MARY GRACE DIEHL, Bankruptcy Judge.
The above-styled adversary proceeding is before the Court on Verna L. Dixon's ("Plaintiff") Motion to Amend to Substitute Party Name ("Motion to Amend") (Docket Nos. 12 & 14), Plaintiff's Second Motion to Amend to Add Claim ("Second Motion to Amend") (Docket Nos. 13 & 15), and World Finance Corporation of Georgia's ("Defendant") Motion for Summary Judgment (Docket Nos. 7, 8, 11 & 16).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). The parties agree that this is a core matter under 28 U.S.C. § 157(b)(2).
In accordance with Rule 56 of the Federal Rules of Civil Procedure, applicable to this Court pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary judgment is appropriate only if "the pleadings, the discovery and disclosure materials on file, and any affidavits show 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." FED. R. CIV. P. 56(c). "Material facts" are those which might affect the outcome of a proceeding under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Further, a dispute of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. Lastly, the moving party has the burden of establishing the right of summary judgment. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991); Clark v. Union Mut. Life Ins. Co., 692 F.2d 1370, 1372 (11th Cir.1982). Where the nonmoving party bears the burden of proof at trial, the burden can be satisfied if the moving party demonstrates the absence of evidence supporting the nonmoving party's case. Hickson Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256, 1259 (11th Cir.2004). In determining whether a genuine issue of material fact exists, the Court must view the evidence in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Rosen v. Biscayne Yacht & Country Club, Inc., 766 F.2d 482, 484 (11th Cir.1985). It remains the burden of the moving party to establish the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Here, the material facts are undisputed; therefore, summary judgment is appropriate.
Plaintiff entered into a loan contract with Defendant on March 19, 2009. The loan was secured by her 1993 Volvo. The loan required Defendant to maintain property insurance on the vehicle. Defendant disclosed in the Credit Insurance Disclosure Statement that Plaintiff could select the insurer and that insurance could be provided through an existing policy. Plaintiff selected to obtain automobile insurance with Defendant, as lender. Defendant disclosed that the cost of Single Interest Vehicle Insurance ("VSI")
As part of the March 19, 2009 loan transaction, Plaintiff reviewed and signed the Credit Insurance Disclosure Statement, which included an acknowledgment
At the time of making the loan, Plaintiff was given an Insured's Copy of the terms and conditional applicable to the insurance policy she purchased. Paragraph D under the "Single Interest Coverage" section of the policy reads:
(Defendant's Exhibit II, p. 1).
Plaintiff alleges a TILA violation based on Defendant's inclusion of the VSI premium in the amount financed. Plaintiff asserts that VSI premium should have been treated as part of the finance charge. Defendant submits that the loan transaction, including treatment of the VSI premium in the amount financed, was proper and complied with TILA.
TILA was enacted to ensure meaningful disclosure of credit terms to best allow a customer to make an informed credit decision. 15 U.S.C. § 1601(a); see also Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). TILA's implementing regulation is known as "Regulation Z." 12 C.F.R. § 226.1. The parties do not contest that TILA is applicable to this transaction, and the Court agrees because the requirements under 12 C.F.R. § 226.1(c)(1) have been satisfied.
The legal issue presented in this case is narrow—whether Defendant's inclusion of the VSI premium in the amount financed was proper. Section 226.4 governs finance charges. Generally, a finance charge is the "cost of consumer credit as a dollar amount" and "does not include any charge of a type payable in a comparable cash transaction." 12 C.F.R. § 226.4(a). Subsection (b) of § 226.4 lists examples of finance charges, and explains that subsections (c) through (e) provide exclusions to finance charges. Insurance is expressly referenced in subsection (d), and property insurance premiums are addressed in subsection (d)(2), which provides in pertinent part:
12 C.F.R. § 226.4(d)(2).
Thus, for a creditor to exclude the VSI premium from the finance charge, three requirements must be satisfied by the creditor. First, the creditor must disclose to the consumer that the coverage may be obtained from an entity of her choice. 12 C.F.R. § 226.4(d)(2)(i). Second, if the consumer selects insurance carried by the creditor, then amount of the premium must be disclosed. 12 C.F.R. § 226.4(d)(2)(ii). Third, if the insurance is single interest, the insurer must waive all subrogation rights against the consumer. 12 C.F.R. § 226.4(d)(2) n. 5.
