Petition for Writ of Certiorari — THORN Americas, Inc. v. Fogie
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oo Supreme Court, U.S.
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J 961233 FEB 4199
No. 96-
Orcior OF jf CLERK
In The
Supreme Court of the United States
October Term, 1996
4
THORN Americas, Inc., (formerly known as
Rent-A-Center, Inc.), a Delaware corporation,
and THORN EMI North America Holdings, Inc.,
a Delaware corporation,
Petitioners,
VS.
Vickie Fogie, Joan Leonard and Angela Adams, on behalf
of themselves and all others similarly situated,
Respondents.
+
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Eighth Circuit
€
PETITION FOR A WRIT OF CERTIORARI
¢
JANicE M. SyMCHYCH
Counsel Of Record
STEVEN J. WELLS
Peter W. CARTER
Dorsey & Wuitrney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Telephone: 612-340-2600
SHANNON L. SPANGLER
SHOOK, Harpy & BAcOoN L.L.P.
1200 Main Street
Kansas City, Missouri 64105
Telephone: 816-474-6550
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-2831
QUESTIONS PRESENTED
1. Does the imposition of civil liability in a
class action, with severe penal consequences for
already completed transactions, when those
transactions are only regarded as unlawful
because of a radical and unexpected change in
state law articulated for the first time in the case
at hand, violate the Due Process Clause, as Bouie
v. City of Columbia, 378 U.S. 347 (1964), holds
that it does with regard to criminal penalties?
2. In light of this Court’s application of Due
Process principles to civil punitive damages in
BMW of North America, Inc. v. Gore, 116 S. Ct.
1589 (1996), did the court of appeals err in
applying a “more tolerant” vagueness test on
the ground that the punitive aspects of the state
usury statute impose only civil penalties, and
thus err in failing to hold that a radical and
unexpected construction of a statute renders the
statute as it existed prior to that interpretation
unconstitutionally vague?
li
LIST OF PARTIES TO THE PROCEEDINGS BELOW
The parties to the appeal in the United States Court
of Appeals for the Eighth Circuit, whose judgment peti-
tioners request be reviewed, included petitioners THORN
Americas, Inc., and THORN EMI North America Hold-
ings, Inc., and respondents Vickie Fogie, Joan Leonard,
and Angela Adams.
Until August 1996, THORN Americas, Inc. was an
indirect, wholly owned subsidiary of THORN EMI North
America Holdings, Inc. THORN Americas, Inc. was a
direct, wholly owned subsidiary of TEUSA Holdings, Inc.
THORN North America Holdings, Inc. was also the direct
parent company of THORN EMI (USA), Inc. After August
1996, THORN EMI International BV, a Dutch holding
company, became the parent company of THORN Amer-
icas, Inc. THORN Americas, Inc. is the direct parent of
Advantage Companies, Inc., RAC USA, Inc., THORN
Rental Trading, Inc., a Delaware company, and is an
indirect parent of Remco America, Inc.
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TABLE OF CONTENTS
Page
Se GB ey yo i
LIST OF PARTIES TO THE PROCEEDINGS BELOW.. | ii
pe i iii
peo ee ae eee iv
hs ol Gi Gn Sd baad soos sev ahécueeae o 1
i oe aig dak Vid bids AAG 48d be dive 0s 1
CONSTITUTIONAL AND STATUTORY PROVI-
ys 2
ameeeeee Goe ETA CAGE... occ ct ecco cees 2
A. The Facts Material To This Court’s Consider-
ation Of The Questions Presented ........... 4
B. Minnesota Law At The Time The Rent-To-Own
Transactions Were Entered Into .............. 5
C. The Unforeseeable Change In The Law ...... 9
eee 11
REASONS FOR GRANTING THE WRIT ........... 14
I. THE RULE ARTICULATED IN BOUIE
SHOULD BE APPLIED TO THE RADICAL
*.ND UNFORESEEABLE EXPANSION OF A
CIVIL STATUTE, PENAL IN NATURE....... 15
II. THIS COURT SHOULD DECIDE WHETHER A
VAGUENESS CHALLENGE TO A STATUTE
INVOLVING SEVERE CIVIL PENALTIES
REQUIRES SOMETHING MORE THAN A
MERELY “TOLERANT” REVIEW............. 22
I eel y cums cccscuccnusecccrcaccoces 27
iv
TABLE OF AUTHORITIES
Page
CASEs:
BMW of North America, Inc. v. Gore, 116 S. Ct. 1589
2) | RP ree oy ree erp rey ere oer Le passim
Bouie v. City of Columbia, 378 U.S. 347 (1964).... passim
Citizen's Nat'l Bank v. Taylor, 368 N.W.2d 913
CER: Te os 5 bes cs cw wks ee ee oan 6
Diebold, Inc. v. Marshall, 585 F.2d 1327 (6th Cir.
ROTI. 6 ki Pais sdinn Sie § CE ea ee ae 26
Fogie v. Rent-A-Center, Inc., 518 N.W.2d 544 (Minn
i. MVEPEEUPETE AEE LTE eer er passim
Fogie v. Rent-A-Center, Inc., 867 F. Supp. 1398 (D.
PIU. FO vas be pb od eee ceed One hE eae eae ok ees 1
Fogie v. THORN Americas, Inc., 95 F.3d 645 (8th Cir.
BOGE v0 scene tn tien veg tan era nemesase seaea ine passim
Gates & Fox Co. v. OSHRC, 790 F.2d 154 (D.C. Cir.
| en Ps rer rie nr ASN 26
General Electric Co. v. EPA, 53 F.3d 1324 (D.C. Cir.
| Perr eee ee eens Pe a eee ee
Gentile v. State Bar of Nevada, 501 U.S. 1030 (1991) ..23, 24
Grayned v. City of Rockford, 408 U.S. 104 (1972) ...23, 25
Harper v. Virginia Dep’t of Taxation, 113 S. Ct. 2510
CROSS osc eV PS 6 BAG Ss RETO AG i era es 15
Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494
UB. Ge Heed + ols < See R hice he oc eerie esta eee ss 14
Kropp Forge Co. v. Secretary of Labor, 657 F.2d 119
(FR Sie, FORD). ck cv cnads Has cdgavansseae ees 26
Linne v. Ronkainen, 37 N.W.2d 237 (Minn. 1949) ...... 6
ee
Vv
TABLE OF AUTHORITIES - Continued
Page
Marks v. United States, 430 U.S. 188 es eee 14, 16
Miller v. Colortyme, Inc., 504 N.W.2d 258 (Minn. Ct.
PP TEs 465 9558 sp VS ee °, 10, 19
Miller v. Colortyme, Inc., 518 N.W.2d 544 (Minn.
PEPE i taweiwye vcvgux Gunite acis Osan aioe 4. 2
Mohr v. Minnesota Elevator Co., 41 N.W. 1074
memes BLL Ler ee 8
Munson v. Orrin E. Thompson Homes, Inc., 395 F.
OOP 08, Mi, WIG. ks ok 8
Rathbun v. W.T. Grant Co., 219 N.W.2d 641 (Minn.
oy | Rees is EVES DU Vee wis ves euhiereh canoe. Etc: 6
Schauman v. Solmica Midwest, Inc., 168 N.W.2d 667
. sniaaen setcnan REE CE ee ae 6
United Realty Trust v. Property Development &
Research Co., 269 N.W.2d 737 (Minn. 1978) ...... 6, 17
Village of Hoffman Estates v. Flipside, Hoffman
Estates, Inc., 455 U.S. 489 7. Reh tip 17, 24, 25
Walter E. Heller & Co. v Warner, 163 N.W.2d 573
PN SOM Sect cumsate a cei vate eee 6
Unrtep States ConstiTuTION:
Due Process Clauses, U.S. Const. amend. V, XIV ..... 2
Ex Post Facto Clauses, U.S. Const. art. I, §§ 9,10....14
Unrtep States Statutes:
saidincs ait Piecing OEE eT RP TEs 1
vi
TABLE OF AUTHORITIES - Continued
Page
MINNESOTA STATUTES: .
Dlinss. Shut: G6 SIMBIOS... 5855s oocccennecbuces 23
es. Se. | peerage ee 2, 3, 7, 19, 24
Minn. Stak: B DSO: cae eks cae clues sec yaen 2, 3, 7, 19 |
Minn, Stat. $6 325F.S7-.68.............sscceeeee 7,9, 19 )
Minn. Stat. $6 S25F.09-90.........000++onsnsnensacs 3,7
Wilt, Stat. 0 Fess ho dss oc scivnaws onesaueewss y > eh
bien: Gut: 6 SSG. 6c Rae 2, 11
Mian. Stet: GE GORGES «5 0 ben eee eerie 2, 6
liens. SONG. BE TRS aa ecncess vesvsateecweaewttas 2, 6, 9
iin: Stet, 0 OEMS Co. kw de dv ak aces 2, 6, 12, 18, 24 |
OTHER: |
Hearings on S.1499 Before the Senate Commerce
Comm., Tape 1 at 3 (March 1, 1990) (staternent
of Senator Dahl, author of bill) ..........cccccecees 7
PETITION FOR A WRIT OF CERTIORARI
Petitioners THORN Americas, Inc. (“THORN Amer-
icas”) and THORN EMI North America Holdings, Inc.
respectfully petition that a Writ of Certiorari issue to
review the September 6, 1996 decision of the United
States Court of Appeals for the Eighth Circuit.
- 6
OPINIONS BELOW
The court of appeals’ decision (App. A), dated Sep-
tember 6, 1996, is reported at 95 F.3d 645 (8th Cir. 1996).
The district court’s September 28, 1995 Memorandum and
Order (App. B) is not reported. A related opinion of the
Minnesota Supreme Court (App. D) that answered two
certified questions from the district court is reported at
Fogie v. Rent-A-Center, Inc., 518 N.W.2d 544 (Minn. 1994).
The district court opinion certifying the class is reported
at Fogie v. Rent-A-Center, Inc., 867 F. Supp. 1398 (D. Minn.
1993).
JURISDICTION
The court of appeals’ decision of which review is
sought was rendered in an opinion filed on September 6,
1996 (App. A). The court of appeals denied a timely
petition for rehearing on November 6, 1996 (App. C). This
Court has jurisdiction to review the judgment of the court
of appeals by writ of certiorari pursuant to 28 U.S.C.
§ 1254(1).
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
The Fifth Amendment of the United States Constitu-
tion provides in pertinent part:
No person shall . . . be deprived of life, liberty,
or property, without due process of law.
Section I of the Fourteenth Amendment of the United
States Constitution provides in pertinent part:
No State shall . . . deprive any person of life,
liberty, or property, without due process of law.
The Minnesota Rental-Purchase Agreement Act,
Minn. Stat. §§ 325F.84-.98, is reproduced in full in Appen-
dix E.
The pertinent Minnesota usury statutes, Minn. Stat.
§§ 334.01-.05, are reproduced in Appendix F.
The Minnesota Consumer Credit Sales Act, Minn.
Stat. §§ 325G.15-.16, is reproduced in full in Appendix G.
+
STATEMENT OF THE CASE
It is deeply embedded in our Constitution that nei-
ther a legislature nor a court can retroactively impose
criminal punishment. The imposition of civil liability
without sufficient notice raises the same constitutional
concerns when such liability gives rise to egregious pen-
alties that equate to a quasi-criminal sanction. Due pro-
cess requires fair notice of all penal judgments, whether
due to criminal or civil liability, before they are imposed.
This case presents the important issue of whether a judi-
cial retroactive application of a radical and unexpected
change in the law, that deems thousands of completed
transactions unlawful (resulting in civil penalties respon-
dents estimate in the tens of millions of dollars) also
violates due process principles.
The law of usury had remained unchanged in Minne-
sota for 100 years. In reliance on that well-established
precedent, THORN Americas built its rental-purchase
business and, through its Rent-A-Center stores, entered
into rental-purchase agreements with thousands of cus-
tomers. Each of those agreements fully complied with the
Rental-Purchase Agreement Act (“Rental-Purchase Act”)
- a comprehensive state statute regulating rental-pur-
chase transactions. Minn. Stat. §§ 325F.84-.98 (App. £).
Responding to certified questions put to it by the district
court in this case, the Minnesota Supreme Court dramati-
cally altered the law and declared for the first time that
rental-purchase agreements were credit sales. The state
court also held that two of the four essential elements of
usury would be eliminated for rental-purchase transac-
tions, thus subjecting rental-purchase transactions to
severe penalties that voided the already completed trans-
actions ab initio. Fogie v. Rent-A-Center, Inc., 518 N.W.2d
544 (Minn. 1994) (App. 44-45) and Miller v. Colortyme, 518
N.W.2d 544 (Minn. 1994) (App. 45-62) (“Colortyme/Fogie”).
Despite the unforeseeable nature of the state court’s pro-
found alteration of the law, the court of appeals affirmed
the district court’s retroactive application of this expan-
sion of the usury statute to thousands of already com-
pleted rental-purchase transactions. The retroactive
application of this radical change in the law, and the.
accompanying severe, and totally unexpected, civil penal-
ties, violated THORN Americas’ due process rights.
A. The Facts Material To This Court’s Consider-
ation Of The Questions Presented
THORN Americas owns rental-purchase stores across
the country that operate under the trade name Rent-
A-Center. Eight of its approximately 1,400 stores are
located in the State of Minnesota. C.A. App. at 63.' These
stores offer quality, name-brand household goods such as
furniture, appliances, televisions and camcorders for rent
through rental-purchase agreements. A rental-purchase
agreement is an agreement that may be renewed by the
customer after its initial term; it also allows, but does not
require, the customer to pui chase the property. C.A. App.
at 40-51, 63-66.
The initial term of each rental-purchase agreement is
either a month or a week, and rent for that term is paid in
advance. Id. Nothing is paid beyond the initial payment
for that rental term, and no commitment is made to make
future payments. Id. At the end of each week or month
the customer has the option to renew the agreement for
an additional term. Id. A customer does not undergo a’
credit check, does not pledge any collateral, does not
need to leave a deposit, and has no future obligation
beyond the initial one week or one month term. C.A.
App. at 63-66. This makes goods available to persons who
find the flexibility of the transaction appealing or who are
otherwise unable to pay full price or obtain credit. Under
the law as it existed prior to the Minnesota Supreme
Court’s answer to the questions certified by the district
1 C.A. App. refers to the appendix submitted to the court of
appeals with appellants’ (now petitioners) brief.
court, no loan was made to the customer, no credit oblig-
ation was created, and certainly no loan agreement was
intended. See App. E, F, G.
A customer who so chooses can purchase items avail-
able in Rent-A-Center stores in three different ways. First,
a customer can simply purchase the item for cash, in
which case no rental-purchase agreement is entered into
at all. C.A. App. at 63-66. Second, if a customer does enter
a rental-purchase agreement, he or she may purchase the
item by renewing the agreement a specified number of
times, as determined by and disclosed in the agreement.
Id. Third, under an early purchase option, a customer can
pay 55% of the remaining renewal payments otherwise
necessary to acquire ownership. Id. At no time, however,
are customers ever required to renew their agreements or
to purchase the property. C.A. App. at 40-51, 63-66. In
fact, fewer than 30% of agreements result in purchase of
the property by the renter. C.A. App. at 78.
B. Minnesota Law At The Time The Rent-To-Own
Transactions Were Entered Into
This class action was brought by respondents on
behalf of all persons in Minnesota who entered into
rental-purchase agreements since August 1, 1990.2? Prior
to the initiation of this action, no Minnesota court had
ever applied the usury statute to rental-purchase agree-
ments. The essential elements of Minnesota usury law
2 The federal district court had subject matter jurisdiction
pursuant to 28 U.S.C. §§ 1331, 1367.
had remained unchanged for over 100 years. Minn. Stat.
§§ 334.01-.05 at App. 80-83. Minnesota courts had consis-
tently held that the usury statute required a party to
prove each of the following four elements: 1) a loan of
money or forbearance of debt; 2) an agreement that the
principal shall be repayable absolutely; 3) the exaction of
a greater amount of interest than allowed by law; and 4)
the presence of an intent to evade the law at the inception
of the transaction. Citizen’s Nat'l Bank v. Taylor, 368
N.W.2d 913, 918 (Minn. 1985); Rathbun v. W.T. Grant Co.,
219 N.W.2d 641, 646 (Minn. 1974).
usury statute is strictly construed due to its penal nature.
United Realty Trust v. Property Dev. & Research Co., 269
N.W.2d 737, 743 (Minn. 1978); Walter E. Heller & Co. v.
Warner, 163 N.W.2d 573, 577-78 (Minn. 1968). Consistent
with this requirement, transactions that did not meet each
of the four usury elements were not usurious. See, e.g., |
Schauman v. Solmica Midwest, Inc., 168 N.W.2d 667, 672-73
(Minn. 1969); Walter E. Heller & Co., 163 N.W.2d at 578; |
Linne v. Ronkainen, 37 N.W.2d 237, 239-40 (Minn. 1949).
Furthermore, the usury law itself specifically provided
that its remedies did not apply to “such instruments |
which are taken or received in accordance with and in |
reliance upon the provisions of any statute.” Minn. Stat.
§ 334.03 at App. 82.
On August 1, 1990, the Rental-Purchase Act, a com-
prehensive series of statutes regulating the Minnesota
rental-purchase industry, went into effect. August 1, 1990,
is also the starting date of the class certified by the
district court. The legislative history of that act described
it as the “strongest consumer protection that is available
iiiiiiaiaiiiiiill
|
A long line of Minnesota cases has held that the
anywhere in the nation to people who buy through the
rent-to-own process and .. . will end up being used as a
model for other states.” Senate Commerce Committee
Hearing, 3/1/90, Tape 1 at 3. The Rental-Purchase Act
governs virtually every aspect of rental-purchase agree-
ments. It has stringent, wide-ranging disclosure require-
ments, compelling a lessor to disclose a laundry list of
information, including: 1) the total payments necessary to
obtain ownership; 2) the difference between the amount
necessary to purchase the merchandise through the
agreement renewal method and the cash price; 3) any
charges in addition to the rental rate; and 4) various
consumer rights under state law. Minn. Stat. § 325F.86 at
App. 64-66. The Rental-Purchase Act mandates the type
size of the rental-purchase agreement, determines when
the disclosures must be made, and regulates the advertis-
ing of rental-purchase agreements. See Minn. Stat.
