Danger v. Nextep Funding, LLC et al
Filing
82
ORDER denying 39 Defendant Monterey Financial Service, LLC's Motion to Dismiss; denying 46 Defendant Nextep Funding, LLC's Motion to Dismiss; denying 22 Defendant Monterey Financial Service, LLC's Motion to Dismiss; and lifting 80 stay. (Written Opinion). Signed by Judge Susan Richard Nelson on 1/23/2019. (MJC)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
LuAnn Danger,
Case No. 18-cv-567 (SRN/LIB)
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
Nextep Funding, LLC and Monterey
Financial Services, LLC,
Defendants.
Jesse S. Johnson, Greenwald Davidson Radbil PLLC, 5550 Glades Road, Suite 500, Boca
Raton, Florida 33431; Mark L. Vavreck, Gonko & Vavreck, PLLC, 401 North Third Street,
Suite 600, Minneapolis, Minnesota 55401, for Plaintiff.
Steven L. Baron, George V. Desh, & Bruce N. Menkes, Mandell Menkes LLC, 1 North
Franklin Street, Suite 3600, Chicago, Illinois 60606; Scott S. Payzant, Paul Shapiro, &
Eldon J. Spencer, Jr., Leonard, O’Brien, Spencer, Gale & Sayre, Ltd., 100 South Fifth
Street, Suite 2500, Minneapolis, Minnesota 55402, for Nextep Funding, LLC.
Patrick D. Newman, Bassford Remele, 100 South Fifth Street, Suite 1500, Minneapolis,
Minnesota 55402; Richard M. Scherer, Jr., Lippes Mathias Wexler Friedman LLP, 50
Fountain Plaza, Suite 1700, Buffalo, New York 14202, for Monterey Financial Services,
LLC.
SUSAN RICHARD NELSON, United States District Judge
This matter comes before the Court on the Motions to Dismiss filed by Defendants
Nextep Funding, LLC (“Nextep”) [Doc. No. 46] and Monterey Financial Services, LLC
(“Monterey”) [Doc. Nos. 22 & 39]. For the reasons stated below, Defendants’ motions are
denied.
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I.
BACKGROUND
A. Factual Background
In June 2017, Plaintiff LuAnn Danger purchased a Yorkshire Terrier and Maltese mix
puppy from Premier Pups. (Am. Compl. [Doc. No. 35] ¶¶ 46–47.) Premier Pups offered the
dog for sale at a price of $1,381.89. (Id. ¶ 47.)
Danger financed the purchase through Defendants. (Id. ¶ 48.) Defendant Nextep is a
for-profit company that “offers a retailer to customer closed end consumer lease platform
designed to increase retailer sales by offering customers the ability to finance goods and
services on the spot, in the store and without delay.” (Id. ¶ 13.) Defendant Monterey is a forprofit company that “offers a host of services related to loan servicing, debt recovery, and
consumer finance” in order to “meet the needs of niche businesses and consumers . . . .” (Id.
¶ 23.)
On June 16, 2017, Danger entered into an agreement (the “Agreement”) with Nextep,
which allowed her to take possession of the dog in exchange for 24 monthly payments of
$138.28, plus fees. (Id. ¶ 49.) The parties dispute whether the Agreement is a consumer lease
or credit sales agreement.
The second page of the nine-page Agreement bears Nextep’s logo, and is styled as a
“Consumer Pet Lease Agreement.” (Agmt. at 2,1 Ex. A to Am. Compl.) It contains a
provision labeled “Important Information Concerning Your Lease,” and appears as
follows:
1
Citations are to the page numbers in the document itself, not the CM/ECF page numbers
that appear in the banner of the filed exhibit.
2
Important Information Concerning Your Lease
By signing the following documents, you are entering into a Closed End
Consumer Product Lease.
You understand that this Agreement is a lease, not a loan and that you are
leasing the product(s).
You understand that you do not own the product(s) you are leasing unless:
1) You buy the product through the early buyout option (for more information see
Section 8 of this Agreement or visit your account at nextepfunding.com); or
2) You pay $207.28 after your final lease payment.
Your lease can be paid off at any time. Call us anytime to get your payoff amount.
The total value of the product(s), capitalized cost, you are leasing is $1381.89.
To satisfy your lease obligation you must make one in-store payment of $173.28 and
23 lease payments of $138.28.
If you decide to purchase the product(s) at the end of your lease, you must pay a
purchase price of $207.28 plus any applicable fees or taxes.
The total amount you will have paid by the end of this lease, at full term, is $3318.73.
You must make each monthly payment by the due date or you may be
subject to additional fees.
(Id.) (emphasis in original).
The next page of the Agreement contains the provision that is most pertinent here,
outlined in a box enumerated as Section 2, bearing the heading “Federal Consumer Leasing
Act Disclosures.” (Id., § 2.) It appears as follows:
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that “[t]he Total of your Monthly Payments is $138.28.” (Id.) (emphasis in original). Two
columns to the right, the Agreement also states: “Total of Payments (The amount you will
have paid by the end of the Lease)[:] $3318.73.” (Id.) (emphasis in original).
Monterey is identified in the Agreement as the payee for all of the debt arising from
the Agreement. (Am. Compl. ¶ 27.) Specifically, the Agreement states that payments are to
be mailed to “Monterey Financial, 4095 Avenida De La Plata, Oceanside, CA 92056.”
(Agmt. § 9, Ex. A to Am. Compl.) Likewise, all written communications concerning disputed
amounts must be sent to Monterey Financial, at the same address. (Id.)
Danger has made her required monthly payments since entering into the Agreement,
but will not complete her payments until June 16, 2019. (Am. Compl. ¶¶ 50, 51.)
B. Procedural History
In February 2018, Danger filed this suit, asserting claims under: (1) the Consumer
Leasing Act (“CLA”), 15 U.S.C. § 1667 et seq., and its implementing regulation, 12 C.F.R. §
1013 (“Regulation M”); (2) the Truth in Lending Act, (“TILA”), 15 U.S.C. § 1601 et seq.,
and its implementing regulation, 12 C.F.R. § 1026 (“Regulation Z”); and (3) Minnesota law
prohibiting usurious contracts, Minn. Stat. § 334.01. She asserts her CLA claim against
Nextep, (Am. Compl., Count I), alleging that prior to the consummation of the Agreement,
Nextep falsely disclosed the total amount of periodic payments owed under the Agreement.
