Wales et al v. Arizona RV Centers LLC et al

Filing 22

ORDER AND REASONS denying 16 Motion to Dismiss for Failure to State a Claim. Signed by Judge Ivan L.R. Lemelle. (ijg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
LYLE A. WALES, ET AL.

CIVIL ACTION

VERSUS

NO. 14-2115

ARIZONA RV CENTERS LLC, ET AL.

SECTION “B”(3)

ORDER AND REASONS

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
Plaintiffs

(the

purchased

the

“VOLTAGE”).
VOLTAGE

(Rec.

on

Doc.

September

20

29,

at

3).

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

1

“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

financing

contract

the

purchase,

for

the

Plaintiffs

total

entered

transaction

into

amount

a
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

rescind

the

sale,

notified
which

Defendants
request

was

of

their

declined,

desire

to

prompting

initiation of the instant suit. In the SAC, Plaintiffs allege:
(Count 1) Violations of Louisiana Redhibition Laws; (Count 2)
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.;

Plaintiffs
costs

as

and

(Count

seek
of

4)

Negligent

rescission

the

time

of

of

the

sale,

Repair.
sale,
finance

(Rec.

including
charges,

Doc.

20).

collateral
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:

3

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

manufacturers.

of

Finally,

claim
BOA

against
argues

non-sellers

Plaintiffs

have

entitlement to cancellation of the financing contract.
IV. CONTENTIONS OF OPPONENTS
4

and

non-

shown

no

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,

affirmative

recovery

substantial

breach

courts

against
by

the

hold

the
seller

buyers

lender

are

when

warranting

entitled
there

is

rescission

to
a
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

affirmatively

buyer

has

against

the

seller

against

the

lender.

See,

e.g.,

to

be

Lozada

asserted
v.

Dale

Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087, 1095 (W.D. La.
2000).

Because Plaintiff seeks rescission of the underlying

5

contract,

both

approaches

are

presumably

satisfied

in

the

instant case. Finally, Plaintiffs argue BOA is a necessary party
to the instant action under Fed. R. Civ. P. 19, to the extent
that--if

Plaintiffs

prevail

and

obtain

rescission

and

restitution of the sales contract--BOA must be joined in order
to afford an opportunity for appropriate relief.
V. MOTION TO DISMISS STANDARD
When reviewing a motion to dismiss, courts must accept all
well-pleaded

facts

as

true

and

view

them

in

the

light

most

favorable to the non-moving party. Baker v. Putnal, 75 F.3d 190,
196 (5th Cir. 1996). However, “[f]actual allegations must be
enough to raise a right to relief above the speculative level.”
Bell

Atl.

Corp.

V.

Twombly,

550

U.S.

544,

555

(2007).

“To

survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief
that is plausible on its face.” Gonzales v. Kay, 577 F.3d 600,
603 (5th Cir. 2009)(quoting Ashcroft v. Iqbal, 129 S.Ct. 1937,
1949

(2009))(internal

quotation

marks

omitted).

The

Supreme

Court in Iqbal explained that Twombly promulgated a “two-pronged
approach” to determine whether a complaint states a plausible
claim for relief. Iqbal, 129 S.Ct. at 1950. First, courts must
identify those pleadings that, “because they are no more than
conclusions, are not entitled to the assumption of truth.” Id.
Legal conclusions “must be supported by factual allegations.”
6

Id. “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. at
1949.
Upon

identifying

the

well-pleaded

factual

allegations,

courts “assume their veracity and then determine whether they
plausibly give rise to an entitlement of relief.” Id. at 1950. A
claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. at
1949.

This

is

a

“context-specific

task

that

requires

the

reviewing court to draw on its judicial experience and common
sense.” Id. The plaintiffs must “nudge[] their claims across the
line from conceivable to plausible.” Twombly, 550 U.S. at 570.
VI. DISCUSSION
As noted above, BOA challenges Plaintiffs’ right to bring
the claims asserted against it in its capacity as lender. As
discussed

fully

below,

the

Court

disagrees

with

BOA’s

legal

conclusions in this respect.
To begin, the Court looks to the plain language of the
clause, which reads: “this consumer credit contract is subject
to all claims and defenses which the debtor could assert against
the seller.” See Hardt v. Reliance Standard Life Ins. Co., 560
U.S. 242, 251, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010)(“We begin
by analyzing the statutory language, assuming that the ordinary
7

meaning of that language accurately expresses the legislative
purpose.”)(internal

quotations

omitted).

This

language

unambiguously authorizes affirmative use. See Maberry v. Said,
911

F.

Supp.

unavoidable
Further,

1402

conclusion

an

guidelines

1393,

Kan.

applying

examination

pertaining

(D.

of

a

the

thereto

1995)(reaching
plain

released

by

of

the

the

same

analysis).1

language

history

this

rule

FTC

and

further

support this interpretation. To be sure, the animating purpose
of the promulgation of the rule may well have been to prevent
invocation of the holder-in-due-course doctrine by lenders to
foreclose the use of defenses by a buyer who had been aggrieved
by some breach of the seller. This conclusion is supported by
contemporaneous statements of the FTC:
Our primary concern . . . has been the
distribution
or
allocation
of
costs
occasioned by seller misconduct in credit
sale transactions. These costs arise from
breaches of contract, breaches of warranty,
misrepresentation,
and
even
fraud.
The
current commercial system which enables
sellers
and
creditors
to
divorce
a
consumer's obligation to pay for goods and
services from the seller's obligation to
perform as promised, allocates all of these
costs to the consumer/buyer.
40 Fed. Reg. 53522 (Nov. 18, 1975). Beyond this point, however,
Defendants’ contentions as to the intent of the FTC are patently

1

We find the analysis applied by the Kansas District Court particularly apt
as to this issue and will accordingly refer to that opinion herein.
8

incorrect.

