Rivera, Francisca v. Grossinger Autoplex ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-1015
FRANCISCA RIVERA, individually and
on behalf of all others similarly
situated,
Plaintiff-Appellant,
v.
GROSSINGER AUTOPLEX, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 C 0442--Suzanne B. Conlon, Judge.
Argued September 28, 2001--Decided December 10, 2001
Before Flaum, Chief Judge, Bauer and
Evans, Circuit Judges.
Bauer, Circuit Judge. The plaintiff-
appellant, Francisca Rivera, initiated a
class action against the defendant-
appellee, Grossinger Autoplex, Inc.,
seeking damages under the Truth in
Lending Act ("TILA") and Illinois
statutory law. After dismissing Rivera’s
state law claims, the district court
granted summary judgment in favor of
Grossinger on the remaining TILA claims.
Rivera and the class members now appeal
that ruling. For the following reasons,
the decision of the district court is
AFFIRMED in part; REMANDED in part.
I. Background
On January 25, 1999, Rivera bought a
used 1995 Chevrolet Lumina automobile
from Grossinger. Pursuant to the contract
for sale entered into by Rivera and
Grossinger, the parties executed a
financing agreement, which included an
Addendum that provided for "GAP"
coverage. GAP (an acronym for "Guaranteed
Auto Protection") insurance is a form of
debt cancellation coverage. The practical
function of GAP coverage is to cancel any
loan deficiency that may remain if
property insurance on a given automobile
is insufficient to fully pay off the loan
on that automobile in the event of theft
or destruction.
The Addendum of the financing agreement
providing for GAP coverage read in
relevant part:/1
AGREEMENT--Although not required to do
so, YOU have elected to participate in
this Financial GAP Program . . . .
ENROLLMENT--YOU understand and agree that
YOUR acceptance or rejection of
enrollment in this Program is voluntary
and is not a condition precedent to, or a
consideration required to obtain credit .
. . .
BY YOUR SIGNATURE(S) BELOW, YOU
ACKNOWLEDGE THAT YOU HAVE READ AND
UNDERSTAND AND ACCEPT THIS WAIVER, ALL
ITS PROVISIONS, AND THAT NO VERBAL
REPRESENTATIONS HAVE BEEN MADE TO YOU
WHICH DIFFER FROM THESE PROVISIONS.
Rivera signed the Addendum at the time of
purchase and paid $500 to enroll in the
GAP program offered by Grossinger.
Rivera’s $500 payment was not included in
the "finance charges" assessed for the
car. Rather, the $500 GAP fee was
included in the amount financed and was
thereby subject to interest charges.
Rivera later sued Grossinger in federal
court, alleging violations of TILA and
Illinois statutory law. All of Rivera’s
causes of action arose from her purchase
of GAP coverage. Rivera claimed that
Grossinger did not comply with its legal
obligations to clearly and conspicuously
disclose in writing: (1) that GAP
coverage was voluntary; (2) that GAP cov
erage was not a prerequisite to receiving
credit; and (3) the term of GAP
coverage./2 Rivera further claimed that
Grossinger failed to obtain from her an
affirmative written request for GAP
coverage.
Following the dismissal of Rivera’s
state law claims, the district court
certified a class of Grossinger customers
to pursue the remaining TILA claims, with
Rivera as the consumer class
representative. After class notice was
given, Rivera moved for and was denied
summary judgment. Grossinger then filed
its own motion for summary judgment,
which was granted on December 1, 2000. In
granting that motion, the court found
that Grossinger had complied with all
applicable TILA requirements when it sold
GAP coverage to Rivera.
II. Discussion
We review the district court’s grant of
summary judgment de novo, viewing all
facts and drawing all reasonable
inferences in the non-moving party’s
favor. Spearman v. Ford Motor Co., 231
F.3d 1080, 1084 (7th Cir. 2000). Summary
judgment is proper when 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. Berry v. Delta Airlines, Inc., 260
F.3d 803, 808 (7th Cir. 2001). Further,
judgment as a matter of law should be
entered against a party "who fails to
make a showing sufficient to establish
the existence of an element essential to
that party’s case . . . on which that
party will bear the burden of proof at
trial." Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986).
A) TILA Requirements
TILA requires creditors to disclose any
finance charges that a consumer will pay
under a given credit transaction. 15
U.S.C. sec. 1638(a)(3). "Finance charges"
can include debt cancellation fees, like
those Grossinger charged customers who
chose to enroll in its GAP program. 12
C.F.R. sec. 226.4(b)(10). However, debt
cancellation fees may be excluded from
finance charges if the following
requirements are met:
(A) The debt cancellation agreement or
coverage is not required by the creditor,
and this fact is disclosed in writing;
(B) The fee or premium for the initial
term of coverage is disclosed. If the
term of coverage is less than the term of
the credit transaction, the term of
coverage shall also be disclosed . . .;
and
(C) The consumer signs or initials an
affirmative written request for coverage
after receiving the disclosures specified
in this paragraph.
