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Taylor v. Timepayment Corp.

United States District Court, E.D. Virginia, Richmond Division

April 1, 2019

JOHN TAYLOR, on behalf of himself and others similarly situated, Plaintiff,


          M. Hannah Lauak, United States District Judge.

         Plaintiff John Taylor brings this five-count Complaint[1] against Defendant Timepayment Corporation ("Timepayment"), alleging various violations under the Consumer Leasing Act ("CLA"), 15 U.S.C. § 1667 et seq.; the Truth in Lending Act ("TILA"), 15 U.S.C. § 160 et seq.; and Virginia state law. (See Compl., ECF No. 1.) Timepayment moved to dismiss Taylor's Complaint, arguing that Taylor lacked Article III standing[2] under Federal Rule of Civil Procedure 12(b)(1)[3] and failed to state a claim under Rule 12(b)(6)[4] (the "Motion to Dismiss"). (ECF No. 16.)

         The Court referred the Motion to Dismiss to the Honorable David J. Novak, United States Magistrate Judge, pursuant to 28 U.S.C. § 636(b)(1)(B).[5] (ECF No. 25.) On February 5, 2019, the Magistrate Judge filed a Report and Recommendation ("R&R"). (ECF No. 30.) After conducting a thorough analysis, the Magistrate Judge recommended that the Court grant the Motion to Dismiss as to Counts I, II, and IV (the "Standing Counts")[6] and deny the Motion to Dismiss as to Counts III and V (the "Rule 12(b)(6) Counts").[7]

         By copy of the R&R, the Magistrate Judge advised each party of the right to file written objections to the findings and recommendations made in the R&R. 28 U.S.C. § 636(b)(1). On February 19, 2019, Timepayment and Taylor each filed timely objections to the R&R. (ECF Nos. 31, 31.) Taylor filed a brief opposing Timepayment's Objection to the R&R. (ECF No. 33.) Timepayment responded, and Taylor replied. (ECF Nos. 34, 35.) The Court has conducted a de novo review of the R&R and each party's objections.

         I. The Court Will Overrule Timepavment's Objections

         Timepayment lodges two objections, both of which the Court overrules. Timepayment raises the following arguments: (1) the Agreement does not constitute a credit sale subject to TILA because the value of the purchase option may equal fair market value of the heat pump at the end of the contractual term; and, (2) Virginia usury law does not apply to the Agreement because Virginia's usury law does not apply to lease agreements. Timepayment asks the Court to overrule the R&R as to these recommended findings, and instead deny the Motion to Dismiss as to the TILA disclosures count (Count III) and the Virginia usury count (Count V).

         In Count III, Taylor claims that Timepayment did not comply with the disclosure requirements contained in TILA § 1638(a) because Timepayment failed to disclose the true financing cost of the heat pump. Taylor contends that Timepayment failed to disclose the interest rate in the Agreement, leaving him "unaware of the true financing cost associated with his purchase of the heat pump." (Compl. ¶ 66.)

         In its Motion to Dismiss, Timepayment challenged Count III under Federal Rule of Civil Procedure 12(b)(6), [8] arguing that Taylor cannot bring any TILA claims because the Agreement does not constitute a credit sale as defined within TILA or its implementing regulation. (Mem. Supp. Mot. Dismiss 18-19, ECF No. 17.) TILA and its implementing regulation, 12 C.F.R. § 1026.2(a) ("Regulation Z"), define the term "credit sale" to include:

any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the property upon full compliance with his obligations under the contract.

15 U.S.C. § 1602; see also 12 C.F.R. § 1026.2(a)(16). Specifically, Timepayment highlighted the Agreement's purchase option provision, which allows Taylor to purchase the heat pump "for its fair market value, not to exceed 3 regular monthly lease payments"[9] at the end of the monthly payment schedule. (Agr. L, ECF No. 1-1.) According to Timepayment, a purchase option valued at fair market value cannot constitute "nominal consideration" as a matter of law, meaning that the Agreement would fall outside TILA's scope. (Mem. Supp. Mot. Dismiss 19 (citing Va. Code Ann. § 8.1A-203).)

         In considering Timepayment's arguments, the Magistrate Judge evaluated the purchase option provision, correctly concluding that, although the value of the purchase option was uncertain, it would equal either the lower of the fair market value of the heat pump at the end of the payment schedule under the Agreement or $1, 231.32. The R&R concluded: "Viewing the facts in the light most favorable to Plaintiff, as the Court must do at this stage of the litigation, $1, 231.32 may represent an amount substantially less than the fair market value of the heat pump at the end of the lease term, thereby constituting nominal consideration." (R&R 28.) Because Taylor may become the owner of the heat pump at the end of the Agreement schedule by paying only nominal consideration, the Agreement may constitute a credit sale agreement subject to TILA.