The parties agree that the first two requirements listed above were satisfied in this transaction. The undisputed facts show that Defendant disclosed that Plaintiff could obtain property insurance from her provider of choice and that the VSI premium of $376.00 was properly disclosed and itemized in the amount financed. With regard to the above-referenced third requirement, Plaintiff alleges a TILA violation based on Defendant's subrogation clause. Plaintiff argues that the qualifying language used by Defendant, "except in the cases of fraudulent actions of the Insured Creditor or Insured Debtor," fails to satisfy the waiver of all subrogation rights by Defendant. Plaintiff also asserts that because Defendant retained a portion of the stated VSI premium, then that amount may not be included in the amount financed. Defendant's inclusion of the entire premium in the amount finance is an alternative basis for the alleged TILA violations. These arguments will be addressed in turn.
Property insurance premiums for single interest insurance may be excluded from the finance charge if the insurer waives all right of subrogation against the consumer. 12 C.F.R. § 226.4(d)(2) n. 5. Defendant's Exhibit II shows that Plaintiff received an insured's copy of the insurance policy, which included a waiver of subrogation clause. The clause reads: "Except in the case of fraudulent actions of the Insured Creditor or Insured Debtor, the Company waives any right to subrogation against the Insured Creditor or Insured Debtor." (Defendant's Exh. II, p. 1). Plaintiff asserts that the qualifying language, "[e]xcept in the case of fraudulent actions of the Insured Creditor or Insured Debtor," in the waiver clause prevents Defendant from satisfying the requirement provided in 12 C.F.R. § 226.4(d)(2) n. 5. According to Plaintiff, without a proper waiver, Defendant's inclusion of the VSI premium in the amount financed would amount to a TILA violation. Defendant counters that the waiver is sufficient to meet TILA's disclosure requirements and the requirements of 12 C.F.R. § 226.4(d)(2) are fully satisfied.
The applicable statutory language in footnote 5 of 12 C.F.R. § 226.4(d)(2) clearly states that all subrogation rights must be waived. As the Plaintiff points out, the
The clause at issue before the Court is undoubtedly more limited than what Plaintiff argues is required in an unqualified waiver. TILA's disclosure purpose, along with the Court's interest in the substance of the waiver makes this a more complicated issue. Plaintiff presents no caselaw to support its position that a qualified waiver based on fraud negates the requisite waiver of subrogation rights within the context of single interest insurance. Instead, Plaintiff argues that paragraph 10 of the Official Commentary gives examples of subrogation rights that must be waived. Plaintiff quotes "concealment, confiscation, conversion, embezzlement, and skip." OFF. CMT. 226.4(d) ¶ 10. However, paragraph 10 is titled "Single-interest insurance defined" and the list is intended to show what typical coverage single-interest insurance may provide. The Court does not interpret this commentary as a dispositive requirement of coverage. Further, the Court is not convinced that Defendant's limited exclusion of fraud is fatal to the waiver requirement.
"TILA is a disclosure statute;
TILA is a disclosure statute, and the waiver of subrogation clause, as written, sufficiently discloses the waiver of subrogation rights required by 12 C.F.R. § 226.4(d)(2) n. 5. The clause provides that "any" right to subrogation is waived except with incidents of fraud. For disclosure purposes, the Court finds this sufficient to allow Defendant to exclude the VSI premium from the finance charge and include it in the amount financed, as permitted by 12 C.F.R. § 226.4(d).
Plaintiff also claims Defendant violated TILA by retaining a portion of the
Plaintiff asserts that 12 C.F.R. § 226.18(c)(1)(iii) provides the basis for Defendant's violation. Section 226.18 governs the content of disclosures under TILA, and subsection c is titled, "Itemization of amount financed." It provides:
12 C.F.R. § 226.18(c)(1)(iii).
Plaintiff is correct that § 226.18(c)(1)(iii) requires that charges payable to others on the consumer's behalf must be disclosed in the itemization of the amount financed. Here, Defendant has fully complied with this requirement. The parties agree that the amount of the VSI premium was properly disclosed and itemized and that Defendant's financial interest was disclosed. Because Defendant met the requirements under 12 C.F.R. § 226.4(d), Defendant's inclusion of the VSI premium as an amount financed is permissible and does not violate TILA.
