Jacqueline Turner v. Beneficial Corporation ( 2000 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
__________________________ ELEVENTH CIRCUIT
DEC 21, 2000
No. 99-13381 THOMAS K. KAHN
CLERK
__________________________
D.C. Docket No. 95-01212-CV-A-N
JACQUELINE TURNER, on behalf of herself and all others similarly situated,
Plaintiff-Appellant,
versus
BENEFICIAL CORPORATION, BENEFICIAL NATIONAL BANK, U.S.A.,
Defendants-Appellees.
__________________________
Appeal from the United States District Court
for the Middle District of Alabama
__________________________
(December 21, 2000)
Before CARNES and BARKETT, Circuit Judges and POLLAK*, District Judge.
BARKETT, Circuit Judge:
*
Honorable Louis H. Pollak, U.S. District Judge for the Eastern District of
Pennsylvania, sitting by designation.
Jacqueline Turner brings this interlocutory appeal, pursuant to Federal Rule
of Civil Procedure 23(f), from the denial of class certification in her suit alleging
that defendant Beneficial Corporation (“Beneficial”) committed violations of the
Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. (“TILA”), and the federal
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq.
(“RICO”), and also committed common law fraud in transactions related to its
financing of Turner’s purchase of a satellite dish.
BACKGROUND
This case arises out of Turner’s purchase of a satellite dish system from Star
Vision, Inc., prompted by a newspaper advertisement which indicated that monthly
charges for service would be $39.95. The financing of the dish and the monthly
service was to be provided through an agreement between Beneficial National
Bank and Star Vision by way of an “Excel” credit card issued by Beneficial which
could be used only to purchase goods and services from Star Vision. When the
satellite system was delivered, the invoice reflected a monthly bill of $48.36, as did
the Excel bill from Beneficial. With the Excel card, Turner had received TILA
2
disclosure statements, but Turner alleges that these disclosures failed to reveal the
true cost of financing the purchase of the satellite dish.1
Although Turner concedes that she did not read Beneficial’s disclosure
statements at the time of receipt and therefore did not rely on them, she claims that
she is entitled to damages for Beneficial’s failure to provide disclosure statements
that complied with the requirements of the law under TILA. Specifically, Turner’s
complaint charged that Beneficial’s failure to provide her with the correct
disclosure forms violated TILA (Count I) and the Racketeer Influenced and
Corrupt Organizations Act (“RICO”) (Count II) and constituted fraud by
suppression (Count III). She sought certification of a nationwide class as to her
TILA and RICO claims. She also sought certification of an Alabama subclass as to
her fraud by suppression claim.
In Count I of her complaint, Turner sought both statutory and actual
damages under TILA. The district court denied class certification on Turner’s
claim for statutory damages because Beneficial had already paid out the maximum
allowable statutory damages in settlement of another suit arising out of the same
TILA violation, and TILA bars any further class actions for statutory damages
1
Specifically, Turner contends that, pursuant to 15 U.S.C. § 1638, Beneficial should
have disclosed: (1) the number of payments; (2) the amount of each monthly payment; (3) the
amount financed; (4) the total finance charge; (5) the total of payments; and (6) the total sales
price.
3
arising out of that same violation. See 15 U.S.C. § 1640(a)(2)(B). The district
court noted that Turner can still pursue statutory damages on her individual TILA
claim. Turner filed a separate appeal from the denial of class certification on her
claim for TILA statutory damages, but she has since moved to voluntarily dismiss
that appeal.
As to Turner’s claim for actual damages under TILA, Beneficial did not
dispute Turner’s claim that the disclosures were improper. Instead it pointed out
that, because Turner did not read the disclosure statement, she had not relied upon
it and thus could not have suffered actual injury as a result of Beneficial’s TILA
violation. The district court found that detrimental reliance is a necessary element
not only of her damage claim under TILA but of her RICO and state fraud claims
as well. Having determined that Turner could not prove reliance, the district court
denied class certification on all three claims, and this appeal followed. We review
class certification rulings for abuse of discretion. Armstrong v. Martin Marietta
Corp., 138 F.3d 1374 (11th Cir. 1998) (en banc). We review de novo the district
court’s conclusions of law that informed its decision to deny class certification.
DeKalb County School Dist. v. Schrenko, 109 F.3d 680, 687 (11th Cir. 1997).
DISCUSSION
4
A court can certify a class only when the requirements of Rule 23(a) and at
least one of the alternative requirements of Rule 23(b) are satisfied. Jackson v.
