Opposition — Ford Motor Credit Co. v. Cenance

APR @ 49

No. 80-1205 ALEXANO=ER L. ST

Cl 2k

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

FORD MOTOR CREDIT COMPANY,

Petitioner,

versus

JANET CENANCE, ET AL.,

Respondents.

On Petition for Writ of Certiorari to

The United States Court of Appeals

For the Fifth Circuit

BRIEF FOR RESPONDENTS

IN OPPOSITION

Joseph W. Thomas

THOMAS & DAVIS

348 Baronne Street

Suite 430

New Orleans, Louisiana 70112

(S04) 525-2256

Attorney of Record

for Respondents

SCOFIELOS QUALITY PRINTERS. P O. BOX 530906. N O. LA 70183 - 504 622 1611

COUNTERSTATEMENT OF THE

QUESTIONS PRESENTED FOR REVIEW

1. Under the facts of this case, is Ford Motor Credit

Company a “creditor” for purposes of the Truth in

Lending Act and Regulation Z of the Federal Reserve

Board, and, if it is, whether it is identified as a creditor

on the disclosure statement clearly, conspicuously, and

in meaningful sequence as required by Regulation Z?

2. Under the facts of this case, is Ford Motor Credit

Company an original creditor and, as such, liable for all

disclosure violations, or a subsequent assignee and

liable only for those violations apparent on the face of

the disclosure statement?

3. Assuming that Ford Motor Credit Company is a

creditor in this case, does Section 226.6(d) of Regula-

tion Z relieve it of liability for disclosure violations?

ili

TABLE OF CONTENTS

Page

COUNTERSTATEMENT OF THE QUES-

TIONS PRESENTED FOR REVIEW ........... i

STATEMENT OF THE CASE ................... 1

SUMMARY OF ARGUMENT ................... 4

ARGUMENT

I. The Decision Of The Fifth Circuit In

These Cases Rests On Consideration

Of Issues Not Raised In The Deci-

sions Of The Three Other Circuits

And The Official Staff Interpretation

Of The Federal Reserve Board On The

Creditor Identification Issue. ............ 5

II. Because These Cases Involve A Joint

Disclosure Statement, Which Was

Prepared By Ford Credit, The Result Is

Distinguishable From The Result

Reached By The Second Circuit In

Manning v. Princeton Consumer Discount

6 ES 10

Il. The Truth In Lending Simplification

And Reform Act And The Implemen-

tation Regulations Completely Re-

solves Any Existing Conflict Between

The Circuits. ...... 00... cc cece eee ee eee 11

CONCLUSION .......... cece cece ccc eee 12

CERTIFICATE OF SERVICE ................... 13

PRECEDING PAGE WAS BLANK j

iv

TABLE OF AUTHORITIES

CASES: Page

Augusta v. Marshall Motors Co., 614 F.2d 1085

thks esbarecsso veces 6

Hinkle v. Rock Springs National Bank, 538 F.2d 295

a bids cess ee recdsee veces 11

Joseph v. Norman's Health Club, Inc., 532 F.2d 86

Ne i kaye becsese ceo 5,11

Lauletta v. Valley Buick, Inc., 421 F.Supp. 1036

irc b Ase edge vs ceces cecese §

Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935

EE ES Ee 5

Manning v. Princeton Consumer Discount Co., Inc.,

ee ome eee ere Cir, 1976) .............. 4,10,11

Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511

(Sth Cir. 1976) cert. denied, 431 U.S. 929

GUNES uy hs 6casrosescccice socese 5

Milhollin v. Ford Motor Credit Co., 588 F.2d 753

(9th Cir. 1978), rev’d on oti.er grounds, Ford

Motor Credit Company v. Milhollin, 444 U.S. 555

as oc kceccets veces 6

Mirabal v. General Motors Acceptance Corporation,

OS |) 5,82

Price v. Franklin Investment Co., Inc., 574 F.2d 594

us ceccsce cove 5,11

Sharp v. Ford Motor Credit Co., 615 F.2d 423 (7th

EE EE Pe ee 6

Vv

TABLE OF AUTHORITIES (Continued)

Page

Whitlock v. Midwest Acceptance Corp., 575 F.2d 652

We Ok de ews cdde ch onbid cee 62 cGix 5

Williams v. Bill Watson Ford, Inc., 423 F.Supp. 345

I og esc ok hE) ate hk Geoid be waa 11

STATUTES:

Truth in Lending Act, 15 U.S.C.

