Appeals from the United States District Court for the Southern District of Illinois, Peoria Division. Nos. Civ. 77-1106, et al. -- Robert D. Morgan, Judge.
Before Swygert, Sprecher and Bauer, Circuit Judges.
In this proceeding we consider eleven*fn1 consolidated appeals arising out of cases decided under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq. Ten different substantive issues are presented, in varying combinations, in these cases.*fn2 The creditors prevailed in each case, and the debtors are the appellants. In the interest of brevity, we will not discuss the facts of the individual cases except to the extent necessary. Rather, we will discuss each of the substantive issues raised, indicating in the margin the cases affected by our resolution of the issue being discussed.*fn3
Two of the cases*fn4 raise the issue whether debtors may respond to a creditor's suit by filing a counterclaim alleging TILA violations, even though the alleged violations occurred more than one year prior to the filing of the counterclaim, so as to be time-barred under 15 U.S.C. § 1640(e). The appellants recognize that this issue has been determined adversely to their position in Basham v. Finance America Corp., 583 F.2d 918 (7th Cir. 1978), cert. denied, DeJaynes v. Gen. Finance Corp. of Ill., 439 U.S. 1128, 99 S. Ct. 1046, 59 L. Ed. 2d 89 (1979), but they urge that we reexamine our holding on that issue. The primary argument presented is simply a rehash of the argument in the Basham case, and we reject it for the reasons stated in the Basham opinion.
The only argument on this issue which needs to be addressed separately is the appellants' reference to the pending "Truth in Lending Simplification Act," introduced in the 95th Congress as S. 2802 (this bill passed the Senate on May 10, 1978). The bill has been reintroduced in the 96th Congress as S. 108. Section 15(a)(7) of the bill would, according to the appellants, have the effect of amending 15 U.S.C. § 1640 to allow a TILA counterclaim even after the one year period has expired. Without the slightest shred of support in the history of the bill, the appellants claim that this amendment, rather than creating new rights, simply codifies their position as a recognized legal principle.*fn5 We reject this interpretation of the pending bill, and conclude that the district court properly dismissed these counterclaims as time-barred under 15 U.S.C. § 1640(e).
The second issue, presented in one case,*fn6 is whether the district court improperly failed to give effect to the terms of a Wage Earner's Plan under Chapter XIII of the Bankruptcy Act, 11 U.S.C. §§ 1001 et seq. In this case the creditor filed a reclamation complaint. The debtors, as an affirmative defense, asserted that a Wage Earner's Plan had been set up under the terms of which the creditor was to receive $1,000 of the debt owed as a secured creditor, with the balance of the debt to be treated as unsecured. It was further alleged that the creditor's secured interest had been valued by the bankruptcy court at $1,000 under Bankruptcy Rule 13-307, and that the $1,000 portion of the debt which was treated as secured under the plan was in fact paid. Under the debtors' interpretation, the balance of the debt was unsecured, so that when the debtors subsequently converted their Chapter XIII proceeding to a straight bankruptcy proceeding, the creditor was left with nothing but an unsecured balance, and that this balance was discharged by the subsequent discharge in the straight bankruptcy proceeding. The bankruptcy court denied this defense, without explanation, in an order entered January 30, 1978. The district court affirmed the bankruptcy court, making the following statement:
The appeal upon this issue rests upon the gratuitous assumption by the debtors that the bankruptcy court had theretofore determined the value of Avco's security interest to be the sum of $1,000. No such determination by that court appears in the record before the court.
Avco did accept the Chapter XIII plan, which proposed that it would receive $1,000 on account of its security interest and the payment of the balance of its account in the course of the Chapter XIII administration of the bankrupts' estates. That plan was abandoned by the debtors when they amended the proceeding to a straight bankruptcy. We cannot say that the bankruptcy court erred in allowing reclamation.
