United States District Court, Northern District of Illinois, E.D
July 24, 1980
KENNETH A. LIRTZMAN, INDIVIDUALLY AND ON BEHALF OF A CLASS OF PERSONS SIMILARLY SITUATED, PLAINTIFFS,
SPIEGEL, INC., A CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Bua, District Judge.
The present matter has been brought as a class action. Rule
23(b), Fed.R.Civ.P. The plaintiff herein, Kenneth A. Lirtzman, in
addition to requesting injunctive and declaratory relief, seeks
on behalf of himself and others similarly situated to recover
money damages for the defendant Spiegel, Inc.'s alleged
violations of the Truth in Lending Act, 15 U.S.C. § 1601, et seq.
(herein "the Act"), and of Regulation Z, 12 C.F.R. § 226, which
was adopted pursuant to the Act by the Federal Reserve Board.
Jurisdiction with respect to the action is based upon § 130(e) of
the Act, 15 U.S.C. § 1640(e).
This matter arose after plaintiff received a catalog entitled
"Discover Spiegel", which was part of a mass mailing by defendant
throughout the United States. By virtue of his receipt of said
catalog, Kenneth Lirtzman was informed that Spiegel, Inc. had
unilaterally "opened" and established a "Spiegel Charge Account"
entitling him to purchase, on credit, merchandise from defendant
in an amount not to exceed $500.00. In accordance with the terms
of this apparent open end credit plan, plaintiff ordered consumer
merchandise from defendant.
Presently before the court is plaintiff's motion to strike
those Affirmative Defenses designated Three through Ten by
defendant in its answer. Rule 12(f), Fed.R.Civ.P. This motion is
based upon plaintiff Lirtzman's contention that the pleadings in
question do not present sufficient defenses and, therefore, are
insufficient as a matter of law.
Motions to strike defenses are not favored, and are not
ordinarily granted unless the language in the pleading at issue
both has no possible relation to the controversy and is clearly
prejudicial. Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955,
962 (N.D.Ill. 1972). Such motions generally will be denied
"if the defense is sufficient as a matter of law or if it fairly
presents a question of law or fact which the court ought to
hear." Application of J.W. Schonfeld, Ltd., 460 F. Supp. 332, 335
(E.D.Va. 1978); Systems Corp. v. American Telephone & Telegraph,
60 F.R.D. 692, 694 (S.D.N.Y. 1973); 2A Moore's Federal Practice
¶ 12.21 at 2437 (2d ed. 1975). Before a motion to strike can be
granted, the court must instead "be convinced that there are no
questions of fact, that any questions of law are clear and not in
dispute, and that under no set of circumstances could the defense
succeed." Systems Corp., supra at 694; Carter-Wallace, Inc. v.
Riverton Laboratories, Inc., 47 F.R.D. 366, 368 (S.D.N Y
In the defendant's Third Defense, the court believes a
substantial factual question has been raised. Spiegel, Inc.
contends in this defense that the plaintiff's primary motivation
for entering into the transaction forming the subject matter of
the present lawsuit was not to obtain consumer credit, but rather
was to generate grounds for the initiation of a class action
lawsuit, so that his [Lirtzman's] attorneys would be able to
collect substantial fees. Defendant bases this contention in
large part on the fact that on February 26, 1980, Kenneth
Lirtzman mailed to Spiegel, Inc. the purchase order which
constitutes the basis for this matter and on the following day
his class action complaint was filed.
There is no dispute that plaintiff is a natural person to whom
credit was offered or extended by defendant, and that defendant
is a creditor who regularly extends, or arranges for, the
extension of credit for which the payment of a finance charge is
or may be, depending upon the circumstances, required. §§ 103(f),
(h) of the Act; 15 U.S.C. § 1602(f), (h). That being so, there
still remains a factual dispute to be resolved; that is, whether
the primary purpose for the transaction at issue was to obtain
consumer credit or whether said transaction was entered into
business or commercial purposes. In light of the fact that the
Court of Appeals for the Seventh Circuit has criticized the use
of the Act as a means of obtaining attorneys' fees, Mirabal v.
General Motors Acceptance Corp., 576 F.2d 729, 731 (7th Cir.
