Jefferson v. United Car Company, Inc.

Filing 29

OPINION AND ORDER granting 26 Motion for Default Judgment. Signed by District Judge Paul D. Borman. (DTof)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
BRIANNA JEFFERSON,
Plaintiff,
Case No. 14-13749
v.
Paul D. Borman
United States District Judge
UNITED CAR COMPANY, INC.,
Defendant.
_____________________________/
OPINION AND ORDER GRANTING PLAINTIFF’S THIRD MOTION FOR ENTRY OF
DEFAULT JUDGMENT (ECF NO. 26)
This action arises from Plaintiff’s allegations that Defendant United Car Company,
Inc. violated the federal Truth-in-Lending-Act, 15 U.S.C. § 1601, et seq. (“TILA”).
Plaintiff’s Amended Complaint was filed on behalf herself and on behalf of a putative class.
(ECF No. 6.) Defendant has failed to defend or otherwise appear in this action and Plaintiff
now moves this Court for entry of a Default Judgment pursuant to Federal Rule of Civil
Procedure 55(b)(2). (ECF No. 26.) As the class has never been certified, Plaintiff has moved
for entry of a default judgment only as to her own claims. Plaintiff has twice previously
moved for entry of default judgment, but the Court denied the previous motions without
prejudice due to defects in service and failure to seek a clerk’s entry of default.
A hearing on this matter was held on July 14, 2016 and Defendant did not attend the
hearing. For the following reasons, the Court will grant Plaintiff’s Motion for Entry of a
Default Judgment. (ECF No. 26.)

I. FACTUAL BACKGROUND
The Court previously set forth the factual background of this case in its June 11, 2015
Opinion and Order denying Plaintiff’s first motion for entry of a default judgment and
incorporates that section here:

Plaintiff alleges in her amended complaint that she purchased a used 2007
Chevrolet Impala from Defendant on September 10, 2014 and paid Defendant
$1,500 for a down payment. (Am. Compl. ¶¶ 24, 27). Plaintiff claims that
Defendant represented that Plaintiff’s credit was approved for financing and
also provided her with a retail installment sales contract (“RISC”) that
purportedly reflected all the terms and conditions of that financing. (Id. at ¶¶
24-25). In addition to the RISC, Plaintiff signed a “Purchase Spot Delivery
Agreement” which provided that Defendant could “unilaterally cancel the
contract ‘in the event the dealership is unable to assign the Retail Installment
Sales Contract to a third party,’ or if Defendant unilaterally cancels the RISC
or changes the terms to its pecuniary advantage.” (Id. at ¶ 26). Plaintiff signed
the RISC and Defendant delivered the vehicle to Plaintiff. (Id. at ¶ 25).
On September 16, 2014, Defendant unilaterally canceled Plaintiff’s RISC and
demanded that she return the vehicle and a pay $600.00 “repossession fee” and
forfeit her down payment. Plaintiff alleges that Defendant was “verbally
abusive” and accused her of fraud. (Id. at ¶ 27). Defendant called again on
September 17 and 18 and repeated the same. (Id. at ¶ ¶ 28, 29). Plaintiff then
used her “monetary resources to repair another vehicle so that she could have
reliable transportation.” (Id. at ¶ 30). Then, on September 19, 2014,
Defendant contacted Plaintiff and advised her that it had “obtained financing”
for her. (Am. Compl. at ¶ 31).
....
Plaintiff avers that Defendant did not consider the vehicle sold until Defendant
sold the RISC to a third-party. (Id.). However, Plaintiff was responsible for
insuring the car at her own expense after taking possession. (Id.). Plaintiff
alleges that Defendant’s use of the “Purchase Spot Delivery Agreement”
rendered the terms of the RISC illusory and illegally waived Defendant’s
obligations under TILA because TILA “mandates that retail installment
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contracts when signed by the buyer are the final written financing expression
between the parties and is binding on both the Defendant-creditor and the
buyers.” (Id. at ¶¶ 17-18).

