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LIRTZMAN v. SPIEGEL

July 24, 1980

KENNETH A. LIRTZMAN, INDIVIDUALLY AND ON BEHALF OF A CLASS OF PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
SPIEGEL, INC., A CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Bua, District Judge.

ORDER

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 1969).*fn1

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 primarily for 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 class representative.

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 ...


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