Appendix — Griggs v. Provident Consumer Discount Co.

UNITED STATES COURT OF APPEALS

FOR.THE THIRD CIRCUIT.

- No. 81-2989

ROBERT C. GRIGGS and

JACQUELINE M. GRIGGS

v

oe PROVIDENT CONSUMER DISCOUNT COMPANY.

Appellant

(D.C. Civil No. 80-01930)

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Argued: May 13, 1982

Before: GIBBONS and HUNTER, Circuit Judges

and GERRY, District Judge*

(Opinion Filed: June 2, 1982)

SHELDON C. JELIN, ESQ. (Argued)

1518 Lewis Tower Building

Philadelphia, PA 19102

Attorney for Appellant

HENRY J. SOMMER, ESQ. (Argued)

COMMUNITY LEGAL SERVICES, INC.

LAW CENTER NORTHEAST

3156 Kensington Avenue

Philadelphia, PA 19134

Attorney for Appellees

“Hon. John F. Gerry, United States District Judge for the District of

New Jersey, sitting by designation.

APPENDIX a

; , =

OPINION OF THE COURT

GIBBONS, Circuit Judge:

The Provident Consumer Discount Company

(Provident) appeals from a final order of the district

court assessing statutory damages against it for violating

the Truth in Lending Act (the Act), 15 U.S.C. §1601 et

erred in holding that a disclosure statement violated the

Act and the Regulation. Thus we reverse and remand for

consideration of other contentions.

I.

In June 1979, Robert and Jacqueline Griggs

(Griggses) obtained a personal loan from Provident for .

$2940. At that time they received from Provident a docu-

ment entitled “Note, Security Agreement and Disclosure

Statement” which in paragraph 17-E set forth the extent --

and nature of Provident’s security interests in plaintiffs’

real and personal Property. Soon thereafter, plaintiffs

filed a Petition in Bankruptcy. After being discharged

from their obligations, they instituted this action,

alleging that Provident violated the Act and Regulation Z

in three respects, They contended (1) that the descrip-

tion of Provident’s Security interest taker in

after-acquired Property is inaccurate and misleading; (2)

that Provident improperly calculated the refund of pre-

paid interest due on an earlier loan refinanced by the

present loan, and (3) that the inclusion in the disclosure

Statement of a non-existent security interest in insur-

ance proceeds ‘was improper. Provident counterclaimed

for a setoff against any recovery of the Griggses’

pre-bankruptcy obligations to it. The district court dis-

3

missed Provident’s counterclaim, and granted summary

judgment to the Griggses.! The court held that

Provident’s disclosure of its security interests in

after-acquired property was inaccurate and misleading

to potential borrowers. The remaining contentions were

not reached since one violation of the Act is sufficient to

establish liability for statutory damages. Having deter-

mined liability, the court awarded the Griggses separate

recoveries of $1000.00 each under 15 U.S.C. §1640(a).

Provident filed a Notice of Appeal from the order on Jan-

uary 16, 1981.7 We dismissed that appeal because the

district court’s order was not appealable under Fed. R.

Civ. P. 54. Subsequently, the district court directed the

entry of a separate final judgment under Rule 54(b). On

November 17, 1981 defendant filed in the district court a

Motion for Reconsideration and Motion to Alter, Amend

and Vacate Judgment. On November 19, 1981, a Notice

of Appeal was filed. On November 23, 1981, the district

court dismissed Provident’s motions.

1. The district court opinion is reported. 503 F. Supp. 246

(E.D. Pa. 1980).

2. The Griggses urge that this matter is not appealable because

Rule 4(a)(4) of the Federal Rules of Appellate Procedure provides

that “[a] notice of appeal filed before the disposition of any of the

above motions shall have no effect.” Appellant did fail to satisfy Rule

4(a)(4) but though a premature notice of appeal is subject to dis-

missal, we have generally allowed appellant to proceed unless the

appellee can show prejudice resulting from the premature filing of

the notice. Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879,

882 n.2 (3d Cir.), cert. denied, 101 S. Ct. 390 (1981); Hodge v.

Hodge, 507 F.2d 87, 89 (3d Cir. 1975); accord Williams v. Town of

Okeboji, 599 F.2d 238 (8th Cir. 1979). See also 9 Moore's F ederal

Practice 1204.14 (2d ed. 1982). In our case, the Griggses have

shown no prejudice by the premature filing of a notice of appeal.

4

II.

Section 1601 of the Act sets forth the congressional

purpose for enacting the Truth in Lending Act:

The Congress finds that economic stability would

be enhanced and the competition among the var-

ious financial institutions and other firms engaged

in the extension of consumer credit would be

strengthened by the informed use of credit. The in-

formed use of credit results from an awareness of

the cost thereof by consumers. It is the purpose of

this subchapter to assure a meaningful disclosure of

credit terms so that the consumer will be able to

compare more readily the various credit terms avail-

able to him and avoid the uninformed use of credit.

15 U.S.C. §1601 (1976). The Act was Passed to prevent

the unsophisticated consumer from being misled as to

the total cost of financing. See Mourning v. F amily Pub-

lications Services, Inc., 411 U.S. 356, 363-69 (1973). It

mandates the disclosure of certain information in f-

nancing agreements and enforces that mandate by “a

system of strict liability in favor of consumers who have

secured financing when [the] standard[s] [are] not met.”

Thomka v. A.Z. Chevrolet, 619 F.2d 246, 248 (3d Cir.

1980); 15 U.S.C. §1640(a). See also Ives v. W.T. Grant

Co., 522 F.2d 791 (2d Cir. 1975). A plaintiff thus does

not need to show that he was in fact deceived by sub-

Standard disclosures. See Dzadovsky v. Lyons Ford

Sales, Inc:;-593 F.2d 538, 539 (3d Cir. 1979) (per

curiam). Moreover, since the Act provides for Statutory

damages in addition to actual damages, a plaintiff need

not even show actual harm.

The Act obligates “[eJach creditor. . . [to] disclose

clearly and conspicuously, in accordance with the regu-

lations of the Board, to each person to whom consumer

credit is extended and upon whom a finance charge is or

may be imposed, the information required under [the

-

ae ee

ee f ate. ek = a ta ee i ape a tOledh 8 one 0 vented | ee

5

Act].” 15 U.S.C. §1631. Part of that information is “[a]

description of any security interest held or to be retained

or acquired by the creditor in connection with the exten-

sion of credit, and a clear identification of the property to

which the security interest relates.” 15 U.S.C.

