                                                                                                                           Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-5-2006

Vallies v. Sky Bank
Precedential or Non-Precedential: Precedential

Docket No. 05-1002




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006

Recommended Citation
"Vallies v. Sky Bank" (2006). 2006 Decisions. Paper 1686.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1686


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                       PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT
            ___________

                No. 05-1002
                ___________

      LOUIS R. VALLIES, individually
        and on behalf of all similarly
          situated vehicle buyers,

                           Appellant

                      v.

     SKY BANK, an Ohio Bank licensed
          to do business in the
      Commonwealth of Pennsylvania
              ___________

  APPEAL FROM THE UNITED STATES
  DISTRICT COURT FOR THE WESTERN
     DISTRICT OF PENNSYLVANIA

             (D.C. No. 01-cv-01438)
District Judge: The Honorable David S. Cercone
                 ___________

        ARGUED OCTOBER 19, 2005
             BEFORE: SMITH, STAPLETON,
              and NYGAARD, Circuit Judges.

                  (Filed: January 5, 2006)
                        ___________

Michael P. Malakoff, Esq.
Erin M. Brady, Esq. (ARGUED)
Malakoff, Doyle & Finberg
The Frick Building, Suite 200
Pittsburgh, PA 15219
       Counsel for Appellant


Martin C. Bryce, Jr., Esq. (ARGUED)
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103
       Counsel for Appellee

                        ___________

                 OPINION OF THE COURT
                      ___________


NYGAARD, Circuit Judge.

      At issue in this appeal is whether the Truth in Lending

Act requires all pertinent credit information be disclosed by a

                              2
single creditor, or whether the requirements of the TILA can be

satisfied if some of the required credit information is disclosed

by a third party. More specifically, we address the question of

whether a creditor violated the provisions of the TILA when it

excluded certain debt cancellation fees from the calculation of

the finance charge without disclosing the amount of the fees and

that the debt cancellation coverage was voluntary, despite the

fact that the disclosures were ultimately made by a non-creditor

third party.

       Appellant Louis Vallies brought a class action on behalf

of consumers who obtained loans from Appellee Sky Bank to

finance purchase of motor vehicles. Vallies asserted a number

of claims, and, after voluntarily dismissing some, the District

Court granted Sky Bank’s motion to dismiss for failure to state

a claim. Vallies argues that the District Court erred by granting

the motion dismissing his claim that Sky Bank failed to comply

                               3
with the provision of the TILA. We agree with Vallies and hold

that under the relevant sections at issue, the TILA does not

permit a creditor to delegate its disclosure responsibility but

requires all pertinent disclosures to be made by a single creditor.

Accordingly, we will reverse the judgment of the District Court.



                                I.

        Vallies obtained a loan from Sky Bank to purchase a

truck from Phil Fitts Ford. Fitts, a licensed motor vehicle

dealer, arranged the loan between Sky Bank and Vallies. Fitts

was not Sky Bank’s agent and at all relevant times acted

independently.1     It is undisputed that the loan entered into


1.     It appears from the record that there exists some
confusion over Fitts’ exact relationship with Sky Bank.
However, we believe, and Sky Bank conceded as much during
oral argument, that there was never any explicit agreement or
implicit assumption that Fitts would act as Sky Bank’s agent for
the purposes of the loan. Indeed, at oral argument Sky Bank
                                                  (continued...)

                                4
between Vallies and Sky Bank financed, in part, a $395.00

charge for Guaranteed Auto Protection (“GAP”), a form of debt

cancellation coverage, that was not incorporated into Sky

Bank’s calculation of the total finance charge. It is likewise

undisputed that the agreement specifying the terms of the loan

did not individually itemize the GAP premium but combined the

premium with a fee for service contract itemized as “To

National Auto.”    On the same day as he signed the loan

agreement with Sky Bank, Vallies signed a separate form

entitled “GAP Waiver Agreement” that contained the correct

cost of the GAP premium and the required TILA disclosures

concerning the exclusion of the GAP premium from finance



1.     (...continued)
maintained that it was the only creditor and that Fitts was not
Sky Bank’s agent. Sky Bank’s contention that Vallies
“conceded” that Fitts was Sky Bank’s agent because in its
pleadings it claimed that Fitts was a “loan intermediary” of Sky
Bank is unpersuasive.

                               5
charges. This separate GAP Waiver form was not incorporated

into Sky Bank’s loan and Sky Bank was not a party to the GAP

Waiver agreement. Instead, the agreement was signed only by

Vallies and Fitts.

                              II.