Motel 6 Mutipurpose, Inc., 13 F.3d 999, 1005 (11th Cir. 1997). Turner maintains
that all of the requirements of Rule 23(a) are satisfied2 and that the class also
satisfies Rule 23(b)(3), which requires that questions of law or fact common to all
members of the class predominate over questions pertaining to individual
members. The district court refused to certify a class on any of her causes of action
because it found that Turner could not satisfy the typicality and adequacy
requirements of Rule 23(a)(3) & (4) because she could not prove detrimental
reliance. Thus, the issue in this appeal is whether detrimental reliance is a required
element of a claim for actual damages under TILA, for a RICO claim, and for a
fraudulent suppression claim under Alabama law. We discuss each in turn.
1. The TILA Claim
The TILA provision directly relevant to this case is that governing actual
damages:
2
A class may be certified if the following requirements are met: (1) numerosity: the class
is so numerous that joinder of all members is impracticable; (2) commonality: questions of law
or fact are common to the class; (3) typicality: the representatives of the class present claims or
defenses that are typical of the class; and (4) adequacy: the representatives of the class will fairly
and adequately protect the interests of the class. Fed. R. Civ. P. 23(a).
5
Except as otherwise provided in this section, any creditor who fails to
comply with any requirement imposed under this part . . . with respect
to any person is liable to such person in an amount equal to . . .
(1) any actual damage sustained by such person as a
result of the failure; . . . .
15 U.S.C. § 1640(a)(1) (1998). This provision must be understood in the context
of TILA’s general regulatory scheme.
In addition to actual damages, TILA provides three ways of remedying
violations of its provisions. First, TILA empowers the Federal Trade Commission
as its overall enforcement agency, 15 U.S.C. §1607(c), and provides other federal
agencies with enforcement authority over specific categories of lenders. 15 U.S.C.
§1607(a). The enforcing agencies are authorized to “adjust the account of the
person to whom credit was extended, to assure that such person will not be
required to pay a finance charge in excess of the finance charge actually disclosed
or the dollar equivalent of the annual percentage rate actually disclosed, whichever
is lower.” 15 U.S.C. § 1607(e)(1).3 Second, TILA imposes criminal liability on
persons who willfully and knowingly violate the statute. 15 U.S.C. § 1611.
Finally, TILA creates a private cause of action for statutory damages, which may
be assessed in addition to any actual damages awarded.
3
In other words, the enforcement agencies provide restitution to the victims of TILA
violations, but this remedy is limited “if it would have a significantly adverse impact upon the
safety or soundness of the creditor.” 15 U.S.C. § 1607(e)(3)(A).
6
When TILA was originally enacted in 1968, it imposed no limit on statutory
damages in class actions and required that each successful plaintiff be awarded a
minimum of $100 in damages. Consumer Credit Protection Act of 1968, Title I, §
206(a), Pub. L. No. 90-321, 82 Stat. 146 (May 29, 1968). Congress amended
TILA’s statutory damages provision in 1974 in order to “strike an appropriate
balance between the advantages of the class action as a vehicle of private
enforcement and the need of creditors to avoid financial ruin.” Barber v.
Kimbrell’s, Inc., 577 F.2d 216, 223 (4th Cir. 1978). Congress further capped
defendants’ liability for statutory damages by providing that the ceiling on
statutory damages in a class action applies to all class actions arising out of the
same TILA violation. Truth in Lending Simplification and Reform Act of 1980,
Pub. L. No. 96-221 § 615(a)(1), 94 Stat. 132 (March 31, 1980). In the case of a
class action, statutory damages are now limited to:
such amount as the court may allow, except that as to each member of
the class no minimum recovery shall be applicable, and the total
recovery under this subparagraph in any class action or series of class
actions arising out of the same failure to comply by the same creditor
shall not be more than the lesser of $500,000 or 1 per centum of the
net worth of the creditor; . . . .
7
15 U.S.C. § 1640(a)(2)(B).4 Congress placed this ceiling on a defendant’s
statutory liability in any class action so that courts would no longer have to
“choose between denying class actions altogether or permitting multi-million
dollar recoveries against defendants for minor or technical violations.” McCoy v.
Salem Mortgage Co., 74 F.R.D. 8, 10 (E.D. Mich. 1976).
While limiting statutory damages, Congress also amended TILA in 1974 to
permit private litigants, both as individuals and in class actions, to sue for actual
damages sustained “as a result” of the TILA violation. 15 U.S.C. § 1640(a)(1).