§§ 325F.87-.88 at App. 67-69. The Rental-Purchase Act
also defines what constitutes default of the agreement,
states the customer’s reinstatement rights upon default,
and prescribes what charges are appropriate as reinstate-
ment and redelivery fees. Minn. Stat. §§ 325F.89-.90 at
App. 69-72. Most importantly, § 325F.85 of the Rental-
Purchase Act expressly provides that if the Act conflicts
with the Consumer Credit Sales Act, the Rental-Purchase
Act governs. THORN Americas fully complied with the
Rental-Purchase Act. App. E.
Until the Colortyme/Fogie decision in this case, the
Consumer Credit Sales Act (“Credit Sales Act”) only reg-
ulated agreements that involved the lessor granting credit
to a customer. Minn. Stat. § 325G.15, subd. 2(a) at App.
84. Enacted in 1971, the Credit Sales Act imposed rela-
tively minor restrictions on consumer credit retail trans-
actions. In 1981, the Credit Sales Act was amended to
include certain terminable leases in its definition of the
term “sale of goods,” but only where credit is provided.
Minn. Stat. § 325G.15, subd. 5 at App. 85. Under the
Credit Sales Act, a “consumer credit sale” is defined as:
“a sale of goods or services in which (a) credit is granted
by a seller who regularly engages as a seller in credit
transactions of the same kind.” Minn. Stat. § 325G.15,
subd. 2(a). At App. 84. Under age-old Minnesota law,
credit is not extended unless there exists an underlying
debt and an obligation to make full and complete pay-
ment. Mohr v. Minnesota Elevator Co., 41 N.W. 1074, 1076
(Minn. 1889); accord Munson v. Orrin E. Thompson Homes,
Inc., 395 F. Supp. 152, 157 (D. Minn. 1974). The Credit
Sales Act does not incorporate or even make reference to
the usury statute. Nor does the text of the Credit Sales
Act suggest that the Legislature meant to alter, amend, or
affect the usury statute in any way.
Thus, prior to the Colortyme/Fogie ruling in this case,
because of the absence of a granting of credit, the Credit
Sales Act on its face simply did not apply to Rent-A-Cen-
ter’s rental-purchase agreements. The Rent-A-Center
rental-purchase agreements gave customers the uncondi-
tional option to walk away from the transaction, without
charge, after the end of the initial one week or one month
term, or indeed after any individual renewal of the agree-
ment. In reliance on the well-established elements of
Minnesota usury law and the then newly-enacted com-
prehensive Rental-Purchase Act, THORN Americas orga-
nized its business practices precisely to comply with state
law and avoid any question of whether credit was being
ee
extended. Through its Rent-A-Center stores, THORN
Americas entered into thousands of rental-purchase
agreements in the State of Minnesota. The Rent-A-Center
agreements fully complied with the extensive require-
ments of the Rental-Purchase Act. The agreements made
all the required disclosures. See Minn. Stat. § 325F.88,
subd. 2(a) at App. 68. Not only did the agreements fully
comply with the Rental-Purchase Act, but they disclosed
to customers, as a central term, the key distinguishing
feature between a rental-purchase agreement and a con-
sumer credit sale - namely, that the customer had abso-
lutely no obligation to renew the agreement after the
initial week or month. Thus no “credit was granted”
because absent an obligation to renew no debt existed.
C. The Unforeseeable Change In The Law
In Miller v. Colortyme, Inc., 504 N.W.2d 258 (Minn. Ct.
App. 1993), a panel of the Minnesota Court of Appeals
unanimously held that rental-purchase agreements were
not subject to the Credit Sales Act and the usury statutes.
In 1994 the Minnesota Supreme Court granted review.
Apparently because the same issue was dispositive in this
case, the district court granted respondents’ motion to
certify the following two questions to the Minnesota
Supreme Court: 1) Are rent-to-own contracts consumer
credit sales under Minn. Stat. § 325G.15? 2) Does the
usury statute, Minn. Stat. § 334.01, apply to rent-to-own
contracts?
On June 24, 1995, the Minnesota Supreme Court both
answered the questions certified to it in this case in the
affirmative and reversed the Colortyme decision of the
10
Minnesota Court of Appeals. It affirmatively answered
the certified questions for the reasons explained in its
simultaneously issued decision in Colortyme. 518 N.W.2d
at 544 at App. 44-45.
In its opinion, the Minnesota Supreme Court dras-
tically expanded the Credit Sales Act and the penal usury
statute to apply to transactions they had never before
reached, and completely discounted the fact that rental-
purchase agreements fully complied with the Rental-Pur-
chase Act - all in a manner totally unforeseeable to
THORN Americas and to any party engaging in the rent-
to-own business. The plaintiffs in Colortyme alleged that
the rental-purchase agreements they entered into were
subject to the Credit Sales Act and the usury statute. 518
N.W.2d at 547 at App. 49-51. The court acknowledged
that at common law a rental-purchase agreement was not
a sale because “a buyer is not bound to pay the total
purchase price.” Id. The court correctly observed that
certain terminable leases were considered a “sale of
goods” under the Credit Sales Act. The court, however,
rendered meaningless the essential Credit Sales Act
requirement that the sale of goods be one “in which
credit is granted,” by simply declaring that “sales are
ordinarily regarded as ‘credit sales’ where a buyer
acquires possession but is allowed to defer full payment.”
Id. at 548 at App. 53. With this observation, the court
transformed rental-purchase agreements that did not
involve the granting of credit into the legal equivalent of
debt transactions, and, in effect, judicially repealed a
comprehensive set of statutes enacted in 1990 that regu-
lated the rental-purchase industry.
11
The Minnesota Supreme Court then created a previ-
ously nonexistent bridge between the Credit Sales Act
and the Minnesota usury statute by inserting language
into a provision of the Credit Sales Act. The court read
the term “credit” into the text of Minn. Stat. § 325G.16,
subd. 4. See 518 N.W.2d at 548 at App. 53. According to
the court, the Credit Sales Act, as newly construed, now
“defined” each and every rental-purchase agreement as a
“consumer credit sale for all purposes,” even though the
language of this provision actually reads “shall be
deemed a sale for all purposes.” Minn. Stat. § 325G.16,
subd. 4 at App. 87. What the legislature had defined as a
“sale for all purposes” was thus redefined by the court to
mean a “credit sale for all purposes.”
As a result, according to the court, despite the
absence of a loan or interest, the first two essential ele-
ments of usury — a loan of money or forbearance of debt
and an agreement that the principal shall be repaid -
were now met “by operation of statute.” Id. at 549 at App.
56. Thus, after Colortyme, the same rental-purchase agree-
ments that had fully complied with the Rental-Purchase
Act and that renters could terminate at any time were
suddenly redefined as credit transactions subject to penal
usury remedies.
D. The Decisions Below
Because no factual record had been provided to the
Minnesota Supreme Court with the certified questions,
the profound change in the Minnesota consumer protec-
tion statutes articulated in Colortyme/Fogie was applied in
this case for the first time by the district court in its
decision filed September 28, 1995. With no analysis, the
12
district court summarily concluded that, in light of Color-
tyme/Fogie, the rental-purchase agreements at issue here
were consumer credit sales. Applying the unforeseeable
change in the law articulated in Colortyme/Fogie, the dis-
trict court accepted the Minnesota Supreme Court's judi-
cial gloss of the Credit Sales Act that changed “sales for
all purposes” to “credit sales for all purposes.” THORN
Americas’ full compliance with the Rental-Purchase Act
was summarily rejected as a defense even though the
usury statute expressly provides to the contrary. Minn.
Stat. § 334.03 at App. 82-83.
Without regard to the well-recognized penal nature
of the usury law and the unforeseeable nature of the
radical change in the law, the district court rejected
THORN Americas’ constitutional due process challenges
to the retroactive application of the new rule to the thou-
sands of completed events at issue here, by applying the
less strict vagueness test and by deciding that the Color-
tyme/Fogie decision did not represent a change in the law.
As a remedy for the violation of the penal usury statute,
the court voided all of the thousands of rental-purchase
agreements completed since 1990 and subjected THORN
Americas to liability that respondents estimate at more
than $30 million, in essence undoing all of the business
that THORN Americas had engaged in from August 1990
forward.
The court of appeals affirmed. The court of appeals
acknowledged the “punitive aspects” of the usury stat-
ute, but concluded that because the statute imposed only
civil remedies “the broader, more tolerant test of vague-
ness is required here.” 95 F.3d at 650 at App. 10. Applying
this test, the court of appeals reiterated the Minnesota
ee
13
Supreme Court’s tortured analysis that rendered the
credit requirement of the Credit Sales Act meaningless.
Even though the Minnesota Supreme Court had created a
never-before existing link between the Credit Sales Act
and the usury statute that eliminated two of the essential
elements of the previously strictly-construed usury stat-
ute, the court of appeals concluded that “[t]hese statutory
provisions give sufficient notice to those engaged in the
rent-to-own industry that their rental purchase contracts
fall within the [Credit Sales Act] and are subject to usury
laws.” 95 F.3d at 650 at App. 11. The court of appeals did
not address THORN Americas’ full compliance with the
Rental-Purchase Act.
The court of appeals rejected THORN Americas’
argument that the retroactive application of the expanded
penal usury statute operated like an ex post facto law in
violation of THORN Americas’ due process rights.
Assuming that the usury statute was penal in nature, the
court of appeals discussed the rule announced in Bouie v.
City of Columbia, 378 U.S. 347 (1964), but, despite the
radical transformation of the law, concluded that Bouie
did not apply here. The court of appeals reasoned:
The [Colortyme] decision did not change the ele-
ments of a usury claim. It is a judicial interpreta-
tion of the statutory scheme that existed long
before the present contracts were made. The
judicial construction . . . is not “unexpected or
indefensible by reference to” the statutory
framework already in place. On the contrary, the
judicial construction is reasonable and foresee-
me
14
95 F.3d at 650 at App. 13. A timely petition for rehearing
was denied. App. C.
REASONS FOR GRANTING THE WRIT
The retroactive application of an unforeseeable and
radical interpretation of state law, changing century old
precedent and imposing usury liability in the absence of a
debt, violates fundamental concepts of due process. The
Constitution disfavors the retroactive application of
changes in the law, whether by legislatures or by courts.
The constitutional hostility towards retroactive lawmak-
ing increases as the punitive character of the law becomes
more clear. For example, the Ex Post Facto Clauses, U.S.
Const. art. I, §§ 9, 10, create a nearly absolute ban on
retroactive penal legislation, and the Due Process Clauses
of the Fifth and Fourteenth Amendments prohibit retro-
active judicial enlargement of obligations imposed by the
criminal law. See, e.g., Bouie v. City of Columbia, 378 U.S.
347 (1964); Marks v. United States, 430 U.S. i188 (1977).
Consistent with the Constitution’s abhorrence of retroac-
tive application of unforeseeable changes in law, the Con-
stitution also demands that notice be given of conduct
that will subject one to punishment, whether it be civil or
criminal. BMW of North Am., Inc. v. Gore, 116 S. Ct. 1589,
1598 n.22 (1996). Indeed, “[t]he principle that the legal
effect of conduct should ordinarily be assessed under the
law that existed when the conduct took place has timeless
and universal appeal.” Kaiser Aluminum & Chem. Corp. v.
Bonjorno, 494 U.S. 827, 855 (1990) (Scalia, J., concurring).
The imposition of liability against THORN Americas vio-
lated all of these constitutional fundamentals.
15
The Court should grant the writ because this case
presents the fundamental and important question, sug-
gested in Bouie, of whether it violates the Due Process
Clause for a court in a civil case to apply retroactively a
completely unforeseeable change in law, in a manner that
imposes a remedy penal in nature in the very case in
which the change in law is announced.® This case also
gives the Court the opportunity to clarify the appropriate
standard for determining whether a civil statute with
penal consequences is unconstitutionally vague. Review
is warranted because the decision of the court of appeals
conflicts with the basic constitutional principle that a
party cannot be retroactively subjected to enormous and
devastating penalties for engaging in conduct that no
person could reasonably have known would result in any
sanctions at all.
I. THE RULE ARTICULATED IN BOUIE SHOULD BE
APPLIED TO THE RADICAL AND UNFORESEE-
ABLE EXPANSION OF A CIVIL STATUTE, PENAL
IN NATURE
Just this past term, the Court in BMW v. Gore held
that due process mandates that parties be afforded fair
notice prior to the imposition of substantial civil penalties
because “[e]lementary notions of fairness enshrined in
our constitutional jurisprudence dictate that a person
3 This case thus does not involve the choice-of-law
retroactivity at issue in Harper v. Virginia Dep’t of Taxation, 113 S.
Ct. 2510 (1993).
16
receive fair notice not only of the conduct that will sub-
ject him to punishment but also of the severity of pen-
alty.” 116 S. Ct. at 1598. The deprivation of the right to
fair notice guaranteed by the Constitution can “result not
only from vague statutory language but also from an
unforeseeable and retroactive judicial expansion of nar-
row and precise statutory language.” Bouie, 378 U.S. at
352. In Bouie, this Court considered the unexpected
broadening of a criminal statute that was “definite and
precise” on its face. Id. The Court concluded that the
unforeseeable expansion of such a statute by a court
“operates precisely like an ex post facto law,” and violates
an individual’s due process rights. Id. According to the
Court:
If a judicial construction of a criminal statute is
“unexpected and indefensible by reference to
the law which had been expressed prior to the
conduct in issue,” it must not be given retroac-
tive effect.
Bouie, 378 U.S. at 354; see also Marks v. United States, 430
U.S. 188, 191-96 (1977).
The Court should apply Bouie to this case. Here the
court applied retroactively an unexpected and unforesee-
able change in state law, penal in nature, virtually elim-
inating an entire industry in the State of Minnesota. The
September 28, 1995 decision of the district court voided
thousands of rental-purchase agreements ab initio,
enjoined THORN Americas from engaging in the rental-
purchase business (a business specifically authorized and
regulated by the Rental-Purchase Act), stripped THORN
Americas of its ownership interests in the property that
its customers had been renting, and subjected THORN
17
Americas to penal consequences estimated by respon-
dents to be approximately $30 million. In light of these
harsh consequences, the characterization by Minnesota
courts that the usury statute is “penal in nature” is an
understatement. See United Realty Trust v. Property Dev. &
Research Co., 269 N.W.2d 737, 742 (Minn. 1978). If Bouie
applies to any civil case, this case is the exemplar. Not
only was the application of the change in the law com-
pletely unforeseeable, but THORN Americas had orga-
nized its business around a comprehensive set of statutes
enacted to regulate the rent-to-own industry. This situa-
tion will stand as a clear exposition of when Bouie can
apply outside the criminal context.
The “unexpected and indefensible” nature of the
change in the law in this case is even more compelling
than the change in the law that the Bouie Court found so
repugnant. In the legal framework that existed at the
time, no reasonable person could have foreseen the Min-
nesota Supreme Court's tortured and result-driven inter-
pretation of the Credit Sales Act and the usury statutes.
Not surprisingly, in 1984, six years before enactment of
the Rental-Purchase Act, counsel for Rent-A-Center’s
franchisee reviewed the law and specifically concluded
that the Credit Sales Act did not apply to the rental-
purchase agreements — a conclusion only bolstered by the
4 Application of Bouie to the case at hand is not only
compelled by the penal nature of the usury statute, it is
consistent with this Court’s due process review of other quasi-
criminal statutes. See Village of Hoffman Estates v. Flipside,
Hoffman Estates, Inc., 455 U.S. 489, 498-99 (1982) (assumption
that quasi-criminal law warrants a relatively strict test); cf. BMW
of North Am., Inc. v. Gore, 116 S. Ct. 1589, 1598 n.22 (1996).
18
later enactment of the Rental-Purchase Act.5 THORN
Americas had relied on well-established precedent that
the usury statute, due to its penal nature, was strictly
construed and that each of its four elements had to be
met. THORN Americas could not have known that two of
the essential elements would be suspended “by operation
of” a totally unrelated statute. The usury statute also
expressly provides that all usurious contracts are void
except “such instruments which are taken or received in
accordance with and in reliance upon the provisions of
any statute... .” Minn. Stat. § 334.03 at App. 82. This
clear exception to the usury statute remedy makes the
sudden application to rental-purchase agreements even
more surprising, due to THORN Americas’ full compli-
ance with the Rental-Purchase Act.
The “definite and precise” terms of the Credit Sales
Act were not only given judicial gloss, as in Bouie, but the
state court actually read a new term into the statute — a
5 Rent-A-Center had also made a general acknowledgment
in its 1983 prospectus that: “if these laws [credit sales laws]
were found to be applicable to the Company’s rental
agreements, the rental payments made to the Co.npany may not
come within the applicable state interest rate and finance charge
limitations.” This acknowledgment was made seven years
before the enactment of the Rental-Purchase Act and did not
specify Minnesota law. Moreover, as noted above, one year later
legal counsel, after considering Minnesota law, expressly
concluded that under Minnesota law the rental-purchase
agreements were not credit transactions. Finally, as the Court in
Bouie observed: “The determination whether a criminal statute
provides fair warning of its prohibitions must be made on the
basis of the statute itself and the other pertinent law, rather than
on the basis of an ad hoc appraisal of the subjective expectations
of particular defendants.” 378 U.S. at 355 n.5.
19
term that created an unprecedented link to the usury law.
