Opinion
CAUSE NO. IP00-1340-C-T/G
December 22, 2000
Entry On Plaintiff's Motion to Strike Affirmative Defenses, Tom Wood's Motion to Dismiss and Defendants' Motion to Sever
Though this entry is being made available to the public on the court's web site, it is not intended for publication either electronically or in paper form. Under the law of the case doctrine, it is presumed that the ruling or rulings in this entry will govern throughout the litigation before this court. See, e.g., Tr. of Pension, Welfare, Vacation Fringe Benefit Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 468 n. 4 (7th Cir. 2000); Avitia v. Metro. Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). It should be noted, however, that this district judge's decision has no precedential authority and, therefore, is not binding on other courts, other judges in this district, or even other cases before this district judge. See, e.g., Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998) ("a district court's decision does not have precedential authority"); Malabarba v. Chicago Tribune Co., 149 F.3d 690, 697 (7th Cir. 1998) ("district court opinions are of little or no authoritative value"); Old Republic Ins. Co. v. Chuhak Tecson, P.C., 84 F.3d 998, 1003 (7th Cir. 1996) ("decisions by district judges do not have the force of precedent"); Anderson v. Romero, 72 F.3d 518, 525 (7th Cir. 1995) ("District court decisions have no weight as precedents, no authority.").
Plaintiff, Mary A. Spearman, sues Defendant, Tom Wood Pontiac-GMC, Inc., under the Truth In Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., implementing Federal Reserve Board Regulation Z, 12 C.F.R. § 226.2, and state law in relation to a retail installment contract for the purchase of a motor vehicle. She also sues Defendant, Charles R. Sheeks, under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. This cause comes before the court on the following motions: (1) Plaintiff's Motion To Strike Tom Wood Pontiac-GMC, Inc.'s Affirmative Defenses; (2) Defendant Tom Wood Pontiac-GMC, Inc.'s Motion To Dismiss; and (3) Defendant Tom Wood's Motion to Sever Claims. Defendant Sheeks joins in the latter motion.
(1) Motion To Strike Affirmative Defenses
Plaintiff moves to strike the three affirmative defenses asserted by Tom Wood: (1) failure to state a claim upon which relief may be granted, (2) insufficiency of process, and (3) failure to join an indispensable party, to wit: Tranex Credit Corporation ("Tranex"). Plaintiff argues these affirmative defenses are based on mere pro forma denials that are sham and patently false and made in bad faith by Tom Wood in order to cause delay and cloud the issues. Tom Wood opposes the motion.
(a) Legal Standard
Motions to strike affirmative defenses are disfavored because they potentially serve only to delay. See Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991), cert. denied, 504 U.S. 957 (1992); Heller Fin. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). A motion to strike affirmative defenses should be granted only if the affirmative defenses "'are insufficient on the face of the pleadings.'" Williams, 944 F.2d at 1400 (quoting Heller Fin., 883 F.2d at 1294). In other words, affirmative defenses will not be stricken "if they are sufficient as a matter of law or if they present questions of law or fact." Heller Fin., 883 F.2d at 1294.
(b) Insufficiency of Process
In her motion to strike, Plaintiff states that Tom Wood believes that summons was insufficient because she did not advise Tom Wood of the "time within which the defendant must appear and defend" as required by FED. R. CIV. P. 4(a). Statements in Tom Wood's legal theories in the Case Management Plan confirm this view, (see Case Management Plan at 6), and Tom Wood says nothing in its response to Plaintiff's motion to strike to the contrary. The court finds this affirmative defense is insufficient as a matter of law.
The Summons issued to Tom Wood does inform Tom Wood of the time within which it must appear and defend. The Summons directed to Tom Wood states in relevant part that the defendant is:
SUMMONED and required to serve upon PLAINTIFF'S ATTORNEY [Cliff Shepard is identified by name, address, and telephone number, etc.] an Answer to the Complaint which is herewith served upon you, within twenty-three (23) days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint.
This language is consistent with the language in Form 1 contained in the Appendix of Forms. The Federal Rules of Civil Procedure state that "[t]he forms contained in the Appendix of Forms are sufficient under the rules and are intended to indicate the simplicity and brevity of statement which the rules contemplate." FED. R. CIV. P. 84.
The Summons also states: "You must also file your answer with the Clerk of this Court within a reasonable period of time after service." This language comes from FED. R. CIV. P. 5(d), which provides in pertinent part that "[a]ll papers after the complaint required to be served on a party . . . shall be filed with the court within a reasonable time after service. . . ." The Federal Rules do not require this language to be included in a summons.
Because the Summons issued to Tom Wood advised Tom Wood of the "time within which the defendant must appear and defend" as required by FED. R. CIV. P. 4(a), the court finds that Plaintiff's motion to strike should be GRANTED as to the "insufficiency of process" defense.
