                                                                                                                           Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-30-2000

Applebaum v. Nissan Motor
Precedential or Non-Precedential:

Docket 99-1373




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Recommended Citation
"Applebaum v. Nissan Motor" (2000). 2000 Decisions. Paper 184.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/184


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Filed August 30, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 99-1373

LEONARD APPLEBAUM,

       Appellant

v.

NISSAN MOTOR ACCEPTANCE CORPORATION;
REITENBAUGH ENTERPRISES, INC.

ON APPEAL FROM THE ORDER OF THE
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dist. Court No. 97-cv-07256
District Court Judge: The Honorable Norma L. Shapiro

Argued Tuesday, January 11, 2000

Before: BECKER, Chief Judge, and ALITO and BARRY,
Circuit Judges

(Opinion Filed: August 30, 2000)

       Cary L. Flitter (Argued)
       LUNDY, FLITTER, BELDECOS &
        BERGER, P.C.
       450 N. Narberth Avenue
       Narberth, PA 19072
        Attorney for Appellant
       Jill E. Jachera (Argued)
       Christine M. Kovan
       MORGAN, LEWIS & BOCKIUS, LLP
       1701 Market Street
       Philadelphia, PA 19103
        Attorney for Appellee
       Nissan Motor Acceptance
       Corporation

       Gerard Bruderle
       Timothy A. Kulp (Argued)
       MARGOLIS EDELSTEIN
       The Curtis Center, 4th Floor
       Independence Square West
       Philadelphia, PA 19106
        Attorney for Appellee
       Reitenbaugh Enterprises, Inc.

OPINION OF THE COURT

ALITO, Circuit Judge:

Leonard Applebaum leased two automobiles from Nissan
Motor Acceptance Corporation ("NMAC") through a
dealership owned and operated by Reitenbaugh Enterprises
("Reitenbaugh"). Applebaum sued NMAC and Reitenbaugh,
contending that the early termination provisions in his
leases violated the disclosure requirements of the
Consumer Leasing Act ("CLA") and Regulation M, which
implements the Act. The District Court entered summary
judgment in favor of the defendants, and Applebaum took
this appeal. We hold that the early termination provisions
in the NMAC leases do not comply with the requirements of
the CLA; we therefore reverse.

I.

On November 2, 1994, Applebaum signed a 36-month
closed-end lease1 for a 1995 Nissan Maxima. The lease was
_________________________________________________________________

1. A "closed-end" lease is "[a] lease in which [the lessee is] not
responsible for the difference if the actual value of the vehicle at the

                                2
between Applebaum and Reitenbaugh, but Reitenbaugh
promptly assigned the lease to NMAC. Applebaum
terminated his 1994 lease approximately 10 months before
the end of the 36-month term in order to trade in his 1995
Maxima for a 1997 model. As is common with automobile
leases, NMAC's standard closed-end motor vehicle lease
agreement imposed a penalty for early termination. The
lease provided:

       First, all monthly lease payments, which under the
       terms of my lease, are not yet due and the residual
       value of the vehicle are discounted to present value by
       the Constant Yield Method at the rate implicit in the
       lease (the "Adjusted Lease Balance"). This amount is
       then reduced by the Realized Value (and insurance)
       proceeds which you receive for the vehicle. The balance
       due you is the Early Termination Charge which I will
       pay to you immediately. If there is an excess, however,
       you will not refund it to me.

1994 Lease, App. at R3; 1997 Lease, App. at R4-5. In the
course of negotiating the 1997 lease, Reitenbaugh quoted
Applebaum a pay-off figure of $18,111. Reitenbaugh
explained that after a trade-in allowance of $12,500 ("the
Realized Value") he owed NMAC $5,611 as an early
termination charge.2

According to Applebaum, he was aware that there would
be an early termination penalty but was surprised that it
was so large. When he asked Reitenbaugh to explain how it
had arrived at the pay-off figure, the dealer responded that
it had not performed the calculation and had no idea how
the figure had been derived. Reitenbaugh's practice was to
call NMAC for the pay-off figure, and the dealer suggested
that Applebaum call NMAC and ask how the figure was
_________________________________________________________________

scheduled end of the lease is less than the residual value," but the
lessee
"may be responsible for excess wear and excess mileage charges and for
other lease requirements." Federal Reserve Board Leasing Language (last
updated March 29, 2000).
<http://www.federalreserve.gov/pubs/leasing/glossary htm>.