Such judicial blue penciling was not only unexpected
(due to its elimination of the need to prove the essential
elements of a penal statute that had traditionally been
strictly construed), but also was simply impossible to
predict. Nor was it foreseeable that the state court would
render the credit requirement of the Credit Sales Act
meaningless. Indeed, a panel of the Minnesota Court of
Appeals in Colortyme had rejected out-of-hand the exten-
sion of the Credit Sales Act to rental-purchase agreements
sought by the plaintiffs precisely because no credit was
granted to the rent-to-own customers. Miller v. Colortyme
Inc., 504 N.W.2d 258 (Minn. Ct. App. 1993). The Minne-
sota Supreme Court’s interpretation of the Credit Sales
Act completely disregarded the plain language of the
statute, had no support in the legislative history, and was
contrary to the law defining credit transactions. This
amounted to pure judicial activism that even the most
vigilant lookout could not have foreseen.
THORN Americas’ full compliance with the Rental-
Purchase Act makes the Minnesota Supreme Court’s anal-
ysis even more shocking. The Rental-Purchase Act
expressly states that if it conflicts with the Credit Sales
Act, the Rental-Purchase Act controls. Minn. Stat.
§ 325F.85 at App. 64. Under the Rental-Purchase Act, the
transactions are defined as leases, not credit sales, and a
lessor is required to disclose the leases as “rental-
purchase agreement{s].” Minn. Stat. § 325F.86 at App. 64;
§ 325F.88, subd. 1 at App. 68. Under the new interpreta-
tion of the Credit Sales Act the transaction must be dis-
closed as a credit sale. Also under the Rental-Purchase
Act the lessor owns the property, while under the Credit
20
Sales Act the lessee does. The state court’s failure to
recognize the conflicts between the statutes and to defer
to the Rental-Purchase Act was in direct contravention of
the plain language of the Rental-Purchase Act. The end
result is that the Rental-Purchase Act has been repealed
by judicial fiat because under Minnesota law after Color-
tyme/Fogie such agreements are, in effect, unlawful.
Indeed, under the Colortyme/Fogie decision, Minnesota
lawmakers had (unbeknownst to them) legislated the
rental-purchase industry out of existence in 1981 when
they amended the Credit Sales Act — nine years before the
same legislature enacted the comprehensive Rental-
Purchase Act to govern that industry. Not even a clair-
voyant person could have foreseen the tortured path that
led to this sudden and unusual end to the rental-purchase
industry in Minnesota.
The court of appeals utterly failed to apply the
important due process principles underlying Bouie.
Instead, it simply concluded that the state court deter-
mination was not a change in the law but merely “a
judicial interpretation of the statutory scheme.” 95 F.3d at
650 at App. 13. This characterization, however, could be
used to excuse any judicial expansion of a statute, includ-
ing the one at issue in Bouie. Contrary to the court of
appeals’ analysis, the “judicial interpretation” here, as
demonstrated above, worked a completely unexpected
and unforeseeable change in the law in light of the plain
language of all the applicable statutes and prior judicial
interpretation. If this change had occurred in a criminal
statute, the due process principles of Bouie would plainly
have required that it not be retroactively applied. This
case thus presents the Court with the opportunity to
21
make clear that the principles of Bouie also apply as well
to the retroactive application of changes in civil laws
when the consequences are penal in nature.
It is of course the business of Minnesota courts if
they wish to construe Minnesota law in an incorrect and
unreasonable manner, and that is not what petitioners
challenge. It is also presumably within Minnesota’s
power effectively to make it economically unfeasible to
engage in the rent-to-own industry in the future. The
federal court in this case is not empowered, however, to
apply retroactively the completely unforeseeable change
in law that occurred, because to do so would violate due
process. Thus, it is important to note that petitioners’
purpose in describing the tortured path of decision in the
state court is not to persuade this Court that the Minne-
sota Supreme Court erred in interpreting the Credit Sales
Act and usury statute, but instead to establish that no
reasonable person could have foreseen what happened in
the Minnesota Supreme Court. It is the federal court's
retroactive application of this unforeseeable, radical
change in the law that constitutes a clear violation of due
process and provides this Court with the opportunity to
make clear that the principles of Bouie apply to outra-
geous, retroactive applications of the law in the civil
context as well.
This Court needs to make explicit that which is
already implicit in the developing body of due process
case law — namely, that due process requires fair notice of
all severe, penal judgments, whether due to criminal or
civil liability, before they are imposed. The absence of an
explicit case precedent on this point leaves the risk of
fundamentally unjust deprivations of due process
22
through the exaction of unnoticed civil penalties. The
Court can fill this gap now. The Court should grant the
petition to clarify the constitutional limits on retroactive
applications of law that result in severe civil penal judg-
ments without prior notice, for events that occurred
under a different legal regime.
II. THIS COURT SHOULD DECIDE WHETHER A
VAGUENESS CHALLENGE TO A STATUTE
INVOLVING SEVERE CIVIL PENALTIES
REQUIRES SOMETHING MORE THAN A
MERELY “TOLERANT” REVIEW
As argued above, it was a violation of due process to
apply the severe civil penalty provisions of state usury
law to already-completed transactions when those trans-
actions are only regarded as unlawful because of a radical
and unexpected change in state law articulated for the
first time in the case at hand. The court of appeals
improperly dodged application of the due process princi-
ples articulated in Bouie to civil penalties by holding that
the state law announcement here did not work a
“change” in the law, but rather was merely a “reasonable
and correct interpretation of the law.” 95 F.3d at 641 at
App. 13. As set forth above, that circumlocution does not
square with the state of the law prior to the decision here,
nor does it alleviate the Bouie problem. What it does do,
however, is create a related constitutional problem: If the
“interpretation” given the state law by the state supreme
court in answer to the certified questions here was not
“new,” but was merely the exposition of law that was
somehow latent within the words of the statutes, the
constitutional problem then becomes one of vagueness.
23
See, e.g., Gentile v. State Bar of Nev., 501 U.S. 1030, 1033-34,
1048 (1991) (state supreme court decision finding peti-
tioner in violation of rule despite rule’s safe harbor provi-
sion “raises concerns of vagueness” in that, given the
interpretation of the rule by the state supreme court in his
case, the “safe harbor provision . . . misled petitioner”).
The vagueness at issue is not with the law as it
existed following the new “interpretation” by the state
supreme court; state law as it now stands is clear that the
Credit Sales Act obviates “by operation of statute” the
need to prove two elements of the usury law. The vague-
ness problem is with the law as it existed before that
“interpretation.” As shown above, the Credit Sales Act
does not refer to the usury laws. Before the new “inter-
pretation,” there was no connection between them, and a
person of ordinary intelligence did not have a reasonable
opportunity to know what was prohibited and thus could
not conform his or her conduct accordingly. See Grayned v.
City of Rockford, 408 U.S. 104, 108 (1972). Indeed, as also
shown above, a person who took the opportunity to
review the laws would have found not only the lack of
reference between the Credit Sales Act and the usury law,
but would also have found the usury law’s requirement
of four elements, the long history of strict construction of
the need to meet all four elements because of the law’s
penal character, and the separate and detailed regulation
of rent-to-own contracts by the Rental-Purchase Act,
which also does not reference the usury law and which
the contracts at issue do not violate.
In Gentile, the Court held that a state court rule was
void for vagueness because its “safe harbor provision”
misled the petitioner into thinking he could make certain
24
statements at a press conference without fear of disci-
pline. 501 U.S. at 1048. Similarly, provisions of the stat-
utes at issue in this case reasonably led petitioners to
believe that conformance with the Rental-Purchase Act
was a “safe harbor.” See Minn. Stat. § 325F.85 at App. 64
(if the Rental-Purchase Act conflicts with the Consumer
Credit Sales Act, the Rental-Purchase Act governs); Minn.
Stat. § 334.03 at App. 82 (excepting from the remedies
under the usury statute “such instruments which are
taken or received in accordance with and in reliance upon
the provisions of any statute”).
If the “interpretation” rendered by the state supreme
court was indeed latent within those laws, it was too
hidden for a person of ordinary intelligence to find. As a
result, one of the rationales for applying a “less strict
vagueness test” to economic regulation does not obtain
here. Cf. Village of Hoffman Estates v. Flipside, Hoffman
Estates, Inc., 455 U.S. 489, 498 (1982) (“[E]conomic regula-
tion is subject to a less strict vagueness test because
businesses, which face economic demands to plan behav-
ior carefully, can be expected to consult relevant legisla-
tion in advance of action.”). Moreover, as in Gentile, the
statutes at issue here, due to their vagueness, create a
“trap for the wary as well as the unwary.” 501 U.S. at
1051. Rent-A-Center’s franchisee’s legal counsel opined
in 1984, after reviewing the law, that the Credit Sales Act
did not apply. See id. (“The fact that Gentile was found in
violation of the Rules after studying them and making a
conscious effort at compliance demonstrates that Rule 177
creates a trap for the wary as well as the unwary.”). Six
years later, after enactment of the Rental-Purchase Act,
the prospect that the usury laws applied became even
more remote.
25
Thus, if this new “interpretation” had been rendered
in a criminal context to hold petitioners criminally liable,
it would have been struck down as violating vagueness
principles under the rule of several decisions of this
Court. See, e.g., Grayned, 408 U.S. at 108 n.3 (collecting
cases). The court of appeals, however, refused to apply
the rule of those decisions because it understood Village of
Hoffman Estates, to “require” that a “more tolerant” test
for vagueness be applied here:
We reject RAC’s contention that the strict test
applicable to criminal statutes governs here. The
statutes implicated in this case are primarily
economic regulations which cover a narrow sub-
ject area and regulate the conduct of business
enterprises. The punitive aspects of the usury
statute impose only civil penalties. Under Village
of Hoffman, we conclude that the broader, more
tolerant test of vagueness is required here.
95 F.3d at 650 at App. 10.
In Village of Hoffman Estates, however, this Court was
not squarely confronted with a statute which imposed
severe civil penalties such as the tens of millions of
dollars respondents claim are at issue here. Nor did the
court of appeals take cognizance of this Court’s decision
© The ordinance at issue in Village of Hoffm»»: <states, which
required a license to sell certain “drug paraphernalia,” provided
for “civil” fines of from $10 to $500 per violation. 455 U.S. at 492.
The village conceded that the ordinance was “quasi-criminal,”
and that therefore a “relatively strict test” for vagueness may be
warranted. Id. at 499. The Court did not have to concern itself
further with the test “because, under the test appropriate to
either a quasi-criminal or a criminal law, the ordinance is
sufficiently clear as applied to Flipside.” Id. at 500.
26
in BMW of North America, Inc. v. Gore, 116 S. Ct. 1589
(1996).” In Gore, this Court did have before it the “primar-
ily economic regulation” that substantial punitive dam-
ages exert over “the conduct of business enterprises” in
the civil context. And while it noted that “[t]he strict
constitutional safeguards afforded to criminal defendants
are not applicable to civil cases,” id. at 1598 n.22, it also
made clear that, if “civil penalties,” id. (emphasis in origi-
nal), are to be imposed, then constitutional safeguards
requiring adequate notice must be met. Id.
This case thus squarely presents the Court with the
opportunity, f-"lowing Gore, to define the test that is
required for application of vagueness analysis where
severe civil penalties are at issue. This Court has not had
the opportunity to clearly rule on the proper vagueness
test to apply in a situation where a civil statute, penal in
nature, is applied retroactively. While the “strict” test
7 Gore was decided after briefing and argument had taken
place before the Eighth Circuit in this case. It was, however,
called to the court of appeals’ attention in the petition for
rehearing.
8 Courts have applied a heightened due process standard
in the administrative law context to protect parties from
suffering civil sanctions without fair notice. See General Electric
Co. v. EPA, 53 F.3d 1324, 1329 (D.C. Cir. 1995); Kropp Forge Co. v.
Secretary of Labor, 657 F.2d 119, 122-24 (7th Cir. 1981); Gates & Fox
Co. v. OSHRC, 790 F.2d 154, 156 (D.C. Cir. 1986) (Scalia, J.);
Diebold, Inc. v. Marshall, 585 F.2d 1327, 1335 (6th Cir. 1978).
Courts of appeals, as in Kropp Forge and Diebold, have relied ona
stringent vagueness test to preclude application of a civil
penalty in the absence of a warning.
27
afforded criminal defendants may not be directly applica-
ble, something much more cognizant of the severe effect
of retroactive penal sanctions than the “tolerant” view
applied by the court of appeals is required. Under the
circumstances of this case, application of any test beyond
the very “tolerant” would necessitate reversal of the
court of appeals’ decision.
CONCLUSION
The petition for a Writ of Certiorari should be
granted.
Respectfully submitted,
JANICE M. SyMCHYCH
Counsel_of Record
STEVEN J. WELLS
Peter W. CARTER
Dorsey & Wuitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Telephone: 612-340-6336
SHANNON L. SPANGLER
SHook, Harpy & Bacon L.L.P.
1200 Main Street
Kansas City, Missouri 64105
Telephone: (816) 474-6550
February 3, 1997
App. 1
APPENDIX A
Vickie FOGIE, Joan Leonard, and Angela
Adams, on behalf of themselves and all other
similarly situated, Plaintiffs/Appellees,
Vv.
THORN AMERICAS, INC. (formerly known as
Rent-A-Center, Inc.) a Kansas corporation, and
THORN EMI North America Holdings, Inc., a
Delaware Corporation, Defendants/Appellants.
No. 95-3694.
United States Court of Appeals,
Eighth Circuit.
Submitted April 8, 1996.
Decided Sept. 6, 1996.
Rehearing and Suggestion for Rehearing
En Banc Denied Nov. 4, 1996.”
Members of certified class who entered into rent-to-
own rental purchase agreements brought action against
rental company, alleging that contracts violated Minne-
sota usury law, Minnesota Consumer Credit Sales Act
(CCSA), and federal Racketeer Influenced and Corrupt
Organization (RICO) statutes. The United States District
Court for the District of Minnesota, Michael James Davis,
J., 1995 WL 649575, permanently enjoined rental company
from entering into usurious rent-to-own consumer credit
sales contracts, and rental company appealed. The Court
of Appeals, James M. Burns, Senior District Judge, sitting
by designation, held that: (1) usury statute was not
* Judge Bowman would grant the suggestion.
App. 2
unconstitutionally vague; (2) plaintiff class proved that
cost of lease services in the contracts constituted usurious
interest; (3) contracts did not fall within time-price doc-
trine; and (4) injunction was properly ordered.
Affirmed.
John C. Dods, Kansas City, MO, argued (Dennis R.
Dow. Shannon L. Spangler, Kansas City, MO, and J.
Patrick McDavitt, Minneapolis, MN, on the brief), for
appellants.
Kay Nord Hunt, Minneapolis, MN, argued (Phillip A.
Cole, Minneapolis, MN, David L. Ramp, New Brighton,
MN, Seymour J. Mansfield and Richard J. Fuller, Min-
neapolis, MN, on the brief), for appellees.
Before McMILLIAN and FAGG, Circuit Judges, and
BURNS,** District Judge.
JAMES M. BURNS, Senior District Judge.
Appellants THORN Americas, Inc. and THORN EMI
North America Holdings, Inc. appeal the district court’s!
order granting summary judgment for the plaintiff class
and permanently enjoining appellants from entering into
usurious “rent-to-own” consumer credit sales contracts.
We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1).
We affirm.
** The Honorable James M. Burns, Senior United States
District Judge for the District of Oregon, sitting by designation.
1 The Honorable Michael J. Davis, United States District
Judge for the District of Minnesota.
App. 3
I. BACKGROUND
Appellant THORN Americas, Inc. operates a chain of
stores that offer a variety of household goods for sale or
lease. Appellant THORN EMI North America Holdings,
Inc. owns all of the stock of THORN Americas, Inc.
Appellants operate their stores under the business name
“Rent-A-Center” and are collectively called “RAC” in this
opinion. Appellees are individual members of a certified
class who entered into rent-to-own transactions with
RAC on or after August 1, 1990.
RAC leases household goods to its customers for a
weekly or monthly rental term. At the end of the initial
weekly or monthly rental period, the customer may
renew the agreement for another term. The lease may be
renewed at the end of each rental term. Full payment of
the rental fee is required at the beginning of each term.
RAC uses a standard form contract for each renew-
able lease agreement. RAC entered into thousands of
such contracts with members of the plaintiff class. The
renewable lease agreements between RAC and the mem-
bers of the plaintiff class are known interchangeably as
“the rental purchase contracts” or “the rent-to-own con-
tracts”.
The standard rental purchase contract allows a class
member to acquire ownership of an item by renewing the
lease for a specified number of consecutive rental
periods. In the standard form contract, this method of
acquiring title is called “renewing the agreement to own-
ership”. Items may also be purchased for cash on an
ie
App. 4
immediate sale basis.2 However, the vast majority, if not
all of RAC’s business is conducted through rental pur-
chase contracts.
The cash price of an item is set at 55% of the total
payments necessary to purchase the item by renewing the
agreement to ownership. The cash price of an item is
prominently displayed on the item and is included in the
standard form rental purchase contract. The difference
between the total payments needed for renewal to owner-
ship and the cash price is called the “cost of lease ser-
vices”. The rental purchase contracts state the cost of
lease services amount.
Appellees have successfully contended that the dif-
ference between the cash price and the total of payments
to acquire title by renewing the agreement to ownership,
i.e. the amount known as the cost of lease services, is
actually entirely interest. Based on that central conten-
tion, the class members brought this action alleging that
the rent-to-own contracts violated several state ard fed-
eral statutes, including the Minnesota Consumer Credit
Sales Act (CCSA), Minn.Stat. §§ 325G.15-.16, the Minne-
sota General Usury Statute, Minn.Stat. §§ 334.01-.03; and
the federal Racketeer Influenced and Corrupt Organiza-
tion statute (RICO), 18 U.S.C. § 1961.
2 The plaintift class did not assert any claim against
appellants based on immediate sales of goods for cash.
3 We use the definition of “cost of lease services” employed
in RAC’s form contracts rather than the definition employed by
the district court.