(Id. ¶ 114.) Her TILA claim, asserted against both Defendants, alleges that they failed to
adequately disclose: (1) the finance charge; (2) the finance charge expressed as an annual
percentage rate (“APR”); and (3) the sum of the amount financed and the finance charge, i.e.,
the “total of payments.” (Id., Count II.) Danger asserts that Defendants concealed “the
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exorbitant annual percentage rate” of 120% that applied to her purchase. (Id. ¶¶ 125–26.)
Finally, Plaintiff asserts claims of usury arising under Minnesota state law against both
Defendants. (Id., Count III.) She contends that the 120% APR to purchase the dog far
exceeds the usury statute’s 8% limit for personal debt. (Id. ¶¶ 141–42.)
As to her injuries, Plaintiff alleges that Nextep “took from her the ability to shop
intelligently for alternative financing.” (Id. ¶ 73.) She asserts that had she known the true
effective interest rate in the Agreement, she would have “pursued other financing options
such as using a credit card or obtaining a personal loan through her credit union.” (Id. ¶ 74.)
She contends that these alternative financing options would have carried a lower interest rate.
(Id. ¶ 75.)
Both Defendants move to dismiss Plaintiff’s claims. Citing Federal Rule of Civil
Procedure 12(b)(1), they argue that Danger lacks standing to assert her federal claims,
requiring the dismissal of Counts I and II for lack of subject matter jurisdiction, (Nextep’s
Mem. at 5–14 [Doc. No. 48]; Monterey’s Mem. at 2–7 [Doc. No. 41]), including claims
for which she seeks injunctive relief for future harms. (Nextep’s Mem. at 15–17.)
Defendants further argue that because the Court lacks subject matter jurisdiction over
Counts I and II, it should dismiss the pendent state law usury claim for lack of supplemental
jurisdiction. (Id. at 14; Monterey’s Mem. at 14 n.3.)
Even if the Court finds that Plaintiff has sufficiently alleged Article III standing,
Defendants move to dismiss her claims pursuant to Federal Rule of Civil Procedure
12(b)(6). Nextep argues pursuant to Rule 12(b)(6), that Count I should be dismissed
because Danger has not plausibly alleged that Nextep failed to comply with the CLA. (Id.
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at 18–22.) Monterey argues that Count II fails under Rule 12(b)(6), because loan servicers
like Monterey are not subject to the TILA provisions in question. 2 (Monterey’s Mem. at
10–13.)
Finally, both Defendants argue that under Rule 12(b)(6), Plaintiff’s usury claim fails
to plausibly allege a violation of Minnesota law. (Nextep’s Mem. at 22–25; Monterey’s
Mem. at 13–16.) They assert that the Agreement should be considered an installment sale,
which is not subject to Minnesota’s usury laws. (Nextep’s Mem. at 22–25; Monterey’s
Mem. at 14–16.)
III.
DISCUSSION
A.
Rule 12(b)(1) Motion: Standing
1. Standard of Review
The doctrine of standing limits the court’s jurisdiction to “those disputes which are
appropriately resolved through the judicial process.” Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992). To successfully plead standing under Article III of the Constitution,
a plaintiff must allege facts demonstrating the existence of an actual case or controversy
by showing (1) a concrete injury-in-fact, (2) that is fairly traceable to the challenged action,
and (3) that is likely to be redressed by the relief sought. Id. at 560–61. “[S]tanding is to
be determined as of the commencement of the suit,” id. at 570 n.5, and the burden of
establishing standing is on the party invoking federal jurisdiction. See Devine v. Stone,
Leyton & Gershman, P.C., 100 F.3d 78, 82 (8th Cir. 1996). Where, as here, the defendant
2
Nextep does not move to dismiss Count II pursuant to Rule 12(b)(6). Rather, its basis for
seeking the dismissal of Count II is Plaintiff’s alleged lack of standing, noted above.
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challenges the existence of jurisdiction on the face of the pleadings, and not through
extrinsic evidence, the reviewing court must “accept as true all factual allegations in the
complaint, giving no effect to conclusory allegations of law.” Stalley v. Catholic Health
Initiatives, 509 F.3d 517, 521 (8th Cir. 2012).
2. Standing for Monetary Relief
Defendants argue that Plaintiff fails to allege a sufficiently concrete injury-in-fact.
(Nextep’s Mem. at 11, 13; Monterey’s Mem. at 6–8.) First, they contend that Danger has
not alleged that she read the disclosures in question, much less that she was confused by
them. (Nextep’s Mem. at 11; Monterey’s Mem. at 7.) Rather, Monterey infers that Plaintiff
would have entered into the Agreement, regardless of the disclosures, in order to fill the
void in her life created by her daughter’s departure for college. (Monterey’s Mem. at 7)
(citing Am. Compl. ¶ 81). Second, they argue that Plaintiff has not plausibly alleged that
she would have obtained another financing option, had she pursued it, (Nextep’s Mem. at
12), nor has she alleged that she actually considered other financing options. (Monterey’s
Mem. at 7.) In particular, Nextep claims that Plaintiff also fails to identify the credit card
she would have used and the interest rate on that credit card, or the kind of loans provided
by her credit union. (Nextep’s Mem. at 11.)
Finally, Nextep asserts, even if disclosures
were provided in an incorrect form, the information was, in fact, provided to Danger.
(Nextep’s Mem. at 14) (citing Vera v. Mondelez Glob. LLC, No. 16 C 8192, 2017 WL
1036509 (N.D. Ill. Mar. 17, 2017)).
Defendants rely on Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016), in which
the Supreme Court held that to establish an injury-in-fact under a different consumer statute—
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the Fair Credit Reporting Act (“FCRA”)—“a plaintiff must show that he or she suffered an
invasion of a legally protected interest that is concrete and particularized and actual or
imminent, not conjectural or hypothetical.” In Spokeo, the Supreme Court explained that a
plaintiff does not automatically satisfy the injury-in-fact requirement simply because a statute
creates a right and the authority to bring suit to vindicate that right. Id. at 1549. Rather, a
“bare procedural violation, divorced from any concrete harm” or material risk of harm does
not satisfy the requirements for Article III standing. Id.; see also Braitberg v. Charter
Comm’cns, Inc., 836 F.3d 925, 930 (8th Cir. 2016) (applying Spokeo and finding no standing
where plaintiff alleged that cable provider retained plaintiff’s personally identifiable
information in violation of the Cable Communications Policy Act)).
However, the Supreme Court did not categorically find that violations of procedural
statutory requirements were insufficient to confer Article III standing.
Rather, it
acknowledged, that in some instances, “the violation of a procedural right granted by statute
can be sufficient . . . to constitute injury in fact,” Spokeo, 136 S. Ct. at 1549. The Court
identified cases in which it found such injuries were sufficiently concrete due to the
defendants’ failure to follow statutory disclosure requirements. Id. at 1549–50 (citing Fed.