(2) Motion to Strike Indispensable Party and Failure to State a Claim Defenses and Motion to Dismiss
Because two of Tom Wood's affirmative defenses and Tom Wood's motion to dismiss involve common issues, the court addresses these together under one subheading.
Plaintiff also moves to strike Tom Wood's failure to state a claim and failure to join an indispensable party affirmative defenses. Plaintiff argues that Tranex is not an indispensable party with regard to her claim under Indiana's Credit Services Organization Act because she has not alleged that Tranex is a Credit Services Organization. She also argues that Tranex is not an indispensable party with regard to her TILA claim because it is a subsequent assignee and the TILA violation was not apparent on the face of the contract attached as Exhibit A to Plaintiff's Complaint. She further contends that Count I states a claim under TILA against Tom Wood.
Tom Wood moves pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss Count I of Plaintiff's Complaint for failure to state a claim upon which relief can be granted. Count I alleges violations of TILA and Regulation Z. Tom Wood argues that even if the Complaint's allegations are taken as true, Tom Wood is not a "creditor" under TILA and therefore is not subject to the requirements of TILA or Regulation Z. Tom Wood claims that Tranex is the creditor in the transaction about which Plaintiff complains. Tom Wood argues that the alleged TILA violation was apparent on the face of the motor vehicle retail installment contract, so even if Tranex were a mere assignee, it can be held liable for any TILA violation. Tom Wood also requests that upon dismissal of Count I, the court decline to exercise jurisdiction over the state law claim asserted in Count III.
In its brief in reply to Plaintiff's response to its motion to dismiss, Tom Wood advances, for the first time, that Plaintiff's TILA claim fails because the disclosures in the Contract were in writing and in a form Plaintiff could keep prior to consummation of the transaction. Because Tom Wood did not raise this argument in its opening brief, the argument is considered waived and is not addressed in this entry. Even if the court were to consider this argument, it would fail because, when viewed in the light most favorable to Plaintiff, the Complaint alleges that Tom Wood did not disclose to her in writing and in a form she could keep prior to the consummation of the transaction, the applicable finance charge or annual percentage rate. (See Compl. ¶ 27.)
When reviewing a Rule 12(b)(6) motion to dismiss for failure to state a claim, the court accepts the well-pleaded allegations in the complaint as true and draws all reasonable inferences in favor of the Plaintiff. See Stachon v. United Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000). A motion to dismiss for failure to state a claim should be granted only if there is no set of facts that could be proven consistent with the complaint's allegations that would entitle the plaintiff to relief. See Hishon v. King Spalding, 467 U.S. 69, 73 (1984); Weiss v. Cooley, 230 F.3d 1027, 1029 (7th Cir. 2000).
District courts in the Seventh Circuit have held that "arrangers of credit" are not subject to disclosure requirements under TILA. See DeLeon v. Beneficial Constr. Co., 55 F. Supp.2d 819 (N.D. Ill. 1999); King v. Second City Mortg., No. 97 C 2900, 1997 WL 627649, at *3 (N.D. Ill. Oct. 1, 1997). The Complaint's allegations, when viewed in the light most favorable to Plaintiff, however, support a reasonable inference that Tom Wood was not an arranger of credit, but a creditor under TILA.
TILA defines "creditor" as:
a person who both (1) regularly extends, whether in connection with loans, sales or property or services or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is not such evidence of indebtedness, by agreement.15 U.S.C. § 1602(f). In a regulation implementing TILA, the Federal Reserve Board defines "creditor" as "a person (A) who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than 4 installments (not including a downpayment), and (B) to whom the obligation is initially payable, either on the fact of the note or contract, or by agreement when there is no note or contract". 12 C.F.R. § 226.2(a)(17)(i) (footnote omitted) ("Regulation Z"). Regulation Z offers an additional interpretation of "creditors" and "assignees":
If an obligation is initially payable to one person, that person is the creditor even if the obligation by its terms is simultaneously assigned to another person. For example:
An auto dealer and a bank have a business relationship in which the bank supplies the dealer with credit sale contracts that are initially made payable to the dealer and provide for immediate assignment of the obligation to the bank. The dealer and purchases execute the contract only after the bank approves the creditworthiness of the purchaser. Because the obligation is initially payable on its fact to the dealer, the dealer is the only creditor in the transaction.
