Perrone v. General Motors Acceptance Corp.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 99-30958

PAULA PERRONE, Individually and on behalf of others similarly
situated; ET AL;

Plaintiffs,

GILBERT V. ANDRY, JR.; PAUL PERRONE; DORIS MCCULLOUGH

Plaintiffs-Appellants,

v.

GENERAL MOTORS ACCEPTANCE CORPORATION,

Defendant-Appellee.

Appeal from the United States District Court for the
Eastern District of Louisiana

November 2, 2000

Before POLITZ, JONES and STEWART, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Appellants, a class of automobile lessees who brought an

action under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et

seq., and the Consumer Leasing Act (“CLA”), 15 U.S.C. § 1667,

against General Motors Acceptance Corporation (“GMAC”) have been

granted an interlocutory appeal on the question of whether

detrimental reliance must be proven to recover damages for a
disclosure violation arising under those statutes. 28 U.S.C. §

1292(b). Agreeing with the district court that detrimental

reliance is an element of a claim for actual damages, we remand to

that court for further proceedings.

I. BACKGROUND

Doris McCullough, Gilbert V. Andry, Jr., and Paul Perrone

(“Appellants”), individually and as representatives of a class,

sued GMAC for its alleged failure to disclose and identify an

administrative/acquisition fee in their pre-printed form contracts

for automobile leases. Appellants sought actual damages, statutory

damages and attorneys’ fees pursuant to the civil liability

provisions of CLA and TILA. See 15 U.S.C. § § 1640(a)(1),(2),

1667d.

Appellants signed pre-printed form vehicle lease

agreements with automobile dealerships that were subsequently

assigned to GMAC. They allege that the GMAC leases, used by

dealers throughout the country, did not identify an “acquisition

fee” of $400 charged by GMAC to the dealer at the inception of each

lease. The non-itemization, they contend, violated the CLA and

TILA and inflicted damages of $400 per lease.

GMAC responds that because the $400 fee was included in

the computation of both the monthly amounts and total payments

under the leases, it was sufficiently disclosed. Thus, the

appellants knew exactly how much they were paying for their leases

2
at signing and were charged no more than the disclosed amounts.

While making the disclosure in question would not have changed

either the monthly payment amount or the total payment disclosed in

the leases, GMAC adds, the damages sought by the lessees could add

up to several hundred million dollars.

The district court certified a class consisting of,

All natural persons resident in the U.S. who, at any time
during the period after August 16, 1996 and prior to
January 1, 1998, were parties to a motor vehicle lease
agreement with GMAC or a lease which has been assigned to
GMAC and whose lease: (1) were for a scheduled term in
excess of four months; (2) primarily for personal,
family, or household purposes; (3) for a total
contractual obligation of $25,000 or less; and (4)
wherein an administrative/acquisition fee was paid by
and/or was charged the lessee and was not individually
itemized and/or was not identified as an
administrative/acquisition fee on the face of the lease
agreement.

Subsequently, the court granted GMAC’s motion to clarify the scope

of the class regarding actual damages. Finding that “in order to

prove actual damages, [each] plaintiff must prove detrimental

reliance,” the court then declined to certify the Appellants’ class

action as to the actual damages claim. A request for certification

of an interlocutory appeal was approved by the district court and

this court.

II. DISCUSSION

"In a statutory construction case, the beginning point

must be the language of the statute, and when a statute speaks with

clarity to an issue, judicial inquiry into the statute's meaning,

3
in all but the most extraordinary circumstance, is finished."

Estate of Cowart v. Nicklos Drilling, Co., 505 U.S. 469, 475, 112

S.Ct. 2589, 2594 (1992). The CLA, 15 U.S.C. § 1667-1667(e),

comprises Chapter 5 of TILA, 15 U.S.C. § 1601 et seq., and adopts

TILA’s civil remedies provision, including the actual damages

remedy, for violations of lease disclosure requirements. 15 U.S.C.

§ § 1640, 1667(d). Section 1640(a)(1) of TILA provides that

plaintiffs may recover “any actual damage sustained by such person

as a result of the failure” to make required consumer disclosures.

The meaning of that subsection is at the heart of this appeal.

Sections 1640(a)(2), (3), and (4) provide for statutory damages,

attorney’s fees and costs.

