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In a 7-0 decision announced on January 31, 2008, the Ohio Supreme Court limited the amount of damages a plaintiff may recover from the creditor who financed his purchase of an allegedly defective product. In Reagans v. MountainHigh Coachworks, Inc., 2006-Ohio-423, the court held that (1) the plaintiff can recover only up to the amount the consumer actually paid the lender under the credit contract, and (2) that the amount of any judgment against a creditor can not be used to set off against the outstanding balance of the plaintiff’s loan.
Ellen and Roscoe Reagans purchased a new MountainHigh motor home from Paul Sherry Vans in the amount of $85,955.20. The purchase was financed by Firstar Bank. The Reagans received a 20 year loan on the vehicle which called for payments of $718.43 per month for a total of $172,423.20. After experiencing problems with the rear wheels of their new motor home, the Reagans filed suit against Paul Sherry Vans, MountainHigh Coachworks, Inc., and Firstar Bank.
The Reagans alleged violations of the Ohio Consumer Sales Practices Act (CSPA) against MountainHigh and Paul Sherry Vans and argued that Firstar was derivatively liable pursuant to the FTC rule. The FTC rule requires certain consumer credit contracts to include a notice to the debtor that he or she may assert any claims or defenses against a creditor that he or she could assert against the seller of allegedly defective goods. The required notice also provides a provision that the debtor’s recovery “shall not exceed amounts paid by the debtor” under the credit contract. See 16 C.F.R. § 433.2 (1998)
A jury ruled in favor of the Reagans and awarded damages in the amount of $181,923.20 as against Paul Sherry Vans. The court granted Paul Sherry Vans’ subsequent motion to reduce the damage award and held a new trial on the sole issue of damages. The court determined that the Reagans’ actual damages were $53,778 and issued a judgment against Paul Sherry Vans for that amount. The court then trebled the damage award under the CSPA and awarded the Reagans attorney fees in the amount of $38,680.64 for a total judgment of $200,014.64 against Sherry.
The court also granted the Reagans a judgment against Firstar but found that, under the FTC rule, the bank’s derivative liability was limited to the Reagans’ actual loss and could not exceed the amount paid on the loan. The court also rejected the Reagans’ claims for treble damages and attorney fees, finding that Firstar could not be held derivatively liable under the FTC rule for treble damages and attorney fees awarded to a consumer against a seller for violation of the CSPA.
Judgment was entered against Firstar in the amount of $53,778 and the court ordered the bank to apply the judgment to the Reagans’ outstanding balance on the vehicle loan. After an unsuccessful appeal to the Second District Court of Appeals, the Reagans appealed to the Ohio Supreme Court. The Ohio Supreme Court unanimously upheld the trial court’s determination of damages. The Court noted that the Reagans’ $200,014.64 judgment against Paul Sherry Vans for treble damages and attorney fees amounted to more than the $53,778 the Reagans actually paid under the credit contract. Citing the FTC clause, the Court held that the Reagans could recover no more than $53,778 from Firstar.
The Court also rejected the Reagans’ argument that the amount of the $200,014.64 treble damages and attorney fee judgment should be set off against the outstanding balance on their loan from Firstar. The Court explained that transactions between financial institutions and their customers are exempt from the CSPA pursuant to R.C. 1345.01(A) and found that Firstar was not directly subject to CSPA claims arising from its loan agreement with the Reagans. The Court found that the FTC rule was not designed to punish innocent creditors for sellers’ misconduct. “A creditor whose only connection to a sales transaction is as a lender does not deserve to have an additional penalty – treble damages – imposed for the seller’s misconduct under the Consumer Sales Practices Act.” Reagans at ¶ 35.
The Court also held that a creditor could not be held derivatively liable for attorney fees awarded against a seller under the CSPA since the CSPA does not apply to the buyer’s loan transaction with the creditor. “A creditor’s potential derivative liability for compensatory damages under the FTC rule already provides creditors with an incentive to discourage sellers’ misconduct. Neither the FTC rule nor the purpose behind it requires that innocent creditors also be held derivatively liable for additional awards intended as penalties against sellers.” Reagans at ¶ 40.
The complete text of the court’s opinion is available at:
http://www.supremecourtofohio.gov/rod/newpdf/0/2008/2008-Ohio-271.pdf
As always, these are highlights of the law and are not to be construed as containing the entire law. This is not to be construed or relied upon as a legal opinion. If you are presented with this problem, contact your legal counsel for advice. |