12 C.F.R. pt. 226, supp. I, subpt. A, cmt. 2(a)(17)(i)(2). Two circuit courts of appeals, including the Seventh Circuit, have applied these definitions and treated automobile dealers as "creditors" under TILA and those to whom the contract was simultaneously assigned as assignees rather than creditors. See Ellis v. Gen. Motors Acceptance Corp., 160 F.3d 703, 705-08 (11th Cir. 1998); Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 692-95 (7th Cir. 1998), cert. denied, 525 U.S. 1141 (1999). Another circuit court similarly held that an automobile dealer which simultaneously assigned the subject loan to another entity was a "creditor" under TILA. See Riviere v. Banner Chevrolet, Inc., 184 F.3d 457, 460-61 (5th Cir. 1999).
DeLeon and King, relied upon by Tom Wood, are readily distinguishable. The plaintiffs in DeLeon did not allege that the defendant Beneficial Construction Company ("Beneficial Construction") was a creditor, or that it regularly extends consumer credit. The construction contract signed by both the plaintiffs and Beneficial Construction provided that the plaintiffs would make a $1,000 down-payment, and the remaining balance of $21,000 would be financed. It did not provide for a financing fee and made no reference to the terms of financing, except the abbreviated statement "Finance approx. 321 per month, 21,000." The promissory note did not refer to Beneficial Construction, but rather stated that the lender was Guaranty Bank/GB Home Equity. The court therefore concluded that Beneficial Construction was not a "creditor" under TILA, explaining that "[a]t most, plaintiffs allege that Beneficial Construction arranged the financing of their home improvements by referring them to a mortgage broker who then located a lender for the project." DeLeon, 55 F. Supp.2d at 829.
The complaint in King alleged a TILA violation against Second City Construction Company ("Second City"). See King, 1997 WL 627649, at *2. The complaint asserted that Second City arranged financing for its customers with Pan American. See id. at *3. The contracts between King and Second City provided that King would finance the work performed, but did not contain an installment payment plan nor discussed finance charges. See id. at *2-3. However, the complaint also alleged that King obtained financing from Pan American Financial Services, Inc. ("Pan American"), and the mortgage King executed identified Pan American as the lender and required King to pay Pan American in monthly installments, but did not mention Second City. See id. at *3. The court held, based on these allegations that Second City only "arranges" financing and that Pan American actually provides the financing, that the plaintiffs failed to state a TILA claim against Second City. See id.
In the instant case, the Complaint alleges that Tom Wood arranged for financing through Tranex, (Compl. ¶ 19-20; see also id. ¶¶ 4, 9, 12-14 (alleging Tom Wood assisted Ms. Spearman in obtaining financing)), and that the first payment due under the Motor Vehicle Retail Installment Contract ("Contract") executed by Plaintiff in order to obtain the vehicle from Tom Wood was payable to Tranex. (Id. ¶ 24.) But there is more: The Complaint alleges that Plaintiff executed the Contract, (id. ¶ 14); that the Contract is a standard form regularly used by Tom Wood, (id. ¶ 16); and the Contract itself identifies Tom Wood as "Seller," (Compl., Ex. A at 1.) The Contract attached to the Complaint states that Ms. Spearman gave Tom Wood a security interest in the vehicle and promised to pay Tom Wood a sum certain plus finance charges at a specified annual percentage rate of interest. The "Truth In Lending Disclosures" in the Contract state an annual percentage rate of 18.99, the total amount of finance charges, the amount financed, the total payments and sale price and indicate a payment schedule — 60 monthly payments of $379.98 beginning on September 25, 1999. The Complaint further alleges that the Contract was simultaneously assigned by Tom Wood to Tranex. (Id. ¶¶ 9, 14, 21; see also id. Ex. A at 1.) Thus, unlike the contracts in DeLeon and King, the Contract does provide for a financing fee, contains financing terms and expressly indicates that Ms. Spearman promised to pay Tom Wood.
Moreover, the allegations of the Complaint and attached Contract support a reasonable inference that Tom Wood is a "creditor" under TILA with respect to the Contract and sale of the vehicle to Ms. Spearman. The allegation that the Contract is a standard form regularly used by Tom Wood as well as the document itself support a reasonable inference that Tom Wood regularly extends, in connection with the sale of motor vehicles, consumer credit which is payable by agreement in more than four installments and for which the payment of a finance charge is or may be required. Assuming that Ms. Spearman knew that Tom Wood intended to assign the Contract to another lender, this does not make a difference: The Contract itself reveals that Tom Wood is the person to whom the debt arising from the consumer credit transaction is initially payable, though Tom Wood simultaneously assigned its rights to Tranex. Therefore, the allegations support a finding that Tom Wood satisfies the definition of "creditor" under TILA and Regulation Z. Consequently, Tom Wood's motion to dismiss should be DENIED.