While statutory and regulatory damages provide at least a partial remedy for all
material TILA violations, actual damages insure that consumers who have suffered
actual harm due to a lender’s faulty disclosures can be fully compensated, even if
the total amount of their harm exceeds the statutory ceiling on TILA damages. In
this case we take it that the statutory ceiling has already been reached, and the sole
issue presented is whether a plaintiff must show detrimental reliance on a faulty
TILA disclosure in order to be eligible for an award of actual damages. There is a
conflict among various courts on this issue. Most courts that have addressed the
issue have held that reliance is an element in a TILA claim for actual damages.
4
Under TILA Section 1640(a)(2)(A)(i), Turner would be entitled to individual statutory
damages equal to “twice the amount of any finance charge in connection with the transaction.”
8
See, e.g., Perrone v. General Motors Acceptance Corp., 2000 WL 1644100 at *3-
*6 (5th Cir. Nov. 2, 2000); Stout v. J.D. Byrider, 2000 WL 1269402 at *7 (6th Cir.
Sept. 8, 2000); Peters v. Jim Lupient Oldsmobile Co., 220 F.3d 915, 917 (8th Cir.
2000); Bizier v. Globe Financial Services, Inc., 624 F.2d 1, 4 (1st Cir. 1981)
(dicta); Hoffman v. Grossinger Motor Corp., 1999 WL 184179, *4 (N.D. Ill.
1999); Brister v. All Star Chevrolet, 986 F.Supp. 1003, 1008 (E.D. La. 1998);
McCoy, 74 F.R.D. at 12-13. This Circuit is aligned with the minority of courts that
have reached the opposite conclusion. Ransom v. S & S Food Center, Inc. of
Florida, 700 F.2d 670 (11th Cir. 1983); see also Lopez v. Orlor, 176 F.R.D. 35(D.Conn. 1997); Sutliff v. County Savings & Loan Co., 533 F.Supp. 1307 (N.D.
Ohio 1982); In re Russell, 72 B.R. 855 (Bankr. E.D. Pa. 1987).
In Ransom, the court affirmed the award of TILA actual damages to
members of the plaintiff class who paid excessive finance charges but who had not
alleged reliance. The plaintiff class in Ransom purchased food plans comprising a
bulk food order and a service contract designated as a “Food Freezer Service
Agreement” (“FFSA”). Although the FFSA provided warranties and services with
respect to the food purchases, it also included a finance charge assessed whether
the purchase was made with cash or by credit. Id. at 671-72. The trial court found
that the plaintiffs had suffered actual damages equal to the finance charge paid by
9
each class member in excess of the legally permissible finance charge. In addition,
the district court assessed statutory damages. Id. at 677. The Ransom Court
rejected the defendant’s contention that the plaintiffs could not show actual
damages, noting that
the record discloses that each of the members of the class had signed
contracts which were illegal but upon which they were ostensibly
liable and which had not been voluntarily cancelled by the defendants
prior to trial. It was therefore clearly appropriate for the trial court to
require a payment to each of the named members of the class of a cash
amount that would offset their outstanding obligations which would
otherwise remain collectable against them.
Id.
Notwithstanding Ransom, the district courts in this Circuit have imposed a
reliance requirement. See e.g., Perry v. Household Retail Services, Inc., 180
F.R.D. 423, 433 (M.D. Ala. 1998); Barlow v. Evans, 992 F. Supp. 1299, 1310
(M.D. Ala. 1997); Wiley v. Earl’s Pawn & Jewelry, 950 F. Supp. 1108, 1114-1117
(S.D. Ala. 1997); Adiel v. Chase Fed. Sav. & Loan, 630 F.Supp. 131, 133 (S.D.
Fla. 1986), aff’d, 810 F.2d 1051 (11th Cir. 1987). Several district courts in this
Circuit have treated this Court’s affirmance of Adiel as calling into question the
continued viability of Ransom. Barlow, 992 F.Supp. at 1309-10; Wiley, 950
F.Supp. at 1114-17. Beneficial likewise urges that, to the extent that Ransom
supports the proposition that a plaintiff need not show detrimental reliance in order
10
to sustain a TILA claim for actual damages, it has been overruled by Adiel. First,
we note that a second panel of this Court cannot overrule a prior panel. See Cohen
v. Office Depot, Inc., 204 F.3d 1069, 1076 (11th Cir. 2000); United States v.
Hogan, 986 F.2d 1364, 1369 (11th Cir.1993). Second, we do not find that Adiel
attempted to overrule or even distinguish Ransom.
