McDonald v. Checks-N-Advance, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: BOBBY FERRELL, 
Jr.,
Debtor, No. 06-17243
BAP No.
KATHLEEN A. MCDONALD,  NV-05-01420-
Appellant, MaMoS
v. OPINION
CHECKS-N-ADVANCE, INC.,
Appellee.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Marlar, Montali, and Smith, Bankruptcy Judges, Presiding
Argued and Submitted
July 18, 2008—San Francisco, California
Filed August 22, 2008
Before: Jerome Farris, Carlos T. Bea, and
Eugene E. Siler, Jr.,* Circuit Judges.
Per Curiam Opinion
*The Honorable Eugene E. Siler, Jr., Senior United States Circuit Judge
for the Sixth Circuit, sitting by designation.
11377
11380 IN THE MATTER OF: FERRELL
COUNSEL
Christopher P. Burke, Esq., Las Vegas, Nevada, for plaintiff-
appellant Kathleen McDonald, Chapter 13 Trustee for the
Bankruptcy Estate of Bobby Ferrel, Jr.
Jean Constantine-Davis, Nina F. Simon, Deborah Zuckerman,
AARP Foundation Litigation, Washington, D.C.; Stuart Ross-
man, National Consumer Law Center, Boston, Massachusetts;
Dan L. Wulz, Clark County Legal Services Program, Inc., Las
Vegas, Nevada, for amici curiae National Consumer Law
Center, AARP, and Clark County Legal Services Program,
Inc. in support of appellant.
OPINION
PER CURIAM:
Chapter 13 bankruptcy trustee Kathleen McDonald appeals
the bankruptcy appellate panel’s denial of her request for
actual damages, statutory damages, attorneys’ fees, and costs
under the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and
for attorneys’ fees and costs under Nevada law. This appeal
raises an issue of first impression for this circuit: whether stat-
utory damages are available for violations of 15 U.S.C.
IN THE MATTER OF: FERRELL 11381
§§ 1632(a) and 1638(b)(1). We hold that they are not. We
also reject the Trustee’s claim for actual damages and for
attorneys’ fees and costs.1
BACKGROUND
On June 27, 2002, Bobby Ferrel, Jr. obtained a “pay-day
loan”2 from Checks-N-Advance, Inc.3 An unsigned promis-
sory note from Checks-N-Advance specified that Ferrel4
received $300 as a pay-day advance. Ferrel was obligated to
repay the $300 and a $45 financing fee by July 4, 2002. The
stated annual percentage rate of interest was 782.143%. The
“finance charge,” “annual percentage rate,” “amount
financed,” and “total of payments” appeared in the same font
and size on the promissory note. McDonald claims that Ferrel
did not receive disclosures required by the Truth in Lending
Act before consummating the transaction.
Ferrel filed for Chapter 13 bankruptcy on February 7, 2003.
Kathleen McDonald was appointed as trustee. The Trustee,
not the unpaid creditor, filed a creditor’s proof of claim on
behalf of Check-N-Advance for the unpaid loan. She then ini-
tiated an adversary proceeding by filing a complaint request-
ing that the bankruptcy court disallow the claim. In the
1
We grant the National Law Center, the AARP, and the Clark County
Legal Services Program’s motion for leave to file an amicus brief pursuant
to Fed. R. App. P.29 (a).
2
A pay-day loan is a small-sum, short-term, single-payment loan
secured by a check the borrower gives to the payday lender in the amount
of the cash advance plus interest. If the borrower fails timely to repay, the
lender can negotiate the check or the borrower can extend the due date by
paying a fee. See Jenkins v. First Am. Cash Advance of Georgia, LLC, 400
F.3d 868, 871 (11th Cir. 2005).
3
Although the trustee filed suit against multiple defendants, we refer
only to Checks-N-Advance as the defendant/appellee.
4
Although the debtor is referred to as “Ferrell” in the decision of the
Bankruptcy Appellate Panel, the complaint spells his last name as “Fer-
rel.”
