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BOKSA v. KEYSTONE CHEVROLET CO.

United States District Court, Northern District of Illinois, E.D


December 30, 1982

JOSEF BOKSA, ET AL., PLAINTIFFS,
v.
KEYSTONE CHEVROLET COMPANY, DEFENDANT.

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

MEMORANDUM OPINION AND ORDER

Josef and Maria Boksa ("Boksas") and Vera Cortes ("Cortes") have sued Keystone Chevrolet Company ("Keystone"), alleging violations of the Truth in Lending Act, 15 U.S.C. § 1631 and 1638 ("TILA"). Both sides have moved for summary judgment, and Keystone has also moved for an award of attorneys' fees. For the reasons stated in this memorandum opinion and order:

1. Plaintiffs' motion is denied.

    2. Keystone's motion for summary judgment is
  granted, but its motion for attorneys' fees is
  denied.

Facts*fn1

On June 18, 1981 Boksas signed a Keystone customer order form (the "Order") and paid a $300 deposit toward the purchase of a $6,241.46 automobile. On June 22 Boksas and Cortes signed a "Retail Instalment Contract," financing the purchase price less the $300 deposit and a $1,700 C.O.D. payment.

Two provisions of the Order are relevant here. On its front side the Order stated immediately above the signature lines:*fn2

  I certify that I am eighteen (18) years of age or
  older and hereby acknowledge receipt of a copy of
  this order and I have read the printed matter on
  the back hereof

  of and agree to it as a part of this order, the
  same as if it were printed above my signature.

  If purchaser has requested dealer to arrange
  financing and purchaser has not been furnished a
  completely filled in disclosure statement, this
  Order is not binding on purchaser and purchaser
  may cancel it and recover the deposit. In the
  event of dealer arranged financing & where
  Purchaser has taken delivery of vehicle, on or
  before the end of the third working day from this
  date, Purchaser will return the vehicle to dealer
  at which time Purchaser will be advised, in
  accordance with the requirements of Regulation Z,
  of the terms of whatever financing dealer may
  have been able to arrange for Purchaser. At that
  time, Purchaser, at his option, will do one of
  the following:

    1. Accept whatever financing has been obtained
  by dealer; or

2. Pay in cash for the vehicle; or

    3. Cancel this order and pay to the seller a
  sum equal to its loss of value and any damage
  which may have been caused to the vehicle between
  the date hereof and the date of the return of the
  vehicle.

Order ¶ 5 (part of its Additional Terms and Conditions, referred to in the above quotation as "the printed matter on the back hereof") read:

  Unless this Order shall have been cancelled by
  Purchaser under and in accordance with the
  provisions of paragraph 2 or 3 above, Dealer
  shall have the right, upon failure or refusal of
  Purchaser to accept delivery of the motor vehicle
  ordered hereunder and to comply with the terms of
  this Order, to retain as liquidated damages any
  cash deposit made by Purchaser, and, in the event
  a used motor vehicle has been traded in as a part
  of the consideration for the motor vehicle
  ordered hereunder, to sell such used motor
  vehicle and reimburse himself out of the proceeds
  of such sale for the expenses specified in
  paragraph 2 above and for such other expenses and
  losses as Dealer may incur or suffer as a result
  of such failure or refusal by Purchaser.

Complaint ¶ 8 alleges Order ¶ 5:

    (1) required plaintiffs to pay their $300
  deposit as liquidated damages if they chose to
  cancel their purchase and

    (2) thereby interfered with their ability
  freely to negotiate the terms of financing,
  contrary to TILA's policy.

Keystone admits (Ans.Mem. ¶ 5) it would have violated TILA had the Order in fact bound Boksas on June 18 __ before any disclosure to them of financing terms. However Keystone argues (id. at ¶ 10) the earlier-quoted provisions from the front side of the Order mean no firm contractual obligation was created June 18, so no TILA disclosure duty existed that might have been breached on that date.

Summary Judgment Motions

Part of TILA, 15 U.S.C. § 1604, calls for Federal Reserve Board ("Board") promulgation of guidelines for the disclosure of consumer financing terms. Those guidelines have been set forth in "Regulation Z," 12 C.F.R. Part 226 (1981). Regulation Z itself also provides for official staff interpretations of its terms, id. at § 226.1(d)(2) and (3). Such an official staff interpretation addresses the precise situation involved in the present action (id., App. [FC-0130], at 710-11, issued Nov. 2, 1977 and published at 42 Fed.Reg. 61,248 (1977)):

  You first describe a situation where a customer
  wishes to purchase an automobile from your
  client, a dealer, and finance the sale. At the
  time the customer selects a car and requests
  financing, the terms of the instalment sales
  contract, as well as the identity of the finance
  company ultimately purchasing it, are uncertain,
  making completion of the instalment sales
  contract impractical. You wish to know whether
  insertion of the following provision in the sales
  contract would defer "consummation" of the
  transaction, as that term is defined by § 226.2(kk)
  of Regulation Z, and permit the dealer to make the
  disclosures required by Regulation Z, and permit
  the dealer to make the disclosures required by
  Regulation Z when financing is accepted by
  customer[:]

    If this is a credit sale and the disclosure
    statement has not been completely filled in,
    this order is not binding on the buyer and
    buyer may cancel it and recover the deposit.

