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DEMITROPOULOS v. BANK ONE MILWAUKEE

February 12, 1996

BILL DEMITROPOULOS, on behalf of himself and all others similarly situated, Plaintiff,
v.
BANK ONE MILWAUKEE, N.A.; and TEAM CHEVROLET, INC., doing business as TEAM CHEVROLET GEO, Defendants.



The opinion of the court was delivered by: CASTILLO

 Plaintiff Bill Demitropoulos ("Demitropoulos") sues defendants Bank One Milwaukee, N.A. ("Bank One") and Team Chevrolet, Inc. d/b/a Team Chevrolet and GEO ("Team Chevy"), alleging that Bank One's standard automobile form lease violates the Consumer Leasing Act, 15 U.S.C. § 1667 et seq. (count I), and the Illinois and Wisconsin Consumer Fraud Acts (count II). Demitropoulos contends that Bank One unlawfully failed to make, or improperly made, certain disclosures required under the Consumer Leasing Act, imposed excessive and unreasonable early termination charges, and failed to disclose certain material information, in particular, the "capitalized cost" of the leased automobile. Additionally, Demitropoulos asserts a breach of warranty claim against defendants (count III). Demitropoulos seeks to bring counts I and II as a class representative; count III is brought individually. Defendants' motion to dismiss *fn1" is presently before the Court as is Demitropoulos' motion for class certification.

 RELEVANT FACTS

 For purposes of a Rule 12(b)(6) motion to dismiss, we accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff. Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). The following recitation of facts is drawn from Demitropoulos' complaint.

 On December 12, 1994, Demitropoulos entered into an automobile lease with Bank One covering the lease of a 1994 Chevrolet Corvette ("Lease"). Demitropoulos signed the Lease at Team Chevy, which arranged the Lease. The term of the Lease was 24 months, the total amount of payments under the Lease was less than $ 25,000, and the vehicle was leased for personal as opposed to business purposes.

 In count I of his complaint, Demitropoulos contends that Bank One's Lease does not comply with the Consumer Leasing Act in several respects *fn2" : (1) The Lease does not disclose the circumstances under which the consumer can voluntarily terminate the lease prior to the scheduled expiration date and the charge for such early termination; (2) the Lease results in unreasonable early termination charges; (3) the Lease improperly contains material disclosures required by the Consumer Leasing Act on the back of the contract, below the lessee's signature--these include identification of the party responsible for maintaining and servicing the vehicle, and certain of the charges for delinquency, default, or late payments; (4) the Lease does not affirmatively state whether there are express warranties from the manufacturer to the lessee and certain Lease provisions dealing with warranties are misleading and inaccurate; and (5) the Lease's late payment charge is ambiguous in that it fails to disclose how it is computed when part of the payment is made on time.

 In count II of his complaint, Demitropoulos contends that by failing to disclose the "capitalized cost" of the leased vehicle *fn3" , and by failing to make (or improperly making) disclosures required under the Consumer Leasing Act, the Lease violates the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, and the Wisconsin Consumer Fraud statute, Wis. Stat. § 100.18.

 In addition to the foregoing class counts, Demitropoulos also asserts an individual breach of warranty claim against the defendants, contending that the Corvette he leased is not merchantable as a luxury sports car. Defendants move to dismiss all three counts for failure to state a claim. We address defendants' contentions as to the three counts in turn below. Thereafter, we address Demitropoulos' motion for class certification as to counts I and II.

 ANALYSIS

 Rule 12(b)(6) Standards

 A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). The only question is whether relief is possible under any set of facts that could be established consistent with the allegations. Northern Trust Co. v. Peters, 69 F.3d 123, 129 (7th Cir.. 1995); Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)). All well-pleaded facts are taken as true, all inferences are drawn in favor of the plaintiff and all ambiguities are resolved in favor of the plaintiff. Northern Trust, 69 F.3d at 129; Dawson v. General Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992).

 I. Consumer Leasing Act

 In 1976, Congress enacted into law the Consumer Leasing Act ("Act" or "CLA"), 15 U.S.C. § 1667-1667e, as an amendment to the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. The Board of Governors of the Federal Reserve System was given rule-writing authority for implementing the CLA; the Board's Regulation M, 12 C.F.R. part 213, implements the Act. The purpose of the Regulation "is to assure that lessees of personal property are given meaningful disclosures of lease terms, to delimit the ultimate liability of lessees in leasing personal property and to require meaningful and accurate disclosures of lease terms in advertising." 12 C.F.R. § 213.1(b). Because the CLA is contained within TILA, the general rules of construction applicable to TILA apply to the CLA; and, as with TILA, the CLA must be liberally construed in the consumer's favor, Kedziora v. Citicorp Nat'l Servs., Inc., 780 F. Supp. 516, 519 (N.D. Ill. 1991); cf. Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1144 (11th Cir. 1994) (noting that the Truth in Lending Act is liberally construed in favor of the consumer), and "even the most technical disclosure violations--whether or not they cause actual damage or deception--may trigger liability for the offending creditor." Kedziora, 780 F. Supp. at 519; see also Dwyer v. Barco Auto Leasing Corp., 903 F. Supp. 205, 210 (D. Mass. 1995). With this background and standards in mind, we now turn to consider Demitropoulos' CLA claims.