We agree with the district court on both grounds stated. The record is indeed inadequate to determine whether or not the bankruptcy court ever valued the secured interest at $1,000. Even assuming that it had, however, the more fundamental objection stated by the district court remains: the plan was abandoned by the debtors when they converted to a straight bankruptcy proceeding. The debtors attempt to take advantage of the provisions of their plan, without having completed their own payments under the plan. The Bankruptcy Act does not allow such a one-sided use of the terms of a Wage Earner's Plan. The debtors in effect argue that the security interest was discharged when they paid the $1,000 secured portion of the debt under the plan. However, under Chapter XIII, the discharge of debts occurs only "(u)pon compliance by the debtor with the provisions of the plan and upon completion of all payments to be made thereunder . . . ." 11 U.S.C. § 1060. Consequently, when a debtor fails to complete payments under a Wage Earner's Plan, the entire original claim of the creditor is revived. 10 Collier on Bankruptcy P 29.07, p. 342 (14th ed. 1978). The Plan having been abandoned by the debtors prior to discharge, the original claim was revived, less payments actually received, and the terms of the abandoned plan were not controlling so as to convert part of the secured debt into an unsecured debt. Accordingly, no error has been shown in allowing reclamation, and we affirm the district court on this issue.*fn7
The next issue, presented in six cases,*fn8 is whether a creditor's failure to disclose the actual proceeds of a loan on the loan statement constitutes a violation of 15 U.S.C. § 1639(a)(1).*fn9 The debtors have used the metaphorical term "net cash in fist" in identifying this issue. Two of our recent opinions discuss this issue and we begin with a discussion of the ramifications of those opinions.
In Basham v. Finance America Corp., supra, we discussed the inconsistency between the requirements of the statute, 15 U.S.C. § 1639(a), and the requirements of Regulation Z § 226.8(d)(1).*fn10 We noted that the regulation only requires the disclosures listed in sections 1639(a)(2) and (a)(3) of the statute, implicitly allowing the actual proceeds of the loan, required under section 1639(a)(1) of the statute, to remain undisclosed. 583 F.2d at 922. We went on to assume without deciding that creditors must comply with the statute even where it differs from Regulation Z. 583 F.2d at 923. Finally, we applied 15 U.S.C. § 1640(f), which precludes liability for any act done or omitted in good faith in conformity with any regulation of the Federal Reserve Board. Id. We held that since the creditors had followed the requirements of Regulation Z, no civil liability could be imposed for failure to make the disclosure required by section 1639(a)(1). In a footnote the following comment was added:
We do not reach the issue of whether continued adherence by the creditors to their present form of disclosure after at least one circuit has ruled that it is illegal vitiates their "good faith."
Id., n. 7. This footnote is crucial to the debtors' argument here because of the Fifth Circuit's opinions in Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976), aff'd on rehearing, 552 F.2d 1142 (5th Cir.), cert. denied, 434 U.S. 891, 98 S. Ct. 265, 54 L. Ed. 2d 176 (1977).
In Pollock the Fifth Circuit tended to agree with our view that Regulation Z did not require the disclosure of the actual proceeds of the loan, but held that such disclosure was nevertheless required under the statute itself, and that the regulation must be read in conjunction with the statute. 535 F.2d at 298. In neither of its opinions did the Fifth Circuit have occasion to apply the "good faith conformity" defense which we applied in Basham. The debtors in the present appeals argue that creditors are not entitled to the application of the good faith conformity defense for any loan transaction occurring after the Fifth Circuit decision in Pollock, at least in the absence of an affirmative showing of good faith.