  The staff has previously taken the position that,
  for purposes of giving the disclosures required
  by Regulation Z for closed end credit,
  "consummation" occurs when the customer binds
  himself to the transaction, unless State law
  provides that consummation occurs at some earlier
  time (see Public Information Letters 623 and
  841). Therefore, in the opinion of the staff,
  where State law does not provide otherwise, the
  required disclosures could be given when
  financing is accepted by the customer, provided
  that no contractual obligation to purchase exists
  until the customer accepts financing.

  You next describe a similar situation in which
  your client wishes to provide a customer with a
  car immediately, before financing can be arranged
  and the appropriate disclosure made under
  Regulation Z. You ask whether the following
  provision in a sales contract would permit the
  dealer to defer the disclosures required by
  Regulation Z until financing is accepted by the
  customer[:]

    On or before the _____ day of ______, 1977,
    buyer will return the vehicle to dealer at
    which time buyer will be advised, in accordance
    with the requirements of Regulation Z, of the
    terms of whatever financing dealer may have
    been able to arrange for buyer. At that time,
    buyer, at his option, will do one of the
    following:

      1. Accept whatever financing has been
    obtained by dealer; or

2. Pay in cash for the vehicle; or

      3. Cancel this order and pay for any damage
    which may have been caused to the vehicle
    between the date hereof and the date of the
    return of the vehicle.

  As in the previous situation, the Regulation Z
  disclosures must be given when the transaction is
  "consummated." In the opinion of the staff,
  consummation and, therefore, the disclosures may
  be deferred until financing is accepted by the
  customer, assuming State law does not provide
  that consummation occurs before this time and
  that, prior to the customer's acceptance of
  financing, there is no obligation on the part of
  the customer to purchase the vehicle.*fn3

Keystone explains (Ans.Mem. ¶¶ 6-8) the provisions on the front of the Order were in fact derived directly from the November 1977 staff interpretation. Keystone wrote those provisions to comply with TILA and Regulation Z, as interpreted by the Board staff. That contention is plainly confirmed by the contractual tracking of the staff interpretation language.

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565, 100 S.Ct. 790, 796, 63 L.Ed.2d 22 (1980) teaches:

  [D]eference is especially appropriate in the
  process of interpreting the Truth in Lending Act
  and Regulation Z. Unless demonstrably irrational,
  Federal Reserve Board staff opinions construing
  the Act or Regulation should be
  dispositive. . . .

Moreover TILA itself recognizes a good faith defense for acts done in conformity with Board regulations or staff interpretations. 15 U.S.C. § 1640(f).

Clearly, then, Keystone's Order provisions as to dealer-arranged financing operated to defer any irrevocable purchase contract until plaintiffs accepted the financing contract. Plaintiffs do not contend there was not full disclosure of financing terms in the instalment contract itself.

Finally, ordinary rules of contract construction lead to the conclusion the front-page provisions made Order ¶ 5 (like the rest of the purchase contract of which it was a part) inoperative whenever a purchaser requested dealer-arranged financing and then elected to cancel before full disclosure of financing terms. Under the front-page provisions (1) such a purchaser had the unconditional right to cancel the Order, including all its reverse-side provisions, and (2) recovery of the deposit was specifically assured in that event.

Plaintiffs have proffered only nonpersuasive, makeweight contentions in opposition to those just discussed. They have perceptibly shifted ground between their first memorandum (Mem. ¶¶ 9-10) and their second (Ans.Mem. ¶ 8), but they have been consistent in one respect: Their arguments at each stage of the briefing have been untenable.

Attorneys' Fees

Keystone attorney Arthur J. Sabin ("Sabin") has filed an affidavit in which he raises the possibility plaintiffs and their attorney, Albert Koretzky ("Koretzky"), did not file this action in good faith. Koretzky has filed a counter-affidavit denying some of Sabin's factual allegations.

Because the facts are in dispute, this Court cannot determine on the present record whether Sabin's claim is accurate. In any case, though, Sabin's charges raise issues more appropriately within the jurisdiction of the Illinois Attorney Registration and Disciplinary Commission. If Koretzky has engaged in improper solicitation of legal business or other unprofessional activities, the Commission and not this Court is the proper forum for redress.

As to the direct issue before this Court, Keystone has identified no provision allowing an award of attorneys' fees to a successful TILA defendant. Cf 15 U.S.C. § 1640(a)(3) (allowing attorneys' fees and costs to successful plaintiffs under TILA).*fn4 To a certain extent TILA itself may encourage an "industry" of bringing suits for damages and attorneys' fees,*fn5 but that reflects a deliberate congressional choice with which this Court may not interfere.

Nor has 28 U.S.C. § 1927 ("Section 1927") generally abrogated the American Rule requiring litigants to bear their own attorneys' fees. This Court is empowered to impose sanctions under Section 1927 only for abuse of the judicial process. But plaintiffs' legal position on their motion was not so frivolous (in the legal sense) as to call for taxing their lawyer with fees. Plaintiffs' position was indeed weak — they have lost this action — but there was at least a minimal question of contractual and legal interpretation raised.

Conclusion

There is no genuine issue of fact material to the question of Keystone's liability under TILA. Keystone is therefore entitled to a judgment as a matter of law. Plaintiffs' motion for summary judgment and Keystone's motion for an award of attorneys' fees are denied. This action is dismissed with prejudice.


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