I is aha has oa se KAW oehae es oaebe's i,3

Truth in Lending Simplification and Reform

Act, Title VI of the Depository Institutions

Deregulation and Monetary Control Act of

1980, P.L. No. 96-221, 94 Stat. 132 ......... 5,11

REGULATIONS:

Regulation Z, 12 C.F.R. §226. et seq. ....... i,3,6,7,9

mesueation Z, 12 C.F.K. $226.2(6) ... 2... 200000. 4,8

Regulation Z, 12 C.F.R. §226.6(a) ............ 4,7,9

Regulation Z, 12 C.F.R. §226.6(d) ............. i,4,7

Regulation Z, 12 C.F.R. §226.8(a) ...........0000e 4

AGENCY OPINIONS:

Federal Reserve Board Official Staff Inter-

pretation No. FC-0001, 41 Fed. Reg. 41908

eth CE CBN ng ix Ab ot Ln, Serie Ae ee a 7,9

Truth in Lending, Annual Report to Con-

gress for the year 1980, Board of Gover-

nors of the Federal Reserve System .......... 12

No. 80-1205

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

FORD MOTOR CREDIT COMPANY,

Petitioner,

versus

JANET CENANCE, ET AL.,

Respondents.

On Petition for Writ of Certiorari to

The United States Court of Appeals

For the Fifth Circuit

BRIEF FOR RESPONDENTS

IN OPPOSITION

STATEMENT OF THE CASE

These cases involve consumer credit disclosures

made in connection with the credit sales of automo-

biles. The facts in the Cenance case are typical of the

credit arrangements involved in these cases. Ms.

2

Cenance went to Bohn Ford, Inc. (Bohn), on April 23,

1976 and selected a used car she wanted to purchase.

Ms. Cenance wanted to try to establish credit on her

own but Bohn’s salesman told her not to worry about

applying elsewhere for credit and had her sign an appli-

cation for credit (2nd Supp. R. 16). The credit applica-

tion Bohn had Ms. Cenance sign was provided to Bohn

by Ford Motor Credit Company (Ford Credit) (2nd

Supp. R. 6-7). Bohn transmitted a copy of Ms.

Cenance’s credit application to Ford Credit, and a few

days later Ford Credit informed Bohn that it would

finance the sale (2nd Supp. R. 7). Pursuant to an agree-

ment between Bohn and Ford Credit, Ford Credit pre-

pared and supplied Bohn with blank forms for use in

connection with making retail installment sales, which,

if Ford Credit agreed were correctly filled in by Bohn,

would be purchased by Ford Credit in cases in which

credit applications were approved. Ms. Cenance’s

credit application was approved, and on April 26, 1976,

she signed one of the retail installment contracts. On

May 3, 1976, pursuant to its earlier commitment, Ford

Credit purchased Ms. Cenance’s contract from Bohn

(2nd Supp. R. 8). The Truth in Lending disclosures

appear on the copy of the retail installment contract

given to Ms. Cenance by Bohn. At the time of this

transaction, Ford Credit financed all of Bohn’s credit

sales in which Bohn’s customers did not obtain financ-

ing on their own (2nd Supp. R. 10).

Virtually all of the terms of the credit transactions

were dictated by Ford Credit. The delinquency charges,

3

the method of rebating the finance charge in event of

prepayment, and a confession of judgment clause are

examples of some of the terms and conditions of credit

printed on the disclosure form by Ford Credit.

At the top of the disclosure form, Bohn is identified

as the seller. Ford Credit is not identified on the form,

except for the following unexecuted recital, which ap-

pears at the bottom of the form:

The foregoing contract hereby is accepted by

the Seller and assigned to Ford Motor Credit

Company in accordance with the terms of the

Assignment set forth on the reverse side

hereof.

Seller Bohn Ford, Inc.

By Title, President

In these cases the Fifth Circuit held that Ford Credit

is a creditor for Truth in Lending purposes and was not

identified on the disclosure form in the way required by

Regulation Z,! the regulation adopted by the Board of

Governors of the Federal Reserve System to enforce

the Truth in Lending Act.?

1 12 C.F.R. §226, et seq.

2 15 U.S.C. §1601, et seq.

4

SUMMARY OF ARGUMENT

1.

Section 226.6(a) of Regulation Z requires that all

Truth in Lending disclosures be made clearly, conspic-

uously and in a meaningful sequence. Where two cred-

itors issue a joint disclosure statement, each creditor

must be clearly identified. §226.6(d) of Regulation Z.