Election Comm’n v. Akins, 524 U.S. 11, 20–25 (1998) (involving voters’ inability to access
information that Congress had made public); Pub. Citizen v. Dep’t of Justice, 491 U.S. 440,
449 (1989) (regarding the inability of two advocacy groups to obtain information subject to
disclosure under the Federal Advisory Committee Act).
As noted, the statute in question in Spokeo arose under the FCRA, which is not at issue
here. Rather, the claims here arise under the TILA and its implementing regulations.
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Congress passed the TILA as a consumer protection act aimed at “assur[ing] a meaningful
disclosure of credit terms so that the consumer will be able to compare more readily the
various credit terms available to him and avoid the uninformed use of credit, and to protect
the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C.
§ 1601(a). Given this remedial purpose, the Eighth Circuit has also observed that “[c]ourts
broadly construe the TILA in favor of consumers.” Keiran v. Home Capital, Inc., 858 F.3d
1127, 1130 (8th Cir. 2017) (citing Rand Corp. v. Yer Song Moua, 559 F.3d 842, 845 (8th Cir.
2009)).
The Eighth Circuit and District of Minnesota have not analyzed Spokeo in the
context of the CLA or TILA. Pre-Spokeo, some courts held that procedural violations under
the TILA and CLA met the injury-in-fact requirements for standing. See, e.g., Mars v.
Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir. 1983) (finding that a
procedural violation of the TILA—the use of the term “total time balance” instead of “total
of payments”—created a sufficient injury-in-fact to support standing); Clement v. Am.
Honda Fin. Corp., 145 F. Supp. 2d 206, 209 (D. Conn. 2001) (finding that because the
CLA was enacted as an amendment to the TILA, the TILA’s credit disclosure requirements
extend to the CLA, and certain language in finance company’s vehicle lease failed to meet
both form and substance of the law).
Following the issuance of Spokeo, courts have applied the ruling to TILA claims, with
differing results, driven by differing facts. Some have found the alleged harms or risk of
harms sufficient to constitute an injury-in-fact, distinguishing them from the “no-harm
procedural violations” detailed in Spokeo. For instance, in Strubel v. Comenity Bank, 842
10
F.3d 181, 190–91 (2d Cir. 2016), the court considered four alleged TILA disclosure
violations, finding that the plaintiff had sufficiently alleged a concrete injury-in-fact for two
of them. The TILA disclosures in question required notice that (1) certain consumer rights
apply only to disputed credit card purchases not paid in full; and (2) consumers were required
to give the creditor written notice with respect to unsatisfactory purchases. Id. at 190. In
finding a sufficient injury-in-fact, the court explained that these disclosure requirements
“protect a consumer’s concrete interest in ‘avoid[ing] the uninformed use of credit,’ a core
object of the TILA.” Id. (quoting 15 U.S.C. § 1601(a)) (alteration in original). Observing
that the required disclosures implicate the effect of a consumer’s own actions with respect to
credit transactions, the court stated,
A consumer who is not given notice of his obligations is likely not to satisfy
them and, thereby, unwittingly to lose the very credit rights that the law affords
him. For that reason, a creditor’s alleged violation of each notice requirement,
by itself, gives rise to a “risk of real harm” to the consumer’s concrete interest
in the informed use of credit.
(Id. at 190–91) (citing Spokeo, 136 S. Ct. at 1549); see also McLaughlin v. Wells Fargo Bank,
NA, No. C 15-02904 WHA, 2016 WL 3418337, at *5–6 (N.D. Cal. June 22, 2016) (finding
standing sufficiently alleged where defendant’s inaccurate payoff statement directly affected
the ability of the plaintiff-homeowner to pursue other options for avoiding foreclosure such
as refinancing her mortgage or conducting a short sale).
Yet based on different facts, courts have also found that allegations of bare procedural
TILA violations fail to satisfy Spokeo’s injury-in-fact requirements. For example, the two
disclosure allegations for which the plaintiff lacked standing in Strubel required some form
of action on the plaintiff’s part, which Strubel had not alleged. 842 F.3d at 191–94. One
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required the disclosure of a consumer’s obligations with respect to stopping automatic
payment of disputed charges, but Strubel’s creditor and credit plan did not offer an
automatic payment plan. Id. at 191–92. The other concerned the disclosure of the
defendant’s 30-day response obligations to report billing errors, but Strubel conceded that
she had no reason to report a billing error. Id. at 192–93. The court found it notable that
the plaintiff “[did] not assert that the allegedly flawed notice caused her credit behavior to
be different from what it would have been had the credit agreement tracked the [proper
language].” Id. at 193.
Other courts have reached similar conclusions concerning
allegations that fail to state how the plaintiff’s behavior or credit would have been affected
if the defendant had properly disclosed the information. See Cottle v. Monitech, Inc., No.
7:17-CV-137-BO, 2017 WL 6519024, at *1, 8 (E.D.N.C. Dec. 20, 2017) (concluding that
allegations of mere confusion are insufficient to support standing where plaintiff did not
allege “that she would have evaluated the terms of her lease differently, made a different
choice had she been presented with additional information, or in any way behaved other
than she did,” absent defendant’s alleged CLA violation), aff’d, 733 F. App’x 136 (4th Cir.
2018); Schwartz v. HSBC Bank USA, N.A., No. 14 Civ. 9525 (KPF), 2017 WL 95118, at
*6 (S.D.N.Y. Jan. 9, 2017) (finding no concrete injury where plaintiff conclusorily alleged
that the bank’s omissions merely “impinged on [his] awareness of the cost of credit”);
Kelen v. Nordstrom, Inc., 259 F. Supp. 3d 75, 81 (S.D.N.Y. 2016) (stating that the
complaint “does not claim that [plaintiff] changed her behavior in any way based on
[defendant’s] allegedly insufficient disclosures”); Jamison v. Bank of Am., N.A., 194 F.
Supp. 3d 1022, 1028 (E.D. Cal. 2016) (holding that allegations failed to confer standing
12
for TILA claim where plaintiff did not allege that consequences of defendant’s alleged
conduct ever arose).