App. 5
The district court certified two questions to the Min-
nesota Supreme Court:
1. Are rent-to-own contracts consumer credit
sales under Minn.Stat. § 325G.15?
2. Does the usury statute, Minn.Stat. § 334.01,
apply to rent-to-own contracts?
On June 24, 1994, the Minnesota Supreme Court
issued its opinions in Miller v. Colortyme, Inc., 518 N.W.2d
544 (Minn.1994) and Fogie v. Rent-A-Center, Inc., 518
N.W.2d 544 (Minn.1994). The Court answered both certi-
fied questions in the affirmative.
The plaintiff class then brought its motion for partial
summary judgment seeking declaratory and injunctive
relief. On September 28, 1995, the district court issued its
order enjoining appellants from entering into credit sales
transactions within the State of Minnesota which bear
interest in excess of the maximum rate permitted under
Minnesota law. The district court’s order also declared
the rental purchase contracts to be consumer credit sales
contracts subject to the Minnesota General Usury Statute.
It declared that the rental purchase contracts constitute
“unlawful debt” as defined under RICO. Finally, the dis-
trict court declared the rental purchase contracts void ab
initio and set forth a formula and procedure for determin-
ing money damages.
II. Scope of Review
We must resolve issues relating to the jurisdiction of
this court at the outset. We have jurisdiction to review the
district court’s issuance of the injunction under 28 U.S.C.
App. 6
§ 1292(a)(1) which provides for appeal of interlocutory
orders granting or refusing to grant injunctions. Our
jurisdiction under section 1292(a)(1) also extends to the
remainder of the appealed order to the extent the injunc-
tion is “interdependent with” the remainder of the
appealed order. In re Federal Skywalk Cases, 680 F.2d 1175,
1180 (8th Cir.), cert. denied, 459 U.S. 988, 103 S.Ct. 342, 74
L.Ed.2d 383 (1982); Union Nat. Bank of Little Rock v. Federal
Nat. Mortg. Ass’n, 860 F.2d 847, 852 (8th Cir.1988). Under
this standard, we have jurisdiction to review all portions
of the order that are dependent on the resolution of the
issues necessarily resolved in reviewing the injunction
order. Union Nat. Bank v. Federal Nat. Mortg. Ass’n, 860
F.2d at 852. In other words, in addition to the injunction
order, we may review other issues only if they are “inex-
tricably bound up” with the injunction. Marathon Oil Co.
v. United States, 807 F.2d 759, 764 (9th Cir.1986), cert.
denied, 480 U.S. 940, 107 S.Ct. 1593, 94 L.Ed.2d 782 (1987).
We need not undertake a review of issues whose resolu-
tion is not necessary to effectively review the injunction.
Mille Lacs Band of Chippewa Indians v. State of Minn., 48
F.3d 373, 375 (8th Cir.1995).
We must determine the extent to which each issue
RAC has appealed is relevant to, or interdependent with,
or inextricably bound up with the injunctive relief
granted in this case.
First, the propriety of the summary judgment in
favor of the plaintiff class on its usury claim is properly
before us on appeal, because the district court’s deter-
mination that the rental purchase agreements are usu-
rious is the very basis of the injunction. Second, the
App. 7
issues surrounding the time-price doctrine and appel-
lants’ constitutional claims are properly before us because
the district court’s rejection of these defenses was a nec-
essary predicate to entry of the injunction.
The remaining issues are more problematic. RAC
asks us to review the district court’s finding that the
rental purchase agreements satisfy the “unlawful debt”
element of RICO. The district court retained jurisdiction
to make determinations on the remaining elements of the
RICO claim. In the interest of avoiding piecemeal
appeals, it would be appropriate to review the RICO
claim in its entirety after a final judgment has been ren-
dered. Gardner v. Westinghouse Broadcasting Co., 437 U.S.
478, 480, 98 S.Ct. 2451, 2453, 57 L.Ed.2d 364 (1978). Fur-
thermore, it is not necessary to determine whether the
rental purchase contracts satisfy the “unlawful debt” ele-
ment of the RICO claim in order to effectively review the
injunction order. Accordingly, we decline to exercise
jurisdiction to review this ruling. Mille Lacs Band, 48 F.3d
at 375; Union Nat. Bank v. Federal Nat. Mortg. Ass'n, 860
F.2d at 852; Marathon Oil Co. v. United States, 807 F.2d at
764.
For the same reasons, we decline to review the dis-
trict court’s order establishing the formula for calculating
money damages and the procedure by which class mem-
bers are to assert claims for money damages. The district
court retained jurisdiction to determine damages in this
case. It is appropriate to avoid piecemeal appeals by
deferring review of these issues until final money judg-
ments have been entered. Gardner v. Westinghouse Broad-
casting Co., 437 U.S. at 480, 98 S.Ct. at 2453. In addition,
we do not find it necessary to resolve these issues in
App. -8
order to effectively review the injunctive relief granted
here. Issues regarding the proper method for calculating
damages are not inextricably bound up with the injunc-
tion issued here. Mille Lacs Band, 48 F.3d at 375; Union
Nat. Bank v. Federal Nat. Mortg. Ass’n, 860 F.2d at 852;
Marathon Oil Co. v. United States, 807 F.2d at 764.
III. Standards of Review
We review a grant of summary judgment de novo.
Hardin v. Hussmann Corp., 45 F.3d 262, 264 (8th Cir.1995).
We will affirm if the evidence, when viewed in the light
most favorable to the 1..n-moving party, demonstrates
that there is no genuine issue as to any material fact and
the moving party is entitled to judgment as a matter of
law. Id.; Bashara v. Black Hills Corp., 26 F.3d 820, 823 (8th
Cir.1994).
Our review of the grant or denial of a permanent
injunction is confined to the determination of whether the
district court abused its discretion. International Ass'n of
Machinists and Aerospace Workers v. Soo Line R. Co., 850
F.2d 368, 374 (8th Cir.1988) (en banc), cert. denied, 489 U.S.
1010, 109 S.Ct. 1118, 103 L.Ed.2d 181 (1989). Abuse of
discretion occurs if the district court reaches its conclu-
sion by applying erroneous legal principles or relying on
clearly erroneous factual findings. Id., 850 F.2d at 374;
United States v. Yacoubian, 24 F.3d 1, 3 (9th Cir.1994).
App. 9
IV. Discussion
A. Summary Judgment on Usury Claim
The district court held that RAC’s rent to own con-
tracts are usurious as a matter of law. Under the state
general usury statute, four elements must be proven to
establish a violation: 1) a loan of money or forbearance of
debt; 2) an agreement between the parties that the princi-
pal shall be repayable absolutely; 3) the exaction of a
greater amount of interest than is allowed by law, and 4)
the presence of an intention to evade the law at the
inception of the transaction. Miller v. Colortyme, 518
N.W.2d 544, 549-50 (Minn.1994); Citizen’s National Bank of
Willmar v. Taylor, 368 N.W.2d 913, 918 (Minn.1985).
1. Constitutional Challenges
The district court held that, under Minnesota law as
set forth in Miller v. Colortyme and Fogie v. Rent-A-Center,
the first two elements of usury are satisfied by operation
of the CCSA and the general usury statute. 518 N.W.2d at
549, 518 N.W.2d 544. RAC argues that, by applying the
CCSA and the usury statute to it’s rental purchase trans-
actions in this manner, the district court violated RAC’s
constitutional rights.
First, RAC contends the Miller interpretation renders
the CCSA and the usury statute unconstitutionally vague,
depriving RAC of the “fair notice” required by the Due
Process Clause. RAC also contends that the district court
retroactively applied the Miller decision in violation of
the Ex Post Facto and Due Process Clauses. We reject both
contentions.
App. 10
a. Vagueness
The Supreme Court enunciated standards for eval-
uating claims of vagueness in Grayned v. City of Rockford,
408 U.S. 104, 108-109, 92 S.Ct. 2294, 2298-99, 33 L.Ed.2d
222 (1972). First, the prohibitions of a statute must be
defined clearly enough that a person of ordinary intel-
ligence has a reasonable opportunity to know what is
prohibited. Second, the statute must provide standards
that are clear enough that those charged with applying
the statute are not required to make basic policy decisions
on a subjective or arbitrary basis. Id.
These standards are not to be applied mechanically.
Criminal enactments are to be examined under a stricter
vagueness test while economic regulation is subject to a
more tolerant examination. Village of Hoffman Estates v.
Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-99, 102
S.Ct. 1186, 1193, 71 L.Ed.2d 362 (1982). We reject RAC’s
contention that the strict test applicable to criminal stat-
utes governs here. The statutes implicated in this case are
primarily economic regulations which cover a narrow
subject area and regulate the conduct of business enter-
prises. The punitive aspects of the usury statute impose
only civil penalties. Under Village of Hoffman, we con-
clude that the broader, more tolerant test of vagueness is
required here. 455 U.S. at 498-99, 102 S.Ct. at 1193.
Applying these standards, we hold that the Miller
decision of the Minnesota Supreme Court does not render
the CCSA or the general usury statute unconstitutionally
vague. The CCSA defines “Sale of Goods” in terms that
clearly encompass terminable leases including RAC’s
rental purchase agreements. Minn.Stat. 325G.15 subd. 5.
App. il
The CCSA incorporates this definition of “Sale of Goods”
into its definition of “Consumer Credit Sales”. Minn.Stat.
325G.15 subd. 2. Any lease that constitutes a consumer
credit sale under the CCSA is deemed a sale for all
purposes. Minn.Stat. 325G.16 subd. 4.
RAC contends that their rental purchase agreements,
though statutorily defined as “sales”, cannot be “con-
sumer credit sales” because the seller does not extend
credit and the buyer does not incur debt. This construc-
tion is untenable because it would render section 325G.15
subd. 5 entirely meaningless and unnecessary. Moreover,
the terms of RAC’s rental purchase agreements provide
for buyers to acquire possession of goods while deferring
payment over time. These are the essential attributes of
an ordinary credit sale. It is clear that the legislature
intended for CCSA consumer protections governing ordi-
nary credit sales to also govern rental purchase agree-
ments having the same essential attributes. Accordingly,
the construction proposed by RAC would render subdivi-
sion 5 meaningless and would also frustrate the legisla-
tive intent and hinder the consumer protection objectives
of the statute.
These statutory provisions give sufficient notice to
those engaged in the rent-to-own industry that their
rental purchase contracts fall within the CCSA and are
subject to usury laws. They also provide standards by
which the courts can apply the statutes without engaging
in subjective or arbitrary policy making decisions.
Accordingly, the statutes pass the vagueness test enunci-
ated in Grayned v. City of Rockford and Village of Hoffman
Estates.
App. 12
b. Retroactive Application of Miller v. Color-
tyme
Two elements are necessary for a statute to be ex post
facto in violation of the Constitution*: it must apply to
events that occurred before its enactment; and it must
disadvantage the offender affected by it. Miller v. Florida,
482 U.S. 423, 430, 107 S.Ct. 2446, 2451, 96 L.Ed.2d 351
(1987); Weaver v. Graham, 450 U.S. 24, 29, 101 S.Ct. 960,
964, 67 L.Ed.2d 17 (1981). The CCSA, the RPAA, and the
general usury statute existed in their present form when
the parties entered into the rental purchase contracts at
issue in this case. Accordingly, the statutes themselves are
not subject to ex post facto analysis.
A judicial decision which meets both elernents also
violates the ex post facto clause and cannot be applied
retroactively. Bouie v. City of Columbia, 378 U.S. 347,
353-54, 84 S.Ct. 1697, 1702-1703, 12 L.Ed.2d 894 (1964).
This occurs when a judicial decision unforeseeably
enlarges a statute to cover conduct that was not offensive
before the judicial pronouncement. Id. If the judicial con-
struction is “unexpected and indefensible by reference to
the law which had been expressed prior to the conduct in
issue” it violates the ex post facto clause and must not be
given retroactive effect. Bouie v. City of Columbia, 378 U.S.
at 354, 84 S.Ct. at 1703.
4 We assume without deciding that the third critical
element, that the statute be a criminal or penal law, is satisfied
in this case.
App. 13
RAC contends the Minnesota Supreme Court's deci-
sion in Miller v. Colortyme changed the substantive ele-
ments of a usury claim by making it unnecessary for
plaintiffs to prove the first two elements, the extension of
credit and the absolute obligation to repay it. In RAC’s
view, the Miller decision acts as an ex post facto law and
must not be applied retroactively.
The Miller decision did not change the elements of a
usury claim. It is a judicial interpretation of the statutory
scheme that existed long before the present contracts
were made. The judicial construction in Miller is not
“unexpected or indefensible by reference to” the statu-
tory framework already in place. On the contrary, the
judicial construction of those statutes is reasonable and
foreseeable, gives full meaning to the statutory language,
operates in the manner clearly intended by the legisla-
ture, and furthers the consumer protection objectives of
the statutes. In addition, Miller does not overrule any
prior contrary ruling of the Minnesota Supreme Court
upon which RAC might justifiably have relied.
In short, Miller did not change existing law - it
simply stated a reasonable and correct interpretation of
the law which differs from the erroneous view RAC had
chosen to follow.
For the reasons stated above, RAC’s constitutional
challenges to the Miller v. Colortyme decision must be
rejected. The district court was correct in ruling in accor-
dance with Miller, that the first two elements of the usury
claim in this case are established by operation of the
CCSA and the usury statute.
App. 14
2. Factual Challenges
RAC contends the plaintiff class failed to carry its
burden of proving the third and fourth elements of their
usury claim: exaction of interest at an illegal rate and the
intent to evade the usury law when the contract was
made. We view the evidence in the light most favorable to
RAC. Bashara v. Black Hills Corp., 26 F.3d at 823.
a. Amount of Interest Charged
The plaintiff class urged the district court to find that
the difference between the total payments needed to pur-
chase an item by renewing the contract to ownership and
the cash price was entirely interest. It cannot be disputed
that this amount, described in the rental purchase agree-
ments as the “cost of lease services”, is 82% of the cash
price in each contract. Adjusting this figure for the dura-
tion of the various contracts among the plaintiff class
members produces annual percentage rates ranging
between 46% for the longest contract and 746% for the
shortest. Obviously, these rates far exceed the legal limit
under the usury statute, Minn.Stat. § 334.01.5
RAC contends that the cost of lease services cannot
be entirely interest because it includes the value of ser-
vices such as delivery, maintenance, repair, and contract
options. If the case had gone to trial, RAC intended to
> The general usury statute permits a maximum interest
rate of six percent per annum unless the rate is contracted for in
writing, in which case a rate of eight percent may be charged.
Minn.Stat. § 334.01.
App. 15
present evidence to show the value of these additional
services.
_ The district court found no evidence that the mem-
bers of the plaintiff class agreed to pay for any additional
services. The court also found that, even if the “cost of
lease services” figure included both interest and the value
of additional services, no reasonable fact finder could
conclude that the portion attributable to the value of
additional services was great enough so that the interest
portion was below the statutory usury rate. A close
review of the record discloses that the district court was
correct in both findings.
It is proper to exclude from the interest calculation “a
certain sum, agreed to be paid the lender for services and
expenses in connection with the loan” if the charge is
reasonable and bona fide. Hobart v. Michaud, 174 Minn.
474, 219 N.W. 878, 879 (1928); Daley v. Minnesota Loan and
Inv. Co., 43 Minn. 517, 45 N.W. 1100, 1101 (1890). How-
ever, if the fee is not related to any separate expenses but
is compensation for the use of the money loaned, it must
be considered interest. VanderWeyst v. First State Bank of
Benson, 425 N.W.2d 803, 811 (Minn.), cert. denied, 488 US.
943, 109 S.Ct. 369, 102 L.Ed.2d 359 (1988).
RAC contends the plaintiff class members agreed to
pay the value of additional services because they each
agreed to the general “cost of lease services” term in the
written contracts. RAC’s expert claimed that the value of
each of the following services should be excluded from
the interest calculation: deiivery, maintenance, repair and
replacement. RAC contends it is not required to itemize
App. 16
the additional services covered by the term “cost of lease
services” .®
The undisputed evidence shows that the parties con-
templated each of the services identified by RAC’s expert
would be provided without charge. In the express written
terms of each of the contracts, the delivery charge indi-
cated is “$0.00”. In its published advertisements, RAC
announced that delivery, repair, service, set up, and
“loaners” were free services. We are convinced that no
fact finder could view this evidence and reasonably con-
clude that the plaintiff class members knowingly agreed
to pay for these services as “cost of lease services”.
RAC’s expert also identified certain “contract
options” including the right to continue renting; the right
to stop renting; and, the right to obtain ownership over
time by the two methods described in the contracts. RAC
contends the value of these “options” should be excluded
from “cost of lease services” in calculating the interest
charged by RAC.
The Minnesota Supreme Court, after fully consider-
ing the very contracts at issue here, including the rights
described now by RAC as “options”, ruled that these
contracts are consumer credit sales contracts. Fogie v.
Rent-A-Center, 518 N.W.2d at 544. Describing the con-
tract’s terms as “options” does not change its nature.
6 We believe the RPAA requires full disclosure of the
service charges associated with a rental purchase contract.
Minn.Stat. § 325F.86-.87. However, compliance with the RPAA is
not the issue. Itemization of charges is relevant to the usury
analysis only if it tends to prove or disprove that “cost of lease
services” is truly a service charge rather than interest.
App. 17
These so-called “options” are simply the rights enjoyed
by any consumer credit sale purchaser. The compensation
paid for the right to acquire ownership by paying the
purchase price over time in a consumer credit sale is
interest. Likewise, the compensation collected by the
seller for the risks associated with collecting the purchase
price over time is interest. Simply calling the rights and
risks associated with credit sales “options” does not enti-
tle the seller to additional compensation in excess of the
usury rate.
Accordingly, by process of elimination, we must con-
clude that the “cost of lease services” term in the rental
purchase contracts is interest. To the extent the value of
any additional service or option is included, we agree
with the district court that no fact finder could reason-
ably conclude such value is sufficient to reduce the 46%
to 746% range of annual percentage rates charged by
RAC to a nonusurious level.