(ECF No. 15, at *2-3.)
II. PROCEDURAL HISTORY
This action was originally filed on September 29, 2014. Plaintiff filed an amended
complaint on November 10, 2014 in response to a order to show cause regarding whether the
Eastern District of Michigan was the proper venue for her action. (ECF Nos. 5, 6.) On
December 20, 2014, Plaintiff requested a Clerk’s Entry of Default. (ECF No. 8.) The Clerk
granted the request and a Clerk’s Entry of Default was entered on December 24, 2014. (ECF
No. 9.)
On February 26, 2015, this Court ordered Plaintiff to show cause why this case should
not be dismissed for failure to prosecute. (ECF No. 10.) In response to the order to show
cause, Plaintiff filed a Motion for Entry of a Default Judgment on March 3, 2015. (ECF No.
11.) On June 11, 2015, this Court denied Plaintiff’s Motion for Default finding that Plaintiff
had failed to effect proper service under the Federal Rules of Civil Procedure and that
Plaintiff’s request for Clerk’s Entry of Default and the Motion for Default were erroneously
premised upon the original complaint. (ECF No. 15.)
On September 3, 2015, the Court issued an order to show cause why this case should
not be dismissed for failure to prosecute. (ECF No. 17.) In response to the order to show
cause, Plaintiff filed a second Motion for Entry of a Default Judgment on September 15,
2015. (ECF No. 18.) On October 30, 2015, this Court denied Plaintiff’s second motion for
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default judgment because Plaintiff had failed to first move for a Clerk’s Entry of Default as
required by the Federal Rules of Civil Procedure. (ECF No. 22.)
On November 3, 2015, Plaintiff requested, and was granted, a clerk’s entry of default.
(ECF Nos. 23, 24.) On February 4, 2016, this Court issued another order to show cause why
the case should not be dismissed for failure to prosecute. (ECF No. 25.) Plaintiff then filed
her third Motion for Entry of a Default Judgment. (ECF No. 26.)

III. STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 55(b) a judgment by default may be
entered against a defendant who has failed to plead or otherwise defend against an action. In
order to obtain judgment by default, the proponent must first request the clerk's entry of
default pursuant to Rule 55(a). See Hanner v. City of Dearborn Heights, No. 07-15251, 2008
WL 2744860, at *1 (E.D. Mich. July 14, 2008). Once a default has been entered by the
clerk’s office, all of a plaintiff’s well-pleaded allegations, except those relating to damages,
are deemed admitted. Antoine v. Atlas Turner, Inc., 66 F.3d 105, 110 (6th Cir. 1995), see
also Ford Motor Co. v. Cross, 441 F. Supp. 2d 837, 846 (E.D. Mich. 2006) (citation
omitted). Once a default is obtained, the party may then file for a default judgment by the
clerk or by the court. FED. R. CIV. P. 55(b). If the plaintiff’s well-pleaded allegations are
sufficient to support a finding of liability as to the defendant on the asserted claims, then the
Court should enter a judgment in favor of the plaintiff. See Cross, 441 F. Supp. 2d at 848.
Although Rule 55(b)(2) does not provide a standard to determine when a party is entitled to a

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judgment by default, the case law sets forth that the court must exercise “sound judicial
discretion” when determining whether to enter the judgment. Wright & Miller, 10A Federal
Practice & Procedure, § 2685 (3d ed. 1998) (collecting cases). After a court determines that
a default judgment should be entered, it will determine the amount and character of the
recovery awarded. See id. § 2688 (collecting cases).

IV. ANALYSIS
A.

Sufficient Service

“Because a party has no duty to plead until properly served, sufficient service of
process is a prerequisite to entry of default.” Russell v. Tribley, No. 10-14824, 2011 WL
4387589, at *8 (E.D. Mich. Aug. 10, 2011) (collecting cases). The Federal Rules of Civil
Procedure provide that a corporation, partnership, or association must be served either by the
procedure set forth in Rule 4(e)(1), that provides an individual may be served by “following
the state law for serving a summons in an action brought in courts of general jurisdiction in
the state where the district court is located or where service is made,” or by “delivering a
copy of the summons and of the complaint to an officer, a managing or general agent, or any
other agent authorized by appointment or by law to receive service of process and – if the
agent is one authorized by statute and the statute so requires– by also mailing a copy to the
defendant.” FED. R. CIV. P. 4(h)(1)(A)-(B). The Michigan Court Rules provide that service
upon a domestic corporation may be made by “serving a summons and a copy of the
complaint on an officer or the resident agent.” Mich. Ct. Rule 2.105(D)(1).