11382 IN THE MATTER OF: FERRELL
complaint, McDonald claimed the loan agreement: (1) failed
to provide TILA-required disclosures prior to consummation
of the transaction in violation of 15 U.S.C. § 1638(b);
(2) failed “properly and conspicuously” to disclose the
finance charge and the annual percentage rate in violation of
15 U.S.C. § 1632(a) and its implementing regulations; and
(3) violated Nevada state consumer loan law, NRS
§ 604.164.3, which requires the same disclosures as TILA.
McDonald sought damages and attorneys’ fees and costs
under TILA, as well as attorneys’ fees and costs under
Nevada law.
Checks-N-Advance did not respond to the Trustee’s com-
plaint. The bankruptcy court found Check-N-Advance vio-
lated the Truth in Lending Act and entered default judgment
in favor of the Trustee by granting the objection to the proof
of claim. Taking the factual allegations in the complaint as
true, the bankruptcy court denied relief, however, on the
Trustee’s Truth in Lending Act claims. The court held that
Checks-N-Advance violated 15 U.S.C. §§ 1632(a),
1638(b)(1), and Regulation Z (12 C.F.R. § 226.17(a)(2), (b)).5
However, relying on Brown v. Payday Check Advance, Inc.,
202 F.3d 987 (7th Cir. 2000), it denied the Trustee’s request
for statutory damages for violations of §§ 1632(a) and
1638(b)(1)6 and Regulation Z. The court further found that the
Trustee failed to demonstrate actual damages. It also rejected
the Trustee’s state law claims.
The Trustee appealed to the bankruptcy appellate panel,
which affirmed the bankruptcy court in a reasoned decision.
McDonald v. Check-N-Advance (In re Ferrell), 358 B.R. 777(B.A.P. 9th Cir. 2006). The BAP based its decision on a close
5
12 C.F.R. § 226.17(a)(2) implements the requirements listed in 15
U.S.C. § 1632(a) and 12 C.F.R. § 226.17(b) implements the requirements
found in 15 U.S.C. § 1638(b)(1).
6
Unless otherwise specified, our citation to statutes refers to Title 15 of
the United States Code.
IN THE MATTER OF: FERRELL 11383
analysis of the text and legislative history of the Truth in
Lending Act, and rejected the Trustee’s request for statutory
damages. Id. at 784-87. It acknowledged and followed both
Brown and Baker v. Sunny Chevrolet, Inc., 349 F.3d 862 (6th
Cir. 2003). Id. at 785. The BAP also dismissed the Trustee’s
claim for actual damages, for failure to prove Ferrel relied to
his detriment on the faulty loan agreement citing In re Smith,
289 F.3d 1155 (9th Cir. 2002) (per curiam). Id. at 790. The
BAP rejected the Trustee’s claim for attorneys’ fees and costs
pursuant to Nevada law. Id. at 792-93. It concluded that the
Trustee did not meet the requirements for relief under Nevada
law, and that the Trustee procedurally defaulted under Fed. R.
Civ. P. 54(c). Id. by failing to plead the Nevada statute under
which she sought attorneys’ fees. The Trustee timely
appealed.
DISCUSSION
I. Standard of Review
We review independently “the bankruptcy court’s rulings
on appeal from the BAP.” Miller v. Cardinale (In re Deville),
361 F.3d 539, 547 (9th Cir. 2004). We review the bankruptcy
court’s conclusions of law de novo, and its findings of fact for
clear error. Hanf v. Summers (In re Summers), 332 F.3d 1240,
1242 (9th Cir. 2003).
II. Statutory Scheme
[1] Congress enacted the Truth in Lending Act in 1968 to
strengthen the “informed use of credit” by requiring meaning-
ful disclosure of credit terms to consumers. 15 U.S.C.
§ 1601(a). The purpose of the Act is 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 con-
11384 IN THE MATTER OF: FERRELL
sumer against inaccurate and unfair credit billing and
credit card practices.
Id. “In order to effectuate this purpose” we construe the Act’s
provisions liberally in favor of the consumer. Jackson v.
Grant, 890 F.2d 118, 120 (9th Cir. 1989). “To insure that the
consumer is protected . . . [the TILA and accompanying regu-
lations must] be absolutely complied with and strictly
enforced.” Id. (alteration in original) (internal quotation and
citation omitted).