The district court properly found that the third ele-
ment of the usury claim has been established.
b. Intent
RAC contends that summary judgment is improper
because the plaintiff class failed to prove the fourth ele-
ment, intent to evade the usury law. “Intent” for the
purposes of usury law consists in the intent to take more
interest than allowed by law; it is not necessary that the
person taking the interest knows he is violating the usury
law. Trapp v. Hancuh, 530 N.W.2d 879, 885
(Minn.App.1995); Citizen’s Nat. Bank of Willmar v. Taylor,
App. 18
368 N.W.2d 913, 919 (Minn.1985). If the evidence shows a
direct contract whereby the lender exacts excessive inter-
est, the intent to evade the law is presumed. Fred G. Clark
Co. v. E.C. Warner Co., 188 Minn. 277, 247 N.W. 225, 229
(1933).
In this case the contracts provide for RAC to exact
interest in excess of the usury rate and there is no claim
by RAC that it did not intend to coilect less money than is
stated in the contracts. Accordingly, as a matter of law,
RAC had the requisite intent under the usury statute.
Miller v. Colortyme, 518 N.W.2d at 550.
RAC contends that it should be relieved of the pre-
sumption of intent because it reasonably relied in good
faith on the existing law. Washington Federal Sav. & Loan
Ass'n of Stillwater v. Baker, 374 N W.2d 786, 788
(Minn.App.1985). We reject this argument for the same
reasons we rejected RAC’s constitutional challenges.
RAC’s reliance on a strained and erroneous construction
of the statutory scheme is not the kind of good faith
reliance that brings this exception into play.
3. Time-Price Doctrine
RAC contends that the plaintiff class is not entitled to
judgment as a matter of law because their rental purchase
contracts fall within the time-price doctrine. This doctrine
was based on the central premise that there can be no
usury without a loan or forbearance of money and that
the sale of property in a time-price transaction involves
no loan. Dunn v. Midland Loan Finance Corporation, 206
Minn. 550, 289 N.W. 411, 413 (1939); St. Paul Bank for
App. 19
Cooperatives v. Ohman, 402 N.W.2d 235, 238
(Minn.App.1987). The time-price doctrine was judicially
created and is not an exception to usury law, but recog-
nizes transactions which are outside the scope of usury
law. St. Paul Bank v. Ohman, 402 N.W.2d at 238.
RAC’s argument is foreclosed by the rulings of the
Minnesota Supreme Court. In Fogie v. Rent-A-Center, Inc.,
the Court ruled in no uncertain terms that the usury
statute, Minn.Stat. § 334.01 applies to rent-to-own con-
tracts. 518 N.W.2d at 544. Accordingly, RAC cannot now
argue that its rental purchase agreements are transactions
which fall outside the scope of the usury law. Further-
more, the loan or forbearance element of usury, missing
in time-price transactions, is satisfied in rental purchase
agreements by operation of statute. Miller v. Colortyme,
Inc., 518 N.W.2d at 549. In addition, the Minnesota
Supreme Court has been unwilling to expand the time-
price doctrine unless justified by economic needs and
social attitudes making the protections of the usury stat-
ute unnecessary. Rathbun v. W.T. Grant Company, 300
Minn. 223, 219 N.W.2d 641, 647 (1974). We find no such
justification here.
“We are bound to apply state law as ve are able to
discern it from the rulings of the state’s courts.” Boner v.
Eminence R-1 School Dist. 55 F.3d 1339, 1341 (8th Cir.1995),
quoting Jackson v. Anchor Packing Co., 994 F.2d 1295, 1310
(8th Cir.1993). Under the applicable state case law, it is
clear that RAC’s rental purchase contracts do not fall
within the time-price doctrine and are subject to the
usury statute.
App. 20
B. Injunction Order
We review the district court’s grant of a permanent
injunction for an abuse of discretion. United States v.
Green Acres Enterprises, Inc., 86 F.3d 130, 132 (8th
Cir.1996); Soo Line R. Co., 850 F.2d at 374. Abuse of discre-
tion occurs if the district court reaches its conclusion by
applying erroneous legal principles or relying on clearly
erroneous factual findings. Id.
The Eighth Circuit balances four factors to determine
whether injunctive relief is warranted: (1) the threat of
irreparable harm to the movant; (2) the state of balance
between this harm and the harm to be suffered by the
nonmoving party if the injunction is granted; (3) the
probability that the movant will succeed on the merits;
and (4) the public interest. Dataphase Systems, Inc. v. C L
Systems, Inc., 640 F.2d 109, 113 (8th Cir.1981) (en banc).
The standard is the same for a permanent injunction
except that the movant must show actual success on the
merits. Amoce Production Co. v. Village of Gambell, Alaska,
480 U.S. 531, 546 n. 12, 107 S.Ct. 1396, 1404 n. 12, 94
L.Ed.2d 542 (1987). The district court did not make
explicit findings with respect to these four factors. How-
ever, by prevailing on its usury claim the plaintiff class
has demonstrated that the four factors of this test over-
whelmingly militate in favor of an injunction.
As demonstrated in this opinion, the plaintiff class
has shown actual success on the merits. In addition,
public interest overwhelmingly favors enjoining these
contracts. The public policy of Minnescta is revealed in
its consumer protection statutory scheme including the
usury statute, the CCSA and the RPAA. The actions
App. 21
enjoined here violate the letter and spirit of this statutory
scheme and are clearly against the public interest. To
balance against this, the only harm to RAC is the loss of
the usurious portion of its income.
RAC contends that the plaintiff class has failed to
show irreparable injury because the district court has
established a formula for calculating money damages.
However, this formula only compensates for past dam-
ages and only reaches class members who have been
identified. Estimating future losses of similarly situated
individuals if RAC continues its practices is virtually
impossible, as is identifying those potential victims of
their practices. Giving due weight to each of the four
factors, we are satisfied that there has been no abuse of
discretion by the district court.
V. Conclusion
Based on the foregoing, the district court's order
granting summary judgment for the plaintiff class and
enjoining RAC from entering into usurious credit sales
transactions is AFFIRMED.
App. 22
APPENDIX B
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
Vickie Fogie, Joan Leonard
and Angela Adams, on behalf
of themselves and all others MEMORANDUM
similarly situated, OPINION AND
Py ie ORDER
Plaintiffs,
File No. 3-94-359
vs.
Rent-A-Center, Inc. a Kansas
corporation, TEUSA Holdings,
Inc., a Delaware corporation,
Thorn EMI (USA) Inc., a
Delaware corporation, and
Thorn EMI North American
Holdings, Inc., a Delaware
corporation,
Defendants.
The above-entitled matter came on for hearing before
the Honorable Michael J. Davis on plaintiffs’ motion for
partial summary judgment. ‘
David L. Ramp, Esq., Mary King, Esq., Seymour J.
Mansfield, Esq., and Phillip Cole, Esq., appeared for and
on behalf of Plaintiffs.
J. Patrick McDavitt, Esq., John C. Dods, Esq., and
Peter E. Strand, Esq., appeared for and on behalf of
Defendants.
This is a class action involving rent-to-own transac-
tions. Defendants offer a variety of household goods for
sale or lease. The plaintiff class are individuals who
App. 23
entered into rent-to-own contracts with Defendants on or
after August 1, 1990. Under these contracts, a plaintiff
class member could purchase the item for cash without
entering into a rental agreement, or could acquire owner-
ship after an initial rental period by paying a certain
amount calculated by a particular formula. The final
method to obtain ownership of an item would be to
renew the rental agreement for the agreed upon time
period as set forth in the rental agreement.
Plaintiffs have brought this class action arguing
Defendants, through their rent-to-own contracts, violate a
number state and federal statutes, such as the Consumer
Credit Sales Act (CCSA), Minn.Stat. § 325G.15, Minnesota
Consumer Fraud Act, Minn.Stat. § 325F.69, and Racketeer
Influenced and Corrupt Organization (RICO), 18 U.S.C.
§ 1961, et. seq.
This case was previously assigned to the Honorable
Diana Murphy, who certified the following two questions
to the Minnesota Supreme Court:
1. Are rent-to-own contracts consumer credit sales
under Minn.Stat. § 325C.15?
2. Does the usury statute, Minn.Stat. § 334.01, apply
to rent-to-own contracts?
On June 24, 1994, the Minnesota Supreme Court
determined that defendant’s rent-to-own transactions are
consumer credit sales under Minn.Stat. § 325C.15 and are
subject to Minnesota’s usury statute, Minn.Stat. § 334.01,
for the reasons set forth in the opinion of Miller v. Color-
tyme, Inc., 518 N.W.2d 544 (Minn.1994). Fogie v. Rent-
A-Center, 518 N.W.2d 544 (Minn.1994).
App. 24
Plaintiffs now move this Court for an Order declar-
ing that Defendants’ rent-to-own contracts are subject to
the usury statute, and that such contracts are usurious as
a matter of law. Plaintiffs also request this Court find,
with respect to their RICO claim, that the interest rate
charged by Defendants was more than twice the rate
permitted by law. Finally, Plaintiffs seek a ruling as to the
proper measure of damages for usury, and permanently
enjoining Defendants from committing future usury vio-
lations.
Standard
Summary judgment is appropriate if there is no gen-
uine issue of material fact and the moving party is enti-
tled to judgment as a matter of law. Fed.R.Civ.P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Unigroup, Inc.
v. O'Rourke Storage & Transfer Co., 980 F.2d 1217, 1219-20
(8th Cir. 1992). To determine whether genuine issues of
material fact exist, a court conducts a two-part inquiry.
The court determines materiality from the substantive
law governing the claim. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). Disputes over facts that might
affect the outcome of the lawsuit according to applicable
substantive law are material. Id. A material fact dispute is
“genuine” if the evidence is sufficient to allow a reason-
able jury to return a verdict for the non-moving party. Id.
at 248-49.
App. 25
Analysis
1. Usury
- Although the Minnesota Supreme Court was not
asked to determine whether the contracts at issue in this
case are usurious, the court did hold that similar rent-to-
own contracts, are consumer credit sales for all pur-
poses, and that such contracts were usurious as a matter
of law. Miller, 518 N.W.2d at 550. In making this deter-
mination, the court recognized the four elements of usury
as:
1) a loan of money or forbearance of debt,
2) an agreement between the parties that the
principal shall be repayable absolutely,
3) the exaction of a greater amount of interest
or profit than is allowed by law, and
4) the presence of an intention to evade the
law at the inception of the transaction.
Id., at 549 (citing Citizen's Nat'l Bank of Willmar v. Taylor,
368 N.W.2d 913, 918 (Minn.1985)). The court determined
that the first two elements of usury are met by operation
of statute, based upon its determination that rent-to-own
contracts are consumer credit sales. Id. The court also
determined that the fourth element of usury, intention to
evade the law at the contract’s inception, is also met by
virtue of the fact that the defendant intended to collect all
the money stated in the contract. Id., at 550. It is not
necessary to find the defendant knew he was violating
1 The contracts addressed in Miller did not offer consumer
items for immediate sale. Miller, 518 N.W.2d at 546. Defendants
contracts do offer items for immediate sale. This is a difference
without consequence, however, as to the usury analysis.
App. 26
the usury law. Id. The court also found that a usurious
rate of interest was charged in the absence of evidence
establishing the difference between the total payments
required, and the value of goods and services extended,
amounted to less than six percent of the total payments.
Id.
In this case, Defendants state that the cash price of an
item is prominently displayed on each item and is
included in the rental contract. The rental contract also
includes an amount referred to as the “cost of lease
services.” The cash price is 55% of the total of payments
required to complete the purchase of the goods over the
term of the contract. It is Plaintiffs’ contention that the
difference between the cash price and the “cost of lease
services” is interest, which clearly violates the usury laws
which provides a maximum interest rate of $8 per $100
per year. Minn.Stat. § 334.01.
To determine whether a transaction is usurious, this
Court must consider whether or not the transaction is, in
substance, a contracting to receive usurious interest for a
loan or forbearance of money. Seebold v. Eustermann, 216
Minn. 566, 13 N.W.2d 739, 744 (1944). “The process
involves looking through form to the substance. No
device or shift may be employed to conceal the true
character of the transaction.” Id.
Defendants make a number of arguments in opposi-
tion to Plaintiffs’ request that the contracts at issue are
usurious as a matter of law. In support of these argu-
ments, Defendants rely upon its expert, Dr. Roman L.
Weil. See, Weil Affividat [sic]. First, Dr. Weil opines that it
is impossible to compute an interest rate for a rent-to-
App. 27
own transaction at the inception of the transaction,
because it is impossible to know how many payments the
customer will make. Weil Aff., page 8. This argument is
meritless, however, as usury analysis is conducted upon
the terms of the contract as written, not as executed. See
Fred G. Clark v. E.C. Warner Co., 188 Minn. 277, 247 N.W.
225, 229 (1933).
Dr. Weil also opines that an interest rate cannot be
computed because a Rent-A-Center customer does not
borrow a principal amount. Weil Aff., page 9. Although
technically, a rent-to-own customer does not incur a debt
and does not have an absolute obligation to repay a
principal amount, rent-to-own customers nonetheless
“implicitly pay interest in return for the ability to pay for
goods over time.” Id., at 549. Rent-to-own customers are
entitled to the same protections as those consumers who
purchase goods through ordinary installment sales. Id.
Accordingly, the principal amount in rent-to-own transac-
tions for purposes of computing interest, is the cash price.
Defendants also argue that the difference between
the cash price and the costs of lease services should not
represent interest. In its contracts, the only prices item-
ized are the cash price and the cost of lease services.
Defendants argue that the cost of lease services includes a
number of services, such as delivery, maintenance, and
options such as option to renew etc. Defendants asserts
[sic] that the interest rate cannot equal the difference
between the cash price and the cost of lease services as
such computation does not take into consideration the
value of delivery, maintenance, etc.
App. 28
Under certain circumstances, it is proper to exclude
from an interest rate computation, a certain sum, agreed
to be paid to a lender as services and expenses in connec-
tion with a loan, that is reasonable and bona fide. Hobart
v. Michaud, 174 Minn. 474, 219 N.W. 878, 879-880 (1928).
As noted above, Defendants do not itemize the different
services alleged to be included in “cost of lease services.”
Plaintiffs argue that as a result, there is no evidence that
the plaintiff class members who entered into a rental
contract specifically agreed to the various services and
the charges for such services. Defendants respond that it
was not required by the Rental Purchase Agreements Act
(RPAA), Minn.Stat. § 325F.84-98, to specifically identify
the different services and the cost for such services. While
the RPAA does not specifically direct Defendants to item-
ize difference [sic] services, the fact remains that rent-to-
own contracts are consumer credit sales for all purposes.
As such, Defendants must comply with all laws affecting
consumer credit sales, including the usury laws. Defen-
dants cannot escape usury liability by arguing they com-
plied with the RPAA. Without an itemization of the
services allegedly provided customers under its rent-to-
own contracts, this Court cannot find that such costs for
services were agreed upon, let alone reasonable or bona
fide.
Defendant argues that it intends to present evidence
at trial as to the different services provided and the value
of such services. As to this assertion, this Court adopts
the observation made by the court in Miller:
no reasonable fact finder could conclude that
the difference between the total payments
required under the contracts and the value of
App. 29
the goods and services extended amounts to as
little as six percent of the total payments.
Id., at 550.
Defendants next contend that summary judgment is
inappropriate as the contracts at issue herein are
excluded from usury liability under the time-price doc-
trine. This doctrine is a judicially created exception to the
usury law applied to bona fide installment sales. Dunn v.
Midland Loan Finance Corp., 206 Minn. 550, 289 N.W. 411
(1939). This doctrine was created to recognize that usury
only applies where there is a loan or forbearance of
money, and that a sale of property does not involve such
a loan or forbearance. Dunn, 206 Minn. at 553, 289 N.W. at
413. Accordingly, in a bona fide installment sale, a seller
is entitled to set a cash price and a credit price, without
making the transaction usurious. Id.
This doctrine does not apply in this case, however,
because it has already been judicially determined that the
usury statute applies to the rent-to-own contracts at
issue. Furthermore, as noted by the Minnesota Supreme
Court:
[the time price] doctrine in its inception recog-
nized the social conditions of the nineteenth
century and the era of laissez-faire mercantilism
that existed at that time. These cases usually
involved items of high price which the buyer
ordinarily could not afford to purchase with
cash and a buyer and seller substantially on
equal footing in bargaining over price and credit
charges. The doctrine was expanded to cover
items less unique and costly, but it was not until
the practice of installment buying became a
common consumer practice that it gained wide
App. 30
acceptance. This application of the exception to
the usury law did a disservice to the original
concept of that law, which was to protect weak
and needy persons from the overreaching of
economically superior renters of capital. It is
apparent that the bargaining position of install-
ment buyers may be as disadvantageous today
as that of borrowers. Thus, any expansion of this
doctrine must be justified in light of the eco-
nomic needs and social attitudes as they now
exist.
Rathbun v. W.T. Grant Co., 300 Minn. 223, 232, 219 N.W.2d
641, 648 (1974). The plaintiff class was not, and is not, on
equal footing with Defendants for they do not have any
say in setting the cash price and the credit price. As in
Rathbun, this Court finds no justification for extending
the time-price doctrine to the rent-to-own contracts at
issue herein.
Defendants also assert that the Minnesota Supreme
Court’s interpretation of the CCSA and the usury statute
renders those statutes unconstitutionally vague, and that
retroactive application of this interpretation is uncon-
stitutional.