§1639(a)(8). No liability can result, however, from “any

act done or omitted in good faith in conformity with any

rule, regulation, or interpretation thereof by the [Federal

Reserve] Board.” 15 U.S.C. §1640(b). -

The Federal Reserve Board has issued Regulation

Z, 12 C.F.R. §226.1 et S€q., pursuant to its rulemaking

powers conferred in Section 1604 of the Act, 15 U.S.C.

§1604 (1976). Regulation Z mandates that “[t}he disclo-

sure [under the Act]. . . be made clearly, conspicuous-

ly, [and] in meaningful sequence.” 19 C.F.R. 226.6(a),

and that “additional information or explanations may be

supplied with any disclosure required . . -- but none

shall be stated, utilized, or placed so as to mislead or con-

fuse the customer or lessee or contradict, obscure, or de-

tract attention from the information required.” 12 C.F.R.

§226.6(c). The creditor must provide “[a] description or

identification of the type of any security interest held or

tobe retained or acquired by the creditor in connection

with the extension of credit, and a clear identification of

the property to which the Security interest relates... .

If after-acquired property will be subject to the security

interest, or if other or future indebtedness is or may be

secured by any such property, this fact shall be clearly

set forth in conjunction with the description or identifi-

cation of the type of security interest held, retained or ac-

guired.” 12 C.F.R. §226.8(b)(5). Special deference must

be given the Board regulations since a determination of

what is “meaningful disclosure” under the Act is an em-

Pirically achieved balance between incomplete disclo-

sure and informational overload, a task to which the

Board is better suited than the courts. See Ford Motors

Credit Co. v. Milhollin, 444 U.S. 955, 568-69 (1980),

ee tet ee ta. ei tlle,

= »]

ae

}

4

7 §}

~*~

is

;

i gb

mf

465

6

Our task is to determine whether the district court

committed an error of law in applying the Act and Regu-

lation Z.° Paragraph 17-E of Provident’s "Note, Security

Agreement and Disclosure Statement“ provides: —

E. SECURITY: Until the Total of Payments

and all other obligations of Borrower to Provident,

direct, or contingent, joint, several or independent,

now or hereafter existing, due or to become due,

whether created directly or acquired by assignment

or otherwise, have been paid in full and as security

therefor, Borrower grants Provident a security inter-

3. This is not a case where the court was presented with a re-

cord containing conflicting evidence in the form of written docu-

ments from which it had to draw factual inferences. Were that the

case, Rule 52(a) would require us to review the findings under the

“clearly erroneous rule.”

“Rule 52 broadly requires that findings of fact not be set aside

unless clearly erroneous. It does not make exceptions or pur-

port to exclude certain categories of factual findings from the

obligation of a Court of Appeals to accept a district court's find-

ings unless clearly erroneous. It does not divide facts into cate-

gories; in particular, it does not divide findings of fact into those

that deal with “ultimate” and those that deal with “subsidiary”

facts... . . The rule does not apply to conclusions of law. . .

[nor does it) furnish particular guidance with respect to distin-

guishing law from fact.”

Pullman-Standard v. Swint, 50 U.S.L.W. 4425, 4429 (U.S. April 27,

1982). The issue before us is one of drawing a legal conclusion re-

garding the consequences of a document. See generally, Borden Co.

v. Clearfield Cheese Co., 369 F.24 96 (3d Cir. 1966). The district

court cannot, by couching a legal conclusion as a finding of fact,

prevent appellate review of legal errors. Cf. Scott Paper Co. v. Scott’s

Liquid Gold, Inc., 589 F.2d 1225 (3d Cir. 1977) (whether trademark

acquired secondary meaning outside the Paper goods product line);

Universal Athletic Sales Co. v. Salkeld, 511 F.2d 904 (3d Cir.), cert.

denied, 423 U.S. 863 (1975) (whether defendant’s chart infringes

copyrighted chart as a matter of law); Sears, Roebuck and Co. v.

Johnson, 219 F.2d 590 (3d Cir. 1955) (trade name infringement es-

tablished as a matter of law),

est in the following assets and all cash and non-cash

proceeds thereof (“Collateral”): . -

ee The following motor vehicle, complete

with all attachments, equipment, acces-

sories and additions:

MAKE SERIAL NO. BODY STYLE MODEL YEAR

2. [x] All household goods of every kind now

owned or hereafter acquired within ten

days of this date by Borrower, located in

or about Borrower’s premises set forth

above.

3. [x] Real Property (by a Mortgage and Judg-

ment Note of even date): 3

Address of Real Property: 2121 E. Orleans

St, Phila., Pa.

4. [x] Other Real Property: The Judgment Note

of even date, when recovered or recorded

constitutes a lien on all real property

owned by Borrower in the County where

such judgment is recovered or recorded.

5. [x] Proceeds of insurance required or pur-

chased in accordance with Paragraph F

below payable to Lender.

AFTER ACQUIRED REAL AND PERSONAL

PROPERTY OF BORROWER WILL BE SUBJECT

TO THE SECURITY INTEREST SET FORTH

HEREIN AND THE COLLATERAL SECURES

FUTURE AND OTHER INDEBTEDNESS OF

BORROWER TO PROVIDENT.

The issue is the legal import of the bold faced after

acquired property clause at the end of the paragraph."

4. The Griggses also claim that Paragraph 17-E 5 is inaccurate

and confusing because it refers to non-existent insurance. This ar-

gument is without merit. Paragraph 17-E 5 indicates that there is a

security interest in insurance required or purchased in accordance

with Paragraph F. Paragraph F, in turn, indicates that no insurance

8

. The bold faced section is part and parcel of the security

disclosure paragraph. It comes immediately at the end of

the description of security and specifically indicates that

it addresses “the security interest set forth herein,” i.e.,

in Paragraph 17-E. Whatever the bold faced words

might mean if standing alone, they form part of the para-

graph and must be interpreted in that context.°

Reading the bold faced section in the context of the

entire Paragraph 17-E, the reference to after-acquired

personal property is modified by Paragraph 17-E 2 to

mean household goods and only those acquired within

ten days of the loan transaction. The reference to

after-acquired real property is accurate as to paragraph

17-E 4 since under Pennsylvania law, in the event plain-

tiffs’ Judgment Note is recorded or recovered upon, all

the real property then owned by plaintiffs (including

those acquired after the loan issues) in the county where

the judgment is entered of record, becomes subject to

the lien. 42 Pa. Cons. Stat. Ann. §4303 (Purdon 1981).