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Plaintiff submits that Defendant is a licensed automobile dealer and pursuant to
Michigan statute,
[a]s a condition precedent to the granting of a license, a dealer shall file with
the secretary of state an irrevocable written stipulation, authenticated by the
applicant, stipulating and agreeing that legal process affecting the dealer,
served on the secretary of state or a deputy of the secretary of state, has the
same effect as if personally served on the dealer. This appointment remains in
force as long as the dealer has any outstanding liability within this state.
Mich. Comp. Laws § 257.248. The record reveals that the summons and complaint were
properly served upon the Secretary of State pursuant to Mich. Comp. Laws § 257.248 on
June 23, 2015, and thereafter forwarded to Defendant. (ECF No. 16, Proof of Service.)
Thus, Plaintiff has established that Defendant was properly served pursuant to the Michigan
Court Rules where service upon the Secretary of State has the same effect as personal service
upon the defendant dealer itself.
B.

TILA Violation

As noted above, once a default has been entered by the clerk’s office, the Court deems
all of a plaintiff’s well-pleaded allegations admitted, except those allegations relating to
damages. Antoine, 66 F.3d at 110. Accordingly, the question now before this Court is
whether Plaintiff’s well-pleaded allegations are sufficient to support a finding of liability as
to the defendant on the TILA claim. See Cross, 441 F. Supp. 2d at 848.
Plaintiff claims that Defendant violated 15 U.S.C. § 1638, and Regulation Z, 12
C.F.R. § 226.1, et seq., because the terms of the RISC executed by Plaintiff and Defendant
were entirely illusory based on a “Purchase Spot Delivery Agreement” that was
contemporaneously executed by the parties. (ECF No. 26, Ex. B, Retail Installment Contract
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and Security Agreement.) Plaintiff alleges that she is a consumer and Defendant is a creditor
as defined under TILA. Plaintiff further alleges that the “Purchase Spot Delivery
Agreement” provided that Defendant could unilaterally cancel the RISC, repossess the sold
vehicle, or change the terms of the RISC and require the buyer to sign a second and unbargained for RISC. (Am. Compl., at ¶ 17.) Plaintiff states that Defendant’s use of the
“Purchase Spot Deliver Agreement” violated TILA and Regulation Z “by using illusory
TILA disclosures in its RISCs including the APR, the Finance Charge, the Amount Financed,
the Total of Payments, the Total Sale Price and every other term” in Plaintiff’s RISC because
at the time of consummation the disclosures were subject to subsequent change or
cancellation at Defendant’s sole discretion. (Am. Compl., at ¶ 19.)
Plaintiff’s TILA claims are supported by case law in this district holding that
analogous “spot delivery” contracts can violate TILA. See Patton v. Jeff Wyler Eastgate,
Inc., 608 F. Supp. 2d 907, 914-16 (S.D. Ohio, 2007) (holding that an automobile dealer
violated TILA by using a “spot delivery” contract that rendered the retail installment sales
contract illusory and concluding that “[t]he purpose of TILA would be frustrated if
automobile dealerships are permitted to rescind the terms of integrated automobile retail
installment sales contracts by use of a second, contradictory form.”); see also Salvagne v.
Fairfield Ford, Inc., 794 F. Supp. 2d 826 (S.D. Ohio, 2010) (finding TILA violation in
analogous circumstance and noting that the RISC and spot delivery agreement contradicted
each other in material ways which prevented the contracts from being read as one contract.)