Defendants also rely on a case from the Northern District of Illinois in which Nextep
is the defendant, Prayitno v. Nextep Funding, LLC, (Nextep’s Mem. at 9–10; Monterey’s
Mem. at 5–6), although subsequent case history supports Danger’s position. Like the cases
noted in the preceding paragraph, the court in Prayitno initially found that the plaintiff had
not properly alleged an injury-in-fact for his TILA claim because he had “not alleged how
the alleged failure to provide the information (like APR) changed his behavior.” (Nextep’s
Ex. 1 [Doc. No. 49] (Prayitno v. Nextep Funding, LLC, Case No. 17-cv-04310 (N.D. Ill.
June 27, 2018 at 4)).)
However, the dismissal in Prayitno was without prejudice, (id.), and the plaintiff
subsequently filed a third amended complaint. (Pl.’s Supp’l Auth., Ex. A [Doc. No. 59-1]
(Prayitno v. Nextep Funding, LLC, Case No. 17-cv-04310 (Third. Am. Compl.).)) Again,
Nextep moved to dismiss the TILA claim in the amended pleading, but the court denied
the motion. 3 (Pl.’s Supp’l Auth., Ex. B [Doc. No. 59-2] (Notification of Docket Entry,
Aug. 14, 2018).) The amended pleading in Prayitno contained allegations regarding how
the plaintiff would have changed his behavior, similar to Danger’s pleading here. Compare
Pl.’s Supp’l Auth., Ex. A (Prayitno v. Nextep Funding, LLC, Case No. 17-cv-04310 (Third.
Am. Compl. ¶ 28)) (“Had plaintiff understood that he would have to pay over 140% [APR],
he would have done one or more of the following: (a) purchased the used transmission
3
The denial of the renewed motion to dismiss in Prayitno occurred after the filing of
Defendants’ motions, memoranda, and reply briefs in this action.
13
job, at the lesser price, and paid cash, thereby avoiding the oppressive rate offered by
defendant; [or] (b) sought out a small loan from a loan company.”) with Danger Am.
Compl. ¶¶ 73–74 (“By not disclosing this very high finance charge [of 120%], Defendants
effectively hid from [Danger] the true cost of the credit that they were extending her, and
took from her the ability to shop intelligently for alternative financing. Had [Danger]
known the effective interest rate [was] so high, she would have pursued other financing
options such as using a credit card or obtaining a personal loan through her credit union.”).
Assuming that Spokeo’s standing requirements apply to claims under the TILA, the
Court finds that the allegations here satisfy the requirement of a concrete injury-in-fact.
Danger does not state that she might have considered getting alternative funding had she
been aware of the interest rate. Instead she alleges that she would have pursued alternative
funding, had Defendants disclosed the actual interest rate. 4 (Am. Compl. ¶¶ 71–75.)
Granted, to prove her injury, Plaintiff will likely need to provide evidence about what credit
4
Nextep argues that Plaintiff could not have received alternative funding because she came
to Nextep for financing, suggesting that she had no other recourse. (Nextep’s Reply at 10
[Doc. No. 57].) The Court finds this argument unpersuasive. A person eligible for
alternative financing elsewhere could nevertheless still decide to finance a purchase with
Nextep.
The Court also rejects Monterey’s argument that there is no injury-in-fact because
“Plaintiff does not allege that had the disclosures been made she would have decided to not
lease the dog.” (Monterey’s Mem. at 7.) Monterey asserts that in light of Plaintiff’s
allegation that she got the dog to fill the void created by her college-bound daughter’s
absence, one can infer that Plaintiff “would have entered into the Lease Agreement
regardless of what disclosures were or were not made.” (Id.) The Court’s focus here,
however, is on the actual language of the pleadings and Danger makes no such allegation.
(See Am. Compl. ¶¶ 71–75.) Monterey may pursue its inference in discovery, but it does
not support dismissal of the Amended Complaint.
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card she would have used, the rate on that credit card, or what kind of loans are provided
by her credit union. But at the motion to dismiss stage, Plaintiff merely needs to plausibly
allege that she had access to a credit card or credit union loan that had a lower interest rate
than the one provided for in the Agreement. 5
Defendants argue that Plaintiff fails to allege that she even read the disclosures in
the Agreement, or that she was confused by them. (Nextep’s Mem. at 11; Monterey’s
Mem. at 7–8.) Viewing Plaintiff’s amended pleading as a whole, however, the Court finds
that she has sufficiently alleged a concrete injury-in-fact. Whether Danger read the
disclosures or was confused by them are factual issues that may be developed through
discovery. 6
Danger has alleged that Defendants failed to adequately convey the total amount
In response to a question from the Court at the hearing on the instant motions, counsel for
Nextep acknowledged that a re-pleaded allegation that “had Plaintiff known of the 120%
APR, she would have pursued alternative financing,” would “go a long way” toward
pleading actual injury. The Court sees little difference between this hypothetical allegation
and the allegations in the Amended Complaint, in which Danger alleges that the effective
APR for the purchase of the dog was over 120%, (Am. Compl. ¶¶ 70–75), and “[h]ad
Plaintiff known the effective interest rate [was] so high, she would have pursued other
financing options such as using a credit card or obtaining a personal loan through her local
credit union.” (Id. ¶ 74); (see also id. ¶ 119) (“had [she] known of the true cost, she would
have pursued less expensive alternatives such as a personal loan through her credit union
or use of a credit card.”).
5
6
Granted, in Kelen, 259 F. Supp. 3d at 80, the court noted that the plaintiff failed to allege
that she had ever read the challenged disclosures. However, that fact alone was not
determinative of standing. Rather, the court based its dismissal of the plaintiff’s TILA
claim on multiple facts—primarily, the plaintiff’s failure to allege that she changed her
behavior based on Nordstrom’s allegedly insufficient disclosures and her failure to allege
that Nordstrom ever charged her a late payment fee or a returned payment fee, or an
improperly calculated one. Id. As noted above, Plaintiff here has sufficiently alleged that
she would have changed her course of action had she known the true APR, and that she
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she owed under the Agreement, the total finance charge she was required to pay, and the
finance charge expressed as an APR. (Am. Compl. ¶¶ 104–113, 122–126.) These allegedly
inadequate disclosures created a risk of real harm to a concrete interest that both the TILA
and the CLA were enacted to protect—the informed use of credit. And, in this case, Danger
has plausibly alleged that “real harm” materialized, as she continues to pay an interest rate
of more than 120% for her dog. Further, Plaintiff alleges that she chose not to shop for
credit or obtain alternative financing at a better rate because of Defendants’ allegedly
inadequate disclosures. (Id. ¶ 75.) For all of these reasons, the Court finds that Plaintiff
has properly alleged standing to seek monetary relief for her claims under the TILA and
CLA.