The

FTC

proceeded

to

explain

the

Holder

Rule

as

follows:
It will require that all consumer credit
contracts
generated
by
consumer
sales
include
a
provision
which
allows
the
consumer to assert his sale-related claims
and defenses against any holder of the
credit
obligation.
From
the
consumer's
standpoint, this means that a consumer can
(1) defend a creditor suit for payment of an
obligation by raising a valid claim against
the seller as a setoff, and (2) maintain an
affirmative action against a creditor who
has received payments for a return of monies
paid on account. The latter alternative will
only be available where a seller's breach is
so substantial that a court is persuaded
that
rescission
and
restitution
are
justified.
40 Fed.Reg. 53524 (Nov. 18, 1975)(emphasis added). Thus, the FTC
clearly contemplated at the time of promulgation that the Rule
would authorize affirmative claims against lenders by buyers,
subject only to the requirement that any affirmative recovery be
limited to the amount of monies paid in and only in the case of
an underlying breach warranting rescission. This conclusion is
further

supported

by

an

advisory

opinion

released

in

2012,

following the development of the split of authority referenced
above:
The Commission affirms that the Rule is
unambiguous, and its plain language should
be applied. No additional limitations on a
consumer’s right to an affirmative recovery
should be read into the Rule, especially
since a consumer would not have notice of

9

those limitations because they are not
included in the credit contract. Had the
Commission meant to limit recovery to claims
subject to rescission or similar remedy, it
would have said so in the text of the Rule
and
drafted
the
contractual
provision
accordingly. It remains the Commission’s
intent that the plain language of the Rule
be applied, which many courts have done.
16 C.F.R. Part 433: Federal Trade Commission Trade Regulation
Concerning the Preservation of Consumers’ Claims and Defenses
(The Holder Rule), Op. F.T.C. (May 3, 2012). While not binding
authority, the above is certainly informative as to the FTC’s
intent

concerning

the

Holder

Rule.

The

history

of

the

rule

further reveals that the Commissioner considered and expressly
rejected the position advanced by Defendants herein:
Many industry representatives suggested that
the rule be amended so that the consumer may
assert his rights only as a matter of
defense or setoff against a claim by the
assignee or holder. Industry representatives
argued that such a limitation would prevent
the financier from becoming a guarantor and
that any limitation in the extent of a third
party's
liability
was
desirable.
The
practical and policy considerations which
militate
against
such
a
limitation
on
affirmative actions by consumers are far
more persuasive.
40 Fed. Reg. 53256 (1975)(cited in Maberry, supra, 911 F. Supp.
at 1402).
As the foregoing reveals, Defendant’s contentions as to the
ability of buyers to assert affirmative claims against lenders
under the FTC Holder Rule are contradicted by the plain language
10

and history of the Rule itself. Accordingly, Defendant’s claims
in this respect are without merit.
The Court is further unpersuaded with regard to Defendant’s
contentions
articles

that

the

governing

language

the

of

implied

the

Louisiana

warranty

Civil

against

Code

redhibition

limit application as between buyers, sellers, and manufacturers.
While the Code articles might apply directly only as between
such parties, the Holder Rule expressly makes applicable claims
“the debtor could assert against the seller of goods.” Thus, the
articles’

reference

emphasize

that

coverage

of

pertaining

this

the

to

to

buyers

type

Holder

breaches

of

of

and

sellers

claim

falls

Rule.

The

warranty

merely
under

FTC’s
and

serves

the

statements

“sale-related

to

express
above
claims”

underscore this point. Defendant’s arguments to the contrary are
without

support

in

law

and

find

no

basis

in

inferential

reasoning.
While

the

Court

concludes

that

the

Holder

Rule

limits

affirmative recovery to circumstances where the seller’s breach
is so substantial as to warrant rescission, this is precisely
the

sort

of

claim

brought

by

Plaintiffs

in

reliance

on

Louisiana’s law of redhibition in the instant case. As such,
there remains no issue as to Plaintiffs’ ability to assert this
form of claim against Defendants.
VII. CONCLUSION
11

The

plain

language

and

history

of

the

FTC

Holder

Rule

expressly permit affirmative claims by buyers against lenders in
cases of a substantial breach warranting rescission of the sale.
While it remains to be seen whether Plaintiffs will succeed in
establishing such a breach, Defendant has failed to show that
plaintiffs have not established “a plausible claim for relief”
under

the

applicable

Fed.

R.

Civ.

P.

12(b)(6)

standards.

Accordingly,
IT IS ORDERED THAT Defendants’ Motion to Dismiss is DENIED.
New Orleans, Louisiana, this 9th day of January, 2015.

____________________________
UNITED STATES DISTRICT JUDGE

12