“Courts give the words of a statute their ‘ordinary,

contemporary, common meaning,' absent an indication Congress

intended them to bear some different import.” Williams v. Taylor,

___ U.S. , 120 S.Ct. 1479, 1488 (2000). Black’s Law Dictionary

defines actual damages as “[c]ompensation for actual injuries or

loss.” Black's Law Dictionary 35 (6th ed. 1990). They “flow[]

from injury in fact” and "make good or replace the loss caused by

the wrong or injury." Id. (emphasis added). According to its

plain meaning, the statutory remedy of “actual damages” in section

1640(a)(1) requires a direct causal relationship between the amount

of damages and the injury or harm. That the “actual damages” must

be “sustained by such person as a result of the failure” links the

4
loss to the failure to disclose. 15 U.S.C. § 1640(a)(1). Actual

damage is thus sustained as a result of a failure to disclose under

the statute if a consumer can show that, had he been properly

informed, he would have engaged in a different or less-expensive

transaction.

If the plain meaning alone does not clearly enough

indicate that plaintiffs must show detrimental reliance upon a

lessor’s disclosure violation, the requirement becomes manifest

when § 1640(a) is placed in its statutory context and contrasted

with the statutory liquidated damages provision.

Preliminarily, it is appropriate to examine the harm that

Congress seeks to prevent through enforcement of the CLA and TILA.

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.

§ 1601(b). Congress concluded that consumers are harmed by a

disclosure violation when it prevents them from making informed

leasing decisions because they are unable accurately to compare

contract terms. Evaluating whether an actual harm results from a

disclosure violation requires, first, that the consumer relied on

5
the particular lease terms; second, that the disclosure violation

deterred him from inquiring into other lease alternatives; and

third, that the alternatives would save money. In essence, the

statute is addressing and seeking to combat detrimental reliance.

The CLA recognizes, however, that damages in these

individually small transactions may be difficult to prove and

adjusts its remedy to afford actual damages or at least a statutory

minimum. A comparison of these provisions supports the conclusion

that actual damages are based on detrimental reliance. While the

actual damages provision requires a casual connection with the

disclosure violation, 15 U.S.C. § 1640(a)(1), the statutory damages

provision dispenses with causation and imposes a penalty solely for

failure to comply with disclosure requirements. 15 U.S.C. §

1640(a)(2). Without a causation requirement, actual damages would

overlay the statutory damages for no apparent reason.

Conceptually, however, statutory and actual damages perform

different functions: statutory damages are reserved for cases in

which the damages caused by a violation are small or difficult to

ascertain. Actual damages may be recovered where they are probably

caused by the violation. In this way, the damage measures are

complementary rather than duplicative.

The caselaw confirms that statutory damages may be

imposed as a means to encourage private attorneys general to police

disclosure compliance even where no actual damages exist. See

6
Davis v. Werne, 673 F.2d 866, 869 (5th Cir. 1995)(“‘The statutory

damages are explicitly a bonus to the successful TILA plaintiff,

designed to encourage private enforcement of the Act, and a penalty

against the defendant, designed to deter future

violations.’”)(quoting Dryden v. Lou Budke’s Arrow Finance Co.,630

F.2d 641, 647 (8th Cir. 1980)); see also Edwards v. Your Credit,

Inc., 148 F.3d 427, 441 (5th Cir. 1998)(“the statutory civil

penalties must be imposed for . . . a [TILA] violation regardless

of the district court’s belief that no actual damages resulted or

that the violation is de minimus”) (quoting Zamarippa v. Cy’s Car

Sales, Inc., 674 F.2d 877, 879 (11th Cir. 1982)). On the other

hand, actual damages have consistently been recognized as more

difficult to prove. See Wood v. Flatau, 643 F.2d 188, 193 (5th Cir.

1980)(“[S]tatutory damages compensate the debtor for actual damages

that may in fact be ‘difficult to ascertain.’”); see also McCoy v.

Salem Mortgage Co., et al., 74 F.R.D. 8, 12 (E.D. Mich. 1976)(“[I]t

seems likely that if actual damages could be computed by a simple

formula, no statutory damage provision would have been

necessary.”). The distinction between statutory and actual damages

comports with the notion that actual damages awards must be

assessed as an individualized harm.1 See Williams v. Public

1
In McGowan v. King, Inc., this court stated that the basis of
liability under section 1640(a) is “the failure to disclose information required
to be disclosed” but that there was “no requirement that the plaintiff himself
be deceived in order to sue in the public interest.” 569 F.2d 845, 849 (5th Cir.
1978). Our discussion of the remedial scheme, however, was only in the context
of the “statutory penalty” awarded to the plaintiff. Id. We made no mention of

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Finance Corp., 598 F.2d 349, 356 (5th Cir. 1979)(“The remedial

scheme in the TIL Act is designed to deter generally illegalities

which are only rarely uncovered and punished, and not just to

compensate borrowers for their actual injuries in any particular

case.”). See also The Law of Truth in Lending, ¶ 12.04[a] (1984)

(“[F]ew if any TIL plaintiffs have proven or can prove actual

damages”.).