3. Standing for Injunctive Relief
In the Amended Complaint, Plaintiff requests injunctive relief, seeking to enjoin
Defendants from allegedly continuing to violate the CLA, TILA, and Minnesota usury law.
(Id. ¶ G at 28.) Nextep contends that Plaintiff lacks standing for injunctive relief because
she has not properly alleged that she is likely to lease a pet or an item of personal property
from Nextep in the near future, and because general allegations that Nextep “regularly
extended consumer credit” or “regularly engaged in leasing” are insufficient to establish
recurring harm. (Nextep’s Mem. at 15–17.)
Although a plaintiff may have standing to request one form of relief, that “does not
mean that she has standing for all forms of relief.” Disability Support All. v. Billman, No.
continues to make payments under that rate. (Am. Compl. ¶ 75.)
16
CV 15-3649 (JRT/SER), 2016 WL 755620, at *13 (D. Minn. Feb. 25, 2016). Rather, to
meet the injury-in-fact requirement, “a plaintiff seeking prospective relief against future
conduct of defendants who caused injury in the past must show that she faces ‘a real and
immediate threat that she would again suffer similar injury in the future.’” Mosby v. Ligon,
418 F.3d 927, 933 (8th Cir. 2005) (quoting Park v. Forest Serv., 205 F.3d 1034, 1037 (8th
Cir. 2000)).
Here, Danger does not simply complain of “past interactions” with Nextep. Rather,
she asserts that she “faces a real and immediate threat that she would again suffer similar
injury in the future.” (Pl.’s Mem. at 12 n.12.) She alleges that her injury is ongoing because
she still owes Defendants the remaining balance of payments on the dog. (Am. Compl. ¶¶
120, 133.) Her allegations of an ongoing injury are sufficient to establish standing for
injunctive relief.
Nextep cites Gardner v. Montgomery County Teachers Federal Credit Union, 864 F.
Supp. 2d 410, 421 (D. Md. 2012), in which the court found that the plaintiffs lacked standing
to seek injunctive relief for their TILA claims. The court noted that “[p]ast exposure to illegal
conduct does not in itself show a present case or controversy,” and “Plaintiffs have offered
no facts at all suggesting that Defendant is poised to withdraw more money from their
accounts or from the accounts of any putative class member. Indeed, Plaintiffs acknowledge
that Defendant has suspended the DLT Program pending the outcome of this litigation.
Plaintiffs therefore lack standing to seek an injunction.” Id. In contrast, here, Danger has
alleged that she continues to make payments pursuant to the terms of the Agreement, (Am.
Compl. ¶¶ 120, 133), and Defendants have not suspended her payment obligations pending
17
the outcome of this litigation. Accordingly, Plaintiff has sufficiently alleged standing to
seek injunctive relief for future harms.
For all of the foregoing reasons, Defendants’ motions to dismiss based on a lack of
standing are denied. Because the Court finds that Danger has sufficiently alleged standing
as to her claims in Counts I and II, the Court need not consider the portion of Defendants’
motions to dismiss the state law usury claim for lack of supplemental jurisdiction. (See
Nextep’s Mem. at 14; Monterey’s Mem. at 14 n.3.) Those portions of Defendants’ motions
are therefore denied.
B. Rule 12(b)(6): Failure to State a Claim
1. Standard of Review
When evaluating a motion to dismiss under Rule 12(b)(6), the Court assumes the facts
in the complaint to be true and construes all reasonable inferences from those facts in the light
most favorable to the plaintiff. Hager v. Ark. Dep’t of Health, 735 F.3d 1009, 1013 (8th Cir.
2013). However, the Court need not accept as true wholly conclusory allegations, Hanten v.
Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions that
plaintiffs draw from the facts alleged, Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th
Cir. 1990). “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.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).
A claim is facially plausible “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.
(citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action,
18
supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at
555). A complaint must contain facts with enough specificity “to raise a right to relief above
the speculative level.” Twombly, 550 U.S. at 555.
When considering a motion to dismiss under Rule 12(b)(6), “the court generally must
ignore materials outside the pleadings.” Porous Media Corp. v. Pall Corp., 186 F.3d 1077,
1079 (8th Cir. 1999). Courts may, however, “consider some materials that are part of the
public record or do not contradict the complaint as well as materials that are necessarily
embraced by the pleadings.” Id. (quotations and citation omitted); see also Illig v. Union
Elec. Co., 652 F.3d 971, 976 (8th Cir. 2011) (“In addressing a motion to dismiss, the court
may consider the pleadings themselves, materials embraced by the pleadings, exhibits
attached to the pleadings, and matters of public record.” (quotation omitted) ). “[D]ocuments
‘necessarily embraced by the complaint’ are not matters outside the pleading,” Enervations,
Inc. v. Minn. Mining & Mfg. Co., 380 F.3d 1066, 1069 (8th Cir. 2004), and courts have
discretion “to determine whether or not to accept any material beyond the pleadings that is
offered in conjunction with a Rule 12(b)(6) motion.” Stahl v. United States Dep’t of Agric.,
327 F.3d 697, 701 (8th Cir. 2003) (quotation omitted).
2. CLA Claim Against Nextep (Count I)
Nextep moves to dismiss Plaintiff’s CLA claim, arguing that Danger fails to state a
claim.
(Nextep’s Mem. at 18–22.) Nextep contends that information regarding the total
amount of Plaintiff’s payments was either correctly stated in the Agreement, stated elsewhere
in the Agreement, or, even if not correctly stated, perfect compliance with the TILA is not
19
required. (Id.)
The CLA is an amendment to the TILA that “extend[s] the TILA’s ‘credit disclosure
requirements to consumer leases.’” Clement, 145 F. Supp. 2d at 209 (quoting Turner v. Gen.
Motors Acceptance Corp., 180 F.3d 451, 454 (2d Cir. 1999)). It regulates consumer leases
made for personal, family, or household purposes that exceed four months in duration, for
amounts not exceeding $50,000. 15 U.S.C. § 1667(1). The CLA requires the disclosure of
certain lease costs and terms, including the “number, amount, and due dates or periods of
payments under the lease and the total amount of such periodic payments,” id., § 1667a(9),
and provides for a private cause of action and the recovery of actual and statutory damages
for violations of the disclosure requirements. Id. §§ 1640, 1667d(a).
In the Amended Complaint, Plaintiff alleges that Nextep violated the CLA by
“providing a false disclosure of the total amount of periodic payments owed under the
Agreement.” (Am. Compl. ¶ 114.) She alleges that rather than disclosing the total amount of
periodic payments due, the Agreement states, under “Monthly Payments” in Section 2, that
“[t]he Total of your Monthly Payments is $138.28,” when, in fact, 24 monthly payments of
$138.28 result in a total of $3,318.73. (Id. ¶¶ 107–08) (citing Agmt. ¶ 2, Ex. A to Am.