Under the facts of these cases Ford Credit, the extend-

er of credit, and the automobile dealers, the arrangers

of credit, were both creditors. §226.2(s) of Regulation

Z. As joint creditors, they should have both been iden-

tified on the disclosure form clearly, conspicuously, and

in a meaningful sequence. But they were not identified

as creditors clearly, conspicuously and in a meaningful

sequence.

2.

In Manning v. Princeton Consumer Discount Co., Inc., 533

F.2d 102 (3rd Cir. 1976), the extender of credit, gave

the consumer a disclosure statement but the arranger

of credit, the automobile seller, failed to make any dis-

closure. The court held that the seller violated

§226.6(d) of Regulation Z. Manning, however, did not

involve a joint disclosure statement. Manning did not

hold that where two creditors give a joint disclosure

statement to a consumer only one of them can be held

liable for disclosure violations.

3.

Any conflicts that may have been created between

the circuits by the decision in these cases have been

5

completely resolved by the changes made in disclosure

requirements under the regulations of the Truth in

Lending Simplification and Reform Act, which cred-

itors can use beginning on April 1, 1981.

ARGUMENT

The Decision Of The Fifth Circuit In These

Cases Rests On Consideration Of Issues Not

Raised In The Decisions Of The Three Other

Circuits And The Official Staff Interpreta-

tion Of The Federal Reserve Board On The

Creditor Identification Issue.

In its petition for a writ of certiorari, as it has ineach

Truth in Lending case in which it was a named defend-

ant, Ford Motor Credit Company asserts that it was a

“subsequent assignee”, not a “creditor” in these cases.

See Ford Credit’s Pet. 9-10 and 19-26. This conten-

tion, which respondents submit is the real reason why

Ford Credit is urging this court to issue the writ, has

been rejected by every court that has considered it.3 In

3 Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511 (Sth Cir. 1976),

cert. denied, 431 U.S. 929 (1977); Mirabal v. General Motors Accept-

ance Corporation, 537 F.2d 871, 874 n. 1 (7th Cir. 1976); Joseph v. Nor-

man’s Health Club, Inc., 532 F.2d 86, 91-92 (8th Cir. 1976); Whitlock v.

Midwest Acceptance Corp., 575 F.2d 652 (8th Cir. 1978); Price v. Frank-

lin Investment Company, Inc., 574 F.2d 594, 599-601 (D.C. Cir. 1977);

Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935, 942 (9th Cir. 1975);

Lauletta v. Valley Buick, Inc., 421 F.Supp. 1034, 1036 (W.D. Pa. 1976).

6

fact, the decisions of the Sixth, Seventh, and Ninth Cir-

cuits, which Ford Credit says conflict with the decision

in these cases, are predicated on the assumption that

Ford Credit is acreditor, not asubsequent assignee. See

Augusta v. Marshall Motor Co., 614 F.2d 1085, 1086 (6th

Cir. 1979); Sharp v. Ford Motor Credit Co., 615 F.2d 423,

426 (7th Cir. 1980); Milhollin v. Ford Motor Credit Co., 588

F.2d 753, 756 (9th Cir. 1978), rev'd on other grounds,

Ford Motor Credit Company rv. Milhollin, 444 U.S. 555

(1980).

The decisions are also based on the finding that to be

clearly identified as a“ creditor” on the disclosure state-

ment, as required by Regulation Z, the word “cred-

itor” need not be used. In Milhollin v. Ford Motor Credit

Company, 588 F.2d 753, 757 (9th Cir. 1978), rev’d on

other grounds, Ford Motor Credit Co. v. Milhollin, 444U.S.

555 (1980), the Ninth Circuit said:

Nowhere does Regulation Z quire use of the

word “creditor”. Here, the exact role that Ford

Credit ultimately played in each transaction

was Clearly disclosed. Requiring Ford Credit to

use the word “creditor” would not have given

Consumers additional information nor better

served the purposes of the Act.

In Sharp v. Ford Moter Credit Company, 615 F.2d 423-426

(7th Cir. 1980), the Seventh Circuit said:

“(Njeither the statute nor the regulations re-

quire that a creditor's identity be disclosedina

7

particular manner or be denominated by the

specific and descriptive appellation of credi-

tor.”

These decisions follow an official staff interpretation of

Regulation Z, which says that: “[a]lthough the identi-

fication of a creditor is a required disclosure under

§226.8(a), the disclosure does not constitute required

‘terminology.’ ” Federal Reserve Board Official Staff

Interpretation No. FD-0001, 41 Fed. Reg. 41908 (1976).