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Although Plaintiff did not attach the Purchase Spot Delivery Agreement to the Motion
for Entry of Default Judgment she has pleaded its existence and its contents in her amended
complaint. The Court takes her well-pleaded complaints as true, and therefore, based on the
Purchase Spot Delivery Agreement rendering the terms of the RISC illusory, Plaintiff has
established a TILA violation. Patton, 608 F. Supp. 2d at 914-16.
1.

Damages

Regarding damages, Plaintiff seeks actual damages pursuant to 15 U.S.C. §
1640(a)(1) in the amount of $1,571.00, the amount of her deposit that is evidenced by the
attached receipt. (Ex. A.) Plaintiff also seeks statutory damages pursuant to 15 U.S.C. §
1640(a)(2)(A)(ii) in the capped amount of $2,000. The Court notes that § 1640(a)(2)(A)(ii)
applies to an “individual action relating to a consumer lease under part E of this subchapter,
25 per centum of the total amount of monthly payments under the lease, except that the
liability under this subparagraph shall not be less than $200 nor greater than $2,000.” Id.
This action does not involve a consumer lease as defined by 15 U.S.C. § 1667(1) in Subpart
E. Plaintiff alleges she purchased a vehicle, she did not allege that she leased a vehicle.
Therefore, the statutory damages are governed by § 1640(a)(2)(A)(iv), which provides that
“in the case of an individual action relating to a credit transaction not under an open end
credit plan that is secured by real property or a dwelling, not less than $400 or greater than
$4,000.” Id. Plaintiff’s requested statutory damages of $2,000 is within the statutory amount
allowed under § 1640(a)(2)(A)(iv) and thus is a reasonable award.

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Plaintiff also requests attorneys fees and costs pursuant to TILA pursuant to §
1640(a)(3) which “permits recovery of reasonable attorney’s fees and costs.” Purtle v.
Eldridge Auto Sales, Inc., 91 F.3d 797, 800 (6th Cir. 1996). Plaintiff’s attorney has attached
affidavits attesting that he spent 6.4 hours on this case at a rate of $325 per hours, and
another attorney spent 2.7 hours on this case at a rate of $300.00 per hour for a total of
$3,637.50 for attorneys fees and $400.00 in filing fees. After review, the Court finds
Plaintiff’s request for attorney’s fees and costs are reasonable and will award Plaintiff her
requested attorney’s fees and costs in the total amount of $4,037.50.
C.

Rescission

Plaintiff also seeks the rescission of her contract with Defendant. “Under Michigan
law, ‘rescission abrogates a contract completely.’ All former contract rights are annulled; it
is as if no contract had been made.” Diamond Computer Sys., Inc. v. SBC Communications,
Inc., 424 F. Supp. 2d 970, 986 (E.D. Mich. 2006) (quoting Samuel D. Begola Servs., Inc. v.
Wild Bros., 210 Mich. App. 636, 640 (Mich. Ct. App. 1995)). “In order to warrant rescission
of a contract, there must be a material breach affecting a substantial or essential part of the
contract.” Omnicom of Mich. v. Giannetti Inv. Co., 221 Mich. App. 341, 348 (Mich. Ct. App.
1997).
In the present case, Plaintiff alleges that Defendant repudiated the contract by
demanding and repossessing the vehicle. The Court finds that Plaintiff has adequately
pleaded Defendant’s material breach of the contract and will therefore grant Plaintiff’s
request to rescind the RISC.

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V. CONCLUSION
For all these reasons, the Court GRANTS Plaintiff’s Third Motion for Entry of
Default Judgment and AWARDS Plaintiff actual and statutory damages in the amount of
$3,571.00 and attorney’s fees and costs in the amount of $4,037.50, for a total of $7,608.50.
The Court will also RESCIND the Retail Installment Contract and Security Interest
Agreement attached as Exhibit A to this opinion and order.
IT IS SO ORDERED.

s/Paul D. Borman
PAUL D. BORMAN
UNITED STATES DISTRICT JUDGE
Dated: July 18, 2016
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing order was served upon each attorney or
party of record herein by electronic means or first class U.S. mail on July 18, 2016.

s/Deborah Tofil
Case Manager

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