Compl.) Also, Danger alleges that the disclosure in Section 2 regarding “[t]he amount you
will have paid by the end of the Lease” is inaccurate because it omits the $35 Warranty Fee,
and either a $103.64 Disposition Fee or a $207.28 Purchase Option Fee. (Am. Compl. ¶¶ 59–
60.)
In its motion to dismiss, Nextep argues that the disclosure regarding “[t]he Total of
your Monthly Payments” is actually correct, as each monthly payment was $138.28.
20
(Nextep’s Mem. at 18.) It notes that the phrase “Total of your Monthly Payments” is not
defined in the CLA, Regulation M, or the commentary to Regulation M. (Id. at 18 n.5.)
Moreover, when viewing the disclosures in the Agreement as a whole, Nextep asserts that
there is no ambiguity. Nextep points to language under “Total of Payments,” in the fourth
column of Section 2, that lists $3,318.73 as “[t]he amount you will have paid by the end of
the Lease.” (Id.) Moreover, Nextep contends that even if the “Total of your Monthly
Payments” was confusing, it is not plausible that Plaintiff thought the total price of her dog
totaled $138.28, given that two columns to the right, the Agreement states that the “Total of
Payments” is $3,318,73. (Id.)
As to the failure to include the warranty fee and disposition or purchase fee in the
“Total of Payments,” Nextep argues that nothing in the CLA or Regulation M requires those
fees to be disclosed. (Id. at 19.) In fact, Nextep notes that Danger’s claims only rely on the
portions of the CLA and Regulation M that require the disclosure of the total amount of
periodic payments: 15 U.S.C. § 1667a(9) and 12 C.F.R. § 1013.4(c). (Id.) (citing Am. Compl.
¶¶ 104–06.) But even if such information were required, Nextep asserts, it provided it
elsewhere in Section 2. (Id. at 20.)
Finally, Nextep also argues that even if any of the Agreement’s disclosures were
technically improper, perfect compliance with the TILA is not required. (Id.) It relies on a
line of authority, primarily from other circuits. (Id.7) It also cites a decision of the Eighth
Citing, e.g., Strubel, 842 F.3d at 199 (finding that defendant’s disclosure was
“substantially similar” to the model form for disclosures under 15 U.S.C. § 1637(a)(7) and
did not violate the TILA); Watkins v. SunTrust Mortg., Inc., 663 F.3d 232, 239 (4th Cir.
2011) (finding that perfect disclosure is not required under the TILA, but clear and
7
21
Circuit Bankruptcy Appellate Panel, In re Groat, 369 B.R. 413, 417 (B.A.P. 8th Cir. 2007),
in which the court found that a typographical error in one of the lender’s notices concerning
rescission was not misleading, and therefore, did not constitute a TILA violation. In addition,
Nextep relies on two decisions from other district judges in this District, in which strict
conformity with the TILA was not required, and the clear and conspicuous notice standard
was found to be met. (Nextep’s Mem. at 21–22) (citing Gewecke v. U.S. Bank, N.A., No. 09cv-1890 (JRT/RLE), 2010 WL 3717273, at *6–18 (D. Minn. 2010); Peterson–Price
v. U.S. Bank Nat’l Ass’n, No. 09-cv-495 (ADM/JSM), 2010 WL 1782188, at *5–6 (D. Minn.,
May 4, 2010)).
The question of “whether disclosures under the TILA are inaccurate, misleading, or
confusing is usually a question of fact for the factfinder. Clement, 145 F. Supp. 2d at 209.
Here, the Court finds that Plaintiff has plausibly alleged a violation of the CLA against
Nextep. Section 2 of the Agreement contains information that a consumer might view as
conflicting and confusing, as it states that “[t]he Total of your monthly payments is
$138.20” and the “Total of Payments” is $3318.73. (Agmt. § 2, Ex. A to Am. Compl.)
Given the language of the Agreement, the Court cannot say, as a matter of law, that the
disclosures in question meet the clear and conspicuous standard advanced by Nextep. See
Trombley v. SunTrust Mortg., Inc., No. 10-cv-3089 (JRT/JJG), 2012 WL 3029645, at * 5
conspicuous provisions concerning the consequences of rescission is sufficient). But see
Handy v. Anchor Mortg. Corp., 464 F.3d 760, 764 (7th Cir. 2006) (strictly construing
requirements regarding notice of right to rescind and finding that defendant’s simultaneous
provision of two forms did not clearly and conspicuously disclose the effect of rescission).
22
(D. Minn. July 24, 2012) (finding, on summary judgment, a question of fact as to whether
the disclosure of conflicting APR information violated the TILA). Nextep’s motion to
dismiss Danger’s CLA claim, pursuant to Rule 12(b)(6), is therefore denied.
3. TILA Claim Against Monterey 8 (Count II)
Although the Agreement is styled as a lease, Danger contends that it is a credit sale,
subject to the TILA’s disclosure requirements. (Am. Compl. ¶ 124; Pl.’s Opp’n to Monterey
at 27 [Doc. No. 53].) In Count II of the Amended Complaint, she invokes a provision of the
TILA that generally requires creditors to clearly and conspicuously disclose the finance
charge of a consumer credit transaction, expressed as an APR, and the sum of the amount
financed and the finance charge, to be labeled the “total of payments.” (Am. Compl. ¶ 122)
(citing 15 U.S.C. § 1638(a)(4)-(5)). She asserts that Defendants failed to disclose that the
APR for the purchase of her dog was 120%. (Id. ¶ 126.)
In its motion to dismiss, Monterey asserts that this claim fails. It argues that Monterey
is a mere “servicer,” not subject to liability as a “creditor” under Section 1638. (Monterey’s
Mem. at 10–13.)
The TILA provides consumers with a private right of action against a creditor or any
assignee of the creditor. See 15 U.S.C. § 1641(a). It defines “creditor” as “only . . . a person
who both (1) regularly extends . . . consumer credit . . . , and (2) is the person to whom the
debt arising from the consumer credit transaction is initially payable . . . .” Id. § 1602(g). In
contrast, a “servicer” is defined elsewhere by statute as the person responsible for “receiving
8
While Plaintiff brings this claim against both Defendants, only Monterey moves to
dismiss it pursuant to Rule 12(b)(6).
23
any scheduled periodic payments from a borrower pursuant to the terms of [the] loan . . . .”
