Hicks v. Star Imports, Inc. , 5 F. App'x 222 ( 2001 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
SUSAN HICKS, 
Plaintiff-Appellant,
v.
STAR IMPORTS, INCORPORATED,
Defendant & Third Party  No. 00-1891
Plaintiff-Appellee,
v.
FIRST VIRGINIA BANK-PIEDMONT,
Third Party Defendant.

Appeal from the United States District Court
for the Western District of Virginia, at Lynchburg.
Norman K. Moon, District Judge.
(CA-99-33-6)
Argued: January 23, 2001
Decided: March 7, 2001
Before WIDENER and TRAXLER, Circuit Judges, and
Malcolm J. HOWARD, United States District Judge for the
Eastern District of North Carolina, sitting by designation.
Affirmed by unpublished opinion. Judge Howard wrote the majority
opinion, in which Judge Widener joined. Judge Traxler wrote a dis-
senting opinion.
COUNSEL
ARGUED: Thomas Dean Domonoske, Harrisonburg, Virginia, for
Appellant. Joy Lee Price, CASKIE & FROST, P.C., Lynchburg, Vir-
2 HICKS v. STAR IMPORTS, INC.
ginia, for Appellee. ON BRIEF: Elmer R. Woodard, III, Danville,
Virginia, for Appellant. James Frederick Watson, CASKIE &
FROST, P.C., Lynchburg, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
HOWARD, District Judge:
Appellant Susan Hicks ("Hicks") appeals the order of the district
court granting summary judgment to appellee Star Imports. We
affirm.
I.
On April 28, 1998, Susan Hicks purchased an automobile from Star
Imports. To finance the purchase, plaintiff and appellee entered into
a form-based Retail Installment Contract ("RISC"). Included in the
amount financed column of the RISC was a charge for "Vendor’s Sin-
gle Interest Insurance" ("VSI"), along with the following clause:
***Vendor’s Single Interest Insurance: You are required
to obtain this insurance. You may obtain this insurance from
anyone of your choice that is acceptable to us. If you obtain
this insurance from us, you will pay $35.00.
Hicks signed the RISC, and Star Imports included the $35.00
charge as part of the amount financed. Star Imports maintains that it
assigned the RISC, along with the $35.00 VSI charge, to First Vir-
ginia Bank-Piedmont ("First Virginia" or "Bank"), who purchased
VSI insurance covering Hicks’s automobile.
On April 7, 1999, appellant filed suit in federal court alleging vio-
lations of the federal Truth in Lending Act ("TILA"), 15 U.S.C.
HICKS v. STAR IMPORTS, INC. 3
§ 1601, and Virginia’s Consumer Protection Act. Hicks’s complaint
alleged that Star Imports did not properly disclose the VSI charge as
an element of the finance charge in violation of the TILA. Star
Imports filed a third-party complaint against First Virginia. Hicks and
Star Imports then filed cross-motions for summary judgment, and
First Virginia filed a motion to dismiss the third-party complaint.
On June 9, 2000, United States District Court Judge Norman K.
Moon of the Western District of Virginia granted Star Imports’s
motion for summary judgment on Hicks’s TILA claim. After declin-
ing to exercise supplemental jurisdiction on Hicks’s state law claim,
the district court dismissed the third-party complaint against First Vir-
ginia as moot.
Appellant appeals the district court’s summary judgment order.
The standard for reviewing the district court’s grant of summary judg-
ment is de novo. McGahren v. First Citizens Bank & Trust, 111 F.3d
1159, 1165 (4th Cir. 1997).
II.
Congress passed the TILA "to assure the meaningful disclosure of
credit terms so that the consumer will be able to compare more read-
ily the various credit terms available to him." 15 U.S.C. § 1601(a).
The incorrect characterization of a charge in the amount-financed col-
umn under-reports the finance charge, and consequently lowers the
annual percentage rate represented on a credit contract in violation of
the TILA.