2. The record shows that the residual value of Applebaum's 1995 Nissan
was $15,018.30 and that the rate implicit in the lease was 8.910068.
See App. at R-55.

                                3
calculated. Heeding Reitenbaugh's advice, Applebaum
telephoned NMAC in early January 1997. Applebaum
contends that his conversation with NMAC was equally
unhelpful. Without a satisfactory explanation of how NMAC
had calculated the early termination charge, Applebaum
nonetheless entered into the 1997 lease. The $5,611 charge
was capitalized into the lease payments under the 1997
lease.

Applebaum continued to seek an explanation of his early
termination liability. Having failed to make headway on his
own, Applebaum retained counsel. By letter to NMAC in
July 1997, Applebaum's counsel requested a written
explanation of how NMAC had arrived at the $18,111 pay-
off figure. In reply, NMAC's legal department stated that it
could not reconstruct the pay-off calculation because the
computer system that performs the calculation does not
retain pay-off information once an account has been
terminated. Applebaum's counsel pressed for an
identification of the residual value of the vehicle and how
that value had been discounted to present value at the rate
implicit in the lease using the constant yield method. See
App. at R-9. NMAC responded that the rate was proprietary
and that its prior disclosures were adequate to satisfy
Regulation M. See App. at R-10.

Applebaum then sued NMAC and Reitenbaugh, alleging a
violation of the Consumer Leasing Act, 15 U.S.C.SS 1667-
1667e. Applebaum contended that the early termination
provision of the leases violated the CLA because the
formula for computing the early termination charge was
indecipherable and because the provision did not define
some of the terms it used. The District Court granted
summary judgment for the defendants, holding that the
CLA and Regulation M require an early termination clause
to be "visible to the lessee and in a readable format" but
that the clause "need not be simple enough to do the
mathematical calculation of the exact amount." Dist. Ct.
Op. at 8. The Court concluded that the lease provisions at
issue here were not required to explain the constant yield
method, a term that was "well known in the industry." Id.
at 12. Likewise, the Court held that the lease provisions
were not required to disclose the vehicles' residual value.

                                4
This term, the court commented, "is not void of meaning to
the average consumer; it means whatever value remains in
the vehicle when the lease terminates." Id . at 15. "The CLA
and Regulation M," the Court added, "do not require further
definition." Id. Applebaum then took this appeal.

II.

In 1976, in response to an emerging trend toward
automobile leasing, Congress passed the Consumer Leasing
Act ("CLA"), 15 U.S.C. S 1667-1667e as Chapter 5 of the
Truth in Lending Act ("TILA"), 15 U.S.C. S 1607 et seq. The
CLA was intended "to assure a meaningful disclosure of the
terms of leases of personal property for personal, family, or
household purposes so as to enable the lessee to compare
more readily the various lease terms available to him, limit
balloon payments in consumer leasing, enable comparison
of lease terms with credit terms where appropriate, and to
assure meaningful and accurate disclosures of lease terms
in advertisements." 15 U.S.C. S 1601(b). The Senate Report
accompanying the CLA stated that "[t]he purpose of the
legislation is to provide consumers with meaningful
information about the component and aggregate costs of
consumer leases, so that they can make better informed
choices between leases, and between leases and credit
sales." See S. Rep. No. 94-590 (1976), reprinted in 1976
U.S.C.C.A.N. 431, 432.

The Federal Reserve Board has been given the authority
to issue rules implementing the CLA, see 15 U.S.C. S 1604,
and the Board has exercised that authority by
promulgating "Regulation M," 12 C.F.R. S 213 et seq. (In
this case, we consider the version of Regulation M in effect
prior to the 1996 amendment now in force.)3 The Board's
staff has also issued official commentary regarding these
provisions. In Ford Motor Credit Co. v. Milhollin, 444 U.S.
555, 568 (1980), the Supreme Court instructed that the
_________________________________________________________________

3. In 1996, the Federal Reserve Board revised Regulation M and issued
new commentary. Although these revisions became effective on October
31, 1996, compliance was optional until October 1, 1997. Applebaum
does not contend that these new provisions apply in this case.

                               5
Board's interpretation of the TILA and Regulation M should
be accepted so long as they are "not irrational."4

The CLA provides in pertinent part as follows:

       Each lessor shall give a lessee prior to the
       consummation of the lease a dated written statement
       on which the lessor and lessee are identified setting out
       accurately and in a clear and conspicuous manner the
       following information with respect to that lease, as
       applicable:

       *   *   *

       (11) A statement of the conditions under which the
       lessee or lessor may terminate the lease prior to the
       end of the term and the amount or method of
       determining any penalty or other charge for
       delinquency, default, late payments, or early
       termination.