       We have plenary review over a district court’s grant of a

motion to dismiss for failure to state a claim and we review the

District Court’s decision de novo, applying the same legal

standard as the trial court to the same record. Lum v. Bank of

America, 361 F.3d 217, 223 (3d Cir. 2004); Omnipoint

Commc’ns Enters., L.P. v. Newtown Twp., 219 F.3d 240, 242

(3d Cir. 2000). A motion to dismiss pursuant to Federal Rule

12(b)(6) should be granted only if, “accepting as true the facts

alleged and all reasonable inferences that can be drawn

therefrom” there is no reasonable reading upon which the




                               6
plaintiff may be entitled to relief. Colburn v. Upper Darby

Twp., 838 F.2d 663, 665-66 (3d Cir. 1988).



                              III.

        Vallies challenges the District Court’s opinion holding

that Sky Bank did not violate the TILA. In its opinion, the

District Court conceded that Sky Bank failed to make the GAP

disclosures, but held that Sky Bank did not violate the TILA

because it could “perceive no substantive difference arising

from the fact that disclosures were made on a DNA [third-party]

form, rather than on Sky Bank letterhead.” In essence then,

because the consumer ultimately received the correct disclosure

information, Sky Bank did not shirk its disclosure

responsibilities and no TILA violation had occurred.

Alternatively, the District Court relied on the fact that certain

provisions of the TILA allow for separate disclosures to

                               7
conclude that under the TILA a single creditor is not required to

make all relevant disclosures. In so concluding, the District

Court noted that under 12 C.F.R. § 226.17(a), the GAP

insurance disclosures “may be made together with or separately

from other required disclosures.” As earlier noted and for the

following reasons, we will reverse the District Court’s

judgment.

                              IV.

       The Truth in Lending Act was enacted in order “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 consumer against inaccurate and unfair

credit billing and credit card practices.” Rossman v. Fleet Bank

(R.I.) Nat’l Ass’n, 280 F.3d 384, 389 (3d Cir. 2002) (quoting 15

U.S.C. § 1601). The regulations reflect Congress’ considered

                               8
deliberation of the best way to ensure protection for and

meaningful disclosure to consumers of credit terms and

information. Moreover, the requirements of the TILA exist to

protect the consumer at the outset of the relationship, in order to

even the often slanted credit and lending playing field.

       It is well-settled that where unambiguous, the plain

language of a statute or regulation controls. With respect to

general disclosure requirements, the TILA regulations provide

that “[t]he creditor shall make the disclosures...clearly and

conspicuously in writing, in a form that the consumer may

keep.” 12 C.F.R. § 226.17. Then, in describing the content of

the disclosures, the TILA requires that “[f]or each transaction,

the creditor shall disclose the following information...” 12

C.F.R. § 226.18. The TILA also defines a creditor as “[a]

person (A) who regularly extends consumer credit that is subject

to a finance charge or is payable by written agreement ... and (B)

                                9
to whom the obligation is initially payable, either on the face of

the note or contract, or by agreement when there is no note or

contract.” 12 C.F.R. §226(a)(17). On its face, then, this

language clearly vests the duty of disclosure on the, and only

the, actual creditor and not on any third party to the credit

transaction.

       Sky Bank does not contest the meaning of this language,

but instead argues that the TILA regulation requiring disclosure

of voluntary debt cancellation fees, including a GAP waiver,

“contains no requirement that the disclosure be in the creditor’s

name.” This assertion is superficially true, as 12 C.F.R. §

226.4(d)(3)(i) states only that these charges or premiums may be

excluded from the finance charge if, inter alia, “the debt

cancellation agreement or coverage is not required by the

creditor, and this fact is disclosed in writing.” § 226.4(d)(3)(i).

But this language, fairly taken with the earlier provisions and the

                                10
goals of the TILA generally, leads us to conclude that the

creditor, and the creditor alone, is required to disclose this, and

any other, required information. This is so because those

provisions of the TILA and its regulations that do address who

must make disclosures explicitly and plainly direct the creditor

to make all disclosures. See 15 U.S.C. § 1638(a) (“the creditor

shall disclose each of the following items”); 15 U.S.C. § 1631(b)

(“[i]f a transaction involves one creditor ... , such creditor ...

shall make the disclosures”); 12 C.F.R. § 226.17(a) (“[t]he

creditor shall make the disclosures”). Particularly relevant to

the present dispute is that the regulations specifically provide

that “the creditor shall disclose ... [t]he items required by §

226.4(d) in order to exclude certain insurance premiums and

debt cancellation fees from the finance charge.” 12 C.F.R. §

226.18(n). The logical and plain import here is that if a piece

of information is indeed a required disclosure, as the voluntary

                                11
debt cancellation fee is, then its disclosure must be made by the

creditor.