Single interest insurance for automobiles provides protection to a
creditor if a debtor fails to secure insurance on his or her own. The
TILA does not prohibit creditors from requiring borrowers to pur-
chase single interest insurance. Instead, the TILA typically requires
creditors to list single interest insurance as an element of the "finance
charge." 15 U.S.C. § 1605(c). However, the statute provides an excep-
tion allowing single interest insurance to be designated as part of the
"amount financed" if the creditor meets the following conditions: 1)
the creditor provides a "clear and specific statement in writing . . . to
the person to whom the credit is extended," 2) "setting forth the cost
of the insurance if obtained from or through the creditor," and 3)
4 HICKS v. STAR IMPORTS, INC.
"stating that the person to whom the credit is extended may choose
the person through which the insurance is to be obtained." Id.
The Federal Reserve Board, the agency charged with enforcing the
statute, has promulgated regulations interpreting the statute, com-
monly known as Regulation Z. The regulations reiterate the statutory
requirements, and further clarify that to include VSI in the amount
financed column, the insurance must protect against property damage,
not risk of default on the credit contract, and that the insurer must
waive subrogation rights against the debtor. 12 C.F.R. § 226.4(d)(2)
& n.5.
On appeal, Hicks asserts that the district court incorrectly con-
cluded that the VSI fee offered by Star Imports was not mandatory.
Despite signing a RISC which stated that the VSI fee was not manda-
tory, Hicks contends that her signature on the contract is not disposi-
tive on the issue of whether she could purchase VSI insurance from
an insurer of her choosing and seeks to introduce extrinsic evidence
to prove otherwise.
We disagree and hold that the district court properly determined
that the VSI fee was not mandatory. In determining whether extrinsic
evidence is admissible to contradict the written terms of the contract,
the Fifth Circuit in Anthony v. Community Loan & Inv. Corp., 559
F.2d 1363 (5th Cir. 1977), held in the absence of fraud, duress, or
illiteracy, the state parol evidence rule bars the introduction of evi-
dence contradicting written disclosure requirements. See also Dixon
v. S & S Loan Serv., 754 F. Supp. 1567, 1571-72 (S.D. Ga. 1990);
Kramer v. Marine Midland Bank, 559 F. Supp. 273, 284 (S.D.N.Y.
1983). The Anthony court reasoned that allowing parol evidence to
contradict a signed disclosure statement would discourage consumers
from reading the contract and availing themselves of the protections
provided by the TILA. Anthony, 559 F.2d at 1363.
While Hicks urges that we adopt a substance over form approach
looking beyond the express terms of the contract to determine compli-
ance with the TILA, see Kaminski v. Shawmut, 494 F. Supp. 723, 729
(D. Mass. 1980), we decline to do so. Regulatory language interpret-
ing the TILA states that "[t]he creditor need not ascertain whether the
consumer is able to purchase the insurance from someone else," and
HICKS v. STAR IMPORTS, INC. 5
suggests that the TILA is concerned primarily with providing borrow-
ers with information that they have the right to buy VSI from insurers
of their choice, and not assuring that borrowers actually exercise the
right. Second, the Anthony approach encourages consumers to take a
pro-active approach to enforcing their federal rights and alleviates
problems of proof. As seen in this case, the plaintiff signed the docu-
ment without inquiring about the VSI insurance, but now claims that
if she had tried to choose her own provider, the creditor would have
refused. This type of claim, however, is based almost exclusively on
speculations. We conclude that Hicks’s signature on a document stat-
ing that Hicks could obtain insurance from an insurer of her choice
met Star Imports’s disclosure and voluntariness requirements under
the TILA.
Finally, with respect to Hicks’s claims that Star Imports’s failure
to produce the insurance policy should have precluded summary judg-
ment, we conclude that the district court properly determined that Star
Imports fulfilled its requirements under the TILA. Star Imports has
always maintained that it passed the fee to First Virginia who pur-
chased the policy. The TILA does not require Star Imports to oversee
the purchase and terms of the VSI policy once Star Imports assigns
the fee to a third-party.