15 U.S.C. S 1667a(11) (emphasis added).

The version of Regulation M in effect at the time in
question required that lessors' disclosures "be made clearly,
conspicuously, in meaningful sequence, and in accordance
with the further requirements of this section." 12 C.F.R.
S 213.4(a)(1) (1995). The Official Staff Commentary for this
provision explained that "clearly, conspicuously, and in
meaningful sequence" required "that disclosures be in a
reasonably understandable form." 12 C.F.R. Pt. 213,
P 4(a)(1). This Commentary added that "while the regulation
requires no particular mathematical progression or format,
the disclosures must be presented in a way that does not
obscure the relationship of the terms to each other." Id.

With respect to provisions imposing an early termination
penalty, Regulation M mandated that the lessor provide:
_________________________________________________________________

4. Ford Motor Credit Co. was decided before Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), but we
interpret Ford Motor Credit Co. to mean that the Board's interpretation of
the TILA is governed by Chevron and that its interpretation of its own
regulations is governed by Bowles v. Seminole Rock Co., 325 U.S. 410,
413-14 (1945).

                                6
       A statement of the conditions under which the lessee
       or lessor may terminate the lease prior to the end of
       the lease term and the amount or method for
       determining the amount of any penalty or other charge
       for early termination.

12 C.F.R. S 213.4(g)(12) (1995) (emphasis added).5

III.

A.

Applebaum argues that P 17 of the 1994 Lease and P 18
of the 1997 Lease (collectively "the Leases") violate the CLA
and Regulation M because their disclosures regarding the
early termination charges are not set out "in a clear and
conspicuous manner." Applebaum contends that the early
termination provision is "so indecipherable that virtually no
reader could comprehend it." Appellant's Br. at 21.
Applebaum suggests that the Second Circuit's per curiam
opinion in Lundquist v. Security Pacific Automotive Financial
Services, 993 F.2d 11 (2d Cir. 1993), properly interpreted
the meaning of the CLA's "clear and conspicuous manner"
requirement. In Lundquist, the Court held that the early
termination disclosures of an automobile lease agreement
violated the CLA because they were "confusing, unduly
complicated, and unnecessarily convoluted" and"beyond
the understanding of the average consumer." Lundquist,
993 F.2d at 15.
_________________________________________________________________

5. We note that provisions of Regulation M that were added in 1996 and
that are now in effect address the chief issues that are presented in this
case. The new Staff Commentary specifically states that a lease need
only name the method of discounting to present value that it uses and
need not explain how that method works. See 12 C.F.R. Pt. 213, P 4(g)
(2000).

In revising Regulation M, the Board specifically considered whether to
require disclosure of the rate implicit in the lease but ultimately
decided
not to do so. See FRB Final Rule, 61 FR 52246, 52254-56 (Oct. 7, 1996).
However, the revised version of Regulation M requires disclosure of
residual value in both open- and closed-end leases. See 12 C.F.R.
S 213.4(f)(4) (2000).

                               7
Lundquist was sharply criticized by the Seventh Circuit in
Channell v. Citicorp Nat'l Servs., Inc., 89 F.3d 379, 383 (7th
Cir. 1996). The Seventh Circuit confronted a challenge to a
lessor's method of determining unearned interest in an
early termination clause. The lessee asserted that a
reference in the lease to the "Sum of the Digits" method
was "incomprehensible to the average consumer and
therefore violated the requirement that disclosures be clear
and conspicuous." Id. at 381. Noting that 12 C.F.R.
S 213.4(g)(12) could be satisfied by disclosing the "method
of determining the amount of any penalty or other charge
for early termination," the Court concluded that"only the
method, and not the way the method works, needs to be
disclosed." Id. at 382. The Court stated:

       It is hard to read the statute and regulation any other
       way. "Clear and conspicuous manner"--the language of
       S 1667a -- means visible, not simple. "Manner" refers
       to the mode of presentation, not the degree of
       comprehension. The Act and Regulation M do not
       define "clear and conspicuous," but the words are
       staples of commercial law. The Uniform Commercial
       Code defines "conspicuous" as "so written that a
       reasonable person against whom it is to operate ought
       to have noticed it." UCC S 1-201(10). A disclaimer of
       the warranty of merchantability is enforceable if
       conspicuous, see UCC S 2-316(2), even if the average
       consumer hasn't the vaguest idea what a "warranty of
       merchantability" entails. Regulation M calls for the use
       of 10-point type at a minimum. S12 C.F.R. 213.4(a)(1).