In Adiel, the plaintiff class consisted of homeowners who had adopted
existing mortgages on the lots on which their homes were situated. The loans had
been executed by the builder of the homes to Chase Federal Savings and Loan
Association (“Chase”), and neither Chase nor the builder provided to the
homeowners the required TILA disclosures. 630 F.Supp. at 132. The plaintiffs
urged the district court to follow Ransom and to award both actual and statutory
damages, but the district court required each member of the class to prove that “he
or she would have gotten credit on more favorable terms but for the violation.” Id.
at 133 (quoting McCoy, 74 F.R.D. at 12). The district court also quoted
approvingly language from a New York State court decision in which the state
court required that a plaintiff claiming actual TILA damages must show “that he
relied on the inaccurate disclosure and thereby was effectively prevented from
obtaining better credit terms elsewhere.” Id. (quoting Vickers v. Home Federal
11
Savings & Loan Assoc., 62 A.D.2d 1171, 1172, 404 N.Y.S.2d 201, 202 (Sup. Ct.
1978).
On appeal, the plaintiffs argued that the district court had erred in ruling that
“to recover actual damages, each class member must show that but for the [TILA]
violation, better credit on more favorable terms would have been obtained.” Adiel,
810 F.2d at 1053. This Court affirmed the ruling of the district court, stating only
that the district court “did not abuse its discretion in awarding statutory damages
rather than actual damages.” Adiel, 810 F.2d at 1055. The opinion did not address
the issue of reliance. Adiel only determined that the district court need not award
actual damages when it has already provided a remedy through statutory damages
and has taken into account, in considering the amount of statutory damages to
award, the fact that no actual damages had been awarded. Id. at 1054-55.
More relevantly, in Jones v. Bill Heard Chevrolet, Inc., 212 F.3d 1356 (11th
Cir. 2000), this Court directly rejected a defendant’s argument that a TILA claim
for actual damages fails if the plaintiff cannot demonstrate reliance on the
defendant’s misrepresentations. The defendant car dealership in Jones led its
customers to believe that they were paying $2,495 to the General Motors
Corporation for an extended service contract. In fact only $290 went to General
Motors, while the dealer kept $2,205 as an “upcharge.” Id. at 1358-59. In Jones,
12
the Court stated, “we reject Heard Chevrolet’s contention that Plaintiff’s TILA
claim fails because Plaintiff cannot demonstrate reliance on its
misrepresentations.” Id. at 1363, n.7 (citing Charles v. Krauss Co., Ltd., 572 F.2d
544, 546 (5th Cir. 1978)).5 The opinion in Charles does not state whether the
plaintiff sought actual or statutory damages, but in stating that reliance is not a
factor in TILA claims, Charles cites to McGowan v. King, Inc., 569 F.2d 845, 848
(5th Cir. 1978). McGowan noted that “[t]he basis of Section 1640(a) liability is the
failure to disclose information required to be disclosed; there is no requirement that
the plaintiff himself be deceived in order to sue in the public interest.” Id. at 848-
49. However, the McGowan court also concluded that once such a failure to
disclose is shown, “the court must award [the plaintiff] the statutory penalty.” Id.at 849 (citing Grant v. Imperial Motors, 529 F.2d 506, 510-511 (5th Cir. 1976)
(emphasis added), and the Fifth Circuit awarded only statutory damages in that
case. Id. at 850.
Beneficial argues that the Jones Court erred in relying on case law relating to
claims for statutory damages under TILA in finding that there is no requirement
that a plaintiff demonstrate detrimental reliance in order to be entitled to actual
5
In Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh
Circuit adopted as binding precedent all Fifth Circuit decisions handed down prior to the close of
business on September 30, 1981.
13
TILA damages. We agree with Beneficial, and with the other Courts of Appeals
that have addressed the issue, that the plain language of TILA’s actual damages
provision requires a showing of detrimental reliance as part of any claim for actual
TILA damages.6 However, we are bound by the holding of the first panel of this
Court to address an issue of law, unless and until that holding is overruled en banc
or by the Supreme Court. Hogan, 986 F.2d at 1369. As we recently noted,
the prior panel precedent rule is not dependent upon a subsequent
panel’s appraisal of the initial decision’s correctness. Nor is the
operation of the rule dependent upon the skill of the attorneys or
wisdom of the judges involved with the prior decision – upon what
was argued or considered. Unless and until the holding of a prior
decision is overruled by the Supreme Court or by the en banc court,
that holding is the law of this Circuit regardless of what might have
happened had other arguments been made to the panel that decided the
issue first.