Because the motion to dismiss is denied, and Plaintiff has made no showing of prejudice to her by the assertion of the Rule 12(b)(6) defense, the court declines to strike this defense. See, e.g., Johnson v. Chrysler Corp., 187 F.R.D. 440, 441 (D. Me. 1999). As for the indispensable party defense, an assignee's liability under TILA is limited by the statute. TILA provides that "any civil action for a violation of this subchapter . . . which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement. . . ." 15 U.S.C. § 1641(a); Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 692-95 (7th Cir. 1998) (holding creditors' assignees may not be held liable under TILA for violations not apparent on face of the disclosure statement). TILA identifies two violations that are apparent on the face of the disclosure statement: "(1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure which does not use the terms required to be used by this subchapter." 15 U.S.C. § 1641(a); see also Taylor, 150 F.3d at 694.
In the instant case, the TILA violations, if any, were not apparent on the face of the Contract. Thus, the court rejects Tom Wood's argument that Tranex is an indispensable party for purposes of the TILA claim. As Tom Wood does not argue that Tranex is an indispensable party for purposes of the state law claim, it does not appear Tranex is an indispensable party for that claim either. But because Plaintiff has not shown prejudice to her caused by the assertion of the indispensable party defense, the court declines to order it stricken. See, e.g., Johnson v. Chrysler Corp., 187 F.R.D. 440, 441 (D. Me. 1999).
Plaintiff's motion to strike is DENIED as to the failure to state a claim and indispensable party defenses. Should Plaintiff make a showing of prejudice at a later date, the court may, on proper motion, revisit this ruling. The court does not typically make the parties' pleadings available to the jury.
(3) Motion to Sever Claims
Tom Wood moves to sever Plaintiff's claims against it from her claim against Charles R. Sheeks, contending that the claims do not satisfy the requirements of FED. R. CIV. P. 20(a). Defendant Sheeks joins in this motion. Rule 20(a) provides in relevant part:
All persons . . . may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same . . . series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action.
FED. R. CIV. P. 20(a). "Courts have adopted a flexible, case-by-case approach to determine whether a particular factual situation constitutes a single transaction or series of transactions for purposes of Rule 20(a). The ultimate question is whether the claims . . . are 'logically related.'" McLernon v. Source Int'l, Inc., 701 F. Supp. 1422, 1425 (E.D. Wis. 1988) (citing 7 CHARLES A. WRIGHT, ARTHUR R. MILLER MARY K. KANE, FEDERAL PRACTICE AND PROCEDURE, § 1653 p. 382 (2d ed. 1986)). Defendants argue that the claims asserted against them do not arise out of the same series of transactions or occurrences and there is no common question of law or fact. The court disagrees.
Plaintiff's claims against Tom Wood and Sheeks satisfy the requirements for permissive joinder. The claims are logically related. The Complaint alleges that Tom Wood violated TILA, Regulation Z and state law in connection with the Contract entered into with Plaintiff for the sale of a motor vehicle. (Compl. ¶¶ 9-30, 44-47.) The Complaint also alleges that Tom Wood retained Mr. Sheeks to collect a consumer debt allegedly owed by Plaintiff to Tom Wood in connection with the same vehicle and Contract and that a Notice of Claim filed by Sheeks violated the Fair Debt Collection Practices Act ("FDCPA"). (Id. ¶¶ 31-41, 55-57.) Given this, the court concludes that the TILA and state law claims against Tom Wood and the FDCPA claim against Sheeks arise out of the same series of transactions or occurrences. The claims are closely connected. But for Plaintiff's alleged failure to pay a consumer debt owed Tom Wood, Tom Wood would not have hired Sheeks to collect that debt and Sheeks would not have sent the Notice of Claim to Plaintiff. Moreover, there are common questions of law or fact among the claims against Tom Wood and Sheeks: whether Plaintiff owes Tom Wood money under the Contract and whether the property which was the subject of the transaction (the motor vehicle) was primarily for personal, family, or household purposes. See 15 U.S.C. § 1602 (h); 15 U.S.C. § 1692a(5). Therefore, the Defendants' motion to sever is DENIED. Though the claims are properly joined under Rule 20(a), if necessary, the court may sever the claims against Tom Wood and Sheeks for trial or make such other order to prevent delay or prejudice to the parties. See FED. R. CIV. P. 20(b).
Defendants fail to argue strenuously that the claims do not arise from the same series of transactions or occurrences choosing, rather, to argue in conclusory fashion that Counts I and III relate only to Tom Wood and Count II relates only to Sheeks.
Conclusion
Plaintiff's motion to strike affirmative defenses is GRANTED as to the insufficiency of process defense, but DENIED in all other respects; Tom Wood's motion to dismiss is DENIED; and Tom Wood's motion to sever, joined by Charles Sheeks, is DENIED.
ALL OF WHICH IS ORDERED this 22nd day of December 2000.