In addition, the only other circuit decision on this

issue holds that detrimental reliance is an element of causation in

an actual damages award. Setting forth the elements for an actual

damages award under § 1640, the Eighth Circuit held that a

plaintiff must prove that the “TILA violation was the proximate

cause of any actual damages.” Peters v. Lupient Oldsmobile Co.,

No. 99-2783, 2000 WL 1133841, *2 (8th Cir. August 11, 2000). In

other words, a plaintiff must show that “(1) he read the TILA

disclosure statement; (2) he understood the charges being

disclosed; (3) had the disclosure statement been accurate, he would

have sought a lower price; and (4) he would have obtained a lower

price.” Id. The plaintiff had bought credit life and disability

insurance from a used car salesman for premiums paid to an

insurance company. The contract for the policies did not disclose

that commissions were paid to the car company for the sale.

Instead, the contract listed the premium totals as amounts paid to

the actual damages provision.

8
third parties on the plaintiff’s behalf. The plaintiff sued for

actual damages under TILA. The Eighth Circuit concluded that the

plaintiff failed to meet the fourth element of its test because

there was no evidence that he would have received a lower premium

from any other insurance provider or that he suffered any actual

damages.

Appellants urge us to follow the reasoning of the dissent

in the Peters decision.2 Urging a broad interpretation to

effectuate the statute’s purpose of protecting the consumer against

inaccurate and unfair credit billing, the dissent asserts that

actual damages in TILA claims should be measured by the amount of

the violators’ misrepresentation. The dissenting opinion cites

Gibson v. Bob Watson Chevrolet-GEO, Inc., 112 F.3d 283, 285-87 (7th

Cir. 1997) and Jones v. Bill Heard Chevrolet, Inc., 212 F.3d 1356,

1363 n. 7 (11th Cir. 2000) as support. Neither of these cases,

however, speaks directly to the issue of actual damages. In Jones,

the Eleventh Circuit, in a footnote, rejected the defendant’s

contention that the TILA claim failed because the plaintiff could

not demonstrate reliance on its misrepresentation. Jones did not

address whether an award of actual damages requires proof of

detrimental reliance. In fact, the opinion does not indicate

whether the plaintiffs even sought actual as opposed to statutory

2
Appellants also argue that the plaintiff in Peters did not contest
that the four-part test was the proper analysis for determining an actual damages
recovery. Peters, 220 F.3d at 917. Peters nonetheless convincingly states the
law, and we ordinarily defer to the decisions of sister circuits.

9
damages. In Gibson, the Seventh Circuit concluded that the

plaintiff stated a claim under TILA without showing that a lower

price could have been obtained elsewhere, but again, the court did

not distinguish between the remedies of actual or statutory

damages.3 Thus, the cases relied upon by the Peters dissent are

not compelling.

We also take guidance from the Eleventh Circuit. In

Adiel v. Chase Federal Savings & Loan Assoc., 810 F.2d 1051 (11th

Cir. 1987), a class of mortgagors prevailed in a lawsuit to

recover damages from Chase Federal Savings and Loan Association

("Chase") for Chase's failure to present them with truth-in-lending

documents. Id. at 1053. The district court adopted a "but-for"

test similar to detrimental reliance in its determination of

whether to award actual damages. Adiel v. Chase Federal Savings &

Loan Assoc., 630 F. Supp. 131, 133 (1986). The Eleventh Circuit

affirmed the award of statutory damages and the district court's

denial of actual damages. Adiel, 810 F.2d at 1055. Indeed, the

overwhelming majority of district courts to address this issue have

held that detrimental reliance is an element of actual damages.4

3
Indeed, in Edwards v. Your Credit, Inc., this court cited Gibson for
the proposition that stating a claim for a TILA violation generally is different
from alleging the type of harm. 148 F.3d 427, 441 (5th Cir. 1998) (quoting
Gibson, 112 F.3d at 287 (“[T]he issue is not whether these violations are
technical, or whether technical violations should be actionable, or whether
consumer class actions should be discouraged, but whether the complaints in these
actions state a claim.”).
4
See, e.g., Anderson v. Rizza Chevrolet, Inc., 9 F. Supp. 2d 908, 913
(N.D. Ill. 1998); Barlow v. Evans, 992 F. Supp. 1299,1310 (M.D. Al. 1997); Wiley
v. Earl's Pawn & Jewelry, Inc., 950 F. Supp. 1108, 1114 (S.D. Al. 1997)