AFFIRMED
TRAXLER, Circuit Judge, dissenting:
I do not believe that Star established its compliance with the
requirements under the Truth in Lending Act ("TILA") for inclusion
in the "amount financed" of the premium for vendor’s single interest
insurance ("VSI"). I therefore respectfully dissent.
TILA requires a creditor to make a correct disclosure of the amount
of the finance charge that the consumer will pay over the life of the
financing agreement, as well as the total amount financed under the
agreement. See 15 U.S.C.A. §§ 1638(a)(2)(A), (a)(3) (West 1998).
Under TILA, premiums for insurance against property loss or damage
must be included in the finance charge
6 HICKS v. STAR IMPORTS, INC.
unless a clear and specific statement in writing is furnished
by the creditor to the person to whom the credit is extended,
setting forth the cost of the insurance if obtained from or
through the creditor, and stating that the person to whom the
credit is extended may choose the person through which the
insurance is to be obtained.
15 U.S.C.A. § 1605(c) (West 1998). The district court concluded that
Star sufficiently disclosed that Hicks could choose from whom she
purchased the VSI insurance and the cost of the insurance if pur-
chased through Star. Even if this conclusion is correct, it is not the
end of the inquiry. TILA requires a creditor to accurately disclose the
amount of the finance charge and the amount financed. See, e.g., Gib-
son v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283, 285 (7th Cir.
1997) (explaining that TILA "requires disclosure — meaning . . .
accurate disclosure"); Fairley v. Turan-Foley Imports, Inc., 65 F.3d
475, 479 (5th Cir. 1995) ("Regulation Z [which implements TILA]
sets out certain guidelines for creditors to follow when disclosing the
amount financed, the finance charge, and the annual percentage rate
to the consumer and demands that these disclosures be accurate."). If
a fee that the statute or regulations require be included in the finance
charge is improperly included in the amount financed, then neither the
finance charge nor the amount financed were accurately disclosed to
the consumer. See Adams v. Plaza Finance Co., 168 F.3d 932, 936
(7th Cir. 1999) ("Since [TILA] permits premiums for nonfiling insur-
ance to be included in the amount financed but requires default insur-
ance premiums to be included in the interest charge, a lender cannot
be permitted to designate a premium as being for nonfiling insurance
if it is really, clearly, and always for default insurance."); Edwards v.
Your Credit, Inc., 148 F.3d 427, 442 (5th Cir. 1998) (vacating grant
of summary judgment to creditor because questions of fact existed as
to whether insurance premium included in amount financed was in
reality for non-filing insurance, which is not considered part of the
finance charge, or was for general default insurance, which must be
included as part of the finance charge).
Regulation Z explains that the property insurance referred to in sec-
tion 1605(c) for which the premiums may be included in the amount
financed encompasses single-interest insurance "if the insurer waives
all right of subrogation against the consumer." 12 C.F.R.
HICKS v. STAR IMPORTS, INC. 7
§ 226.4(d)(2) n.5 (2000). As used in the regulations, single-interest
insurance
refers only to the types of coverage traditionally included in
the term vendors’ single-interest insurance (or VSI), that is,
protection of tangible property against normal property
damage, concealment, confiscation, conversion, embezzle-
ment, and skip. Some comprehensive insurance policies may
include a variety of additional coverages, such as reposses-
sion insurance and holder-in-due course insurance. These
types of coverage do not constitute single-interest insurance
for purposes of the regulation, and premiums for them do
not qualify for exclusion from the finance charge under
§ 226.4(d). If a policy that is primarily VSI also provides
coverages that are not VSI or other property insurance, a
portion of the premiums must be allocated to the nonexclud-
able coverages and included in the finance charge. However,
such allocation is not required if the total premium in fact
attributable to all of the non-VSI coverages included in the
policy is $1.00 or less (or $5.00 or less in the case of a
multi-year policy).
