United States District Court, E.D. Louisiana
LYLE A. WALES, ET AL,
ARIZONA RV CENTERS LLC, ET AL., Section
ORDER AND REASONS
IVAN L.R. LEMELLE, District Judge.
I. NATURE OF MOTION AND RELIEF SOUGHT
Before the Court is Defendant's, Bank of America, N.A. ("BOA"), Motion to Dismiss the claims asserted in Plaintiffs', Lyle and Judy Wales, Original and Amended Complaints pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted. (Rec. Docs. 16, 1, 5, 20). Plaintiffs oppose the instant motion. (Rec. Doc. 21). For the reasons that follow,
IT IS ORDERED THAT Defendants' Motion is DENIED.
II. FACTS AND PROCEDURAL HISTORY
This case arises out of the purchase by Plainitffs of a recreational vehicle ("RV"), to wit a 2013 DUTCHMEN VOLTAGE, VIN 47CFVTV38DC662699 (the "VOLTAGE"). (Rec. Doc. 20 at 3). Plaintiffs purchased the VOLTAGE on September 29, 2012 from Defendant Arizona RV Centers, LLC, a foreign limited liability company with registered agent for service of process in Phoenix, Arizona, and doing business as "Camping World RV Sales" ("Camping World"). (Rec. Doc.20 at 2-3). The sales price of the VOLTAGE was $97, 858.98, excluding finance charges. (Rec. Doc. 20 at 3). Plaintiffs made a net trade-in in the amount of $9, 863.49 and purchased an extended service contract for $6, 995.00. Id. In order to complete the purchase, Plaintiffs entered into a financing contract for the total transaction amount of $96, 408.49. Id. The sales contract was thereafter assigned to Defendant BOA for management. Id.
Plaintiffs allege in their Second Amended Complaint ("SAC") that, within the first year of the purchase of the VOLTAGE, the RV began to manifest various defective conditions, the particular details of which are immaterial for present purposes. (Rec. Doc. 20 at 4). Plaintiffs further allege that they made repeated attempts to have the manufacturer, Defendant Keystone RV Company, a foreign corporation authorized to do and doing business in the State of Louisiana ("Keystone"), service and repair the defects present in the VOLTAGE. (Rec. Doc. 20 at 1, 5). According to Plaintiffs, many nonconforming and defective conditions were never repaired and the VOLTAGE continues to exhibit various defects to this day. (Rec. Doc. 20 at 5). As a result, Plaintiffs notified Defendants of their desire to rescind the sale, which request was declined, prompting initiation of the instant suit. In the SAC, Plaintiffs allege: (Count 1) Violations of Louisiana Redhibition Laws; (Count 2) Lender Liability on the part of Defendant BOA; (Count 3) Violation of the Magnusson-Moss Warranty Act, 15 U.S.C. § 2301, et seq.; and (Count 4) Negligent Repair. (Rec. Doc. 20). Plaintiffs seek rescission of the sale, including collateral costs as of the time of sale, finance charges, insurance premiums, maintenance costs, repair costs, as well as applicable penalties and attorney's fees with legal interest from the date of judicial demand, which Plaintiffs allege exceed $100, 000.00.
III. CONTENTIONS OF MOVANT
BOA argues it is not a proper party to the instant suit in which Plaintiffs bring claims under Louisiana redhibition and negligence laws as well as the federal Magnuson-Moss Warranty Act, because BOA merely provided financing for the transaction at issue. Because these types of claims generally apply instead to sellers and manufacturers of the underlying products, BOA argues these types of claims are not properly asserted against it in its capacity as lender. The salient issue for purposes of the instant motion is whether a clause in the contract of sale, which must be included in this type of consumer contract under federal law, allows the buyer to bring a claim for affirmative relief against the lender in this type of transaction. The clause at issue, commonly referred to as the "FTC Holder Rule, " reads:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
16 CFR § 433.2 (1975). BOA argues this clause does not entitle the buyer to bring affirmative claims against the lender, but instead, merely entitles the buyer to assert the same defenses it would have against a seller against the lender under circumstances where the contract of sale has been assigned to the latter. In other words, the clause operates solely as a shield and not as a sword. This, BOA reasons, is because the FTC Holder Rule was adopted primarily to foreclose the possibility of lenders invoking the "holder-in-due-course doctrine" to enforce the buyer's obligation to pay under a contract of sale even where the seller had breached its duty to perform as promised. In support of this position, BOA cites Federal Trade Commission ("FTC") guidelines explaining the impetus for adopting the rule as well as Louisiana precedent interpreting the rule. BOA further argues that the Louisiana Civil Code articles pertaining to redhibition do not contemplate assertion of that species of claim against non-sellers and non-manufacturers. Finally, BOA argues Plaintiffs have shown no entitlement to cancellation of the financing contract.
IV. CONTENTIONS OF OPPONENTS
Plaintiffs respond that the plain language of the FTC Holder Rule clearly reserves to buyers the right to assert "all claims and defenses" against lenders which they might enforce against sellers when the lender is the holder of the contract. Thus, Plaintiffs argue, they are entitled to affirmatively assert claims for relief against BOA that they might otherwise assert against the seller and manufacturer of the VOLTAGE. Further, Plaintiffs contend FTC guidelines make it clear that a consumer can maintain an affirmative action against a creditor who has received payments, but only where the seller's breach is so substantial that a court is persuaded that rescission and restitution are justified. Plaintiffs acknowledge a split of authority on the application of the Holder Rule in this respect.
Under one approach, courts hold buyers are entitled to affirmative recovery against the lender when there is a substantial breach by the seller warranting rescission or restitution. See, e.g., Mount v. LaSalle Bank Lake View, 926 F.Supp. 759, 764 (N.D. Ill. 1996). Under the other approach, courts adhere to the plain language of the Holder Rule and allow any claims the buyer has against the seller to be asserted affirmatively against the lender. See, e.g., Lozada v. Dale Baker Oldsmobile, Inc., 91 F.Supp.2d 1087, 1095 (W.D. La. 2000). Because Plaintiff seeks rescission of the underlying contract, both approaches are presumably satisfied in the instant case. Finally, Plaintiffs argue BOA is a necessary party to the instant action under ...