But the result reached in these cases is distinguish-

able from the result reached by the Sixth, Seventh and

Ninth Circuits, as well as the result reached in Federal

Reserve Board Official Staff Interpretation. The

respondents in these cases never contended that Ford

Credit’s identity as a creditor on the disclosure state-

ment was inadequate because the word “creditor” was

not used. Respondents in these cases asserted that the

placement as well as the technical, legalistic wording of

the only sentence on the disclosure statement in which

Ford Credit is mentioned violates Regulation Z’s re-

quirements that in multiple creditor cases each credi-

tor must be identified, and that this disclosure, like all

others, must be made clearly, conspicuously, and in

meaningful sequence.4

4 §226.6(a) of Regulation Z requires that all disclosures to be

made “clearly, conspicuously, in meaningful sequence, in accord-

ance with the further requirements of this section, at the time and

in the terminology prescribed in applicable sections.”

Under §226.6(d) of Regulation Z in transactions in which multi-

ple creditors make a joint disclosure, each creditor must be clearly

identified.

8

The disclosure form given Ms. Cenance serves as a

good example of disclosure violations alleged by

respondents. At the top of Ms. Cenance’s disclosure

statement the name and address of Bohn, the seller, is

disclosed. Bohn is the arranger of credit and under

§226.2(s) of Regulation Z is a creditor. Ms. Cenance

had no quarrel with the way Bohn was identified, even

though the word “creditor” was not used to identify

Bohn.

Ford Credit’s name appears on the bottom of the

form, in the following sentence:

The foregoing contract hereby is accepted by

the Seller and assigned to Ford Motor Credit

Company in accordance with the terms of the

assignment set forth on the reverse side

hereof.

At best, this language only tells the consumer that Ford

Credit willinthe future become an assignee. As the dis-

trict court said, “[t]his obviously refers to Ford only asa

potential assignee, and the assignment was, of course,

to be executed only at some time after the plaintiff

signed the form.” 430 F.Supp., at 1068 (footnote

omitted). This disclosure simply does not inform the

consumer that Ford Credit had already agreed to ex-

tend credit in the transaction, and, for Truth in Lend-

ing purposes, was a creditor in the transaction at the

moment the contract was signed.

9

Further, the highly technical, legalistic wording of

the sentence does not clearly inform the consumer that

Ford Credit is the extender of credit in the transaction.

While it is true that no specific language is required by

Regulation Z to clearly identify the creditors, legalese

of the type used on the disclosure statement given to

respondents does not pass muster.

Finally, if the requirement of §226.6(a) of Regula-

tion Z that all disclosures be made clearly, conspicu-

ously, and in meaningful sequence has any meaning it

must mean that in multiple creditor transactions the

creditors must be identified together, in the same sec-

tion of the disclosure statement. Where one creditor is

identified at the top of the disclosure statement and the

other is only identified in the midst of the technical,

legal, assignment statement, it cannot be said that both

creditors were identified clearly, conspicuously andina

meaningful sequence.

The above issues were raised and correctly decided

by the Fifth Circuit in these cases. The decisions of the

Sixth, Seventh, and Ninth Circuits that petitioner Says

conflict with these cases did not address or decide these

issues. In short, the fact that respondents have never

claimed that the failure to use the word “creditor” was a

disclosure violation distinguished these cases from the

cases in the Third, Seventh, and Tenth Circuits, as well

as the official staff interpretation of Regulation Z

issued by the Federal Reserve Board. The results reach-

ed by the Fifth Circuit in these cases are based on issues

10

not considered by the staff opinion letter and the other

circuit decisions.

II.

Because These Cases Involve A Joint Disclo-

sure Statement, Which Was Prepared By Ford

Credit, The Result Is Distinguishable From

The Result Reached By The Second Circuit In

Manning v. Princeton Consumer Discount Co., Inc.

The facts in these cases mandate a different result

than that reached in Manning v. Princeton Consumer Dis-

count Co., Inc., 533 F.2d 102 (3rd Cir. 1976), In these cases

the automobile seller, the arranger of credit, and Ford

Credit, the extender of credit, submitted a joint disclo-

sure statement to the respondents. In Manning the ex-

tender of credit submitted to the consumer the disclo-

sures required in credit loan transactions.

In Manning the automobile seller, the arranger of

credit, failed to make any disclosures. 533 F.2d 104. The

court held that under those facts the extender of credit

did not have to make the credit sales disclosures. 533

F.2d 105.

