” as a result of not discounting because the Plaintiffs’ remaining payments consisted almo st entirely o f the depreciation that had not yet been paid. It was the interest or rent charge component
NOTES
[4] A “subvented” residual value is one 13. According to NMAC, this whole lawsuit is a fabrication. which is raised in order to lower a
[6] In fact, the inflated residual values the record clearly shows that there were extraordinary variations in subvention Plaintiffs complain of can dramatically depending on, inter alia , the model car, the advantage the lessee who holds his/her lease term and date of the lease. NMAC’s vehicle for the full term of the lease Reply Br. at 22 n.4. These claimed because monthly payments during the variations are not significant here because course of the lease will be less than they NMAC concedes that the residual values would have been had the lessor based under the Plaintiffs’ leases were monthly payments on a more realistic subvented. residual value.
[10] As recited earlier, Plaintiffs refer to leases at issue here were entered into in 1996. All parties agree that the pre- charges they actually paid as the revision 1995 Regulation M is applicable. “Alternative Formula.”