12 C.F.R. Pt. 226, Supp. I, comment. 4(d), par. 10 (emphasis added).1
The district court’s ruling, however, makes no mention of these
requirements for excluding a VSI premium from the finance charge.
And from the record before us, I cannot conclude that, notwithstand-
ing the district court’s failure to consider all of the requirements for
exclusion of the premium from the finance charge, summary judg-
ment was properly granted to Star.
The only evidence in the record regarding the waiver of subroga-
tion requirement and the traditional-risk coverage requirement is an
affidavit from a First Virginia Bank officer explaining the nature of
the VSI policy referred to in the installment sales contracts the bank
purchased from Star. The affidavit, which was never mentioned by
1
Although Star does not raise the issue, I note that TILA regulations
and staff commentary are generally "dispositive" unless "demonstrably
irrational." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565
(1980).
8 HICKS v. STAR IMPORTS, INC.
the district court in its order, asserts that the VSI policy "waived any
right of subrogation against the consumer" and that "[t]here was no
coverage under the policy for pecuniary default by the consumer."
J.A. 63. This affidavit was not served with Star’s motion for summary
judgment but instead was served the day before the summary judg-
ment hearing.
To establish its entitlement to summary judgment, Star was
required to demonstrate that it fully complied with TILA and regula-
tion Z, including the requirement that single-interest insurance must
waive all rights of subrogation and the traditional-risk-coverage require-
ment.2 See, e.g., Wright v. Tower Loan of Miss., Inc., 679 F.2d 436,
444 (5th Cir. 1982) (explaining that the creditor bears the burden of
proving compliance with TILA and regulation Z). The affidavit,
therefore, should have been submitted at least ten days before the
summary judgment hearing. See Fed. R. Civ. P. 56(c).3 Assuming that
the affidavit is otherwise sufficient to establish Star’s compliance
with TILA, I believe it would be improper to rely on it to affirm the
grant of summary judgment given that Hicks had no opportunity to
respond to the affidavit.
Moreover, even if the affidavit is properly viewed as part of Star’s
opposition to Hick’s motion for summary judgment so that the affida-
vit was timely filed, see Fed. R. Civ. P. 56(c) (stating that opposing
affidavits may be served "prior to the day of hearing"), I do not
believe summary judgment is proper. The only way Hicks could con-
firm or refute the eleventh-hour affidavit’s description of the terms of
the VSI policy was through the policy itself. However, despite
requests by Hicks during discovery, Star never provided Hicks with
2
Although Star immediately assigned the installment contract in this
case to First Virginia bank, Star is the creditor in the transaction for pur-
poses of TILA. See 15 U.S.C.A. § 1602(f)(West 1998); 12 C.F.R.
§ 226.2(17) (2000). Thus, whether Star or the bank actually purchased
the VSI policy, it was Star’s responsibility as the creditor to comply with
TILA’s requirements.
3
At the summary judgment hearing, Hicks objected to the affidavit on
timeliness grounds, but the district court’s ruling on the motion is not
revealed in the joint appendix. As noted, however, the court did not men-
tion the affidavit in its order.
HICKS v. STAR IMPORTS, INC. 9
a copy of the policy. While Star may not have had the policy in its
possession, it certainly had access to the policy through First Virginia
Bank, just as it had the ability to obtain the affidavit from the bank
officer. In my view, it would be wholly inappropriate to grant Star
summary judgment on the basis of a last minute affidavit apparently
never considered by the district court when Star failed to provide
Hicks with the only document that could refute the affidavit.
I would conclude that Star failed to establish its compliance with
the relevant statutory and regulatory requirements and that Star, there-
fore, was not entitled to summary judgment. I would reverse the grant
of summary judgment to Star and remand for further proceedings.
Accordingly, I dissent.