“It is a basic principle of due process that an enact-
ment is void for vagueness if its prohibitions are not
clearly defined.” Grayned v. City of Rockford, 408 U.S. 104,
108 (1972). The vagueness doctrine protects important
constitutional principles such as fair warning, and a pro-
hibition of arbitrary and discriminatory enforcement of
laws. Grayned, 408 U.S. at 108-109. “A vague law imper-
missibly delegates basic policy matters to policemen,
judges, and juries for resolution on an ad hoc and subjec-
tive basis, with the attendant dangers of arbitrary and
App. 31
discriminatory application.” Id. “The degree of vagueness
the Constitution tolerates-as well as the relative impor-
tance of fair notice and fair enforcement-depends in part
on the nature of the enactment.” Village of Hoffman Estates
v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498 (1982)
reh’g denied, 456 U.S. 950 (1982). The Supreme Court has
determined that economic regulation be subjected to a
less strict vagueness test.
[E]conomic regulation is subject to a less strict
vagueness test because its subject matter is often
more narrow, and because businesses, which
face economic demands to plan behavior care-
fully, can be expected to consult relevant legisla-
tion in advance of action. Indeed, the regulated
enterprise may have the ability to clarify the
meaning of the regulation by its own inquiry, or
by resort to an administrative process. The
Court has also expressed greater tolerance of
enactments with civil rather than criminal pen-
alties because the consequences of imprecision
are qualitatively less severe.
Village of Hoffman, 455 U.S. at 498-499. The statutes at
issue, the CCSA, RPAA and usury, are economic regula-
tions. Although the usury laws provide for civil penalties,
the law is nonetheless subject to a less stricter vagueness
standard. Applying this standard, this Court finds that
the holding in Miller does not render the statutes uncon-
stitutionally vague.
Since 1981, the CCSA clearly and expressly encom-
passes certain terminable leases. A review of the terms of
the rent-to-own contracts at issue herein establishes
Defendants “leases” fall within the definition of “Sale of
Goods” provided in the CCSA. Defendants were clearly
ere
App. 32
put on notice that its [sic] transactions were encompassed
by the CCSA, and as such, subject to usury laws. This
Court finds nothing vague in this statutory construction.
a
Defendants argument that Miller amended the usury
statute by abolishing the elements of debt and absolute
obligation to pay principal is meritless. Miller is consis-
tent with usury law, which requires courts to look
through the form to the substance of a transaction. As the
Miller court found, rent-to-own customers technically do
not incur debt or an absolute obligation to repay a princi-
pal amount - rent-to-own customers for all practical pur-
poses are in the same legal position as ordinary buyers on
credit.
Nor does the enactment of the RPAA contribute to
Defendants’ vagueness argument. The RPAA was not set
up as an exclusive regulatory system of rent-to-own
transactions, and the remedies provided therein are
cumulative. Miller, 518 N.W.2d at 550. See Minn.Stat.
§§ 325F.85 and 325F.97, Subd. 2.
Defendants also argue that retroactive application of
the Miller decision violates due process because the Miller
decision acts as an ex post facto law. The test developed by
the United States Supreme Court for determining viola-
tions of the-ex post facto clause derives from the principle
that “central to the ex post facto clause prohibition is a
concern for the ‘lack of fair notice and governmental
restraint when the legislation increases punishment
beyond what was prescribed when the crime was con-
summated. [sic]” Miller v. Florida, 482 U.S. 423 (1987).
yr a, rr
is
f
*
i
App. 33
From this principle, the Court has determined that two
elements must be met: the law must apply to events
occurring before its enactment; and it must disadvantage
the offender affected by it. Miller, 482 U.S. at 430. The
Court has also held that there is no ex post facto violation
if the law merely changes the modes of procedure that do
not affect matters of substance. Id. (citation omitted). This
principle has also been applied to judicial decisions as
well. Bouie v. City of Columbia 378 U.S. 347, 353-354 (1964).
Indeed, an unforeseeable judicial enlarge-
ment of a criminal statute, applied retroactively,
operates precisely like an ex post facto law, such
as Art. I, s. 10 of the Constitution prohibits. . . .
The fundamental principle that ‘the required
criminal law must have existed when the con-
duct in issue occurred . . . must apply to bar
retroactive criminal prohibitions emanating
from courts as well as from legislatures. If a
judicial construction of a criminal statute is
‘unexpected and indefensible by reference to the
law which had been expressed prior to the con-
duct in issue’ it must not be given retroactive
effect.
Id.
This Court finds that the Miller decision is not a
judicial construction that is unexpected and indefensible
by reference to the CCSA, RPAA and the usury laws.
Miller does not represent a-change in the law and there
have been no prior contrary rulings by the Minnesota
Supreme Court. See United States v. Estate of Donnelly, 397
U.S. 286, 295 (1970) (Generally, decisions construing stat-
utes given full retroactive effect, except in a rare case
where a court overrules its own construction of a statute.)
App. 34
Based on the above, the Court finds no genuine issue
of material fact and Plaintiffs are entitled to judgment as
a matter of law on the issue of whether the rent-to-own
contracts are usurious as a matter of law.
2. RICO
Plaintiffs also seek a declaration from this Court that
the predicate offense of “unlawful debt”, under the Rack-
eteer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. § 1961(6)(b) is established as a matter of law.
Under RICO, unlawful debt is defined as:
a debt . . . which was incurred in connection
with the business of . . . lending money or a
thing of value at a rate usurious under State or
Federal law, where the usurious rate is at least
twice the enforceable rate.
18 U.S.C. § 1961(6)(B). Plaintiffs argue that through its
expert, they have established that in all its contracts,
Defendants charged more than twice the usurious rate
provided by Minn.Stat. § 334.01.
RICO is a remedial statute, and as such, must be
liberally construed. United States v. Mazzio, 501 F.Supp.
340 (D.Pa.1980), aff'd 681 F.2d 810 (3rd Cir.), cert denied
457 U.S. 1134 (1982). In this case, this Court must look to
Minnesota usury law to determine whether there is an
“unlawful debt” for purposes of determining RICO lia-
bility. See United States v. Biasucci, 786 F.2d 504, 512 (2nd
Cir.1986).
Given this Court’s ruling that the rent-to-own con-
tracts at issue are usurious as a matter of law, this Court
must now also rule that predicate element of “unlawful
App. 35
debt” is also established as a matter of law for purposes
of RICO.
3. Measure of Damages for Usury Violation
Minn.Stat. § 334.02 provides that any person who has
paid a usurious rate, may recover the full amount of
interest so paid, with costs. Minn.Stat. § 334.03 provides
that usurious contracts shall be deemed void, except to a
holder in due course. It is Plaintiffs’ position that Minne-
sota case law construing the remedies provisions of the
usury statute provide that Plaintiffs are entitled alterna-
tive remedies: for those who wish to retain the goods
received under the contract, the remedy is a refund of all
interest paid; for those who wish to return the goods,
voiding the contracts and a refund of all interest and
principal paid.
Defendants argue that under Rathbun, supra, Plain-
tiffs are limited to interest only. Plaintiffs respond that
Rathbun is not controlling.
In Midland Loan Finance Co. v. Lorentz, 209 Minn. 278,
287, 296 N.W. 911, 915 (1941), the court held that “one
guilty of usurious extraction must bear the legal conse-
quences flowing from such violation. As such he must
lose not only the interest on the money risked, but also
the principal, including as well all security given to
secure such performance.” In Seebold v. Eustermann, supra,
the majority of the court determined that under a condi-
tional sale found to be usurious, the contract is void. In
determining the remedy available to the purchaser in
usurious transaction involving a conditional sale, the
court recognized that title remains with the seller until all
App. 36
payments have been made. Thus, when such a contract is
voided under usury, a purchaser is not entitled to posses-
sion of the good, because title had not passed until final
payment had been made, leaving the purchaser with the
single remedy of recovering the usurious interest paid.
Seebold, 13 N.W. at 747.
Justice Loring, in his dissenting opinion in Seebold,
expressed his concern as to the practical effect of the
majority’s holding - which would treat usurious contracts
void as to both parties “whereas our holdings and the
obvious purpose of the statute is to make it void as to the
usurer only to impose penalties upon him alone.” Seebold,
at 747 (citing Lukens v. Hazlett, 37 Minn. 441, 35 N.W. 265
(1887); Lorentz, supra.) | .
In Utterberg v. Cameron, 282 N.W.2d 536 (Minn.1979),
the court specifically overruled Seebold:
Seebold v. Eustermann, . . . unless specifically
overruled, would support the position of defen-
dants that a contract in violation of Minn.Stat.
§ 334.03 is void at its inception and confers no
rights upon either of the parties except as pro-
vided by statute. We now think the better rea-
soned result is expressed by the minority
opinion of Seebold, based upon the premise that
usury statutes are designed to protect the weak
and necessitous so that the penalties should be
imposed only against the usurer and not against
the victim. . . . We accordingly overrule Seebold
v. Eustermann, supra, the practical effect of which
is to redirect the burdens and protections of the
usury laws to prevent their invocation by the
usurer at his option to avoid a contract, when,
as in the instant case, a highly appreciable asset
* is its substance. The protection of asserting the
WAG ERA EDT tn eae Ne ener CON VY
mda oy
¥ nee sy ey
App. 37
defense of usury is available only to the pur-
chaser.
Utterberg, 282 N.W.2d at 537.
As noted by Plaintiffs, Rathbun was decided five
years before Utterberg, and the opinion cites no authority
for its determination that Plaintiffs could be restricted to
seeking only interest. Accordingly, the Court finds that
under Minnesota law, the available remedies to Plaintiffs
are voiding the contracts, and recovering all interest and
principal paid, Minn.Stat. § 334.03, Lorentz, supra, or
retain the property and refunding interest paid,
Minn.Stat. § 334.02, Utterberg, supra.
The final dispute raised by the parties in this motion
is the method to which the interest rate should be calcu-
lated. Defendants ask that the Court adopt the accounting
method utilized in Van Asperen v. Darling Olds, Inc., 254
Minn. 62, 93 N.W.2d 690, 697-98 (1958) and declare that a
rate of $8 per $100 is equivalent to an effective rate of %
14.45, calculated pursuant to the actuarial method.
Plaintiffs object to the use of the add on method
addressed in Van Asperen. Plaintiff [sic] ask the Court to
declare the proper method of accounting is the U.S. Rule.
Defendant’s expert utilizes the same method of comput-
ing interest as did Plaintiff's expert. See, Weil Aff., page
11. Accordingly, the method utilized by the experts,
which appears to the U.S. Rule, shall be utilized.
App. 38
ORDER
Accordingly, based upon the above, and all files,
records, and proceedings herein, IT IS HEREBY
ORDERED AND DECLARED:
1. The rental purchase contracts issued by Defen-
dant Thorn Americas, Inc. (formerly Rent-A-Center, Inc.)
to the Plaintiff Class are consumer credit sales contracts
for all purposes and are subject to the Minnesota General
Usury Statute, Minn.Stat. § 334.01 et seq.
2. It is declared as to all Defendants that the con-
tracts of the Plaintiff Class bear interest at effective rates
in excess of twice the rate permitted under Minnesota
law, and, thus, constitute an “unlawful debt” as defined
by RICO, 18 U.S.C. § 1962(6).
3. The Plaintiff Class members, having made pay-
ments of principal, interest and fees to Thorn Americas,
Inc. under usurious rental purchase agreements, shall
have judgment against Thorn Americas, Inc. for an
amount to be determined in the following- manner:
A. All rental purchase contracts of the Plaintiff
Class are hereby declared void ab initio as to
Defendant Thorn Americas, Inc. pursuant to
Minn.Stat. §§ 334.03 and 334.05. Defendant
Thorn Americas, Inc. shall restore to the Plaintiff
Class all payments made by the Plaintiff class
under such contracts, including, but not limited
to, all principal, interest, “early purchase
option” payments and fees paid to Defendant
under such contracts, together with interest
thereon at the prejudgment interest rate.
B. Alternatively, any Class member may elect
to seek a refund of interest only under any of
App. 39
the Class member’s contracts, together with
interest thereon at the prejudgment interest rate,
rather than recovering all amounts paid as
stated in paragraph 3(A) above.
C. Within 60 days of the date of this Order,
Thorn Americas, Inc. shall identify by make,
model and serial number any and all goods
identified in the contracts which it desires
restored to it by members of the Plaintiff Class
recovering sums on such contracts pursuant to
paragraph 3(A) above. Failure to identify such
goods within the 60 day time period shall con-
stitute a waiver of any claim by Thorn Amer-
icas, Inc. to such goods.
D. Thorn Americas, Inc.’s security interest in
goods held by class members is void and unen-
forceable, whether or not the final installment
has been paid. As a result, Plaintiff Class mem-
bers are relieved of all further obligations with
regard to those contracts, including the obliga-
tion to make future payments under the con-
tracts. From the date of this Order on, Thorn
Americas, Inc. must cease making any further
collections or receiving any further payments of
any kind from the Plaintiff Class on the rental
purchase agreements.
4. Within 60 days of the date of this Order, Thorn
Americas, Inc. shall provide Plaintiffs’ counsel with com-
pleted separate calculations of the total principal, interest
and fees received by Thorn Americas, Inc. from Plaintiff
Class members in connection with contracts executed on
or after August 1, 1990. Reasonable supporting documen-
tation shall be previded with such calculations verifying
the methodology of calculations and the accuracy of fig-
ures used. The “cost of lease services” in each contract
App. 40
shall be deemed interest for the purpose of such calcula-
tion. Payments on contracts shall be calculated as amor-
tizing principal and paying interest under the “United
States Rule” or actuarial method whereby payments are
applied first to interest earned and the remainder to
reduction of principal. Plaintiffs’ counsel and their
accounting consultants are entitled to do such testing,
sampling of data, and review of such methodology and
calculations as may be necessary to verify Defendant's
calculations, and Thorn Americas, Inc. is directed to
cooperate and provide Plaintiffs access to any such data
or information.
5. Within 30 days of the date of this Order, Thorn
Americas, Inc. shall provide Plaintiffs’ counsel with a list
of the names and last known addresses of each class
member. Such list will state the date of each contract
entered into by each such class member during the rele-
vant period, identify the property involved in each such
contract, state the amount of payments made toward
principal, interest and other charges on each such con-
tract, and state whether or not said contract was termi-
nated through return of the property or otherwise.
6. Within 30 days of receiving the list of class mem-
bers described in paragraph 5 above, Plaintiffs’ counsel
shall submit to this court for approval a proposed notice
to class members informing them of the contents of the
Court’s ruling in paragraphs 1 through 3 above and their
rights thereunder. Within 30 days after the Court
approves such notice to class members, the Defendants
shall complete the distribution of said notice by first class
mail to members of the class, and submit proof of the
distribution of such notice to the Court and Plaintiffs’
Toa DE MBR Mayo ramen
App. 41
counsel. The cost of preparing and delivering said notice
shall be borne by the Defendants.
7. Within 60 days of the date of mailing of the notice
described above, members of the Plaintiff Class, who
have not already returned the property identified in any
of their contracts, shall inform the Court through class
counsel of their desire to elect relief under either para-
graph 3(A) or 3(B) above. Any such class member who
fails to receive notice to elect or fails to respond within
said time period shall be deemed to have elected a rem-
edy under paragraph 3(A) above.
8. Plaintiffs’ counsel shall have 60 days from receipt
of the Defendant's calculation under paragraph 4. above
to file with the Court any exceptions taken with such
calculation. If no exceptions are taken, the Defendant's
calculations shall be filed with the Court along with a
proposed order for judgment. In the event the calculation
is contested, the Court will appoint a Special Master to
adjudicate such contest. If the Defendant's calculation is
found to be more than 10% inaccurate, they shall pay the
costs of the Special Master. If the error is less than 10%,
the Plaintiffs shall pay the cost of the Master.
9. Within 90 days of the date of mailing the notice
described in paragraph 6 above, Plaintiffs’ counsel shall
report to the court concerning the amount of principal,
interest and other charges paid by class members on
relevant contracts, the remedies elected by various class
members, and the total amount of damages recoverable in
accordance therewith. Thereafter, the Court will enter an
appropriate award of damages against Thorn Americas,
Inc. in accordance with such procedures as the Court may
App. 42
hereafter adopt. Such award shall include prejudgment
interest at the statutory rate from the date of filing of the
Complaint, December 4, 1991.
10. From the date of this Order on, Thorn Americas,
Inc. is enjoined from entering into credit sales transac-
tions within the State of Minnesota which bear interest at
annual rates in excess of the maximum rate permitted
under Minnesota law.
11. The partial judgment when reduced to sums
certain as prescribed herein shall be rendered final under
Rule 54(b), Federal Rules of Civil Procedure, unless
Thorn Americas, Inc. posts a bond or other suitable secu-
rity with the Court equal to such judgments.
12. The Court will consider the matter of attorneys
fees, costs, plan of distribution and class notices at the
time the calculations of damages are submitted.
Dated: September 28, 1995.
/s/ Michael J. Davis
Michael J. Davis
United States District Court
mE RUN TATTR RAR HEN RRO me ce AER TAA (IRR i ce uN pene cera Na ei ce er ee
App. 43
APPENDIX C his
UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
No. 95-3694MNST
Vickie Fogie, et al., °
* Order Denying
ee * Petition for Rehearing
V. * and Suggestion for ~
THORN Americas, Inc., etc., i Rehearing En Banc
et al., ;
Appellants. *
The suggestion for rehearing en banc is denied.
Judge Bowman would grant the suggestion.
The petition for rehearing by the panel is also denied.
November 4, 1996
Order Entered at the Direction of the Court:
/s/ Michael E. Gans
Clerk, U.S. Court of Appeals, Eighth Circuit
App. 44
APPENDIX D
Vickie FOGIE and Joan Leonard, on
behalf of themselves and all others
similarly situated, Plaintiffs,
Vv.
RENT-A-CENTER, INC., a Kansas
Corporation, et al., Defendants.
No. C4-93-1801.
Supreme Court of Minnesota.
June 24, 1994.
Certified question of law from United States District
Court; Diana Murphy, Judge.