Id.

Turning to Lundquist, the Court observed:

       We confess to substantial difficulty deciphering the
       opinion in Lundquist. . . . The court does not explain
       why the operation of a formula must be simple--for the
       Act requires a clear presentation but does not limit the
       number of variables the lessor may consider. The
       quoted words "confusing, unduly complicated, and
       unnecessarily convoluted" lack a source-- they are not
       quoted from anything, and a search of a database
       containing all federal opinions of the last 50 years did

                               8
       not turn up any other uses of that phrase. It does not
       appear anywhere in the United States Code or the Code
       of Federal Regulations.

Id. at 383.

B.

Under 15 U.S.C. S 1667a(11), the leases at issue in this
case were required to disclose either the "amount or
method for determining" the early termination charge. Since
the amount was not disclosed, the critical question is
whether the "method" was revealed in the way that the law
demands. Under 15 U.S.C. S 1667a, this disclosure had to
be effected "in a clear and conspicuous manner."

The term "conspicuous" is unambiguous. In ordinary
usage, it means "obvious to the eye" or "plainly visible."
Webster's Third New International Dictionary 485 (1971).
See also Channell, 89 F.3d at 381 (citing similar definition
in UCC S 1-201(10)). Here, Applebaum does not contend
that the disclosures in the early termination provision were
not "conspicuous."

The term "clear," on the other hand, may be interpreted
in several different ways. Among other things, it may mean:
(1) "easily visible or distinguishable," (2)"without
misconception, error, or vagueness," or (3) "easily
understood." Webster's Third New International Dictionary
419. In S 1667a, the term "clear" might refer to the physical
characteristics of the printing used in the lease, or it might
refer to the characteristics of the language used in making
the required disclosures. If the Channell opinion suggests
that the first meaning is the only possible one, see 89 F.3d
at 382 (" `Clear and conspicuous'--the language of S 1667a
--means visible . . . ."), we respectfully disagree. Because
the statutory language is ambiguous, it is appropriate to
consider the Federal Reserve Board's interpretation of this
provision.

The Board's Official Staff Commentary adopts an
interpretation that refers to the characteristics of the
language used in making the disclosures. This Commentary
states that disclosures must be made "in a reasonably

                               9
understandable form." 12 C.F.R. Pt. 213, P 4(a)(1) (1995).
"Understandable" means more than "legible"; many things
are legible but not understandable. It is therefore apparent
that the Official Staff Commentary interprets the term
"clearly" to refer to meaning, not just appearance. We defer
to this interpretation. We thus hold that disclosure of the
method of calculating an early termination penalty must
not only be legible; it must also be "reasonably
understandable."

To say that the language used in a disclosure must be
cast in "reasonably understandable form," however, is not
to say that the meaning of this language must be within
"the understanding of the average consumer," as the
Second Circuit has suggested. Lundquist, 993 F.2d at 15.
Here, as in other areas of the law, what is reasonable
depends on the surrounding circumstances. Thus, the CLA
and Regulation M require disclosure in a form that is
"reasonably understandable" in light of the inherent
difficulty or complexity of the method described; they do
not necessarily demand disclosure in a form that the
average consumer can understand. We recognize that some
methods used in calculating early termination penalties
involve math that is well beyond the understanding of the
average consumer. If 15 U.S.C. S 1667a and 12 C.F.R.
S 213.4 (1995) meant that any method of determining an
early termination penalty had to be capable of explanation
in a way that the average consumer could understand,
these provisions would in effect impose substantive
restrictions on the methods that a lessor could employ. It is
plain, however, that these provisions were not intended to
impose any such substantive restrictions.6

C.

With these standards in mind, we turn to the leases at
issue here. As previously noted, they provide in pertinent
part as follows:
_________________________________________________________________

6. To clarify, we mean that disclosure must be cast in a form that is
reasonably understandable in light of the difficulty of the matter being
disclosed. The benchmark is the nature of the matter discussed.

                               10
       First, all monthly lease payments, which under the
       terms of my lease, are not yet due and the residual
       value of the vehicle are discounted to present value by
       the Constant Yield Method at the rate implicit in the
       lease (the "Adjusted Lease Balance"). This amount is
       then reduced by the Realized Value (and insurance)
       proceeds which you receive for the vehicle. The balance
       due you is the Early Termination Charge.