         In its Objection to the R&R, Timepayment argues that because the purchase option "is tied to the fair market value of the heat pump at lease-end, the consideration required for Plaintiff to exercise the purchase option is not nominal consideration as a matter of law." (Timepayment Obj. 3, ECF No. 31.) This argument simply reiterates Timepayment's prior positions, [10] and more importantly, misses the mark. The R&R did not determine whether fair market value necessarily constitutes nominal consideration, and the Court need not resolve that question here. Instead, the R&R states that, at this procedural stage, and without knowing the future fair market value of the heat pump, the maximum amount that Taylor would have to pay to own the heat pump ($1, 231.32) may be significantly lower than fair market value, and, as a result, may constitute only nominal consideration. The R&R reached this conclusion by carefully evaluating the sparse caselaw on point, and thoughtfully weighing analogous transactional law. Because a possibility exists that Taylor's purchase option will require only nominal consideration, the R&R correctly recommended a finding that Taylor plausibly pled facts in support of construing the Agreement as a credit sale under TILA.

         Next, Timepayment argues that the R&R erred in concluding that the Virginia usury claim (Count V) survives the Rule 12(b)(6) challenge. In support, Timepayment renews its contention that the Agreement constitutes a lease, not a credit sale, and claims that Virginia usury law does not apply to leases.[11] Additionally, even assuming the Agreement constitutes a credit sale, Timepayment argues, "Virginia usury law does not apply to credit sales." (Timepayment Obj. 7 (citing Galloway v. Bluegreen Vacation Club, No. 3:1 lcv481, 2012 WL 113862, at *1 (E.D. Va. Jan. 13, 2012).) But Timepayment, again, merely restates the positions it took in its Motion to Dismiss, all of which the Magistrate Judge thoroughly considered and rejected in the R&R.[12] Taylor plausibly pleads facts to support a claim that the Agreement constitutes a credit sale subject to Virginia usury law.

         II. The Court Will Sustain One of Taylor's Objections

         In light of recent guidance from the United States Court of Appeals for the Fourth Circuit published after the Magistrate Judge issued the R&R, Taylor raises several objections. Considering the Fourth Circuit's most recent articulation of the law governing standing, the Court will allow the CLA disclosures count (Count I) to proceed. See Curtis v. Propel Property Tax Funding, LLC, et al, 915 F.3d 234 (4th Cir. 2019).[13]

         A. Relevant Factual and Procedural Background

         The Consumer Lease Act ("CLA") requires lenders to make certain disclosures to borrowers.[14] 15 U.S.C. § 1667 et seq. Plaintiffs assert that the Agreement violates the CLA and its implementing regulation because it fails to segregate at least four of the required disclosures. They also suggest that many of the disclosures themselves are violative. For instance, in Count I, Taylor alleges that the disclosures Timepayment provided did not comply with CLA §§ 1667a(5) and (9) or Regulation M § 1013.3(a)(2) and § 1013.4(c), (e), (i), and (j). Section 1013.4(e) requires a lender to disclose

the total of payments, with a description such as "the amount you will have paid by the end of the lease." This amount is the sum of the amount due at lease signing (less any refundable amounts), the total amount of periodic payments (less any portion of the periodic payment paid at lease signing), and other charges under paragraphs (b), (c), and (d) of this section.

12 C.F.R. § 1013.4(e). Taylor alleges that the Agreement contains a heading that reads:

         "TOTAL OF PAYMENTS/PAPER BILLING FEE." (Agr. 1.) Beneath this heading, a portion reads: "The amount I will have paid by the end of the Lease: $8, 619.24."[15] (Id.) But the $8, 619.24 figure "equals the sum of periodic payments (21 x $410.44), not the sum of all payments due 'by the end of the lease."' (Compl. ¶ 103.) Thus, Taylor argues, this number does not represent the "total amount of payments" due under the terms of the Agreement as required by Regulation M-nor as the heading "TOTAL OF PAYMENTS[l" in the Agreement itself suggests-because it excludes the initial payment and other contractual costs, such as the cost of purchasing or returning the heat pump. 12 C.F.R. § 1013.4(e).

         In its Rule 12(b)(1) Motion to Dismiss, [16] Timepayment argued that, even assuming the disclosures did not comply with the CLA provisions or its pertinent regulations, Taylor's claim must fail because Taylor lacks standing under Article III of the United States Constitution.[17]U.S. Const. Art. Ill. § 2. Specifically, Timepayment argued that Taylor failed to state an injury in fact.