The bold faced section has no application to Paragraph

17-E 3 since that paragraph contains no after-acquired

provisions but instead describes a well defined mortgage

on a well defined property. The bold faced sub-paragraph

NOTE — (Continued)

was purchased. Paragraph 17-E 5 alone does not show that there is

a security interest in insurance proceeds and we, therefore, find no

inaccuracy. Moreover we fail to see any source of confusion or ob-

struction when upon reading 17-E 5 the borrower refers to Para-

graph F and_-finds it completely blank. It would be apparent to even

the most unsophisticated borrower that there is no insurance and

hence no security interest.

5. We agree with the Griggses that if the bold faced section in

conjunction to paragraph 17-E were to disclose more security inter-

ests than what defendant actually had, there would be a violation of

the Act and regulations. The purpose of the Act is for customers to

be able to make informed decisions. This would be adversely affect-

ed as much by overstating a lender’s security interests as by under-

stating them.

el

*

mua

9

thus is modified by the substantive provisions preceding

it, and a reading of the paragraph as an integral whole

indicates no inaccuracies.

The district court also held that, even if accurate,

the bold faced section was confusing and misleading,

because “there is no reason for the additional confusing

information to be present. . . . If the bold print adds

nothing to the security interest taken, there is no reason

to have it in the form at all.” 503 F. Supp. at 250. We

disagree. The bold faced section fulfills a useful func-

tion. It signals to the potential customer that

after-acquired propety will be subject to defendant's se-

_ curity interest and, thereby, insures that the customer

focus on the preceding paragraph to understand the full

scope of his commitments. The Board regulations spe-

cifically require that “[i]f after-acquired property will be

subject to the security interest. . ., the fact shall be

clearly set forth in conjunction with the description or ©

identification of the type of security interest held, re-

tained or acquired.” 12 C.F.R. §226.8(b)(5). This re-

quirement of clear disclosure of “after acquired property

security interests” justifies Provident’s use of a bold face

warning flagging a customer's attention to the existence

of such security interest.

Thus we hold that the district court erred in deter-

mining that defendant violated the Act and Regulation Z

in its disclosure of security interests. The district court

did not, however, reach plaintiffs’ allegations that the de-

fendant improperly calculated the refund due to them of

interest prepaid on the original loan. Neither can we. ab-

sent district court factfinding. We must therefore re-

mand for a determination of the Griggses’ remaining

grounds for relief.

Il.

Since on remand the question may arise of setting

off plaintiffs’ pre-bankruptcy obligations to Provident

10

against their recovery, if any, that question should be

addressed.

The Act has important penal characteristics. See

Mourning v. Family Publications Service Inc., 411 U.S.

356, 376 (1973); Riggs v. Government Employees Fi-

nancial Corp., 623 F.2d 68 (9th Cir. 1980); Newton v.

Beneficial Finance Company of New Orleans, 558 F.2d

731 (5th Cir. 1977). The Senate Report stated:

The enforcement of the bill would be accomplished

largely through the institution of civil actions au- .

thorized under section 7 [15 U.S.C. §1640] of the

bill. Any creditor who fails to disclose the required

information would be subject to a civil action with a

penalty of twice the finance charge. . . . The com-

mittee has not recommended investigative or en-

forcement machinery at the Federal level, largely on

the assumption that the civil penalty section will se-

cure substantial compliance with the act.

S. Rep. No. 392, 90th Cong., Ist Sess. 9 (1967). The Re-

port indicates a congressional intent to deter improper

disclosure practices by a system of civil liability. The Act

allows recovery even when the complainant was not

deceived by misdisclosure, and provides for statutory

damages in addition to actual damages. Thus the Act

imposes a civil penalty, the purpose of which is to pro-

vide an incentive for private litigants to institute actions

and thereby enforce the Act’s provisions.

A setoff of bankruptcy discharged debts owed a

creditor would interfere with the penal purpose of the

Act. Newton v. Beneficial Finance Company of New Or-

leans, supra, 558 F.2d at 732; see also Riggs v. Govern-

ment Employees Finance Corp., supra, 623 F.2d at

73-75. If a creditor were allowed a setoff, the deterrent

effect of the civil penalty liability would be reduced. A

setoff would remove incentives for an obligor to sue un-

der the Act. Moreover, a setoff would be anomalous

since the cause of action inures to the plaintiff as a pri-

1d]

vate attorney general. Superficially it may appear unfair

to Provident to make it pay statutory damages in addition

to the losses incurred as a result of the Griggses’ bank-

ruptcy. The losses due to bankruptcy, however, are a

product of Provident’s judgment in making a loan. Bank-

ruptcy is a business risk which any lender takes. Bank-

ruptcy losses are thus independent from the Act and

Provident cannot rely on these losses for relief from the

Act’s penalty provisions. Neither can Provident complain

that the Griggses receive a windfall by recovering dam-

ages under the Act while having their loan discharged.

That windfall is provided by Congress in order to stimu-

late truth in lending suits. We hold, therefore, that there

can be no setoff of the bankruptcy discharged debt -

against any recovery of statutory damages. Accord New-

ton v. Beneficial Finance Company of New Orleans, 558

F.2d 731 (5th Cir. 1977); see Riggs v. Government Em-

ployees Financial Corp., 623 F.2d 68 (9th Cir. 1980). Cf.

McCullom v. Hamilton National Bank, 303 U.S. 245

(1938) (debt discharged by bankruptcy cannot be used

to offset a penalty, imposed by federal statute, against |

national bank for taking usurious interest. ).

IV.

The judgment appealed from will be reversed and

the case remanded for further proceedings consistent

with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

oe Ot eee eer ee ee

Muited $ States Court of Appeals

FOR THE THIRD CIRCUIT

No. 81-2989

GRIGGS, ROBERT C. and GRIGGS, JACQUELINE M.

VS.