12 U.S.C.§ 2605(i)(3) (addressing the servicing of mortgages). It is generally true that the
TILA “does not allow a private cause of action against servicers.” Kelly v. Fairon & Assocs.,
842 F. Supp. 2d 1157, 1162 (D. Minn. 2012). 9 But see Stephenson v. Chase Home Fin.,
LLC, No. 10cv2639–L(WMc), 2011 WL 2006117, at *3 (S.D. Cal. May 23, 2011) (denying
motion to dismiss TILA claim against servicer where servicer failed to comply with TILA
requirement, 15 U.S.C. § 1641(f)(2), that servicer provide the obligor with the name,
address, and telephone number of the owner of the obligation or master servicer of the
obligation); Sam v. Am. Home Mortg. Servicing, No. S–09–2177, 2010 WL 761228, at *3
(E.D. Cal. Mar. 3, 2010) (same). However, the TILA permits a servicer to be treated as an
assignee of the consumer obligation if the servicer is or was the owner of the obligation.
See 15 U.S.C. § 1641(f)(3).
In the Agreement, Monterey is mentioned in one provision:
You agree to make the monthly payments in the amount and at the time
specified in Section 2. You may payoff [sic] your Lease at any time. You
agree to make any other payments you owe under this Lease within 10 days
of our invoice. Unless you enroll in the direct withdrawal program, you must
send all payments to: Monterey Financial 4095 Avenida De La Plata,
Oceanside, CA 92056 (or such other address as we may designate from time
to time).
Citing Sherrell v. Bank of Am., N.A., No. CV F 11-1785, 2011 WL 6749765, at *11–12
(E.D. Cal. Dec. 22, 2011); Holcomb v. Fed. Home Loan Mortg. Corp., No. 10-81186-CV,
2011 WL 5080324, at *6 (S.D. Fla. Oct. 26, 2011); Consumer Solutions REO, LLC v.
Hillery, No. C-08-04357, 2010 WL 144988, at *3 (N.D. Cal. Jan. 8, 2010); Garcia v.
Fannie Mae, 794 F. Supp. 2d 1155, 1172 (D. Or. 2011); Selby v. Bank of Am., Inc., No.
09cv2079, 2011 WL 902182, at *6 (S.D. Cal. Mar. 14, 2011); Ording v. BAC Home Loans
Servicing, LP, No. 10–10670, 2011 WL 99016, at *3 (D. Mass. Jan. 10, 2011).
9
24
(Agmt. § 9, Ex. A to Am. Compl.) Pointing to this language, Monterey infers that because it
did not receive Danger’s initial payment, it was “merely designated as the loan servicer, as it
was responsible for receiving the periodic (monthly) payments.” (Monterey’s Mem. at 12.)
Further, Monterey claims that its role as a servicer is confirmed in a June 20, 2017
letter to Plaintiff, which it submits in support of its motion, attached to the Declaration of
Shaun Lucas, Monterey’s Executive Vice President [Doc. No. 42].
In the introductory
paragraph, the letter states that Nextep “has appointed Monterey [ ] to service your lease
contract.” (Lucas Decl., Ex. A [Doc. No. 42–1] (June 20, 2017 Letter).) Finally, Monterey
argues that Danger fails to adequately allege that Monterey was, or is, the owner of the loan.
(Monterey Mem. at 12.)
As previously noted, on a motion to dismiss under Rule 12(b)(6), the Court must
generally ignore materials outside the pleadings. Porous Media, 186 F.3d at 1079. Here, the
Court does not find the June 20, 2017 letter from Monterey to Danger to be a document
embraced by the pleadings. It is not a document “whose contents are alleged in a complaint
and whose authenticity no party questions.” Ashanti v. City of Golden Valley, 666 F.3d 1148,
1151 (8th Cir. 2012). Therefore, the Court declines to consider it for purposes of the instant
motions.
The Court finds that Danger has sufficiently alleged a TILA claim against Monterey.
First, she alleges that the Agreement is a consumer credit sale, subject to the requirements of
TILA and its implementing regulation. (Am. Compl. ¶ 67.) While Defendants dispute this
25
allegation, the Court cannot resolve factual disputes in their favor, but must view Plaintiff’s
allegations as true. Hager, 735 F.3d at 1013.
Further, Danger specifically alleges that Monterey is a creditor, (Am. Compl. ¶ 29),
offering a “host of services,” and positing itself as a non-traditional lender. (Id. ¶¶ 23, 24.)
She points to language on Monterey’s website that states:
In addition to being a loan servicing specialist, Monterey has developed
consumer financing programs that not only meet the needs of niche businesses
and consumers spanning the credit spectrum, but its flexible alternative finance
options have caught the attention of large volume and well known retailers and
companies who realize that traditional lenders neglect a significant portion of
[the] consumer market.
(Id. ¶ 24) (emphasis added). And, Danger reiterates that the Agreement identifies
Monterey as the payee for Plaintiff’s payments owed. (Id. ¶¶ 27, 28.)
Accordingly, the Court denies Monterey’s motions to dismiss. Its status as a creditor
or servicer of the transaction at issue here will be informed by discovery.
4. Usury Claim Against Both Defendants (Count III)
Defendants move to dismiss Plaintiff’s usury claim, arguing that the transaction
with Danger is not usurious. (Nextep’s Mem. at 22–25; Monterey’s Mem. at 14–16.)
Rather, they argue that the Agreement is either a lease or an installment contract, and
pursuant to the time-price doctrine, it falls outside the usury statute’s scope. (Id.)
Usury is the “‘taking or receiving of more interest or profit on a loan than the law
allows.’” In re Donnay, 184 B.R. 767, 778 (Bankr. D. Minn. 1995) (quoting Rathbun v.
W.T. Gran Co., 219 N.W.2d 641, 646 (Minn. 1974)). As applicable here, Minnesota law
forbids creditors from charging interest rates greater than 8%. Minn. Stat. § 334.01. If a
26
creditor imposes interest beyond this threshold, the borrower may bring an action within
two years to recover all interest paid pursuant to the illegal arrangement. Minn. Stat.
§ 334.02.
The Minnesota Supreme Court has recognized the following four elements of a
usury claim: (1) a loan of money or forbearance of debt; (2) an agreement between the
parties that the principal shall be repayable absolutely; (3) the exaction of a greater amount
of interest than is allowed by law; and (4) the presence of an intention to evade the law at
the inception of the transaction. Miller v. Colortyme, Inc., 518 N.W.2d 544, 549 (Minn.
1994).
