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KEDZIORA v. CITICORP NATL. SERVS.

September 25, 1995

MERRILOU KEDZIORA, Plaintiff,
v.
CITICORP NATIONAL SERVICES, INC., Defendant.



The opinion of the court was delivered by: RUBEN CASTILLO

 In this final round of cross-motions for summary judgment, the plaintiff Merrilou Kedziora ("Kedziora"), on behalf of a class of persons similarly situated ("plaintiffs"), claims that the early termination provision of a consumer automobile lease assigned to the defendant, Citicorp National Services, Inc. ("Citicorp"), violated the disclosure requirements of the Consumer Leasing Act, 16 U.S.C. § 1667(a)(11) (the "CLA") and its implementing regulations 12 C.F.R. Part 213 ("Regulation M"). According to Kedziora, Citicorp's lease violated the CLA because it disclosed one rebate method (the Rule of 78s) but applied another. This alleged disclosure violation is the only claim presented in the Fourth Amended Complaint. For the reasons given below, the Court finds that Kedziora is entitled to judgment as a matter of law.

 I. Summary Judgment Standards

 Summary judgment is proper only if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A genuine issue for trial exists only when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Materiality *fn1" is determined by assessing whether the fact in dispute, if proven, would satisfy a legal element under the theory alleged or otherwise affect the outcome of the case. Id. at 247. The Court must view all the evidence in the light most favorable to the nonmoving party, Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.), cert. denied, 484 U.S. 977, 98 L. Ed. 2d 486, 108 S. Ct. 488 (1987), and draw all inferences in the nonmovant's favor. Santiago v. Lane, 894 F.2d 218, 221 (7th Cir. 1990). If the evidence, however, is merely colorable, or is not significantly probative or merely raises "some metaphysical doubt as to the material facts," summary judgment may be granted. Liberty Lobby, 477 U.S. at 249-50; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348; Flip Side Productions, Inc. v. Jam Productions, Ltd., 843 F.2d 1024, 1032 (7th Cir.), cert. denied, 488 U.S. 909, 102 L. Ed. 2d 249, 109 S. Ct. 261 (1988). In making its determination, the court's sole function is to determine whether sufficient evidence exists to support a verdict in the nonmovant's favor. Credibility determinations, weighing evidence, and drawing reasonable inferences are jury functions, not those of a judge deciding a motion for summary judgment. Liberty Lobby, 477 U.S. at 255.

 II. Undisputed Facts

 On September 1, 1988, plaintiff Merrilou Channell ("Kedziora") and Thomas Kedziora executed a consumer automobile lease for a 1989 Pontiac Grand Prix automobile (the "lease"). 12(M) P 4. The lease was later assigned to Citicorp. 12(M) P 5. Citicorp, however, is an original lessor for purposes of the Consumer Leasing Act and Regulation M. Id. On August 19, 1990, the automobile that was the subject of the Lease was totally destroyed in an accident. 12(M) P 6. Under the terms of the lease, the destruction of the vehicle constituted a default and early termination. 12(M) P 7. The lease disclosed that the "Sum of the Digits" or the Rule of 78s method would be used to determine the unearned amount of the early termination charge in the event of a default. 12(M) P 8. The rebate of the unearned portion of the Kedzioras' lease charge was calculated by the actuarial method, not by the Rule of 78s. 12(M) P 9. In September of 1988, when Kedziora entered into the lease, Citicorp calculated all early termination lease charge rebates using the Rule of 78s method to all cases of early termination under the lease. 12(M) P 10. After December 31, 1989, Citicorp began calculating the rebate for insurance total loss lessees using the actuarial or the Rule of 78s, whichever resulted in a greater benefit to the lessee. 12(M) P 12. In 1990, Citicorp revised its leases to provide that, in the event of an insured total loss, Citicorp would accept the insurance proceeds in satisfaction of any early termination liability. 12(M) P 13. The Citicorp New York lease with the revised total loss provision went into effect on January 1, 1990. Id. The lease with the revised total loss provision for the several remaining states went into effect on July 1, 1990. Id. On the 1990 revised total loss leases, Citicorp calculates all early termination charge unearned lease charge rebates to consumers using the Rule of 78s. 12(M) P 14. Of the approximately 376 class members, only 41 executed the same lease form as Kedziora after the December 31, 1989 change to use of the actuarial method. 12(M) P 16. Citicorp ceased purchasing automobile leases on February 28, 1991. 12(M) P 15. Citicorp's net worth as of June 1995 was $ 37,699.073. 12(M) P 17.

 III. Analysis

 The application of an undisclosed method for calculating early termination charges in cases of default is a "technical" disclosure violation under the CLA, 15 U.S.C. § 1667 (a) (11) and Regulation M. Although Citicorp makes two clever arguments in support of its position that the undisclosed actuarial method does not constitute a violation, these arguments are meritless in the face of Highsmith v. Chrysler Credit Corp., 18 F.3d 434 (7th Cir. 1994), which-despite Citicorp's efforts to distinguish its facts from those in this case-squarely held that "failing to disclose any portion of the formula that a lessor actually uses for calculating the early termination charge, will give rise to a technical violation of the disclosure provision found in 15 U.S.C. § 1667a(11) and Regulation M." Id. at 439 (emphasis added). A violation occurs, held the Circuit Court, even when "the lease states a formula that produces an early termination charge that is in fact much larger than the actual charge that will be imposed." Id. Concomitantly, a violation occurs when the undisclosed formula applied to the lessee results in a lower charge than the one disclosed in the lease.