App. at R3, R4-5.

This language plainly satisfies one of the requirements
set out in the Federal Reserve Board Staff Commentary,
viz., this language "does not obscure the relationship of the
terms to each other." 12 C.F.R. Pt. 213, P 4(a)(1) (1995). On
the contrary, the relationship of the terms is easy to grasp:

       Early Termination Charge = Adjusted Lease Balance
       - Realized Value.

       Adjusted Lease Balance = (Residual Value + unpaid
       present value) discounted to present value at the Rate
       Implicit in the Lease using the Constant Yield
       Method.

If the terms "constant yield method," "rate implicit in the
lease," and "residual value," were "reasonably
understandable," the method used in calculating the early
termination penalty would be as well. We therefore consider
those specific terms.

IV.

Applebaum contends that the terms "constant yield
method," "rate implicit in the lease," and"residual value"
should have been explained in the leases. The version of
Regulation M in effect at the time in question required
leases covered by the CLA to disclose numerous categories
of specific information, see 12 C.F.R.S 213.4(g)(1)-(15)
(1995), but Regulation M did not specifically require a
definition or description of any of these terms.

Constant Yield Method

The "constant yield method" is a technical term with a
specified meaning. A Federal Reserve Board webpage that

                                11
explains terms related to vehicle leasing defines the
constant yield method as follows:

       The method of earning rent charges in which the rent
       charge earned each month is proportional to the
       remaining lease balance. Under this method, the lessor
       or assignee earns rent charges at an equal rate over
       the term, similar to most home first mortgages.

Federal Reserve Board, Leasing Language (last updated
March 29, 2000) <http://www.federalreserve.gov/pubs/
leasing/glossary.htm>. Use of this method, however, is
not easy. See, e.g., 26 C.F.R. S 1.1272-1 (b) (setting out
steps for using constant yield method for certain tax
purposes). In all likelihood, the vast majority of lay persons
could not discount to present value using the constant
yield method even if a description were provided."A
beneficial set of disclosure rules gives the consumer
information that can be put to use, while withholding
technical information that distracts attention from the rest
of the disclosures." Channel, 89 F.3d at 382.

Under these circumstances, we hold that simply
disclosing that the "constant yield method" was used,
without attempting to explain how to use this method,
satisfied the "reasonably understandable" requirement.
Although the Official Staff Commentary to the current
version of Regulation M does not change the law
retroactively, we are persuaded by the staff 's determination
that simply naming an established method of discounting
to present value, without attempting to explain the method
in the lease itself, is sufficient to make a lease reasonably
understandable for present purposes. This commentary
states:

       [F]or purposes of the early termination charge a lessor
       may use the name of a generally accepted method of
       computing the unamortized cost portion (also known
       as the "adjusted lease balance") of its early termination
       charges. For example, a lessor may state that the
       "constant yield" method will be utilized in obtaining the
       adjusted lease balance

12 C.F.R. Part 213, P 4(g) (2000).

                               12
Rate Implicit in the Lease

Every discounting method must employ some discount
rate, but early termination provisions rarely set forth such
a rate. The presumption in these leases, apparently, is that
whatever the named discounting method, it will be carried
out at the rate implicit in the lease. We view the leases'
reference to the rate implicit in the lease as surplusage,
since NMAC would have been required to discount at the
rate implicit in the lease even in the absence of such a
reference. We also note that the Board has declined to
impose an obligation that lessors disclose the lease rate
after giving the question considerable thought and
attention. See FRB Final Rule, 61 FR 52246, 52254-55.

Residual Value

Although the NMAC leases use the concept of "residual
value" in calculating the early termination penalty, the
leases do not define that term or specify the vehicles'
residual value. What is more, neither Reitenbaugh nor
NMAC provided this information to Applebaum or his
attorney, despite their requests.7

"Residual value," like the constant yield method, is a
term with an established meaning in the leasingfield. The
Federal Reserve Board's webpage defines the term as
follows: "The end-of-term value of the vehicle established at
the beginning of the lease and used in calculating your
base monthly payment . . . ." Federal Reserve Board,
Leasing Language (last updated March 29, 2000)
<http://www.federalreserve.gov/pubs/leasing/
glossary.htm>. Similarly, the term is now defined by 12
C.F.R. S 213.2(n) (2000) as "the value of the leased property
at the end of the lease term, as estimated or assigned at
consummation by the lessor, used in calculating the base
periodic payment." Moreover, it is apparent that this is
precisely the sense in which the term is used in the NMAC
_________________________________________________________________

7. We note that even had Reitenbaugh or NMAC provided Applebaum
with the residual value upon his request, it would not have cured their
disclosure violation. The duty to disclose under the CLA is breached, if
at all, at the time of lease consummation. 15 U.S.C.S 1667a.