Our recent opinion in Warren v. Credithrift of America, Inc., 599 F.2d 829 (7th Cir. 1979), sheds some additional light on this question. In that case we reaffirmed our holding in Basham, and again applied the good faith conformity defense under section 1640(f) so as to preclude liability. 599 F.2d at 831-32. In Warren the debtor argued, as do the debtors here, that the good faith conformity defense has no application after the Fifth Circuit's decision in Pollock. Our opinion in Warren does not explicitly discuss this point, but simply applies the defense. We take note of the fact, however, that the loan transaction in Warren took place after the Fifth Circuit's initial opinion in Pollock, but before its opinion on rehearing. For this reason we read the Warren case as holding, albeit implicitly, that the good faith conformity defense continues to apply with full force at least until the Fifth Circuit reaffirmed its position on rehearing in Pollock on May 27, 1977. This implicit holding is sufficient to dispose of all but two of the loans involved in these six cases, in that only two of the loan transactions occurred after the issuance of the Fifth Circuit's opinion on rehearing.*fn11
As to the remaining two loans, the debtors in effect argue that the Pollock opinions should have the instantaneous effect of vitiating the good faith conformity of the creditors to the requirements of Regulation Z, so that the creditors are not entitled to prevail in the absence of an affirmative showing of good faith. We are unwilling to hold that Pollock has such an effect. In our view the Pollock litigation was not terminated until the Supreme Court denied the petition for a writ of certiorari on October 11, 1977. As to loans made before a reasonable period of time had expired after that date, we will not require proof of the subjective good faith of the creditor in following Regulation Z rather than TILA itself. To do otherwise would require creditors to immediately change their loan forms throughout the Nation as soon as any court of appeals finds a violation of TILA notwithstanding the conformity of the forms to the requirements of Regulation Z. We do not believe that Congress intended to force creditors to make instantaneous reactions of this sort.*fn12
For the reasons stated, on the authority of our opinions in Basham and Warren, we affirm the district court's holding that no liability is imposed for failing to disclose the actual proceeds of the loans involved.*fn13
One of the cases*fn14 presents the issue whether a cause of action under TILA survives in favor of the administrator of a deceased plaintiff. The district court held that the cause of action does not survive. In reaching this conclusion the district court treated the survival question as one of state law. Although the district court recognized the generally remedial purpose of TILA, certain language used in Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S. Ct. 1652, 36 L. Ed. 2d 318 (1973), was relied on for the proposition that Regulation Z imposes a penalty.*fn15 The district court concluded that the TILA action is one for a statutory civil penalty, which would not survive under Illinois law in the absence of a specific statutory survival provision.
We reject both the conclusion reached and the analysis used by the district court on this issue. First, we believe that the survival question must properly be determined as a matter of federal, not state, law. It is true, of course, that neither TILA itself nor any other federal statute makes provision for the survival or non-survival of this cause of action. We find, however, no basis for turning to state law in resolving this question. Generally speaking, the question of survival of a federal statutory cause of action is one of federal common law, in the absence of a specific federal statutory directive. Bowles v. Farmers National Bank, 147 F.2d 425 (6th Cir. 1945); Heikkila v. Barber, 308 F.2d 558 (9th Cir. 1962). For this reason state survival rules have no application.
Survival of federal civil rights actions under 42 U.S.C. § 1983 has been an area of frequent litigation in the federal courts. However, pronouncements in that area are not authoritative with respect to other federal causes of action, because of the peculiar statutory scheme involved in civil rights actions. 42 U.S.C. § 1988*fn16 specifically refers federal courts to state law in filling in the interstices in federal civil rights actions, unless the state law would be inconsistent with federal law. This special statute thus makes survival of federal civil rights actions a matter of state law, at least in the first instance. This has been made clear recently in Robertson v. Wegmann, 436 U.S. 584, 98 S. Ct. 1991, 56 L. Ed. 2d 554 (1978). However, TILA contains no provision similar to 42 U.S.C. § 1988.*fn17
We are not aware of any cases which have directly considered the question whether a TILA action survives the death of the debtor plaintiff. However, two cases, Murphy v. Household Finance Corp., 560 F.2d 206 (6th Cir. 1977), and Porter v. Household Finance Corp., 385 F. Supp. 336 (S.D.Ohio 1974), have given indirect consideration to this question. In Murphy and Porter the question presented was whether such an action passed to a trustee in bankruptcy. In deciding this question, both courts found it necessary to analyze whether a TILA action would survive the death ...