Koons Buick Pontiac GMC, Inc. v. Nigh, Bradley (11/30/2004)

8-1 for Koons Buick Pontiac GMC, Inc. (Ginsburg-Nov. 30, 2005)Questions presented:Whether the $1,000 statutory limit originally adopted in 1968 as a cap on Truth in lending Act (TILA) recoveries under 15 U.S.C. sec. 1640(a)(2)(A)(i) has been rendered inapplicable by subsequent amendments so that parties who suffer no actual damages may now recover more than the $1,000 cap?By: MICHAEL MORAIN, MEDILL NEWS SERVICEWhen Bradley Nigh pulled out of the car dealerships lot in Alexandria, Va., he thought he was driving a bargain. After trading in his old truck, shelling out $4,000 and signing a financing agreement, he became the owner of a used 1997 Chevrolet Blazer.

But the truck turned out to be more than the 22-year-old had bargained for. Although it wasnt a lemon it drove just fine the deal turned sour.

On Feb. 25, 2000, about three weeks after the original purchase, the dealer called Nigh back to the lot and asked for an additional $2,000. Apparently, the dealers search for a third-party lender had been unsuccessful, so Nigh, unable to fork over the extra down payment, asked for his old truck back. The dealer, however, told him it had already been sold (which turned out to be a lie), and Nigh reluctantly signed a new contract and an IOU.

When the dealer still couldnt find a lender a few days later, Nigh claims the dealer threatened to turn him in to the police for auto theft unless he signed yet another contract. Fearing arrest, Nigh returned to the dealership and, under protest, signed a third agreement.

Nigh eventually sued the dealer, Koons Buick Pontiac GMC, for a handful of claims, including a violation of the Truth in Lending Act (TILA), a federal law requiring lenders to explain loan information so consumers can evaluate borrowing costs. Koons counter-sued, alleging breach of contract.

Although a federal judge in the Eastern District of Virginia settled a handful of the claims in summary judgment in April and May 2001, a jury awarded Nigh about $54,000: $24,000 under TILA, $4,000 under a Virginia consumer protection law and an additional $26,000 for court costs and lawyer fees.

Koons appealed, claiming the jurys award exceeded TILAs $1,000 maximum penalty.

However, a divided panel of the 4th Circuit Court of Appeals affirmed on Feb. 4, 2003, ruling that Nigh was, in fact, entitled to the full $54,000 for enduring the dealers ""somewhat tortured effort"" to provide consumer financing.

The decision rests on the nitty-gritty wording of a TILA clause that spells out the following guidelines for damages:

""(i)Étwice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer leaseÉthe liability under this subparagraph shall not be less than $100 nor greater than $1,000É""

And heres where it gets tricky. The majority held that the word ""subparagraph"" includes section (i) as well as (ii).

Despite Koons reliance on a 1983 decision in the same circuit, the current panel noted that Congress had amended TILA in 1995 and tweaked the clause in question.

""It could well beÉthat Congress did not intend to alter the statutory capÉHowever, the critical point of law and it is critical is that we do not know what Congress intended,"" wrote Judge J. Michael Luttig. ""It is the statute, not any inferential intent, that constitutes the law.""

But Judge Roger Gregory dissented. Citing the 7th Circuit Court of Appeals, he wrote that Congress designed the 1995 amendment ""to establish a more generous minimum and maximum for certain secured standards, without changing the general ruleÉ.""

Although Gregory conceded that Koons committed ""a variety of scurrilous business practices,"" he feared the majoritys ruling would ""dramatically increase creditors liability exposure.""

On Jan. 20, 2004, the U.S. Supreme Court accepted review in the case and allowed the Virginia Automobile Dealers Association, as well as the American Bankers Association, to file friend of the court briefs.

Indeed, the Supreme Courts decision could determine much more than the kind of car Nigh will be able to afford the next time he goes shopping. As of December 2003, the total outstanding consumer credit in the United States which includes everything from car loans to home mortgages to credit card bills topped $2 trillion, according to a Federal Reserve statement released in February 2004.

So while the case seems to hinge on a few little commas, the case could open the floodgates to a tide of lawsuits targeting well-intentioned lenders, according to Koons advocates.

The American Bankers Association argues in a friend of the court brief that by ""blindly following the punctuation of two subparagraphs,"" the 4th Circuit overlooked the potential harm to consumer lenders, to sales-dependant manufacturers and to consumers themselves, who buy approximately 45 million new and used cars every year. If lenders have to pay higher damages for every run-of-the-mill infraction of the complicated TILA rules, consumers may not be able to afford the increased costs of borrowing money.

In the Koons case, ""the windfall for the plaintiffs, and for their counsel, is won at the risk of catastrophe to the consumer credit industry and thereby, to the national economy,"" according to the amicus brief.

But Nigh says the case is much simpler: he was swindled.

According to Thomas Christiano, one of Nighs attorneys, it was a classic ""yo-yo deal,"" where the dealer allowed Nigh to drive the new truck for a few weeks showing it off to friends and family before pulling him back to renegotiate. Since most people who cant afford a new vehicle or who have bad credit dont want to admit it, dealers pressure customers into deals they shouldnt make.

""Basically, they take them hostage,"" Christiano says.

On Nov. 30, 2004, the Court held 8-1 that the TILA limits damages to $1,000. Justice Ruth Bader Ginsburg wrote the majority opinion. In being the lone dissenter, Justice Antonin Scalia argued that it wasn't the court's province to fix Congress' mistakes in writing the statute.

"The court should not fight the current structure of the statute merely to vindicate the suspicion that Congress actually made -- but neglected to explain clearly -- a different policy decision,'' wrote Scalia.