1978), cert. denied, 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d 699
(1978), it is the opinion of this court that such a factual
question does bear a possible relation to the present
controversy, and accordingly is an issue which should be heard.
Plaintiff Lirtzman's motion to strike the Third Affirmative
Defense, therefore, is denied.
The defendant's Fourth Affirmative Defense raises the question
of whether plaintiff brought the present action in good faith.
Spiegel, Inc. takes the position that, if this action was not
brought in good faith, then Kenneth Lirtzman should be
disqualified from pursuing his claim, because such conduct would
be contrary to the legitimate functions of the federal courts.
Under Rule 8(e)(2) of the Federal Rules of Civil Procedure a
party, in framing his pleadings, is at all times subject to the
moral and professional obligations of honesty and good faith, as
set forth in Rule 11 of the Federal Rules of Civil Procedure.
Wright & Miller, Federal Practice and Procedure: Civil §
1285 (1969). Insofar as the defendant's Fourth Affirmative Defense
appears to relate to whether the plaintiff has in fact comported
with the requirements of Rule 8(e)(2), it clearly pertains to the
facts of the present matter. Accordingly, as said Defense cannot
be considered insufficient as a matter of law, plaintiff
Lirtzman's motion to strike with respect to it is denied.
Defendant's Fifth Affirmative Defense is founded upon the same
concern expressed in the Fourth Affirmative Defense; that is,
whether the present action was brought in good faith. Spiegel,
Inc. asserts that Kenneth Lirtzman, by filing a class action
primarily for the purpose of generating substantial attorneys'
fees, has distinguished his position from that of other
recipients of defendant's catalogs, and therefore is not a proper
Rule 23(a)(4) of the Federal Rules of Civil Procedure provides
that a class action can be maintained only if "the representative
parties will fairly and adequately protect the interest of the
class." Because adequacy of representation is of such critical
importance in class actions, moreover, the courts are obliged to
pay strict and careful attention to this Rule 23(a)(4)
prerequisite. See Susman v. Lincoln American Corp., 561 F.2d 86
90 (7th Cir. 1977); Wright & Miller, Federal Practice and
Procedure: Civil § 1765 (1969).
If the absent members of a class are to be conclusively bound
by the result of an action prosecuted by a party alleged to
represent their interests, basic notions of fairness and justice
demand that the representation they receive fairly and adequately
protect those interests. It has been held that adequate
representation is the foundation of all representative actions.
Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940);
In re General Motors Corp. Engine Interchange Litigation,
594 F.2d 1106, 1121 (7th Cir. 1979), cert. denied, 444 U.S. 870, 100
S.Ct. 146, 62 L.Ed.2d 95 (1979). In resolving the issue of
adequacy of representation, "it is necessary to eliminate so far
as possible the likelihood that the litigants are involved in a
collusive suit or that the named plaintiffs have interests
antagonistic to those of the remainder of the class." Cullen v.
United States, 372 F. Supp. 441, 448 (N.D.Ill. 1974). Also
"[w]hether a party would adequately protect the interests of the
class [ordinarily] is a question of fact depending on the
circumstances of each case." Susman v. Lincoln American Corp.,
supra 561 F.2d 86, 90 (7th Cir. 1977); Schy v. Susquehanna Corp.,
419 F.2d 1112, 1116 (7th Cir. 1970), cert. denied, 400 U.S. 826,
91 S.Ct. 51, 27 L.Ed.2d 55 (1970). As that is so, because
Spiegel, Inc.'s Fifth Affirmative Defense raises a substantial
factual question concerning the adequacy of plaintiff Lirtzman's
representation of the class, the court does not believe it can at
this time properly be stricken.
In moving to strike the defendant's Sixth Affirmative Defense,
plaintiff argues that, because full disclosure was not made to
him prior to his entering into the transaction at issue, Spiegel,
Inc.'s acts constituted a violation of the Act's open end credit
disclosure requirements. In its Sixth Affirmative Defense,
Spiegel, Inc. contends that such is not the case because under §
226.7(a) of Regulation Z, 12 C.F.R. § 226.7(a), the credit
information under discussion does not have to be sent to the
consumer until the first transaction on his account is made.