                               13
leases. Thus, "residual value" is not "whatever remains in
vehicle when the lease terminates", Dist. Ct. Op. at 15;
rather, "residual value" is a figure assigned by the lessor at
the beginning of the lease.

In order to discharge their disclosure obligations, the
defendants in this case were required to reveal the residual
value that had been assigned to Applebaum's cars. NMAC
knew these figures, and it could have easily disclosed them.
Its failure to do so meant that no one--not even a person
capable of determining the rate implicit in the leases and
capable of discounting to present value using the constant
yield method--could have calculated an early termination
penalty under the formula set out in the leases. An early
termination clause that fails to reveal an otherwise
unknowable variable used in determining an early
termination penalty8 cannot be regarded as "reasonably
understandable" in any meaningful sense of the term.

NMAC's chief argument, which the District Court
accepted, is that the Federal Reserve Board, in
promulgating the version of Regulation M in effect at the
time in question, implicitly determined that closed-end
leases, like those involved in this case, did not have to
reveal the vehicles' residual value. NMAC notes that the
version of 12 C.F.R. S 213.4(g)(15) in effect at the time
required an open-end lease to disclose the vehicle's residual
_________________________________________________________________

8. This is distinguishable from information that is unknown to the lessor
at the time of lease signing, for which the lessor is permitted to provide
a reasonable estimate. See 15 U.S.C. S 1667a ("The Board may provide
by regulation that any portion of the information required to be disclosed
under this section may be given in the form of estimates where the
lessor is not in a position to know exact information."); 12 C.F.R. Pt.
213, P 4(d) (1995) ("The lessor may use estimates to make disclosures if
necessary information is unknown or unavailable at the time the
disclosures are made. . . . Estimates must be made on the basis of the
best information reasonably available at the time disclosures are
made."). For example, in Applebaum's leases, the early termination
charge was a function of the Realized Value of the automobile -- viz., the
value of the vehicle at the time of lease termination. Because the parties
to the lease could not predict when the lease would terminate at the time
they entered into the lease, it was sufficient to provide the method for
determining Realized Value at lease end. See App. at 3.

                               14
value but that no such requirement was imposed with
respect to closed-end leases. Warning against upsetting the
FRB's regulatory scheme by imposing a disclosure
obligation that the FRB declined to impose, NMAC urges
that we not read the absence of a disclosure requirement as

       the result of a lack of prescience; it may instead
       betoken permission, or perhaps, considered abstention
       from regulation. In that event, judges are not
       accredited to supersede Congress or the appropriate
       agency by embellishing upon the regulatory scheme.
       Accordingly, caution must temper judicial creativity in
       the face of legislative or regulatory silence.

Ford Motor Credit Co., 444 U.S. at 565.

We reject this argument because it overlooks a critical
difference between open- and closed-end leases. An open-
end lease is one in which the lessee's liability at the end of
the lease term is based on the difference between the
residual value of the leased property and its realized value.9
Consequently, residual value is always relevant to a lessee's
liability in an open-end lease, and the Board thus had a
strong reason to require the disclosure of this value. By
contrast, lessors need not, and often do not, use the
concept of residual value in closed-end leases, and
therefore, the Board's failure specifically to require the
disclosure of residual value in closed-end leases cannot
reasonably be interpreted as a considered decision that
disclosure is not necessary to make a closed-end lease
reasonably understandable if it uses that term. Here, NMAC
constructed its early termination provision in such a
manner as to make residual value an essential component
of the calculation. Since the leases took this approach,
defendants were obligated to disclose this value. They did
not do so.

In sum, we hold that the requirement to disclose in a
"clear and conspicuous manner" the method of determining
the amount of an early termination charge includes an
_________________________________________________________________

9. See 12 C.F.R. S 213.2(j) (2000). We cite this subsequently promulgated
provision to show the commonly understood meaning of this term, not
because we regard it as legally binding in this case.

                               15
obligation to disclose the value of a variable, such as
residual value, that is an essential component of the
formula used in calculating the charge. Accordingly, we
reverse and remand for the entry of judgment in favor of
Applebaum and for the award of appropriate relief.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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