[2] Section 1638(a) sets forth the disclosures that creditors
must make in closed-end consumer credit transactions,7
including pay-day loans. See 15 U.S.C. § 1638(a). Among
other items, creditors must disclose the annual percentage rate
of interest and finance charge. 15 U.S.C. §§ 1638(a)(3), (4).
Section 1638(b)(1) requires creditors to make these disclo-
sures “before the credit is extended.” Section 1632(a) imposes
an extra obligation on creditors to disclose “[t]he terms
‘annual percentage rate’ and ‘finance charge’ . . . more con-
spicuously than other terms, data, or information provided in
connection with a transaction.” Congress added this require-
ment to the Act in 1980. It previously was a requirement only
in Regulation Z. See S. Rep. No. 96-73, at 14 (1979),
reprinted in 1980 U.S.C.C.A.N. 280, 292.
[3] The Truth in Lending Act provides a cause of action for
consumers to obtain actual or statutory damages for a credi-
tor’s failure to comply with certain requirements of the Act.
15 U.S.C. § 1640(a).8 The Act broadly states that “any credi-
7
Section 1638 governs transactions other than open ended transactions.
See 15 U.S.C. § 1638. An open ended transaction is “a plan under which
the creditor reasonably contemplates repeated transactions.” 15 U.S.C.
§ 1602(i). Because the pay-day loan is a one-time transaction, it is not an
“open ended” transaction.
8
Section 1640(a) states in relevant part:
Except as otherwise provided in this section, any creditor who
fails to comply with any requirement imposed under this part
IN THE MATTER OF: FERRELL 11385
tor who fails to comply with any requirement imposed under
[part B] . . . or part D or E . . . is liable to” any consumer
doing business with the creditor. 15 U.S.C. § 1640(a) (empha-
sis added). A consumer may recover “any actual damage sus-
tained . . . as a result of the failure.” Id. § 1640(a)(1). A
consumer may also obtain statutory damages totaling “twice
the amount of any finance charge in connection with the
transaction” from a creditor who fails to comply with certain
provisions of the Act. Id. § 1640(a)(2)(A)(i).9 However, there
are exceptions to the recovery of statutory damages. The
scope of these exceptions presents an issue of first impression.
To resolve this question, we address only whether violations
of §§ 1632(a) or 1638(b)(1)10 warrant statutory damages under
§ 1640(a)(2). We hold that they do not.
[§§ 1631-1649] . . . with respect to any person is liable to such
person in an amount equal to the sum of—
(1) any actual damage sustained by such person as a result of
the failure;
(2)(A) (i) in the case of an individual action twice the amount of
any finance charge in connection with the transaction . . .
...
In connection with the disclosures referred to in section 1638 of
this title, a creditor shall have a liability determined under para-
graph (2) only for failing to comply with the requirements of sec-
tion 1635 of this title or of paragraph (2) (insofar as it requires
a disclosure of the “amount financed”), (3), (4), (5), (6), or (9) of
section 1638(a) of this title, or for failing to comply with disclo-
sure requirements under State law for any term which the Board
has determined to be substantially the same in meaning under
section 1610(a)(2) of this title as any of the terms referred to in
any of those paragraphs of section 1638(a) of this title.
15 U.S.C. § 1640(a) (emphases added).
9
We address only this provision, recognizing that there are other penalty
provisions in § 1640(a)(2)(A), none of which apply here.
10
This presents a question of statutory interpretation. Our first step is to
determine whether the statutory language has a plain and unambiguous
meaning. Robinson v. Shell Oil, 519 U.S. 337, 340 (1997). If the statutory
language is unambiguous and the statutory scheme is “coherent and con-
sistent,” “[o]ur inquiry must cease.” Id. (citation omitted).
11386 IN THE MATTER OF: FERRELL
III. The Trustee is not Entitled to Statutory Damages for
Violations of 15 U.S.C. § 1638(b)(1)
The Trustee contends that she may recover statutory dam-
ages for Checks-N-Advance’s failure to comply with the dis-
closure timing rule of § 1638(b)(1). Relying on Lozada v.
Dale Baker Oldsmobile, Inc., 145 F. Supp. 2d 878 (W.D.