David L. Ramp, Legal Aid Soc. of Mpls., Inc.,
Seymour J. Mansfield, Richard J. Fuller, Mansfield & Tan-
nick, P.A., Mark N. Stageberg, Kay Nord Hunt, Lommen,
Nelson, Cole & Stageberg, P.A., and Timothy L.
Thompson, Minneapolis, for plaintiffs.
John Troyer, J. Patrick McDavitt, Briggs and Morgan,
Minneapolis, and John C. Dods, Peter E. Strand, Shannon
Spangler, Shook, Hardy & Bacon, Kansas City, MO, for
defendants.
Elmer B. Trousdale, Christopher M. Scotti,
Oppenheimer, Wolff & Donnelly, St. Paul, for amicus
curiae, Minnesota Retail Merchants Ass’n.
Heard, considered and decided by the court en banc.
App. 45
OPINION
TOMLJANOVICH, Justice.
The following questions were certified to this court
from federal district court pursuant to Minn.Stat.
§ 480.061 (1992): (1) Are rent-to-own contracts consumer
credit sales under Minn.Stat. § 325G.15 (1992)? (2) Does
the usury statute, Minn.Stat. § 334.01 (1992), apply to
rent-to-own contracts? For the reasons set forth in Miller
v. Colortyme, Inc., 518 N.W.2d 544 (Minn., 1994), we
answer both questions in the affirmative.
Delilah MILLER, et al., Petitioners,
Appellants,
v.
COLORTYME, INC., et al., Respondents.
No. C2-92-2595.
Supreme Court of Minnesota.
June 24, 1994.
Petition for Clarification Denied
Aug. 2, 1994.
Customers who entered rent-to-own contracts for
consumer goods sued lessors to recover for violation of
Consumer Credit Sales Act (CCSA) and usury laws. The
District Court, Hennepin County, entered partial sum-
mary judgment for customers. Lessors appealed. The
Court of Appeals, 504 N.W.2d 258, reversed. Customers
App. 46
appealed. The Supreme Court, Tomljanovich, J., held that:
(1) “rent-to-own” transactions are consumer credit sales
under CCSA, and (2) such transactions are subject to
interest rate limitations of general usury statute.
Court of Appeals’ decision reversed and remanded.
Seymour J. Mansfield, Richard J. Fuller, Mansfield &
Tanick, P.A., Mark N. Stageberg, Kay Nord Hunt, Lom-
men, Nelson, Cole & Stageberg, P.C., and David Ramp,
Legal Aid Soc. of Minneapolis, Minneapolis, for appel-
lants.
Jay M. Quam and Sue Halverson, Fredrikson &
Byron, Minneapolis, for respondents.
Robert Hobbs, National Consumer Law Center, Inc.,
Boston, MA, William Crowder and Susan Bedor, Crowder
& Bedor, St. Paul, for amicus curiae Nat. Consumer Law
Center, Inc.
Elmer B. Trousdale and Christopher M. Scotti,
Oppenheimer, Wolff & Donnelly, St. Paul, for amicus
curiae Minnesota Retail Merchants Ass’n.
James E. Rolshouse, Minneapolis, for amicus curiae
Minnesota Ass’n of Rental Dealers. —~
Jarvis C. Jones, Minneapolis, for amici curiae
N.A.A.C.P., the Urban Coalition of Minneapolis, the Min-
neapolis Urban League, Matthew Little and Gleason
Glover.
H. Theodore Grindal and Joseph Musliek, Opperman,
Heins & Paquin, Minneapolis, for amicus curiae Ass’n of
Progressive Rental Organizations.
App. 47
David Woodward, St. Paul, for amicus curiae Atty.
Gen., State of Minn.
Heard, considered and decided by the court en banc.
OPINION
TOMLJANOVICH, Justice.
We are asked to decide whether “rent-to-own” trans-
actions (also known as “rental-purchase” transactions)
are consumer credit sales under the Consumer Credit
Sales Act, Minn.Stat. §§ 325G.15 and 325G.16 (1992), and
if they are consumer credit sales, whether they are subject
to the interest rate limitations of the general usury stat-
ute, Minn.Stat. § 334.01 (1992). The court of appeals held
that rent-to-own agreements entered into by respondents
are not consumer credit sales and are not usurious. We
reverse and remand.
Respondent D.E.F. Investments, Inc. and its subsid-
iaries operate several rent-to-own dealerships in Minne-
sota. They do business under the trade name “Renter's
Choice Home Furnishings.” DEF uses standard form con-
tracts to lease new and used furniture, televisions,
appliances, and various other consumer goods to cus-
tomers. Under these contracts, which are similar to others
used in the rent-to-own industry, customers elect to rent
items for a weekly or monthly rental term. At the end of
each term, customers have a unilateral option to renew
the agreement for another term. If a customer renews an
agreement for a specified number of terms, the customer
obtains title and ownership of the item rented for no
additional consideration. Full payment of the rental fee
App. 48
must be made before or at the beginning of each term. In
order to acquire ownership of an item, consumers ordi-
narily must pay a total price far in excess of fair market
value. DEF does not offer consumer items for immediate
sale.
Appellants Delilah Miller and Craig Stenzel both
have entered into rent-to-own contracts with DEF over a
period of several years. For example, on December 18,
1990, Miller entered into a rent-to-own transaction with
DEF for a used washer and dryer, the stated cash price of
which was $800.75. Under the contract, Miller could
acquire ownership of the washer and dryer by making 16
monthly payments of $84.40, for a total of $1,350.40, or by
making 69 weekly payments of $21.10, for a total of
$1,455.90. As a further example, on October 17, 1990
Stenzel entered into a rent-to-own transaction with DEF
for a 19” color television, the stated cash price of which
was $470. Under the contract, Stenzel could acquire own-
ership of the television by making 18 monthly payments
of $47.70, for a total of $858.60, or by making 78 weekly
payments of $12.75, for a total of $994.50. Some of the
contracts Miller and Stenzel have entered into have
resulted in completed purchases; others have not.
On April 7, 1992 appellants Stenzel and Miller filed a
class action lawsuit against DEF seeking monetary dam-
ages as well as declaratory and injunctive relief. In the
relevant counts of appellants’ complaint, appellants
allege that DEF has violated various consumer protection
statutes by failing to treat rent-to-own transactions as
credit sales under the Consumer Credit Sales Act, and
that DEF has engaged in usury in violation of Minn.Stat.
§ 334.01. On August 3, 1992, appellants moved for partial
App. 49
summary judgment, asking for a declaratory judgment
that respondents’ contracts constitute credit sales. On
August 5, 1992, DEF moved for partial summary judg-
ment, seeking dismissal of appellants’ usury claim.
On November 30, 1992, the district court filed an
order which granted appellants’ motion for summary
judgment and declared contracts entered by “Class Mne”?
to be “consumer credit sales for all purposes within the
meaning of Minn.Stat. § 325G.15 and 325G.16.” The court
also denied DEF’s motion for summary judgment and
instead granted summary judgment for appellants on
their usury claim, reserving the measure of damages for
the fact finder.
After granting discretionary review, the court of
appeals issued an opinion on August 3, 1993, reversing
the district court. Miller v. Colortyme, Inc., 504 N.W.2d 258
(Minn.App.1993). The court of appeals held: (1) DEF’s
rent-to-own agreements are not “consumer credit sales”
for all purposes within the meaning of Minn.Stat.
§§ 325G.15 and 325G.16, and (2) DEF’s agreements are not
usurious under Minn.Stat. § 334.01. While not reaching
the issue, the court of appeals further suggested that the
Rental Purchase Agreements Act (RPAA), Minn.Stat.
§§ 325F.84-.98, is in substantial conflict with the Con-
sumer Credit Sales Act (CCSA), Minn.Stat. §§ 325G.15
1 The November 30 order grants appellants’ motion for
class certification as to Class One. Class One consists of
individuals who entered rent-to-own contracts after April 7,
1986 that provide for ownership at the end of a predesignated
term without requiring an additional balloon payment.
App. 50
and 325G.16, and that the provisions of the RPAA are
controlling. This appeal followed.
I.
We consider first whether the CCSA defines rent-to-
own agreements as consumer credit sales, thereby depart-
ing fidm the common law distinction between leases and
sales in order to provide the same protections to con-
sumers who engage in rent-to-own transactions as to
consumers who engage in traditional credit sales. At
common law a rent-to-own transaction is regarded as a
lease and not a sale because a buyer is not bound to pay
the total purchase price and can terminate a transaction
at any time by returning the property. See Samuel Will-
iston, The Law Governing Sales of Goods at Common Law and
Under the Uniform Sales Act, § 336 (1948). Prior to enact-
ment of the CCSA this court followed the common law
distinction. Hughes v. Becker, 260 Minn. 83, 87, 108 N.W.2d
781, 783 (1961).
The CCSA was originally enacted in 1971. In 1981 the
legislature amended Minn.Stat. § 325G.15, subd. 5 of the
CCSA to define certain terminable leases as a “sale of
goods.” Act of March 27, 1981, ch. 10, § 1, 1981
Minn.Laws 18-19. Under the amended version of
Minn.Stat. § 325G.15, subd. 5, the term “sale of goods”
includes:
a contract in the form of a terminable bailment
or lease of goods if: (a) the bailee or lessee has
the option to renew the contract by making the
payments specified in the contract; (b) the con-
tract obligates the bailor or lessor to transfer
ownership of the property to the bailee or lessee
App. 51
for no other or a nominal consideration upon
full compliance by the bailee or lessee with the
bailee’s or lessee’s obligations under the con-
tract including any obligation incurred by rea-
son of the exercise of an option by the bailee or
lessee to renew the contract; and (c) the pay-
ments contracted for by the bailee or lessee,
including those payments pursuant to the exer-
cise of an option by the bailee or lessee to renew
the contract, are substantially equivalent to or in
excess of the aggregate value of the property
and services involved.
It is undisputed that DEF’s contracts satisfy each of the
above criteria and therefore constitute a “sale of goods”
within the meaning of Minn.Stat. § 325G.15, subd. 5. First,
under DEF’s contracts the lessee has the option to renew
the contract by making advance rental payments at the
beginning of each rental term. Second, the contracts obli-
gate DEF to transfer ownership to the consumer if the
consumer renews the agreement for a specified number
of payments. Third, the total payments necessary to
acquire ownership exceed the value of the property and
services provided by respondents.
Given that rent-to-own contracts are “sales of goods”
within the meaning of Minn.Stat. § 325G.15, subd. 5, the
question is whether they are protected “consumer credit
sales” within the meaning of Minn.Stat. § 325G.15, subd.
2. Under Minn.Stat. § 325G.15, subd. 2, a “consumer
credit sale” is defined as:
[A] sale of goods or services in which (a) credit
is granted by a seller who regularly engages as a
seller in credit transactions of the same kind; (b)
the buyer is a natural person; and (c) the goods
App. 52
or services are purchased primarily for a per-
sonal, family or household purpose, and not for
commercial, agricultural, or business purpose.
The court of appeals concluded that DEF’s rent-to-own
transactions are not protected “consumer credit sales.” It
reasoned that DEF does not grant credit to customers
because customers prepay for use of leased goods with
no further obligation. Miller v. Colortyme, 504 N.W.2d at
260.
We believe rent-to-own transactions are “consumer
credit sales” within the meaning of Minn.Stat. § 325G.15,
subd. 2. The object of all interpretation and construction
of laws is to ascertain and effectuate the intention of the
legislature. By defining certain terminable leases as
“sales” within the CCSA, the legislature has made clear
its intent to subject these terminable leases to the same
consumer protection laws as ordinary credit sales. There
is no conceivable reason why the legislature would
amend Minn.Stat. § 325G.15, subd. 5 to define certain
terminable leases as sales if it did not intend such leases
to be protected “consumer credit sales” within the mean-
ing of Minn.Stat. § 325G.15, subd. 2. The interpretation of
the CCSA adopted by the court of appeals renders mean-
ingless the language in Minn.Stat. § 325G.15, subd 5
defining certain terminable leases as sales.
DEF argues that a seller cannot be deemed to heve
extended “credit” in the absence of a buyer who has
incurred debt. The word “credit” can have different
meanings in different statutes and we do not believe i: is
appropriate to apply a narrow definition of credit in this
context. The manifest purpose of the Consumer Credit
Sales Act is consumer protection. As a remedial statute, it
App. 53
is entitled to a liberal construction to promote, not frus-
trate, its objectives. Governmental Research Bureau v. Bor-
gen, 224 Minn. 313, 28 N.W.2d 760 (1947). The legislature
has specifically defined the transactions at issue as sales,
despite their terminable nature. Sales are ordinarily
regarded as “credit sales” where a buyer acquires posses-
sion but is allowed to defer full payment. See Black’s Law
Dictionary 369-70 (6th Ed.1990). Accordingly, we hold
that rent-to-own transactions are credit sales within the
meaning of Minn.Stat. § 325G.15, subd. 2 because buyers
of goods are not required to make full payment upon
acquiring possession but are allowed to pay for goods
sold over time.?
II.
Minn.Stat. § 325G.16, subd. 4 provides that “[a]ny
lease or bailment of goods which constitutes a consumer
credit sale shall be deemed to be a sale for all purposes.”
Because rent-to-own agreements are consumer credit
sales for all purposes, they are subject to the same con-
sumer protection laws as ordinary credit sales, including
2 By defining rent-to-own transactions as “sales,” the
legislature recognized that the economic reality of these
transactions is like that of ordinary credit sales, despite their
terminable nature. As the consumer of a rent-to-own product
continues making weekly or monthly payments under the
contract, the pressure to keep making payments and to exercise
the purchase option grows until it becomes the only feasible
rational choice, given the alternative of completely forfeiting all
past payments and returning the goods.
App. 54
the general usury statute, Minn.Stat. § 334.01. We must
decide whether the district court erred in holding that
respondents’ contracts are usurious as a matter of law
and granting summary judgment for appellants.
We have held that four elements must be proven to
establish a violation of the usury law:
(1) a loan of money or forbearance of debt,
(2) an agreement between the parties that the
principal shall be repayable absolutely,
(3) the exaction of a greater amount of interest
or profit than is allowed by law, and
(4) the presence of an intention to evade the
law at the inception of the transaction.
3 The usury statute provides, in relevant part:
The interest for any legal indebtedness shall be at the
rate of $6 upon $100 for a year, unless a different rate
is contracted for in writing. No person shall directly
or indirectly take or receive in money, goods, or
things in action, or in any other way, any greater sum,
or any greater value, for the loan or forbearance of
money, goods, or things in action, than $8 on $100 for
one year.
4 There are several statutory exceptions to the general
usury statute applying to specific types of credit transactions,
but none of these exceptions are applicable to the rent-to-own
agreements at issue. The rent-to-own contracts at issue also are
not exempt from the usury statute under the judicially created
time-price doctrine. This doctrine may apply where a seller fixes
one price for cash and another price for credit. Respondents do
not offer consumer items for immediate sale.
App. 55
Citizen’s Nat’! Bank of Willmar v. Taylor, 368 N.W.2d 913,
918 (Minn.1985).5
DEF argues that its rent-to-own contracts are not
usurious because they do not involve a forbearance of
debt and do not impose an absolute obligation to repay a
principal amount. In usury law, the term “forbearance”
signifies the “contractual obligation of a lender or credi-
tor to refrain, during a given period of time, from requir-
ing the borrower or debtor to pay a loan or debt then due
and payable.” Rathbun v. W.T. Grant Co., 300 Minn. 223,
233, 219 N.W.2d 641, 648 (1974). We agree with DEF that
rent-to-own consumers technically do not incur any debt
because they pay in advance for each rental period and
are never obligated to renew an agreement. We also agree
with DEF that a rent-to-own consumer technically has no
absolute obligation to repay a principal amount. We dis-
agree, however, that the first two common law elements
of usury can be applied here to defeat appellants’ usury
claim where the legislature has defined rent-to-own
transactions as “consumer credit sales” for all purposes.
The purpose of the usury law is to protect consumers
by limiting the amount of interest which can be charged
on a credit sale or loan. The first two common law ele-
ments of usury serve merely to clarify what transactions
5 Minn.Stat. § 334.011, subd. 2 (1992) provides that if a
greater rate of interest than that allowed is charged then the
entire interest due on that note, bill or other evidence of debt is
forfeited. In addition, if the greater rate of interest has been
paid, the person who paid it may recover in a civil action an
amount equal to twice the amount of interest paid.
App. 56
are subject to interest rate limitations. By defining rent-to-
own transactions in the CCSA as “consumer credit sales”
for all purposes, the legislature has established that con-
sumers who enter into rent-to-own transactions are to
benefit from the same protections as consumers who pur-
chase goods through ordinary installment sales, even
though rent-to-own consumers do not actually incur any
debt and do not have any obligation to repay a principal
amount. Consequently, the first two common law ele-
ments of usury are met by operation of statute.
The legislature’s decision to treat rent-to-own trans-
actions as credit sales recognizes that although these
transactions purport to be short-term leases, they operate
in substance much like ordinary installment sales. Con-
sumers-who purchase goods through rent-to-own agree-
ments may not incur debt, but they still implicitly pay
interest in return for the ability to pay for goods over
time. Moreover, rent-to-own customers may not have an
absolute obligation to repay a principal amount, but their
situation is analogous to that of ordinary buyers on credit
in that they must either forfeit possession of a good or
continue paying for it. See supra, note 2.
In addressing the scope of the usury statute, we look
through the form to the substance of a transaction. Rath-
bun, 300 Minn. at 235, 219°N.W.2d at 649. “There is no
6 In Rathbun, defendant offered for sale retail installment
credit coupon books. A customer could purchase on credit a
book of coupons in denominations ranging from 50 cents to $10,
and totalling from $10 to $200, which could be used towards a
Purchase of merchandise at defendant’s stores. For coupon
books sold after January 1, 1971 finance charges accrued after
_
App. 57
shift or device on the part of the lender to evade the
[usury] law under or behind which the law will not look
to ascertain the real nature and object of the transaction.”