The court in Manning did not hold that in cases like

these, where twocreditors — the arranger of credit and

the extender of credit — make a joint disclosure, only

one, the arranger of credit, can be liable for disclosure

violations. Yet this incongruous result is exactly what

petitioner would have this court adopt in place of the

11

Fifth Circuit’s well reasoned opinion in these cases, The

holding in Manning, even if correct, would be wholly in-

appropriate to the facts of these cases.

Further, the Manning decision has been so widely re-

pudiated and distinguished that it is of little or no value

as precedent. See Price v. Franklin Investment Co., Inc., 574

F.2d 594 (D.C. Cir. 1977); Hinkle v. Rock Springs National

Bank, 538 F.2d 295 (10th Cir. 1976); Mirabal v. General

Motors Acceptance Corp., 537 F.2d 871 (7th Cir. 1976);

Joseph v. Norman's Health Club, Inc., 532 F.2d 86 (8th Cir.

1976); Williams v. Bill Watson Ford, Inc., 423 F.Supp. 345

(E.D. La. 1976).

Il.

The Truth In Lending Simplification And Re-

form Act And The Implementation Regula-

tions Completely Resolves Any Existing

Conflict Between The Circuits.

Assuming that there is a conflict in the circuits on

either the use of the word “creditor” or the liability of

an extender of credit in credit sale transactions, any

such conflicts have been resolved by the Truth in Lend-

ing Simplification and Reform Act (Simplification Act),

which is Title VI of the Depository Institutions Dereg-

ulation and Monetary Control Act of 1980, P.L. No. 96-

221, 94 Stat. 132. This act changed the definition of

creditor. Under §602(a)(1) of the Simplification Act a

creditor is now defined as “the person to whom the

12

debt arising from the consumer credit transaction is

initially payable on the face of the evidence of indebt-

edness.” Implementing regulations for the Simplifica-

tion Act must be in place by April 1, 1981. Between

April 1, 1981 and April 1, 1982, the date the revised reg-

ulations become mandatory, creditors may comply

with either the old or the revised regulation. See the

Annual Report to Congress for the year 1980 on Truth

in Lending, Board of Governors of the Federal Reserve

System.

CONCLUSION

For the reasons given above, the petition for a writ of

certiorari should be denied.

April

, 1981.

Respectfully submitted,

JOSEPH W. THOMAS

Attorney of Record

for Respondents

THOMAS & DAVIS

348 Baronne Street, Suite 430

New Orleans, LA 70112

(504) 525-2256

13

CERTIFICATE OF SERVICE

I certify that the below listed counsel of record each

have been served with three copies of the enclosed brief

by depositing the briefs in the United States mail on the

____ day of April, 1981, in a postage-paid envelope and

addressing the envelope to the counsel listed.

Counsel Served:

GRAYDON W. FLORENCE

1317 Johnson Ferry Road

Suite 216

Merchants Walk

Marietta, GA 30067

DAVID S. WILLENZIK

McGlinchey, Stafford & Mintz

P. O. Box 2000

New Orleans, LA 70176

EDWARD L. BAETY

104 Trinity Avenue

Atlanta, GA 30303

KEITH A. RODRIGUES

P. O. Box 3325

Lafayette, LA 70502

JOSEPH H. KING, JR.

967 Juniper Street, N.E.

Atlanta, GA 30303

14

ROBERT A. WILLIAMS

P. O. Box 1109

Immokalee, FL 33934

FRANK L. DERRICKSON

Suite 600

Healey Bldg.

57 Forsyth Street, N.W.

Atlanta, GA 30303

ROBERT K. TUCKER

101 East Flagler

Miami, FL 33131

BURGESS W. STONE

2415 Equitable Bldg.

100 Peachtree Street

Atlanta, GA 30303

E. PENN NICHOLSON

Suite 2900

Equitable Bldg.

100 Peachtree Street

Atlanta, GA 30303

WILLIAM WEGMANN, SR.

Suite 915

American Bank Bldg.

New Orleans, LA 70112

15

PETER A. FERINGA, JR.

Chaffe, McCall, Phillips, Toler & Sarpy

1500 First National Bank of Commerce Bldg.

New Orleans, LA 70112

WILLIAM M. BURKE

Sheppard, Mullin, Richter & Hampton

Suite 500

4000 MacArthur Blvd.

Newport Beach, CA 92660

VERNON L. EVANS

The National Consumer

Finance Association

1000 Sixteenth Street, N.W.

Suite 601

Washington, D.C. 20036

JOSEPH W. THOMAS

Attorney for Respondents

THOMAS & DAVIS

348 Baronne Street, Suite 430

New Orleans, LA 70112

(504) 525-2256