Spiegel, Inc.'s argument, however, overlooks not only the stated
purpose of the Act, as implemented by Regulation Z, but also the
time that full disclosure must be made to the consumer.
The underlying purpose of the Act is to provide protection to
consumers, by affording them full and meaningful disclosure,
through the requirement that creditors disclose the "true" costs
of consumer credit. § 127(a) of the Act, 15 U.S.C. § 1637(a),
states that the required disclosures must be made "before opening
any account under an open end consumer credit plan." In this
respect, defendant asserts — and plaintiff agrees in his reply
memorandum — that there appears to be an inconsistency between §
127(a) of the Act and § 226.7(a) of Regulation Z,
12 C.F.R. § 226.7(a), which states that full disclosure must be made "before
the first transaction . . ." Regarding this inconsistency,
however, the Court of Appeals for the Seventh Circuit, when
addressing the issue of disclosure requirement violations, has
stated that "if there is a violation of the Act in an open end
credit plan, it occurs at the time the account is opened, or at
the very latest, some time before the first transaction takes
place." Goldman v. First National Bank of Chicago, 532 F.2d 10,
20 (7th Cir. 1976), cert. denied, 429 U.S. 870, 97 S.Ct. 183, 50
L.Ed.2d 150 (1976). Furthermore, § 226.2(kk) of Regulation Z,
12 C.F.R. § 226.2(kk), provides that "a transaction shall be
consummated at the time a contractual relationship is created
between a creditor and a customer . . . irrespective of the time
In view of these authorities, the court believes defendant's
Sixth Affirmative Defense to be insufficient as a matter of law.
The plaintiff's motion to strike said Defense, therefore, is
The defendant's Seventh Affirmative Defense is founded upon §
130(b) of the Act, 15 U.S.C. § 1640(b), which states in part:
A creditor has no liability under this section for
any failure to comply with any requirement imposed
under this part or part E of this subchapter if
within fifteen days after discovering an error, and
prior to the institution of an action under this
section or the receipt of written notice of the
error, the creditor notifies the person concerned of
the error . . .
In its Seventh Defense, defendant asserts that the filing of this
lawsuit does not bar the curing of an error by sending to the
consumer corrective information pursuant to § 130(b).
Accordingly, Spiegel, Inc. argues, as the required disclosure
information has been sent to Kenneth Lirtzman, and to all other
persons who ordered the catalog within fifteen days of the
receipt of their orders, no viable claim has been stated in the
In so arguing, however, the defendant has misconstrued §
130(b). From the language contained therein, it is clear that §
130(b) manifests an intent that the right to cure errors
terminates upon the institution of any civil action seeking
recovery under § 130 of the Act, 15 U.S.C. § 1640. That being so,
since corrective information was not sent to Kenneth Lirtzman
before the present matter was filed, Spiegel, Inc. cannot avail
itself of the protection of this statutory defense. The
defendant's Seventh Affirmative Defense, therefore, being
insufficient as a matter of law, also is ordered stricken.
The Eighth Affirmative Defense asserted in defendant's answer
raises the question of whether § 130(b) of the Act, 15 U.S.C. § 1640(b),
bars a class action "because the required disclosures
were mailed to all other persons who placed orders with
Spiegel, Inc. within fifteen days after receipt of such orders
and before any of these persons instituted any lawsuit or gave
defendant written notice of an alleged error." Plaintiff, in
seeking to have this Defense stricken, argues that because he
filed this action in a representative capacity on behalf of all
members of the purported class, institution of the present action
terminated defendant's ability to cure as to all other members of
the purported class. Mr. Lirtzman, however, has cited no
authority for this proposition. The court, moreover, is not
convinced that under no set of circumstances could this
affirmative defense succeed. If, for example, it is determined
that Kenneth Lirtzman is not a proper class representative, or if
the purported class is not certified, it is possible that
Spiegel, Inc. could, based upon § 130(b) of the Act, prevail over
the remaining members of the purported class. As that is so,
plaintiff's motion to strike the Eighth Affirmative Defense will
Spiegel, Inc.'s Ninth Affirmative Defense involves § 130(c) of
the Act, 15 U.S.C. § 1640(c). § 130(c) provides a creditor with a
defense where the disclosure requirements violation in question
was not intentional, but instead resulted from a bona fide error
"notwithstanding the maintenance of the procedures reasonably
adapted to avoid [such] error."
