On Suggestion for Rehearing En Banc
Civil Action 257-71
Before BAZELON, Chief Judge, and WRIGHT, McGOWAN, TAMM, LEVEN-THAL, ROBINSON, MacKINNON, ROBB and WILKEY, Circuit Judges.ORDER
PER CURIAM.The suggestion for rehearing en banc and memorandum in support thereof filed by appellees Claude L. Slaughter et a 1. having been transmitted to the full court and there not being a majority of the judges in regular active service in favor of having these eases reheard en banc, it is
ORDERED by the court en banc that the aforesaid suggestion for rehearing en banc is denied.
LEVENTHAL, Circuit Judge, did not participate in the foregoing order.Statement of
J. SKELLY WRIGHT, Circuit Judge,in Which
BAZELON, Chief Judge, and McGOWAN and SPOTTSWOOD W. ROBINSON, III, Circuit Judges, Join, of Reasons for Voting for Rehearing En Banc.This case involves an extensive consumer fraud operation in the District of Columbia. Innumerable inner city homeowners were bilked out of their homes through the customary “holder in due course” technique commonly used in home improvement frauds of this kind. In finding that appellants were not holders in due course1 of the notes which had admittedly been obtained by fraud from the homeowners, District Judge Gesell wrote:
In concluding that Jefferson and Montgomery were not holders in due course, the Court has weighed the totality of the circumstances shown by the proof. It must be borne in mind that neither of these concerns stand in the same position they could readily urge if, as part of their general business, they had occasionally written a first trust loan generated by Monarch. Their volume of Monarch business was in each case continuous and substantial. Their representatives knew that Monarch’s contracts were being *55written on marginal properties in the ghetto areas of the city; that many of Monarch’s customers were of limited intelligence and, as a class, were apt to be heavily burdened with consumer and other debt measured by their apparent income levels; and that many were being refinanced out of other satisfactory notes of reputable financial institutions having lower interest rates and lower monthly payments. Their trained real estate men saw the properties and the work being done and had access to the contract charges they were helping to finance.
Rather than make obvious inquiry into Lapin’s bona fides and the contract requirements and settlement adjustments, they chose to be ignorant by trying to insulate themselves from the realities of their activity. The contracts and settlement sheets were at their disposal and revealed both internal irregularities and contradictions between the two documents. They were on notice that Lapin had ties with Monarch as he repetitively peddled loans to them. They were thus chargeable with a heavy duty to be assured that his purported representation of the borrower was aboveboard, for he was obviously acting for two principals whose interests could well be in conflict. See Metropolitan Casualty Ins. Co. v. Potomac Builders’ Supply Co., 61 App.D.C. 255, 61 F.2d 407 (1932). Given their superior knowledge of building costs and financial matters and the opportunity they had to observe and to question, plus the obvious need to inquire which the circumstances presented, they cannot rely on their self-induced ignorance to put themselves into a position of holders in due course. In short, there were many warnings of irregularity which even limited inquiry would have readily disclosed.
Jefferson and Montgomery may not in the light of these irregularities and indicia of fraud be heard to suggest that the proof as to a particular plaintiff does not put them on precise notice of misrepresentation and unconscionable dealing. All of the plaintiffs were targets of the fraud. The education, understanding, recollection and details of each borrower’s dealings vary, but the pattern is overwhelmingly apparent, and had either of these associations taken appropriate precautions, under the circumstances presented they would have ceased facilitating Monarch’s scheme, and none of the plaintiffs would have been serviced regardless of the particular course of their individual dealings with Monarch. * *
This is an equitable proceeding and the Court must consider the obvious commercial realities presented by the record before it. Indeed the Uniform Commercial Code itself recognizes something more than actual notice may suffice to destroy the holder in due course defense. The Court finds the commercial realities persuasive in determining that Jefferson and Montgomery did not act in good faith, and were on notice because they “should have known.” These sophisticated financial institutions were concerned solely with the sufficiency of their security. But they were not dealing with comparably sophisticated borrowers experienced in commercial matters. The borrowers, many of whom were semi-literate, had no clout. They were threatened with loss of their homes if they raised any question and went forward, sometimes with enormous sacrifice, resigned in their ignorance to pay off unjustifiable charges to keep a roof over their heads. Where lenders facilitate consumer credit financing they must be held to a high standard of inquiry to make certain their services are not being misused by unscrupulous merchandisers such as Monarch.
The District Court correctly applied the “all the facts and circumstances” test in determining the lenders’ knowledge and good faith with respect to the fraud. See Blow v. Ammerman, 121 U.S.App.D.C. 351, 350 F.2d 729 (1965); Calvert Credit Corp. v. Williams, 244 A.2d 494 (D.C.App. 1965). The panel opinion of this court, reversing the District Court, does not in terms reject this standard. In my judgment, however, the panel’s rejection of the District Court’s *56findings of fact and conclusions on mixed questions of fact and law exceeds the proper limits of appellate review. See Rule 52(a), Fed.R.Civ.P. It is, of course, true that the panel opinion applies only to the particular facts developed at trial in this case, and does not foreclose even the other victims of the Monarch fraud from succeeding in suits similar to this one.2 Nevertheless, I submit that the substantial injustice done to the 37 plaintiffs in this case, the de novo nature of the panel’s review of the evidence before the District Court, and whatever possibility exists that the panel’s opinion will lead to an undue broadening of the availability of the holder in due course defense warrant rehearing en bane.
Statement of
McGOWAN, Circuit Judge,in Which
BAZELON, Chief Judge, and J. SKELLY WRIGHT and SPOTTSWOOD W. ROBINSON, III, Circuit Judges, Join, of Reasons for Voting for Rehearing En Banc.I join in Judge Wright’s statement, believing that the panel’s treatment of the findings of the District Court appears to exceed the limitations of Rule 52(a), Fed.R. Civ.P., to a degree warranting en bane examination. It seems appropriate to note, however, that the substantive law, ■■if any, made by this court’s decision in this case may well have significance only for the parties to it. This is because the central question at issue involves local, not federal, law; and as such is subject to authoritative and binding determination by the local courts of the District of Columbia.
This case was in the District Court only because the jurisdictional allocations of the D.C. Court Reorganization Act had not yet become fully effective when it was filed. Commenced today, it would have to be brought in the local courts. And, of course, even the same question arising today in a diversity case in the District Court would be governed by whatever rule is established by the local courts. The potential of this case for “undue broadening of the availability of the holder in due course defense” can thus derive only from such persuasiveness as it may have for courts not required to follow it. And that persuasiveness is surely impaired to the extent that settled and obligatory standards of appellate review of trial court findings have not been observed.
. The burden of proof rests on one claiming to be a holder in due course. 28 D.C.Code § 3-307(3) (1973); United Securities Corp. v. Bruton, 213 A.2d 892 (D.C.App. 1965).
. Although this suit was originally filed as a class action, certification of the class was denied by the District Court.