12 C.F.R. sec. 226.4(d)(3)(i).
Additionally, any disclosures made in
compliance with these requirements must
be clear and conspicuous as well as in
writing. 12 C.F.R. sec. 226.17(a)(1).
B) Grossinger’s Compliance With TILA
Requirements
Because Grossinger included the $500 fee
Rivera paid for GAP coverage in the
amount financed and excluded the same
from the finance charges assessed, it
must comply with the above-outlined
requirements. Rivera argues that the
Addendum she signed at the time of
purchase did not meet these requirements.
Specifically, Rivera asserts that
Grossinger did not clearly and
conspicuously disclose in writing: (1)
that GAP coverage was voluntary; (2) that
GAP coverage was not a prerequisite to
receiving credit; and (3) the term of GAP
coverage. In addition, Rivera asserts
that Grossinger failed to obtain from her
an affirmative written request for GAP
coverage. We find each of these arguments
to be without merit.
The sufficiency of TILA-mandated
disclosures is determined from the
standpoint of the ordinary consumer.
Smith v. Cash Store Management, Inc., 195
F.3d 325, 327-28 (7th Cir. 1999). Without
question, the terms of the Addendum
setting forth that GAP coverage is
voluntary and not required to obtain
credit meet this objective standard.
Indeed, the first paragraph of the
Addendum reads: "AGREEMENT--Although not
required to do so, YOU have elected to
participate in this Financial GAP
Program." In a similar vein, the fourth
paragraph goes on to state: "ENROLLMENT--
YOU understand and agree that YOUR
acceptance or rejection of enrollment in
this Program is voluntary and is not a
condition precedent to, or a
consideration required to obtain credit."
Because the Addendum’s plain language
clearly discloses that enrollment in the
GAP program is voluntary and not
necessary to obtain credit, the question
becomes whether such disclosure was also
conspicuous as required.
Conspicuousness is a question of law
under TILA that, like clarity, is
governed by an objective, reasonable
person approach. Smith v. Check-N-Go of
Illinois, Inc., 200 F.3d 511, 514-15 (7th
Cir. 1999). After reviewing the Addendum
in its entirety, we are persuaded that a
reasonable person could and would have
readily perceived that acceptance of the
GAP coverage offered by Grossinger was
voluntary. The Addendum labels its
provisions and uses capitalization to
draw the reader’s attention to material
portions of the agreement, namely those
disclosing that GAP coverage is voluntary
and not a prerequisite to the obtainment
of credit. We believe that the use of
these tools effectively highlights the
agreement’s disclosure provisions for the
reasonable consumer and is therefore
sufficient to satisfy the conspicuous
requirement of section 226.17.
Although Rivera is correct in pointing
out that the term of coverage disclosed
in the Addendum that she signed is
ambiguous, we agree with the district
court that such ambiguity is insufficient
to support a cause of action in this
case. The evidence establishes that the
term of GAP coverage purchased by Rivera
was equal to the term of the underlying
credit transaction (i.e., her car loan).
Under these circumstances, TILA does not
require a creditor to disclose the term
of coverage at all, let alone clearly and
conspicuously. Thus, Rivera’s assertion
that such ambiguity constitutes a TILA
violation must fail.
Equally unavailing is Rivera’s claim
that Grossinger did not obtain from her
an affirmative written request for GAP
coverage. It is undisputed that Rivera
signed the Addendum providing for GAP
coverage at the time of purchase.
Further, as discussed in detail above,
the Addendum complied with all applicable
TILA requirements in clearly and
conspicuously disclosing that GAP
coverage was voluntary and not a
condition precedent to the extension of
credit. As such, Rivera’s signature on
and execution of the Addendum constitutes
an affirmative written request for GAP
coverage as a matter of law.
Lastly, Rivera argues that the district
court erred in entering summary judgment
against her and the consumer class prior
to the end of the class members’ opt-out
period. Specifically, Rivera asserts that
it was error to bind one consumer class
member, Rocco Minghettino, to the
judgment entered against the class
because he wanted to opt out but was
prevented from so doing after a binding
judgment was entered prior to the
expiration of the opt-out period. In
light of these facts, we remand solely as
to Mr. Minghettino, who may proceed to
opt out of the December 1, 2000 order
granting Grossinger summary judgment in
the district court.
III. Conclusion
For the foregoing reasons, we find that
Grossinger Autoplex, Inc. is entitled to
summary judgment. Accordingly, we AFFIRM
the decision of the district court in all
respects except as to the claim of Mr.
Minghettino, which is REMANDED as outlined
above. AFFIRMED in part; REMANDED in part.
FOOTNOTES
/1 The Addendum signed by Rivera was one of three
different GAP agreements used by Grossinger
during the time period relevant to this case.
There is no substantive difference among the
material portions of these agreements.
/2 Rivera’s claim that Grossinger did not clearly
and conspicuously disclose the term of GAP cover-
age applies to her individually and is not repre-
sentative of the consumer class.