Mich. 2001), overruled by Baker v. Sunny Chevrolet, 349
F.3d 862 (6th Cir. 2003), the Trustee argues that § 1638(b)(1)
is not covered by § 1640(a)’s exceptions to statutory damages.
We decline to follow Lozada.
[4] The exceptions to § 1640(a)’s statutory damages are
broader than the Trustee contends. The Act states that:
In connection with the disclosures referred to in sec-
tion 1638 of this title, a creditor shall . . . [be liable
for statutory damages] only for failing to comply
with the requirements . . . of paragraph (2) (insofar
as it requires a disclosure of the “amount financed”),
(3), (4), (5), (6), or (9) of section 1638(a) of this title
....
15 U.S.C. § 1640(a) (emphasis added). The language “[i]n
connection with the disclosures referred to in section 1638”
encompasses more than just the disclosure rules of 1638. The
use of the word “only” then limits recovery for violations of
any of these disclosures to a closed list of violations of
§ 1638(a)(2) (only regarding the “amount financed”), (3), (4),
(5), (6), or (9).11 This accords with Congress’s desire to “nar-
11
We note that this closed list also includes § 1635 which gives the obli-
gor a right of rescission where a credit transaction is secured by his princi-
pal dwelling, 15 U.S.C. § 1635(a), and “disclosure requirements under
State law for any term which the Board has determined to be substantially
the same in meaning under section 1610(a)(2) of this title as any of the
terms referred to in any of those paragraphs of section 1638(a) of this
title.” 15 U.S.C. § 1640(a). These requirements are irrelevant to the Trust-
ee’s appeal.
IN THE MATTER OF: FERRELL 11387
row a creditor’s civil liability for statutory penalties to only
those disclosure[s] which are of central importance in under-
standing a credit transaction’s costs or terms.” S. Rep. No. 96-
73, at 7 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 285.12
Reading the rule more broadly would not accord with Con-
gress’s intent to “eliminate litigation which is based on viola-
tions of a purely technical nature.” Id.[5] Under the plain language of § 1640(a), violations of the
disclosure timing rules of § 1638(b)(1) are exempted from
statutory damages. First, the rule of § 1638(b)(1) is part of
and functions “[i]n connection with the disclosures referred to
in section 1638.” 15 U.S.C. § 1640(a); see Baker, 349 F.3d at
873 (Guy, J., concurring) (“The limitation of the final sen-
tence of § 1640(a) . . . explicitly applies ‘in connection with
the disclosures referred to in § 1638’—not just § 1638(a).”).
Second, § 1638(b)(1) is not found in the closed list of
§ 1638(a) disclosure rules enumerated in § 1640(a) for which
statutory damages are available. We hold that a consumer
may not recover statutory damages under § 1640(a) for viola-
tions of § 1638(b)(1) and its corresponding regulations, 12
C.F.R. § 226.17(b). As the Trustee has not enforced any lia-
bility under § 1640(a)(2), she is not entitled to attorneys’ fees
and costs pursuant to § 1640(a)(3).
IV. The Trustee is not Entitled to Statutory Damages for
Violations of 15 U.S.C. § 1632(a)
The Trustee asserts that she is entitled to statutory damages
for Checks-N-Advance’s violation of the “more conspicuous”
disclosure rule of § 1632(a). Again relying on Lozada, she
12
In amending the Act, Congress stated that it intended this effect: “In
a ‘closed end’ transaction, such as . . . [a pay-day loan], the creditor’s civil
liability for statutory penalties would be limited to disclosure of the
amount financed, the finance charge, the total of payments, the annual per-
centage rate, the number, amount, and due dates of payments, any security
interest taken, and where applicable, the consumer’s right to rescission.”
S. Rep. No. 96-73, at 7 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 285.
11388 IN THE MATTER OF: FERRELL
asserts that because § 1632(a) is not expressly mentioned in
the final sentences of § 1640(a), it remains a basis for statu-
tory damages. We reject the argument.
[6] Section 1632(a)’s requirement that “[t]he terms ‘annual
percentage rate’ and ‘finance charge’ shall be disclosed more
conspicuously than other terms” functions “[i]n connection
with the disclosures referred to in section 1638” and has no
force without § 1638(a)’s disclosure obligations. 15 U.S.C.
