Chrysler Credit v. Silva, Inc.

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 93-1851

                        MICHELE MAYES,

                    Defendant, Appellant,

                              v.

                 CHRYSLER CREDIT CORPORATION,

                     Plaintiff, Appellee.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

       [Hon. Edward F. Harrington, U.S. District Judge]
                                                      

                                         

                            Before

                     Breyer,* Chief Judge,
                                         

            Torruella and Boudin, Circuit Judges.
                                                

                                         

Christopher C. Trundy for appellant.
                     
Paul  Marshall Harris with whom  Lynne F. Riley and  Powers & Hall
                                                                  
were on brief for appellee.

                                         

                       October 11, 1994
                                         

                

*Chief  Judge Stephen Breyer heard  oral argument in  this matter, but
did not  participate in  the drafting or  the issuance of  the panel's
opinion.   The remaining  two panelists  therefore issue  this opinion
pursuant to 28 U.S.C.   46(d).

     BOUDIN, Circuit  Judge.   In 1984, Jean  Mayes purchased
                           

Albert L.  Silva, d/b/a Rainbow Motors  ("Rainbow Motors"), a

Nantucket car dealership.   In May 1985 he then  entered into

financing  arrangements  with  Chrysler   Credit  Corporation

("Chrysler") to  finance his  car inventory.   The "borrower"

was  to be Rainbow Motors, Jean Mayes being its president and

sole shareholder.

     To  support  the financing,  Chrysler required  not only

Jean  Mayes but  also  his wife,  Michele  Mayes, to  sign  a

"Continuing  Guaranty,"  a  document  imposing  unconditional

joint and several  liability on the guarantors for  the debts

of Rainbow Motors  to Chrysler.   Michele Mayes  was a  well-

compensated  corporate attorney  and also  owned or  co-owned

land  rented  to Rainbow  Motors.    She assertedly  did  not

participate  in  managing the  dealership,  although  she was

listed  as  a  director  and  officer.    Allegedly,  it  was

Chrysler's practice to seek spousal guaranties as a matter of

course.

     Rainbow Motors  thereafter accumulated  a large debt  to

Chrysler and, in December  1990, Chrysler brought the present

action  against  Rainbow  Motors  and Michele  Mayes  in  the

district  court seeking  payment  of an  outstanding debt  of

$750,126.41.  Michele Mayes did  not dispute the existence of

the guaranty  but pleaded waiver and  estoppel as affirmative

                             -2-

defenses to Chrysler's claim against her.   Michele Mayes did

not assert any counterclaim.  

     A non-jury trial was  held in the district court  on May

25  and 26, 1993.  In a brief memorandum and order on May 26,

1993,  the district  court said  that Michele  Mayes had  not

presented adequate evidence at trial to support her equitable

defense  of waiver  or estoppel.   The  court also  said that

Mayes had  argued  at trial  that the  guaranty violated  the

Equal Credit Opportunity Act,  15 U.S.C.   1691 et  seq., but
                                                        

the  court said that this defense had been waived because not

asserted in the answer,  and was in any event  without merit.

The district court entered judgment  in favor of Chrysler and

against both  Rainbow Motors and Michele Mayes  in the amount

of $750,126.41.  Michele Mayes alone has appealed.

      We address  first her principal argument,  based on the

Equal Credit Opportunity  Act.  Michele Mayes' brief does not

respond  directly to  the  district court's  ruling that  the

statutory defense has been waived for failure to assert it in

the answer.  See Fed. R. Civ. P. 8(a).  The indirect response

appears  to be two-fold:  first, that the  district court did

resolve the issue on  the merits; and second, that,  at least

in the indirect "public policy" version in which the  defense

is urged, it is  embraced by the "estoppel" defense  that was

properly pleaded.

                             -3-

     We have some doubt about either branch of this response.

In  its  final  decision,  the district  court  prefaced  its

footnoted  discussion of the merits by saying that it did not

need to reach  the issue.   As for the estoppel  defense, the

answer merely  said as  an affirmative defense  that Chrysler

"because  of its  own  actions" should  be estopped,  without

identifying  any  such  actions or  mentioning  the  statute.

Nevertheless, we  think  that Mayes  has  no defense  on  the

merits and prefer to rest our decision on that ground.

     The district court said that a  violation of the statute

could   not  be  asserted  as   a  defense  but   only  as  a

counterclaim.  There appears to be more than one view on this

issue,  but  Michele  Mayes  does not  challenge  the  ruling

directly.    Instead   her brief  responds  that she  has not

argued  "that there was a  violation of the  ECOA, but rather

that the policy of the act should be applied to the guarantee

by  the  Court  sitting  in  equity."   This  rather  awkward

formulation, casting  the defense as one of public policy, is

apparently designed to meet yet another concern.

     The  Equal Credit Opportunity  Act pertinently provides,

in  general  terms, that  a  creditor  may not  "discriminate

against any applicant, with respect to any aspect of a credit

transaction .  .  . on  the basis  of .  . .  sex or  marital

status."    15 U.S.C.    1691(a)(1).    At the  time Chrysler

secured Mayes' guaranty  in 1985, a regulation of the Federal

                             -4-

Reserve  Board--the  then-operative version  of  12  C.F.R.  

202.2(e)--expressly provided  that  a guarantor  was  not  an

"applicant."   See  Morse v.  Mutual Federal  Savings &  Loan
                                                             

Ass'n, 536 F. Supp. 1271, 1278 (D. Mass. 1982) (Aldrich, J.).
     

     This regulation apparently reflected the Federal Reserve

Board's understanding of the statute's original purpose.  The

statute was initially designed, at least in  part, to curtail

the  practice of  creditors  who refused  to  grant a  wife's

credit application without a guaranty from  her husband.  See
                                                             

Anderson v. United Finance Co., 666 F.2d 1274, 1277 (9th Cir.
                              