10
 Appellants make various arguments in support of their

position that detrimental reliance should not be an element of

actual damages. First, they would have us follow the reasoning of

In re Russell, 72 B.R. 855 (Bankr. E.D. Pa. 1987), where a

bankruptcy judge articulated the test for actual damages as one

where there has been a “substantial violation” as opposed to a

“technical violation” of the statute. The plain language of the

statute makes no such distinction. Nor has this court held that

actual damages are to be confined to substantial violations.

Moreover, this test would call upon the court to differentiate

between technical and substantial violations. Such a test “marks

a radical departure from established Truth in Lending case law.”

D. Edwin Schmelzer, Truth in Lending Developments in 1987: An

Active Year on Several Fronts, 43 Bus. Law. 1041, 1067-68 (May,

1988).

Appellants also advocate their version of principles of

contract law. They assert that TILA and CLA govern the contractual

relationship between the parties. By not itemizing the acquisition

fee, GMAC allegedly deprived the consumers of the benefit that they

bargained for when they signed their agreements. Traditional

breach of contract principles would give the aggrieved parties the

“benefit of the bargain,” which would place them in the position

("[u]nless a person can prove that he would have gotten a better interest rate
or, perhaps, foregone the loan altogether, he has suffered no actual loss”);
Ciron-Shadow v. Union Nissan of Waukegan, 955 F. Supp. 938, 943 (N.D. Ill. 1997);
McCoy v. Salem Mortgage Co., 74 F.R.D. 8, 12 (E.D. Mich. 1976).

11
they would have had if the violation had not occurred. A return of

the $400 acquisition fee, they contend, would accomplish that goal;

reliance is irrelevant.

Even if this is a correct statement of contract law, we

disagree with the attempt to transform this statute-based claim

into one founded on contract. Congress gave no indication that

courts should base damage awards on anything other than the

explicit words of the statute. Rather, “[w]ith rigorous regard for

providing consumers with full disclosure of the terms and

conditions of credit purchases, Congress fashioned an elaborate

system of remedies and penalties to effectuate compliance with the

Truth-in-Lending Act and to redress grievances stemming from its

violation.” Sosa v. Fite, 498 F.2d 114, 117 (5th Cir. 1974). The

statute is not a remedy for breach of contract. “The damage

provisions, providing minimum and maximum limits, [are]

inconsistent with such a thesis. Rather, sec. 1640 provides a

‘civil penalty.’” Sellers v. Wollman, 510 F.2d 119, 122 (5th Cir.

1975).

Next, appellants argue that the overall structure of TILA

establishes that detrimental reliance is not an element of

recovery. For example, proof of detrimental reliance is

unnecessary for either regulatory enforcement or creditor self-

policing. By contrast, they contend, the remedy of restitution is

imbedded within the statute. First, appellants assert that

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Regulation M, 12 C.F.R. § 213 et. seq., the regulation implementing

the consumer leasing provisions of TILA, made lessors subject to

the enforcement agencies’ restitution policy. Second, they focus

on the “correction of errors” provision, which allows a creditor to

avoid civil liability if, within sixty days after discovering an

error, it notifies the consumer of the error and makes whatever

adjustments are appropriate to assure that the person is not

required to pay an amount in excess of the charge actually

disclosed or the dollar equivalent of the annual percentage rate

actually disclosed, whichever is lower. 15 U.S.C. § 1640(b).

We disagree with the implications appellants claim from

other TILA remedial procedures. If Congress had meant for

restitution to be the measure of actual damages, it could have

easily said so in the statute. It did not. The fact that

restitution is an available remedy for some purposes does not mean

that Congress intended for this to be the measure of all other

damages. Administrative, self-policing, and civil remedies serve

distinct functions. Restitution seems more appropriate as a

regulatory penalty because it is easy to measure and because an

agency can be expected to enforce disclosure regulations with

prosecutorial discretion, reining in the most harmful violations.

