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CHIVERS v. JOHNSON

October 1, 1998

Ree Clay and Ruby Chivers, Plaintiffs,
v.
Iver R. Johnson and, Marvin Bilfeld, doing business as Davenport Construction Company, Defendants.



The opinion of the court was delivered by: DENLOW

MEMORANDUM OPINION AND ORDER

 Ree Clay and Ruby Chivers (collectively "Plaintiffs") instituted this action under the Truth In Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. (1998), against Iver R. Johnson and Marvin Bilfeld, d/b/a Davenport Construction Co. (collectively "Defendants"), alleging violations of TILA and seeking rescission of their transactions with Defendants. Plaintiffs now bring a motion for partial summary judgement on the issue of Defendants' liability under TILA. For the following reasons the Court holds that Defendants failed to properly disclose the payment schedule as required by TILA and grants Plaintiffs' motion for partial summary judgment.

 I. BACKGROUND

 A. The Parties.

 Ree Clay ("Clay") and Ruby Chivers ("Chivers") are sisters who reside in a home at 4633 W. 177th St., Country Club Hills, IL, 60478. (Pls.' Local Rule 12(M) Statement of Material Facts ("Pls.' 12(M)") P 2.) Clay is an owner of the home and Chivers had no ownership interest in the home at the time of the transaction. (Pls.' 12(M) P 2; Defs.' Local Rule 12(N) Statement of Material Facts ("Defs.' 12(N)") P 2.) Marvin Bilfeld ("Bilfeld") is an individual who does business as Davenport Construction Company ("Davenport"). (Pls.' 12(M) P 3.) Plaintiffs executed a series of retail installment contracts and mortgages to finance the purchase of home improvements from Davenport. (Pls.' 12(M) P 5.) Davenport was the obligee under the retail installment contracts, but promptly assigned them to defendant Iver Johnson ("Johnson"). Johnson was the mortgagee. (Pls.' 12(M) P 4-5.)

 B. The Transactions Between the Parties.

 On or about February 11, 1995, Plaintiffs executed a retail installment contract and mortgage to finance the purchase of home improvements. (Pls.' 12(M) P 5.) Davenport was the obligee under the retail installment contract, but promptly assigned it to Johnson. Johnson was the mortgagee. (Pls.' 12(M) P 5.) Around July 10, 1995, Plaintiffs executed a second retail installment contract and mortgage to finance the remodeling of a bathroom and basement by Davenport. (Pls.' 12(M) P 7.) Again, Davenport assigned this contract to Johnson. (Pls.' 12(M) P 7.) A short time later on July 15, 1995, only plaintiff Clay executed a third retail installment contract and mortgage to finance the remodeling of Plaintiff's kitchen and other improvements. (Pls.' 12(M) P 8.) Davenport also assigned this contract to Johnson. (Pls.' 12(M) P 8.)

 On each of the home improvement retail installment contracts there is a box labeled the "Federal Truth-In-Lending Disclosure Statement" which is known as the "Federal Box." In this box there are a number of blanks to be filled in, in order to comply with TILA. On each of the contracts, the blanks have all been completed. The critical issue in this case is the fact that Defendants filled in "30 days from completion" instead of an exact date in the blank left for "When Payments Are Due, monthly beginning." Plaintiffs contend that Defendants' failure to provide a specific date, or an estimated date with the notation that it is an estimate, violates TILA. Defendants disagree and argue that the disclosure was sufficient.

 At some point around completion, when the due dates of the first installments were established, they were typed into an area further down on the contract forms. (Defs.' 12(N) Ex. 2.). Plaintiffs also received a proposal outlining the work to be done and dated which Plaintiffs accepted. (Defs.' 12(N) Ex. 2.) Bilfeld also provided Plaintiffs with a Notice of Right to Cancel which informed Plaintiffs of their right to cancel the contract within 3 days of the transaction, disclosures, or receipt of notice; informed Plaintiffs of additional rights; and informed Plaintiffs of the steps that must be taken in order to cancel. (Defs.' 12(N) Ex. 2.) Plaintiffs also signed this. Upon completion of the work, Davenport obtained an executed completion certificate from Plaintiffs confirming the value of the work performed. (Defs.' 12(N) Ex. 2.) Approximately three weeks to a month after each contract, Johnson sent Plaintiffs a letter informing them that he had purchased the contract and mortgage from Davenport and informing the plaintiffs of the means by which they should make their monthly payments. This letter also informed Plaintiffs that they should begin making their payments 30 days after signing the completion certificates. (Defs.' 12(N) Ex. 2.) Along with the letter, Johnson provided the plaintiffs with a payment booklet. (Defs.' 12(N) Ex. 2.)

 From April through October of 1995, Plaintiffs made their regular monthly payments on the first contract; however, after that time, they failed to make any payments on any of their contracts with Defendants.

 C. Rescission and Bankruptcy.

 On August 21, 1997, Plaintiffs' counsel notified Davenport and Johnson that Plaintiffs were rescinding the transactions. (Pls.' 12(M) P 13.) This letter stated that "Ree Clay and Ruby Chivers rescind any obligation to you for failure to comply with the Truth in Lending Act." (Defs.' 12(N) Ex. C.) On August 26, 1997 Ree Clay filed for bankruptcy under Chapter 13 of the Bankruptcy Code. (Defs.' 12(N) Ex. A.)