PROVIDENT CONSUMER DISCOUNT COMPANY,

Appellant

rY o

~* * ’

*

. (D.C. Civil No. 80-01930)

ON APPEAL FROM THE UNITED STATES DISTRICT COURT |

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

GIBBONS and HUNTER, Circuit Judges and GERRY, District Judge*

Present:

~ ome

JUDGMENT

.

al

This cause came on to be heard on the record from the United States District Court for .

the Eastern District of Pennsylvania

and was argued by counsel on May 13, 1982.

On consideration whereof, it is now here ordered and adjudged by this Court that the:

judgment of the said District Court , entered November 5, 1981, .

be, and the same is hereby reversed and the cause remanded for further proceedings

consistent with the opinion of this Court. Costs taxed against appellee.

ATTEST:

Clerk

June 2, 1982 .

*Honorable John ©. Cerrv. tintted Sratrec Tiecrrict lndesn far the Dietricr

246 503 FEDERAL SUPPLEMENT

Construing the Act’s preemption clause to

forbid state regulation of exempted air car-

riers would make the foregoing provisions

of Title IV meaningless. More than con-

templating the existence of state regula-

tion, they obviously rely upon and adopt it.

A statute’s purpose is also a key to its

meaning. Chapmen v. Houston Welfare

Rights Organization, 441 U.S. 600, 99 S.Ct.

1905, 60 L.Ed.2d 508 (1979); Rogers v. Fri-

to-Lay, Inc., 611 F.2d 1074 (5th Cir. 1980).

Nothing in the preemption clause’s purpose

indicates any intent or necessity for prohib-

iting state regulation of exempt air carri-

ers. Congress enacted the preemption

clause to resolve “uncertainties and con-

flicts, including situations in which carriers

have been required to charge different

fares for passengers traveling between two

cities, depending on whether these passen-

gers were interstate passengers whose fares

are regulated by the CAB, or intrastate

passengers, whose fare is regulated by a

State.” House Report No. 95-1211 at 16, 4

U.S.Code and Admin.News 1978, pp. 3751,

$752 (1979) (footnote omitted). When a

- carrier is exempt and its rates, therefore,

are not regulated by the CAB, state regula-

tion will not cause “uncertainties and con-

‘flic ”

Expanding the scope of the statutory

purpose examined from the purpose of the

preemption clause to the purpose of the

entire Airline Deregulation Act, there is

still no indication that Congress intended

for exemption from Civil Aeronautics Board

regulation to preempt state regulation of

airlines. The entire Airline Deregulation

Act of 1978, the House Report No. 95-1211

(4 United States Code and Administrative

News, p. 3737 [1979]), and the House Con-

ference Report No. 95-1779 (4 United

States Code and Administrative News, p.

$773 [1979]) all indicate Congress’ purpose

was reducing federal regulation of airlines.

Only where state and federal regulation

overlap did Congress indicate any purpose

to affect state regulation. There is no

overlap in state regulation of exempt air

carriers.

All logically relevant factors lead to the

conclusion that states may regulate air car-

riers exempted pursuant to Title 49, United

States Code, Section 1386(b)(4), from Board

regulation. Such exemptions are not

grants of authority under subchapter IV,

and the preemption clause, therefore, does

not affect state regulation. This conclusion

is not inconsistent with the decision in

Braniff International, Inc. v. Florida Public

Service Commission, TCA No. 76-4 (March

80, 1979), which declared Section 330.53,

Florida Statutes (1979), expressly preempt-

ed

Florida Statutes § 330.53 empowers the

Florida Public Service Commission ‘to dis-

approve any change in a rate, fare, or

schedule between points in this state of a -

person engaged in air transportation pur-

suant to a certificate or certificates is-

sued by the Civil Aeronautics Board pur-

suant to s. 401 of the Federal Aviation

Act of 1958 ....’

Id. at 2; footnote omitted. In contrast

Florida’s jurisdiction over Charter Air is

created in a statute neatly meshing with

the preemption clause and carefully exclud-

ing from its purview persons operating un-

der certificates of authority from the

Board. § 330.46, Fla.Stat. (1979).

The Plaintiff's Motion for Summary

Judgment is denied. The Defendant’s Mo-

tion for Summary Judgment is granted. |

The Clerk shall assess all lawful costs

against the Plaintiff.

Robert C. GRIGGS and Jacqueline

M. Griggs

v.

PROVIDENT CONSUMER DISCOUNT

COMPANY.

Civ. A. No. 80-1930.

United States District Court,

E. D. Pennsylvania.

Dec. 24, 1980.

Husband and wife filed action seeking

to recover against creditor for violation of

APPENDIX B

'

+ rte ie barn

Rb Nees ; Ay

‘te

;

45 y, 3%

at ae WE

wir ky

wigs da ee

Nee 2

>t em & £m 4 oe Be 6 te of fa et mC

e ; ‘ ‘

Rit . ee Os }

LS faite rented ate TOE bud eer

GRIGGS v. PROVIDENT CONSUMER DISCOUNT CO.

Cite as 503 F.Supp. 246 (1980)

the Truth in Lending Act. Parties filed

cross motions for summary judgment. The

District Court, Joseph S. Lord, III, Chief

Judge, held that the after-acquired proper-

ty clause printed in bold face on the disclo-

sure statement in the Truth in Lending Act

transaction violated the Act as to both real

and personal property where the mortgage

the creditors took in connection with the

transaction applied only to the plaintiffs’

residence, as was specifically set forth in

the legitimate security interest taken in

real property, but the after-acquired prop-

erty clause incorrectly disclosed the security

interest in all real property acquired in the

future and the clause as it related to after-

acquired personal property was not limited

to such goods the debtor would acquire

within ten days after the creditor gave val-

ue and therefore violated Pennsylvania law

limiting the security interest a creditor

could hold in after-acquired consumer

goods.

Motion for summary judgment grant-

ed.

1,‘Consumer Credit ¢=59, 51

Truth in Lending Act and regulations

promulgated under Act require creditor to

disclose relevant credit information to con-

sumer in comprehensible language and

form; required disclosures are intended to

provide, especially to inexperienced and un-

informed consumer, way to avoid possibility

of deception, misinformation, or at least

obliviousness to true costs of credit transac-

tion. Truth in Lending Act, § 102 et seq. as

amended 15 U.S.C.A. § 1601 et seq.; Truth

in Lending Regulations, Regulation Z,

§ 226.1 et seq., 15 U.S.C.A: foll. § 1700.