Although there has been some conflict regarding the type of
bona fide error to which the statutory defense provided by §
130(c) is applicable, the term "bona fide error" has been defined
as "an error made in the course of a good faith attempt at
compliance." Mirabal v. General Motors Acceptance Corp.,
537 F.2d 871, 878 (7th Cir. 1976). Spiegel, Inc.'s omissions of the
disclosures required by the Act, rather than being clerical in
nature, were judgmental with respect to the legal requirements of
the Act. The majority of decisions, especially those in the
Seventh Circuit, however, have held that the unintentional
violation defense of § 130(c) is only available for clerical
errors, and that it is wholly inapposite to deal with errors of
law, such as the one now being raised by the defendant, even
though such errors were made in good faith. Smith v. No. 2
Galesburg Crown Finance Corp., 615 F.2d 407, 418 (7th Cir. 1980);
Mirabal v. General Motors Acceptance Corp., supra 537 F.2d 871,
878 (7th Cir. 1976); Haynes v. Logan Furniture Mart, Inc.,
503 F.2d 1161, 1167 (7th Cir. 1974); Ratner v. Chemical Bank New York
Trust Company, 329 F. Supp. 270, 281 (S.D.N.Y. 1971). Although
Spiegel, Inc. has pointed out that several courts have held that
§ 130(c) is not limited in its application solely to clerical
errors, see e.g., Welmaker v. W.T. Grant Company, 365 F. Supp. 531,
544 (N.D.Ga. 1972), it should be noted that the Fifth
Circuit has expressly refused to follow those decisions, at least
to the extent that they may pertain to the defendant's present
argument. McGowan v. King, Inc., 569 F.2d 845, 850 (5th Cir.
1978). In light of that fact, the court believes that the
defendant's Ninth Affirmative Defense also should be stricken.
In its Tenth Affirmative Defense, Spiegel, Inc. contends that,
even if it is found to have failed to disclose the information
required by § 226.7(a)(9) of Regulation Z,
12 C.F.R. § 226.7(a)(9), which requires an accompanying statement in the
initial disclosure concerning the consumer's rights to dispute
billing errors, "this information is [in reality] irrelevant to
the consumer when he first opens his account." The court strongly
disagrees with this contention of the defendant. § 226.7(a) of
Regulation Z sets out the specific disclosures that must be made
in the initial disclosure statement, which is to be provided to
the customer before the first transaction is made on any open end
To implement the Fair Credit Billing Act, the Board of
Governors inserted a new disclosure subsection, as § 226.7(a)(9)
of Regulation Z, which required the furnishing of a copy of the
F.C.B.A. notice on or with the initial disclosure statement.
Under the clear language of § 226.6(a) of Regulation Z,
12 C.F.R. § 226.6(a), the general disclosure rules apply to this notice.
In Truth-in-Lending cases, strict compliance with the specific
disclosure requirements of the Act, and the implementing Federal
Reserve Board regulations, always has been required. Smith v. No.
2 Galesburg Crown Finance Corp., supra 615 F.2d 407 (7th Cir.
1980); Kristiansen v. John Mullins & Sons, Inc., 59 F.R.D. 99
(E.D.N.Y. 1973). It also is clear that Congress did not intend
that creditors should escape liability for merely technical
violations. Smith v. No. 2 Galesburg Crown Finance Corp., supra
615 F.2d 407, 416 (7th Cir. 1980); Pennino v. Morris Kirschman &
Co., 526 F.2d 367 (5th Cir. 1976). Accordingly, regardless of how
Spiegel, Inc. views the requirement, failure to timely provide
the aforementioned F.C.B.A. notice constitutes a violation of the
Act. That being so, as the defendant's Tenth Affirmative Defense
must be considered insufficient as a matter of law, the
plaintiff's motion to strike with respect to it is granted.
For the reasons stated above, plaintiff Lirtzman's motion to
strike the defendant's Affirmative Defenses designated Three
through Ten is GRANTED with respect to Defenses Six, Seven, Nine
and Ten, and DENIED as to Defenses Three, Four, Five and Eight.
IT IS SO ORDERED.