 II. SUMMARY JUDGMENT STANDARD

 Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

 When reviewing the record on summary judgment, the court must draw all reasonable inferences in the light most favorable to the nonmoving party. See Larimer v. Dayton Hudson Corp., 137 F.3d 497, 500 (7th Cir. 1998). To avert summary judgment, however, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). A dispute about a material fact is genuine only if the evidence presented is such that a reasonable jury could return a verdict for the nonmovant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986).

 III. THE TRUTH IN LENDING ACT

 A. TILA Is Strictly Enforced.

 TILA was enacted by Congress to "avoid the uninformed use of credit." Mourning v. Family Publications Serv. Inc., 411 U.S. 356, 365, 93 S. Ct. 1652, 1664, 36 L. Ed. 2d 318 (1973). "The Truth In Lending Act was designed in large part to protect consumers from unscrupulous creditors and inaccurate and unfair billing and credit card practices." Streit v. Fireside Chrysler-Plymouth, Inc., 697 F.2d 193, 197 (7th Cir. 1983). The language of TILA reveals its purpose as follows: "It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C.A. § 1601 (1998).

 The Seventh Circuit has enunciated a standard of "strict compliance" with TILA provisions.

 
It is not sufficient to attempt to comply with the spirit of TILA in order to avoid liability. Rather, strict compliance with the required disclosures and terminology is required. Many violations of TILA involve technical violations without egregious conduct of any kind on the part of the creditor. However, Congress did not intend that creditors should escape liability for merely technical violations. Thus, while it may be true, in some sense, as the creditors have argued, that the terminological violations here are inconsequential, the fact remains that they are violations. Any misgivings which creditors may have about the technical nature of the requirements should be addressed to Congress or to the Federal Reserve Board, not to the courts.

 Brown v. Marquette Sav. & Loan Ass'n, 686 F.2d 608, 613 (7th Cir. 1982). However, this standard of strict compliance has its limits. Streit, 697 F.2d at 196.

 
It is not necessary or appropriate to hold creditors absolutely liable for every non-compliance and to disregard completely the factual situation out of which the claim has arisen. We believe that Congress would not have intended to impose liability on a creditor for a technical violation where there never was a transaction (beyond entering into the financing agreement) because of the consumer's complete failure to fulfill his obligations under the contract.

 Id.

 TILA "must be liberally construed in favor of the consumer." Rowland v. Magna Millikin Bank, 812 F. Supp. 875, 878 (C.D. Ill. 1992) (citing Davis v. Werne, 673 F.2d 866, 869 (5th Cir. 1982)). This means that "'TILA requirements are enforced by imposing a sort of strict liability in favor of consumers who have secured financing through transactions not in compliance with the terms of the Act. It is strict liability in the sense that absolute compliance is required and even technical violations will form the basis for liability.'" Rowland, 812 F. Supp. at 878 (citing Shepeard v. Quality Siding & Window Factory, 730 F. Supp. 1295, 1299 (D. Del. 1990)).

 Plaintiffs need not show that they were misled or suffered any actual damages as a result of even a purely technical violation. Brown, 686 F.2d at 614. "It is well settled . . . that a borrower need not have been so deceived to recover the statutory penalty." Id. (citing Smith v. Chapman, 614 F.2d 968, 971 (5th Cir. 1980); Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir. 1979)).

 B. This Court Has Jurisdiction to Hear This Suit.

 The parties agree that TILA governs the transactions at issue. Davenport and Johnson are creditors as defined by TILA because they engaged in at least the minimum number of transactions of five per year as required by TILA. (Defs.' 12(N) PP 9-10.) These transactions are consumer credit transactions as defined by TILA because credit was extended to an individual for home improvements to the individual's residence. (Pls.' 12(M) P 11.) Through these agreements, Davenport and Johnson took a security interest in the principal residence of Clay and Chivers. (Pls.' 12(M) P 13.)

 As a threshold matter, the Court must address the argument that it does not have jurisdiction to hear this case. Defendants argue that the exclusive jurisdiction is in the bankruptcy court in which Clay has filed a Chapter 13 proceeding. Defendants cite two cases to support their argument. In re Pitre, 11 B.R. 777 (N.D. Ill. 1981), involved a TILA claim which the debtors filed in bankruptcy court. The court ruled on the merits of the claim without specifically addressing the jurisdictional issue. In Lausier v. Goodwin, 7 B.R. 476 (D. Me. 1980), the court addressed the merits of the party's Maine Consumer Credit Code and TILA claims without addressing the jurisdictional issue. Id. Neither of these cases held that the bankruptcy courts have exclusive jurisdiction over TILA claims related to the bankruptcy proceedings.

 This Court has federal question jurisdiction under 28 U.S.C. § 1331 because Plaintiffs' claims arise under the Truth In Lending Act, 15 U.S.C. § 1640 (1998). Furthermore, any claims in the bankruptcy court involving other federal laws are subject to withdrawal to a district court pursuant to 28 U.S.C.A. § 157(d) (1998). The Court is hard pressed to find that ...


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