The self-policing restitution remedy encourages prompt,

13
prophylactic cure of disclosure violations.5 The actual damage

remedy, however, speaks only to compensation of individual losses

suffered from violations. While the remedies may share the common

goal of increased disclosure, there is no reason to suppose that

they must share the same mechanism of enforcement.6

Appellants argue that we should apply to TILA the Supreme

Court’s reasoning in Affiliated Ute Citizens of Utah v. United

States, 406 U.S. 129, 92 S.Ct. 1456 (1972), in which the Court

allowed an action for damages without proof of reliance for any

material violation of Rule 10b-5. They attempt to analogize TILA

to Rule 10b-5 by stating that the mandate that lessors disclose

certain costs associated with obtaining credit, including the

“acquisition fee” at issue here, makes the existence of such costs

“material” facts. But, “[u]nlike 10b-5, the roots of Truth in

Lending are not in protection against common law fraud, and while

any Truth in Lending violation necessarily makes the task of

5
Finally, it is questionable whether the restitution remedy even
applies to the type of disclosure violation at issue here. GMAC argues that the
restitution authority of the administrative enforcement agencies is contained in
TILA Section 108(e) and is limited to Annual Percentage Rate and finance charge
disclosure violations by creditors. Such requirements do not apply to a consumer
lease. See 15 U.S.C. § 1607(e)(1). Appellants counter that Regulation M, 12
C.F.R. § 213.1 specifically incorporated the TILA “administrative enforcement”
provision, 15 U.S.C. 1607(e). In addition, they assert that because the Act
gives the Federal Reserve Board wide latitude in prescribing regulations and
delegates substantial enforcement powers, there is ample reason to find that
lessors may be subject to agency enforcement restitution adjustments.
6
Appellants also observe that because TILA admonishes courts to
consider “the amount of any actual damages awarded” in determining a class action
award, § 1640(a), Congress intended that actual damages are available and
anticipated for TILA class actions. There is no logical connection between this
statement and the separate question of what formula to apply for measuring actual
damages.

14
shopping for credit more difficult, that does not translate into a

‘material’ violation.” McCoy v. Salem Mortgage Co., 74 F.R.D. 8,

13 (E.D. Mich. 1976).

Both parties make use of legislative history. “Only if

we find the text of [a statute] to be opaque or translucent, or

even merely ambiguous, must we attempt to divine congressional

intent by applying prescribed canons of statutory interpretation

including, without limitation, a resort to the rule of lenity and

legislative history.” U.S. v. Barlow, 41 F.3d 935, 942 (5th Cir.

1994). While we need not rely on legislative history, it appears

to support the understanding that statutory damages serve as an

incentive to ensure compliance, while actual damages are regarded

as more difficult to prove.7

7
GMAC points to the fact that actual damages were not an available
remedy at the time of the initial enactment of TILA in 1968 in order to emphasize
that statutory damages were included in order to encourage enforcement by private
parties. Specifically, they note that the Senate Report accompanying the initial
enactment include this goal as the purpose of the civil penalties section. See
H.R. Rep. No. 90-1040, at 4 (1968), reprinted in 1968 U.S.C.C.A.N. 1962, 1976;
accord, S. Rep. No. 93-278, at 14 (1973) (“The purpose of the civil penalties
section under Truth in Lending was to provide creditors with a meaningful
incentive to comply with the law.”). When the act was amended in 1974, the
Senate Report discussing the amendments notes that “[s]ince it is difficult to
prove any actual monetary damage arising out of a disclosure violation, the Act
provides that a consumer bringing a successful action is entitled to collect
court costs and reasonable attorney’s fees plus twice the amount finance charge
but not less than $100 nor more than $1,000.” S. Rep. No. 93-278, at 14 (1973).
The report continues: “[m]ost Truth in Lending violations do not involve actual
damages and . . . some meaningful penalty provisions are therefore needed to
ensure compliance.” Id. at 15. In addition, the Senate Report that accompanied
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. 94-950 (1976), reprinted in 1976
U.S.C.C.A.N. 431, 432.

15
 Since individual reliance is necessary to prove actual

damages, a class action may not be certified on this issue. See

Castano v. American Tobacco Co., 84 F.3d 734, 745 (5th Cir. 1996).

CONCLUSION

For the foregoing reasons, the district court’s order

disallowing certification of the class with respect to actual

damages and requiring proof of detrimental reliance to establish

actual damages, is AFFIRMED. The case is REMANDED for further

proceedings consistent herewith.

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