2. Consumer Credit ¢=56

Creditor in Truth in Lending Act trans-

action must clearly describe or identify any

security interest retained by creditor.

Truth in Lending Act, § 129(a)(8) as amend-

ed 15 U.S.C.A. § 1639(a)(8); Truth in Lend-

ing Regulations, Regulation Z, § —

15 U. S.C.A. foll. § 1700.

247

3. Consumer Credit +56

After-acquired property clause con-

tained in disclosure statement for Truth in

Lending Act transaction violated Truth in

Lending Act as to real property in that

purported disclosure of security interest in

all after-acquired real property was inaccu-

rate when mortgage creditors took in con-

nection with transaction applied only to

borrowers’ residence. Truth in Lending

Act, § 129(2)8) as amended 15 U.S.C.A.

§ 1639(a\(8); Truth in Lending Regulations,

Regulation Z, § 226.8(b)(5), 15 U.S.C.A. foll.

§ 1700.

4. Consumer Credit <=56

After-acquired property clause con-

tained in financial disclosure statement for

Truth in Lending Act transaction was inac-

curate as concerned after-acquired personal

property where Pennsylvania law limited

security interest creditor could hold in af-

ter-acquired consumer goods so that credi-

tor could acquire security interest in such

goods only where debtor acquired rights in

goods within ten days after creditor gave

value, but bold print after-acquired proper-

ty clause failed to confine interest to per-

sonal property acquired within ten days.

Truth in Lending Act, § 129{a)(8) as amend-

ed 15 U.S.C.A. § 1689(a){8); Truth in Lend-

ing Regulations, Regulation Z, § 226.8(b)(5),

15 U.S.C.A. foll. § 1700; 13 Pa.C.S.A. § 9204

(d){2).

5. Consumer Credit 51

Misleading and confusing disclosures as

well as failures to disclose constitute viola-

tions of Truth in Lending Act and Regula-

tion Z. Truth in Lending Act, § 102 et seq.

as amended 15 U.S.C.A. § 1601 et seq.;

Truth in Lending Regulations, Regulation

Z, § 226.1 et seq., 15 U.S.C.A. foll. § 1700.

6. Consumer Credit 56

Even if general after-acquired property

provision in Truth in Lending Act transac-

tion merely related back to specific provi-

sions of paragraph in disclosure statement,

general after-acquired property provision

violated Truth in Lending Act where there

was no reason for additional confusing in-

mls

H

4

ré

$

4

%

§

i

t

+

3

2

§

t

;

H

f

}

£

i

3

f

:

k

:

2

;

:

>

Prog heey Ammer we ewe mn IES Bee PET er eet ig Sarre BLIP RAY oj Pty begin:

248 503 FEDERAL SUPPLEMENT

formation to be present, no satisfactory rea-

son was offered to explain why bold print

clause was included on disclosure statement

and confusion would have been lessened if

bold print clause had been omitted from

form altogether. Truth in Lending Act,

§ 129(a)(8) as amended 15 U.S.C.A.

§ 1639%(aX8); Truth in Lending Regulations,

Regulation Z, § 226.8(b)(5), 15 U.S.C.A. foll.

§ 1700.

: 7. Consumer Credit 50

Requirements of Truth in Lending Act

are highly technical, but full compliance is

required; even minor violations of Act can-

not be ignored. Truth in Lending Act,

§ 102 et seq. as amended 15 U.S.C.A. § 1601

et seq.; Truth in Lending Regulations, Reg-

ulation Z, § 226.1 et seq., 15 U.S.C.A. foll.

§ 1700.

8. Consumer Credit 64

Federal Civil Procedure =2515

Question of whether lender’s Truth in

Lending Act disclosures are inaccurate, mis-

leading or confusing ordinarily will be for

fact finder; however, where confusing, mis-

leading and inaccurate character of disput-

ed disclosure is so clear that it cannot rea-

sonably be disputed, summary judgment for

plaintiff is appropriate. Truth in Lending

Act, § 102 et seq. as amended 15 U.S.C.A.

§ 1601 et seq.; Truth in Lending Regula-

tions, Regulation Z, § 226.1 et seq., 15 US.

_C.A. foll. § 1700.

9, Consumer Credit 67

Where husband and wife were co-obli-

gors in Truth in Lending Act transaction,

language of Act provides for separate re-

covery by each consumer involved in trans-

action and, therefore, each one could recov-

er twice amount of finance charge up to

maximum of $1,000, as Act does not limit

consumers to one recovery per transaction.

Truth in Lending Act, § 130{a) as amended

15 U.S.C.A. § 1640{a).

1. The Truth in Lending Act is the short title of

Title | of the Consumer Protection Act, 15

U.S.C. §§ 1601 et seq.

Henry J. Sommer, Community Legal

Services, Inc., Philadelphia, Pa., for plain-

tiffs.

Sheldon C. Jelin, Philadelphia, Pa. for

defendant.

MEMORANDUM

JOSEPH S. LORD, Ill, Chief Judge.

Plaintiffs and defendant have filed cross-

motions for summary judgment in this

Truth in Lending Act' (TILA) case. On

June 19, 1979, the plaintiffs and defendant

signed a Note, Security Agreement and Dis-

closure Statement (Disclosure Statement)

refinancing an earlier loan made to plain-

tiffs by defendant. Attachment to Defend-

ant’s Answer.

Plaintiffs argue that defendant violated

the TILA in three ways. First, they argue

that the description of the security interest

taken in after-acquired property is inaccu-

rate and misleading. Second, plaintiffs

claim that defendant improperly calculated

the refund due to plaintiffs of interest pre-

paid on the original loan resulting in an

incomplete refund. Plaintiffs claim that

the amount not refunded to them should

have been and was not disclosed as part of

the finance charge on the June 19th trans-

action. As a result of this allegedly incor-

rect calculation, the disclosures of the

amount financed and the annual percentage

rate are also claimed to be incorrect. Third,

plaintiffs argue that the disclosure of a

security interest in proceeds of insurance

where no insurance exists violates the

TILA. I need find only a single violation of

the statutory requirements to hold defend-

ant liable under the TILA. 15 USC.