Regardless of how the transaction is framed by the parties—for example, whether
it be called a lease, loan, or sale—the applicability of the usury statute depends upon the
nature of the transaction. Id. at 546 (stating that courts “look through the form to the
substance of a transaction.”). For instance, in Colortyme, the Minnesota Supreme Court
examined the “leasing” of various consumer goods such as furniture, televisions, and
appliances to consumers in rent-to-own agreements. Id. Under the contracts, customers
rented the items for a weekly or monthly term and ultimately received ownership of the
rented items for no additional consideration. Id. However, in order to obtain ownership,
customers typically were required to pay a total price far in excess of fair market value. Id.
The court found that these transactions were consumer credit sales, explaining that:
[c]onsumers who purchase goods through rent-to-own agreements may not
incur debt, but they still implicitly pay interest in return for the ability to pay
for goods over time. Moreover, rent-to-own customers may not have an
absolute obligation to repay a principal amount, but their situation is
analogous to that of ordinary buyers on credit in that they must either forfeit
27
possession of a good or continue paying for it.
Id. at 549. Because the court found that rent-to-own contracts were consumer credit sales
for all practical purposes, such agreements were found to be “subject to the same consumer
protection laws as ordinary credit sales, including the general usury statute, Minn. Stat. §
334.01.” Id. at 546.
However, pursuant to the time-price doctrine, some agreements fall outside the
bounds of usury law. St. Paul Bank for Coops. v. Ohman, 402 N.W.2d 235, 238 (Minn.
Ct. App. 1987). This doctrine may be applicable where, among other things, the seller
offers a lower cash price and a higher credit price for the same goods. See Rathbun, 219
N.W.2d at 647. As the Minnesota Supreme Court has explained:
The increase of the credit price for the purposes of the conditional sales
contract does not convert what otherwise would be a sale into a loan. The
owner has the right to determine the price at which he will sell his property.
He may fix one price for cash and another price for credit. The fact that the
credit price exceeds the cash price by a greater percentage than is permitted
by the usury law does not make the transaction usurious for the very plain
reason that the transaction is a sale and not a loan.
Id. (quoting Dunn v. Midland Loan Fin. Corp., 289 N.W. 411, 413 (Minn. 1939)). Such
transactions fall outside the scope of the usury statute because they represent “merely a
sale of goods and not a loan of money, and there is no forbearance or loan because the debt
is based on a future price and not on an amount then due.” St. Paul Bank, 402 N.W.2d at
238. However, in Fogie v. THORN Ams., Inc., 95 F.3d 645, 653 (8th Cir. 1996), the Eighth
Circuit addressed rent-to-own contracts similar to those in Colortyme, and found that the
defendant’s time-price argument was foreclosed by the rulings of the Minnesota Supreme
Court (citing Fogie v. Rent-A-Center, Inc., 518 N.W.2d 544 (Minn. 1994); Colortyme, 518
28
N.W.2d at 549; Rathbun, 219 N.W.2d at 647).
Nextep argues that the transaction here fails to meet the first two elements
necessary for a claim of usury: it is neither a loan of money, nor an agreement between
the parties that the principal shall be paid absolutely, noting that if the dog is lost, stolen,
or dies, Danger is not required to fulfill the terms of the lease. (Nextep’s Mem. at 22-23.)
In Colortyme, however, the Minnesota Supreme Court held that because the Legislature
had defined rent-to-own transactions in the Minnesota Consumer Credit Sales Act as
“consumer credit sales” for all purposes, it established that such consumers are entitled to
the protection of the state’s usury law “even though rent-to-own consumers do not actually
incur any debt and do not have any obligation to repay a principal amount.” 518 N.W.2d
at 549. Thus, the court found that the first two usury elements were met by operation of
the usury statute. 10 Id. at 546.
Defendants also argue that the transaction here was not a rent-to-own agreement,
but is instead subject to the time-price doctrine. (Monterey’s Mem. at 15–16.) Nextep
contends that Danger “ignores the defining aspect” of the rent-to-own contracts that were
the subject of Colortyme: that the defendants did not offer their products for sale to the
public at a cash price. (Nextep’s Mem. at 24-25) (citing Colortyme, 518 N.W.2d at 548
n.4). Defendants assert that here, the dog was, in fact, offered for sale at a cash price, which
In addition, the court found that the third element for a usury claim—exacting a greater
amount of interest than is allowed by law—was satisfied, given that the difference between
the total payments required under the contract and the value of the goods and services
exceeded the statutory limit for interest. Colortyme, 518 N.W.2d at 550. The court also
found that the fourth element, intent, was satisfied because the defendant intended to collect
all of the money stated in the contract. Id.
10
29
is different than the total price that Danger will eventually pay. (Id.; Monterey’s Mem. at
15–16.)
The Court disagrees with the characterization of this as the “defining aspect” of the
rent-to-own contracts in Colortyme, as the court merely addressed it in a footnote. 518
N.W.2d at 548 n.4. But more importantly, in that footnote, the court simply noted that the
time-price doctrine “may apply where a seller fixes one price for cash and another price for
credit,” but those facts were not before the court in Colortyme. Id. (emphasis added).
The facts here are less clear, as Premier Pups is the seller, not Defendants. In other
words, this is not a case of a seller fixing one price for cash and one price for credit. The
Court finds that Danger has adequately pleaded her usury claim. She alleges that Defendants
have violated Minn. Stat. § 334.01 by charging an APR in excess of 120%, which exceeds
the 8% limit allowed under Minnesota law for a personal debt. (Am. Compl. ¶¶ 135–45.)
She further contends that Defendants intended to evade the operation of the statute by
styling the Agreement as a lease contract, rather than a consumer credit sale. (Id. ¶ 145.)
The Court acknowledges that the facts here do not align perfectly with the diverging
authority on which Plaintiff and Defendants rely. However, the Minnesota Supreme Court
has expressed an unwillingness to expand the time-doctrine unless justified by economic
needs and social attitudes. Rathbun, 219 N.W.2d at 648. The Court finds that the viability of
Plaintiff’s usury claim will be better informed by discovery. At this stage, Defendants’
motions to dismiss are denied.
30
III.
Conclusion
Based on the foregoing, and all the files, records and proceedings herein, IT IS
HEREBY ORDERED that:
1. Defendant Nextep’s Motion to Dismiss [Doc. No. 46] is DENIED; and
2. Defendant Monterey’s Motions to Dismiss [Doc. Nos. 22 & 39] are DENIED;
and
3. The Stay entered in this matter [Doc. No. 81] is hereby LIFTED.
Dated: January 23, 2019
s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge
31
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