1982).  Under the  original Federal Reserve Board regulation,

a  wife  (or a  husband) who  was  denied credit  because the

spouse  refused to guarantee the  loan might have  a cause of

action, depending on the  circumstances; but where the spouse

did guarantee the loan, that spouse--not being an applicant--

had no basis for a claim or any defense against collection.  

     Eventually  the   Federal  Reserve  Board   revised  its

regulation,  effective on  October  1,  1986,  extending  the

definition of an "applicant" to include "guarantors . . . and

similar parties."  12 C.F.R.   202.2(e), adopted 50 Fed. Reg.

48026 (Nov. 20, 1985).  Michele Mayes does not claim that the

regulation applies retroactively to her case.  Cf.  Boatman's
                                                             

First National Bank v. Koger, 784 F. Supp. 815 (D. Kan. 1992)
                            

(holding that the regulation  is not retroactive).  Instead--

                             -5-

to put  the best face  on her argument--she  can be  taken to

urge that  Chrysler's conduct  was unlawful, both  before and

after  the new  regulation, even  if a  pre-October 1,  1986,

guarantor  had no standing to assert a direct claim under the

statute.    Public  policy,  in   effect,  is  offered  as  a

substitute for standing. 

     Assuming arguendo a violation by Chrysler, we think that
                      

Mayes' contention has some  weight but not quite enough.   If

Chrysler's  conduct  in  seeking  the  spousal  guaranty  was

unlawful  when the  financing  arrangement was  made, Michele

Mayes' defense would not directly affront the general precept

that  a  party's conduct  should be  judged  by the  rules in

effect  when the  conduct occurred.   See generally  Bowen v.
                                                          

Georgetown University Hospital, 488 U.S. 204, 208 (1988).  On
                              

the   other  hand,   there  remains   a  strong   element  of

retroactivity  in  what Mayes  seeks  in this  case,  and her

argument  depends on a  rather loose description  of what was

arguably unlawful in Chrysler's conduct.

     At the time Chrysler  made the financing arrangements in

question and  secured the  guaranty, Chrysler might  have had

reason  to believe that it  should not seek  the guaranty and

might be liable  to the de facto borrower (Jean  Mayes) if it
                                

refused to extend credit to  him without a spousal guarantee.

But at  that time the core  of the conduct  made unlawful was

withholding or conditioning  the loan to the borrower.  Under

                             -6-

the  regulation as it then  stood, Chrysler had  no reason to

think  that  it would  be unable  to  collect on  any spousal

guaranty  since the  regulation  said that  the  guaranteeing

spouse was not a protected party.

     The Federal Reserve Board  has changed its position now,

the guarantor  is protected by  the terms of  the regulation,

and Chrysler is now  on notice that  such a defense might  be

attempted.  But we  think it stretches public policy  too far

to bar Chrysler  from collecting  now on a  guaranty made  in

1985  when in 1985 its right to collect on the guaranty would

not  reasonably have been thought in doubt.  Put differently,

the regulation's change in "standing" is actually a surrogate

for  an enlarged  view of what  is unlawful  about Chrysler's

conduct.

     One  might  imagine cases  where  a  public policy  that

arises after the  event is of such a force and character that
            

it should be applied  even to conduct that occurred  prior to

the  new   regime;  after   all,   the  presumption   against

retroactive statutes can be  overcome when Congress  provides

for retroactivity.   E.g., Pension Benefit  Guaranty Corp. v.
                                                         

R. A. Gray & Co., 467 U.S. 717 (1984).  But in this appeal we
               

are given  no reason to think  that our case presents  such a

rare and exigent  situation.  Accordingly, we  have no reason

to consider Chrysler's defense of its conduct on the merits.

                             -7-

     Two remaining  claims of error can  be answered quickly.

First,   Michele  Mayes   argues  that   Chrysler  introduced

irrelevant and prejudicial information into the proceeding by

referring to the bankruptcy of her husband, by claiming  that

her statutory  defense was belatedly pled,  and by attempting

to show that Chrysler  had good reason for requiring  her own

guaranty  in  this  instance.    All  of  these  matters  are

irrelevant to our own legal  determination which is based  on

the  fact that  the  guaranty  predated  the  change  in  the

regulation.  

     Second, Michele Mayes renews  on appeal an argument that

she  has an  equitable  defense because  Chrysler itself,  by

cutting  off credit  temporarily to  Rainbow Motors  in 1988,

caused the financial hardships that led to its default on the

debt.   This argument rests  entirely on the  brief's central

proposition  that "the  uncontroverted testimony  of [Michele

Mayes']   witnesses  was  that   Chrysler  Credit  wrongfully

withheld agreed upon financing  for the 1989 selling season."

Although  there are no findings on this point, a brief review

of  the  record   shows  that  the  situation  is   far  more

complicated  than  the  "uncontroverted testimony"  reference

would suggest.

     It  appears   that   Chrysler  also   financed   another

dealership of  Jean Mayes located  in Hingham, Massachusetts,

that   the  credit  arrangements  were  in  certain  respects

                             -8-

interrelated, and  that the "hold" placed  on Rainbow Motors'

financing was connected to  alleged problems with the Hingham

dealership.  Whether or  not the cutoff of credit  to Rainbow

Motors   was  wrongful,  wrongfulness  was  certainly  not  a

conceded issue  at trial.   It is  the obligation of  one who

appeals  on  such  grounds  to  address  the  evidence.   The

treatment of this  point offered in Michele Mayes' brief does

not attempt the task.  

     Affirmed. 
             

                             -9-