§ 1640; Thomka v. A. Z. Chevrolet, Inc., 619

F.2d 246 (3d Cir. 1980). I agree with plain-

tiffs that the after-acquired property clause

violates the TILA and therefore will not

resolve the other claims.

[1] Congress declared that its purpose in

enacting the TILA was to promote “ths

informed use of credit ... by consumers”

and “to assure a meaningful disclosure of

credit terms so that the consumer will be

able to compare more readily the various

credit tcrms available to him ....” 15

U.S.C. § 1601. See also Mourning v. Family

Publications Service, Ine., 411 U.S. 356, 93

S.Ct. 1652, 36 LEd2d 318 (1973). The

TILA and the regulations? promulgated

under it require a creditor to disclose rele-

vant credit information to a consumer in

comprehensible language and form. The

required disclosures are intended to provide,

especially to the inexperienced and unin-

formed consumer, a way to avoid “the pos-

sibility of deception, misinformation, or at

least an obliviousness to the true costs” of a

credit transaction. Thomka, 619 F.2d at

248. See also Allen v. Beneficial Finance

Co., 531 F.2d 797 (7th Cir.), cert. denied, 429

U.S. 885, 97 S.Ct. 237, 50 L.Ed.2d 166 (1976).

[2] A creditor in a TILA transaction

must clearly describe or identify any securi-

ty interest retained by the creditor. 15

U.S.C. at § 1689(a)(8); 12 C.F.R. at § 226.-

8(bX{5). Defendant disclosed the security

interest at issue here by checking boxes

next to the following items in Paragraph E

of the printed Disclosure Statement:

2. All household goods of every kind

now owned or hereafter acquired within

ten days of this date by Borrower, located

in or about Borrower's premises set forth

above. aetes

3. Real Property (by a Mortgage and

Judgment Note of even date): Address of

Real Property: i

Pa, [address handwritten in}.

4. Other Real Property: The Judgment

Note of even date, when recovered or

recorded constitutes a lien on all real

Property owned by Borrower in the Coun-

ty where such judgment is recovered or

recorded

5. Proceeds of insurance required or

purchased in accordance with Paragraph

F below payable to Lender.

Note, Security Agreement, and Disclosure

Statement, Attachment to Answer. Imme-

diately following the above provision, in

larger type, the form states, “AFTER AC-

2. The TILA regulations, 12 C.F.R. § 226 (1979),

are referred to as a group as Regulation Z.

GRIGGS v. PROVIDENT CONSUMER DISCOUNT Co. 249

Cite as 503 F.Supp. 246 (1986)

QUIRED REAL AND PERSONAL PROP-

ERTY OF BORROWER WILL BE SUB-

JECT TO THE SECURITY INTEREST

SET FORTH HEREIN AND THE COL-

LATERAL SECURES FUTURE AND

OTHER INDEBTEDNESS OF BORROW-

ER TO PROVIDENT.”

(3] The after-acquired property clause

Violates the TILA as to both real and per-

sonal property. First, the purported disclo-

sure of a security interest in after-acquired

real property is clearly inaccurate. Both

defendant and plaintiffs agree that the

mortgage defendants took in conjunction

with this transaction applied only to the

plaintiffs’ residence at 2121 E. Orleans

Street. Paragraph E.3. explicitly sets forth

the legitimate security interest taken in

real property. However, the after-acquired

property clause contradicts Paragraph E.3.

and incorrectly discloses a security interest

in all real Property acquired in the future

by plaintiffs. An incorrect disclosure of a

Security interest violates the TILA and

Regulation Z. 15 U.S.C. at § 1639(ayX8); 12

C.F.R. at § 226.8(b)(5).

[4] The inaccuracy of the after-acquired

property clause as to rea] property alone is

enough to subject defendant to liability un-

der the TILA. However, this inaccuracy is

acquired consumer goods. Under 13 Pa,

Cons.Stat. § 9204(d)(2) a creditor can ac-

quire a security interest in such goods only

where the debtor acquires rights in the

goods within ten days after the creditor

gives value. Paragraph E-2 is within the

limits of Pennsylvania law, However, the

bold print clause appears to grant a much

broader security interest since it fails to

confine the interest to property acquired

within ten days.

[5] Plaintiffs argue, and I agree, that

these contradictory provisions are confusing

and misleading in violation of the TILA and

Cite as 503 F.Supp. 246 (1980)

and “to assure a meaningful disclosure of QUIRED REAL AND PERSONAL PROP-

credit terms so that the consumer will be ERTY OF BORROWER WILL BE SUB-

able to compare more readily the various JECT TO THE SECURITY INTEREST

credit. terms available to him ....” 15 SET FORTH HEREIN AND THE COL-

U.S.C. § 161. See also Mourning v. Family LATERAL SECURES FUTURE AND

Publications Service, Inc., 411 U.S. 356, 93 OTHER INDEBTEDNESS OF BORROW-

S.Ct. 1652,.36 LEd2d 318 (1978). The ER TO PROVIDENT.”

TILA and the regulations? promulgated

under it require a creditor to disclose rele-

vant credit information to a consumer in f ‘

comprehensibie language and form. The sonal property 7 First, the purported dleclo-

required disclosures are intended to provide, Sure of a security interest in after-acquired

especially to the inexperienced and unin- *e#! property is clearly inaccurate. Both

formed consumer, a way to avoid “the pos- defendant and plaintiffs agree that the

sibility of deception, misinformation, or at ™°Ttgage defendants took in conjunction

- Teast an obliviousness to the true costs” of a With this transaction applied only to the

credit transaction. Thomka, 619 F.2d at Plaintiffs’ residence at 2121 E. Orleans

248. See also Allen v. Beneficial Finance Street. Paragraph E.3. explicitly sets forth

Co., 531 F.2d 797 (7th Cir.), cert. denied, 429 the legitimate security interest taken in

US. 885, 97 S.Ct. 237, 50 L.Ed.2d 166 (1976), e2! property. petehaie caging"

[2] A creditor in a TILA transaction property clause contradicts Paragrap ‘

; . &nd incorrectly discloses a security interest

must clearly describe or identify wey CURE ie all real aides acquired in the future

ty interest retained by the creditor. 15 by plaintiffs. An incorrect disclosure of a

US.C. at § 1689(a)(8); 12 GF-R. at § 226. security interest violates the TILA and

8(b}{5). Defendant disclosed the security Regulation Z. 15 U.S.C, at § 163%(a\(8); 12

interest at issue here by checking boxes CFR. at § 226.8(b)(5), : :

next to the following items in ParagraphE ~~" ™ :

_ Of the printed Disclosure Statement: [4] The inaccuracy of the after-acquired

2. All household goods of every kind

: +4: Property clause as to real property alone is

now owned or hereafter acquired within enough to subject defendant to liability un-

ten days of this date by Borrower, located der the TILA. However, this inaccuracy is

in or about Borrower's premises set forth coupled with a confusing and misleading

above. disclosure as to after-acquired personal

3. Real Property (by a Mortgage and property. Pennsylvania law limits the se-

Judgment Note of even date): Address of curity interest a creditor can hold in after-

Real Property: 212] E. Orleans St. Phila., acquired consumer goods. Under 18 Pa.