§ 1640(a); see Brown, 202 F.3d at 991 (“The more-
conspicuous-disclosure obligation of § 1632(a) works ‘[i]n
connection with the disclosures referred to in section
1638.’ ”). A violation of § 1632(a) cannot form the basis for
statutory damages, as it does not fall within the closed list of
§ 1638(a) subsections, violations of which can support an
award of statutory damages. See Brown, 202 F.3d at 991.
[7] We are aware that Congress specifically added the
“more conspicuous” rule to the Act in the 1980 amendments.
See S. Rep. No. 96-73, at 14 (1979), reprinted in 1980
U.S.C.C.A.N. 280, 292. The codification of this regulation
does not alter our analysis of the § 1640(a)’s exceptions to
statutory damages. The “more conspicuous” rule functions
integrally with § 1638(a). Congress did not designate
§ 1632(a) as a basis for statutory damages in its closed list of
requirements that do. See S. Rep. No. 96-73, at 7 (1979),
reprinted in 1980 U.S.C.C.A.N. 280, 285 (listing the basis for
statutory damages).
[8] We hold that a consumer may not recover statutory
damages for violations of § 1632(a) and its corresponding
regulations, 12 C.F.R. § 226.17(a)(2). As the Trustee has not
enforced any liability under § 1640(a)(2), she is not entitled
to attorneys’ fees and costs pursuant to § 1640(a)(3).
V. The Trustee is not Entitled to Actual Damages
The Trustee asserts that she is entitled to actual damages
under § 1640(a)(1), and requests that we overturn our decision
IN THE MATTER OF: FERRELL 11389
in Smith v. Gold Country Lenders (In re Smith), 289 F.3d
1155 (9th Cir. 2000). No valid basis has been cited on which
to overrule Smith.
[9] In Smith, we held that “in order to receive actual dam-
ages for a TILA violation . . . a borrower must establish detri-
mental reliance.” 289 F.3d at 1157. The consumer must show
that she “would either have secured a better interest rate else-
where, or foregone the loan completely.” Id. The Trustee rec-
ognizes that she has not demonstrated detrimental reliance.
She has not persuaded us of a different rule than that
announced in Smith. We affirm the BAP.
VI. The Trustee is not Entitled to Attorneys’ Fees and
Costs under Nevada Law
The Trustee asserts that she is entitled to attorneys’ fees
and costs under Nevada’s consumer fraud act. She claims that
Checks-N-Advance’s failure to abide by the Truth in Lending
Act constitutes a “deceptive trade practice” under Nev. Rev.
Stat. § 598.0923(3) and that this qualifies her to receive fees
and costs pursuant to Nev. Rev. Stat. § 41.600(3)(b). We
reject the argument.
To recover attorneys’ fees and costs on default judgment,
the plaintiff must “specify the judgment and the statute, rule,
or other grounds [so] entitling” her. Fed. R. Civ. P.
54(d)(2)(B)(ii); see id. 54(c) (“A default judgment must not
differ in kind from, or exceed in amount, what is demanded
in the pleadings.”); Fed. R. Bankr. P. 7054(a) (following Fed.
R. Civ. P. 54).
[10] The Trustee failed to plead with specificity the statute
under which she now claims to be entitled to costs and fees.
The complaint requested attorneys’ fees and costs under Nev.
Rev. Stat. § 604.164. On appeal, the Trustee now insists on
fees and costs under Nev. Rev. Stat. § 41.600. To enter fees
and costs in the Trustee’s favor would violate Rule 54(c) by
11390 IN THE MATTER OF: FERRELL
imposing a default judgment on grounds that differ from what
was “demanded in the pleadings.” Fed. R. Civ. P. 54(c). The
complaint’s request for “such other relief as the court deems
appropriate” cannot save the Trustee’s claim. This prayer for
relief lacks the requisite specificity to put defendants on
notice that the Trustee sought attorneys’ fees and costs on the
default judgment pursuant to Nev. Rev. Stat. § 41.600. See
Fed. R. Civ. P. 54(d)(2)(B).
AFFIRMED.