         Applying then-existing case law, the R&R ultimately concluded that Count I failed because, even assuming that Timepayment violated the CLA provisions, Taylor "failed to allege how any deficiencies with the disclosures deceived him or left him oblivious to the true cost of the lease-the type of injury that Congress intended the CLA to prevent." (R&R 12 (citing Cottle v. Monitech, Inc., No. 7:17cvl37, 2017 WL 6519024 (E.D. N.C. Dec. 20, 2017), aff'd, 733 Fed.Appx. 136 (4th Cir. 2018) (affirming, per curium, the district court)). Given the Fourth Circuit's most recent evaluation of standing in Curtis, and for the reasons stated below, the Court concludes that the CLA disclosure count (Count I) survives the Rule 12(b)(1) challenge.

         B. Legal Standard: Standing

         The Fourth Circuit has reiterated that a substantive statutory violation may, without more, confer standing to an injured party. Curtis, 915 F.3d at 241. As to procedural violations, in Spokeo, the Supreme Court discussed the manner in which a plaintiff must allege "injury in fact" to establish standing for what courts call a "procedural violation" of statutory requirements. The Supreme Court confirmed that, to establish an injury in fact, a plaintiff must demonstrate that she or he suffered "'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'" Spokeo, 136 S.Ct. at 1548 (quoting Lujan, 504 U.S. at 560). In doing so, the Spokeo court refined standing law by defining "particularized"[18] and "concrete" with specificity.

         The Spokeo court stated that for an injury to be "concrete," it must be "de facto," meaning that it must be "real," and not "abstract." Spokeo, 136 S.Ct. at 1548 (quotation omitted). That said, an injury need not be "tangible" in order to be "concrete." Id. at 1549 (quotation omitted). An intangible injury may constitute injury in fact. Id. The Spokeo court noted that even the risk of real harm might satisfy concreteness. Id. In evaluating whether an intangible injury satisfies the "concreteness" requirement, the Supreme Court reiterated two important considerations: (1) history, which may reveal "whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts;" and, (2) the judgment of Congress, which "'has the power to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before.'" Id. (quoting Lujan, 504 U.S. at 580 (Kennedy, J., concurring in part and concurring in judgment)); see also Curtis, 915 F.3d at 241 (recognizing Congressional authority to define substantive rights, the violation of which confer Article III standing).

         With respect to this congressionally-defined, or statutory, standing, the Spokeo court explained: "Article III standing requires a concrete injury even in the context of a statutory violation."[19] Id. Thus, a plaintiff "could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III." Id. (citing Summers v. Earth Island Inst., 555 U.S. 488, 496 (2009) ("[Deprivation of a procedural right without some concrete interest that is affected by the deprivation ... is insufficient to create Article III standing.")).

         The Spokeo court observed that in cases in which "harms may be difficult to prove or measure[J" id. at 1549 (citing Restatement (First) of Torts §§ 569 (libel), 570 (slander per se) (1938)), "the violation of a procedural right granted by statute can be sufficient... [and] a plaintiff in such a case need not allege any additional harm beyond the one Congress has identified," id. at 1544 (citing Akins, 524 U.S. at 20-25). A plaintiff may therefore suffer "a concrete informational injury where [she or] he is denied access to information required to be disclosed by statute, and [she or] he 'suffers, by being denied access to that information, the type of harm Congress sought to prevent by requiring disclosure.'" Dreher v. Experian Info. Sols., Inc., 856 F.3d 337, 345 (4th Cir. 2017) (quoting Friends of Animals v. Jewell, 828 F.3d 989, 992 (D.C. Cir. 2016)). In such a situation, a procedural injury can become constitutionally cognizable when "a person lack[s] access to information to which [she or] he is legally entitled and... the denial of that information creates a 'real' harm with an adverse effect." Id. at 345 (citing Spokeo, 136 S.Ct. at 1548; Akins, 524 U.S. at 21).

         C. Taylor Plausibly Alleges Facts to Establish Article III Standing

         Taylor's Objection asserts that the R&R erred in construing the alleged violations as procedural rather than substantive. Taylor draws analogies to, and relies heavily on, the Fourth Circuit's analysis in Curtis, which postdates the R&R: "The Curtis complaint centered on the defendant's multi-year installment agreement containing restrictions specifically prohibited by the [Electronic Funds Transfer Act], which violations the Fourth Circuit found to be 'substantive' rather than 'procedural' due to their relationship to the purpose of the statute." (Taylor Obj. 7, ECF No. 32 ...

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