Pa. [address handwritten in). Cons.Stat. § 9204(d)(2) a creditor can ac-

4. Other Real Property: The Judgment quire a security interest in such goods only

Note of even date, when recovered Or whore the debtor acquires rights in the

recorded constitutes a lien on all real goods within ten days efter the creditor

property owned by Borrower in the Coun- gives value. Paragraph E-2 is within the

ty where such judgment is recovered or limits of Pennsylvania law. However, the

recorded. : bold print clause appears to grant a much

5. Proceeds of insurance required or broader security interest since it fails to

purchased in accordance with Paragraph confine the interest to property acquired

F below payable to Lender. within ten days.

Note, Security Agreement, and Disclosure

Statement, Attachment to Answer. Imme- (5] Plaintiffs argue, and I agree, that

diately following the above provision, in these contradictory provisions are confusing

larger type, the form states, “AFTER AC- and misleading in violation of the TILA and

2, The TILA regulations, 12 C.F.R. § 226 (1979),

are referred to as a group as Regulation Z.

(3] The after-acquired property clause

violates the TILA as to both real and per-

GRIGGS v. PROVIDENT CONSUMER DISCOUNT co. 249

> hp re! ge heehee Sen eee og 5 =

ante & St eee

3

}

t

=F

t

i

he

i

i

i

¢

OL ENN A tn Ait eb hi we nee ig a

Misceeda

250 503 FEDERAL SUPPLEMENT

Regulation Z. Misleading and confusing

disclosures as well as failures to disclose

constitute violations. Gennuso v. Commer-

cial Bank & Trust Co., 566 F.2d 437 (3d Cir.

' 1977). Regulation Z specifically prohibits

creditors from including on disclosure state-

ments information other than that required

by the TILA where that information is

“stated, utilized, or placed so as to mislead

or confuse the customer ... or [to] contra-

’ dict, obscure, or detract attention from the

[required] information ....” 12 C.F.R. at

§ 226.6(c).

Defendant notes that the Tenth Circuit

has held that it is not a violation for a

creditor to disclose a security interest in

after-acquired property without further dis-

closing state limitations on such security

interests including time limits on acquisi-

tion. Montoya v. Postal Credit Union, 630

F.2d 745 (10th Cir. 1980). In this case,

however, there are two technically accurate

disclosures on after-acquired personal prop-

erty. The violation is that the disclosures

are apparently contradictory and thus, I

hold, are misleading and confusing under

the TILA.

{6} Defendant argues that the general

after-acquired property provision in the

bold print simply refers back to the specif-

ics of Paragraph E, and thus is not contra-

dictory. Even if we accept defendant’s ar-

gument, there is no reason for the addition-

al confusing information to be present. De-

_ fendant advances no satisfactory reason to

explain why the bold print clause was in-

cluded on the disclosure statement. If the

bold print adds nothing to the security in-

terest taken, there is no reason to have it in

the form at all. Confusion certainly would

have been lessened if the bold print clause

had been omitted from the form altogether.

See Gennuso, supra; Ives v. W. T. Grant

Co., 522 F.2d 749 (2d Cir. 1975); Barber v.

Kimbrell’s, Inc., 424 F.Supp. 42 (W.D.N.C.

1976), aff'd in part, rev'd in part, 577 F.2d

3. Congress has addressed itself to complaints

about the technicality of the TILA by amending

it in the Truth in Lending Simplification and

Reform Act, P.L. 26-221, 48 U.S.L.W. 124 (Apr.

22, 1980). The amendment, effective in 1982,

limits liability for statutory penalties to disclo-

1 & '

a | to abet ey antes =

: “%

TE a ht Ed ot ot gb a

ee aot - * 4 q

a a o

216 (4th Cir.), cert. denied, 439 U.S. 984, 99

S.Ct. 829, 58 L.Ed.2d 330 (1978).

[7] “Enforcement fof the TILA] is

achieved in part by a system of strict liabili-

ty in favor of consumers who have secured

financing when [the required statutory]

standard is not met.” Thomka, 619 F.2d at.

248. The requirements of the TILA are

highly technical but full compliance is re-

quired. Gennuso, supra. Even minor vio-

lations of the Act can not be ignored.

Thomka, supra.

[8} The question of whether a lender’s

TILA disclosures are inaccurate, mislead-

ing, or confusing ordinarily will be for the

factfinder. However, where, as here, the

confusing, misleading, and inaccurate char-

acter of the disputed disclosure is so clear

that it cannot reasonably be disputed, sum-

mary judgment for the plaintiff is appropri-

ate. Barber v. Kimbrell’s, Inc., 577 F.2d

216 (4th Cir. 1978). See also Gennuso, su-

pra (summary judgment for plaintiff on

question of whether disclosure of security

interest in nonexistent item is misleading);

Allen, supra (summary judgment for plain-

tiff on issue of defendant’s failure to make

TILA disclosures in “meaningful se-

quence”); Weaver v. General Finance

Corp., 528 F.2d 589, 590 (5th Cir. 1976)

(summary judgment for plaintiff where

court finds defendant's disclosure “had the

capacity to mislead or confuse a potential

borrower ....”).

Both parties have moved for summary

judgment. I find there is no genuine issue

of material fact as to the inaccuracy of the

after-acquired property clause as applied to

real property. There is also no genuine

issue as to the capacity of that clause to

confuse and mislead potertial borrowers.