       In concluding that there was no violation, the District

Court failed to recognize that Vallies’ claim is not premised on

the fact that he ultimately received the required disclosures.

Rather, it is that Sky Bank, who acted as Vallies’ only creditor,

failed to disclose the required information itself, instead relying

on an independent third party. This reliance, and Sky Bank’s

requisite failure to disclose the information itself, represents a

violation of the clear language and meaning of the TILA

requirement that all disclosures be made by a single creditor.

       Sky Bank relies on Rivera v. Grossinger Autoplex, Inc.,

274 F.3d 1118 (7th Cir. 2001) to bolster the District Court’s

opinion that the TILA does not require all disclosures to be

made by a single creditor. They argue that under Rivera, so

long as a separate addendum for GAP coverage is disclosed, the

                                12
requirements of the TILA will be satisfied, thereby absolving

Sky Bank of any possible violation. Although Sky Bank is

certainly correct that an addendum for GAP coverage can satisfy

the TILA requirements for the disclosure of information,

nothing in Rivera or the TILA permits the creditor to shift its

responsibility to disclose the GAP addendum to anyone other

than the creditor. This is due, of course, to the fact that in

Rivera, both the GAP addendum and the other TILA

requirement were disclosed to the consumer by a single creditor

- the creditor was in full compliance. Thus, while a separate

disclosure may, in certain situations, be acceptable under the

TILA, this fact does nothing to annul the plain language

requirement that all disclosures be made by the actual creditor,

and not some third party. Furthermore, there is only one closed-

end credit situation, under the TILA, where an actual creditor

may delegate his responsibility to disclose information: if a

                              13
credit plan involves more than one creditor, 12 C.F.R. §

226.17(d) allows creditors to agree among themselves which

creditor must comply with the TILA disclosure requirements.

§ 226.5(d). Although this provision does allow creditors to

delegate their disclosure responsibilities, it does so for the sole

purpose of allowing a single creditor to disclose all the

information. We therefore again emphasize that the plain

language and purpose of the TILA is to ensure that the

responsibility to make disclosures is placed solely with the

actual creditor or, in cases where there may be multiple actual

creditors, a single creditor.

       We note once more that Vallies’ claim is not that he

failed to receive any of the required information, or that the

GAP waiver could not be disclosed separately. Instead, the

basis of his claim, with which we agree, is that the TILA places

a clear and affirmative duty on the actual creditor itself to

                                14
disclose any and all required information pertaining to GAP

coverage and that where the creditor fails to disclose this

information, it has violated TILA regardless of the ultimate

receipt of information.

       Moreover, our conclusion that the TILA requires a single

creditor to make disclosures is neither hypertechnical nor overly

formalistic. The creditor need only follow the law: where more

than one distinct party is allowed to make disclosures, the

likelihood that conflicting or confusing information will be

disclosed dramatically increases. Indeed, the single-creditor

requirement exists in order to prevent exactly the type of

behavior exhibited by Sky Bank. Here, the disclosure made by

Sky Bank and those made by Fitts are inconsistent and

confusing in material ways. For instance, the Fitts Gap Waiver

agreement makes clear that Vallies paid $395.00 for GAP

insurance while the Sky Bank agreement fails to note that

                               15
Vallies paid anything to Fitts or even that Vallies obtained GAP

insurance.   This difference materially changes the legal

obligations between the parties since the Sky Bank agreement

contains no mention of the purchase of GAP insurance or the

fact that Sky Bank did indeed finance Vallies’ purchase of the

GAP insurance.

       The    single-creditor    requirement   represents    an

understanding that when one creditor is required to make all

disclosures, those disclosures will likely be more consistent,

ordered and clear to the consumer.       Although Vallies did

ultimately receive all the required information, the information

he received from Sky Bank differed in both its form and its

substance from the information he received from Fitts, in

violation of the clear language of the TILA requirements.

Nowhere in the TILA statute or its implementing regulations

does it declare that a creditor may avoid the requirements as

                                16
long as the consumer somehow gets the information. To allow

this would defeat the plain language meaning of the statute. The

primacy of the regulations, therefore, do not simply exist to

elevate form over function. Rather, they exist in their form to

best protect consumers.

       Because the District Court erroneously concluded that the

TILA does not require a single creditor to make all required

disclosures relating to debt cancellation fees we reverse the

grant of summary judgment in favor of Sky Bank and remand

for further proceedings in accordance with this opinion.