Cohen, 204 F.3d at 1076.
In any case, while the Fifth Circuit precedents upon which Jones relies may
not clearly apply to a case involving TILA actual damages, Jones does. Under
Jones, the law of this Circuit does not require that a plaintiff asserting a claim for
actual damages under TILA demonstrate reliance. This panel is convinced that, to
the extent that Jones, and possibly Ransom, so hold, they are wrongly decided, and
6
The legislative history behind the 1995 amendments to TILA lends further support to
our reading of the actual damages provision: “To recover actual damages, consumers must show
that they suffered a loss because they relied on an inaccurate or incomplete disclosure.” H. Rep.
No. 193, 104 Cong., 1st Sess. (1995).
14
this should be rectified by the en banc Court. Until that occurs, however, we are
bound to follow the law of this Circuit. Accordingly, we find that the district court
erred in holding that detrimental reliance is an element of a TILA claim for actual
damages.
2. The RICO Claim
In Count II of her complaint, Turner alleged that the crime underlying her
RICO claim was a pattern of mail and wire fraud in violation of 18 U.S.C. §§ 1341& 1343. A plaintiff alleging mail or wire fraud as the predicate act for a RICO
violation must show not only that the mail or wire fraud statutes have been violated
but that he has “suffered injury as a result of the violation.” Pelletier v. Zweifel,
921 F.2d 1465, 1499 (11th Cir. 1991). The Pelletier Court noted that the Supreme
Court requires that a civil RICO plaintiff must show that he or she was injured by
reason of the defendant’s acts of deception. Id. (citing Sedima S.P.R.L. v. Imrex
Co., 473 U.S. 479, 496 (1985)). Moreover, as we stated in Pelletier, this Circuit
has held
that a plaintiff has standing to sue under section 1964(c) only if his
injury flowed directly from the commission of the predicate acts.
This means that, when the alleged predicate act is mail or wire fraud,
the plaintiff must have been a target of the scheme to defraud and
must have relied to his detriment on misrepresentations made in
furtherance of that scheme.
15
921 F.2d at 1499-1500 (internal citation omitted). This substantive requirement
applies to class actions. Andrews v. AT&T, 95 F.3d 1014, 1023-25 (11th Cir.
1996). Accordingly, we conclude that the district court did not err in finding that
reliance is an element of a RICO claim and in denying class certification on that
basis.
3. The State Fraud Claim
In order to establish a claim for fraudulent suppression, Turner must show
that Beneficial knowingly suppressed a material fact that it had a duty to disclose
and that, as a result of that suppression, Turner was induced to act or to refrain
from acting, suffering damage as a proximate result. Ex parte Household Retail
Serv., Inc., 744 So.2d 871, 879 (Ala. 1999). See also, McGriff v. Minnesota
Mutual Life Ins. Co., 127 F.3d 1410, 1415 (11th Cir. 1997) (“Under Alabama law,
to succeed on a claim of fraudulent suppression, [plaintiff] must show that
[defendant] failed to disclose a material fact, thereby creating a false impression on
which [plaintiff] relied, believing it to be true, which proximately caused
damages.”).
In a recent case involving a fraud by suppression claim, the Alabama
Supreme Court stated that the duty to disclose, “applicable in the case alleging
suppression, is analogous to the element of reliance applicable in the case alleging
16
a misrepresentation.” Ex parte Government Employeees Ins. Co., 729 So.2d 299,
305 (Ala. 1999). Turner argues that this statement means that she can establish her
fraud by suppression claim without showing reliance, so long as she can establish
that Beneficial breached its duty to disclose. However, the Alabama Supreme
Court has since clarified that a plaintiff’s “justifiable reliance” is an essential
element of a fraudulent suppression claim. Household Retail Serv., 744 So.2d at
879. As Turner cannot demonstrate that she relied on Beneficial’s faulty
disclosure statements, we conclude that the district court correctly found that
Turner cannot satisfy Rule 23’s typicality and adequacy requirements.
CONCLUSION
For the foregoing reasons, the district court’s denial of class certification on
Turner’s RICO and fraud by suppression claims is AFFIRMED. The order of the
district court, denying class certification on Turner’s TILA actual damages claim is
VACATED, and the case is REMANDED for further consideration in light of this
opinion.
AFFIRMED IN PART, VACATED AND REMANDED IN PART.
17