Therefore I will grant the plaintiffs’ motion

for summary judgment.

sures of central importance in understanding

the transaction. Inaccurate disclosure of any

security interest taken remains a basis for lia-

bility however. Id. at 128; S.Rep., {1980} U.S.

Code Cong. & Ad.News pp. 878, 892-94.

THOMPSON v. VILLAGE OF EVERGREEN PARK, ILL. 251

" Cite as 503 F.Supp. 251 (1980)

[9] The TILA provides that the consum-

er may recover twice the amount of the

finance charge up to a maximum of $1,000.

15 U.S.C. at § 1640{a). The statutory limit

applies in this case since the finance charge

was $713.25. Plaintiffs are husband and

wife, co-obligors on the transaction. Each

seeks recovery of the statutory damages of

- $1,000. Defendant argues that the TILA

limits consumers to one recovery per trans-

action. The language of § 1640(a) states

that a creditor who violates the act “with

respect to any person is liable to such per-

son” in the amount provided (emphasis add-

ed). I agree with the analysis in Cadmus v.

_ Commercial Credit Plan, Inc., 437 F.Supp.

1018 (D.Del.1977) that the language of the

TILA provides for separate recovery by

each consumer involved in the transaction.

See also Mirabal v. General Motors Accept-

ance Corp., 587 F.2d 871 (7th Cir. 1976);

Allen, supra. |

The TILA also provides for a reasonable

attorney fee for prevailing plaintiffs. 15

U.S.C. at § 1640{a)(3). Plaintiffs have re-

quested an attorney’s fee in this case. A

petition for a fee under § 1640(a)(3) wil! be

entertained.

Naomi D. THOMPSON, Plaintiff,

v.

VILLAGE OF EVERGREEN PARK,

ILLINOIS et al., Defendants.

No. 80 C 2506.

United States District Court,

N. D. Illinois, E. D.

Dec. 24, 1980.

- On a motion by defendant village to

dismiss a complaint charging an unconstitu-

tional “strip search,” the District Court,

Shadur, J., held that: (1) allegations of

complaint that village in its capacity as

governing and rule-making body imple-

mented policy of routine strip searches

through adoption of formal policy or pursu-

ant to governmental custom, which policy

or custom was acted upon, executed and

enforced by its various agencies and agents

was sufficient pleading of responsibility of

municipal corporation for actions com-

plained of, and (2) under Illinois law, munic-

ipality was not liable for punitive damages

for malicious prosecution.

Motion denied and village ordered to

answer.

1. Civil Rights ¢>13.12(3)

Allegations of complaint that village in

its capacity as governing and rule-making

body implemented policy of routine strip

searches through adoption of formal policy

or pursuant to governmental custom, which

policy or custom was acted upon, executed

and enforced by its various agencies and

agents was, in suit for alleged unconstitu-

tional “strip search,” sufficient pleading of

responsibility of municipal corporation for

actions complained of. 42 U.S.C.A. § 1983;

Fed.Rules Civ.Proc. Rules 8(a), %b, g), 28

U.S.C.A.

2. Civil Rights ¢=13.17

Statute provides for attorney fees for

prevailing defendants in appropriate civil

rights cases, though test is a stringent one,

and court also has inherent power to deal

with abuses if truly frivolous claims are

presented. 42 U.S.C.A. § 1988.

3. Municipal Corporations ¢=743

Under Illinois law, municipality was

not liable for punitive damages for mali-

cious prosecution. S.H.A.IIl. ch. 85, § 2—

102.

Sandra M. Weil, Lieberman, Levy, Stone

& Schlossberg, LTD., Chicago, IIl., for plain-

tiff. :

Alfred C. Tisdahl, Jr., French & Rogers,

Chicago, Ill., for defendants.

PAE;

ws

bw ie

, ‘ he iy :

(i

A F

ip eh

at 20h x

+A:

f “eae?

~-

Pane

| ae

‘pi Binge

mt Sl,

=<) 2g Sots

+z Sha

rag %

pee

bt +

i? bP Pad

of

*

My

+ ?

be 14: be

bn

Cy ees

pe

Se be

‘e

« bc teethat it

i eae

OFFICE OF THE CLERK

pl a Bh

ota UNITED STATES COURT OF APPEALS veLernoee

CLERx ‘ FOR THE THIRD CIRCUIT : 213-307-2993

21400 UNITED STATES COURTHOUSE .

INDEPENDENCE MALL WEST

601 MARKET STREET

PHILADELPHIA 19106

Sheldon C. Jelin, Esq. Sree aoe December 4, 1981

James W. Tracey, III, Esq. ac oe Rares, aie

WOLLMAN AND TRACEY

1518 Lewis Tower Bldg.

Philadelphia, PA 19102

CRICCS, ROBERT C. and GRIGGS, Jacqueline M. —

vs.

PROVIDENT CONSUMER DISCOUNT COMPANY,

‘Appellant.

Re

(D. C. Civil No. 80-01930)

‘No. 81-2989

Gentlemen:

The above-entitled case was docketed in this Court at Ho. 81-2989 .

and the record on appeal filed today.

In light of this court's order dated-October 2, 1981, entered. in :

No. 81-1230, please advise this office in writing if it is your intention

to rely on the briefs previously filed at No. 81-1230.

If this is not your intention, the Statement of the Contents of the

Appendix and Statement of Issues presented are to be furnished to the

appellee within ten (10) days from this date (see Rule 30(b) of the

Federal Rules of Appellate Procedure); the brief for appellant and the

appendix are to be filed and served within forty (40) days from this

date (see Rules 30(a) and 31 of F.R.A.P.)

wrewere”*

Very truly yours,

SALLY MRVOS, CLERK

By eetes

Kathleén Grady, Deputy Cl

jj ;

-cc: Henry J. Sommer, Esq. : Michael E. Kunz, Clerk

/ community Legal Services, Inc. Philadelphia, PA

3156 Kensington Ave.

Philadelphia, PA 19134

NOTICE TO COUNSEL: YOUR ATTENTION IS DIRECTED TO RULE 4(a)(4) F.R.A.P. IN t

REGARD TO THIS APPEAL.

‘. IMPORTANT: ALL COUNSEL MUST COMPLY WITH RULE 25 BY PROVIDING THIS OFFICE WITH

DISCLOSURE STATEMENT WITHIN ONE WEEK OF THE DATE OF THIS LETTER.

, APPENDIX Cs. | |