Plaintiff submits that § 226.18(c)(1)(iii) obligates Defendant to segregate the commission Defendant receives from the VSI premium from the total amount annual premium amount paid by Plaintiff. There is no caselaw in support of this assertion. Plaintiff's legal theory seems to be that because insurance companies are expressly noted in footnote 41 of § 226.18(c)(1)(iii) that somehow Defendant's failure to note the commission amount results in the equivalent of hiding a fee that should be included in the finance charge instead of the amount financed. A commission paid to Defendant, though, is not a charge to Plaintiff. The cost of the transaction is not inflated by a commission-based relationship. Further, the factual record before the Court includes, as supplemented by Plaintiff's introduction of Defendant's response to Plaintiff's Interrogatories, provides that Defendant did not retain any portion of the premium.
Plaintiff goes on to cite Gibson v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283 (7th Cir.1997), in support of her legal theory. Gibson provides no support for Plaintiff's position. In Gibson, the issue was whether plaintiff's complaint stated a claim where a car dealer allegedly engaged in a practice of charging its credit customers more for third party extended warranty protection than its cash customers. Id. at 284-85. The Seventh Circuit stated that if plaintiffs allegations were true then the dealer's practice would amount to hiding a finance charge without properly disclosing the charge. Id. at 285. Plaintiffs allegations,
Section 226.18(c)(1)(iii) does not require anything more than what Defendant disclosed-the insurance premium amount and Defendant's financial interest in the insurance. These disclosures, along with satisfying the requirements under § 226.4(d), allow the premium to be excluded from the finance charge and included in the amount financed without a TILA violation.
Plaintiff's Second Motion to Amend and Defendant's opposition thereto is also pending before the Court. (Docket Nos. 13 & 15). Plaintiff seeks to add a claim to her complaint under the Georgia Industrial Loan Act ("GILA"), O.C.G.A. § 7-3-1 et seq. Specifically, Plaintiff alleges that Defendant's retention of any portion of the VSI premium is in violation of O.C.G.A. § 7-3-15. Defendant opposes Plaintiff's Second Motion to Amend on the basis that the claim is futile.
Plaintiff requires court permission to add this claim because this is Plaintiff's second motion to amend. FED.R.CIV.P. 15(a)(1) ("A party may amend its pleading once as a matter of course. . . ."). Rule 15 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7015 of the Federal Rules of Bankruptcy Procedure, provides a liberal and permissive standard for amending a complaint. "The court should freely give leave when justice so requires." FED.R.CIV.P. 15(a)(2).
There are limits to the liberal standard of favoring amendments to allow the merits of the claim to be tested. There must be a "justifying reason" for a court to deny leave. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); see also Halliburton & Assoc. v. Henderson, 774 F.2d 441, 443 (11th Cir. 1985) ("substantial reason" needed). The following factors may serve as a basis to deny a motion to amend: (1) where there has been undue delay, bad faith, dilatory motive, or repeated failure to cure deficiencies by amendments previously allowed; (2) where allowing amendment would cause undue prejudice to the opposing party; or (3) where amendment would be futile. Bryant v. Dupree, 252 F.3d 1161, 1163 (11th Cir.2001) (citing Foman v. Davis, 371 U.S. at 182, 83 S.Ct. 227). Defendant asserts that Plaintiff's Second Motion to Amend should be denied based on the futility of its claim.