 A. The Definition of A "Charge"

 This ruling definitively resolves the first question raised by Citicorp, namely, whether the application of an undisclosed actuarial method that results in a lower overall termination charge (due to a present value discounting) is, in fact, a "charge" which must be disclosed under the CLA. Although the actuarial method applied to Kedziora's lease resulted in a lower charge, and thus a better deal, the fact of nondisclosure still constitutes a technical violation of the disclosure provisions in section 1667a(11) of the CLA, despite the holdings in several related Truth In Lending Act ("TILA") cases (cited by Citicorp) in Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 63 L. Ed. 2d 22, 100 S. Ct. 790 (1980); Stewart v. Ford Motor Credit Co., 685 F.2d 391 (11th Cir. 1982); and Ford Motor Credit Co. v. Mells, 249 Ga. 106, 290 S.E.2d 271 (Ga. 1982).

 The Truth In Lending Act's damage provisions (section 1640) and definitions (section 1602) are made applicable to claims under the CLA, because "Congress chose to embed the [CLA] within the TILA structure, . . . general rules of construction applicable in TILA cases must also apply in cases under the [CLA]." Kedziora v. Citicorp Nat. Services, Inc., 780 F. Supp. 516, 519 (N.D. Ill. 1991). Thus the cases cited above are not distinguishable merely because the issues they resolved involved TILA provisions; these cases can be distinguished based on a different reading of the Milhollin decision, advocated by the dissent in Stewart, which is consistent with the Seventh Circuit's decision in Highsmith, namely, that "when a creditor rebates unearned interest at differing rates for . . . separate precipitating causes [i.e., for default rather than voluntary termination], both methods must be disclosed." Stewart, 685 F.2d at 394 (Clark, J., dissenting). As Judge Clark argued, the language of the Milhollin opinion merely states that "disclosure of [an] acceleration rebate policy [due to default] is only necessary when that policy varies from the custom with respect to voluntary [termination] . . . rebates." Milhollin, 444 U.S. at 562 (emphasis added). The Court did not find, despite the language in footnote 8, that an acceleration rebate policy due to default need not be disclosed merely because it resulted in a lower charge than the rebate policy disclosed on the face of the lease, as Citicorp would have us believe. Although the Stewart majority and the Mells court adopted this view, this Court must follow the principles and rulings enunciated in Highsmith, which we believe clearly require a finding that Citicorp's failure to disclose the actuarial method it applied to calculate early termination charges in default cases is a technical disclosure violation under the CLA.

 This decision comports with the underlying policies of TILA and the CLA. For instance, "courts have consistently held that the ordinary principle of "no harm, no foul" does not limit the availability of TILA remedies under section 1640" and therefore under the CLA, as well. Kedziora, 780 F. Supp. at 521. Thus, the fact that an undisclosed rebate policy actually enured to the benefit of a consumer is inconsequential. "The broad remedial purposes of TILA . . . empower[] anybody who signs a lease to recover upon proof of nondisclosure in violation of the statute, whether or not the particular nondisclosure produced a demonstrable injury." Id. Moreover, the argument that mandatory disclosure does not promote the informed use of credit in cases of involuntary termination (because the consumer cannot foresee the occurrence of these events) simply misses the point.

 The issue is whether the method used by the creditor to determine the early termination charge has been fully and accurately disclosed. 15 U.S.C. § 1667a(11). Highsmith clarified that the disclosure requirements extend to "any portion of the formula" used-even if this undisclosed portion results in a lower charge-and failure to disclose any portion, such as the actuarial method used in this case to discount the early termination charge to present value, "will give rise to a technical violation of the disclosure provision found in 15 U.S.C. § 1667a(11) and Regulation M." 18 F.3d at 439. Citicorp does not dispute that the actuarial method used to calculate Kedziora's early termination charge was not disclosed in the lease she signed. Citicorp, therefore, is liable for a technical disclosure violation of the CLA, 15 U.S.C. § 1667a(11) and Regulation M.

 B. The subsequent Occurrence Defense

 The "subsequent occurrence" defense, argues Citicorp, supports judgment in its favor as a matter of law, as to all but 41 of the class plaintiffs. This defense has its origin in Regulation M, which contains the following provision:

 
213.4(e) Effect of subsequent occurrence. If information required to be disclosed in accordance with this regulation is subsequently rendered inaccurate as a result of any act, occurrence, or agreement subsequent to the delivery of the required disclosures, the inaccuracy resulting therefrom does not constitute a violation of this regulation.

 122 C.F.R. Part 213.4. The Federal Reserve Board's Official Staff Commentary to Regulation M further elaborates on what constitutes a subsequent occurrence":

 
4(e) Effect of subsequent occurrence.
 
1. Subsequent occurrences. Examples of subsequent ...

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