 1. Early Termination Conditions

 The Consumer Leasing Act requires "[a] statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term and the amount or method of determining the amount of any penalty or other charge for early termination." 12 C.F.R. § 213.4(g)(12); see also 15 U.S.C. § 1667a(11). Defendants maintain that P 13 of the Lease complies with the Consumer Leasing Act's early-termination disclosure requirements. That paragraph provides in pertinent part:

 
13. EARLY TERMINATION AND DEFAULT
 
a. We may, at our option, terminate this Lease prior to the end of its term under any of the following conditions, which also constitutes default hereunder:
 
1. You do not make a payment when due;
 
2. You fail to comply with any of the terms and conditions of the Lease;
 
3. You are the subject of a proceeding in bankruptcy . . . ;
 
4. You fail to comply with the minimum insurance requirements of the Lease . . . ;
 
5. You have made any material misrepresentations on your Lease application concerning credit or insurance information;
 
6. You fail to answer traffic summons or pay fines when due;
 
7. You die;
 
8. You fail to notify us in writing within thirty days after you move.
 
If you default, we will have all rights and remedies provided by law. We will have the right to sue you for damages, and terminate the Lease and take the Vehicle without prior demand. . . .
 
b. The charge for early termination will be calculated as follows: . . .

 Lease P 13a. Demitropoulos complains that the foregoing provisions are defective insofar as they do not disclose the circumstances under which a lessee may terminate the Lease prior to the end of its term. Defendants maintain that the Lease "addresses" this issue, stating, "Should a lessee decide to terminate the Lease early, the condition for doing so is that he pay the charges indicated by the formula listed in the agreement." Defs.' Mem. at 2-3.

 Although defendants' argument has some superficial appeal, it is unpersuasive. Both the Act and the regulations promulgated thereunder require disclosure of the conditions, if any, under which both the lessor and the lessee may terminate the lease. See 15 U.S.C. §§ 1667a(11); 12 C.F.R. § 213.4(g)(12). *fn4" The Bank One Lease does not clearly do this. Instead, the Lease merely informs the consumer of the conditions under which Bank One may, at its option, declare a default and terminate the lease early. There is no disclosure of the conditions under which a lessee may voluntarily terminate the lease early. As the lease provisions are presently written, a reasonable consumer is left with the impression that he or she has but one option for early termination under the Lease--namely, to put oneself in the position of default as defined in P 13(a), which may well be an undesirable course of action for many. If, in fact, the lessor may voluntarily terminate the lease early, defendants have failed to disclose this fact.

 As to defendants' suggestion that the Act's early termination disclosure requirements are met because P 13(b) of the Lease sets out the method for calculating early termination charges and (the argument goes) a reasonable consumer would thereby understand that he or she may voluntarily terminate the Lease prematurely on the condition that he or she pay the charge indicated by the formula, we cannot agree. Read in context, this is, at best, a strained reading of P 13. An ordinary consumer, we believe, would read P 13(b) in conjunction with P 13(a), and understand P 13(b)'s early termination charge to apply simply to cases in which the lessor declares a default and terminates the Lease early as it is allowed to do pursuant to P 13(a)--not to cases of voluntary early termination (which is nowhere discussed in the Lease). That the charge for early termination set out in P 13(b) also applies to cases in which a lessee voluntarily terminates the Lease early is by no means self-evident from the Lease particularly because the Lease provides no indication that such voluntary early termination is even contemplated.

 It may prove to be the case that Bank One does not allow lessees to voluntarily terminate Leases early at all. *fn5" In that case, Bank One's failure to disclose that fact may or may not be a violation of the disclosure requirements. See 12 C.F.R. § 213 Supp. I-CL-1, Section 213.4-Disclosures, P 4(g) (stating that disclosures need only be made as applicable and that disclosures not relevant to a particular transaction may be eliminated). *fn6" But we need not decide that question now. On a motion to dismiss, we ask only whether the plaintiff could prove some set of facts entitling him or her to relief. If Demitropoulos establishes that Bank One allows voluntary early termination and has failed to disclose that fact, he may establish a disclosure violation. Accordingly, to the extent that defendants' motion to dismiss is predicated on the position that the Lease adequately discloses the conditions for early termination by the lessor, the motion is denied.

 2. Unreasonableness of, or Inaccurate Disclosure of, Early Termination Charges

 Paragraph 25 of Demitropoulos' complaint challenges the Lease's early termination disclosure on additional grounds. In pertinent part, that paragraph reads:

 
If P13 were enforced as written, Bank One would collect unreasonable early termination charges . . . . If P13 is not enforced as written, the lease fails to disclose the ...

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