Futility means that the amended complaint would fail to state a claim upon which relief could be granted. Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1042 (11th Cir.1986). The same standard of legal sufficiency as applied under a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) is used to determine futility. Stripling v. Jordan Prod. Co., 234 F.3d 863, 873 (5th Cir.2000); Shane v. Fauver, 213 F.3d 113, 115 (3d Cir.2000); Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1085 (7th Cir.1997); Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996). To withstand a motion to dismiss, a plaintiff must allege in the complaint "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A
Plaintiff's Second Motion to Amend seeks to add a GILA claim under O.C.G.A. § 7-3-15 based on a § 7-3-14(3). Section 7-3-15 provides, in relevant part, that "[n]o licensee shall charge, contract for, or receive any other or further amount in connection with any loans authorized by this chapter in addition to those provided in Code Section 7-3-14. . . ." O.C.G.A. § 7-3-15. There are two separate basis for the Court finding that Plaintiff's claim is futile. Plaintiff's proposed addition does not create a plausible claim. The legal theory upon which Plaintiff rests is vague, at best. Plaintiff quotes O.C.G.A. § 7-3-14(3), in part, to support its proposed additional claim: "A licensee may charge and collect from the borrower premiums actually paid or to be paid for insurance obtained for the borrower." O.C.G.A. § 7-3-14(3) (emphasis added by Plaintiff). Second, Plaintiff presents no facts in support of this additional claim. In fact, Plaintiff even acknowledges that Defendant's response to Plaintiff's interrogatories, relied upon in Plaintiff's response to Defendant's Motion for Summary Judgment, states that Defendant does not retain any portion of the property insurance premium. (Docket No. 13, p. 3 n. 1).
The full text of O.C.G.A. § 7-3-14(3) states:
O.C.G.A. § 7-3-14. Plaintiff's reliance on the first part of the statute to support its proposed additional GILA claim appears hasty and inaccurate. Section 7-3-14(3) expressly provides that "[t]he insurance company in turn may pay to the party writing the insurance policy sold in connection with the loan a fee or commission." This payment is limited by the payment being "reasonable in relation to the transaction" and in conformity with industry standards, as provided by the Commissioner. Plaintiff fails to allege any factual allegations in the original Complaint or through the Second Motion to Amend that allow the Court to infer the essential elements of a GILA violation under this provision.
Plaintiff's citations to caselaw in support of this proposed additional claim provide no additional insight into her legal theory. First, Plaintiff asserts that Buford v. American Finance Company, 333 F.Supp. 1243, 1246 (N.D.Ga.1971) serves as the inspiration for an additional state law claim in this action. The Court is unclear as to how this case relates to the proposed GILA claim. In Buford v. American Finance Company, the court addressed pendent jurisdiction of proposed class action claims and dismissed these pending state law claims for state court disposition. Id. at 1248. Second, Plaintiff cites Georgia Investment Company v. Norman, 231 Ga. 821, 204 S.E.2d 740 (1974) to seemingly support its claim that any retention of the VSI premium by Defendant violates GILA. In Georgia Investment Company v. Norman, the Georgia Supreme Court found a GILA violation for the inclusion of a one dollar notary fee. The court held that "[n]otary fees are not authorized." Id. at 824, 204 S.E.2d 740. It seems Plaintiff wishes to extrapolate this determinative holding regarding a notary fee to an insurance premium fee. The plain text of GILA generally and O.C.G.A. §§ 7-3-14(3) and 7-3-15 do not support the result Plaintiff seeks.
In addition, Plaintiff fails to allege any new facts needed to support a GILA claim. Plaintiff's Second Motion to Amend was filed in conjunction with her response to Defendant's Motion for Summary Judgement. In Plaintiff's response, she agreed with all the material facts as presented by Defendant. Further, Plaintiff set forth Defendant's response to Plaintiff's interrogatories in support of her opposition to Defendant's Summary Judgment Motion. That same interrogatory response is footnoted in Plaintiff's Second Motion to Amend. Defendant states that it did not retain any portion of the VSI premium. Plaintiff makes no attempt to provide supplemental facts to support her GILA violation legal theory. Without allegations of the essential facts or presentation of a discernable legal theory, there is no basis for the Court to grant Plaintiff's Second Motion to Amend. This case presents a case where limitations on the liberal permissive amendment standard are warranted. Accordingly, it is hereby
It is
A separate judgment in favor of Defendant World Finance of Georgia d/b/a Freeman Finance Company will be entered contemporaneously herein in accord with this Order.
The Clerk is directed to serve a copy of this Order on Plaintiff, Respondent, and their respective counsel.