Adjustment Service Bureau, Inc. v. Buelow, 196 Minn. 563,
567, 265 N.W. 659, 661 (1936).
Having determined that the first two elements of the
common law usury test are met by operation of statute,
we turn to whether the district court was correct in
determining that respondents intentionally charged an
excessive amount of interest. Under Minn.Stat. § 334.01,
the interest for any legal indebtedness generally shall be
no greater than six percent.” DEF acknowledges the large
disparity between the cost of purchasing goods through
its rent-to-own agreements and the value of the goods
sold, but alleges that there is a factual issue with respect
to whether it charged excessive interest, because the total
value of goods and services (e.g., free delivery and main-
tenance) provided by DEF is disputed. We disagree.
While there is some question as to the total value of
services provided by DEF, DEF offered virtually no evi-
dence to the district court as to the value of such services.
Based on the record, we agree with the district court that
the first coupon was actually used, and all coupons could be
returned at any time without charge. A customer who returned
unused coupons was given full credit, including credit for
finance charges attributable to the unused coupons. Even
though the customer could return the coupons unused for full
credit, the court held that the contracts were usurious.
7 Section 334.01 permits an interest rate of eight percent if
the rate is contracted for in writing.
App. 58
no reasonable fact finder could conclude that the differ-
ence between the total payments required under the con-
tracts and the value of the goods and services extended
amounts to as little as six percent of the total payments.
The district court properly concluded that DEF charged
an excessive amount of interest as a matter of law.
DEF also argues that it did not have the requisite
intent necessary to satisfy a usury claim because it acted
in good faith and did not intend to violate the law. To be
guilty of violating the usury law, a lender need only
intend“ to Charge a rate that is in fact usurious. It matters
not whether the lender knows he is violating the usury
law. Citizen's Nat'l Bank of Willmar v. Taylor, 368 N.W.2d at
919. DEF does not claim that it intended to collect less
money than is stated on the contracts, and therefore, as a
matter of law DEF had the requisite intent.
Because no genuine issue of material fact exists as to
whether DEF intentionally charged an excessive rate of
interest, the district court properly granted summary
judgment for appellants on their usury claim.
Ill.
We finally consider DEF’s argument that the Rental
Purchase Agreement Act, Minn.Stat. §§ 325F.84-.98, has
repealed the Consumer Credit Sales Act. The RPAA was
enacted in 1990 and provides a number of protections to
rent-to-own consumers. Among these, the RPAA provides
for specified disclosures in the rent-to-own agreement, in
advertising, and on in-store merchandise tags (sections
325F.86-.88); imposes restrictions and protections in the
App. 59
event of default (section 325F.89); provides for reinstate-
ment rights to consumers (section 325F.90); limits deliv-
ery charges, security deposits and collection fees (section
325F.91); authorizes the commissioner of commerce to
adopt rules governing cash price limits (section 325.91);
prohibits identified abusive debt collection practices (sec-
tion 325F.92); and provides for enforcement through both
the Attorney General and a private right of action (sec-
tion 325F.97).
The RPAA on its face does not purport to set up an
exclusive system regulating rent-to-own contracts. Sec-
tion 325F.85 of the RPAA specifically addresses the rela-
tionship between the RPAA and the CCSA, and provides:
If the consumer protection provisions of sections
325F.84 to 325F.97 conflict with sections 325G.15
and 325G.16, sections 325F.84 to 325F.97 apply to
a rental-purchase agreement and supersede sec-
tions 325G.15 and 325G.16.
Moreover, section 325F.97, subd. 2 of the RPAA provides
that the remedies under the RPAA “are cumulative and
shall not be construed as restricting any remedy that is
otherwise available.”
The RPAA’s legislative history further indicates that
the RPAA was not intended to repeal the CCSA. As
originally proposed, the RPAA would have explicitly
excluded applicability of the CCSA. Amendments, how-
ever, were subsequent!y adopted which deleted the pro-
visions repealing the CCSA and which substituted the
present language of section 325F.85.
Despite this statutory language and legislative his-
tory, DEF suggests that the RPAA impliedly repeals the
App. 60
CCSA. Under Minn.Stat. § 645.39 (1992), where a later
law does not purport to establish an exclusive system
covering an subject matter, a later law shall only be
construed as impliedly repealing earlier laws on the same
subject where the two laws are irreconcilable. A statute is
to be construed, whenever reasonably possible, in such a
way as to avoid irreconcilable differences and conflict
with another statute. Erickson v. Sunset Memorial Park
Assoc., 259 Minn. 532, 543, 108 N.W.2d 434, 441 (1961).
DEF points to a number of differences and conflicts
between the CCSA and the RPAA, but none of these are
irreconcilable. First, DEF notes that although the RPAA
imposes express limitations on charges for certain items
in rent-to-own agreements (e.g., delivery fees, security
deposit, penalty for early termination), it does not impose
an express limitation on the total amount that customers
can be charged. DEF additionally notes that although the
RPAA requires disclosure of the difference between the
“cash price” and the amount of total payments, using the
term “cost of lease services,” it does not impose any
express limitation on what may be charged for lease
services. However, the fact that the RPAA fails to impose
any caps on total payments or on interest rates does not
create an irreconcilable conflict with the CCSA because
the consumer protections provided by the two statutes
can be treated as cumulative.
Next, DEF argues that if the legislature intended
rent-to-own transactions to be “credit sales” for all pur-
poses, it would not have enacted a statute regulating such
transactions which is replete with lease terminology. For
example, in the RPAA, the person who rents personal™
property under a rent-to-own agreement is defined as the
App. 61
7
“lessee,” and the person who offers property for rent is
defined as the “lessor.” Minn.Stat. § 325F.84. However,
use of terms such as “lessee” and “lessor” in and of itself
does not create an irreconcilable conflict with the ©“ ~~A.
The CCSA itself uses terms like “lessor” and “lessee” to
describe rent-to-own transactions, only to further define
these kinds of transactions as “sales of goods.” See
Minn.Stat. § 325G.15, subd. 5.
DEF also points out that among the disclosures
required by the RPAA, a customer must be told that she
will not own the property until she has made the total
payments necessary to acquire ownership of the property.
Minn.Stat. § 325F.86(e). DEF argues that this provision
conflicts with 325G.16, subd. 4 of the CCSA, which
requires the lessor’s interest to be treated as a “security
interest.” The disclosure requirement in the RPAA, how-
ever, is for the protection of the consumer and merely
serves to ensure the consumer is made aware that absolute
ownership will not pass prior to full payment.
DEF finally claims that the two statutes cannot be
reasonably reconciled because, if the CCSA is deemed to
impose an interest rate cap, this cap combined with the
early-purchase option required by the RPAA would force
defendants to sell their goods at below market value.®
Appellants, however, cite a number of ways in which
8 Under the early-purchase option requirement, lessors
must allow customers to acquire ownership of a property any
time after the first periodic payment is made by tendering 55%
of the difference between the total of scheduled payments and
the total amount paid on the account. Minn.Stat. § 325F.93
(1992).
App. 62
respondents can manipulate the contract terms to realize
profits even if the early purchase option is exercised (e.g.
by increasing the length of the initial rental period,
requiring an initial downpayment, decreasing the number
of payments necessary to acquire ownership), and in any
event, lost profits is not a valid defense to a usury claim.
We conclude that the RPAA does not repeal the
CCSA; rather the remedies in the two statutes are
cumulative. We reverse and remand to the district court
for further proceedings.
App. 63
APPENDIX E
MINNESOTA STATUTES
RENTAL PURCHASE AGREEMENTS
325F.84 DEFINITIONS.
Subdivision 1. Applicability. As used in sections
325F.84 to 325F.98, the following terms have the meanings
given them.
Subd. 2. Advertisement. “Advertisement” means a
commercial message in any medium, including signs,
window displays, and price tags, that promotes, directly
or indirectly, a rental-purchase agreement.
Subd. 3. Cash price. “Cash price” means an amount
equal to the equivalent fair market value for goods
offered under a consumer credit sale as provided under
section 325G.15.
Subd. 4. Consummation. “Consummation” means
the time at which the lessee enters into a rental-purchase
agreement.
Subd. 5. Lessee. “Lessee” means a natural person
who rents personal property under a rental-purchase
agreement for personal, family, or household use.
Subd. 6. Lessor. “Lessor” means a person who, in the
ordinary course of business, regularly leases, offers to
lease, or arranges for the leasing of property under a
rental-purchase agreement.
Subd. 7. Personal property. “Personal property”
means property that is not real property under the laws
of this state when it is made available for a rental-pur-
chase agreement.
App. 64
Subd. 8. Rental-purchase agreement. “Rental-pur-
chase agreement” means an agreement for the use of
personal property in which all of the following apply:
(1) the lessor is regularly engaged in the rental-
purchase business;
(2) the agreement is for an initial period of four
months or less, whether or not there is any obligation
beyond the initial period, that is automatically renewable
with each payment and that permits the lessee to become
the owner of the property;
(3) the lessee is a person other than an organization;
and
(4) the lessee takes under the rental-purchase agree-
ment primarily for a personal, family, or household pur-
pose.
325F.85 APPLICATION OF OTHER LAW.
If the consumer protection provisions of sections
325F.84 to 325F.97 conflict with sections 325G.15 and
325G.16, sections 325F.84 to 325F.97 apply to a rental-
purchase agreement and supersede sections 325G.15 and
325G.16.
325-86 DISCLOSURES.
In a rental-purchase agreement, the lessor shall dis-
close the following items, as applicable:
(a) The total of payments necessary to acquire own-
ership of the property accompanied by an explanation
App. 65
that this term means the “total dollar amount of pay-
ments you will have to make to acquire ownership.”
(b) The total number, amounts, and timing of all
payments and other charges including taxes or official
fees paid to or through the lessor that are necessary to
acquire ownership of the property.
(c) The difference between the amount disclosed
under paragraph (a) and the cash price of the leased
property, using the term “cost of lease services” to mean
the difference between these amounts.
(d) Any initial or advance payment such as a deliv-
ery charge or trade-in allowance.
(e) A statement that the lessee will not own the
property until the lessee has made the total of payments
necessary to acquire ownership of the property.
(f) A statement that the total of payments does not
include additional charges such as late payment charges,
and a separate listing and explanation of these charges, as
applicable.
(g) A statement that the lessee is liable for loss or
damage to the property and the maximum amount for
which the lessee is liable, which in the case of loss shall in
no event be greater than the price the lessee would have
paid to exercise an early purchase option. In the case of
damage to the property other than normal wear and tear,
the lessee shall be liable for the lesser of the price the
lessee would have paid to exercise an early purchase
option or the cost of repair as reasonably determined by
the lessor.
App. 66
(h) A statement that the lessee is not required to
purchase a liability damage waiver from the lessor.
(i) A description of the goods or merchandise
including model numbers as applicable and a statement
indicating whether the property is new or used. It is not a
violation of this subdivision to indicate that the property
is used if it is actually new.
(j) A statement that the lessee has the option to
purchase the leased property during the terms of the
rental-purchase agreement and at what price, formula, or
by what method the price is to be determined.
(k) The cash price of the merchandise.
(1) A statement of the following lessee rights: rein-
statement rights under section 325F.90, default notice
under section 325F.89, and consumer warranties under
sections 325G.17 to 325G.20.
The commissioner of commerce may prescribe the
disclosure form by rule.
325F87 FORM REQUIREMENTS.
Subdivision 1. Generally. The disclosure information
required by section 325F.86 must be disclosed in a rental-
purchase agreemert and:
(1) must be made clearly and conspicuously with
items appearing in logical order and segregated as appro-
priate for readability and clarity;
(2) must be made in writing;
App. 67
(3) need not be contained in a single writing or
made in the order set forth in section 325F.86; and
(4) may be supplemented by additional information
or explanations supplied by the lessor, but none shall be
stated, used, or placed so as to mislead or confuse the
lessee or to contradict, obscure, or detract attention fror
the information required by section 325F.86, and so long
as the additional information or explanations do not have
the effect of circumventing, evading, or unduly compli-
cating the information required to be disclosed by section
325F.86.
Subd. 2. Timing. The lessor shall disclose all informa-
tion required by section 325F.86 before the rental-pur-
chase agreement is executed. These disclosures must be
made on the face of the writing evidencing the rental-
purchase agreement.
Subd. 3. Copy to lessee. Before any payment is due,
the lessor shall furnish the lessee with an exact copy of
each rental-purchase agreement. The agreement shall be
signed by the lessee and is evidence of the lessee’s agree-
ment. If there is more than one lessee in a rental-purchase
agreement, delivery of a copy of the rental-purchase
agreement ‘to one of the lessees constitutes compliance
with this subdivision; however, a lessee not signing the
agreement is not liable under it.
Subd. 4. Type size. The terms of the rental-purchase
agreement, except as otherwise provided in this section,
must be set forth in not less than eight-point standard
type.
App. 68
Subd. 5. Blank spaces. All blank spaces on the rental-
purchase agreement form must be filled in before the
rental-purchase agreement is executed. Blank spaces that
are provided for items or terms not applicable to the
agreement must be crossed out.
325F.88 ADVERTISING.
Subdivision 1. Prohibition. An advertisement for a
rental-purchase agreement shall not state or imply that a
specific item is available at specific amounts or terms
unless the lessor usually and customarily offers or will
offer that item at those amounts or terms.
Subd. 2. Disclosures. (a) If an advertisement for a
rental-purchase agreement refers to or states the amount
of any payment or the right to acquire ownership for a
specific item, the advertisement must also clearly and
conspicisouly state the following terms, as applicable:
(1) that the transaction advertised is a rental-pur-
chase agreement;
(2) the total of payments necessary to acquire own-
ership; and
(3) that the lessee will not own the property until
the total amount necessary to acquire ownership is paid
in full or by prepayment as provided for by law.
(b) Every item displayed or offered under a rental-
purchase agreement shall have clearly and conspicuously
indicated in Arabic numerals, so as to be readable and
understandable by visual inspection, each of the follow-
ing affixed to the item:
App. 69
(1) the cash price of the item; and
(2) the amount of the lease payment and the total of
lease payments required for ownership.
Subd. 3. Nonapplication. This section does not apply
to the owner or personnel, as such, of any medium in
which an advertisement appears or through which it is
disseminated.
325F.89 DEFAULT.
Subdivision 1. Enforceability. An agreement of the
parties to a rental-purchase agreement with respect to
default is enforceable only to the extent that one of the
following apply:
;
(1) the lessee both fails to renew an agreement and
also fails to return the property or make arrangements for
its return as provided in the agreement; or
(2) the prospect of payment, performance, or return
of the property is materially impaired due to a breach of
the rental-purchase agreement, with the burden of estab-
lishing the prospect of material impairment on the lessor.
Subd. 2. Authorization. If a lessee has been in default
for three business days, the lessor may give the lessee a
default notice and request surrender of the property as
provided under subdivision 3. Mailing written notice to
the last known address of the lessee meets the require-
ment of giving written notice under subdivision 3.
Subd. 3. Default notice. The first default notice and a
subsequent default notice that is sent more than 12
App. 70
months after sending the last written notice must be in
writing and conspicuously state the following:
(1) the name, address, and telephone number of the
lessor to whom payment is to be made;
(2) a brief identification of the transaction;
(3) the lessee’s right to cure the default;
(4) the amount of payment and date by which pay-
ment must be made to cure the default;
(5) a statement of the lessee’s reinstatement rights
as provided under section 325F.90; and
(6) a request to voluntarily surrender the property if
the payment is not made.
A subsequent default notice given within the 12
months after a written default notice may be given orally
and constitutes proper notice under this section.
Subd. 4. Property recovery. A lessor may not bring a
court action to recover the property until seven days after
a proper default notice has been given.
Subd. 5. Voluntary surrender of property. This sec-
tion does not prohibit a lessee from voluntarily surren-
dering possession of the property or the lessor from
enforcing a past due obligation which the lessee may
have at any time after default.
Subd. 6. Compliance. If the lessee cures the default
by taking the action required in the default notice, a
breach of the agreement is considered as not having
occurred.
App. 71
325F.90 LESSEE’S REINSTATEMENT RIGHTS.
Subdivision 1. Generally. A lessee who fails to make
timely lease payments may reinstate the original rental-
purchase agreement without losing any rights or options
previously acquired under the rental-purchase agreement
if both of the following apply:
(1) after having failed to make a timely payment,
the lessee has surrendered the property to the lessor
within seven days of a request to surrender the property
made by the lessor as provided in section 325F.89; and
(2) in the case of a lessee that has paid less than 60
percent of the total of payments necessary to acquire
ownership of the property, not more than 60 days have
passed since the lessee returned the property. If the lessee
has paid more than 60 percent of the total of payments
necessary to acquire ownership of the property, the les-
see’s rights to reinstate shall be extended for a period of
not less than 180 days after the lessee has returned the
property.
Subd. 2. Charges. As a condition to reinstating a
rental-purchase agreement, a lessor may charge the out-
standing balance of any accrued payments; a reinstate-
ment fee not to exceed $5 for each reinstatement; and a
delivery charge not to exceed $15 for five items or less or
$30 for more than five items, if redelivery of the item is
necessary.
Subd. 3. Substitute items. If reinstatement occurs as
provided in this section, the lessor shall provide the
lessee with the same item, if available, leased by the
App. 72
lessee before reinstatement. If the same item is not avail-
able, a substitute item of comparable worth, quality, and
condition may be used. If a substitute item is provided,
the lessor shall provide the lessee with all the information
required by section 325F.86.
235F.91 PROHIBITED PRACTICES.
Subdivision 1. Prohibited rental agreement provi-
sions. A rental-purchase agreement may not contain a
provision:
(1) requiring a confession of judgment;
(2) authorizing a lessor or an agent of the lessor to
commit a breach of the peace in the repossession of
property;
(3) waiving a defense, counterclaim, or right the
lessee may have against the lessor or an agent of the
lessor;
(4) requiring the payment of a late charge unless a
lease payment
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